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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 24, 2024 expressed an unqualified opinion on the Company’s internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Emphasis of a Matter As discussed in Note 4 and Note 14 to the consolidated financial statements, the Company and its subsidiaries have invested in investment partnerships in the form of limited partnership interests. These investment partnerships represent related parties, and such investments are subject to a rolling five-year lock up period under the terms of the respective partnership agreements for the investment partnerships. The value of these investments reported in the Company’s consolidated balance sheets as of December 31, 2023 and 2022 totals $199,103,000 and $155,794,000, 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. 24 Table of Contents Property and Equipment — Refer to Notes 1 and 6 to the financial statements Critical Audit Matter Description Company-operated restaurants and associated long-lived assets are evaluated for impairment on a restaurant-by-restaurant basis when events or circumstances indicate a possible impairment may have occurred. The Company’s evaluation of potential impairment of long-lived assets involves the comparison of undiscounted future cash flows expected to be generated by the asset group, generally an individual restaurant, over the expected remaining useful life of that asset group, to the respective carrying amount. The Company also applied a market analysis for certain properties. The Company’s undiscounted future cash flows analysis requires management to make estimates and assumptions related to future revenues, labor costs and planned operating periods. To the extent that the undiscounted cash flows are not sufficient to recover the related assets, the Company estimates the fair value of the related assets using a discounted cash flow model to assess the amount of any impairment. We identified the impairment of company-operated restaurant long-lived assets as a critical audit matter because of the estimates and assumptions required by management to evaluate the potential impairment of these asset groups. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of certain assumptions, in management’s undiscounted and discounted future cash flows analyses, including revenue growth, food costs, labor costs, and planned operating periods of restaurants. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the undiscounted and discounted future cash flows analysis and the assessment of the expected remaining holding period included the following, among others: • We tested the effectiveness of controls over management’s evaluation of the recoverability of long-lived assets, including those over revenue, food costs, labor costs and the planned operating period for the store. • We evaluated the undiscounted future cash flows analysis, including estimates of revenue growth, labor costs and planned operating periods of restaurants by (1) evaluating the underlying source information and assumptions used by management (2) performing sensitivity analyses and (3) testing the mathematical accuracy of the undiscounted future cash flows analysis. • We evaluated the reasonableness of management’s undiscounted future cash flows analysis by comparing management’s projections to the Company’s historical results and available market data. • With the assistance of our fair value specialists, for the properties where management applied a market analysis, we evaluated the reasonableness of the valuation methodology and used comparable current market data to develop a range of independent estimates and compare our estimates to those used by management. • We evaluated the discount rates used by management in the performance of discounted cash flow analyses by testing management’s calculation, performing sensitivity analyses, and assessed the mathematical accuracy of the Company’s calculations of potential impairment. /s/ DELOITTE & TOUCHE LLP Austin, Texas February 24, 2024 We have served as the Company’s auditor since 2003. 25 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, 2023, 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, 2023, 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, 2023, of the Company and our report dated February 24, 2024, expressed an unqualified opinion on those financial statements and included an emphasis of 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 Austin, Texas February 24, 2024 26 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 28,066 $ 37,467 Investments 91,879 69,466 Receivables 22,241 29,375 Inventories 2,980 3,851 Other current assets 7,385 10,495 Total current assets 152,551 150,654 Property and equipment 380,491 400,725 Operating lease assets 32,215 34,739 Goodwill 53,530 53,513 Other intangible assets 23,230 23,037 Investment partnerships 199,103 155,794 Other assets 8,302 10,012 Total assets $ 849,422 $ 828,474 Liabilities and shareholders’ equity Liabilities Current liabilities: Accounts payable and accrued expenses $ 66,743 $ 78,616 Loss and loss adjustment expenses 15,168 16,805 Unearned premiums 14,334 12,495 Current portion of lease obligations 14,855 16,981 Line of credit — 10,000 Total current liabilities 111,100 134,897 Lease obligations 86,389 91,844 Deferred taxes 37,939 31,343 Asset retirement obligations 14,316 14,068 Other liabilities 348 754 Total liabilities 250,092 272,906 Shareholders’ equity Common stock 1,138 1,138 Additional paid-in capital 385,594 381,788 Retained earnings 631,458 576,510 Accumulated other comprehensive loss ( 2,518 ) ( 2,790 ) Treasury stock, at cost ( 416,342 ) ( 409,680 ) Biglari Holdings Inc. shareholders’ equity 599,330 546,966 Noncontrolling interests — 8,602 Total shareholders’ equity 599,330 555,568 Total liabilities and shareholders’ equity $ 849,422 $ 828,474 See accompanying Notes to Consolidated Financial Statements. 27 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per-share amounts) Year Ended December 31, 2023 2022 2021 Revenue Restaurant operations $ 250,857 $ 241,568 $ 271,290 Insurance premiums and other 67,272 64,540 58,609 Oil and gas 45,071 57,546 33,004 Licensing and media 2,118 4,577 3,203 Total revenue 365,318 368,231 366,106 Cost and expenses Restaurant cost of sales 137,986 140,264 167,491 Insurance losses and underwriting expenses 52,771 54,648 43,094 Oil and gas production costs 17,365 17,842 10,470 Licensing and media costs 1,840 2,695 2,275 Selling, general and administrative 77,002 70,608 76,018 Gain on sale of oil and gas properties ( 13,563 ) — — Impairments 3,947 3,520 4,635 Depreciation, depletion, and amortization 38,979 36,443 30,050 Interest expense on leases 5,114 5,493 6,039 Interest expense on debt 681 399 1,121 Total cost and expenses 322,122 331,912 341,193 Other income (expenses) Investment gains (losses) 2,211 ( 3,393 ) 6,401 Investment partnership gains (losses) 19,440 ( 75,953 ) 10,953 Total other income (expenses) 21,651 ( 79,346 ) 17,354 Earnings (loss) before income taxes 64,847 ( 43,027 ) 42,267 Income tax expense (benefit) 9,308 ( 10,722 ) 6,789 Net earnings (loss) 55,539 ( 32,305 ) 35,478 Earnings (loss) attributable to noncontrolling interest 591 ( 287 ) — Net earnings (loss) attributable to Biglari Holdings Inc. shareholders $ 54,948 $ ( 32,018 ) $ 35,478 Net earnings (loss) per equivalent Class A share * $ 189.49 $ ( 107.43 ) $ 111.83 * Net earnings (loss) per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $ 37.90 for 2023, $( 21.49 ) for 2022, and $ 22.37 for 2021. See accompanying Notes to Consolidated Financial Statements. 