Landrys Restaurants (LNY) 10-Q 2010 Q3 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 September 30, 2010.

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨

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

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 NOVEMBER 5, 2010 THERE WERE

1,000 SHARES OF $0.01 PAR VALUE

COMMON STOCK OUTSTANDING

INDEX

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		1
	Condensed Consolidated Balance Sheets at September 30, 2010 (unaudited) and December 31, 2009		3
	Condensed Unaudited Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009		4
	Condensed Unaudited Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2010		6
	Condensed Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September  30, 2010 and 2009		7
	Notes to Condensed Unaudited Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		38
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 6.	Exhibits		39
Signatures			40

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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. However, 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.

The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and related notes to financial statements included in our Annual Report on Form 10-K as amended by our Form 10-K/A for the fiscal year ended December 31, 2009. Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending December 31, 2010.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 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.

When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Form 10-Q. Our forward-looking statements are only predictions based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks and uncertainties set forth below and elsewhere in this Form 10-Q. These factors include or relate to the following:

• The consummation of the merger agreement between us and Fertitta Holdings on October 6, 2010;

• our ability to implement our business strategy;

• our ability to expand and grow our business and operations;

• the impact of future commodity prices;

• the availability of food products, materials and employees;

• consumer perceptions of food safety;

• changes in local, regional and national economic conditions;

• the effects of local and national economic, credit and capital market conditions on the economy in general and our business in particular;

• the effectiveness of our marketing efforts;

• changing demographics surrounding our restaurants, hotels and casinos;

• the effect of changes in tax laws;

• actions of regulatory, legislative, executive or judicial decisions at the federal, state or local level with regard to our business and the impact of any such actions;

• our ability to maintain regulatory approvals for our existing businesses and our ability to receive regulatory approval for our new businesses;

• the effects of the BP plc oil spill;

• our expectations of the continued availability and cost of capital resources;

• our ability to obtain long-term financing and the cost of such financing, if available;

• the seasonality and cyclical nature of our business;

• weather and acts of God;

• the ability to maintain existing management;

• the impact of potential acquisitions of other restaurants, gaming operations and lines of businesses in other sectors of the hospitality and entertainment industries;

• the impact of potential divestitures of restaurants, restaurant concepts and other operations or lines of business;

1

• the effects of “climate change” on our operation;

• food, labor, fuel and utilities costs; and

• the other factors discussed under “Risk Factors,” included in our Form 10-K for the year ended December 31, 2009.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed herein may not occur. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement.

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LANDRY’S RESTAURANTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	59,934,994		$	71,584,322
Restricted cash and cash equivalents		74,515,185			73,076,532
Accounts receivable - trade and other, net		20,107,790			28,730,944
Inventories		26,983,128			27,558,494
Deferred taxes		27,960,777			15,658,214
Assets related to discontinued operations		1,960,344			2,960,514
Other current assets		12,033,291			13,364,757
Total current assets		223,495,509			232,933,777
PROPERTY AND EQUIPMENT, net		1,316,871,025			1,334,334,637
GOODWILL		18,527,547			18,527,547
OTHER INTANGIBLE ASSETS, net		45,011,432			38,719,325
OTHER ASSETS, net		68,767,635			75,552,531
Total assets	$	1,672,673,148		$	1,700,067,817
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	32,311,243		$	64,320,097
Accrued liabilities		148,330,190			122,275,958
Current portion of long-term notes and other obligations		29,128,592			30,181,424
Liabilities related to discontinued operations		1,489,378			2,850,225
Total current liabilities		211,259,403			219,627,704
LONG-TERM NOTES, NET OF CURRENT PORTION		1,013,844,194			1,064,758,656
OTHER LIABILITIES		135,299,624			103,808,585
Total liabilities		1,360,403,221			1,388,194,945
COMMITMENTS AND CONTINGENCIES REDEEMABLE NONCONTROLLING INTEREST		11,112,898			10,318,386
EQUITY:
Common stock, $0.01 par value, 60,000,000 shares authorized, 16,231,882 and 16,237,851 shares issued and outstanding, respectively		162,319			162,379
Additional paid-in capital		229,623,833			227,386,478
Retained earnings		100,547,877			99,998,441
Accumulated other comprehensive loss		(30,177,000	)		(26,992,812	)
Total stockholders’ equity		300,157,029			300,554,486
Noncontrolling interest		1,000,000			1,000,000
Total equity		301,157,029			301,554,486
Total liabilities and equity	$	1,672,673,148		$	1,700,067,817

