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BiglariHoldingsFY2014AnnualMeeting4/09/2015

Note:Nothingshouldbetakenasadirectquote.Someofthenumbersmaybewrongasitwasdifficult
tohearafewtimes.Ialsomissedafewquestionsandleftat5:45pm.

Introduceddirectors
Swensonintroducedandmakesastatement
o Itsclearcorporategovernancemustbereformed
o Wedontexpecttowinanyseatsthisyear
Preliminaryreportonvotingresults
o Biglarislatehasreceivedpluralityofvotescast
o Finaltabulationwillberevealedinan8Kin25days
PreQ&Aremarks
o BiglaribegantoinvestinSteaknShake(SnS)inearly07
o Realizedtherewereseriousproblemsbylate07
Last3monthsof07,samestoresales(SSS)weredown13%
BoDputsSnSupforsaleandreceivedoffersatadiscounttomarketprice
o Augustof08SnSdebtcovenantswereviolatedandtheco.wasquicklylosingcash
SnSbecomingafootnoteinthehistoryofbrandnames
SardartriedtoconvinceinterimCEOtostaylongerbuthesawthewritingon
thewall
PotentialCEOturneddownagenerousoffer
Impossibletogetsaleleasebacksdoneinthemidstoffinancialcrisis
o Biglarihadtomakedrasticchangesatthecompany
Eliminatedproducts/simplifiedthemenu
Reducedcoremenuitempricesby24%
Simultaneouslyimprovedquality
Youcannotsimplytakeonedecision,applyittoanotherchain,andhave
itwork.
Itisntprofoundenoughtochangeoneelementyoumustgointoit
areabyareaandmakechanges
RedRobinwasbetterabletowithstandproblemsbecauseofsuperiorcash
inflows
o BiglariandCooleydonotwanttoreinvestthecashfromoperationsintorestaurants.
Theholdingco.isorganizedtobeinanybusiness,runfortheinvestors
o Firstco.Biglaristartedtook$15K
Notlikeweraisedbillionsandgottothisposition.
Cameupfromnothingbyfollowingasetofprinciples
o BHPrinciples(listedinaslidedeck):
Maximizeintrinsicvalue
NotEPS/operatingincome
Themostimportantofalloftheprincipleshere

Turningaroundbusinesseswillcreateoutsizedreturnsbutwithlumpy
results
Ownbusinesses
Capitalallocationadvantage
Wecanlookatcompaniesinotherindustries
Wecanputcapitalanywherethatoffersthelargestreturnperunitof
risk
IfFirstGuard(FG)isabletoreinvesttheircash,thatsquitealrightwith
us.
Centralizationofcapital
AllocationdecisionsmadebyBiglari,notacommittee
Donthavelayersuponlayersofmanagement
Ininvesting,youneedcentraldecisionmakingforoutsizedreturns
o Thereareexceptionstothisrulebutthisismostoftentrue
Outperformingandunderperformingbusinessesareinteresting
FirstGuardisanoutperformingbusiness
Maximisanunderperformingbusiness
Capitalstructureadvantage
Nodebtattheparentlevel
Longtermorientation
Longerdurationopensthefieldtocreatevalue
S&P500isthebenchmark
Ifwedontbeatitoverthelongterm,thereisnoreasonforthis
organization.
Notlookingtobeatitoveraoneyear,threeyear,orevenfiveyear
horizon,butoverthelongterm.
o Balancesheetofthecompanyismuchstrongertodaythanwhenwestarted
Onlysomeonewithanulteriormotivewouldsayotherwise
o In2010,Itoldyouguystostopbiddingupthestock
YouthoughtIwasjokingbutthestockgotwayaheadofthebusinessin09and
10
Forthisreason,inAprilof10,wetriedtousethestocktobuyAdvanceAuto.
InApril2010,stockwouldhavebeenmaybe$330/shareadjustedfor
rights
Wetriedtotakeadvantageofthepricebackthenbutweremain
unconcernedaboutpriceintheshortterm
o Inclosing,wedothingsdifferentlybecausewereguidedbylogicandinitforthelong
termholder,nottheshorttermtrader
Q:Didthemovementoffundsfromtheholdco.totheLionFund(TLF)requireavote?
o Independentdirectorsvotedonit
Q:WouldyouprovideanupdateoneffortstofranchiseinSaudiArabia?

