NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years Ended December 31, 2016
and 2015)
(Transition Periods Ended December
31, 2014 and 2013)
(Fiscal Year Ended September 24,
2014)
(dollars in thousands, except share and
per-share data)
Note 1. Summary of Significant Accounting
Policies
Description of Business
Biglari Holdings Inc. is a holding company
owning subsidiaries engaged in a number of diverse business activities, including media, property and casualty insurance, and restaurants.
The Company’s largest operating subsidiaries are involved in the franchising and operating of restaurants. Biglari Holdings
is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of Biglari Holdings and its major operating subsidiaries.
The Company’s long-term objective is to maximize per-share intrinsic value. All major operating, investment, and capital
allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. As of December 31, 2016, Mr. Biglari’s
beneficial ownership of the Company’s outstanding common stock was approximately 51.3%.
Principles of Consolidation
The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries including Steak n Shake Inc. (“Steak n Shake”)
and Western Sizzlin Corporation (“Western”). The consolidated financial statements also include the accounts of Maxim
Inc. (“Maxim”) and First Guard Insurance Company and its agency, 1st Guard Corporation (collectively “First Guard”)
from the dates of their respective acquisitions during 2014. Intercompany accounts and transactions have been eliminated in
consolidation.
Fiscal Year
In 2014, the Company’s Board of
Directors approved a change in the Company’s fiscal year-end moving from the last Wednesday in September to December 31 of
each year. This form 10-K includes an audited statement of earnings, statement of comprehensive income, statement of cash flows
and statement of shareholders’ equity for the years ended December 31, 2016 and 2015, transition period for September 25,
2014 to December 31, 2014 (the “2014 transition period”) and fiscal year ended September 24, 2014, and an audited balance
sheet as of December 31, 2016 and 2015. Fiscal year 2014 contained 52 weeks. For comparative purposes, an unaudited statement of
earnings, statement of comprehensive income and statement of cash flows have been included for September 26, 2013 to December 31,
2013 (the “2013 transition period”). The comparative transition period has not been audited and is derived from the
books and records of the Company. In the opinion of management, the comparative transition period reflects all adjustments necessary
to present the financial position and results of operations in accordance with accounting principles generally accepted in the
United States (“GAAP”).
Business Acquisitions
On March 19, 2014, the Company acquired
the stock of First Guard, a direct underwriter of commercial trucking insurance, selling physical damage and nontrucking liability
insurance to truckers. On February 27, 2014 the Company acquired certain assets and liabilities of Maxim. Maxim’s business
lies principally in media and licensing. These acquisitions were not material, individually or in aggregate, to the Company. The
fair value of the assets and liabilities acquired — other than investments, goodwill and intangibles — was not material.
Cash and Cash Equivalents
Cash equivalents primarily consist of
U.S. Government securities and money market accounts, all of which have original maturities of three months or less. Cash equivalents
are carried at fair value.
Investments
Our investments consist of available-for-sale
securities. Available-for-sale securities are carried at fair value with net unrealized gains or losses reported as a component
of accumulated other comprehensive income in shareholders’ equity. Realized gains and losses on disposals of investments
are determined by specific identification of cost of investments sold and are included in investment gains/losses, a component
of other income.
Notes to Consolidated Financial Statements
(
continued
)
Note 1. Summary of Significant Accounting
Policies
(continued)
Investment Partnerships
The Company holds a limited interest
in The Lion Fund, L.P. and The Lion Fund II, L.P. (collectively the “investment partnerships”). Biglari Capital Corp.
(“Biglari Capital”), an entity solely owned by Mr. Biglari, is the general partner of the investment partnerships.
Our interests in the investment partnerships are accounted as equity method investments because of our retained limited partner
interests. The Company records investment partnership gains (inclusive of the investment partnerships’ unrealized gains and
losses on their securities) as a component of other income based on our proportional ownership interest in the partnerships. The
investment partnerships are for purposes of GAAP, investment companies under the AICPA Audit and Accounting Guide
Investment
Companies.
Concentration of Equity Price
Risk
The majority of our investments are
conducted through investment partnerships which generally hold common stocks. We also hold marketable securities directly. Through
the investment partnerships we hold a concentrated position in the common stock of Cracker Barrel Old Country Store, Inc. A significant
decline in the general stock market or in the prices of major investments may have a materially adverse effect on our earnings
and on consolidated shareholders’ equity.
Receivables
Our accounts receivable balance consists
primarily of franchisee, customer, and other receivables. We carry our accounts receivable at cost less an allowance for doubtful
accounts, which is based on a history of past write-offs and collections and current credit conditions. Allowance for doubtful
accounts was $1,734 at December 31, 2016 and $2,378 at December 31, 2015. Amounts charged to expense and deductions from the allowance
in 2016 and 2015, in the 2014 and 2013 transition periods and in fiscal year 2014 were insignificant.
Inventories
Inventories are valued at the lower
of cost (first-in, first-out method) or market, and consist primarily of restaurant food items and supply inventory.
Property and Equipment
Property and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation and amortization are recognized on the straight-line method over
the estimated useful lives of the assets (10 to 30 years for buildings and land improvements, and 3 to 10 years for equipment).
Leasehold improvements are amortized on the straight-line method over the shorter of the estimated useful lives of the improvements
or the term of the related leases. Interest costs associated with the construction of new restaurants are capitalized. Major improvements
are also capitalized while repairs and maintenance are expensed as incurred. We review our long-lived assets whenever events or
changes in circumstances indicate that their carrying amounts may not be recoverable. For purposes of this assessment, assets are
evaluated at the lowest level for which there are identifiable cash flows. If the future undiscounted cash flows of an asset are
less than the recorded value, an impairment is recorded for the difference between the carrying value and the estimated fair value
of the asset.
Goodwill and Other Intangible
Assets
Goodwill and indefinite life intangibles
are not amortized, but are tested for potential impairment on an annual basis, or more often if events or circumstances change
that could cause goodwill or indefinite life intangibles to become impaired. Other purchased intangible assets are amortized over
their estimated useful lives, generally on a straight-line basis. We perform reviews for impairment of intangible assets whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized
when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying
value. When an impairment is identified, we reduce the carrying value of the asset to its estimated fair value. No impairments
were recorded on goodwill or intangibles during 2016, 2015, the 2014 and 2013 transition periods, or during fiscal year 2014. Refer
to Note 6 for information regarding our goodwill and other intangible assets.
Notes
to Consolidated Financial Statements
(
continued
)
Note 1. Summary of Significant Accounting Policies
(continued)
Operating Leases
The Company leases certain property
under operating leases. Many of these lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions.
Rent expense is recognized on a straight-line basis over the expected lease term, including cancellable option periods when failure
to exercise such options would result in an economic penalty. In addition, the rent commencement date of the lease term is the
earlier due date when we become legally obligated for the rent payments, the date when we take access to the property, or the grounds
for build out.
Common Stock and Treasury Stock
The Company’s common stock is
$0.50 stated value. The following table presents shares authorized, issued and outstanding.
|
|
December 31, 2016
|
|
December 31, 2015
|
|
December 31, 2014
|
|
September 24, 2014
|
Common stock authorized
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
2,142,202
|
|
|
|
2,142,202
|
|
|
|
2,142,202
|
|
|
|
2,142,202
|
|
Treasury stock held by the Company
|
|
|
(75,009
|
)
|
|
|
(75,511
|
)
|
|
|
(76,616
|
)
|
|
|
(76,636
|
)
|
Outstanding shares
|
|
|
2,067,193
|
|
|
|
2,066,691
|
|
|
|
2,065,586
|
|
|
|
2,065,566
|
|
Proportional ownership of the Company's
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock in the investment partnerships
|
|
|
(834,889
|
)
|
|
|
(807,069
|
)
|
|
|
(197,533
|
)
|
|
|
(187,109
|
)
|
Net outstanding shares for financial reporting purposes
|
|
|
1,232,304
|
|
|
|
1,259,622
|
|
|
|
1,868,053
|
|
|
|
1,878,457
|
|
Purchases of Equity Securities
Shares of the Company’s common
stock acquired by the investment partnerships are presented below.
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
The Lion Fund, L.P.
|
|
|
—
|
|
|
|
45,305
|
|
|
|
16,695
|
|
|
|
53,539
|
|
The Lion Fund II, L.P.
|
|
|
37,925
|
|
|
|
616,312
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
37,925
|
|
|
|
661,617
|
|
|
|
16,695
|
|
|
|
53,539
|
|
Revenue Recognition
Restaurant operations
We record revenue from restaurant sales
at the time of sale, net of discounts. Revenue from the sale of gift cards is deferred at the time of sale and recognized either
upon redemption by the customer or at expiration of the gift cards. Sales revenues are presented net of sales taxes. Unit franchise
fees and area development fees are recorded as revenue when said-related restaurant begins operations. Royalty fees and administrative
services fees based on franchise sales are recognized as revenue as earned. License revenue and rental revenues are recognized
as revenue when earned.
Notes
to Consolidated Financial Statements
(
continued
)
Note 1. Summary of Significant Accounting
Policies
(continued)
Restaurant operations revenues were
as follows.
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
795,322
|
|
$
|
799,660
|
|
$
|
210,256
|
|
|
$
|
200,407
|
|
$
|
759,889
|
|
Franchise royalties and fees
|
|
|
18,794
|
|
|
16,428
|
|
|
4,076
|
|
|
|
3,177
|
|
|
15,032
|
|
Other
|
|
|
3,798
|
|
|
3,650
|
|
|
1,316
|
|
|
|
858
|
|
|
3,234
|
|
|
|
$
|
817,914
|
|
$
|
819,738
|
|
$
|
215,648
|
|
|
$
|
204,442
|
|
$
|
778,155
|
|
Insurance premiums and commissions
Insurance premiums are earned over the
terms of the related policies. Expenses incurred in connection with acquiring new insurance business, including acquisition costs,
are charged to operations as incurred. Premiums earned are stated net of amounts ceded to reinsurer.
