link01

again, are you adjusting for the rights offerings issued at a discount to the co. book value per share? because shareholders equity in that co's reported book val per share will incorporate & adjust up for that difference whereas the co reported book val per share on its own without reference to shareholders that received the rights at discount to book val will not. also, do you deem todays each dollar of book val per share to be worth no more or no less than a dollar of book val/share in 2009 in terms of normalized earnings power? but that's another story...

link01, You definitely seem a very clear thinker about business matters in general! Therefore, I am a bit surprised by your question... In most kinds of business what you say "keeping your prices low (or lower than your competitors)" is practically all that really matters... Surely it is the most important thing in the restaurant business! And Biglari knows this very well. BH franchise revenues migth suffer if and only if the operations of the restaurants which generate those franchise revenues stop to be run at prices lower than their competitors. Therefore, imo your question is simply answered: those stores that can't control their costs & operate ultra efficiently have no reason to go on existing. It migth seem a bit brutal... But there is truly nothing anyone can do about it... Surely I don't see Biglari fighting against reality. If reality upsets old franchisees, so be it... History is full of people who couldn't adapt and kept fighting reality... The outcome has always been the same! Gio <<In most kinds of business what you say "keeping your prices low (or lower than your competitors)" is practically all that really matters... Surely it is the most important thing in the restaurant business!>> well, this is only true if you are among the more efficient, low-cost operators in your industry. what I'm not so sure about at this point is if the older sns franchisees were positioned for the sort of sudden, drastic sea-change that SB introduced shortly into his tenure, with his sam Walton inspired focus on increasing sales turnover or velocity (ie, traffic) while keeping costs & prices low & favoring gross profit dollars over profit margins. so, for some or many of those older franchisees the increase in sales may not be falling to their bottom line while it most certainly will be for the franchisor, given its its model of taking a fixed % of franchisee sales. its no wonder there's so much sturm und drang between them! they probably believe, not without reason, that they are better equipted to gage price elasticity in their local markets than head quarters. they had the ability to make those calls before, now they don't,& they're getting pinched. but, of course, if sns can manage to flourish with their co owed & operated stores under SB's model of low cost, low prices, & increased traffic then a shakeout is not only inevitable but desirable, & the quicker the better. then again, maybe a gradual, measured, stair-step plan with a agreed upon timeline for old franchisees to get with the program might have been considered too?

Some of the new franchisees are very happy with their stores. I know this from speaking with them and I also know that the average unit volumes of the new Steak n Shake franchises is on balance incredible. The new franchises are doing an average of $2.5 million - which is phenomenal. The Las Vegas franchise is doing $5 million. So it is not a universal thing at all, but the problem lies in two places: (a) the old franchisees operated autonomously for so long (fifty years in some cases), they have mostly not taken well at all to Biglari coming and dictating terms to them and (b) new franchisees stores that have not worked out are very upset for a few reasons. While the average unit volume for the new stores is incredible, they are some very low-performers. (Notably, according to their lawsuits, the New Jersey store and the Denver store.) Due to Biglari's personality, I think, and the fact the the old franchisees who were already pissed off, worked all of those new and disappointed franchisees into a tizzy. On balance though, many of the new franchises are doing very well and the average unit volume of them is quite impressive. appreciate the color, thx NBL. you can pretty much see this in the franchise revenue #'s, too. in 2013 there were 191 franchised stores, 104 sns & 87 west. franchise revenues were 8,707,000 for approx. 45,600 per store in 2014 there were 195 franchised stores, 124 sns & 71 west. franchise revenues were15,032,000 for approx. 77,100 per store (+69% per store) but there were 49 franchised store closings from 2013 to 2014, & 53 new openings. clearly a lot of weeding out of the old & sick, 33 sns & 16 west the interesting question I have at this point is: how are the gross dollar profits on the 1 yr & older franchised stores looking & trending? its one thing to increase sales thru an increase in traffic while keeping your prices low (or lower than your competitors), but for those stores that cant control their costs & operate ultra efficiently the increased traffic & sales may not be enough to offset their growing costs. hence the acrimony

Factually inaccurate, clueless about why operational results seem as if they are deteriorating, deliberately misleading when making comparisons with predecessor management by ignoring a significant part of the value creation since Sardar took the helm. To top it all off, the obligatory potshot at the company's use of private jets. They've been reading too much of this board, or are being assisted by folks who do. Best, Ragu I have a hard time believing that any professional money manager is clueless about the points you allude to, as well as many you don't mention, like the rights offerings issued at below book val & subsequently bought back much higher etc. I think their strategy is to make SB have to mount one defense after the other, even defenses against straw man arguments. they are probably saving their best cards for last. in the mean time they might be able to wear him down, get him riled, & create an unforced error.

