What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-03 compared with 2024-02-26 · 80 added, 87 removed, 297 unchanged (36% of the section changed)

2 unchanged sentences

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.

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

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

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As of December 31, 2024, 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.

Biglari beneficially owns shares of the Company that represent approximately 74.3% of the voting interest.

Business Acquisitions

On September 14, 2022, the Company purchased Preferred Shares of Abraxas Petroleum Corporation (“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.

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 purchase price allocation included $70,200 of oil and gas properties, cash of $21,726, and liabilities, net of other assets, of $11,926.

The Company’s financial results include the results of Abraxas Petroleum from the initial acquisition date to the end of the calendar year.

During 2022, the Company purchased 90% of Abraxas Petroleum Corporation (“Abraxas Petroleum”) for $80,000.

During 2023, the Company acquired the remaining 10% of Abraxas Petroleum for $5,387.

The Company’s financial results include the results of Abraxas Petroleum from the date of acquisition, September 14, 2022, to the end of the calendar year.

Discussion of Operations

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As of December 31, 2024, 10 of the 146 company-operated Steak n Shake stores were closed.

Steak n Shake plans to sell or lease 10 of the 17 locations and refranchise the balance.

Steak n Shake plans to sell or lease six of the 10 locations and refranchise the balance.

Management’s Discussion and Analysis (continued)

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Net sales during 2024 were $159,213 as compared to $152,545 during 2023.

Steak n Shake’s same-store sales increased 6.4% at its company-operated units.

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

Because we derive most of our revenue from our share of the profits, revenue will decline as we transition from company-operated units to franchise partner units.

Fees generated by our franchise partners were $72,552 during 2023 as compared to $63,853 during 2022.

Management’s Discussion and Analysis (continued)

Fees generated by our franchise partners were $70,616 in 2024 as compared to $72,552 during 2023.

As of December 31, 2024, there were 173 franchise partner units as compared to 181 franchise partner units as of December 31, 2023.

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Franchise partners rent buildings and equipment from Steak n Shake.

Management’s Discussion and Analysis (continued)

Our share of franchise partner fees was $1,936, or 2.7% lower during 2024 as compared to 2023 primarily because our franchise partners’ cost of food expenses were 1.3 percentage points higher during 2024 as compared to 2023.

Our share of the increased cost of food expenses was $2,617.

The franchise royalties and fees generated by the traditional franchising business were $13,632 during 2024 as compared to $16,443 during 2023.

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The cost of food at company-operated units in 2024 was $47,891, or 30.1% of net sales as compared to $44,993, or 29.5% of net sales in 2023.

The cost of food expressed as a percentage of net sales in 2023 remained consistent with 2022.

The increase was primarily due to cost inflation.

The labor costs at company-operated restaurants during 2024 were $50,431, or 31.7% of net sales as compared to $47,090, or 30.9% of net sales in 2023.

The 3-percentage-point decrease in costs was primarily attributable to a 2.7-percentage-point decrease in Steak n Shake’s labor costs as a result of a gain in productivity.

Labor costs expressed as a percentage of net sales increased during 2024 compared to 2023 primarily due to an increase in store-level managers.

General and administrative expenses during 2024 were $47,130, or 18.7% of total revenue as compared to $44,120, or 17.6% of total revenue during 2023.

General and administrative expenses increased during 2023 as compared to 2022 primarily because of higher salaries and wages.

An increase in overall personnel and additional franchise partner training accounted for much of the increase in general and administrative expenses.

Other income increased during 2023 compared to 2022 primarily because of gains on the sale of real estate.

The increase in general and administrative expenses was mainly attributable to Steak n Shake:

higher legal fees ($700), fees related to its new prototype ($500), and contractual services ($900).

Other income decreased during 2024 compared to 2023, primarily because of fewer real estate transactions.

Interest on obligations under leases was $5,361 during 2024 versus $5,114 during 2023.

The year-over-year decrease in interest expense was primarily attributable to the maturity and retirement of lease obligations.

To better convey the performance of the franchise partnership model, the table below shows the underlying sales, cost of food, labor costs, and other restaurant costs of the franchise partners.

We believe the franchise partner information is useful to readers, as they have a direct effect on Steak n Shake’s profitability.

We believe the franchise partner information is useful to readers, as it has a direct effect on Steak n Shake’s profitability.

Net sales and other $ 326,736 $ 324,281

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Our business units are operated under separate local management.

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

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

Underwriting results of our insurance operations are summarized below.

