0001726173-21-000012.txt : 20210507 0001726173-21-000012.hdr.sgml : 20210507 20210507161855 ACCESSION NUMBER: 0001726173-21-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 79 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210507 DATE AS OF CHANGE: 20210507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Biglari Holdings Inc. CENTRAL INDEX KEY: 0001726173 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 823784946 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38477 FILM NUMBER: 21902959 BUSINESS ADDRESS: STREET 1: 17802 IH 10 WEST STREET 2: SUITE 400 CITY: SAN ANTONIO STATE: TX ZIP: 78257 BUSINESS PHONE: 210-344-3400 MAIL ADDRESS: STREET 1: 17802 IH 10 WEST STREET 2: SUITE 400 CITY: SAN ANTONIO STATE: TX ZIP: 78257 FORMER COMPANY: FORMER CONFORMED NAME: NBHSA Inc. DATE OF NAME CHANGE: 20171221 10-Q 1 bh-20210331.htm 10-Q bh-20210331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 001-38477
BIGLARI HOLDINGS INC.
(Exact name of registrant as specified in its charter)

Indiana82-3784946
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)

17802 IH 10 West,
Suite 400
San Antonio,TX78257
       (Address of principal executive offices)(Zip Code)
(210) 344-3400
Registrant’s telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Class A Common Stock, no par value BH.ANew York Stock Exchange
Class B Common Stock, no par valueBHNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x
Number of shares of common stock outstanding as of May 4, 2021:
Class A common stock –  206,864 
Class B common stock –2,068,640 


BIGLARI HOLDINGS INC.
INDEX
Page No.

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PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIGLARI HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31,
2021
December 31,
2020
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$28,438 $24,503 
Investments99,427 94,861 
Receivables16,438 19,185 
Inventories2,590 2,737 
Other current assets6,763 6,492 
Total current assets153,656 147,778 
Property and equipment317,432 316,122 
Operating lease assets41,015 42,832 
Goodwill and other intangible assets77,273 77,661 
Investment partnerships356,795 419,550 
Other assets13,715 14,025 
Total assets$959,886 $1,017,968 
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Accounts payable and accrued expenses$120,304 $118,821 
Current portion of lease obligations14,850 17,365 
Current portion of notes payable 152,261 
Total current liabilities135,154 288,447 
Lease obligations109,063 111,645 
Deferred taxes64,649 41,346 
Asset retirement obligations10,147 10,022 
Other liabilities1,733 1,680 
Total liabilities320,746 453,140 
Shareholders’ equity
Common stock1,138 1,138 
Additional paid-in capital381,788 381,788 
Retained earnings644,757 573,050 
Accumulated other comprehensive loss(1,975)(1,531)
Treasury stock, at cost(386,568)(389,617)
Biglari Holdings Inc. shareholders’ equity639,140 564,828 
Total liabilities and shareholders’ equity$959,886 $1,017,968 
See accompanying Notes to Consolidated Financial Statements.
1

BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
First Quarter
20212020
(Unaudited)
Revenues  
Restaurant operations$69,954 $114,144 
Insurance premiums and other14,619 9,674 
Oil and gas8,592 11,374 
Media and licensing1,123 508 
94,288 135,700 
Cost and expenses
Restaurant cost of sales45,616 89,916 
Insurance losses and underwriting expenses11,146 6,312 
Oil and gas production costs2,413 3,076 
Media and licensing costs480 506 
Selling, general and administrative15,540 17,227 
Impairments298 10,300 
Depreciation and amortization7,178 10,062 
Interest expense2,741 4,274 
85,412 141,673 
Other income
Investment gains3,081  
Investment partnership gains (losses)81,766 (175,742)
84,847 (175,742)
Earnings (loss) before income taxes93,723 (181,715)
Income tax expense (benefit)22,016 (43,830)
Net earnings (loss)$71,707 $(137,885)
Earnings per share
Net earnings (loss) per equivalent Class A share *$223.29 $(400.37)
*Net earnings (loss) per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $44.66 for the first quarter of 2021 and $(80.07) for the first quarter of 2020.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
 First Quarter
 20212020
 (Unaudited)
Net earnings (loss)$71,707 $(137,885)
Foreign currency translation(444)(312)
Total comprehensive income (loss)$71,263 $(138,197)
See accompanying Notes to Consolidated Financial Statements.
2


BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Quarter
20212020
(Unaudited)
Operating activities  
Net earnings (loss)$71,707 $(137,885)
Adjustments to reconcile net earnings (loss) to operating cash flows:
Depreciation and amortization7,178 10,062 
Provision for deferred income taxes23,350 (38,132)
Asset impairments and other non-cash expenses435 10,548 
Gains on disposal of assets(958)(1,272)
Investment gains(3,247) 
Investment partnership (gains) losses(81,766)175,742 
Distributions from investment partnerships150,570 42,300 
Changes in receivables and inventories2,827 7,465 
Changes in other assets(903)1,891 
Changes in accounts payable and accrued expenses(3,895)(20,242)
Net cash provided by operating activities165,298 50,477 
Investing activities
Capital expenditures(7,447)(6,473)
Proceeds from property and equipment disposals2,749 1,824 
Acquisition of business, net of cash acquired (34,240)
Purchases of limited partner interests(3,000)(30,100)
Purchases of investments(16,724)(105,430)
Redemptions of fixed maturity securities15,642 108,845 
Net cash used in investing activities(8,780)(65,574)
Financing activities
Proceeds from revolving credit facility 50 
Principal payments on long-term debt(149,952)(17,933)
Principal payments on direct financing lease obligations(2,609)(1,525)
Net cash used in financing activities(152,561)(19,408)
Effect of exchange rate changes on cash(22)14 
Increase (decrease) in cash, cash equivalents and restricted cash3,935 (34,491)
Cash, cash equivalents and restricted cash at beginning of year29,666 70,696 
Cash, cash equivalents and restricted cash at end of first quarter$33,601 $36,205 

First Quarter
20212020
(Unaudited)
Cash and cash equivalents$28,438 $33,281 
Restricted cash in other long-term assets 5,163 2,924 
Cash, cash equivalents and restricted cash at end of first quarter$33,601 $36,205 
See accompanying Notes to Consolidated Financial Statements.
3

BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in thousands)
Common
Stock
Additional Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive 
Income (Loss)
Treasury
Stock
Total
Balance at December 31, 2020$1,138 $381,788 $573,050 $(1,531)$(389,617)$564,828 
Net earnings 71,707 71,707 
Other comprehensive loss(444)(444)
Adjustment to treasury stock for holdings in investment partnerships3,049 3,049 
Balance at March 31, 2021$1,138 $381,788 $644,757 $(1,975)$(386,568)$639,140 
Common
Stock
Additional 
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock  
Total
Balance at December 31, 2019$1,138 $381,788 $611,039 $(2,810)$(374,857)$616,298 
Net earnings (loss)(137,885)(137,885)
Other comprehensive loss(312)(312)
Adjustment to treasury stock for holdings in investment partnerships1,089 1,089 
Balance at March 31, 2020$1,138 $381,788 $473,154 $(3,122)$(373,768)$479,190 
See accompanying Notes to Consolidated Financial Statements.
4

BIGLARI HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(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 entire fiscal 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, 2020.
Biglari Holdings is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, media and licensing, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings was founded and is led by Sardar Biglari, Chairman and Chief Executive Officer of the Company. The Company’s long-term objective is to maximize per-share intrinsic value. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. As of March 31, 2021, Mr. Biglari beneficially owns shares of the Company that represent approximately 63.0% of the economic interest and 67.5% of the voting interest.
Overview of the Impact of COVID-19
The novel coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization, which caused governments to contain its spread, thereby significantly affecting our operating businesses beginning in March of 2020 and adversely affecting nearly all of our operations during 2020. Our restaurants were required to close their dining rooms during the first quarter of 2020 and the majority of our dining rooms remain closed. During 2020, the pandemic also caused oil demand to decrease significantly, which created oversupplied markets and lowered commodity prices and margins. The risks and uncertainties resulting from the pandemic may continue to affect our future earnings, cash flows and financial condition.
Business Acquisition
On March 9, 2020, Biglari Holdings acquired the stock of Southern Pioneer Property & Casualty Insurance Company, and its agency, Southern Pioneer Insurance Agency, Inc. (collectively “Southern Pioneer”). Southern Pioneer underwrites garage liability insurance, commercial property, as well as homeowners and dwelling fire insurance. The financial results for Southern Pioneer are included from the date of acquisition. Pro-forma financial information of Southern Pioneer is not material.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including Steak n Shake Inc., Western Sizzlin Corporation, First Guard Insurance Company, Maxim Inc., Southern Pioneer, and Southern Oil.  Intercompany accounts and transactions have been eliminated in consolidation.
Change in Presentation
The first quarter of 2020 has been adjusted to conform to the following changes in presentation. Interest expense on finance leases was combined with interest expense and reclassified as a component of cost and expenses.  Gain on debt extinguishment of $4,346 has been reclassified from other income to selling, general and administrative expenses.

