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Biglari
BH
#5996
Rank
A$1.46 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
A$467.66
Share price
1.06%
Change (1 day)
37.86%
Change (1 year)
๐Ÿ” Restaurant chains๐Ÿด Food
Categories
  1. Biglari
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2023 Q2

Biglari - 10-Q quarterly report FY2023 Q2


Text size:
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 001-38477
BIGLARI HOLDINGS INC.
(Exact name of registrant as specified in its charter)

Indiana82-3784946
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)

19100 Ridgewood Parkway,
Suite 1200
San Antonio,Texas78259
(Address of principal executive offices)(Zip Code)
(210) 344-3400
Registrant’s telephone number, including area code
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of each exchange on which registered
Class A Common Stock, no par value BH.ANew York Stock Exchange
Class B Common Stock, no par valueBHNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No ¨


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☒
  Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Number of shares of common stock outstanding as of August 1, 2023:
Class A common stock –  206,864 
Class B common stock –2,068,640 

BIGLARI HOLDINGS INC.
INDEX
Page No.
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31
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31
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PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

BIGLARI HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30,
2023		December 31,
2022
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$30,881 $37,467 
Investments88,259 69,466 
Receivables22,582 29,375 
Inventories3,597 3,851 
Other current assets7,757 10,495 
Total current assets153,076 150,654 
Property and equipment388,777 400,725 
Operating lease assets33,678 34,739 
Goodwill and other intangible assets76,656 76,550 
Investment partnerships228,736 155,794 
Other assets9,073 10,012 
Total assets$889,996 $828,474 
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Accounts payable and accrued expenses$73,376 $78,616 
Loss and loss adjustment expenses14,680 16,805 
Unearned premiums14,320 12,495 
Current portion of lease obligations15,470 16,981 
Line of credit3,600 10,000 
Total current liabilities121,446 134,897 
Lease obligations89,599 91,844 
Deferred taxes48,201 31,343 
Asset retirement obligations14,297 14,068 
Other liabilities99 754 
Total liabilities273,642 272,906 
Shareholders’ equity
Common stock1,138 1,138 
Additional paid-in capital385,594 381,788 
Retained earnings643,332 576,510 
Accumulated other comprehensive loss(2,780)(2,790)
Treasury stock, at cost(410,930)(409,680)
Biglari Holdings Inc. shareholders’ equity616,354 546,966 
Noncontrolling interests— 8,602 
Total shareholders’ equity616,354 555,568 
Total liabilities and shareholders’ equity$889,996 $828,474 
See accompanying Notes to Consolidated Financial Statements.

1
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
Second QuarterFirst Six Months
2023202220232022
(Unaudited)(Unaudited)
Revenues  
Restaurant operations$64,491 $60,324 $125,620 $120,171 
Insurance premiums and other17,547 16,354 33,776 31,433 
Oil and gas10,741 14,440 22,964 24,252 
Licensing and media761 1,249 1,356 1,883 
Total revenues93,540 92,367 183,716 177,739 
Costs and expenses
Restaurant cost of sales34,928 35,955 67,666 71,307 
Insurance losses and underwriting expenses13,267 13,793 26,280 27,567 
Oil and gas production costs3,512 3,843 8,983 7,662 
Licensing and media costs499 677 951 1,630 
Selling, general and administrative19,009 16,582 36,272 32,806 
Impairments853 20 1,629 20 
Depreciation, depletion, and amortization10,094 7,800 20,034 15,671 
Interest expense on leases1,301 1,385 2,608 2,797 
Interest expense on borrowings40 — 207 — 
Total costs and expenses83,503 80,055 164,630 159,460 
Other income
Investment gains (losses)353 (3,560)3,991 (3,335)
Investment partnership gains (losses)(7,496)(105,241)65,092 (111,902)
Total other income (expenses)(7,143)(108,801)69,083 (115,237)
Earnings (loss) before income taxes2,894 (96,489)88,169 (96,958)
Income tax expense (benefit)1,018 (22,709)20,756 (22,880)
Net earnings (loss)1,876 (73,780)67,413 (74,078)
Earnings attributable to noncontrolling interest(60)— 591 — 
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders$1,936 $(73,780)$66,822 $(74,078)
Net earnings (loss) per average equivalent Class A share *$6.64 $(244.37)$229.00 $(244.29)
*Net earnings (loss) per average equivalent Class B share outstanding are one-fifth of the average equivalent Class A share or $1.33 and $45.80 for the second quarter and first six months of 2023, respectively, and $(48.87) and $(48.86) for the second quarter and first six months of 2022, respectively.
See accompanying Notes to Consolidated Financial Statements.
2
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
 Second QuarterFirst Six Months
 2023202220232022
 (Unaudited)(Unaudited)
Net earnings (loss)$1,876 $(73,780)$67,413 $(74,078)
Foreign currency translation(322)(1,021)10 (1,252)
Comprehensive income (loss)1,554 (74,801)67,423 (75,330)
Comprehensive income (loss) attributable to noncontrolling interests(60)— 591 — 
Total comprehensive income (loss) attributable to Biglari Holdings Inc. shareholders$1,614 $(74,801)$66,832 $(75,330)
See accompanying Notes to Consolidated Financial Statements.

3
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Six Months
20232022
(Unaudited)
Operating activities  
Net earnings (loss)$67,413 $(74,078)
Adjustments to reconcile net earnings (loss) to operating cash flows:
Depreciation, depletion, and amortization20,034 15,671 
Provision for deferred income taxes16,842 (28,688)
Asset impairments1,629 20 
Gains on sale of assets(4,194)(165)
Investment and investment partnership (gains) losses(69,083)115,237 
Distributions from investment partnerships— 4,500 
Changes in receivables, inventories and other assets4,989 1,290 
Changes in accounts payable and accrued expenses(6,112)417 
Net cash provided by operating activities31,518 34,204 
Investing activities
Capital expenditures(10,557)(16,413)
Proceeds from property and equipment disposals9,670 109 
Purchases of noncontrolling interests(5,387)— 
Purchases of interests in limited partnerships(9,100)(19,386)
Purchases of investments(58,926)(78,142)
Sales of investments and redemptions of fixed maturity securities45,826 81,013 
Net cash used in investing activities(28,474)(32,819)
Financing activities
Proceeds from line of credit5,000 — 
Payments on line of credit(11,400)— 
Principal payments on direct financing lease obligations(3,078)(3,134)
Net cash used in financing activities(9,478)(3,134)
Effect of exchange rate changes on cash98 (88)
Decrease in cash, cash equivalents and restricted cash(6,336)(1,837)
Cash, cash equivalents and restricted cash at beginning of year38,805 43,687 
Cash, cash equivalents and restricted cash at end of second quarter$32,469 $41,850 
June 30,
20232022
(Unaudited)
Cash and cash equivalents$30,881 $40,512 
Restricted cash in other long-term assets1,588 1,338 
Cash, cash equivalents and restricted cash at end of second quarter$32,469 $41,850 
See accompanying Notes to Consolidated Financial Statements.