Media advertising and other
Magazine subscription and advertising
revenues are recognized at the magazine cover date. The unearned portion of magazine subscriptions is deferred until the magazine’s
cover date, at which time a proportionate share of the gross subscription price is recognized as revenues, net of any commissions
paid to subscription agents. Also included in subscription revenues are revenues generated from single-copy sales of magazines
through retail outlets such as newsstands, supermarkets, convenience stores and drugstores and on certain digital devices, which
may or may not result in future subscription sales. Revenues from retail outlet sales are recognized based on gross sales less
a provision for estimated returns. License revenue is recognized when earned. We derive value and revenues from intellectual property
assets through a range of licensing and business activities, including licensing and syndication of our trademarks and copyrights
in the United States and internationally.
Restaurant Cost of Sales
Cost of sales includes the cost of food,
restaurant operating costs and restaurant rent expense. Cost of sales excludes depreciation and amortization, which is presented
as a separate line item on the consolidated statement of earnings.
Insurance Losses and Underwriting
Expenses
Liabilities for estimated unpaid losses
and loss adjustment expenses with respect to claims occurring on or before the balance sheet date are established under insurance
contracts issued by our insurance subsidiaries. Such estimates include provisions for reported claims or case estimates, provisions
for incurred-but-not-reported claims and legal and administrative costs to settle claims. The estimates of unpaid losses and amounts
recoverable under reinsurance are established and continually reviewed by using a variety of actuarial, statistical and analytical
techniques. Reinsurance contracts do not relieve the ceding company of its obligations to indemnify policyholders with respect
to the underlying insurance contracts. Liabilities for insurance losses of $1,937 and $2,796 are included in accrued expenses in
the consolidated balance sheet as of December 31, 2016 and 2015, respectively.
Earnings Per Share
Earnings per share of common stock is
based on the weighted average number of shares outstanding during the year. In fiscal year 2014, Biglari Holdings completed an
offering of transferable subscription rights. The offering was oversubscribed and 344,261 new shares of common stock were issued.
The Company received net proceeds of $85,873 from the offering.
The shares of Company stock attributable
to our limited partner interest in the investment partnerships — based on our proportional ownership during this period —
are considered treasury stock on the consolidated balance sheet and thereby deemed not to be included in the calculation of weighted
average common shares outstanding. However, these shares are legally outstanding.
Notes to Consolidated Financial Statements
(
continued
)
Note 1. Summary of Significant Accounting
Policies
(continued)
The following table presents a reconciliation
of basic and diluted weighted average common shares.
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
1,222,261
|
|
|
|
1,556,039
|
|
|
|
1,877,723
|
|
|
|
1,714,727
|
|
|
|
1,709,621
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
1,222,261
|
|
|
|
1,556,039
|
|
|
|
1,877,723
|
|
|
|
1,714,727
|
|
|
|
1,709,621
|
|
Dilutive effect of stock awards
|
|
|
1,355
|
|
|
|
—
|
|
|
|
1,691
|
|
|
|
3,534
|
|
|
|
3,154
|
|
Weighted average common and incremental shares
|
|
|
1,223,616
|
|
|
|
1,556,039
|
|
|
|
1,879,414
|
|
|
|
1,718,261
|
|
|
|
1,712,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock awards excluded from the
calculation of earning per share
|
|
|
—
|
|
|
|
5,218
|
|
|
|
2,637
|
|
|
|
—
|
|
|
|
—
|
|
Marketing Expense
Advertising costs are charged to expense
at the later of the date the expenditure is incurred or the date the promotional item is first communicated. Marketing expense
is included in selling, general and administrative expenses in the consolidated statement of earnings.
Insurance Reserves
We self-insure a significant portion
of expected losses under our workers’ compensation, general liability, auto, directors’ and officers’ and medical
liability insurance programs, and record a reserve for our estimated losses on all unresolved open claims and our estimated incurred
but not reported claims at the anticipated cost to us. Insurance reserves are recorded in accrued expenses in the consolidated
balance sheet.
Savings Plans
Several of our subsidiaries also sponsor
deferred compensation and defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions
to the plans are subject to regulatory limitations and the specific plan provisions. Some of the plans allow for discretionary
contributions as determined by management. Employer contributions expensed with respect to these plans were not material.
Foreign Currency Translation
The Company has certain subsidiaries
located in foreign jurisdictions. For subsidiaries whose functional currency is other than the U.S. dollar, the translation
of functional currency statements to U.S. dollar statements uses end-of-period exchange rates for assets and liabilities, weighted
average exchange rates for revenue and expenses, and historical rates for equity. The resulting currency translation adjustment
is recorded in accumulated other comprehensive income, as a component of equity.
Use of Estimates
Preparation of the consolidated financial
statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could differ from the estimates.
Notes
to Consolidated Financial Statements
(
continued
)
Note 1. Summary of Significant Accounting
Policies
(continued)
New Accounting Standards
In January 2017, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04,
Intangibles - Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2017-04 provides for the elimination of Step 2 from
the goodwill impairment test. If impairment charges are recognized, the amount recorded will be the amount by which the carrying
amount exceeds the reporting unit’s fair value with certain limitations. The ASU is effective for public companies for annual
periods, and interim periods within those annual periods, beginning after December 15, 2020. The Company does not currently anticipate
ASU 2017-04 to have a material impact on the consolidated financial statements.
In October 2016, the FASB issued ASU
2016-17,
Interests Held through Related Parties That Are under Common Control.
ASU 2016-17 amends the consolidation guidance
in ASU 2015-02 regarding the treatment of indirect interests held through related parties that are under common control. We are
currently assessing the impact of ASU 2016-17, but do not expect the adoption to have a material effect on our consolidated financial
statements. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016 and
interim periods within those years.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
The objective of
the update is to reduce diversity in how certain transactions are classified in the statement of cash flows. The amendments in
this update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on its consolidated
financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. Topic 326
amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For
available for sale debt securities, credit losses should be measured in a manner similar to current GAAP; however, Topic 326 will
require that credit losses be presented as an allowance rather than as a write-down. The amendments in this update are effective
for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.
The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and
related disclosures.
In February 2016, the FASB issued ASU
2016-02
Leases
. ASU 2016-02 requires a lessee to recognize lease assets and lease liabilities on the balance sheet, along
with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for annual and interim periods beginning after
December 15, 2018, with early adoption permitted. We are currently evaluating the effect this amended guidance will have on our
results of operations. We anticipate the ASU will have a material impact on our balance sheet, but the ASU is non-cash in nature
and will not affect our cash position.
In November 2015, the FASB issued ASU
2015-17,
Balance Sheet Classification of Deferred Taxes
. The new guidance requires that all deferred tax assets and liabilities,
along with any related valuation allowance, be classified as noncurrent deferred tax asset or liability. The amendments in this
update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within
those fiscal years. Early application is permitted. The Company adopted ASU 2015-17 on January 1, 2016. As of December 31, 2015,
the Company reclassified $13,263 from current deferred tax asset to noncurrent deferred tax liability to conform to the current
year classification.
In April 2015,
the FASB issued ASU 2015-03,
Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs
. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet
as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement
guidance for debt issuance costs are not affected by the amendments in this update. The amendments are effective for financial
statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company
adopted ASU 2015-03 on January 1, 2016. As of December 31, 2015, the Company reclassified $688 from other current assets to current
portion of notes payable and other borrowings. The Company also reclassified $2,888 from other assets to other borrowings and long-term
notes payable to conform to the current year classification.
In February
2015, the FASB issued ASU 2015-02,
Amendments to the Consolidations Analysis
. The amendments in this update provide
guidance under GAAP about limited partnerships, which will be variable interest entities, unless the limited partners have either
substantive kick-out rights or participation rights. The amendments in this update are effective for annual periods, and interim
periods within those annual periods, beginning after December 15, 2015. The Company adopted the provisions of ASU 2015-02 on January
1, 2016. The adoption of this update had no material effect on the Company’s financial statements.
Notes
to Consolidated Financial Statements
(
continued
)
Note 1. Summary of Significant Accounting
Policies
(continued)
In August 2014,
the FASB issued ASU 2014-15,
Presentation of Financial Statements-Going Concern
. The amendments in this update provide guidance
in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue
as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing
and content of footnote disclosures. The amendments in this update are effective for annual periods ending after December 15, 2016,
and for annual periods and interim periods thereafter. The Company adopted the provisions of ASU 2014-15 on December 31, 2016.
The adoption of this update had no material effect on the Company’s financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This update provides a comprehensive new revenue recognition model that
requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the
consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In July 2015, the
FASB voted to defer the effective date of this ASU by one year, which would make the guidance effective for our first quarter
fiscal year 2018 financial statements using either of two acceptable adoption methods: (i) retrospective adoption to each prior
reporting period presented with the option to elect certain practical expedients; or (ii) adoption with the cumulative effect
of initially applying the guidance recognized at the date of initial application and providing certain additional disclosures.
We currently expect to adopt ASU 2014-09 as of January 1, 2018 under the modified retrospective method where the cumulative effect
is recognized at the date of initial application. Our evaluation of ASU 2014-09 is ongoing and not complete. The FASB has issued,
and may issue in the future, interpretative guidance that may cause our evaluation to change. While we anticipate some changes
to revenue recognition for certain transactions, we do not currently believe ASU 2014-09 will have a material effect on our consolidated
financial statements.
Reclassifications
Reclassifications were made to our 2015
consolidated financial statements to conform with current period presentation. Such changes included the retrospective impact
upon adoption of ASU 2015-03,
Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt
Issuance Costs
, and ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
as discussed in New Accounting Standards
within note 1. Additionally, the Company consolidated accounts payable and accrued expenses into a single line item on the
balance sheet at December 31, 2016 and changed the December 31, 2015 presentation to conform.