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 September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
REVENUES:
Restaurant and hospitality	$	235,901,612		$	224,217,505		$	672,025,748		$	650,001,318
Gaming:
Casino		30,768,936			31,911,212			100,297,635			102,307,294
Rooms		14,747,912			11,778,137			43,710,823			36,625,590
Food and beverage		11,786,598			10,841,517			35,072,294			33,045,827
Other		4,114,066			3,863,607			12,256,930			11,585,914
Promotional allowances		(5,819,092	)		(6,003,115	)		(18,525,194	)		(18,661,757	)
Net gaming revenue		55,598,420			52,391,358			172,812,488			164,902,868
Total revenue		291,500,032			276,608,863			844,838,236			814,904,186
OPERATING COSTS AND EXPENSES:
Restaurant and hospitality:
Cost of revenues		56,584,314			53,710,457			162,820,590			157,479,860
Labor		66,466,234			64,161,951			191,642,138			186,347,548
Other operating expenses		59,237,095			54,143,465			168,798,551			150,186,942
Gaming:
Casino		17,797,842			17,180,494			54,142,605			54,312,094
Rooms		7,015,136			6,025,464			19,575,383			17,407,301
Food and beverage		7,142,652			6,508,405			20,265,470			18,942,321
Other		15,974,732			15,118,272			45,723,720			41,490,246
General and administrative expense		13,424,942			11,544,501			50,347,385			36,225,055
Depreciation and amortization		19,662,245			17,903,473			58,396,800			53,365,171
Asset impairment expense		—			607,584			3,806,778			607,584
Gain on insurance claims		—			(406,994	)		(1,237,856	)		(4,410,642	)
Gain on disposal of assets		—			—			(938,268	)		(1,363,315	)
Pre-opening expenses		288,503			177,867			734,490			893,429
Total operating costs and expenses		263,593,695			246,674,939			774,077,786			711,483,594
OPERATING INCOME		27,906,337			29,933,924			70,760,450			103,420,592
OTHER EXPENSE (INCOME):
Interest expense, net		29,615,190			29,309,564			88,178,433			82,466,181
Other, net		3,221,930			(13,429,264	)		(19,493,676	)		(13,985,261	)
Total other expense		32,837,120			15,880,300			68,684,757			68,480,920
Income (loss) from continuing operations before income taxes		(4,930,783	)		14,053,624			2,075,693			34,939,672
Provision (benefit) for income taxes		340,479			5,025,846			572,968			9,960,259
Income (loss) from continuing operations		(5,271,262	)		9,027,778			1,502,725			24,979,413
Loss from discontinued operations, net of taxes		(18,965	)		(56,226	)		(114,970	)		(154,996	)
Net income (loss)		(5,290,227	)		8,971,552			1,387,755			24,824,417
Less: Net income attributable to noncontolling interest		238,733			165,027			794,512			679,335
Net income (loss) attributable to Landry’s		(5,528,960	)		8,806,525			593,243			24,145,082
Less: Accretion of redeemable noncontrolling interest		—			2,085,410			—			4,811,050
Net income (loss) available to Landry’s common stockholders	$	(5,528,960	)	$	6,721,115		$	593,243		$	19,334,032

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

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LANDRY’S RESTAURANTS, INC.

EARNINGS (LOSS) PER SHARE INFORMATION

EARNINGS (LOSS) PER SHARE INFORMATION:
Amounts available to Landry’s common stockholders:
BASIC
Income (loss) from continuing operations	$	(0.34	)	$	0.42		$	0.04	$	1.21
Loss from discontinued operations		—			—			—		(0.01	)
Net income (loss)	$	(0.34	)	$	0.42		$	0.04	$	1.20
Weighted average number of common shares outstanding		16,240,000			16,140,000			16,240,000		16,140,000
DILUTED
Income (loss) from continuing operations	$	(0.34	)	$	0.42		$	0.04	$	1.20
Loss from discontinued operations		—			(0.01	)		—		(0.01	)
Net income (loss)	$	(0.34	)	$	0.41		$	0.04	$	1.19
Weighted average number of common and common share equivalents outstanding		16,240,000			16,220,000			16,490,000		16,195,000