The franchise network is growing more disenfranchised (pun intended) daily. What exactly do you think is being built by Sardar? Every franchisee I've spoken with vehemently hates the guy and most wanted to sell me their business. did you talk to 10 franchisees? 50? some other #? what do you think is the minimal statistically significant #? were these franchisees there before biglari became CEO? after? if a mix, what % of each? I think it matters because bigs brought wholesale changes to the way it operated its owned restaurants that extended also to its franchised ones. it wouldn't be surprising if many of the old guard bristled at the changes & either refused to adapt or couldn't adapt.

From my post I said Here is the big stuff ... I purposely showed nothing below $100m in value as of 9/30 which left off many many holdings. They amount to another $1B of holdings, including ~$60m in XCO. My point was actually to exemplify the point that the US holdings are way overemphasized by investors. Owning 6.4% or whatever of XCO sounds like a big bet, but in the context of FFH's $8B+ portfolio of equities, it doesn't even register as relevant (especially after continued depreciation). I think this point is really missed by a lot of investors. We talk 10x more about XCO in the context of FFH than we do about Thomas Cook even though TC is 10x more relevant to FFH. As far as I can tell, it's because this is a North American focused board, and the 13F doesn't report foreign holdings (generally). Ben Ben, you're right, of course. Mea culpa. the problem sometimes with making brief, hasty comments is that what you omitted to say is latched onto more than what you did say. Its just that when I saw SD on your list I had a sort of reflex reaction that immediately tied XCO together with SD as being co.'s not only more or less in the same industry, but sharing similar risk profiles. I've always instinctively performed a bit a shorthand & mentally lumped them together. I am also aware that both these co.'s were purchased at much higher prices & probably averaged down on over time. Its what FFH has done many times historically. And they'll continue that pattern, generally. Maybe even with SD or XCO or both. Given that possibility perhaps it would be equally instructive to not only think in terms of the current value of FFH's largest known holdings above some threshold but also the cost of holdings at that threshold. Anyone that's been keeping a spreadsheet of updated portfolio values over time probably also has a decent estimate of portfolio holding costs.

thx for the list, ben but we know ffh is also a 6.41% owner of exco resources (xco) as of 9-30-14 it amazes how much cheaper 'cheap' stocks can get when they are in tough industries or when their mngts are questionable

I think part of the misunderstanding regarding rights offerings has to do with the understanding or misunderstanding of the concept of 'dilution'. shares issued under book val per share, for instance, will always result in a reduction of book val per share. that's obvious & indisputable. is a reduction in a co's book val per share a form of dilution? yes. but are the co's shareholders diluted? no. not if they (a) sold their rights (similar to taking opting to take a dividend rather than the shares), (b) not if they sold some of their existing shares equal to the amount of shares they were eligible to buy with their rights, or an amount of shares with a value equal to the cost of those future exercised rights, or © rec'd & exercised their rights in the purch of the newly issued shares. only if a shareholder did absolutely nothing would they experience a 'dilution' of their shareholding value in the stock. those are arguably the kind of shareholders who are better off investing in mutual funds if they don't have the time to read filings. but, ironically, maybe the clearest explanation about 'rights' offerings came from the man himself back in the day when before he was infamous & his words were taken at face value: from 2006 western sizzlin annual letter: Rights Offering A rights offering involves the issuance of new common stock to company shareholders on a pro rata basis — that is, in proportion to the magnitude of their ownership. Unlike a typical equity offering, in which the new stock purchaser dilutes the ownership of current shareholders, a rights offering permits current shareholders to enjoy the opportunity to maintain their proportional interest in the company. Therefore, stockholders retain their same percentage ownership in the issuer but, of course, have invested more money. In 2006, we raised $4.2 million from existing shareholders. Before the rights offering we had 1,191,850 shares outstanding. We issued one right for every share, meaning that as many rights were issued as there were shares. For every two rights, a shareholder was entitled to subscribe to one additional share at $7, a discount to the market price. By granting a discount, we imparted a value to the rights that enabled them to be traded over-the-counter. In essence, Western issued 595,925 shares at $7, raising $4.2 million. A prevalent misperception floating around is that in rights offerings an investor receives something for nothing because of the discount. However, that view is fallacious because everyone enjoys the same reduction. A shareholder's wealth does not vary so long as he or she either exercises the rights to purchase more stock or sells the rights to other investors. A rights offering does not change shareholder wealth. Like stock splits, rights offerings alter the price per share in a way that a comparison between stock prices prior to the offering and the price post-offering is akin to comparing apples to elephants. If you're up for it, I'll do my best by displaying what takes place: 2006 Rights Offering Shares Outstanding x Stock Price = Market Value B e f o r e 1 , 1 9 1 , 8 5 0 $ 1 0 $ 1 1 , 9 1 8 , 5 0 0 O f f e r i n g 5 9 5 . 9 2 5 $ 7 $ 4 . 1 7 1 . 4 7 5 A f t e r 1 . 7 8 7 . 7 7 5 $ 9 $ 1 6 . 0 8 9 . 9 7 5 As the above table depicts, total shareholder wealth remains the same even when the stock declines from $10 to $9 because additional shares were issued at $7. The rights offering at $7 per share enabled the market value to rise, yet shareholders' wealth stayed at status quo. The basic idea of the table above is to apprise shareholders who wish to know the accurate change in stock price and market value with the effects of the rights offerings. (Of course, should a stockholder fail to exercise his or her rights or sell them, that investor would lose value through inaction and will effect a transfer of wealth. When Western performed the rights offering, very few stockholders failed to exercise their options.) A company incurs flotation costs when issuing new securities. These costs typically are twofold: underwriting spread, or the difference between market value of the issuance and the proceeds paid by investment bankers to the company, and issuing expenses, e.g., legal, printing, accounting, and numerous smaller associated outlays. Western did not hire an investment banker to assist with the rights offering. Consequently, our flotation costs were only 3% of the issuance, resulting in net proceeds of $4.05 million. Not only are flotation costs much lower in rights offerings than they are in most other forms of equity offerings, but we believe they are a quite equitable method and can provide all shareholders equal terms. We were so pleased with the results of the rights offering that we are going to present another in 2007 for the cogent reason that we want financing in place to make acquisitions. This time, we seek to raise over $7 million. Flotation costs should be substantially less on the second rights offering. (Robyn Mabe, Western's CFO, did a marvelous job last year in facilitating various initiatives including the stock split and rights offering in a timely manner.)