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2024 2023 2022

Premiums written $ 68,394 $ 63,064 $ 61,108

Premiums earned $ 65,809 $ 61,225 $ 59,949

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Amount % Amount % Amount %

Premiums written $ 37,691 $ 36,917 $ 35,914

Premiums earned $ 37,691 100.0 % $ 36,917 100.0 % $ 35,914 100.0 %

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Pre-tax underwriting gain $ 4,038 $ 9,492 $ 6,578

First Guard’s ratio of losses and loss adjustment expenses to premiums earned was 56.5% during 2023 as compared to 62.1% during 2022.

First Guard’s underwriting results in 2023 were in line with its historical performance despite cost inflation in property and physical damage claims, which began to accelerate in 2022.

First Guard produced an underwriting gain in 2024.

Its underwriting gain declined $5,454, or 57.5% in 2024 as compared to 2023, reflecting significant increases in average claim severity, primarily due to significant cost inflation in physical damage claims.

It is the nature of the insurance business to experience volatility in underwriting performance.

Southern Pioneer

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Amount % Amount % Amount %

Premiums written $ 30,703 $ 26,147 $ 25,194

Premiums earned $ 28,118 100.0 % $ 24,308 100.0 % $ 24,035 100.0 %

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Pre-tax underwriting gain (loss) $ 400 $ (1,038) $ (1,277)

Premiums earned increased $3,810, or 15.7% in 2024 compared to 2023, primarily because of growth in its personal lines, e.g., homeowners insurance.

Southern Pioneer’s ratio of losses and loss adjustment expenses to premiums earned was 58.4% during 2024 as compared to 60.9% during 2023.

Southern Pioneer’s performance in both years was primarily attributable to weather-related losses.

Management’s Discussion and Analysis (continued)

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Southern Pioneer 1,895 1,201 629

Biglari Reinsurance 57 — —

Pre-tax investment income 3,928 3,074 1,380

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Depreciation, depletion, and accretion 11,102 10,339 8,013

Gain on sale of properties (13,563) — —

General and administrative expenses 6,135 5,164 6,500

Total cost and expenses 33,873 32,868 32,355

Gain on sale of properties 16,700 13,563 —

Earnings before income taxes 19,772 25,766 25,191

Income tax expense (benefit) 360 6,100 2,185

Income tax expense 4,314 360 6,100

Contribution to net earnings $ 15,458 $ 25,406 $ 19,091

Our oil and gas business is highly dependent on oil and natural gas prices.

The average West Texas Intermediate price per barrel for the year ended December 31, 2023, was approximately $77.64 as compared to approximately $94.53 for the year ended December 31, 2022.

We did not record any impairments to our oil and gas assets during 2024.

However, we may be required to record impairments of our oil and gas properties resulting from prolonged declines in oil and gas prices.

It is expected that the prices of oil and gas commodities will remain volatile, which will be reflected in our financial results.

Oil and gas production costs have remained constant despite a decrease in revenue primarily because of the acquisition of Abraxas Petroleum and costs to repair nonperforming wells at Southern Oil.

Depreciation, depletion, and accretion expense during 2023 increased $2,326 as compared to 2022, primarily due to the acquisition of Abraxas Petroleum in the third quarter of 2022, offset by temporarily shutting producing wells.

During the third quarter of 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.

Management’s Discussion and Analysis (continued)

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Earnings for Abraxas Petroleum from the date of acquisition, September 14, 2022, are summarized below.

2024 2023 2022

Oil and gas revenue $ 22,590 $ 27,576 $ 11,455

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Depreciation, depletion, and accretion 6,202 6,359 2,510

Gain on sale of properties (13,563) —

General and administrative expenses 3,718 2,765 3,806

Total cost and expenses 19,437 18,729 10,803

Gain on sale of properties 16,700 13,563 —

Earnings before income taxes 19,853 22,410 652

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Contribution to net earnings $ 15,492 $ 22,794 $ 498

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

Abraxas Petroleum’s revenue decreased $4,986, or 18.1% during 2024 compared to 2023.

Abraxas Petroleum reduced production by shutting in wells during 2024 due to lower natural gas prices.

Abraxas Petroleum recorded a gain of $16,700 as a result of selling undeveloped reserves to an unaffiliated party whose aim is to conduct development activities;

however, Abraxas Petroleum will not be required to fund any exploration expenditures on its undeveloped properties.

During the third quarter of 2023, Abraxas Petroleum entered into a similar royalty-based arrangement on its undeveloped properties, which began producing in the third quarter of 2024.

Abraxas Petroleum’s general and administrative expenses increased $953, or 34.5%, primarily because of estimated costs to plug, abandon, and reclaim wells in North Dakota.

The costs relate to wells that Abraxas used prior to our acquisition of Abraxas Petroleum.

Management’s Discussion and Analysis (continued)

Southern Oil primarily operates oil and natural gas properties offshore in Louisiana state waters.

