What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-01 · 225 added, 266 removed, 753 unchanged (39% of the section changed)

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2022 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 and Note 12 to the financial statements, the Company adopted the provisions of Accounting Standards Codification Topic 842, Leases, effective January 1, 2019 using the Comparatives Under ASC 840 approach.

Basis for Opinion

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The Company also applied a market analysis for certain properties.

The Company’s undiscounted future cash flows analysis requires management to make significant estimates and assumptions related to future revenues, labor costs and planned operating periods.

The Company’s undiscounted future cash flows analysis requires management to make estimates and assumptions related to future revenues, labor costs and planned operating periods.

To the extent that the undiscounted cash flows are not sufficient to recover the related assets, the Company estimates the fair value of the related assets using a discounted cash flow model to assess the amount of any impairment.

We identified the impairment of company-operated restaurant long-lived assets as a critical audit matter because of the significant estimates and assumptions required by management to evaluate the potential impairment of these asset groups.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of certain assumptions, in management’s undiscounted and discounted future cash flows analyses, including revenue growth, labor costs and planned operating periods of restaurants.

We identified the impairment of company-operated restaurant long-lived assets as a critical audit matter because of the estimates and assumptions required by management to evaluate the potential impairment of these asset groups.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of certain assumptions, in management’s undiscounted and discounted future cash flows analyses, including revenue growth, food costs, labor costs, and planned operating periods of restaurants.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the undiscounted and discounted future cash flows analysis and the assessment of the expected remaining holding period included the following, among others:

• We tested the effectiveness of controls over management’s evaluation of the recoverability of long-lived assets, including those over revenue, labor costs and the planned operating period for the store.

• We tested the effectiveness of controls over management’s evaluation of the recoverability of long-lived assets, including those over revenue, food costs, labor costs and the planned operating period for the store.

• We evaluated the undiscounted future cash flows analysis, including estimates of revenue growth, labor costs and planned operating periods of restaurants by (1) evaluating the underlying source information and assumptions used by management (2) performing sensitivity analyses and (3) testing the mathematical accuracy of the undiscounted future cash flows analysis.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 26, 2022, expressed an unqualified opinion on those financial statements and included an emphasis of a matter paragraph relating to the Company’s investment in related party investment partnerships.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Southern Pioneer Property & Casualty Insurance Company, and its agency, Southern Pioneer Insurance Agency, Inc.

(collectively “Southern Pioneer”), which was acquired on March 9, 2020, and whose financial statements constitute approximately 7.3% of total assets and 5.0% of revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2020.

Accordingly, our audit did not include the internal control over financial reporting at Southern Pioneer.

Basis for Opinion

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Accounts payable and accrued expenses $ 100,467 $ 90,892

Current portion of operating lease liabilities 10,614 11,635

Current portion of notes payable and other borrowings 159,012 7,103

Loss and loss adjustment expenses 14,609 14,652

Unearned premiums 11,667 13,277

Current portion of lease obligations 16,898 17,365

Current portion of notes payable — 152,261

Total current liabilities 143,641 288,447

Long-term notes payable and other borrowings 75,182 263,182

Operating lease liabilities 36,463 53,271

Lease obligations 104,479 111,645

Deferred taxes 46,533 41,346

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Oil and gas 33,004 26,255 24,436

Media and licensing 4,083 4,099 6,576

Licensing and media 3,203 4,083 4,099

366,106 433,683 668,838

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Oil and gas production costs 10,470 8,700 7,259

Media and licensing cost 2,156 3,181 4,152

Licensing and media costs 2,275 2,156 3,181

Selling, general and administrative 76,018 76,360 100,150

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Depreciation, depletion, and amortization 30,050 32,222 29,578

Interest expense 15,536 20,258 19,884

Interest expense on leases 6,039 6,274 7,816

Interest expense on note payable 1,121 9,262 12,442

341,193 444,496 691,830

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Net earnings (loss) $ 35,478 $ ( 37,989 ) $ 45,380

Earnings per share

Net earnings per equivalent Class A share * $ 111.83 $ ( 110.05 ) $ 131.64

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Other comprehensive income:

Reclassification to earnings — — ( 73 )

Applicable income taxes — — 15

Foreign currency translation ( 376 ) 1,279 ( 294 )

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Capital expenditures ( 64,549 ) ( 20,702 ) ( 17,679 )

Purchases of perpetual lease rights — — ( 2,503 )

Proceeds from property and equipment disposals 10,101 4,415 4,577

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Principal payments on direct financing lease obligations ( 6,205 ) ( 5,830 ) ( 5,810 )

Proceeds for exercise of stock options — — 49

Net cash used in financing activities ( 156,157 ) ( 29,109 ) ( 8,010 )

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Other comprehensive income, net ( 294 ) ( 294 )

Conversion of common stock 67 ( 67 ) ( 20,826 ) 20,826 —

Adjustment to treasury stock for

holdings in investment partnerships ( 116 ) ( 626 ) ( 742 )

Exercise of stock options ( 43 ) 92 49

Balance at December 31, 2019 $ 1,138 $ 381,788 $ 611,039 $ ( 2,810 ) $ ( 374,857 ) $ 616,298

Net earnings ( 37,989 ) ( 37,989 )

Adoption of accounting standards 1,499 1,499

Other comprehensive income, net 1,279 1,279

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Biglari Holdings Inc.