5

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, 2021 and December 31, 2020.
 March 31, 2021December 31, 2020
 Class AClass BClass AClass B
Common stock authorized500,000 10,000,000 500,000 10,000,000 
Common stock issued and outstanding206,864 2,068,640 206,864 2,068,640 
On an equivalent Class A common stock basis, there were 620,592 shares outstanding as of March 31, 2021 and December 31, 2020.  There are no dilutive securities 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. The equivalent Class A common stock for the earnings per share calculation during the first quarter of 2021 and 2020 was 321,139 and 344,391, respectively. 
Note 3. Investments
Investments were $99,427 and $94,861 as of March 31, 2021 and December 31, 2020, respectively.  All investments are classified as available-for-sale and recorded at fair value. 
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 they 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. (“Biglari Capital”) is the general partner of the investment partnerships and is an entity 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 is presented below.
 Fair ValueCompany
Common Stock
Carrying Value
Partnership interest at December 31, 2020$590,926 $171,376 $419,550 
Investment partnership gains (losses)110,918 29,152 81,766 
Distributions (net of contributions)(147,570)(147,570)
Decrease in proportionate share of Company stock held(3,049)3,049 
Partnership interest at March 31, 2021$554,274 $197,479 $356,795 
6

Note 4. Investment Partnerships (continued)

 Fair ValueCompany
Common Stock
Carrying Value
Partnership interest at December 31, 2019$666,123 $160,581 $505,542 
Investment partnership gains (losses)(261,708)(85,966)(175,742)
Distributions (net of contributions)(12,200)(12,200)
Decrease in proportionate share of Company stock held(1,089)1,089 
Partnership interest at March 31, 2020$392,215 $73,526 $318,689 
The carrying value of the investment partnerships net of deferred taxes is presented below.
 March 31, 2021December 31, 2020
Carrying value of investment partnerships$356,795 $419,550 
Deferred tax liability related to investment partnerships(68,060)(44,805)
Carrying value of investment partnerships net of deferred taxes$288,735 $374,745 
The Company’s proportionate share of Company stock held by investment partnerships at cost is $386,568 and $389,617 at March 31, 2021 and December 31, 2020, respectively, and is recorded as treasury stock. 
The carrying value of the partnership interest approximates fair value adjusted by the value of held Company stock.  Fair value is according to our proportional ownership interest of the fair value of investments held by the investment partnerships. The fair value measurement is classified as level 3 within the fair value hierarchy. 
Gains/losses from investment partnerships recorded in the Company’s consolidated statements of earnings are presented below.
 First Quarter
 20212019
Gains (losses) on investment partnership$81,766 $(175,742)
Tax expense (benefit)19,117 (41,383)
Net earnings (loss)$62,649 $(134,359)
On December 31 of each year, the general partner of the investment partnerships, Biglari Capital, will earn an incentive reallocation fee for the Company’s investments equal to 25% of the net profits above an annual hurdle rate of 6% over the previous high-water mark. Our policy is to accrue an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings to Biglari Capital includes gains on the Company’s common stock. Gains and losses on the Company’s common stock and the related incentive reallocations are eliminated in our financial statements. Our investments in these partnerships are committed on a rolling 5-year basis.
There were no incentive reallocations from Biglari Holdings to Biglari Capital during the first quarters of 2021 and 2020.

