Biglari Holdings Inc. 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Biglari Holdings Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Biglari Holdings Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of earnings, comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 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. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of a Matter As discussed in Note 3 and Note 13 to the consolidated financial statements, the Company and its subsidiaries have invested in investment partnerships in the form of limited partnership interests. These investment partnerships represent related parties, and such investments are subject to a rolling five-year lock up period under the terms of the respective partnership agreements for the investment partnerships. The value of these investments reported in the Company’s consolidated balance sheets as of December 31, 2021 and 2020 totals $250,399,000 and $419,550,000, respectively. Our opinion is not modified with respect to this matter. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 25 Table of Contents Property and Equipment — Refer to Note 5 to the financial statements Critical Audit Matter Description Company-operated restaurants and associated long-lived assets are evaluated for impairment on a restaurant-by-restaurant basis when events or circumstances indicate a possible impairment may have occurred. The Company’s evaluation of potential impairment of long-lived assets involves the comparison of undiscounted future cash flows expected to be generated by the asset group, generally an individual restaurant, over the expected remaining useful life of that asset group, to the respective carrying amount. The Company also applied a market analysis for certain properties. The Company’s undiscounted future cash flows analysis requires management to make estimates and assumptions related to future revenues, labor costs and planned operating periods. To the extent that the undiscounted cash flows are not sufficient to recover the related assets, the Company estimates the fair value of the related assets using a discounted cash flow model to assess the amount of any impairment. We identified the impairment of company-operated restaurant long-lived assets as a critical audit matter because of the estimates and assumptions required by management to evaluate the potential impairment of these asset groups. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of certain assumptions, in management’s undiscounted and discounted future cash flows analyses, including revenue growth, food costs, labor costs, and planned operating periods of restaurants. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the undiscounted and discounted future cash flows analysis and the assessment of the expected remaining holding period included the following, among others: • We tested the effectiveness of controls over management’s evaluation of the recoverability of long-lived assets, including those over revenue, food costs, labor costs and the planned operating period for the store. • We evaluated the undiscounted future cash flows analysis, including estimates of revenue growth, labor costs and planned operating periods of restaurants by (1) evaluating the underlying source information and assumptions used by management (2) performing sensitivity analyses and (3) testing the mathematical accuracy of the undiscounted future cash flows analysis. • We evaluated the reasonableness of management’s undiscounted future cash flows analysis by comparing management’s projections to the Company’s historical results and available market data. • We evaluated the discount rates used by management in the performance of discounted cash flow analyses by testing management’s calculation, performing sensitivity analyses, comparing components to external market information as applicable, and assessed the mathematical accuracy of the Company’s calculations of potential impairment. /s/ DELOITTE & TOUCHE LLP Indianapolis, Indiana February 26, 2022 We have served as the Company’s auditor since 2003. 26 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Biglari Holdings Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Biglari Holdings Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 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. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Indianapolis, Indiana February 26, 2022 27 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 42,349 $ 24,503 Investments 83,061 94,861 Receivables 28,508 19,185 Inventories 3,803 2,737 Other current assets 7,088 6,492 Total current assets 164,809 147,778 Property and equipment 349,351 316,122 Operating lease assets 42,538 42,832 Goodwill 53,547 53,596 Other intangible assets 23,463 24,065 Investment partnerships 250,399 419,550 Other assets 10,700 14,025 Total assets $ 894,807 $ 1,017,968 Liabilities and shareholders’ equity Liabilities Current liabilities: Accounts payable and accrued expenses $ 100,467 $ 90,892 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 Lease obligations 104,479 111,645 Deferred taxes 46,533 41,346 Asset retirement obligations 10,389 10,022 Other liabilities 2,069 1,680 Total liabilities 307,111 453,140 Shareholders’ equity Common stock 1,138 1,138 Additional paid-in capital 381,788 381,788 Retained earnings 608,528 573,050 Accumulated other comprehensive loss ( 1,907 ) ( 1,531 ) Treasury stock, at cost ( 401,851 ) ( 389,617 ) Biglari Holdings Inc. shareholders’ equity 587,696 564,828 Total liabilities and shareholders’ equity $ 894,807 $ 1,017,968 See accompanying Notes to Consolidated Financial Statements. 