28 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Year Ended December 31, 2023 2022 2021 Net earnings (loss) $ 55,539 $ ( 32,305 ) $ 35,478 Foreign currency translation 272 ( 883 ) ( 376 ) Comprehensive income 55,811 ( 33,188 ) 35,102 Comprehensive income attributable to noncontrolling interest 591 ( 287 ) — Total comprehensive income attributable to Biglari Holdings Inc. shareholders $ 55,220 $ ( 32,901 ) $ 35,102 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, 2023 2022 2021 Operating activities Net earnings (loss) $ 55,539 $ ( 32,305 ) $ 35,478 Adjustments to reconcile net earnings (loss) to operating cash flows: Depreciation and amortization 38,979 36,443 30,050 Provision for deferred income taxes 6,567 ( 15,582 ) 5,269 Asset impairments 3,947 3,520 4,772 Gains on sale of assets ( 21,241 ) ( 1,578 ) ( 25 ) Investment (gains) losses ( 2,211 ) 3,393 ( 6,214 ) Investment partnership (gains) losses ( 19,440 ) 75,953 ( 10,953 ) Distributions from investment partnerships 14,500 70,700 180,170 Changes in receivables and inventories 5,783 3,339 ( 9,324 ) Changes in other assets 2,810 8,523 136 Changes in accounts payable and accrued expenses ( 12,231 ) ( 24,581 ) ( 592 ) Net cash provided by operating activities 73,002 127,825 228,767 Investing activities Capital expenditures ( 23,405 ) ( 29,746 ) ( 64,549 ) Proceeds from property and equipment disposals 24,627 5,318 10,101 Acquisition of business, net of cash acquired — ( 58,274 ) — Purchases of noncontrolling interests ( 5,387 ) — — Purchases of interests in limited partnerships ( 45,030 ) ( 48,569 ) ( 12,300 ) Purchases of investments ( 107,866 ) ( 134,451 ) ( 110,199 ) Sales of investments and redemptions of fixed maturity securities 90,981 129,117 118,422 Net cash used in investing activities ( 66,080 ) ( 136,605 ) ( 58,525 ) Financing activities Payments on line of credit ( 41,600 ) ( 20,000 ) — Proceeds from line of credit 31,600 30,000 — Principal payments on long-term debt — — ( 149,952 ) Principal payments on direct financing lease obligations ( 6,132 ) ( 6,140 ) ( 6,205 ) Net cash provided by (used in) financing activities ( 16,132 ) 3,860 ( 156,157 ) Effect of exchange rate changes on cash 59 38 ( 64 ) Increase (decrease) in cash, cash equivalents, and restricted cash ( 9,151 ) ( 4,882 ) 14,021 Cash, cash equivalents, and restricted cash at beginning of period 38,805 43,687 29,666 Cash, cash equivalents, and restricted cash at end of period $ 29,654 $ 38,805 $ 43,687 Year Ended December 31, 2023 2022 2021 Cash and cash equivalents $ 28,066 $ 37,467 $ 42,349 Restricted cash included in other long-term assets 1,588 1,338 1,338 Cash, cash equivalents, and restricted cash at end of period $ 29,654 $ 38,805 $ 43,687 See accompanying Notes to Consolidated Financial Statements. 30 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (dollars in thousands) Biglari Holdings Inc. Shareholder’s Equity Common Stock Additional Paid- In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling interest Total Balance at December 31, 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 for holdings in investment partnerships ( 12,234 ) ( 12,234 ) Balance at December 31, 2021 $ 1,138 $ 381,788 $ 608,528 $ ( 1,907 ) $ ( 401,851 ) $ — $ 587,696 Net earnings (loss) ( 32,018 ) ( 287 ) ( 32,305 ) Other comprehensive income, net ( 883 ) ( 883 ) Adjustment for holdings in investment partnerships ( 7,829 ) ( 7,829 ) Transactions with noncontrolling interests 8,889 8,889 Balance at December 31, 2022 $ 1,138 $ 381,788 $ 576,510 $ ( 2,790 ) $ ( 409,680 ) $ 8,602 $ 555,568 Net earnings (loss) 54,948 591 55,539 Other comprehensive income, net 272 272 Adjustment for holdings in investment partnerships ( 6,662 ) ( 6,662 ) Purchases of noncontrolling interests 3,806 ( 9,193 ) ( 5,387 ) Balance at December 31, 2023 $ 1,138 $ 385,594 $ 631,458 $ ( 2,518 ) $ ( 416,342 ) $ — $ 599,330 See accompanying Notes to Consolidated Financial Statements. 31 Table of Contents BIGLARI HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Years Ended December 31, 2023, 2022, and 2021) (dollars in thousands, except per-share data) Note 1. Summary of Significant Accounting Policies Description of Business Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company. Biglari Holdings’ management system combines decentralized operations with centralized financial decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. As of December 31, 2023, Mr. Biglari beneficially owns shares of the Company that represent approximately 66.8 % of the economic interest and approximately 71.0 % of the voting interest. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including Steak n Shake Inc., Western Sizzlin Corporation, First Guard Insurance Company, Maxim Inc., Southern Pioneer Property & Casualty Insurance Company, Southern Oil Company, and Abraxas Petroleum Corporation. Intercompany accounts and transactions have been eliminated in consolidation. 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, 2023 and 2022, all investments were classified as available-for-sale and carried at fair value with net unrealized gains or losses reported in the statements of earnings. Realized gains and losses on disposals of investments are determined by the specific identification of the cost of investments sold. Dividends earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. Investment Partnerships The Company holds a limited interest in The Lion Fund, L.P., and The Lion Fund II, L.P. (collectively the “investment partnerships”). Biglari Capital Corp. (“Biglari Capital”), an entity solely owned by Mr. Biglari, is the general partner of the investment partnerships. Our interests in the investment partnerships are accounted as equity method investments because of our retained limited partner interests. The Company records investment partnership gains (inclusive of the investment partnerships’ unrealized gains and losses on their securities) as a component of other income based on our proportional ownership interest in the partnerships. The investment partnerships are, for purposes of generally accepted accounting principles (“GAAP”), investment companies under the AICPA Audit and Accounting Guide Investment Companies. 32 Table of Contents Note 1. Summary of Significant Accounting Policies (continued) 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 our major investments may have a materially adverse effect on our earnings and on consolidated shareholders’ equity. Receivables Our accounts receivable balance consists primarily of franchisee, customer, and other receivables. We carry our accounts receivable at cost less an allowance for doubtful accounts, which is based on a history of past write-offs and collections and current credit conditions. Allowance for doubtful accounts was $ 2,546 and $ 1,151 at December 31, 2023 and 2022, respectively. Inventories Inventories are valued at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items and supply inventory. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized on the straight-line method over the estimated useful lives of the assets ( 10 to 30 years for buildings and land improvements, and 3 to 10 years for equipment). Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful lives of the improvements or the term of the related leases. Interest costs associated with the construction of new restaurants are capitalized. Major improvements are also capitalized, while repairs and maintenance are expensed as incurred. We review our long-lived restaurant assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For purposes of this assessment, assets are evaluated at the lowest level for which there are identifiable cash flows, which is generally at the individual restaurant level. Assets included in the impairment assessment generally consist of property, equipment, and leasehold improvements directly associated with an individual restaurant as well as any related finance or operating lease assets. If the future undiscounted cash flows of an asset are less than the recorded value, an impairment is recorded for the difference between the carrying value and the estimated fair value of the asset. Oil and Gas Properties The successful efforts method is used for crude oil and natural gas exploration and production activities. All costs for development wells, related plant and equipment, proved mineral interests in crude oil and natural gas properties, and related asset retirement obligation assets are capitalized. Costs of exploratory wells are capitalized pending determination of whether the wells found proved reserves. Costs of wells that are assigned proved reserves remain capitalized. Costs are also capitalized for exploratory wells that have found crude oil and natural gas reserves, even if the reserves cannot be classified as proved when the drilling is completed, provided the exploratory well has found a sufficient quantity of reserves to justify its completion as a producing well and the company is making sufficient progress assessing the reserves and the economic and operating viability of the project. All other exploratory wells and costs are expensed. We did not have any property acquisition or exploration activities during 2023, and our development costs were nominal. Asset Retirement Obligations Asset retirement obligations relate to future costs associated with the plugging and abandonment of oil and gas wells, the removal of equipment and facilities from leased acreage, and the return of such land to its original condition. The Company determines its asset retirement obligation amounts by calculating the present value of the estimated future cash outflows associated with its plug and abandonment obligations. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred, and the cost of such liability increases the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period through charges to depreciation, depletion, and amortization expense, and the capitalized cost is depleted on a unit-of-production basis over the proved developed reserves of the related asset. If an asset retirement obligation is settled for an amount other than the recorded amount, a gain or loss is recognized. Goodwill and Other Intangible Assets Goodwill and indefinite life intangible assets are not amortized, but are tested for potential impairment on an annual basis using either a qualitative or quantitative approach, or more often if events or circumstances change that could cause goodwill or indefinite life intangible assets to become impaired. Other purchased intangible assets are amortized over their estimated useful lives, generally on a straight-line basis. We perform reviews for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when 33 Table of Contents Note 1. Summary of Significant Accounting Policies (continued) 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 2023, 2022 and 2021, no impairments were recorded to goodwill. During 2023, we recorded impairments to indefinite life intangible assets of $ 20 . During 2022 and 2021, no impairments were recorded to other intangible assets. Refer to Note 8 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 (1/5th) of such rights of Class A common stock; however, Class B common stock has no voting rights. The following table presents shares authorized, issued, and outstanding. December 31, 2023 December 31, 2022 December 31, 2021 Class A Class B Class A Class B Class A Class B Common stock authorized 500,000 10,000,000 500,000 10,000,000 500,000 10,000,000 Common stock issued and outstanding 206,864 2,068,640 206,864 2,068,640 206,864 2,068,640 Earnings Per Share Earnings per share of common stock is based on the weighted-average number of shares outstanding during the year. The shares of Company stock attributable to our limited partner interest in the investment partnerships — based on our proportional ownership during this period — are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the calculation of weighted-average common shares outstanding. However, these shares are legally outstanding. The Company has applied the “two-class method” of computing earnings per share as prescribed in Accounting Standards Codification (“ASC”) 260, “ Earnings Per Share .” The equivalent Class A common stock applied for computing earnings per share excludes the proportional shares of Biglari Holdings’ stock held by the investment partnerships. In the tabulation below is the equivalent Class A common stock for earnings per share. There are no dilutive securities outstanding. 2023 2022 2021 Equivalent Class A common stock outstanding 620,592 620,592 620,592 Proportional ownership of Company stock held by investment partnerships 330,606 322,561 303,341 Equivalent Class A common stock for earnings per share 289,986 298,031 317,251 Revenue Recognition Restaurant operations Restaurant operations revenues were disaggregated as follows. 2023 2022 2021 Net sales $ 152,545 $ 149,184 $ 187,913 Franchise partner fees 72,552 63,853 55,641 Franchise royalties and fees 16,443 19,678 21,736 Other 9,317 8,853 6,000 $ 250,857 $ 241,568 $ 271,290 34 Table of Contents Note 1. Summary of Significant Accounting Policies (continued) Net Sales Net sales are composed of retail sales of food through company-operated stores. Company-operated store revenues are recognized, net of discounts and sales taxes, when our obligation to perform is satisfied at the point of sale. Sales taxes related to these sales are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated statements of earnings as revenue. Franchise Partner Fees Franchise partner fees are composed of up to 15 % of sales as well as 50 % of profits. We are therefore fully affected by the operating results of the business, unlike in a traditional franchising arrangement, where the franchisor obtains a royalty fee based on sales only. We generate the majority of our revenue from our share of the franchise partners’ profits. An initial franchise fee of ten thousand dollars is recognized when the operator becomes a franchise partner. The Company recognizes franchise partner fees monthly as underlying restaurant sales occur. The Company leases or subleases property and equipment to franchisees under lease arrangements. Both real estate and equipment rental payments are charged to franchisees and are recognized in accordance with ASC 842, “ Leases. ” During the years ended 2023, 2022, and 2021, restaurant operations recognized $ 22,687 , $ 20,426 , and $ 15,483 , 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, 2023, 2022, and 2021, restaurant operations recognized $ 1,207 , $ 1,810 , and $ 2,033 , respectively, in revenue related to initial franchise fees. As of December 31, 2023 and 2022, restaurant operations had deferred revenue recorded in accrued expenses related to franchise fees of $ 2,280 and $ 3,484 , respectively. Restaurant operations expect to recognize approximately $ 443 of deferred revenue during 2024. Our advertising arrangements with franchisees are reported in franchise royalties and fees. During the years ended December 31, 2023, 2022, and 2021, restaurant operations recognized $ 4,479 , $ 6,386 , and $ 6,829 , respectively, in revenue related to franchisee advertising fees. As of December 31, 2023 and 2022, restaurant operations had deferred revenue recorded in accrued expenses related to franchisee advertising fees of $ 1,945 and $ 2,748 , respectively. Restaurant operations expect to recognize approximately $ 1,556 of deferred revenue during 2024. Other Revenue Restaurant operations sells gift cards to customers which can be redeemed for retail food sales within our stores. Gift cards are recorded as deferred revenue when issued and are subsequently recorded as net sales upon redemption. Restaurant operations estimates breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based on the vintage of the gift card. Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions by vintage. For the years ended December 31, 2023, 2022, and 2021, restaurant operations recognized $ 5,276 , $ 5,395 , and $ 5,903 , respectively, of revenue from gift card redemptions. As of December 31, 2023 and 2022, restaurant operations had deferred revenue recorded in accrued expenses related to unredeemed gift cards of $ 5,144 and $ 9,279 , respectively. Restaurant operations expect to recognize approximately $ 2,500 of deferred revenue during 2024. 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. 35 Table of Contents Note 1. Summary of Significant Accounting Policies (continued) Licensing Revenue and Other Licensing revenue is recognized when earned. We derive value and revenues from intellectual property assets through a range of licensing and business activities, including licensing and syndication of our trademarks and copyrights in the United States and internationally. Magazine subscription and advertising revenues are recognized at the magazine cover date. The unearned portion of magazine subscriptions is deferred until the magazine’s cover date, at which time a proportionate share of the gross subscription price is recognized as revenue. Restaurant Cost of Sales Cost of sales includes the cost of food, restaurant operating costs, and restaurant occupancy costs. Cost of sales excludes depreciation and amortization, which is presented as a separate line item on the consolidated statement of earnings. Insurance Losses and Underwriting Expenses Liabilities for estimated unpaid losses and loss adjustment expenses with respect to claims occurring on or before the balance sheet date are established under insurance contracts issued by our insurance subsidiaries. Such estimates include provisions for reported claims or case estimates, provisions for incurred but not reported claims, and legal and administrative costs to settle claims. The estimates of unpaid losses and amounts recoverable under reinsurance are established and continually reviewed by using a variety of actuarial, statistical, and analytical techniques. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect to the underlying insurance contracts. Oil and Gas Production Costs Oil and gas production costs are costs incurred to operate and maintain wells and related equipment and facilities, including lease operating expenses and production taxes. Marketing Expense Advertising costs are charged to expense at the later of the date the expenditure is incurred or the date the promotional item is first communicated. Marketing expense is included in selling, general and administrative expenses in the consolidated statement of earnings. Savings Plans Several of our subsidiaries also sponsor defined contribution retirement plans, such as 401(k) or profit-sharing plans. Employee contributions to the plans are subject to regulatory limitations and the specific plan provisions. Some of the plans allow for discretionary contributions as determined by management. Employer contributions expensed with respect to these plans were not material. Foreign Currency Translation The Company has certain subsidiaries located in foreign jurisdictions. For subsidiaries whose functional currency is other than the U.S. dollar, the translation of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted-average exchange rates for revenue and expenses, and historical rates for equity. The resulting currency translation adjustment is recorded in accumulated other comprehensive income, as a component of equity. Use of Estimates Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from the estimates. New Accounting Standards In November 2023, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance to improve reportable segment disclosure requirements. The new guidance requires that public entities disclose additional information related to significant segment expenses regularly provided to the chief operating decision maker and other segment items. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We are evaluating the impact of the new guidance on our disclosures. In December 2023, the FASB issued authoritative guidance modifying the disclosure requirements for income tax. Notable changes in the new guidance include disaggregation of income tax information by jurisdiction and changes to the presentation of information for the reconciliation of effective tax rates. The guidance is effective for fiscal years beginning after December 15, 2024. We are evaluating the impact of the new guidance on our disclosures. 36 Table of Contents Note 2. Business Acquisitions On September 14, 2022, the Company purchased Preferred Shares of Abraxas Petroleum for $ 80,000 . On October 26, 2022, the Company converted the Preferred Shares to 90 % of the outstanding common stock of Abraxas Petroleum. On June 14, 2023, the remaining 10 % of the outstanding common stock of Abraxas Petroleum was acquired for $ 5,387 . We have concluded that Abraxas Petroleum is a consolidated entity and recorded noncontrolling interests attributable to the interest held by other shareholders. The Company used working capital including its line of credit to fund the purchase of the Preferred Shares. Abraxas Petroleum operates oil and natural gas properties in the Permian Basin. The Company’s financial results include the results of Abraxas Petroleum from the acquisition date. The purchase price allocation is as follows. September 14, 2022 Cash and cash equivalents $ 21,726 Receivables and other assets 6,518 Property and equipment 75,400 Total identifiable assets acquired 103,644 Accounts payable and accrued expenses ( 10,719 ) Asset retirement obligations ( 3,587 ) Deferred taxes ( 449 ) Total liabilities assumed ( 14,755 ) Noncontrolling interest ( 8,889 ) Total consideration $ 80,000 Note 3. Investments Investments were $ 91,879 and $ 69,466 as of December 31, 2023 and 2022, respectively. We classify investments in fixed maturity securities at the acquisition date as available-for-sale. Realized gains and losses on disposals of investments are determined on a specific identification basis. Dividends earned on investments held by our insurance companies are reported as investment income. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. Investment gains in 2023 were $ 2,211 . Investment losses in 2022 were $ 3,393 . Investment gains were $ 6,401 in 2021, which includes a $ 5,047 gain on the sale of real estate. Note 4. Investment Partnerships The Company reports on the limited partnership interests in investment partnerships under the equity method of accounting. We record our proportional share of equity in the investment partnerships but exclude Company common stock held by said partnerships. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. The Company records gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the consolidated statements of earnings based on our carrying value of these partnerships. The fair value is calculated net of the general partner’s accrued incentive fees. Gains and losses on Company common stock included in the earnings of these partnerships are eliminated because they are recorded as treasury stock. Biglari Capital Corp. is the general partner of the investment partnerships. Biglari Capital Corp. is solely owned by Mr. Biglari. 