o ItsbeenpainfullyslowbutshouldseethefirstunitinMay
Q:PleaseprovideuswithareviewofFirstGuard.
o Itisatruckinginsurancebusinesses
o Grosspremiumswere$18.4mmlastyear,upfrom$15.7mmintheprioryear
o Historicallythecompanyhascededalottoreinsurers
Usedtoretain60%ofpropertyliabilitybutthatsnowuptoa7525split
Nontrucking(whentruckisusedforpersonalreasons)isaveryuncertainline
andso90%usedtobeceded.Nowits50%
o Pretaxprofitof2.6mmvs.2.05mmlastyear
$1.8mmofaftertaxprofitvs.$1.4mmlastyear.
Shouldgrowataboutthesamepaceinthecomingyear
o FirstGuardisgoingtostartsellingmorecoverageinareasthattheyhavebuiltupthe
requiredexpertise
o Peoplethinkthatinsuranceiseasyyoujustgetfloatandinvestit(FGdoesnthaveany
float)
Thenyoumeettheregulators
o Combinedratioisgoingtocomeinabove80someyearsandbelow80inothers.
Q:CanyoutalkabouttheeconomicsbehindtheCBRLforwardtransaction?
o WehavenotsoldanyCBRL
o Itisafinancingarrangementplusahedgingarrangement
o Itisamethodtomaintainownershipwitha$131$157collar
o Thecostis$29mm,westillgetdividends
Netcostis$16.5mmtounlock$130mm
Justundera7%costandwedonthavetotriggercapitalgains
o Wedontwanttoborrowonthestockunhedged.
o Shouldpricegobelow$131,itwillcostusless.Goesabove$157,willcostmore
o JPMisthecounterparty
Q:IsthereanyrequirementforTLFfeestobereinvestedinBHstock?
o No,butIincreasemypersonalholdingsofBHthroughTLF
Recentlyput$8.5mmintoTLF
Q:Withinterestratessolow,howdoyoulookatfurtherinsuranceinvestments?
o Ifwefindanotherfirstguardwewillbuythem
o ItdoesntmatterwhatinterestsratesarewithcombinedratiosaslowasFGs
o Fremontwasworse.
Wehadpricedisciplinebutmaybenotqualitydiscipline
o Peoplehaveallsortsofstrangewaysofvaluingcompaniesnow
Wantyoutopayfortheearningsandthenpayfortheassetsaswell
o Wearenotforcedtoact
Q:WhataboutinvestmentsintoTLFthatwereusedtorepurchaseBHstock?
o TheboardwaswisetocontributemoneytoTLFbecause$.5Bhasbeengainedon
investments

Rightsofferingshavehelpedwithrefinancing
IfyoulookatSnSfromitsfoundingthrough2008,thecompanyspentabout$900mmon
capexandearned$470mminoperatingincome
Sincecurrentmanagementtookover,gainsoninvestmenthaveexceeded70
someyearsofoperatingincome
o Allofourinvestmentincomeisliquidtoo
Q:Whatwastheplan/logicbehindtheinvestmentsinAirTandInsignia?
o Lookatthe13Dswefiled
o WhenIgottheletterregardingthedissidentslate,Ihadtodotheresearchsowhynot
makesomemoneytoo
Isawsomethingstheycoulddotoincreasevalue
Q:Thisisaculturalquestionregardingtheprivateplanes.Whynotflycoach?
o IfIhavetorideacamelorgetonajettocreatethemostvalue,thatswhatIwilldo
o Theplanesarehighlyefficient
Icanlose20%ofaworkweekusingacommercialairline
Itsaboutbeingasproductiveaspossible
o Whenwefirstgotfractionalinterests,weaskedtheexecutiveswhowantedtofly.
Everyonevolunteered.IhadthemworkingsohardduringthetripthatthenexttimeI
asked,therewerefiveemptyseats.
o Wefeltthateverythingshouldbedisclosed
o WeusedtheintereststoflydownfortheFGacquisition
o Cooley:Wedonothaveafleetofplanes.
Q:Couldyoudisclosetravelexpenses?
o Wegivetheinformationnecessarytoarriveatanintrinsicvalue
Q:Aretheregoingtobeanychangestoavoidthisinthefuture/whatdidyoulearnfromthis?
o Therearemoreidiotsinthestockmarketthanwepreviouslythought
o Thelackofknowledgewasamazing.Thereweresomepeoplefromthedissidentslate
whohadntevenreadthechairmanletters.
Therearepeoplewhoareperceivedtobesavvythatdontknowstuffeither
o ThereisahigheducationcosttoownBH.Weneededucatedshareholders
o Cooley:Ilovetalkingtopeoplethatdodeepdivesandcanhaveanintelligent
conversation
Q:Whatistheexpectedfuturerunrateforoperatingmargins?
o Weinheritedanonexistentfranchisingoperation
o GusBeltwouldgivefranchisestohisfriends;thefirstwasin1939
Thepriormanagementwouldgivethemtofailingemployees
o WelearnedfromWesternhownottodoit.
Westernhad500unitsatonepoint
o Wehavehadtospendmoneyontraining,hiringsalespeople,etc
o Revenuehasgonefrom$4mmto$12mm
o Wespent$16.9mmonfranchisinglastyear,includingsomelegal/courtcosts
o
o

