Biglari Holdings Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS BIGLARI HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands) March 31, 2024 December 31, 2023 (Unaudited) Assets Current assets: Cash and cash equivalents $ 34,536 $ 28,066 Investments 97,725 91,879 Receivables 24,198 22,241 Inventories 3,565 2,980 Other current assets 8,410 7,385 Total current assets 168,434 152,551 Property and equipment 377,363 380,491 Operating lease assets 34,073 32,215 Goodwill and other intangible assets 76,642 76,760 Investment partnerships 220,757 199,103 Other assets 8,048 8,302 Total assets $ 885,317 $ 849,422 Liabilities and shareholders’ equity Liabilities Current liabilities: Accounts payable and accrued expenses $ 72,811 $ 66,743 Loss and loss adjustment expenses 16,013 15,168 Unearned premiums 14,939 14,334 Current portion of lease obligations 14,519 14,855 Total current liabilities 118,282 111,100 Lease obligations 91,912 86,389 Deferred taxes 41,801 37,939 Asset retirement obligations 14,402 14,316 Other liabilities 348 348 Total liabilities 266,745 250,092 Shareholders’ equity Common stock 1,138 1,138 Additional paid-in capital 385,594 385,594 Retained earnings 654,037 631,458 Accumulated other comprehensive loss ( 2,549 ) ( 2,518 ) Treasury stock, at cost ( 419,648 ) ( 416,342 ) Biglari Holdings Inc. shareholders’ equity 618,572 599,330 Total liabilities and shareholders’ equity $ 885,317 $ 849,422 See accompanying Notes to Consolidated Financial Statements. 1 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts) First Quarter 2024 2023 (Unaudited) Revenues Restaurant operations $ 61,996 $ 61,129 Insurance premiums and other 17,733 16,229 Oil and gas 9,510 12,223 Licensing and media 212 595 Total revenues 89,451 90,176 Costs and expenses Restaurant cost of sales 34,421 32,738 Insurance losses and underwriting expenses 15,063 13,013 Oil and gas production costs 4,499 5,471 Licensing and media costs 503 452 Selling, general and administrative 18,275 17,263 Gain on sale of oil and gas properties ( 481 ) — Impairments 107 776 Depreciation, depletion, and amortization 10,053 9,940 Interest expense on leases 1,314 1,307 Interest expense on debt — 167 Total costs and expenses 83,754 81,127 Other income Investment gains 1,713 3,638 Investment partnership gains 21,985 72,588 Total other income 23,698 76,226 Earnings before income taxes 29,395 85,275 Income tax expense 6,816 19,738 Net earnings 22,579 65,537 Earnings attributable to noncontrolling interest — 651 Net earnings attributable to Biglari Holdings Inc. shareholders $ 22,579 $ 64,886 Net earnings per average equivalent Class A share* $ 79.56 $ 222.28 * Net earnings per average equivalent Class B share outstanding are one-fifth of the average equivalent Class A share or $ 15.91 for the first quarter of 2024 and $ 44.46 for the first quarter of 2023. See accompanying Notes to Consolidated Financial Statements. 2 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) First Quarter 2024 2023 (Unaudited) Net earnings $ 22,579 $ 65,537 Foreign currency translation ( 31 ) 332 Comprehensive income 22,548 65,869 Comprehensive income attributable to noncontrolling interest — 651 Total comprehensive income attributable to Biglari Holdings Inc. shareholders $ 22,548 $ 65,218 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (dollars in thousands) (Unaudited) Biglari Holdings Inc. Shareholders’ Equity Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Non-controlling Interests Total For the first quarter of 2024 Balance at December 31, 2023 $ 1,138 $ 385,594 $ 631,458 $ ( 2,518 ) $ ( 416,342 ) $ — $ 599,330 Net earnings 22,579 22,579 Other comprehensive income (loss) ( 31 ) ( 31 ) Adjustment for holdings in investment partnerships ( 3,306 ) ( 3,306 ) Balance at March 31, 2024 $ 1,138 $ 385,594 $ 654,037 $ ( 2,549 ) $ ( 419,648 ) $ — $ 618,572 For the first quarter of 2023 Balance at December 31, 2022 $ 1,138 $ 381,788 $ 576,510 $ ( 2,790 ) $ ( 409,680 ) $ 8,602 $ 555,568 Net earnings 64,886 651 65,537 Other comprehensive income (loss) 332 332 Adjustment for holdings in investment partnerships ( 239 ) ( 239 ) Balance at March 31, 2023 $ 1,138 $ 381,788 $ 641,396 $ ( 2,458 ) $ ( 409,919 ) $ 9,253 $ 621,198 See accompanying Notes to Consolidated Financial Statements. 