Note 2. Investments
Investments consisted of the following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Cost
|
|
$
|
22,508
|
|
|
$
|
24,842
|
|
Gross unrealized gains
|
|
|
24
|
|
|
|
10
|
|
Gross unrealized losses
|
|
|
(235
|
)
|
|
|
(1,102
|
)
|
Fair value
|
|
$
|
22,297
|
|
|
$
|
23,750
|
|
Investment gains/losses are recognized
when investments are sold (as determined on a specific identification basis) or as otherwise required by GAAP. The timing of realized
gains and losses from sales can have a material effect on periodic earnings. However, such realized gains or losses usually have
little, if any, impact on total shareholders’ equity because the investments are carried at fair value with any unrealized
gains/losses included as a component of accumulated other comprehensive income in shareholders’ equity. We believe
that realized investment gains/losses are often meaningless in terms of understanding reported results. Short-term investment gains/losses
have caused and may continue to cause significant volatility in our results.
In connection with the acquisition of First Guard during
fiscal year 2014, we acquired $15,043 of investments.
Note 3. Investment Partnerships
The Company reports on the limited partnership
interests in investment partnerships under the equity method of accounting. We record our proportional share of equity in
the investment partnerships but exclude Company common stock held by said partnerships. The Company’s pro-rata share
of its common stock held by the investment partnerships is recorded as treasury stock even though they are legally outstanding. The
Company records gains/losses from investment partnerships (inclusive of the investment partnerships’ unrealized gains and
losses on their securities) in the consolidated statements of earnings based on our carrying value of these partnerships. The
fair value is calculated net of the general partner’s accrued incentive fees. Gains and losses on Company common stock included
in the earnings of these partnerships are eliminated because they are recorded as treasury stock.
Notes to Consolidated Financial Statements
(
continued
)
Note 3. Investment Partnerships
(continued)
The fair value and adjustment for Company
common stock held by the investment partnerships to determine carrying value of our partnership interest is presented below.
|
|
Fair Value
|
|
Company Common Stock
|
|
Carrying
Value
|
Partnership interest at September 25, 2013
|
|
$
|
455,297
|
|
|
$
|
57,598
|
|
|
$
|
397,699
|
|
Investment partnership gains
|
|
|
1,436
|
|
|
|
(12,619
|
)
|
|
|
14,055
|
|
Contributions (net of distributions of $10,340)
|
|
|
164,078
|
|
|
|
—
|
|
|
|
164,078
|
|
Increase in proportionate share of Company stock held
|
|
|
—
|
|
|
|
18,594
|
|
|
|
(18,594
|
)
|
Partnership interest at September 24, 2014
|
|
$
|
620,811
|
|
|
$
|
63,573
|
|
|
$
|
557,238
|
|
Investment partnership gains
|
|
|
156,088
|
|
|
|
11,386
|
|
|
|
144,702
|
|
Increase in proportionate share of Company stock held
|
|
|
—
|
|
|
|
3,958
|
|
|
|
(3,958
|
)
|
Partnership interest at December 31, 2014
|
|
$
|
776,899
|
|
|
$
|
78,917
|
|
|
$
|
697,982
|
|
Investment partnership losses
|
|
|
(110,956
|
)
|
|
|
(71,600
|
)
|
|
|
(39,356
|
)
|
Contributions (net of distributions of $19,775)
|
|
|
68,725
|
|
|
|
—
|
|
|
|
68,725
|
|
Increase in proportionate share of Company stock held
|
|
|
—
|
|
|
|
255,662
|
|
|
|
(255,662
|
)
|
Partnership interest at December 31, 2015
|
|
$
|
734,668
|
|
|
$
|
262,979
|
|
|
$
|
471,689
|
|
Investment partnership gains
|
|
|
248,935
|
|
|
|
113,049
|
|
|
|
135,886
|
|
Distributions (net of contributions of $19,832)
|
|
|
(10,896
|
)
|
|
|
—
|
|
|
|
(10,896
|
)
|
Increase in proportionate share of Company stock held
|
|
|
—
|
|
|
|
19,042
|
|
|
|
(19,042
|
)
|
Partnership interest at December 31, 2016
|
|
$
|
972,707
|
|
|
$
|
395,070
|
|
|
$
|
577,637
|
|
The Company recognized a pre-tax loss
of $306 ($193 net of tax) on a contribution of $5,682 in securities to investment partnerships during 2016. The Company recognized
a pre-tax gain of $29,524 ($18,305 net of tax) on a contribution of $74,418 in securities to investment partnerships during fiscal
year 2014. The gain had a material accounting effect on the Company’s fiscal year 2014 earnings. However, the gain had no
impact on total shareholders’ equity because the investments were carried at fair value prior to the contribution, with the
unrealized gains included as a component of accumulated other comprehensive income.
The carrying value of the investment
partnerships net of deferred taxes is presented below.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Carrying value of investment partnerships
|
|
$
|
577,637
|
|
|
$
|
471,689
|
|
Deferred tax liability related to investment partnerships
|
|
|
(155,553
|
)
|
|
|
(115,952
|
)
|
Carrying value of investment partnerships net of deferred taxes
|
|
$
|
422,084
|
|
|
$
|
355,737
|
|
The Company’s proportionate share
of Company stock held by investment partnerships at cost is $341,930 and $332,827 at December 31, 2016 and 2015, respectively,
and is recorded as treasury stock.
The carrying value of the partnership
interest approximates fair value adjusted by the value of held Company stock. Fair value is according to our proportional ownership
interest of the fair value of investments held by the investment partnerships. The fair value measurement is classified as level
3 within the fair value hierarchy.
Notes
to Consolidated Financial Statements
(
continued
)
Note 3. Investment Partnerships
(continued)
Gains/losses from investment partnerships recorded in the
Company’s consolidated statements of earnings are presented below.
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Investment partnership gains (losses)
|
|
$
|
135,886
|
|
|
$
|
(39,356
|
)
|
|
$
|
144,702
|
|
|
$
|
23,493
|
|
|
$
|
14,055
|
|
Tax expense (benefit)
|
|
|
44,361
|
|
|
|
(21,188
|
)
|
|
|
53,511
|
|
|
|
7,977
|
|
|
|
1,739
|
|
Contribution to net earnings (loss)
|
|
$
|
91,525
|
|
|
$
|
(18,168
|
)
|
|
$
|
91,191
|
|
|
$
|
15,516
|
|
|
$
|
12,316
|
|
On December 31 of each year, the general
partner of the investment partnerships, Biglari Capital, will earn an incentive reallocation fee for the Company’s investments
equal to 25% of the net profits above an annual hurdle rate of 6% over the previous high-water mark. Our policy is to accrue
an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings to Biglari Capital includes
gains on the Company’s common stock. Gains and losses on the Company’s common stock and the related incentive reallocations
are eliminated in our financial statements. Our investments in these partnerships are committed on a rolling 5-year basis.
The incentive reallocations from Biglari
Holdings to Biglari Capital on December 31 are presented below.
|
|
2016
|
|
2015
|
|
2014
|
Incentive reallocation for gains on investments other than Company common stock
|
|
$
|
20,114
|
|
|
$
|
—
|
|
|
$
|
34,406
|
|
Incentive reallocation for gains on Company common stock
|
|
|
11,514
|
|
|
|
23
|
|
|
|
—
|
|
Total incentive reallocation from Biglari Holdings to Biglari Capital
|
|
$
|
31,628
|
|
|
$
|
23
|
|
|
$
|
34,406
|
|
Summarized financial information
for The Lion Fund, L.P. and The Lion Fund II, L.P. is presented below.
|
|
|
Equity in Investment Partnerships
|
|
|
|
|
Lion Fund
|
|
|
|
Lion Fund II
|
|
Total assets as of December 31, 2016
|
|
$
|
221,676
|
|
|
$
|
1,109,465
|
|
Total liabilities as of December 31, 2016
|
|
$
|
2,694
|
|
|
$
|
201,460
|
|
Revenue for the year ended December 31, 2016
|
|
$
|
37,098
|
|
|
$
|
282,242
|
|
Earnings for the year ended December 31, 2016
|
|
$
|
36,933
|
|
|
$
|
273,736
|
|
Biglari Holdings’ ownership interest
|
|
|
63.6
|
%
|
|
|
91.8
|
%
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31, 2015
|
|
$
|
165,996
|
|
|
$
|
819,323
|
|
Total liabilities as of December 31, 2015
|
|
$
|
409
|
|
|
$
|
141,274
|
|
Revenue for the year ended December 31, 2015
|
|
$
|
(24,101
|
)
|
|
$
|
(100,357
|
)
|
Earnings for the year ended December 31, 2015
|
|
$
|
(24,247
|
)
|
|
$
|
(103,096
|
)
|
Biglari Holdings’ ownership interest
|
|
|
60.9
|
%
|
|
|
93.5
|
%
|
|
|
|
|
|
|
|
|
|
Revenue for the three month period ended December 31, 2014
|
|
$
|
24,082
|
|
|
$
|
182,923
|
|
Earnings for the three month period ended December 31, 2014
|
|
$
|
24,037
|
|
|
$
|
182,902
|
|
Biglari Holdings’ ownership interest
|
|
|
61.6
|
%
|
|
|
92.7
|
%
|
|
|
|
|
|
|
|
|
|
Revenue for the year ended September 30, 2014
|
|
$
|
(12,860
|
)
|
|
$
|
19,832
|
|
Earnings for the year ended September 30, 2014
|
|
$
|
(12,950
|
)
|
|
$
|
19,789
|
|
Biglari Holdings’ ownership interest
|
|
|
61.6
|
%
|
|
|
95.8
|
%
|
Revenue in the above summarized financial
information of the investment partnerships includes investment income and unrealized gains and losses on investments.