Earnings for Southern Oil are summarized below.

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General and administrative expenses 2,417 2,399 2,694

Earnings before income taxes 3,356 24,539 9,713

Income tax expense 744 5,946 2,185

Total cost and expenses 14,436 14,139 21,552

Earnings (loss) before income taxes (81) 3,356 24,539

Income tax expense (benefit) (47) 744 5,946

Contribution to net earnings $ (34) $ 2,612 $ 18,593

Management’s Discussion and Analysis (continued)

Southern Oil’s revenue decreased $3,140, or 17.9% during 2024 compared to 2023.

Southern Oil repaired several nonperforming wells throughout 2024.

Southern Oil completed the drilling of a well during the second half of 2024, which accounted for the majority of the increased depletion costs.

Brand Licensing

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General and administrative expenses 173 267 122

Earnings before income taxes 11 1,760 814

Earnings (loss) before income taxes (1,180) 11 1,760

Income tax expense (296) 3 447

Contribution to net earnings $ (884) $ 8 $ 1,313

Licensing and media revenue decreased $2,459 in 2023 compared to 2022 primarily because an important licensing transaction shifted from 2023 to 2024.

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

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

Licensing and media revenue decreased $1,089 in 2024 compared to 2023 primarily due to the poor performance of an important licensing arrangement.

Management’s Discussion and Analysis (continued)

Investment Gains and Investment Partnership Gains

Investment gains were $2,211 ($1,731 net of tax) in 2023 as compared to investment losses of $3,393 ($2,682 net of tax) in 2022.

Investment gains net of tax were $239 in 2024 as compared to $1,731 in 2023.

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

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Gains and losses on Company common stock included in the earnings of the partnerships are eliminated in the Company’s consolidated financial results.

Investment gains and losses in 2023 and 2022 were mainly derived from our investments in equity securities and included unrealized gains and losses from market price changes during the period.

Investment gains in 2024 and 2023 were mainly derived from our investments in equity securities and included unrealized gains and losses from market price changes during the period.

We believe that investment gains/losses are generally meaningless for analytical purposes in understanding our reported quarterly or annual results.

These gains and losses have caused and will continue to cause significant volatility in our periodic earnings.

Management’s Discussion and Analysis (continued)

Interest Expense

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Interest expense net of tax $ (589) $ (531) $ (305)

The Company paid Steak n Shake’s outstanding credit facility in full in February 2021.

On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000.

There was no balance on the line of credit on December 31, 2023.

The balance on the line of credit was $10,000 on December 31, 2022.

The consolidated income tax expense was $9,308 in 2023 versus a benefit of $10,722 in 2022.

During 2023, the Company recognized tax benefits of $5,660 associated with the tax attributes of Abraxas Petroleum’s oil and gas properties offset by an increase in tax expense of $23,786 for investment partnership gains in 2023.

The consolidated income tax benefit was $4,395 in 2024 versus the tax expense of $9,308 in 2023.

The variance in income taxes between 2024 and 2023 is attributable to taxes on income generated by the investment partnerships.

Excluding investment partnership activities, pretax income was $32,904 and $45,407 and tax expense was $8,544 and $4,514 during 2024 and 2023, respectively.

The effective tax rate for the Company (excluding investment partnership activities) was 26.0% during 2024 compared to 9.9% during 2023.

The increase in the effective tax rates is primarily attributable to certain tax benefits recognized by Abraxas Petroleum during 2023.

Corporate and Other

Corporate expenses exclude the activities of the restaurant, insurance, brand licensing, and oil and gas businesses.

Corporate and other net losses increased in 2023 compared to 2022 primarily due to an incentive fee of $7,271.

Net losses for Corporate and other were $12,503 during 2024 and $17,814 during 2023.

The decrease in net losses was primarily due to a decrease in accrued incentive fees.

Management’s Discussion and Analysis (continued)

Financial Condition

Our consolidated shareholders’ equity on December 31, 2023, was $599,330, an increase of $52,364 as compared to the December 31, 2022 balance.

The increase in shareholders’ equity was primarily due to net income of $54,948 and an increase in additional paid-in capital for purchases of noncontrolling interest of $3,806, offset by a change in treasury stock of $6,662.

Our consolidated shareholders’ equity on December 31, 2024, was $572,961, a decrease of $26,369 as compared to the December 31, 2023 balance.

The decrease in shareholders’ equity was primarily due to a net loss of $3,759 and a change in treasury stock of $22,256.

Consolidated cash and investments are summarized below.

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Unrealized gains/losses of Biglari Holdings’ stock held by the investment partnerships are eliminated in the Company’s consolidated financial results.

