(In thousands, except share and per share data)

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, Steak n Shake Operations, Inc. ("Steak n Shake"), Western Sizzlin Corporation ("Western"), and Biglari Capital Corp. ("Biglari Capital"). 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.

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.

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.

Twelve Weeks Ended July 4, 2012
We recorded net earnings attributable to Biglari Holdings Inc. of $4,853 for the third quarter of 2012, as compared with net earnings attributable to Biglari Holdings Inc. of $8,676 in the third quarter of 2011.

Forty Weeks Ended July 4, 2012
We recorded net earnings attributable to Biglari Holdings Inc. of $18,176 for
the current year-to-date period, as compared with net earnings attributable to
Biglari Holdings Inc. of $23,784 in the same period of 2011.

As of July 4, 2012, the total number of company-operated and franchised
restaurants was 588 as follows:

                Company-operated       Franchised      Total
Steak n Shake                 414               82        496
Western                         5               87         92
Total                         419              169        588

In the third quarter of 2012, Steak n Shake opened four franchised units and closed one. During the current year-to-date period, Steak n Shake opened seven franchised units and one company-operated unit but closed one franchised unit. During the third quarter of 2012, one Western Sizzlin franchised unit was closed, and no franchised units were opened. For the current year-to-date period, five Western Sizzlin franchised units were closed and three franchised units were opened.

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. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year ended September 28, 2011.

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 twelve and forty weeks ended July 4, 2012 and
July 6, 2011.


                                              Twelve Weeks Ended            Forty Weeks Ended

                                              2012           2011           2012          2011
Net revenues
Restaurant Operations:
Net sales                                        97.9 %         97.7 %         97.6 %        97.6 %
Franchise fees                                    1.4            1.2            1.3           1.2
Other revenue                                     0.3            0.4            0.3           0.3
Total                                            99.7           99.2           99.2          99.1
Investment Management Operations:
Management fee income                               -              -              -           0.0
Consolidated Affiliated Partnerships:
Investment gains/losses                           0.3            0.7            0.8           0.8
Other income                                      0.0            0.0            0.0           0.1
Total                                             0.3            0.8            0.8           0.9
Total net revenues                              100.0          100.0          100.0         100.0

Costs and expenses
Cost of sales (1)                                28.9           28.8           28.7          27.8
Restaurant operating costs (1)                   47.2           46.9           46.8          48.1
General and administrative                        8.5            7.1            8.5           7.0
Depreciation and amortization                     3.4            3.8            3.6           4.0
Marketing                                         6.6            5.9            5.6           5.5
Rent                                              2.3            2.3            2.4           2.4
Pre-opening costs                                 0.0              -            0.1           0.0
Asset impairments and provision for
restaurant closings                               0.0            0.0            0.1           0.0
Loss on disposal of assets                        0.1            0.1            0.1           0.1
Other operating income                           (0.1 )         (1.0 )         (0.1 )        (0.2 )

Other income (expenses)
Interest, dividend and other investment
income                                            0.6            0.1            0.4           0.0
Interest on obligations under leases             (1.3 )         (1.4 )         (1.4 )        (1.5 )
Interest expense                                 (1.0 )         (0.4 )         (1.1 )        (0.4 )
Realized investment gains/losses                  0.1            0.8            0.7           0.9
Derivative and short sale gains/losses              -           (0.3 )            -          (0.1 )
Total other income (expenses)                    (1.7 )         (1.2 )         (1.3 )        (1.0 )

Earnings before income taxes                      2.8            6.5            4.8           6.0

Income taxes                                     (0.0 )          1.1            1.2           1.6

Consolidated net earnings                         2.8            5.5            3.6           4.4
Earnings attributable to redeemable
noncontrolling interest:
Income allocation                                (0.1 )         (0.4 )         (0.4 )        (0.5 )
Incentive fee                                       -              -            0.0           0.5
Total earnings attributable to
redeemable noncontrolling interests              (0.1 )         (0.4 )         (0.4 )         0.0
Net earnings attributable to Biglari
Holdings Inc.                                     2.8 %          5.1 %          3.2 %         4.4 %

(1)Cost of sales and Restaurant operating costs are expressed as a percentage of net sales.

