Landrys Restaurants (LNY) 10-Q 2005 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005.

Commission file number 000-22150

LANDRY’S RESTAURANTS, INC.

(Exact name of the registrant as specified in its charter)

DELAWARE

(State or other jurisdiction of

incorporation of organization)

76-0405386

(I.R.S. Employer

Identification No.)

1510 West Loop South, Houston, TX 77027

(Address of principal executive offices)

(713) 850-1010

(Registrants telephone number)

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  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

AS OF AUGUST 3, 2005 THERE WERE

21,555,886 SHARES OF $0.01 PAR VALUE

COMMON STOCK OUTSTANDING

LANDRY’S RESTAURANTS, INC.

INDEX

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets at June 30, 2005 (unaudited), and December 31, 2004	3
	Condensed Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2005 and 2004	4
	Condensed Unaudited Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2005	5
	Condensed Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004	6
	Notes to Condensed Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II.	OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 6.	Exhibits	27
Signatures		28

1

LANDRY’S RESTAURANTS, INC.

PART I. FINANCIAL INFORMATION

ITEM 1.Financial Statements

The accompanying condensed unaudited consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting only of normal recurring entries) necessary for a fair presentation of our results of operations, financial position and changes therein for the periods presented have been included.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “will,” “plans,” “believes,” “estimates,” “expects,” “intends” and other similar expressions. Our forward-looking statements are subject to risks and uncertainty, including, without limitation, our ability to continue our expansion strategy, our ability to make projected capital expenditures, as well as general market conditions, competition, and pricing. Forward-looking statements include statements regarding:

• potential acquisitions of other restaurants, restaurant concepts and lines of businesses in other sectors of the hospitality and entertainment industries;

• future capital expenditures, including the amount and nature thereof;

• business strategy and measures to implement such strategy;

• competitive strengths;

• goals;

• expansion and growth of our business and operations;

• future commodity prices;

• availability of food products, materials and employees;

• consumer perceptions of food safety;

• changes in local, regional and national economic conditions;

• the effectiveness of our marketing efforts;

• changing demographics surrounding our restaurants;

• the effect of tax laws and any changes therein;

• same store sales;

• earnings guidance;

• the seasonality of our business;

• weather and acts of God;

• food, labor, fuel and utilities costs;

• plans; and

• references to future success.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, and, therefore, we cannot assure you that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in our forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

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LANDRY’S RESTAURANTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2005			December 31, 2004
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	62,734,262		$	201,394,032
Accounts receivable - trade and other		14,449,103			18,595,531
Inventories		56,356,047			55,004,153
Deferred taxes		10,946,919			10,859,160
Other current assets		10,512,602			11,630,527
Total current assets		154,998,933			297,483,403
PROPERTY AND EQUIPMENT, net		1,030,753,517			1,007,296,936
GOODWILL		18,527,547			18,527,547
OTHER ASSETS, net		53,660,903			21,644,385
Total assets	$	1,257,940,900		$	1,344,952,271
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	53,218,234		$	48,341,318
Accrued liabilities		89,426,037			84,955,488
Income taxes payable		2,024,349			971,175
Current portion of long-term notes and other obligations		1,711,586			1,700,496
Total current liabilities		146,380,206			135,968,477
LONG-TERM NOTES, NET OF CURRENT PORTION		561,336,940			559,545,092
DEFERRED TAXES		16,715,281			13,343,631
OTHER LIABILITIES		35,196,628			35,198,105
Total liabilities		759,629,055			744,055,305
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value, 60,000,000 shares authorized, 21,550,886 and 25,607,573, issued and outstanding, respectively		215,509			256,076
Additional paid-in capital		324,198,819			401,228,736
Deferred stock compensation		(6,771,923	)		(4,281,670	)
Retained earnings		180,669,440			203,693,824
Total stockholders’ equity		498,311,845			600,896,966
Total liabilities and stockholders’ equity	$	1,257,940,900		$	1,344,952,271

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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LANDRY’S RESTAURANTS, INC.

CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004 Restated			2005		2004 Restated
REVENUES	$	325,151,858	$	317,616,355		$	606,496,443	$	593,292,842
OPERATING COSTS AND EXPENSES:
Cost of revenues		89,915,494		89,108,646			168,499,027		166,828,158
Restaurant labor		92,578,681		89,818,861			176,111,104		170,751,224
Other restaurant operating expenses		76,961,075		74,129,821			146,957,980		138,827,623
General and administrative expenses		14,927,645		14,939,767			28,614,052		31,346,897
Depreciation and amortization		15,104,371		13,766,535			29,859,575		26,797,732
Asset impairment expense		—		—			—		1,708,654
Restaurant pre-opening expenses		1,250,649		1,744,627			2,170,170		3,598,671
Total operating costs and expenses		290,737,915		283,508,257			552,211,908		539,858,959
OPERATING INCOME		34,413,943		34,108,098			54,284,535		53,433,883
OTHER EXPENSE (INCOME):
Interest expense, net		8,611,228		3,031,896			17,176,827		6,105,692
Other, net		4,468		(222,924	)		460,159		(60,171	)
Total other expense		8,615,696		2,808,972			17,636,986		6,045,521
INCOME BEFORE INCOME TAXES		25,798,247		31,299,126			36,647,549		47,388,362
PROVISION FOR INCOME TAXES		8,255,439		9,702,729			11,727,216		14,690,392
NET INCOME	$	17,542,808	$	21,596,397		$	24,920,333	$	32,697,970
EARNINGS PER SHARE INFORMATION:
BASIC -
Net income	$	0.80	$	0.78		$	1.07	$	1.18
Weighted average number of common shares outstanding		21,950,000		27,600,000			23,200,000		27,600,000
DILUTED -
Net income	$	0.78	$	0.76		$	1.04	$	1.15
Weighted average number of common and common share equivalents outstanding		22,600,000		28,450,000			24,000,000		28,500,000

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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LANDRY’S RESTAURANTS, INC.

CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

	Common Stock					Additional Paid-in Capital			Deferred Stock Compensation			Retained Earnings			Total
	Shares		Amount
Balance, December 31, 2004	25,607,573		$	256,076		$	401,228,736		$	(4,281,670	)	$	203,693,824		$	600,896,966
Net income	—			—			—			—			24,920,333			24,920,333
Dividends paid	—			—			—			—			(2,469,596	)		(2,469,596	)
Purchase of common stock held for treasury	(4,820,286	)		(48,203	)		(88,136,317	)		—			(45,475,121	)		(133,659,641	)
Exercise of stock options and income tax benefit	663,599			6,636			8,307,400			—			—			8,314,036
Issuance of restricted stock	100,000			1,000			2,799,000			(2,800,000	)		—			—
Amortization of deferred stock compensation	—			—			—			309,747			—			309,747
Balance, June 30, 2005	21,550,886		$	215,509		$	324,198,819		$	(6,771,923	)	$	180,669,440		$	498,311,845

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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LANDRY’S RESTAURANTS, INC.

CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2005			2004 Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,920,333		$	32,697,970
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		29,859,575			26,797,732
Asset impairment expense		—			1,708,654
Change in assets and liabilities - net and other		17,715,122			5,616,311
Total adjustments		47,574,697			34,122,697
Net cash provided by operating activities		72,495,030			66,820,667
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions and other		(55,036,027	)		(56,054,603	)
Proceeds from sale of property and equipment		—			2,950,305
Business acquisitions and related payments, net of cash acquired		(26,643,983	)		(12,834,875	)
Net cash used in investing activities		(81,680,010	)		(65,939,173	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for treasury		(125,651,866	)		(7,898,863	)
Proceeds from exercise of stock options		222,991			1,126,865
Payments of debt and related expenses, net		(1,576,319	)		(18,258,550	)
Proceeds (payments) on credit facility, net		—			16,000,000
Dividends paid		(2,469,596	)		(2,082,610	)
Net cash provided by (used in) financing activities		(129,474,790	)		(11,113,158	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(138,659,770	)		(10,231,664	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		201,394,032			35,211,319
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	62,734,262		$	24,979,655
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	4,166,926		$	6,215,396
Interest	$	17,442,150		$	6,425,431

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Landry’s Restaurants, Inc. (the “Company”) is a national, diversified restaurant and hospitality company principally engaged in the ownership and operation of full service, casual dining restaurants, primarily under the names Landry’s Seafood House, Joe’s Crab Shack, The Crab House, Charley’s Crab, The Chart House and Saltgrass Steak House. In addition, we own and operate domestic and license international rainforest themed restaurants under the trade name Rainforest Cafe.

Principles of Consolidation

The accompanying financial statements include the consolidated accounts of Landry’s Restaurants, Inc., a Delaware holding company and our wholly and majority owned subsidiaries and partnerships. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by us without audit, except for the consolidated balance sheet as of December 31, 2004. The financial statements include all adjustments, consisting of normal, recurring adjustments and accruals, which we consider necessary for fair presentation of our financial position and results of operations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. This information is contained in our December 31, 2004, consolidated financial statements filed with the Securities and Exchange Commission on Form 10-K.

Revenues are recognized when the goods and services are delivered. Accounts receivable are primarily due from credit and charge card companies and national storage and distribution companies.

2. RESTATEMENT

Following a review of our lease accounting and leasehold depreciation policies, we determined that it was appropriate to restate certain of our consolidated financial statements for periods issued prior to the fourth quarter of 2004. As a result, we are restating our quarterly financial results for 2004 to conform to these changes in lease accounting and leasehold depreciation policies. Historically, unless otherwise deemed immaterial, we recorded rent expense on a straight-line basis over the initial non-cancelable lease term, with the term commencing when actual rent payments began. We depreciated our buildings, leasehold improvements and other long-lived assets on those properties over a period that included both the initial non-cancelable lease term and options, where the failure to renew would result in economic penalty (or the useful life of the assets, if shorter). We previously believed that these long standing accounting treatments were appropriate under generally accepted accounting principles. We now have restated our financial statements to recognize rent expense on a straight-line basis over the expected lease term, including option periods where failure to exercise such options would result in an economic penalty. The lease term commences on the date when we become legally obligated under the lease regardless of when actual rent payments begin.

As a result of this restatement, net income decreased approximately $202,200 to $21,596,397 and basic and diluted earnings per share decreased $0.01 to $0.78 and $0.76, respectively, for the three months ended June 30, 2004. For the six months ended June 30, 2004, net income decreased approximately $463,300 to $32,697,970, basic earnings per share decreased $0.02 to $1.18 and diluted earnings per share decreased $0.01 to $1.15.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

3. OTHER ASSETS

On February 4, 2005, we entered into an agreement to acquire the capital stock of Poster Financial Group, Inc., owner of the Golden Nugget Casinos in downtown Las Vegas and in Laughlin, Nevada for $140.0 million in cash, the assumption of $155.0 million of Senior Secured notes due 2011, approximately $31.0 million in bank debt, and certain working capital liabilities. Pursuant to the agreement, we deposited $25.0 million in escrow, which is included in other assets on our consolidated balance sheet. This deposit may be forfeited if we fail to consummate the transaction. The agreement is subject to various contingencies, including the approval of Nevada Gaming authorities, which could take up to a year to obtain.

4. ACCRUED LIABILITIES

Accrued liabilities are comprised of the following:

	June 30, 2005		December 31, 2004
Payroll and related costs	$	17,302,390	$	16,468,491
Rent and insurance		28,828,550		25,753,353
Taxes, other than payroll and income taxes		17,560,419		19,064,713
Deferred revenue (gift certificates)		10,282,103		12,751,757
Accrued interest		1,283,756		507,532
Other		14,168,819		10,409,642
	$	89,426,037	$	84,955,488

5. DEBT

In December 2004, we entered into a $450.0 million bank credit facility consisting of a $300.0 million revolving credit facility and a $150.0 million term loan. The revolving credit facility matures in December 2009 and bears interest at Libor or the bank’s base rate plus a financing spread, 1.50% for Libor and 0.50% for base rate borrowings at June 30, 2005. In addition, the revolving credit facility requires a commitment fee on the unfunded portion. The financing spread and commitment fee increase or decrease based on a financial leverage ratio as defined in the credit agreement. The term loan matures in December 2010 and bears interest at Libor plus 1.75% or the bank’s base rate plus 0.75%. Quarterly principal payments of $375,000 are due through December 2009 with the remaining balance payable in equal quarterly installments of $35,625,000 in 2010. The Company and certain of its guarantor subsidiaries granted liens on substantially all real and personal property as security under the bank credit facility. As of June 30, 2005, we had approximately $14.9 million in letters of credit outstanding and available borrowing capacity of $285.1 million.

Concurrently, we issued $400.0 million in 7.5% senior notes due in December 2014. The notes are our general unsecured obligations and require semi-annual interest payments in June and December.

Net proceeds from the $450.0 million bank credit facility and $400.0 million in 7.5% senior notes totaled $536.6 million and were used to repay all outstanding liabilities under the Company’s then existing bank credit facility and $150.0 million in Senior Notes. No amounts were drawn under the $300.0 million revolving credit facility. These debt repayments resulted in a pre-tax charge of $16.6 million in the fourth quarter of 2004.

In connection with the 7.5% senior notes due 2014, we have entered into two interest rate swap agreements with the objective of managing our exposure to interest rate risk and lowering interest expense. The first agreement was effective December 28, 2004 maturing in December 2014 for a notional amount of $50.0 million and interest at Libor plus 2.38%. The second agreement was effective March 10, 2005 also maturing in December 2014 for a notional amount of $50.0 million and interest at Libor plus 2.34%.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Our interest rate swap agreements qualify as fair value hedges and meet the criteria for the “short cut method” under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The aggregate estimated fair value of these swaps at June 30, 2005 was an asset of $2.6 million, which is included in other assets with an offsetting adjustment to the carrying value of the debt on our consolidated balance sheet.

