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, 2023

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.)

19100 Ridgewood Parkway,	Suite 1200
San Antonio,	Texas	78259
(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 October 31, 2023:

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, 2023 and December 31, 2022	1
	Consolidated Statements of Earnings — Third Quarter and First Nine Months 2023 and 2022	2
	Consolidated Statements of Comprehensive Income — Third Quarter and First Nine Months 2023 and 2022	3
	Consolidated Statements of Cash Flows — First Nine Months 2023 and 2022	4
	Consolidated Statements of Changes in Shareholders’ Equity — First Nine Months 2023 and 2022	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
Part II – Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
Signatures		32

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIGLARI HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	September 30, 2023		December 31, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	33,993	$	37,467
Investments	84,365		69,466
Receivables	25,783		29,375
Inventories	3,457		3,851
Other current assets	7,722		10,495
Total current assets	155,320		150,654
Property and equipment	383,766		400,725
Operating lease assets	33,547		34,739
Goodwill and other intangible assets	76,444		76,550
Investment partnerships	169,417		155,794
Other assets	8,678		10,012
Total assets	$	827,172	$	828,474
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	78,997	$	78,616
Loss and loss adjustment expenses	14,086		16,805
Unearned premiums	14,316		12,495
Current portion of lease obligations	15,206		16,981
Line of credit	19,000		10,000
Total current liabilities	141,605		134,897
Lease obligations	88,447		91,844
Deferred taxes	25,401		31,343
Asset retirement obligations	14,216		14,068
Other liabilities	99		754
Total liabilities	269,768		272,906
Shareholders’ equity
Common stock	1,138		1,138
Additional paid-in capital	385,594		381,788
Retained earnings	586,818		576,510
Accumulated other comprehensive income	(3,066)		(2,790)
Treasury stock, at cost	(413,080)		(409,680)
Biglari Holdings Inc. shareholders’ equity	557,404		546,966
Noncontrolling interests	—		8,602
Total shareholders’ equity	557,404		555,568
Total liabilities and shareholders’ equity	$	827,172	$	828,474

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
	2023		2022		2023		2022
	(Unaudited)				(Unaudited)
Revenues
Restaurant operations	$	61,886	$	59,437	$	187,506	$	179,608
Insurance premiums and other	16,624		16,312		50,400		47,745
Oil and gas	12,159		14,380		35,123		38,632
Licensing and media	268		1,905		1,624		3,788
Total revenues	90,937		92,034		274,653		269,773
Costs and expenses
Restaurant cost of sales	36,789		36,162		104,455		107,469
Insurance losses and underwriting expenses	12,964		13,245		39,244		40,812
Oil and gas production costs	3,771		4,090		12,754		11,752
Licensing and media costs	476		345		1,427		1,975
Selling, general and administrative	18,315		15,469		54,587		48,275
Gain on sale — oil and gas properties	(13,563)		—		(13,563)		—
Impairments	752		—		2,381		20
Depreciation, depletion, and amortization	9,611		8,456		29,645		24,127
Interest expense on leases	1,262		1,372		3,870		4,169
Interest expense on borrowings	262		67		469		67
Total costs and expenses	70,639		79,206		235,269		238,666
Other income
Investment gains (losses)	(4,715)		(849)		(724)		(4,184)
Investment partnership gains (losses)	(89,599)		29,658		(24,507)		(82,244)
Total other income (expenses)	(94,314)		28,809		(25,231)		(86,428)
Earnings (loss) before income taxes	(74,016)		41,637		14,153		(55,321)
Income tax expense (benefit)	(17,502)		9,598		3,254		(13,282)
Net earnings (loss)	(56,514)		32,039		10,899		(42,039)
Earnings attributable to noncontrolling interest	—		34		591		34
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders	$	(56,514)	$	32,005	$	10,308	$	(42,073)
Net earnings (loss) per average equivalent Class A share *	$	(195.55)	$	109.13	$	35.44	$	(140.30)

*Net earnings (loss) per average equivalent Class B share outstanding are one-fifth of the average equivalent Class A share or $(39.11) and $7.09 for the third quarter and first nine months of 2023, respectively, and $21.83 and $(28.06) for the third quarter and first nine months of 2022, respectively.