Thebulkofitisspentonrecruitingemployees,designingconcepts,settingup
thesupplychains,etc
o Weanticipatethatinabout18months,therevenuewillexceedfranchisingexpenses
o Wehave$31mmsofarinvestedinfranchising
50%marginonthe8mminincrementalrevenuegetsustoadoubledigitreturn
Youdontinvestondayoneandexpectareturnondaytwo
o Wehavemademistakesonbothsides
Decommitments
Q:Bymycalculations,weveinvestedabout$20mmintoMaximandyousaidaturnaround
wouldtake23years.Wheredowestand?
o Wewillknowforcertainin2016howweredoing
o ThewaytothinkaboutMaximistosimplify
Weshow$21.5mminpretaxlosses
Thereisataxsynergybecausewecanoffsetthelosseswithgainsfrom
SnS
Saytotalcostis$50mm,aftertaxthats31mm.
Wecouldsellitfor$20mm,callitaftertax
o Thereareanumberofthingsthatcouldgiveustremendousupside
o Upsideof$100mm,downsideof$11mm[$31mmaftertax+$20mmsale]
o TheriskisshiftingMaximismorecertaintodaythanwhenthechairmanlettercame
out.
o Maximisthelargestgeneralinterestmensmagazine.2Xthenextlargest
Wehaveabroadsegmentandcompetitorshaveanarrowsegment
Wecanselladsforsegmentsthathavenotdeclined:luxury,grooming,fashion,
etc.
Advertiserscanuseonemagazineinsteadofseveral
o Weraisedadrates30%yetadpageswentto24from17.
o Commitmentsforadsinthecomingyearexceedlastyearsrevenue
o WegotintoMaximforlicensing,notpublishing
Theco.hasshareofmindandshareofemotion
Licensingrevenuewentfromacouplehundredthousanddollarsto$1.5mmthis
year
Licensingwilllagpublishingrevenue
o Cooley:Themagazineissoldin70countries
In2007itsoldfor$250mm
Obviouslyitdevolvedbeforeweboughtit
o CBRLwasastraightflushbutwehavetoworkwiththehandweredealtatMaxim
o Circulationhasbeenflat
Q:ItseemslikemoneyraisedatBHhasgoneintoTLF.Canthatcashcomeout?
o Accesstocapitalisnottheconcern.