4
BIGLARI HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in thousands)
Biglari Holdings Inc. Shareholders’ Equity
Common
Stock		Additional Paid-In
Capital		Retained
Earnings		Accumulated Other Comprehensive Income (Loss)Treasury
Stock		Non-controlling InterestsTotal
For the second quarter and first six months of 2023
Balance at December 31, 2022$1,138 $381,788 $576,510 $(2,790)$(409,680)$8,602 $555,568 
Net earnings (loss)64,886 651 65,537 
Other comprehensive income332 332 
Adjustment for holdings in investment partnerships(239)(239)
Balance at March 31, 2023$1,138 $381,788 $641,396 $(2,458)$(409,919)$9,253 $621,198 
Net earnings (loss)1,936 (60)1,876 
Other comprehensive loss(322)(322)
Adjustment for holdings in investment partnerships(1,011)(1,011)
Purchases of noncontrolling interests3,806 (9,193)(5,387)
Balance at June 30, 2023$1,138 $385,594 $643,332 $(2,780)$(410,930)$— $616,354 

For the second quarter and first six months of 2022
Balance at December 31, 2021$1,138 $381,788 $608,528 $(1,907)$(401,851)$— $587,696 
Net earnings (loss)(298)(298)
Other comprehensive loss(231)(231)
Adjustment for holdings in investment partnerships130 130 
Balance at March 31, 2022$1,138 $381,788 $608,230 $(2,138)$(401,721)$— $587,297 
Net earnings (loss)(73,780)(73,780)
Other comprehensive loss(1,021)(1,021)
Adjustment for holdings in investment partnerships(6,760)(6,760)
Balance at June 30, 2022$1,138 $381,788 $534,450 $(3,159)$(408,481)$— $505,736 
See accompanying Notes to Consolidated Financial Statements.
5
BIGLARI HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(dollars in thousands, except share and per share data)
Note 1. Summary of Significant Accounting Policies
Description of Business
The accompanying unaudited consolidated financial statements of Biglari Holdings Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary to present fairly the results of the interim periods have been included and consist only of normal recurring adjustments. The results for the interim periods shown are not necessarily indicative of results for the year. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2022.
Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas. 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 the Company.

Biglari Holdings’ management system combines decentralized operations with centralized financial decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari.
As of June 30, 2023, Mr. Biglari beneficially owns shares of the Company that represent approximately 66.3% of the economic interest and approximately 70.4% of the voting interest.

Business Acquisition
On September 14, 2022, the Company purchased Series A Preferred Stock (the “Preferred Shares”) of Abraxas Petroleum Corporation (“Abraxas Petroleum”) for a purchase price of $80 million. On October 26, 2022, the Company exchanged the Preferred Shares to 90% of the outstanding common stock of Abraxas Petroleum. On June 14, 2023, Biglari Holdings purchased the remaining 10% of the outstanding common stock of Abraxas Petroleum.

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including Steak n Shake Inc., Western Sizzlin Corporation, First Guard Insurance Company, Maxim Inc., Southern Pioneer Property & Casualty Insurance Company, Southern Oil Company and Abraxas Petroleum. Intercompany accounts and transactions have been eliminated in consolidation.
Note 2. Earnings Per Share
Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. The shares of Company stock attributable to our limited partner interest in The Lion Fund, L.P., and The Lion Fund II, L.P., (collectively, 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.

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Note 2. Earnings Per Share (continued)
The following table presents shares authorized, issued and outstanding on June 30, 2023 and December 31, 2022.
 June 30, 2023December 31, 2022
 Class AClass BClass AClass B
Common stock authorized500,000 10,000,000 500,000 10,000,000 
Common stock issued and outstanding206,864 2,068,640 206,864 2,068,640 

The Company has applied the “two-class method” of computing earnings per share as prescribed in Accounting Standards Codification (“ASC”) 260, “Earnings Per Share”. (Class B shares are economically equivalent to one-fifth of a Class A share.) The equivalent Class A common stock applied for computing earnings per share excludes the proportional shares of Biglari Holdings’ stock held by the investment partnerships. In the tabulation below is the weighted average equivalent Class A common stock for earnings per share.
Second QuarterFirst Six Months
2023202220232022
Equivalent Class A common stock outstanding620,592 620,592 620,592 620,592 
Proportional ownership of Company stock held by investment partnerships328,898 318,674 328,790 317,354 
Equivalent Class A common stock for earnings per share291,694 301,918 291,802 303,238 
Note 3. Investments
We classify investments in fixed maturity securities at the acquisition date as available-for-sale. Realized gains and losses on disposals of investments are determined on a specific identification basis. Dividends earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating result. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.

Investment gains for the second quarter and first six months of 2023 were $353 and $3,991, respectively. Investment losses in the second quarter and first six months of 2022 were $3,560 and $3,335, respectively.
Note 4. 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 these shares 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. 
Biglari Capital Corp. is the general partner of the investment partnerships. Biglari Capital Corp. is solely owned by Mr. Biglari.


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Note 4. Investment Partnerships (continued)

The fair value and adjustment for Company common stock held by the investment partnerships to determine the carrying value of our partnership interest are presented below.
 Fair ValueCompany
Common Stock		Carrying Value
Partnership interest at December 31, 2022$383,004 $227,210 $155,794 
Investment partnership gains (losses)157,768 92,676 65,092 
Contributions (net of distributions)9,100 9,100 
Changes in proportionate share of Company stock held1,250 (1,250)
Partnership interest at June 30, 2023$549,872 $321,136 $228,736 
 Fair ValueCompany
Common Stock		Carrying Value
Partnership interest at December 31, 2021$474,201 $223,802 $250,399 
Investment partnership gains (losses)(144,748)(32,846)(111,902)
Contributions (net of distributions)19,886 19,886 
Changes in proportionate share of Company stock held6,630 (6,630)
Partnership interest at June 30, 2022$349,339 $197,586 $151,753 
The carrying value of the investment partnerships net of deferred taxes is presented below.
 June 30,
2023		December 31, 2022
Carrying value of investment partnerships$228,736 $155,794 
Deferred tax liability related to investment partnerships(38,926)(23,643)
Carrying value of investment partnerships net of deferred taxes$189,810 $132,151 
Because of a transaction that occurred between The Lion Fund, L.P., and The Lion Fund II, L.P., in 2022, we expect that a majority of the $38,926 deferred tax liability enumerated above will not become due until the dissolution of the investment partnerships. In effect, the tax-basis cost increased for the common stock of certain unaffiliated securities held by the investment partnerships.
The Company’s proportionate share of Company stock held by investment partnerships at cost was $410,930 and $409,680 at June 30, 2023 and December 31, 2022, respectively. 
The carrying value of the partnership interest approximates fair value adjusted by the value of held Company stock.  Fair value of our partnership interest is assessed according to our proportional ownership interest of the fair value of investments held by the investment partnerships. Unrealized gains and losses on marketable securities held by the investment partnerships affect our net earnings. 
Gains/losses from investment partnerships recorded in the Company’s consolidated statements of earnings are presented below.
 Second QuarterFirst Six Months
 2023202220232022
Gains (losses) from investment partnerships$(7,496)$(105,241)$65,092 $(111,902)
Tax expense (benefit)(1,997)(24,894)14,562 (26,754)
Contribution to net earnings (loss)$(5,499)$(80,347)$50,530 $(85,148)
On December 31 of each year, the general partner of the investment partnerships, Biglari Capital Corp., 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 Corp. 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.
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Note 4. Investment Partnerships (continued)

