Biglari (BH) - 2020 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements of Biglari Holdings Inc. for the first quarter ended March 31, 2020, including balance sheets, statements of earnings, comprehensive income, cash flows, and changes in shareholders' equity, along with detailed notes explaining significant accounting policies, business acquisitions, investment partnerships, and segment reporting Consolidated Balance Sheets The consolidated balance sheets show a decrease in total assets and shareholders' equity from December 31, 2019, to March 31, 2020, primarily driven by a significant reduction in investment partnerships and cash, while current liabilities saw a substantial increase Consolidated Balance Sheet Highlights (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | Change (vs. Dec 31, 2019) | | :-------------------- | :------------- | :---------------- | :------------------------ | | Total current assets | $142,783 | $145,391 | $(2,608) | | Total assets | $947,628 | $1,139,309 | $(191,681) | | Total current liabilities | $310,210 | $139,817 | $170,393 | | Total liabilities | $468,438 | $523,011 | $(54,573) | | Shareholders' equity | $479,190 | $616,298 | $(137,108) | - Cash and cash equivalents decreased from $67,772 thousand at December 31, 2019, to $33,281 thousand at March 31, 2020[5] - Investment partnerships decreased significantly from $505,542 thousand to $318,689 thousand[5] Consolidated Statements of Earnings The company reported a substantial net loss in the first quarter of 2020, a significant reversal from net earnings in the prior year, primarily due to large investment partnership losses and decreased restaurant revenues, despite a gain on debt extinguishment Consolidated Statements of Earnings Highlights (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | Change (YoY) | | :-------------------- | :----------- | :---------- | :----------- | | Total Revenues | $135,700 | $181,859 | $(46,159) | | Total Costs & Expenses| $141,745 | $199,384 | $(57,639) | | Investment partnership gains (losses) | $(175,742) | $34,154 | $(209,896) | | Net earnings (loss) | $(137,885) | $9,818 | $(147,703) | | Net earnings (loss) per equivalent Class A share | $(400.37) | $28.36 | $(428.73) | - Restaurant operations revenue decreased by $59,631 thousand (34.3%) from $173,775 thousand in Q1 2019 to $114,144 thousand in Q1 2020[6] - The company recorded a gain on debt extinguishment of $4,346 thousand in Q1 2020, compared to none in Q1 2019[6] Consolidated Statements of Comprehensive Income The consolidated statements of comprehensive income reflect a significant total comprehensive loss in Q1 2020, primarily driven by the net loss, with a minor impact from foreign currency translation Consolidated Statements of Comprehensive Income (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :----------- | :---------- | | Net earnings (loss) | $(137,885) | $9,818 | | Foreign currency translation | $(312) | $(304) | | Total comprehensive income (loss) | $(138,197) | $9,514 | Consolidated Statements of Cash Flows Operating activities generated significant cash in Q1 2020, a reversal from cash usage in Q1 2019, largely due to distributions from investment partnerships, which was offset by increased cash used in investing and financing activities, leading to an overall decrease in cash Consolidated Statements of Cash Flows Highlights (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :----------- | :---------- | | Net cash provided by (used in) operating activities | $50,477 | $(10,037) | | Net cash used in investing activities | $(65,574) | $(5,454) | | Net cash used in financing activities | $(19,408) | $(1,968) | | Decrease in cash, cash equivalents and restricted cash | $(34,491) | $(17,464) | - Operating cash flow benefited from $42,300 thousand in distributions from investment partnerships in Q1 2020, compared to none in Q1 2019[9] - Investing activities in Q1 2020 included $34,240 thousand for business acquisition and $105,430 thousand for purchases of investments[9] Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased significantly in Q1 2020, primarily due to the net loss incurred during the period, partially offset by an adjustment to treasury stock Consolidated Statements of Changes in Shareholders' Equity (First Quarter 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Balance at beginning of year | $616,298 | $570,455 | | Net earnings (loss) | $(137,885) | $9,818 | | Accumulated Other Comprehensive (Loss) | $(3,122) | $(2,810) | | Balance at end of period | $479,190 | $581,354 | - An adjustment to treasury stock