Biglari Holdings Inc. Annual Report 2012

FY2012 Annual Report · Biglari Holdings Inc.

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Dear Shareholders of Biglari Holdings Inc.:

Not only is it appropriate but it is also requisite to review the business objectives and
economic principles of Biglari Holdings to ensure that all owners understand the tenor of the
company. In building Biglari Holdings, or BH, we want our owners, whom we view as our
partners, to be fully conversant with the business. Absolutely crucial is the necessity of our
attracting only long-term investors, in accord with our modus operandi. Consequently, Phil
Cooley, Vice Chairman of BH, and I find it imperative to transmit information we ourselves
would want to know if our roles were reversed with you.

Biglari Holdings, a diversified holding company owning controlled and noncontrolled
businesses, has been organized to permit maximum flexibility of capital deployment to
businesses and investments. BH will persist in its evolution as we assemble an ever-larger
number of cash-generating businesses. As the sole capital deployer, who allocates capital with
maximum latitude, I review a wide range of options to apportion capital so I can shape Biglari
Holdings based on opportunity. As a result, Biglari Holdings represents a quintessential
entrepreneurial company. To elucidate what the idea of entrepreneurship means, allow me to
share with you the tale of how it all began for this entrepreneur.

The Genesis Story

Our corporate journey began in 1996 when at age 18 I founded my first substantive
business, an internet service provider, by raising a whopping $15,000. I was a freshman in
college, and I felt time was passing me by to get a real business going. Armed with a pittance
of capital, I had to rely on ingenuity to ensure we made it, by doing such things as bartering
our connectivity services for other services we vitally needed, e.g., signage, advertising, and
business cards. (The ability to make lemonade out of lemons would henceforth prove
valuable.) It was also the first time that I had to meet a payroll, when I hired a handful of
people who became convinced that we had a bright future. We were determined to persevere,
overcoming resistance and thereby growing the enterprise at a healthy clip on a simple motto: I
asked customers to choose us based upon faith but retain us based upon performance.

Although the venture generated a decent cash flow, the combination of my becoming
increasingly concerned over the competitive dynamics plus the run up in asset values, namely,
the Internet bubble, led me to contact a firm that had gone public and was seeking to purchase
companies such as mine for cash. Thus, three years after the launch, I sold the business to
Internet America (with the apt ticker symbol, GEEK). While I was in the process of selling the
company, I had also been working on my next undertaking: to continue my entrepreneurial
journey of building and operating enterprises.

In 2000, I took the proceeds from the sale to seed the founding of my next venture,
Biglari Capital Corp., general partner of The Lion Fund, L.P., a private partnership of a limited
number of members. I began building on the foundations of my initial businesses by propelling
one profitable venture into another. Over the years, we developed a history of appraising,
investing, owning, running, and turning around companies — and in doing so, we were
creating wealth for our partners and shareholders. Through a series of multifaceted transactions
in public and in private companies — too detailed to be enumerated — Biglari Holdings Inc.
was founded, the dynamic vehicle through which all our business activities are carried out.

Currently, Biglari Holdings includes three major wholly-owned subsidiaries: Biglari Capital
Corp., Western Sizzlin Corp. and Steak n Shake Operations, Inc. By now our workforce
numbers about 22,000 employees, but we still function as we did when we were a start-up.

As a corollary, we have found significant opportunities in underperforming companies,
and we are thus willing to engage in turnaround situations. For an entrepreneur, turnarounds
are very similar to start-ups — both require sharp decision-making in a chaotic, amorphous,
disorderly setting. For instance, the reason we were able to engineer a highly successful, rapid
operational turnaround at Steak n Shake during the Great Recession stems from our
entrepreneurial approach.

As a businessman, I have utilized capital to invest, create, operate, and build
businesses. Whether I am starting a new business under the mantle of Biglari Holdings,
seeking the improvement of a controlled operating company or of a noncontrolled one, my
pursuit remains entrepreneurial. Being an entrepreneur is not just an outcome but also a way of
thinking and behaving creatively, adaptively, and innovatively. The term entrepreneur was
best explained around 1800 by French economist Jean-Baptiste Say, who is attributed as
saying that an entrepreneur is someone who “shifts economic resources out of an area of lower
and into an area of higher productivity and greater yield.”

* * *

Because we intend to construct BH through multiple dimensions, we do so with a long-
term economic purpose: to maximize per-share intrinsic value.1 Our operating and capital
deployment decisions are driven by their long-term economic consequences, measured by
advancement in per-share intrinsic value.

In meeting our objectives, we search for simple, comprehensible, and predictable
businesses whose future economics can be evaluated in order to tilt the profit-to-risk ratio
vastly in our favor. BH is in the business of owning other businesses in full and in part.
Because our subsidiaries generate cash beyond their needs, we cycle the cash to add to our
collection of majority-owned and partially-owned businesses. Our preference is to acquire
businesses in their entirety at viable prices. Naturally, we will choose stock ownership when
the stock market offers us the opportunity to purchase a minority interest at a discount over
transactions involving corporate acquisitions. Over the last two years we have apportioned
capital to marketable stocks because select bargains were presented in the stock market.

The combination of cash generated by operating subsidiaries along with my capital
allocation work will stoke our corporate performance, which according to our criterion must
outdo our benchmark, the S&P 500 Index.

Phil and I evaluate BH’s economic performance in many ways. We will present the
segments that coincide with our thinking by reviewing BH as composed of two parts:
investments and operating businesses.

1 Intrinsic value is measured by taking all future cash flows into and out of the business and

discounting the net figures at an appropriate interest rate.

Investments

As of the end of fiscal 2012, total investments (cash, stocks, and BH’s investment in
The Lion Fund, L.P.) amounted to $378.6 million, increasing from $252.8 million, for a year-
over-year gain of 50%.2 Total investments were $6.9 million at the end of fiscal 2008. The
subsequent increase of $372 million by the end of fiscal 2012 resulted from a series of
effective investment and business decisions. The following table displays BH’s annual total
investments since fiscal 2008:

Fiscal Year (In Millions)

Cash Equivalents ....................
Marketable Securities .............
The Lion Fund, L.P. ..............

2012
$ 60.4
269.9
48.3

2011
$ 99.0
115.3
38.5

Total Investments ...................

$ 378.6

$ 252.8

2010
$ 47.6
32.5
38.6

$ 118.7

2009
$ 51.4
3.0
–

$ 54.4

2008
$ 6.9
–
–

$ 6.9

Enjoy the numbers but do not expect an encore. In fiscal 2013, I do not expect a
dramatic lift. You should also brace yourself in the short run because we do not mind a rough
ride provided that we trigger a higher eventual return. In fact, we prefer volatility, for it
produces the potential to exploit price oscillations. Our results will invariably be more volatile
because our portfolio is quite concentrated.

Our approach to purchasing stocks is to concentrate capital into very few concerns. We
focus our attention and capital in an attempt to increase returns yet concomitantly reduce
investment risk. Therefore, we limit our appraisals and allocations to businesses we can
rationally assess, immersing ourselves in understanding a business rather than attempting to
study many shallowly. As a consequence, our range of investments may be narrow, but within
it we must be supreme. Analysis that is a mile wide and an inch deep is fool’s gold. We
purchase stocks for investment not speculation. Our old-fashioned, long-term investment
approach is one that suits us.

Over 75 years ago John Maynard Keynes employed a strategy favoring portfolio
concentration when he managed a fund of King’s College at Cambridge, producing a stellar
investment record. In 1938 Keynes succinctly outlined his guiding principles: “1. a careful
selection of a few investments having regard to their cheapness in relation to their probable
actual and potential intrinsic value over a period of years ahead and in relation to alternative
investments at the time; 2. a steadfast holding of these in fairly large units through thick and
thin…. 3. a balanced investment position, i.e. a variety of risks in spite of individual holdings
being large….” Such a strategy is simple to understand but seldom practiced. Keynes
explained in his seminal book The General Theory: “Finally it is the long-term investor, he
who most promotes the public interest, who will in practice come in for most criticism…. For

2 This sum excludes the investments held by the operating subsidiaries engaged in
investment management, that is, the funds we invest on behalf of limited partners. For more
information on the accounting of The Lion Fund, L.P. (“TLF”), read the 2010 Chairman’s
Letter under the heading of Accounting Rules Regulating Affiliated Partnerships.

it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the
eyes of average opinion…. Worldly wisdom teaches that it is better for reputation to fail
conventionally than to succeed unconventionally.”

* * *

Securities held at BH are at market value with realized gains/losses influencing
reported earnings, sometimes materially. In the long run, all gains — realized and unrealized —
are essential to the value of the company. But we do not realize gains or avoid losses in order
to report higher earnings. In fact, we encourage you to analyze our business performance
before interpreting the ramifications of realized gains. At fiscal year end we had a pool of pre-
tax unrealized gains of $70.8 million, which if we had realized them we would have greatly
enlarged and thereby distorted our reported earnings. Below is a table of our net realized gains
since 2010:

Common Stocks ....................

2012
$ 4,200

Derivatives/Other ..................

–

Pre-Tax Gain (In 000’s)

2011
$ 7,360

610

2010
$ 3,802

222

Total
$ 15,362

832

Total ......................................

$ 4,200

$ 7,970

$ 4,024

$ 16,194

Capital Structure

BH as a holding company has separate obligations from its subsidiaries. Furthermore,
each subsidiary’s capital structure risk will vary and will be inversely related to its business
risk. As of now, we have no debt at the parent company level. Most of the debt resides in our
wholly-owned subsidiary, Steak n Shake.

Toward the end of fiscal 2011, Steak n Shake added $86 million of debt which allowed
it to dispatch $83.2 million to BH. Thus, the proceeds went to BH to fund its growth. After a
year of Steak n Shake’s producing strong cash flows along with even better market conditions,
we refinanced its credit facility right at the end of fiscal 2012, thereby reducing the interest rate
from 5.3% to 3.7% while gaining additional flexibility. Steak n Shake’s refinancing resulted in
a fiscal year end of $130 million in debt and $50 million in available revolving credit.
However, Steak n Shake’s debt is not guaranteed by BH. The refinancing gives us more
optionality, which we value far more than most people do. We continue to adjust Steak n
Shake’s capital structure to maintain an appropriate level of debt and debt capacity, while
strengthening BH’s balance sheet.

Balance sheet management is a source of value at BH and an essential responsibility of
mine. Indisputably, we are debt averse and will add debt only if it is in an arrangement that
would not place us in a precarious situation under any circumstances. Our views toward capital
structure are conservative, and will remain so, even though our returns could be enhanced with
additional leverage.

As we craft Biglari Holdings, we aim to do so on a solid foundation.

Earning Power

Although Phil and I believe the evaluation of BH’s economic progress should include
earnings from both controlled and noncontrolled holdings, accounting conventions dictate
otherwise. To share with you our views on how we weigh BH, we think it is first instructive to
review with you the requirements under generally accepted accounting principles. In the
interest of brevity, we will provide you with an ultra-abridged outline of the accounting rules
concerning ownership by one company of the common stock in another. The following are
three accounting guidelines, largely driven by ownership interest.

1. Holdings of more than 50% result in consolidation of financial statements. Steak
n Shake, owned 100% by Biglari Holdings, is an example. Consequently, we
fully record the sales, expenses, profits, assets, liabilities, etc. of Steak n Shake.

2. Holdings between 20% and 50% impact the income statement as a single item by
recording the proportional share of the investees’ net income. BH currently does
not have businesses of significance that fall into this category.

3. Holdings below 20% are not regarded on the income statement except for
dividends received. Over the last year we have committed significant capital to
this category. We recorded the dividends received as part of our reported
earnings. But our pro-rata claim on their retained earnings will not be accounted
for on our income statement.

Biglari Holdings’ ownership of businesses ranges from less than 1% to 100%. In
assessing BH’s progress, Phil and I fully credit our earnings of noncontrolled businesses which
we add to the earnings of our controlled businesses in order to arrive at a reasonable estimate
of “economic” earnings. We would never make a capital deployment decision based on
accounting consequences. Rather, we concern ourselves with the economic consequences of
our decisions.

Our earning power from noncontrolled holdings is now rather sizable because of an
important move to concentrate capital into the stock of Cracker Barrel Old Country Store, Inc.
At fiscal year-end we held 4,091,037 shares (140,100 shares through TLF) for an ownership of
17.3% of the company. The open-market purchases cost us $200 million and had a market
value of $275 million at fiscal year end. Cracker Barrel has 621 stores and generated sales of
$2.5 billion in its 2012 fiscal year. Because of our current 18% ownership of Cracker Barrel,
our economic stake is akin to owning 100% of a $450 million chain with 111 stores. However,
under accounting rules we do not record our pro-rata share of Cracker Barrel’s earnings.
Instead, we account for only dividends received. In the coming year, Cracker Barrel is
expected to pay us over $8 million in dividends. However, our pro-rata share of retained
earnings — unaccounted for on our books — should exceed the dollar amount of the dividends
received in the coming year.

When Phil and I factor in our share of undistributed earnings of equity positions, we
calculate the figure on an after-tax basis: if retained earnings were paid out as dividends, we
would be required to pay taxes. As a corporation, we exclude 70% of all dividends received
from taxable income, resulting in an effective tax rate of about 11%.

Operating Businesses

Our subsidiary businesses are rivers of cash. We take the surplus cash and reinvest it
where we believe we can generate high risk-adjusted returns. We have no master plan of what
businesses we will own or in which industries we will compete. Invariably, we move money
around for better utilization, weighing one opportunity against another, as a mechanism to
spawn more value. Doing so over time, we will diversify BH into a broad range of differing
businesses.

At this time, our operating businesses are involved in restaurant operations (Steak n
Shake and Western Sizzlin) and investment management (Biglari Capital Corp., et al.). The
following table delineating earnings is presented in a way we believe is most useful to
shareholders:

(In 000’s)

2012

2011

Operating Earnings:
Restaurant Operations:

Steak n Shake.....................................................
Western Sizzlin ..................................................

$ 45,622
2,157

$ 41,247
2,455

Investment Management:
Biglari Capital (Incentive Fee) .........................
Other .................................................................
Corporate and Other(1) .........................................
Operating Earnings Before Interest and Taxes ....
Interest Expense(2) ...............................................
Income Taxes ......................................................

Net Operating Earnings .......................................
Investment Gains (net of taxes) ...........................

36
–

(13,859)

33,956
10,110
4,857

18,989
2,604

2,510
224
(3,163)

43,273
2,811
10,838

29,624
4,941

Total Earnings ....................................................

$ 21,593

$ 34,565

(1) Includes earnings from consolidated affiliated partnerships
(2) Includes loss on debt extinguishment

In 2012 performance by operating businesses was satisfactory. However, judging by
net operating earnings (before realized investment gains) of $19 million versus $29.6 million
the prior year, it would appear rather dismal. Nevertheless, we will review the main reasons
why the drop in net numbers was unrelated to the underlying business and why we believe
intrinsic value actually increased.

Corporate expenses jumped significantly largely because of investment-related fees,
namely, the performance-based compensation, which runs through the earnings statement, yet
unrealized investment gains do not. Unrealized appreciation, after income tax effect, is
included as a separate component of shareholders’ equity. Per-share book value encompasses
both operating earnings/losses as well as unrealized gains/losses. In fiscal 2012, per-share book
value grew by 24.8%, a rate greatly enhanced by investment gains. The 2012 pre-tax change in
unrealized appreciation was $79.6 million plus $4.2 million in realized gains. Had we not
created these gains, corporate expenses would have been lower by $8.4 million. A core
principle of the incentive plan is that compensation is based on economic gain.3 Of course, by
growing the value of the business through investments, the operating earnings appear worse,
another example of a shortcoming in accounting principles. In general, the higher the
unrealized gains, the worse the operating earnings.

Interest expenses increased by $7.3 million, which includes refinancing costs. As
previously discussed in the Capital Structure section, the debt is attributable to Steak n Shake.
We altered the earnings table this year by breaking out interest on the debt to provide
necessary data in order for you to conduct a more robust analytical assessment of the business.
The cash Steak n Shake has raised and distributed created value for BH, because it led to
higher economic earnings inasmuch as we have gainfully employed the capital. Nevertheless,
the interest costs appear on the income statement even though the full economic benefit
does not.

Biglari Capital Corp. was not a profit contributor last year. Its profits are unpredictable
because that entity derives results from the performance of The Lion Fund, which changes
year-over-year. The lack of consistency does not concern us because that is the nature of the
business. Volatility also does not concern our loyal partners, many of whom had faith in me in
the early days of my founding the venture when we were unknown and unproven.

Restaurant Operations

Restaurants, our core business, are BH’s cash engine.

Our two wholly-owned restaurant businesses are Steak n Shake and Western Sizzlin.
The business models of each differ. Steak n Shake is primarily involved in operating
restaurants with 501 locations, of which 414 are company-operated. However, Western is
principally involved in franchising restaurants, with 92 units — all but 5 franchisee run.

Western sent BH about $3.2 million of cash, some of which was from changes in
working capital. For BH to receive a proportional amount of cash in the current year,
Western’s operating performance must improve. The Western team is charged with several
initiatives to produce the desired result.

* * *

3 The incentive plan stipulates that after shareholders earn 6% on equity, they would
receive 75% of the gain above the hurdle rate, and I would earn 25%. Per-share book value,
adjusted to remove noneconomic factors, was chosen as a proxy, albeit usually understated, to
track per-share progress in intrinsic value. For more information regarding the plan, read the
2010 Chairman’s Letter and the incentive agreement, both available at biglariholdings.com.

Phil and I believe that in fiscal 2012, Steak n Shake’s growth in intrinsic value
surpassed its growth in earnings. Steak n Shake’s earnings before interest and taxes climbed to
$45.6 million, up from $41.2 million the prior year. This 10.7% increase was attained despite
our investing noteworthy money into our franchising efforts, which lessened profits. We
overcame the spending on the emerging side of the business, franchising, by making the
traditional side, the stores in our domain, far more productive.

Most publicly-traded restaurant companies spend money to open new stores in an
attempt to gain more overall profit. But many fail to achieve an increment in profit to justify
the investment. Some even manage to experience a decline in profit in spite of investments in
new stores. Unlike most others, Steak n Shake has not retained earnings to open stores, yet has
produced an extraordinary upswing in earnings.

The major reason Steak n Shake’s unit-level performance has been improving is that
unit-level customer traffic has been on the ascendency for the last fifteen consecutive quarters.
Customer traffic is a performance metric that measures the number of patrons who walk
through units open for more than eighteen months. As I have warned in the past, a single
metric to measure results is incomplete and inconclusive. However, the metric accrues validity
when it has been accompanied within a constant base of stores in which traffic growth was
attained without consequential capital outlays to produce it, covers several years, and results in
profit growth. After all, without customers there is no business. On this customer metric, Steak
n Shake has been an outperformer, an outlier in the restaurant industry.

Customer Traffic

2009

2010

2011
2012

Cumulative

Q1
(0.9%)

9.6%

23.0%

7.8% 13.4% 20.0% 10.1%
8.6% 10.6%
7.4%
5.4% 4.8%
3.5%
1.7% 3.7%
5.7%
2.2%
33.4% 28.1% 33.1% 39.7% 32.3%

4.8%

5.2%

Fiscal 2009 was the turnaround year. In less than a year we came out of a financial
coma to sprint past competitors, many of whom were fading. Since then we have been on a
growth trajectory. On a cumulative basis, we have had a 32% increase in customer traffic, all
through the same stores. Stated differently, this increment from fiscal 2008 to 2012 represents,
in aggregate, about 70 million more visits by customers.

To achieve such desirable results required an industrious organization, one fanatical
about the customer. In 2009 Steak n Shake was reinvigorated, reengineered, and reinvented to
infuse a new purpose — both aspirational and audacious — to lead and dominate the premium
burger and milkshake segment of the restaurant industry. The company became transformed,
and value was extracted through better execution. I am frequently asked what has been the
secret to our achievement. The answer is easy: the approximately 22,000 associates whose
talents were unleashed, who worked assiduously to ensure that patrons are delighted on each
visit, and who are eager to return.

Increasing customer traffic by building new units is not a managerial feat — all it takes
is money. The trick and the triumph are to enlarge customer traffic profitably and adeptly
through existing stores — and leveraging fixed restaurant-level costs — without spending
much money.

More customers per store have led to more profit per store. Displayed below are the

earnings before interest and taxes on a per unit basis for the last five fiscal years:

(Dollars in 000’s)

2012

2011

2010

2009

2008

Operating Earnings Before
Interest and Taxes ..........................
No. of Company-Operated Stores ........

$ 45,622

$ 41,247

$ 38,316

$ 11,473 ($ 30,754)

414

413

412

423

Operating Earnings Per Store .............. $

110.2 $

99.9 $

93.0 $

27.8 ($ 72.7)

Note Present management assumed control in the fourth quarter, fiscal 2008.

Our formula is extremely simple: Provide the highest quality burgers and shakes at the
lowest possible profit per customer from an ever-increasing number of customers. Instead of
using a weak peer group as a benchmark, we focus on the customer. The more meaningful we
are to customers, the less meaningful the competition becomes. As a corollary, we are
obligated to solve our own problems (e.g., increasing healthcare costs) in order to shield our
customers from inflation. We view ourselves as fiduciaries of our customers, operating on a
basic principle: Great value for customers converts into great results for owners.

To combat rising operating costs, we must conquer inefficiency. We absolutely must
operate at a level that is faster and more effective than that of our contemporaries. To deliver
the lowest possible prices to our customers, we must have the lowest possible operating costs.
We have designed a low-cost operating platform, one built upon thrift. We plan to invest
further in our supply chain to advance efficiency as well as capacity to service our stores.

In addition to our conquest of costs, we are investing notable capital to impose
rigorous system-wide standards. Although we maneuver with extreme dexterity, we
concurrently hold stringent rules pertaining to service and quality.

Steak n Shake: Pursuing Franchising

John D. Rockefeller, Sr. once said, “Don’t be afraid to give up the good to go for the
great.” While opening company-operated stores is financially and operationally sound, a far
superior path is franchising. We prefer to leverage the Steak n Shake brand by capitalizing on a
franchise-based model, a noncapital-intensive strategy that generates high-return, annuity-like
cash flow. We are going for a great return by giving up a good one.

By pursuing a franchising strategy, we are teaming up with partners in our
determination to become a global brand. I have always believed that Steak n Shake is a brand
that can be ubiquitous. To make it a reality, we have been investing significant money to
advance our franchising initiatives. In fiscal 2008, direct franchising costs represented 2% of
Steak n Shake’s G&A. In fiscal 2012, it reached 14.8%. This year, we are on track to spend
even more. But these expenditures signify one of the most efficient uses of our capital because,

we believe, they will achieve high rates of return yet concomitantly reduce operating risk.
Even though these efforts dilute Steak n Shake’s near-term earnings, we estimate that we are
augmenting the company’s intrinsic value. Eventually, franchising will represent a business
that will not consume cash but will coin it.

The basic premise is to strengthen operating capabilities to develop a formidable
franchise network — cultivating and overseeing skilled entrepreneurs — to adhere to our
uniform operating regimen. Over the last year, we have made good progress in recruiting
franchise partners. We have signed agreements with franchisees who in the coming years have
committed to opening 171 units. A major milestone was announced a couple of months ago:
Our first international development agreement was signed in order to establish 40 restaurants
throughout the United Arab Emirates. And we are just beginning, for the UAE will be the
springboard from which we plan to grow the Steak n Shake brand in many other countries.