28 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per-share amounts) Year Ended December 31, 2021 2020 2019 Revenues Restaurant operations $ 271,290 $ 350,666 $ 610,220 Insurance premiums and other 58,609 52,679 30,083 Oil and gas 33,004 26,255 24,436 Licensing and media 3,203 4,083 4,099 366,106 433,683 668,838 Cost and expenses Restaurant cost of sales 167,491 246,655 500,949 Insurance losses and underwriting expenses 43,094 39,221 22,269 Oil and gas production costs 10,470 8,700 7,259 Licensing and media costs 2,275 2,156 3,181 Selling, general and administrative 76,018 76,360 100,150 Impairments 4,635 23,646 8,186 Depreciation, depletion, and amortization 30,050 32,222 29,578 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 Other income (expenses) Investment gains 6,401 3,644 — Investment partnership gains (losses) 10,953 ( 43,032 ) 78,133 Total other income (expenses) 17,354 ( 39,388 ) 78,133 Earnings (loss) before income taxes 42,267 ( 50,201 ) 55,141 Income tax expense (benefit) 6,789 ( 12,212 ) 9,761 Net earnings (loss) $ 35,478 $ ( 37,989 ) $ 45,380 Net earnings per equivalent Class A share * $ 111.83 $ ( 110.05 ) $ 131.64 * Net earnings per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $ 22.37 for 2021, $( 22.01 ) for 2020 and $ 26.33 for 2019. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Year Ended December 31, 2021 2020 2019 Net earnings (loss) $ 35,478 $ ( 37,989 ) $ 45,380 Other comprehensive income: Foreign currency translation ( 376 ) 1,279 ( 294 ) Other comprehensive income (loss), net ( 376 ) 1,279 ( 294 ) Total comprehensive income (loss) $ 35,102 $ ( 36,710 ) $ 45,086 See accompanying Notes to Consolidated Financial Statements. 29 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Year Ended December 31, 2021 2020 2019 Operating activities Net earnings (loss) $ 35,478 $ ( 37,989 ) $ 45,380 Adjustments to reconcile net earnings to operating cash flows: Depreciation and amortization 30,050 32,222 29,578 Provision for deferred income taxes 5,269 ( 12,216 ) ( 38,545 ) Asset impairments and other non-cash expenses 4,772 24,636 9,113 (Gains) losses on disposal of assets ( 25 ) ( 868 ) 264 Investment (gains) losses ( 6,214 ) ( 4,856 ) ( 1,172 ) Investment partnership (gains) losses ( 10,953 ) 43,032 ( 78,133 ) Distributions from investment partnerships 180,170 98,330 129,329 Changes in receivables and inventories ( 9,324 ) 7,014 3,669 Changes in other assets 136 733 10,450 Changes in accounts payable and accrued expenses ( 592 ) ( 32,482 ) ( 16,250 ) Net cash provided by operating activities 228,767 117,556 93,683 Investing activities Capital expenditures ( 64,549 ) ( 20,702 ) ( 17,679 ) Proceeds from property and equipment disposals 10,101 4,415 4,577 Acquisition of business, net of cash acquired — ( 36,187 ) ( 51,062 ) Distributions from investment partnerships — — 40,000 Purchases of limited partner interests ( 12,300 ) ( 70,130 ) ( 40,000 ) Purchases of investments ( 110,199 ) ( 299,950 ) ( 154,848 ) Redemptions of fixed maturity securities 118,422 293,067 149,030 Net cash used in investing activities ( 58,525 ) ( 129,487 ) ( 69,982 ) Financing activities Payments on revolving credit facility — ( 500 ) — Proceeds from revolving credit facility — 500 — Principal payments on long-term debt ( 149,952 ) ( 23,279 ) ( 2,200 ) Principal payments on direct financing lease obligations ( 6,205 ) ( 5,830 ) ( 5,810 ) Net cash used in financing activities ( 156,157 ) ( 29,109 ) ( 8,010 ) Effect of exchange rate changes on cash ( 64 ) 10 ( 5 ) Increase (decrease) in cash, cash equivalents and restricted cash 14,021 ( 41,030 ) 15,686 Cash, cash equivalents and restricted cash at beginning of period 29,666 70,696 55,010 Cash, cash equivalents and restricted cash at end of period $ 43,687 $ 29,666 $ 70,696 Year Ended December 31, 2021 2020 2019 Cash and cash equivalents $ 42,349 $ 24,503 $ 67,772 Restricted cash included in other long-term assets 1,338 5,163 2,924 Cash, cash equivalents and restricted cash at end of period $ 43,687 $ 29,666 $ 70,696 See accompanying Notes to Consolidated Financial Statements. 30 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (dollars in thousands) Common Stock Additional Paid- In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Balance at December 31, 2018 $ 1,138 $ 381,904 $ 564,160 $ ( 2,516 ) $ ( 374,231 ) $ 570,455 Net earnings 45,380 45,380 Adoption of accounting standards 1,499 1,499 Other comprehensive income, net ( 294 ) ( 294 ) Adjustment to treasury stock for holdings in investment partnerships ( 116 ) ( 626 ) ( 742 ) Balance at December 31, 2019 $ 1,138 $ 381,788 $ 611,039 $ ( 2,810 ) $ ( 374,857 ) $ 616,298 Net earnings ( 37,989 ) ( 37,989 ) Other comprehensive income, net 1,279 1,279 Adjustment to treasury stock for holdings in investment partnerships ( 14,760 ) ( 14,760 ) Balance at December 31, 2020 $ 1,138 $ 381,788 $ 573,050 $ ( 1,531 ) $ ( 389,617 ) $ 564,828 Net earnings (loss) 35,478 35,478 Other comprehensive income, net ( 376 ) ( 376 ) Adjustment to treasury stock for holdings in investment partnerships ( 12,234 ) ( 12,234 ) Balance at December 31, 2021 $ 1,138 $ 381,788 $ 608,528 $ ( 1,907 ) $ ( 401,851 ) $ 587,696 See accompanying Notes to Consolidated Financial Statements. 31 Table of Contents BIGLARI HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Years Ended December 31, 2021, 2020 and 2019) (dollars in thousands, except share and per-share data) Note 1. Summary of Significant Accounting Policies Description of Business Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company. Biglari Holdings’ management system combines decentralized operations with centralized finance decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. As of December 31, 2021, Mr. 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 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 On March 9, 2020, Biglari Holdings acquired the stock of Southern Pioneer Property & Casualty Insurance Company and its agency, Southern Pioneer Insurance Agency, Inc. (collectively “Southern Pioneer”). Southern Pioneer underwrites garage liability insurance and commercial property coverage, 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. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including Steak n Shake Inc., Western Sizzlin Corporation, First Guard Insurance Company, Maxim Inc., Southern Pioneer, and Southern Oil. Intercompany accounts and transactions have been eliminated in consolidation. Cash, Cash Equivalents, and Restricted Cash Cash equivalents primarily consist of U.S. Government securities and money market accounts, all of which have original maturities of three months or less. Cash equivalents are carried at fair value. The statement of cash flows includes restricted cash with cash and cash equivalents. Investments We classify investments in fixed maturity securities at the acquisition date as either available-for-sale or held-to-maturity and re-evaluate the classification at each balance sheet date. Securities classified as held-to-maturity are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity. As of December 31, 2021 and 2020, all investments were classified as available-for-sale and carried at fair value with net unrealized gains or losses reported in the statements of earnings. Realized gains and losses on disposals of investments are determined by the specific identification of cost of investments sold. Dividends earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. 