Our debt agreements contain various restrictive covenants including minimum fixed charge, net worth, and financial leverage ratios as well as limitations on dividend payments, capital expenditures and other restricted payments as defined in the agreements. At June 30, 2005, we were in compliance with all such covenants.

We assumed an $11.4 million, 9.39% non-recourse, long-term mortgage note payable, due May 2010, in connection with an asset purchase in March 2003. Principal and interest payments aggregate approximately $102,000 monthly.

Long-term debt is comprised of the following:

	June 30, 2005			December 31, 2004
$300.0 million Bank Syndicate Credit Facility, Libor + 1.50% interest only, due December 2009	$	—		$	—
$150.0 million Term loan facility, Libor + 1.75%, interest paid quarterly, $375,000 principal paid quarterly, through December 2009, $35,625,000 due quarterly through December 2010		149,250,000			150,000,000
$400.0 million Senior Notes, 7.5% interest only, due December 2014		400,000,000			400,000,000
Non-recourse long-term note payable, 9.39% interest, principal and interest aggregate $101,762 monthly, due May 2010		11,089,922			11,171,760
Other long-term notes payable with various interest rates, principal and interest paid monthly		127,243			163,057
Interest rate swaps		2,581,361			(89,229	)
Total debt		563,048,526			561,245,588
Less current portion		(1,711,586	)		(1,700,496	)
Long-term portion	$	561,336,940		$	559,545,092

6. COMMITMENTS AND CONTINGENCIES

Building Commitments

As of June 30, 2005, we had future development, land purchases and construction commitments anticipated to be expended within the next twelve months of approximately $13.2 million, including completion of construction on certain new restaurants. In addition, we have committed $9.3 million through 2006 for the renovation of the Tower of the Americas in San Antonio, Texas, which we will operate for at least the next 15 years.

In 2003, we purchased from the City of Galveston the Flagship Hotel and Pier, subject to an existing lease. Under this agreement, upon termination of the existing lease, we have committed to spend an additional $15.0 million to transform the hotel and pier into a turn of the century style Inn and restaurant entertainment complex. The property is currently occupied by a tenant.

During November 2003, we purchased two casual Italian restaurants. Under the purchase agreement, we are committed to building an additional five casual Italian restaurants by the end of 2008, or make certain payments in lieu of development. In conjunction with the agreement to develop additional restaurants, the seller agreed to provide consulting services to ensure that the consistency and the quality of the food and service are maintained through this transition period.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Litigation and Claims

On July 31, 2002, and subsequently amended, a purported collective action lawsuit against the Company entitledMeaghan Bollenberg, et. al. v. Landry’s Restaurants, Inc. was filed in the United States District Court for the Northern District of Illinois and subsequently moved to a court in the Southern District of Texas. The lawsuit was filed by six plaintiffs who were servers on behalf of themselves and others similarly situated. The lawsuit alleges that we violated certain minimum wage laws under the federal Fair Labor Standards Act and seeks damages and costs. We are vigorously defending this litigation. Because the case is in its early stages, the financial impact to us, if any, cannot be predicted.

General Litigation

We are subject to other legal proceedings and claims that arise in the ordinary course of business. Management does not believe that the outcome of any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

7. EARNINGS PER SHARE AND STOCKHOLDERS’ EQUITY

A reconciliation of the amounts used to compute earnings per share is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Net income	$	17,542,808	$	21,596,397	$	24,920,333	$	32,697,970
Weighted average number of common shares outstanding - basic		21,950,000		27,600,000		23,200,000		27,600,000
Dilutive common stock equivalents:
Stock options		640,000		850,000		790,000		900,000
Restricted stock		10,000		—		10,000		—
Weighted average number of common and common share equivalents outstanding - diluted		22,600,000		28,450,000		24,000,000		28,500,000
Net income per share - basic	$	0.80	$	0.78	$	1.07	$	1.18
Net income per share - diluted	$	0.78	$	0.76	$	1.04	$	1.15

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The table below illustrates the effect on net income and earnings per share if compensation costs for us had been determined using the alternative accounting method based on the fair value prescribed by SFAS No. 123.

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income, as reported	$	17,542,808		$	21,596,397		$	24,920,333		$	32,697,970
Less: stock based compensation expense using fair value method, net of tax		(400,000	)		(380,000	)		(840,000	)		(620,000	)
Proforma net income	$	17,142,808		$	21,216,397		$	24,080,333		$	32,077,970
Earnings per share:
Basic, as reported	$	0.80		$	0.78		$	1.07		$	1.18
Basic, proforma	$	0.78		$	0.77		$	1.04		$	1.16
Diluted, as reported	$	0.78		$	0.76		$	1.04		$	1.15
Diluted, proforma	$	0.76		$	0.75		$	1.00		$	1.13

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

In June 2003, we established an equity incentive plan pursuant to which our stock options or restricted stock may be granted to eligible employees for an aggregate of 700,000 shares of our common stock. The Compensation Committee of the Board of Directors determines the number of shares, prices, and vesting schedule of individual grants. In addition, we will issue pursuant to an employment agreement, over its five year term, 500,000 shares of restricted stock, with 10 year vest from grant date, and a minimum of 800,000 stock options. As of June 30, 2005, 300,000 restricted common shares have been issued in 100,000 increments each year since the plan was established. Each grant of restricted shares will vest on the tenth anniversary of the year they are granted.

During the three and six months ended June 30, 2005, we purchased $77.1 million and $133.7 million, respectively, of our common stock.

8. SUPPLEMENTAL GUARANTOR INFORMATION

In December 2004, we issued, in a private offering, $400.0 million of 7.5% senior notes due 2014 (see “Debt”). In June 2005, these notes were exchanged for substantially identical notes in an exchange offer registered under the Securities Act of 1933. These notes are fully and unconditionally guaranteed by certain of our subsidiaries, “Guarantor Subsidiaries”.