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 CHANGES IN EQUITY

			Equity
			Stockholders’ Equity
																Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest		Total			Comprehensive Income (Loss)
	Redeemable Noncontrolling Interest									Additional Paid-In Capital			Retained Earnings
			Common Stock
			Shares				Amount
Balance, December 31, 2009	$	10,318,386		16,237,851		��	$	162,379		$	227,386,478		$	99,998,441		$	(26,992,812	)	$	1,000,000	$	301,554,486		$	—
Net income		794,512		—				—			—			593,243			—			—		593,243			1,387,755
Ineffective portion of swaps associated with debt repurchase		—		—				—			—			—			5,548,549			—		5,548,549			5,548,549
Loss on interest rate swaps, net of tax benefit of $4,702,242		—		—				—			—			—			(8,732,737	)		—		(8,732,737	)		(8,732,737	)
Purchase of common stock held for treasury		—		(5,969	)			(60	)		(99,609	)		(43,807	)		—			—		(143,476	)		—
Stock based compensation expense		—		—				—			2,336,964			—			—			—		2,336,964			—
Balance, September 30, 2010	$	11,112,898		16,231,882			$	162,319		$	229,623,833		$	100,547,877		$	(30,177,000	)	$	1,000,000	$	301,157,029		$	(1,796,433	)

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

	Nine Months Ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,387,755		$	24,824,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		58,396,800			53,365,171
Asset impairment expense		3,806,778			607,584
Gain on disposition of assets		(938,268	)		(1,363,315	)
Gain on insurance claims		(1,237,856	)		(4,410,642	)
Gain on repurchase of debt		(32,998,237	)		(19,406,543	)
Gain on business acquisition		(5,926,958	)		—
Changes in assets and liabilities, net and other		48,367,679			14,223,410
Total adjustments		69,469,938			43,015,665
Net cash provided by operating activities		70,857,693			67,840,082
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions		(40,095,382	)		(128,470,353	)
Proceeds from asset dispositions		4,798,821			10,738,594
Increase in restricted cash and cash equivalents		(1,438,653	)		—
Business acquisition, net of cash acquired		(22,043,122	)		—
Net cash used in investing activities		(58,778,336	)		(117,731,759	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for treasury		(143,476	)		(47,931	)
Proceeds from exercise of stock options		—			30,628
Payments of debt		(45,304,916	)		(20,218,590	)
Proceeds from issuance of bonds		49,820,000			390,040,000
Repayment of bonds		(44,000	)		(398,482,000	)
Debt issuance costs		(3,444,740	)		(18,377,186	)
Proceeds from credit facility		165,245,226			271,693,852
Payments on credit facility		(189,856,779	)		(180,816,049	)
Net cash (used in) provided by financing activities		(23,728,685	)		43,822,724
NET DECREASE IN CASH AND CASH EQUIVALENTS		(11,649,328	)		(6,068,953	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		71,584,322			51,066,805
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	59,934,994		$	44,997,852
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest	$	69,879,981		$	72,537,412
Income taxes	$	(12,082,584	)	$	2,435,312
Non-cash investing activities:
Property and equipment additions in accounts payable	$	2,721,172		$	18,703,901

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

We are a national, diversified restaurant, hospitality and entertainment company principally engaged in the ownership and operation of full service, casual dining restaurants, primarily under the names Landry’s Seafood House, Charley’s Crab, The Chart House, Saltgrass Steak House, Rainforest Café, and The Oceanaire Seafood Room. In addition, we own and operate domestically and license internationally rainforest themed restaurants under the trade name Rainforest Cafe, and we own and operate the Golden Nugget Hotels and Casinos in downtown Las Vegas and Laughlin, Nevada and the Kemah Boardwalk in Kemah, Texas.

On October 6, 2010, we completed a merger under which Mr. Tilman J. Fertitta, our Chairman and Chief Executive Officer, acquired all of our outstanding common stock for $24.50 per share in cash. This acquisition of our common stock and related transactions are referred to in this report as the Going Private Transaction. Our board of directors, on the unanimous recommendation of a special committee composed entirely of non-employee directors, approved the agreement and recommended that our stockholders approve the merger. Our stockholders, including those stockholders holding a majority of the common stock not held by Mr. Fertitta, voted to approve the merger agreement at a special meeting held on October 4, 2010.

Principles of Consolidation

The accompanying financial statements include the consolidated accounts of Landry’s Restaurants, Inc., a Delaware holding company, and its wholly and majority owned subsidiaries and partnerships. All significant inter-company 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, 2009. 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, 2009, consolidated financial statements filed with the Securities and Exchange Commission on Form 10-K, as amended by our filing on Form 10-K/A.

Restaurant and hospitality revenues are recognized when the goods and services are delivered. Casino revenues are the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs (“casino front money”) and for chips in the customers possession (“outstanding chip liability”). Revenues are recognized net of certain sales incentives as well as accruals for the cost of points earned in point-loyalty programs. The retail value of accommodations, food and beverage, and other services furnished to hotel-casino guests without charge is deducted from revenue as promotional allowances. Proceeds from the sale of gift cards are deferred and recognized as revenue when redeemed by the holder.

