Note 1. Summary of Significant Accounting Policies

3 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Note 1. Summary of Significant Accounting Policies

Description of Business

Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including media, property and casualty insurance, as well as restaurants. The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. The Company is led by Sardar Biglari, Chairman and Chief Executive Officer of Biglari Holdings and its major operating subsidiaries. The Company’s long-term objective is to maximize per-share intrinsic value. All major operating, investment, and capital allocation decisions are made for the Company and its subsidiaries by Sardar Biglari, Chairman and Chief Executive Officer. 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including Steak n Shake Operations, Inc. (“Steak n Shake”) and Western Sizzlin Corporation (“Western”). The consolidated financial statements also include the accounts of Maxim Inc. (“Maxim”) and First Guard Insurance Company and its agency, 1st Guard Corporation (collectively “First Guard”) from the dates of their respective acquisitions.  In addition to consolidating wholly-owned entities we consolidate entities if we have a controlling interest in the general partner.  Intercompany accounts and transactions have been eliminated in consolidation.

Prior to July 2013, the consolidated financial statements included the accounts of the Company, its wholly-owned subsidiaries (including Biglari Capital Corp. [“Biglari Capital”]), and investment related limited partnerships The Lion Fund, L.P. and Western Acquisitions, L.P. (collectively the “consolidated affiliated partnerships”), in which we had a controlling interest.

In July 2013 the Company liquidated the partners’ interest in Western Acquisitions, L.P. by distributing assets of the partnership to the partners and Biglari Holdings sold all of the outstanding shares of Biglari Capital to Mr. Biglari. Biglari Capital is the general partner of The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively the “investment partnerships"), which are limited partnerships that operate as private investment funds.

As a result of the sale of Biglari Capital and the related liquidation of Western Acquisitions, L.P. the Company ceased to have a controlling interest in Biglari Capital and the consolidated affiliated partnerships.  Accordingly, Biglari Capital and the consolidated affiliated partnerships are no longer consolidated in the Company’s consolidated financial statements.

Fiscal Year

On October 16, 2014, the Company’s Board of Directors approved a change in the Company’s fiscal year-end moving from the last Wednesday in September to December 31 of each year. This form 10-K is a transition report and includes financial information for September 25, 2014 to December 31, 2014 (the “2014 transition period”). For comparative purposes, an unaudited statement of earnings, statement of comprehensive income and statement of cash flows have been included for September 26, 2013 to December 31, 2013 (the “2013 transition period”). The comparative transition period has not been audited and is derived from the books and records of the Company. In the opinion of management, the comparative transition period reflects all adjustments necessary to present the financial position and results of operations in accordance with generally accepted accounting principles. Prior to the year-end change Biglari Holdings’ fiscal year ended on the last Wednesday in September. Fiscal years 2014, 2013 and 2012 each contained 52 weeks. Western’s, Maxim’s, First Guard’s and the investment partnerships’’ September 30 period end for financial reporting purposes differed from the end of the Company’s fiscal year. There were no significant transactions in the intervening periods. After the year-end change, Steak n Shake continues to operate on a 52/53 week year ending on the last Wednesday of the calendar year.

Business Acquisitions

On February 27, 2014 the Company acquired certain assets and liabilities of Maxim. Maxim is a brand management company whose business lies in media, both in print and in digital, and in licensing of products and services. On March 19, 2014, the Company acquired the stock of First Guard, a direct underwriter of commercial trucking insurance, selling physical damage and nontrucking liability insurance to truckers. These acquisitions were not material, individually or in aggregate, to the Company. The fair value of the assets and liabilities acquired — other than investments, goodwill and intangibles — was not material.

Cash and Cash Equivalents

Cash equivalents primarily consist of U.S. Government securities and money market accounts, all of which have original maturities of three months or less. Cash equivalents are carried at fair value.

Investments

Our investments consist of available-for-sale securities and are carried at fair value with net unrealized gains or losses reported as a component of accumulated other comprehensive income in shareholders’ equity. Realized gains and losses on disposals of investments are determined by specific identification of cost of investments sold and are included in investment gains/losses, a component of other income.

Investment Partnerships

Our interests in the investment partnerships are accounted as equity method investments because of our retained limited partner interests. The Company records investment partnership gains (inclusive of the investment partnerships’ unrealized gains and losses on their securities) as a component of other income based on our proportional ownership interest in the partnerships.

The investment partnerships are for purposes of accounting principles generally accepted in the United States (“GAAP”), investment companies under the AICPA Audit and Accounting Guide Investment Companies. For periods prior to July 1, 2013, the Company retained the specialized accounting for the consolidated affiliated partnerships, pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946-810-45.

Concentration of Equity Price Risk

The majority of our investments are conducted through investment partnerships which generally hold common stocks. We also hold marketable securities directly. Through the investment partnerships we hold a concentrated position in the common stock of Cracker Barrel Old Country Store, Inc. A significant decline in the general stock market or in the prices of major investments may have a materially adverse effect on our earnings and on consolidated shareholders’ equity.