Management’s Discussion and Analysis (continued)

Our balance sheet continues to maintain significant liquidity.

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Increase (decrease) in cash, cash equivalents, and restricted cash $ 1,778 $ (9,151) $ (4,882)

In 2023, cash from operating activities decreased by $54,823 as compared to 2022.

The change was primarily attributable to distributions from investment partnerships of $14,500 in 2023 compared to $70,700 in 2022.

The distributions during 2022 were primarily used to acquire Abraxas Petroleum.

Net cash used in investing activities was $70,525 lower during 2023 as compared to 2022.

Capital expenditures were $6,341 higher in 2022 primarily due to Steak n Shake’s implementation of a self-service model.

Proceeds from sales of property and equipment were $19,309 higher in 2023 primarily due to the sale of oil and gas properties for $13,563 and the sale of restaurant properties for $10,883.

During 2022, the Company acquired 90% of Abraxas Petroleum for $58,274, net of cash acquired.

In 2023, the Company acquired the remaining 10% of Abraxas Petroleum for $5,387.

Cash used by financing activities of $16,132 during 2023 was primarily due to net repayments on the Company’s line of credit.

Cash provided by financing activities of $3,860 during 2022 was primarily due to net borrowings on the Company’s line of credit.

In 2024, cash provided by operating activities decreased by $23,342 as compared to 2023.

The change was primarily attributable to a decrease of $15,511 in cash from our business operations and a $4,500 decrease in distributions from investment partnerships.

Net cash used in investing activities was $21,308 higher during 2024 as compared to 2023.

Capital expenditures by our oil and gas business increased $11,239 primarily due to the drilling of an oil well by Southern Oil, and purchases of limited partnership interests, which were $30,908 higher during 2024 as compared to 2023.

The Company had net borrowings of $45,000 on its lines of credit in 2024 and had net repayments of $10,000 in 2023.

We intend to meet the working capital needs of our operating subsidiaries, principally through cash flows generated from operations and cash on hand.

We continually review available financing alternatives.

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.

Biglari Holdings Lines of Credit

Biglari Holdings’ line of credit was amended on September 13, 2024, and the available line of credit was increased to $35,000.

The line of credit matures on September 13, 2026.

The line of credit includes customary covenants as well as financial maintenance covenants.

As of December 31, 2024, we were in compliance with all covenants.

There was a $35,000 balance on the line of credit on December 31, 2024.

There was no balance on the line of credit on December 31, 2023.

Our interest rate was 7.1% on December 31, 2024, and 8.1% on December 31, 2023, respectively.

Management’s Discussion and Analysis (continued)

On November 8, 2024, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $75,000.

The line of credit will be available on a revolving basis until November 7, 2027.

The line of credit includes customary covenants as well as financial maintenance covenants.

As of December 31, 2024, we were in compliance with all covenants.

The balance of the line of credit was $10,000 on December 31, 2024.

Our interest rate is based on the 30-day Secured Overnight Financing Rate plus 2.73%.

Our interest rate was 7.8% on December 31, 2024.

Western Sizzlin Revolver

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A discussion of our principal accounting policies that required the application of significant judgments as of December 31, 2024, follows.

Consolidation

The consolidated financial statements include the accounts of Biglari Holdings Inc.

and the wholly owned subsidiaries of Biglari Holdings Inc.

The analysis as to whether to consolidate an entity is subject to a significant amount of judgment.

All intercompany accounts and transactions are eliminated in consolidation.

Our interests in the investment partnerships are accounted for as equity method investments because of our retained limited partner interest in the investment partnerships.

The Company records gains from the investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the consolidated statement of earnings based on our proportional ownership interest in the investment partnerships.

Management’s Discussion and Analysis (continued)

Impairment of Restaurant Long-lived Assets

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We may also elect not to perform the qualitative assessment for the reporting unit or intangible assets and perform a quantitative impairment test instead.

We determine whether a contract is or contains a lease at contract inception based on the presence of identified assets and our right to obtain substantially all of the economic benefit from, or to direct the use of, such assets.

When we determine a lease exists, we record a right-of-use asset and corresponding lease liability on our consolidated balance sheets.

Right-of-use assets represent our right to use an underlying asset for the lease term.

Lease liabilities represent our obligation to make lease payments arising from the lease.

Right-of-use assets are recognized at the commencement date at the value of the lease liability and are adjusted for any prepayments, lease incentives received, and initial direct costs incurred.

Lease liabilities are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term.

As the discount rate implicit in the lease is not readily determinable in most of our leases, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

We do not record lease contracts with a term of 12 months or less on our consolidated balance sheets.

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.

Management’s Discussion and Analysis (continued)

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

What changed 10-K

Item 7. Management’s Discussion and Analysis