10-K 1 q1101361_10k-biglari.htm Unassociated Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
 
x  
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 25, 2013

or
 
o    
   
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 0-8445

BIGLARI HOLDINGS INC.
(Exact name of registrant as specified in its charter)
     
INDIANA
 
37-0684070
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)

17802 IH 10 West, Suite 400
San Antonio, Texas
 
 
78257
(Address of principal executive offices)
 
(Zip Code)

(210) 344-3400
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, stated value $.50 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
 
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 o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).Yes x No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
 
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of April 10, 2013 was approximately $464,091,032 based on the closing stock price of $383.52 per share on that day.
 
As of December 3, 2013, 1,720,834 shares of the registrant’s Common Stock were outstanding.
 

DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s definitive Proxy Statement to be filed for its 2014 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
 
 
 

 

 
Table of Contents

       
     
Page No.
 
Part I
 
  
Item 1.
Business
 
1
 
Item 1A.
Risk Factors
 
5
 
Item 1B.
Unresolved Staff Comments
 
10
 
Item 2.
Properties
 
10
 
Item 3.
Legal Proceedings
 
10
 
Item 4.
Mine Safety Disclosures
 
10
 
         
 
Part II
     
         
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
11
 
Item 6.
Selected Financial Data
 
13
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
14
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
 
26
 
Item 8.
Financial Statements and Supplementary Data
 
27
 
 
Consolidated Statements of Earnings—
     
 
Years ended September 25, 2013, September 26, 2012, and September 28, 2011
 
30
 
 
Consolidated Statements of Comprehensive Income—
     
 
Years ended September 25, 2013, September 26, 2012, and September 28, 2011
 
31
 
 
Consolidated Balance Sheets—
     
 
As of September 25, 2013 and September 26, 2012
 
32
 
 
Consolidated Statements of Cash Flows—
     
 
Years ended September 25, 2013, September 26, 2012, and September 28, 2011
 
33
 
 
Consolidated Statements of Changes in Shareholders’ Equity—
     
 
Years ended September 25, 2013, September 26, 2012, and September 28, 2011
 
34
 
 
Notes to Consolidated Financial Statements
 
35
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
62
 
Item 9A.
Controls and Procedures
 
62
 
Item 9B.
Other Information
 
62
 
         
 
Part III
     
         
Item 10
Directors, Executive Officers and Corporate Governance
 
63
 
Item 11
Executive Compensation
 
63
 
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 
 
63
 
Item 13
Certain Relationships and Related Transactions, and Director Independence 
 
63
 
Item 14
Principal Accountant Fees and Services
 
63
 
         
 
Part IV
     
         
Item 15
Exhibits and Financial Statement Schedules
 
64
 
         
Signatures
 
65
 
Exhibit Index
 
73
 
 
 
 

 
 
Part I

Item 1.
 
Business
 
Biglari Holdings Inc. (“Biglari Holdings” or the “Company”) is a diversified holding company engaged in a number of business activities. The Company’s most important 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, Steak n Shake Operations, Inc. (“Steak n Shake”), and Western Sizzlin Corporation (“Western”).  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.

Biglari Holdings’ fiscal year ends on the last Wednesday in September. Accordingly, every five or six years, our fiscal year contains 53 weeks. Fiscal years 2013, 2012, and 2011 contained 52 weeks. The Company’s first, third, and fourth quarters contain 12 weeks and our second quarter contains 16 weeks (except in fiscal years when there are 53 weeks, in which case the fourth quarter contains 13 weeks). Western’s financial reporting is on a calendar, not fiscal, year end.

Restaurant Operations

The Company’s Restaurant Operations’ activities are conducted through two restaurant concepts, Steak n Shake and Western Sizzlin. As of September 25, 2013, Steak n Shake operated 415 company-operated restaurants and 104 franchised units. Western operated 4 company-operated restaurants and 82 franchised units.

Steak n Shake is engaged in the ownership, operation, and franchising of Steak n Shake restaurants. Founded in 1934 in Normal, Illinois, Steak n Shake is a classic American brand serving premium burgers and milk shakes.

Western Sizzlin is engaged primarily in the franchising of restaurants.  Founded in 1962 in Augusta, Georgia, Western Sizzlin offers signature steak dishes as well as other classic American menu items. Western Sizzlin also operates other concepts, Great American Steak & Buffet, and Wood Grill Buffet consisting of hot and cold food buffet style dining.

Restaurant Operations
A typical restaurant’s management team consists of a general manager, a restaurant manager and other managers depending on the operating complexity and sales volume of the restaurant. Each restaurant’s general manager has primary responsibility for the day-to-day operations of his or her unit.

Purchasing
Restaurant Operations obtain food products and supplies from independent national distributors. Purchases are centrally negotiated to ensure uniformity in product quality.

Franchising
Restaurant Operations’ franchising program extends the brands to areas in which there are no current development plans for Company stores.  The expansion plans include seeking qualified new franchisees and expanding relationships with current franchisees.

Restaurant Operations typically seek franchisees with both the financial resources necessary to fund successful development and significant experience in the restaurant/retail business. Both restaurant chains assist franchisees with the development and ongoing operation of their restaurants. In addition, personnel assist franchisees with site selection, approve restaurant sites, and provide prototype plans, construction support and specifications. Restaurant Operations’ staff provides both on-site and off-site instruction to franchised restaurant management and associates. Moreover, Steak n Shake franchised restaurants are required to serve only approved menu items.
 
 
1

 

 
International
Historically, we had no exposure to international markets. Starting in fiscal 2012, we began perusing activities to expand globally. During fiscal year 2013 the first Steak n Shake franchise restaurant opened in Dubai, United Arab Emirates, as part of a 40-unit agreement. We have opened a corporate office in Monaco to support expansion in the Middle East and Europe. We are developing an international organization with personnel in various functions to support international efforts. We plan to open several company-operated locations in Europe to introduce and promote the Steak n Shake brand to prospective franchisees. Similar to our domestic franchise agreements, a typical international franchise development agreement provides the vehicle for payment of development fees and franchise fees in addition to subsequent royalty fees based on the gross sales of each restaurant. In fiscal 2013, 24.8% of Steak n Shake’s general and administrative expenses were spent on direct franchising costs which included efforts to franchise internationally.

Geographic Concentration and Restaurant Locations
The following table lists the locations of the 605 Steak n Shake and Western Sizzlin restaurants, including 186 franchised units, as of September 25, 2013:

   
Steak n Shake
 
Western Sizzlin
     
               
   
Company- operated
 
Franchised
 
Company-operated
 
Franchised
 
Total
 
Domestic:
                     
Alabama                                                                          
 
2
 
5
 
 
6
 
13
 
Arkansas                                                                          
 
 
2
 
 
17
 
19
 
California                                                                          
 
 
 
 
2
 
2
 
Colorado                                                                          
 
 
1
 
 
 
1
 
Florida                                                                          
 
80
 
2
 
 
1
 
83
 
Georgia                                                                          
 
23
 
14
 
 
8
 
45
 
Illinois                                                                          
 
63
 
7
 
 
1
 
71
 
Indiana                                                                          
 
68
 
2
 
 
 
70
 
Iowa                                                                          
 
3
 
 
 
 
3
 
Kansas                                                                          
 
 
4
 
 
1
 
5
 
Kentucky                                                                          
 
14
 
2
 
 
 
16
 
Louisiana                                                                          
 
 
1
 
 
1
 
2
 
Maryland                                                                          
 
 
 
 
2
 
2
 
Michigan                                                                          
 
19
 
1
 
 
 
20
 
Mississippi                                                                          
 
 
1
 
 
8
 
9
 
Missouri                                                                          
 
39
 
23
 
 
1
 
63
 
Nevada                                                                          
 
 
2
 
 
 
2
 
New Jersey                                                                          
 
 
1
 
 
 
1
 
New York                                                                          
 
1
 
 
 
 
1
 
North Carolina                                                                          
 
6
 
6
 
 
10
 
22
 
Ohio                                                                          
 
63
 
 
 
1
 
64
 
Oklahoma                                                                          
 
 
5
 
 
11
 
16
 
Pennsylvania                                                                          
 
6
 
3
 
 
 
9
 
South Carolina                                                                          
 
1
 
4
 
1
 
3
 
9
 
Tennessee                                                                          
 
9
 
8
 
 
4
 
21
 
Texas                                                                          
 
18
 
4
 
 
 
22
 
Virginia                                                                          
 
 
3
 
3
 
4
 
10
 
West Virginia                                                                          
 
 
2
 
 
1
 
3
 
International:
                     
United Arab Emirates                                                                          
 
 
1
 
 
 
1
 
Total                                                                          
 
415
 
104
 
4
 
82
 
605
 
 
 
2

 

 
Competition
The restaurant business is one of the most intensely competitive industries. As there are virtually no barriers to entry into the restaurant business, competitors may include national, regional and local establishments. There may be established competitors with financial and other resources that are greater than the Company’s Restaurant Operations capabilities. Restaurant businesses compete on the basis of price, menu, food quality, location, personnel and customer service. The restaurant business is often affected by changes in consumer tastes and by national, regional, and local economic conditions.  The performance of individual restaurants may be impacted by factors such as traffic patterns, demographic trends, severe weather conditions, and competing restaurants. Additional factors that may adversely affect the restaurant industry include, but are not limited to, food and wage inflation, safety, and food-borne illness.

Government Regulation
The Company is subject to various global, federal, state and local laws affecting its Restaurant Operations.  Each of the restaurants must comply with licensing and regulation by a number of governmental authorities, which include health, sanitation, safety and fire agencies in the jurisdiction in which the restaurant is located.  In addition, each restaurant must comply with various laws that regulate the franchisor/franchisee relationship, employment and pay practices and child labor laws. To date, none of the Company Restaurant Operations have been materially adversely affected by such laws or been affected by any difficulty, delay or failure to obtain required licenses or approvals.

Investment Management
On July 1, 2013, Biglari Holdings sold all of the outstanding shares of Biglari Capital Corp (“Biglari Capital”) to Mr. Biglari. Biglari Capital is the general partner of The Lion Fund, L.P.  and the newly-formed The Lion Fund II, L.P, limited partnerships that operate as private investment funds (collectively, the “investment partnerships”). On July 3, 2013, the Company liquidated the partners’ interests in Western Acquisitions, L.P. by distributing assets of the partnership to the partners.  Prior to the sale of Biglari Capital and the liquidation of Western Acquisitions, L.P., the Investment Management segment was composed of Biglari Capital and Western Investments, Inc., the general partner of Western Acquisitions, L.P.  This segment provided investment advisory services to private investment funds.

The Company and its subsidiaries have invested in the investment partnerships in the form of limited partner interest.   In 2013 the Company contributed cash and securities, with an aggregate value of $377.6 million to the investment partnerships.  These investments are subject to a rolling five-year lock-up period under the terms of the respective partnership agreements.

Employees
The Company employs 21,686 persons.
 