32 Table of Contents Note 1. Summary of Significant Accounting Policies (continued) Investment Partnerships The Company holds a limited interest in The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively the “investment partnerships”). Biglari Capital Corp. (“Biglari Capital”), an entity solely owned by Mr. Biglari, is the general partner of the investment partnerships. Our interests in the investment partnerships are accounted as equity method investments because of our retained limited partner interests. The Company records investment partnership gains (inclusive of the investment partnerships’ unrealized gains and losses on their securities) as a component of other income based on our proportional ownership interest in the partnerships. The investment partnerships are, for purposes of generally accepted accounting principles (“GAAP”), investment companies under the AICPA Audit and Accounting Guide Investment Companies. Concentration of Equity Price Risk The majority of our investments are conducted through investment partnerships that generally hold common stocks. We also hold marketable securities directly. We concentrate a high percentage of the investments in a small number of equity securities. A significant decline in the general stock market or in the prices of major investments may have a materially adverse effect on our earnings and on consolidated shareholders’ equity. Receivables Our accounts receivable balance consists primarily of franchisee, customer, and other receivables. We carry our accounts receivable at cost less an allowance for doubtful accounts, which is based on a history of past write-offs and collections and current credit conditions. Allowance for doubtful accounts was $ 505 and $ 6,859 at December 31, 2021 and 2020, respectively. Inventories Inventories are valued at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items and supply inventory. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized on the straight-line method over the estimated useful lives of the assets ( 10 to 30 years for buildings and land improvements, and 3 to 10 years for equipment). Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful lives of the improvements or the term of the related leases. Interest costs associated with the construction of new restaurants are capitalized. Major improvements are also capitalized while repairs and maintenance are expensed as incurred. We review our long-lived restaurant assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For purposes of this assessment, assets are evaluated at the lowest level for which there are identifiable cash flows, which is generally at the individual restaurant level. Assets included in the impairment assessment generally consist of property, equipment, and leasehold improvements directly associated with an individual restaurant as well as any related finance or operating lease assets. If the future undiscounted cash flows of an asset are less than the recorded value, an impairment is recorded for the difference between the carrying value and the estimated fair value of the asset. Oil and Gas Properties The successful efforts method is used for crude oil and natural gas exploration and production activities. All costs for development wells, related plant and equipment, proved mineral interests in crude oil and natural gas properties, and related asset retirement obligation assets are capitalized. Costs of exploratory wells are capitalized pending determination of whether the wells found proved reserves. Costs of wells that are assigned proved reserves remain capitalized. Costs are also capitalized for exploratory wells that have found crude oil and natural gas reserves, even if the reserves cannot be classified as proved when the drilling is completed, provided the exploratory well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. All other exploratory wells and costs are expensed. There were no capitalized costs for exploratory activities during 2021. Asset Retirement Obligations Asset retirement obligations relate to future costs associated with the plugging and abandonment of oil and gas wells, the removal of equipment and facilities from leased acreage, and the return of such land to its original condition. The Company determines its asset retirement obligation amounts by calculating the present value of the estimated future cash outflows associated with its plug and abandonment obligations. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred, and the cost of such liability increases the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period through charges to depreciation, depletion, and amortization expense, 33 Table of Contents Note 1. 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 using either a qualitative or quantitative approach, or more often if events or circumstances change that could cause goodwill or indefinite life intangible assets to become impaired. Other purchased intangible assets are amortized over their estimated useful lives, generally on a straight-line basis. We perform reviews for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying value. When an impairment is identified, we reduce the carrying value of the asset to its estimated fair value. During 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 impairment was recorded in 2019. Refer to Note 7 for information regarding our goodwill and other intangible assets. Dual Class Common Stock The Company has two classes of common stock, designated Class A common stock and Class B common stock. Each Class A common share is entitled to one vote. Class B common stock possesses economic rights equal to one-fifth (1/5 th ) of such