3 Table of Contents BIGLARI HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) First Quarter 2024 2023 (Unaudited) Operating activities Net earnings $ 22,579 $ 65,537 Adjustments to reconcile net earnings to operating cash flows: Depreciation and amortization 10,053 9,940 Provision for deferred income taxes 3,877 18,450 Asset impairments 107 776 Gains on sale of assets ( 1,431 ) ( 1,590 ) Investment and investment partnerships gains ( 23,698 ) ( 76,226 ) Distributions from investment partnerships 1,000 — Changes in receivables and inventories ( 2,249 ) 2,006 Changes in accounts payable and accrued expenses 8,887 1,030 Net cash provided by operating activities 19,125 19,923 Investing activities Capital expenditures ( 4,596 ) ( 5,929 ) Proceeds from property and equipment disposals 920 2,140 Purchases of interests in limited partnerships ( 3,975 ) ( 2,700 ) Purchases of investments ( 20,856 ) ( 27,255 ) Sales of investments and redemptions of fixed maturity securities 17,265 21,009 Net cash used in investing activities ( 11,242 ) ( 12,735 ) Financing activities Repayments of borrowings — ( 3,500 ) Principal payments on direct financing lease obligations ( 1,403 ) ( 1,550 ) Net cash used in financing activities ( 1,403 ) ( 5,050 ) Effects of foreign currency exchange rate changes ( 10 ) 8 Increase in cash, cash equivalents and restricted cash 6,470 2,146 Cash, cash equivalents and restricted cash at beginning of year 29,654 38,805 Cash, cash equivalents and restricted cash at end of first quarter $ 36,124 $ 40,951 First Quarter 2024 2023 (Unaudited) Cash and cash equivalents $ 34,536 $ 39,363 Restricted cash in other long-term assets 1,588 1,588 Cash, cash equivalents and restricted cash at end of first quarter $ 36,124 $ 40,951 See accompanying Notes to Consolidated Financial Statements. 4 Table of Contents BIGLARI HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (dollars in thousands, except share and per share data) Note 1. Summary of Significant Accounting Policies Description of Business The accompanying unaudited consolidated financial statements of Biglari Holdings Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal recurring adjustments. The results for the interim periods shown are not necessarily indicative of results for the year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2023. 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 March 31, 2024, Mr. Biglari beneficially owns shares of the Company that represent approximately 71.5 % 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. Note 2. Earnings Per Share Earnings per share of common stock is based on the weighted-average number of shares outstanding during the year. The shares of Company stock attributable to our limited partner interest in The Lion Fund, L.P., and The Lion Fund II, L.P. (collectively, the “investment partnerships”) — based on our proportional ownership during this period — are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the calculation of weighted-average common shares outstanding. However, these shares are legally outstanding. The following table presents shares authorized, issued, and outstanding on March 31, 2024 and December 31, 2023. March 31, 2024 December 31, 2023 Class A Class B Class A Class B Common stock authorized 500,000 10,000,000 500,000 10,000,000 Common stock issued and outstanding 206,864 2,068,640 206,864 2,068,640 5 Table of Contents Note 2. Earnings Per Share (continued) The Company has applied the “two-class method” of computing earnings per share as prescribed in Accounting Standards Codification (“ASC”) 260, “ Earnings Per Share ”. (Class B shares are economically equivalent to one-fifth of a Class A 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 weighted-average equivalent Class A common stock for earnings per share. March 31, 2024 March 31, 2023 Equivalent Class A common stock outstanding 620,592 620,592 Proportional ownership of Company stock held by investment partnerships 336,804 328,681 Equivalent Class A common stock for earnings per share 283,788 291,911 Note 3. Investments 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 and interest 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 gains for the first quarter of 2024 and 2023 were $ 1,713 and $ 3,638 , respectively. 