Biglari (BH) - 2021 Q2 - Quarterly Report

Part I – Financial Information Financial Statements The financial statements for the period ended June 30, 2021, show total assets decreased to $933.9 million, net earnings for the first six months turned around to $51.0 million, and $187.2 million in operating cash flow was generated for debt repayment Consolidated Balance Sheets As of June 30, 2021, total assets decreased to $933.9 million due to lower investment partnership values, while total liabilities significantly decreased to $320.4 million due to debt repayment, leading to an increase in shareholders' equity to $613.5 million Consolidated Balance Sheets (in thousands) | | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $933,895 | $1,017,968 | | Total Current Assets | $152,279 | $147,778 | | Investment Partnerships | $311,878 | $419,550 | | Total Liabilities | $320,403 | $453,140 | | Total Current Liabilities | $141,926 | $288,447 | | Total Shareholders' Equity | $613,492 | $564,828 | Consolidated Statements of Earnings For Q2 2021, the company reported a net loss of $20.7 million due to investment partnership losses, while the first six months saw net earnings of $51.0 million, a significant improvement from the prior year, despite a decrease in total revenues to $185.1 million Consolidated Statements of Earnings (in thousands) | (in thousands) | Q2 2021 (Unaudited) | Q2 2020 | First Six Months 2021 (Unaudited) | First Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $90,787 | $96,502 | $185,075 | $232,202 | | Restaurant operations | $67,326 | $78,764 | $137,280 | $192,908 | | Investment partnership gains (losses) | ($34,191) | $59,248 | $47,575 | ($116,494) | | Net Earnings (Loss) | ($20,737) | $42,466 | $50,970 | ($95,419) | | Net Earnings (Loss) per equivalent Class A share | ($64.04) | $121.51 | $158.06 | ($275.04) | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $187.2 million for the first six months of 2021, primarily from investment partnership distributions, while net cash used in financing activities rose to $153.1 million due to substantial debt repayment Consolidated Statements of Cash Flows (in thousands) | (in thousands) | First Six Months 2021 (Unaudited) | First Six Months 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $187,208 | $98,685 | | Net cash used in investing activities | ($32,839) | ($103,360) | | Net cash used in financing activities | ($153,136) | ($24,156) | | Increase (decrease) in cash | $1,209 | ($28,834) | Notes to Consolidated Financial Statements The notes detail the company's diversified holding structure, the significant impact of investment partnerships, the acquisition of Southern Pioneer Insurance, segment revenue and earnings, and the full repayment of the Steak n Shake credit facility - Biglari Holdings operates as a diversified holding company across insurance, media, restaurants, and oil and gas, with all major investment decisions made by Chairman and CEO Sardar Biglari[15] - The company fully repaid Steak n Shake's $152.5 million term loan on February 19, 2021[51] Revenue by Segment (in thousands) | (in thousands) | Q2 2021 | Q2 2020 | First Six Months 2021 | First Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue by Segment | | | | | | Restaurant Operations | $67,326 | $78,764 | $137,280 | $192,908 | | Insurance Operations | $14,387 | $14,605 | $29,006 | $24,279 | | Southern Oil | $8,365 | $2,151 | $16,957 | $13,525 | | Maxim | $709 | $982 | $1,832 | $1,490 | | Total Revenue | $90,787 | $96,502 | $185,075 | $232,202 | Earnings (Loss) Before Income Taxes (in thousands) | (in thousands) | Q2 2021 | Q2 2020 | First Six Months 2021 | First Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Earnings (Loss) Before Income Taxes | | | | | | Total Operating Businesses | $11,249 | ($787) | $22,575 | ($4,464) | | Investment partnership gains (losses) | ($34,191) | $59,248 | $47,575 | ($116,494) | | Total Earnings (Loss) Before Income Taxes | ($26,935) | $57,230 | $66,788 | ($124,485) | Management's Discussion and Analysis of Financial Condition and Results of Operations The company's financial performance for the first six months of 2021 shows improved operating business contributions of $17.1 million to net earnings, though overall results remain significantly influenced by volatile investment partnership gains of $36.5 million, alongside the strategic repayment of the $152.5 million Steak n Shake term loan Restaurants The restaurant segment's strategic shift to a franchise partner model led to a 40.1% decrease in net sales but a significant increase in franchise fees, resulting in a turnaround to $9.2 million in pre-tax earnings for the first six months of 2021 Store Type (Number of Stores) | Store Type | Dec 31, 2020 (Number of Stores) | June 30, 2021 (Number of Stores) | Change (Number of Stores) | | :--- | :--- | :--- | :--- | | Steak n Shake | | | | | Company-operated | 276 | 230 | (46) | | Franchise Partner | 86 | 131 | +45 | | Traditional Franchise | 194 | 186 | (8) | | Western Sizzlin | | | | | Company-operated | 3 | 3 | 0 | | Franchise | 39 | 38 | (1) | | Total Stores | 598 | 588 | (10) | - Revenue decrease from company-operated restaurants is primarily due to the strategic shift to franchise partner units, altering revenue recognition[98] - As of June 30, 2021, 49 of the 230 company-operated Steak n Shake stores were temporarily closed[92] Insurance Insurance operations, including First Guard and Southern Pioneer, showed improved results for the first six months of 2021, with pre-tax underwriting gain increasing to $6.2 million and total premiums written growing 23% to $27.3 million Insurance