Receivables

Our accounts receivable balance consists primarily of franchisee, customer, and other receivables. We carry our accounts receivable at cost less an allowance for doubtful accounts, which is based on a history of past write-offs and collections and current credit conditions. Allowance for doubtful accounts was $1,608 at December 31, 2014. Allowance for doubtful accounts was $1,512 and $804 at September 24, 2014 and September 25, 2013, respectively. Amounts charged to expense and deductions from the allowance totaled $898 and $190, in 2014. Amounts charged to expense and deductions from the allowance in the 2014 and 2013 transition periods and in fiscal years 2013 and 2012 were insignificant.

Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items and supply inventory.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized on the straight-line method over the estimated useful lives of the assets (10 to 30 years for buildings and land improvements, and 3 to 10 years for equipment). Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful lives of the improvements or the term of the related leases. Interest costs associated with the construction of new restaurants are capitalized. Major improvements are also capitalized while repairs and maintenance are expensed as incurred. We review our long-lived assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For purposes of this assessment, assets are evaluated at the lowest level for which there are identifiable cash flows. If the future undiscounted cash flows of an asset are less than the recorded value, an impairment is recorded for the difference between the carrying value and the estimated fair value of the asset. Refer to Note 3 for information regarding asset impairments.

Goodwill and Other Intangible Assets

Goodwill and indefinite life intangibles are not amortized, but are tested for potential impairment on an annual basis, or more often if events or circumstances change that could cause goodwill or indefinite life intangibles to become impaired. Other purchased intangible assets are amortized over their estimated useful lives, generally on a straight-line basis. We perform reviews for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying value. When an impairment is identified, we reduce the carrying value of the asset to its estimated fair value. No impairments were recorded on goodwill or indefinite life intangibles during the 2014 and 2013 transition periods or during fiscal years 2014 or 2012. During fiscal year 2013, the Company recorded an impairment related to the trade name of Western’s company-operated stores. Refer to Note 8 for information regarding our goodwill and other intangible assets.

Operating Leases

The Company leases certain property under operating leases. Many of these lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease term, including cancellable option periods when failure to exercise such options would result in an economic penalty. In addition, the rent commencement date of the lease term is the earlier due date when we become legally obligated for the rent payments, the date when we take access to the property, or the grounds for build out.

Common Stock and Treasury Stock

The Company’s common stock is $0.50 stated value. The following table presents shares authorized, issued and outstanding.

	December 31, 2014	September 24, 2014	September 25, 2013
Common stock authorized ......................................................................	2,500,000	2,500,000	2,500,000
Common stock issued .............................................................................	2,142,202	2,142,202	1,797,941
Treasury stock held by the Company ..................................................	(76,616)	(76,636)	(77,159)
Outstanding shares .................................................................................	2,065,586	2,065,566	1,720,782
Proportional ownership of the Company's
common stock in The Lion Fund, L.P. .............................................	(197,533)	(187,109)	(132,406)
Net outstanding shares for financial reporting purposes .................	1,868,053	1,878,457	1,588,376

Revenue Recognition

Restaurant operations

We record revenue from restaurant sales at the time of sale, net of discounts. Revenue from the sale of gift cards is deferred at the time of sale and recognized either upon redemption by the customer or at expiration of the gift cards. Sales revenues are presented net of sales taxes. Unit franchise fees and area development fees are recorded as revenue when said-related restaurant begins operations. Royalty fees and administrative services fees based on franchise sales are recognized as revenue as earned. License revenue and rental revenues are recognized as revenue when earned.

Restaurant operations revenues were as follows.

	Transition Period		Fiscal Year
	2014	2013	2014	2013	2012
		(unaudited)
Net sales .....................................................	$     210,256	$     200,407	$   759,889	$   736,968	$   721,754
Franchise royalties and fees .......................	4,076	3,177	15,032	11,741	9,631
Other ..........................................................	1,316	858	3,234	3,210	2,520
	$     215,648	$     204,442	$   778,155	$   751,919	$   733,905

Insurance premiums and commissions

Insurance premiums are earned over the terms of the related policies. Expenses incurred in connection with acquiring new insurance business, including acquisition costs, are charged to operations as incurred. Premiums earned are stated net of amounts ceded to reinsurer. Commissions, gains and investment income for the 2014 transition period and fiscal year 2014 were not significant.

Media advertising and other

Magazine subscription and advertising revenues are recognized at the magazine cover date. The unearned portion of magazine subscriptions is deferred until the magazine’s cover date, at which time a proportionate share of the gross subscription price is recognized as revenues, net of any commissions paid to subscription agents. Also included in subscription revenues are revenues generated from single-copy sales of magazines through retail outlets such as newsstands, supermarkets, convenience stores and drugstores and on certain digital devices, which may or may not result in future subscription sales. Revenues from retail outlet sales are recognized based on gross sales less a provision for estimated returns.

