BH Biglari Holdings Inc

NOTES TO FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE YEAR ENDED DECEMBER 31, 2016

 

 

1.	DESCRIPTION OF THE PLAN

The following description of The Steak n Shake 401(k) Savings Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan agreement for a more comprehensive description of the Plan’s provisions. The Plan was established effective September 28, 1953, restated in its entirety as of January 1, 2015 and amended as of April 1, 2016 to remove minimum service requirements for participant contributions.

General — The Plan is a defined contribution plan covering substantially all employees of Steak n Shake Inc. (the “Company”) and its divisions, subsidiaries, or affiliated companies upon attaining age 21. The Company is a subsidiary of Biglari Holdings Inc. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. The trustee of the Plan is TD Ameritrade Trust Company.

Contributions — Participants may make voluntary contributions up to 60% of their before-tax annual compensation, as defined in the Plan. The contributions are subject to certain limitations imposed by the Internal Revenue Code (the “Code”).

The Company may make a discretionary contribution from net profits of Steak n Shake Inc., as defined in the Plan agreement, in such amounts as may be determined by the Company’s Board of Directors. During 2016, the Company chose not to make a discretionary contribution from net profits. The Company may also make a discretionary matching contribution for participants that have met a service requirement of one year of service (1,000 hours). Discretionary matching contributions were made during 2016.

Participants direct the investment of their contributions into various investment options offered by the Plan, including Biglari Holdings Inc. common stock. Any Company discretionary contributions are allocated based on the participant’s investment options. All amounts in participant accounts are participant-directed.

Participants of the Plan may not contribute to or reallocate their funds to the Biglari Holdings Inc. common stock fund if, at the time of such transfer, Biglari Holdings Inc. common stock constitutes more than 50% of the participant’s account balance.

Rollovers from Other Qualified Employer Plans — The Plan allows for employees to transfer certain of their other qualified employer retirement plan assets to the Plan. These amounts are reflected in rollovers within the accompanying statement of changes in net assets available for benefits.

Participant Accounts — Individual accounts are maintained for each participant of the Plan. Each participant’s account is credited with the participant’s contribution and allocations of the Company’s discretionary contributions and Plan earnings, and charged with withdrawals and an allocation of Plan losses and administrative expenses. Allocations are based on participant’s earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

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Vesting — Participants are immediately vested in their contributions plus actual earnings thereon. Participants are vested in employer discretionary contributions and any earnings thereon based on total years of service in accordance with the following schedule:

 

Payment of Benefits — On termination of service due to death, disability, or retirement, a participant will automatically become 100% vested in his or her account and may receive a lump-sum distribution equal to the value of the account. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. If the amount payable under the Plan to any participant is less than or equal to $1,000, the benefits will be paid as a lump-sum distribution. The Plan also offers voluntary withdrawals from rollover contributions and financial hardship withdrawals, subject to Plan provisions.

Forfeitures — Amounts forfeited by participants are first used to reduce future employer contributions payable under the Plan. Any remaining amounts are used to pay administrative expenses. As of December 31, 2016 and 2015, nonvested forfeited accounts totaled $0 and $480, respectively. During the year ended December 31, 2016, the Plan used forfeitures of $20,500 to offset employer contributions and no amounts to offset administrative expenses.

Notes Receivable from Participants — The Plan allows for participant loans for hardship purposes. The outstanding loans are secured by the balance in the participant’s account and bear interest at a fixed rate. As of December 31, 2016, loans mature through April 16, 2025, and bear interest at rates of 4.25% to 4.50%. Principal and interest are paid through payroll deductions.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting — The financial statements of the Plan have been prepared using the accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America (GAAP).

Payment of Benefits — Benefit payments are recorded when paid.

Administrative Expenses — All expenses of operating the Plan are paid at the direction of the Plan sponsor from the assets of the Plan.

Excess Contributions Payable — The Plan is required to return contributions received during the Plan year in excess of Code limits.

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Investment Valuation and Income Recognition — Investments held by the Plan are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 3 for discussion of fair value measurements. Purchases and sales of securities, including related gains and losses, are recorded on a trade-date basis. Interest income is recorded as earned and dividend income is recorded on the date of declaration. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.

Risks and Uncertainties — The Plan provides for investments in money market funds, mutual funds and common stock that, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the financial statements.

Use of Estimates — The preparation of the financial statements in conformity with GAAP requires Plan management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Notes Receivable from Participants — Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are recorded as distributions based on the terms of the plan document.

New Accounting Pronouncements — In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-12 (“ASU 2015-12”), a three-part standard that provides guidance on certain aspects of the accounting by employee benefit plans.  ASU 2015-12 (1) requires an employee benefit plan to use contract value as the only measurement amount for direct investments in fully benefit-responsive investment contracts, (2) simplifies and increases the effectiveness of plan investment disclosure requirements for employee benefit plans by eliminating the requirement for plans to disclose individual investments that represent 5 percent or more of net assets available for benefits and the net appreciation or depreciation for investments by general type for both participant-directed investments and non-participant directed investments.  The net appreciation or depreciation of investments for the period is still required to be presented in the aggregate.  Part III, provides employee benefit plans with a measurement-date practical expedient that permits plans to measure investments and investment-related accounts as of a month-end date that is closest to the plan’s fiscal year-end when the fiscal period does not coincide with month end.  The guidance is effective for fiscal years beginning after December 15, 2015.  The Plan has adopted ASU 2015-12 and as a result, certain historical disclosures that are no longer required have been removed.