37 Table of Contents Note 4. Investment Partnerships (continued) The fair value and adjustment for Company common stock held by the investment partnerships to determine the carrying value of our partnership interest are presented below. Fair Value Company Common Stock Carrying Value 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 Investment partnership gains (losses) ( 80,374 ) ( 4,421 ) ( 75,953 ) Distributions (net of contributions) ( 10,823 ) ( 10,823 ) Increase in proportionate share of Company stock held 7,829 ( 7,829 ) Partnership interest at December 31, 2022 $ 383,004 $ 227,210 $ 155,794 Investment partnership gains (losses) 59,238 39,797 19,441 Contributions (net of distributions) 30,530 30,530 Increase in proportionate share of Company stock held 6,662 ( 6,662 ) Partnership interest at December 31, 2023 $ 472,772 $ 273,669 $ 199,103 The carrying value of the investment partnerships net of deferred taxes is presented below. December 31, 2023 2022 Carrying value of investment partnerships $ 199,103 $ 155,794 Deferred tax liability related to investment partnerships ( 27,896 ) ( 23,643 ) Carrying value of investment partnerships net of deferred taxes $ 171,207 $ 132,151 Because of a transaction that occurred between The Lion Fund, L.P., and The Lion Fund II, L.P., in 2022, we expect that a majority of the $ 27,896 deferred tax liability enumerated above will not become due until the dissolution of the investment partnerships. In effect, the tax-basis cost increased for the common stock of certain unaffiliated securities held by the investment partnerships. The Company’s proportionate share of Company stock held by the investment partnerships at cost was $ 416,342 and $ 409,680 at December 31, 2023 and 2022, respectively. 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. 2023 2022 2021 Gains (losses) from investment partnerships $ 19,440 $ ( 75,953 ) $ 10,953 Tax expense (benefit) 4,794 ( 18,992 ) 2,054 Contribution to net earnings $ 14,646 $ ( 56,961 ) $ 8,899 38 Table of Contents Note 4. Investment Partnerships (continued) 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. An incentive reallocation from Biglari Holdings to Biglari Capital would include 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. There were no incentive reallocations from Biglari Holdings to Biglari Capital during 2023, 2022, or 2021. 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, 2023 $ 371,365 $ 373,302 Total liabilities as of December 31, 2023 $ 26,594 $ 185,024 Revenue for the year ended December 31, 2023 $ 48,242 $ 31,157 Earnings for the year ended December 31, 2023 $ 47,154 $ 21,135 Biglari Holdings’ ownership interest 89.7 % 86.8 % Total assets as of December 31, 2022 $ 285,071 $ 330,832 Total liabilities as of December 31, 2022 $ 10,517 $ 167,847 Revenue for the year ended December 31, 2022 $ ( 8,353 ) $ ( 79,397 ) Earnings for the year ended December 31, 2022 $ ( 8,690 ) $ ( 82,534 ) Biglari Holdings’ ownership interest 88.5 % 86.0 % 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 % Revenue in the financial information of the investment partnerships, summarized above, includes investment income and unrealized gains and losses on investments. Note 5. Other Current Assets Other current assets include the following. December 31, 2023 2022 Deferred commissions on gift cards sold by third parties $ 1,019 $ 1,454 Assets held for sale 773 4,700 Prepaid contractual obligations 5,593 4,341 Other current assets $ 7,385 $ 10,495 The assets classified as held for sale at December 31, 2023, include properties owned by Steak n Shake, which were previously company-operated restaurants. The asset held for sale at December 31, 2022, is Abraxas Petroleum’s office building in San Antonio, Texas. Abraxas Petroleum sold its office building for $ 4,719 with no gain or loss recorded. 39 Table of Contents Note 6. Property and Equipment Property and equipment are composed of the following. December 31, 2023 2022 Land $ 139,897 $ 143,313 Buildings 151,716 151,627 Land and leasehold improvements 149,795 151,496 Equipment 212,424 222,661 Oil and gas properties 145,065 144,888 Construction in progress 1,629 2,238 800,526 816,223 Less accumulated depreciation, depletion, and amortization ( 420,035 ) ( 415,498 ) Property and equipment, net $ 380,491 $ 400,725 The depreciation and amortization expense for property and equipment for 2023, 2022, and 2021 was $ 28,751 , $ 28,879 , and $ 22,012 , respectively. The depletion expense related to oil and gas properties was $ 9,533 , $ 7,024 , and $ 7,600 during 2023, 2022, and 2021, respectively. The accretion expense of the Company’s asset retirement obligations was $ 695 , $ 540 , and $ 438 during 2023, 2022, and 2021, respectively. Depletion and accretion expense are included in depreciation, depletion, and amortization expense within the consolidated statement of earnings. Accumulated depreciation, depletion, and accretion on oil and gas properties was $ 44,716 and $ 35,072 as of December 31, 2023 and 2022, respectively. The Company recorded impairments to restaurant long-lived assets of $ 3,947 , $ 3,520 , and $ 4,635 during 2023, 2022, and 2021, 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. During 2023, Abraxas Petroleum entered into a royalty-based arrangement with an unaffiliated party to conduct development activities that will establish proved undeveloped reserves on its proportional share; however, Abraxas Petroleum will not be required to fund any exploration expenditures on its undeveloped properties. As a result of the transaction, a gain of $ 13,563 was recorded in 2023. Also during 2023, Steak n Shake recognized a net gain of $ 7,918 in connection with property sales, lease terminations, and asset disposals. The property and equipment cost related to finance obligations as of December 31, 2023, is as follows: $ 45,658 of buildings, $ 44,180 of land, $ 26,690 of land and leasehold improvements, and $ 59,985 of accumulated depreciation. Note 7. Asset Retirement Obligations A reconciliation of the ending aggregate carrying amount of asset retirement obligations is as follows. December 31 2023 2022 Beginning balance $ 14,645 $ 10,624 Acquired balance — 3,587 Liabilities settled ( 294 ) ( 106 ) Accretion expense 695 540 Asset retirement obligation $ 15,046 $ 14,645 As of December 31, 2023 and 2022, $ 730 and $ 577 , respectively, is classified as current and is included in accounts payable and accrued expenses in the consolidated balance sheets. 40 Table of Contents Note 8. 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 or Abraxas Petroleum. A reconciliation of the change in the carrying value of goodwill is as follows. Restaurants Insurance Total Balance as of December 31, 2021 Goodwill $ 28,134 $ 25,713 $ 53,847 Accumulated impairment losses ( 300 ) — ( 300 ) $ 27,834 $ 25,713 $ 53,547 Change in foreign exchange rates during 2022 ( 34 ) — ( 34 ) Balance as of December 31, 2022 $ 27,800 $ 25,713 $ 53,513 Change in foreign exchange rates during 2023 17 — 17 Balance as of December 31, 2023 $ 27,817 $ 25,713 $ 53,530 We evaluate goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. Goodwill and indefinite-lived intangible asset impairment evaluations include determining the estimated fair values of our reporting units and indefinite-lived intangible assets. The key assumptions and inputs used in such determinations may include forecasting revenue and expenses, cash flows, and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment reviews. Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may differ materially from the forecasts. If the carrying value of the indefinite-lived intangible asset exceeds fair value, the excess is charged to earnings as an impairment loss. If the carrying value of a reporting unit exceeds the estimated fair value of the reporting unit, then the excess, limited to the carrying amount of goodwill, will be charged to earnings as an impairment loss. 