Notes
to Consolidated Financial Statements
(
continued
)
Note 4. Other Current Assets
Other current assets include the following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Prepaid contractual obligations
|
|
$
|
4,342
|
|
|
$
|
4,131
|
|
Deferred commissions on gift cards sold by third parties
|
|
|
3,374
|
|
|
|
3,124
|
|
Assets held for sale
|
|
|
1,000
|
|
|
|
—
|
|
Other current assets
|
|
$
|
8,716
|
|
|
$
|
7,255
|
|
Note
5. Property and Equipment
Property and equipment is composed of
the following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Land
|
|
$
|
160,328
|
|
|
$
|
160,697
|
|
Buildings
|
|
|
156,723
|
|
|
|
156,909
|
|
Land and leasehold improvements
|
|
|
163,817
|
|
|
|
165,042
|
|
Equipment
|
|
|
200,214
|
|
|
|
199,934
|
|
Construction in progress
|
|
|
1,539
|
|
|
|
3,478
|
|
|
|
|
682,621
|
|
|
|
686,060
|
|
Less accumulated depreciation and amortization
|
|
|
(370,357
|
)
|
|
|
(353,736
|
)
|
Property and equipment, net
|
|
$
|
312,264
|
|
|
$
|
332,324
|
|
Depreciation and amortization expense
for property and equipment for 2016 and 2015 was $21,635 and $24,113, respectively. Depreciation and amortization expense for property
and equipment for the 2014 and 2013 transition periods was $6,380 and $6,105, respectively. Depreciation and amortization expense
for property and equipment for fiscal year 2014 was $23,112.
Note 6. Goodwill and Other Intangibles
Goodwill
Goodwill consists of the excess of the
purchase price over the fair value of the net assets acquired in connection with business acquisitions.
A reconciliation of the change in the
carrying value of goodwill is as follows.
|
|
Restaurants
|
|
Other
|
|
Total
|
Goodwill at September 25, 2013
|
|
$
|
28,251
|
|
|
$
|
—
|
|
|
$
|
28,251
|
|
Acquisitions during fiscal year 2014
|
|
|
—
|
|
|
|
11,913
|
|
|
|
11,913
|
|
Goodwill at September 24, 2014
|
|
|
28,251
|
|
|
|
11,913
|
|
|
|
40,164
|
|
Acquisitions during 2014 transition period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Goodwill at December 31, 2014
|
|
|
28,251
|
|
|
|
11,913
|
|
|
|
40,164
|
|
Change in foreign exchange rates during 2015
|
|
|
(142
|
)
|
|
|
—
|
|
|
|
(142
|
)
|
Goodwill at December 31, 2015
|
|
|
28,109
|
|
|
|
11,913
|
|
|
|
40,022
|
|
Change in foreign exchange rates during 2016
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
(19
|
)
|
Goodwill at December 31, 2016
|
|
$
|
28,090
|
|
|
$
|
11,913
|
|
|
$
|
40,003
|
|
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. When evaluating goodwill for impairment, we may first perform a qualitative assessment to determine whether it is more
likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is
not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we test for potential impairment
using a two-step approach. The first 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 occurs when the
estimated fair value of goodwill is less than its carrying value.
Notes to Consolidated Financial Statements
(
continued
)
Note 6. Goodwill and Other Intangibles
(continued)
The valuation methodology and underlying
financial information included in our determination of fair value require significant management judgments. We use both market
and income approaches to derive fair value. The judgments in these two approaches include, but are not limited to, comparable market
multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to determine
the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly
different results. No impairment charges for goodwill were recorded in 2016, 2015, the 2014 or 2013 transition periods or in fiscal
year 2014.
Other Intangibles
Other intangibles are composed of the
following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Total
|
|
Gross carrying amount
|
|
Accumulated amortization
|
|
Total
|
Franchise agreement
|
|
$
|
5,310
|
|
|
$
|
(3,585
|
)
|
|
$
|
1,725
|
|
|
$
|
5,310
|
|
|
$
|
(3,054
|
)
|
|
$
|
2,256
|
|
Other
|
|
|
810
|
|
|
|
(707
|
)
|
|
|
103
|
|
|
|
810
|
|
|
|
(667
|
)
|
|
|
143
|
|
Total
|
|
|
6,120
|
|
|
|
(4,292
|
)
|
|
|
1,828
|
|
|
|
6,120
|
|
|
|
(3,721
|
)
|
|
|
2,399
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
15,876
|
|
|
|
—
|
|
|
|
15,876
|
|
|
|
15,876
|
|
|
|
—
|
|
|
|
15,876
|
|
Other assets with indefinite lives
|
|
|
8,347
|
|
|
|
—
|
|
|
|
8,347
|
|
|
|
3,398
|
|
|
|
—
|
|
|
|
3,398
|
|
Total intangible assets
|
|
$
|
30,343
|
|
|
$
|
(4,292
|
)
|
|
$
|
26,051
|
|
|
$
|
25,394
|
|
|
$
|
(3,721
|
)
|
|
$
|
21,673
|
|
Intangible assets subject to amortization
consist of franchise agreements connected with the purchase of Western as well as rights to favorable leases related to prior acquisitions.
These intangible assets are being amortized over their estimated weighted average of useful lives ranging from eight to twelve
years.
Amortization expense for 2016 and 2015
was $571 and $574, respectively. Amortization expense for the 2014 and 2013 transition periods was $151 and $169, respectively.
Amortization expense for fiscal year 2014 was $690. The Company’s intangible assets with definite lives will fully amortize
in 2020. Total annual amortization expense for each of the next four years will approximate $500.
The Company purchased perpetual lease
rights during 2016 totaling $3,367 and recorded an additional $1,657 indefinite life asset associated with the tax effect of the
asset acquisition. The Company acquired Maxim and First Guard during fiscal year 2014. As a result of the acquisitions during fiscal
year 2014, $15,876 of the purchase prices were allocated to intangible assets with indefinite lives. Intangible assets with indefinite
lives consist of trade names, franchise rights as well as lease rights.
Notes to Consolidated Financial Statements
(
continued
)
Note 7. Accounts Payable and Accrued Expenses
Accounts payable and accrued
expenses include the following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Accounts payable
|
|
$
|
33,961
|
|
|
$
|
34,649
|
|
Gift card liability
|
|
|
25,321
|
|
|
|
22,358
|
|
Salaries, wages, and vacation
|
|
|
15,618
|
|
|
|
13,584
|
|
Taxes payable
|
|
|
12,254
|
|
|
|
12,413
|
|
Workers' compensation and other self-insurance accruals
|
|
|
9,960
|
|
|
|
8,485
|
|
Deferred revenue
|
|
|
7,407
|
|
|
|
8,514
|
|
Other
|
|
|
8,361
|
|
|
|
9,075
|
|
Accrued expenses
|
|
$
|
112,882
|
|
|
$
|
109,078
|
|
Note 8. Other Liabilities
Other liabilities include the following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Deferred rent expense
|
|
$
|
6,632
|
|
|
$
|
6,658
|
|
Other
|
|
|
4,514
|
|
|
|
4,253
|
|
Other liabilities
|
|
$
|
11,146
|
|
|
$
|
10,911
|
|
Note 9. Income Taxes
The components of the provision for
income taxes consist of the following.
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
6,329
|
|
|
$
|
2,866
|
|
|
$
|
752
|
|
|
$
|
2,352
|
|
|
$
|
571
|
|
State
|
|
|
1,998
|
|
|
|
2,022
|
|
|
|
889
|
|
|
|
475
|
|
|
|
477
|
|
Deferred
|
|
|
38,485
|
|
|
|
(26,476
|
)
|
|
|
52,909
|
|
|
|
6,623
|
|
|
|
9,164
|
|
Total income taxes
|
|
$
|
46,812
|
|
|
$
|
(21,588
|
)
|
|
$
|
54,550
|
|
|
$
|
9,450
|
|
|
$
|
10,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of effective income tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at U.S. statutory rates (35%)
|
|
$
|
51,227
|
|
|
$
|
(13,100
|
)
|
|
$
|
50,960
|
|
|
$
|
9,940
|
|
|
$
|
13,656
|
|
State income taxes, net of federal benefit
|
|
|
3,332
|
|
|
|
(1,973
|
)
|
|
|
4,186
|
|
|
|
840
|
|
|
|
1,369
|
|
Federal income tax credits
|
|
|
(4,692
|
)
|
|
|
(4,837
|
)
|
|
|
(995
|
)
|
|
|
(960
|
)
|
|
|
(4,298
|
)
|
Dividends received deduction
|
|
|
(5,851
|
)
|
|
|
(6,142
|
)
|
|
|
(341
|
)
|
|
|
(880
|
)
|
|
|
(3,650
|
)
|
Valuation allowance
|
|
|
905
|
|
|
|
919
|
|
|
|
499
|
|
|
|
180
|
|
|
|
985
|
|
Foreign tax rate differences
|
|
|
2,249
|
|
|
|
3,180
|
|
|
|
606
|
|
|
|
371
|
|
|
|
1,993
|
|
Other
|
|
|
(358
|
)
|
|
|
365
|
|
|
|
(365
|
)
|
|
|
(41
|
)
|
|
|
157
|
|
Total income taxes
|
|
$
|
46,812
|
|
|
$
|
(21,588
|
)
|
|
$
|
54,550
|
|
|
$
|
9,450
|
|
|
$
|
10,212
|
|
Income taxes paid during 2016 and 2015
was $6,961 and $2,063, respectively. Income taxes paid for the 2014 transition period was $22. Income taxes paid totaled $4,829
in fiscal year 2014. Income tax refunds totaled $233 in 2016, $16 in 2015 and $17 in fiscal year 2014.
Notes
to Consolidated Financial Statements
(
continued
)
Note 9. Income Taxes
(continued)
As of December 31, 2016, we had approximately
$396 of unrecognized tax benefits, including approximately $20 of interest and penalties, which are included in other long-term
liabilities in the consolidated balance sheet. As of December 31, 2015, we had approximately $413 of unrecognized tax benefits,
including approximately $35 of interest and penalties, which are included in other long-term liabilities in the consolidated balance
sheet. We recognized approximately $20 and $6 in potential interest and penalties associated with uncertain tax positions during
2015 and the 2014 transition period, respectively. Our continuing practice is to recognize interest expense and penalties related
to income tax matters in income tax expense. The unrecognized tax benefits of $396 would impact the effective income tax rate if
recognized.