 
3

 

 
Trademarks
Steak n Shake trademarks that are registered for restaurant services on the Principal Register of the U.S. Patent and Trademark Office include, among others: “Steak n Shake®”, “Steak’n Shake Famous For Steakburgers®”, “Famous For Steakburgers®”, “Takhomasak®”, “Original Steakburgers®”, “In Sight It Must Be Right®”, “Steak n Shake It’s a Meal®”, “The Original Steakburger®”, “Steak n Shake In Sight It Must be Right®”,  “Original Double Steakburger®”, “Steak n Shake Signature®”, “Signature Steakburger®”, “California Double Steakburger®”, “Just No Equal®”, “3-D Grilled Cheese Steakburger®”, “Steak Franks®”,  and “Steak n Shake by Biglari®”.

Western trademarks that are registered for restaurant services on the Principal Register of the U.S. Patent and Trademark Office include, among others: “Western Sizzlin®”, “Western Sizzlin Steak House®”, “Western®”, “Sizzlin®”,  “Western Sizzlin Wood Grill and Buffet®”, and “Western Sizzlin Wood Grill®”.

Biglari trademarks “Biglari”, “Biglari Design”, “Biglari Group”, among others have been filed with the Principal Register of the U.S. Patent and Trademark Office in association with one or more of the following categories:  the provision of investment services, franchising services, financial services, restaurant franchising (including business management assistance in the establishment and/or operating of restaurants), hospitality services, hotel management services, insurance services, restaurant services, retail and retail related services, real estate services and apparel.

On January 11, 2013, the Company entered into a Trademark License Agreement with Mr. Biglari pursuant to which Mr. Biglari granted to the Company an exclusive license to use the Biglari and Biglari Holdings names and marks in association with various products and services.  On May 14, 2013, the Company, Steak n Shake, LLC and Steak n Shake Enterprises, Inc. entered into a Trademark Sublicense Agreement providing for the association of the Biglari name and mark with all of Steak n Shake’s restaurants (including Company-operated and franchised locations), products and brands.  See Note 17, “Related Party Transactions” in the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
 
Additional information with respect to Biglari Holdings’ businesses
Information related to our reportable segments may be found in Part II, Item 8 of this Form 10-K.

Biglari Holdings maintains a website (www.biglariholdings.com) where its annual reports, press releases, interim shareholder reports and links to its subsidiaries’ websites can be found.  Biglari Holdings’ periodic reports filed with the Securities and Exchange Commission (the “SEC”), which include Form 10-K, Form 10-Q, Form 8-K and amendments thereto, may be accessed by the public free of charge from the SEC and through Biglari Holdings’ website. In addition, corporate governance documents such as Corporate Governance Guidelines, Code of Conduct, Governance, Compensation and Nominating Committee Charter and Audit Committee Charter are posted on the Company’s website and are available without charge upon written request. The Company’s website and the information contained therein or connected thereto are not intended to be incorporated into this report on Form 10-K.
 
 
4

 

 
Item 1A.
 
Risk Factors
 
Biglari Holdings and its subsidiaries (referred to herein as “we,” us,” “our,” or similar expressions) are subject to certain risks and uncertainties in our business operations which are described below. The risks and uncertainties described below are not the only risks we face.  Additional risks and uncertainties not presently known or that are currently deemed immaterial may also impair our business operations.

We are dependent on our Chairman and CEO.
Our success depends on the services of Sardar Biglari, Chairman and Chief Executive Officer. All major operating, investment, and capital allocation decisions are made for the Company and its subsidiaries by Sardar Biglari, Chairman and Chief Executive Officer. Moreover, certain counterparties have requested and obtained a provision in their agreements with the right to terminate in the event Mr. Biglari ceases to be our Chairman and Chief Executive Officer. If for any reason the services of Mr. Biglari were to become unavailable, there could be a material adverse effect on our business.

Competition.
Each of our operating businesses faces intense competitive pressure within the markets in which they operate.  Competition may arise domestically as well as internationally. While we manage our businesses with the objective of achieving long-term sustainable growth by developing and strengthening competitive advantages, many factors, including market changes, may erode or prevent the strengthening of competitive advantages.  Accordingly, future operating results will depend to some degree on whether our operating units are successful in protecting or enhancing their competitive advantages.  If our operating businesses are unsuccessful in these efforts, our periodic operating results may decline from current levels in the future.

The restaurant business is one of the most competitive industries. As there are virtually no barriers to entry into the restaurant business, competitors may include national, regional and local establishments. There may be established competitors with financial and other resources that are greater than the Company’s Restaurant Operations capabilities. Restaurant businesses compete on the basis of price, menu, food quality, location, personnel and customer service. The restaurant business is often affected by changes in consumer tastes and by national, regional, and local economic conditions.  The performance of individual restaurants may be impacted by factors such as traffic patterns, demographic trends, severe weather conditions, and competing restaurants. Additional factors that may adversely affect the restaurant industry include, but are not limited to, food and wage inflation, safety, and food-borne illness.

Unfavorable economic, societal and political conditions could hurt our operating businesses.
Our operating businesses are subject to normal economic cycles affecting the economy in general or the industries in which we operate.  To the extent that the recovery from the economic recession continues to be slow or the economy worsens for a prolonged period of time, one or more of our significant operations could be materially harmed.  In addition, we depend on having access to borrowed funds through the capital markets at reasonable rates.  To the extent that access to the credit is restricted or the cost of funding increases, our business could be adversely affected.

As a result of our international expansion, we may become subject to increased risks from unstable political conditions and civil unrest.  Further, terrorism activities deriving from unstable conditions or acts intended to compromise the integrity or security of our computer networks and information systems could produce losses to our international operations, as well as our operations based in the United States.  Our business operations could be adversely affected directly through the loss of human resources or destruction of production facilities and information systems.

The restaurant industry has been affected by economic factors, including the deterioration of global, national, regional and local economic conditions, declines in employment levels, and shifts in consumer spending patterns. The disruptions experienced in the global economy and volatility in the financial markets have reduced, and may continue to reduce, consumer confidence in the economy, negatively affecting consumer restaurant spending, which could be harmful to our financial position and results of operations. As a result, decreased cash flow generated from our business may adversely affect our financial position and our ability to fund our operations. In addition, macroeconomic disruptions could adversely impact the availability of financing for our franchisees’ expansions and operations.
 
 
5

 

 
Our cash flows and financial position could be negatively impacted if we are unable to comply with the restrictions and covenants in Steak n Shake’s debt agreements.
The Company’s subsidiaries currently maintain debt instruments, including Steak n Shake’s credit agreement, dated as of September 25, 2012, as amended, with the lenders party thereto (the “Credit Facility”). Covenants in the debt agreements impose operating and financial restrictions, including requiring operating subsidiaries to maintain certain financial ratios and thereby restricting, among other things, their ability to incur additional indebtedness and make distributions to the Company.  Their failure to comply with these covenants and restrictions could constitute an event of default that, if not cured or waived, could result, among other things, in the acceleration of their indebtedness, which could negatively impact our operations and business and may also significantly affect our ability to obtain additional or alternative financing.  In such event, our cash flows may not be sufficient to fully repay this indebtedness and we cannot assure you that we would be able to refinance or restructure this debt.  In addition, the restrictions contained in these debt instruments could adversely affect our ability to finance our operations, acquisitions or investments.

Steak n Shake’s ability to make payments on the Credit Facility and to fund operations depends on its ability to generate cash, which is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. Steak n Shake may not generate sufficient cash flow from operations to service this debt or to fund its other liquidity needs.

We may be required to recognize additional impairment charges on our long-lived assets and goodwill, which would adversely affect our results of operations and financial position.
Long-lived assets, including restaurant sites, leasehold improvements, other fixed assets, and amortized intangible assets are reviewed for impairment annually or more frequently if circumstances indicate impairment may have occurred. Expected cash flows associated with an asset over its estimated useful life are the key factor in determining the recoverability of the carrying value of the asset. The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance. Management’s estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to our business model or changes in operating performance. If the sum of the estimated undiscounted cash flows over an asset’s estimated useful life is less than the carrying value of the asset, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset.

We periodically evaluate our goodwill to determine whether all or a portion of their carrying values may no longer be recoverable, in which case a charge to income may be necessary. Estimated fair values developed based on our assumptions and judgments might be significantly different if other reasonable assumptions and estimates were to be used. If estimated fair values are less than the carrying values of goodwill in future impairment tests, or if significant impairment indicators are noted relative to other intangible assets subject to amortization, we may be required to record impairment losses against future income. Any future evaluations requiring an impairment of our goodwill and other intangible assets could materially affect our results of operations and shareholders’ equity in the period in which the impairment occurs.

Judgments made by management related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions and changes in operating performance. As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could cause us to realize a material impairment charge. If assets are determined to be impaired, the determination of an asset’s fair value, which is generally measured by discounting estimated future cash flows, is also subject to significant judgment, including the determination of a discount rate that is commensurate with the risk inherent in the projected cash flows.  If the assumptions underlying these judgments change in the future, we may be required to realize further impairment charges for these assets.

Our historical growth rate and performance are not indicative of our future growth or financial results.
Our historical growth must be viewed in the context of the recent opportunities available to us as a result of our access to capital at a time when market conditions resulted in unprecedented asset acquisition opportunities. When evaluating our historical growth and prospects for future growth, it is also important to consider that while our business philosophy has remained relatively constant, our mix of business, distribution channels and areas of focus have changed and will continue to change.  Our dynamic business model makes it difficult to assess our prospects for future growth.
 
 
6

 

 
Fluctuations in commodity and energy prices and the availability of commodities, including beef, fried products, poultry, and dairy, could affect our restaurant business.
The cost, availability and quality of ingredients Restaurant Operations use to prepare their food is subject to a range of factors, many of which are beyond their control.  A significant component of our restaurant business’ costs is related to food commodities, including beef, fried products, poultry, and dairy products, which can be subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand, changes in international commodity markets, and other factors. If there is a substantial increase in prices for these food commodities, our results of operations may be negatively affected. In addition, our restaurants are dependent upon frequent deliveries of perishable food products that meet certain specifications. Shortages or interruptions in the supply of perishable food products caused by unanticipated demand, problems in production or distribution, disease or food-borne illnesses, inclement weather, or other conditions could adversely affect the availability, quality, and cost of ingredients, which would likely lower revenues, damage our reputation, or otherwise harm our business.

We face a variety of risks associated with doing business in foreign markets.
There is no assurance that our international operations will be profitable. Our international operations are subject to all of the risks associated with our domestic operations, as well as a number of additional risks, varying substantially country by country. These include, inter alia, international economic and political conditions, corruption, social and ethnic unrest, foreign currency fluctuations, differing cultures and consumer preferences.  Our expansion into international markets could also create risks to our brands.

In addition, we may become subject to foreign governmental regulations that impact the way we do business with our international franchisees and vendors.  These include antitrust and tax requirements, anti-boycott regulations, international trade regulations, the USA Patriot Act, the Foreign Corrupt Practices Act, and applicable local law. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business and our financial condition.