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. For our 2023 annual goodwill impairment testing, we elected to perform qualitative assessments for our reporting units. No indicators of impairment were noted. No impairment was recorded for our reporting units in 2023 or 2022. Other Intangible Assets Intangible assets with indefinite lives are composed of the following. Trade Names Lease Rights Total Balance as of December 31, 2021 Intangibles $ 15,876 $ 11,315 $ 27,191 Accumulated impairment losses — ( 3,728 ) ( 3,728 ) $ 15,876 $ 7,587 $ 23,463 Change in foreign exchange rates during 2022 — ( 426 ) ( 426 ) Balance as of December 31, 2022 $ 15,876 $ 7,161 $ 23,037 Impairment — ( 20 ) ( 20 ) Change in foreign exchange rates during 2023 — 213 213 Balance as of December 31, 2023 $ 15,876 $ 7,354 $ 23,230 Intangible assets with indefinite lives consist of trade names and lease rights. During 2023, $ 20 of impairment was recorded. No impairment was recorded in 2022 or 2021. 41 Table of Contents Note 9. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses include the following. December 31, 2023 2022 Accounts payable $ 22,448 $ 28,431 Gift cards and other marketing 7,089 12,028 Insurance accruals 2,565 6,012 Compensation 12,821 4,400 Deferred revenue 5,314 4,445 Taxes payable 11,050 14,896 Oil and gas payable 3,560 3,877 Other 1,896 4,527 Accounts payable and accrued expenses $ 66,743 $ 78,616 Note 10. Unpaid Loss and Loss Adjustment Expense Other liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under insurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, net of reinsurance, for each of the years ended December 31, 2023 and 2022 follows. 2023 2022 Balances at beginning of year: Gross liabilities $ 17,520 $ 14,993 Reinsurance recoverable on unpaid losses ( 715 ) ( 1,892 ) Net liabilities 16,805 13,101 Incurred losses and loss adjustment expenses: Current accident year 39,303 37,837 Prior accident years ( 3,634 ) ( 652 ) Total 35,669 37,185 Paid losses and loss adjustment expenses: Current accident year 30,554 27,415 Prior accident years 6,752 6,066 Total 37,306 33,481 Balances at December 31: Net liabilities 15,168 16,805 Reinsurance recoverable on unpaid losses 937 715 Gross liabilities $ 16,105 $ 17,520 We recorded net reductions of estimated ultimate liabilities for prior accident years of $ 3,634 in 2023 and $ 652 in 2022. These reductions, as a percentage of net liabilities at the beginning of each year, were 21.6 % in 2023 and 5.0 % in 2022. 42 Table of Contents Note 10. Unpaid Losses and Loss Adjustment Expenses (continued) Our net incurred and paid liability losses and loss adjustment expenses are summarized by accident year below. IBNR and case development liabilities are as of December 31, 2023. Incurred Losses and Loss Adjustment Expenses through December 31, Accident Year 2017* 2018* 2019* 2020* 2021* 2022* 2023 IBNR and Case Development Liabilities Cumulative Number of Reported Claims 2017 $ 29,627 $ 28,778 $ 28,895 $ 28,537 $ 28,189 $ 28,213 $ 28,171 $ 179 4,343 2018 26,576 26,650 26,455 26,385 26,328 26,194 145 3,762 2019 27,331 26,746 26,444 26,325 25,972 141 3,681 2020 26,415 25,118 24,305 23,804 323 3,662 2021 26,555 26,527 26,267 1,874 3,685 2022 34,356 32,137 3,399 3,876 2023 35,450 8,198 3,611 $ 197,995 Cumulative Paid Losses and Loss Adjustment Expenses through December 31, Accident Year 2017* 2018* 2019* 2020* 2021* 2022* 2023 2017 $ 22,293 $ 25,491 $ 26,991 $ 27,584 $ 27,815 $ 27,990 $ 27,992 2018 20,246 23,796 24,844 25,589 25,974 26,049 2019 20,755 23,787 24,647 25,357 25,831 2020 20,481 22,614 23,386 23,481 2021 19,649 22,800 24,393 2022 24,775 28,738 2023 27,252 Paid losses and loss adjustment expenses 183,736 Incurred less paid losses and loss adjustment expenses 14,259 Unpaid loss adjustment expenses 909 Net unpaid losses and loss adjustment expenses $ 15,168 *Unaudited required supplemental information Loss and loss adjustment expense reserves include an amount for reported losses and an amount for losses incurred but not reported. We establish average liabilities based on expected severities for newly reported claims prior to establishing individual case reserves when insufficient time or information is available for specific claim estimates and for large volumes of minor physical damage claims that, once reported, are quickly settled. We establish case loss estimates for claims, including estimates for loss adjustment expenses, as the facts and merits of the claim are evaluated. Such reserves are necessarily based upon estimates, and while management, based on past experience, believes that the amount is adequate, the ultimate liability may be more or less than the amounts provided. We may record supplemental IBNR liabilities in certain situations when actuarial techniques are difficult to apply. The methods for making such estimates and for establishing the resulting reserves are continually reviewed, and any adjustments are reflected in operations annually. 43 Table of Contents Note 10. Unpaid Losses and Loss Adjustment Expenses (continued) First Guard First Guard’s claim liabilities predominately relate to commercial truck claims. For such claims, we establish and evaluate unpaid claim liabilities using historical claims data and other data as necessary to determine our best estimate, with an annual review by certified actuaries and certified public accountants. Claim liabilities include average case, case development, and IBNR estimates. Southern Pioneer Southern Pioneer’s claim liabilities predominately relate to liquor liability, garage liability, and commercial property as well as homeowners and dwelling fire claims. For such claims, we establish and evaluate unpaid claim liabilities using standard actuarial methods and techniques. The actuarial methods utilize historical claims data, adjusted when deemed appropriate to reflect perceived changes in loss patterns. Claim liabilities include average case, case development, and IBNR estimates. Note 11. Income Taxes The components of the provision for income taxes consist of the following. 2023 2022 2021 Current: Federal $ 2,197 $ 1,935 $ 1,053 State 544 2,925 467 Deferred 6,567 ( 15,582 ) 5,269 Income tax expense (benefit) $ 9,308 $ ( 10,722 ) $ 6,789 Reconciliation of effective income tax: Tax at U.S. statutory rates $ 13,618 $ ( 9,036 ) $ 8,875 State income taxes, net of federal benefit 1,572 ( 555 ) 192 Federal income tax credits ( 1,309 ) ( 106 ) ( 864 ) Dividends received deduction ( 1,169 ) ( 1,183 ) ( 468 ) Valuation allowance 709 614 ( 723 ) 162(m) compensation limitation 1,506 — — Foreign tax rate differences ( 97 ) ( 124 ) ( 78 ) Abraxas tax attributes ( 5,660 ) — — Other 138 ( 332 ) ( 145 ) Income tax expense (benefit) $ 9,308 $ ( 10,722 ) $ 6,789 The Company did not have a net tax expense or benefit on income from international operations. Earnings before income taxes derived from domestic operations during 2023 were $ 67,736 , losses before income taxes derived from domestic operations during 2022 were $ 40,624 , and earnings before income taxes derived from domestic operations during 2021 were $ 43,886 . Losses before income taxes derived from international operations during 2023, 2022, and 2021 were $ 2,889 , $ 2,403 , and $ 1,619 , respectively. During 2023, the Company recognized tax benefits associated with the tax attributes of Abraxas Petroleum’s oil and gas properties. 44 Table of Contents Note 11. Income Taxes (continued) As of December 31, 2023, we had $ 348 of unrecognized tax benefits, including $ 48 of interest and penalties, which are included in other long-term liabilities in the consolidated balance sheet. As of December 31, 2022, we had $ 99 of unrecognized tax benefits, including $ 13 of interest and penalties, which is 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 $ 348 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 statutes of limitations during 2023, 2022, and 2021 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 2020. We believe we have certain state income tax exposures related to fiscal years 2019 through 2023. Deferred tax assets and liabilities are determined based on differences between financial reporting and the 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, 2023 2022 Deferred tax assets: Insurance reserves $ 1,734 $ 1,490 Compensation accruals 653 373 Gift card accruals 749 1,159 Net operating loss credit carryforward 19,840 12,597 Valuation allowance on net operating losses ( 14,643 ) ( 6,043 ) Deferred income 351 830 Bad debt reserve 667 1,104 Other 313 487 Total deferred tax assets 9,664 11,997 Deferred tax liabilities: Investment partnerships 27,896 23,643 Investments 288 ( 197 ) Goodwill and intangibles 16,350 16,027 Fixed assets and depletable assets basis difference 3,069 3,867 Total deferred tax liabilities 47,603 43,340 Net deferred tax liability $ ( 37,939 ) $ ( 31,343 ) Accounts payable and accrued expenses include income taxes payable of $ 980 as of December 31, 2023, and $ 3,881 as of December 31, 2022. 