Accounts receivable is comprised primarily of amounts due from our credit card processor, receivables from national storage and distribution companies and, casino and hotel receivables. The receivables from national storage and distribution companies arise when certain of our inventory items are conveyed to these companies at cost (including freight and holding charges but without any general overhead costs). These conveyance transactions do not impact the consolidated statements of income as there is no revenue or expense recognized in the financial statements since they are without economic substance other than drayage. We reacquire these items, although not obligated to, when subsequently delivered to our restaurants at cost plus the distribution company’s contractual mark-up. Accounts receivable are reduced to reflect estimated realizable values by an allowance for doubtful accounts based on historical collection experience and specific review of individual accounts. Receivables are written off when they are deemed to be uncollectible.

Our properties are reviewed for impairment on a property by property basis 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 assets related to discontinued operations.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Financial Instruments

Generally Accepted Accounting Principles (GAAP) establishes a hierarchy for fair value measurements, such that Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, Level 2 measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and Level 3 measurements include those that are unobservable and of a highly subjective measure.

Our financial assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 2010, consist primarily of interest rate swaps (Note 5), for which the lowest level of input significant to their fair value measurement is Level 2. As of September 30, 2010, the fair value of the interest rate swap liabilities totaled $83.6 million, of which $46.4 million are designated and qualify as hedges and the remaining $37.2 million do not qualify as hedges. As of December 31, 2009, the fair value of the interest rate swap liabilities totaled $60.0 million, of which $41.5 million are designated and qualify as hedges and the remaining $18.5 million do not qualify as hedges. These amounts are recorded as other long term liabilities in our consolidated balance sheets. In connection with a non-qualified deferred compensation plan, we use a Rabbi Trust to fund obligations of the plan. The market value of the trust assets as of September 30, 2010 and December 31, 2009 was $4.1 million and $4.0 million respectively, as determined using Level 1 inputs, is included in other assets, net and the liability to plan participants is included in other long term liabilities in our consolidated balance sheets.

The fair values of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate the carrying amounts due to their short maturities. The fair value of our long-term debt instruments are estimated based on quoted market prices, where available, or on the amount of future cash flows associated with each instrument, discounted using our current borrowing rate for comparable debt instruments. The estimated fair values of our significant long-term debt, including the current portions, are as follows:

	September 30, 2010				December 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Libor + 3.0% (1.0% PIK) Revolving credit facility due June 2013	$	42,117,013	$	33,272,440	$	44,755,040	$	30,964,893
Libor + 6.0% (2.0% floor) Revolving credit facility due November 2013		—		—		24,000,000		24,270,000
Libor + 6.0% (2.0% floor) Term Loan due November 2013		141,759,328		142,822,523		153,014,556		154,735,970
Libor + 3.0% (1.0% PIK) First Lien Term Loan due June 2014		325,057,913		256,795,751		325,495,365		225,202,106
Libor + 3.25% Second Lien Term Loan due November 2014		68,987,232		34,493,616		131,817,628		53,386,139
7.0% Seller note due November 2014		4,000,000		3,404,719		4,000,000		4,033,937
7.5% Senior Notes due December 2014		783,000		736,405		783,000		588,973
9.5% Senior Notes due December 2014		691,000		691,230		735,000		665,175
11 5/8% Senior Notes due December 2015		450,415,449		476,314,337		400,168,809		424,178,938
11.39% non-recourse note payable due May 2025		9,161,851		14,892,770		10,170,682		10,471,319
	$	1,042,972,786	$	963,423,791	$	1,094,940,080	$	928,497,450

Recently Adopted Accounting Standards

In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting guidance on accounting for transfers of financial assets which removes the concept of a qualifying special-purpose entity (QSPE) and clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. We adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance did not impact our financial position, cash flows or results of operations.

In June 2009, the FASB issued new accounting guidance which revises the approach to determining the primary beneficiary of a variable interest entity (VIE) to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. We adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance did not impact our financial position, cash flows or results of operations.

In January 2010, the FASB issued guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements, including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. We adopted the new accounting guidance beginning January 1, 2010. This update had no impact on our financial position, cash flows or results of operations.

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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Matters

On October 6, 2010, we completed a merger under which Mr. Tilman J. Fertitta, our Chairman and Chief Executive Officer, acquired all of our outstanding common stock for $24.50 per share in cash. Our board of directors, on the unanimous recommendation of a special committee composed entirely of non-employee directors, approved the agreement and recommended that our stockholders approve the merger. Our stockholders, including those stockholders holding a majority of the common stock not held by Mr. Fertitta, voted to approve the merger agreement at a special meeting held on October 4, 2010.