There were no incentive reallocations accrued during the first six months of 2023 and 2022.
Summarized financial information for The Lion Fund, L.P. and The Lion Fund II, L.P. is presented below.
 Equity in Investment Partnerships
 Lion FundLion Fund II
Total assets as of June 30, 2023$423,880 $383,192 
Total liabilities as of June 30, 2023$19,939 $160,906 
Revenue for the first six months of 2023$117,282 $68,060 
Earnings for the first six months of 2023$116,952 $63,273 
Biglari Holdings’ ownership interest as of June 30, 202388.8 %86.0 %
Total assets as of December 31, 2022$285,071 $330,832 
Total liabilities as of December 31, 2022$10,517 $167,847 
Revenue for the first six months of 2022$(43,115)$(119,441)
Earnings for the first six months of 2022$(43,237)$(120,132)
Biglari Holdings’ ownership interest as of June 30, 202287.9 %88.9 %
Revenue in the financial information of the investment partnerships, summarized above, includes investment income and unrealized gains and losses on investments.
Note 5. Property and Equipment
Property and equipment is composed of the following.
 June 30,
2023		December 31,
2022
Land$139,853 $143,313 
Buildings151,390 151,627 
Land and leasehold improvements153,788 151,496 
Equipment216,167 222,661 
Oil and gas properties145,012 144,888 
Construction in progress1,296 2,238 
 807,506 816,223 
Less accumulated depreciation, depletion, and amortization(418,729)(415,498)
Property and equipment, net$388,777 $400,725 
Depletion expense related to oil and gas properties was $5,386 and $2,772 during the first six months of 2023 and 2022, respectively.
The Company recorded an impairment to restaurant long-lived assets of $833 in the second quarter of 2023 and $1,609 in the first six months of 2023 related to underperforming stores. There were no impairments of property and equipment in the second quarter and first six months of 2022.

Property and equipment held for sale of $1,671 and $4,700 are recorded in other assets as of June 30, 2023 and December 31, 2022, respectively. The assets classified as held for sale at June 30, 2023 include five properties owned by Steak n Shake, which were previously company-operated restaurants. During the first six months of 2023, Steak n Shake sold four properties for a gain of $4,414. Abraxas Petroleum sold its office building with no gain or loss recorded.
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Note 6. Goodwill and Other Intangible Assets
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.
 Goodwill
Goodwill at December 31, 2022
Goodwill $53,813 
Accumulated impairment losses(300)
$53,513 
Change in foreign exchange rates during the first six months of 20239 
Goodwill at June 30, 2023
$53,522 

Goodwill and indefinite-lived intangible asset impairment reviews include determining the estimated fair values of our reporting units and indefinite-lived intangible assets. The key assumptions and inputs used in such determinations may include forecasting revenue and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment reviews. Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may differ materially for the forecasts. If the carrying value of the indefinite-lived intangible asset exceeds fair value, the excess is charged to earnings as an impairment loss. If the carrying value of a reporting unit exceeds the estimated fair value of the reporting unit, then the excess, limited to the carrying amount of goodwill, will be charged to earnings as an impairment loss. There was no impairment recorded for goodwill during the first six months of 2023 or 2022. There was a $20 impairment recorded for intangible assets during the first six months of 2023 and $20 impairment recorded in the first six months of 2022.
Other Intangible Assets
Intangible assets with indefinite lives are composed of the following.
 Trade NamesLease RightsTotal
Balance at December 31, 2022
Intangibles$15,876 $10,889 $26,765 
Accumulated impairment losses— (3,728)(3,728)
15,876 7,161 23,037 
Impairment— (20)(20)
Change in foreign exchange rates during the first six months of 2023— 117 117 
Balance at June 30, 2023
$15,876 $7,258 $23,134 
Note 7. Restaurant Operations Revenues
Restaurant operations revenues were as follows.
 Second QuarterFirst Six Months
 2023202220232022
Net sales$39,524 $37,681 $76,418 $75,897 
Franchise partner fees19,070 16,425 36,982 32,049 
Franchise royalties and fees4,125 5,237 8,383 10,383 
Other1,772 981 3,837 1,842 
 $64,491 $60,324 $125,620 $120,171 

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Note 7. Restaurant Operations Revenues (continued)
Net Sales
Net sales are composed of retail sales of food through company-operated stores. Company-operated store revenues are recognized, net of discounts and sales taxes, when our obligation to perform is satisfied at the point of sale. Sales taxes related to these sales are collected from customers and remitted to the appropriate taxing authority and are not reflected in the Company’s consolidated statements of earnings as revenue.
Franchise Partner Fees
Franchise partner fees are composed of up to 15% of sales as well as 50% of profits. We are therefore fully affected by the operating results of the business, unlike in a traditional franchising arrangement, where the franchisor obtains a royalty fee based on sales only. We generate most of our revenue from our share of the franchise partners’ profits. An initial franchise fee of ten thousand dollars is recognized when the operator becomes a franchise partner. The Company recognizes franchise partner fees monthly as underlying restaurant sales occur.
The Company leases or subleases property and equipment to franchise partners under lease arrangements. Both real estate and equipment rental payments are charged to franchise partners and are recognized in accordance with ASC 842, “Leases”. During the second quarter of 2023 and 2022, restaurant operations recognized $5,763 and $5,057, respectively, in franchise partner fees related to rental income. During the first six months ended June 30, 2023 and June 30, 2022, restaurant operations recognized $11,338 and $9,831, respectively, in franchise partner fees related to rental income.
Franchise Royalties and Fees
Franchise royalties and fees from Steak n Shake and Western Sizzlin franchisees are based upon a percentage of sales of the franchise restaurant and are recognized as earned. Franchise royalties are billed on a monthly basis. Initial franchise fees when a new restaurant opens or at the start of a new franchise term are recorded as deferred revenue when received and recognized as revenue over the term of the franchise agreement.
Other Revenue
Restaurant operations sells gift cards to customers that can be redeemed for retail food sales within our stores. Gift cards are recorded as deferred revenue when issued and are subsequently recorded as net sales upon redemption. Restaurant operations estimates breakage related to gift cards when the likelihood of redemption is remote. This estimate utilizes historical trends based on the vintage of the gift card. Breakage on gift cards is recorded as other revenue in proportion to the rate of gift card redemptions by vintage.
Note 8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses include the following.
 June 30,
2023		December 31,
2022
Accounts payable$26,103 $28,431 
Gift card and other marketing9,287 12,028 
Insurance accruals4,223 6,012 
Salaries, wages and vacation7,020 4,400 
Deferred revenue4,323 4,445 
Taxes payable15,818 14,896 
Oil and gas payable4,467 3,877 
Other2,135 4,527 
Accounts payable and accrued expenses$73,376 $78,616 

