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 September 30, 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)

Indiana	82-3784946
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

17802 IH 10 West,	Suite 400
San Antonio,	TX	78257
(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 class	Trading Symbols	Name of each exchange on which registered
Class A Common Stock, no par value	BH.A	New York Stock Exchange
Class B Common Stock, no par value	BH	New 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 filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller 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 November 2, 2021:

Class A common stock –	206,864
Class B common stock –	2,068,640

BIGLARI HOLDINGS INC.

INDEX

		Page No.
Part I – Financial Information
Item 1.	Financial Statements	1
	Consolidated Balance Sheets — September 30, 2021 and December 31, 2020	1
	Consolidated Statements of Earnings — Third Quarter and First Nine Months 2021 and 2020	2
	Consolidated Statements of Comprehensive Income — Third Quarter and First Nine Months 2021 and 2020	2
	Consolidated Statements of Cash Flows — First Nine Months 2021 and 2020	3
	Consolidated Statements of Changes in Shareholders’ Equity — First Nine Months 2021 and 2020	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26
Part II – Other Information
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
Signatures		28

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIGLARI HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	September 30, 2021		December 31, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	27,795	$	24,503
Investments	99,006		94,861
Receivables	23,885		19,185
Inventories	3,102		2,737
Other current assets	6,763		6,492
Total current assets	160,551		147,778
Property and equipment	352,822		316,122
Operating lease assets	44,598		42,832
Goodwill and other intangible assets	77,179		77,661
Investment partnerships	273,089		419,550
Other assets	11,132		14,025
Total assets	$	919,371	$	1,017,968
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	100,898	$	90,892
Loss and loss adjustment expenses	13,401		14,652
Unearned premiums	11,303		13,277
Current portion of lease obligations	17,230		17,365
Current portion of notes payable	—		152,261
Total current liabilities	142,832		288,447
Lease obligations	107,949		111,645
Deferred taxes	57,910		41,346
Asset retirement obligations	10,314		10,022
Other liabilities	1,800		1,680
Total liabilities	320,805		453,140
Shareholders’ equity
Common stock	1,138		1,138
Additional paid-in capital	381,788		381,788
Retained earnings	613,351		573,050
Accumulated other comprehensive loss	(1,909)		(1,531)
Treasury stock, at cost	(395,802)		(389,617)
Biglari Holdings Inc. shareholders’ equity	598,566		564,828
Total liabilities and shareholders’ equity	$	919,371	$	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)

	Third Quarter				First Nine Months
	2021		2020		2021		2020
	(Unaudited)				(Unaudited)
Revenues
Restaurant operations	$	59,144	$	79,674	$	196,424	$	272,582
Insurance premiums and other	14,723		14,413		43,729		38,692
Oil and gas	7,353		6,029		24,310		19,554
Media and licensing	863		1,719		2,695		3,209
	82,083		101,835		267,158		334,037
Cost and expenses
Restaurant cost of sales	41,694		54,062		129,297		194,737
Insurance losses and underwriting expenses	10,672		11,290		31,733		28,866
Oil and gas production costs	2,050		2,171		6,957		6,570
Media and licensing costs	880		548		1,749		1,491
Selling, general and administrative	16,889		19,902		50,848		54,974
Impairments	—		3,698		559		21,817
Depreciation and amortization	7,682		7,275		22,239		24,284
Interest expense on leases	1,462		1,593		4,619		4,679
Interest expense on notes payable	—		2,150		1,121		6,973
	81,329		102,689		249,122		344,391
Other income
Investment gains	4,534		354		6,465		1,863
Investment partnership gains (losses)	(20,231)		27,218		27,344		(89,276)
	(15,697)		27,572		33,809		(87,413)
Earnings (loss) before income taxes	(14,943)		26,718		51,845		(97,767)
Income tax expense (benefit)	(4,274)		5,617		11,544		(23,449)
Net earnings (loss)	$	(10,669)	$	21,101	$	40,301	$	(74,318)
Earnings per share
Net earnings (loss) per equivalent Class A share *	$	(33.74)	$	60.07	$	125.79	$	(213.31)

*Net earnings (loss) per equivalent Class B share outstanding are one-fifth of the equivalent Class A share or $(6.75) and $25.16 for the third quarter and first nine months of 2021, respectively, and $12.01 and $(42.66) for the third quarter and first nine months of 2020, respectively.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

	Third Quarter				First Nine Months
	2021		2020		2021		2020
	(Unaudited)				(Unaudited)
Net earnings (loss)	$	(10,669)	$	21,101	$	40,301	$	(74,318)
Foreign currency translation	(49)		344		(378)		834
Total comprehensive income (loss)	$	(10,718)	$	21,445	$	39,923	$	(73,484)

See accompanying Notes to Consolidated Financial Statements.