In May 2015, the FASB issued ASU 2015-07, which removes the requirement for reporting entities to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.  ASU 2015-07 also removes the requirement to make certain disclosures for all investments that are measured at fair value using the net asset value per share practical expedient.  This update is effective for fiscal periods beginning after December 15, 2016.  The Plan believes there to be no material impact of this guidance upon adoption.

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3.	FAIR VALUE MEASUREMENTS

Financial Accounting Standards Board ASC 820, Fair Value Measurements and Disclosures , provides a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, as follows: Level 1, which refers to securities valued using unadjusted quoted prices from active markets for identical assets; Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available; and Level 3, which refers to securities valued based on significant unobservable inputs. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Asset Valuation Techniques

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes to the methodologies used at December 31, 2016 and 2015.

Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.

Cash money market funds are valued at $1.00 per share, their stated value at year end.

Biglari Holdings Inc. common stock, which is registered on the New York Stock Exchange, is valued at the last reported sales price on the last business day of the Plan year.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different fair value measurements at the reporting date.

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The following tables set forth by level within the fair value hierarchy are a summary of the Plan’s investments measured at fair value on a recurring basis at December 31, 2016 and 2015.

The Plan’s policy is to recognize transfers between levels at the actual date of the event. For the year ended December 31, 2016, $58,676 of fixed income mutual funds were transferred from level 1 to level 3. There were no transfers in or out of levels 1, 2, or 3 for the year ended December 31, 2015.

4.	PARTY-IN-INTEREST TRANSACTIONS

Certain Plan investments are shares of money market investments sponsored by TD Ameritrade Trust Company. TD Ameritrade Trust Company is the trustee of the Plan, and therefore these transactions qualify as exempt party-in-interest transactions.

At December 31, 2016 and 2015, the Plan held 1,058 and 1,039 shares, respectively, of Biglari Holdings Inc. common stock, with a cost basis of $356,542 and $413,156, respectively.

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5.	PLAN TERMINATION

Although it has not expressed any intention to do so, the Company reserves the right under the Plan document to terminate the Plan at any time, subject to the provisions set forth in ERISA. In the event that the Plan is terminated, each participant would become fully vested in their account.

6.	FEDERAL INCOME TAX STATUS

The Company has received a favorable determination letter dated August 23, 2011, from the Internal Revenue Service stating that the Plan was designed in accordance with the applicable sections of the Internal Revenue Code. The Plan administrator believes that the Plan is currently designed and operated in compliance with the applicable requirements of the Code, and the Plan and related trust continue to be tax exempt. Therefore, no provision for income taxes has been included in the Plan’s financial statements.

GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by federal or state taxing authorities. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2013.

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SUPPLEMENTAL SCHEDULES

 

 

 

 

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THE STEAK N SHAKE 401(k) SAVINGS PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4i — SCHEDULE OF ASSETS
(HELD AT END OF YEAR)	EIN#: 35-1604308
AS OF DECEMBER 31, 2016	Plan #: 001

 

Identity of Issuer, Borrower, Lessor or Similar Party		Description of Investment Including Maturity Date, Rate of Interest, Collateral, Par or Maturity Value		Fair Value
Money market funds:
Fidelity Investments		Fidelity Retirement Money Market		$	4,408,054
* TD Ameritrade		TD Bank USA MMDA			23,801
Total money market funds					4,431,855
Mutual funds:
Longleaf Partners		Longleaf Partners International Fund			830,599
Pimco		Pimco Pacific Investment Short Term Fund Institutional			123,496
SEI		SEI High Yield Bond A			60,561
Third Avenue		Third Avenue Focused Credit Fund Institutional			58,676
Vanguard		Vanguard Index Trust — 500 Portfolio			3,231,672
Vanguard		Vanguard Target Retirement 2010 Fund			236,331
Vanguard		Vanguard Target Retirement 2015 Fund			346,651
Vanguard		Vanguard Target Retirement 2020 Fund			1,094,184
Vanguard		Vanguard Target Retirement 2025 Fund			777,187
Vanguard		Vanguard Target Retirement 2030 Fund			1,332,398
Vanguard		Vanguard Target Retirement 2035 Fund			1,265,196
Vanguard		Vanguard Target Retirement 2040 Fund			1,514,397
Vanguard		Vanguard Target Retirement 2045 Fund			425,113
Vanguard		Vanguard Target Retirement 2050 Fund			905,627
Vanguard		Vanguard Target Retirement Income Fund			133,102
Vanguard		Vanguard U.S. Value Fund			3,567,937
Total mutual funds					15,903,127
* Biglari Holdings Inc.		Common Stock			500,646
Notes receivable from participants -
* Various plan participants		Participant loans, with interest rates of 4.25% to 4.50% and maturing at various dates through April 16, 2025			181,339
TOTAL				$	21,016,967

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