2. ACQUISITION OF OCEANAIRE, INC.

On April 30, 2010, we completed the acquisition of all the capital stock of The Oceanaire, Inc. (Oceanaire), and all of its subsidiaries in accordance with a plan of reorganization submitted by the unsecured creditors of Oceanaire in a U.S. Bankruptcy court for $23.4 million in cash, plus the assumption of certain additional working capital liabilities. The acquisition of Oceanaire, a seafood restaurant company with 12 locations, provides additional growth within our high end seafood line, as well as a known brand with several excellent locations.

The acquisition was accounted for in accordance with ASC Topic 805,Business Combinations (“ASC 805”). Accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The provisional estimates originally recorded for the tax attributes associated with the transaction and certain leasehold improvements have been revised to reflect finalized fair values. These revisions resulted in a $3.2 million increase in property and equipment and a $2.7 million increase in deferred tax assets resulting in a $5.9 million bargain purchase gain, which we have retrospectively recorded in other, net within our consolidated statements of income for the nine months ending September 30, 2010. The results of operations of Oceanaire have been included in our consolidated financial statements since the date of acquisition.

Under ASC 805, acquisition related costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which the costs are incurred. As of September 30, 2010, we have incurred approximately $1.0 million in acquisition related costs. These amounts are included in general and administrative expense in our consolidated financial statements. No pro forma disclosure for this acquisition is provided as it is not significant to our consolidated financial results.

A summary of assets acquired and liabilities assumed in the acquisition is set forth below:

Estimated fair value of assets acquired
Current assets	$	3,675,997
Property and equipment		24,516,828
Other long term assets		11,146,898
Total assets acquired		39,339,723
Estimated fair value of liabilities assumed
Current liabilities		(5,777,222	)
Other long term liabilities		(4,223,370	)
Total liabilities assumed		(10,000,592	)
Gain on purchase		(5,926,958	)
Allocated purchase price		23,412,173
Less: Cash acquired		(1,369,051	)
Net cash paid	$	22,043,122

3. DISCONTINUED OPERATIONS AND IMPAIRMENT OF LONG LIVED ASSETS

During the third quarter of 2006, as part of a strategic review of our operations, we initiated a plan to divest certain restaurants including 136 Joe’s Crab Shack (“Joe’s”) units. Subsequently, several additional locations were added to our disposal plan. The results of operations for all stores included in our disposal plan have been classified as discontinued operations in our statements of income, balance sheets and segment information for all periods presented. We expect to sell the land and improvements belonging to the remaining restaurants in the disposal plan, or abandon those locations, during the next twelve months.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The results of discontinued operations for the three and nine months ended September 30, 2010 and 2009 were not material.

Our properties are reviewed for impairment on a property by property basis 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 using Level 3 measurements. Properties to be disposed of are reported at the lower of their carrying amount or fair value determined by management’s estimates of expected proceeds supplemented by third party offers or sales contracts, reduced for estimated disposal costs

We recorded no impairment expense during the three months ended September 30, 2010 and $3.8 million for the nine months ended September 30, 2010 to impair the fixed assets of two underperforming restaurants. During the three and nine months ended September 30, 2009, we recorded impairment charges of $0.6 million related to a single restaurant location. Non-recurring fair value measurements related to impaired property and equipment consisted of the following:

Description	September 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments
Long-lived assets held and used	$	568,976	$	—	$	—	$	568,976	$	(3,806,778	)
									$	(3,806,778	)
Description	September 30, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments
Long-lived assets held and used	$	—	$	—	$	—	$	—	$	(607,584	)
									$	(607,584	)

4. ACCRUED LIABILITIES

Accrued liabilities are comprised of the following:

	September 30, 2010		December 31, 2009
Payroll and related costs	$	31,478,311	$	22,120,315
Rent and insurance		26,854,813		28,605,202
Taxes, other than payroll and income taxes		17,086,258		19,717,328
Deferred revenue (gift cards and certificates)		16,237,664		17,537,349
Accrued interest		19,794,740		7,268,622
Casino deposits, outstanding chips and other gaming		9,981,212		10,120,470
Other		26,897,192		16,906,672
	$	148,330,190	$	122,275,958

5. DEBT

On April 28, 2010, we announced the completion of an offering of an additional $47.0 million aggregate principal amount of 11 ⁵/8% senior secured notes due 2015 (the “Additional Notes”) unconditionally guaranteed on a senior secured basis by all of our current and future domestic restricted subsidiaries (the “Guarantors”). The Additional Notes were sold in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and to non-U.S. persons in accordance with Regulation S under the Securities Act. The Additional Notes were registered under the Securities Act in October 2010. Gross proceeds from the Additional Notes of approximately $49.8 million were used to pay for the acquisition of Oceanaire, to reduce outstanding revolver balances and for general corporate purposes.