Adjustments to the Company’s unrecognized
tax benefit for gross increases for current period tax position, gross decreases for prior period tax positions and the lapse of
statute of limitations during 2016, 2015, the 2014 transition period and fiscal 2014 were not significant.
We file income tax returns which are
periodically audited by various foreign, federal, state, and local jurisdictions. With few exceptions, we are no longer subject
to federal, state, and local tax examinations for fiscal years prior to 2013. We believe we have certain state income tax exposures
related to fiscal years 2012 through 2015. Because of the expiration of the various state statutes of limitations for these fiscal
years, it is possible that the total amount of unrecognized tax benefits will decrease by approximately $47 within 12 months.
Deferred tax assets and liabilities
are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using
the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse.
Our deferred tax
assets and liabilities consist of the following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Insurance reserves
|
|
$
|
3,440
|
|
|
$
|
2,878
|
|
Compensation accruals
|
|
|
2,349
|
|
|
|
1,610
|
|
Gift card accruals
|
|
|
3,946
|
|
|
|
2,981
|
|
Net operating loss credit carryforward
|
|
|
4,292
|
|
|
|
3,444
|
|
Valuation allowance on net operating losses
|
|
|
(4,289
|
)
|
|
|
(3,384
|
)
|
Income tax credit carryforward
|
|
|
—
|
|
|
|
4,344
|
|
Other
|
|
|
947
|
|
|
|
1,642
|
|
Total deferred tax assets
|
|
|
10,685
|
|
|
|
13,515
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Investments
|
|
|
155,476
|
|
|
|
115,545
|
|
Fixed asset basis difference
|
|
|
1,965
|
|
|
|
6,311
|
|
Goodwill and intangibles
|
|
|
5,559
|
|
|
|
3,526
|
|
Total deferred tax liabilities
|
|
|
163,000
|
|
|
|
125,382
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(152,315
|
)
|
|
$
|
(111,867
|
)
|
Accounts payable and accrued expenses
on the consolidated balance sheet include income taxes payable of $1,060 as of December 31, 2016. Receivables on the consolidated
balance sheet include income tax receivables of $559 as of December 31, 2015.
Notes
to Consolidated Financial Statements
(
continued
)
Note 10. Notes Payable and Other Borrowings
Notes payable and other borrowings include the following.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Current portion of notes payable and other borrowings
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
2,200
|
|
|
$
|
2,200
|
|
Unamortized original issue discount
|
|
|
(308
|
)
|
|
|
(296
|
)
|
Unamortized debt issuance costs
|
|
|
(711
|
)
|
|
|
(688
|
)
|
Obligations under leases
|
|
|
5,571
|
|
|
|
5,787
|
|
Western revolver
|
|
|
377
|
|
|
|
786
|
|
Total current portion of notes payable and other borrowings
|
|
$
|
7,129
|
|
|
$
|
7,789
|
|
|
|
|
|
|
|
|
|
|
Long-term notes payable and other borrowings
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
200,898
|
|
|
$
|
210,175
|
|
Unamortized original issue discount
|
|
|
(1,093
|
)
|
|
|
(1,403
|
)
|
Unamortized debt issuance costs
|
|
|
(2,177
|
)
|
|
|
(2,888
|
)
|
Obligations under leases
|
|
|
83,927
|
|
|
|
90,178
|
|
Total long-term notes payable and other borrowings
|
|
$
|
281,555
|
|
|
$
|
296,062
|
|
Steak n Shake Credit Facility
On March 19, 2014, Steak n Shake and
its subsidiaries entered into a new credit agreement. This credit agreement provides for a senior secured term loan facility in
an aggregate principal amount of $220,000 and a senior secured revolving credit facility in an aggregate principal amount of up
to $30,000.
The term loan is scheduled to mature
on March 19, 2021. It amortizes at an annual rate of 1.0% in equal quarterly installments, beginning June 30, 2014, at 0.25% of
the original principal amount of the term loan, subject to mandatory prepayments from excess cash flow, asset sales and other events
described in the credit agreement. The balance will be due at maturity. The revolver will be available on a revolving basis until
March 19, 2019.
Steak n Shake has the right to request
an incremental term loan facility from participating lenders and/or eligible assignees at any time, up to an aggregate total principal
amount not to exceed $70,000 if certain customary conditions within the credit agreement are met.
Borrowings bear interest at a rate per
annum equal to a base rate or a Eurodollar rate (minimum of 1%) plus an applicable margin. Interest on the term loan is based on
a Eurodollar rate plus an applicable margin of 3.75% or on the prime rate plus an applicable margin of 2.75%. Interest on loans
under the revolver is based on a Eurodollar rate plus an applicable margin ranging from 2.75% to 4.25% or on the prime rate plus
an applicable margin ranging from 1.75% to 3.25%. The applicable margins on revolver loans are contingent on Steak n Shake’s
total leverage ratio. The revolver also carries a commitment fee ranging from 0.40% to 0.50% per annum, according to Steak n Shake’s
total leverage ratio, on the unused portion of the revolver.
The interest rate on the term loan was
4.75% on December 31, 2016.
The credit agreement includes customary
affirmative and negative covenants and events of default, as well as a financial maintenance covenant, solely with respect to the
revolver, relating to the maximum total leverage ratio. Steak n Shake’s credit facility contains restrictions on its ability
to pay dividends to Biglari Holdings.
Notes to Consolidated Financial Statements
(
continued
)
Note 10. Notes Payable and Other
Borrowings
(continued)
Both the term loan and the revolver
have been 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. Approximately $118,589 of the proceeds of the term loan were used to repay all outstanding
amounts under Steak n Shake’s former credit facility and to pay related fees and expenses, $50,000 of such proceeds were
used to pay a cash dividend to Biglari Holdings, and the remaining term loan proceeds of approximately $51,411 are being used by
Steak n Shake for working capital and general corporate purposes. As of December 31, 2016, $203,098 was outstanding under the term
loan, and no amount was outstanding under the revolver.
We recorded losses of $1,133 in interest
expense for the extinguishment of debt for fiscal year 2014 related to the write-off of deferred loan costs associated with former
credit facilities. We capitalized $4,754 in debt issuance costs in fiscal year 2014.
We had $10,893 and $10,188 in standby
letters of credit outstanding as of December 31, 2016 and 2015, respectively.
Western Revolver
As of December 31, 2016, Western has
$377 due June 13, 2017.
Expected principal payments for notes
payable and Western’s revolver as of December 31, 2016, are as follows.
|
2017
|
|
|
$
|
2,577
|
|
|
2018
|
|
|
|
2,200
|
|
|
2019
|
|
|
|
2,200
|
|
|
2020
|
|
|
|
2,200
|
|
|
2021
|
|
|
|
194,298
|
|
|
Total
|
|
|
$
|
203,475
|
|
The carrying amounts for debt reported in the consolidated
balance sheet did not differ materially from the fair values at December 31, 2016 and 2015. The fair value was determined to be
a Level 3 fair value measurement.
Interest
Interest paid on debt and obligations
under leases are as follows.
|
|
Year Ended December 31,
|
|
Transition Periods Ended December 31,
|
|
Year Ended September 24,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Interest paid on debt
|
|
$
|
10,508
|
|
|
$
|
10,186
|
|
|
$
|
2,841
|
|
|
$
|
1,956
|
|
|
$
|
8,158
|
|
Interest paid on obligations under leases
|
|
$
|
9,475
|
|
|
$
|
9,422
|
|
|
$
|
2,577
|
|
|
$
|
2,612
|
|
|
$
|
9,720
|
|
Notes
to Consolidated Financial Statements
(
continued
)
Note 11. Leased Assets and Lease
Commitments
We lease certain physical facilities
under non-cancelable lease agreements. These leases require the payment of real estate taxes, insurance and maintenance costs.
Certain leased facilities, which are no longer operated but are subleased to third parties or franchisees, are classified below
as non-operating properties. Minimum future rental payments for non-operating properties have not been reduced by minimum sublease
rentals of $9,518 related to operating leases receivable under non-cancelable subleases. The property and equipment cost related
to finance obligations and capital leases as of December 31, 2016 is as follows: $69,947 buildings, $59,039 land, $27,705 land
and leasehold improvements, $1,246 equipment and $74,705 accumulated depreciation.
On December 31, 2016, obligations under non-cancelable finance
obligations, capital leases, and operating leases (excluding real estate taxes, insurance and maintenance costs) require the following
minimum future rental payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Year
|
|
|
Finance Obligations
|
|
|
|
Capital Leases
|
|
|
|
Total
|
|
|
|
Operating Property
|
|
|
|
Non-Operating Property
|
|
2017
|
|
$
|
14,052
|
|
|
$
|
376
|
|
|
$
|
14,428
|
|
|
$
|
15,553
|
|
|
$
|
708
|
|
2018
|
|
|
12,043
|
|
|
|
121
|
|
|
|
12,164
|
|
|
|
15,170
|
|
|
|
714
|
|
2019
|
|
|
9,387
|
|
|
|
55
|
|
|
|
9,442
|
|
|
|
14,076
|
|
|
|
700
|
|
2020
|
|
|
6,054
|
|
|
|
55
|
|
|
|
6,109
|
|
|
|
12,568
|
|
|
|
771
|
|
2021
|
|
|
3,939
|
|
|
|
55
|
|
|
|
3,994
|
|
|
|
12,611
|
|
|
|
799
|
|
After 2021
|
|
|
3,220
|
|
|
|
5
|
|
|
|
3,225
|
|
|
|
46,133
|
|
|
|
5,150
|
|
Total minimum future rental payments
|
|
|
48,695
|
|
|
|
667
|
|
|
|
49,362
|
|
|
$
|
116,111
|
|
|
$
|
8,842
|
|
Less amount representing interest
|
|
|
29,059
|
|
|
|
141
|
|
|
|
29,200
|
|
|
|
|
|
|
|
|
|
Total principal obligations under leases
|
|
|
19,636
|
|
|
|
526
|
|
|
|
20,162
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
5,246
|
|
|
|
325
|
|
|
|
5,571
|
|
|
|
|
|
|
|
|
|
Non-current principal obligations under leases
|
|
|
14,390
|
|
|
|
201
|
|
|
|
14,591
|
|
|
|
|
|
|
|
|
|
Residual value at end of lease term
|
|
|
69,336
|
|
|
|
—
|
|
|
|
69,336
|
|
|
|
|
|
|
|
|
|
Obligations under leases
|
|
$
|
83,726
|
|
|
$
|
201
|
|
|
$
|
83,927
|
|
|
|
|
|
|
|
|
|
Rent expense is presented below.