rights of Class A common stock; however, Class B common stock has no voting rights. The following table presents shares authorized, issued, and outstanding. December 31, 2021 December 31, 2020 December 31, 2019 Class A Class B Class A Class B Class A Class B Common stock authorized 500,000 10,000,000 500,000 10,000,000 500,000 10,000,000 Common stock issued and outstanding 206,864 2,068,640 206,864 2,068,640 206,864 2,068,640 Earnings Per Share Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. The shares of Company stock attributable to our limited partner interest in the investment partnerships — based on our proportional ownership during this period — are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the calculation of weighted average common shares outstanding. However, these shares are legally outstanding. The Company has applied the “two-class method” of computing earnings per share as prescribed in Accounting Standards Codification (“ASC”) 260, “ Earnings Per Share .” The equivalent Class A common stock applied for computing earnings per share excludes the proportional shares of Biglari Holdings’ stock held by the investment partnerships. In the tabulation below is 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 34 Table of Contents Note 1. Summary of Significant Accounting Policies (continued) Revenue Recognition Restaurant operations Restaurant operations revenues were disaggregated as follows. 2021 2020 2019 Net sales $ 187,913 $ 306,577 $ 578,164 Franchise partner fees 55,641 22,213 3,829 Franchise royalties and fees 21,736 18,794 23,360 Other 6,000 3,082 4,867 $ 271,290 $ 350,666 $ 610,220 Net Sales Net sales are composed of retail sales of food through company-operated stores. Company-operated store revenues are recognized, net of discounts and sales taxes, when our obligation to perform is satisfied at the point of sale. Sales taxes related to these sales are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated statements of earnings as revenue. Franchise Partner Fees Franchise partner fees are composed of up to 15 % of sales as well as 50 % of profits. We are therefore fully affected by the operating results of the business, unlike in a traditional franchising arrangement, where the franchisor obtains a royalty fee based on sales only. We generate 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 Franchise royalties and fees from Steak n Shake and Western Sizzlin franchisees are based upon a percentage of sales of the franchise restaurant and are recognized as earned. Franchise royalties are billed on a monthly basis. Initial franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement. During the years ended December 31, 2021, 2020 and 2019 restaurant operations recognized $ 2,033 , $ 1,879 and $ 1,725 , respectively, in revenue related to initial franchise fees. 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 expect to recognize approximately $ 972 of deferred revenue during 2022. Our advertising arrangements with franchisees are reported in franchise royalties and fees. During the years ended December 31, 2021, 2020 and 2019 restaurant operations recognized $ 6,829 , $ 5,193 and $ 7,815 , respectively, in revenue related to franchisee advertising fees. 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 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. Gift cards are recorded as deferred revenue when issued and are subsequently recorded as net sales upon redemption. Restaurant operations estimates breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based on the vintage of the gift card. Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions by vintage. 35 Table of Contents Note 1. 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. Restaurant operations expect to recognize approximately $ 8,202 of deferred revenue during 2022. Insurance Premiums and Commissions Insurance premiums are earned over the terms of the related policies. Expenses incurred in connection with acquiring new insurance business, including acquisition costs, are charged to operations as incurred. Premiums earned are stated net of amounts ceded to reinsurer. Oil and Gas Revenues are derived from the sale of produced oil and natural gas. Revenue is recognized when the performance obligation is satisfied, which typically occurs at the point in time when control of the product transfers to the customer. Payment is due within 30 days of delivery. Licensing Revenue and Other Licensing revenue is recognized when earned. We derive value and revenues from intellectual property assets through a range of licensing and business activities, including licensing and syndication of our trademarks and copyrights in the United States and internationally. Magazine subscription and advertising revenues are recognized at the magazine cover date. The unearned portion of magazine subscriptions is deferred until the magazine’s cover date, at which time a proportionate share of the gross subscription price is recognized as revenue. Restaurant Cost of Sales Cost of sales includes the cost of food, restaurant operating costs, and restaurant occupancy costs. Cost of sales excludes depreciation and amortization, which is presented as a separate line item on the consolidated statement of earnings. Insurance Losses and Underwriting Expenses Liabilities for estimated unpaid losses and loss adjustment expenses with respect to claims occurring on or before the balance sheet date are established under insurance contracts issued by our insurance subsidiaries. Such estimates include provisions for reported claims or case estimates, provisions for incurred but not reported claims, and legal and administrative costs to settle claims. The estimates of unpaid losses and amounts recoverable under reinsurance are established and continually reviewed by using a variety of actuarial, statistical, and analytical techniques. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect to the underlying insurance contracts. Liabilities for insurance losses of $ 14,609 and $ 14,652 are included in accrued expenses in the consolidated balance sheet as of December 31, 2021 and 2020, respectively. Oil and Gas Production Costs Oil and gas production costs are composed of lease operating expenses and production taxes. Marketing Expense Advertising costs are charged to expense at the later of the date the expenditure is incurred or the date the promotional item is first communicated. Marketing expense is included in selling, general and administrative expenses in the consolidated statement of earnings. Insurance Reserves We self-insure a significant portion of expected losses under our workers’ compensation, general liability, auto, directors and officers liability, and medical liability insurance programs, and record a reserve for our estimated losses on all unresolved open claims and our estimated incurred but not reported claims at the anticipated cost to us. Insurance reserves are recorded in accrued expenses in the consolidated balance sheet. Savings Plans Several of our subsidiaries also sponsor deferred compensation and defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions to the plans are subject to regulatory limitations and the specific plan provisions. 36 Table of Contents Note 1. Summary of Significant Accounting Policies (continued) Some of the plans allow for discretionary contributions as determined by management. Employer contributions expensed with respect to these plans were not material. Foreign Currency Translation The Company has certain subsidiaries located in foreign jurisdictions. For subsidiaries whose functional currency is other than the U.S. dollar, the translation of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted average exchange rates for revenue and expenses, and historical rates for equity. The resulting currency translation adjustment is recorded in accumulated other comprehensive income, as a component of equity. Use of Estimates Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from the estimates. Note 2. Investments Investments were $ 83,061 and $ 94,861 as of December 31, 2021 and 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. 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. December 31, 2021 2020 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 Note 3. Investment Partnerships The Company reports on the limited partnership interests in investment partnerships under the equity method of accounting. We record our proportional share of equity in the investment partnerships but exclude Company common stock held by said partnerships. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. The Company records gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the consolidated statements of earnings based on our carrying value of these partnerships. The fair value is calculated net of the general partner’s accrued incentive fees. Gains and losses on Company common stock included in the earnings of these partnerships are eliminated because they are recorded as treasury stock. Biglari Capital is the general partner of the investment partnerships and is an entity solely owned by Mr. Biglari. 37 Table of Contents Note 3. Investment Partnerships (continued) The fair value and adjustment for Company common stock held by the investment partnerships to determine the carrying value of our partnership interest are presented below. Fair Value Company Common Stock Carrying Value Partnership interest at December 31, 2018 $ 715,102 $ 157,622 $ 557,480 Investment partnership gains (losses) 80,350 2,217 78,133 Distributions (net of contributions) ( 129,329 ) ( 129,329 ) Increase in proportionate share of Company stock held 742 ( 742 ) Partnership interest at December 31, 2019 $ 666,123 $ 160,581 $ 505,542 Investment partnership gains (losses) ( 46,997 ) ( 3,965 ) ( 43,032 ) Distributions (net of contributions) ( 28,200 ) ( 28,200 ) Increase in proportionate share of Company stock held 14,760 ( 14,760 ) Partnership interest at December 31, 2020 $ 590,926 $ 171,376 $ 419,550 Investment partnership gains (losses) 51,145 40,192 10,953 Distributions (net of contributions) ( 167,870 ) ( 167,870 ) Increase in proportionate share of Company stock held 12,234 ( 12,234 ) Partnership interest at December 31, 2021 $ 474,201 $ 223,802 $ 250,399 The carrying value of the investment partnerships net of deferred taxes is presented below. December 31, 2021 2020 Carrying value of investment partnerships $ 250,399 $ 419,550 Deferred tax liability related to investment partnerships ( 44,532 ) ( 44,805 ) 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 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 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. 2021 2020 2019 Gains (losses) from investment partnerships $ 10,953 $ ( 43,032 ) $ 78,133 Tax expense (benefit) 2,054 ( 10,526 ) 17,360 Contribution to net earnings $ 8,899 $ ( 32,506 ) $ 60,773 On December 31 of each year, the general partner of the investment partnerships, Biglari Capital, will earn an incentive reallocation fee for the Company’s investments equal to 25 % of the net profits above an annual hurdle rate of 6 % over the previous high-water mark. Our policy is to accrue an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings to Biglari Capital includes gains on the Company’s common stock. Gains and losses on the Company’s common stock and the related incentive reallocations are eliminated in our financial statements. 38 Table of Contents Note 3. 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. There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2019. Summarized financial information for The Lion Fund, L.P. and The Lion Fund II, L.P. is presented below. Equity in Investment Partnerships Lion Fund Lion Fund II Total assets as of December 31, 2021 $ 114,749 $ 564,022 Total liabilities as of December 31, 2021 $ 7,763 $ 130,417 Revenue for the year ended December 31, 2021 $ 20,068 $ 41,486 Earnings for the year ended December 31, 2021 $ 19,994 $ 40,621 Biglari Holdings’ ownership interest 62.7 % 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 year ended December 31, 2020 $ ( 4,052 ) $ ( 48,544 ) Earnings for the year ended December 31, 2020 $ ( 4,120 ) $ ( 49,832 ) Biglari Holdings’ ownership interest 66.2 % 95.4 % Total assets as of December 31, 2019 $ 117,135 $ 758,663 Total liabilities as of December 31, 2019 $ 158 $ 114,639 Revenue for the year ended December 31, 2019 $ 10,637 $ 85,831 Earnings for the year ended December 31, 2019 $ 10,567 $ 78,604 Biglari Holdings’ ownership interest 66.1 % 92.9 % Revenue in the financial information of the investment partnerships, summarized above, includes investment income and unrealized gains and losses on investments. Note 4. Other Current Assets Other current assets include the following. December 31, 2021 2020 Deferred commissions on gift cards sold by third parties $ 3,221 $ 3,491 Prepaid contractual obligations 3,867 3,001 Other current assets $ 7,088 $ 6,492 39 Table of Contents Note 5. Property and Equipment Property and equipment is composed of the following. December 31, 2021 2020 Land $ 144,605 $ 142,601 Buildings 148,605 138,734 Land and leasehold improvements 147,349 141,351 Equipment 224,581 192,735 Oil and gas properties 74,147 75,900 Construction in progress 2,815 1,032 742,102 692,353 Less accumulated depreciation, depletion, and amortization ( 392,751 ) ( 376,231 ) Property and equipment, net $ 349,351 $ 316,122 Depreciation and amortization expense for property and equipment for 2021, 2020 and 2019 was $ 22,012 , $ 19,586 and $ 18,881 , respectively. Depletion expense related to oil and gas properties was $ 7,600 , $ 11,989 and $ 8,077 during 2021, 2020 and 2019, respectively. Accretion expense of the Company’s asset retirement obligations was $ 438 , $ 497 and $ 177 during 2021, 2020 and 2019, respectively. Depletion and accretion expense are included in depreciation and amortization within the consolidated statement of earnings. 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. The property and equipment cost related to finance obligations as of December 31, 2021 is as follows: $ 44,849 of buildings, $ 45,548 of land, $ 26,345 of land and leasehold improvements, and $ 53,965 of accumulated depreciation. Note 6. Asset Retirement Obligations A reconciliation of the ending aggregate carrying amount of asset retirement obligations is as follows. December 31 2021 2020 Beginning balance $ 10,258 $ 10,631 Liabilities settled ( 72 ) ( 870 ) Accretion expense 438 497 Asset retirement obligation $ 10,624 $ 10,258 As of December 31, 2021 and 2020, $ 235 and $ 236 , respectively, is classified as current and is included in accounts payable and accrued expenses in the consolidated balance sheets. Note 7. Goodwill and Other Intangible Assets Goodwill Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business acquisitions. No goodwill was recorded with the acquisition of Southern Oil. 40 Table of Contents Note 7. Goodwill and Other Intangible Assets (continued) A reconciliation of the change in the carrying value of goodwill is as follows. Restaurants Insurance Total Goodwill at December 31, 2018 $ 28,139 $ 11,913 $ 40,052 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 Impairments to goodwill ( 300 ) — ( 300 ) Change in foreign exchange rates during 2020 56 — 56 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. 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. 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 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. 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. 41 Table of Contents Note 8. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses include the following. December 31, 2021 2020 Accounts payable $ 36,684 $ 26,537 Gift card and other marketing 19,244 21,822 Insurance accruals 6,428 6,559 Salaries, wages, and vacation 5,905 8,285 Deferred revenue 6,683 9,324 Taxes payable 11,392 10,922 Professional fees 11,731 5,882 Other 2,400 1,561 Accounts payable and accrued expenses $ 100,467 $ 90,892 Note 9. Other Liabilities Other liabilities include the following. December 31, 2021 2020 Non qualified deferred compensation $ 1,607 $ 1,368 Other 462 312 Other liabilities $ 2,069 $ 1,680 Note 10. Income Taxes The components of the provision for income taxes consist of the following. 2021 2020 2019 Current: Federal $ 1,053 $ ( 472 ) $ 41,005 State 467 476 7,301 Deferred 5,269 ( 12,216 ) ( 38,545 ) Income tax expense (benefit) $ 6,789 $ ( 12,212 ) $ 9,761 Reconciliation of effective income tax: Tax at U.S. statutory rates $ 8,875 $ ( 10,542 ) $ 11,579 State income taxes, net of federal benefit 192 ( 1,750 ) 1,573 Federal income tax credits ( 864 ) ( 424 ) ( 3,004 ) Dividends received deduction ( 468 ) ( 233 ) ( 955 ) Valuation allowance ( 723 ) 733 441 Foreign tax rate differences ( 78 ) 240 116 Other ( 145 ) ( 236 ) 11 Income tax expense (benefit) $ 6,789 $ ( 12,212 ) $ 9,761 42 Table of Contents Note 10. Income Taxes (continued) The Company did not have a net tax expense or benefit on income from international operations. Earnings (losses) before income taxes derived from domestic operations during 2021, 2020 and 2019 were $ 43,886 , $( 40,989 ) and $ 57,877 , respectively. Losses before income taxes derived from international operations during 2021, 2020 and 2019 were $ 1,619 , $ 9,212 , and $ 2,736 , respectively. As of December 31, 2021, we had $ 83 of unrecognized tax benefits, including $ 4 of interest and penalties, which are included in other long-term liabilities in the consolidated balance sheet. As of December 31, 2020, we had $ 204 of unrecognized tax benefits, including $ 59 of interest and penalties, which are included in other long-term liabilities in the consolidated balance sheet. Our continuing practice is to recognize interest expense and penalties related to income tax matters in income tax expense. The unrecognized tax benefits of $ 83 would impact the effective income tax rate if recognized. Adjustments to the Company’s unrecognized tax benefit for gross increases for the current period tax position, gross decreases for prior period tax positions and the lapse of statute of limitations during 2021, 2020 and 2019 were not significant. We file income tax returns which are periodically audited by various foreign, federal, state, and local jurisdictions. With few exceptions, we are no longer subject to federal, state, and local tax examinations for fiscal years prior to 2018. We believe we have certain state income tax exposures related to fiscal years 2017 through 2021. Because of the expiration of the various state statutes of limitations for these fiscal years, it is possible that the total amount of unrecognized tax benefits will decrease by approximately $ 15 within 12 months. 