To manage international operations systematically, we are in the process of opening an
office in Europe. We continue to recruit personnel in areas such as marketing, supply chain,
operations, franchise sales, and information technology.

One salient factor in our ability to secure franchise partners has been the creation of
new Steak n Shake concepts, along with their unmatched design and superb unit economics.
These benefits arose from our new subsidiary, Biglari Design Inc., whose main purpose is to
assist our portfolio companies in the development and design of new concepts and aesthetics,
along with the fostering of their brands. As innovators, we have an advantage in design, and
our expertise shows as it has elevated Steak n Shake’s ability to secure partnerships to enhance
its brand domestically and abroad.

We are excited about our prospects for franchise growth. Steak n Shake is optimally
situated to attain sustainable growth in its niche because of its manifold and inherent
advantages. Steak n Shake is a company with great potential, one to which we are deeply
dedicated.

Shareholder Communications

Through our direct communications with you, such as the Chairman’s Letters, we
strive to advance your understanding of the business. At Biglari Holdings, we have no
departments set aside for legal, investor relations, or public relations. I myself pen letters to
you because we do not believe in outsourcing thinking or writing. I owe it to you to hear
directly from me. We do avoid discussion when it pertains to our interests in specific publicly
traded companies. Outside of regulatory requirements, we do not bruit about our investment
ideas, opting instead for maximum discretion. Yelping, we let others do. My aim in the
Chairman’s Letter is to impart our business philosophy, explain how the business has
performed, and supply the information necessary for you to arrive at your own estimate of the
worth of the company. We encourage you to read my Chairman’s Letters from prior years to
gain more knowledge of the business, which can be easily accessed on our website at
biglariholdings.com.

Our culture is shareholder-oriented and entrepreneurial. A critical element of BH’s
value encompasses my capital allocation work. How capital is redeployed greatly affects the
value of your shares. BH is an exceedingly adaptive organization; because so much rests on
capital allocation, BH is foremost a jockey stock. Our catechism we know is not for everyone.

For that reason we attempt to be explicit in our communications to ensure that any entering
stockholder is fully knowledgeable about the company. An investor would be in error to own
BH stock if he or she is not comfortable with our structure, strategy, or style. Those who are in
accord with our idiosyncrasies and also have a long time horizon, then what this jockey can
guarantee is that we will give all we have to create value over the long haul.

We will issue press releases on fiscal 2013’s quarterly results after the market closes on
January 25, May 17, and August 9. The 2013 annual report will be posted on our website on
Saturday, December 7, 2013.

Our annual meeting will be held on Thursday, April 4, 2013 in New York City at the
St. Regis Hotel. We will begin at 1:00 pm. The bulk of the meeting, following prior years’
practices, will center on answering your questions. Our meetings are highly unusual because
they usually last about five and one-half hours. It is a testament to our unconventional format
and in the spirit of an owner-oriented culture in which — unlike most shareholder meetings of
other public companies — we want our owners to be engaged by asking questions on their
minds. Phil and I look forward to spend the time necessary to answer your questions. We find
the annual meeting to be an effective medium for communication.

* * *

My entrepreneurial odyssey of business creation ab initio has rested on a basic
principle: to generate cash and then to parlay that cash into more cash-producing businesses.
Our ideas may be in accord with those of a different era and quite often contrary to current
corporate conventions. Irrespective of our nonconformity, we will do what we believe is right.
We allow our long-range results to be the ultimate arbiter of our actions.

We are honored to be stewards of your capital, we value your long-term allegiance, and

we anticipate a continuing, prosperous partnership.

December 7, 2012

Sardar Biglari
Chairman of the Board

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended September 26, 2012

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ___ to ___

Commission file number 0-8445

BIGLARI HOLDINGS INC.

(Exact name of registrant as specified in its charter)

INDIANA
(State or other jurisdiction of incorporation)

37-0684070
(I.R.S. Employer Identification No.)

17802 IH 10 West, Suite 400
San Antonio, Texas
(Address of principal executive offices)

78257
(Zip Code)

(210) 344-3400
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, stated value $.50 per share

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).Yes 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes  No 

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of April 11, 2012 was approximately
$490,567,737 based on the closing stock price of $405.73 per share on that day.

As of December 3, 2012, 1,433,671 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement to be filed for its 2013 Annual Meeting of Shareholders are incorporated by reference into Part III of this
Form 10-K.

Table of Contents

Part I

Page No.

Item 1. Business ...........................................................................................................................................................
Item 1A. Risk Factors ....................................................................................................................................................
Item 1B. Unresolved Staff Comments ..........................................................................................................................
Properties ........................................................................................................................................................
Item 2.
Item 3. Legal Proceedings ...........................................................................................................................................
Item 4. Mine Safety Disclosures ..................................................................................................................................

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities .............................................................................................................................................
Selected Financial Data ..................................................................................................................................
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ...................
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ....................................................................
Financial Statements and Supplementary Data ...........................................................................................
Item 8.
Consolidated Statements of Earnings—

1
4
8
8
8
8

9
11
12
22
23

Years ended September 26, 2012, September 28, 2011, and September 29, 2010 ......................................

Consolidated Balance Sheets—

As of September 26, 2012 and September 28, 2011 ....................................................................................

Consolidated Statements of Cash Flows—

Years ended September 26, 2012, September 28, 2011, and September 29, 2010 ......................................

Consolidated Statements of Changes in Shareholders’ Equity—

Years ended September 26, 2012, September 28, 2011, and September 29, 2010 ......................................
Notes to Consolidated Financial Statements ....................................................................................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..................
Item 9A. Controls and Procedures ...............................................................................................................................
Item 9B. Other Information ..........................................................................................................................................

Part III

Item 10 Directors, Executive Officers and Corporate Governance .........................................................................
Item 11 Executive Compensation ................................................................................................................................
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters .........................................................................................................................................................
Item 13 Certain Relationships and Related Transactions, and Director Independence ........................................
Item 14 Principal Accountant Fees and Services .......................................................................................................

29
30
55
55
55

56
56

56
56
56

Item 15 Exhibits and Financial Statement Schedules ...............................................................................................

Signatures ...........................................................................................................................................................................
Exhibit Index ......................................................................................................................................................................

58
64

Part IV

Item 1.

Business

Part I

Biglari Holdings Inc. (“Biglari Holdings” or the “Company”) is a diversified holding company engaged in a number of diverse
business activities. The Company is led by Sardar Biglari, Chairman and Chief Executive Officer of Biglari Holdings, Biglari
Capital Corp. (“Biglari Capital”), Steak n Shake Operations, Inc. (“Steak n Shake”), and Western Sizzlin Corporation
(“Western”). The Company’s long-term objective is to maximize per-share intrinsic value of the Company. The Company’s
strategy is to reinvest cash generated from its operating subsidiaries into any investments with the objective of achieving high
risk-adjusted returns. All major operating, investment, and capital allocation decisions are made for the Company and its
subsidiaries by Sardar Biglari, Chairman and Chief Executive Officer.

Biglari Holdings’ fiscal year ends on the last Wednesday in September. Accordingly, every five or six years, our fiscal year
contains 53 weeks. Fiscal years 2012, 2011 and 2010 contained 52 weeks. The Company’s first, third, and fourth quarters
contain 12 weeks and our second quarter contains 16 weeks (except in fiscal years when there are 53 weeks, in which case the
fourth quarter contains 13 weeks). Western and Biglari Capital’s September 30 year end for financial reporting purposes differs
from the end of the Company’s fiscal year, the last Wednesday in September.

Restaurant Operations

The Company’s Restaurant Operations’ activities are conducted through two restaurant concepts, Steak n Shake and Western
Sizzlin. As of September 26, 2012, Steak n Shake operated 414 company-operated restaurants and 83 franchised units in 25
states and Western operated 5 company-operated restaurants and 87 franchised units in 17 states.

Steak n Shake is engaged in the ownership, operation, and franchising of Steak n Shake restaurants. Founded in 1934 in Normal,
Illinois, Steak n Shake is a classic American brand serving premium burgers and milk shakes.

Western Sizzlin is engaged primarily in the franchising of restaurants. Founded in 1962 in Augusta, Georgia, Western Sizzlin
offers signature steak dishes as well as other classic American menu items. Western Sizzlin also operates other concepts, Great
American Steak & Buffet, and Wood Grill Buffet consisting of hot and cold food buffet style dining.

Restaurant Operations
A typical restaurant’s management team consists of a general manager, a restaurant manager and other managers depending on
the operating complexity and sales volume of the restaurant. Each restaurant’s general manager has primary responsibility for the
day-to-day operations of his or her unit.

Purchasing
Restaurant Operations obtain food products and supplies from independent national distributors. Purchases are centrally
negotiated to ensure uniformity in product quality.

Franchising
Restaurant Operations’ franchising program extends the brands to areas in which there are no current development plans for
Company stores. The expansion plans include seeking qualified new franchisees and expanding relationships with current
franchisees.

Restaurant Operations typically seek franchisees with both the financial resources necessary to fund successful development and
significant experience in the restaurant/retail business. Both restaurant chains assist franchisees with the development and
ongoing operation of their restaurants. In addition, personnel assist franchisees with site selection, approve restaurant sites, and
provide prototype plans, construction support and specifications. Restaurant Operations’ staff provides both on-site and off-site
instruction to franchised restaurant management and associates. Moreover, Steak n Shake franchised restaurants are required to
serve only approved menu items.

Geographic Concentration and Restaurant Locations
The following table lists the locations of the 589 Steak n Shake and Western Sizzlin restaurants, including 170 franchised units,
as of September 26, 2012:

Steak n Shake

Company-
operated Franchised

Alabama ...................................................................................
Arkansas ...................................................................................
California .................................................................................
Colorado ...................................................................................
Florida ......................................................................................
Georgia .....................................................................................
Illinois ......................................................................................
Indiana ......................................................................................
Iowa ..........................................................................................
Kansas ......................................................................................
Kentucky ..................................................................................
Louisiana .................................................................................
Maryland ..................................................................................
Michigan ..................................................................................
Mississippi ................................................................................
Missouri ....................................................................................
Nevada .....................................................................................
New York .................................................................................
North Carolina ..........................................................................
Ohio ..........................................................................................
Oklahoma .................................................................................
Pennsylvania.............................................................................
South Carolina ..........................................................................
Tennessee .................................................................................
Texas ........................................................................................
Virginia ....................................................................................
West Virginia ...........................................................................
Total ........................................................................................

2
—
—
—
80
23
63
68
3
—
14
—
—
19
—
39
—
1
6
63
—
6
1
9
17
—
—
414

4
2
—
2
1
9
6
2
—
4
2
1
—
—
1
22
1
—
5
—
4
1
2
8
3
2
1
83

Western Sizzlin
Company-
operated Franchised Total
6
16
2
—
—
8
1
—
—
1
—
3
2
—
11
2
—
—
11
1
11
—
3
4
—
4
1
87

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
1
—
3
—
5

12
18
2
2
81
40
70
70
3
5
16
4
2
19
12
63
1
1
22
64
15
7
7
22
20
9
2
589

Competition
The restaurant business is one of the most intensely competitive industries in the United States. As there are virtually no barriers
to entry into the restaurant business, competitors may include national, regional and local establishments. There may be
established competitors with financial and other resources that are greater than the Company’s Restaurant Operations
capabilities. Restaurant businesses compete on the basis of price, menu, food quality, location, personnel and customer service.
The restaurant business is often affected by changes in consumer tastes and by national, regional, and local economic conditions.
The performance of individual restaurants may be impacted by factors such as traffic patterns, demographic trends, severe
weather conditions, and competing restaurants. Additional factors that may adversely affect the restaurant industry include, but
are not limited to, food and wage inflation, safety, and food-borne illness.

Government Regulation
The Company is subject to various federal, state and local laws affecting its Restaurant Operations. Each of the restaurants must
comply with licensing and regulation by a number of governmental authorities, which include health, sanitation, safety and fire
agencies in the state and/or municipality in which the restaurant is located. In addition, each restaurant must comply with
various state and federal laws that regulate the franchisor/franchisee relationship, employment and pay practices and child labor
laws. To date, none of the Company Restaurant Operations have been materially adversely affected by such laws or been
affected by any difficulty, delay or failure to obtain required licenses or approvals.

Investment Management

The Investment Management segment is composed of Biglari Capital and Western Investments, Inc. This segment provides
investment advisory services to private investment funds.

Biglari Capital, as General Partner of The Lion Fund, L.P. (the “Lion Fund”) is entitled to receive a performance reallocation of
25% of the increase in net assets annually. This reallocation is subject to a 5% performance hurdle rate that the Lion Fund’s
performance must exceed in order for the General Partner to be entitled to such reallocation.

The Company and its affiliates may also earn income through their investments in the Lion Fund and Western Acquisitions, L.P.
(collectively the “consolidated affiliated partnerships”). In these cases, the income consists of realized and unrealized gains and
losses on investment activities along with interest, dividends and other income.

Employees
The Company employs approximately 22,000 persons.

Trademarks
Steak n Shake trademarks that are registered for restaurant services on the Principal Register of the U.S. Patent and Trademark
Office include, among others: “Steak n Shake®”, “Steak’n Shake Famous For Steakburgers®”, “Famous For Steakburgers®”,
“Takhomasak®”, “Original Steakburgers®”, “In Sight It Must Be Right®”, “Steak n Shake It’s a Meal®”, “The Original
Steakburger®”, “Steak n Shake In Sight it Must be Right®”, “Original Double Steakburger ®”, “Steak n Shake Signature®”,
“Signature Steakburger®”, “California Double Steakburger®”, and “Just No Equal®”.

Western trademarks that are registered for restaurant services on the Principal Register of the U.S. Patent and Trademark Office
include, among others: “Western Sizzlin®”, “Western Sizzlin Steak House®”, “Western®”, “Sizzlin®”, “Western Sizzlin Wood
Grill and Buffet®”, and “Western Sizzlin Wood Grill®”.

Additional information with respect to Biglari Holdings’ businesses

Information related to our reportable segments may be found in Part II, Item 8 of this Form 10-K.

Biglari Holdings maintains a website (www.biglariholdings.com) where its annual reports, press releases, interim shareholder
reports and links to its subsidiaries’ websites can be found. Biglari Holdings’ periodic reports filed with the Securities and
Exchange Commission (the “SEC”), which include Form 10-K, Form 10-Q, Form 8-K and amendments thereto, may be
accessed by the public free of charge from the SEC and through Biglari Holdings’ website. In addition, corporate governance
documents such as Corporate Governance Guidelines, Code of Conduct, Governance, Compensation and Nominating Committee
Charter and Audit Committee Charter are posted on the Company’s website and are available without charge upon written
request. The Company’s website and the information contained therein or connected thereto are not intended to be incorporated
into this report on Form 10-K.

Item 1A.

Risk Factors

Biglari Holdings and its subsidiaries (referred to herein as “we,” us,” “our,” or similar expressions) are subject to certain risks
and uncertainties in our business operations which are described below. The risks and uncertainties described below are not the
only risks we face. Additional risks and uncertainties not presently known or that are currently deemed immaterial may also
impair our business operations.

We are dependent on our Chairman and CEO.
Our success depends on the services of Sardar Biglari, Chairman and Chief Executive Officer. All major operating, investment,
and capital allocation decisions are made for the Company and its subsidiaries by Sardar Biglari, Chairman and Chief Executive
Officer. Moreover, certain counterparties have requested and obtained a provision in their agreements with the right to terminate
in the event Mr. Biglari ceases to be our Chairman and Chief Executive Officer. If for any reason the services of Mr. Biglari
were to become unavailable, there could be a material adverse effect on our business.

Competition.
Each of our operating businesses faces intense competitive pressure within the markets in which they operate. Competition may
arise domestically as well as internationally. While we manage our businesses with the objective of achieving long-term
sustainable growth by developing and strengthening competitive advantages, many factors, including market changes, may erode
or prevent the strengthening of competitive advantages. Accordingly, future operating results will depend to some degree on
whether our operating units are successful in protecting or enhancing their competitive advantages. If our operating businesses
are unsuccessful in these efforts, our periodic operating results may decline from current levels in the future.

The restaurant business is one of the most competitive industries in the United States. As there are virtually no barriers to entry
into the restaurant business, competitors may include national, regional and local establishments. There may be established
competitors with financial and other resources that are greater than the Company’s Restaurant Operations capabilities. Restaurant
businesses compete on the basis of price, menu, food quality, location, personnel and customer service. The restaurant business
is often affected by changes in consumer tastes and by national, regional, and local economic conditions. The performance of
individual restaurants may be impacted by factors such as traffic patterns, demographic trends, severe weather conditions, and
competing restaurants. Additional factors that may adversely affect the restaurant industry include, but are not limited to, food
and wage inflation, safety, and food-borne illness.

Unfavorable economic societal and political conditions could hurt our operating businesses.
Our operating businesses are subject to normal economic cycles affecting the economy in general or the industries in which we
operate. To the extent that the recovery from the economic recession continues to be slow or the economy worsens for a
prolonged period of time, one or more of our significant operations could be materially harmed. In addition, we depend on
having access to borrowed funds through the capital markets at reasonable rates. To the extent that access to the credit is
restricted or the cost of funding increases, our business could be adversely affected.

Historically, we have not derived any of our revenues or earnings from international markets. As a result of our intended
international expansion, we may become subject to increased risks from unstable political conditions and civil unrest. Further,
terrorism activities deriving from unstable conditions or acts intended to compromise the integrity or security of our computer
networks and information systems could produce losses to our international operations, as well as our operations based in the
United States. Our business operations could be adversely affected directly through the loss of human resources or destruction of
production facilities and information systems.

The restaurant industry has been affected by economic factors, including the deterioration of national, regional and local
economic conditions, declines in employment levels, and shifts in consumer spending patterns. The disruptions experienced in
the overall economy and volatility in the financial markets have reduced, and may continue to reduce, consumer confidence in
the economy, negatively affecting consumer restaurant spending, which could be harmful to our financial position and results of
operations. As a result, decreased cash flow generated from our business may adversely affect our financial position and our
ability to fund our operations. In addition, macroeconomic disruptions could adversely impact the availability of financing for
our franchisees’ expansions and operations.

Our cash flows and financial position could be negatively impacted if we are unable to comply with the restrictions and
covenants in Steak n Shake’s debt agreements.
The Company’s subsidiaries currently maintain debt instruments, including the New Credit Facility. Covenants in the debt
agreements impose operating and financial restrictions, including requiring operating subsidiaries to maintain certain financial
ratios and thereby restricting, among other things, their ability to incur additional indebtedness and make distributions to the
Company. Their failure to comply with these covenants and restrictions could constitute an event of default that, if not cured or
waived, could result, among other things, in the acceleration of their indebtedness, which could negatively impact our operations
and business and may also significantly affect our ability to obtain additional or alternative financing. In such event, our cash
flows may not be sufficient to fully repay this indebtedness and we cannot assure you that we would be able to refinance or
restructure this debt. In addition, the restrictions contained in these debt instruments could adversely affect our ability to finance
our operations, acquisitions or investments.

Steak n Shake’s ability to make payments on the New Credit Facility and to fund operations depends on its ability to generate
cash, which is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. Steak
n Shake may not generate sufficient cash flow from operations to service this debt or to fund its other liquidity needs.

We may be required to recognize additional impairment charges on our long-lived assets and goodwill, which would adversely
affect our results of operations and financial position.
Long-lived assets, including restaurant sites, leasehold improvements, other fixed assets, and amortized intangible assets are
reviewed for impairment annually or more frequently if circumstances indicate impairment may have occurred. Expected cash
flows associated with an asset over its estimated useful life are the key factor in determining the recoverability of the carrying
value of the asset. The estimate of cash flows is based upon, among other things, certain assumptions about expected future
operating performance. Management’s estimates of undiscounted cash flows may differ from actual cash flows due to, among
other things, changes in economic conditions, changes to our business model or changes in operating performance. If the sum of
the estimated undiscounted cash flows over an asset’s estimated useful life is less than the carrying value of the asset, we
recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset.

We periodically evaluate our goodwill to determine whether all or a portion of their carrying values may no longer be
recoverable, in which case a charge to income may be necessary. Estimated fair values developed based on our assumptions and
judgments might be significantly different if other reasonable assumptions and estimates were to be used. If estimated fair values
are less than the carrying values of goodwill in future impairment tests, or if significant impairment indicators are noted relative
to other intangible assets subject to amortization, we may be required to record impairment losses against future income. Any
future evaluations requiring an impairment of our goodwill and other intangible assets could materially affect our results of
operations and shareholders’ equity in the period in which the impairment occurs.

Judgments made by management related to the expected useful lives of long-lived assets and our ability to realize undiscounted
cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and
improvements of the assets, changes in economic conditions and changes in operating performance. As the ongoing expected
cash flows and carrying amounts of long-lived assets are assessed, these factors could cause us to realize a material impairment
charge. If assets are determined to be impaired, the determination of an asset’s fair value, which is generally measured by
discounting estimated future cash flows, is also subject to significant judgment, including the determination of a discount rate
that is commensurate with the risk inherent in the projected cash flows. If the assumptions underlying these judgments change in
the future, we may be required to realize further impairment charges for these assets.

Fluctuations in commodity and energy prices and the availability of commodities, including beef, fried products, poultry, and
dairy, could affect our restaurant business.
The cost, availability and quality of ingredients Restaurant Operations use to prepare their food is subject to a range of factors,
many of which are beyond their control. A significant component of our restaurant business’ costs is related to food
commodities, including beef, fried products, poultry, and dairy products, which can be subject to significant price fluctuations
due to seasonal shifts, climate conditions, industry demand, changes in international commodity markets, and other factors. If
there is a substantial increase in prices for these food commodities, our results of operations may be negatively affected. In
addition, our restaurants are dependent upon frequent deliveries of perishable food products that meet certain specifications.
Shortages or interruptions in the supply of perishable food products caused by unanticipated demand, problems in production or
distribution, disease or food-borne illnesses, inclement weather, or other conditions could adversely affect the availability,
quality, and cost of ingredients, which would likely lower revenues, damage our reputation, or otherwise harm our business.

Our historical growth rate and performance may not be indicative of our future growth or financial results.
Our historical growth must be viewed in the context of the recent opportunities available to us as a result of our access to capital
at a time when market conditions resulted in unprecedented asset acquisition opportunities. When evaluating our historical
growth and prospects for future growth, it is also important to consider that while our business philosophy has remained
relatively constant, our mix of business, distribution channels and areas of focus have changed and may continue to change. Our
dynamic business model makes it difficult to assess our prospects for future growth.

