Biglari (BH_A) - 2022 Q2 - Quarterly Report

Part I – Financial Information Financial Statements The company reported a $74.1 million net loss for the first six months of 2022, primarily due to investment partnership losses, reversing prior year's earnings Consolidated Balance Sheets Total assets decreased to $773.4 million as of June 30, 2022, primarily due to a decline in investment partnerships, with corresponding decreases in liabilities and equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $773,352 | $894,807 | | Cash and cash equivalents | $40,512 | $42,349 | | Investment partnerships | $151,753 | $250,399 | | Total Liabilities | $267,616 | $307,111 | | Total Shareholders' Equity | $505,736 | $587,696 | Consolidated Statements of Earnings The company reported a net loss of $73.8 million in Q2 2022 and $74.1 million for the first six months, primarily due to significant investment partnership losses Key Earnings Data (in thousands, except per share) | Metric | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $92,367 | $90,787 | $177,739 | $185,075 | | Investment partnership gains (losses) | $(105,241) | $(34,191) | $(111,902) | $47,575 | | Net Earnings (Loss) | $(73,780) | $(20,737) | $(74,078) | $50,970 | | Net earnings (loss) per Class A share | $(244.37) | $(64.04) | $(244.29) | $158.06 | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased to $34.2 million for the first six months of 2022, primarily due to lower investment partnership distributions Cash Flow Summary - First Six Months (in thousands) | Activity | 2022 (Unaudited) | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,204 | $187,208 | | Net cash used in investing activities | $(32,819) | $(32,839) | | Net cash used in financing activities | $(3,134) | $(153,136) | | Increase (decrease) in cash | $(1,837) | $1,209 | - The significant drop in operating cash flow was primarily attributed to lower distributions from investment partnerships, which were $4,500 thousand in the first six months of 2022 compared to $158,100 thousand in the same period of 2021[12] Notes to Consolidated Financial Statements The notes detail diverse business activities, highlighting a $111.9 million pre-tax loss from investment partnerships that overshadowed profitable operating segments - Biglari Holdings is a holding company with diverse businesses including insurance, media, restaurants, and oil & gas. Operations are decentralized, but major investment and capital allocation decisions are centralized under Chairman and CEO Sardar Biglari, who holds a controlling economic (66.3%) and voting (70.4%) interest[16][17] Investment Partnership Carrying Value (in thousands) | Description | Fair Value | Company Stock Adjustment | Carrying Value | | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2021 | $474,201 | $223,802 | $250,399 | | Investment partnership losses | $(144,748) | $(32,846) | $(111,902) | | Balance at June 30, 2022 | $349,339 | $197,586 | $151,753 | Segment Earnings Before Income Taxes - First Six Months (in thousands) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Restaurant Operations | $8,441 | $9,152 | | Insurance Operations | $3,795 | $7,556 | | Southern Oil | $12,342 | $6,065 | | Maxim | $165 | $923 | | Total Operating Businesses | $24,743 | $22,575 | | Investment partnership gains (losses) | $(111,902) | $47,575 | | Total Earnings (Loss) Before Taxes | $(96,958) | $66,788 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the $74.1 million net loss for the first six months of 2022 to investment partnership losses, while core operating businesses showed increased earnings Disaggregated Net Earnings (Loss) - First Six Months (in thousands) | Component | 2022 | 2021 | | :--- | :--- | :--- | | Total operating businesses | $13,700 | $13,010 | | Investment gains | $(2,630) | $1,506 | | Investment partnership gains (losses) | $(85,148) | $36,454 | | Total Net Earnings (Loss) | $(74,078) | $50,970 | - The decrease in restaurant net sales is primarily due to the strategic shift from company-operated units to franchise partner units. While this reduces top-line 'net sales', it increases 'franchise partner fees'. As of June 30, 2022, there were 177 franchise partner units, up from 131 a year prior[100][101] - The insurance segment's pre-tax underwriting gain decreased to $1,800 thousand in the first six months of 2022 from $6,200 thousand in 2021, primarily due to higher loss ratios at both First Guard and Southern Pioneer[108][110] - The Oil and Gas segment's contribution to net earnings nearly doubled to $9,300 thousand in the first half of 2022 from $4,700 thousand in 2021, driven by higher commodity prices[115] Quantitative and Qualitative Disclosures About Market Risk The company faces significant market risk from concentrated equity investments, where a 10% market change could impact carrying value by $22,352 thousand, and commodity price risk in its oil and gas segment - The company holds concentrated positions in common stocks, making it vulnerable to market volatility. A hypothetical 10% change in the market price of its investments would result in a corresponding change in carrying value of $22,352 thousand[135][136] - The Southern Oil subsidiary's operations and earnings are significantly affected by changes in oil and gas commodity prices[138] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The Chief Executive Officer and Controller concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[139] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2022[140] Part II – Other Information Legal Proceedings The company is involved in various legal proceedings, but management believes the ultimate liability will not materially affect financial results - Information regarding legal proceedings is incorporated by reference from Note 13 of the financial statements, which states that ultimate liability is not expected to have a material effect on the company[72][142] Risk Factors No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[143] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files - Exhibits filed include certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and Interactive Data Files[143]