Note 9. Lines of Credit
Biglari Holdings Line of Credit
On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000. The line of credit will be available on a revolving basis until September 12, 2024. The line of credit includes customary covenants, as well as financial maintenance covenants. The balance of the line of credit on June 30, 2023 was $3,600 and $10,000 on December 31, 2022. On June 30, 2023, the interest rate was 7.8%.

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Note 9. Lines of Credit (continued)
Western Sizzlin Revolver
Western Sizzlin’s available line of credit is $500. As of June 30, 2023 and December 31, 2022, Western Sizzlin had no debt outstanding under its revolver.

Note 10. Unpaid Losses and Loss Adjustment Expenses
Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under insurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, net of reinsurance, for each of the six month periods ended June 30, 2023 and 2022 follows.
20232022
Balances at beginning of year:
Gross liabilities$17,520 $14,993 
Reinsurance recoverable on unpaid losses(715)(1,892)
Net liabilities16,805 13,101 
Incurred losses and loss adjustment expenses:
Current accident year19,984 19,669 
Prior accident years(3,016)(837)
Total16,968 18,832 
Paid losses and loss adjustment expenses:
Current accident year14,426 13,259 
Prior accident years4,667 5,200 
Total19,093 18,459 
Balances at June 30:
Net liabilities14,680 13,474 
Reinsurance recoverable on unpaid losses1,150 751 
Gross liabilities$15,830 $14,225 
Incurred loss and loss adjustment expenses of $16,968 and $18,832 in the first six months of 2023 and 2022, respectively, were recorded in earnings and related to insured events occurring in the current period and events occurring in all prior periods. Incurred and paid loss and loss adjustment expenses are net of reinsurance recoveries. We recorded net reductions of estimated ultimate liabilities for prior accident years of $3,016 and $837 in the first six months of 2023 and 2022, respectively, which produced corresponding reductions in incurred losses and loss adjustment expenses in those periods. These reductions as a percentage of the net liabilities at the beginning of each year were 17.9% in 2023 and 6.4% in 2022.

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Note 11. Lease Assets and Obligations
Lease obligations include the following.
Current portion of lease obligationsJune 30,
2023		December 31,
2022
Finance lease liabilities$1,264 $1,237 
Finance obligations5,129 5,161 
Operating lease liabilities9,077 10,583 
Total current portion of lease obligations$15,470 $16,981 
Long-term lease obligations
Finance lease liabilities$3,465 $4,129 
Finance obligations58,028 58,868 
Operating lease liabilities28,106 28,847 
Total long-term lease obligations$89,599 $91,844 
Nature of Leases
Steak n Shake and Western Sizzlin operate restaurants that are located on sites owned by us or leased from third parties. In addition, they own sites and lease sites from third parties that are leased and/or subleased to franchisees.
Lease Costs
A significant portion of our operating and finance lease portfolio includes restaurant locations. We recognize fixed lease expense for operating leases on a straight-line basis over the lease term. For finance leases, we recognize amortization expense on the right-of-use asset and interest expense on the lease liability over the lease term.
Total lease cost consists of the following.
Second QuarterFirst Six Months
2023202220232022
Finance lease costs:
Amortization of right-of-use assets$242 $351 $484 $714 
Interest on lease liabilities86 108 177 223 
Operating and variable lease costs3,081 3,593 6,248 7,205 
Sublease income(3,054)(2,906)(6,145)(5,592)
Total lease costs$355 $1,146 $764 $2,550 
Supplemental cash flow information related to leases is as follows.
 First Six Months
 20232022
Cash paid for amounts included in the measurement of lease liabilities:  
Financing cash flows from finance leases$636 $800 
Operating cash flows from finance leases$177 $223 
Operating cash flows from operating leases$6,689 $6,266 



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Note 11. Lease Assets and Obligations (continued)
Supplemental balance sheet information related to leases is as follows.
June 30,
2023		December 31,
2022
Finance leases:
Property and equipment, net$3,337 $4,352 
Weighted-average lease terms and discount rates are as follows.
June 30,
2023
Weighted-average remaining lease terms:
Finance leases3.89 years
Operating leases5.27 years
Weighted-average discount rates:
Finance leases7.0 %
Operating leases7.0 %
Maturities of lease liabilities as of June 30, 2023 are as follows.
YearOperating
Leases		Finance
Leases
2023$5,947 $756 
202410,327 1,534 
20258,654 1,298 
20266,118 959 
20273,820 623 
After 20279,489 232 
Total lease payments44,355 5,402 
Less interest7,172 673 
Total lease liabilities$37,183 $4,729 
Lease Income
The components of lease income recorded in restaurant operations are as follows.
Second QuarterFirst Six Months
2023202220232022
Operating lease income$4,044 $3,945 $8,129 $7,652 
Variable lease income1,921 1,426 3,705 2,756 
Total lease income$5,965 $5,371 $11,834 $10,408 


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Note 11. Lease Assets and Obligations (continued)
The following table displays the Company’s future minimum rental receipts for non-cancelable leases and subleases as of June 30, 2023. Franchise partner leases and subleases are short-term leases and have been excluded from the table.

Operating Leases
YearSubleasesOwned Properties
2023$348 $159 
2024581 396 
2025454 404 
2026134 407 
2027116 407 
After 2027125 3,014 
Total future minimum receipts$1,758 $4,787 
Note 12. Income Taxes
In determining the quarterly provision for income taxes, the Company used an estimated annual effective tax rate for the first six months of 2023 and 2022. Our periodic effective income tax rate is affected by the relative mix of pre-tax earnings or losses and underlying income tax rates applicable to the various taxing jurisdictions.
Income tax expense for the second quarter of 2023 was $1,018 compared to an income tax benefit of $22,709 for the second quarter of 2022.  Income tax expense for the first six months of 2023 was $20,756 compared to an income tax benefit of $22,880 for the first six months of 2022. The variance in income taxes between 2023 and 2022 is attributable to taxes on income generated by the investment partnerships.  Investment partnership pre-tax losses were $7,496 during the second quarter of 2023 compared to pre-tax losses of $105,241 during the second quarter of 2022. Investment partnership pre-tax gains were $65,092 during the first six months of 2023 compared to pre-tax losses of $111,902 during the first six months of 2022. 
Note 13. 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 flow.
Note 14. Fair Value of Financial Assets
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.