for holdings in investment partnerships increased equity by $1,089 thousand in Q1 2020[11] Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies, business activities, recent acquisitions, and the impact of the COVID-19 pandemic, also elaborating on earnings per share, investment partnerships, asset valuations, revenue recognition, debt, leases, income taxes, legal proceedings, fair value measurements, related party transactions, and segment performance Note 1. Summary of Significant Accounting Policies Biglari Holdings is a diversified holding company with subsidiaries in insurance, media, restaurants, and oil & gas, led by Sardar Biglari, which completed two acquisitions: Southern Pioneer Property & Casualty Insurance Company in March 2020 and Southern Oil of Louisiana Inc. in September 2019, with the COVID-19 pandemic expected to significantly impact operations in Q2 2020 - Biglari Holdings is a holding company with diverse business activities including property and casualty insurance, media and licensing, restaurants, and oil and gas[13] - Acquired Southern Pioneer Property & Casualty Insurance Company on March 9, 2020, which underwrites specialty insurance products[16] - The COVID-19 pandemic significantly affected operating businesses starting in March 2020 and is expected to adversely affect nearly all operations in the second quarter[15] Note 2. New Accounting Standards The company adopted ASU 2016-13, Financial Instruments—Credit Losses, effective January 1, 2020, which requires credit losses on available-for-sale debt securities to be presented as an allowance, with the impact of this adoption not material to the financial statements - Adopted ASU 2016-13, Financial Instruments—Credit Losses, effective January 1, 2020[18] - The impact of ASU 2016-13 on the Company's financial statements and related disclosures is not material[18] Note 3. Earnings Per Share Earnings per share calculations exclude Company stock held by investment partnerships, which are treated as treasury stock, with the weighted average number of common shares for EPS calculation being 344,391 for Q1 2020 Common Stock Outstanding (March 31, 2020 vs. December 31, 2019) | Class | March 31, 2020 | December 31, 2019 | | :---- | :------------- | :---------------- | | Class A | 206,864 | 206,864 | | Class B | 2,068,640 | 2,068,640 | - The proportional ownership of Company's common stock held by investment partnerships is excluded from EPS calculation, treated as treasury stock[22] - Equivalent Class A weighted average common shares for Q1 2020 were 344,391, down from 346,223 in Q1 2019[22] Note 4. Investments Available-for-sale investments increased significantly in Q1 2020, with a notable portion acquired through the Southern Pioneer acquisition, and all investments are recorded at fair value Available for Sale Investments (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Available for sale investments | $76,789 | $40,393 | | Investments in equity securities and derivative position | $4,463 | N/A | - The fair value of investments acquired with Southern Pioneer was $36,876 thousand[23] Note 5. Investment Partnerships The company accounts for its limited partnership interests using the equity method, excluding its own common stock held by these partnerships, with investment partnerships recording significant losses in Q1 2020, a reversal from gains in Q1 2019, primarily due to market value changes, and Biglari Capital Corp., owned by Mr. Biglari, serving as the general partner Investment Partnership Gains (Losses) (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :----------- | :---------- | | Gains (losses) on investment partnership | $(175,742) | $34,154 | | Tax expense (benefit) | $(41,383) | $7,917 | | Net earnings (loss) | $(134,359) | $26,237 | Carrying Value of Investment Partnerships (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Partnership interest carrying value | $318,689 | $505,542 | | Deferred tax liability related to investment partnerships | $(17,893) | $(56,518) | | Carrying value net of deferred taxes | $300,796 | $449,024 | - Biglari Holdings' ownership interest in The Lion Fund, L.P. was 66.1% and in The Lion Fund II, L.P. was 93.1% as of March 31, 2020[31] Note 6. Property and Equipment Net property and equipment decreased in Q1 2020, with the company recording significant impairment charges for restaurant assets due to permanent closures and the COVID-19 impact, while oil and gas properties were not impaired but face future risk from low commodity prices Property and Equipment, Net (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Gross