7

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 FundLion Fund II
Total assets as of March 31, 2021$115,563 $577,151 
Total liabilities as of March 31, 2021$113 $65,943 
Revenue for the first quarter of 2021$18,016 $105,347 
Earnings for the first quarter of 2021$17,998 $105,274 
Biglari Holdings' ownership interest as of March 31, 202161.3 %94.0 %
Total assets as of December 31, 2020$112,970 $566,663 
Total liabilities as of December 31, 2020$189 $25,453 
Revenue for the first quarter of 2020$(45,894)$(248,460)
Earnings for the first quarter of 2020$(45,910)$(249,573)
Biglari Holdings' ownership interest as of March 31, 202066.1 %93.1 %
Revenue in the above summarized financial information of the investment partnerships 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,
2021
December 31,
2020
Land$143,382 $142,601 
Buildings140,992 138,734 
Land and leasehold improvements142,003 141,351 
Equipment195,090 192,735 
Oil and gas properties73,268 75,900 
Construction in progress1,242 1,032 
 695,977 692,353 
Less accumulated depreciation and amortization(378,545)(376,231)
Property and equipment, net$317,432 $316,122 
Depletion expense related to oil and gas properties was $2,244 and $4,737 during the first quarter of 2021 and 2020, respectively, and is included in depreciation and amortization within the consolidated statement of earnings.
During the first quarter of 2021, the Company recorded impairment charges of $298 related to closed stores. The Company recorded impairment charges of $10,300 in the first quarter of 2020 mainly because of the adverse effect the COVID-19 pandemic had on our restaurant operations. 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.
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.
8

Note 6. Goodwill and Other Intangible Assets (continued)
A reconciliation of the change in the carrying value of goodwill is as follows.
 Goodwill
Goodwill at December 31, 2020$53,596 
Change in foreign exchange rates during the first quarter of 2021(29)
Goodwill at March 31, 2021$53,567 
We evaluate goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. Goodwill impairment occurs when the estimated fair value of goodwill is less than its carrying value. The valuation methodology and underlying financial information included in our determination of fair value require significant management judgments. We use both market and income approaches to derive fair value. The judgments in these two approaches include, but are not limited to, comparable market multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results. No impairment charges for goodwill were recorded in the first quarters of 2021 or 2020.
In response to the adverse effects of the COVID-19 pandemic, during 2020 we considered whether goodwill needed to be evaluated for impairment for certain restaurant reporting units.  We considered the available facts and made qualitative assessments and judgments for what we believed represented reasonably possible outcomes. Another pandemic event could have a negative impact on restaurant operations, which may require the Company to record goodwill impairment charges in future periods.
Other Intangible Assets
Intangible assets with indefinite lives are composed of the following.
 Trade NamesLease RightsTotal
Balance at December 31, 2020$15,876 $8,189 $24,065 
Change in foreign exchange rates during the first quarter of 2021 (359)(359)
Balance at March 31, 2021$15,876 $7,830 $23,706 
Fair values were determined using Level 3 inputs and available market data. 
Note 7. Restaurant Operations Revenues
Restaurant operations revenues were as follows.
 First Quarter
 20212020
Net sales$54,950 $104,728 
Franchise partner fees7,853 3,344 
Franchise royalties and fees5,135 5,211 
Other2,016 861 
 $69,954 $114,144 
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

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. Therefore, we generate most of our revenue from our share of the franchise partners’ profits. The initial franchise fee of ten thousand dollars is recognized when the operator becomes a franchise partner.
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.
Gift card 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.
Note 8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses include the following.
 March 31,
2021
December 31,
2020
Accounts payable$31,347 $26,537 
Gift card liability20,122 21,822 
Loss reserves13,487 14,652 
Unearned premiums13,222 13,277 
Other insurance accruals5,012 6,559 
Salaries, wages and vacation8,407 8,285 
Deferred revenue10,259 9,324 
Taxes payable10,288 10,922 
Other8,160 7,443 
Accounts payable and accrued expenses$120,304 $118,821 

Note 9. Notes Payable and Lease Obligations
Steak n Shake Credit Facility
On March 19, 2014, Steak n Shake and its subsidiaries entered into a credit agreement which provided for a senior secured term loan facility in an aggregate principal amount of $200,000. The term loan was scheduled to mature on March 19, 2021. As of December 31, 2020, $152,506 was outstanding ($152,261 net of deferred financing costs). The Company repaid Steak n Shake's outstanding balance in full on February 19, 2021.
10