Holdingco.willhavetopayalothigherpricesforpermanentholdingsthanwehaveto
payinthepublicmarket
o TLFhasa5yearlockonfunds
o Ifanopportunityariseswewilldiscussacourseofactionwiththeboardofdirectors
o AtraditionalfundwouldnothavedonesomethingliketheJPMCBRLtransaction
Wedidittomaintainthetaxadvantagefortheholdingco.
Q:Whatwerethediscussionswiththeboardregardingthelicensingagreement?Havethe
Biglariname/picturesincreasedsalesatSnS?
o Cooley:Ithastodowithbuildingabrand.
Therehavealreadybeenadvantagesweveseenwithdiscussionsbetweenthe
CEOafterwhomthecompanyisnamed
Thebrandisbecomingvaluable
o Biglari:Anytimeyoucanstandbehindaproductandstandbehindquality,itresonates
Intheturnaround,weneededtomakeacommitmentandthatswhatpeople
seefromthemomenttheywalkin
Wegota40%increaseinSSSbecausewemadeavalueproposition
Q:Whatareyourthoughtsontheoverallmarketvaluationandrestaurantspacevaluation?
o RomanosMacaroniGrillwasforsalein08atavaluationof$160mm
ThatwasthemarketvalueofSnSatthetime
Fastforwardandthecompanywassoldfor$50mm
Afewdaysagotheyannouncedthatitwasbeingsoldfor$8mm
o Therestaurantindustryisacemeterywithmines
Gotopayyourrespectsandwindupbecomingapermanentresident
Youmustbecarefulchoosingtherightbrand
ItrequiresagoodjockeyandwontdragthejockeyalongwithitlikeKO
o Interestinthesectorisdiametrictowhatitwasafewyearsago
o Cooley:Itshardertofinddealstodaythanitwasafewyearsago
Itsgettingalittletoppyinmyopinion,buteveryonehasanopinion
Q:Issupportofexistingfranchiseessufficient,andwilltherebeanenvironmentwhere$3.99
kidsmealsdontmakesense?
o Wearethelargestfranchiseethereiscompletealignmentbetweenusandfranchisees
o Wearewillingtosacrificemargintogethigherturnoverandmoreprofit
o Wearenotaskingsomeonetojoinwiththeexpectationthatthemenuisgoingto
change
Recentlyhadaonepagermadetoexpresstheguidelinesthatfranchiseeswill
follow
o Thebrandisonevisiononeway.Wecanthavethesamebrandofferingdifferent
productsatdifferentprices.
Joinifyouagreewithourphilosophy.Otherwise,dont
o Wewanttokeepourgrossmarginsbelow30%(higherthanMCDs)
o

Laborcostsasa%ofsaleshavedeclinedsince2008despitespending$9mmmorefrom
minimumwagehikes
FollowupQ:Whatsthevaluepropositiontoafranchisee/whywouldtheychooseSnS?
o Therearenotmanychainswith25quarteroverquarterSSSincreases
SnSandChipotleareit
o Workingonaprojectnowtogetaninlineunitavailableforlessthan$400k.
o Ithasbeenthelegacyfranchiseesthatarethemostvocalaboutanyproblems
Q:Thingshavebeengoingwell,butwhathappensifthingsgobadatMaxim?
o Ifweseeunendinglossesby2016,Ihavenointentionofkeepingaloser
o Cooley:90%oftheemployeesatMaximarenew
Thesepeoplewerewinnersattheirformerjobsandtheywillbewinnershere
Q:WhatexplainsthesignificantincreaseinSnScapitalexpendituresthisyear?
o Arefresh/reimagingofSnSunits
Cost$11.2mminnewfiscalyear($8.7mminoldfiscalyear)
Thisismaintenancecapexthatyouhavetodoeveryfewyears
o Newunitsthatwillbeleveragedforfranchising
o Executivesatothercompaniesdontknowwhytheirsalesdecline
Service,quality,andpricearethepillarsofvalue
ThereiscausalitybetweenthesethingsandSSS
o MCDquarterpounderwas$5andchangein08,SnSsequivalentofferingwas$7.75
SnShasreducedpriceandnowMCDishigher
Q:WhatsthedealwiththeTennesseelawandwhatisyouropinionofCBRLoverthelastcouple
quarters?
o Wevelostsomebattlesbutarewinningthewar
OurgainoninvestmenthasexceededtheprofitsthatCBRLhasmadeforallof
itsshareholders
Thatisunsustainable
o CBRLfoundergrewthechaininawaythatresonatedwithconsumers
Realestateportfolioisamongthebestintheindustry
In1998,thecompanywasearning$460kperstore
Companyisnotbacktothatpointyet
o LastyearwelikenedourstrategytotheRumbleintheJungle[went8rounds]butits
startingtolookmoreliketheThrillainManila[went14rounds].
o [BiglaricallstheCBRLCFO,whoisseatedintheback,tothemicforquestions.He
initiallysaysthatthisisnthismeetingbutcomestothemicanyway.Biglariasksabout
thenewCBRLfusionconcept.]
CBRLCFO:ToquoteacertainCEOandinvestor,youshoulddomorethorough
research.
Wevepubliclydiscussedtheconceptquiteabit
Biglari:Thebestthingyoucandoisstopopeningnewstoresandwastingmoney
onnewconcepts
o