45 Table of Contents Note 12. Lines of Credit Biglari Holdings Line of Credit On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $ 30,000 . The line of credit will be available on a revolving basis until September 13, 2024. The line of credit includes customary covenants, as well as financial maintenance covenants. There was no balance of the line of credit on December 31, 2023. The balance of the line of credit was $ 10,000 on December 31, 2022. Our interest rate was 8.06 % and 6.53 % on December 31, 2023 and 2022, respectively, which is based on the 30-day Secured Overnight Financing Rate plus 2.73 %. Western Sizzlin Revolver Western Sizzlin’s available line of credit is $ 500 . As of December 31, 2023 and 2022, Western Sizzlin had no debt outstanding under its revolver. Note 13. Lease Assets and Obligations Lease obligations include the following. December 31, 2023 2022 Current portion of lease obligations Finance lease liabilities $ 1,258 $ 1,237 Finance obligations 4,826 5,161 Operating lease liabilities 8,771 10,583 Total current portion of lease obligations $ 14,855 $ 16,981 Long-term lease obligations Finance lease liabilities $ 3,581 $ 4,129 Finance obligations 56,471 58,868 Operating lease liabilities 26,337 28,847 Total long-term lease obligations $ 86,389 $ 91,844 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 A significant portion of our operating and finance lease portfolio includes restaurant locations. We recognize fixed lease expense for operating leases on a straight-line basis over the lease term. For finance leases, we recognize amortization expense on the right-of-use asset and interest expense on the lease liability over the lease term. Total lease costs consist of the following. 2023 2022 2021 Finance lease costs: Amortization of right-of-use assets $ 949 $ 1,290 $ 1,576 Interest on lease liabilities 345 422 521 Operating lease costs* 284 2,736 1,119 Total lease costs $ 1,578 $ 4,448 $ 3,216 *Includes short-term leases, variable lease costs, and sublease income. 46 Table of Contents Note 13. Lease Asset and Obligations (continued) Supplemental cash flow information related to leases is as follows. Year Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Financing cash flows from finance leases $ 1,220 $ 1,396 Operating cash flows from finance leases $ 345 $ 421 Operating cash flows from operating leases $ 12,469 $ 12,946 Supplemental balance sheet information related to leases is as follows. December 31, 2023 2022 Finance leases: Property and equipment, net $ 3,574 $ 4,352 Weighted-average lease terms and discount rates are as follows. 2023 Weighted-average remaining lease terms: Finance leases 4.73 years Operating leases 5.41 years Weighted-average discount rates: Finance leases 7.0 % Operating leases 7.0 % Maturities of lease liabilities as of December 31, 2023, are as follows. Year Operating Leases Finance Leases 2024 $ 10,863 $ 1,552 2025 9,070 1,403 2026 6,551 1,063 2027 4,272 728 2028 3,451 337 After 2028 7,792 613 Total lease payments 41,999 5,696 Less interest 6,891 857 Total lease liabilities $ 35,108 $ 4,839 Rent expense is presented below. 2023 2022 2021 Minimum rent $ 12,712 $ 14,333 $ 14,926 Contingent rent 73 105 137 Rent expense $ 12,785 $ 14,438 $ 15,063 47 Table of Contents Note 13. Lease Asset and Obligations (continued) Lease Income The components of lease income are as follows. 2023 2022 2021 Operating lease income $ 16,343 $ 15,698 $ 13,173 Variable lease income 7,349 5,875 3,479 Total lease income $ 23,692 $ 21,573 $ 16,652 The following table displays the Company’s future minimum rental receipts for non-cancelable leases and subleases as of December 31, 2023. Franchise partner leases and subleases are short-term leases and have been excluded from the table. Operating Leases Year Subleases Owned Properties 2024 $ 622 $ 396 2025 544 404 2026 225 407 2027 206 415 2028 86 423 After 2028 — 2,435 Total future minimum receipts $ 1,683 $ 4,480 Note 14. 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 rolling five-year term, with annual adjustments to the fixed fee. The fixed fee increased from $ 700 per month to $ 800 per month in December 2023. The fixed fee had not been adjusted since its inception in October 2017. The Company paid Biglari Enterprises $ 8,500 in service fees during 2023 and $ 8,400 during 2022. 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, 2023, the Company’s investments in The Lion Fund, L.P., and The Lion Fund II, L.P., had a fair value of $ 472,772 . Contributions to and distributions from The Lion Fund, L.P., and The Lion Fund II, L.P., were as follows. 2023 2022 2021 Contributions $ 45,030 $ 59,877 $ 12,300 Distributions ( 14,500 ) ( 70,700 ) ( 180,170 ) $ 30,530 $ ( 10,823 ) $ ( 167,870 ) As the general partner of the investment partnerships, Biglari Capital will earn an incentive reallocation fee, on December 31 of each year, 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 2023, 2022, or 2021. Gains on the Company’s common stock and the related incentive reallocations are eliminated in our financial statements. 48 Table of Contents Note 14. Related Party Transactions (continued) 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 2023, Mr. Biglari earned an incentive fee of $ 7,271 . The incentive fee will be paid in 2024 and is recorded as accrued compensation within accounts payable and accrued expenses as of December 31, 2023. No incentive fees were earned during 2022 or 2021. Note 15. 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 16. 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 the market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below. • Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets. • Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs), such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations, and yields for other instruments of the issuer or entities in the same industry sector. • Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and we may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities. The following methods and assumptions were used to determine the fair value of each class of the following assets recorded at fair value in the consolidated balance sheets: Cash equivalents: Cash equivalents primarily consist of money market funds, which are classified within Level 1 of the fair value hierarchy. Equity securities: The Company’s investments in equity securities are classified within Level 1 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 of the fair value hierarchy. 49 Table of Contents Note 16. Fair Value of Financial Assets (continued) 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. As of December 31, 2023 and 2022, the fair values of financial assets were as follows. December 31, 2023 2022 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 2,374 $ — $ — $ 2,374 $ 17,608 $ — $ — $ 17,608 Equity securities: Consumer goods 26,660 — — 26,660 17,274 — — 17,274 Other 3,171 — — 3,171 2,031 — — 2,031 Bonds: Government 61,536 — — 61,536 48,456 — — 48,456 Corporate 3,199 — — 3,199 2,199 — — 2,199 Non-qualified deferred compensation plan investments — — — — 699 — — 699 Total assets at fair value $ 96,940 $ — $ — $ 96,940 $ 88,267 $ — $ — $ 88,267 There were no changes in the valuation techniques used to measure fair values on a recurring basis. 