Lease obligations include the following.
Current portion of lease obligationsMarch 31,
2021
December 31,
2020
Finance lease liabilities$1,582 $1,897 
Finance obligations4,050 4,854 
Operating lease liabilities9,218 10,614 
Total current portion of lease obligations$14,850 $17,365 
Long-term lease obligations
Finance lease liabilities$5,700 $7,034 
Finance obligations68,543 68,148 
Operating lease liabilities34,820 36,463 
Total long-term lease obligations$109,063 $111,645 
Note 10. Leased Assets and Lease Commitments
A significant portion of our operating and finance lease portfolio includes restaurant locations. Operating lease expense and finance lease depreciation expense are recognized on a straight-line basis over the lease term.
Total lease cost consists of the following.
First Quarter
20212020
Finance lease costs:
Amortization of right-of-use assets$419 $479 
Interest on lease liabilities147 178 
Operating lease costs *1,110 3,736 
Total lease costs$1,676 $4,393 
*Includes short-term leases, variable lease costs and sublease income, which are immaterial.

11

Note 10. Leased Assets and Lease Commitments (continued)
Supplemental cash flow information related to leases is as follows.
 First Quarter
 20212020
Cash paid for amounts included in the measurement of lease liabilities:  
Financing cash flows from finance leases$529 $413 
Operating cash flows from finance leases$132 $171 
Operating cash flows from operating leases$4,186 $3,993 
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities$ $73 
Supplemental balance sheet information related to leases is as follows.
March 31,
2021
December 31,
2020
Finance leases:
Property and equipment, net$6,175 $6,501 
Weighted-average lease terms and discount rates are as follows.
March 31,
2021
Weighted-average remaining lease terms:
Finance leases5.4 years
Operating leases5.4 years
Weighted-average discount rates:
Finance leases7.1%
Operating leases6.9%
Maturities of lease liabilities as of March 31, 2021 are as follows.
YearOperating
Leases
Finance
Leases
2021$9,162 $1,533 
202211,092 1,706 
20239,817 1,401 
20247,844 1,384 
20256,087 1,148 
After 20259,279 1,605 
Total lease payments53,281 8,777 
Less interest9,243 1,495 
Total lease liabilities$44,038 $7,282 


12

Note 11. Accumulated Other Comprehensive Income
During the first quarters of 2021 and 2020, accumulated other comprehensive losses increased by $444 and $312, respectively. As of March 31, 2021 and 2020, the balances in accumulated other comprehensive loss were $1,975 and $3,122, respectively.  There were no reclassifications from accumulated other comprehensive income to earnings during the first quarters of 2021 and 2020.  All changes in accumulated other comprehensive income were due to foreign currency translation adjustments.
Note 12. Income Taxes
In determining the quarterly provision for income taxes, the Company used a discrete effective tax rate method based on statutory tax rates for the first quarters of 2021 and 2020. 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 2021 was $22,016 compared to a tax benefit of $43,830 for the first quarter of 2020.  The variance in income taxes between 2021 and 2020 is attributable to taxes on income generated by the investment partnerships.  Investment partnership pretax earnings were $81,766 during the first quarter of 2021 compared to pretax losses of $175,742 during the first quarter of 2020. 
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.
On January 29, 2018, a shareholder of the Company filed a purported class action complaint against the Company and the members of our Board of Directors in the Superior Court of Hamilton County, Indiana. The shareholder generally alleged claims of breach of fiduciary duty by the members of our Board of Directors and unjust enrichment to Mr. Biglari as a result of the dual class structure. On March 26, 2018, a shareholder of the Company filed a purported class action complaint against the Company and the members of our Board of Directors in the Superior Court of Hamilton County, Indiana. This shareholder generally alleged claims of breach of fiduciary duty by the members of our Board of Directors. On May 17, 2018, the shareholders who filed the January 29, 2018 complaint and the March 26, 2018 complaint filed a new, consolidated complaint against the Company and the members of our Board of Directors in the Superior Court of Hamilton County, Indiana. The shareholders generally alleged claims of breach of fiduciary duty by the members of our Board of Directors and unjust enrichment to Mr. Biglari arising out of the dual class structure, including the ability to vote the Company’s shares that are eliminated for financial reporting purposes.
On December 14, 2018, the judge of the Superior Court of Hamilton County, Indiana issued an order granting the Company’s motion to dismiss the shareholders’ lawsuits. On January 11, 2019, the shareholders filed an appeal of the judge’s order dismissing the lawsuits. On December 4, 2019, the Indiana Court of Appeals issued a unanimous decision affirming the trial court’s decision to dismiss the shareholder litigation. On January 20, 2020, the shareholders filed a petition to transfer with the Indiana Supreme Court seeking review of the decision of the Court of Appeals.  The Company opposed the petition.  On April 7, 2020, the Indiana Supreme Court denied the petition to transfer. 
All of the cases referenced above are completed and each case was concluded in the Company’s favor.