The inability of Restaurant Operations’ franchisees to operate profitable restaurants may negatively impact our financial performance.
Restaurant Operations operate franchise programs and collect royalties and marketing and service fees from their franchisees. Growth within the existing franchise base is dependent upon many of the same factors that apply to our Restaurant Operations’ company-operated restaurants, and sometimes the challenges of opening profitable restaurants prove to be more difficult for the franchisees. For example, franchisees may not have access to the financial or management resources that they need to open or continue operating the restaurants contemplated by their franchise agreements. In addition, our Restaurant Operations’ continued growth is also partially dependent upon our ability to find and retain qualified franchisees in new markets, which may include markets in which the Steak n Shake and Western brands are less well known. Furthermore, the loss of any franchisees due to financial concerns and/or operational inefficiencies could impact our Restaurant Operations’ profitability. Moreover, if our franchisees do not successfully operate or market restaurants in a manner consistent with our standards, our restaurant brands’ reputations could be harmed, which in turn could adversely affect our business and operating results.

Adverse weather conditions or losses due to casualties could negatively impact our operating performance.
Property damage caused by casualties and natural disasters, instances of inclement weather, flooding, hurricanes, fire, and other acts of nature can adversely impact sales in several ways. Many of Steak n Shake’s and Western’s restaurants are located in the Midwest and Southeast portions of the United States. During the first and second fiscal quarters, restaurants in the Midwest may face harsh winter weather conditions. During the first and fourth fiscal quarters, restaurants in the Southeast may experience hurricanes or tropical storms. Our sales and operating results may be negatively affected by these harsh weather conditions, which could make it more difficult for guests to visit our restaurants, necessitate the closure of restaurants for a period of time or costly repairs due to physical damage or lead to a shortage of employees resulting from unsafe road conditions or an evacuation of the general population.
 
 
7

 

 
We are subject to health, employment, environmental, and other government regulations, and failure to comply with existing or future government regulations could expose us to litigation or penalties, damage our reputation, and lower profits.
We are subject to various global, federal, state, and local laws and regulations affecting our business. Changes in existing laws, rules and regulations applicable to us, or increased enforcement by governmental authorities, may require us to incur additional costs and expenses necessary for compliance. If we fail to comply with any of these laws, we may be subject to governmental action or litigation, and our reputation could be accordingly harmed. Injury to our reputation would, in turn, likely reduce revenues and profits.

The development and construction of restaurants is subject to compliance with applicable zoning, land use, and environmental regulations. Difficulties in obtaining, or failure to obtain, the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area.

In recent years, there has been an increased legislative, regulatory, and consumer focus on nutrition and advertising practices in the food industry. As a result, Restaurant Operations may become subject to regulatory initiatives in the area of nutrition disclosure or advertising, such as requirements to provide information about the nutritional content of our food products, which could increase expenses. The operation of the Steak n Shake and Western franchise system is also subject to franchise laws and regulations enacted by a number of states, and to rules promulgated by the U.S. Federal Trade Commission. Any future legislation regulating franchise relationships may negatively affect our operations, particularly our relationship with franchisees. Failure to comply with new or existing franchise laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban or temporary suspension on future franchise sales.  Further national, state and local government initiatives, such as mandatory health insurance coverage, “living wage” or other proposed increases in minimum wage rates could adversely affect our business.

Our investment activities are now conducted primarily through outside investment partnerships: The Lion Fund, L.P. and The Lion Fund II, L.P.
As a result of our sale of Biglari Capital Corp. (“Biglari Capital”), general partner of The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively, the “investment partnerships”), to Mr. Biglari, and the contribution of our investments to these funds in exchange for limited partner interests, our investment activities are now conducted mainly through these outside investment partnerships. Under the terms of their partnership agreements, each contribution made by the Company to the investment partnerships is subject to a five-year lock-up period, and any distribution upon our withdrawal of funds will be paid out over a two-year period. As a result of these provisions, our capital invested in the investment partnerships may be subject to an increased risk of loss of all or a significant portion of value, and may become unable to meet our capital requirements.

In connection with the sale of Biglari Capital, we also entered into a Shared Services Agreement with Biglari Capital pursuant to which we agreed to provide certain services to Biglari Capital (e.g., use of space at our corporate headquarters) in exchange for a 6% hurdle rate for the Company and its subsidiaries (as compared to a 5% hurdle rate for all other limited partners), above which Biglari Capital is entitled to receive an incentive reallocation in its capacity as general partner of the investment partnerships. There can be no assurance that the benefit, if any, we may realize from this increased hurdle rate will enable us to recoup our costs incurred in performing services for Biglari Capital under the Shared Services Agreement.

Our investment activities may involve the purchase of securities on margin.
We may purchase securities on margin in connection with our investment activities.  If we do so, a significant decrease in the value of the securities that collateralize the margin line of credit could result in a margin call. If we do not have sufficient cash available from other sources in the event of a margin call, we may be required to sell those securities at a time when we prefer not to sell them, which could result in material losses.

Our investments are unusually concentrated and fair values are subject to a loss in value.
Our investments are concentrated in outside limited partnerships, which generally invest in common stocks.  A significant decline in the major values of these partnerships may produce a large decrease in our consolidated shareholders’ equity and can have a material adverse effect on our consolidated book value per share and earnings.
 
 
8

 

 
We are subject to the risk of possibly becoming an investment company under the Investment Company Act of 1940.
Because we are a holding company and a significant portion of our assets may, from time to time, consist of investments in entities in which we do not have a controlling interest, we run the risk of inadvertently becoming an investment company, which would require us to register under the Investment Company Act of 1940, as amended (the “Investment Company Act”). Registered investment companies are subject to extensive, restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the manner in which we operate our business, nor are registered investment companies permitted to have many of the relationships that we have with our affiliated companies.

To avoid becoming and registering as an investment company under the Investment Company Act, we monitor the value of our investments and structure transactions accordingly. As a result, we may structure transactions in a less advantageous manner than if we did not have Investment Company Act concerns, or we may avoid otherwise economically desirable transactions due to those concerns. In addition, events beyond our control, including significant appreciation or depreciation in the market value of certain of our publicly traded holdings or adverse developments with respect to our ownership of certain of our subsidiaries, could result in our inadvertently becoming an investment company. If it were established that we were an investment company, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in an action brought by the SEC, that we would be unable to enforce contracts with third parties or that third parties could seek to obtain rescission of transactions with us undertaken during the period it was established that we were an unregistered investment company.

We may not be able to adequately protect our intellectual property, which could decrease the value of our brand and products.
The success of our business depends on the continued ability to use the existing trademarks, service marks, and other components of our brand to increase brand awareness and further develop branded products. While we take steps to protect our intellectual property, our rights to our trademarks could be challenged by third parties or our use of these trademarks may result in liability for trademark infringement, trademark dilution, or unfair competition, adversely affecting our profitability.  We may also become subject to these risks in the international markets in which we plan to operate.

Litigation could have a material adverse effect on our financial position, cash flows and results of operations.
We are or may be from time to time a party to various legal actions, investigations and other proceedings brought by employees, consumers, suppliers, shareholders, government agencies or other third parties in connection with matters pertaining to our business, including related to our investment activities. The outcome of such matters is often difficult to assess or quantify and the cost to defend future proceedings may be significant.   Even if a claim is unsuccessful or is not fully pursued, the negative publicity surrounding any negative allegation regarding our Company, our business or our products could adversely affect our reputation. While we believe that the ultimate outcome of routine legal proceedings individually and in the aggregate will not have a material impact on our financial position, we cannot assure that an adverse outcome on, or reputational damage from, any of these matters would not, in fact, materially impact our business and results of operations for the period when these matters are completed or otherwise resolved.

Certain agreements with our Chairman and CEO may deter a change of control.
We have entered into a license agreement with Sardar Biglari, Chairman and Chief Executive Officer, under which Mr. Biglari has granted the Company an exclusive license to use his name when connected to the provision of certain products and services, and a sublicense agreement with Steak n Shake that, among other things, grants Steak n Shake the right to use the trademark “Steak n Shake by Biglari.” In the event of a change of control of the Company, Mr. Biglari would be entitled to receive revenue-based royalty payments related to the usage of his name under the terms of the license agreement for a defined period of no less than five years. Revenue-based royalties derived from Steak n Shake’s restaurants (including Company operated and franchised locations), products and brands, would be included in calculating these royalty payments. A change of control would also enable franchisees to terminate their franchise agreement with us.  In addition, we have an incentive agreement with Mr. Biglari, in which he is entitled to receive performance-based annual incentive payments contingent on the growth of the Company’s adjusted book value in each fiscal year. In the event of a change in control after the third anniversary of the incentive agreement, Mr. Biglari would receive specified payments thereunder. The combination of these provisions along with others referenced (e.g., contracts cancellable if Mr. Biglari is no longer Chairman and CEO) altogether could have the effect of preventing a transaction involving a change of control of the Company or deterrence of a potential proxy contest.
 
 
9

 

 
Item 1B.
 
Unresolved Staff Comments
 
None.

Item 2.
 
Properties
 
Office and Warehouse Facilities

Use
 
Location
 
Own/Lease
Executive Office
 
San Antonio, TX
 
Lease
Executive Office
 
Indianapolis, IN
 
Lease
Executive Office
 
Roanoke, VA
 
Lease
Executive Office
 
Los Angeles, CA
 
Lease
Executive Office
 
Monte-Carlo, Monaco
 
Lease
Executive Office
 
Indianapolis, IN
 
Own

Restaurant Properties

As of September 25, 2013, Restaurant Operations included 605 company-operated and franchised. Restaurant Operations owns the land and building for 153 restaurants. See “Geographic Concentration and Restaurant Locations” under Part I, Item 1 for additional detail.

Item 3.
 
Legal Proceedings
 
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 flows.
 
On June 3, 2013 and July 2, 2013, two shareholders of the Company filed derivative actions putatively on behalf of the Company against the members of our board of directors in the United States District Courts for the Southern District of Indiana and the Western District of Texas. The shareholders allege claims for breach of fiduciary duty, gross mismanagement, contribution and indemnification, abuse of control, waste, and unjust enrichment relating to certain Company transactions, including the Company’s acquisition of Biglari Capital, Mr. Biglari’s incentive agreement, the trademark license agreement between the Company and Mr. Biglari, and the Company’s rights offering. The shareholders seek to recover unspecified damages, various forms of injunctive relief, and an award of their attorneys’ fees. The Company believes these claims are without merit and intends to defend these cases vigorously.
 

Item 4.
 
Mine Safety Disclosures
 
Not applicable.
 
 
10

 

 
Part II

Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Rights Offering
In fiscal year 2013, Biglari Holdings completed an offering of transferable subscription rights, distributing one transferable subscription right (“Rights”) for each share of its common stock to shareholders of record on August 27, 2013.  Every five Rights entitled a shareholder to subscribe for one share of common stock at a price of $265.00.  Shareholders on the record date who fully exercised the Rights distributed to them were also entitled to subscribe for and purchase additional shares of common stock not purchased by other Rights holders through their basic subscription privileges.  The offering was oversubscribed and 286,767 new shares of common stock were issued.  The Company received net proceeds of $75.6 million from the offering.  Including the issuance of the newly subscribed shares the Company had 1,720,782 shares outstanding as of September 25, 2013.