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Note 14. Fair Value of Financial Assets (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 recorded at fair value in the consolidated balance sheets:
Cash equivalents: Cash equivalents primarily consist of money market funds which are classified as Level 1 of the fair value hierarchy.
Equity securities: The Company’s investments in equity securities are classified as Levels 1 and 2 of the fair value hierarchy. 
Bonds: The Company’s investments in bonds consist of both corporate and government debt. Bonds are classified as Level l 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 publicly traded securities, each of which are classified as Level 1 of the fair value hierarchy.

As of June 30, 2023 and December 31, 2022, the fair values of financial assets were as follows.
June 30, 2023December 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents$16,563 $— $— $16,563 $17,608 $— $— $17,608 
Equity securities
Consumer goods22,761 311 — 23,072 17,274 — — 17,274 
Other2,927 — — 2,927 2,031 — — 2,031 
Bonds
Government61,467 — — 61,467 48,456 — — 48,456 
Corporate1,193 — — 1,193 2,199 — — 2,199 
Non-qualified deferred compensation plan investments— — — — 699 — — 699 
Total assets at fair value$104,911 $311 $— $105,222 $88,267 $— $— $88,267 
There were no changes in our valuation techniques used to measure fair values on a recurring basis.
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Note 15. Related Party Transactions
Service Agreement
The Company is party to a service agreement with Biglari Enterprises LLC (“Biglari Enterprises”) under which Biglari Enterprises provides business and administrative related services to the Company. Biglari Enterprises is owned by Mr. Biglari.

The Company paid Biglari Enterprises $4,200 in service fees during the first six months of 2023 and 2022. The service agreement does not alter the hurdle rate connected with the incentive reallocation paid to Biglari Capital Corp.  
Incentive Agreement
The Incentive Agreement establishes a performance-based annual incentive payment for Mr. Biglari contingent upon the growth in adjusted equity in each year attributable to our operating businesses. In order for Mr. Biglari to receive any incentive, our operating businesses must achieve an annual increase in shareholders’ equity in excess of 6% (the “hurdle rate”) above the previous highest level (the “high-water mark”). Mr. Biglari will receive 25% of any incremental book value created above the high-water mark plus the hurdle rate.
Note 16. Business Segment Reporting
Our reportable business segments are organized in a manner that reflects how management views those business activities. Our restaurant operations include Steak n Shake and Western Sizzlin. Our insurance operations include First Guard and Southern Pioneer.  Our oil and gas operations include Southern Oil and Abraxas Petroleum. The Company also reports segment information for Maxim. Other business activities not specifically identified with reportable business segments are presented in corporate. 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.
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Note 16. Business Segment Reporting (continued)
A disaggregation of our consolidated data for the second quarters and first six months of 2023 and 2022 is presented in the tables which follow.
Revenues
Second QuarterFirst Six Months
2023202220232022
Operating Businesses:
Restaurant Operations:
Steak n Shake$61,577 $57,742 $120,064 $115,495 
Western Sizzlin2,914 2,582 5,556 4,676 
Total Restaurant Operations64,491 60,324 125,620 120,171 
Insurance Operations:
Underwriting
First Guard9,215 9,015 18,114 17,746 
Southern Pioneer6,756 6,211 12,621 11,649 
Investment income and other1,576 1,128 3,041 2,038 
Total Insurance Operations17,547 16,354 33,776 31,433 
Oil and Gas Operations:
Abraxas Petroleum5,931 — 13,183 — 
Southern Oil4,810 14,440 9,781 24,252 
Total Oil and Gas Operations10,741 14,440 22,964 24,252 
Maxim761 1,249 1,356 1,883 
$93,540 $92,367 $183,716 $177,739 


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Note 16. Business Segment Reporting (continued)
 Earnings (Losses) Before Income Taxes
 Second QuarterFirst Six Months
 2023202220232022
Operating Businesses:
Restaurant Operations:
Steak n Shake$8,634 $3,615 $15,959 $7,813 
Western Sizzlin593 396 1,065 628 
Total Restaurant Operations9,227 4,011 17,024 8,441 
Insurance Operations:
Underwriting:
First Guard3,154 1,714 5,016 2,446 
Southern Pioneer(451)(281)(562)(618)
Investment income and other1,265 998 2,301 1,967 
Total Insurance Operations3,968 2,431 6,755 3,795 
Oil and Gas Operations:
Abraxas Petroleum1,845 — 3,054 — 
Southern Oil1,045 8,421 1,939 12,342 
Total Oil and Gas Operations2,890 8,421 4,993 12,342 
Maxim208 501 330 165 
Interest expense not allocated to segments(40)— (207)— 
Total Operating Businesses16,253 15,364 28,895 24,743 
Corporate and other(6,216)(3,052)(9,809)(6,464)
Investment gains (losses)353 (3,560)3,991 (3,335)
Investment partnership gains (losses)(7,496)(105,241)65,092 (111,902)
 $2,894 $(96,489)$88,169 $(96,958)
19

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 
(dollars in thousands except per share data)
Overview
Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance, licensing and media, restaurants, and oil and gas. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company.

Biglari Holdings’ management system combines decentralized operations with centralized financial decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari.
As of June 30, 2023, Mr. Biglari beneficially owns shares of the Company that represent approximately 66.3% of the economic interest and 70.4% of the voting interest.
On September 14, 2022, the Company purchased Series A Preferred Stock (the “Preferred Shares”) of Abraxas Petroleum Corporation for a purchase price of $80 million. On October 26, 2022, the Company exchanged the Preferred Shares for 90% of the outstanding common stock of Abraxas Petroleum. On June 14, 2023, Biglari Holdings purchased the remaining 10% of the outstanding common stock of Abraxas Petroleum.
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders are disaggregated in the table that follows. Amounts are recorded after deducting income taxes. 
 Second QuarterFirst Six Months
 2023202220232022
Operating businesses:  
Restaurant$6,935 $3,006 $12,775 $6,268 
Insurance3,132 1,859 5,301 2,903 
Oil and gas2,150 6,369 3,820 9,293 
Brand licensing156 375 247 124 
Interest expense(31)— (160)— 
Corporate and other(5,243)(2,237)(8,241)(4,888)
Total operating businesses7,099 9,372 13,742 13,700 
Investment gains276 (2,805)3,141 (2,630)
Investment partnership gains (losses)(5,499)(80,347)50,530 (85,148)
Net earnings (loss)1,876 (73,780)67,413 (74,078)
Earnings (loss) attributable to noncontrolling interest(60)— 591 — 
Net earnings (loss) attributable to Biglari Holdings Inc. shareholders$1,936 $(73,780)$66,822 $(74,078)