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.

13

Note 14. Fair Value of Financial Assets (continued)
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 Levels 1 and 2 of the fair value hierarchy. 
Bonds: The Company’s investments in bonds consist of both corporate and government debt. Bonds are classified within Level l or Level 2 of the fair value hierarchy.
Non-qualified deferred compensation plan investments: The assets of the non-qualified plan are set up in a rabbi trust. They represent mutual funds and publicly traded securities, each of which are classified within Level 1 of the fair value hierarchy.
Derivative instruments: Options related to equity securities are marked to market each reporting period and are classified within Level 2 of the fair value hierarchy depending on the instrument.
14

Note 14. Fair Value of Financial Assets (continued)
As of March 31, 2021 and December 31, 2020, the fair values of financial assets were as follows.
March 31, 2021December 31, 2020
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents$24,322 $ $ $24,322 $23,885 $ $ $23,885 
Equity securities
Consumer goods9,533 5,983  15,516 7,274 5,652  12,926 
Insurance116   116 261   261 
Bonds
Government54,350   54,350 39,472 14,043  53,515 
Corporate5,977   5,977  5,406  5,406 
Options on equity securities 2,580  2,580  2,911  2,911 
Non-qualified deferred compensation plan investments1,504   1,504 1,368   1,368 
Total assets at fair value$95,802 $8,563 $ $104,365 $72,260 $28,012 $ $100,272 
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 and Biglari Capital Corp. (collectively, the “Biglari Entities”) under which the Biglari Entities provide services to the Company. The service agreement has a five-year term, effective on October 1, 2017.  The Company paid Biglari Enterprises $2,100 in service fees during the first quarters of 2021 and 2020. The service agreement does not alter the hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp.  The Biglari Entities are owned by Mr. Biglari. 

Incentive Agreement
The Incentive Agreement establishes a performance-based annual incentive payment for Mr. Biglari contingent upon the growth in adjusted equity in each year attributable to our operating businesses. In order for Mr. Biglari to receive any incentive, our operating businesses must achieve an annual increase in shareholders’ equity in excess of 6% (the “Hurdle Rate”) above the previous highest level (the “High Water Mark”). Mr. Biglari will receive 25% of any incremental book value created above the High Water Mark plus the Hurdle Rate. In any year in which book value declines, our operating businesses must completely recover their deficit from the previous High Water Mark, along with attaining the Hurdle Rate, before Mr. Biglari becomes eligible to receive any further incentive payment.
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.  The Company also reports segment information for Maxim and Southern Oil. Other business activities not specifically identified with reportable business segments are presented in corporate. We report our earnings from investment partnerships separate from our corporate expenses. We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are neither necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements.
15

Note 16. Business Segment Reporting (continued)
A disaggregation of our consolidated data for the first quarters of 2021 and 2020 is presented in the tables which follow.
Revenue
First Quarter
20212020
Operating Businesses:
Restaurant Operations:
Steak n Shake$68,301 $111,113 
Western Sizzlin1,653 3,031 
Total Restaurant Operations69,954 114,144 
Insurance Operations:
First Guard8,219 7,884 
Southern Pioneer6,400 1,790 
Total Insurance Operations14,619 9,674 
Southern Oil8,592 11,374 
Maxim1,123 508 
$94,288 $135,700 

 Earnings (Losses) Before Income Taxes
 First Quarter
 20212020
Operating Businesses:
Restaurant Operations:
Steak n Shake$5,456 $(6,591)
Western Sizzlin92 37 
Total Restaurant Operations5,548 (6,554)
Insurance Operations:
First Guard2,193 2,441 
Southern Pioneer1,044 472 
Total Insurance Operations3,237 2,913 
Southern Oil3,039 2,470 
Maxim623 (32)
Interest expense not allocated to segments(1,121)(2,474)
Total Operating Businesses11,326 (3,677)
Corporate and Investments:
Corporate and other(2,450)(2,296)
Investment gains3,081  
Investment partnership gains (losses)81,766 (175,742)
Total Corporate and Investments82,397 (178,038)
 $93,723 $(181,715)