The following condensed unaudited consolidating financial statements present separately the financial position, results of operations and cash flows of Landry’s Restaurants, Inc., our Guarantor Subsidiaries and our Non-guarantor Subsidiaries on a combined basis with eliminating entries.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Unaudited Consolidating Financial Statements

Balance Sheet

June 30, 2005

	Parent		Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	53,728,727	$	6,453,547		$	2,551,988		$	—		$	62,734,262
Accounts receivable - trade and other		8,061,748		6,157,580			229,775			—			14,449,103
Inventories		38,208,816		17,730,089			417,142			—			56,356,047
Deferred taxes		10,946,919		—			—			—			10,946,919
Other current assets		1,689,704		3,731,907			5,090,991			—			10,512,602
Total current assets		112,635,914		34,073,123			8,289,896			—			154,998,933
PROPERTY AND EQUIPMENT, net		71,329,570		897,829,040			61,594,907			—			1,030,753,517
GOODWILL		—		18,527,547			—			—			18,527,547
INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES		882,128,668		(555,598,451	)		(55,548,867	)		(270,981,350	)		—
OTHER ASSETS, net		51,472,618		2,188,285			—			—			53,660,903
Total assets	$	1,117,566,770	$	397,019,544		$	14,335,936		$	(270,981,350	)	$	1,257,940,900
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	28,700,073	$	23,993,765		$	524,396		$	—		$	53,218,234
Accrued liabilities		8,045,719		79,640,461			1,739,857			—			89,426,037
Income taxes payable		2,024,349		—			—			—			2,024,349
Current portion of long-term notes and other obligations		1,538,930		—			172,656			—			1,711,586
Total current liabilities		40,309,071		103,634,226			2,436,909			—			146,380,206
LONG-TERM NOTES, NET OF CURRENT PORTION		550,419,674		—			10,917,266			—			561,336,940
DEFERRED TAXES		16,715,281		—			—			—			16,715,281
OTHER LIABILITIES		11,810,899		23,282,242			103,487			—			35,196,628
Total liabilities		619,254,925		126,916,468			13,457,662			—			759,629,055
COMMITMENTS AND CONTINGENCIES
TOTAL STOCKHOLDERS’ EQUITY		498,311,845		270,103,076			878,274			(270,981,350	)		498,311,845
Total liabilities and stockholders’ equity	$	1,117,566,770	$	397,019,544		$	14,335,936		$	(270,981,350	)	$	1,257,940,900

12

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Consolidating Financial Statements

Balance Sheet

December 31, 2004

	Parent		Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	192,679,301	$	5,923,478		$	2,791,253		$	—		$	201,394,032
Accounts receivable—trade and other		10,256,627		8,114,520			224,384			—			18,595,531
Inventories		37,824,160		16,878,980			301,013			—			55,004,153
Deferred taxes		10,859,160		—			—			—			10,859,160
Other current assets		2,855,754		3,329,122			5,445,651			—			11,630,527
Total current assets		254,475,002		34,246,100			8,762,301			—			297,483,403
PROPERTY AND EQUIPMENT, net		73,767,370		887,811,651			45,717,915			—			1,007,296,936
GOODWILL		—		18,527,547			—			—			18,527,547
INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES		864,745,965		(610,127,864	)		(40,284,199	)		(214,333,902	)		—
OTHER ASSETS, net		19,236,582		2,407,803			—			—			21,644,385
Total assets	$	1,212,224,919	$	332,865,237		$	14,196,017		$	(214,333,902	)	$	1,344,952,271
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	23,160,088	$	24,544,797		$	636,433		$	—		$	48,341,318
Accrued liabilities		12,925,743		70,441,426			1,588,319			—			84,955,488
Income taxes payable		971,175		—			—			—			971,175
Current portion of long-term notes and other obligations		1,535,814		—			164,682			—			1,700,496
Total current liabilities		38,592,820		94,986,223			2,389,434			—			135,968,477
LONG-TERM NOTES, NET OF CURRENT PORTION		548,538,015		—			11,007,077			—			559,545,092
DEFERRED TAXES		13,343,631		—			—			—			13,343,631
OTHER LIABILITIES		10,853,487		24,344,618			—			—			35,198,105
Total liabilities		611,327,953		119,330,841			13,396,511			—			744,055,305
COMMITMENTS AND CONTINGENCIES
TOTAL STOCKHOLDERS’ EQUITY		600,896,966		213,534,396			799,506			(214,333,902	)		600,896,966
Total liabilities and stockholders’ equity	$	1,212,224,919	$	332,865,237		$	14,196,017		$	(214,333,902	)	$	1,344,952,271

13

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Three Months Ended June 30, 2005

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated Entity
REVENUES	$	1,229,519		$	315,918,848		$	8,003,491	$	—		$	325,151,858
OPERATING COSTS AND EXPENSES:
Cost of revenues		—			88,241,660			1,673,834		—			89,915,494
Restaurant labor		—			90,866,845			1,711,836		—			92,578,681
Other restaurant operating expenses		592,461			73,217,154			3,151,460		—			76,961,075
General and administrative expenses		14,927,645			—			—		—			14,927,645
Depreciation and amortization		791,150			14,100,437			212,784		—			15,104,371
Restaurant pre-opening expenses		—			1,248,555			2,094		—			1,250,649
Total operating costs and expenses		16,311,256			267,674,651			6,752,008		—			290,737,915
OPERATING INCOME		(15,081,737	)		48,244,197			1,251,483		—			34,413,943
OTHER EXPENSE (INCOME):
Interest expense, net		8,348,412			(820	)		263,636		—			8,611,228
Other, net		(48,710	)		53,023			155		—			4,468
		8,299,702			52,203			263,791		—			8,615,696
INCOME (LOSS) BEFORE INCOME TAXES		(23,381,439	)		48,191,994			987,692		—			25,798,247
PROVISION (BENEFIT) FOR INCOME TAXES		(7,482,059	)		15,421,437			316,061		—			8,255,439
EQUITY IN EARNINGS OF SUBSIDIARIES		33,442,188			—			—		(33,442,188	)		—
NET INCOME	$	17,542,808		$	32,770,557		$	671,631	$	(33,442,188	)	$	17,542,808

14

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Three Months Ended June 30, 2004

	Parent			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
REVENUES	$	975,853		$	311,274,401	$	5,366,101		$	—		$	317,616,355
OPERATING COSTS AND EXPENSES:
Cost of revenues		—			87,813,019		1,295,627			—			89,108,646
Restaurant labor		—			88,164,460		1,654,401			—			89,818,861
Other restaurant operating expenses		492,793			71,846,212		1,790,816			—			74,129,821
General and administrative expenses		14,939,767			—		—			—			14,939,767
Depreciation and amortization		758,294			12,915,188		93,053			—			13,766,535
Asset impairment expense		—			—		—			—			—
Restaurant pre-opening expenses		—			1,744,627		—			—			1,744,627
Total operating costs and expenses		16,190,854			262,483,506		4,833,897			—			283,508,257
OPERATING INCOME		(15,215,001	)		48,790,895		532,204			—			34,108,098
OTHER EXPENSE (INCOME):
Interest expense, net		2,764,638			—		267,258			—			3,031,896
Other, net		(230,760	)		9,753		(1,917	)		—			(222,924	)
		2,533,878			9,753		265,341			—			2,808,972
INCOME (LOSS) BEFORE INCOME TAXES		(17,748,879	)		48,781,142		266,863			—			31,299,126
PROVISION (BENEFIT) FOR INCOME TAXES		(5,502,152	)		15,122,153		82,728						9,702,729
EQUITY IN EARNINGS OF SUBSIDIARIES		33,843,124			—		—			(33,843,124	)		—
NET INCOME	$	21,596,397		$	33,658,989	$	184,135		$	(33,843,124	)	$	21,596,397

