Biglari : 2022* LETTERS FROM THE CHAIRMAN

Dear Shareholders of Biglari Holdings Inc.:

We view Biglari Holdings as a museum of businesses - an eclectic collection of controlled and noncontrolled enterprises. Because we are collectors of businesses, as opposed to collectors of art, our central interest lies in owning productive assets. We endeavor to build upon this collection with companies possessing excellent economics, operated by exceptional management. The art we practice is that of collecting and building businesses. Andy Warhol captured the essence of our sentiment when he wrote, "[M]aking money is art and working is art and good business is the best art."

The history of Biglari Holdings has been an entrepreneurial journey of corporate growth through business combination. Once we gained control of Steak n Shake in 2008, the restaurant chain became the nucleus of Biglari Holdings. In due course, Steak n Shake's burgeoning trove of liquid assets allowed us to carry out our acquisition strategy. Over the years, we added Western Sizzlin Corporation, Maxim Inc., First Guard Insurance Company, Southern Oil Company, Southern Pioneer Property & Casualty Insurance Company, and, most recently, Abraxas Petroleum Corporation, listed in order of acquisition. In 2022, Biglari Holdings garnered pre-tax operating earnings of $36.3 million from its seven first-line businesses.

Our catalogue of products - ranging from burgers to barrels - share the common characteristic of generating cash because they are wanted or needed by our customers. Our subsidiary businesses send us the money they earn after meeting their capital requirements. Cash is cash, whether derived from the operation of restaurants or oil wells. Such a perspective transforms every enterprise into an economic equivalent, as measured on the basis of its intrinsic value.1 Biglari Holdings' principal objective is to maximize its per-share intrinsic value.

Behind our corporate configuration lies not some inscrutable intention but an alertness to opportunity, resulting in capital deployment across multiple industries. If Biglari Holdings is the wheel, the parent company is its hub and the subsidiary businesses its spokes. When a major acquisition is made in one of our established areas - insurance, oil and gas, or restaurants - that spoke is reinforced, while a new spoke is added when we enter a new industry. We possess a readiness to enter almost any industry, provided we can obtain the right business, the right people, and the right price.

The quest to develop a multi-industry corporation is unpopular in many quarters. Yet we concern ourselves with profits rather than popularity. An acquisitive corporation devoted to one field alone will invariably find limited options within its domain, and usually at unattractive valuations. By adopting the unorthodoxy of a diversified corporation, we are able to efficiently move capital wherever and whenever it makes the most economic sense. We do not shrink the universe of acquisition possibilities through the arbitrary roadmaps of tradition or convention; nor do we let such dictates circumscribe our actions. Rather, our limitations are based solely on our ability to evaluate the future economics of a potential business purchase. Powered by opportunism, our capital allocation vehicle undertakes acquisitions in an effort to advance per-share value.

To build its collection of companies, Biglari Holdings combines decentralized operations with centralized financial decision-making. The operating businesses we have acquired - such as First Guard and Southern Pioneer - are overseen today by the very families responsible for their creation. By granting an unusual degree of managerial autonomy, avoiding involvement in the day-to-day matters of the subsidiaries, we preserve the entrepreneurial spirit. The main area we assume responsibility for is capital allocation, which is managed exclusively by your Chairman. In carrying out my duties, I employ neither analysts nor advisors in the evaluation of acquisitions or investments. We seek to benefit from economies of

1Intrinsic 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.

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scale while sidestepping the diseconomies of scale that arise from unnecessary corporate bureaucracy. It is a system in pursuit of ever greater expansion, with the added benefit of swift decision-making regarding acquisitions. After all, sellers love a buyer who can move fast.

When assessing capital allocation opportunities, in the main we seek full ownership, but partial ownership of businesses via the stock market often offers uncommon value vis-à-vis negotiated transactions for entire businesses. Because of our attitude toward equity markets, viewing stocks as ownership interests in businesses, our range of investment options is magnified exponentially. The world is our market.

Despite the powerful structural advantages we enjoy, our corporate form alone is insufficient to achieve our objectives; it merely sets the stage for business and investment activity. We must deploy capital intelligently. Of course, our search is aided by maximizing the number of competing opportunities within which our capital will find its home. Over the years, we have built a reservoir of knowledge in evaluating different kinds of businesses and marketable securities. Our opportunistic expansion into an array of businesses has accounted for much of our progress to date. Time and again, flexibility with respect to capital allocation has proved to be one of our greatest strengths.

As a consequence of our seizing remunerative business and investment opportunities over the past fourteen years, Biglari Holdings' cash and investments grew from $1.6 million to $490.0 million - even while allocating funds toward the acquisition of businesses. The tabulation below shows the year-by-year development of cash and investments. The third column represents our interests in two affiliated investment partnerships, The Lion Fund, L.P., and The Lion Fund II, L.P., which throughout this letter will be referred to as The Lion Fund.