The inability of Restaurant Operations’ franchisees to operate profitable restaurants may negatively impact our financial
performance.
Restaurant Operations operate franchise programs and collect royalties and marketing and service fees from their franchisees.
Growth within the existing franchise base is dependent upon many of the same factors that apply to our Restaurant Operations’
company-operated restaurants, and sometimes the challenges of opening profitable restaurants prove to be more difficult for the
franchisees. For example, franchisees may not have access to the financial or management resources that they need to open or
continue operating the restaurants contemplated by their franchise agreements. In addition, our Restaurant Operations’ continued
growth is also partially dependent upon our ability to find and retain qualified franchisees in new markets, which may include
markets in which the Steak n Shake and Western brands are less well known. Furthermore, the loss of any of franchisees due to
financial concerns and/or operational inefficiencies could impact our Restaurant Operations’ profitability. Moreover, if our
franchisees do not successfully operate or market restaurants in a manner consistent with our standards, our restaurant brands’
reputations could be harmed, which in turn could adversely affect our business and operating results.

Adverse weather conditions or losses due to casualties could negatively impact our operating performance.
Property damage caused by casualties and natural disasters, instances of inclement weather, flooding, hurricanes, fire, and other
acts of nature can adversely impact sales in several ways. Many of Steak n Shake’s and Western’s restaurants are located in the
Midwest and Southeast portions of the United States. During the first and second fiscal quarters, restaurants in the Midwest may
face harsh winter weather conditions. During the first and fourth fiscal quarters, restaurants in the Southeast may experience
hurricanes or tropical storms. Our sales and operating results may be negatively affected by these harsh weather conditions,
which could make it more difficult for guests to visit our restaurants, necessitate the closure of restaurants for a period of time or
costly repairs due to physical damage or lead to a shortage of employees resulting from unsafe road conditions or an evacuation
of the general population.

We are subject to health, employment, environmental, and other government regulations, and failure to comply with existing
or future government regulations could expose us to litigation or penalties, damage our reputation, and lower profits.
We are subject to various federal, state, and local laws and regulations affecting our business. Changes in existing laws, rules and
regulations applicable to us, or increased enforcement by governmental authorities, may require us to incur additional costs and
expenses necessary for compliance. If we fail to comply with any of these laws, we may be subject to governmental action or
litigation, and our reputation could be accordingly harmed. Injury to our reputation would, in turn, likely reduce revenues and
profits.

The development and construction of restaurants is subject to compliance with applicable zoning, land use, and environmental
regulations. Difficulties in obtaining, or failure to obtain, the required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area.

In recent years, there has been an increased legislative, regulatory, and consumer focus on nutrition and advertising practices in
the food industry. As a result, Restaurant Operations may become subject to regulatory initiatives in the area of nutrition
disclosure or advertising, such as requirements to provide information about the nutritional content of our food products, which
could increase expenses. The operation of the Steak n Shake and Western franchise system is also subject to franchise laws and
regulations enacted by a number of states, and to rules promulgated by the U.S. Federal Trade Commission. Any future
legislation regulating franchise relationships may negatively affect our operations, particularly our relationship with franchisees.
Failure to comply with new or existing franchise laws and regulations in any jurisdiction or to obtain required government
approvals could result in a ban or temporary suspension on future franchise sales. Further national, state and local government
initiatives, such as mandatory health insurance coverage, “living wage” or other proposed increases in minimum wage rates
could adversely affect our business.

Our investment activities may involve the purchase of securities on margin.
We may purchase securities on margin in connection with our investment activities, including through Western Acquisitions,
L.P. and the Lion Fund. If we do so, a significant decrease in the value of the securities that collateralize the margin line of
credit could result in a margin call. If we do not have sufficient cash available from other sources in the event of a margin call,
we may be required to sell those securities at a time when we prefer not to sell them, which could result in material losses.

We are subject to the risk of possibly becoming an investment company under the Investment Company Act of 1940.
Because we are a holding company and a significant portion of our assets may, from time to time, consist of investments in
companies in which we own less than a 50% interest, we run the risk of inadvertently becoming an investment company, which
would require us to register under the Investment Company Act. Registered investment companies are subject to extensive,
restrictive and potentially adverse regulations relating to, among other things, operating methods, management, capital structure,
dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the
manner in which we operate our business, nor are registered investment companies permitted to have many of the relationships
that we have with our affiliated companies.

To avoid becoming and registering as an investment company under the Investment Company Act, we monitor the value of our
investments and structure transactions accordingly. As a result, we may structure transactions in a less advantageous manner than
if we did not have Investment Company Act concerns, or we may avoid otherwise economically desirable transactions due to
those concerns. In addition, events beyond our control, including significant appreciation or depreciation in the market value of
certain of our publicly traded holdings or adverse developments with respect to our ownership of certain of our subsidiaries,
could result in our inadvertently becoming an investment company. If it were established that we were an investment company,
there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or
injunctive relief, or both, in an action brought by the SEC, that we would be unable to enforce contracts with third parties or that
third parties could seek to obtain rescission of transactions with us undertaken during the period it was established that we were
an unregistered investment company.

Our investments are unusually concentrated and fair values are subject to a loss in value.
Our investments are generally concentrated in common stocks. A significant decline in the major values of our larger
investments may produce a large decrease in our consolidated shareholders’ equity and can have a material adverse effect on our
consolidated book value per share. Under certain circumstances, significant declines in the fair values of these investments may
require the recognition of losses in the statement of earnings.

We may not be able to adequately protect our intellectual property, which could decrease the value of our brand and products.
The success of our business depends on the continued ability to use the existing trademarks, service marks, and other
components of our brand to increase brand awareness and further develop branded products. While we take steps to protect our
intellectual property, our rights to our trademarks could be challenged by third parties or our use of these trademarks may result
in liability for trademark infringement, trademark dilution, or unfair competition, adversely affecting our profitability. We may
also become subject to these risks in the international markets in which we plan to operate.

Litigation could have a material adverse effect on our financial position, cash flows and results of operations.
We are or may be from time to time a party to various legal actions, investigations and other proceedings brought by employees,
consumers, suppliers, shareholders, government agencies or other third parties in connection with matters pertaining to our
business, including related to our investment activities. The outcome of such matters is often difficult to assess or quantify and
the cost to defend future proceedings may be significant. Even if a claim is unsuccessful or is not fully pursued, the negative
publicity surrounding any negative allegation regarding our Company, our business or our products could adversely affect our
reputation. While we believe that the ultimate outcome of routine legal proceedings individually and in the aggregate will not
have a material impact on our financial position, we cannot assure that an adverse outcome on, or reputational damage from, any
of these matters would not, in fact, materially impact our business and results of operations for the period when these matters are
completed or otherwise resolved.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

Office and Warehouse Facilities

Use
Executive Office
Executive Office
Executive Office

Restaurant Properties

Location

San Antonio, TX
Indianapolis, IN

Roanoke, VA

Own/Lease
Lease
Lease
Lease

As of September 26, 2012, Restaurant Operations included 589 company-operated and franchised restaurants located in 27
states. Restaurant Operations owns the land and building for 153 restaurants. See “Geographic Concentration and Restaurant
Locations” under Part I, Item 1 for additional detail.

Item 3.

Legal Proceedings

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Part II

Market Information
Biglari Holdings’ common stock is listed for trading on the New York Stock Exchange (the “NYSE”), trading symbol: BH. The
following table sets forth the high and low sales prices per share, as reported on the NYSE List during the periods indicated:

2012

2011

High

Low

High

Low

First Quarter ................................................................................................ $
Second Quarter ............................................................................................
Third Quarter ...............................................................................................
Fourth Quarter .............................................................................................

391.88 $
418.57
413.61
397.16

286.77 $
368.24
365.25
351.00

444.71 $ 325.82
459.77
391.45
437.24 368.45
405.50 288.29

Shareholders
Biglari Holdings had approximately 10,400 beneficial shareholders, of which approximately 1,500 were record holders of its
common stock at December 3, 2012.

Dividends
Biglari Holdings has not declared a cash dividend during the fiscal years ended September 26, 2012, September 28, 2011 and
September 29, 2010.

Performance Graph
The following chart compares the subsequent value of $100 invested in Biglari Holdings’ common stock on September 30, 2007
with a similar investment in the Standard and Poor’s 500 Stock Index and Standard and Poor’s Restaurant Index.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Biglari Holdings Inc., the S&P 500 Index, and the S&P Restaurants Index

$250

$200

$150

$100

$50

9/07

9/08

9/09

9/10

9/11

9/12

Biglari Holdings Inc.

S&P 500

S&P Restaurants

*$100 invested on 9/30/07 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.

The preceding stock price performance graph and related information shall not be deemed “soliciting material” or to be “filed”
with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings
under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, except to the extent that we
specifically incorporate it by reference into such filings.

The “Equity Compensation Plan Information” required by Item 201(d) of Regulation S-K will be contained in our definitive
Proxy Statement for the 2013 Annual Meeting of Shareholders, to be filed on or before January 24, 2013, and such information is
incorporated herein by reference.

Item 6.

Selected Financial Data

Selected Financial Data for the Past Five Years
(dollars in thousands except per share data)

52 Weeks Ended
Fiscal
2011(2)

Fiscal
2012(2)

Fiscal
2010 (2)

53 Weeks

Ended
Fiscal
2009 (2)

52 Weeks
Ended
Fiscal
2008 (2)

Revenue:

Total net revenues ....................................................................................

740,207 $ 709,200 $ 673,781 $

628,736 $ 611,278

Earnings:

Net earnings (loss) attributable to Biglari Holdings Inc. ..........................
Basic earnings (loss) per share attributable to Biglari Holdings Inc. (1) ...
Diluted earnings (loss) per share attributable to Biglari Holdings Inc. (1) .

$
$
$

21,593 $
16.19 $
16.15 $

34,565 $ 28,094 $
20.11 $
25.99 $
19.99 $
$
25.86

5,998 $ (22,979)
(16.27)
(16.27)

4.21 $
4.20 $

Year-end data:

Total assets ..............................................................................................
Long-term debt:

773,787 $ 672,860 $ 563,839 $

514,496 $ 520,136

Obligations under leases .......................................................................
Other long-term debt ............................................................................
Biglari Holdings Inc. shareholders’ equity .............................................

110,353 116,066 124,247
17,781
120,250 101,417
349,125 $ 279,678 $ 248,995 $

130,076 134,809
15,783
291,861 $ 283,579

(1) Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. For financial
reporting purposes all common shares of the Company held by the consolidated affiliated partnerships are recorded in Treasury
stock on the Consolidated Balance Sheet. For purposes of computing the weighted average common shares outstanding, the shares of
treasury stock attributable to the unrelated limited partners of the consolidated affiliated partnerships — based on their proportional
ownership during the period — are considered outstanding shares.

(2) Fiscal years 2012, 2011, 2010, 2009, and 2008 ended on September 26, 2012, September 28, 2011, September 29, 2010, September

30, 2009 and September 24, 2008, respectively.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollars in thousands except per share data)

In the following discussion, the term “same-store sales” refers to the sales of only those units open at least 18 months as of the
beginning of the current period being discussed and which remained open through the end of the period.

We have a 52/53 week fiscal year ending on the last Wednesday in September. Fiscal years 2012, 2011, and 2010, which ended
on September 26, September 28, and September 29, respectively, all contained 52 weeks.

The following discussion should be read in conjunction with Item 1, Business and our Consolidated Financial Statements and the
notes thereto included in this Form 10-K. The following discussion should also be read in conjunction with the “Cautionary Note
Regarding Forward-Looking Statements” and the risks and uncertainties described in Item 1A, Risk Factors set forth above.

Investment gains/losses in any given period will vary; therefore, for analytical purposes, management measures operating
performance by analyzing earnings before realized and unrealized investment gains/losses.

Net earnings attributable to Biglari Holdings for each of the past three years are disaggregated in the table that follows.

2012

2011

2010

Operating Business:
Restaurant Operations:

Steak n Shake .................................................................................................... $
Western .............................................................................................................
Total Restaurant Operations ....................................................................................

31,756
1,354
33,110

Investment Management:

Biglari Capital Corp. (Incentive Fee) ................................................................
Management fees ..............................................................................................
Consolidated affiliated partnerships ..................................................................
Total Investment Management Operations ..............................................................

22
—
1,321
1,343

Corporate and Other:

Corporate and other ...........................................................................................
Investment and derivative gains/losses ..............................................................
Total Corporate and Other .......................................................................................

(9,196)
2,604
(6,592)

29,367
1,610
30,977

1,535
139
1,815
3,489

(3,099)
4,941
1,842

27,257
646
27,903

—
144
215
359

(1,510)
2,495
985

Reconciliation of segments to consolidated amount:

Interest expense and loss on debt extinguishment, excluding interest allocated
to operating businesses ......................................................................................
$

(6,268)
21,593

(1,743)
34,565

(1,153)
28,094

Fiscal Year 2012
We recorded net earnings attributable to Biglari Holdings Inc. of $21,593 for the current year, as compared with net earnings
attributable to Biglari Holdings Inc. of $34,565 in 2011. The decrease was primarily driven by increased general and
administrative expenses related to our efforts to franchise the Steak n Shake concept, higher incentive compensation costs, and
an increase in legal and professional services. Net earnings in 2012 also reflected a full year of interest expense associated with
Steak n Shake’s former credit facility, which was entered into in September 2011.

As of September 26, 2012 the total number of company-operated and franchised restaurants was 589 as follows:

Steak n Shake ...............................................................................................................
Western .........................................................................................................................
Total ..............................................................................................................................

Company-
operated
414
5
419

Franchised Total
83
87
170

497
92
589

During 2012, Restaurant Operations suffered no closings of underperforming company-operated restaurants or transfers to
franchisees. Five Western Sizzlin franchised units were closed, and three franchised units were opened. Furthermore, during
2012, Steak n Shake opened one company-operated unit and eight franchised units, and closed one franchised unit.

Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain
accounting policies require management to make estimates and judgments concerning transactions that will be settled several
years in the future. Amounts recognized in our financial statements from such estimates are necessarily based on numerous
assumptions involving varying and potentially significant degrees of judgment and uncertainty. Accordingly, the amounts
currently reflected in our financial statements will likely increase or decrease in the future as additional information becomes
available.

We believe the following critical accounting policies represent our more significant judgments and estimates used in preparation
of our consolidated financial statements.

Consolidation
The consolidated financial statements include the accounts of (i) Biglari Holdings Inc., (ii) the wholly-and majority-owned
subsidiaries of Biglari Holdings Inc. in which control can be exercised and (iii) limited partnership investment companies in
which we have a controlling interest as the general partner. In evaluating whether we have a controlling interest in entities in
which we would consolidate, we consider the following: (1) for voting interest entities, we consolidate those entities in which we
own a majority of the voting interests; and (2) for limited partnership entities, we consolidate those entities if we are the general
partner of such entities and for which no substantive removal rights exist. All material intercompany accounts and transactions
have been eliminated in consolidation. The analysis as to whether to consolidate an entity is subject to a significant amount of
judgment. Some of the criteria considered include the determination as to the degree of control over an entity by its various
equity holders and the design of the entity.

Long-lived Assets — Impairment and Classification as Held for Sale
We review company-operated restaurants for impairment on a restaurant-by-restaurant basis when events or circumstances
indicate a possible impairment. We test for impairment by comparing the carrying value of the asset to the undiscounted future
cash flows expected to be generated by the asset. If the total estimated future cash flows are less than the carrying amount of the
asset, the carrying value is written down to the estimated fair value, and a loss is recognized in earnings. The future cash flows
expected to be generated by an asset requires significant judgment regarding future performance of the asset, fair market value if
the asset were to be sold, and other financial and economic assumptions.

We sell restaurants that have been closed due to underperformance. We classify an asset as held for sale in the period during
which each of the following conditions is met: (a) management has committed to a plan to sell the asset; (b) the asset is available
for immediate sale in its present condition; (c) an active search for a buyer has been initiated; (d) completion of the sale of the
asset within one year is probable; (e) the asset is being marketed at a reasonable price; and (f) no significant changes to the plan
of sale are expected. There is judgment involved in estimating the timing of completing the sale of an asset.

Insurance Reserves
We currently self-insure a significant portion of expected losses under our workers’ compensation, general liability, directors’
and officers’ liability, and auto liability insurance programs. For certain programs, we purchase reinsurance for individual and
aggregate claims that exceed predetermined limits. We record a liability for all unresolved claims and our estimates of incurred
but not reported (“IBNR”) claims at the anticipated cost to us. The liability estimate is based on information received from
insurance companies, combined with management’s judgments regarding frequency and severity of claims, claims development
history, and settlement practices. Significant judgment is required to estimate IBNR claims as parties have yet to assert a claim,
and therefore the degree to which injuries have been incurred and the related costs have not yet been determined. Additionally,
estimates about future costs involve significant judgment regarding legislation, case jurisdictions, and other matters.

We self-insure our group health insurance risk. We record a liability for our group health insurance for all applied claims and our
estimate of claims incurred but not yet reported. Our estimate is based on information received from our insurance company and
claims processing practices.

Our reserves for self-insured liabilities at September 26, 2012 and September 28, 2011 were $7,971 and $7,511, respectively.

Income Taxes
We record deferred tax assets or liabilities based on differences between financial reporting and tax basis of assets and liabilities
using currently enacted rates and laws that will be in effect when the differences are expected to reverse. We record deferred tax
assets to the extent we believe there will be sufficient future taxable income to utilize those assets prior to their expiration. To the
extent deferred tax assets would be unable to be utilized, we would record a valuation allowance against the unrealizable amount
and record that amount as a charge against earnings. Due to changing tax laws and state income tax rates, significant judgment is
required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future. We must
also make estimates about the sufficiency of taxable income in future periods to offset any deductions related to deferred tax
assets currently recorded. Based on 2012 results, a change of one percentage point in the annual effective tax rate would have an
impact of $312 on net earnings.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in
the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate resolution.

Goodwill and Other Intangible Assets
We are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if
circumstances indicate impairment may have occurred. The required analysis of potential impairment of goodwill requires a two-
step approach. The first step is the estimation of fair value of each reporting unit. If step one indicates that impairment potentially
exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the
estimated fair value of goodwill is less than its carrying value. We use both market and income approaches to derive fair value.
The valuation methodology and underlying financial information included in our determination of fair value require significant
judgments to be made by management. The judgments in these two approaches include, but are not limited to, comparable
market multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to
determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could
produce significantly different results.

Leases
Restaurant Operations leases certain properties under operating leases. Many of these lease agreements contain rent holidays,
rent escalation clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected
lease term, including cancelable option periods when failure to exercise such options would result in an economic penalty. We
use a time period for straight-line rent expense calculation that equals or exceeds the time period used for depreciation. In
addition, the rent commencement date of the lease term is the earlier of the date when they become legally obligated for the rent
payments or the date when they take access to the grounds for build out. Accounting for leases involves significant management
judgment.

Results of Operations
The following table sets forth the percentage relationship to total net revenues, unless otherwise noted, of items included in the
Consolidated Statements of Earnings for the periods indicated:

2012
(52 weeks)

2011
(52 Weeks)

2010
(52 Weeks)

Net revenues
Restaurant Operations

Net sales ................................................................................................................................................................
Franchise royalties and fees ..................................................................................................................................
Other revenue .......................................................................................................................................................
Total .........................................................................................................................................................................
Investment Management Operations

97.5 %
1.3
0.3
99.1

97.9 %
1.2
0.3
99.5

98.5 %
0.9
0.3
99.7

Management fee income .......................................................................................................................................

—

0.0

Consolidated Affiliated Partnerships

Investment gains/losses .........................................................................................................................................
Other income ........................................................................................................................................................
Total ..........................................................................................................................................................................
Total net revenues ....................................................................................................................................................

0.8
0.0
0.9
100.0

0.4
0.1
0.5
100.0

0.3
0.0
0.3
100.0

27.7
47.7
6.8
4.0
5.4
2.4
0.0
0.1
0.1
(0.2 )

0.1
(1.5 )
(0.4 )
—
1.0
0.1
(0.7 )

6.7

2.0

4.8
—

27.1
48.5
6.2
4.3
5.2
2.5
0.0
0.1
0.0
(0.1 )

0.1
(1.7 )
(0.3 )
—
0.6
0.0
(1.3 )

6.2

1.8

4.4
0.0

(0.2 )
—
(0.2 )
4.2 %

Costs and expenses

Cost of sales (1) ......................................................................................................................................................
Restaurant operating costs (1) .................................................................................................................................
General and administrative ...................................................................................................................................
Depreciation and amortization ..............................................................................................................................
Marketing .............................................................................................................................................................
Rent ......................................................................................................................................................................
Pre-opening costs ..................................................................................................................................................
Asset impairments and provision for restaurant closings ......................................................................................
Loss on disposal of assets .....................................................................................................................................
Other operating (income) expense ........................................................................................................................

Other income (expenses)

Interest, dividend and other investment income ....................................................................................................
Interest on obligations under leases ......................................................................................................................
Interest expense ....................................................................................................................................................
Loss on debt extinguishment .................................................................................................................................
Realized investment gains/losses ..........................................................................................................................
Derivative and short sale gains/losses ...................................................................................................................
Total other income (expenses) .................................................................................................................................

Earnings before income taxes .................................................................................................................................

28.7
46.8
8.7
3.6
5.7
2.4
0.1
0.1
0.1
(0.1)

0.5
(1.4)
(1.1)
(0.3)
0.6

—

(1.6)

4.2

Income taxes ..............................................................................................................................................................

0.9

Consolidated net earnings
Earnings attributable to noncontrolling interest .........................................................................................................
Earnings attributable to redeemable noncontrolling interest:

3.3

—

Income allocation .................................................................................................................................................
Incentive fee .........................................................................................................................................................
Total earnings/loss attributable to redeemable noncontrolling interests ...............................................................

Net earnings attributable to Biglari Holdings Inc.

(0.4)
0.0
(0.4)
2.9 %

(0.3 )
0.4
0.1
4.9 %

(1)

Cost of sales and Restaurant operating costs are expressed as a percentage of Net sales.

Fiscal Year 2012 Compared with Fiscal Year 2011

Net Earnings Attributable to Biglari Holdings Inc.
We recorded net earnings attributable to Biglari Holdings Inc. of $21,593, or $16.15 per diluted share, for the current year, as
compared with net earnings attributable to Biglari Holdings Inc. of $34,565, or $25.86 per diluted share, in 2011.

Net Revenues
In 2012, net sales increased 3.9% from $694,378 to $721,754, primarily due to the performance of our Restaurant Operations,
principally the increase in Steak n Shake’s same-store sales. Steak n Shake’s same-store sales increased 3.8% during 2012. The
increase in same-store sales resulted from an increase in customer traffic of 3.7%.

Franchise royalties and fees increased 12.0% during 2012. The number of franchised units increased from 165 at the end of 2011
to 170 at the end of 2012.

Cost and Expenses
Cost of sales in the current year was $207,234 or 28.7% of net sales, compared with $192,645 or 27.7% of net sales in 2011. This
increase in percentage of net sales was created primarily by inflationary pressures on commodities.

Restaurant operating costs in the current year were $337,905 or 46.8% of net sales compared to $331,262 or 47.7% of net sales
in 2011. Restaurant operating costs increased because of, inter alia, changes in the state unemployment tax rates and unfavorable
development in workers’ compensation, health and general liability insurance claims, in terms of number of cases and their
severity. These increases in costs were offset by the implementation of several operating initiatives, which have generated higher
productivity and labor efficiency.