Other revenue

Other revenue represents realized and unrealized gains/losses on investments held by consolidated affiliated partnerships. Realized gains/losses from the disposal of investments held by consolidated affiliated partnerships are determined by specific identification of cost of investments sold.

Restaurant cost of sales

Cost of sales includes the cost of food, restaurant operating costs and restaurant rent expense. Cost of sales excludes depreciation and amortization, which is presented as a separate line item on the consolidated statement of earnings.

Earnings Per Share

Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. In fiscal years 2014 and 2013, Biglari Holdings completed offerings of transferable subscription rights. The offerings were oversubscribed and 344,261 and 286,767 new shares of common stock were issued, respectively. The Company received net proceeds of $85,873 and $75,595 from the offerings, respectively. Earnings per share for the 2013 and 2012 fiscal years have been retroactively restated to account for the rights offerings. 

For periods after July 1, 2013, the shares of Company stock attributable to our limited partner interest in The Lion Fund, L.P. — 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.

For financial reporting purposes during periods before July 1, 2013, all common shares of the Company held by the consolidated affiliated partnerships – including those attributable to the unrelated limited partners – were recorded in treasury stock on the consolidated balance sheet. In order to compute the weighted average common shares outstanding, only the shares of treasury stock attributable to the unrelated limited partners of the consolidated affiliated partnerships — based on their proportional ownership during the period — were deemed outstanding shares.

The following table presents a reconciliation of basic and diluted weighted average common shares.

	Transition Period		Fiscal Year
	2014	2013	2014	2013	2012
		(unaudited)
Basic earnings per share:
Weighted average common shares  ............................	1,877,723	1,714,727	1,709,621	1,543,370	1,551,613
Diluted earnings per share:
Weighted average common shares  ............................	1,877,723	1,714,727	1,709,621	1,543,370	1,551,613
Dilutive effect of stock awards  .................................	1,691	3,534	3,154	3,295	3,793
Weighted average common and incremental shares  ..	1,879,414	1,718,261	1,712,775	1,546,665	1,555,406
Number of share-based awards excluded
from the calculation of earning per share
as the awards’ exercise prices were
greater than the average market price
of the Company’s common stock.  .....................	2,637	-	-	705	705

Marketing Expense

Advertising costs are charged to expense at the later of the date the expenditure is incurred or the date the promotional item is first communicated. Marketing expense is included in selling, general and administrative expenses on the consolidated statement of earnings.

Insurance Losses

Liabilities for losses and loss adjustment expenses are established under insurance contracts issued by our insurance subsidiaries. These losses and loss adjustment expenses include an amount for reported losses and an amount for losses incurred but not reported. Reserves for incurred but not reported losses are estimates based upon past experience. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect to the underlying insurance contracts. Liabilities for insurance losses of $779 and $769 are included in accrued expenses in the consolidated balance sheet as of December 31, 2014 and September 24, 2014, respectively.

Insurance Reserves

We self-insure a significant portion of expected losses under our workers’ compensation, general liability, auto, directors’ and officers’ and medical liability insurance programs, and record a reserve for our estimated losses on all unresolved open claims and our estimated incurred but not reported claims at the anticipated cost to us. Insurance reserves are recorded in accrued expenses in the consolidated balance sheet.

Savings Plans

Several of our subsidiaries also sponsor deferred compensation and defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions to the plans are subject to regulatory limitations and the specific plan provisions. Some of the plans allow for discretionary contributions as determined by management. Employer contributions expensed with respect to these plans were $60 in each transition period and $207, $207 and $213 for fiscal years 2014, 2013 and 2012, respectively.

Use of Estimates

Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from the estimates.

New Accounting Standards

In August 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-15 Presentation of Financial Statements-Going Concern. The amendments in this update provide guidance in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments in this update are effective for the annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is evaluating the effect, if any, on its consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This update is effective for annual periods beginning after December 15, 2016 and interim periods therein, which will require us to adopt these provisions in the first quarter of 2017. Early adoption is not permitted. We are evaluating the effect this guidance will have on our consolidated financial statements and related disclosures.

In April 2014, the FASB issued ASU 2014-08 Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 provides a narrower definition of discontinued operations than under existing generally accepted accounting principles (“GAAP”). ASU 2014-08 requires that only disposals of components of an entity (or groups of components) that represent a strategic shift that has or will have a major effect on the reporting entity’s operations are reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations. ASU 2014-08 is effective prospectively for disposals (or classifications of held-for-sale) of components of an entity that occur in annual or interim periods beginning after December 15, 2014. We do not believe the adoption of ASU 2014-08 will have a material effect on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405), which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.  The adoption of ASU 2013-04 did not have a material effect on the Company’s consolidated financial statements.