See accompanying Notes to Consolidated Financial Statements.

2

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

	Third Quarter				First Nine Months
	2023		2022		2023		2022
	(Unaudited)				(Unaudited)
Net earnings (loss)	$	(56,514)	$	32,039	$	10,899	$	(42,039)
Foreign currency translation	(286)		(618)		(276)		(1,870)
Comprehensive income	(56,800)		31,421		10,623		(43,909)
Comprehensive income attributable to noncontrolling interests	—		34		591		34
Total comprehensive income attributable to Biglari Holdings Inc. shareholders	$	(56,800)	$	31,387	$	10,032	$	(43,943)

See accompanying Notes to Consolidated Financial Statements.

3

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

	First Nine Months
	2023		2022
	(Unaudited)
Operating activities
Net earnings (loss)	$	10,899	$	(42,039)
Adjustments to reconcile net earnings (loss) to operating cash flows:
Depreciation, depletion, and amortization	29,645		24,127
Provision for deferred income taxes	(5,931)		(22,289)
Asset impairments	2,381		20
Gains on sale of assets	(18,391)		(905)
Investment and investment partnership (gains) losses	25,231		86,428
Distributions from investment partnerships	—		51,200
Changes in receivables, inventories and other assets	5,441		7,240
Changes in accounts payable and accrued expenses	(599)		(4,028)
Net cash provided by operating activities	48,676		99,754
Investing activities
Capital expenditures	(16,910)		(23,437)
Proceeds from property and equipment sales	20,403		2,201
Acquisition of a business, net of cash acquired	—		(54,899)
Purchases of noncontrolling interests	(5,387)		—
Purchases of interests in limited partnerships	(41,530)		(23,886)
Purchases of investments	(78,520)		(110,837)
Sales of investments and redemptions of fixed maturity securities	65,718		108,394
Net cash used in investing activities	(56,226)		(102,464)
Financing activities
Proceeds from line of credit	31,600		30,000
Payments on line of credit	(22,600)		—
Principal payments on direct financing lease obligations	(4,618)		(4,647)
Net cash provided by financing activities	4,382		25,353
Effect of exchange rate changes on cash	(56)		(150)
Increase (decrease) in cash, cash equivalents and restricted cash	(3,224)		22,493
Cash, cash equivalents and restricted cash at beginning of year	38,805		43,687
Cash, cash equivalents and restricted cash at end of third quarter	$	35,581	$	66,180

	September 30,
	2023		2022
	(Unaudited)
Cash and cash equivalents	$	33,993	$	64,842
Restricted cash in other long-term assets	1,588		1,338
Cash, cash equivalents and restricted cash at end of third quarter	$	35,581	$	66,180

See accompanying Notes to Consolidated Financial Statements.

4

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(dollars in thousands)

	Biglari Holdings Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Treasury Stock		Non-controlling Interests		Total
For the third quarter and first nine months of 2023
Balance at December 31, 2022	$	1,138	$	381,788	$	576,510	$	(2,790)	$	(409,680)	$	8,602	$	555,568
Net earnings (loss)					64,886						651		65,537
Other comprehensive income							332						332
Adjustment for holdings in investment partnerships									(239)				(239)
Balance at March 31, 2023	$	1,138	$	381,788	$	641,396	$	(2,458)	$	(409,919)	$	9,253	$	621,198
Net earnings (loss)					1,936						(60)		1,876
Other comprehensive income							(322)						(322)
Adjustment for holdings in investment partnerships									(1,011)				(1,011)
Purchases of noncontrolling interests			3,806								(9,193)		(5,387)
Balance at June 30, 2023	$	1,138	$	385,594	$	643,332	$	(2,780)	$	(410,930)	$	—	$	616,354
Net earnings (loss)					(56,514)								(56,514)
Other comprehensive income							(286)						(286)
Adjustment for holdings in investment partnerships									(2,150)				(2,150)
Balance at September 30, 2023	$	1,138	$	385,594	$	586,818	$	(3,066)	$	(413,080)	$	—	$	557,404