15

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Six Months Ended June 30, 2005

	Parent			Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated Entity
REVENUES	$	2,431,024		$	589,768,722	$	14,296,697	$	—		$	606,496,443
OPERATING COSTS AND EXPENSES:
Cost of revenues		—			165,377,820		3,121,207		—			168,499,027
Restaurant labor		—			172,555,233		3,555,871		—			176,111,104
Other restaurant operating expenses		1,877,624			139,547,015		5,533,341		—			146,957,980
General and administrative expenses		28,614,052			—		—		—			28,614,052
Depreciation and amortization		1,582,387			27,864,471		412,717		—			29,859,575
Restaurant pre-opening expenses		—			2,164,340		5,830		—			2,170,170
Total operating costs and expenses		32,074,063			507,508,879		12,628,966		—			552,211,908
OPERATING INCOME		(29,643,039	)		82,259,843		1,667,731		—			54,284,535
OTHER EXPENSE (INCOME):
Interest expense, net		16,619,073			—		557,754		—			17,176,827
Other, net		395,409			63,867		883		—			460,159
		17,014,482			63,867		558,637		—			17,636,986
INCOME (LOSS) BEFORE INCOME TAXES		(46,657,521	)		82,195,976		1,109,094		—			36,647,549
PROVISION (BENEFIT) FOR INCOME TAXES		(14,930,406	)		26,302,712		354,910		—			11,727,216
EQUITY IN EARNINGS OF SUBSIDIARIES		56,647,448			—		—		(56,647,448	)		—
NET INCOME	$	24,920,333		$	55,893,264	$	754,184	$	(56,647,448	)	$	24,920,333

16

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Six Months Ended June 30, 2004

	Parent			Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
REVENUES	$	1,480,442		$	581,763,483	$	10,048,917		$	—		$	593,292,842
OPERATING COSTS AND EXPENSES:
Cost of revenues		—			164,356,655		2,471,503			—			166,828,158
Restaurant labor		—			167,559,231		3,191,993			—			170,751,224
Other restaurant operating expenses		880,911			133,580,257		4,366,455			—			138,827,623
General and administrative expenses		31,346,897			—		—			—			31,346,897
Depreciation and amortization		1,558,575			25,060,938		178,219			—			26,797,732
Asset impairment expense		—			1,708,654		—			—			1,708,654
Restaurant pre-opening expenses		—			3,598,671		—			—			3,598,671
Total operating costs and expenses		33,786,383			495,864,406		10,208,170			—			539,858,959
OPERATING INCOME		(32,305,941	)		85,899,077		(159,253	)		—			53,433,883
OTHER EXPENSE (INCOME):
Interest expense, net		5,570,184			—		535,508			—			6,105,692
Other, net		(75,106	)		17,698		(2,763	)		—			(60,171	)
		5,495,078			17,698		532,745			—			6,045,521
INCOME (LOSS) BEFORE INCOME TAXES		(37,801,019	)		85,881,379		(691,998	)		—			47,388,362
PROVISION (BENEFIT) FOR INCOME TAXES		(11,718,316	)		26,623,227		(214,519	)		—			14,690,392
EQUITY IN EARNINGS OF SUBSIDIARIES		58,780,673			—		—			(58,780,673	)		—
NET INCOME	$	32,697,970		$	59,258,152	$	(477,479	)	$	(58,780,673	)	$	32,697,970

17

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Cash Flows

Six Months Ended June 30, 2005

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,920,333		$	55,893,264		$	754,184		$	(56,647,448	)	$	24,920,333
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,582,387			27,864,471			412,717			—			29,859,575
Change in assets and liabilities, net and other		(8,236,419	)		(45,201,854	)		14,505,947			56,647,448			17,715,122
Total adjustments		(6,654,032	)		(17,337,383	)		14,918,664			56,647,448			47,574,697
Net cash provided (used) by operating activities		18,266,301			38,555,881			15,672,848			—			72,495,030
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions and/or transfers		(1,179,939	)		(38,025,812	)		(15,830,276	)		—			(55,036,027	)
Business acquisitions and related payments, net of cash acquired		(26,643,983	)		—			—			—			(26,643,983	)
Net cash provided (used) in investing activities		(27,823,922	)		(38,025,812	)		(15,830,276	)		—			(81,680,010	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock for treasury		(125,651,866	)		—			—			—			(125,651,866	)
Proceeds from exercise of stock options		222,991			—			—			—			222,991
Payments of debt and related expenses, net		(1,494,482	)		—			(81,837	)		—			(1,576,319	)
Dividends paid		(2,469,596	)		—			—			—			(2,469,596	)
Net cash provided (used) in financing activities		(129,392,953	)		—			(81,837	)		—			(129,474,790	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(138,950,574	)		530,069			(239,265	)		—			(138,659,770	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		192,679,301			5,923,478			2,791,253			—			201,394,032
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	53,728,727		$	6,453,547		$	2,551,988		$	—		$	62,734,262

18

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Cash Flows

Six Months Ended June 30, 2004

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	32,697,970		$	59,258,152		$	(477,479	)	$	(58,780,673	)	$	32,697,970
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,558,575			25,060,938			178,219			—			26,797,732
Asset impairment expense		—			1,708,654			—			—			1,708,654
Change in assets and liabilities, net and other		(88,367,696	)		30,885,222			4,318,112			58,780,673			5,616,311
Total adjustments		(86,809,121	)		57,654,814			4,496,331			58,780,673			34,122,697
Net cash provided (used) by operating activities		(54,111,151	)		116,912,966			4,018,852			—			66,820,667
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions and/or transfers		54,778,544			(107,851,103	)		(2,982,044	)		—			(56,054,603	)
Proceeds from sale of property and equipment		1,480,305			1,470,000			—			—			2,950,305
Business acquisitions and related payments, net of cash acquired		(12,834,875	)		—			—			—			(12,834,875	)
Net cash provided (used) in investing activities		43,423,974			(106,381,103	)		(2,982,044	)		—			(65,939,173	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock for treasury		(7,898,863	)		—			—			—			(7,898,863	)
Proceeds from exercise of stock options		1,126,865			—			—			—			1,126,865
Payments of debt and related expenses, net		(18,186,844	)		—			(71,706	)		—			(18,258,550	)
Proceeds (payments) on credit facility		16,000,000			—			—			—			16,000,000
Dividends paid		(2,082,610	)		—			—			—			(2,082,610	)
Net cash provided (used) in financing activities		(11,041,452	)		—			(71,706	)		—			(11,113,158	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(21,728,629	)		10,531,863			965,102			—			(10,231,664	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		30,656,642			4,430,245			124,432			—			35,211,319
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	8,928,013		$	14,962,108		$	1,089,534		$	—		$	24,979,655

19

LANDRY’S RESTAURANTS, INC.

