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Note 5. Investment Partnerships

3 Months Ended

Dec. 31, 2014

Beginning July 1, 2013, as a result of the sale of Biglari Capital 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 they 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.

The fair value and adjustment for Company common stock held by the investment partnerships to determine carrying value of our partnership interest is presented below.

	Fair Value	Company Common Stock	Carrying Value
Partnership interest at July 1, 2013 .......................................................	$ 54,608	$ 43,580	$ 11,028
Investment partnership gains ..............................................................	23,053	2,985	20,068
Contributions of cash and securities to investment partnerships ..	377,636	-	377,636
Increase in proportionate share of Company stock held ..................	-	11,033	(11,033)
Partnership interest at September 25, 2013 .........................................	$ 455,297	$ 57,598	$ 397,699
Investment partnership gains (losses) ................................................	1,436	(12,619)	14,055
Contributions of cash and securities (net of
distributions of $10,340) to investment partnerships ......................	164,078	-	164,078
Increase in proportionate share of Company stock held ..................	-	18,594	(18,594)
Partnership interest at September 24, 2014 .........................................	$ 620,811	$ 63,573	$ 557,238
Investment partnership gains ..............................................................	156,088	11,386	144,702
Increase in proportionate share of Company stock held ................	-	3,958	(3,958)
Partnership interest at December 31, 2014 .....................................	$ 776,899	$ 78,917	$ 697,982

The Company’s proportionate share of Company stock held by investment partnerships at cost is $77,165, $73,207 and $54,613 at December 31, 2014, September 24, 2014 and September 25, 2013, respectively, and is recorded as treasury stock.

The carrying value of the partnership interest approximates fair value adjusted by changes in the value of held Company stock. Fair value is according to our proportional ownership interest of the fair value of investments held by the investment partnerships. The fair value measurement is classified as level 3 within the fair value hierarchy.

We recorded $144,702 and $23,493 of gains from investment partnerships during the 2014 and 2013 transition periods, respectively. We recorded $14,055 and $20,068 of gains from investment partnerships during fiscal years 2014 and 2013, respectively. On December 31 of each year, the general partner of the investment partnerships, Biglari Capital, 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%. Our policy is to accrue an estimated incentive fee throughout the year. The total incentive reallocation from Biglari Holdings to Biglari Capital for calendar year 2014 was $34,406. The total incentive reallocation from Biglari Holdings to Biglari Capital for calendar year 2013 was $14,702, including $3,655 associated with gains on the Company’s common stock, whose gains are eliminated in our financial statements. As of September 25, 2103, the Company accrued $5,033 for the incentive fee for Biglari Capital. No amount was accrued as of September 24, 2014 because net profits for the calendar year to date did not exceed the hurdle. Our investments in these partnerships are committed on a rolling 5-year basis.

Summarized financial information for The Lion Fund, L.P. and The Lion Fund II, L.P. is presented below.

	Equity in Investment Partnerships
	Lion Fund	Lion Fund II
Current and total assets as of December 31, 2014 .................................................	$ 187,078	$ 719,344
Current and total liabilities as of December 31, 2014 ...........................................	$ 8,658	$ 44
Revenue for the three month period ending December 31, 2014 .........................	$ 24,082	$ 182,923
Earnings for the three month period ending December 31, 2014 ........................	$ 24,037	$ 182,902
Biglari Holdings’ Ownership Interest .....................................................................	61.6%	92.7%

Current and total assets as of September 30, 2014 ......................................................	$ 154,561	$ 548,923
Current and total liabilities as of September 30, 2014...................................................	$ 58	$ 25
Revenue for the twelve month period ending September 30, 2014 ..............................	$ (12,860)	$ 19,832
Earnings for the twelve month period ending September 30, 2014 ..............................	$ (12,950)	$ 19,789
Biglari Holdings’ Ownership Interest ...........................................................................	61.6%	95.8%

Current and total assets as of September 30, 2013 ......................................................	$ 126,121	$ 408,883
Current and total liabilities as of September 30, 2013...................................................	$ 83	$ 11
Revenue for the twelve month period ending September 30, 2013 ..............................	$ 9,200	$ 25,109
Earnings for the twelve month period ending September 30, 2013 ..............................	$ 9,170	$ 25,098
Biglari Holdings’ Ownership Interest ...........................................................................	52.1%	96.3%

Consolidated Affiliated Partnerships
Prior to July 2013, The Lion Fund, L.P. and Western Acquisitions, L.P. were referred to as consolidated affiliated partnerships of the Company. Certain of the consolidated affiliated partnerships held the Company’s common stock as investments. Net earnings for fiscal year 2013 and 2012 of the Company included the realized and unrealized appreciation and depreciation of the investments held by consolidated affiliated partnerships, other than realized and unrealized appreciation and depreciation of investments the consolidated affiliated partnerships held in the Company’s common stock which were eliminated in consolidation. The affiliated partnerships were no longer consolidated as of September 24, 2014 or September 25, 2013.

Realized investment gains/losses in the consolidated affiliated partnerships arose when investments were sold. The net unrealized and realized gains/losses from investments held by consolidated affiliated partnerships, other than holdings of the Company’s debt and equity securities, for the fiscal years ended September 25, 2013 and September 26, 2012 were as follows.

	2013	2012
Gross unrealized gains .........................................................................................................................	$ 3,746	$ 3,047
Gross unrealized losses .......................................................................................................................	(410)	-
Net realized gains from sale ................................................................................................................	261	2,895
Other income .........................................................................................................................................	306	360
Total .......................................................................................................................................................	$ 3,903	$ 6,302

The limited partners of each of the investment funds had the ability to redeem their capital upon certain occurrences; therefore, the ownership of the investment funds held by the limited partners was presented as redeemable noncontrolling interests of consolidated affiliated partnerships and measured at the greater of carrying value or fair value. The affiliated partnerships are no longer consolidated.

The following is a reconciliation of the redeemable noncontrolling interests in the consolidated affiliated partnerships.

	2013	2012
Carrying value at beginning of year ............................................................................................	$ 52,088	$ 45,252
Contributions from noncontrolling interests .............................................................................	1,076	1,545
Distributions to noncontrolling interests ...................................................................................	(2,302)	(254)
Incentive fee .....................................................................................................................................	(21)	(36)
Income allocation ...........................................................................................................................	1,922	3,188
Adjustment to redeemable noncontrolling interest to reflect maximum
redemption value .........................................................................................................................	4,810	2,393
Adjustment to reflect deconsolidation of affiliated partnerships ............................................	(57,573)	-
Carrying value at end of year .......................................................................................................	$ -	$ 52,088