Market Information
Biglari Holdings’ common stock is listed for trading on the New York Stock Exchange (the “NYSE”), trading symbol:  BH. The following table sets forth the high and low sales prices per share, as reported on the NYSE List and adjusted for the 2013 offering of transferable subscription rights during the periods indicated:

   
2013
   
2012
 
  
 
High
   
Low
   
High
   
Low
 
First Quarter                                                                                        
  $ 354.06     $ 305.00     $ 363.86     $ 266.26  
Second Quarter                                                                                        
    374.69       339.09       388.64       341.91  
Third Quarter                                                                                        
    385.32       345.84       384.04       339.13  
Fourth Quarter                                                                                        
    432.67       385.15       368.76       325.90  

Shareholders
Biglari Holdings had approximately 10,300 beneficial shareholders, of which approximately 1,200 were record holders of its common stock at December 3, 2013.

Dividends
Biglari Holdings has not declared a cash dividend during the fiscal years ended September 25, 2013, September 26, 2012 and September 28, 2011.
 
 
11

 

 
Performance Graph
The following chart compares the subsequent value of $100 invested in Biglari Holdings’ common stock on September 30, 2008 with a similar investment in the Standard and Poor’s 500 Stock Index and Standard and Poor’s Restaurant Index.
 
 
The preceding stock price performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, except to the extent that we specifically incorporate it by reference into such filings.

Securities Authorized for Issuance Under Equity Compensation Plans
The “Equity Compensation Plan Information” required by Item 201(d) of Regulation S-K will be contained in our definitive Proxy Statement for the 2014 Annual Meeting of Shareholders, to be filed on or before January 23, 2014, and such information is incorporated herein by reference.
 
 
12

 

 
Item 6.
 
Selected Financial Data
 
Selected Financial Data for the Past Five Years
(dollars in thousands except per share data)
 
 
52 Weeks Ended
   
53 Weeks Ended
 
                         
  
 
Fiscal 2013(2)(4)
   
Fiscal 2012(2)(3)
   
Fiscal 2011(2)(3)
   
Fiscal 2010 (2)(3)
   
Fiscal 2009 (2)
 
Revenue:
                             
Total net revenues
  $ 755,822     $ 740,207     $ 709,200     $ 673,781     $ 628,736  
                                         
Earnings:
                                       
Net earnings attributable to Biglari Holdings Inc.
  $ 140,271     $ 21,593     $ 34,565     $ 28,094     $ 5,998  
Basic earnings per share attributable to Biglari Holdings Inc. (1)
  $ 98.11     $ 15.02     $ 24.13     $ 18.67     $ 3.91  
Diluted earnings per share attributable to Biglari Holdings Inc. (1)
  $ 97.90     $ 14.99     $ 24.00     $ 18.55     $ 3.89  
                                         
Year-end data:
                                       
Total assets
  $ 988,543     $ 773,787     $ 672,860     $ 563,839     $ 514,496  
Long-term debt:
                                       
Obligations under leases
    106,247       110,353       116,066       124,247       130,076  
Other long-term debt
    110,500       120,250       101,417       17,781       48  
Biglari Holdings Inc. shareholders’ equity
  $ 564,589     $ 349,125     $ 279,678     $ 248,995     $ 291,861  

 
(1)
Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. In fiscal year 2013 the Company completed a rights offering in which 286,767 new shares of common stock were issued.  The theoretical earnings per share have been retroactively restated for all years to give effect to the rights offering.
 
(2)
Fiscal years 2013, 2012, 2011, 2010, and 2009 ended on September 25, 2013, September 26, 2012, September 28, 2011, September 29, 2010 and September 30, 2009, respectively.
 
(3)
For financial reporting purposes all common shares of the Company held by the consolidated affiliated partnerships are recorded in Treasury stock on the Consolidated Balance Sheet. For purposes of computing the weighted average common shares outstanding, the shares of treasury stock attributable to the unrelated limited partners of the consolidated affiliated partnerships — based on their proportional ownership during the period — are considered outstanding shares.
 
(4)
For financial reporting purposes and for purposes of computing the weighted average common shares outstanding, the shares of Company stock attributable to the unrelated limited partners of The Lion Fund, L.P.  — based on their proportional ownership during the period — are considered outstanding shares.
 
 
13

 
 
 
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
(dollars in thousands except per share data)
 
Biglari Holdings Inc. (“Biglari Holdings” or the “Company”) is a diversified holding company engaged in a number of business activities. Our most important 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, Steak n Shake Operations, Inc. (“Steak n Shake”), and Western Sizzlin Corporation (“Western”). Our 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.

On July 1, 2013, Biglari Holdings sold all of the outstanding shares of Biglari Capital Corp. (“Biglari Capital”) to Mr. Biglari.  Biglari Capital is the general partner of The Lion Fund, L.P. (the “Lion Fund”) and the newly-formed The Lion Fund II, L.P. (the “Lion Fund II”).  Lion Fund and Lion Fund II (collectively “investment partnerships”) are limited partnerships that operate as private investment funds.  In connection with the sale of Biglari Capital, the Company contributed cash and securities with an aggregate value of $377,636 to the investment partnerships in exchange for a limited interest.
 
Biglari Holdings recognized a non-cash pre-tax gain of $182,476 ($114,931 net of tax) on the contribution of securities to investment partnerships in 2013.  Biglari Holdings’ management does not regard the gain that was recorded, as required by GAAP, as meaningful.  The gain recognized for financial reporting purposes is deferred for income tax purposes.   The transaction essentially had no effect on our consolidated shareholders’ equity because the gain included in earnings in 2013 was accompanied by a corresponding reduction of unrealized investment gains included in Accumulated Other Comprehensive Income.

Our interests are accounted as equity method investments because of our retained limited partner interest in the investment partnerships.  The Company records earnings from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the Consolidated Statement of Earnings based on our proportional ownership interest in the investment partnerships’ total earnings.
 
On July 3, 2013 the Company liquidated the partners’ interest in Western Acquisitions, L.P. by distributing assets of the partnership to the partners.
 
In fiscal year 2013 the Company completed a rights offering in which 286,767 new shares of common stock were issued.  The theoretical earnings per share have been retroactively restated for all years to give effect to the rights offering.  The Company received net proceeds of $75,595 from the offering.
 
In the following discussion, the term “same-store sales” refers to the sales of only those units open at least 18 months as of the beginning of the current period being discussed and which remained open through the end of the period.

We have a 52/53 week fiscal year ending on the last Wednesday in September. Fiscal years 2013, 2012, and 2011, which ended on September 25, September 26, and September 28, respectively, all contained 52 weeks.

The following discussion should be read in conjunction with Item 1, Business and our Consolidated Financial Statements and the notes thereto included in this Form 10-K. The following discussion should also be read in conjunction with the “Cautionary Note Regarding Forward-Looking Statements” and the risks and uncertainties described in Item 1A, Risk Factors set forth above.

Investment gains/losses in any given period will vary; therefore, for analytical purposes, management measures operating performance by analyzing earnings before realized and unrealized investment gains/losses.
 
 
14

 

 
Net earnings attributable to Biglari Holdings for each of the past three years are disaggregated in the table that follows:

   
2013
   
2012
   
2011
 
Operating Business:
                 
Restaurant Operations:
                 
Steak n Shake
  $ 21,023     $ 31,756     $ 29,367  
Western
    338       1,354       1,610  
Total Restaurant Operations
    21,361       33,110       30,977  
                         
Investment Management:
                       
Biglari Capital Corp. (incentive fee)
    13       22       1,535  
Management fees
                139  
Consolidated affiliated partnerships
    662       1,321       1,815  
Total Investment Management Operations
    675       1,343       3,489  
                         
Corporate and Other:
                       
Corporate and other
    (5,578 )     (9,196 )     (3,099 )
Gains from investment partnerships
    13,296              
Investment and derivative gains
    114,579       2,604       4,941  
Total Corporate and Other
    122,297       (6,592 )     1,842  
                         
Reconciliation of segments to consolidated amount:
                       
Interest expense and loss on debt extinguishment, excluding interest allocated to operating businesses
    (4,062 )     (6,268 )     (1,743 )
    $ 140,271     $ 21,593     $ 34,565  

Fiscal Year 2013
We recorded net earnings attributable to Biglari Holdings Inc. of $140,271 for the current year, as compared with net earnings attributable to Biglari Holdings Inc. of $21,593 in 2012. The increase was primarily driven by a pre-tax gain of $182,746 ($114,931 net of tax) on contributions to investment partnerships and $20,068 pre-tax Gains from changes in the carrying value of the partnerships.

As of September 25, 2013 the total number of company-operated and franchised restaurants was 605 as follows:

   
Company-operated
 
Franchised
 
Total
Steak n Shake                                                                                                       
 
415
 
104
 
519
Western                                                                                                       
 
4
 
82
 
86
Total                                                                                                       
 
419
 
186
 
605

During 2013, Steak n Shake did not close any company-operated restaurants, but two franchised units suffered closure. Steak n Shake opened one company-operated as well as twenty-three franchised units.  Western closed one company-operated restaurant and seven franchised units. Western opened two franchised units.
 
 
15

 

 
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain accounting policies require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized in our financial statements from such estimates are necessarily based on numerous assumptions involving varying and potentially significant degrees of judgment and uncertainty. Accordingly, the amounts currently reflected in our financial statements will likely increase or decrease in the future as additional information becomes available.

We believe the following critical accounting policies represent our more significant judgments and estimates used in preparation of our consolidated financial statements.

Consolidation
The consolidated financial statements include the accounts of (i) Biglari Holdings Inc., (ii) the wholly-and majority-owned subsidiaries of Biglari Holdings Inc. in which control can be exercised and (iii) limited partnership investment entities in which we have a controlling interest as the general partner. In evaluating whether we have a controlling interest in entities in which we would consolidate, we consider the following: (1) for voting interest entities, we consolidate those entities in which we own a majority of the voting interests; and (2) for limited partnership entities, we consolidate those entities if we are the general partner of such entities and for which no substantive removal rights exist.  The analysis as to whether to consolidate an entity is subject to a significant amount of judgment. Some of the criteria considered include the determination as to the degree of control over an entity by its various equity holders and the design of the entity.

Before the sale of Biglari Capital and liquidation of Western Acquisitions, L.P., the Company consolidated its affiliated partnerships in its consolidated financial statements, which included the accounts of (i) the Company, (ii) its wholly-owned subsidiaries Biglari Capital, Steak n Shake, and Western, and (iii) the Lion Fund and Western Acquisitions, L.P. (the “consolidated affiliated partnerships”), in which the Company had a substantive controlling interest.  As a result of the sale of Biglari Capital and the related liquidation of Western Acquisitions, L.P., the Company has ceased to have a controlling interest in the consolidated affiliated partnerships, which, accordingly, will no longer be consolidated in the Company’s financial statements.  Beginning July 1, 2013, the consolidated financial statements only include the accounts of (i) the Company and (ii) its wholly-owned subsidiaries Steak n Shake and Western.  All intercompany accounts and transactions are eliminated in consolidation.