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Minimum rent
|
|
$
|
17,906
|
|
|
$
|
18,476
|
|
|
$
|
5,069
|
|
|
$
|
4,706
|
|
|
$
|
18,322
|
|
Contingent rent
|
|
|
1,841
|
|
|
|
2,022
|
|
|
|
356
|
|
|
|
295
|
|
|
|
1,549
|
|
Rent expense
|
|
$
|
19,747
|
|
|
$
|
20,498
|
|
|
$
|
5,425
|
|
|
$
|
5,001
|
|
|
$
|
19,871
|
|
Non-cancellable finance obligations
were created when the Company, under prior management, entered into certain build-to-suit or sale leaseback arrangements. As a
result of continuing involvement in the underlying leases (generally due to right of substitution or purchase option provisions
of the leases), the Company accounts for the leases as financings.
Notes
to Consolidated Financial Statements
(
continued
)
Note 12. Related Party Transactions
Shared Services Agreement
During fiscal 2013, Biglari Holdings and Biglari Capital entered into the Shared Services Agreement pursuant
to which Biglari Holdings provides certain services to Biglari Capital. Biglari Capital is solely owned by Mr. Biglari. The Shared
Services Agreement runs for an initial five-year term, and automatically renews for successive five-year periods, unless terminated
by either party effective at the end of the initial or the renewed term, as applicable. The term of the Shared Services Agreement
coincides with the lock-up period for the Company’s investments in The Lion Fund, L.P. and The Lion Fund II, L.P. under their
respective partnership agreements. During 2016, 2015, 2014 transition period, and fiscal year 2014, the Company provided services
for Biglari Capital under the Shared Services Agreement costing an aggregate of $1,372, $4,425, $44, and $1,590, respectively.
Investments in The Lion Fund, L.P.
and The Lion Fund II, L.P.
As of December 31, 2016, the Company’s investments in The Lion Fund, L.P. and The Lion Fund II, L.P. had a fair value of
$972,707.
Contributions to and distributions from
The Lion Fund, L.P. and The Lion Fund II, L.P. were as follows.
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2014
|
|
|
|
|
|
|
|
|
|
Contributions of Cash
|
|
$
|
14,150
|
|
|
$
|
88,500
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
Contributions of securities
|
|
|
5,682
|
|
|
|
—
|
|
|
|
—
|
|
|
|
74,418
|
|
Distributions of Cash
|
|
|
(26,265
|
)
|
|
|
(19,775
|
)
|
|
|
—
|
|
|
|
(10,340
|
)
|
Distribution of securities
|
|
|
(4,463
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
(10,896
|
)
|
|
$
|
68,725
|
|
|
$
|
—
|
|
|
$
|
164,078
|
|
As the general partner of the investment
partnerships, Biglari Capital on December 31 of each year will earn an incentive reallocation fee for the Company’s investments
equal to 25% of the net profits above an annual hurdle rate of 6%. Our policy is to accrue an estimated incentive fee throughout
the year. Gains on the Company’s common stock and incentive reallocations on gains on Company common stock are eliminated
in our financial statements. Based on Biglari Holdings’ $280,563 of earnings from the investment partnerships for 2016,
the total incentive reallocation from Biglari Holdings to Biglari Capital was $31,628, including $11,514 associated with gains
on the Company’s common stock. For 2015, the incentive reallocation from Biglari Holdings to Biglari Capital was $23, all
of which was associated with gains on the Company’s common stock. Based on Biglari Holdings’ $166,168 of earnings from
the investment partnerships for calendar year 2014, the total incentive reallocation from Biglari Holdings to Biglari Capital was
$34,406.
Incentive Agreement Amendment
During 2013, Biglari Holdings and Mr.
Biglari entered into an amendment to the Incentive Agreement to exclude earnings by the investment partnerships from the calculation
of Mr. Biglari’s incentive bonus. No incentive fees were paid for 2016, 2015, the 2014 transition period or fiscal year 2014.
Under the Amended and Restated Incentive Agreement Mr. Biglari would receive a payment of approximately $14,700 if an event occurred
entitling him to a severance payment.
License Agreement
On January 11, 2013, the Company entered
into a Trademark License Agreement (the “License Agreement”) with Mr. Biglari. The License Agreement was unanimously
approved by the Governance, Nominating and Compensation Committee. In addition, the license under the License Agreement is provided
on a royalty-free basis in the absence of specified extraordinary events described below. Accordingly, the Company and its subsidiaries
have paid no royalties to Mr. Biglari under the License Agreement since its inception.
Notes to Consolidated Financial Statements
(
continued
)
Note 12. Related Party Transactions
(continued)
Under the License Agreement, Mr. Biglari
granted to the Company an exclusive license to use the Biglari and Biglari Holdings names (the “Licensed Marks”) in
association with various products and services (collectively the “Products and Services”). Upon (a) the expiration
of twenty years from the date of the License Agreement (subject to extension as provided in the License Agreement), (b) Mr. Biglari’s
death, (c) the termination of Mr. Biglari’s employment by the Company for Cause (as defined in the License Agreement), or
(d) Mr. Biglari’s resignation from his employment with the Company absent an Involuntary Termination Event (as defined in
the License Agreement), the Licensed Marks for the Products and Services will transfer from Mr. Biglari to the Company, without
any compensation, if the Company is continuing to use the Licensed Marks in the ordinary course of its business. Otherwise, the
rights will revert to Mr. Biglari.
If (i) a Change of Control (as defined
in the License Agreement) of the Company; (ii) the termination of Mr. Biglari’s employment by the Company without Cause;
or (iii) Mr. Biglari’s resignation from his employment with the Company due to an Involuntary Termination Event (each, a
“Triggering Event”) were to occur, Mr. Biglari would be entitled to receive a 2.5% royalty on “Revenues”
with respect to the “Royalty Period.” The royalty payment to Mr. Biglari would not apply to all revenues received by
Biglari Holdings and its subsidiaries nor would it apply retrospectively (
i.e.
, to revenues received with respect to the
period prior to the Triggering Event). The royalty would apply to revenues recorded by the Company on an accrual basis under GAAP,
solely with respect to the defined period of time after the Triggering Event equal to the Royalty Period, from a covered Product,
Service or business that (1) has used the Biglari Holdings or Biglari name at any time during the term of the License Agreement,
whether prior to or after a Triggering Event, or (2) the Company has specifically identified, prior to a Triggering Event, will
use the name Biglari or Biglari Holdings.
“Revenues” means all revenues
received, on an accrual basis under GAAP, by the Company, its subsidiaries and affiliates from the following: (1) all Products
and Services covered by the License Agreement bearing or associated with the names Biglari and Biglari Holdings at any time (whether
prior to or after a Triggering Event). This category would include, without limitation, the use of Biglari or Biglari Holdings
in the public name of a business providing any covered Product or Service; and (2) all covered Products, Services and businesses
that the Company has specifically identified, prior to a Triggering Event, will bear, use or be associated with the name Biglari
or Biglari Holdings.
The Governance, Nominating and Compensation
Committee unanimously approved 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. On May 14, 2013, the Company, Steak n Shake, LLC and Steak n Shake
Enterprises, Inc. entered into a Trademark Sublicense Agreement in connection therewith. Accordingly, revenues received by the
Company, its subsidiaries and affiliates from Steak n Shake’s restaurants, products and brands would come within the definition
of Revenues for purposes of the License Agreement.
The “Royalty Period” is
a defined period of time, after the Triggering Event, calculated as follows: (i) if, following three months after a Triggering
Event, the Company or any of its subsidiaries or affiliates continues to use the Biglari or Biglari Holdings name in connection
with any covered product or service, or continues to use Biglari as part of its corporate or public company name, then the “Royalty
Period” will equal (a) the period of time during which the Company or any of its subsidiaries or affiliates continues any
such use, plus (b) a period of time after the Company, its subsidiaries and affiliates have ceased all uses of the names Biglari
and Biglari Holdings equal to the length of the term of the License Agreement prior to the Triggering Event, plus three years.
As an example, if a Triggering Event occurs five years after the date of the License Agreement, and the Company ceases all uses
of the Biglari and Biglari Holdings names two years after the Triggering Event, the Royalty Period will equal a total of ten years
(the sum of two years after the Triggering Event during which the Biglari and Biglari Holdings names are being used, plus a period
of time equal to the five years prior to the Triggering Event, plus three years); or (ii) if the Company, its subsidiaries and
affiliates cease all uses of the Biglari and Biglari Holdings names within three months after a Triggering Event, then the “Royalty
Period” will equal the length of the term of the License Agreement prior to the Triggering Event, plus three years. As an
example, if a Triggering Event occurs five years after the date of the License Agreement, and the Company ceases all uses of the
Biglari and Biglari Holdings names two months after the Triggering Event, the Royalty Period will equal a total of eight years
(the sum of the period of time equal to the five years prior to the Triggering Event, plus three years). Notwithstanding the above
methods of determining the Royalty Period, the minimum Royalty Period is five years after a Triggering Event.
The Company and its subsidiaries have
paid no royalties to Mr. Biglari under the License Agreement since its execution.
The actual amount of royalties paid
to Mr. Biglari following the occurrence of a Triggering Event (as defined in the License Agreement) would depend on the Company’s
revenues during the applicable period following the Triggering Event, and, therefore, depends on material assumptions and estimates
regarding future operations and revenues. Assuming for purposes of illustration a Triggering Event occurred on December 31, 2016,
using revenue from 2016 as an estimate of future revenue and calculated according to terms of the License Agreement, Mr. Biglari
would receive approximately $20,300 in royalty payments annually. At a minimum, the royalties would be earned on revenue generated
from January 1, 2017 through December 21, 2023. Royalty payments beyond the minimum period would be subject to the licensee's continued
use of the licensed marks.