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.

is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas.

The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants.

Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company.

The Company’s long-term objective is to maximize per-share intrinsic value.

Biglari Holdings’ management system combines decentralized operations with centralized finance decision-making.

Operating decisions for the various business units are made by their respective managers.

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

As of December 31, 2021, Mr.

Biglari’s beneficial ownership was approximately 67.2 % of the Company’s outstanding Class A common stock and 60.6 % of the Company’s outstanding Class B common stock.

Biglari beneficially owns shares of the Company that represent approximately 66.2 % of the economic interest and approximately 70.4 % of the voting interest.

Overview of the Impact of COVID-19

The novel coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization, which caused governments to contain its spread, thereby significantly affecting our operating businesses beginning in March and adversely affecting nearly all of our operations during 2020.

The COVID-19 pandemic has adversely affected our restaurant operations and financial results.

Our restaurants were required to close their dining rooms during the first quarter and the majority of our dining rooms remained closed during the remainder of 2020.

To mitigate high labor costs associated with table service, Steak n Shake is seeking to reopen dining rooms with a self-service model.

The pandemic also caused oil demand to decrease significantly, creating oversupplied markets that have resulted in lower commodity prices and margins.

In response, the Company significantly cut production and expenses in its oil and gas business during the second and third quarters of 2020.

The novel coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization in March of 2020.

Government and private sector responses to contain its spread began to affect our operating businesses significantly that same month.

COVID-19 and its variants have adversely affected nearly all of our operations, although the effects vary significantly.

The risks and uncertainties resulting from the pandemic may continue to affect our future earnings, cash flows, and financial condition.

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

Business Acquisitions

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(collectively “Southern Pioneer”).

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

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

The financial results for Southern Pioneer are included from the date of acquisition.

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

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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 2020 and 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.

Cash, Cash Equivalents, and Restricted Cash

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The statement of cash flows includes restricted cash with cash and cash equivalents.

Summary of Significant Accounting Policies (continued)

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.

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

Summary of Significant Accounting Policies (continued)

Investment Partnerships

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Concentration of Equity Price Risk

The majority of our investments are conducted through investment partnerships which generally hold common stocks.

The majority of our investments are conducted through investment partnerships that generally hold common stocks.

We also hold marketable securities directly.

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If the future undiscounted cash flows of an asset are less than the recorded value, an impairment is recorded for the difference between the carrying value and the estimated fair value of the asset.

Summary of Significant Accounting Policies (continued)

Oil and Gas Properties

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Costs of wells that are assigned proved reserves remain capitalized.

Costs also are capitalized for exploratory wells that have found crude oil and natural gas reserves even if the reserves cannot be classified as proved when the drilling is completed, provided the exploratory well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

Costs are also capitalized for exploratory wells that have found crude oil and natural gas reserves, even if the reserves cannot be classified as proved when the drilling is completed, provided the exploratory well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

All other exploratory wells and costs are expensed.

There were no capitalized costs for exploratory activities during 2021.

The Company continues to capitalize exploratory well costs after the completion of drilling when (a) the well has found a sufficient quantity of reserves to justify completion as a producing well, and (b) sufficient progress has been made in assessing the reserves and the economic and operating viability of the project.

If either condition is not met or if the Company obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well would be assumed to be impaired, and its costs, net of any salvage value, would be charged to expense.

Asset Retirement Obligations

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The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred, and the cost of such liability increases the carrying amount of the related long-lived asset by the same amount.

The liability is accreted each period through charges to depreciation, depletion and amortization expense, and the capitalized cost is depleted on a unit-of-production basis over the proved developed reserves of the related asset.

The liability is accreted each period through charges to depreciation, depletion, and amortization expense,

Summary of Significant Accounting Policies (continued)

and the capitalized cost is depleted on a unit-of-production basis over the proved developed reserves of the related asset.

If an asset retirement obligation is settled for an amount other than the recorded amount, a gain or loss is recognized.

Goodwill and Other Intangible Assets

Goodwill and indefinite life intangible assets are not amortized, but are tested for potential impairment on an annual basis, or more often if events or circumstances change that could cause goodwill or indefinite life intangible assets to become impaired.

Goodwill and indefinite life intangible assets are not amortized, but are tested for potential impairment on an annual basis using either a qualitative or quantitative approach, or more often if events or circumstances change that could cause goodwill or indefinite life intangible assets to become impaired.

Other purchased intangible assets are amortized over their estimated useful lives, generally on a straight-line basis.

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When an impairment is identified, we reduce the carrying value of the asset to its estimated fair value.

During 2021, no impairments were recorded to goodwill and other intangible assets.