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. 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, 2023 $ 472,772 $ 273,669 $ 199,103 Investment partnership gains (losses) 69,162 47,177 21,985 Contributions (net of distributions) 2,975 2,975 Changes in proportionate share of Company stock held 3,306 ( 3,306 ) Partnership interest at March 31, 2024 $ 544,909 $ 324,152 $ 220,757 Fair Value Company Common Stock Carrying Value Partnership interest at December 31, 2022 $ 383,004 $ 227,210 $ 155,794 Investment partnership gains (losses) 121,795 49,207 72,588 Contributions 2,700 2,700 Changes in proportionate share of Company stock held 239 ( 239 ) Partnership interest at March 31, 2023 $ 507,499 $ 276,656 $ 230,843 6 Table of Contents Note 4. Investment Partnerships (continued) The carrying value of the investment partnerships net of deferred taxes is presented below. March 31, 2024 December 31, 2023 Carrying value of investment partnerships $ 220,757 $ 199,103 Deferred tax liability related to investment partnerships ( 31,314 ) ( 27,896 ) Carrying value of investment partnerships net of deferred taxes $ 189,443 $ 171,207 We expect that a majority of the $ 31,314 and $ 27,896 deferred tax liabilities enumerated above will not become due until the dissolution of the investment partnerships. The Company’s proportionate share of Company stock held by investment partnerships at cost was $ 419,648 and $ 416,342 as of March 31, 2024, and December 31, 2023, 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. First Quarter 2024 2023 Gains from investment partnerships $ 21,985 $ 72,588 Tax expense 4,837 16,559 Contribution to net earnings $ 17,148 $ 56,029 On December 31 of each year, the general partner of the investment partnerships, Biglari Capital Corp., 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 Corp. 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. There were no incentive reallocations accrued during the first quarters of 2024 and 2023. 7 Table of Contents Note 4. Investment Partnerships (continued) Summarized financial information for The Lion Fund, L.P., and The Lion Fund II, L.P., is presented below. Equity in Investment Partnerships Lion Fund Lion Fund II Total assets as of March 31, 2024 $ 425,899 $ 412,720 Total liabilities as of March 31, 2024 $ 31,718 $ 193,830 Revenue for the first quarter of 2024 $ 50,262 $ 31,118 Earnings for the first quarter of 2024 $ 49,820 $ 28,237 Biglari Holdings’ ownership interest as of March 31, 2024 89.9 % 86.3 % 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 first quarter of 2023 $ 63,558 $ 78,592 Earnings for the first quarter of 2023 $ 63,404 $ 76,341 Biglari Holdings’ ownership interest as of March 31, 2023 88.6 % 86.1 % Revenue in the financial information of the investment partnerships, summarized above, includes investment income and unrealized gains and losses on investments. Note 5. Property and Equipment Property and equipment is composed of the following. March 31, 2024 December 31, 2023 Land $ 138,076 $ 139,897 Buildings 156,694 151,716 Land and leasehold improvements 150,244 149,795 Equipment 212,706 212,424 Oil and gas properties 145,078 145,065 Construction in progress 845 1,629 803,643 800,526 Less accumulated depreciation, depletion, and amortization ( 426,280 ) ( 420,035 ) Property and equipment, net $ 377,363 $ 380,491 Depletion expense related to oil and gas properties was $ 2,568 and $ 2,648 during the first quarter of 2024 and 2023, respectively. The Company recorded an impairment to restaurant long-lived assets of $ 107 in the first quarter of 2024 and $ 776 in the first quarter of 2023 related to underperforming stores. Property and equipment held for sale of $ 1,149 and $ 773 are recorded in other current assets as of March 31, 2024, and December 31, 2023, respectively. The assets classified as held for sale include properties owned by Steak n Shake, which were previously company-operated restaurants. During the first quarter of 2024 and 2023, the Company sold former company-operated restaurants for a gain of $ 767 and $ 1,431 , respectively. 