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

We are a national, diversified restaurant and hospitality company principally engaged in the ownership and operation of full service, casual dining restaurants. As of June 30, 2005, we operated 305 such restaurants as well as several limited menu restaurants and other properties.

We are in the business of operating restaurants and other complementary activities. We do not engage in real estate operations other than those associated with the ownership and operation of our business. We own a fee interest (own the land and building) in a number of properties underlying our businesses, but do not engage in real estate sales or real estate management in any significant fashion or format. Our Chief Executive Officer, who is responsible for our operations, reviews and evaluates both core and non-core business activities and results, and determines financial and management resource allocations and investments for all business activities.

Our Specialty Growth Division is primarily engaged in operating complementary entertainment and hospitality activities, such as miscellaneous beverage carts and various kiosks, amusement rides and games and select hotel properties, generally at locations that complement our core restaurant operations. The total assets, revenues, and operating profits of these complementary “specialty” business activities are considered not material to the overall business and below the threshold of a separate reportable business segment under SFAS No. 131.

The restaurant industry is intensely competitive and is affected by changes in consumer tastes and by national, regional, and local economic conditions and demographic trends. The performance of individual restaurants may be affected by factors such as: traffic patterns, demographic considerations, marketing, weather conditions, and the type, number, and location of competing restaurants.

We have many well established competitors with greater financial resources, larger marketing and advertising budgets, and longer histories of operation than ours, including competitors already established in regions where we are planning to expand, as well as competitors planning to expand in the same regions. We face significant competition from mid-priced, full-service, casual dining restaurants offering or promoting seafood and other types and varieties of cuisine. Our competitors include national, regional, and local chains as well as local owner-operated restaurants. We also compete with other restaurants and retail establishments for restaurant sites. We intend to pursue an acquisition strategy.

On February 4, 2005, through an agreement to purchase the outstanding capital stock of Poster Financial Group, Inc., we entered into an agreement to purchase the Golden Nugget Casinos in downtown Las Vegas and Laughlin, Nevada for $140.0 million in cash, the assumption of $155.0 million of Senior Secured Notes due 2011, approximately $31.0 million in bank debt, and the assumption of certain working capital liabilities. Pursuant to the terms of the purchase agreement, we deposited $25.0 million into an escrow account. This deposit may be forfeited if we fail to consummate the transaction. Under the terms of the purchase agreement, Poster Financial Group’s currently outstanding Senior Secured Notes due 2011 will remain outstanding obligations of Poster Financial Group following the closing. The consummation of the sale will result in a change of control of Poster Financial Group under the terms of the senior notes and, as a result, Poster Financial Group will be required within 30 days of such change of control to commence an offer to purchase the senior notes for 101% of the aggregate principal amount of such senior notes, plus any accrued and unpaid interest. Under the terms of the purchase agreement, amounts outstanding at closing under Poster Financial Group’s senior credit facility will be repaid by us or we will seek consent from the lender under such facility for such amounts to remain outstanding. The Golden Nugget occupies over eight acres in downtown Las Vegas with approximately 40,000 square feet of gaming area. The property also features three towers containing 1,907 rooms, the largest number of guestrooms in downtown Las Vegas. It is anticipated that the transaction will close during 2005, subject to customary closing conditions contained in the purchase agreement, including receipt of all necessary governmental, gaming and other regulatory approvals.

In this report, we have made forward-looking statements. Our forward-looking statements are subject to risks and uncertainty, including without limitation, our ability to continue our expansion strategy, our ability to make projected capital expenditures, as well as potential acquisitions of other restaurants, restaurant concepts and lines of businesses in other sectors of the hospitality and entertainment industries, general market conditions, competition,

20

and pricing. Forward-looking statements include statements regarding: future capital expenditures (including the amount and nature thereof); business strategy and measures to implement that strategy; competitive strengths; goals; expansion and growth of our business and operations; future commodity prices; availability of food products, materials and employees; consumer perceptions of food safety; changes in local, regional and national economic conditions; the effectiveness of our marketing efforts; changing demographics surrounding our restaurants; the effect of tax laws, and any changes therein; same store sales; earnings guidance; the seasonality of our business; weather and acts of God; food, labor, fuel and utilities costs; plans; references to future success; as well as other statements which include words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend” and other similar expressions. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, we cannot assure you that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.

Results of Operations

Restaurant Profitability

The following table sets forth the percentage relationship to total restaurant revenues of certain restaurant operating data for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	27.6	%	28.1	%	27.8	%	28.1	%
Restaurant labor	28.5	%	28.3	%	29.0	%	28.8	%
Other restaurant operating expenses (1)	23.7	%	23.3	%	24.2	%	23.4	%
Restaurant level profit (1)	20.2	%	20.3	%	19.0	%	19.7	%

(1) Excludes depreciation, amortization, asset impairment, and pre-opening expenses.

Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004

Revenues increased $7,535,503, or 2.4%, from $317,616,355 to $325,151,858 for the three months ended June 30, 2005, compared to the three months ended June 30, 2004. The total increase/change in revenue is comprised of the following approximate amounts: restaurant openings – increase $11.6 million, restaurant closings – decrease $1.9 million, same store sales (restaurants open all of the second quarter of 2005 and 2004) – decrease $1.7 million, and the remainder of the difference is attributable to the change in sales for stores not open a full comparable period. The total number of units open as of June 30, 2005 and 2004 were 305 and 294, respectively.

Cost of revenues increased $806,848, or 0.9%, from $89,108,646 to $89,915,494 in the three months ended June 30, 2005, compared to the same period in the prior year, primarily as a result of increased revenues. Cost of revenues as a percentage of revenues for the three months ended June 30, 2005, decreased to 27.6%, from 28.1% in 2004. The decrease in cost of revenues as a percentage of revenues is primarily due to a shift in product mix.

Restaurant labor expenses increased $2,759,820, or 3.1%, from $89,818,861 to $92,578,681 in the three months ended June 30, 2005, compared to the same period in the prior year, principally as a result of increased revenues from new store openings. Restaurant labor expenses as a percentage of revenues for the three months ended June 30, 2005, increased to 28.5% from 28.3% in 2004, principally due to increased management labor expense.

Other restaurant operating expenses increased $2,831,254, or 3.8%, from $74,129,821 to $76,961,075 in the three months ended June 30, 2005, compared to the same period in the prior year, principally as a result of increased revenues. Such expenses also increased as a percentage of revenues to 23.7% in 2005 from 23.3% in 2004 as a primary result of increased advertising expenditures.

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General and administrative expenses remained relatively constant at $14,927,645 in the three months ended June 30, 2005 compared to $14,939,767 during the same period in the prior year, and decreased as a percentage of revenues to 4.6% in 2005 from 4.7% in 2004.

