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Note 5. Investment Partnerships

9 Months Ended

Sep. 30, 2016

Note 5. Investment Partnerships Details Narrative

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 December 31, 2015 .........................................	$ 734,668	$ 262,979	$ 471,689
Investment partnership gains ................................................................	114,088	92,180	21,908
Contributions (net of distributions) to investment partnerships .....	(10,896)		(10,896)
Increase in proportionate share of Company stock held ...................		19,807	(19,807)
Partnership interest at September 30, 2016 ........................................	$ 837,860	$ 374,966	$ 462,894

	Fair Value	Company Common Stock	Carrying Value
Partnership interest at December 31, 2014 ...............................................	$ 776,899	$ 78,917	$ 697,982
Investment partnership gains ....................................................................	(16,313)	(39,023)	22,710
Contributions (net of distributions) to investment partnerships ..............	73,500		73,500
Increase in proportionate share of Company stock held ..........................		255,272	(255,272)
Partnership interest at September 30, 2015 ..............................................	$ 834,086	$ 295,166	$ 538,920

The fair value of the investment partnerships net of deferred taxes is presented below.

	September 30, 2016	December 31, 2015
Fair value of investment partnerships ......................................................................................	$ 837,860	$ 734,668
Deferred tax liability related to investment partnerships .........................................................	(116,097)	(115,952)
Fair value of investment partnerships net of deferred taxes .....................................................	$ 721,763	$ 618,716

The Company’s proportionate share of Company stock held by investment partnerships at cost is $352,634 and $332,827 at September 30, 2016 and December 31, 2015, 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.

Gains from investment partnerships recorded in the Company’s consolidated statements of earnings are presented below.

	Third Quarter		First Nine Months
	2016	2015	2016	2015
Investment partnership gains (losses) .......................................	$ (108,614)	$ 5,302	$ 21,908	$ 22,710
Loss on contribution of securities to investment partnership ...	-	-	(306)	-
Investment partnership gains (losses) ......................................	(108,614)	5,302	21,602	22,710
Tax expense (benefit) ..............................................................	(44,383)	(1,688)	2,373	3,163
Contribution to net earnings (loss) ...........................................	$ (64,231)	$ 6,990	$ 19,229	$ 19,547

Non-cash investments were $1,219 (net of non-cash distributions) for the first nine months of 2016.

As the general partner of the investment partnerships, Biglari Capital Corp. (“Biglari Capital”) on December 31 of each year will earn an incentive reallocation fee for the Company’s investments equal to 25% of the net profits over an annual hurdle rate of 6% above the previous high-water mark. Our policy is to accrue an estimated incentive fee throughout the year; however, no fees are reallocated until the end of the calendar year. As of September 30, 2016 and 2015, the Company accrued incentive fees for Biglari Capital of $191 and $413, respectively. Our investments in these partnerships are committed on a rolling 5-year basis. Mr. Biglari is the sole owner of Biglari Capital.

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
Total assets as of September 30, 2016 ............................................................................	$ 203,507	$ 917,197
Total liabilities as of September 30, 2016 ......................................................................	$ 710	$ 174,601
Revenue for the first nine months ending September 30, 2016 ..................................	$ 23,926	$ 112,715
Earnings for the first nine months ending September 30, 2016 .................................	$ 23,792	$ 108,327
Biglari Holdings’ Ownership Interest ............................................................................	64.9%	95.2%

Total assets as of December 31, 2015..................................................................................	$ 165,996	$ 819,323
Total liabilities as of December 31, 2015.............................................................................	$ 409	$ 141,274
Revenue for the first nine months ending September 30, 2015............................................	$ (14,112)	$ (6,634)
Earnings for the first nine months ending September 30, 2015 ...........................................	$ (14,199)	$ (8,389)
Biglari Holdings’ Ownership Interest ..................................................................................	60.9%	93.5%

Revenue in the above summarized financial information of the investment partnerships includes investment income and unrealized gains and losses on investments. The investments held by the investment partnerships are largely concentrated in the common stock of one investee, Cracker Barrel Old Country Store, Inc.