2

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	First Nine Months
	2021		2020
	(Unaudited)
Operating activities
Net earnings (loss)	$	40,301	$	(74,318)
Adjustments to reconcile net earnings (loss) to operating cash flows:
Depreciation and amortization	22,239		24,284
Provision for deferred income taxes	16,625		(23,755)
Asset impairments and other non-cash expenses	696		22,545
Gains on disposal of assets	(306)		(1,251)
Investment gains and investment partnership gains/losses	(34,461)		87,413
Distributions from investment partnerships	172,420		97,330
Changes in receivables, inventories and other assets	3,608		10,919
Changes in accounts payable and accrued expenses	(9,877)		(36,800)
Net cash provided by operating activities	211,245		106,367
Investing activities
Capital expenditures	(46,486)		(13,297)
Proceeds from property and equipment disposals	2,749		3,914
Acquisition of business, net of cash acquired	—		(34,240)
Purchases of limited partner interests	(4,800)		(69,330)
Purchases of investments	(81,923)		(240,351)
Redemptions of fixed maturity securities	74,678		241,223
Net cash used in investing activities	(55,782)		(112,081)
Financing activities
Proceeds from revolving credit facility	—		500
Principal payments on long-term debt	(149,952)		(22,729)
Principal payments on direct financing lease obligations	(4,634)		(4,152)
Net cash used in financing activities	(154,586)		(26,381)
Effect of exchange rate changes on cash	(85)		(13)
Increase (decrease) in cash, cash equivalents and restricted cash	792		(32,108)
Cash, cash equivalents and restricted cash at beginning of year	29,666		70,696
Cash, cash equivalents and restricted cash at end of third quarter	$	30,458	$	38,588

	First Nine Months
	2021		2020
	(Unaudited)
Cash and cash equivalents	$	27,795	$	33,164
Restricted cash in other long-term assets	2,663		5,424
Cash, cash equivalents and restricted cash at end of third quarter	$	30,458	$	38,588

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 partnerships									3,049		3,049
Balance at March 31, 2021	$	1,138	$	381,788	$	644,757	$	(1,975)	$	(386,568)	$	639,140
Net earnings (loss)					(20,737)						(20,737)
Other comprehensive income							115				115
Adjustment to treasury stock for holdings in investment partnerships									(5,026)		(5,026)
Balance at June 30, 2021	$	1,138	$	381,788	$	624,020	$	(1,860)	$	(391,594)	$	613,492
Net earnings (loss)					(10,669)						(10,669)
Other comprehensive loss							(49)				(49)
Adjustment to treasury stock for holdings in investment partnerships									(4,208)		(4,208)
Balance at September 30, 2021	$	1,138	$	381,788	$	613,351	$	(1,909)	$	(395,802)	$	598,566

	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 partnerships									1,089		1,089
Balance at March 31, 2020	$	1,138	$	381,788	$	473,154	$	(3,122)	$	(373,768)	$	479,190
Net earnings					42,466						42,466
Other comprehensive income							802				802
Adjustment to treasury stock for holdings in investment partnerships									92		92
Balance at June 30, 2020	$	1,138	$	381,788	$	515,620	$	(2,320)	$	(373,676)	$	522,550
Net earnings (loss)					21,101						21,101
Other comprehensive income							344				344
Adjustment to treasury stock for holdings in investment partnerships									(5,777)		(5,777)
Balance at September 30, 2020	$	1,138	$	381,788	$	536,721	$	(1,976)	$	(379,453)	$	538,218

See accompanying Notes to Consolidated Financial Statements.

4

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 September 30, 2021, Mr. Biglari beneficially owns shares of the Company that represent approximately 65.0% of the economic interest and 70.3% of the voting interest.