General and administrative expenses increased from $48,404 or 6.8% of total net revenues in 2011 to $64,286 or 8.7% of total
net revenues in the current year because of an increase in legal and professional services, higher incentive compensation costs,
and efforts to franchise the Steak n Shake concept. Moreover, investment related expenses (i.e., incentive compensation) appear
on the income statement, but any corresponding unrealized capital gains run through the balance sheet as other comprehensive
income.

Depreciation and amortization expense was $26,424 or 3.6% of total net revenues in the current year, versus $28,361 or 4.0% of
total net revenues in 2011.

Marketing expense was $42,531 or 5.7% of total net revenues in the current year, versus $38,476 or 5.4% of total net revenues in
2011. The increase was primarily attributable to an increase in marketing efforts and higher production costs associated with our
television commercials.

Rent expense in 2012 remained consistent at 2.4% as a percentage of total net revenues compared to the prior year.

Asset impairments and provision for restaurant closings for 2012 was $901 or 0.1% of total net revenues in the current year,
versus $1,032 or 0.1% of total net revenues in 2011.

Loss on disposal of assets was $611 or 0.1% of total net revenues in the current year compared to $702 or 0.1% of total net
revenues in the prior year.

Other Income (Expenses)
We recorded interest, dividend and other investment income of $4,000 in 2012 mostly through the receipt of dividends relating
to our increased investment in Cracker Barrel Old Country Store, Inc. versus $742 recorded in 2011.

Interest expense on obligations under leases was $10,073 or 1.4% of total net revenues in the current year, versus $10,565 or
1.5% of total net revenues in 2011.

Interest expense increased from $2,811 in 2011 to $8,155 in the current year. The increase primarily pertained to the interest on
Steak n Shake’s former credit facility, which was entered into on September 8, 2011. A full year of interest is reflected in our
2012 results. Steak n Shake entered into a new credit facility on September 25, 2012, which is further discussed in the
“Liquidity and Capital Resources” section. The total outstanding debt for the Company on September 26, 2012 was $132,388
compared to $127,558 on September 28, 2011.

The loss on extinguishment of debt for 2012 of $1,955 related to the write-off of deferred loan costs associated with Steak n
Shake’s former credit facility. We had no gains/losses on debt extinguishment in 2011.

Our 2012 effective income tax rate decreased to 20.7% from the 2011 effective income tax rate of 29.0%. The decrease in the
tax rate is primarily attributable to dividends received from equity investments, which are taxed at lower rates than is the income
derived from wholly owned businesses.

Biglari Holdings Investment Gains
We recorded net realized investment gains of $4,200 for 2012 related to dispositions of marketable equity securities. We
recorded $7,360 of net realized gains on investments and $610 of investment gains related to the change in fair value of
derivatives and securities sold short in 2011. We directly hold these investments, not our consolidated affiliated partnerships.

Consolidated Affiliated Partnerships Investment Gains
We recorded a net realized gain of $2,895 for 2012 related to dispositions of investments held by our consolidated affiliated
partnerships, plus an unrealized net investment gain of $3,047 for a total of $5,942. We also received an incentive fee of $36.
These amounts were offset by $3,188 related to earnings attributable to redeemable noncontrolling interests.

Fiscal Year 2011 Compared with Fiscal Year 2010

Net Earnings Attributable to Biglari Holdings Inc.
We recorded net earnings attributable to Biglari Holdings Inc. of $34,565, or $25.86 per diluted share, for 2011, as compared
with net earnings attributable to Biglari Holdings Inc. of $28,094, or $19.99 per diluted share, in 2010. The increase was
primarily driven by the performance of our operating businesses, realized investment gains, and the inclusion of Western’s
results for the full year versus six months in 2010.

Net Revenues
In 2011, net sales increased 4.7% from $663,524 to $694,378 primarily due to the performance of our Restaurant Operations,
principally the increase in Steak n Shake’s same-store sales. Steak n Shake’s same-store sales increased 4.2% during 2011. The
increase in same-store sales resulted from an increase in guest traffic of 4.8%, partially offset by lower average selling prices.
The inclusion of Western for the full year increased total net revenue by $7,322 or 1.0%.

Franchise royalties and fees increased 45.5% during 2011. The number of franchised units increased from 162 at the end of 2010
to 165 at the end of 2011 due to the addition of Steak n Shake franchised units. The inclusion of Western for the full year
increased franchise fees by $1,531 or 0.2%.

Cost and Expenses
Cost of sales was $192,645 or 27.7% of net sales, compared with $179,633 or 27.1% of net sales in 2010. This increase in
percentage of net sales was created primarily by inflationary pressures on commodities.

Restaurant operating costs were $331,262 or 47.7% of net sales compared to $321,937 or 48.5% of net sales in 2010. The
decrease as a percentage of net sales resulted from the implementation of several operating initiatives, which has resulted in
higher productivity and labor efficiency.

General and administrative expenses increased from $41,553 or 6.2% of total net revenues in 2010 to $48,404 or 6.8% of total
net revenues because of the inclusion of Western’s general and administrative expenses, our efforts to franchise the Steak n
Shake concept and the accrual of the incentive compensation costs.

Depreciation and amortization expense was $28,361 or 4.0% of total net revenues, versus $29,258 or 4.3% of total net revenues
in 2010.

Marketing expense was $38,476 or 5.4% of total net revenues, versus $34,835 or 5.2% of total net revenues in 2010.

Rent expense decreased from 2.5% to 2.4% as a percentage of total net revenues compared to the prior year.

Asset impairments and provision for restaurant closings for 2011 was $1,032 or 0.1% of total net revenues, versus $353 or 0.1%
of total net revenues in 2010.

Loss on disposal of assets increased to $702 or 0.1% of total net revenues as compared to $126 or 0.0% in the prior year.

Other Income (Expenses)
Interest expense on obligations under leases was $10,565 or 1.5% of total net revenues, versus $11,125 or 1.7% of total net
revenues in 2010.

Our 2011 effective income tax rate remained consistent with the prior year at 29.0%.

Biglari Holdings Investment Gains
We recorded net realized investment gains of $7,360 for 2011 related to dispositions of marketable equity securities and
investment gains of $610 related to the change in fair value of derivatives and securities sold short. We recorded $3,802 of net
realized gains on investments and $222 of investment gains related to the change in fair value of derivatives in 2010. These
investments are held directly by us and not by our consolidated affiliated partnerships.

Consolidated Affiliated Partnerships Investment Gains
We recorded a net realized gain of $3,365 for 2011 related to dispositions of investments held by our consolidated affiliated
partnerships and an unrealized net investment loss of $230 for a total of $3,135. We also received an incentive fee of $2,510.
These amounts were offset by $1,909 related to earnings attributable to redeemable noncontrolling interests.

Effects of Governmental Regulations and Inflation
Most Restaurant Operation employees are paid hourly rates related to federal and state minimum wage laws. Any increase in the
legal minimum wage would directly increase our operating costs. We are also subject to various federal, state and local laws
related to zoning, land use, health and safety standards, working conditions, and accessibility standards. Any changes in these
laws that require improvements to our restaurants would increase our operating costs. In addition, we are subject to franchise
registration requirements and certain related federal and state laws regarding franchise operations. Any changes in these laws
could affect our ability to attract and retain franchisees.

Inflation in food, labor, fringe benefits, energy costs, transportation costs and other operating costs directly affect our operations.

Liquidity and Capital Resources
We generated $49,966, $74,751, and $68,618 in cash flows from operations during 2012, 2011, and 2010, respectively, based
primarily on net earnings and due to timing of receipts and payment of disbursements related to operating activities in each of the
fiscal years.

Net cash used in investing activities of $87,885, $89,503 and $31,424 during 2012, 2011, and 2010, respectively, was primarily a
result of net purchases of investments.

Net cash used in financing activities was $709 in 2012. Principal payments on Steak n Shake’s former credit facility and direct
financing lease obligations were offset by borrowings under the New Credit Facility. Net cash provided by financing activities
of $66,176 during 2011 resulted primarily from borrowings on long-term debt. Net cash used in financing activities of $41,026
during 2010 resulted primarily from the purchase of shares of Company stock by consolidated affiliated partnerships.

Our balance sheet continues to maintain significant liquidity. We intend to meet the working capital needs of our operating
subsidiaries principally through anticipated cash flows generated from operations, existing credit facilities, and the sale of excess
properties and investments. We continually review available financing alternatives.

Consolidated Affiliated Partnerships
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. In our consolidated financial statements,
the Company classifies this common stock as Treasury stock despite the shares being legally outstanding. As of September 26,
2012 and September 28, 2011, the consolidated affiliated partnerships held 205,743 shares of the Company’s common stock
($69,221 at cost). Consolidated 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.

Throughout 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 $48,306
at September 26, 2012. No amounts were invested in 2012 or 2011. These investments in the Lion Fund do not appear explicitly
in our Consolidated Balance Sheet because of the requirement to fully consolidate the Lion Fund (inclusive of third party
interests) in our financial statements. Further, the Lion Fund’s portfolio holds significant interests in Biglari Holdings’ common

stock, which is classified on our Consolidated Balance Sheet as a reduction to Shareholders’ equity. Biglari Holdings’ pro-rata
ownership of its common stock through the Lion Fund at September 26, 2012 was 98,430 shares of stock (with a fair value of
$35,933) based on Biglari Holdings’ ownership interest in the Lion Fund at year end.

Debentures
The Company acquired 100% of the outstanding equity interests of Western. Under the terms of the merger agreement, each
share of Western’s common stock was cancelled upon the completion of the merger and converted into the right to receive a pro
rata portion of a new issue of 14% redeemable subordinated debentures due 2015 issued by the Company (the “Debentures”) in
the aggregate principal amount of $22,959 with cash paid in lieu of fractional Debenture interests. The Company paid $194 in
lieu of fractional Debentures.

On March 30, 2011, the Company redeemed all of its outstanding Debentures. The Debentures were redeemed for cash at an
aggregate redemption price of approximately $23,420, representing 100% of the principal amount outstanding, plus accrued and
unpaid interest up to, but not including, March 30, 2011. The Debentures were issued and the redemption was effected pursuant
to the provisions of the Indenture, dated March 30, 2010 (the “Indenture”), between the Company and Wells Fargo Bank,
National Association, as trustee. Upon the redemption of the Debentures, the Company’s obligations under the Debentures and
the Indenture were satisfied and discharged in accordance with their terms. Included in the Debentures aggregate redemption
price of $23,420 was approximately $7,804 of principal and interest paid to the Lion Fund. The payment to the Lion Fund does
not appear explicitly in the Company’s Consolidated Statement of Cash Flows because of the requirement to consolidate fully
the Lion Fund in the Company’s financial statements.

Steak n Shake Credit Facility
On September 25, 2012, Steak n Shake, as borrower, entered into a credit agreement (the “New Credit Facility”) with the lenders
party thereto. The New Credit Facility consists of a $130,000 senior secured term loan facility (the “Term Loan”) and a $50,000
senior secured revolving credit facility (the “Revolver”).

The Term Loan matures on September 25, 2017 and has a repayment schedule with quarterly amortization, beginning on
December 31, 2012, initially equal to 1.875% of the initial principal amount of the Term Loan (as adjusted pursuant to the New
Credit Facility), together with accrued and unpaid interest on the principal amount to be paid, with the balance due at maturity.
The Revolver will be available until September 25, 2017. Interest on the Term Loan and Revolver is based on a Eurodollar rate
plus an applicable margin ranging from 3.00% to 3.75% or a base rate plus an applicable margin ranging from 2.00% to 2.75%.
The applicable margins are contingent on Steak n Shake’s total leverage ratio. The Revolver also carries a commitment fee
ranging from 0.35% to 0.50%, based on Steak n Shake’s total leverage ratio, per annum on the unused portion of the credit line.

As of September 26, 2012, the interest rate on the Term Loan was 3.72%, and there were no borrowings under the Revolver.

The New Credit Facility includes affirmative and negative covenants and events of default, as well as financial covenants
relating to a maximum total leverage ratio and a minimum consolidated fixed charge coverage ratio. Steak n Shake was in
compliance with all covenants under the New Credit Facility as of September 26, 2012.

Both the Term Loan and the Revolver have been guaranteed by the Subsidiary Guarantors and secured by first priority security
interests in substantially all the assets of Steak n Shake (including the capital stock of Steak n Shake Enterprises) and the
Subsidiary Guarantors. Biglari Holdings is not a guarantor under the New Credit Facility. $114,176 of the proceeds of the Term
Loan was used to repay all outstanding amounts under Steak n Shake’s former credit facility. The remaining Term Loan
proceeds of $15,824 were used for working capital and general corporate purposes. Steak n Shake incurred no material early
termination penalties in connection with retiring the former credit facility.

As of September 28, 2011, outstanding borrowings under Steak n Shake’s former credit facility were $110,000 under the term
loan and $15,000 under the revolving credit facility.

We recorded a $1,955 loss on the extinguishment of debt for the fiscal year ended September 26, 2012 related to the write-off of
deferred loan costs associated with the former credit facility.

We had $4,781 and $4,610 in standby letters of credit outstanding as of September 26, 2012 and September 28, 2011,
respectively.

Security Agreement
In connection with the New Credit Facility, Steak n Shake and the Subsidiary Guarantors (Steak n Shake Enterprises, Inc. and
Steak n Shake LLC) entered into a security agreement (the “Security Agreement”) with Fifth Third. Pursuant to the Security
Agreement, Steak n Shake and the Subsidiary Guarantors each granted to Fifth Third a lien on all of the Pledged Collateral (as
defined in the Security Agreement). The Pledged Collateral does not include the real estate of Steak n Shake and the Subsidiary
Guarantors, but such real estate is subject to a springing lien if Steak n Shake does not maintain certain leverage ratios.

Interest Rate Swap
During fiscal year 2011, Steak n Shake entered into an interest rate swap agreement for a notional amount of $20,000, which
effectively fixed the interest rate on a prior credit facility at 3.25% through February 15, 2016. The notional amount decreases
$1,000 quarterly through its maturity on February 15, 2016. The notional amount of the interest rate swap was $14,000 on
September 26, 2012. The fair value of the interest rate swap was a liability of $351 and $439 on September 26, 2012 and
September 28, 2011, respectively, and is included in Accrued expenses on the Consolidated Balance Sheet.

On October 11, 2012, Steak n Shake entered into a new interest rate swap for a notional amount of $65,000 through September
30, 2015. The agreement hedges potential changes in the Eurodollar rate.

The loan agreement under which the Note was issued (the “Loan Agreement”) contains various affirmative and negative
covenants, limitations and events of default customary for loans of this type to similar borrowers, including limitations on
Western RE’s ability to incur indebtedness and liens, subject to limited exceptions, and certain financial covenants that must be
maintained. Additionally, the Note is not guaranteed by or an obligation of the parent Company; rather, the Note is guaranteed
by Western and its subsidiaries. Western RE was in compliance with all covenants under the Loan Agreement as of September
26, 2012.

The carrying amounts for debt reported in the Consolidated Balance Sheet do not differ materially from their fair market values
at September 26, 2012 as a result of the recent refinancing.

Contractual Obligations
Our significant contractual obligations and commitments as of September 26, 2012 are shown in the following table.

Payments due by period

Contractual Obligations
Long-term debt (1) (2) ....................................................................
Capital leases and finance obligations(1) ......................................
Operating leases (3) ......................................................................
Purchase commitments (4) ............................................................
Other long-term liabilities (5) ........................................................
Total .............................................................................................

Less
than
1 year

1 – 3
years

More than
5 years

3 – 5
years
$ 16,951 $ 29,754 $ 101,199 $ — $147,904
14,986 79,805
60,468 120,704
2,741
887
$ 48,895 $ 83,650 $ 143,155 $ 76,341 $352,041

15,279 28,282
14,115 25,423
191
—

21,258
20,698
—
—

2,550
—

Total

—

887

(1) Includes principal and interest and assumes payoff of indebtedness at maturity date.
(2) Includes outstanding borrowings under the New Credit Facility as of September 26, 2012.
(3) Excludes amounts to be paid for contingent rents. Includes amounts to be paid for subleased properties.
(4) Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all

significant terms. Excludes agreements that are cancelable without penalty.

(5) Includes liabilities for Non-Qualified Deferred Compensation Plan. Excludes our unrecognized tax benefits of $812 as

of September 26, 2012 because we cannot make a reliable estimate of the timing of cash payments.

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases entered into in the normal course of business.

Recently Issued Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our financial
statements, see Note 1, “Summary of Significant Accounting Policies” in the accompanying Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Form 10-K.

Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In
general, forward-looking statements include estimates of future revenues, cash flows, capital expenditures, or other financial
items, and assumptions underlying any of the foregoing. Forward-looking statements reflect management’s current expectations
regarding future events and use words such as “anticipate,” “believe,” “expect,” “may,” and other similar terminology. A
forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or
circumstances may not occur. Investors should not place undue reliance on the forward-looking statements, which speak only as
of the date of this report. These forward-looking statements are all based on currently available operating, financial, and
competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ
materially depending on a variety of factors, many beyond our control, including, but not limited to, the risks and uncertainties
described in Item 1A, Risk Factors set forth above. We undertake no obligation to publicly update or revise them, except as may
be required by law.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Our investments are generally concentrated in common stocks. A significant decline in the general stock market or in the price of
major investments may produce a large decrease in our Consolidated Shareholders’ Equity and under certain circumstances may
require the recognition of losses in the Consolidated Statement of Earnings. Decreases in values of equity investments can have a
material adverse effect on our Consolidated Shareholders’ Equity. On September 26, 2012, most of the fair value of our
investments was concentrated in the common stock of one investee, Cracker Barrel Old Country Store, Inc.

We prefer to hold equity investments for very long periods of time so we are not troubled by short-term price volatility with
respect to our investments. Market prices for equity securities are subject to fluctuation and consequently the amount realized in
the subsequent sale of an investment may significantly differ from the reported market value. A hypothetical 10% increase or
decrease in the market price of our investments would result in a respective increase or decrease in the fair market value of our
investments of $26,986 and a corresponding change in Shareholders’ equity of approximately 5%.

At September 26, 2012 interest on the Term Loan and Revolver was based on a Eurodollar rate plus an applicable margin
ranging from 3.00% to 3.75% or a base rate plus an applicable margin ranging from 2.00% to 2.75%, based on Steak n Shake’s
total leverage ratio. At September 26, 2012, a hypothetical 100 basis point increase in short-term interest rates would have an
impact of approximately $806 on our net earnings. In February 2011, in connection with the issuance of the term loan under
Steak n Shake’s previous credit facility, Steak n Shake entered into an interest rate swap agreement with the lender for a notional
amount of $20,000, which effectively fixed the interest rate on the term loan at 3.25% through its maturity. The fair value of the
interest rate swap was a liability of $351 at September 26, 2012.

We have minimal exposure to foreign currency exchange rate fluctuations, as we have just begun to transact business in
international markets and are not a party to any material non-U.S. dollar denominated contracts.

Item 8.

Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Biglari Holdings Inc.
San Antonio, Texas

We have audited the accompanying consolidated balance sheets of Biglari Holdings Inc. and subsidiaries (the "Company") as of
September 26, 2012 and September 28, 2011, and the related consolidated statements of earnings, changes in shareholders’
equity, and cash flows for the years ended September 26, 2012, September 28, 2011, and September 29, 2010. Our audits also
included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Biglari
Holdings Inc. and subsidiaries as of September 26, 2012 and September 28, 2011, and the results of their operations and their
cash flows for the years ended September 26, 2012, September 28, 2011, and September 29, 2010, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of September 26, 2012, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated December 8, 2012 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE, LLP
Indianapolis, Indiana
December 8, 2012

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Biglari Holdings Inc.
San Antonio, Texas

We have audited the internal control over financial reporting of Biglari Holdings Inc. and subsidiaries (the "Company") as of
September 26, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board
of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
September 26, 2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement schedule as of and for the year ended September 26, 2012 of the
Company and our report dated December 8, 2012 expressed an unqualified opinion on those financial statements and financial
statement schedule.

/s/ DELOITTE & TOUCHE, LLP
Indianapolis, Indiana
December 8, 2012

Management’s Report on Internal Control Over Financial Reporting

The management of Biglari Holdings Inc. is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Pursuant to the rules and regulations of the
Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision
of, the Company’s principal executive and principal financial officers, and effected by the board of directors, management and
other personnel, to provide assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally accepted in the United States of America and includes
those policies and procedures that:

•

Pertain to the maintenance of records that in detail accurately and fairly reflect the transactions and
dispositions of assets of the company;
Provide assurance that transactions are recorded as necessary to permit preparation of the financial
statements in accordance with accounting principles generally accepted in the United States of America, and
that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company;
Provide assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the company’s assets that could have a material effect on the financial statements; and
Ensure that material information relating to the company, including its consolidated subsidiaries, is made
known to management by others within those entities, particularly during the period which this report is
being prepared.

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has evaluated the effectiveness of its internal control over financial reporting as of September 26, 2012 based on
the criteria set forth in a report entitled Internal Control — Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this evaluation, we have concluded that, as of September 26,
2012, our internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the
Company’s internal control over financial reporting and its report is included herein.

/s/ Sardar Biglari
Sardar Biglari
Chairman and Chief Executive Officer

/s/ Bruce Lewis
Bruce Lewis
Controller

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF EARNINGS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Net revenues
Restaurant Operations

2012
(52 Weeks)

2011
(52 Weeks)

2010
(52 Weeks)

Net sales .......................................................................................................................................................... $ 721,754 $ 694,378 $ 663,524
5,909
Franchise royalties and fees .............................................................................................................................
2,213
Other revenue ..................................................................................................................................................
671,646
Total ....................................................................................................................................................................
Investment Management Operations

9,631
2,520
733,905

8,600
2,425
705,403

Management fee income ..................................................................................................................................

—

224

233

Consolidated Affiliated Partnerships

Investment gains/losses ....................................................................................................................................
Other income ...................................................................................................................................................
Total ....................................................................................................................................................................
Total net revenues ..............................................................................................................................................

5,942
360
6,302
740,207

3,135
438
3,797
709,200

1,837
65
2,135
673,781

Costs and expenses

Cost of sales ....................................................................................................................................................
Restaurant operating costs ..............................................................................................................................
General and administrative ..............................................................................................................................
Depreciation and amortization .........................................................................................................................
Marketing ........................................................................................................................................................
Rent .................................................................................................................................................................
Pre-opening costs .............................................................................................................................................
Asset impairments and provision for restaurant closings .................................................................................
Loss on disposal of assets ................................................................................................................................
Other operating (income) expense ...................................................................................................................
Total costs and expenses, net .............................................................................................................................

207,234
337,905
64,286
26,424
42,531
17,638
430
901
611
(934)
697,026

192,645
331,262
48,404
28,361
38,476
16,891
89
1,032
702

(1,157 )
656,705

179,633
321,937
41,553
29,258
34,835
16,627
—
353
126
(558 )
623,764

Other income (expenses)

Interest, dividend and other investment income ...............................................................................................
Interest on obligations under leases .................................................................................................................
Interest expense ...............................................................................................................................................
Loss on debt extinguishment............................................................................................................................
Realized investment gains/losses .....................................................................................................................
Derivative and short sale gains/losses ..............................................................................................................
Total other income (expenses) ............................................................................................................................