For the third quarter and first nine months of 2022
Balance at December 31, 2021	$	1,138	$	381,788	$	608,528	$	(1,907)	$	(401,851)	$	—	$	587,696
Net earnings (loss)					(298)								(298)
Other comprehensive income							(231)						(231)
Adjustment for holdings in investment partnerships									130				130
Balance at March 31, 2022	$	1,138	$	381,788	$	608,230	$	(2,138)	$	(401,721)	$	—	$	587,297
Net earnings (loss)					(73,780)								(73,780)
Other comprehensive income							(1,021)						(1,021)
Adjustment for holdings in investment partnerships									(6,760)				(6,760)
Balance at June 30, 2022	$	1,138	$	381,788	$	534,450	$	(3,159)	$	(408,481)	$	—	$	505,736
Net earnings (loss)					32,005						34		32,039
Other comprehensive income							(618)						(618)
Adjustment for holdings in investment partnerships									(638)				(638)
Purchases of noncontrolling interests											8,889		8,889
Balance at September 30, 2022	$	1,138	$	381,788	$	566,455	$	(3,777)	$	(409,119)	$	8,923	$	545,408

See accompanying Notes to Consolidated Financial Statements.

5

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

(dollars in thousands, except share and per share data)

Note 1. Summary of Significant Accounting Policies

Description of Business

The accompanying unaudited consolidated financial statements of Biglari Holdings Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal recurring adjustments. The results for the interim periods shown are not necessarily indicative of results for the year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2022.

Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company.

Biglari Holdings’ management system combines decentralized operations with centralized financial decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari.

As of September 30, 2023, Mr. Biglari beneficially owns shares of the Company that represent approximately 66.3% of the economic interest and approximately 70.4% of the voting interest.

Business Acquisition

On September 14, 2022, the Company purchased Series A Preferred Stock (the “Preferred Shares”) of Abraxas Petroleum Corporation (“Abraxas Petroleum”) for a purchase price of $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.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including Steak n Shake Inc., Western Sizzlin Corporation, First Guard Insurance Company, Maxim Inc., Southern Pioneer Property & Casualty Insurance Company, Southern Oil Company and Abraxas Petroleum. Intercompany accounts and transactions have been eliminated in consolidation.

Note 2. Earnings Per Share

Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. The shares of Company stock attributable to our limited partner interest in The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, the “investment partnerships”) — based on our proportional ownership during this period — are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the calculation of weighted average common shares outstanding. However, these shares are legally outstanding.

6

Note 2. Earnings Per Share (continued)

The following table presents shares authorized, issued and outstanding on September 30, 2023 and December 31, 2022.

	September 30, 2023		December 31, 2022
	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

The Company has applied the “two-class method” of computing earnings per share as prescribed in Accounting Standards Codification (“ASC”) 260, “Earnings Per Share”. (Class B shares are economically equivalent to one-fifth of a Class A share.) The equivalent Class A common stock applied for computing earnings per share excludes the proportional shares of Biglari Holdings’ stock held by the investment partnerships. In the tabulation below is the weighted average equivalent Class A common stock for earnings per share.

	Third Quarter		First Nine Months
	2023	2022	2023	2022
Equivalent Class A common stock outstanding	620,592	620,592	620,592	620,592
Proportional ownership of Company stock held by investment partnerships	331,585	327,317	329,732	320,711
Equivalent Class A common stock for earnings per share	289,007	293,275	290,860	299,881

Note 3. Investments

We classify investments in fixed maturity securities at the acquisition date as available-for-sale. Realized gains and losses on disposals of investments are determined on a specific identification basis. Dividends earned on investments held by our insurance companies are reported as investment income. We consider investment income as a component of our aggregate insurance operating result. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.

Investment losses for the third quarter and first nine months of 2023 were $4,715 and $724, respectively. Investment losses in the third quarter and first nine months of 2022 were $849 and $4,184, respectively.

Note 4. Investment Partnerships   

The Company reports on the limited partnership interests in investment partnerships under the equity method of accounting. We record our proportional share of equity in the investment partnerships but exclude Company common stock held by said partnerships. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. The Company records gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the consolidated statements of earnings based on our carrying value of these partnerships. The fair value is calculated net of the general partner’s accrued incentive fees. Gains and losses on Company common stock included in the earnings of these partnerships are eliminated because they are recorded as treasury stock. 