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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Additional Notes will have the same terms and will be part of the same series as the $406.5 million aggregate principal amount of 11 ⁵/8% senior secured notes due 2015 (the “Initial Notes” and together with the Additional Notes, the “Notes”) which were issued in a private placement which closed on November 30, 2009. The gross proceeds from the offering and sale of the Initial Notes were $400.1 million.

The Notes will mature on December 1, 2015. Interest on the Notes will accrue from November 30, 2009, the date of original issuance of the Initial Notes, at a fixed interest rate of 11 ⁵/8% and we will pay interest twice a year, on each December 1 and June 1, beginning June 1, 2010. The Notes are unconditionally guaranteed on a senior secured basis as to principal, premium, if any, and interest by the Guarantors and are secured by a second lien position on substantially all assets of Landry’s and the Guarantors. At any time prior to December 1, 2012, we may redeem up to 35% of the Notes at a redemption price of 111.625% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds of certain equity offerings. Additionally, on or after December 1, 2012, we may redeem all or a part of the Notes at a premium that will decrease over time as described in the Indenture dated November 30, 2009, as amended (the “Indenture”), among us, the guarantors, Deutsche Bank Trust Company Americas, as collateral agent, and Wilmington Trust FSB, as successor trustee to Deutsche Bank Trust Company Americas. We are required to offer to purchase the Notes at 101% of their aggregate principal amount, plus accrued interest, if we experience a change in control as defined in the Indenture.

On April 26, 2010 and July 23, 2010, we and the Guarantors commenced an offer to exchange the Initial Notes and Additional Notes, respectively, for notes registered under the Securities Act, having substantially identical terms as the Initial Notes. The offer to exchange the Initial Notes was completed on May 28, 2010 and all $406.5 million of the Initial Notes Series A were exchanged for registered Initial Notes Series B. The exchange offer for the Additional Notes was completed in October 2010.

The Indenture under which the Notes have been issued contains covenants that will limit our ability and the ability of the Guarantors to, among other things: incur or guarantee additional indebtedness or issue disqualified capital stock; transfer or sell assets; pay dividends or distributions, redeem subordinated indebtedness, make certain types of investments or make other restricted payments; create or incur liens; incur dividend or other payment restrictions affecting certain subsidiaries; consummate a merger, consolidate or sell of all or substantially all of our assets; enter into transactions with affiliates; designate subsidiaries as unrestricted subsidiaries; engage in business other than a business that is the same or similar to the current business and reasonably related businesses; take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the Notes.

On November 30, 2009, we also amended and restated our Credit Agreement to allow us to borrow $235.6 million (the Amended Credit Facility). The Amended Credit Facility provides for a term loan of $160.6 million and a revolving credit line of $75.0 million. The obligations under the Amended Credit Facility are unconditionally guaranteed by the Guarantors and are secured by a first lien position on substantially all of our assets and the Guarantors. On April 27, 2010, we also amended the Amended Credit Facility to allow for the issuance of the Additional Notes and the acquisition of Oceanaire.

Interest on the Amended Credit Facility accrues at a base rate (which is the greater of 4.0%, the Federal Funds Rate plus .50% or Wells Fargo’s prime rate) plus a credit spread of 5.0%, or at our option, at the Eurodollar base rate but no less than 2.0%, plus a credit spread of 6.0%, and matures on November 30, 2013.

The Amended Credit Facility contains covenants that limit our ability and the ability of the Guarantors to, among other things, incur or guarantee additional indebtedness; create liens; make capital expenditures; pay dividends on or repurchase stock; make certain types of investments; sell assets or merge with other companies. The Amended Credit Facility contains financial covenants, including a maximum leverage ratio, a maximum senior leverage ratio, and a minimum fixed charge coverage ratio.

Proceeds from the Initial Notes and the Amended Credit Facility were used to repay all of our outstanding 14.0% Senior Secured Notes due 2011, pay fees and expenses and provide approximately $73.0 million in restricted cash available to complete a proposed merger of an affiliate of Tilman Fertitta and us. In connection with the repayment of the 14.0% Senior Secured Notes, we expensed $35.6 million in interest expense during the fourth quarter of 2009, primarily associated with early recognition of unamortized discount and deferred loan costs.