4,000
(10,073)
(8,155)
(1,955)
4,200
—
(11,983)

742
(10,565 )
(2,811 )
—
7,360
610
(4,664 )

383
(11,125 )
(1,859 )
—
3,802
222
(8,577 )

Earnings before income taxes ...........................................................................................................................

31,198

47,831

41,440

Income taxes .........................................................................................................................................................

Consolidated net earnings .................................................................................................................................
Earnings attributable to noncontrolling interest ....................................................................................................
Earnings attributable to redeemable noncontrolling interest:

Income allocation ............................................................................................................................................
Incentive fee ...................................................................................................................................................
Total earnings/loss attributable to redeemable noncontrolling interests ..........................................................
Net earnings attributable to Biglari Holdings Inc. .......................................................................................... $

6,453

24,745
—

(3,188)
36
(3,152)
21,593

13,867

33,964
—

12,019

29,421
(10 )

(1,909 )
2,510
601

(1,317 )
—
(1,317 )
$ 34,565 $ 28,094

Earnings per share attributable to Biglari Holdings Inc.

Basic earnings per common share ......................................................................................................................... $

16.19

Diluted earnings per common share ...................................................................................................................... $

16.15

25.99

25.86

20.11

19.99

Weighted average shares and equivalents
Basic .....................................................................................................................................................................
Diluted ..................................................................................................................................................................

1,334,007
1,337,268

1,329,745 1,396,892
1,336,693 1,405,375

See accompanying Notes to Consolidated Financial Statements.

BIGLARI HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS
(amounts in $000s, except share and per share data)

September 26,

2012

September 28,
2011

Assets
Current assets:

Cash and cash equivalents ....................................................................................................................... $
Investments .............................................................................................................................................
Receivables, net of allowance of $744 and $559, respectively ...............................................................
Inventories ..............................................................................................................................................
Deferred income taxes ............................................................................................................................
Assets held for sale .................................................................................................................................
Other current assets .................................................................................................................................
Total current assets ......................................................................................................................................
Property and equipment, net ........................................................................................................................
Goodwill ......................................................................................................................................................
Other intangible assets, net ..........................................................................................................................
Other assets ..................................................................................................................................................
Investments held by consolidated affiliated partnerships .............................................................................
Total assets ................................................................................................................................................. $
Liabilities and shareholders’ equity
Liabilities
Current liabilities:

Accounts payable .................................................................................................................................... $
Due to broker ..........................................................................................................................................
Accrued expenses ...................................................................................................................................
Revolving credit ......................................................................................................................................
Deferred income taxes ............................................................................................................................
Current portion of obligations under leases ............................................................................................
Current portion of long-term debt ...........................................................................................................
Total current liabilities .................................................................................................................................
Deferred income taxes .................................................................................................................................
Obligations under leases ..............................................................................................................................
Long-term debt ............................................................................................................................................
Other long-term liabilities ............................................................................................................................
Total liabilities ............................................................................................................................................
Commitments and contingencies (Notes 14 and 18)
Redeemable noncontrolling interests of consolidated affiliated partnerships ..............................................
Shareholders’ equity
Common stock – $0.50 stated value, 2,500,000 shares authorized – 1,511,174 shares issued at September
26, 2012 and September 28, 2011, 1,227,928 and 1,227,276 shares outstanding (net of treasury stock),
respectively .............................................................................................................................................
Additional paid-in capital ............................................................................................................................
Retained earnings.........................................................................................................................................
Accumulated other comprehensive income (loss) .......................................................................................
Treasury stock – at cost: 283,246 and 283,898 shares (includes 205,743 shares held by consolidated

60,359
269,858
7,001
6,624
—
2,357
2,798
348,997
356,638
27,529
6,248
9,109
25,266
773,787

98,987
115,321
4,133
5,886
6,150
6,870
3,237
240,584
371,736
27,529
6,950
7,278
18,783
$ 672,860

33,210
—
53,866
—
19,367
5,713
12,138
124,294
8,675
110,353
120,250
9,002
372,574

52,088

756
143,035
251,983
43,897

29,236
7,272
46,948
15,000
—
5,272
11,141
114,869
6,664
116,066
101,417
8,914
347,930

45,252

756
144,569
230,390
(5,468 )

affiliated partnerships) at September 26, 2012 and September 28, 2011, respectively ............................
Biglari Holdings Inc. shareholders’ equity ..............................................................................................
Total liabilities and shareholders’ equity ................................................................................................. $

(90,546)
349,125
773,787

(90,569 )
279,678
$ 672,860

See accompanying Notes to Consolidated Financial Statements.

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s)

2012

2011
(52 Weeks) (52 Weeks) (52 Weeks)

2010

Operating activities
Net earnings ............................................................................................................................................................ $ 24,745 $
Adjustments to reconcile net earnings to operating cash flows (excluding investment
operations of consolidated affiliated partnerships):..................................................................................................

33,964 $

29,421

Depreciation and amortization ............................................................................................................................ 26,424
(2,727)
Provision for deferred income taxes ....................................................................................................................
901
Asset impairments and provision for restaurant closings .....................................................................................
888
Stock-based compensation and other non-cash expenses ....................................................................................
611
Loss on disposal of assets ....................................................................................................................................
Gain on sale of subsidiary ..................................................................................................................................
—
1,955
Loss on debt extinguishment ..............................................................................................................................
Realized investment gains/losses ........................................................................................................................
(4,200)
—
Derivative and short sale gains/losses .................................................................................................................
(3,659)
Changes in receivables and inventories ...............................................................................................................
Changes in other assets .......................................................................................................................................
1,019
Changes in accounts payable and accrued expenses ............................................................................................ 10,491

Investment operations of consolidated affiliated partnerships:

Purchases of investments.....................................................................................................................................
Sales of investments ............................................................................................................................................
Realized investment gains, net ............................................................................................................................
Unrealized gains/losses on marketable securities held by consolidated affiliated partnerships ...........................
Changes in cash and cash equivalents held by consolidated affiliated partnerships .............................................
Changes in due to/from broker ...........................................................................................................................

(14,477)
26,052
(2,895)
(3,047)
(12,115)
—
Net cash provided by operating activities ............................................................................................................ 49,966
Investing activities

Additions of property and equipment ..................................................................................................................
(8,675)
Proceeds from property and equipment disposals ................................................................................................
2,379
Proceeds from sale of joint venture .....................................................................................................................
—
—
Proceeds from sale of subsidiary, net of cash on hand ........................................................................................
Purchases of investments..................................................................................................................................... (108,825)
Sales of investments ............................................................................................................................................ 38,108
(7,272)
Changes in due to/from broker ............................................................................................................................
Changes in restricted cash ...................................................................................................................................
(3,600)
Cash from merger activities ................................................................................................................................

—
Net cash used in investing activities ...................................................................................................................... (87,885)
Financing activities

—
Proceeds from revolving credit facility ...............................................................................................................
(15,000)
Payments on revolving credit facility ..................................................................................................................
130,000
Borrowings on long-term debt ............................................................................................................................
Principal payments on long-term debt ................................................................................................................. (110,170)
(1,961)
Deferred financing charges .................................................................................................................................
(5,272)
Principal payments on direct financing lease obligations ....................................................................................
29
Proceeds from exercise of stock options and employees stock purchase plan .....................................................
382
Excess tax benefits from stock-based awards ......................................................................................................
—
Cash paid in lieu of fractional shares ...................................................................................................................
(8)
Repurchase of employee shares for tax withholding ...........................................................................................
—
Distributions to noncontrolling interest ...............................................................................................................

Financing activities of consolidated affiliated partnerships:

28,361
(2,186 )
1,032
950
702
(1,559 )
—
(7,360 )
(610 )
2,066
2,972
12,918

(53,727 )
52,271
(3,365 )
230
7,870
222
74,751

(13,018 )
2,007
—
196
(171,893 )
90,058
3,147
—
—

(89,503 )

194,045
(197,045 )
111,959
(17,333 )
(3,174 )
(7,469 )
29
3
—
(541 )
—

29,258
207
353
1,735
126
—
—
(3,802 )
(222 )
3,951
(123 )
8,834

(24,771 )
25,117
(831 )
(1,006 )
371
—
68,618

(8,650 )
1,885
457
—
(73,228 )
47,112
3,903
—
(2,903 )
(31,424 )

500
(1,000 )
—
(80 )
—
(4,570 )
345
—
(711 )
(257 )
(221 )

—
Purchase of shares of Company stock by consolidated affiliated partnerships ....................................................
—
Proceeds from sale of shares of Company stock by consolidated affiliated partnerships.....................................
1,545
Contributions from noncontrolling interests ........................................................................................................
Distributions to noncontrolling interests ..............................................................................................................
(254)
Net cash (used in) provided by financing activities .............................................................................................
(709)
(Decrease) increase in cash and cash equivalents .................................................................................................... (38,628)
Cash and cash equivalents at beginning of year ....................................................................................................... 98,987
Cash and cash equivalents at end of year ............................................................................................................ $ 60,359

—
—
1,780
(16,078 )
66,176
51,424
47,563

(38,411 )
2,651
1,878
(1,150 )
(41,026 )
(3,832 )
51,395
$ 98,987 $ 47,563

See accompanying Notes to Consolidated Financial Statements.

BIGLARI HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s except share data)

Balance at September 30, 2009 ........................................................................
Net earnings attributable to Biglari Holdings Inc. ............................................
Reclassification of investment appreciation in net earnings, net of $58 tax ......
Net change in unrealized gains and losses on investments, net of $750 tax ......
Total comprehensive income..........................................................................
Exercise of stock options and other stock compensation transactions ..............
Retirement of shares held by subsidiary ...........................................................
Cash paid in lieu of fractional shares ................................................................
Reacquired shares from acquisitions ................................................................
Purchase of Company stock by consolidated affiliated partnerships ................
Sale of Company stock by consolidated affiliated partnerships ........................
Balance at September 29, 2010 ........................................................................
Net earnings attributable to Biglari Holdings Inc. ............................................
Reclassification of investment appreciation in net earnings, net of $861 tax ....
Net change in unrealized gains and losses on investments, net of $3,476 tax ...
Total comprehensive income..........................................................................
Exercise of stock options and other stock compensation transactions ..............
Adjustment to redeemable noncontrolling interest to reflect maximum

redemption value ............................................................................................
Balance at September 28, 2011 ........................................................................
Net earnings attributable to Biglari Holdings Inc. .......................................
Reclassification of investment appreciation in net earnings, net of
$(553) tax ....................................................................................................
Net change in unrealized gains and losses on investments, net of
$30,808 tax ..................................................................................................
Total comprehensive income .......................................................................
Exercise of stock options and other stock compensation transactions ........
Adjustment to redeemable noncontrolling interest to reflect maximum

redemption value........................................................................................
Balance at September 26, 2012 ......................................................................

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Total

Common
Stock

$ 757 $

143,691 $ 167,731 $
28,094

(1)

1,225
1
(711)

(685)

756 $

143,521 $ 195,825 $

34,565

(304)

(92)
(1,172)

112 $ (20,430) $ 291,861
28,094
(92)
(1,172)
26,830
921
—
(711)
(34,146)
(38,411)
2,651
(1,152) $ (89,955) $ 248,995
34,565
1,352
(5,668)
30,249
(239)

(34,146)
(38,411)
3,336

1,352
(5,668)

(614)

375

673
144,569 $

756 $

230,390 $
21,593

673
(5,468) $ (90,569) $ 279,678
21,593

(902)

50,267

859

(902)

50,267
70,958
882

756 $

(2,393)
143,035 $

251,983 $

(2,393)
43,897 $ (90,546) $ 349,125

See accompanying Notes to Consolidated Financial Statements.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 1. Summary of Significant Accounting Policies

Description of Business
Biglari Holdings Inc. (“Biglari Holdings” or the “Company”) is a diversified holding company engaged in a number of diverse
business activities. The Company is led by Sardar Biglari, Chairman and Chief Executive Officer of Biglari Holdings and its
major operating subsidiaries. The Company’s long-term objective is to maximize per-share intrinsic value of the Company. Our
strategy is to reinvest cash generated from our operating subsidiaries into any investments with the objective of achieving high
risk-adjusted returns. All major operating, investment, and capital allocation decisions are made for the Company and its
subsidiaries by Sardar Biglari, Chairman and Chief Executive Officer.

Fiscal Year
Our fiscal year ends on the last Wednesday in September. Fiscal years 2012, 2011, and 2010 each contain 52 weeks.

Principles of Consolidation
As of September 26, 2012, the consolidated financial statements include the accounts of (i) the Company, (ii) its wholly-owned
subsidiaries Biglari Capital Corp. (“Biglari Capital”), Steak n Shake Operations, Inc. (“Steak n Shake”), and Western Sizzlin
Corporation (“Western”), and (iii) investment related subsidiaries and limited partnerships (the “consolidated affiliated
partnerships”). As a result of the Company’s acquisitions of Western and Biglari Capital in 2010, the Company acquired
financial interests in The Lion Fund, L.P. (the “Lion Fund”), Western Acquisitions, L.P., Mustang Capital Partners I, L.P. and
Mustang Capital Partners II, L.P., investment limited partnerships (collectively referred to as consolidated affiliated
partnerships), in which the Company has a substantive controlling interest. During the first quarter of fiscal year 2011, Mustang
Capital Partners I, L.P. and Mustang Capital Partners II, L.P. were liquidated and the funds distributed to the partners. During the
third quarter of fiscal year 2011, Western Mustang Holdings, L.L.C. sold its interests in Mustang Capital Management, L.L.C.
and Mustang Capital Advisors, L.P. Refer to Note 5 for further information regarding the sale.

We consolidate entities in which we have a wholly-owned or controlling interest in the general partner. The consolidated
affiliated partnerships’ assets and liabilities are consolidated on the Consolidated Balance Sheet even though outside limited
partners have majority ownership in all of the investment partnerships. The Company does not guarantee any of the liabilities of
its subsidiaries that are serving as general partners to these consolidated affiliated partnerships. All intercompany accounts and
transactions have been eliminated in consolidation.

The financial information of Western and Biglari Capital has been reflected in the consolidated financial statements of the
Company as of March 30, 2010 and April 30, 2010, their respective acquisition dates. Western’s and Biglari Capital’s September
30 year end for financial reporting purposes differs from the end of the Company’s fiscal year, the last Wednesday in September.
There were no significant transactions in the intervening period.

Reclassification
Debt issuance costs recorded in 2011 have been reclassified and are now presented in cash flows from financing activities in the
Statement of Cash Flows to conform to the current year presentation.

Cash and Cash Equivalents
Cash equivalents primarily consist of U.S. Government securities and money market accounts, all of which have original
maturities of three months or less. Cash equivalents are carried at fair value. Our policy is to reinvest cash equivalents to acquire
businesses or to purchase securities. Cash held by the consolidated affiliated partnerships is included in Investments held by
consolidated affiliated partnerships on our Consolidated Balance Sheet.

Investments
Our investments consist of available-for-sale securities and are carried at fair value with net unrealized gains or losses reported
as a component of Accumulated other comprehensive income in Shareholders’ equity. Realized gains and losses on disposals of
investments are determined by specific identification of cost of investments sold and are included in Realized investment
gains/losses, a component of Other income.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 1. Summary of Significant Accounting Policies – (continued)

Investments Held by Consolidated Affiliated Partnerships
The consolidated affiliated partnerships are, for purposes of accounting principles generally accepted in the United States
(“GAAP”), investment companies under the AICPA Audit and Accounting Guide Investment Companies. The Company has
retained the specialized accounting for these entities, pursuant to Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 946-810-45 (formerly EITF Issue No. 85-12, Retention of Specialized Accounting for
Investments in Consolidation). As such marketable equity securities held by the consolidated affiliated partnerships are recorded
at fair value with net unrealized and realized investment gains/losses included in Investment gains/losses of consolidated
affiliated partnerships, a component of Net revenues on the Consolidated Statement of Earnings.

Concentration of Equity Price Risk
Our investments are generally concentrated in common stocks. A significant decline in the general stock market or in the price of
major investments may produce a large decrease in our Consolidated Shareholders’ Equity and under certain circumstances may
require the recognition of losses in the Consolidated Statement of Earnings. Decreases in values of equity investments can have a
material adverse effect on our Consolidated Shareholders’ Equity.

Receivables
Our accounts receivable balance consists primarily of franchisee, tax, and other receivables. We carry our accounts receivable at
cost less an allowance for doubtful accounts which is based on a history of past write-offs and collections and current credit
conditions.

Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or market, and consist primarily of restaurant food items
and supply inventory.

Assets Held for Sale
Assets held for sale consists of property and equipment related to restaurants and land that is currently being marketed for
disposal. Assets held for sale are reported at the lower of carrying value or estimated fair value less costs to sell. The Company
expects to sell these properties within one year of their classification as assets held for sale. For any of these properties that are
unsold within one year, the Company reclassifies them as property and equipment.

Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are
recognized on the straight-line method over the estimated useful lives of the assets (10 to 25 years for buildings and land
improvements, and 3 to 10 years for equipment). Leasehold improvements are amortized on the straight-line method over the
shorter of the estimated useful lives of the improvements or the term of the related leases. Interest costs associated with the
construction of new restaurants are capitalized. Major improvements are also capitalized while repairs and maintenance are
expensed as incurred. We review our long-lived assets whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. For purposes of this assessment, assets are evaluated at the lowest level for which there are
identifiable cash flows. If the future undiscounted cash flows of an asset are less than the recorded value, an impairment is
recorded for the difference between the carrying value and the estimated fair value of the asset. Refer to Note 3 for information
regarding asset impairments.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 1. Summary of Significant Accounting Policies – (continued)

Goodwill and Intangible Assets
Goodwill and indefinite life intangibles are not amortized, but are tested for potential impairment on an annual basis, or more
often if events or circumstances change that could cause goodwill or indefinite life intangibles to become impaired. Other
purchased intangible assets are amortized over their estimated useful lives, generally on a straight-line basis. We perform
reviews for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value of an
asset may not be recoverable. An impairment loss is recognized when estimated future cash flows expected to result from the use
of the asset and its eventual disposition are less than its carrying value. When an impairment is identified, we reduce the carrying
value of the asset to its estimated fair value. No impairments were recorded on goodwill or intangible assets during fiscal years
2012, 2011 or 2010. Refer to Note 9 for information regarding our goodwill and other intangible assets.

Capitalized Software
Internal-use software is stated at cost less accumulated amortization and is amortized using the straight-line method over its
estimated useful life ranging from three to seven years. Software assets are reviewed for impairment when events or
circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. During the software
application development stage, capitalized costs include external consulting costs, cost of software licenses, and internal payroll
and payroll-related costs for employees who are directly associated with a software project. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to perform tasks it was previously incapable of
performing. Software maintenance, training, data conversion, and business process reengineering costs are expensed in the
period in which they are incurred. Capitalized software is included in the balance of Other assets in the Consolidated Balance
Sheet.

Due to Broker
Due to broker represents margin debit balances collateralized by certain of the Company’s investments in securities.

Operating Leases
The Company leases certain property under operating leases. Many of these lease agreements contain rent holidays, rent
escalation clauses and/or contingent rent provisions. Rent expense is recognized on a straight-line basis over the expected lease
term, including cancelable option periods when failure to exercise such options would result in an economic penalty. In addition,
the rent commencement date of the lease term is the earlier of the date when we become legally obligated for the rent payments
or the date when we take access to the property or the grounds for build out.

Revenue Recognition
Net Sales
We record revenue from restaurant sales at the time of sale, net of discounts. Revenue from the sale of gift cards is deferred at
the time of sale and recognized upon redemption by the customer or at expiration of the gift cards. Sales revenues are presented
net of sales taxes. Cost of sales primarily includes the cost of food and disposable paper and plastic goods used in preparing and
selling our menu items and excludes depreciation and amortization, which is presented as a separate line item on the
Consolidated Statement of Earnings.

Franchise Royalties and Fees
Unit franchise fees and area development fees are recorded as revenue when the related restaurant begins operations. Royalty
fees and administrative services fees are based on franchise sales and are recognized as revenue as earned.

Other Revenue
Other revenue relates primarily to rental income.

Investment Gains/Losses from Consolidated Affiliated Partnerships
Investment gains/losses from consolidated affiliated partnerships include realized and unrealized gains/losses on investments
held by consolidated affiliated partnerships. Realized gains/losses from the disposal of investments held by consolidated
affiliated partnerships are determined by specific identification of cost of investments sold.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 1. Summary of Significant Accounting Policies – (continued)

Insurance Reserves
We self-insure a significant portion of expected losses under our workers’ compensation, general liability, auto, directors’ and
officers’ and medical liability insurance programs, and record a reserve for our estimated losses on all unresolved open claims
and our estimated incurred but not reported claims at the anticipated cost to us. Insurance reserves are recorded in the balance of
Accrued expenses in the Consolidated Balance Sheet.

Earnings Per Share
Earnings per share of common stock is based on the weighted average number of shares outstanding during the year. For
financial reporting purposes all common shares of the Company held by the consolidated affiliated partnerships are recorded in
Treasury stock on the Consolidated Balance Sheet. For purposes of computing the weighted average common shares outstanding,
the shares of treasury stock attributable to the unrelated limited partners of the consolidated affiliated partnerships — based on
their proportional ownership during the period — are considered outstanding shares.

The following table presents a reconciliation of basic and diluted weighted average common shares.

Basic earnings per share:
Weighted average common shares .....................................................................................
Diluted earnings per share:
Weighted average common shares .....................................................................................
Dilutive effect of stock awards ...........................................................................................
Weighted average common and incremental shares ...........................................................
Number of share-based awards excluded from the
calculation of earnings per share as the awards’
exercise prices were greater than the average
market price of the Company’s common stock. ............................................................

2012

2011

2010

1,334,007

1,329,745 1,396,892

1,334,007
3,261
1,337,268

1,329,745 1,396,892
8,483
1,336,693 1,405,375

6,948

705

12,962

Stock-Based Compensation
We account for all stock-based compensation, including grants of employee stock options, nonvested stock and shares issued
under our employee stock purchase plan, using the fair value based method. Refer to Note 17 for additional information
regarding our stock-based compensation.

The Steak n Shake 401(k) Savings Plan
The Steak n Shake 401(k) Savings Plan (the “401(k) Plan”) is a defined contribution plan covering substantially all employees
after they have attained age 21 and completed six months of service and allows employees to defer up to 20% of their salaries
and allows for discretionary matching contributions. Discretionary matching contributions of $213, $271 and $253 were made in
fiscal years 2012, 2011 and 2010, respectively. Discretionary contributions starting in 2010 were based on the profitability of the
Company and are subject to quarterly revision.

Marketing Expense
Advertising costs are charged to expense at the later of the date the expenditure is incurred or the date the promotional item is
first communicated.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 1. Summary of Significant Accounting Policies – (continued)

Non-Qualified Deferred Compensation Plan
We maintain The Steak n Shake Non-Qualified Savings Plan, a self-directed non-qualified deferred compensation plan (the
“Non-Qualified Plan”) for executive employees. The Non-Qualified Plan allows highly compensated employees to defer
amounts from their salaries for retirement savings and includes a discretionary employer match generally equal to the amount of
the match the employee would have received as a participant in our 401(k) Plan. The Non-Qualified Plan is structured as a rabbi
trust; therefore, assets in the Non-Qualified Plan are subject to creditor claims in the event of bankruptcy. We recognize
investment assets in Other assets on the Consolidated Balance Sheet at current fair value. A liability of the same amount is
recorded in Other long-term liabilities on the Consolidated Balance Sheet representing our obligation to distribute funds to
participants. The investment assets are classified as trading, and accordingly, realized and unrealized gains and losses are
recognized in income.