16

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands except per share data)
Overview
Biglari Holdings is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, media and licensing, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings was founded and is led by Sardar Biglari, Chairman and Chief Executive Officer of the Company. The Company’s long-term objective is to maximize per-share intrinsic value. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. As of March 31, 2021, Mr. Biglari beneficially owns shares of the Company that represent approximately 63.0% of the economic interest and 67.5% of the voting interest.
On March 9, 2020, Biglari Holdings acquired the stock of Southern Pioneer Property & Casualty Insurance Company and its agency, Southern Pioneer Insurance Agency, Inc. (collectively “Southern Pioneer”). The Company's financial results include the results of Southern Pioneer from the date of acquisition.
Net earnings (loss) attributable to Biglari Holdings shareholders are disaggregated in the table that follows. Amounts are recorded after deducting income taxes. 
 First Quarter
 20212020
Operating businesses:  
Restaurant$4,118 $(4,682)
Insurance2,531 2,316 
Oil and gas2,355 2,201 
Media and licensing480 (25)
Interest expense(841)(1,846)
Total operating businesses8,643 (2,036)
Corporate and other(1,999)(1,490)
Investment gains2,414 — 
Investment partnership gains (losses)62,649 (134,359)
 $71,707 $(137,885)
Restaurant businesses include Steak n Shake Inc. and Western Sizzlin Corporation.  Steak n Shake and Western Sizzlin are engaged in the ownership, operation, and franchising of restaurants.
Insurance businesses are composed of First Guard Insurance Company (“First Guard”) and Southern Pioneer. First Guard is a direct underwriter of commercial trucking insurance, selling physical damage and nontrucking liability insurance to truckers.  Southern Pioneer underwrites garage liability insurance, commercial property, as well as homeowners and dwelling fire insurance.
Oil and gas business is composed of Southern Oil. 
Media and licensing business is composed of Maxim Inc.
17


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Restaurants
Steak n Shake and Western Sizzlin comprise 591 company-operated and franchise restaurants as of March 31, 2021.
Steak n ShakeWestern Sizzlin
 Company-
operated
Franchise
Partner
Traditional
Franchise
Company-
operated
FranchiseTotal
Total stores as of December 31, 2020276 86 194 39 598 
Corporate stores transitioned(22)22 — — — — 
Net restaurants opened (closed)(1)— (5)— (1)(7)
Total stores as of March 31, 2021253 108 189 38 591 
Total stores as of December 31, 2019368 29 213 48 662 
Corporate stores transitioned(11)10 — — — 
Net restaurants opened (closed)(51)— (6)— — (57)
Total stores as of March 31, 2020306 39 208 48 605 
As of March 31, 2021, 50 of the 253 company-operated Steak n Shake stores were temporarily closed. 

18


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Earnings of our restaurant operations are summarized below.
First Quarter
20212020
Revenue
Net sales$54,950 $104,728 
Franchise partner fees7,853 3,344 
Franchise royalties and fees5,135 5,211 
Other revenue2,016 861 
Total revenue69,954 114,144 
Restaurant cost of sales
Cost of food15,554 28.3%31,443 30.0%
Restaurant operating costs25,197 45.9%53,497 51.1%
Occupancy costs4,865 8.9%4,976 4.8%
Total cost of sales45,616 89,916 
Selling, general and administrative
General and administrative7,680 11.0%8,898 7.8%
Marketing4,623 6.6%8,820 7.7%
Other expenses(141)(0.2)%284 0.2%
Total selling, general and administrative12,162 17.4%18,002 15.8%
Impairments(298)(10,300)
Depreciation and amortization(4,710)(5,026)
Gain on debt extinguishment— 4,346 
Interest on finance leases and obligations(1,620)(1,800)
Earnings (loss) before income taxes5,548 (6,554)
Income tax expense (benefit)1,430 (1,872)
Contribution to net earnings$4,118 $(4,682)
Cost of food, restaurant operating costs and rent expense are expressed as a percentage of net sales. 
General and administrative, marketing and other expenses are expressed as a percentage of total revenue.
The COVID-19 pandemic adversely affected our restaurant operations and financial results.  Our restaurants were required to close their dining rooms during the first quarter of 2020, and the majority of our dining rooms remain closed. Steak n Shake is reopening its dining rooms but with a self-service model.
Net sales for the first quarter of 2021 were $54,950, representing a decrease of $49,778 or 47.5% compared to the first quarter of 2020.  The decreased performance of our restaurant operations in 2021 was primarily due to the closing of dining rooms.
Franchise partner fees were $7,853 during the first quarter of 2021 compared to $3,344 during 2020.  As of March 31, 2021, there were 108 franchise partner units compared to 39 franchise partner units as of March 31, 2020. We continue to transition from company-operated units to franchise-operated. For a franchise partner to be awarded a restaurant, he or she must demonstrate the gold standard in service.
19