Biglari Capital Corp. is the general partner of the investment partnerships. Biglari Capital Corp. is solely owned by Mr. Biglari.

7

Note 4. Investment Partnerships (continued)

The fair value and adjustment for Company common stock held by the investment partnerships to determine the carrying value of our partnership interest are presented below.

	Fair Value		Company Common Stock		Carrying Value
Partnership interest at December 31, 2022	$	383,004	$	227,210	$	155,794
Investment partnership gains (losses)	21,141		45,648		(24,507)
Contributions	41,530				41,530
Changes in proportionate share of Company stock held			3,400		(3,400)
Partnership interest at September 30, 2023	$	445,675	$	276,258	$	169,417

	Fair Value		Company Common Stock		Carrying Value
Partnership interest at December 31, 2021	$	474,201	$	223,802	$	250,399
Investment partnership gains (losses)	(119,864)		(37,620)		(82,244)
Contributions (net of distributions)	(16,023)				(16,023)
Changes in proportionate share of Company stock held			7,268		(7,268)
Partnership interest at September 30, 2022	$	338,314	$	193,450	$	144,864

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

	September 30, 2023		December 31, 2022
Carrying value of investment partnerships	$	169,417	$	155,794
Deferred tax liability related to investment partnerships	(17,646)		(23,643)
Carrying value of investment partnerships net of deferred taxes	$	151,771	$	132,151

Because of a transaction that occurred between The Lion Fund, L.P. and The Lion Fund II, L.P. in 2022, we expect that a majority of the $17,646 deferred tax liability enumerated above will not become due until the dissolution of the investment partnerships. In effect, the tax-basis cost increased for the common stock of certain unaffiliated securities held by the investment partnerships.

The Company’s proportionate share of Company stock held by investment partnerships at cost was $413,080 and $409,680 at September 30, 2023 and December 31, 2022, respectively. 

The carrying value of the partnership interest approximates fair value adjusted by the value of held Company stock.  Fair value of our partnership interest is assessed according to our proportional ownership interest of the fair value of investments held by the investment partnerships. Unrealized gains and losses on marketable securities held by the investment partnerships affect our net earnings. 

Gains/losses from investment partnerships recorded in the Company’s consolidated statements of earnings are presented below.

	Third Quarter				First Nine Months
	2023		2022		2023		2022
Gains (losses) from investment partnerships	$	(89,599)	$	29,658	$	(24,507)	$	(82,244)
Tax expense (benefit)	(21,222)		6,601		(6,660)		(20,153)
Contribution to net earnings (loss)	$	(68,377)	$	23,057	$	(17,847)	$	(62,091)

On December 31 of each year, the general partner of the investment partnerships, Biglari Capital Corp., will earn an incentive reallocation fee for the Company’s investments equal to 25% of the net profits above an annual hurdle rate of 6% over the previous high-water mark. Our policy is to accrue an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings to Biglari Capital Corp. includes gains on the Company’s common stock. Gains and losses on the Company’s common stock and the related incentive reallocations are eliminated in our financial statements.

8

Note 4. Investment Partnerships (continued)

There were no incentive reallocations accrued during the first nine months of 2023 and 2022.

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, 2023	$	366,038		$	327,011
Total liabilities as of September 30, 2023	$	26,330		$	174,471
Revenue for the first nine months of 2023	$	44,886		$	(12,172)
Earnings for the first nine months of 2023	$	44,208		$	(19,603)
Biglari Holdings’ ownership interest as of September 30, 2023	89.4		%	87.8		%
Total assets as of December 31, 2022	$	285,071		$	330,832
Total liabilities as of December 31, 2022	$	10,517		$	167,847
Revenue for the first nine months of 2022	$	(46,341)		$	(88,378)
Earnings for the first nine months of 2022	$	(46,544)		$	(89,771)
Biglari Holdings’ ownership interest as of September 30, 2022	88.2		%	87.7		%

Revenue in the financial information of the investment partnerships, summarized above, includes investment income and unrealized gains and losses on investments.

Note 5. Property and Equipment

Property and equipment is composed of the following.