8 Table of Contents Note 6. 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. A reconciliation of the change in the carrying value of goodwill is as follows. Goodwill Goodwill at December 31, 2023 Goodwill $ 53,830 Accumulated impairment losses ( 300 ) $ 53,530 Change in foreign exchange rates during the first quarter of 2024 ( 9 ) Goodwill at March 31, 2024 $ 53,521 Goodwill and indefinite-lived intangible asset impairment reviews 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 revenues 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. There was no impairment recorded for goodwill during the first quarters of 2024 or 2023. Other Intangible Assets Intangible assets with indefinite lives are composed of the following. Trade Names Lease Rights Total Balance at December 31, 2023 Intangibles $ 15,876 $ 11,102 $ 26,978 Accumulated impairment losses — ( 3,748 ) ( 3,748 ) $ 15,876 $ 7,354 $ 23,230 Change in foreign exchange rates during the first quarter of 2024 — ( 109 ) ( 109 ) Balance at March 31, 2024 $ 15,876 $ 7,245 $ 23,121 Note 7. Restaurant Operations Revenues Restaurant operations revenues were as follows. First Quarter 2024 2023 Net sales $ 38,735 $ 36,894 Franchise partner fees 17,758 17,912 Franchise royalties and fees 3,477 4,258 Other 2,026 2,065 $ 61,996 $ 61,129 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. 9 Table of Contents Note 7. Restaurant Operations Revenues (continued) 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 franchise partners under lease arrangements. Both real estate and equipment rental payments are charged to franchise partners and are recognized in accordance with ASC 842, “ Leases ”. During the first quarter of 2024 and 2023, restaurant operations recognized $ 5,705 and $ 5,575 , 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. Other Revenue Restaurant operations sell 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 estimate breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based on the vintage of the gift card. Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions by vintage. Note 8. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses include the following. March 31, 2024 December 31, 2023 Accounts payable $ 21,829 $ 22,448 Gift cards and other marketing 5,877 7,089 Insurance accruals 2,318 2,565 Compensation 14,015 12,821 Deferred revenue 7,066 5,314 Taxes payable 14,672 11,050 Oil and gas payable 3,751 3,560 Other 3,283 1,896 Accounts payable and accrued expenses $ 72,811 $ 66,743 Note 9. Line of Credit and Note Payable Biglari Holdings ’ Line of Credit Biglari Holdings’ available line of credit is $ 30,000 . The line of credit matures on September 12, 2024. The line of credit includes customary covenants, as well as financial maintenance covenants. There was no balance on the line of credit on March 31, 2024, or December 31, 2023. Western Sizzlin Revolver Western Sizzlin’s available line of credit is $ 500 . As of March 31, 2024, and December 31, 2023, Western Sizzlin had no debt outstanding under its revolver. 