CBRLCFO:Illoffertheobservationthatwevehadfourproxycontests,ifyou
removeyourvotes,CBRLshareholdershavevoted90to10infavorofCBRL
nominees
Biglari:Ridiculoustotalkaboutthevoteexthelargestshareholder
Theupshotofourownershipisthatwegetpaidtowait,butshould
CBRLstumble,wewillbethere.
Hopefullytheconceptswontcosttoomuchmoney
Q:WhyshouldourBHsharesownedbyTLFbesubjecttoa25%performancefee?
o IlooktoputTLFcapitalintothemostattractiveinvestmentsavailable
Q:SethBarkett:HowdoyouandtheBoDreconciletheconflictsofinterestandselfdealing
o Thereisnoselfdealing
FollowupQ:Onbehalfofallshareholderwewouldliketoknowaboutconflictsofinterest
o Therearenoconflictsofinterest
Q:Howdothenewreinsurancetreatieschangethebusiness?
o Thecombinedratiowillmoveupifwetakeriskontheliabilityside
o Thereasonwewontjuststartacompanyisbecausewehaventbeeninvolvedin
insuranceforverylong
Wedonthavetheteam
o FGcouldbecomeasmallpieceofalargeroperationbutwedonthaveamaster
strategy
Q:NickSwenson:Securitylawsrequirethatyouhavepolicyandprocedureswithrespecttohow
TLFsharesarevoted.Willyoudisclosethose?
o Youvegivenyourhitandrunarguments
o GoreadSecurityAnalysis,2ndedition,page600.
Wonderfulchapterwithdiscussiononproxycontests
FollowupQ:TLFwasasubstantialpartofyourmarginofvictory.
o ThisisnotaBiglariCapitalCorp.meeting
o Everythingthatshouldbedisclosedhasbeendisclosed
Q:DidyouhaveanintentionforthecapitalraisedbytheCBRLJPMdeal?
o Wedontdiscusstheuniverseofopportunitieswesee
o WearewillingtodiscussCBRLbecauseitssuchalargepartofthecompany
Q:Howdidyouguys[BiglariandCooley]decidetoteamup?
o Philsideaswerehisownandhewasagoodsimplifierofcomplexconcepts
Hewasfamiliarwithvalueinvestingbutnotsteepedinit
o Wecanhavediscussionswithnoegoinvolvedandshareintellectualcuriosity
o Cooley:Wearethetypeofpeoplethatwoulddreadgoingtothebeachanddoing
nothingforaweek
Q:Howdidthegiftcardfloatincreasesomuchyearoveryear?
o Thereissomeseasonality
o Pluswehaveaddednewretailers
Samsclubhasaddedseveralmillioninthelastquarter

Q:Whatisthetimetableforfranchiseeopeningsandwillyoudisclosefranchisecosts?
o Wedidnotdiscloseitthisyearbecausewedidnothavemuchofachangefromlast
year
Itsabout25%ofG&A
o ThefranchisingdollaramountandpercentageofG&Aisexpectedtobelowerthisyear
o Wehave270locationscommittedandthatwilltakesometime
o Shakeshackhasafantasticoperator.TherearentthatmanyAlshayasaround
o Franchiseegrowthwillcontinue
Probably2025willopenthisyear
Q:Howdoyoumeasurecustomerserviceinyourstoresandfranchiseestores?
o Complaintsper10,000isausefulmetric
Weakperformanceshowsupinthenumbersfairlyquickly
o Wemeasureeverythinginourstores,downtothetemperatureoficecream
o WehavearoominSanAntoniothatissetuplikeacontrolcenterwithalerts
Q:Areaveragesalesatnewfranchiseeshigherthanlegacyfranchisees?
o Newfranchiseesarethedriverofgrowth
o Newerunitsaremuchprettier,betterorganized,costless,anddomore
o Ifyoucompareapplestoapples,newonesdobetterthanoldones
o Wetrytogetfranchiseestofocusonprofitsinsteadofmargins
Q:Rightsofferingsareakintoapropertymanagerputtingaguntotheheadofalandlordand
demandingmoneyinexchangeforroomsthepropertymanagerhasseized.Willshareholders
beabletovoteonfuturerightsofferings?
o Wecanissueuptowhatisauthorizedbeforewehavetovoteonincreasingthe
authorization
o WhenitiscustomaryfortheBoDtovoteonsomething,wedontputitupfor
shareholdervote
o Wedontexpectanotherofferingthisyear.Itsanoptionthatsavailable
o Youcantakeyourright,sellthem,andbuystock
Rightsofferingsdontdiluteyouifyoudothis
Ifyoucantsellyourrights,liketheofferingsatProDex,thatisaproblem
Wehavenotstructuredourofferingsthisway
Q:WhatareyouropinionsonthestateoftheBiglarireputationandwillthisinhibitthe
companysabilitytofindpermanentholdingsorsignupfranchisees?
o Wedontbelievetherehasbeenanydamagetothereputation.
Q:HowdoyoumaintainacompetitiveadvantageatBH?
o Restaurantindustryisajockeyindustry
IfSnSbrandweresogood,whywasthecompanyalmostbankrupt?
o Maintainlowcostsandmakesuretheyareallvariable
Q:Whatisthestatusofthesupplychainforfranchising?
o Wehavethesupplychainfiguredoutinmostplaces
Pakistannotwithstanding