	September 30, 2023		December 31, 2022
Land	$	139,817	$	143,313
Buildings	151,911		151,627
Land and leasehold improvements	151,371		151,496
Equipment	215,246		222,661
Oil and gas properties	144,844		144,888
Construction in progress	1,599		2,238
	804,788		816,223
Less accumulated depreciation, depletion, and amortization	(421,022)		(415,498)
Property and equipment, net	$	383,766	$	400,725

Depletion expense related to oil and gas properties was $7,550 and $4,345 during the first nine months of 2023 and 2022, respectively.

The Company recorded an impairment of $752 in the third quarter of 2023 and $2,361 in the first nine months of 2023 related to underperforming stores. There were no impairments of property and equipment in the third quarter and first nine months of 2022.

Property and equipment held for sale of $1,410 and $4,700 are recorded in other assets as of September 30, 2023 and December 31, 2022, respectively. The assets classified as held for sale at September 30, 2023 include properties owned by Steak n Shake, which were previously company-operated restaurants. During the third quarter, 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 for the upfront payment portion of the arrangement. During the first nine months of 2023, Steak n Shake sold properties for a gain of $5,253. Abraxas Petroleum sold its office building for $4,719 with no gain or loss recorded.

9

Note 6. Goodwill and Other Intangible Assets

Goodwill

Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business acquisitions.

A reconciliation of the change in the carrying value of goodwill is as follows.

	Goodwill
Goodwill at December 31, 2022
Goodwill	$	53,813
Accumulated impairment losses	(300)
	$	53,513
Change in foreign exchange rates during the first nine months of 2023	(7)
Goodwill at September 30, 2023	$	53,506

Goodwill and indefinite-lived intangible asset impairment reviews include determining the estimated fair values of our reporting units and indefinite-lived intangible assets. The key assumptions and inputs used in such determinations may include forecasting revenue and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment reviews. Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may differ materially for the forecasts. If the carrying value of the indefinite-lived intangible asset exceeds fair value, the excess is charged to earnings as an impairment loss. If the carrying value of a reporting unit exceeds the estimated fair value of the reporting unit, then the excess, limited to the carrying amount of goodwill, will be charged to earnings as an impairment loss. There was no impairment recorded for goodwill during the first nine months of 2023 or 2022. There was a $20 impairment recorded for intangible assets during the first nine months of 2023 and 2022.

Other Intangible Assets

Intangible assets with indefinite lives are composed of the following.

	Trade Names		Lease Rights		Total
Balance at December 31, 2022
Intangible assets	$	15,876	$	10,889	$	26,765
Accumulated impairment losses	—		(3,728)		(3,728)
	15,876		7,161		23,037
Impairment	—		(20)		(20)
Change in foreign exchange rates during the first nine months of 2023	—		(79)		(79)
Balance at September 30, 2023	$	15,876	$	7,062	$	22,938

Note 7. Restaurant Operations Revenues

Restaurant operations revenues were as follows.

	Third Quarter				First Nine Months
	2023		2022		2023		2022
Net sales	$	39,195	$	37,448	$	115,613	$	113,345
Franchise partner fees	17,622		15,880		54,604		47,929
Franchise royalties and fees	4,073		5,089		12,456		15,472
Other	996		1,020		4,833		2,862
	$	61,886	$	59,437	$	187,506	$	179,608

10

Note 7. Restaurant Operations Revenues (continued)

Net Sales

Net sales are composed of retail sales of food through company-operated stores. Company-operated store revenues are recognized, net of discounts and sales taxes, when our obligation to perform is satisfied at the point of sale. Sales taxes related to these sales are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated statements of earnings as revenue.

Franchise Partner Fees

Franchise partner fees are composed of up to 15% of sales as well as 50% of profits. We are therefore fully affected by the operating results of the business, unlike in a traditional franchising arrangement, where the franchisor obtains a royalty fee based on sales only. We generate most of our revenue from our share of the franchise partners’ profits. An initial franchise fee of ten thousand dollars is recognized when the operator becomes a franchise partner. The Company recognizes franchise partner fees monthly as underlying restaurant sales occur.

