Note 5. Investment Partnerships

3 Months Ended

Mar. 31, 2017

Note 5. Investment Partnerships Details Narrative

Note 5. Investment Partnerships

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, 2016	$	972,707		$	395,070		$	577,637
Investment partnership gains (losses)		(59,517	)		(34,549	)		(24,968	)
Contributions (net of distributions) to investment partnerships		(5,015	)					(5,015	)
Increase in proportionate share of Company stock held					1,484			(1,484	)
Partnership interest at March 31, 2017	$	908,175		$	362,005		$	546,170
		Fair Value			Company Common Stock			Carrying Value
Partnership interest at December 31, 2015	$	734,668		$	262,979		$	471,689
Investment partnership gains		115,894			36,921			78,973
Contributions (net of distributions) to investment partnerships		6,750						6,750
Increase in proportionate share of Company stock held					10,930			(10,930	)
Partnership interest at March 31, 2016	$	857,312		$	310,830		$	546,482

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

	March 31, 2017			December 31, 2016
Carrying value of investment partnerships	$	546,170		$	577,637
Deferred tax liability related to investment partnerships		(144,676	)		(155,553	)
Carrying value of investment partnerships net of deferred taxes	$	401,494		$	422,084

The Company’s proportionate share of Company stock held by investment partnerships at cost is $343,530 and $341,930 at March 31, 2017 and December 31, 2016, respectively, and is recorded as treasury stock.

The carrying value of the partnership interest approximates fair value adjusted by 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.

		First Quarter
		2017			2016
Investment partnership gains (losses)	$	(24,968	)	$	78,973
Tax expense (benefit)		(9,761	)		28,585
Contribution to net earnings (loss)	$	(15,207	)	$	50,388

On December 31 of each year, the general partner of the investment partnerships, Biglari Capital Corp. (“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% over the previous high-water mark. Our policy is to accrue an estimated incentive fee throughout the year. The Company did not accrue an incentive fee during the first quarter of 2017. During the first quarter of 2016, the Company accrued incentive fees for Biglari Capital of $2,921. Our investments in these partnerships are committed on a rolling 5-year basis. Biglari Capital is an entity solely owned by Mr. Biglari.

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 March 31, 2017	$	203,202		$	1,041,405
Total liabilities as of March 31, 2017	$	202		$	199,443
Revenue for the first quarter ending March 31, 2017	$	(15,696	)	$	(52,652	)
Earnings (loss) for the first quarter ending March 31, 2017	$	(15,716	)	$	(53,514	)
Biglari Holdings’ Ownership Interest		63.6	%		92.5	%
Total assets as of December 31, 2016	$	221,676		$	1,109,465
Total liabilities as of December 31, 2016	$	2,694		$	201,460
Revenue for the first quarter ending March 31, 2016	$	(1,738	)	$	130,525
Earnings (loss) for the first quarter ending March 31, 2016	$	(1,771	)	$	129,285
Biglari Holdings’ Ownership Interest		63.4	%		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.