Comparison of Twelve Weeks Ended July 4, 2012 to Twelve Weeks Ended July 6, 2011

Net Earnings Attributable to Biglari Holdings Inc. We recorded net earnings attributable to Biglari Holdings Inc. of $4,853, or $3.63 per diluted share, for the current quarter, as compared with net earnings attributable to Biglari Holdings Inc. of $8,676, or $6.49 per diluted share, for the third quarter of 2011.

Net Sales
In the third quarter of 2012, net sales increased 3.1% from $166,893 to $172,128 primarily because of the performance of our Restaurant Operations, mainly through the increase in Steak n Shake's same-store sales. Steak n Shake's same-store sales increased 2.9% during the third quarter of 2012. The increase in same-store sales resulted from an increment in customer traffic of 2.2%.

Franchise fees increased 19.9% during the third quarter of 2012. The number of franchised units was 169 on July 4, 2012 as compared to 164 on July 6, 2011. The increase in franchise fees is primarily attributable to the openings of franchised units in the third quarter of 2012 compared to the absence of openings in the third quarter of 2011. Furthermore, franchisee sales were higher in the third quarter of 2012 as compared with the third quarter of 2011.

Costs and Expenses
Cost of sales was $49,812 or 28.9% of net sales, compared with $48,144 or 28.8% of net sales in the third quarter of 2011. The increase in expenses created primarily by inflationary pressures on commodities was offset by the benefit of certain cost-saving initiatives.

Restaurant operating costs were $81,326 or 47.2% of net sales compared to $78,317 or 46.9% of net sales in the third quarter of 2011. Restaurant operating costs were higher because of changes in the state unemployment tax rates, higher staffing in our stores, and unfavorable development of prior-year cases in workers compensation and general liability.

General and administrative expenses increased from $12,082 or 7.1% of total net revenues in the third quarter of 2011 to $15,006 or 8.5% of total net revenues because of our significant efforts to franchise the Steak n Shake concept, higher incentive compensation costs, and an increase in legal and professional expenses.

Marketing expense was $11,666 or 6.6% of total net revenues versus $10,031 or 5.9% of total net revenues in the third quarter of 2011, principally attributable to an increase in marketing efforts and higher production costs associated with our television commercials.

Other operating income decreased to $149 compared to $1,659 for the third quarter of 2011. The decrease primarily related to the change in value of a purchase obligation of $1,558 which was relieved upon the sale of Mustang Capital Management L.L.C. and Mustang Capital Advisors, L.P in the third quarter of 2011.

Other Income (Expenses)
We recorded interest, dividend and other investment income of $1,003 mostly through accruing dividends pertinent to one investment versus $86 recorded in the third quarter of 2011.

Interest expense increased from $602 for the third quarter of 2011 to $1,812 for the current quarter. The increase primarily pertained to the interest on Steak n Shake's credit facility. The outstanding debt on the Steak n Shake credit facility on July 4, 2012 was $116,750, which included the revolver. The interest rate on the Steak n Shake credit facility increased from 1.8% on July 6, 2011 to a blended rate of 5.3% on July 4, 2012. The total outstanding debt for the Company on July 4, 2012 was $119,179 compared to $42,599 on July 6, 2011.

Income tax expense decreased from an expense of $1,836 in the third quarter of 2011 to a benefit of $17 for the current quarter. The decrease in the tax expense is primarily attributable to dividends received from equity investments, which are taxed at lower rates than is the income derived from wholly owned businesses. Moreover, the reserves related to unrecognized tax benefits were released because of the expiration of statutes of limitations.

Biglari Holdings Investment Gains
We recorded net realized investment gains of $227 for the current quarter related to dispositions of marketable equity securities compared to $1,433 in the third quarter of 2011. We also recorded $499 of investment losses related to the change in fair value of derivatives during the third quarter of 2011. We directly hold these investments, not our consolidated affiliated partnerships.