The Company leases or subleases property and equipment to franchise partners under lease arrangements. Both real estate and equipment rental payments are charged to franchise partners and are recognized in accordance with ASC 842, “Leases”. During the third quarter of 2023 and 2022, restaurant operations recognized $5,692 and $5,362, respectively, in franchise partner fees related to rental income. During the first nine months ended September 30, 2023 and September 30, 2022, restaurant operations recognized $17,030 and $15,193, respectively, in franchise partner fees related to rental income.

Franchise Royalties and Fees

Franchise royalties and fees from Steak n Shake and Western Sizzlin franchisees are based upon a percentage of sales of the franchise restaurant and are recognized as earned. Franchise royalties are billed on a monthly basis. Initial franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement.

Other Revenue

Restaurant operations sells gift cards to customers that 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, 2023		December 31, 2022
Accounts payable	$	22,238	$	28,431
Gift card and other marketing	8,564		12,028
Insurance accruals	5,284		6,012
Salaries, wages and vacation	11,937		4,400
Deferred revenue	3,137		4,445
Taxes payable	20,179		14,896
Oil and gas payable	3,418		3,877
Other	4,240		4,527
Accounts payable and accrued expenses	$	78,997	$	78,616

Note 9. Lines of Credit

Biglari Holdings Line of Credit

On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000. The line of credit will be available on a revolving basis until September 12, 2024. The line of credit includes customary covenants, as well as financial maintenance covenants. The balance of the line of credit was $19,000 and $10,000 on September 30, 2023 and December 31, 2022, respectively. On September 30, 2023, the interest rate was 8.0%.

11

Note 9. Lines of Credit (continued)

Western Sizzlin Revolver

Western Sizzlin’s available line of credit is $500. As of September 30, 2023 and December 31, 2022, Western Sizzlin had no debt outstanding under its revolver.

Note 10. Unpaid Losses and Loss Adjustment Expenses

Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under insurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, net of reinsurance, for each of the nine month periods ended September 30, 2023 and 2022 follows.

	2023		2022
Balances at beginning of year:
Gross liabilities	$	17,520	$	14,993
Reinsurance recoverable on unpaid losses	(715)		(1,892)
Net liabilities	16,805		13,101
Incurred losses and loss adjustment expenses:
Current accident year	29,171		26,888
Prior accident years	(3,421)		757
Total	25,750		27,645
Paid losses and loss adjustment expenses:
Current accident year	22,443		20,961
Prior accident years	6,026		5,172
Total	28,469		26,133
Balances at September 30:
Net liabilities	14,086		14,613
Reinsurance recoverable on unpaid losses	1,047		649
Gross liabilities	$	15,133	$	15,262

In the first nine months, we recorded net reductions of estimated ultimate liabilities for prior accident years of $3,421 in 2023 and net increases of $757 in 2022, which resulted in corresponding changes in incurred losses and loss adjustment expenses. These changes as a percentage of the net liabilities at the beginning of each year were reductions of 20.4% in 2023 and increases of 5.8% in 2022.

Note 11. Lease Assets and Obligations

Lease obligations include the following.

Current portion of lease obligations	September 30, 2023		December 31, 2022
Finance lease liabilities	$	1,287	$	1,237
Finance obligations	5,027		5,161
Operating lease liabilities	8,892		10,583
Total current portion of lease obligations	$	15,206	$	16,981
Long-term lease obligations
Finance lease liabilities	$	3,144	$	4,129
Finance obligations	57,538		58,868
Operating lease liabilities	27,765		28,847
Total long-term lease obligations	$	88,447	$	91,844

12

Note 11. Lease Assets and Obligations (continued)

Nature of Leases

Steak n Shake and Western Sizzlin operate restaurants that are located on sites owned by us or leased from third parties. In addition, they own sites and lease sites from third parties that are leased and/or subleased to franchisees.

Lease Costs

A significant portion of our operating and finance lease portfolio includes restaurant locations. We recognize fixed lease expense for operating leases on a straight-line basis over the lease term. For finance leases, we recognize amortization expense on the right-of-use asset and interest expense on the lease liability over the lease term.

Total lease cost consists of the following.