carrying amount | $720,512 | $729,059 | | Accumulated depreciation and amortization | $(382,887) | $(378,432) | | Property and equipment, net | $337,625 | $350,627 | - Impairment charges of $10,300 thousand were recorded in Q1 2020, primarily due to the decision to permanently close 51 Steak n Shake restaurants and the expected impact of COVID-19[34] - Depletion expense related to oil and gas properties was $4,737 thousand in Q1 2020[33] Note 7. Goodwill and Other Intangible Assets Goodwill increased due to the Southern Pioneer acquisition, and while the fair values of some restaurant reporting units declined due to COVID-19, no goodwill impairment was recorded in Q1 2020, though future impairments are possible, and intangible assets with definite lives are nearing full amortization Goodwill Carrying Value (March 31, 2020) | Metric (in thousands) | Amount | | :-------------------- | :----- | | Balance at beginning of year | $40,040 | | Goodwill from acquisition | $11,865 | | Balance at end of period | $51,894 | - No goodwill impairment charges were recorded in Q1 2020 or Q1 2019[38] - Intangible assets with definite lives, primarily franchise agreements, will fully amortize in 2020[41] Note 8. Restaurant Operations Revenues Restaurant operations revenues significantly decreased in Q1 2020 compared to Q1 2019, primarily due to a sharp decline in net sales, however, franchise partner fees saw a substantial increase as Steak n Shake continues its transition to franchise partners Restaurant Operations Revenues (First Quarter 2020 vs. 2019) | Revenue Type (in thousands) | Q1 2020 | Q1 2019 | Change (YoY) | | :-------------------------- | :--------- | :--------- | :----------- | | Net sales | $104,728 | $165,631 | $(60,903) | | Franchise royalties and fees | $5,211 | $6,654 | $(1,443) | | Franchise partner fees | $3,344 | $258 | $3,086 | | Total | $114,144 | $173,775 | $(59,631) | - Net sales decreased by 36.8% in Q1 2020 compared to Q1 2019[102] - Franchise partner fees increased significantly from $258 thousand in Q1 2019 to $3,344 thousand in Q1 2020, reflecting the transition of company-operated restaurants to franchise partners[47][102] Note 9. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses increased in Q1 2020, driven by higher self-insurance accruals and deferred revenue, partially offset by decreases in gift card liability, salaries, wages, and taxes payable Accounts Payable and Accrued Expenses (March 31, 2020 vs. December 31, 2019) | Category (in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------- | :------------- | :---------------- | | Accounts payable | $36,289 | $32,626 | | Gift card liability | $17,063 | $20,745 | | Salaries, wages, and vacation | $5,328 | $10,667 | | Taxes payable | $20,030 | $29,275 | | Self-insurance accruals | $21,442 | $11,070 | | Deferred revenue | $25,395 | $10,454 | | Total | $133,840 | $121,079 | Note 10. Notes Payable and Other Borrowings Current portion of notes payable and other borrowings increased substantially in Q1 2020, primarily due to the Steak n Shake credit facility maturing in March 2021, with the company evaluating refinancing options and having retired $21,729 thousand of debt in February 2020 Notes Payable and Other Borrowings (March 31, 2020 vs. December 31, 2019) | Category (in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------- | :------------- | :---------------- | | Current portion of notes payable | $159,219 | $2,200 | | Total current portion | $164,632 | $7,103 | | Long-term notes payable | $0 | $179,298 | | Total long-term | $80,566 | $263,182 | - Steak n Shake's senior secured term loan facility, with an outstanding balance of $159,219 thousand, is scheduled to mature on March 19, 2021[53] - The Company retired $21,729 thousand of debt on February 18, 2020[56] Note 11. Leased Assets and Lease Commitments The company's lease portfolio primarily consists of restaurant locations, with operating and finance leases recognized as right-of-use assets and liabilities, total lease costs slightly decreased in Q1 2020, and the weighted-average remaining lease terms are approximately 6 years for both finance and operating leases Total Lease Costs (First Quarter 2020 vs. 2019) | Lease Cost Type (in thousands) | Q1 2020 | Q1 2019 | | :----------------------------- | :------ | :------ | | Finance lease costs | $657 | $699 | | Operating lease costs | $3,736 | $3,857 | | Total lease costs | $4,393 | $4,556 | Weighted-Average Lease Terms and Discount Rates (March 31, 2020) | Metric | Value | | :-------------------------- | :---------- | | Weighted-average