Consolidated Affiliated Partnerships Investment Gains In the third quarter of 2012, investment gains of consolidated affiliated partnerships decreased from $1,231 to $501. We recorded a net realized gain of $100 for the current quarter related to dispositions of investments held by our consolidated affiliated partnerships, plus an unrealized net investment gain of $401 for a total of $501. These totals were offset by $150 connected to earnings attributable to redeemable noncontrolling interests. During the third quarter of 2011, we recorded a net realized gain of $749 related to dispositions of investments held by our consolidated affiliated partnerships as well as an unrealized net investment gain of $482 for a total of $1,231. However, these amounts were offset by $639 related to earnings attributable to redeemable noncontrolling interests.

Comparison of Forty Weeks Ended July 4, 2012 to Forty Weeks Ended July 6, 2011

Net Earnings Attributable to Biglari Holdings Inc. We recorded net earnings attributable to Biglari Holdings Inc. of $18,176, or $13.59 per diluted share, for the current year-to-date period, as compared with net earnings attributable to Biglari Holdings Inc. of $23,784, or $17.79 per diluted share, for the same period of 2011.

Net Sales
Net sales increased 4.6% from $527,848 to $552,002 primarily because of the performance of our Restaurant Operations, through the growth in Steak n Shake's same-store sales. Steak n Shake's same-store sales increased 4.4%. The increase in same-store sales resulted from an increment in customer traffic of 4.4%.

Franchise fees increased 12.6% largely because of higher franchisee sales. Restaurant Operations opened ten franchised units and closed six franchised ones during the 2012 year-to-date period. However, Restaurant Operations opened four franchised units during the prior year's comparable period.

Costs and Expenses
Cost of sales was $158,508 or 28.7% of net sales, compared with $146,967 or 27.8% of net sales in the same period of 2011. This increase in percentage of net sales was created primarily by inflationary pressures on commodities.

Restaurant operating costs were $258,096 or 46.8% of net sales compared to $253,646 or 48.1% of net sales in the same period of 2011. Restaurant operating costs were increased by changes in the state unemployment tax rates, higher staffing in our stores, and unfavorable development of prior-year cases in workers compensation and general liability. 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 $37,691 or 7.0% of total net revenues in the prior year-to-date period of 2011 to $48,118 or 8.5% of total net revenues because of our efforts to franchise the Steak n Shake concept, higher incentive compensation costs and an increase in legal and professional services.

Marketing expense for the current year-to-date period was $31,943 or 5.6% of total net revenues versus $29,762 or 5.5% of total net revenues in the same period of 2011, primarily attributable to an increase in marketing efforts and higher production costs associated with our television commercials.

Other operating income for the current year-to-date period was $793 compared to $894 for the same period of 2011. Other operating income for the prior year-to-date period included $1,558 related to the change in value of a purchase obligation which was relieved upon the sale of Mustang Capital Management, L.L.C and Mustang Capital Advisors, L.P. in the third quarter of 2011.

Other Income (Expenses)
We recorded interest, dividend and other investment income of $2,405 mostly through accruing dividends pertinent to one investment versus $239 recorded in the same period of 2011.

Interest expense increased from $2,034 from the prior year-to-date period to $6,200 for the 2012 year-to-date period. The increase primarily pertained to the interest on Steak n Shake's credit facility. The outstanding debt on the Steak n Shake credit facility on July 4, 2012 was $116,750, which included the revolving credit line. The interest rate on the Steak n Shake credit facility increased from 1.8% on July 6, 2011 to a blended rate of 5.3% on July 4, 2012. The total outstanding debt for the Company on July 4, 2012 was $119,179 compared to $42,599 on July 6, 2011.

Our effective income tax rate for the forty weeks ended July 4, 2012 was 25.1%, compared with our effective income tax rate of 27.1% in the same period in the prior year. 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 the current year-to-date period related to dispositions of marketable equity securities. We recorded $4,677 of net realized gains on investments and $292 of investment losses related to the change in fair value of derivatives and dispositions during the same period of 2011. We directly hold these investments, not our consolidated affiliated partnerships.

Consolidated Affiliated Partnerships Investment Gains In the current year-to-date period, investment gains of consolidated affiliated partnerships increased 6.9% from $4,177 to $4,467. We recorded a net realized gain of $1,685 for the current year-to-date period related to dispositions of investments held by our consolidated affiliated partnerships, plus an unrealized net investment gain of $2,782 for a total of $4,467. We also received an incentive fee of $36. These totals were offset by $2,387 connected to earnings attributable to redeemable noncontrolling interests. During the same period of 2011, we recorded a net realized gain of $3,316 related to dispositions of investments held by our consolidated affiliated partnerships as well as an unrealized net investment gain of $861 for a total of $4,177. We also received an incentive fee of $2,510. However, these amounts were offset by $2,559 related to earnings attributable to redeemable noncontrolling interests.