Overview of the Impact of COVID-19

The novel coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization in March of 2020. Government and private sector responses to contain its spread began to affect our operating businesses significantly that same month. The COVID-19 pandemic has adversely affected nearly all of our operations, although the effects are varying significantly. The risks and uncertainties resulting from the pandemic may continue to affect our future earnings, cash flows and financial condition. The extent of such effects over the long term cannot be reasonably estimated at this time.

Business 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.

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 Company.  Intercompany accounts and transactions have been eliminated in consolidation.

Change in Presentation

Gain on debt extinguishment of $0 and $5,713 during the third quarter and first nine months of 2020, respectively, have been reclassified from other income to selling, general and administrative expenses. Loss and loss adjustment expenses and unearned premiums are reflected separately from accrued expenses on the consolidated balance sheet.

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.

5

Note 2. Earnings Per Share (continued)

The following table presents shares authorized, issued and outstanding on September 30, 2021 and December 31, 2020.

	September 30, 2021		December 31, 2020
	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

On an equivalent Class A common stock basis, there were 620,592 shares outstanding as of September 30, 2021 and December 31, 2020.  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 third quarters of 2021 and 2020 was 316,236 and 351,288, respectively.  The equivalent Class A common stock for the earnings per share calculation during the first nine months of 2021 and 2020 was 320,377 and 348,396, respectively.

Note 3. Investments

Investments were $99,006 and $94,861 as of September 30, 2021 and December 31, 2020, respectively.  We classify investments in fixed maturity securities at the acquisition date as either available-for-sale or held-to-maturity and re-evaluate the classification at each balance sheet date. Securities classified as held-to-maturity are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity. Realized gains and losses on disposals of investments are determined on a specific identification basis. Dividends earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.

Investment gains for the third quarter and first nine months of 2021 were $4,534 and $6,465, respectively, which include a $5,047 gain on the sale of real estate. The Company purchased 26 acres of land in Murfreesboro, Tennessee in 2014 for $2,145 and sold it in the third quarter of 2021. Investment gains for the third quarter and first nine months of 2020 were $354 and $1,863, 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 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 Value		Company Common Stock		Carrying Value
Partnership interest at December 31, 2020	$	590,926	$	171,376	$	419,550
Investment partnership gains (losses)	110,690		83,346		27,344
Distributions (net of contributions)	(167,620)				(167,620)
Increase in proportionate share of Company stock held			6,185		(6,185)
Partnership interest at September 30, 2021	$	533,996	$	260,907	$	273,089

6

Note 4. Investment Partnerships (continued)

	Fair Value		Company Common Stock		Carrying Value
Partnership interest at December 31, 2019	$	666,123	$	160,581	$	505,542
Investment partnership gains (losses)	(123,524)		(34,248)		(89,276)
Distributions (net of contributions)	(28,000)				(28,000)
Decrease in proportionate share of Company stock held			4,596		(4,596)
Partnership interest at September 30, 2020	$	514,599	$	130,929	$	383,670

The carrying value of the investment partnerships net of deferred taxes is presented below.

	September 30, 2021		December 31, 2020
Carrying value of investment partnerships	$	273,089	$	419,550
Deferred tax liability related to investment partnerships	(54,432)		(44,805)
Carrying value of investment partnerships net of deferred taxes	$	218,657	$	374,745

The Company’s proportionate share of Company stock held by investment partnerships at cost is $395,802 and $389,617 at September 30, 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 of our partnership interests 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.

	Third Quarter				First Nine Months
	2021		2020		2021		2020
Gains (losses) on investment partnership	$	(20,231)	$	27,218	$	27,344	$	(89,276)
Tax expense (benefit)	(4,946)		6,163		6,175		(21,337)
Contribution to net earnings	$	(15,285)	$	21,055	$	21,169	$	(67,939)

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 consolidated financial statements.