20

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Restaurants
Our restaurant businesses, which include Steak n Shake and Western Sizzlin, comprise 521 company-operated and franchise restaurants as of June 30, 2023.
Steak n ShakeWestern Sizzlin
 Company-
operated		Franchise
Partner		Traditional
Franchise		Company-
operated		FranchiseTotal
Total stores as of December 31, 2022
177 175 154 3 36 545 
Corporate stores transitioned(2)2 — — — — 
Net restaurants opened (closed)(8)— (16)— — (24)
Total stores as of June 30, 2023
167 177 138 3 36 521 
Total stores as of December 31, 2021
199 159 178 3 38 577 
Corporate stores transitioned(18)18 — — — — 
Net restaurants opened (closed)(5)— (12)— — (17)
Total stores as of June 30, 2022
176 177 166 3 38 560 
As of June 30, 2023, 30 of the 167 company-operated Steak n Shake stores were closed. Steak n Shake has contracted to sell five of the 30 closed stores. An additional fifteen closed stores are listed with brokers for lease or sale. Steak n Shake plans to refranchise the remaining closed company-operated restaurants.
During the first six months of 2023, Steak n Shake reopened five stores and sold four properties; all were closed as of December 31, 2022.

21

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Restaurant operations are summarized below.
Second QuarterFirst Six Months
2023202220232022
Revenue
Net sales$39,524 $37,681 $76,418 $75,897 
Franchise partner fees19,070 16,425 36,982 32,049 
Franchise royalties and fees4,125 5,237 8,383 10,383 
Other revenue1,772 981 3,837 1,842 
Total revenue64,491 60,324 125,620 120,171 
Restaurant cost of sales
Cost of food11,702 29.6 %11,365 30.2 %22,150 29.0 %22,325 29.4 %
Restaurant operating costs19,295 48.8 %20,350 54.0 %37,752 49.4 %40,382 53.2 %
Occupancy costs3,931 9.9 %4,240 11.3 %7,764 10.2 %8,600 11.3 %
Total cost of sales34,928 35,955 67,666 71,307 
Selling, general and administrative
General and administrative10,790 16.7 %10,121 16.8 %21,253 16.9 %18,771 15.6 %
Marketing3,294 5.1 %3,087 5.1 %6,247 5.0 %6,831 5.7 %
Other expenses(2,689)(4.2)%(361)(0.6)%(4,301)(3.4)%(316)(0.3)%
Total selling, general and administrative11,395 17.7 %12,847 21.3 %23,199 18.5 %25,286 21.0 %
Impairments(853)(20)(1,629)(20)
Depreciation and amortization(6,787)(6,106)(13,494)(12,320)
Interest on finance leases and obligations(1,301)(1,385)(2,608)(2,797)
Earnings before income taxes9,227 4,011 17,024 8,441 
Income tax expense2,292 1,005 4,249 2,173 
Contribution to net earnings$6,935 $3,006 $12,775 $6,268 
Cost of food, restaurant operating costs, and occupancy costs are expressed as a percentage of net sales. 
General and administrative, marketing and other expenses are expressed as a percentage of total revenue.

Net sales for the second quarter and first six months of 2023 were $39,524 and $76,418, respectively, representing an increase of $1,843 or 4.9% and $521 or 0.7%, compared to the second quarter and first six months of 2022, respectively. The increase in revenue of company-owned restaurants is primarily due to higher same-store sales. For company-operated units, sales to the end customer are recorded as revenue generated by the Company, but for franchise partner units, only our share of the restaurant’s profits, along with certain fees, are recorded as revenue. Because we derive most of our revenue from our share of the profits, revenue will continue to decline as we transition from company-operated units to franchise partner units.

Our franchise partner fees were $19,070 during the second quarter of 2023, as compared to $16,425 during the second quarter of 2022. Franchise partner fees were $36,982 and $32,049 during the first six months of 2023 and 2022, respectively. As of June 30, 2023 and June 30, 2022, there were 177 franchise partner units. Included in franchise partner fees were $5,763 and $5,057 of rental income during the second quarter of 2023 and 2022, respectively, and $11,338 and $9,831 during the first six months of 2023 and 2022, respectively. Franchise partners rent buildings and equipment from Steak n Shake.


22

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The franchise royalties and fees generated by the traditional franchising business were $4,125 during the second quarter of 2023, as compared to $5,237 during the second quarter of 2022. Franchise royalties and fees during the first six months of 2023 were $8,383 compared to $10,383 during the first six months of 2022. There were 138 Steak n Shake traditional units open on June 30, 2023, as compared to 166 units open on June 30, 2022. The decrease in franchise royalties and fees was primarily due to fewer traditional units open during 2023.

The cost of food at company-operated units during the second quarter of 2023 was $11,702 or 29.6% of net sales, as compared to $11,365 or 30.2% of net sales during the second quarter of 2022. The cost of food at company-operated units during the first six months of 2023 was $22,150 or 29.0% of net sales, as compared to $22,325 or 29.4% of net sales during the first six months of 2022. Cost of food expressed as a percentage of net sales remained relatively consistent.

The operating costs at company-operated restaurants during the second quarter of 2023 were $19,295 or 48.8% of net sales, as compared to $20,350 or 54.0% of net sales in the second quarter of 2022. The operating costs at company-operated restaurants during the first six months of 2023 were $37,752 or 49.4% of net sales, as compared to $40,382 or 53.2% of net sales in 2022. The decrease in operating costs as a percentage of net sales was mainly attributable to higher net sales.

General and administrative expenses during the second quarter of 2023 were $10,790 or 16.7% of total revenue, as compared to $10,121 or 16.8% of total revenue in the second quarter of 2022. General and administrative expenses during the first six months of 2023 were $21,253 or 16.9% of total revenue, as compared to $18,771 or 15.6% of total revenue in the first six months of 2022. The increase in general and administrative expenses was mainly attributable to increased support for franchise partnerships.

Marketing expense decreased by $584 during the first six months of 2023 compared to the first six months of 2022. The decrease was primarily attributable to reduced marketing by traditional franchisees.

During the first six months of 2023, Steak n Shake sold four properties for a gain of $4,414.

The Company recorded $853 of impairment charges in the second quarter and $1,629 in the first six months of 2023 related to underperforming stores. The Company recorded $20 of impairment charges in the second quarter and first six months of 2022.

Depreciation and amortization expense was $13,494 during 2023 versus $12,320 during 2022. The year-over-year increase was primarily attributable to higher capital expenditures incurred in 2022 and 2021.