10 Table of Contents Note 10. Unpaid Loss and Loss Adjustment Expenses Our 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 three-month periods ended March 31, 2024 and 2023 follows. March 31, March 31, 2024 2023 Balances at beginning of year: Gross liabilities $ 16,105 $ 17,520 Reinsurance recoverable on unpaid losses ( 937 ) ( 715 ) Net liabilities 15,168 16,805 Incurred losses and loss adjustment expenses: Current accident year 14,197 10,247 Prior accident years ( 3,319 ) ( 1,651 ) Total 10,878 8,596 Paid losses and loss adjustment expenses: Current accident year 7,031 4,433 Prior accident years 3,002 5,454 Total 10,033 9,887 Balances at March 31: Net liabilities 16,013 15,514 Reinsurance recoverable on unpaid losses 687 2,207 Gross liabilities $ 16,700 $ 17,721 We recorded net reductions of estimated ultimate liabilities for prior accident years of $ 3,319 and $ 1,651 in the first quarter of 2024 and 2023, respectively, which produced corresponding reductions in incurred losses and loss adjustment expenses in those periods. These reductions as a percentage of the net liabilities at the beginning of each year were 21.9 % in 2024 and 9.8 % in 2023. Note 11. Lease Assets and Obligations Lease obligations include the following. Current portion of lease obligations March 31, 2024 December 31, 2023 Finance lease liabilities $ 1,251 $ 1,258 Finance obligations 4,564 4,826 Operating lease liabilities 8,704 8,771 Total current portion of lease obligations $ 14,519 $ 14,855 Long-term lease obligations Finance lease liabilities $ 3,645 $ 3,581 Finance obligations 60,127 56,471 Operating lease liabilities 28,140 26,337 Total long-term lease obligations $ 91,912 $ 86,389 11 Table of Contents Note 11. Lease Assets and Obligations (continued) Nature of Leases Steak n Shake and Western Sizzlin operate restaurants that are located on sites owned by us or 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 cost consists of the following. First Quarter 2024 2023 Finance lease costs: Amortization of right-of-use assets $ 226 $ 242 Interest on lease liabilities 84 91 Operating and variable lease costs 2,829 3,167 Sublease income ( 2,989 ) ( 3,091 ) Total lease costs $ 150 $ 409 Supplemental cash flow information related to leases is as follows. First Quarter 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Financing cash flows from finance leases $ 326 $ 344 Operating cash flows from finance leases $ 84 $ 91 Operating cash flows from operating leases $ 2,666 $ 3,355 Supplemental balance sheet information related to leases is as follows. March 31, 2024 December 31, 2023 Finance leases: Property and equipment, net $ 3,644 $ 3,574 Weighted-average lease terms and discount rates are as follows. March 31, 2024 Weighted-average remaining lease terms: Finance leases 4.79 years Operating leases 5.82 years Weighted-average discount rates: Finance leases 7.0 % Operating leases 7.0 % 12 Table of Contents Note 11. Lease Assets and Obligations (continued) Maturities of lease liabilities as of March 31, 2024 are as follows. Year Operating Leases Finance Leases Remainder of 2024 $ 8,368 $ 1,134 2025 9,697 1,486 2026 7,215 1,163 2027 4,927 828 2028 4,108 437 After 2028 10,307 728 Total lease payments 44,622 5,776 Less interest 7,778 880 Total lease liabilities $ 36,844 $ 4,896 Lease Income The components of lease income are as follows. First Quarter 2024 2023 Operating lease income $ 4,181 $ 4,085 Variable lease income 1,799 1,784 Total lease income $ 5,980 $ 5,869 The following table displays the Company’s future minimum rental receipts for non-cancelable leases and subleases as of March 31, 2024. Franchise partner leases and subleases are short-term leases and have been excluded from the table. Operating Leases Year Subleases Owned Properties Remainder of 2024 $ 457 $ 297 2025 544 404 2026 225 406 2027 206 415 2028 86 424 After 2028 — 2,435 Total future minimum receipts $ 1,518 $ 4,381 Note 12. Income Taxes In determining the quarterly provision for income taxes, the Company used an estimated annual effective tax rate for the first quarter of 2024 and 2023. Our periodic effective income tax rate is affected by the relative mix of pre-tax earnings or losses and underlying income tax rates applicable to the various taxing jurisdictions. Income tax expense for the first quarter of 2024 was $ 6,816 compared to $ 19,738 for the first quarter of 2023. The variance in income taxes between 2024 and 2023 is primarily attributable to taxes on income generated by the investment partnerships. Investment partnership pre-tax gains were $ 21,985 during the first quarter of 2024 compared to pre-tax gains of $ 72,588 during the first quarter of 2023. 