There were no incentive reallocations from Biglari Holdings to Biglari Capital during the first nine months 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 Fund			Lion Fund II
Total assets as of September 30, 2021	$	132,351		$	583,989
Total liabilities as of September 30, 2021	$	1,490		$	101,956
Revenue for the first nine months of 2021	$	35,639		$	94,078
Earnings for the first nine months of 2021	$	35,584		$	93,548
Biglari Holdings' ownership interest as of September 30, 2021	62.4		%	93.9		%
Total assets as of December 31, 2020	$	112,970		$	566,663
Total liabilities as of December 31, 2020	$	189		$	25,453
Revenue for the first nine months of 2020	$	(18,941)		$	(119,644)
Earnings for the first nine months of 2020	$	(18,992)		$	(120,849)
Biglari Holdings' ownership interest as of September 30, 2020	66.2		%	95.3		%

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.

	September 30, 2021		December 31, 2020
Land	$	144,774	$	142,601
Buildings	147,947		138,734
Land and leasehold improvements	148,296		141,351
Equipment	223,815		192,735
Oil and gas properties	73,752		75,900
Construction in progress	2,482		1,032
	741,066		692,353
Less accumulated depreciation and amortization	(388,244)		(376,231)
Property and equipment, net	$	352,822	$	316,122

Depletion expense related to oil and gas properties was $5,875 and $9,249 during the first nine months of 2021 and 2020, respectively, and is included in depreciation and amortization within the consolidated statement of earnings.

During the first nine months of 2021, the Company recorded impairment charges of $559 related to closed stores. The Company recorded impairment charges of $18,117 in the first nine months of 2020. 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 nine months of 2021	(36)
Goodwill at September 30, 2021	$	53,560

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. 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. No impairment charges for goodwill were recorded in the first nine months of 2021 or 2020.

Western Sizzlin has experienced a decline in its franchised units for several years. If Western Sizzlin's franchised units continue to decline, an impairment of its goodwill may be necessary.

Other Intangible Assets

Intangible assets with indefinite lives are composed of the following.

	Trade Names		Lease Rights		Total
Balance at December 31, 2020	$	15,876	$	8,189	$	24,065
Change in foreign exchange rates during the first nine months of 2021	—		(446)		(446)
Balance at September 30, 2021	$	15,876	$	7,743	$	23,619

During the first nine months of 2020, the Company recorded impairment charges of $3,700 on lease rights related to our international restaurant operations.

Fair values were determined using Level 3 inputs and available market data. 

Note 7. Restaurant Operations Revenues

Restaurant operations revenues were as follows.

	Third Quarter				First Nine Months
	2021		2020		2021		2020
Net sales	$	41,916	$	67,617	$	146,269	$	241,832
Franchise partner fees	11,508		6,894		31,744		14,775
Franchise royalties and fees	4,865		4,421		14,594		13,704
Other	855		742		3,817		2,271
	$	59,144	$	79,674	$	196,424	$	272,582

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. We generate most of our revenue from our share of the franchise partners’ profits. An initial franchise fee of ten thousand dollars is recognized when the operator becomes a franchise partner. The Company recognizes franchise partner fees monthly as underlying restaurant sales occur.

The Company leases or subleases property and equipment to franchisees under lease arrangements. Both real estate and equipment rental payments are charged to franchisees and are recognized in accordance with ASC 842, "Leases". During the third quarter of 2021 and 2020, restaurant operations recognized $4,277 and $1,606, respectively, in franchise partner fees related to rental fees. During the nine months ended September 30, 2021, and September 30, 2020, restaurant operations recognized $10,910 and $3,617, respectively, in franchise partner fees related to rental fees.

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 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.

	September 30, 2021		December 31, 2020
Accounts payable	$	42,307	$	26,537
Gift card liability	21,174		21,822
Insurance accruals	6,221		6,559
Salaries, wages and vacation	8,378		8,285
Deferred revenue	7,546		9,324
Taxes payable	4,317		10,922
Professional fees	6,169		5,882
Other	4,786		1,561
Accounts payable and accrued expenses	$	100,898	$	90,892

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 $220,000. The term loan was scheduled to mature on March 19, 2021. As of December 31, 2020, $152,506 was outstanding. The Company repaid Steak n Shake's outstanding balance in full on February 19, 2021.

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Note 9. Notes Payable and Lease Obligations (continued)

Lease obligations include the following.

