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BH 10q


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The statement is difficult to understand as the number of shares has declined because of Lion Fund owning BH shares. However, they are not retired and have caused reduction in shareholder equity.



At the acquisition date, the Lion Fund owned 76,421 shares of common stock of the Company and also $7,540 of the Company’s debentures.  At the acquisition date, the fair value of the Company stock owned by the Lion Fund was $29,900, which was recorded as Treasury stock. The debentures owned by the Lion Fund were recorded as a debt extinguishment.  As the debentures had just been issued by the Company 30 days before the acquisition, the fair value of the debentures approximated their cost, and no gain or loss was recorded on the debt extinguishment.  The noncontrolling interest in the Lion Fund had a fair value of $44,193.


and then:


The lion fund bought 122086 shares from Apr 15 - July 7th.


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Guest Bronco

So if the comp plan is voted down, he can buy back the gp for a buck.  Then it goes away and shareholder equity would go up?


I don't think I have ever seen that in a company.  Very unusual.


I like the idea of a money management business, but not like this.  Shady, unfair, and hard to understand.


He should really dissolve the lion fund, then distribute the bh shares to his partners.  Of course, then he wouldn't have the same control at bh.

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This is a very non transparent 10-q, one of the more opaque ones I have read. The cash flow statements are interesting  - they dont show the dramatic growth seen in EPS. However, they are also confusing as some investments are included in operating cash flows - not clear what these investments are.


Fortunately, some of the items such as increase in franchise revenue are explained more clearly. SNS is doing well but the growth can't be sustained per Biglari.



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I agree, I think this 10-Q isn't as transparent, and it's tough to figure out exactly how much BH is being bought by the company and how much is being bought by Biglari Capital or the Lion Fund. 


I'm just wondering how happy Lion Fund partners are that so much of the fund is being shifted into Biglari Holdings stock.  Are there any Lion Fund partners on this board?  If so, and if you are willing to speak about your investment, how do you feel about what is happening?  Perhaps you have other insights that this board doesn't have, since we seem to be quite pessimistic about the whole affair.  Cheers!

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I agree: things seem to be getting a lot less transparent.


I think all of increase in treasury stock--reduction in shares--was from the LF purchases. I don't think BH actually purchased and retired any of its own shares.


Among other things, the process of consolidating all of the incestuous companies reduced the number of outstanding shares, inflated eps, lowered 'reported' shareholder equity, and, my personal fav, removed some debt that is "legally" outstanding but no longer on the Balance Sheet.


Treasury Stock

(Perhaps someone with more knowledge can correct me, I was under the impression that if a company classified stock as Treasury and thus reduced the outstanding shares, they gave up the right to vote those shares -- can anyone confirm this? The implication here would be that he can't vote the Lionfund's BH shares because they are now classified as Treasury stock (It doesn't make sense that you can both reduce the share count and vote on the same shares you've removed...) I presume a company can purchase its own shares without classifying them as Treasury stock.)



Even the balance sheet is not as it appears. Check out this footnote, which reduces debt on the balance sheet (the BH debt the LF holds, which, when consolidated, apparently disappears from the Balance Sheet and moves to off balance sheet):


In connection with the acquisition of Western, the Company issued 14% redeemable subordinated debentures due 2015 in the aggregate principal amount of $22,959.  As of July 7, 2010, $15,225 of Debentures is included in our condensed consolidated Balance Sheet in Long-term debt. Debentures in the aggregate principal amount of $22,765 are legally outstanding. As discussed in Note 2, the Lion Fund owns $7,540 of Debentures and upon the acquisition of Biglari Capital those debentures were extinguished for accounting purposes but remain legal obligations of the Company.


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