During 2020, we recorded an impairment to goodwill of $ 300 and to indefinite life intangible assets of $ 3,728 .

No impairments were recorded on goodwill and other intangible assets during 2019 and 2018.

No impairment was recorded in 2019.

Refer to Note 7 for information regarding our goodwill and other intangible assets.

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

On an equivalent Class A common stock basis, there were 620,592 shares outstanding as of December 31, 2020, 2019, and 2018.

Summary of Significant Accounting Policies (continued)

Earnings Per Share

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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 was 345,192 , 344,736 and 348,108 for 2020, 2019 and 2018, respectively.

In the tabulation below is t he equivalent Class A common stock for earnings per share.

There are no dilutive securities outstanding.

2021 2020 2019

Equivalent Class A common stock outstanding 620,592 620,592 620,592

Proportional ownership of Company stock held by investment partnerships 303,341 275,400 275,856

Equivalent Class A common stock for earnings per share 317,251 345,192 344,736

Summary of Significant Accounting Policies (continued)

Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Codification Topic 606 Revenue From Contracts With Customers (“ASC 606”).

In accordance with ASC 606, we changed certain characteristics of our revenue recognition accounting policy as described below.

ASC 606 was applied using the modified retrospective method, where the cumulative effect of the initial application is recognized as an adjustment to opening retained earnings at January 1, 2018.

Comparative prior periods have not been adjusted.

The impact of ASC 606 on the Company’s balance sheet as of December 31, 2018 was not material.

The cumulative change in retained earnings as of January 1, 2018 was $ 90 .

Upon adoption of ASC 606, the Company changed its restaurant operations accounting policies for the recognition of franchise fees, recording of advertising arrangements, and recognition of gift card revenue.

The adoption of ASC 606 did not have any significant impact on our insurance or media/licensing businesses.

Restaurant operations

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We are therefore fully affected by the operating results of the business, unlike in a traditional franchising arrangement, where the franchisor obtains a royalty fee based on sales only.

Therefore, we generate most of our revenue from our share of the franchise partners' profits.

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

We generate most of our revenue from our share of the franchise partners’ profits.

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

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

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

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

During the years ended 2021, 2020 and 2019, restaurant operations recognized $ 15,483 , $ 5,675 , and $ 1,084 , respectively, in franchise partner fees related to rental income.

Franchise Royalties and Fees

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As of December 31, 2021 and 2020, restaurant operations had deferred revenue recorded in accrued expenses related to franchise fees of $ 5,199 and $ 6,928 , respectively.

Restaurant operations expects to recognize approximately $ 1,071 in 2021 and the balance in the years 2022 through 2040.

Summary of Significant Accounting Policies (continued)

Restaurant operations expect to recognize approximately $ 972 of deferred revenue during 2022.

Our advertising arrangements with franchisees are reported in franchise royalties and fees.

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As of December 31, 2021 and 2020, restaurant operations had deferred revenue recorded in accrued expenses related to franchisee advertising fees of $ 4,151 and $ 4,391 , respectively.

Restaurant operations expects to recognize approximately$ 2,196 of deferred revenue during 2021.

Gift card revenue

Restaurant operations expect to recognize approximately $ 3,113 of deferred revenue during 2022.

Other Revenue

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

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Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions by vintage.

Summary of Significant Accounting Policies (continued)

For the years ended December 31, 2021, 2020 and 2019 restaurant operations recognized $ 5,903 , $ 9,201 and $ 22,869 respectively, of revenue from gift card redemptions.

As of December 31, 2021 and 2020, restaurant operations had deferred revenue recorded in accrued expenses related to unredeemed gift cards of $ 15,059 and $ 17,431 , respectively.

The Company expects to recognize approximately $ 13,392 in 2021 and the balance in the years 2022 through 2023.

Restaurant operations expect to recognize approximately $ 8,202 of deferred revenue during 2022.

Insurance Premiums and Commissions

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Payment is due within 30 days of delivery.

Media advertising and other

Magazine subscription and advertising revenues are recognized at the magazine cover date.

The unearned portion of magazine subscriptions is deferred until the magazine’s cover date, at which time a proportionate share of the gross subscription price is recognized as revenues.

License revenue is recognized when earned.

Licensing Revenue and Other

Licensing revenue is recognized when earned.

We derive value and revenues from intellectual property assets through a range of licensing and business activities, including licensing and syndication of our trademarks and copyrights in the United States and internationally.

Magazine subscription and advertising revenues are recognized at the magazine cover date.

The unearned portion of magazine subscriptions is deferred until the magazine’s cover date, at which time a proportionate share of the gross subscription price is recognized as revenue.

Restaurant Cost of Sales

Cost of sales includes the cost of food, restaurant operating costs and restaurant rent expense.

Cost of sales includes the cost of food, restaurant operating costs, and restaurant occupancy costs.

Cost of sales excludes depreciation and amortization, which is presented as a separate line item on the consolidated statement of earnings.

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Oil and gas production costs are composed of lease operating expenses and production taxes.