Prior to July 1, 2013 the consolidated affiliated partnerships’ assets and liabilities were consolidated on the Consolidated Balance Sheet even though outside limited partners had majority ownership in the consolidated affiliated partnerships. The Company did not guarantee any of the liabilities of its subsidiaries that were serving as general partners to these consolidated affiliated partnerships.

Beginning July 1, 2013, our interests in the investment partnerships are accounted as equity method investments because of our retained limited partner interest in the investment partnerships.  The Company records Gains from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on their securities) in the Consolidated Statement of Earnings based on our proportional ownership interest in the investment partnerships.

Long-lived Assets — Impairment and Classification as Held for Sale
We review company-operated restaurants for impairment on a restaurant-by-restaurant basis when events or circumstances indicate a possible impairment. We test for impairment by comparing the carrying value of the asset to the undiscounted future cash flows expected to be generated by the asset. If the total estimated future cash flows are less than the carrying amount of the asset, the carrying value is written down to the estimated fair value, and a loss is recognized in earnings. The future cash flows expected to be generated by an asset requires significant judgment regarding future performance of the asset, fair market value if the asset were to be sold, and other financial and economic assumptions.

We sell restaurants that have been closed due to underperformance. We classify an asset as held for sale in the period during which each of the following conditions is met: (a) management has committed to a plan to sell the asset; (b) the asset is available for immediate sale in its present condition; (c) an active search for a buyer has been initiated; (d) completion of the sale of the asset within one year is probable; (e) the asset is being marketed at a reasonable price; and (f) no significant changes to the plan of sale are expected. There is judgment involved in estimating the timing of completing the sale of an asset.
 
 
16

 

 
Insurance Reserves
We currently self-insure a significant portion of expected losses under our workers’ compensation, general liability, directors’ and officers’ liability, and auto liability insurance programs. For certain programs, we purchase reinsurance for individual and aggregate claims that exceed predetermined limits. We record a liability for all unresolved claims and our estimates of incurred but not reported (“IBNR”) claims at the anticipated cost to us. The liability estimate is based on information received from insurance companies, combined with management’s judgments regarding frequency and severity of claims, claims development history, and settlement practices. Significant judgment is required to estimate IBNR claims as parties have yet to assert a claim, and therefore the degree to which injuries have been incurred and the related costs have not yet been determined. Additionally, estimates about future costs involve significant judgment regarding legislation, case jurisdictions, and other matters.

We self-insure our group health insurance risk. We record a liability for our group health insurance for all applied claims and our estimate of claims incurred but not yet reported. Our estimate is based on information received from our insurance company and claims processing practices.

Our reserves for self-insured liabilities at September 25, 2013 and September 26, 2012 were $8,629 and $7,971, respectively.

Income Taxes
We record deferred tax assets or liabilities based on differences between financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the differences are expected to reverse. We record deferred tax assets to the extent we believe there will be sufficient future taxable income to utilize those assets prior to their expiration. To the extent deferred tax assets would be unable to be utilized, we would record a valuation allowance against the unrealizable amount and record that amount as a charge against earnings. Due to changing tax laws and state income tax rates, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future. We must also make estimates about the sufficiency of taxable income in future periods to offset any deductions related to deferred tax assets currently recorded. Based on 2013 results, a change of one percentage point in the annual effective tax rate would have an impact of $2,165 on net earnings.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

Goodwill and Other Intangible Assets
We are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The required analysis of potential impairment of goodwill requires a two-step approach. The first step is the estimation of fair value of each reporting unit. If step one indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists 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.

Leases
Restaurant Operations leases certain properties 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 cancelable option periods when failure to exercise such options would result in an economic penalty. We use a time period for straight-line rent expense calculation that equals or exceeds the time period used for depreciation. In addition, the rent commencement date of the lease term is the earlier of the date when they become legally obligated for the rent payments or the date when they take access to the grounds for build out. Accounting for leases involves significant management judgment.
 
 
17

 

 
Results of Operations
The following table sets forth the percentage relationship to total net revenues, unless otherwise noted, of items included in the Consolidated Statements of Earnings for the periods indicated:

   
2013
(52 weeks)
   
2012
(52 weeks)
   
2011
(52 Weeks)
 
Net revenues
                 
Restaurant Operations:
                 
Net sales
    97.5 %     97.5 %     97.9 %
Franchise royalties and fees
    1.6       1.3       1.2  
Other revenue
    0.4       0.3       0.3  
Total
    99.5       99.1       99.5  
Investment Management Operations:
                       
Management fee income
                0.0  
Consolidated Affiliated Partnerships:
                       
Investment gains
    0.5       0.8       0.4  
Other income
    0.0       0.0       0.1  
Total
    0.5       0.9       0.5  
Total net revenues
    100.0       100.0       100.0  
                         
Costs and expenses
                       
Cost of sales (1)
    29.6       28.7       27.7  
Restaurant operating costs (1)
    47.3       46.8       47.7  
General and administrative
    10.2       8.7       6.8  
Depreciation and amortization
    3.3       3.6       4.0  
Marketing
    5.9       5.7       5.4  
Rent
    2.4       2.4       2.4  
Pre-opening costs
    0.0       0.1       0.0  
Provision for restaurant closings
    0.2       0.1       0.1  
Impairment of intangible assets
    0.2              
Loss on disposal of assets
    0.1       0.1       0.1  
Other operating (income) expense
    (0.1 )     (0.1 )     (0.2 )
                         
Other income (expenses)
                       
Interest, dividend and other investment income
    1.1       0.5       0.1  
Interest on obligations under leases
    (1.3 )     (1.4 )     (1.5 )
Interest expense
    (0.9 )     (1.1 )     (0.4 )
Loss on debt extinguishment
          (0.3 )      
Gain on sale of Biglari Capital Corp.
    0.2              
Gain on contributions to investment partnerships.
    24.2              
Realized investment gains/losses
    0.0       0.6       1.0  
Other than temporary impairment
    (0.1 )            
Derivative and short sale gains/losses
                0.1  
Total other income (expenses)
    23.2       (1.6 )     (0.7 )
                         
Earnings before income taxes
    26.0       4.2       6.7  
                         
Income tax from operating earnings
    8.9       0.9       2.0  
Income tax on gains from investment partnerships
    0.9              
Total income taxes
    9.8       0.9       2.0  
                         
Gains from investment partnerships
    2.7              
                         
Consolidated net earnings
    18.9       3.3       4.8  
Earnings attributable to redeemable noncontrolling interest:
                       
Income allocation
    (0.3 )     (0.4 )     (0.3 )
Incentive fee
    0.0       0.0       0.4  
Total earnings/loss attributable to redeemable noncontrolling interests
    (0.3 )     (0.4 )     0.1  
Net earnings attributable to Biglari Holdings Inc.
    18.6 %     2.9 %     4.9 %

 
(1)
Cost of sales and Restaurant operating costs are expressed as a percentage of Net sales.
 
 
18

 
 
 
Fiscal Year 2013 Compared with Fiscal Year 2012

Net Earnings Attributable to Biglari Holdings Inc.
We recorded net earnings attributable to Biglari Holdings Inc. of $140,271 or $97.90 per diluted share, for the current year, as compared with net earnings attributable to Biglari Holdings Inc. of $21,593, or $14.99 per diluted share, in 2012.  The increase was primarily driven by a pre-tax gain of $182,746 ($114,931 net of tax) on contributions to investment partnerships and a $20,068 pre-tax gain from changes in the carrying value of the investment partnerships.  Earnings per share have been retroactively restated for all years to account for the 2013 rights offering.

Net Revenues
In 2013, net sales increased 2.1% from $721,754 to $736,968, primarily due to the performance of our Restaurant Operations, mainly through the increase in Steak n Shake’s same-store sales. Steak n Shake’s same-store sales increased 2.2% during 2013. (Customer traffic increased by 2.1%.)

Franchise royalties and fees increased 21.9% during 2013. The number of franchised units increased from 170 at the end of 2012 to 186 at the end of 2013. Franchise fees in conjunction with the opening of the franchised stores alone accounted for a 4.7% increase.  The remaining 17.2% increase is primarily attributable to royalties from new Steak n Shake franchised stores, opened in 2012 and 2013.

Cost and Expenses
The cost of sales in the current year was $218,199 or 29.6% of net sales, compared with $207,234 or 28.7% of net sales in 2012. Higher revenues impacted cost of sales by approximately $5.4 million.  Higher commodity prices impacted cost of sales by approximately $3.2 million.

Restaurant operating costs in the current year were $348,654 or 47.3% of net sales compared to $337,905 or 46.8% of net sales in 2012. Restaurant operating costs increased because of, inter alia, increased staffing in our stores of $4.3 million, higher supply costs of $2.3 million, and higher insurance costs of $1.6 million.

General and administrative expenses increased from $64,286 or 8.7% of total net revenues in 2012 to $76,799 or 10.2% of total net revenues in the current year. Increased training in 2013 resulted in a $2.7 million higher expense, largely tied to franchise openings. In addition, our efforts to franchise the Steak n Shake concept domestically and internationally has steadily increased General and administrative expenses. In fiscal 2013, direct franchising costs represent 24.8% of Steak n Shake’s general and administrative expenses, up from 14.8% in fiscal 2012.
 
Depreciation and amortization expense was $25,250 or 3.3% of total net revenues in the current year, versus $26,424 or 3.6% of total net revenues in 2012.

Marketing expense was $44,375 or 5.9% of total net revenues in the current year, versus $42,531 or 5.7% of total net revenues in 2012.  The increase was primarily attributable to an increase in radio advertising.

Rent expense in 2013 remained consistent at 2.4% as a percentage of total net revenues compared to the prior year.

Asset impairments and provision for restaurant closings for 2013 were $1,738 or 0.2% of total net revenues in the current year, versus $901 or 0.1% of total net revenues in 2012. Steak n Shake recorded asset impairment costs of $1,666 for 2013 and $901 for 2012. No Steak n Shake company-operated restaurants were closed in 2013 or 2012.  Western closed one company-operated restaurant in 2013 and recorded restaurant closing costs of $72.

Impairment of intangible assets for 2013 of $1,244 was an impairment of the trade name of Western’s company-operated stores, which we decided no longer to use.

Loss on disposal of assets was $1,111 or 0.1% of total net revenues in the current year compared to $611 or 0.1% of total net revenues in the prior year.

Other Income (Expenses)
We recorded interest, dividend and other investment income of $8,265 in 2013 mostly from dividends relating to our investment in Cracker Barrel Old Country Store, Inc. versus $4,000 recorded in 2012.

Interest expense on obligations under leases was $9,829 or 1.3% of total net revenues in the current year, versus $10,073 or 1.4% of total net revenues in 2012.
 
 
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Interest expense decreased from $8,155 in 2012 to $6,551 in the current year.  The decrease primarily pertained to lower interest on Steak n Shake’s current credit facility, which was entered into on September 25, 2012 compared to Steak n Shake’s former credit facility, which was entered into on September 8, 2011.  The interest rate on Steak n Shake’s current credit facility was 3.94% on September 25, 2013. The total outstanding debt for the Company on September 25, 2013 was $120,250 compared to $132,388 on September 26, 2012.