				(In Millions)
	Cash and		Marketable				Total
	Cash Equivalents		Securities		The Lion Fund		Investments
2008	$ 1.6	$	-		$ -	$ 1.6
2009	51.4			3.0		-	54.4
2010	47.6			32.5	38.6	118.7
2011	99.0			115.3	38.5	252.8
2012	60.4			269.9	48.3	378.6
2013	94.6			85.5	455.3	635.4
2014	124.3			21.5	620.8	766.6
2015	56.5			23.8	734.7	815.0
2016	75.8			26.8	972.7	1,075.3
2017	58.6			27.7	925.3	1,011.6
2018	48.6			38.3	715.1	802.0
2019	67.8			44.9	666.1	778.8
2020	24.5			94.9	590.9	710.3
2021	42.3			83.1	474.2	599.6
2022	37.5			69.5	383.0	490.0

Notes: Data are for calendar years with these exceptions: 2008 ended on July 2, 2008; 2009 through 2014 ended on the last Wednesday in September. Biglari Holdings' investments in The Lion Fund, L.P., and The Lion Fund II, L.P., do not include other limited partners' interests.

Biglari Holdings' operations are diverse and its capital structure sound, factors that ground the company and engender ample margins of safety. Indeed, one of the most durable advantages of associating with Biglari Holdings is its capital strength. The conservative principles guiding the corporation are what

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make it resilient in difficult economic environments. Phil Cooley, Vice Chairman of Biglari Holdings, and I have observed far too much insouciance among managers when it comes to corporate debt - to the detriment of their stockholders, as adverse conditions inevitably arise. A prepared mind, backed by a rock- solid balance sheet, positions us to be aggressive when others are mired in apprehension.

When assessing the corporation's capital structure, it is important to keep in mind that since 2015 The Lion Fund has allocated more than $300 million to purchase the company's stock.

As postulated in last year's report, if The Lion Fund distributed the shares of Biglari Holdings it owns to its limited partners, the corporation's shares outstanding would be reduced to 292,196 Class A equivalents (as opposed to the 620,592 shares outstanding) at year-end.2 Correspondingly, the value of total investments would be adjusted to $262.7 million, which is the carrying value as opposed to the fair value ($490.0 million) presented in the preceding table. (The difference between fair value and carrying value is the sum of Biglari Holdings stock owned by the corporation through The Lion Fund.) Continuing this approach in regard to share count, which adheres to generally accepted accounting principles, at year-end 2022, the per-share book value of our Class A stock was $1,872. Our per-share book value declined 3.2% in 2022, outstripping the performance of the S&P 500 Index by 14.9 percentage points. What matters, however, is not per-share net worth but per-share intrinsic value, with the latter's advancement measured against the performance of the S&P 500.

The two quantitative figures that we believe are critical for evaluating the company are its investments and its operating businesses. It is as if Biglari Holdings were split in two, with one side holding the corporation's investments (cash, marketable securities, and investments in The Lion Fund) and the other its operating businesses, where all interest and corporate expenses are incurred. To calculate pre-tax operating earnings per share, we exclude the dividends, interest, and capital gains produced by our investments.

	Investments		Pre-tax Operating
	Per Share		Earnings Per Share
2008	$	4	$ (82.07)
2021	1,236	76.31
2022		899	117.23
Annual Growth Rate, 2008-2022		45.3%		N.A.
One-Year Growth Rate, 2021-2022	(27.3)%	53.6%

In 2022, our investments per share decreased by 27.3% to $899, and our pre-tax operating earnings per share from businesses other than investments increased 53.6% to $117.23. The decrease in investments per share is mostly the result of shifting capital to acquire Abraxas Petroleum but is also due to the performance of our investments. Since 2008, our compounded annual increase in investments per share has been 45.3%, a figure distorted by the initial measurement period. Then again, the cash at the start does represent the liquid assets we had to work with at the time. On a per-share basis, the company had just $4 of cash and $63 of debt at the fiscal quarter-end prior to August 5, 2008, the date we took control.

2All per-share figures used in this report apply to Biglari Holdings' A shares. The B shares have an economic interest equal to 1/5th that of the A shares.

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Biglari Holdings, born as a company with all its capital tied to a moribund restaurant chain, has transformed itself into a multifaceted enterprise. We started with a restaurant base that was generating operating losses and had a great deal more debt than cash. Over the ensuing fourteen years, we have acquired six businesses through negotiated transactions, paid in cash, and allocated funds toward investments. At year-end, the corporation carried just $10 million of debt, or $34 per share. Phil and I will do our best to achieve satisfactory growth in both operations and investments, as measured in decades and on a per-share basis.

Investments

By the end of 2022, total investments (cash, marketable securities, and Biglari Holdings' investments in The Lion Fund) amounted to $490.0 million; most of that sum came from investment profits. Our investment activities are largely conducted through The Lion Fund, whose origin dates from the year 2000 when I founded it.

The following table shows our unaffiliated marketable equity holdings with a market value of more than $50 million at year-end. The number of shares represents the sum of The Lion Fund's common stock investments plus those held by Biglari Holdings and its subsidiaries.