Interest on obligations under leases was $2,608 during 2023 versus $2,797 during 2022. The year-over-year decrease in interest expense is primarily attributable to the maturity and retirement of lease obligations.
Insurance
We view our insurance businesses as possessing two activities: underwriting and investing. Underwriting decisions are the responsibility of the unit managers, whereas investing decisions are the responsibility of our Chairman and CEO, Sardar Biglari. Our business units are operated under separate local management. Biglari Holdings’ insurance operations consist of First Guard and Southern Pioneer.
Underwriting results of our insurance operations are summarized below.
Second QuarterFirst Six Months
2023202220232022
Underwriting gain attributable to:
First Guard$3,155 $1,714 $5,017 $2,446 
Southern Pioneer(451)(281)(562)(618)
Pre-tax underwriting gain2,704 1,433 4,455 1,828 
Income tax expense568 301 936 384 
Net underwriting gain$2,136 $1,132 $3,519 $1,444 

23

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Earnings of our insurance operations are summarized below.
Second QuarterFirst Six Months
2023202220232022
Premiums earned$15,971 $15,226 $30,735 $29,395 
Insurance losses8,372 9,244 16,968 18,832 
Underwriting expenses4,895 4,549 9,312 8,735 
Pre-tax underwriting gain2,704 1,433 4,455 1,828 
Other income and expenses 
Investment income752 257 1,337 470 
Other income (expenses)512 741 963 1,497 
Total other income1,264 998 2,300 1,967 
Earnings before income taxes3,968 2,431 6,755 3,795 
Income tax expense836 572 1,454 892 
Contribution to net earnings$3,132 $1,859 $5,301 $2,903 

Insurance premiums and other on the consolidated statement of earnings includes premiums earned, investment income, other income, and commissions.

First Guard

First Guard is a direct underwriter of commercial truck insurance, selling physical damage and nontrucking liability insurance to truckers. First Guard’s insurance products are marketed primarily through direct response methods via the Internet or by telephone. First Guard’s cost-efficient direct response marketing methods enable it to be a low-cost insurer. A summary of First Guard’s underwriting results follows.
Second QuarterFirst Six Months
2023202220232022
Amount%Amount%Amount%Amount%
Premiums earned$9,215 100.0 %$9,015 100.0 %$18,114 100.0 %$17,746 100.0 %
Insurance losses4,254 46.2 %5,465 60.6 %9,498 52.4 %11,653 65.7 %
Underwriting expenses1,806 19.6 %1,836 20.4 %3,599 19.9 %3,647 20.6 %
Total losses and expenses6,060 65.8 %7,301 81.0 %13,097 72.3 %15,300 86.3 %
Pre-tax underwriting gain$3,155 $1,714 $5,017 $2,446 

First Guard’s ratio of losses and loss adjustment expenses to premiums earned was 46.2% during the second quarter of 2023 as compared to 60.6% during the second quarter of 2022 and 52.4% during the first six months of 2023 as compared to 65.7% during the first six months of 2022. First Guard’s underwriting results in 2023 were in line with its historical performance despite cost inflation in property and physical damage claims, which began to accelerate in 2022.


24

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Southern Pioneer

Southern Pioneer underwrites garage liability and commercial property insurance, as well as homeowners and dwelling fire insurance. A summary of Southern Pioneer’s underwriting results follows.
Second QuarterFirst Six Months
2023202220232022
Amount%Amount%Amount%Amount%
Premiums earned$6,756 100.0 %$6,211 100.0 %$12,621 100.0 %$11,649 100.0 %
Insurance losses4,118 61.0 %3,779 60.8 %7,470 59.2 %7,179 61.6 %
Underwriting expenses3,089 45.7 %2,713 43.7 %5,713 45.3 %5,088 43.7 %
Total losses and expenses7,207 106.7 %6,492 104.5 %13,183 104.5 %12,267 105.3 %
Pre-tax underwriting gain (loss)$(451)$(281)$(562)$(618)
Southern Pioneer’s ratio of losses and loss adjustment expenses to premiums earned was 61.0% during the second quarter of 2023 as compared to 60.8% during the second quarter of 2022 and 59.2% during the first six months of 2023 and 61.6% during the first six months of 2022. Southern Pioneer’s underwriting losses were primarily attributable to weather-related losses in its personal lines as well as a higher expense ratio, an increase caused by information technology projects related to the implementation of a new policy administration system.
A summary of net investment income attributable to our insurance operations follows.
Second QuarterFirst Six Months
2023202220232022
Interest, dividends and other investment income:
First Guard$431 $122 $818 $196 
Southern Pioneer321 135 519 274 
Pre-tax investment income752 257 1,337 470 
Income tax expense158 54 281 99 
Net investment income$594 $203 $1,056 $371 
We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.
25

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Oil and Gas
A summary of revenues and earnings of our oil and gas operations follows.
Second QuarterFirst Six Months
2023202220232022
Oil and gas revenues$10,741 $14,440 $22,964 $24,252 
Oil and gas production costs3,512 3,843 8,983 7,662 
Depreciation, depletion and accretion2,901 1,534 5,751 3,053 
General and administrative expenses1,438 642 3,237 1,195 
Earnings before income taxes2,890 8,421 4,993 12,342 
Income tax expense740 2,052 1,173 3,049 
Contribution to net earnings$2,150 $6,369 $3,820 $9,293 
Our oil and gas business is highly dependent on oil and natural gas prices. The average West Texas Intermediate price per barrel for the first six months of 2023 was approximately $74.86 as compared to approximately $101.66 in the first six months of 2022. It is expected that the prices of oil and gas commodities will remain volatile, which will be reflected in our financial results.
Southern Oil
Southern Oil primarily operates oil and natural gas properties offshore in the shallow waters of the Gulf of Mexico.  Earnings for Southern Oil are summarized below.
Second QuarterFirst Six Months
2023202220232022
Oil and gas revenues$4,810 $14,440 $9,781 $24,252 
Oil and gas production costs1,868 3,843 4,208 7,662 
Depreciation, depletion and accretion1,168 1,534 2,352 3,053 
General and administrative expenses729 642 1,282 1,195 
Earnings before income taxes1,045 8,421 1,939 12,342 
Income tax expense316 2,052 471 3,049 
Contribution to net earnings$729 $6,369 $1,468 $9,293 

Abraxas Petroleum
Abraxas Petroleum operates oil and gas properties in the Permian Basin of West Texas. Earnings for Abraxas Petroleum are summarized below.