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Cost of food during the first quarter of 2021 was $15,554 or 28.3% of net sales compared to the first quarter in 2020 of $31,443 or 30.0% of net sales.  The decrease as a percentage of net sales is primarily attributable to changes in menu offerings implemented in the third and fourth quarters of 2020.
Restaurant operating costs during the first quarter of 2021 were $25,197 or 45.9% of net sales compared to $53,497 or 51.1% of net sales in 2020. The decrease is mainly attributable to transitioning to an off-premises business - drive-through, delivery and takeout.
General and administrative costs during the first quarter of 2021 were $7,680 compared to $8,898 during 2020. The decrease is primarily attributable to lower personnel costs.
Marketing expense during the first quarter of 2021 was $4,623 or 6.6% of total revenues compared to expenses during the first quarter of 2020 of $8,820 or 7.7% of total revenues.
Our restaurants recorded an impairment to long-lived assets of $298 and $10,300 in the first quarters of 2021 and 2020, respectively.  The impairments are primarily attributable to the closure of Steak n Shake stores.
Insurance
We view our insurance businesses as possessing two activities: underwriting and investing. Underwriting decisions are the responsibility of the unit managers, whereas investing decisions are the responsibility of our Chairman and CEO, Sardar Biglari. Business units are operated under separate local management. Biglari Holdings’ insurance operations consist of First Guard and Southern Pioneer.
Underwriting results of our insurance operations are summarized below.
 First Quarter
20212020
Underwriting gain attributable to:
First Guard $2,131 $2,323 
Southern Pioneer 413 207 
Pre-tax underwriting gain 2,544 2,530 
Income tax expense 534 531 
Net underwriting gain $2,010 $1,999 
Earnings of our insurance operations are summarized below.
First Quarter
20212020
Premiums written$13,690 $8,842 
Insurance losses7,021 4,174 
Underwriting expenses4,125 2,138 
Pre-tax underwriting gain2,544 2,530 
Other income and expenses 
Investment income and commissions745 832 
Other income (expenses)(52)(449)
Total other income693 383 
Earnings before income taxes3,237 2,913 
Income tax expense706 597 
Contribution to net earnings$2,531 $2,316 
Insurance premiums and other on the consolidated statement of earnings includes premiums earned, investment income, other income and commissions.
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
First Guard
First Guard is a direct underwriter of commercial truck insurance, selling physical damage and nontrucking liability insurance to truckers. First Guard’s insurance products are marketed primarily through direct response methods via the internet or by telephone. First Guard’s cost-efficient direct response marketing methods enable it to be a low-cost insurer. A summary of First Guard’s underwriting results follows.
First Quarter
20212020
Amount%Amount%
Premiums written$8,077 100.0%$7,415 100.0%
Insurance losses4,002 49.5%3,558 48.0%
Underwriting expenses1,944 24.1%1,534 20.7%
Total losses and expenses5,946 73.6%5,092 68.7%
Pre-tax underwriting gain$2,131 $2,323 
Southern Pioneer
Southern Pioneer underwrites garage liability insurance, commercial property, as well as homeowners and dwelling fire insurance. The financial results for Southern Pioneer are from the date of acquisition March 9, 2020. A summary of Southern Pioneer’s underwriting results follows.
First Quarter
20212020
Amount%Amount%
Premiums written$5,613 100.0%$1,427 100.0%
Insurance losses3,019 53.8%616 43.2%
Underwriting expenses