	Third Quarter				First Nine Months
	2023		2022		2023		2022
Finance lease costs:
Amortization of right-of-use assets	$	239	$	309	$	723	$	1,023
Interest on lease liabilities	80		102		257		325
Operating and variable lease costs	3,012		3,577		9,260		10,782
Sublease income	(2,988)		(2,895)		(9,133)		(8,487)
Total lease costs	$	343	$	1,093	$	1,107	$	3,643

Supplemental cash flow information related to leases is as follows.

	First Nine Months
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	934	$	1,116
Operating cash flows from finance leases	$	257	$	324
Operating cash flows from operating leases	$	9,670	$	9,347

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Note 11. Lease Assets and Obligations (continued)

Supplemental balance sheet information related to leases is as follows.

	September 30, 2023		December 31, 2022
Finance leases:
Property and equipment, net	$	3,098	$	4,352

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

	September 30, 2023
Weighted-average remaining lease terms:
Finance leases	3.68 years
Operating leases	5.42 years
Weighted-average discount rates:
Finance leases	7.0	%
Operating leases	7.0	%

Maturities of lease liabilities as of September 30, 2023 are as follows.

Year	Operating Leases		Finance Leases
2023	$	3,040	$	378
2024	10,495		1,534
2025	8,989		1,298
2026	6,468		959
2027	4,182		623
After 2027	10,715		232
Total lease payments	43,889		5,024
Less interest	7,232		593
Total lease liabilities	$	36,657	$	4,431

Lease Income

The components of lease income recorded in operations are as follows.

	Third Quarter				First Nine Months
	2023		2022		2023		2022
Operating lease income	$	4,085	$	4,085	$	12,214	$	11,737
Variable lease income	1,840		1,556		5,545		4,312
Total lease income	$	5,925	$	5,641	$	17,759	$	16,049

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Note 11. Lease Assets and Obligations (continued)

The following table displays the Company’s future minimum rental receipts for non-cancelable leases and subleases as of September 30, 2023. Franchise partner leases and subleases are short-term leases and have been excluded from the table.

	Operating Leases
Year	Subleases		Owned Properties
2023	$	143	$	99
2024	465		396
2025	338		404
2026	19		407
2027	—		415
After 2027	—		2,858
Total future minimum receipts	$	965	$	4,579

Note 12. Income Taxes

In determining the quarterly provision for income taxes, the Company used an estimated annual effective tax rate for the first nine months of 2023 and 2022. 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 2023 was $17,502 compared to an income tax expense of $9,598 for the third quarter of 2022.  Income tax expense for the first nine months of 2023 was $3,254 compared to an income tax benefit of $13,282 for the first nine months of 2022. The variance in income taxes between 2023 and 2022 is attributable to income and losses generated by the investment partnerships.  Investment partnership pre-tax losses were $89,599 during the third quarter of 2023 compared to pre-tax gains of $29,658 during the third quarter of 2022. Investment partnership pre-tax losses were $24,507 during the first nine months of 2023 compared to pre-tax losses of $82,244 during the first nine months of 2022. 

Note 13. Commitments and Contingencies

We are involved in various legal proceedings and have certain unresolved claims pending. We believe, based on examination of these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided in our consolidated financial statements is not likely to have a material effect on our results of operations, financial position or cash flow.

Note 14. Fair Value of Financial Assets

The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value.

15

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 as Level 1 of the fair value hierarchy.

Equity securities: The Company’s investments in equity securities are classified as Level 1 of the fair value hierarchy. 

Bonds: The Company’s investments in bonds consist of both corporate and government debt. Bonds are classified as Level l of the fair value hierarchy.

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 as Level 1 of the fair value hierarchy.

As of September 30, 2023 and December 31, 2022, the fair values of financial assets were as follows.

	September 30, 2023								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	7,591	$	—	$	—	$	7,591	$	17,608	$	—	$	—	$	17,608
Equity securities
Consumer goods	22,475		—		—		22,475		17,274		—		—		17,274
Other	2,631		—		—		2,631		2,031		—		—		2,031
Bonds
Government	58,471		—		—		58,471		48,456		—		—		48,456
Corporate	1,188		—		—		1,188		2,199		—		—		2,199
Non-qualified deferred compensation plan investments	—		—		—		—		699		—		—		699
Total assets at fair value	$	92,356	$	—	$	—	$	92,356	$	88,267	$	—	$	—	$	88,267

There were no changes in our valuation techniques used to measure fair values on a recurring basis.