Summary of Significant Accounting Policies (continued)

Marketing Expense

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Employee contributions to the plans are subject to regulatory limitations and the specific plan provisions.

Summary of Significant Accounting Policies (continued)

Some of the plans allow for discretionary contributions as determined by management.

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Actual results could differ from the estimates.

New Accounting Standards

In June 2016, the Financial Accounting Standards Board ("FASB") 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.

In February 2016, FASB issued ASU 2016-02, Leases .

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842).

We adopted ASC 842 “ Leases ” on January 1, 2019.

Most significantly, ASC 842 requires a lessee to recognize a liability to make lease payments and an asset with respect to its right to use the underlying asset for the lease term.

We applied ASC 840 to all comparative periods which included a cumulative-effect adjustment of $ 1,499 to retained earnings on January 1, 2019.

Adoption of ASC 842 also resulted in an increase to total assets and liabilities due to the recording of operating lease assets of $ 63,261 and operating lease liabilities of $ 69,671 as of January 1, 2019 and due to the recording of finance lease assets of $ 11,638 and finance lease liabilities of $ 11,784 .

The difference between the asset and liability amounts primarily relates to previously recorded deferred/prepaid rent.

The standard had a material impact on our consolidated balance sheets but did not have a material impact on our consolidated statements of earnings and statements of cash flow.

The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases.

In adopting and applying ASC 842, we elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allows us to carry forward the historical lease classification.

In addition, we elected certain practical expedients and accounting policies, including an accounting policy election to keep leases with an initial term of 12 months or less from the balance sheet.

We recognize those lease payments in the consolidated statements of earnings on a straight-line basis over the lease term.

Investments were $ 83,061 and $ 94,861 as of December 31, 2021 and 2020, respectively.

All investments are classified as available-for-sale and recorded at fair value.

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

Securities classified as held-to-maturity are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity.

Realized gains and losses on disposals of investments are determined on a specific identification basis.

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

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

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

Investment gains in 2021 were $ 6,401 , 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 in 2020 were $ 3,644 .

There were no investment gains in 2019.

The carrying value of investments net of deferred taxes is presented below.

Carrying value of investments $ 83,061 $ 94,861

Deferred tax liability related to investments ( 845 ) ( 665 )

Carrying value of investments net of deferred taxes $ 82,216 $ 94,196

Investment Partnerships

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

The Company records gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the consolidated statements of earnings based on our carrying value of these partnerships.

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Biglari Capital is the general partner of the investment partnerships and is an entity solely owned by Mr.

The fair value and adjustment for Company common stock held by the investment partnerships to determine carrying value of our partnership interest is presented below.

Investment Partnerships (continued)

The fair value and adjustment for Company common stock held by the investment partnerships to determine the carrying value of our partnership interest are presented below.

Fair Value Company Common Stock Carrying

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Carrying value of investment partnerships net of deferred taxes $ 205,867 $ 374,745

The Company’s proportionate share of Company stock held by investment partnerships at cost is $ 389,617 and $ 374,857 at December 31, 2020 and 2019, respectively, and is recorded as treasury stock.

The Company’s proportionate share of Company stock held by investment partnerships at cost was $ 401,851 and $ 389,617 at December 31, 2021 and 2020, respectively, and was recorded as treasury stock.

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

Fair value 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.

Investment Partnerships (continued)

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

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

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

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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.

Investment Partnerships (continued)

There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2021.

There were $ 987 of incentive reallocations from Biglari Holdings to Biglari Capital during 2020, including $ 253 associated with gains on the Company’s common stock.

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

There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2019 and 2018.

There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2019.

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

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Biglari Holdings’ ownership interest 66.1 % 92.9 %

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

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

Other Current Assets

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742,102 692,353

Less accumulated depreciation and amortization ( 376,231 ) ( 378,432 )

Less accumulated depreciation, depletion, and amortization ( 392,751 ) ( 376,231 )

Property and equipment, net $ 349,351 $ 316,122

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Depletion and accretion expense are included in depreciation and amortization within the consolidated statement of earnings.

The Company recorded an impairment to restaurant long-lived assets of $ 19,618 , $ 8,186 and $ 5,677 during 2020, 2019 and 2018, respectively.

The Company recorded impairments to restaurant long-lived assets of $ 4,635 , $ 19,618 and $ 8,186 during 2021, 2020 and 2019, respectively.

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.

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No goodwill was recorded with the acquisition of Southern Oil.

Goodwill and Other Intangible Assets (continued)

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

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Goodwill at December 31, 2019 $ 28,127 $ 11,913 $ 40,040

Change in foreign exchange rates during 2019 ( 12 ) — ( 12 )

Goodwill at December 31, 2019 $ 28,127 $ 11,913 $ 40,040

Goodwill from acquisition — 13,800 13,800

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Goodwill at December 31, 2020 $ 27,883 $ 25,713 $ 53,596

Change in foreign exchange rates during 2021 ( 49 ) — ( 49 )

Goodwill at December 31, 2021 $ 27,834 $ 25,713 $ 53,547

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.