Use of Estimates
Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results
could differ from the estimates.

New Accounting Standards
In October 2012, the FASB issued Accounting Standards Update (“ASU”) 2012-04, Technical Corrections and Improvements,
which makes certain technical corrections (i.e., relatively minor corrections and clarifications) and “conforming fair value
amendments” to the FASB Accounting Standards Codification (the “Codification”). The corrections and improvements include
technical corrections based on feedback on the Codification and conforming amendments primarily related to fair value in areas
outside of ASC 820. The amendments affect various Codification topics and apply to all reporting entities within the scope of
those topics and become effective for the Company on December 20, 2012. We do not expect the adoption of ASU 2012-04 to
have a material effect on our financial position or results of operations.

In July 2012, the FASB issued ASU 2012−02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible
Assets for Impairment. The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible
assets other than goodwill for impairment. It allows companies to perform a “qualitative” assessment to determine whether
further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment
test. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September
15, 2012. Early adoption is permitted. We do not expect the provisions of ASU 2012-02 to have a material effect on our
financial position or results of operations.

In December 2011, the FASB issued ASU 2011−12, Comprehensive Income. The amendments in ASU 2011-12 supersede
certain pending paragraphs in ASU 2011−05, Presentation of Comprehensive Income to effectively defer only those changes in
ASU 2011−05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income.
The requirement to report comprehensive income either in a single continuous financial statement or in two separate but
consecutive financial statements will become effective in the first quarter of fiscal 2013. The adoption of ASU 2011−12 will not
impact the measurement of net earnings or other comprehensive income.

In May 2011, the FASB issued ASU 2011−04, Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs (“ASU 2011−04”). ASU 2011−04 attempts to improve the comparability of fair value
measurements disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. Amendments in ASU 2011−
04 clarify the intent of the application of existing fair value measurement and disclosure requirements, as well as change certain
measurement requirements and disclosures. ASU 2011−04 was effective for the Company’s first quarter of fiscal year 2012 and
was applied on a prospective basis. The adoption of ASU 2011-04 did not have a material effect on the Company’s consolidated
financial statements.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 1. Summary of Significant Accounting Policies – (continued)

In January 2010, the FASB issued ASU 2010−06, Improving Disclosures about Fair Value Measurements (“ASU 2010−06”).
ASU 2010−06 amends ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”), and requires additional
disclosure about significant transfers between levels 1, 2, and 3 of the fair value hierarchy as well as disclosure of changes in
level 3 activity on a gross basis. In addition, the guidance clarifies existing requirements regarding the required level of
disaggregation by class of assets and liabilities and also clarifies disclosures of inputs and valuation techniques. The guidance
became effective beginning in the Company's second quarter of fiscal year 2010, except for the requirement to disclose level 3
activity on a gross basis, which became effective as of the beginning of the Company's fiscal year 2012. The adoption did not
have a material impact on the Company's consolidated financial statements.

Note 2. Acquisitions

Biglari Capital Corp.
On April 30, 2010, the Company acquired Biglari Capital for $4,107 pursuant to a Stock Purchase Agreement (the “Stock
Purchase Agreement”) between the Company and Sardar Biglari, Chairman and Chief Executive Officer, who was the sole
shareholder of Biglari Capital. Biglari Capital is the general partner of the Lion Fund, a Delaware limited partnership operating
as a private investment fund.

The Lion Fund is a private partnership that accounts for its investments at fair value. The fair value of the noncontrolling interest
approximated the net asset value of the Lion Fund attributable to investors other than the Company, less the accrued incentive
fee at the time of the acquisition. The Lion Fund investors may redeem their interests in the Lion Fund upon certain occurrences.

At the acquisition date, the Lion Fund owned 76,421 shares of common stock of the Company as well as $7,540 of the
Company’s debentures. The fair value of the Company stock owned by the Lion Fund was $29,900, which was recorded as
Treasury stock yet the shares remain outstanding. The debentures owned by the Lion Fund were recorded as a debt
extinguishment. As the debentures had just been issued by the Company 30 days before the acquisition, the fair value of the
debentures approximated their cost, and no gain or loss was recorded on the debt extinguishment (the debentures remained
outstanding until their redemption on March 30, 2011). The noncontrolling interest in the Lion Fund had a fair value of $44,193
as of April 30, 2010.

The Company accounted for the acquisition in accordance with ASC Topic 805, whereby the purchase price paid is allocated to
the assets acquired and liabilities assumed from Biglari Capital based on their estimated fair values as of the closing date.

Acquisition related costs were not material and have been recorded in General and administrative expenses in the Consolidated
Statement of Earnings.

The following table represents the Company’s assessment of the total purchase consideration allocated to the estimated fair
values of the assets acquired and liabilities assumed from Biglari Capital as of April 30, 2010:

Investments ................................................................................................................................................................. $ 10,926
7,540
Company debentures ...................................................................................................................................................
18,466
Total assets acquired ................................................................................................................................................

66
Current liabilities .........................................................................................................................................................
44,193
Redeemable noncontrolling interests of consolidated affiliated partnerships .............................................................
(29,900 )
Treasury stock .............................................................................................................................................................
Total liabilities assumed and treasury stock acquired ..............................................................................................
14,359
Net assets acquired ...................................................................................................................................................... $ 4,107

Purchase
Allocation

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 2. Acquisitions – (continued)

Western Sizzlin Corporation
On March 30, 2010, the Company, through its wholly-owned subsidiary, Grill Acquisition Corporation (“Merger Sub”), acquired
100% of the outstanding equity interests of Western, pursuant to an Agreement and Plan of Merger among the Company, Merger
Sub and Western, dated as of October 22, 2009 (the “Merger Agreement”). Sardar Biglari, Chairman and Chief Executive
Officer, was also Chairman and Chief Executive Officer of Western at the time of the acquisition. Pursuant to the Merger
Agreement, Merger Sub merged with and into Western, with Western continuing as the surviving corporation and as a wholly-
owned subsidiary of the Company. Western is primarily engaged in the franchising of restaurants.

Under the terms of the Merger Agreement, each share of Western’s common stock was cancelled upon the completion of the
merger and converted into the right to receive a pro rata portion of a new issue of 14% redeemable subordinated debentures due
2015 issued by the Company (the “Debentures”) in the aggregate principal amount of $22,959 (approximately $8.07 principal
amount of Debentures per Western share), with cash of $194 paid in lieu of fractional Debenture interests. See Note 15 for
further information on the Debentures.

The Company accounted for the acquisition in accordance with ASC Topic 805, whereby the purchase price paid is allocated to
the tangible and identifiable intangible assets acquired and liabilities assumed from Western based on their estimated fair values
as of the closing date.

During fiscal year 2010, we incurred $701 of transaction related costs which have been recorded in General and administrative
expenses in the Consolidated Statement of Earnings.

The table shown below reflects the final purchase price allocation.

Current assets ...............................................................................................................................................................................
Property and equipment, net .........................................................................................................................................................
Investments, including marketable securities held by consolidated affiliated partnerships ..........................................................
Goodwill .......................................................................................................................................................................................
Intangible assets ...........................................................................................................................................................................
Other assets ..................................................................................................................................................................................
Total assets acquired ................................................................................................................................................................

Amounts at
September 28,
2011
$ 3,310
4,874
13,037
13,026
6,880
663
41,790

Current liabilities ..........................................................................................................................................................................
Debt ..............................................................................................................................................................................................
Other long-term liabilities ............................................................................................................................................................
Redeemable noncontrolling interests of consolidated affiliated partnerships ...............................................................................
Treasury stock ..............................................................................................................................................................................
Total liabilities assumed and treasury stock acquired ...............................................................................................................
Net assets acquired .......................................................................................................................................................................

1,966
2,595
2,634
15,882
(4,246 )
18,831
$ 22,959

The goodwill and intangible assets generated from the merger is a result of the excess purchase price over the net fair value of
the assets and liabilities acquired. We expect goodwill of approximately $942 to be deductible for tax purposes. Goodwill in the
amount of $13,026 has been recorded in the Restaurant Operations segment.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 2. Acquisitions – (continued)

Pro Forma Information
The following unaudited pro forma combined results of operations give effect to the acquisitions of Western and Biglari Capital
as if they had occurred at the beginning of the periods presented. The unaudited pro forma combined results of operations do not
purport to represent our consolidated earnings had the acquisitions occurred on the dates assumed, nor are these results
necessarily indicative of the Company’s future consolidated results of operations.

Net revenues ...........................................................................................................................................................
Net earnings ...........................................................................................................................................................
Basic earnings per share .........................................................................................................................................
Diluted earnings per share ......................................................................................................................................

$683,518
$28,198
$20.25
$20.13

Note 3. Impairment and Restaurant Closings

Steak n Shake recorded pre-tax asset impairment during fiscal years 2012, 2011 and 2010 of $901, $1,032 and $353,
respectively. No company-operated restaurants were closed in fiscal years 2012, 2011 and 2010.

September 29,

2010
(52 weeks)

Note 4. Investments

Investments consisted of the following:

Cost ............................................................................................................................................
Gross unrealized gains ................................................................................................................
Gross unrealized losses ..............................................................................................................
Fair value ....................................................................................................................................

$ 199,057
71,416
(615)
$ 269,858

2012

2011
$ 124,140
1,956
(10,775 )
$ 115,321

On September 26, 2012, most of the total fair value of our investments was concentrated in the common stock of one investee,
Cracker Barrel Old Country Store, Inc. On September 26, 2012 we held 4,091,037 shares (140,100 shares through the Lion
Fund) of Cracker Barrel Old Country Store, Inc.

As of September 26, 2012, unrealized losses on available for sale equity securities in a continuous unrealized loss position for
more than twelve consecutive months were $461. We considered several factors in determining other-than-temporary
impairment losses including the current and long-term business prospects of the issuer, the length of time and relative magnitude
of the price decline and our ability and intent to hold the investment until the price recovers. As of September 26, 2012, we
concluded that the unrealized losses were temporary.

Investment gains/losses are recognized when investments are sold (as determined on a specific identification basis) or as
otherwise required by GAAP. The timing of realized gains and losses from sales can have a material effect on periodic earnings.
However, such realized gains or losses usually have little, if any, impact on total Shareholders’ equity because the investments
are carried at fair value with any unrealized gains/losses included as a component of Accumulated other comprehensive income
in Shareholders’ equity.

Realized investment gains/losses for the fiscal years ended September 26, 2012, September 28, 2011 and September 29, 2010
were as follows:

Gross realized gains on sales ....................................................................................................... $
Gross realized losses on sales ...................................................................................................... $

4,584
(384)

$ 7,775 $ 3,810
$ (415 ) $ (8 )

2012

2011

2010

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 4. Investments – (continued)

From time to time, the Company enters into certain derivative transactions as part of its investment strategy. In accordance with
ASC 815, Accounting for Derivative Instruments and Hedging Activities, these derivatives are marked to market for each
reporting period and this fair value adjustment is recorded as a gain or loss in the Consolidated Statement of Earnings. We
believe that realized investment gains/losses are often meaningless in terms of understanding reported results. Short-term
investment gains/losses have caused and may continue to cause significant volatility in our results.

The Company may enter into short sales on certain equity securities, that is, a transaction in which the Company sells securities
it does not own. The Company’s use of short sales involves the risk that the price of the security in the open market may be
higher when it is purchased in order to close out the Company’s short position, resulting in a loss to the Company. Such a loss is
theoretically limitless because there are no restrictions on the potential increase in the price of a security, or any guarantee as to
the price at which the Company would be able to purchase the security in the open market. Securities sold in short sale
transactions and the interest and dividends payable on such securities, if any, are reflected as a liability in Accrued expenses in
the Consolidated Balance Sheet. As of September 26, 2012 and September 28, 2011 we had no outstanding short sales.

For the year ended September 28, 2011, the Company recorded investment gains of $610 related to the change in fair value of
derivatives and securities sold short. For the year ended September 29, 2010, the Company recorded investment gains from
marking derivatives to market of $222.

Note 5. Consolidated Affiliated Partnerships

Collectively, The Lion Fund L.P., Western Acquisitions, L.P., Mustang Capital Partners I, L.P. and Mustang Capital Partners II,
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. Certain of the consolidated affiliated partnerships held the
Company’s Debentures as investments. These Debentures were redeemed by the Company on March 30, 2011. Refer to Note 15
for further information. As of September 26, 2012 and September 28, 2011, the consolidated affiliated partnerships held 205,743
shares of the Company’s common stock ($69,221 at cost).

Consolidated 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.

Throughout 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
$48,306 at September 26, 2012 and $38,455 at September 28, 2011. No amounts were invested in 2012 or 2011. 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 98,430 and 99,792 shares of stock (with a fair value of $35,933 and $29,577) based on
Biglari Holdings’ ownership interest in the Lion Fund on September 26, 2012 and September 28, 2011, respectively.

During the first quarter of fiscal year 2011, Mustang Capital Partners I, L.P. and Mustang Capital Partners II, L.P. were
liquidated and the funds distributed to the partners. During the third quarter of fiscal year 2011, Western Mustang Holdings,
L.L.C. sold its interests in Mustang Capital Management, L.L.C. and Mustang Capital Advisors, L.P. As a result of the sale, we
recorded a gain of $1,559, of which $1,259 was non-cash in Other operating income in the Consolidated Statement of Earnings.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 5. Consolidated Affiliated Partnerships – (continued)

As a result of the sale, the Company will not have involvement in the operations of Mustang Capital Management, L.L.C. and
Mustang Capital Advisors, L.P. Although these entities meet the definition of “discontinued operations,” as defined in FASB
ASC paragraph 205-20-45-1, Reporting Discontinued Operations (“ASC paragraph 205-20-45-1”), we have not separated the
results of operations because the amounts are immaterial to our consolidated financial results. Net earnings after tax related to the
entities was approximately $2,606 and $621 for the years ended September 28, 2011 and September 29, 2010, respectively,
including $1,246 and $192, respectively that is attributable to noncontrolling interests. The after-tax income for the year ended
September 28, 2011 includes the aforementioned gain on sale of $1,559.

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:

Equity securities:

Cost .................................................................................................................................... $
Fair value ........................................................................................................................... $

10,288
13,151

$
$

19,122
18,783

2012

2011

Investments held by consolidated affiliated partnerships on the Consolidated Balance Sheet include $12,115 and $0 of cash that
is only available for use by the consolidated affiliated partnerships at September 26, 2012 and September 28, 2011, respectively.

Realized investment gains/losses arise when investments are sold (as determined on a specific identification basis). The gross
unrealized gains/losses and net 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 26, 2012, September 28, 2011 and
September 29, 2010 were as follows:

Gross unrealized gains ........................................................................................ $
Gross unrealized losses ....................................................................................... $
Net realized gains/losses from sale ..................................................................... $

3,047
—
2,895

$
$
$

$
1,317
(1,547) $
$
3,365

2012

2011

2010

1,499
(493)
831

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 September 26,
2012 and September 28, 2011 was $52,088 and $45,252, respectively.

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

Carrying value at beginning of year ..............................................................................
Contributions from noncontrolling interests .................................................................
Distributions to noncontrolling interests .......................................................................
Incentive fee ...................................................................................................................
Income allocation ..........................................................................................................
Adjustment to redeemable noncontrolling interest to reflect maximum

2012

2011

2010

45,252
1,545
(254)
(36)
3,188

$ 62,245 $ 60,075
1,878
(1,025)
—
1,317

1,780
(17,499 )
(2,510 )
1,909

redemption value .....................................................................................................
Carrying value at end of year ........................................................................................

2,393
52,088

(673 )

—
$ 62,245

$ 45,252

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 5. Consolidated Affiliated Partnerships – (continued)

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 the fee is earned.

Biglari Capital, the general partner of the Lion Fund, earned a $36 incentive reallocation fee at December 31, 2011. At
December 31, 2010, Biglari Capital earned a $5,199 incentive reallocation fee; however, $2,689 is eliminated, for that amount
represents the Company’s fee as a limited partner, which is uncharged because the Company owns the general partner. The
remaining $2,510 is an incentive fee that is charged and reallocated from outside limited partners of the Lion Fund. 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 our investments in
the consolidated affiliated partnerships; all other earnings or losses from the consolidated affiliated partnerships are allocated to
the redeemable noncontrolling interests.

During the first quarter of fiscal year 2011, Mustang Capital Partners I, L.P. and Mustang Capital Partners II, L.P. were
liquidated, and their funds were distributed to the partners. The distribution of $15,660, including $1,421 of noncash
distributions, is noted in the Distributions to noncontrolling interests line in the above reconciliation.

Note 6. Assets Held for Sale

Assets held for sale are composed of the following:

2012
Land and buildings ....................................................................................................................................... $ 2,050
Improvements ............................................................................................................................................... 307
Total assets held for sale ............................................................................................................................... $ 2,357

2011
$ 6,262
608
$ 6,870

As of September 26, 2012, the balance included the following assets: three restaurants and two parcels of land. In fiscal year
2012, one restaurant and two parcels of land were sold. One parcel of land and one restaurant were added to assets held for sale
during 2012. Five parcels of land, one office building, and one restaurant were reclassified to property and equipment during
fiscal year 2012.

The balance on September 28, 2011 included the following assets: one office building, four restaurants, and eight parcels of land.
In fiscal year 2011, one parcel of land was sold and one restaurant was subleased.

The Company expects to sell these properties within one year of their classification as assets held for sale. For any of these
properties that are unsold within one year, management reclassifies them as property and equipment.

Note 7. Other Current Assets

Other current assets primarily include prepaid rent and prepaid contractual obligations.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 8. Property and Equipment

Property and equipment is composed of the following:

Land ....................................................................................................................................................
Buildings ............................................................................................................................................
Land and leasehold improvements .....................................................................................................
Equipment ..........................................................................................................................................
Construction in progress .....................................................................................................................

Less accumulated depreciation and amortization ...............................................................................
Property and equipment, net ...............................................................................................................

2012

$ 162,685
150,601
155,702
204,340

2,605
675,933
(319,295)
$ 356,638

2011
$ 161,339
149,444
153,731
202,933
1,850
669,297
(297,561 )
$ 371,736

Depreciation and amortization expense for property and equipment for fiscal years 2012, 2011, and 2010 was $24,290, $25,169,
and $26,373, respectively.

Note 9. Goodwill and Other Intangibles

Goodwill
Goodwill consists of the excess of the purchase price over the fair value of the net assets acquired in connection with business
acquisitions. There was no change to the carrying value of goodwill from September 28, 2011. The carrying value of goodwill
decreased from September 29, 2010 to September 28, 2011 by $1,230 due to the final purchase price adjustment relating to the
Western acquisition. Refer to Note 2 for additional discussion of the Western acquisition.

A reconciliation of the change in the carrying value of goodwill is as follows:

Balance at beginning of year ............................................................................................................. $ 27,529
Purchase price allocation adjustment .................................................................................................
—
Balance at end of year ....................................................................................................................... $ 27,529

2012

2011
$ 28,759
(1,230 )
$ 27,529

We are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if
circumstances indicate impairment may have occurred. The analysis of potential impairment of goodwill requires a two-step
approach. The first step is the estimation of fair value of each reporting unit. If step one indicates that impairment potentially
exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the
estimated fair value of goodwill is less than its carrying value.

During the fourth quarter of the fiscal year, we perform our annual assessment of the recoverability of our goodwill related to
four reporting units. During the second quarter of the fiscal year, we perform our annual assessment of our recoverability of
goodwill related to two reporting units. The valuation methodology and underlying financial information included in our
determination of fair value require significant judgments to be made by management. We use both market and income
approaches to derive fair value. The judgments in these two approaches include, but are not limited to, comparable market
multiples, long-term projections of future financial performance, and the selection of appropriate discount rates used to
determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could
produce significantly different results. No potential impairment was identified for our reporting units during fiscal years 2012,
2011, or 2010.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 9. Goodwill and Other Intangibles – (continued)

Other Intangibles
Other intangibles are composed of the following:

Gross

2012

2011

Right to operate ...............................................................
Franchise agreement ........................................................
Other ................................................................................
Total ................................................................................
Intangible assets with indefinite lives ..............................
Total intangible assets .....................................................

carrying
amount
$ 1,480 $
5,310
810
7,600
1,744
$ 9,344 $

Accumulated
amortization

Total
(1,235) $ 245
(1,328) 3,982
(533) 277
(3,096) 4,504
1,744
(3,096) $ 6,248

—

Gross
carrying
amount

Accumulated
amortization Total

$ 1,480 $ (1,117 ) $ 363
4,513
330
5,206
1,744
$ 9,344 $ (2,394 ) $ 6,950

(797 )
(480 )
(2,394 )
—

5,310
810
7,600
1,744

Intangible assets subject to amortization consist of franchise agreements acquired in connection with the acquisition of Western,
a right to operate and favorable leases acquired in connection with prior acquisitions and are being amortized over their
estimated weighted average useful lives ranging from eight to twelve years. In connection with the sale of Mustang Capital
Management, L.L.C. and Mustang Capital Advisors, L.P. during the third quarter of fiscal year 2011, we disposed of an
intangible asset relating to certain customer relationships with a gross carrying value and net basis at the time of disposal of $326
and $266, respectively.

Amortization expense for fiscal years 2012, 2011, and 2010 was $702, $742, and $487, respectively. Total annual amortization
expense for each of the next five years will approximate $620.

Intangible assets with indefinite lives consist of a trade name acquired in connection with the acquisition of Western and
reacquired franchise rights acquired in connection with previous acquisitions.

Note 10. Other Assets
Other assets primarily include capitalized software, non-qualified plan investments, the non-current portion of capitalized loan
acquisition costs, and restricted cash of $3,600 related to workers’ compensation claims.

Note 11. Accrued Expenses
Accrued expenses include the following:

Salaries, wages, vacation, and severance ...................................................................................................
Taxes payable ............................................................................................................................................
Insurance accruals .....................................................................................................................................
Other ..........................................................................................................................................................
Total accrued expenses ..............................................................................................................................

2012
$ 22,205
13,067
7,971
10,623
$ 53,866

2011
$ 15,340
16,656
7,511
7,441
$ 46,948

Note 12. Other Long-term Liabilities

Other long-term liabilities include deferred rent expense, non-qualified plan obligations, deferred gain on sale-leaseback
transactions, uncertain tax positions, and deferred compensation.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 13. Income Taxes

The components of the provision for income taxes consist of the following:

Current:
Federal ............................................................................................................................... $
State ...................................................................................................................................
Deferred .............................................................................................................................
Total income taxes ............................................................................................................. $

7,275 $ 13,217 $ 10,212
2,836 1,600
1,905
207
(2,727)
$ 13,867 $ 12,019
6,453

(2,186 )

2012

2011

2010

Reconciliation of effective income tax:
Tax at U.S. statutory rates (35%) ...................................................................................... $ 10,919 $ 16,741 $ 14,504
1,410 1,463
State income taxes, net of federal benefit ..........................................................................
(4,307 ) (4,146 )
Federal income tax credits .................................................................................................
189
Share-based payments .......................................................................................................
(466 )
Tax attributed to noncontrolling interests ..........................................................................
(11 )
Dividends received deduction ...........................................................................................
486
Other ..................................................................................................................................
$ 13,867 $ 12,019
Total income taxes ............................................................................................................. $

1,063
(3,517)
25
(1,103)
(963)
29
6,453

210
(161 )
(94 )

Income taxes paid totaled $16,802 in fiscal year 2012, $12,436 in fiscal year 2011, and $9,878 in fiscal year 2010. Income tax
refunds totaled $641 in fiscal year 2012 and $2,856 in fiscal year 2011.