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. Our oil and gas operations include Southern Oil and Abraxas Petroleum. The Company also reports segment information for Maxim. Other business activities not specifically identified with reportable business segments are presented under corporate and other. 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. 50 Table of Contents Note 17. 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. Revenue 2023 2022 2021 Operating Businesses: Restaurant Operations: Steak n Shake $ 239,956 $ 231,820 $ 263,135 Western Sizzlin 10,901 9,748 8,155 Total Restaurant Operations 250,857 241,568 271,290 Insurance Operations: Underwriting: First Guard 36,917 35,914 33,521 Southern Pioneer 24,308 24,035 21,890 Investment income and other 6,047 4,591 3,198 Total Insurance Operations 67,272 64,540 58,609 Oil and Gas Operations: Abraxas Petroleum 27,576 11,455 — Southern Oil 17,495 46,091 33,004 Total Oil and Gas Operations 45,071 57,546 33,004 Maxim 2,118 4,577 3,203 $ 365,318 $ 368,231 $ 366,106 51 Table of Contents Note 17. Business Segment Reporting (continued) Earnings (Loss) Before Income Taxes 2023 2022 2021 Operating Businesses: Restaurant Operations: Steak n Shake $ 26,170 $ 11,478 $ 13,524 Western Sizzlin 1,793 1,484 931 Total Restaurant Operations 27,963 12,962 14,455 Insurance Operations: Underwriting: First Guard 9,492 6,578 10,573 Southern Pioneer ( 1,038 ) ( 1,277 ) 1,744 Investment income and other 4,629 4,603 2,118 Total Insurance Operations 13,083 9,904 14,435 Oil and Gas Operations: Abraxas Petroleum 22,410 652 — Southern Oil 3,356 24,539 9,713 Total Oil and Gas Operations 25,766 25,191 9,713 Maxim 11 1,760 814 Interest expense not allocated to segments ( 681 ) ( 399 ) ( 1,121 ) Operating Businesses 66,142 49,418 38,296 Corporate and other ( 22,946 ) ( 13,099 ) ( 13,383 ) Investment gains (losses) 2,211 ( 3,393 ) 6,401 Investment partnership gains (losses) 19,440 ( 75,953 ) 10,953 $ 64,847 $ ( 43,027 ) $ 42,267 Capital Expenditures 2023 2022 2021 Operating Businesses: Restaurant $ 21,294 $ 24,470 $ 60,296 Insurance 309 1,558 1,451 Oil and Gas 544 906 996 Operating Businesses 22,147 26,934 62,743 Corporate and other 1,258 2,812 1,806 $ 23,405 $ 29,746 $ 64,549 52 Table of Contents Note 17. Business Segment Reporting (continued) Depreciation, Depletion, and Amortization 2023 2022 2021 Operating Businesses: Restaurant $ 27,031 $ 27,496 $ 21,484 Insurance 339 193 176 Oil and Gas 10,339 8,013 8,073 Operating Businesses 37,709 35,702 29,733 Corporate and other 1,270 741 317 $ 38,979 $ 36,443 $ 30,050 A disaggregation of our consolidated assets is presented in the table that follows. Identifiable Assets December 31, 2023 2022 Reportable segments: Restaurant Operations: Steak n Shake $ 325,229 $ 341,199 Western Sizzlin 20,296 19,431 Total Restaurant Operations 345,525 360,630 Insurance Operations: First Guard 67,204 58,997 Southern Pioneer 76,324 75,373 Total Insurance Operations 143,528 134,370 Oil and Gas Operations: Abraxas Petroleum 66,155 81,339 Southern Oil 43,644 49,416 Total Oil and Gas Operations 109,799 130,755 Maxim 16,056 16,093 Corporate 35,411 30,832 Investment partnerships 199,103 155,794 $ 849,422 $ 828,474 53 Table of Contents Note 18. Supplemental Disclosures of Cash Flow Information A summary of supplemental cash flow information for each of the three years ending December 31, 2023, 2022, and 2021 is presented in the following table. 2023 2022 2021 Cash paid during the year for: Interest on debt $ 710 $ 359 $ 994 Interest on obligations under leases 5,114 5,493 6,039 Income taxes 5,677 1,092 4,532 Non-cash investing and financing activities Capital expenditures in accounts payable 2,077 1,897 8,733 Finance lease additions 694 — 733 Finance lease retirements — — 1,216 Note 19. Supplemental Oil and Gas Disclosures (Unaudited) The Company has determined it had significant oil and gas producing activities during the years ended December 31, 2023, December 31, 2022, and December 31, 2021, in accordance with ASC 932 “ Extractive Activities — Oil and Gas. ” 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 for 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. We engaged Netherland, Sewell & Associates, Inc. (“NSAI”), to prepare our reserve estimates for all of our estimated proved reserves at December 31, 2023. All proved oil and natural gas reserves are located in the United States, primarily offshore in the shallow waters of the Gulf of Mexico and in the Permian Basin. 54 Table of Contents Note 19. Supplemental Oil and Gas Disclosures (Unaudited) (continued) The following table sets forth our estimate of the net proved oil and gas reserves for the years ended December 31, 2023 and 2022. Oil (MBbl) Gas (MMcf) Liquids (MBbl) MBOE Total proved reserves at December 31, 2021 2,361 26,544 — 6,785 Revisions ( 355 ) ( 3,288 ) — ( 903 ) Extensions — — — — Acquisition of reserves 3,415 19,334 1,550 8,188 Production ( 450 ) ( 2,341 ) ( 42 ) ( 882 ) Total proved reserves at December 31, 2022 4,971 40,249 1,508 13,188 Revisions ( 512 ) ( 14,934 ) ( 42 ) ( 3,043 ) Extensions 219 470 66 362 Acquisition of reserves — — — — Production ( 542 ) ( 2,181 ) ( 111 ) ( 1,016 ) Total proved reserves at December 31, 2023 4,136 23,604 1,421 9,491 Proved developed reserves December 31, 2023 3,534 21,395 1,355 8,455 December 31, 2022 4,507 32,132 1,508 11,371 Proved undeveloped reserves December 31, 2023 602 2,209 66 1,036 December 31, 2022 464 8,117 — 1,817 Revisions are affected by commodity prices as well as changes to previous proved reserve estimates based on the evaluation of production and operating performance data. Bbl — One stock tank barrel, or 42 United States gallons liquid volume. MBbl — Thousand barrels. MMcf — Million cubic feet of natural gas. MBOE — Thousand barrels of oil equivalent. Natural gas is converted to an oil equivalent basis at six thousand cubic feet per one barrel of oil. 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, 2023 and 2022, 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. 55 Table of Contents Note 19. Supplemental Oil and Gas Disclosures (Unaudited) (continued) 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, 2023 and 2022. December 31, 2023 December 31, 2022 Future cash inflows $ 367,867 $ 728,382 Future production costs ( 172,239 ) ( 288,816 ) Future development and abandonment costs ( 28,533 ) ( 36,719 ) Future income tax expense ( 22,919 ) ( 69,999 ) Future net cash flows 144,176 332,848 10 % annual discount for estimated timing of cash flows ( 51,727 ) ( 122,781 ) Standardized measure of discounted future net cash flows $ 92,449 $ 210,067 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. Standardized measure at December 31, 2021 $ 77,759 Net change in prices and production costs 58,439 Net change in future development costs 104 Sales of oil and natural gas, net of production expenses ( 41,859 ) Acquisition of reserves 141,051 Revisions of previous quantity estimates ( 9,072 ) Net change in taxes ( 26,456 ) Accretion of discount 9,862 Changes in timing and other 239 Standardized measure at December 31, 2022 $ 210,067 Net change in prices and production costs ( 86,323 ) Net change in future development costs ( 101 ) Sales of oil and natural gas, net of production expenses ( 27,706 ) Extensions 8,836 Revisions of previous quantity estimates ( 59,164 ) Net change in taxes 30,792 Accretion of discount 22,641 Changes in timing and other ( 6,593 ) Standardized measure at December 31, 2023 $ 92,449 56 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.