GAAP allows entities testing for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit for the goodwill impairment test.

We used both qualitative and quantitative assessments in 2021.

The valuation methodology and underlying financial information included in our quantitative determination of fair value require significant management judgments.

We use both market and income approaches to derive fair value of reporting units utilizing a quantitative assessment.

The judgments in these two approaches include, but are not limited to, comparable market multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to determine the present value of future cash flows.

Changes in such estimates or the application of alternative assumptions could produce significantly different results.

In response to the adverse effects of the COVID-19 pandemic, we evaluated goodwill for impairment during 2020, specifically related to goodwill for certain restaurant reporting units.

Making estimates of the fair value of reporting units at this time is significantly affected by assumptions of the severity, duration, and long-term effects of the pandemic on the reporting units' operations.

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

The fair value of certain of Steak n Shake’s reporting units declined, and an impairment to goodwill of $ 300 was recorded in 2020.

In addition, as a result of our impairment assessment, the fair value of the Western Sizzlin reporting unit was within 10% of the carrying value.

Further decline in Western Sizzlin's franchise base may result in recording future impairments of goodwill to reflect the depletion in value.

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 Company may record goodwill impairment charges in future periods.

There were no impairment charges recorded in 2019 or 2018.

No impairment was recorded for our reporting units in 2021.

The fair value of certain of Steak n Shake’s reporting units declined in 2020, and an impairment to goodwill of $ 300 was recorded.

No impairment was recorded in 2019.

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

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

Other Intangible Assets

Other intangible assets are composed of the following.

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 ( 810 ) — 810 ( 792 ) 18

Total 6,120 ( 6,120 ) — 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 8,189 — 8,189 11,323 — 11,323

Total intangible assets $ 30,185 $ ( 6,120 ) $ 24,065 $ 33,319 $ ( 5,970 ) $ 27,349

Goodwill and Other Intangible Assets (continued)

Intangible assets with indefinite lives are composed of the following.

Trade Names Lease Rights Total

Balance at December 31, 2019 $ 15,876 $ 11,323 $ 27,199

Impairments — ( 3,728 ) ( 3,728 )

Change in foreign exchange rates during 2020 — 594 594

Balance at December 31, 2020 15,876 8,189 24,065

Change in foreign exchange rates during 2021 — ( 602 ) ( 602 )

Balance at December 31, 2021 $ 15,876 $ 7,587 $ 23,463

Intangible assets with indefinite lives consist of trade names, franchise rights as well as lease rights.

No impairment was recorded in 2021.

During 2020, the Company recorded impairment charges of $ 3,728 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 2020, 2019 and 2018 was $ 150 , $ 549 and $ 562 , respectively.

No amortization expense was recorded in 2021.

Amortization expense in 2020 and 2019 was $ 150 and $ 549 , respectively.

The Company’s intangible assets with definite lives fully amortized in 2020.

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Accounts payable $ 36,684 $ 26,537

Gift card liability 21,822 20,745

Loss reserves 14,652 3,211

Unearned premiums 13,277 1,300

Other insurance accruals 6,559 6,559

Gift card and other marketing 19,244 21,822

Insurance accruals 6,428 6,559

Salaries, wages, and vacation 5,905 8,285

1 unchanged sentence

Taxes payable 11,392 10,922

Professional fees 11,731 5,882

Other 2,400 1,561

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State income taxes, net of federal benefit 192 ( 1,750 ) 1,573

Tax rate changes — — ( 1,342 )

Federal income tax credits ( 864 ) ( 424 ) ( 3,004 )

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Income tax expense (benefit) $ 6,789 $ ( 12,212 ) $ 9,761

Income Taxes (continued)

The Company did not have a net tax expense or benefit on income from international operations.

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Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Taxes (continued)

Our deferred tax assets and liabilities consist of the following.

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Deferred tax liabilities:

Investment partnerships 44,532 44,805

Investments 845 665

2 unchanged sentences

Net deferred tax liability $ ( 46,533 ) $ ( 41,346 )

Accrued expenses on the balance sheet include income taxes payable of $ 2,436 and $ 17,767 as of December 31, 2020 and 2019, respectively.

Receivables on the balance sheet include income taxes receivable of $ 344 as of December 31, 2021 and accrued expenses on the balance sheet include income taxes payable $ 2,436 as of December 31, 2020.

Income taxes paid during 2021, 2020 and 2019 were $ 4,532 , $ 15,402 and $ 30,375 , respectively.

Income tax refunds during 2021, 2020 and 2019 were $ 111 , $ 68 and $ 1,546 , respectively.

Notes Payable and Other Borrowings

Notes payable and other borrowings include the following.