Notes
to Consolidated Financial Statements
(
continued
)
Note 13. Common Stock Plans
On March 7, 2008, our shareholders approved
the 2008 Equity Incentive Plan. During fiscal 2010, we resolved to suspend, indefinitely, the future issuance of stock-based awards
under the 2008 plan. No shares have been granted under the 2008 plan since 2010.
The following table summarizes the options
activity for 2016.
|
|
Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value
|
Outstanding at December 31, 2015
|
|
|
5,218
|
|
|
$
|
271.58
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,995
|
)
|
|
$
|
325.75
|
|
|
|
|
|
|
|
|
|
Canceled or forfeited
|
|
|
(446
|
)
|
|
$
|
315.58
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2016
|
|
|
2,777
|
|
|
$
|
225.59
|
|
|
|
0.84
|
|
|
$
|
688
|
|
There was no unrecognized stock option
compensation cost at December 31, 2016 or 2015. No amounts were charged to expense during 2016, 2015, the 2014 or 2013 transition
periods, or during fiscal year 2014.
Note 14. Commitments and Contingencies
We are involved in various legal proceedings
and have certain unresolved claims pending. We believe, based on examination of these matters and experiences to date, that the
ultimate liability, if any, in excess of amounts already provided in our consolidated financial statements is not likely to have
a material effect on our results of operations, financial position or cash flows.
Note 15. Fair Value of Financial
Assets and Liabilities
The fair values of substantially all
of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting
market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative
of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value.
Notes to Consolidated Financial Statements
(
continued
)
Note 15. Fair Value of Financial
Assets and Liabilities
(continued)
The hierarchy for measuring fair value
consists of Levels 1 through 3, which are described below.
|
·
|
Level 1 – Inputs represent unadjusted
quoted prices for identical assets or liabilities exchanged in active markets.
|
|
·
|
Level 2 – Inputs include directly
or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in
active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that
may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities,
prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated
by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash
flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations
and yields for other instruments of the issuer or entities in the same industry sector.
|
|
·
|
Level 3 – Inputs include unobservable
inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable
inputs because there is little, if any, market activity in the assets or liabilities and we may be unable to corroborate the related
observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that
would be used by market participants in pricing assets or liabilities.
|
The following methods and assumptions
were used to determine the fair value of each class of the following assets and liabilities recorded at fair value in the consolidated
balance sheet:
Cash equivalents:
Cash equivalents
primarily consist of money market funds which are classified within Level 1 of the fair value hierarchy.
Equity securities:
The Company’s
investments in equity securities are classified within Level 1 of the fair value hierarchy.
Bonds:
The Company’s investments
in bonds are classified within Level 2 of the fair value hierarchy.
Non-qualified deferred compensation
plan investments:
The assets of the non-qualified plan are set up in a rabbi trust. They represent mutual funds and are classified
within Level 1 of the fair value hierarchy.
Derivative instruments:
Options related to equity
securities are marked to market each reporting period and are classified within Level 2 of the fair value hierarchy.
As of December 31, 2016 and December
31, 2015 the fair values of financial assets and liabilities were as follows.
|
|
December 31,
|
|
|
2016
|
|
2015
|
Assets
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash equivalents
|
|
$
|
471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
471
|
|
|
$
|
700
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
700
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,046
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,046
|
|
Consumer goods
|
|
|
2,018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Bonds
|
|
|
—
|
|
|
|
24,904
|
|
|
|
—
|
|
|
|
24,904
|
|
|
|
—
|
|
|
|
21,304
|
|
|
|
—
|
|
|
|
21,304
|
|
Options on equity securities
|
|
|
—
|
|
|
|
2,445
|
|
|
|
—
|
|
|
|
2,445
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Non-qualified
deferred compensation plan investments
|
|
|
2,872
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,872
|
|
|
|
2,203
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,203
|
|
Total assets at fair
value
|
|
$
|
5,361
|
|
|
$
|
27,349
|
|
|
$
|
—
|
|
|
$
|
32,710
|
|
|
$
|
7,949
|
|
|
$
|
21,304
|
|
|
$
|
—
|
|
|
$
|
29,253
|
|
There were no changes in our valuation
techniques used to measure fair values on a recurring basis.
Notes to Consolidated Financial Statements
(
continued
)
Note 15. Fair Value of Financial
Assets and Liabilities
(continued)
The Company recorded an impairment to
long-lived assets of $695 and $51 during 2016 and 2015, respectively. The Company did not record any impairment during the 2014
transition period. The Company recorded an impairment of $41 during the 2013 transition period. During fiscal year 2014, the Company
recorded an impairment to long-lived assets of $1,433. The fair value of the long-lived assets was determined based on Level 2
inputs using quoted prices for similar properties and quoted prices for the properties from brokers. The fair value of the assets
impaired was not material for any of the applicable periods.
Note 16. Accumulated Other Comprehensive Income
Changes in the balances of each component
of accumulated other comprehensive income (loss), net of tax, were as follows.
|
|
2016
|
|
2015
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(2,992
|
)
|
|
$
|
(687
|
)
|
|
$
|
(3,679
|
)
|
|
$
|
(620
|
)
|
|
$
|
(163
|
)
|
|
$
|
(783
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(455
|
)
|
|
|
357
|
|
|
|
(98
|
)
|
|
|
(2,372
|
)
|
|
|
(565
|
)
|
|
|
(2,937
|
)
|
Reclassification to (earnings) loss
|
|
|
—
|
|
|
|
193
|
|
|
|
193
|
|
|
|
—
|
|
|
|
41
|
|
|
|
41
|
|
Ending Balance
|
|
$
|
(3,447
|
)
|
|
$
|
(137
|
)
|
|
$
|
(3,584
|
)
|
|
$
|
(2,992
|
)
|
|
$
|
(687
|
)
|
|
$
|
(3,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition Period 2014
|
|
|
|
Fiscal Year 2014
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain
|
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Investment Gain
|
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(574
|
)
|
|
$
|
52
|
|
|
$
|
(522
|
)
|
|
$
|
8
|
|
|
$
|
21,449
|
|
|
$
|
21,457
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(46
|
)
|
|
|
(215
|
)
|
|
|
(261
|
)
|
|
|
(582
|
)
|
|
|
(3,056
|
)
|
|
|
(3,638
|
)
|
Reclassification to (earnings) loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,341
|
)
|
|
|
(18,341
|
)
|
Ending Balance
|
|
$
|
(620
|
)
|
|
$
|
(163
|
)
|
|
$
|
(783
|
)
|
|
$
|
(574
|
)
|
|
$
|
52
|
|
|
$
|
(522
|
)
|
Notes to Consolidated Financial Statements
(continued)
Note 16. Accumulated Other Comprehensive
Income
(continued)
The following reclassifications were
made from accumulated other comprehensive income to the consolidated statement of earnings.
|
|
|
|
|
|
|
Reclassifications from Accumulated Other Comprehensive Income
|
|
2016
|
|
2015
|
|
Affected Line Item in the
Consolidated Statement of Earnings
|
Investment (loss)
|
|
$ (306)
|
|
$ -
|
|
Investment (loss) on contribution
|
|
|
-
|
|
(62)
|
|
Insurance premiums and other
|
|
|
(113)
|
|
(21)
|
|
Income tax expense (benefit)
|
|
|
$ (193)
|
|
$ (41)
|
|
Net of tax
|
|
|
|
|
|
|
|
Reclassifications from Accumulated Other Comprehensive Income
|
|
Transition
Period
2014
|
|
Fiscal
Year
2014
|
|
Affected Line Item in the
Consolidated Statement of Earnings
|
Investment gain
|
|
$ -
|
|
$ 29,524
|
|
Investment gain on contribution
|
|
|
-
|
|
54
|
|
Insurance premiums and other
|
|
|
-
|
|
11,237
|
|
Income tax expense (benefit)
|
|
|
$ -
|
|
$ 18,341
|
|
Net of tax
|
Note 17. Business Segment Reporting
Our reportable business segments are
organized in a manner that reflects how management views those business activities.
Our restaurant operations includes Steak
n Shake and Western. As a result of the acquisitions of First Guard and Maxim, the Company reports segment information for these
businesses. Other business activities not specifically identified with reportable business segments are presented in “other”
within total operating businesses. We report our earnings from investment partnerships separate from our corporate expenses.
We assess and measure segment operating
results based on segment earnings as disclosed below. Segment earnings from operations are neither necessarily indicative of cash
available to fund cash requirements, nor synonymous with cash flow from operations.
The tabular information that follows
shows data of our reportable segments reconciled to amounts reflected in the consolidated financial statements.