remaining lease terms: | | | Finance leases | 6.3 years | | Operating leases | 6.0 years | | Weighted-average discount rates: | | | Finance leases | 7.1% | | Operating leases | 6.9% | - Maturities of total lease liabilities as of March 31, 2020, are $62,083 thousand for operating leases and $8,806 thousand for finance leases[65] Note 12. Accumulated Other Comprehensive Income Accumulated other comprehensive losses increased slightly in Q1 2020 due to foreign currency translation adjustments Accumulated Other Comprehensive Loss (March 31, 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | March 31, 2019 | | :-------------------- | :------------- | :------------- | | Accumulated other comprehensive loss | $(3,122) | $(2,820) | - The decrease in accumulated other comprehensive losses was $312 thousand in Q1 2020 and $304 thousand in Q1 2019, both due to foreign currency translation adjustments[66] Note 13. Income Taxes The company recorded an income tax benefit in Q1 2020, a significant change from an expense in Q1 2019, primarily driven by pretax losses from investment partnerships Income Tax Expense (Benefit) (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :----------- | :---------- | | Income tax expense (benefit) | $(43,830) | $1,744 | - The variance is primarily attributable to investment partnership pretax losses of $175,742 thousand in Q1 2020, compared to pretax gains of $34,154 thousand in Q1 2019[68] Note 14. Commitments and Contingencies The company is involved in various legal proceedings, including class action complaints alleging breach of fiduciary duty related to its dual-class structure, with all referenced cases concluded in the company's favor, and the Indiana Supreme Court denying a petition to transfer in April 2020 - Shareholders filed class action complaints alleging breach of fiduciary duty and unjust enrichment to Mr. Biglari due to the dual-class structure[71][73] - The Indiana Supreme Court denied the shareholders' petition to transfer on April 7, 2020, concluding all related cases in the Company's favor[74] Note 15. Fair Value of Financial Assets The company measures the fair value of financial instruments using a three-level hierarchy, with most financial assets, including cash equivalents, equity securities, and bonds, classified within Level 1, indicating unadjusted quoted prices in active markets Total Assets at Fair Value by Level (March 31, 2020 vs. December 31, 2019) | Category (in thousands) | March 31, 2020 Total | December 31, 2019 Total | | :---------------------- | :------------------- | :---------------------- | | Cash equivalents | $23,138 | $43,095 | | Equity securities | $11,319 | $6,422 | | Bonds | $52,018 | $38,911 | | Options on equity securities | $2,849 | $2,166 | | Non-qualified deferred compensation plan investments | $1,541 | $2,175 | | Total assets at fair value | $90,865 | $92,769 | - Cash equivalents, equity securities, and bonds are primarily classified within Level 1 of the fair value hierarchy[79][80] Note 16. Related Party Transactions The company has a services agreement with Biglari Entities, owned by Mr. Biglari, for which it paid $2,100 thousand in service fees in Q1 2020, and an incentive agreement amendment in March 2019 removed the annual limitation on Mr. Biglari's incentive compensation and the requirement to purchase company shares - The Company paid Biglari Enterprises LLC and Biglari Capital Corp. (Biglari Entities, owned by Mr. Biglari) $2,100 thousand in service fees during the first quarter of 2020 and 2019[83] - An Incentive Agreement amendment in March 2019 removed the annual limitation on Mr. Biglari's incentive compensation and the requirement to use 30% of payments to purchase Company shares[84] Note 17. Business Segment Reporting The company reports across four operating segments: Restaurant Operations (Steak n Shake, Western Sizzlin), Insurance Operations (First Guard, Southern Pioneer), Southern Oil, and Maxim, with Restaurant operations reporting a significant loss in Q1 2020, while insurance and oil operations were profitable, and investment partnership losses heavily impacted overall results Segment Revenue (First Quarter 2020 vs. 2019) | Segment | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :---------------------- | :--------------------- | :--------------------- | | Restaurant Operations | $114,144 | $173,775 | | Insurance Operations | $9,674 | $7,207 | | Southern Oil | $11,374 | $0 | | Maxim | $508 | $877 | Segment Earnings (Loss) Before Income Taxes (First Quarter 2020 vs. 2019) | Segment | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :---------------------- | :--------------------- | :--------------------- | | Total Restaurant Operations | $(10,900) | $(18,475) | | Total Insurance Operations | $2,913 | $1,544 | | Southern Oil | $2,470 | $0 | | Maxim | $(32) | $(112) | | Investment partnership gains (losses) | $(175,742) | $34,154 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Biglari Holdings' diverse business activities and a detailed analysis of its financial performance for the first quarter of 2020 compared to 2019, highlighting the significant adverse impact of the COVID-19 pandemic on restaurant operations and investment partnerships, leading to a substantial net loss, and covering recent acquisitions, changes in segment performance, liquidity, and debt management Overview Biglari Holdings is a diversified holding company focused on maximizing per-share intrinsic value, with significant ownership by CEO Sardar Biglari, and recent acquisitions include Southern Pioneer (insurance) and Southern Oil, with the company experiencing a net loss in Q1 2020, primarily due to investment partnership losses, a reversal from net earnings in Q1 2019 - Biglari Holdings is a holding company with subsidiaries in property and casualty insurance, media and licensing, restaurants, and oil and gas[90] - Mr. Biglari's beneficial ownership was approximately 64.4% of Class A common stock and 55.4% of Class B common stock as of March 31, 2020[91] Net Earnings (Loss) Attributable to Biglari Holdings Shareholders (First Quarter 2020 vs. 2019) | Category (in thousands) | Q1 2020 | Q1 2019 | | :---------------------- | :----------- | :---------- | | Total operating businesses | $(3,450) | $(12,211) | | Corporate | $(1,490) | $(1,914) | | Investment partnership gains (losses) | $(134,359) | $26,237 | | Interest expense on notes payable and debt extinguishment | $1,414 | $(2,294) | | Total | $(137,885) | $9,818 | Restaurants Restaurant operations, primarily Steak n Shake, were severely impacted by the COVID-19 pandemic, leading to dining room closures and a significant decrease in net sales and overall revenue, with the company permanently closing 51 Steak n Shake restaurants, resulting in substantial impairment charges, despite which franchise partner fees increased due to the ongoing transition to a franchise partner model Restaurant Operations Revenue (First Quarter 2020 vs. 2019) | Revenue Type (in thousands) | Q1 2020 | Q1 2019 | Change (YoY) | | :-------------------------- | :--------- | :--------- | :----------- | | Net sales | $104,728 | $165,631 | $(60,903) | | Franchise royalties and fees | $5,211 | $6,654 | $(1,443) | | Franchise partner fees | $3,344 | $258 | $3,086 | | Total revenue | $114,144 | $173,775 | $(59,631) | - Net sales decreased by 36.8% and franchise royalties and fees decreased by 21.7% in Q1 2020 compared to Q1 2019[102] - The company recorded impairment charges of $10,300 thousand in Q1 2020 (vs. $1,900 thousand in Q1 2019) primarily due to the permanent closure of 51 Steak n Shake restaurants[105] - As of March 31, 2020, there were 39 franchise partner units, up from 3 in Q1 2019, reflecting the transition strategy[102] Insurance Insurance operations, comprising First Guard and the newly acquired Southern Pioneer, showed growth in premiums earned and a significant increase in pre-tax underwriting gain in Q1 2020, with First Guard's direct response marketing contributing to its low-cost structure, while Southern Pioneer's results were not yet significant post-acquisition Insurance Operations Premiums and Underwriting Gain (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | Change (YoY) | | :-------------------- | :--------- | :--------- | :----------- | | Premiums written | $8,842 | $6,861 | $1,981 |\ | Pre-tax underwriting gain | $2,530 | $1,201 | $1,329 |\ | Contribution to net earnings | $2,316 | $1,216 | $1,100 | - First Guard's premiums earned increased by 8.1% and pre-tax underwriting gain increased by 93.4% in Q1 2020 compared to Q1 2019[107] - Southern Pioneer's operating results since its March 9, 2020 acquisition date were not significant for the quarter but are expected to have a major impact in future periods[108] Oil and Gas Southern Oil, acquired in September 2019, generated revenue and net earnings in Q1 2020, however, the COVID-19 pandemic significantly decreased oil demand and commodity prices, leading the company to cut production and expenses, and Southern Oil remains debt-free Southern Oil Earnings (First Quarter 2020) | Metric (in thousands) | Q1 2020 | | :-------------------- | :------ | | Oil and gas revenue | $11,374 | | Earnings before income taxes | $2,470 | | Contribution to net earnings | $2,201 | - The COVID-19 pandemic caused a significant decrease in oil demand, leading to lower commodity prices and margins, prompting Southern Oil to cut production and expenses[113] - Southern Oil is a debt-free company[113] Media and Licensing Media and licensing operations (Maxim) reported a net loss in Q1 2020, though it improved compared to the prior year, with the strategy focusing on leveraging the Maxim brand for non-magazine revenue through licensing consumer products, services, and events Media and Licensing Earnings (Loss) (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :--------- | :--------- | | Media and licensing revenue | $508 | $877 | | Earnings (loss) before income taxes | $(32) | $(112) | | Contribution to net earnings | $(25) | $(84) | - The company is utilizing the Maxim brand to generate non-magazine revenue, notably through licensing consumer products, services, and events[115] Investment Partnership Gains (Losses) Investment partnerships experienced significant losses in Q1 2020, a sharp reversal from gains in Q1 2019, primarily due to changes in market values of underlying investments, and these losses heavily impacted the company's overall net earnings Investment Partnership Gains (Losses) (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :----------- | :---------- | | Investment partnership gains (losses) | $(175,742) | $34,154 | | Tax expense (benefit) | $(41,383) | $7,917 | | Contribution to net earnings | $(134,359) | $26,237 | - Gains/losses include changes in market values of underlying investments and dividends earned by the partnerships, with market value changes being highly volatile[117] Interest Expense and Debt Extinguishment Interest expense decreased in Q1 2020, and the company recorded a gain on debt extinguishment related to Steak n Shake's debt retirement, with Steak n Shake's credit facility balance decreasing, and the company evaluating refinancing options ahead of its March 2021 maturity Interest Expense (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :------ | :------ | | Interest expense on notes payable and other borrowings | $2,474 | $3,058 | | Tax benefit | $628 | $764 | | Interest expense net of tax | $1,846 | $2,294 | - The Company recorded a gain on debt extinguishment of $4,346 thousand ($3,260 net of tax) in Q1 2020 from Steak n Shake's debt retirement of $21,729 thousand[120] - Steak n Shake's credit facility balance was $159,219 thousand as of March 31, 2020, with maturity scheduled for March 19, 2021[121][128] Corporate Corporate net losses remained relatively stable in Q1 2020 compared to the prior year - Corporate net losses during the first quarter of 2020 were relatively flat compared to the same period during 2019[122] Income Taxes The company reported an income tax benefit in Q1 2020, a significant shift from an expense in Q1 2019, primarily due to substantial pretax losses from investment partnerships Income Tax Expense (Benefit) (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :----------- | :---------- | | Income tax expense (benefit) | $(43,830) | $1,744 | - The variance is attributable to investment partnership pretax losses of $175,742 thousand in Q1 2020, compared to pretax gains of $34,154 thousand in Q1 2019[123] Financial Condition Consolidated cash and investments decreased significantly in Q1 2020, primarily due to a reduction in the fair value of investment partnerships and cash and cash equivalents Consolidated Cash and Investments (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $33,281 | $67,772 | | Investments | $81,252 | $44,856 | | Fair value of interest in investment partnerships | $392,215 | $666,123 | | Total cash and investments | $506,748 | $778,751 | | Carrying value of cash and investments on balance sheet | $433,222 | $618,170 | Liquidity Operating activities generated significant cash in Q1 2020, primarily from investment partnership distributions, reversing a cash outflow from the prior year, however, increased cash usage in investing (acquisitions, investments) and financing (debt payments) activities led to an overall decrease in cash, and the company plans to meet working capital needs through operations, cash on hand, credit facilities, and asset sales Consolidated Cash Flow Activities (First Quarter 2020 vs. 2019) | Metric (in thousands) | Q1 2020 | Q1 2019 | | :-------------------- | :----------- | :---------- | | Net cash provided by (used in) operating activities | $50,477 | $(10,037) | | Net cash used in investing activities | $(65,574) | $(5,454) | | Net cash used in financing activities | $(19,408) | $(1,968) | | Decrease in cash, cash equivalents and restricted cash | $(34,491) | $(17,464) | - The increase in cash from operations in Q1 2020 was primarily due to distributions from investment partnerships[125] - Investing activities in Q1 2020 included $34,240 thousand for business acquisition and $26,685 thousand for net purchases of investments[126] Critical Accounting Policies Management's discussion and analysis relies on consolidated financial statements prepared under GAAP, involving estimates and judgments that may change, with no material changes to critical accounting policies reported since the last annual report - No material changes to critical accounting policies previously disclosed in the annual report on Form 10-K for the year ended December 31, 2019[132] Recently Issued Accounting Pronouncements Information regarding recently issued accounting pronouncements and their expected impact is detailed in Note 2 of the consolidated financial statements - Refer to Note 2, 'New Accounting Standards' for detailed information regarding recently issued accounting pronouncements[133] Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements based on current expectations, which are subject to various risks and uncertainties, including those described in the Form 10-K and this report, and the company does not undertake to update these statements unless required by law - Forward-looking statements are subject to various risks and uncertainties, many beyond the company's control, including those described in Item 1A, Risk Factors of the annual report on Form 10-K and Item 1A of this report[134] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are related to equity investments and interest rates, where a hypothetical 10% change in investment market prices would significantly impact carrying value and shareholders' equity, and a 100 basis point increase in short-term interest rates would have an approximate $1,200 thousand impact on net earnings - A hypothetical 10% increase or decrease in the market price of investments would result in a respective increase or decrease of $39,994 thousand in carrying value and approximately 6% in shareholders' equity[136] - A hypothetical 100 basis point increase in short-term interest rates would have an impact of approximately $1,200 thousand on net earnings[137] - The company has minimal exposure to foreign currency exchange rate fluctuations[137] ITEM 4. Controls and Procedures The Chief Executive Officer and Controller concluded that the company's disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting occurring during the quarter - Disclosure controls and procedures were effective as of March 31, 2020[138] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2020[139] PART II – OTHER INFORMATION ITEM 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 14 to the Consolidated Financial Statements, which details the conclusion of shareholder lawsuits in the company's favor - Information on legal proceedings is included in Note 14 to the Consolidated Financial Statements[140] ITEM 1A. Risk Factors The company supplements its previously disclosed risk factors with new risks related to epidemics, pandemics (specifically COVID-19), and unfavorable general economic conditions, which could adversely affect operations, investments, supply chains, demand for products/services, and access to capital markets - The outbreak of COVID-19 has adversely affected, and may continue to affect, operations and investments due to closures, supply chain disruptions, reduced demand, credit losses, and market volatility[142] - Unfavorable general economic conditions, exacerbated by COVID-19, may significantly reduce operating earnings and impair access to capital markets at a reasonable cost[143][144] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report ITEM 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report ITEM 4. Mine Safety Disclosures This item is not applicable to the company ITEM 5. Other Information There is no other information to report under this item ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, and Interactive Data Files - Exhibits include Certifications Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934 (31.01, 31.02) and Certification Pursuant to 18 U.S.C. Section 1350 (32.01), as well as Interactive Data Files (101)[145] Signatures The report was duly signed on behalf of Biglari Holdings Inc. by Bruce Lewis, Controller, on May 8, 2020 - The report was signed by Bruce Lewis, Controller, on May 8, 2020[147]