Current portion of notes payable and other borrowings

Notes payable $ 152,506 $ 2,200

Unamortized original issue discount ( 87 ) ( 348 )

Unamortized debt issuance costs ( 158 ) ( 634 )

Finance obligations 4,854 4,252

Finance lease liabilities 1,897 1,633

Total current portion of notes payable and other borrowings $ 159,012 $ 7,103

Long-term notes payable and other borrowings

Notes payable $ — $ 179,298

Unamortized original issue discount — ( 89 )

Unamortized debt issuance costs — ( 163 )

Finance obligations 68,148 74,497

Finance lease liabilities 7,034 9,639

Total long-term notes payable and other borrowings $ 75,182 $ 263,182

Notes Payable and Other Borrowings (continued)

Notes Payable and Lease Obligations

Steak n Shake Credit Facility

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As of December 31, 2021 and 2020, Western Sizzlin had no debt outstanding under its revolver.

Lease Obligations

Lease obligations include the following.

Current portion of lease obligations

Finance lease liabilities $ 1,414 $ 1,897

Finance obligations 4,944 4,854

Operating lease liabilities 10,540 10,614

Total current portion of lease obligations $ 16,898 $ 17,365

Long-term lease obligations

Finance lease liabilities $ 5,347 $ 7,034

Finance obligations 63,119 68,148

Operating lease liabilities 36,013 36,463

Total long-term lease obligations $ 104,479 $ 111,645

Interest paid on debt and obligations under leases are as follows.

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Leased Assets and Lease Commitments

The Company adopted ASC 842 on January 1, 2019, as discussed in Note 1.

Under ASC 842, leases are generally classified as either operating right-of-use assets or finance lease assets.

Right-of-use assets represent the Company's right to use an underlying asset during the lease term.

Right-of-use liabilities represent the Company's obligation to make lease payments arising from the lease.

These assets and liabilities are calculated by using the net present value of fixed lease payments over the lease term.

The Company's lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

The Company applied an incremental borrowing rate to determine the present value of lease payments.

Finance lease agreements include an interest rate that is used to determine the present value of future lease payments.

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 2020, 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.

Nature of Leases

Steak n Shake and Western Sizzlin operate restaurants that are located on sites owned by us and leased from third parties.

In addition, they own sites and lease sites from third parties that are leased and/or subleased to franchisees.

Total lease costs consist of the following.

2021 2020 2019

Finance lease costs:

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

Finance lease liabilities $ — $ 1,097

Operating lease liabilities $ — $ 73

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Rent expense $ 15,063 $ 15,809 $ 19,018

The components of lease income are as follows.

2021 2020 2019

Operating lease income $ 13,173 $ 5,027 $ 1,376

Variable lease income 3,479 1,738 347

Total lease income $ 16,652 $ 6,765 $ 1,723

The following table displays the Company’s future minimum rental receipts for non-cancelable leases and subleases as of December 31, 2021.

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

Operating Leases

Year Subleases Owned Properties

2022 $ 609 $ 247

After 2026 — 805

Total future minimum receipts $ 1,725 $ 2,043

Related Party Transactions

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The Company paid Biglari Enterprises $ 8,400 in service fees during 2021 and 2020.

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

by the Company.

The services agreement does not alter the Company’s hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp.

Investments in The Lion Fund, L.P.

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had a fair value of $ 474,201 .

Related Party Transactions (continued)

Contributions to and distributions from The Lion Fund, L.P.

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As the general partner of the investment partnerships, Biglari Capital on December 31 of each year will earn an incentive reallocation fee for the Company’s investments equal to 25 % of the net profits above a hurdle rate of 6 % over the previous high-water mark.

There were no incentive reallocations in 2021.

There were $ 987 of incentive reallocations from Biglari Holdings to Biglari Capital during 2020, including $ 253 associated with gains on the Company’s common stock.

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

There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2019 and 2018.

There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2019.

Incentive Agreement

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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 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.

On September 8, 2014, two former restaurant manager employees filed a purported class action lawsuit against Steak n Shake (Drake v.

Steak n Shake).

On January 30, 2017, a former restaurant manager employee filed a purported class action lawsuit against Steak n Shake (Clendenen v.

Steak n Shake).

The plaintiffs generally allege claims that Steak n Shake improperly classified its managerial employees as exempt.

On July 26, 2019, the Company agreed to settle both cases for $ 8,350 and the Court approved the terms of the settlement.

The settlement is reflected in selling, general and administrative expenses in the 2019 consolidated statement of earnings.

Fair Value of Financial Assets

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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.

Fair Value of Financial Assets (continued)

• Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities.

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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.

Fair Value of Financial Assets (continued)

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:

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Insurance 6,513 — — 6,513 261 — — 261

Technology 2,887 — — 2,887 — — — —

Government 54,584 — — 54,584 39,472 14,043 — 53,515

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Changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, were as follows.