o Atthispointweneedtofocuseffortsonopeninglocations
o InEurope,burgersareeitherdirtcheaporveryexpensive
Q:Withfranchisingcomingtofruition,is2016expectedtobearecordyearforSnSprofits?
o Internationalfranchisingisgoingtolagaswehavemoretoprove
Q:Myappraisalofthecompanysvaluewas$650mmwhenyouputyourincentiveagreementin
place.Didntyoutransfer$100mmfromyourselftoshareholders?[Thesameguyaskedthe
samequestionlastyear]
o Mostofmycompensationisfrominvestments
o A6%hurdleseemsquitehighgiveninterestrates
o Factis,itispayforperformanceandifyoudontmakeanymoney,Idontmakeany
money
YousayImtakingfromshareholdersbuthowcanIgetpaidwithoutfirst
makingmoneyforshareholders?[Biglariwaitsforaresponse,noneisgiven]
Ifthereisaloss,Ihavetomakeitbackandthen6%
o TLFfeeispaidatthebeginningoftheyearsovolatilitydoesnothelpme
o IttakesaveryhighreturnfromTLFforustoearnwhatotherfundsearn
o IdidthingsthathurtmybonuslikefranchisingandbuyingMaxim
ClearlyIminitforthelonghaul
Theconspiracytheoriesarecrushedifyoulookatwhathashappened
o IfyouthinkImstealingfromyouorcheatingyou,sellthestock
o IfIhadntdonewellwithmyfirstcompany,IcouldnthavestartedTLF.IfIhadntbeen
successfulwithTLF,IcouldnthavegoneintoWesternSizzlin.IfIhadntbeensuccessful
withWestern,IcouldnthavegotteninvolvedwithFriendlys.IfIhadntbeensuccessful
atFriendlys,IcouldnthavegoneontoSnS.
Weareresultsoriented
Q:Couldyoudisaggregatefranchisingrevenue?
o Youhaveacoupleofthingsgoingonlikedecommitmentsandunrealizedroyaltiesthat
buildup(fromafranchiseenotbeingopenenoughmonths),butwearentgoingtoget
intotheminutia
Q:Ifyougetto51%ownership,willyouwaveyourmanagementfeeandbecompensatedby
sharepriceappreciation?
o Itsprematuretotalkaboutthatbecausetheactualownershippercentageissofar
fromwhatyouretalkingabout
o Thegreaterthepercentageofownership,thingswillchange
o Therearecapitalistswhoworkforfree,butImnotoneofthem
o IfyourelookingforthenextBerkshire,lookelsewhere
ComparingBHandBRKisaninsulttothemanfromOmaha
Q:HowdoyouforeseemovingthevalueneedleinthefuturewiththeCBRLstake?
o Weconcentrateourportfolioofinvestments
Webelieveriskisabouttheindividualandnottheasset
Itsaquestionofknowledgeandunderstanding