Restaurant pre-opening expenses were $1,250,649 for the three months ended June 30, 2005, compared to $1,744,627 for the same period in the prior year. The decrease for the 2005 period was attributable to the type of units opened in 2005 compared to the same period in 2004.

Depreciation and amortization expense increased $1,337,836, or 9.7%, from $13,766,535 to $15,104,371 in the three months ended June 30, 2005, compared to the same period in the prior year. The increase for 2005 was due to the addition of new restaurants and equipment.

The increase in net interest expense in the three months ended June 30, 2005, as compared to the prior year, is primarily due to higher borrowings related to the Company’s new 7.5% senior notes due 2014 finalized in December 2004.

Provision for income taxes decreased by $1,447,290 to $8,255,439 in the three months ended June 30, 2005 from $9,702,729 in 2004 primarily due to changes in our pre-tax income.

Six Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004

Revenues increased $13,203,601, or 2.2%, from $593,292,842 to $606,496,443 for the six months ended June 30, 2005, compared to the six months ended June 30, 2004. The total increase/change in revenue is comprised of the following approximate amounts: restaurant openings – increase $24.1 million, restaurant closings – decrease $4.6 million, same store sales (restaurants open all six months in 2005 and 2004) – decrease $1.7 million, day lost due to leap year – decrease $3.4 million, and the remainder of the difference is attributable to the change in sales for stores not open a full comparable period. The total number of units open as of June 30, 2005 and 2004 were 305 and 294, respectively.

Primarily as a result of increased revenues, cost of revenues increased $1,670,869, or 1.0%, from $166,828,158 to $168,499,027 in the six months ended June 30, 2005, compared to the same period in the prior year. Cost of revenues as a percentage of revenues for the six months ended June 30, 2005, decreased to 27.8%, from 28.1% in 2004. The decrease in cost of revenues as a percentage of revenues is primarily due to a shift in product mix.

Restaurant labor expenses increased $5,359,880, or 3.1%, from $170,751,224 to $176,111,104 in the six months ended June 30, 2005, compared to the same period in the prior year, principally as a result of increased revenues. Restaurant labor expenses as a percentage of revenues for the six months ended June 30, 2005, increased to 29.0% from 28.8% in 2004, principally due to increased management and kitchen labor expense.

Other restaurant operating expenses increased $8,130,357, or 5.9%, from $138,827,623 to $146,957,980 in the six months ended June 30, 2005, compared to the same period in the prior year, principally as a result of increased revenues. Such expenses increased as a percentage of revenues to 24.2% in 2005 from 23.4% in 2004 as a primary result of increased advertising expenses.

General and administrative expenses decreased $2,732,845, or 8.7%, from $31,346,897 to $28,614,052 in the six months ended June 30, 2005, compared to the same period in the prior year, and decreased as a percentage of revenues to 4.7% in 2005 from 5.3% in 2004. The decrease was primarily the result of decreased accruals related to employee bonuses.

Restaurant pre-opening expenses were $2,170,170 for the six months ended June 30, 2005, compared to $3,598,671 for the same period in the prior year. The decrease for the 2005 period was attributable to a decrease in the number and type of units opened in 2005 as compared to 2004.

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Depreciation and amortization expense increased $3,061,843, or 11.4%, from $26,797,732 to $29,859,575 in the six months ended June 30, 2005, compared to the same period in the prior year. The increase for 2005 was due to the addition of new restaurants and equipment.

There was no asset impairment expense in the six months ended June 30, 2005 as compared to $1,708,654 in the prior year period. The impairment charges in fiscal 2004 resulted from sales declines in one under performing restaurant, additional deterioration in the specific restaurant’s profitability, perceived deterioration of the market area and/or specific location, and management’s downward revised outlook for further opportunity and/or improvement of forecasted sales and profitability trends for such specific property. Assets that were impaired are primarily leasehold improvements and to a lesser extent equipment.

The increase in net interest expense in the six months ended June 30, 2005, as compared to the prior year, is primarily due to higher borrowings related to the Company’s new 7.5% senior notes due 2014 finalized in December 2004.

Provision for income taxes decreased by $2,963,176 to $11,727,216 in the six months ended June 30, 2005 from $14,690,392 in 2004 primarily due to changes in pre-tax income.

Liquidity and Capital Resources

In December 2004, we refinanced our existing debt by entering into a new five year $300.0 million revolving credit facility, a six year $150.0 million term loan, and issuing $400.0 million in 7.5% senior notes due 2014. The 7.5% senior notes due 2014 are general unsecured obligations of the Company. Our financing spread under the bank credit facility was 1.50% for Libor borrowings and 0.50% for base rate borrowings at June 30, 2005. The financing spread for the term loan is 1.75% for Libor borrowings and 0.75% for base rate borrowings. Net proceeds from the refinancing were used to repay outstanding debt and for general corporate purposes. We plan to fund future operations, new restaurant development, and acquisitions from operating cash flows and available capacity under our current bank credit facility.

During the three and six months ended June 30, 2005, we purchased $77.1 and $133.7 million, respectively, of our common stock. In May 2005, we authorized a $50.0 million open market stock repurchase program. We expect to make opportunistic repurchases of our common stock.

Working capital was $8.6 million as of June 30, 2005, reflecting repurchases of stock and the deposit of $25.0 million into an escrow account pursuant to the terms of the purchase agreement of the Golden Nugget Casinos in downtown Las Vegas and Laughlin, Nevada. Upon consummation of the sale, we will pay $140.0 million in cash, and assume $155.0 million of senior secured notes due 2011, approximately $31.0 million in bank debt, and certain working capital liabilities. The transaction is anticipated to close during 2005. Pursuant to the purchase agreement we will acquire the outstanding capital stock of Poster Financial Group, Inc., owner of both Golden Nugget Casinos.

Capital expenditures through June 30, 2005 were $55.0 million, including $16.6 million for land purchases in the first half of 2005. We expect capital expenditures to be $25.0 million for the remainder of the year primarily for new restaurants. As a result of our tax loss carryforwards and deferred tax assets, including amounts attributable to the acquisition of Rainforest Cafe, we expect our cash flow from operations to be subject to reduced federal income tax payments for the foreseeable future.

Primarily as a result of establishing long-term borrowings, we will incur higher interest expense in the future. We have entered into two interest rate swap agreements, with an aggregate notional value of $100.0 million, with the objective of managing our exposure to interest rate risk and lowering interest expense. We swapped the fixed interest rate of the senior notes due 2014 for floating interest rates equal to six month Libor plus a financing spread between 2.34% and 2.38%.

From time to time, we review opportunities for restaurant acquisitions, and investments in the hospitality, gaming, entertainment, amusement, food service and facilities management and other industries. Our exercise of any such investment opportunity may impact our development plans and capital expenditures. We believe that adequate sources of capital are available to fund our business activities through December 31, 2005.