Adjustments Investment

Gain (Loss) Accumulated

Comprehensive

Adjustments Investment

(Loss) Accumulated

Comprehensive

Beginning Balance $ ( 2,810 ) $ — $ ( 2,810 ) $ ( 2,516 ) $ — $ ( 2,516 )

Foreign currency translation 1,279 1,279 ( 294 ) ( 294 )

Ending Balance $ ( 1,531 ) $ — $ ( 1,531 ) $ ( 2,810 ) $ — $ ( 2,810 )

Foreign Currency

Translation Adjustments Investment

Gain (Loss) Accumulated

Comprehensive

2021 2020 2019

Beginning Balance $ ( 1,531 ) $ ( 2,810 ) $ ( 2,516 )

Reclassification to (earnings) loss ( 58 ) ( 58 )

Foreign currency translation ( 376 ) 1,279 ( 294 )

Ending Balance $ ( 1,907 ) $ ( 1,531 ) $ ( 2,810 )

There were no reclassifications from accumulated other comprehensive income to earnings during 2020 and 2019.

Reclassifications made from accumulated other comprehensive income to the statement of earnings were $ 58 of income to earnings during 2018.

There were no reclassifications from accumulated other comprehensive income to earnings during 2021, 2020 or 2019.

Business Segment Reporting

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

Business Segment Reporting (continued)

A disaggregation of our consolidated data for each of the three most recent years is presented in the tables which follow.

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Insurance Operations:

Underwriting:

First Guard 33,521 30,210 28,746

Southern Pioneer 21,890 19,010 —

Investment income and other 3,198 3,459 1,337

Total Insurance Operations 58,609 52,679 30,083

2 unchanged sentences

$ 366,106 $ 433,683 $ 668,838

Business Segment Reporting (continued)

Earnings (Loss) Before Income Taxes

6 unchanged sentences

Insurance Operations:

Underwriting:

First Guard 10,573 9,379 6,477

Southern Pioneer 1,744 620 —

Investment income and other 2,118 2,432 626

Total Insurance Operations 14,435 12,431 7,103

1 unchanged sentence

Maxim 814 1,784 742

Interest expense on notes payable and other borrowings ( 9,262 ) ( 12,442 ) ( 11,677 )

Total Operating Businesses 1,619 ( 13,384 ) ( 13,005 )

Corporate and investments:

Interest expense not allocated to segments ( 1,121 ) ( 9,262 ) ( 12,442 )

Operating Businesses 38,296 1,619 ( 13,384 )

Corporate and other ( 13,383 ) ( 12,432 ) ( 9,608 )

1 unchanged sentence

Investment partnership gains (losses) 10,953 ( 43,032 ) 78,133

Total corporate ( 51,820 ) 68,525 29,760

$ 42,267 $ ( 50,201 ) $ 55,141

Business Segment Reporting (continued)

Capital Expenditures

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Operating Businesses:

Restaurant Operations:

Steak n Shake $ 17,852 $ 9,951 $ 14,982

Western 6 72 61

Total Restaurant Operations 17,858 10,023 15,043

Insurance Operations:

First Guard 5 43 236

Southern Pioneer — — —

Total Insurance Operations 5 43 236

Restaurant $ 60,296 $ 17,858 $ 10,023

Insurance 1,451 5 43

Southern Oil 996 2,806 7,594

Total Operating Businesses 20,669 17,660 15,279

Operating Businesses 62,743 20,669 17,660

Corporate and other 1,806 33 19

Consolidated results $ 64,549 $ 20,702 $ 17,679

Depreciation and Amortization

Depreciation, Depletion, and Amortization

2021 2020 2019

Operating Businesses:

Restaurant Operations:

Steak n Shake $ 18,811 $ 20,533 $ 18,180

Western 231 641 651

Total Restaurant Operations 19,042 21,174 18,831

Insurance Operations:

First Guard 96 85 76

Southern Pioneer 318 — —

Total Insurance Operations 414 85 76

Restaurant $ 21,484 $ 19,042 $ 21,174

Insurance 176 414 85

Southern Oil 8,073 12,527 8,218

Depletion 11,989 7,900 —

Accretion 497 177 —

Depreciation 41 141 —

Total Southern Oil 12,527 8,218 —

Total Operating Businesses 31,983 29,477 18,934

Operating Businesses 29,733 31,983 29,477

Corporate and other 317 239 101

17 unchanged sentences

Total assets $ 894,807 $ 1,017,968

Quarterly Financial Data (Unaudited)

For the year ended December 31, 2020

Total revenues $ 135,700 $ 96,502 $ 101,835 $ 99,646

Gross profit 35,890 32,719 33,764 34,578

Costs and expenses 146,019 101,396 102,689 94,392

Earnings (loss) before income taxes ( 181,715 ) 57,230 26,718 47,566

Net earnings (loss) ( 137,885 ) 42,466 21,101 36,329

Net earnings (loss) per equivalent Class A share $ ( 400.37 ) $ 121.51 $ 60.07 $ 108.23

For the year ended December 31, 2019

Total revenues $ 181,859 $ 168,343 $ 160,216 $ 158,420

Gross profit 22,837 30,454 38,467 43,307

Costs and expenses 204,451 174,671 162,296 150,412

Earnings (loss) before income taxes 11,562 27,870 ( 631 ) 16,340

Net earnings (loss) 9,818 21,974 ( 17 ) 13,605

Net earnings (loss) per equivalent Class A share $ 28.36 $ 63.50 $ ( 0.05 ) $ 39.64

We define gross profit as net revenue less restaurant cost of sales, media cost of sales, oil and natural gas production costs and insurance losses and underwriting expenses, which excludes depreciation and amortization.