The loss on extinguishment of debt for 2012 of $1,955 related to the write-off of deferred loan costs associated with Steak n Shake’s former credit facility.

Our 2013 effective income tax rate increased to 37.8% from the 2012 effective income tax rate of 20.7%.  The increase in the tax rate is primarily attributable to Gains from investment partnerships of $20,068 not included in Earnings before income taxes and Gain on contributions to investment partnerships of $182,746 taxed at 37.1%.

Biglari Holdings Investment Gains
For 2013 we recorded Gain on sale of Biglari Capital Corp. of $1,597, Gain on contributions to investment partnerships of $182,746, Other than temporary impairment of $570, and realized investment gains of $1 related to dispositions on marketable equity securities. We recorded net realized investment gains of $4,200 for 2012 related to dispositions of marketable equity securities.

Consolidated Affiliated Partnerships Investment Gains
Prior to the July 1, 2013 deconsolidation of our affiliated partnerships, we recorded a net realized gain of $261 for 2013 related to dispositions of investments held by our consolidated affiliated partnerships, plus an unrealized net investment gain of $3,336 for a total of $3,597.  We also received an incentive fee of $21. These amounts were offset by $1,922 related to earnings attributable to redeemable noncontrolling interests.

Investment Partnerships
We recorded $20,068 of Gains from investment partnerships in 2013.  Our interests in the investment partnerships are accounted for as equity method investments after the July 1, 2013 deconsolidation of our affiliated partnerships.  The carrying value of investment partnerships are inclusive of unrealized gains and losses on their securities. Our proportional ownership interest in the investment partnerships is net of an estimated accrued incentive fee payable to Biglari Capital Corp., the general partner.

Fiscal Year 2012 Compared with Fiscal Year 2011

Net Earnings Attributable to Biglari Holdings Inc.
We recorded net earnings attributable to Biglari Holdings Inc. of $21,593, or $14.99 per diluted share, for 2012, as compared with net earnings attributable to Biglari Holdings Inc. of $34,565, or $24.00 per diluted share, in 2011.

Net Revenues
In 2012, net sales increased 3.9% from $694,378 to $721,754, primarily due to the performance of our Restaurant Operations, mainly through the increase in Steak n Shake’s same-store sales. Steak n Shake’s same-store sales increased 3.8% during 2012. (Customer traffic of 3.7%.)

Franchise royalties and fees increased 12.0% during 2012. The number of franchised units increased from 165 at the end of 2011 to 170 at the end of 2012. The increase in revenue is primarily attributable to new Steak n Shake franchised stores opened in 2011 and 2012.

Cost and Expenses
Cost of sales was $207,234 or 28.7% of net sales, compared with $192,645 or 27.7% of net sales in 2011. Higher commodity prices impacted cost of sales by approximately $8.6 million.  Higher revenues impacted cost of sales by approximately $6.9 million.

Restaurant operating costs were $337,905 or 46.8% of net sales compared to $331,262 or 47.7% of net sales in 2011.  Restaurant operating costs primarily increased because of higher insurance costs of $4.0 million and higher employment taxes of $2.2 million.
 
 
20

 

 
General and administrative expenses increased from $48,404 or 6.8% of total net revenues in 2011 to $64,286 or 8.7% of total net revenues largely because of an increase in legal and professional services of $3.8 million, as well as higher incentive compensation costs of $7.7 million. Moreover, investment related expenses (i.e., incentive compensation) appear on the income statement, but any corresponding unrealized capital gains run through the balance sheet as other comprehensive income.

Depreciation and amortization expense was $26,424 or 3.6% of total net revenues, versus $28,361 or 4.0% of total net revenues in 2011.

Marketing expense was $42,531 or 5.7% of total net revenues, versus $38,476 or 5.4% of total net revenues in 2011. The increase was primarily attributable to an increase in marketing efforts and higher production costs associated with our television commercials.

Rent expense in 2012 remained consistent at 2.4% as a percentage of total net revenues compared to the prior year.

Asset impairments and provision for restaurant closings for 2012 was $901 or 0.1% of total net revenues, versus $1,032 or 0.1% of total net revenues in 2011.

Loss on disposal of assets was $611 or 0.1% of total net revenues compared to $702 or 0.1% of total net revenues in the prior year.

Other Income (Expenses)
We recorded interest, dividend and other investment income of $4,000 in 2012 mostly through the receipt of dividends relating to our increased investment in Cracker Barrel Old Country Store, Inc. versus $742 recorded in 2011.

Interest expense on obligations under leases was $10,073 or 1.4% of total net revenues, versus $10,565 or 1.5% of total net revenues in 2011.

Interest expense increased from $2,811 in 2011 to $8,155 in 2012.  The increase primarily pertained to the interest on Steak n Shake’s former credit facility, which was entered into on September 8, 2011. A full year of interest is reflected in our 2012 results.  Steak n Shake entered into a new credit facility on September 25, 2012, which is further discussed in the “Liquidity and Capital Resources” section.  The total outstanding debt for the Company on September 26, 2012 was $132,388 compared to $127,558 on September 28, 2011.

The loss on extinguishment of debt for 2012 of $1,955 related to the write-off of deferred loan costs associated with Steak n Shake’s former credit facility.  We had no gains/losses on debt extinguishment in 2011.

Our 2012 effective income tax rate decreased to 20.7% from the 2011 effective income tax rate of 29.0%. The decrease in the tax rate is primarily attributable to dividends received from equity investments, which are taxed at lower rates than is the income derived from wholly owned businesses.

Biglari Holdings Investment Gains
We recorded net realized investment gains of $4,200 for 2012 related to dispositions of marketable equity securities.  We recorded $7,360 of net realized gains on investments and $610 of investment gains related to the change in fair value of derivatives and securities sold short in 2011. We directly hold these investments, not our consolidated affiliated partnerships.

Consolidated Affiliated Partnerships Investment Gains
We recorded a net realized gain of $2,895 for 2012 related to dispositions of investments held by our consolidated affiliated partnerships, plus an unrealized net investment gain of $3,047 for a total of $5,942.  We also received an incentive fee of $36. These amounts were offset by $3,188 related to earnings attributable to redeemable noncontrolling interests.

Effects of Governmental Regulations and Inflation
Most Restaurant Operation employees are paid hourly rates related to minimum wage laws. Any increase in the legal minimum wage would directly increase our operating costs. We are also subject to various laws related to zoning, land use, health and safety standards, working conditions, and accessibility standards. Any changes in these laws that require improvements to our restaurants would increase our operating costs. In addition, we are subject to franchise registration requirements and certain related laws regarding franchise operations. Any changes in these laws could affect our ability to attract and retain franchisees.

Inflation in food, labor, fringe benefits, energy costs, transportation costs and other operating costs directly affect our operations.
 
 
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Liquidity and Capital Resources
We generated $38,792 in cash flows from operations during 2013 based primarily on net earnings.  We generated $49,966 and $74,751 in cash flows from operations during 2012 and 2011, respectively, based primarily on net earnings and due to timing of receipts and payment of disbursements related to operating activities.

Net cash used in investing activities of $60,765, $87,885 and $89,503 during 2013, 2012, and 2011, respectively, was primarily a result of net purchases of investments and capital expenditures.

Net cash provided by financing activities was $56,343 in 2013, which was primarily the result of the Rights offering.
 
Net cash used in financing activities of $709 in 2012 was a result of principal payments on Steak n Shake’s former credit facility and direct financing lease obligations offset by borrowings under the Credit Facility.  Net cash provided by financing activities of $66,176 during 2011 resulted primarily from borrowings on long-term debt.

Our balance sheet continues to maintain significant liquidity. We intend to meet the working capital needs of our operating subsidiaries principally through anticipated cash flows generated from operations, existing credit facilities, and the sale of excess properties and investments. We continually review available financing alternatives.

Consolidated Affiliated Partnerships
Prior to the July 1, 2013 sale of Biglari Capital we accounted for investment gains and losses on securities held by our consolidated affiliated partnerships.  Because we have ceased to have a controlling interest in the consolidated affiliated partnerships, they are no longer consolidated in the Company’s financial statements.  From July 1, 2013, we record gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and losses on the securities) in the Consolidated Statements of Earnings based on the carrying value of proportional ownership interests in the investment partnerships.

Collectively, the Lion Fund and Western Acquisitions were referred to as consolidated affiliated partnerships of the Company.  Certain of the consolidated affiliated partnerships held the Company’s common stock as investments. Within our consolidated financial statements, we classified this common stock as Treasury stock though the shares were legally outstanding. As of September 26, 2012, the consolidated affiliated partnerships held 205,743 shares of the Company’s common stock.  However, beginning July 1, 2013, only the Company’s proportional share of its common stock held by the investment partnerships is recorded as Treasury stock.  As of September 25, 2013 our proportional share of the Company’s common stock held by the investment partnerships was 132,406 shares.

Net earnings of the Company included the realized and unrealized appreciation/depreciation of the investments held by consolidated affiliated partnerships, other than realized and unrealized appreciation/depreciation of investments the consolidated affiliated partnerships held in the Company’s common stock, which was eliminated in the consolidation.

In fiscal year 2010, Biglari Holdings invested a total of $35,697 in the Lion Fund, both in the form of the acquisition of the general partner and as a direct limited partner investment. The fair value of these investments in the Lion Fund totaled $48,306 at September 26, 2012. These investments in the Lion Fund did not appear explicitly in the Company’s Consolidated Balance Sheet as of September 26, 2012 because of the requirement to consolidate fully the Lion Fund (inclusive of third party interests) in the Company’s financial statement. Further, the Lion Fund’s portfolio holds significant interest in Biglari Holdings’ common stock, which was classified on the Company’s Consolidated Balance Sheet as a reduction to Shareholders’ equity as of September 26, 2012.
 
 
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Steak n Shake Credit Facility
On September 25, 2012, Steak n Shake, as borrower, entered into a credit agreement (the “Credit Facility”) with the lenders party thereto. The Credit Facility consists of a $130,000 senior secured term loan facility (the “Term Loan”) and a $50,000 senior secured revolving credit facility (the “Revolver”). As of September 25, 2013, outstanding borrowings under the Term Loan were $120,250 and there were no borrowings under the Revolver.

The Term Loan matures on September 25, 2017 and has a repayment schedule with quarterly amortization, beginning on December 31, 2012, initially equal to 1.875% of the initial principal amount of the Term Loan (as adjusted pursuant to the Credit Facility), together with accrued and unpaid interest on the principal amount to be paid, with the balance due at maturity. The Revolver will be available until September 25, 2017. Interest on the Term Loan and Revolver is based on a Eurodollar rate plus an applicable margin ranging from 3.00% to 3.75% or a base rate plus an applicable margin ranging from 2.00% to 2.75%. The applicable margins are contingent on Steak n Shake’s total leverage ratio. The Revolver also carries a commitment fee ranging from 0.35% to 0.50%, based on Steak n Shake’s total leverage ratio, per annum on the unused portion of the credit line.