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. Our deferred tax assets and liabilities consist of the following. December 31, 2021 2020 Deferred tax assets: Insurance reserves $ 1,464 $ 1,621 Compensation accruals 647 1,439 Gift card accruals 2,350 2,387 Net operating loss credit carryforward 11,018 7,121 Valuation allowance on net operating losses ( 5,429 ) ( 6,152 ) Fixed assets and depletable assets basis difference 588 8,234 Income tax credit carryforward 813 2,178 Other 2,954 2,516 Total deferred tax assets 14,405 19,344 Deferred tax liabilities: Investment partnerships 44,532 44,805 Investments 845 665 Goodwill and intangibles 15,561 15,220 Total deferred tax liabilities 60,938 60,690 Net deferred tax liability $ ( 46,533 ) $ ( 41,346 ) 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. 43 Table of Contents Note 11. Notes Payable and Lease Obligations Steak n Shake Credit Facility On March 19, 2014, Steak n Shake and its subsidiaries entered into a credit agreement which provided for a senior secured term loan facility in an aggregate principal amount of $ 220,000 . The term loan was scheduled to mature on March 19, 2021. As of December 31, 2020, $ 152,506 was outstanding. The Company repaid Steak n Shake’s outstanding balance in full on February 19, 2021. Western Sizzlin Revolver As of December 31, 2021 and 2020, Western Sizzlin had no debt outstanding under its revolver. Lease Obligations Lease obligations include the following. December 31, 2021 2020 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 Interest paid on debt and obligations under leases are as follows. 2021 2020 2019 Interest paid on debt $ 994 $ 9,397 $ 11,273 Interest paid on obligations under leases $ 6,039 $ 6,274 $ 7,816 Note 12. Leased Assets and Lease Commitments 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. Lease Costs Total lease costs consist of the following. 2021 2020 2019 Finance lease costs: Amortization of right-of-use assets $ 1,576 $ 1,404 $ 1,952 Interest on lease liabilities 521 582 828 Operating lease costs * 1,119 9,995 16,483 Total lease costs $ 3,216 $ 11,981 $ 19,263 *Includes short-term leases, variable lease costs and sublease income. 44 Table of Contents Note 12. Leased Assets and Lease Commitments (continued) Supplemental cash flow information related to leases is as follows. Year Ended December 31, 2021 Year Ended December 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Financing cash flows from finance leases $ 1,629 $ 1,512 Operating cash flows from finance leases $ 506 $ 632 Operating cash flows from operating leases $ 13,195 $ 13,627 Right-of-use assets obtained in exchange for lease obligations: Operating lease liabilities $ — $ 73 Supplemental balance sheet information related to leases is as follows. December 31, 2021 December 31, 2020 Finance leases: Property and equipment, net $ 5,634 $ 6,501 Current portion of notes payable and other borrowings $ 1,414 $ 1,897 Long-term notes payable and other borrowings 5,347 7,034 Total finance lease liabilities $ 6,761 $ 8,931 Weighted-average lease terms and discount rates are as follows. 2021 Weighted-average remaining lease terms: Finance leases 5.06 years Operating leases 5.14 years Weighted-average discount rates: Finance leases 7.0 % Operating leases 6.9 % Maturities of lease liabilities as of December 31, 2021 are as follows. Year Operating Leases Finance Leases 2022 $ 13,282 $ 1,834 2023 11,230 1,551 2024 9,402 1,534 2025 7,817 1,298 2026 5,166 959 After 2026 8,631 855 Total lease payments 55,528 8,031 Less interest 8,975 1,270 Total lease liabilities $ 46,553 $ 6,761 45 Table of Contents Note 12. Leased Assets and Lease Commitments (continued) Rent expense is presented below. 2021 2020 2019 Minimum rent $ 14,926 $ 15,672 $ 17,968 Contingent rent 137 137 1,050 Rent expense $ 15,063 $ 15,809 $ 19,018 Lease Income 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 2023 421 247 2024 338 247 2025 338 250 2026 19 247 After 2026 — 805 Total future minimum receipts $ 1,725 $ 2,043 Note 13. Related Party Transactions Services Agreement During 2017, the Company entered into a services agreement with Biglari Enterprises LLC and Biglari Capital Corp. (collectively, the “Biglari Entities”) under which the Biglari Entities provide business and administrative related services to the Company. The Biglari Entities are owned by Mr. Biglari. The services agreement has a five-year term, effective on October 1, 2017. The fixed fee is $ 700 per month for the first year with adjustments in years two through five. The monthly fee remained at $ 700 during 2021. The Company paid Biglari Enterprises $ 8,400 in service fees during 2021 and 2020. 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. and The Lion Fund II, L.P. As of December 31, 2021, the Company’s investments in The Lion Fund, L.P. and The Lion Fund II, L.P. had a fair value of $ 474,201 . 46 Table of Contents Note 13. Related Party Transactions (continued) Contributions to and distributions from The Lion Fund, L.P. and The Lion Fund II, L.P. were as follows. 2021 2020 2019 Contributions of cash $ 12,300 $ 70,130 $ 40,000 Distributions of cash ( 180,170 ) ( 98,330 ) ( 169,329 ) $ ( 167,870 ) $ ( 28,200 ) $ ( 129,329 ) 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. Incentive Agreement The Incentive Agreement establishes a performance-based annual incentive payment for Mr. Biglari contingent upon the growth in adjusted equity in each year attributable to our operating businesses. In order for Mr. Biglari to receive any incentive, our operating businesses must achieve an annual increase in shareholders’ equity in excess of 6 % (the “Hurdle Rate”) above the previous highest level (the “High Water Mark”). Mr. Biglari will receive 25 % of any incremental book value created above the High Water Mark plus the Hurdle Rate. In any year in which book value declines, our operating businesses must completely recover their deficit from the previous High Water Mark, along with attaining the Hurdle Rate, before Mr. Biglari becomes eligible to receive any further incentive payment. No incentive fees were earned during 2021, 2020 and 2019. Note 14. Commitments and Contingencies We are involved in various legal proceedings and have certain unresolved claims pending. We believe, based on examination of these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided in our consolidated financial statements is not likely to have a material effect on our results of operations, financial position or cash flow. Note 15. Fair Value of Financial Assets The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below. • Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets. • Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector. • Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and we may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities. 