During 2008, there was a fully funded financing commitment which included up to $250.0 million in term loans. On December 19, 2008, we entered into an $81.0 million interim senior secured credit facility to fund a portion of the commitment. The interim senior secured credit facility provided for a $31.0 million senior secured term loan facility and a $50.0 million senior secured revolving credit facility, the proceeds of which were used to refinance the remaining outstanding indebtedness under our previously issued and outstanding senior credit facility and to pay related transaction fees and expenses.

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LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

We subsequently funded an additional $135.0 million under the commitment by entering into a $215.6 million Amended and Restated Credit Agreement dated as of February 13, 2009 (the “Credit Agreement”) which included the $81.0 million interim senior secured credit facility. The Credit Agreement provided for a term loan of $165.6 million, which included the $31.0 million term loan, and the revolving credit line of $50.0 million that was previously funded. The obligations under the Credit Agreement were unconditionally guaranteed by the Guarantors and were secured by a first lien position on substantially all of our assets.

On February 13, 2009, we completed an offering of $295.5 million in aggregate principal amount of 14.0% Senior Secured Notes due 2011 (the “Series A Notes”). The gross proceeds from the offering and sale of the Series A Notes were $260.0 million. The Series A Notes were unconditionally guaranteed on a senior secured basis as to principal, premium by the Guarantors and were secured by a second lien position on substantially all of our and the Guarantors’ assets. The Series A Notes were issued pursuant to an indenture, dated as of February 13, 2009 among us, the Guarantors and Deutsche Bank Trust Company America, as Trustee and as Collateral Agent. On July 10, 2009, we and the Guarantors filed a registration statement with respect to an offer to exchange the Series A Notes for notes registered under the Securities Act, having substantially identical terms as the Series A Notes.

On August 14, 2009, we completed our offer to exchange $295.5 million in aggregate principal amount of 14.0% Senior Secured Notes due 2011 (the “Series B Notes”), that have been registered under the Securities Act, for the Series A Notes. An aggregated principal amount of $260.5 million of Series A Notes were exchanged for Series B Notes pursuant to the offer and an aggregate principal amount of $27.0 million Series A Notes were exchanged for Series B Notes pursuant to private exchange. The total principal amount of notes exchanged was $287.5 million.

We used the proceeds from the 2009 Notes offering, together with borrowings under the Credit Agreement to refinance our previous $395.7 million aggregate principal amount of 9.5% senior notes due 2014 (the “9.5% Notes”) and $4.3 million aggregate principal amount of 7.5% senior notes due 2014 (the “7.5% Notes” and, together with the 9.5% Notes, the “Previous Notes”). As of March 31, 2010, $0.8 million of our 7.5% Notes and $0.7 million of our 9.5% Notes remained outstanding. In addition, we paid a redemption premium of approximately $4.0 million in connection with the repurchase of the Previous Notes.

In connection with the refinancing of our Previous Notes, on December 23, 2008, we commenced separate cash tender offers (each a “tender offer” and together, the “tender offers”) to purchase any and all of our outstanding 9.5% Notes and 7.5% Notes for a purchase price of 101% of the principal amount thereof. In conjunction with the tender offers, we solicited consents of at least a majority of the aggregate principal amount of each of the outstanding 9.5% Notes and 7.5% Notes to certain proposed amendments to each of the indentures governing Previous Notes to eliminate most of the restrictive covenants and certain events of default and to amend certain other provisions contained in the indentures and related notes. We executed supplemental indentures with U.S. Bank National Association, as trustee, to effectuate the amendments to the indentures governing the Previous Notes, which became operative upon the consummation of the tender offers.

With respect to any Previous Notes that were not tendered, we may, at our option, either (i) pay such Previous Notes in accordance with their terms through maturity, (ii) repurchase any 9.5% Notes if the holders exercise their option to require us to do so, at 101% of the principal amount plus accrued but unpaid interest, if any, through the payment date or (iii) defease any or all of the remaining Previous Notes.

On February 17, 2010, the Golden Nugget, Inc., a wholly owned, unrestricted subsidiary of ours, entered into Amendment No. 2 and Waiver to the First Lien Credit Agreement (First Lien Second Amendment) by and among Golden Nugget, Inc., Wachovia Bank, National Association, as Administrative Agent, Collateral Agent, Swing Line Bank and Issuing Bank, and each of the Lender parties thereto, dated June 14, 2007.