16

Note 15. Related Party Transactions

Service Agreement

The Company is party to a service agreement with Biglari Enterprises LLC (“Biglari Enterprises”) under which Biglari Enterprises provides business and administrative related services to the Company. Biglari Enterprises is owned by Mr. Biglari.

The Company paid Biglari Enterprises $6,300 in service fees during the first nine months of 2023 and 2022. The service agreement does not alter the hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp.  

Incentive Agreement

The Incentive Agreement establishes a performance-based annual incentive payment for Mr. Biglari contingent upon the growth in adjusted equity in each year attributable to our operating businesses. In order for Mr. Biglari to receive any incentive, our operating businesses must achieve an annual increase in shareholders’ equity in excess of 6% (the “hurdle rate”) above the previous highest level (the “high-water mark”). Mr. Biglari will receive 25% of any incremental book value created above the high-water mark plus the hurdle rate.

Note 16. Business Segment Reporting

Our reportable business segments are organized in a manner that reflects how management views those business activities. Our restaurant operations include Steak n Shake and Western Sizzlin. Our insurance operations include First Guard and Southern Pioneer.  Our oil and gas operations include Southern Oil and Abraxas Petroleum. The Company also reports segment information for Maxim. Other business activities not specifically identified with reportable business segments are presented under corporate and other. We report our earnings from investment partnerships separate from our corporate expenses. We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from operations are neither necessarily indicative of cash available to fund cash requirements, nor synonymous with cash flow from operations. The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements.

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Note 16. Business Segment Reporting (continued)

A disaggregation of our consolidated data for the third quarters and first nine months of 2023 and 2022 is presented in the tables which follow.

	Revenues
	Third Quarter				First Nine Months
	2023		2022		2023		2022
Operating Businesses:
Restaurant Operations:
Steak n Shake	$	59,180	$	56,949	$	179,244	$	172,444
Western Sizzlin	2,706		2,488		8,262		7,164
Total Restaurant Operations	61,886		59,437		187,506		179,608
Insurance Operations:
Underwriting
First Guard	9,351		9,112		27,465		26,858
Southern Pioneer	5,809		6,004		18,430		17,653
Investment income and other	1,464		1,196		4,505		3,234
Total Insurance Operations	16,624		16,312		50,400		47,745
Oil and Gas Operations:
Abraxas Petroleum	8,310		1,692		21,493		1,692
Southern Oil	3,849		12,688		13,630		36,940
Total Oil and Gas Operations	12,159		14,380		35,123		38,632
Maxim	268		1,905		1,624		3,788
	$	90,937	$	92,034	$	274,653	$	269,773

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Note 16. Business Segment Reporting (continued)

	Earnings (Losses) Before Income Taxes
	Third Quarter				First Nine Months
	2023		2022		2023		2022
Operating Businesses:
Restaurant Operations:
Steak n Shake	$	3,358	$	3,964	$	19,317	$	11,777
Western Sizzlin	397		369		1,462		997
Total Restaurant Operations	3,755		4,333		20,779		12,774
Insurance Operations:
Underwriting:
First Guard	2,362		2,354		7,378		4,800
Southern Pioneer	(166)		(483)		(728)		(1,101)
Investment income and other	1,155		1,221		3,456		3,188
Total Insurance Operations	3,351		3,092		10,106		6,887
Oil and Gas Operations:
Abraxas Petroleum	17,990		446		21,044		446
Southern Oil	963		6,795		2,902		19,137
Total Oil and Gas Operations	18,953		7,241		23,946		19,583
Maxim	(239)		1,534		91		1,699
Interest expense not allocated to segments	(262)		(67)		(469)		(67)
Total Operating Businesses	25,558		16,133		54,453		40,876
Corporate and other	(5,260)		(3,305)		(15,069)		(9,769)
Investment gains (losses)	(4,715)		(849)		(724)		(4,184)
Investment partnership gains (losses)	(89,599)		29,658		(24,507)		(82,244)
	$	(74,016)	$	41,637	$	14,153	$	(55,321)