Supplemental Disclosures of Cash Flow Information

2 unchanged sentences

In 2020, we had new finance lease obligations of $ 3,285 and lease retirements of $ 4,842 .

During 2018, we had new capital lease obligations of $ 1,000 and lease retirements of $ 11,557 .

During 2019, we had new finance lease obligations of $ 5,026 and lease retirements of $ 940 .

Supplemental Oil and Gas Disclosures (Unaudited)

The Company has determined it has significant oil and gas producing activities during the year ended December 31, 2021 in accordance with ASC 932 " Extractive Activities — Oil and Gas ".

The Company did not have significant oil and gas producing activities within the meaning of ASC 932 during the years ended December 31, 2020 and 2019.

Estimated Quantities of Proved Oil and Natural Gas Reserves

The Company classifies recoverable hydrocarbons based on their status at the time of reporting.

Within the commercial classification are proved reserves and two categories of unproved reserves:

probable and possible.

The potentially recoverable categories are also referred to as contingent resources.

For reserve estimates to be classified as proved, they must meet all SEC and Company standards.

Proved oil and gas reserves are the estimated quantities that geoscience and engineering data demonstrate with reasonable certainty to be economically producible from known reservoirs under existing economic conditions, operating methods, and government regulations.

Net proved reserves exclude royalties and interests owned by others and reflect contractual arrangements and royalty obligations in effect at the time of the estimate.

Proved reserves are classified as either developed or undeveloped.

Proved developed reserves are the quantities expected to be recovered through existing wells with existing equipment and operating methods.

Proved undeveloped reserves are the quantities expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required from recompletion.

Due to the inherent uncertainties and the limited nature of reservoir data, estimates of reserves are subject to change as additional information becomes available.

Supplemental Oil and Gas Disclosures (Unaudited) (continued)

We engaged Netherland, Sewell & Associates, Inc.

("NSAI") to prepare our reserve estimates for all of our estimated proved reserves at December 31, 2021.

All proved oil and natural gas reserves are located in the United States primarily offshore in the shallow waters of the Gulf of Mexico.

The following table sets forth our estimate of the net proved oil and gas reserves for the year ended December 31, 2021.

Oil (MBbl) Gas (MMcf) MBOE

Total proved reserves at December 31, 2020 2,223 24,917 6,376

Revisions (1)

433 4,235 1,139

Extensions 62 189 94

Production ( 357 ) ( 2,798 ) ( 824 )

Total proved reserves at December 31, 2021 2,361 26,544 6,785

Total proved developed reserves as of December 31, 2021 1,897 18,427 4,968

Total proved undeveloped reserves as of December 31, 2021 464 8,117 1,817

(1) Revisions are primarily related to increasing commodity prices.

Bbl — One stock tank barrel, of 42 United States gallons liquid volume.

MBbl — Thousand barrels.

MMcf — Million cubic feet of natural gas.

MBOE — Thousand barrels of oil equivalent.

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves

The standardized measure of discounted future net cash flows presented in the following table was computed using the 12-month unweighted average of the first-day-of-the-month commodity prices, the costs in effect at December 31, 2021, and a 10 percent discount factor.

The Company cautions that actual future net cash flows may vary considerably from these estimates.

Although the Company’s estimates of total proved reserves, development costs and production rates were based on the best available information, the development and production of the crude oil and natural gas reserves may not occur in the periods assumed.

Actual prices realized, costs incurred and production quantities may vary significantly from those used.

Therefore, the estimated future net cash flow computations should not be considered to represent the Company’s estimate of the expected revenues or the current value of proved reserves.

The following table sets forth the standardized measure of discounted future net cash flows attributable to proved crude oil and natural gas reserves as of December 31, 2021.

(in thousands) December 31, 2021

Future cash inflows $ 247,294

Future production costs ( 78,207 )

Future development and abandonment costs ( 32,673 )

Future income tax expense ( 28,904 )

Future net cash flows 107,510

10% annual discount for estimated timing of cash flows ( 29,751 )

Standardized measure of discounted future net cash flows $ 77,759

Supplemental Oil and Gas Disclosures (Unaudited) (continued)

Changes in Standardized Measure of Discounted Future Net Cash Flows

Principle changes in the standardized measure of discounted future net cash flows attributable to the Company’s proved oil and natural gas reserves are as follows.

(in thousands) 2021

Standardized measure at December 31, 2020 $ 31,330

Net change in prices and production costs 67,058

Net change in future development costs ( 85 )

Sales of oil and natural gas, net of production expenses ( 22,098 )

Extensions 104

Revisions of previous quantity estimates 17,754

Net change in taxes ( 14,604 )

Accretion of discount 3,759

Changes in timing and other ( 5,459 )

Standardized measure at December 31, 2021 $ 77,759

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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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-K

Item 8. Financial Statements and Supplementary Data