Performance (in thousands) | (in thousands) | First Six Months 2021 | First Six Months 2020 | | :--- | :--- | :--- | | Premiums written | $27,265 | $22,163 | | Pre-tax underwriting gain | $6,204 | $4,587 | | Contribution to net earnings | $5,917 | $4,615 | - First Guard's pre-tax underwriting gain for the first six months of 2021 was $5.1 million, an increase from $4.9 million in 2020[110] - Southern Pioneer, acquired in March 2020, achieved a pre-tax underwriting gain of $1.1 million for the first six months of 2021, reversing a prior-year loss[113] Oil and Gas The Southern Oil segment experienced a strong recovery in the first six months of 2021, with revenue increasing to $17.0 million and earnings before income taxes turning around significantly to $6.1 million due to higher commodity prices Oil and Gas Performance (in thousands) | (in thousands) | First Six Months 2021 | First Six Months 2020 | | :--- | :--- | :--- | | Oil and gas revenue | $16,957 | $13,525 | | Earnings before income taxes | $6,065 | $763 | | Contribution to net earnings | $4,691 | $889 | - Performance improvement is linked to the recovery in crude oil prices that began in mid-2020 following the COVID-19 pandemic's initial impact[118] Investment Gains and Investment Partnership Gains Investment partnership results are a highly volatile and significant component of overall earnings, contributing a $36.5 million gain in the first six months of 2021, reversing a prior-year loss, despite a $26.2 million loss in Q2 2021 Investment Partnership Gains (Losses) (in thousands) | Contribution to Net Earnings (in thousands) | Q2 2021 | Q2 2020 | First Six Months 2021 | First Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Investment partnership gains (losses) | ($26,195) | $45,365 | $36,454 | ($88,994) | - The company does not consider quarterly or annual investment fluctuations meaningful for understanding its core operating business results[125] Financial Condition and Liquidity The company maintains strong liquidity with $436.2 million in cash and investments, generating $187.2 million in operating cash flow primarily from investment partnership distributions, which facilitated the full repayment of Steak n Shake's $152.5 million term loan - The company fully repaid Steak n Shake's outstanding term loan balance of $152.5 million on February 19, 2021[136][127] - Increased cash from operating activities was mainly due to $158.1 million in investment partnership distributions in H1 2021, primarily utilized for debt repayment[134] Cash and Investments (Fair Value, in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $28,212 | $24,503 | | Investments | $96,094 | $94,861 | | Fair value of interest in investment partnerships | $551,942 | $590,926 | | Total cash and investments (Fair Value) | $676,248 | $710,290 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk stems from equity investments, where a 10% price change would alter carrying value by $40.8 million, alongside commodity price risk in Southern Oil operations, while foreign currency risk remains minimal - The company's main market risk is from equity investments, where a hypothetical 10% price change would alter carrying value by $40.8 million[142] - Southern Oil's earnings are significantly impacted by fluctuations in oil and gas commodity prices[143] Controls and Procedures The Chief Executive Officer and Controller concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Controller affirmed the effectiveness of the company's disclosure controls and procedures as of June 30, 2021[144] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2021[145] Part II – Other Information Legal Proceedings Shareholder class action lawsuits filed in 2018 against the company and its Board of Directors were dismissed, with the dismissal affirmed on appeal and further review denied by the Indiana Supreme Court, concluding all cases in the company's favor - Shareholder class action lawsuits filed in 2018 alleging breach of fiduciary duty were dismissed, with the dismissal affirmed on appeal and further review denied by the Indiana Supreme Court, concluding all cases in the company's favor[69][70] Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have occurred from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020[147] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, The Lion Fund II, L.P., an affiliated purchaser, acquired shares of the company's common stock through open market transactions without a publicly announced repurchase plan Common Stock Purchases by Affiliated Purchaser | Period | Total Class A Shares Purchased (Number of Shares) | Avg. Price Paid per Share (Class A) (USD) | Total Class B Shares Purchased (Number of Shares) | Avg. Price Paid per Share (Class B) (USD) | | :--- | :--- | :--- | :--- | :--- | | May 1 - May 31, 2021 | 895 | $778.74 | 19,311 | $149.07 | | June 1 - June 30, 2021 | 3,391 | $871.76 | — | — | | Total | 4,286 | | 19,311 | | - The Lion Fund II, L.P., an affiliated purchaser, acquired Class A and Class B common stock through open market transactions between May 11, 2021, and June 16, 2021[148] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[151] Mine Safety Disclosures This item is not applicable to the company - Not applicable[151] Other Information The company reported no other information - None[151] Exhibits This section lists exhibits filed with the Form 10-Q, including certifications by principal executive and financial officers and Interactive Data Files (XBRL) - Filed exhibits include CEO and Controller certifications under Sarbanes-Oxley Act Sections 302 and 906, along with Interactive Data Files[152]