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, we classify this common stock as treasury stock despite the shares being legally outstanding. As of July 4, 2012 and September 28, 2011, the consolidated affiliated partnerships held 205,743 shares of the Company's common stock ($69,221 at cost).

In fiscal year 2010, Biglari Holdings invested a total of $35,697 in the Lion Fund, both in the form of the acquisition of the general partner and as a direct limited partner investment. The fair value of these investments in the Lion Fund totaled $49,650 as of the end of the fiscal 2012 third quarter. These investments in the Lion Fund do not appear explicitly in our consolidated balance sheet because of the requirement to consolidate fully the Lion Fund (inclusive of third party interests) in our financial statements. Further, the Lion Fund's portfolio holds a significant interest 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 Company common stock through the Lion Fund was 98,339 shares of stock (with a fair value of $37,997) based on Biglari Holdings' ownership interest in the Lion Fund as of the end of the fiscal 2012 third quarter.

Liquidity and Capital Resources
We generated $34,656 in cash flows from operations during the current year-to-date period as compared to $49,820 during the same period of 2011. In part, the decrease resulted from the investment activities of the consolidated affiliated partnerships, including a $6,016 decrease in the change in the due from broker and cash equivalents balance held by the consolidated affiliated partnerships. Additionally, net purchases and sales activities of the consolidated affiliated partnerships reduced from $2,544 to $60 during the same period of 2011.

Net cash used in investing activities during the current year-to-date period was $76,221 compared to $65,743 during the same period of 2011. The decline primarily resulted from a $12,500 decrease in the change in the due from broker balance compared to the same period of 2011. Additionally, reduced sales of investments partially offset a smaller decrease in purchases of investments during the current year-to-date period of 2012.

Net cash used in financing activities during the current year-to-date period was $10,951 compared to net cash used in financing activities of $14,319 during the same period of 2011. Net cash used in financing activities during the current year primarily related to principal payments on Steak n Shake's credit facility, which were issued during the fourth quarter of 2011. Cash used for financing during 2011 primarily resulted from the consolidated affiliated partnerships' distributions to noncontrolling interests.

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.

Steak n Shake Credit Facility
Steak n Shake's Credit Facility includes customary 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 financial covenants under the Credit Facility as of July 4, 2012.

New Accounting Standards
Refer to Note 2 in our Notes to Consolidated Financial Statements within Item 1 of Part I of this Quarterly Report on Form 10-Q.

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

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

Risks Associated with 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 ability of the restaurant operations to increase store traffic on a profitable basis;

· competition in the restaurant industry for customers, staff, locations, and new products;

· disruptions in the overall economy and the financial markets;

· the Company's ability to comply with the restrictions and covenants to its debt agreements;

· declines in the market price of our common stock, which could adversely affect our goodwill impairment analysis;

· the potential to recognize additional impairment charges on our long-lived assets;

· fluctuations in food commodity and energy prices and the availability of food commodities;

· the ability of our franchisees to operate profitable restaurants;

· the poor performance or closing of even a small number of restaurants;

· changes in customer preferences, tastes, and dietary habits;

· changes in minimum wage rates and the availability and cost of qualified personnel;

· harsh weather conditions or losses due to casualties;

· unfavorable publicity relating to food safety or food-borne illness;

· exposure to liabilities related to the ownership and leasing of significant amounts of real estate;

· our ability to comply with existing and future governmental regulations;

· our ability to adequately protect our trademarks, service marks, and other components of our brand;

· changes in market prices of our investments; and

· other risks identified in the periodic reports we file with the Securities and Exchange Commission.

Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized. Additional risks and uncertainties not currently known to us or that are currently deemed immaterial may also become important factors that may harm our business, financial condition, results of operations or cash flows. We assume no obligation to update forward-looking statements except as required in our periodic reports.