Revenue and earnings (loss) before income taxes for 2016,
2015, transition periods 2014 and 2013, and fiscal year 2014 were as follows.
|
|
Revenue
|
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Operating Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake
|
|
$
|
804,423
|
|
|
$
|
805,771
|
|
|
$
|
212,369
|
|
|
$
|
201,483
|
|
|
$
|
765,600
|
|
Western
|
|
|
13,491
|
|
|
|
13,967
|
|
|
|
3,279
|
|
|
|
2,959
|
|
|
|
12,555
|
|
Total Restaurant Operations
|
|
|
817,914
|
|
|
|
819,738
|
|
|
|
215,648
|
|
|
|
204,442
|
|
|
|
778,155
|
|
First Guard
|
|
|
22,997
|
|
|
|
17,232
|
|
|
|
3,574
|
|
|
|
—
|
|
|
|
5,715
|
|
Maxim
|
|
|
9,165
|
|
|
|
24,482
|
|
|
|
5,228
|
|
|
|
—
|
|
|
|
9,941
|
|
|
|
$
|
850,076
|
|
|
$
|
861,452
|
|
|
$
|
224,450
|
|
|
$
|
204,442
|
|
|
$
|
793,811
|
|
Notes to Consolidated Financial Statements
(continued)
Note 17. Business Segment Reporting
(continued)
|
|
Earnings (Loss) Before Income Taxes
|
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Operating Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake
|
|
$
|
34,717
|
|
|
$
|
39,749
|
|
|
$
|
10,172
|
|
|
$
|
9,461
|
|
|
$
|
26,494
|
|
Western
|
|
|
2,506
|
|
|
|
1,849
|
|
|
|
394
|
|
|
|
329
|
|
|
|
1,765
|
|
Total Restaurant Operations
|
|
|
37,223
|
|
|
|
41,598
|
|
|
|
10,566
|
|
|
|
9,790
|
|
|
|
28,259
|
|
First Guard
|
|
|
5,135
|
|
|
|
3,529
|
|
|
|
906
|
|
|
|
—
|
|
|
|
1,461
|
|
Maxim
|
|
|
(10,078
|
)
|
|
|
(18,105
|
)
|
|
|
(5,498
|
)
|
|
|
—
|
|
|
|
(15,981
|
)
|
Other
|
|
|
94
|
|
|
|
564
|
|
|
|
3
|
|
|
|
21
|
|
|
|
500
|
|
Total Operating Businesses
|
|
|
32,374
|
|
|
|
27,586
|
|
|
|
5,977
|
|
|
|
9,811
|
|
|
|
14,239
|
|
Corporate and investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
(10,241
|
)
|
|
|
(13,731
|
)
|
|
|
(1,807
|
)
|
|
|
(3,264
|
)
|
|
|
(8,503
|
)
|
Gains (losses) on contributions to partnerships
|
|
|
(306
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,524
|
|
Investment partnership gains (loss)
|
|
|
135,886
|
|
|
|
(39,356
|
)
|
|
|
144,702
|
|
|
|
23,493
|
|
|
|
14,055
|
|
Total corporate
|
|
|
125,339
|
|
|
|
(53,087
|
)
|
|
|
142,895
|
|
|
|
20,229
|
|
|
|
35,076
|
|
Interest expense on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable and other borrowings
|
|
|
(11,450
|
)
|
|
|
(11,930
|
)
|
|
|
(3,272
|
)
|
|
|
(1,641
|
)
|
|
|
(10,299
|
)
|
|
|
$
|
146,263
|
|
|
$
|
(37,431
|
)
|
|
$
|
145,600
|
|
|
$
|
28,399
|
|
|
$
|
39,016
|
|
A disaggregation of our consolidated
capital expenditure and depreciation and amortization captions for 2016, 2015, transition periods 2014 and 2013, and fiscal year
2014 is presented in the tables that follow.
|
|
Capital Expenditures
|
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Operating Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake
|
|
$
|
11,624
|
|
|
$
|
8,434
|
|
|
$
|
8,733
|
|
|
$
|
4,997
|
|
|
$
|
25,398
|
|
Western
|
|
|
306
|
|
|
|
43
|
|
|
|
—
|
|
|
|
11
|
|
|
|
1,113
|
|
Total Restaurant Operations
|
|
|
11,930
|
|
|
|
8,477
|
|
|
|
8,733
|
|
|
|
5,008
|
|
|
|
26,511
|
|
First Guard
|
|
|
7
|
|
|
|
102
|
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
Maxim
|
|
|
42
|
|
|
|
16
|
|
|
|
57
|
|
|
|
—
|
|
|
|
312
|
|
Other
|
|
|
51
|
|
|
|
2,486
|
|
|
|
7
|
|
|
|
275
|
|
|
|
6,840
|
|
Total Operating Businesses
|
|
|
12,030
|
|
|
|
11,081
|
|
|
|
8,807
|
|
|
|
5,283
|
|
|
|
33,663
|
|
Corporate
|
|
|
—
|
|
|
|
2
|
|
|
|
9
|
|
|
|
—
|
|
|
|
2,149
|
|
Consolidated results
|
|
$
|
12,030
|
|
|
$
|
11,083
|
|
|
$
|
8,816
|
|
|
$
|
5,283
|
|
|
$
|
35,812
|
|
Notes
to Consolidated Financial Statements
(continued)
Note 17. Business Segment Reporting
(continued)
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
Transition Period
|
|
Fiscal Year
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2014
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Operating Businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steak n Shake
|
|
$
|
20,968
|
|
|
$
|
23,045
|
|
|
$
|
6,289
|
|
|
$
|
6,274
|
|
|
$
|
23,402
|
|
Western
|
|
|
605
|
|
|
|
691
|
|
|
|
172
|
|
|
|
160
|
|
|
|
662
|
|
Total Restaurant Operations
|
|
|
21,573
|
|
|
|
23,736
|
|
|
|
6,461
|
|
|
|
6,434
|
|
|
|
24,064
|
|
First Guard
|
|
|
64
|
|
|
|
36
|
|
|
|
30
|
|
|
|
—
|
|
|
|
38
|
|
Maxim
|
|
|
409
|
|
|
|
296
|
|
|
|
151
|
|
|
|
—
|
|
|
|
211
|
|
Other
|
|
|
431
|
|
|
|
412
|
|
|
|
116
|
|
|
|
34
|
|
|
|
279
|
|
Total Operating Businesses
|
|
|
22,477
|
|
|
|
24,480
|
|
|
|
6,758
|
|
|
|
6,468
|
|
|
|
24,592
|
|
Corporate
|
|
|
448
|
|
|
|
300
|
|
|
|
70
|
|
|
|
98
|
|
|
|
313
|
|
Consolidated results
|
|
$
|
22,925
|
|
|
$
|
24,780
|
|
|
$
|
6,828
|
|
|
$
|
6,566
|
|
|
$
|
24,905
|
|
A disaggregation of our consolidated
asset captions is presented in the table that follows.
|
|
Identifiable Assets
|
|
|
December 31,
|
|
|
2016
|
|
2015
|
Reportable segments:
|
|
|
|
|
|
|
|
|
Restaurant Operations:
|
|
|
|
|
|
|
|
|
Steak n Shake
|
|
$
|
395,809
|
|
|
$
|
393,853
|
|
Western
|
|
|
17,040
|
|
|
|
17,412
|
|
Total Restaurant Operations
|
|
|
412,849
|
|
|
|
411,265
|
|
First Guard
|
|
|
42,746
|
|
|
|
41,159
|
|
Maxim
|
|
|
19,100
|
|
|
|
23,545
|
|
Other
|
|
|
21,116
|
|
|
|
23,587
|
|
Corporate
|
|
|
23,519
|
|
|
|
15,834
|
|
Investment partnerships
|
|
|
577,637
|
|
|
|
471,689
|
|
Total assets
|
|
$
|
1,096,967
|
|
|
$
|
987,079
|
|
Notes
to Consolidated Financial Statements
(continued)
Note 18. Quarterly Financial Data
(Unaudited)
|
|
1
st
Quarter
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
For the year ended December 31, 2016
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
208,242
|
|
|
$
|
219,113
|
|
|
$
|
216,732
|
|
|
$
|
205,989
|
|
Gross profit
|
|
|
43,328
|
|
|
|
49,645
|
|
|
|
46,718
|
|
|
|
42,101
|
|
Costs and expenses
|
|
|
201,271
|
|
|
|
207,655
|
|
|
|
207,135
|
|
|
|
202,407
|
|
Earnings (loss) before income taxes
|
|
|
80,741
|
|
|
|
57,079
|
|
|
|
(104,258
|
)
|
|
|
112,701
|
|
Net earnings (loss)
|
|
|
51,163
|
|
|
|
37,517
|
|
|
|
(60,129
|
)
|
|
|
70,900
|
|
Basic earnings (loss) per common share
|
|
$
|
41.20
|
|
|
$
|
30.60
|
|
|
$
|
(49.48
|
)
|
|
$
|
58.78
|
|
Diluted earnings (loss) per common share
|
|
$
|
41.16
|
|
|
$
|
30.57
|
|
|
$
|
(49.48
|
)
|
|
$
|
58.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
205,828
|
|
|
$
|
221,956
|
|
|
$
|
218,443
|
|
|
$
|
215,225
|
|
Gross profit
|
|
|
38,686
|
|
|
|
51,208
|
|
|
|
46,791
|
|
|
|
46,199
|
|
Costs and expenses
|
|
|
206,144
|
|
|
|
213,172
|
|
|
|
209,493
|
|
|
|
209,366
|
|
Earnings (loss) before income taxes
|
|
|
17,173
|
|
|
|
(2,177
|
)
|
|
|
9,050
|
|
|
|
(61,477
|
)
|
Net earnings (loss) attributable to Biglari Holdings Inc.
|
|
|
9,983
|
|
|
|
26
|
|
|
|
9,298
|
|
|
|
(35,150
|
)
|
Basic earnings (loss) per common share
|
|
$
|
5.36
|
|
|
$
|
0.01
|
|
|
$
|
7.36
|
|
|
$
|
(27.88
|
)
|
Diluted earnings (loss) per common share
|
|
$
|
5.36
|
|
|
$
|
0.01
|
|
|
$
|
7.35
|
|
|
$
|
(27.88
|
)
|
We define gross profit as net revenue less restaurant
cost of sales, media cost of sales, and insurance losses and underwriting expenses, which excludes depreciation and amortization.
Note 19. Supplemental Disclosures of Cash Flow Information
Capital expenditures in accounts payable
at December 31, 2016, 2015, 2014 and 2013 were $480, $537, $981 and $409, respectively. Capital expenditures in accounts payable
at September 24, 2014 was $2,269.
During 2016, we had new capital lease
obligations of $258 and lease retirements of $1,006. We did not have any new capital lease obligations or lease retirements during
2015, the 2014 transition period or fiscal year 2014.
During 2016, the Company made a non-cash
contribution of securities of $5,682 to the investment partnerships and received a non-cash distribution of securities of $4,463
from the investment partnerships. During fiscal 2014, the company made a non-cash contribution of securities of $74,418.
Item 9.
|
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
|
Not applicable.