As of September 26, 2012, we had approximately $812 of unrecognized tax benefits, including approximately $66 of interest and
penalties, which are included in Other long-term liabilities in the Consolidated Balance Sheet. During fiscal year 2012, we
recognized approximately $67 in potential interest and penalties associated with uncertain tax positions. Our continuing practice
is to recognize interest expense and penalties related to income tax matters in Income tax expense. Of the $812 of unrecognized
tax benefits, $769 would impact the effective income tax rate if recognized.

The following table summarizes the Company’s unrecognized tax benefits, excluding interest and penalties:

September 30, 2009 .................................................................................................................................................
Gross increases – prior period tax positions ............................................................................................................
Lapse of statute of limitations .................................................................................................................................
September 29, 2010 .................................................................................................................................................
Gross increases – current period tax positions .........................................................................................................
Gross increases – prior period tax positions ............................................................................................................
Lapse of statute of limitations .................................................................................................................................
September 28, 2011 .................................................................................................................................................
Gross increases – current period tax positions ...................................................................................................
Lapse of statute of limitations ...............................................................................................................................
September 26, 2012 ................................................................................................................................................

1,205
281
(251)
1,235
178
238
(171)
1,480
109
(843)
746

We file income tax returns which are periodically audited by various federal, state, and local jurisdictions. With few exceptions,
we are no longer subject to federal, state, and local tax examinations for fiscal years prior to 2009. We believe we have certain
state income tax exposures related to fiscal years 2009 through 2011. Due to the expiration of the various state statutes of
limitations for these fiscal years, it is possible that the total amount of unrecognized tax benefits will decrease by approximately
$72 within 12 months.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 13. Income Taxes – (continued)

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected
to reverse. Our deferred tax assets and liabilities consist of the following:

Deferred tax assets:
Insurance reserves ..............................................................................................................................
Share-based payments ........................................................................................................................
Compensation accruals .......................................................................................................................
Gift card accruals ................................................................................................................................
State net operating loss credit carryforward .......................................................................................
Investments .........................................................................................................................................
Other ...................................................................................................................................................
Total deferred tax assets .....................................................................................................................

$ 2,673 $

13
1,968
596
60
—
2,516
7,826

2,539
330
1,645
561
107
3,603
1,724
10,509

2012

2011

Deferred tax liabilities:
Investments .........................................................................................................................................
Fixed asset basis difference ................................................................................................................
Goodwill and intangibles ....................................................................................................................
Total deferred tax liabilities ................................................................................................................
Net deferred tax liability .....................................................................................................................
Less current portion ............................................................................................................................
Long-term liability ..............................................................................................................................

27,274
5,436
3,158
35,868
(28,042)
(19,367)
$ (8,675)

—
7,833
3,190
11,023
(514 )
6,150
$ (6,664 )

Receivables on the Consolidated Balance Sheet include income tax receivables of $2,455 as of September 26, 2012. Accrued
expenses on the Consolidated Balance Sheet include income tax payable of $4,372 as of September 28, 2011.

Note 14. Leased Assets and Lease Commitments

We lease certain physical facilities under non-cancelable lease agreements. These leases require the payment of real estate taxes,
insurance and maintenance costs. Certain leased facilities, which are no longer operated but are subleased to third parties or
franchisees, are classified below as non-operating properties. Minimum future rental payments for non-operating properties have
not been reduced by minimum sublease rentals of $4,646 related to operating leases receivable under non-cancelable subleases.
The property and equipment cost related to finance obligations and capital leases as of September 26, 2012 is as follows: $72,828
buildings, $61,663 land, $29,506 land and leasehold improvements, $566 equipment and $61,682 accumulated depreciation.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 14. Leased Assets and Lease Commitments – (continued)

On September 26, 2012, obligations under non-cancelable finance obligations, capital leases, and operating leases (excluding
real estate taxes, insurance and maintenance costs) require the following minimum future rental payments:

Operating Leases

Finance

Capital
Leases

Operating
Property

Non-Operating
Property

Obligations

Total
Year
106 $ 15,279 $
2013 ......................................................................................................... $
412
368
14,579
17
2014 .........................................................................................................
318
13,703
17
2015 .........................................................................................................
321
12,161
17
2016 .........................................................................................................
328
9,097
17
2017 .........................................................................................................
14,986
15
2,808
After 2017 ...............................................................................................
79,805 $ 116,149 $ 4,555
189
Total minimum future rental payments ...................................................
44,703
26
Less amount representing interest ...........................................................
35,102
163
Total principal obligations under leases ..................................................
5,713
94
Less current portion .................................................................................
29,389
69
Non-current principal obligations under leases .......................................
80,964
26
Residual value at end of lease term .........................................................
Obligations under leases .......................................................................... $ 110,258 $ 95 $ 110,353

15,173 $
14,562
13,686
12,144
9,080
14,971
79,616
44,677
34,939
5,619
29,320
80,938

13,703 $
12,832
11,905
10,651
9,398
57,660

Contingent rent totaling $1,173 in fiscal year 2012, $967 in fiscal year 2011, and $749 in fiscal year 2010 is recorded in Rent
expense in the accompanying Consolidated Statement of Earnings.

Note 15. Borrowings

Debentures
In connection with the acquisition of Western, the Company issued 14% redeemable subordinated debentures due 2015 (the
“Debentures”) in the aggregate principal amount of $22,959. On March 30, 2011, the Company redeemed all of its outstanding
Debentures. The Debentures were redeemed for cash at an aggregate redemption price of approximately $23,420, representing
100% of the principal amount outstanding, plus accrued and unpaid interest up to, but not including, March 30, 2011. The
Debentures were issued and the redemption was effected pursuant to the provisions of the Indenture, dated March 30, 2010 (the
“Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee. Upon the redemption of the
Debentures, the Company’s obligations under the Debentures and the Indenture were satisfied and discharged in accordance with
their terms. Included in the Debentures aggregate redemption price of $23,420 was approximately $7,804 of principal and
interest paid to the Lion Fund. The payment to the Lion Fund does not appear explicitly in the Company’s Consolidated
Statement of Cash Flows because of the requirement to consolidate fully the Lion Fund in the Company’s financial statements.

Steak n Shake Credit Facility
On September 25, 2012, Steak n Shake, as borrower, Steak n Shake Enterprises, Inc. (“Steak n Shake Enterprises”) and Steak n
Shake, LLC, as guarantors (together with Steak n Shake Enterprises, the “Subsidiary Guarantors”), each subsidiaries of the
Company, entered into a credit agreement (the “New Credit Facility”) with the lenders party thereto. The New Credit Facility
consists of a $130,000 senior secured term loan facility (the “Term Loan”) and a $50,000 senior secured revolving credit facility
(the “Revolver”).

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 15. Borrowings – (continued)

Both the Term Loan and the Revolver have been guaranteed by the Subsidiary Guarantors and secured by first priority security
interests in substantially all the assets of Steak n Shake (including the capital stock of Steak n Shake Enterprises) and the
Subsidiary Guarantors. Biglari Holdings is not a guarantor under the New Credit Facility. $114,176 of the proceeds of the Term
Loan were used to repay all outstanding amounts under Steak n Shake’s former credit facility, which was terminated, and to pay
related fees and expenses. The remaining Term Loan proceeds of approximately $15,824 will be used by Steak n Shake for
working capital and general corporate purposes. Steak n Shake incurred no material early termination penalties in connection
with the termination of the former credit facility.

As of September 28, 2011, outstanding borrowings under Steak n Shake’s former credit facility were $110,000 under the term
loan and $15,000 under the revolving credit facility.

We recorded a $1,955 loss on the extinguishment of debt for the fiscal year ended September 26, 2012 related to the write-off of
deferred loan costs associated with the former credit facility. We capitalized $1,961 in debt issuance costs related to the New
Credit Facility in 2012 and we capitalized $3,174 in debt issuance costs for the year ended September 28, 2011 related to the
former credit facility.

We had $4,781 and $4,610 in standby letters of credit outstanding as of September 26, 2012 and September 28, 2011,
respectively.

On October 11, 2012, Steak n Shake entered into a new interest rate swap for a notional amount of $65,000 through September
30, 2015. The agreement hedges potential changes in the Eurodollar rate.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 15. Borrowings – (continued)

Western Real Estate Loan Agreement and Note Payable
Western Real Estate, L.P. (“Western RE”), a wholly-owned subsidiary of Western, has a promissory note (the “Note”) which is
secured by approximately 23 acres of real property. The principal amount of the Note is $2,293 and, as of September 26, 2012,
the Note bore interest at a rate of 5.0% annually. As of September 26, 2012, the Note was due and payable in consecutive
monthly payments of accrued interest only that commenced on March 30, 2010. The Note may be prepaid in whole or in part at
any time without penalty. The balance of the note was paid in full on November 28, 2012.

Expected principal payments for all outstanding borrowings, excluding the Revolver, for which we had no outstanding
borrowings as of September 26, 2012, are as follows:

2013
2014
2015
2016
2017
Total

12,138
9,750
13,000
13,000
84,500
132,388

The carrying amounts for debt reported in the Consolidated Balance Sheet do not differ materially from their fair values at
September 26, 2012 and September 28, 2011 as a result of the refinancing in each fiscal year. The fair value was determined to
be a Level 3 fair value measurement.

Interest
No interest was capitalized in connection with financing additions to property and equipment during fiscal years 2012, 2011 and
2010. Interest paid on debt amounted to $7,359 in 2012, $2,947 in 2011, and $1,274 in 2010. Interest paid on obligations under
leases was $10,073, $10,565, and $10,697 in 2012, 2011, and 2010, respectively.

Note 16. Related Party Transactions

On April 30, 2010, the Company acquired Biglari Capital pursuant to a Stock Purchase Agreement between the Company and
Sardar Biglari, Chairman and Chief Executive Officer, who was the sole shareholder of Biglari Capital. (Refer to Note 2.)

On March 30, 2010, the Company, through its wholly-owned subsidiary, Merger Sub, acquired 100% of the outstanding equity
interests of Western. Sardar Biglari, Chairman and Chief Executive Officer, was also Chairman and Chief Executive Officer of
Western at the time of the acquisition. Additionally, at the time of the merger, Mr. Biglari owned shares of Western’s common
stock through his ownership interest in the Lion Fund. (Refer to Note 2.)

Mr. Biglari, along with his affiliates, and certain directors of the Company make investments in the Lion Fund (other than the
amounts invested by the Company), which are not subject to special profits, interest allocations, or incentive allocations.
However, Mr. Biglari does not pay an incentive allocation fee as a limited partner in the Lion Fund. As of September 26, 2012
and September 28, 2011, the total fair value of these investments was approximately $2,506 and $1,997, respectively.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 17. Common Stock Plans

We maintain stock-based compensation plans which allow for the issuance of incentive stock options, non-qualified stock
options, and restricted stock to officers, other key employees, and to members of the Board of Directors. We generally use
treasury shares to satisfy the issuance of shares under these stock-based compensation plans. We utilize the fair value recognition
provisions of ASC paragraph 718-10-55-10, Fair-Value-Based Instruments in a Share-Based Transaction. This guidance applies
to all awards granted after the effective date and to modifications, repurchases or cancellations of existing awards. Additionally,
under the modified prospective method of adoption, we recognize compensation expense for the portion of outstanding awards
on the adoption date for which the requisite service period has not yet been rendered based on the grant-date fair value of those
awards.

The weighted average fair value of shares granted during the year ended September 29, 2010 was $158.52. No shares were
granted in fiscal year 2012 or 2011. We estimate the fair value of each grant using the Black-Scholes option-pricing model.
Expected volatilities are generally based on historical volatility of our stock. We use historical data to estimate the expected life,
and groups of employees that have similar historical behaviors are considered separately for valuation purposes. The risk-free
rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The
Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Because our stock options have characteristics significantly different from those of
traded options, changes in the subjective input assumptions can materially affect the fair value estimate. The fair value estimates
are based on the following weighted average assumptions:

Risk-free interest rate .........................................................................................................................................
Dividend yield ....................................................................................................................................................
Expected volatility ..............................................................................................................................................
Expected life in years ......................................................................................................................................... 3.0 years

4.3 %
0.0 %
52.4 %

2010

Restricted Stock Plans
On March 7, 2008, our shareholders approved the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan provides for
grants of stock-based awards for up to 45,000 shares of common stock with a maximum of 35,000 shares which may be issued as
restricted stock. These restricted stock awards are restricted for a period and are forfeited to us if the grantee is not employed
(except for reasons of retirement, permanent disability or death) at the end of the vesting period. Awards of restricted stock are
valued at 100% of market value at the date of grant. The total value of the stock grant is amortized to compensation expense
ratably over the vesting period. There are no shares of restricted stock granted under the 2008 Plan for which restrictions have
not lapsed at September 26, 2012. At September 26, 2012, 27,834 shares were reserved for future grants but are not permitted to
be issued under the 2008 Plan. To date, 11,660 shares have vested under the 2008 Plan.

The total fair value of shares vested during the years ended September 26, 2012, September 28, 2011, and September 29, 2010
was $0, $657, and $768, respectively. The amount charged to expense under the 2008 Plan was $0 in 2012, $51 ($32, net of tax)
in 2011, and $235 ($143, net of tax) in 2010. There was no unrecognized compensation cost at September 26, 2012.

There was no restricted stock activity under the 2008 Plan in 2012.

Employee Stock Option Plans
The 2008 Plan also provides for awards in the form of options to purchase shares of common stock. No options were granted in
2012, 2011 or 2010 under the 2008 Plan. Options granted under the 2008 Plan are exercisable in equal installments on each
anniversary of the date of grant until fully exercisable. The options expire ten years from the date of the grant and are issued with
an exercise price equal to the fair market value of a share of common stock on the date of grant. Options may be granted under
the 2008 Plan to officers and key employees selected by the Governance, Compensation and Nominating Committee of the
Board of Directors (the “Compensation Committee”). As of September 26, 2012, 10,270 options have been granted under the
2008 Plan and 27,834 shares are available for future issuance but are not permitted to be issued under the 2008 Plan. These are
the same shares available for future issuance referenced in the Restricted Stock Plan’s disclosure.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 17. Common Stock Plans – (continued)

Non-Employee Director Stock Option Plans
Our Non-Employee Director Stock Option Plans provide for the grant of non-qualified stock options at a price equal to the fair
market value of the common stock on the date of the grant. Options outstanding under each plan through fiscal year 2005 are
exercisable as to 20% on the date of grant and 20% on each anniversary of the date of grant thereafter until fully exercisable.
Options outstanding that were issued in fiscal year 2006 or later are exercisable as to 25% on each anniversary of the date of
grant until fully exercisable. The options expire five years from the date of grant. At September 26, 2012, 10,500 options have
been granted under the Non-Employee Director Stock Option Plans. The Non-Employee Director Stock Option Plans were
replaced by the 2008 Plan and as a result, no shares are reserved for future grants under the Non-Employee Director Stock
Option Plans.

The following table summarizes the options activity under all of our stock option plans:

Outstanding at September 28, 2011 .............................................................
Exercised .....................................................................................................
Canceled or forfeited ...................................................................................
Outstanding at September 26, 2012 ..............................................................
Vested or expected to vest at September 26, 2012 ......................................
Exercisable at September 26, 2012 ..............................................................

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life

Aggregate
Intrinsic
Value

Options
13,579 $ 282.44
244.77
344.62
275.89 4.40 years $
276.03 4.40 years $
9,836 $ 277.43 4.46 years $

(1,548)
(1,995)
10,036
10,017

1,003
1,000
989

During fiscal years 2012, 2011, and 2010, $75 ($74, net of tax), $218 ($210, net of tax), and $592 ($570, net of tax),
respectively, was charged to expense related to the stock option plans. The total intrinsic value of options exercised during the
years ended September 26, 2012, September 28, 2011, and September 29, 2010 was $235, $693, and $490, respectively. There
was no unrecognized stock option compensation cost at September 26, 2012.

Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (the “ESPP”), a maximum of 92,627 shares of common stock are available for
issuance to all eligible employees as determined by the Board of Directors subject to a limitation of 7,500 shares per year.
Unissued shares in any given calendar year are available to increase the annual maximum number of shares issuable in
subsequent years. Employees may purchase shares of common stock through payroll deductions ranging from 2% to 10% of
compensation up to a maximum fair market value of $200 or a maximum purchase of 50 shares per year, whichever is less,
within the limitations of the offering. Shares were purchased on a quarterly basis at a 15% discount from the share price on the
last day of the quarter. Shares purchased under the ESPP were 812 in 2010. During fiscal year 2010, $32 was charged to expense
related to the ESPP. No shares were purchased in fiscal years 2012 or 2011.

Our compensation philosophy, including the various equity plans, changed during fiscal year 2010 to reflect present
management’s view on the most effective method to create shareholder value. The new incentives, which are cash based, are
designed to ensure alignment with the Company’s objective to maximize intrinsic business value on a per share basis. We
resolved to suspend, indefinitely, all future option grants under the 2008 Plan, we terminated the 2009 Employee Stock Option
Plan, under which no options had been granted, we placed a moratorium on the issuance of restricted stock, and we terminated
the ESPP.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 18. Commitments and Contingencies

We are involved in various legal proceedings and have certain unresolved claims pending. We believe, based on examination of
these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided in our consolidated
financial statements is not likely to have a material effect on our results of operations, financial position or cash flows.

Note 19. Fair Value of Financial Assets and Liabilities

The fair value framework as established in ASC paragraph 820-10-50-2 requires the categorization of assets and liabilities into
three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure
of fair values, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

•
•

•

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets
or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the
asset or liability.

The following methods and assumptions were used to determine the fair value of each class of the following assets and liabilities
recorded at fair value in the Consolidated Balance Sheet.

Cash equivalents: Cash equivalents primarily consist of money market funds which are classified within Level 1 of the fair value
hierarchy. The consolidated affiliated partnerships did not hold cash equivalents on September 26, 2012 and September 28, 2011.

Equity securities: The Company’s investments in equity securities are carried at fair value, based on quoted market prices, and
are classified within Level 1 of the fair value hierarchy.

Non-qualified deferred compensation plan investments: The assets of the Non-Qualified Plan are set up in a rabbi trust. They
represent mutual funds that are carried at fair value, based on quoted market prices, and are classified within Level 1 of the fair
value hierarchy.

Investment held by consolidated affiliated partnership: Investments of $190 and $193 as of September 26, 2012 and September
28, 2011, respectively, have been classified within Level 3 of the fair value hierarchy and represent a private security.

Investment derivatives and interest rate swaps: Investment derivatives and interest rate swaps are marked to market each
reporting period with fair value based on readily available market quotes, and are classified within Level 2 of the fair value
hierarchy. Interest rate swaps at September 26, 2012 and September 28, 2011 represent the mark to market adjustment for Steak
n Shake’s interest rate swap.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 19. Fair Value of Financial Assets and Liabilities – (continued)

As of September 26, 2012, the fair values of financial assets and liabilities were as follows:

September 26, 2012
Level 1 Level 2 Level 3 Total

September 28, 2011

Level 1 Level 2 Level 3 Total

Assets
Cash equivalents .....................................................................
Equity securities:
Restaurant/Retail .................................................................
Other ....................................................................................
Equity securities held by consolidated affiliated partnerships:
Restaurant/Retail .................................................................
Other ....................................................................................
Non-qualified deferred compensation plan investments .........
Investment held by consolidated affiliated partnership ...........
Total assets at fair value .........................................................

$ 14,286

$ — $ — $ 14,286 $

266,940 — — 266,940
2,918 — — 2,918

— $ 88,022 $ — $ 88,022

89,971
25,350

—
—

— 89,971
— 25,350

—
7,677
11,156 — — 11,156
— 10,913
1,805 — — 1,805
546
—
888
193
193
190
$ 297,993 $ — $ 190 $ 298,183 $134,457 $ 88,022 $ 193 $222,672

888
— — 190

7,677
10,913
546
—

—
—
—
—

Liabilities
Interest rate swaps ..................................................................
Total liabilities at fair value ....................................................

—
— $

351 —
351 $ — $

351 — 439 —
439
351 $ — $ 439 $ — $ 439

There were no changes in our valuation techniques used to measure fair values on a recurring basis.

During fiscal years 2012, 2011 and 2010, the Company recorded impairments on long-lived assets of $901, $1,032, and $353,
respectively. The fair value of the long-lived assets was determined based on Level 2 inputs using quoted prices for similar
properties and quoted prices for the properties from brokers.

Note 20. Business Segment Reporting

Our reportable business segments are organized in a manner that reflects how management views those business activities.
Certain businesses have been grouped together for segment reporting based upon operations even though those business units are
operated under separate management.

As of September 26, 2012, our reportable segments are: (1) Restaurant Operations and (2) Investment Management. Our
Restaurant Operations segment includes Steak n Shake and Western. The Company and its affiliates own a percentage of the
funds included in our Investment Management segment and receive allocations of investment gains and losses. In addition to the
two aforementioned reportable segments, we present information related to the holding company, Biglari Holdings, as Corporate
and other.

We assess and measure segment operating results based on segment earnings as disclosed below. Segment earnings from
operations are not necessarily indicative of cash available to fund cash requirements, nor are they synonymous with cash flow
from operations.

The tabular information that follows shows data of our reportable segments reconciled to amounts reflected in the consolidated
financial statements. The segments’ financial information does not reflect the impact of eliminations arising from intersegment
transactions. The eliminations row represents the eliminations required to arrive at our consolidated GAAP reported results.

A disaggregation of select data from our Consolidated Statements of Earnings for the three most recent years is presented in the
tables that follow.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 20. Business Segment Reporting – (continued)

Net revenue and earnings before income taxes and noncontrolling interests for the years ended September 26, 2012, September
28, 2011, and September 29, 2010 were as follows:

Net Revenue
2011

2012

2010

Operating Business:
Restaurant Operations:

Steak n Shake ....................................................................................................................................... $ 718,010
Western ................................................................................................................................................ 15,895
Total Restaurant Operations ....................................................................................................................... 733,905

$ 689,325
16,078
705,403

$ 662,891
8,755
671,646

Investment Management:

Management fees .................................................................................................................................
Consolidated affiliated partnerships .....................................................................................................
Total Investment Management Operations .................................................................................................

—
6,302
6,302
$ 740,207

224
3,573
3,797
$ 709,200

233
1,902
2,135
$ 673,781

Earnings before income taxes and
noncontrolling interests
2011

2010

2012

Net earnings attributable to

Biglari Holdings Inc.

2012

2011

2010

Operating Business:
Restaurant Operations:

Steak n Shake ......................................................................... $
Western ..................................................................................
Total Restaurant Operations .........................................................