thx, farnamstreet. that was a kind of a bittersweet trip down memory lane for me, I have to say. I still see the exceptionally talented business & investor side of him that I saw then, but most Buffett-like qualities of character that I 'imagined' back then have unfortunately morphed into something else with the passage of 6 yrs time, success, & the resultant tempting opportunity-sets that came his way seemingly for the grabbing.

Thanks for your response. I'm incredibly disappointed that Sardar feels the need to do this. Best, Ragu I'm disappointed too. you'd think an undervalued share price would have him salivating like a kid in a candy store at the prospect of being able to meaningfully build his personal stake in a co he knows best & has control of at a cheap price. slightly tongue in cheek, but maybe he chafes at the idea that a cheap share price by extension also under values his abilities? the nerve! but really my best guess is that either he's concerned about a possible loss of confidence on the part of his outside investors in the lion fund which holds BH, or he's come to realize that in order to successfully agitate himself onto any target company board seats he needs the confidence & sponsorship of institutions and other large investor groups.

+1 I view amzn pretty much the same way, tho the 60/40 1p/3p split you mention might be more like 50/50 or even 40/60, as some analysts believe. in that case amazon's reported growth rates are significantly understated! its historical growth rate in sales have been understated due to the change in 1p/3p sales mix in favor of 3p over the last 5-7 yrs. and when everyone & their mother harps on & on about amzn's inability to make more than the paltriest of profit over the last 10 yrs or more I think they miss the point: amzn may not have earned anything resembling a profit over that time but I believe they have substantially increased their profit potential when looked at thru the optics of 'normalized earnings' & margins you also allude to.

Steak n Shake bringing menu fixtures to the freezer aisle: http://www.ibj.com/steak-n-shake-bringing-menu-fixtures-to-the-freezer-aisle/PARAMS/article/48958 looks like they like the prospects here, & plan to ramp up. I'd imagine this has added a bit to the restaurants recent spike in G & A along with the more visible front end franchising efforts that have been directly alluded to in both the 2013 annual report & subsequent 10Q's.

I think it's including the "Treasury Stock" on BH's balance sheet that TLF holds for investment purposes. Correct me if I'm wrong... thanks, frugalchief. I posted just after you did. it looks like I overlooked the need to adjust up equity by the treasury shares owned by the partnerships... but not all treasury shares... which would yield the same thing as simply taking equity of 553,467 mil in the Q3 10Q / the 1.5884 mil diluted shares outstanding = 348 per share pre rights and 1.11 x book post rights book would be 332 per share = 1.16 x book

gio, I have book val per share at 295 after the rights. bh equity per latest 10Q was 553.467 mil. where do you get 618 mil? well, that 295 per share I mentioned using gio's #'s except for equity would actually be 309.66 or 1.24x book val. but going to the Q3 10k it looks like there were 1.7425 mil shares outstanding (1.5884 diluted shares plus add back treasury shares owned by partnerships of 154.15k shares). 553,467 equity / 1.7425 = 318 book val per share pre shares issued for rights post rights equity will be 553.5 mil + 87.13 mil = 640.4 mil post rights shares outstanding would be 1.7425 mil +348.5 mil = 2.091mil 640.4 / 2.091 = 306.35 per share = 1.26 x book val at 385 bh closed at yesterday book val is gonna be volatile given its large investment in cbrl, of course. how cheap bh is determined to be will depend on your est of the value of cbrl & whether sb can wield any influence there. and THAT would have been a whole lot easier if he had more humility, but alas... :'(

gio, I have book val per share at 295 after the rights. bh equity per latest 10Q was 553.467 mil. where do you get 618 mil?