				(In 000's)
Shares		Company	Market Value
2,055,141	Cracker Barrel Old Country Stores, Inc	$194,704
360,000	Ferrari N.V	77,106
1,041,461	Jack in the Box Inc	71,059

As indicated in the table above, at year-end our largest common stock holding was Cracker Barrel Old Country Store, Inc. We originally purchased 4,737,794 shares of Cracker Barrel for $241.1 million from May 2011 through December 2012, with a dollar-weighted purchase date of December 2011. Between 2018 and 2019, The Lion Fund reduced its holding in Cracker Barrel to 2,000,000 shares. In March 2020, however, Biglari Holdings purchased an additional 55,141 shares for its insurance subsidiaries. All in all, we now control 9.3% of Cracker Barrel's outstanding stock at an average cost per share of $51.25. Our income from Cracker Barrel dividends alone was $10.7 million last year. Our 9.3% interest in Cracker Barrel is tantamount to owning 100% of a restaurant and retail chain generating about $300 million in annual revenue.

From 2011 through year-end 2022, we received proceeds of $471.1 million from the sale of Cracker Barrel stock, $238.1 million in dividends and derivative gains, plus we held a remaining stake of $194.7 million in market value. In sum, over an eleven-year period, our investment in Cracker Barrel of $245.5 million turned into $903.9 million in value.

Although we now own two new marketable stocks of note, we continue to concentrate our holdings. Our practice is value-oriented,long-term, and devoid of unnecessary diversification. The vicissitudes inherent in shareholding, combined with our policy of concentration, has had a great year-to-year effect on our net worth. At year-end, our three major investment holdings - Cracker Barrel, Ferrari, and Jack in the Box - had a market value of $342.9 million. Adjusted for the corporation's weighted 89.1% interest in its investment partnerships, these three securities represented about 56% of the net worth of Biglari Holdings.

We regard noncontrolled positions in stocks as akin to the minority ownership of private businesses for which no market quotation exists. Continuing this conceptual framework, our attention is on long-term business performance, not short-term stock performance. Over the long run, per-share business value and stock price will meet at nearly the same place.

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Because entering and exiting marketable securities can be done with such ease, equity participants often engage in a miasma of speculation. Those who place an emphasis on the short term create exploitable possibilities for long-term investors since (1) value is the determining factor in the long run and

(2) deviations in price from value are self-correcting over time.

It is also not uncommon for our recent purchases to remain lackluster in stock performance for a period of time - a circumstance we welcome, for declining prices may give us an opportunity to increase our economic interests. Because of the factors that led to the undervaluation, it may take considerable time for their reappraisal in the market. Besides, we seldom venture into possibilities where the sun shines. But when the clouds eventually lift, prices blossom.

Biglari Holdings had a $383.0 million investment in The Lion Fund at the end of 2022. In addition, the corporation had $69.5 million in marketable securities outside the partnerships. To be sure, there are disadvantages for a corporation that holds minority interests in other corporations, inter alia, the tax expense. But the tax disadvantage is more than offset by the advantages of the stock market, which occasionally serves up partial ownership interests in excellent enterprises, at reasonable - or preferably, unreasonably low - valuations.

Naturally, if Biglari Holdings and The Lion Fund do not sell their appreciated securities, a factor emerges that will mitigate the disadvantage of our corporate form. The company's investments, including those made through affiliated partnerships and subsidiaries, exclude deferred income taxes on unrealized gains. As is evident in Biglari Holdings' financial statements, we would owe taxes of $23.4 million if all investments were sold at year-end values. The tax liability, we regard, is tantamount to an interest-free loan from the government for the company's benefit. We are gaining the upside of leverage without its associated downside. Hence, we control $23.4 million more in assets funded by liabilities carrying no cost, no covenants, and no maturity date - except the loan must be paid as assets are sold. Plainly, the character of deferred tax liabilities is a source of value.

Our overall investment gains have provided us with the funding necessary to make acquisitions when opportunities have presented themselves.

Abraxas Petroleum Corporation

We struck oil - again! Our only business acquisition of 2022 was the $80 million purchase of a controlling interest in Abraxas Petroleum. Specifically, we bought preferred stock, which was subsequently exchanged for common stock representing 90% ownership of the company.

The preferred-stock structure was negotiated between the company and its former lender, Angelo Gordon & Co., an investment group that had later determined to divest itself of its fossil fuel holdings. I sent Angelo Gordon a one-page letter on September 5, and nine days later we closed on the transaction. We were able to purchase the preferred stock from the firm in large part because we proceeded faster than any other suitor.

Abraxas Petroleum is a producer of oil and gas that operates in the Permian Basin of West Texas. I have followed the company, headquartered in San Antonio, for nearly a quarter century. As was the case with Southern Oil, large capital expenditures were made at Abraxas Petroleum prior to our arrival. The company also shares the distinguishing characteristic of owning producing wells that should more than cover our acquisition cost.

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