45,622
2,157
47,779

$ 41,247
2,455
43,702

$ 38,316 $ 31,756 $ 29,367 $ 27,257
646
27,903

1,038 1,354
39,354 33,110

1,610
30,977

Investment Management:

Biglari Capital Corp. (Incentive Fee) .....................................
Management fees ...................................................................
Consolidated affiliated partnerships .......................................
Total Investment Management Operations ...................................

36
—
5,319
5,355

2,510
224
3,370
6,104

—
233

22
—
1,775 1,321
2,008 1,343

1,535
139
1,815
3,489

—
144
215
359

Corporate and Other:

Corporate and other ................................................................ (15,990)
Investment and derivative gains/losses ...................................

4,200

Total Corporate and Other ............................................................ (11,790)

(4,624 )
7,970
3,346

(2,087 ) (9,196)
4,024 2,604
1,937 (6,592)

(3,099 )
4,941
1,842

(1,510 )
2,495
985

Reconciliation of segments to consolidated amount:

(36)

(2,510 )

—

Eliminations ...........................................................................
Interest expense and loss on debt extinguishment, excluding
interest allocated to operating businesses ................................

(10,110)
31,198

(2,811 )
$ 47,831

(1,859 )

(1,153 )
$ 41,440 $ 21,593 $ 34,565 $ 28,094

(6,268)

(1,743 )

The earnings presentation was adjusted from the prior years to show interest expense, excluding interest allocated to operating
businesses, as a reconciliation of segments to consolidated amounts in order to more accurately reflect the earnings before and
after tax of the Restaurant Operations.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 20. Business Segment Reporting – (continued)

A disaggregation of our consolidated capital expenditure, depreciation, and amortization captions for fiscal years ended
September 26, 2012, September 28, 2011, and September 29, 2010 is presented in the table that follows.

Capital Expenditures
2011

2010

2012

Depreciation and
Amortization

2012

2011

2010

Reportable segments:

Restaurant Operations:

Steak n Shake ............................................................................................
Western .....................................................................................................
Investment Management .................................................................................
Corporate and other ..............................................................................................
Consolidated Results ..........................................................................................

$ 7,513
58

—
1,104
$ 8,675

$ 11,092 $ 6,061 $ 25,432 $ 27,279 $ 28,696
431
33
98
$ 13,018 $ 8,650 $ 26,424 $ 28,361 $ 29,258

729
—
— —
263

18
—
1,908

785
27
270

2,589

A disaggregation of our consolidated asset captions as of September 26, 2012 and September 28, 2011 is presented in the table
that follows.

Goodwill

2012

2011

Identifiable Assets
2012

2011

Reportable segments:

Restaurant Operations

Steak n Shake ................................................................................................................. $ 14,503
Western ..........................................................................................................................
13,026
Investment Management .....................................................................................................
Corporate and other ..................................................................................................................
Consolidated results .................................................................................................................. $ 27,529
Reconciliation of segments to consolidated amount:
Goodwill ....................................................................................................................................
Total assets ...............................................................................................................................

—
—

$ 14,503 $ 433,382 $ 406,619
7,919
13,026 7,526
19,186
— 26,348
211,607
— 279,002
$ 645,331
$ 27,529 $ 746,258

27,529
27,529
$ 773,787 $ 672,860

Note 21. Quarterly Financial Data (Unaudited)

For the year ended September 26, 2012 (52 weeks) (1)
Total net revenues....................................................................................................
Gross profit (2) ..........................................................................................................
Costs and expenses ..................................................................................................
Earnings before income taxes ................................................................................
Net earnings attributable to Biglari Holdings Inc. ..............................................
Basic earnings per common share .........................................................................
Diluted earnings per common share .....................................................................

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

$ 166,390 $ 223,684 $ 175,773 $ 174,360
42,129 52,279 40,990 41,217
151,678 211,536 167,884 165,928
14,753 7,667 4,986 3,792
8,795 4,528 4,853 3,417
2.56
3.39 $
$
2.56
3.39 $
$

3.64 $
3.63 $

6.60 $
6.58 $

For the year ended September 28, 2011 (52 weeks) (1)
Total net revenues ..................................................................................................... $ 158,722 $ 211,277 $ 170,861 $ 168,340
Gross profit (2) ........................................................................................................... 39,090 47,713 40,432 43,236
Costs and expenses ................................................................................................... 145,690 199,225 157,692 154,098
8,440 11,151 15,134
Earnings before income taxes ................................................................................... 13,106
8,676 10,781
5,645
9,463
Net earnings attributable to Biglari Holdings Inc. ....................................................
8.09
4.25 $
7.13 $
Basic earnings per common share ............................................................................ $
8.08
4.23 $
7.08 $
Diluted earnings per common share ......................................................................... $

6.52 $
6.49 $

(1) Our fiscal year includes quarters consisting of 12, 16, 12 and 12 weeks, respectively.
(2) We define Gross profit as Net sales less Cost of sales and Restaurant operating costs, which excludes Depreciation and amortization.

BIGLARI HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(amounts in $000s, except share and per share data)

Note 22. Supplemental Disclosures of Cash Flow Information

During fiscal year 2012, we had no new capital lease obligations or lease retirements, and had $589 of capital expenditures in
Accounts payable at year-end. During fiscal year 2011, we had no new lease obligations or lease retirements, and had $741 of
capital expenditures in Accounts payable at year-end. During fiscal year 2010, we had new leases of $248, lease retirements of
$1,453 and $371 of capital expenditures in Accounts payable at year-end. Additionally, we issued $22,959 of Debentures in
connection with our acquisition of Western. We paid $194 of that amount in cash in lieu of fractional Debentures.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.

Controls and Procedures

Based on an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)),
our Chief Executive Officer and Controller have concluded that our disclosure controls and procedures were effective as of
September 26, 2012.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 26,
2012 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information

None.

Item 10.

Directors, Executive Officers and Corporate Governance

Part III

The information required by this Item will be contained in our definitive Proxy Statement for the 2013 Annual Meeting of
Shareholders, to be filed on or before January 24, 2013, and such information is incorporated herein by reference.

Item 11.

Executive Compensation

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

Item 13.

Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accountant Fees and Services

Item 15

Exhibits and Financial Statement Schedules

Part IV

(a) 1. Financial Statements

The following Consolidated Financial Statements, as well as the Reports of Independent Registered Public Accounting Firm, are
included in Part II, Item 8 of this report:

Reports of Independent Registered Public Accounting Firm ............................................................................................
Management’s Report on Internal Control over Financial Reporting ...............................................................................
Consolidated Balance Sheets at September 26, 2012 and September 28, 2011 .................................................................
For the years ended September 26, 2012, September 28, 2011, and September 29, 2010:

Consolidated Statements of Earnings ..........................................................................................................................
Consolidated Statements of Cash Flows ......................................................................................................................
Consolidated Statements of Changes in Shareholders’ Equity ....................................................................................
Notes to Consolidated Financial Statements .....................................................................................................................

2. Financial Statement Schedule

Schedule I—Parent Company
Condensed Balance Sheets at September 26, 2012 and September 28, 2011 ....................................................................
For the years ended September 26, 2012, September 28, 2011and September 29, 2010:

Condensed Statements of Earnings ..............................................................................................................................
Condensed Statements of Cash Flows .........................................................................................................................
Notes to Condensed Parent Company Financial Statements .......................................................................................

Other schedules have been omitted for the reason that they are not required, are not applicable, or the required

information is set forth in the financial statements or notes thereto.

PAGE
23-24
25
27

26
28
29
30

60
61
62

(b) Exhibits

See the “Exhibit Index” at page 64.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 8, 2012.

SIGNATURES

BIGLARI HOLDINGS INC.

By:

/s/ BRUCE LEWIS
Bruce Lewis
Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated, on December 8, 2012.

Signature

/s/ SARDAR BIGLARI
Sardar Biglari

/s/ DUANE E. GEIGER
Duane E. Geiger

/s/ BRUCE LEWIS
Bruce Lewis

/s/ PHILIP COOLEY
Philip Cooley

/s/ DR. RUTH J. PERSON
Dr. Ruth J. Person

/s/ KENNETH R. COOPER
Kenneth R. Cooper

/s/ WILLIAM L. JOHNSON
William L. Johnson

/s/ JAMES P. MASTRIAN
James P. Mastrian

Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Title

Interim Chief Financial Officer and Vice President (Principal Financial Officer)

Controller (Principal Accounting Officer)

Director

Condensed Balance Sheets

Biglari Holdings Inc. (Parent Company)
(Amounts in $000s)
Schedule I

September 26,
2012

September 28,
2011

Assets

Cash and cash equivalents ........................................................................................................................ $
Investments ..............................................................................................................................................
Other ........................................................................................................................................................
Investments in and advances to/from subsidiaries ....................................................................................
Total assets .................................................................................................................................................. $

25,931
248,494
7,000
105,197
386,622

88,004
114,176
5,572
80,879
$ 288,631

Liabilities and shareholders’ equity

Accounts payable and accrued expenses ................................................................................................... $
Due to broker ............................................................................................................................................
Deferred income taxes ..............................................................................................................................
Total current liabilities .................................................................................................................................
Deferred income taxes ..................................................................................................................................
Total liabilities .............................................................................................................................................

11,162
—
25,873
37,035
462
37,497

1,902
7,051
—
8,953
—
8,953

Shareholders’ equity .....................................................................................................................................
Total liabilities and shareholders’ equity ................................................................................................. $

349,125
386,622

279,678
$ 288,631

See accompanying Notes to Condensed Parent Company Financial Statements.

Condensed Statements of Earnings

Biglari Holdings Inc. (Parent Company)
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(Amounts in $000s)
Schedule I (continued)

2012
(52 Weeks)

2011
(52 Weeks)

2010
(52 Weeks)

Income

Distributed earnings from subsidiaries ...................................................................................... $
Undistributed earnings/losses from subsidiaries ........................................................................
Total ..............................................................................................................................................

—
28,306
28,306

28,094
5,500
33,594

26,679
1,390
28,069

Costs, expenses and other

General and administrative ........................................................................................................
Interest .......................................................................................................................................
Other income, net ......................................................................................................................
Investment income ...................................................................................................................
Total .............................................................................................................................................

18,374
14
(3,412)
(4,152)
10,824

4,768
1,589
(329 )
(7,970 )
(1,942 )

2,068
1,635
(67 )
(4,024 )
(388 )

Income taxes .................................................................................................................................

(4,111)

971

363

Net earnings ................................................................................................................................. $

21,593

$ 34,565 $ 28,094

See accompanying Notes to Condensed Parent Company Financial Statements.

Condensed Statements of Cash Flows

Biglari Holdings Inc. (Parent Company)
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(Amounts in $000s)
Schedule I (continued)

21,593

34,565 $

28,094

2012
(52 Weeks)

2011
(52 Weeks)

2010
(52 Weeks)

—
(28,306)
(3,570)
(4,152)
—
7,346
(3,483)
(10,572)

Excess distributed earnings of subsidiaries ..........................................................................
Undistributed earnings of subsidiaries ..................................................................................
Provision for deferred income taxes .....................................................................................
Realized investment gains/losses ..........................................................................................
Derivative and short sale gains/losses ...................................................................................
Changes in accounts payable and accrued expenses .............................................................
Other ....................................................................................................................................
Net cash (used in) provided by operating activities .............................................................
Investing activities
7,239
Investments in and advances to/ from subsidiaries, net ............................................................
Additions of property and equipment .......................................................................................
(624)
Purchases of investments .......................................................................................................... (101,004)
49,536
Sales of investments .................................................................................................................
(7,051)
Changes in due to/from broker .................................................................................................
Payments for acquisitions .........................................................................................................
—
Net cash used in investing activities ......................................................................................
Financing activities
Principal payments on long-term debt ......................................................................................
Cash paid in lieu of fractional shares ........................................................................................
Proceeds from exercise of stock options and employees stock purchase plan ..........................
Excess tax benefits from stock-based awards ...........................................................................
Repurchase of employee shares for tax withholding ................................................................
Net cash provided by (used in) financing activities ..............................................................
(Decrease) increase in cash and cash equivalents .....................................................................
Cash and cash equivalents at beginning of year .......................................................................
Cash and cash equivalents at end of year ............................................................................. $

403
(62,073)
88,004
25,931

—
—
29
382
(8)

(51,904)

128,749
(5,500 )
—
(7,360 )
(610 )
239
(198 )
149,885

2,611
(661 )
(171,893 )
90,058
3,148
—
(76,737 )

34,489
(1,390 )
—
(3,802 )
(222 )
2,487
657
60,313

(32,637 )
(2,589 )
(73,228 )
47,112
3,903
(4,107 )
(61,546 )

(22,765 )
—
29
3
(541 )
(23,274 )
49,874
38,130

—
(711 )
345
—
(257 )
(623 )
(1,856 )
39,986
$ 88,004 $ 38,130

See accompanying Notes to Condensed Parent Company Financial Statements.

Notes to Condensed Parent Company Financial Statements
Biglari Holdings Inc. (Parent Company)
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(Amounts in $000s)

Note 1. Basis of Presentation

Biglari Holdings Inc.’s (the “Company”) condensed financial information has been derived from the consolidated financial
statements and should be read in conjunction with the consolidated financial statements included in this Annual Report on Form
10-K.

For the purpose of presenting the Company’s Condensed Balance Sheet, the Company has treated shares of Biglari Holdings
common stock held by certain consolidated affiliated partnerships as treasury stock of the Company and included as a component
of Shareholders’ equity. The inclusion of the 205,743 shares of treasury stock has decreased the Company’s Shareholders’ equity
and Investment in subsidiaries by $69,221.

Note 2. Subsidiary Transactions

Dividends
No cash dividends were received during fiscal year 2012. During fiscal year 2011, the Company received cash dividends from
subsidiaries of $156,843, which included distributions of current year earnings of $28,094 and historical earnings of $128,749.
The Company received cash dividends from subsidiaries of $61,168 in fiscal year 2010, which included distributions of current
year earnings of $26,679 and historical earnings of $34,489.

Our wholly-owned subsidiary has a credit facility that imposes restrictions on its ability to transfer funds to the Company
through intercompany loans, distributions, or dividends.

Investment in Subsidiaries
The Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries adjusted for the
cost basis of shares of Biglari Holdings common stock held by certain consolidated affiliated partnerships.

Note 3. Investments
Investments consisted of the following:

2012
$ 180,240
68,715

(461)

$ 248,494

2011
$ 122,762
1,950
(10,536 )
$ 114,176

Cost .......................................................................................................................................................
Gross unrealized gains ..........................................................................................................................
Gross unrealized losses .........................................................................................................................
Fair value ..............................................................................................................................................

Notes to Condensed Parent Company Financial Statements
Biglari Holdings Inc. (Parent Company)
(Years ended September 26, 2012, September 28, 2011, and September 29, 2010)
(Amounts in $000s)

On September 26, 2012, most of our investments were concentrated in the common stock of one investee, Cracker Barrel Old
Country Store, Inc. As of September 26, 2012, unrealized losses on available for sale equity securities in a continuous unrealized
loss position for more than twelve consecutive months were $461. We considered several factors in determining other-than-
temporary impairment losses including the current and long-term business prospects of the issuer, the length of time and relative
magnitude of the price decline and our ability and intent to hold the investment until the price recovers

Realized investment gains/losses for the years ended September 26, 2012, September 28, 2011, and September 29, 2010 were as
follows:

Gross realized gains on sales ............................................................................................. $ 4,536
Gross realized losses on sales ............................................................................................ $

$ 7,775 $ 3,810
(384) $ (415 ) $ (8 )

2012

2011

2010

From time to time, the Company enters into certain derivative transactions as part of its investment strategy. In accordance with
ASC 815, Accounting for Derivative Instruments and Hedging Activities, these derivatives are marked to market for each
reporting period and this fair value adjustment is recorded as a gain or loss in the Condensed Statement of Earnings. We believe
that realized investment gains/losses are often meaningless in terms of understanding reported results. Short-term investment
gains/losses have caused and may continue to cause significant volatility in our results.

The Company has entered into short sales on certain equity securities, that is, a transaction in which the Company sells securities
it does not own. The Company’s use of short sales involves the risk that the price of the security in the open market may be
higher when it is purchased in order to close out the Company’s short position, resulting in a loss to the Company. Such a loss is
theoretically limitless because there are no restrictions on the potential increase in the price of a security, or any guarantee as to
the price at which the Company would be able to purchase the security in the open market. Securities sold in short sale
transactions and the interest and dividends payable on such securities, if any, are reflected as a liability in Accrued expenses in
the Condensed Balance Sheet. As of September 26, 2012 and September 28, 2011 we had no outstanding short sales.

Note 4. Debt
In connection with the acquisition of Western, the Company issued 14% redeemable subordinated debentures due 2015 (the
“Debentures”) in the aggregate principal amount of $22,959, with cash of $194 paid in lieu of fractional Debenture interests. On
March 30, 2011, the Company redeemed all of its outstanding Debentures. The Debentures were redeemed for cash at an
aggregate redemption price of approximately $23,420, representing 100% of the principal amount outstanding, plus accrued and
unpaid interest up to, but not including, March 30, 2011. Included in the Debentures aggregate redemption price of $23,420 was
approximately $7,804 of principal and interest paid to the Lion Fund.

Note 5. Income Taxes
Federal income taxes are paid based on the consolidated results of Biglari Holdings.

Exhibit
Number

INDEX TO EXHIBITS

Description

All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by the Company, file number
0-8445, unless otherwise indicated.

2.01

3.01

3.02

4.01

Agreement and Plan of Merger, dated as of October 22, 2009, by and among the Company, Grill Acquisition
Corporation and Western. (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
dated October 23, 2009).

Amended and Restated Articles of Incorporation of the Company, filed March 27, 2002, as amended by Articles of
Amendment dated December 17, 2009, January 27, 2010 and April 8, 2010. (Incorporated by reference to Exhibit 4.1
to the Company’s Registration Statement on Form S-8 dated April 15, 2010).

Restated Bylaws of the Company, as amended through July 1, 2009. (Incorporated by reference to Exhibit 3.01 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2009).

Specimen certificate representing Common Stock of the Company. (Incorporated by reference to Exhibit 4.01 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 11, 2001).

10.01*

1997 Employee Stock Option Plan. (Incorporated by reference to the Appendix to the Company’s definitive Proxy
Statement dated December 24, 1996).

10.02*

Amendment No. 1 to 1997 Employee Stock Option Plan. (Incorporated by reference to the Appendix to the
Company’s definitive Proxy Statement dated December 19, 2001).

10.03*

Form of Stock Option Agreement under the Company’s 1997 Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended September 29, 2004
filed on December 16, 2004).

10.04*

2005 Director Stock Option Plan. (Incorporated by reference to Appendix B to the Company’s definitive Proxy
Statement dated December 20, 2004).

10.05*

2006 Employee Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated February 8, 2006).

10.06*

2006 Incentive Bonus Plan. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-
K dated February 8, 2006).

10.07*

Form of Incentive Stock Option Agreement under the 2006 Employee Stock Option Plan (Incorporated by reference
to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 8, 2006).

10.08*

2007 Non-Employee Director Restricted Stock Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed February 9, 2007).

10.09*

2008 Equity Incentive Plan. (Incorporated by reference to Appendix A to the Company’s definitive Proxy Statement
dated February 8, 2008).

10.10*

10.11*

Form of Employee Stock Option Agreement under the Company’s 2008 Equity Incentive Plan. (Incorporated by
reference to Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 9,
2008).

Form of 2008 Equity Incentive Plan Restricted Stock Agreement under the Company’s 2008 Equity Incentive Plan.
(Incorporated by reference to Exhibit 10.02 to the Company’s Quarterly Report on Form 10-Q for the quarterly
period ended April 9, 2008).

10.12*

The Steak n Shake Non-Qualified Savings Plan, amended and restated as of March 15, 2010. (Incorporated by
reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 dated April 22, 2010).

10.13

Multiple Unit Franchise Agreement, dated as of September 21, 2005, by and among the Company, Reinwald
Enterprises Emory, LLC and Reinwald Enterprises Wild Geese, LLC. (Incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed September 27, 2005)

10.14*

Form of Indemnity Agreement entered into on October 9, 2007 with the following Officers and Directors of the

Exhibit
Number

Description
Company: Jeffrey A. Blade, Duane E. Geiger, Alan B. Gilman, Omar Janjua, David C. Milne, Thomas Murrill, Gary
T. Reinwald, Steven M. Schiller, J. Michael Vance, Geoff Ballotti, Wayne Kelley, Charles Lanham, Ruth Person,
John W. Ryan, J. Fred Risk, Steven M. Schmidt, Edward Wilhelm, and James Williamson, Jr. (Incorporated by
reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 26,
2007).

10.15*

Severance Agreement, dated as of January 26, 2010, by and between the Company and Duane Geiger. (Incorporated
by reference to Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended
December 23, 2009).

10.16

Stock Purchase Agreement, dated April 30, 2010, by and between the Company and Sardar Biglari. (Incorporated

by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 30, 2010).

10.17*

Amended and Restated Incentive Bonus Agreement, dated September 28, 2010, by and between the Company and
Sardar Biglari. (Incorporated by reference to Annex A to the Company’s definitive Proxy Statement dated September
29, 2010).

10.18

Credit Agreement, dated as of September 25, 2012, by and among Steak n Shake Operations, Inc., as borrower, Steak
n Shake Enterprises, Inc., as a subsidiary guarantor, Steak n Shake, LLC, as a subsidiary guarantor, the lenders party
thereto, Fifth Third Bank, as lead arranger, book manager, administrative agent, collateral agent, swingline lender
and issuing bank, Regions Bank, as syndication agent, and Wells Fargo Bank, N.A. and Compass Bank, as co-
documentation agents. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated September 28, 2012).

10.19

Security Agreement, dated as of September 25, 2012, by Steak n Shake Operations, Steak n Shake Enterprises, Inc.
and Steak n Shake, LLC, as pledgers, assignors and debtors, in favor of Fifth Third Bank, in its capacity as collateral
agent, pledgee, assignee and secured party. (Incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated September 28, 2012).

14.01

Code of Conduct, dated May 17, 2010.

21.01

Subsidiaries of the Company.

23.01

Consent of Independent Registered Public Accounting Firm.

31.01

Rule 13(a)-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.02

Rule 13(a)-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.01

Section 1350 Certifications.

101**

The following financial information from Biglari Holdings Inc.’s Annual Report on Form 10-K for the fiscal year
ended September 26, 2012, formatted in XBRL (Extensible Business Reporting Language), includes: (i) the
Consolidated Balance Sheets as of September 26, 2012 and September 28, 2011, (ii) the Consolidated Statements of
Earnings for the Years Ended September 26, 2012, September 28, 2011, and September 29, 2010, (iii) the
Consolidated Statements of Cash Flows for the Years Ended September 26, 2012, September 28, 2011, and
September 29, 2010, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended
September 26, 2012, September 28, 2011, and September 29, 2010, and (v) the Notes to Consolidated Financial
Statements and Schedule I, tagged in summary and detail.

Indicates management contract or compensatory plans or arrangements required to be filed as an exhibit to this Annual
Report on Form 10-K.

** In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration
statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under
those sections.