Current portion of lease obligations	September 30, 2021		December 31, 2020
Finance lease liabilities	$	1,536	$	1,897
Finance obligations	4,948		4,854
Operating lease liabilities	10,746		10,614
Total current portion of lease obligations	$	17,230	$	17,365
Long-term lease obligations
Finance lease liabilities	$	5,627	$	7,034
Finance obligations	64,315		68,148
Operating leases liabilities	38,007		36,463
Total long-term lease obligations	$	107,949	$	111,645

Note 10. Leased Assets and Lease Commitments

Nature of Leases

The Company operates restaurants that are located on sites owned by us and leased from third parties. In addition, the Company owns sites and leases sites from third parties that are leased and/or subleased to franchisees.

Company as Lessee

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.

	Third Quarter				First Nine Months
	2021		2020		2021		2020
Finance lease costs:
Amortization of right-of-use assets	$	404	$	279	$	1,205	$	1,087
Interest on lease liabilities	126		136		399		392
Operating lease costs *	240		2,096		1,403		8,321
Total lease costs	$	770	$	2,511	$	3,007	$	9,800

*Includes short-term leases, variable lease costs and sublease income.

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Note 10. Leased Assets and Lease Commitments (continued)

Supplemental cash flow information related to leases is as follows.

	First Nine Months
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	1,226	$	1,132
Operating cash flows from finance leases	$	384	$	463
Operating cash flows from operating leases	$	9,806	$	10,382
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	$	—	$	73

Supplemental balance sheet information related to leases is as follows.

	September 30, 2021		December 31, 2020
Finance leases:
Property and equipment, net	$	6,005	$	6,501

Weighted-average lease terms and discount rates are as follows.

	September 30, 2021
Weighted-average remaining lease terms:
Finance leases	5.2 years
Operating leases	5.3 years
Weighted-average discount rates:
Finance leases	7.0	%
Operating leases	6.9	%

Maturities of lease liabilities as of September 30, 2021 are as follows.

Year	Operating Leases		Finance Leases
2021	$	4,217	$	543
2022	12,457		1,816
2023	11,204		1,551
2024	9,244		1,534
2025	7,605		1,298
After 2025	13,699		1,814
Total lease payments	58,426		8,556
Less interest	9,673		1,393
Total lease liabilities	$	48,753	$	7,163

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Note 10. Leased Assets and Lease Commitments (continued)

Company as Lessor

The components of lease income are as follows.

	Third Quarter				First Nine Months
	2021		2020		2021		2020
Operating lease income	$	3,211	$	1,428	$	8,471	$	3,259
Variable lease income	1,370		449		3,375		1,183
Total lease income	$	4,581	$	1,877	$	11,846	$	4,442

The following table displays the Company's future minimum rental receipts for non-cancelable leases and subleases as of September 30, 2021. Franchise partner leases and subleases are short-term leases and have been excluded from the table.

	Operating Leases
Year	Subleases		Owned Properties
2021	$	190	$	62
2022	725		247
2023	537		247
2024	454		247
2025	454		250
After 2025	1,916		1,052
Total future minimum receipts	$	4,276	$	2,105

Note 11. Accumulated Other Comprehensive Income

Accumulated other comprehensive loss increased $49 and decreased $344 during the third quarters of 2021 and 2020, respectively. During the first nine months of 2021, accumulated other comprehensive loss increased by $378 and decreased by $834 during the first nine months of 2020.  As of September 30, 2021 and 2020, the balances in accumulated other comprehensive loss were $1,909 and $1,976, respectively.  There were no reclassifications from accumulated other comprehensive loss to earnings during the first nine months of 2021 and 2020.  All changes in accumulated other comprehensive loss 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 nine months 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 benefit for the third quarter of 2021 was $4,274 compared to an income tax expense of $5,617 for the third quarter of 2020.  Income tax expense for the first nine months of 2021 was $11,544 compared to a benefit of $23,449 for the first nine months 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 gains were $27,344 during the first nine months of 2021 compared to pretax losses of $89,276 during the first nine months 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.

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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 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.

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Note 14. Fair Value of Financial Assets (continued)

As of September 30, 2021 and December 31, 2020, the fair values of financial assets were as follows.

	September 30, 2021								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	25,575	$	—	$	—	$	25,575	$	23,885	$	—	$	—	$	23,885
Equity securities
Consumer goods	8,349		2,810		—		11,159		7,274		5,652		—		12,926
Insurance	4,536		—		—		4,536		261		—		—		261
Bonds
Government	52,876		—		—