As of September 25, 2013, the interest rate on the Term Loan was 3.94%.

The Credit Facility includes affirmative and negative covenants and events of default, as well as financial covenants relating to a maximum total leverage ratio and a minimum consolidated fixed charge coverage ratio.  Steak n Shake was in compliance with all covenants under the Credit Facility as of September 25, 2013.

On September 18, 2013, Steak and Shake entered into a first amendment to the Credit Facility.  The amendment provided the ability for Steak n Shake to make investments in the investment partnerships, extended the maximum total leverage ratio up to 3.75 to 1.00 for the period ending September 30, 2013, and made certain other amendments to the Credit Facility.

Both the Term Loan and the Revolver are secured by first priority security interests in substantially all the assets of Steak n Shake.  Biglari Holdings is not a guarantor under the Credit Facility.  $114,176 of the proceeds of the Term Loan was used to repay all outstanding amounts under Steak n Shake’s former credit facility. The remaining Term Loan proceeds of $15,824 were used for working capital and general corporate purposes. Steak n Shake incurred no material early termination penalties in connection with retiring the former credit facility.

We recorded a $1,955 loss on the extinguishment of debt for the fiscal year ended September 26, 2012 related to the write-off of deferred loan costs associated with the former credit facility.

We had $6,588 and $4,781 in standby letters of credit outstanding as of September 25, 2013 and September 26, 2012, respectively.

Security Agreement
In connection with the Credit Facility, Steak n Shake entered into a security agreement (the “Security Agreement”) with Fifth Third Bank. Pursuant to the Security Agreement, Steak n Shake granted to Fifth Third a lien on all of the Pledged Collateral (as defined in the Security Agreement).  The Pledged Collateral does not include the real estate of Steak n Shake, but such real estate is subject to a springing lien if Steak n Shake does not maintain certain leverage ratios.

Interest Rate Swap
On October 11, 2012, Steak n Shake entered into a new interest rate swap for a notional amount of $65,000 through September 30, 2015.  The agreement hedges potential changes in the Eurodollar rate.  The fair value of the interest rate swap was a liability of $214 on September 25, 2013 and is included in Accrued expenses on the Consolidated Balance Sheet.

During fiscal year 2011, Steak n Shake entered into an interest rate swap agreement for a notional amount of $20,000, which effectively fixed the interest rate on its prior credit facility at 3.25% through February 15, 2016. The notional amount decreases $1,000 quarterly through its maturity on February 15, 2016.  The notional amount of the interest rate swap was $10,000 on September 25, 2013. The fair value of the interest rate swap was a liability of $187 and $351 on September 25, 2013 and September 26, 2012, respectively, and is included in Accrued expenses on the Consolidated Balance Sheet.
 
 
23

 

 
Western Real Estate Loan Agreement and Note Payable
Western Real Estate, L.P. (“Western RE”), a wholly-owned subsidiary of Western, had a promissory note of $2,293 as of September 26, 2012. The balance of the note was paid in full on November 28, 2012.

The carrying amounts for debt reported in the Consolidated Balance Sheet do not differ materially from their fair market values at September 25, 2013.

Debentures
The Company acquired 100% of the outstanding equity interests of Western. Under the terms of the merger agreement, each share of Western’s common stock was cancelled upon the completion of the merger and converted into the right to receive a pro rata portion of a new issue of 14% redeemable subordinated debentures due 2015 issued by the Company (the “Debentures”) in the aggregate principal amount of $22,959 with cash paid in lieu of fractional Debenture interests. The Company paid $194 in lieu of fractional Debentures.

On March 30, 2011, the Company redeemed all of its outstanding Debentures. The Debentures were redeemed for cash at an aggregate redemption price of approximately $23,420, representing 100% of the principal amount outstanding, plus accrued and unpaid interest up to, but not including, March 30, 2011. The Debentures were issued and the redemption was effected pursuant to the provisions of the Indenture, dated March 30, 2010 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee. Upon the redemption of the Debentures, the Company’s obligations under the Debentures and the Indenture were satisfied and discharged in accordance with their terms. Included in the Debentures aggregate redemption price of $23,420 was approximately $7,804 of principal and interest paid to the Lion Fund. The payment to the Lion Fund does not appear explicitly in the Company’s Consolidated Statement of Cash Flows for 2011 because of the requirement to consolidate fully the Lion Fund in the Company’s financial statements.
 
 
24

 

 
Contractual Obligations
Our significant contractual obligations and commitments as of September 25, 2013 are shown in the following table:
 
   
Payments due by period
 
       
Contractual Obligations
 
Less than
1 year
   
1 – 3 years
   
3 – 5 years
   
More than
5 years
   
Total
 
Long-term debt (1) (2) 
  $ 14,703     $ 34,487     $ 87,891     $     $ 137,081  
Capital leases and finance obligations(1) 
    15,960       28,733       19,047       14,168       77,908  
Operating leases (3) 
    15,110       27,038       22,717       59,928       124,793  
Purchase commitments (4) 
    2,048       883       29             2,960  
Other long-term liabilities (5) 
                      1,202       1,202  
Total
  $ 47,821     $ 91,141     $ 129,684     $ 75,298     $ 343,944  
   
(1)
Includes principal and interest and assumes payoff of indebtedness at maturity date.
(2)
Includes outstanding borrowings under the Credit Facility.
(3)
Excludes amounts to be paid for contingent rents. Includes amounts to be paid for subleased properties.
(4)
Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms. Excludes agreements that are cancelable without penalty.
(5)
Includes liabilities for Non-Qualified Deferred Compensation Plan. Excludes our unrecognized tax benefits of $803 as of September 25, 2013 because we cannot make a reliable estimate of the timing of cash payments.
 
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases entered into in the normal course of business.

Recently Issued Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our financial statements, see Note 1, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In general, forward-looking statements include estimates of future revenues, cash flows, capital expenditures, or other financial items, and assumptions underlying any of the foregoing. Forward-looking statements reflect management’s current expectations regarding future events and use words such as “anticipate,” “believe,” “expect,” “may,” and other similar terminology. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Investors should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, many beyond our control, including, but not limited to, the risks and uncertainties described in Item 1A, Risk Factors set forth above. We undertake no obligation to publicly update or revise them, except as may be required by law.
 
 
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Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
The majority of our investments are conducted through investment partnerships which generally hold common stocks. We also hold marketable securities directly. Through direct and indirect (investments held by 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 produce a large net loss and decrease in our consolidated shareholders’ equity. Decreases in values of equity investments can have a materially adverse effect on our earnings and on consolidated shareholders’ equity.

We prefer to hold equity investments for very long periods of time so we are not troubled by short-term price volatility with respect to our investments.  Our interests in the investment partnerships are committed on a rolling 5-year basis. Market prices for equity securities are subject to fluctuation. Consequently the amount realized in the subsequent sale of an investment may significantly differ from the reported market value.  A hypothetical 10% increase or decrease in the market price of our investments would result in a respective increase or decrease in the fair market value of our investments of $48,318, along with a corresponding change in Shareholders’ equity of approximately 5%.

At September 25, 2013 interest on the Term Loan and Revolver was based on a Eurodollar rate plus an applicable margin ranging from 3.00% to 3.75% or a base rate plus an applicable margin ranging from 2.00% to 2.75%, based on Steak n Shake’s total leverage ratio. At September 25, 2013, a hypothetical 100 basis point increase in short-term interest rates would have an impact of approximately $281 on our net earnings. On October 11, 2012, Steak n Shake entered into a new interest rate swap for a notional amount of $65,000 through September 30, 2015.  The agreement hedges potential changes in the Eurodollar rate.  The fair value of the interest rate swap was a liability of $214 on September 25, 2013. In February 2011, in connection with the issuance of the term loan under Steak n Shake’s previous credit facility, Steak n Shake entered into an interest rate swap agreement with the lender for a notional amount of $20,000, which effectively fixed the interest rate on the term loan at 3.25% through its maturity. The fair value of the interest rate swap was a liability of $187 at September 25, 2013.

We began to transact business in international markets in fiscal year 2013. We have had minimal exposure to foreign currency exchange rate fluctuations.
 
 
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Item 8.
Financial Statements and Supplementary Data
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Biglari Holdings Inc.
San Antonio, Texas

We have audited the accompanying consolidated balance sheets of Biglari Holdings Inc. and subsidiaries (the "Company") as of September 25, 2013 and September 26, 2012, and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows for the years ended September 25, 2013, September 26, 2012, and September 28, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Biglari Holdings Inc. and subsidiaries as of September 25, 2013 and September 26, 2012, and the results of their operations and their cash flows for the years ended September 25, 2013, September 26, 2012, and September 28, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 5 to the financial statements, during 2013, the Company contributed cash and securities with an aggregate value of $377.6 million to investment partnerships.  The Company and its subsidiaries have invested in the investment partnerships in the form of limited partner interests.  These investments are subject to a rolling five-year lock-up period under the terms of the respective partnership agreements for the investment partnerships.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of September 25, 2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 7, 2013 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
December 7, 2013
 
 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Biglari Holdings Inc.
San Antonio, Texas

We have audited the internal control over financial reporting of Biglari Holdings Inc. and subsidiaries (the "Company") as of September 25, 2013, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 25, 2013, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended September 25, 2013 of the Company and our report dated December 7, 2013 expressed an unqualified opinion on those financial statements and financial statement schedule and included an emphasis of a matter paragraph relating to the contribution of cash and securities to investment partnerships that are subject to a rolling five-year lock-up period.

/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
December 7, 2013
 
 
28

 

 
Management’s Report on Internal Control Over Financial Reporting

The management of Biglari Holdings Inc. is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Pursuant to the rules and regulations of the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, and effected by the board of directors, management and other personnel, to provide assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Pertain to the maintenance of records that in detail accurately and fairly reflect the transactions and dispositions of assets of the company;
Provide assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
Provide assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements; and
Ensure that material information relating to the company, including its consolidated subsidiaries, is made known to management by others within those entities, particularly during the period which this report is being prepared.
 
Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has evaluated the effectiveness of its internal control over financial reporting as of September 25, 2013 based on the criteria set forth in a report entitled Internal Control — Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that, as of September 25, 2013, our internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the Company’s internal control over financial reporting and its report is included herein.