47 Table of Contents Note 15. 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: Cash equivalents: Cash equivalents primarily consist of money market funds which are classified within Level 1 of the fair value hierarchy. Equity securities: The Company’s investments in equity securities are classified within Levels 1 and 2 of the fair value hierarchy. Bonds: The Company’s investments in bonds consist of both corporate and government debt. Bonds are classified as Level 1 or Level 2 of the fair value hierarchy. Non-qualified deferred compensation plan investments: The assets of the non-qualified plan are set up in a rabbi trust. They represent mutual funds and publicly traded securities, each of which are classified within Level 1 of the fair value hierarchy. Derivative instruments: Options related to equity securities are marked to market each reporting period and are classified within Level 2 of the fair value hierarchy depending on the instrument. As of December 31, 2021 and 2020 the fair values of financial assets were as follows. December 31, 2021 2020 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 18,447 $ — $ — $ 18,447 $ 23,885 $ — $ — $ 23,885 Equity securities: Consumer goods 10,775 2,368 — 13,143 7,274 5,652 — 12,926 Insurance 6,513 — — 6,513 261 — — 261 Technology 2,887 — — 2,887 — — — — Bonds: Government 54,584 — — 54,584 39,472 14,043 — 53,515 Corporate 4,512 — — 4,512 — 5,406 — 5,406 Options on equity securities — 2,095 — 2,095 — 2,911 — 2,911 Non-qualified deferred compensation plan investments 1,607 — — 1,607 1,368 — — 1,368 Total assets at fair value $ 99,325 $ 4,463 $ — $ 103,788 $ 72,260 $ 28,012 $ — $ 100,272 There were no changes in our valuation techniques used to measure fair values on a recurring basis. Note 16. Accumulated Other Comprehensive Income Changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, were as follows. 2021 2020 2019 Beginning Balance $ ( 1,531 ) $ ( 2,810 ) $ ( 2,516 ) 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 2021, 2020 or 2019. 48 Table of Contents Note 17. Business Segment Reporting Our reportable business segments are organized in a manner that reflects how management views those business activities. Our restaurant operations include Steak n Shake and Western Sizzlin. Our insurance operations include First Guard and Southern Pioneer. The Company also reports segment information for Maxim and Southern Oil. Other business activities not specifically identified with reportable business segments are presented in corporate. We report our earnings from investment partnerships separate from our corporate expenses. We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are neither necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements. A disaggregation of our consolidated data for each of the three most recent years is presented in the tables which follow. Revenue 2021 2020 2019 Operating Businesses: Restaurant Operations: Steak n Shake $ 263,135 $ 344,305 $ 595,004 Western 8,155 6,361 15,216 Total Restaurant Operations 271,290 350,666 610,220 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 Southern Oil 33,004 26,255 24,436 Maxim 3,203 4,083 4,099 $ 366,106 $ 433,683 $ 668,838 49 Table of Contents Note 17. Business Segment Reporting (continued) Earnings (Loss) Before Income Taxes 2021 2020 2019 Operating Businesses: Restaurant Operations: Steak n Shake $ 13,524 $ ( 4,587 ) $ ( 18,575 ) Western 931 ( 765 ) 1,756 Total Restaurant Operations 14,455 ( 5,352 ) ( 16,819 ) 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 Southern Oil 9,713 2,018 8,032 Maxim 814 1,784 742 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 ) Investment gains 6,401 3,644 — Investment partnership gains (losses) 10,953 ( 43,032 ) 78,133 $ 42,267 $ ( 50,201 ) $ 55,141 Capital Expenditures 2021 2020 2019 Operating Businesses: Restaurant $ 60,296 $ 17,858 $ 10,023 Insurance 1,451 5 43 Southern Oil 996 2,806 7,594 Maxim — — — Operating Businesses 62,743 20,669 17,660 Corporate and other 1,806 33 19 Consolidated results $ 64,549 $ 20,702 $ 17,679 Depreciation, Depletion, and Amortization 2021 2020 2019 Operating Businesses: Restaurant $ 21,484 $ 19,042 $ 21,174 Insurance 176 414 85 Southern Oil 8,073 12,527 8,218 Maxim — — — Operating Businesses 29,733 31,983 29,477 Corporate and other 317 239 101 Consolidated results $ 30,050 $ 32,222 $ 29,578 50 Table of Contents Note 17. Business Segment Reporting (continued) A disaggregation of our consolidated assets is presented in the table that follows. Identifiable Assets December 31, 2021 2020 Reportable segments: Restaurant Operations: Steak n Shake $ 377,676 $ 341,190 Western 17,239 16,512 Total Restaurant Operations 394,915 357,702 Insurance Operations: First Guard 74,615 64,764 Southern Pioneer 72,321 74,063 Total Insurance Operations 146,936 138,827 Southern Oil 53,359 61,017 Maxim 16,605 16,485 Corporate 32,593 24,387 Investment partnerships 250,399 419,550 Total assets $ 894,807 $ 1,017,968 Note 18. Supplemental Disclosures of Cash Flow Information Capital expenditures in accounts payable at December 31, 2021, 2020 and 2019 were $ 8,733 , $ 2,399 and $ 339 , respectively. In 2021, we had new finance lease obligations of $ 733 and lease retirements of $ 1,216 . In 2020, we had new finance lease obligations of $ 3,285 and lease retirements of $ 4,842 . During 2019, we had new finance lease obligations of $ 5,026 and lease retirements of $ 940 . Note 19. 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. 51 Table of Contents Note 19. 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 52 Table of Contents Note 19. 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 53 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.