Youcanlookatourtrackrecord
Mostpeopleshoulddiversify
ReadCommonStocksandUncommonProfits,chapter9
Q:Istheresynergypotentialbetweenthedifferentsubsidiaries?
o Thereisanaturaltendencyforpeopleattheholdingco.towanttogetinvolvedinthe
subsidiaries
Weletthesubsidiariesrunthemselves
Wedontwantmanagementlayers
o ItcanmakesensetoglamorizeaSnSopeningwithMaximmodelsoruseSnSfoodtrucks
atMaximevents
o WehadMaximmodelsattheFGboothbutitiscompletelyuptothesubsidiariesifthey
wanttodothisornot
Q:WhathaveyoulearnedfromChipotleandShakeShack?
o ThefounderofShakeShackgrewupinSt.LouisandwasinspiredbySnS
Heisafantasticoperator,andwewishhehadshownhisgratitudeinadifferent
way
o Everyburgerplaceisacompetitorwithusbutweareatdifferentpricepoints
Heisgoingafterpeoplewithmoredisposableincome
Hisapproachmakessense.Hewants450unitsandthatseemsreasonable
Q:Withrespecttomakingashake,itseemsthatsoftserveismucheasiertousethanhand
packedicecream.Whynotusesoftserve?HowdidtheorganicburgeravailableinNYturnout?
o Idontunderstandtheorganicpush.Itscounterintuitive
o Wedonottakeadvicefromanyoneonmilkshakes
Wearethekingsofmilkshakes
Wesell70mmperyearfarmorethananyoneelse
Q:WhyisntiteasiertoexpandintostateswithoutanySnS?
o Weareaddingunitstothoseplacesaswespeak
o Iamnotlookingtocompareuswithothers
Chipotlehasdoneafantasticjob.Itwasdoingwellbeforeweshowedupandit
stillisdoingwell
o Cooley:Wearenotinterestedinusingourcapitaltoopennewlocations.Ourstrategyis
franchising
Q:Howdoyousplityourtimebetweendomesticandinternationalfranchising?
o Idontseethoseasmutuallyexclusive
Q:Howdoyouchoosewhichproductstolicense/howtorepthebrand?
o Itsimportantwhatwelicense
o WewanteveryonetoknowaboutSnS,evenatthetopofMt.Everest
Q:Howislicensingdoing?Howarethemicrowaveableshakesdoing?
o MicroshakesareavailablebutnotatWalMart
o Wemaydisclosurefranchisingandlicensingrevenueinonelineiteminthefuture
Q:ArethereplanstoinstalldeliveryatSnS?
o
o

o Wearealwaysexploringoptions
o Itisculturallyrequiredsomeplaces,likeKuwait
Q:Yousaidyousell70mmshakes,howmuchdoyoumakepershakeandareyoufindingplaces
toputthemoneytowork?
o 30%ofoursalesareshakes
o Concentrationmakesourinvestmentdecisionsbinary
Eitherweinvestheavilyorwestayout
Maybethatswhywehaveafewsmallpositionsincompaniestokeepusbusy
Q:IstheeffectivetaxrateinTLFthesameastheholdingcompanyorFirstGuard?
o Theywouldbedifferentbecauseofstatetaxbuttheyreprettyclosetothesame
Q:Doyoudorecklessthingslikeskydive?
o Ipleadthe5th
o Actuarially,Ihave41yearstogo.
o Cooley:TheBoDhasasuccessionplanthatwediscusseveryyear
Q:Theburgerindustryisverycrowded.WhereisSnSsmarketsharegoingtocomefrom?
o Youareright,itisaCEOintensivebusiness
o Outedgeisalowcoststructureandemotionaltieinwiththebrand
o Idontthinkyoufindalotofcompetitionfromtheotherchains
Thesechainstendtoattractbadmanagement.
Whensomeonegivesguidancetothepenny,youcanbesurethatthe
peoplebelowthemareworkingtosqueezeouttheresults
Ifyoulookunderthehoodofmostcompanies,itsnotgood
o ManagingSnSislikeakayak
Businessisfairlysteadybutwhentheboatrocksweadjustforit
Twoyearsago,businesssloweddownandwehadtochangesome
things
Q:HowdoburgerpricescompareinEurope?
o InFrance,amealofoursisseventoeighteuros.
HigherthanMCDbutveryclose
Wearegivingadifferentexperience
Notjustfastfoodbutafunandinterestingexperience
Q:DoyouhaveasellpriceforCBRLandwhatdoestheCBRLJPMtransactiondo?
o Theprepaidgivesustheoptiontopayitoffinshares
o Idontcarewhatthemarketdoes
IamapuristinthesensethatIlookatthecompanyandwhatitcando
Everydayisadecisionday
o Ifyoudoubleadollareveryday,in30daysyouhaveabilliondollars
Ifyoutakeouttaxeveryday,youhaveafewmillion
Wearecurrentlygettinganinterestfreeloanfromthegovernment
Q:WhatareyourviewsonRayDaliosprinciples?
o Theyregreat

Q:WhataboutKenandShawnBiglari?
o Theyhavebeenveryimportantforgettinginternationaldealsdone
o Cooley:Wegetmorevaluefromthemthanwepaythem

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