/s/ Sardar Biglari
 
/s/ Bruce Lewis
Sardar Biglari
Chairman and Chief Executive Officer
 
Bruce Lewis
Controller
   
 
 
29

 
 
BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF EARNINGS
(Years ended September 25, 2013, September 26, 2012, and September 28, 2011)
(amounts in $000s, except share and per share data)
 
   
2013
(52 Weeks)
   
2012
(52 Weeks)
   
2011
(52 Weeks)
 
Net revenues
                 
Restaurant Operations:
                 
Net sales
  $ 736,968     $ 721,754     $ 694,378  
Franchise royalties and fees
    11,741       9,631       8,600  
Other revenue
    3,210       2,520       2,425  
Total
    751,919       733,905       705,403  
Investment Management Operations:
                       
Management fee income
                224  
Consolidated Affiliated Partnerships:
                       
Investment gains
    3,597       5,942       3,135  
Other income
    306       360       438  
Total
    3,903       6,302       3,797  
Total net revenues
    755,822       740,207       709,200  
                         
Costs and expenses
                       
Cost of sales
    218,199       207,234       192,645  
Restaurant operating costs
    348,654       337,905       331,262  
General and administrative
    76,799       64,286       48,404  
Depreciation and amortization
    25,250       26,424       28,361  
Marketing
    44,375       42,531       38,476  
Rent
    18,453       17,638       16,891  
Pre-opening costs
    199       430       89  
Provision for restaurant closings
    1,738       901       1,032  
Impairment of intangible asset
    1,244              
Loss on disposal of assets
    1,111       611       702  
Other operating (income) expense
    (934 )     (934 )     (1,157 )
Total costs and expenses, net
    735,088       697,026       656,705  
                         
Other income (expenses)
                       
Interest, dividend and other investment income
    8,265       4,000       742  
Interest on obligations under leases
    (9,829 )     (10,073 )     (10,565 )
Interest expense
    (6,551 )     (8,155 )     (2,811 )
Loss on debt extinguishment
          (1,955        
Gain on sale of Biglari Capital Corp.
    1,597              
Gain on contributions to investment partnerships
    182,746              
Realized investment gains
    1       4,200       7,360  
Other than temporary impairment
    (570 )            
Derivative and short sale gains
                610  
Total other income (expenses)
    175,659       (11,983 )     (4,664 )
                         
Earnings before income taxes
    196,393       31,198       47,831  
                         
Income tax from operating earnings
    67,517       6,453       13,867  
Income tax on gains from investment partnerships
    6,772              
Total income taxes
    74,289       6,453       13,867  
                         
Gains from investment partnerships
    20,068              
                         
Consolidated net earnings
    142,172       24,745       33,964  
                         
Earnings attributable to redeemable noncontrolling interest:
                       
Income allocation
    (1,922 )     (3,188 )     (1,909 )
Incentive fee
    21       36       2,510  
Total earnings/loss attributable to redeemable noncontrolling interests
    (1,901 )     (3,152 )     601  
Net earnings attributable to Biglari Holdings Inc.
  $ 140,271     $ 21,593     $ 34,565  
                         
Earnings per share attributable to Biglari Holdings Inc.
                       
Basic earnings per common share
  $ 98.11     $ 15.02     $ 24.13  
Diluted earnings per common share
  $ 97.90     $ 14.99     $ 24.00  
Weighted average shares and equivalents
                       
Basic
    1,429,684       1,437,321       1,432,728  
Diluted
    1,432,737       1,440,834       1,440,215  
 
See accompanying Notes to Consolidated Financial Statements.
 
 
30

 

 
BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Years ended September 25, 2013, September 26, 2012, and September 28, 2011)
(amounts in $000s)

   
2013
(52 Weeks)
   
2012
(52 Weeks)
   
2011
(52 Weeks)
 
                   
Net earnings attributable to Biglari Holdings Inc. 
  $ 140,271     $ 21,593     $ 34,565  
Other comprehensive (loss) income:
                       
Reclassification of investment appreciation in net earnings
    (1 )     (1,455 )     2,213  
Applicable income taxes
          553       (861 )
Reclassification of investment appreciation in net earnings on contribution to investment partnerships
    (182,746 )            
Applicable income taxes
    67,815              
Reclassification of other than temporary impairment losses on investments
    461              
Applicable income taxes
    (175 )            
Net change in unrealized gains (losses) on investments
    146,079       81,075       (9,144 )
Applicable income taxes
    (53,881 )     (30,808 )     3,476  
Foreign currency translation gains
    8              
Other comprehensive (loss) income, net
    (22,440 )     49,365       (4,316 )
Total comprehensive income
  $ 117,831     $ 70,958     $ 30,249  


See accompanying Notes to Consolidated Financial Statements.
 
 
31

 

 
BIGLARI HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS
(amounts in $000s, except share and per share data)

   
September 25, 2013
   
September 26, 2012
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 94,626     $ 60,359  
Investments
    85,479       269,858  
Receivables, net of allowance of $804 and $744, respectively
    7,055       7,001  
Inventories
    6,475       6,624  
Assets held for sale
    561       2,357  
Other current assets
    3,290       2,798  
Total current assets
    197,486       348,997  
Property and equipment, net
    346,147       356,638  
Goodwill
    28,251       27,529  
Other intangible assets, net
    7,721       6,248  
Other assets
    11,239       9,109  
Investment partnerships
    397,699        
Investments held by consolidated affiliated partnerships
          25,266  
Total assets
  $ 988,543     $ 773,787  
Liabilities and shareholders’ equity
               
Liabilities
               
Current liabilities:
               
Accounts payable
  $ 37,511     $ 33,210  
Accrued expenses
    54,003       53,866  
Deferred income taxes
    5,511       19,367  
Current portion of obligations under leases
    6,239       5,713  
Current portion of long-term debt
    9,750       12,138  
Total current liabilities
    113,014       124,294  
Deferred income taxes
    84,525       8,675  
Obligations under leases
    106,247       110,353  
Long-term debt
    110,500       120,250  
Other long-term liabilities
    9,668       9,002  
Total liabilities
    423,954       372,574  
Commitments and contingencies (Notes 15 and 19)
               
Redeemable noncontrolling interests of consolidated affiliated partnerships
          52,088  
Shareholders’ equity
               
Common stock – $0.50 stated value, 2,500,000 shares authorized – 1,797,941 and 1,511,174 shares issued at September 25, 2013 and September 26, 2012, respectively, 1,588,376 and 1,227,928 shares outstanding (net of treasury stock), respectively
    899       756  
Additional paid-in capital
    269,810       143,035  
Retained earnings
    348,339       251,983  
Accumulated other comprehensive income
    21,457       43,897  
Treasury stock – at cost: 209,565 and 283,246 shares at September 25, 2013 and September 26, 2012, respectively (includes 132,406 shares held by investment partnerships at September 25, 2013 and 205,743 shares held by consolidated affiliated partnerships at September 26, 2012)
    (75,916 )     (90,546 )
Biglari Holdings Inc. shareholders’ equity
    564,589       349,125  
Total liabilities and shareholders’ equity
  $ 988,543     $ 773,787  


See accompanying Notes to Consolidated Financial Statements.
 
 
32

 

 
BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Years ended September 25, 2013, September 26, 2012, and September 28, 2011)
(amounts in $000s)

   
2013
   
2012
   
2011
 
   
(52 Weeks)
   
(52 Weeks)
   
(52 Weeks)
 
Operating activities
                 
Net earnings
  $ 142,172     $ 24,745     $ 33,964  
Adjustments to reconcile net earnings to operating cash flows (excluding investment
operations of consolidated affiliated partnerships):
                       
Depreciation and amortization
    25,250       26,424       28,361  
Provision for deferred income taxes
    72,035       (2,727 )     (2,186 )
Asset impairments and provision for restaurant closings
    1,738       901       1,032  
Impairment of intangible assets
    1,244              
Stock-based compensation and other non-cash expenses
    526       888       950  
Loss on disposal of assets
    1,111       611       702  
Gain on sale of Biglari Capital Corp.
    (1,597 )            
Gain on contributions to investment partnerships
    (182,746 )            
Gain on sale of subsidiary
                (1,559 )
Loss on debt extinguishment
          1,955        
Realized investment gains/losses
    (1 )     (4,200 )     (7,360 )
Other than temporary impairments on investments
    570              
Derivative and short sale gains/losses
                (610 )
Gains from investment partnerships
    (20,068 )            
Changes in receivables and inventories
    195       (3,659 )     2,066  
Changes in other assets
    (2,742 )     1,019       2,972  
Changes in accounts payable and accrued expenses
    3,764       10,491       12,918  
Investment operations of consolidated affiliated partnerships:
                       
Purchases of investments
     —       (14,477 )     (53,727 )
Sales of investments
    1,516       26,052       52,271  
Realized investment gains, net
    (261 )     (2,895 )     (3,365 )
Unrealized gains/losses on marketable securities held by consolidated affiliated partnerships
    (3,336 )     (3,047 )     230  
Changes in cash and cash equivalents held by consolidated affiliated partnerships
    (578 )     (12,115 )     7,870  
Changes in due to/from broker
                222  
Net cash provided by operating activities
    38,792       49,966       74,751  
Investing activities
                       
Additions of property and equipment
    (14,167 )     (8,675 )     (13,018 )
Proceeds from property and equipment disposals
    2,449       2,379       2,007  
Purchase of business and lease rights
    (3,770 )            
Proceeds from sale of Biglari Capital Corp., net of cash on hand
    1,699              
Proceeds from sale of subsidiary, net of cash on hand
     —             196  
Purchases of investments and contributions to investment partnerships
    (46,977 )     (108,825 )     (171,893 )
Sales of investments
    1       38,108       90,058  
Changes in due to/from broker
     —       (7,272 )     3,147  
Changes in restricted cash
     —       (3,600 )      
Net cash used in investing activities
    (60,765 )     (87,885 )     (89,503 )
Financing activities
                       
Proceeds from revolving credit facility
    17,000             194,045  
Payments on revolving credit facility
    (17,000 )     (15,000 )     (197,045 )
Borrowings on long-term debt
     —       130,000       111,959  
Principal payments on long-term debt
    (12,138 )     (110,170 )     (17,333 )
Deferred financing charges
     —       (1,961 )     (3,174 )
Principal payments on direct financing lease obligations
    (5,904 )     (5,272 )     (7,469 )
Proceeds from stock rights offering
    75,595              
Proceeds from exercise of stock options and employees stock purchase plan
    13       29       29  
Excess tax benefits from stock-based awards
    3       382       3  
Repurchase of employee shares for tax withholding
          (8 )     (541 )
Financing activities of consolidated affiliated partnerships:
                       
Contributions from noncontrolling interests
    1,076       1,545       1,780  
Distributions to noncontrolling interests
    (2,302 )     (254 )     (16,078 )
Net cash provided by (used in) financing activities
    56,343       (709 )     66,176  
Effect of exchange rate changes on cash
    (103 )            
Increase (decrease) in cash and cash equivalents
    34,267       (38,628 )     51,424  
Cash and cash equivalents at beginning of year
    60,359       98,987       47,563  
Cash and cash equivalents at end of year
  $ 94,626     $ 60,359     $ 98,987  

See accompanying Notes to Consolidated Financial Statements.
 
 
33

 

 
BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Years ended September 25, 2013, September 26, 2012, and September 28, 2011)
(amounts in $000s except share data)
   
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other Comprehensive Income (Loss)
   
Treasury Stock
   
Total
 
  
                                   
Balance at September 29, 2010
  $ 756     $ 143,521     $ 195,825     $ (1,152 )   $ (89,955 )   $ 248,995  
Net earnings attributable to Biglari Holdings Inc.
                    34,565                       34,565  
Other comprehensive loss, net
                            (4,316 )             (4,316 )
Exercise of stock options and other stock compensation transactions
            375                       (614 )     (239 )
Adjustment to redeemable noncontrolling interest to reflect maximum redemption value
            673