Second QuarterFirst Six Months
2023202220232022
Oil and gas revenues$5,931 $— $13,183 $— 
Oil and gas production costs1,644 — 4,775 — 
Depreciation, depletion and accretion1,733 — 3,399 — 
General and administrative expenses709 — 1,955 — 
Earnings before income taxes1,845 — 3,054 — 
Income tax expense424 — 702 — 
Contribution to net earnings $1,421 $— $2,352 $— 


26

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Brand Licensing
Maxim’s business lies principally in licensing and media. Earnings of operations are summarized below.
Second QuarterFirst Six Months
2023202220232022
Licensing and media revenue$761 $1,249 $1,356 $1,883 
Licensing and media costs499 677 951 1,630 
General and administrative expenses54 71 75 88 
Earnings before income taxes208 501 330 165 
Income tax expense52 126 83 41 
Contribution to net earnings$156 $375 $247 $124 
We acquired Maxim with the idea of transforming its business model.  The magazine developed the Maxim brand, a franchise we are utilizing to generate nonmagazine revenue, notably through licensing, a cash-generating business related to consumer products, services, and events.
Investment Gains and Investment Partnership Gains
Investment gains net of tax for the second quarter of 2023 were $276 compared to investment losses net of tax for the second quarter of 2022 of $2,805. Investment gains net of tax for the first six months of 2023 were $3,141 compared to investment gains net of tax for the first six months of 2022 of $2,630. Dividends earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating.
Earnings (loss) from our investments in partnerships are summarized below.
 Second QuarterFirst Six Months
 2023202220232022
Investment partnership gains (losses)$(7,496)$(105,241)$65,092 $(111,902)
Tax expense (benefit)(1,997)(24,894)14,562 (26,754)
Contribution to net earnings (loss)$(5,499)$(80,347)$50,530 $(85,148)
Investment partnership gains include gains/losses from changes in market values of underlying investments and dividends earned by the partnerships.  Dividend income has a lower effective tax rate than income from capital gains. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings.  
The investment partnerships hold the Company’s common stock as investments. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. Gains and losses on Company common stock included in the earnings of the partnerships are eliminated in the Company’s consolidated financial results.
Investment gains and losses in 2023 and 2022 were mainly derived from our investments in equity securities and included unrealized gains and losses from market price changes during the period. We believe that investment and derivative gains/losses are generally meaningless for analytical purposes in understanding our quarterly and annual results.
27

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Interest Expense
The Company’s interest expense is summarized below.
 Second QuarterFirst Six Months
 2023202220232022
Interest expense on notes payable$40 $— $207 $— 
Tax benefit9 — 47 — 
Interest expense net of tax$31 $— $160 $— 

On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000. The balance of the line of credit was $3,600 as of June 30, 2023 and $10,000 as of December 31, 2022. On June 30, 2023, the interest rate was 7.8%.
Corporate and Other
Corporate expenses exclude the activities of the restaurant, insurance, brand licensing, and oil and gas businesses. Corporate and other net losses increased during the second quarter and first six months of 2023 compared to the same periods in 2022 primarily because of recording a non-cash write down of a receivable of $1,000 and accruing for incentive fees.
Income Taxes
Income tax expense for the second quarter of 2023 was $1,018 compared to an income tax benefit of $22,709 for the second quarter of 2022. Income tax expense for the first six months of 2023 was $20,756 compared to an income tax benefit of $22,880 for the first six months of 2022. The variance in income taxes between 2023 and 2022 is attributable to taxes on income generated by the investment partnerships.  Investment partnership pre-tax losses were $7,496 during the second quarter of 2023 compared to pre-tax losses of $105,241 during the second quarter of 2022. Investment partnership pre-tax gains were $65,092 during the first six months of 2023 compared to pre-tax losses of $111,902 during the first six months of 2022.
Financial Condition
Consolidated cash and investments are summarized below.
 June 30,
2023		December 31,
2022
Cash and cash equivalents$30,881 $37,467 
Investments88,259 69,466 
Fair value of interest in investment partnerships549,872 383,004 
Total cash and investments669,012 489,937 
Less: portion of Company stock held by investment partnerships(321,136)(227,210)
Carrying value of cash and investments on balance sheet$347,876 $262,727 
Unrealized gains/losses of Biglari Holdings’ stock held by the investment partnerships are eliminated in the Company’s consolidated financial results.

28

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Liquidity
Our balance sheet continues to maintain significant liquidity.  Consolidated cash flow activities are summarized below.
 First Six Months
 20232022
Net cash provided by operating activities$31,518 $34,204 
Net cash used in investing activities(28,474)(32,819)
Net cash used in financing activities(9,478)(3,134)
Effect of exchange rate changes on cash98 (88)
Decrease in cash, cash equivalents and restricted cash$(6,336)$(1,837)
In 2023, cash from operating activities decreased by $2,686 as compared to 2022. The change was primarily attributable to distributions from investment partnerships that occurred in 2022.
Net cash used in investing activities decreased during 2023 by $4,345 as compared to 2022. Capital expenditures were $5,856 less in 2023 as compared to 2022; however, proceeds from sales of assets were $9,561 more in 2023 as compared to 2022. Offsetting these increases of cash were payments for purchases of noncontrolling interest of $5,387 in 2023 and increased investments, net of maturities and sales of $5,685 in 2023 as compared to 2022.
The change in cash used in financing activities was primarily due to net payments on the Company’s line of credit of $6,400 during 2023.
Biglari Holdings Line of Credit
On September 13, 2022, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $30,000. The line of credit will be available on a revolving basis until September 12, 2024. The line of credit includes customary covenants, as well as financial maintenance covenants. As of June 30, 2023, we were in compliance with all covenants. The balance of the line of credit on June 30, 2023 was $3,600 and $10,000 on December 31, 2022. On June 30, 2023, the interest rate was 7.8%.
Western Sizzlin Revolver
Western Sizzlin’s available line of credit is $500. As of June 30, 2023 and December 31, 2022, Western Sizzlin had no debt outstanding on its revolver.

Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain accounting policies require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized in our consolidated financial statements from such estimates are necessarily based on numerous assumptions involving varying and potentially significant degrees of judgment and uncertainty. Accordingly, the amounts currently reflected in our consolidated financial statements will likely increase or decrease in the future as additional information becomes available.  There have been no material changes to critical accounting policies previously disclosed in our annual report on Form 10-K for the year ended December 31, 2022.
Recently Issued Accounting Pronouncements
No recently issued accounting pronouncements were applicable for this Quarterly Report on Form 10-Q.

29

Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In general, forward-looking statements include estimates of future revenues, cash flows, capital expenditures, or other financial items, and assumptions underlying any of the foregoing. Forward-looking statements reflect management’s current expectations regarding future events and use words such as “anticipate,” “believe,” “expect,” “may,” and other similar terminology. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Investors should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, many beyond our control, including, but not limited to, the risks and uncertainties described in Item 1A, Risk Factors of our annual report on Form 10-K and Item 1A of this report. We undertake no obligation to publicly update or revise them, except as may be required by law.
30

Item 3.     Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4.     Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), our Chief Executive Officer and Controller have concluded that our disclosure controls and procedures were effective as of June 30, 2023.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information in response to this Item is included in Note 13 to the Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q and is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors as previously disclosed in Item 1A to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
31

ITEM 6. EXHIBITS
Exhibit NumberDescription
101Interactive Data Files.
104Cover page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)
_________________
*Furnished herewith.

32

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Biglari Holdings Inc.
Date: August 4, 2023By:
/s/ BRUCE LEWIS
Bruce Lewis
Controller

33

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