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Since April 2000, we have paid an annual $0.10 per share dividend, declared and paid in quarterly amounts. In April 2004, the annual dividend amount was increased to $0.20 per share, declared and paid in quarterly amounts.

Seasonality and Quarterly Results

Our business is seasonal in nature. Our reduced winter volumes cause revenues and, to a greater degree, operating profits to be lower in the first and fourth quarters than in other quarters. We have opened and continue to open restaurants in highly seasonal tourist markets. The Joe’s Crab Shack concept restaurants tend to experience even greater seasonality and sensitivity to weather than our other restaurant concepts. Periodically, our sales and profitability may be negatively affected by adverse weather. The timing of unit openings can and will affect quarterly results.

Critical Accounting Policies

Restaurant and other properties are reviewed on a property by property basis for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. The recoverability of properties that are to be held and used is measured by comparison of the estimated future undiscounted cash flows associated with the asset to the carrying amount of the asset. If such assets are considered to be impaired, an impairment charge is recorded in the amount by which the carrying amount of the assets exceeds their fair value. Properties to be disposed of are reported at the lower of their carrying amount or fair value, reduced for estimated disposal costs, and are included in other current assets.

The Company maintains a large deductible insurance policy related to general liability and workers’ compensation coverage. Predetermined loss limits have been arranged with insurance companies to limit the Company’s per occurrence cash outlay. Accrued liabilities include estimated costs to settle unpaid claims and estimated incurred but not reported claims using actuarial methodologies.

We follow the intrinsic value method of accounting for stock options, and as such do not record compensation expense related to amounts outstanding.

Recent Accounting Pronouncements

In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs” which amended ARB 43. The statement clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials should be recognized as current period charges, effective for fiscal years beginning after June 15, 2005. Adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchange of Non-Monetary Assets”. This statement amends APB 29 to require certain non-monetary exchange transactions to be recorded on a carry over cost basis if future cash flows are not expected to change significantly. The statement is effective for fiscal periods beginning after June 15, 2005. Adoption of SFAS No. 153 is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (R), “Share-Based Payments” later amended by the Securities and Exchange Commission in April 2005. This statement requires the expensing of stock options in the financial statements for fiscal years beginning after June 15, 2005. The Company has not made a determination of the valuation methodology and, therefore, has not determined the impact to future periods.

Impact of Inflation

We do not believe that inflation has had a significant effect on our operations during the past several years. We believe we have historically been able to pass on increased costs through menu price increases, but there can be no assurance that we will be able to do so in the future. Future increases in restaurant labor costs, including expected future increases in federal minimum wages, and land and construction costs, could adversely affect our profitability and ability to expand.

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ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks including risks related to potential adverse changes in interest rates and commodity prices. We actively monitor exposure to market risk and continue to develop and utilize appropriate risk management techniques. We do not use derivative financial instruments for trading or to speculate on changes in commodity prices.

Interest Rate Risk

Total debt at June 30, 2005 included $249.3 million of floating-rate debt attributed to borrowings at an average interest rate of 5.7%. As a result, our annual interest cost in 2005 will fluctuate based on short-term interest rates.

In connection with the 7.5% senior notes due 2014, the Company has entered into interest rate swap agreements with a total notional value of $100.0 million with the objective of managing our exposure to interest rate risk and lowering interest expense.

The impact on annual cash flow of a ten percent change in the floating-rate (approximately 0.6%) would be approximately $1.4 million annually based on the floating-rate debt and other obligations outstanding at June 30, 2005, however, there are no assurances that possible rate changes would be limited to such amounts.

ITEM 4.Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13e-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2005, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2005.

During the three months ended June 30, 2005, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.Legal Proceedings

In July 31, 2002, and subsequently amended, a purported collective action lawsuit against the Company entitledMeaghan Bollenberg, et. al. v. Landry’s Restaurants, Inc. was filed in the United States District Court for the Northern District of Illinois, and subsequently moved to the Southern District of Texas Court. The lawsuit was filed by six plaintiffs who were servers on behalf of themselves and others similarly situated. The lawsuit alleges that the Company violated certain minimum wage laws under the federal Fair Labor Standards Act and seeks damages and costs. We are vigorously defending this litigation. Because the case is in its early stages, the financial impact to the Company, if any, cannot be predicted.

General Litigation

The Company is subject to other legal proceedings and claims that arise in the ordinary course of business. Management does not believe that the outcome of any of those matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds

In November 1998, we announced the authorization of an open market stock buy back program, which was renewed in April 2000, for an additional $36.0 million. In October 2002, we authorized a $50.0 million open market stock buy back program and in September 2003, we authorized another $60.0 million open market stock repurchase program. In October 2004, we authorized a $50.0 million open market stock repurchase program. In March 2005, we announced a $50.0 million authorization to repurchase common stock. In May 2005, we announced a $50.0 million authorization to repurchase common stock. These programs have resulted in our aggregate repurchasing of approximately 17.6 million shares of common stock for approximately $290.4 million through June 30, 2005.

All repurchases of our common stock during the second quarter of 2005 were made pursuant to our open market stock repurchase program. The following table summarizes repurchases of our common stock during the second quarter of 2005 pursuant to our open market stock repurchase program.

Period	(a) Total Number of Shares (or Units Purchased)	(b) Average Price paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 2005 (April 1 through April 29)	1,383,100	$	27.37	1,383,100	$	44,886,781
May 2005 (May 2 through May 26)	1,430,986	$	27.42	1,430,986	$	55,647,697
June 2005	—	$	—	—	$	55,647,697
Total	2,814,086	$	27.40	2,814,086	$	55,647,697

ITEM 4.Submission of Matters to a Vote of Security Holders

On June 2, 2005, the Company held its 2005 Annual Meeting of Stockholders. At such time, the election of directors was submitted to a vote of stockholders through the solicitation of proxies. The following persons were elected to serve on the Board of Directors until the 2006 Annual Meeting of Stockholders or until their successors have been duly elected and qualified. The Directors each received at least a minimum of 22,808,112 votes: Tilman J. Fertitta, Steven L. Scheinthal, Michael S. Chadwick, Michael Richmond, Joe Max Taylor, and Kenneth Brimmer.

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PART II. OTHER INFORMATION (continued)

ITEM 6.Exhibits

The following Exhibits are set forth herein commencing on page 29:

12.1	—Ratio of Earnings to Fixed Charges
31.1	—Certification by Chief Executive Officer
31.2	—Certification by Chief Financial Officer
32	—Certification with respect to quarterly report of Landry’s Restaurants, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

LANDRY’S RESTAURANTS, INC.

(Registrant)

/s/ TILMAN J. FERTITTA

Tilman J. Fertitta

Chairman of the Board of Directors,

President and Chief Executive Officer

(Principal Executive Officer)

/s/ RICK H. LIEM

Rick H. Liem

Senior Vice President and

Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: August 8, 2005

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