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v2.4.0.6
Note 5. Consolidated Affiliated Partnerships
3 Months Ended
Dec. 19, 2012
Consolidated Affiliated Partnerships:  
Note 5. Consolidated Affiliated Partnerships

Note 5.Consolidated Affiliated Partnerships

Collectively, The Lion Fund L.P. and Western Acquisitions, L.P. are referred to as consolidated affiliated partnerships of the Company. Investments held directly by the consolidated affiliated partnerships usually consist of domestic equity securities. Certain of the consolidated affiliated partnerships hold the Company’s common stock as investments. Within our consolidated financial statements, the Company classifies this common stock as Treasury stock despite the shares being legally outstanding. As of December 19, 2012 and September 26, 2012, the consolidated affiliated partnerships held 205,743 shares of the Company’s common stock ($69,221 at cost).  

 

Net earnings of the Company include 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 hold in the Company’s equity securities which has been eliminated in consolidation. 

 

In fiscal year 2010, Biglari Holdings invested a total of $35,697 in the Lion Fund, both in the form of the acquisition of the general partner and as a direct limited partner investment. The fair value of these investments in the Lion Fund totaled $50,677 at December 19, 2012 and $48,306 at September 26, 2012. No amounts were invested in the year-to-date period in fiscal year 2013 or in fiscal year 2012. These investments in the Lion Fund do not appear explicitly in the Company’s Consolidated Balance Sheet because of the requirement to consolidate fully the Lion Fund (inclusive of third party interests) in the Company’s financial statements. Further, the Lion Fund’s portfolio holds significant interests in Biglari Holdings’ common stock, which as described above is classified on the Company’s Consolidated Balance Sheet as a reduction to Shareholders’ equity. Biglari Holdings’ pro-rata ownership of its common stock through the Lion Fund was 99,726 (with a fair value of $38,895) based on Biglari Holdings’ ownership interest in the Lion Fund as of the end of the fiscal 2013 first quarter.

 

The following table summarizes the cost and fair value of the investments held by the consolidated affiliated partnerships, other than holdings of the Company’s equity securities:

 

   December 19, 2012  September 26, 2012
Equity securities:          
Cost  $9,839   $10,288 
Fair value  $12,267   $13,151 

 

Investments held by consolidated affiliated partnerships on the Consolidated Balance Sheet include $11,463 and$12,115 of cash that is only available for use by the consolidated affiliated partnerships at December 19, 2012 and September 26, 2012, respectively.

 

Realized investment gains/losses arise when investments are sold (as determined on a specific identification basis). The net unrealized gains/losses and net realized gains/losses from investments held by consolidated affiliated partnerships, other than holdings of the Company’s equity securities, were as follows:

 

   Twelve Weeks Ended
    
    December 19, 2012    December 21, 2011 
Net unrealized gains/losses  $(435)  $698 
Net realized gains/losses from sale  $87   $1,426 

 

The limited partners of each of the investment funds have the ability to redeem their capital upon certain occurrences; therefore, the ownership of the investment funds held by the limited partners is presented as Redeemable noncontrolling interests of consolidated affiliated partnerships and measured at the greater of carrying value or fair value on the accompanying Consolidated Balance Sheet. The maximum redemption amount of the redeemable noncontrolling interests as of December 19, 2012 was$53,274.

 

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

 

   Twelve Weeks Ended
       
    December 19, 2012    December 21, 2011 
Carrying value at beginning of period  $52,088   $45,252 
Contributions from noncontrolling interests   23    927 
Distributions to noncontrolling interests   (1,310)   —   
Incentive fee   (21)   (36)
Income allocation   (154)   1,234 
Adjustment to redeemable noncontrolling interest to reflect maximum
redemption value
   2,648    2,628 
Carrying value at end of period  $53,274   $50,005 

 

The Company, through its ownership of Biglari Capital and Western Investments Inc., is entitled to an incentive fee to the extent investment performance of the consolidated affiliated partnerships exceeds specified hurdle rates. Any such fee is included in net earnings attributable to the Company in the period in which the fee is earned.

 

Biglari Capital, the general partner of the Lion Fund, earned a $21 incentive reallocation fee at December 31, 2012. At December 31, 2011, Biglari Capital earned a $36 incentive reallocation fee. The incentive fee is assessed only once a year, on December 31, and no predictability of such earnings exists because the Lion Fund’s annual performance is unpredictable.

 

Net earnings attributable to the Company only includes the Company’s share of earnings and losses related to its investments in the consolidated affiliated partnerships; all other earnings or losses from the consolidated affiliated partnerships are allocated to the redeemable noncontrolling interests.