13 Table of Contents Note 13. 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 14. Fair Value of Financial Assets The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below. • Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets. • Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations, and yields for other instruments of the issuer or entities in the same industry sector. • Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and we may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities. The following methods and assumptions were used to determine the fair value of each class of the following assets recorded at fair value in the consolidated balance sheets: Cash equivalents: Cash equivalents primarily consist of money market funds which are classified as Level 1 of the fair value hierarchy. Equity securities: The Company’s investments in equity securities are classified as 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 l of the fair value hierarchy. 14 Table of Contents Note 14. Fair Value of Financial Assets (continued) As of March 31, 2024, and December 31, 2023, the fair values of financial assets were as follows. March 31, 2024 December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Cash equivalents $ 4,100 $ — $ — $ 4,100 $ 2,374 $ — $ — $ 2,374 Equity securities Consumer goods 28,193 — — 28,193 26,660 — — 26,660 Other 4,083 — — 4,083 3,171 — — 3,171 Bonds Government 65,041 — — 65,041 61,536 — — 61,536 Corporate 879 — — 879 3,199 — — 3,199 Total assets at fair value $ 102,296 $ — $ — $ 102,296 $ 96,940 $ — $ — $ 96,940 There were no changes in our valuation techniques used to measure fair values on a recurring basis. Note 15. Related Party Transactions Service Agreement The Company is party to a service agreement with Biglari Enterprises LLC (“Biglari Enterprises”), under which Biglari Enterprises provides business and administrative related services to the Company. Biglari Enterprises is owned by Mr. Biglari. The Company paid Biglari Enterprises $ 2,400 and $ 2,100 in service fees during the first quarter of 2024 and 2023, respectively. The service agreement does not alter the hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp. 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. Note 16. 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. We report our earnings from investment partnerships separate from our corporate expenses. We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are neither necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements. 15 Table of Contents Note 16. Business Segment Reporting (continued) A disaggregation of our consolidated data for the first quarters of 2024 and 2023 is presented in the tables which follow. Revenues First Quarter 2024 2023 Operating Businesses: Restaurant Operations: Steak n Shake $ 59,354 $ 58,487 Western Sizzlin 2,642 2,642 Total Restaurant Operations 61,996 61,129 Insurance Operations: Underwriting: First Guard 9,310 8,899 Southern Pioneer 6,612 5,865 Investment income and other 1,811 1,465 Total Insurance Operations 17,733 16,229 Oil and Gas Operations: Abraxas Petroleum 5,868 7,252 Southern Oil 3,642 4,971 Total Oil and Gas Operations 9,510 12,223 Maxim 212 595 $ 89,451 $ 90,176 16 Table of Contents Note 16. Business Segment Reporting (continued) Earnings (Loss) Before Income Taxes First Quarter 2024 2023 Operating Businesses: Restaurant Operations: Steak n Shake $ 4,237 $ 7,325 Western Sizzlin 641 472 Total Restaurant Operations 4,878 7,797 Insurance Operations: Underwriting: First Guard 800 1,862 Southern Pioneer 59 ( 111 ) Investment income and other 1,387 1,036 Total Insurance Operations 2,246 2,787 Oil and Gas Operations: Abraxas Petroleum 1,387 1,209 Southern Oil 79 894 Total Oil and Gas Operations 1,466 2,103 Maxim ( 354 ) 122 Interest expense not allocated to segments — ( 167 ) Total Operating Businesses 8,236 12,642 Corporate and other ( 2,539 ) ( 3,593 ) Investment gains 1,713 3,638 Investment partnership gains 21,985 72,588 $ 29,395 $ 85,275 17 Table of Contents