The First Lien Second Amendment replaced the existing first lien financial covenants with minimum EBITDA, minimum liquidity, minimum cage cash and maximum capital expenditure (CAPEX) covenants. In addition, consenting first lien lenders received a consent fee of 0.5% and all first lien lenders will receive a 0.5% annual consent fee on outstanding commitments through maturity. First lien lenders will also receive additional interest in an amount equal to 1.00% per annum on unpaid advances in the form of “PIK” interest, or at the option of Golden Nugget, cash. The First Lien Second Amendment precludes dividends or other restricted payments, limits incurring additional debt, making investments and other cash distributions from the Golden Nugget, increases the excess cash flow sweep to 75% from 50% if certain liquidity levels are reached and requires additional reporting of financial performance including cash flow reports. Certain potential defaults under the existing First Lien Credit Agreement were waived.

Concurrently with the First Lien Second Amendment, the Golden Nugget entered into Amendment No. 2 and Waiver to the Second Lien Credit Agreement (Second Lien Second Amendment) by and among Golden Nugget, Inc., Wachovia

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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Bank, National Association and the other financial institutions parties thereto, dated June 14, 2007. The Second Lien Second Amendment replaced the existing second lien financial covenants with minimum EBITDA, minimum liquidity, minimum cage cash and maximum CAPEX covenants and waived certain potential defaults under the existing Second Lien Credit Agreement. The Second Lien Second Amendment advances the maturity date on the second lien facility from December 31, 2014 to November 2, 2014. The maturity date on our existing $4.0 million seller note was extended to November 2, 2014 from November 2, 2010.

In connection with these amendments, affiliates of the Golden Nugget agreed to provide $50.0 million in additional funds to the Golden Nugget in return for non-interest bearing subordinated notes. $20.0 million of these funds was used for operating liquidity and to pay fees and expenses associated with the amendments. $30.0 million was available to purchase second lien indebtedness at 40% of face value. At closing, approximately $62.8 million of second lien indebtedness was acquired and retired at 40% of face value and accordingly, a $33.0 million gain was recognized in other income, net during the three months ended March 31, 2010. The remaining balance of the $30.0 million not used to purchase second lien debt by December 31, 2010, if any, will be used to purchase first lien debt at par value. All such purchased debt was immediately retired. The Golden Nugget may also incur up to an additional $8.0 million in affiliate subordinated debt during the remaining term of the First Lien Credit Agreement to meet liquidity requirements.

On September 25, 2009, an unrestricted subsidiary of ours completed the acquisition of $33.2 million face amount of Golden Nugget second lien term loan debt through a dutch tender and open market purchases at a weighted average cost approximating 41% of face value. In connection with the debt purchases, the unrestricted subsidiary agreed to forgive the face amount of the debt acquired and accordingly, a $19.4 million gain was recognized in other income, net during the three months ended September 30, 2009.

Previously, in June 2007, Golden Nugget, Inc. had completed a new $545.0 million credit facility consisting of a $330.0 million first lien term loan, a $50.0 million revolving credit facility, and a $165.0 million second lien term loan. The $330.0 million first lien term loan includes a $120.0 million delayed draw component to finance the expansion at the Golden Nugget Hotel and Casino in Las Vegas, Nevada. The revolving credit facility expires on June 30, 2013 and the first lien term loan matures on June 30, 2014. Both the first lien term loan and the revolving credit facility bear interest at Libor or the bank’s base rate, plus a financing spread of 2.0% and 0.75%, respectively, at September 30, 2010. In addition, the credit facility requires a commitment fee on the unfunded portion for the $50.0 million revolving credit facility. The second lien term loan matures on November 2, 2014 and bears interest at Libor or the bank’s base rate, plus a financing spread of 3.25% and 2.0%, respectively, at September 30, 2010. The financing spreads and commitment fees for the revolving credit facility increase or decrease depending on the leverage ratio as defined in the credit facility. The first lien term loan requires one percent of the outstanding principal balance due annually to be paid in equal quarterly installments commencing on September 30, 2009, with the balance due on maturity. Principal of the second lien term loan is due at maturity. The Golden Nugget’s subsidiaries have granted liens on substantially all real property and personal property as collateral under the credit facility and are guarantors of the credit facility.

The proceeds from the $545.0 million credit facility were used to repay all of the Golden Nugget’s outstanding debt, including its 8.75% Senior Secured Notes due 2011 totaling $155.0 million, plus the outstanding balance of approximately $10.0 million on its former $43.0 million revolving credit facility with Wells Fargo Foothill, Inc. In addition, the proceeds were used to pay associated tender premiums of approximately $8.8 million due to the early redemption of the Senior Secured Notes, plus accrued interest and related transaction fees and expenses. In 2008, the revolver commitment was reduced to $47.0 million and the delayed draw term loan commitment was reduced to $117.5 million as a result of the failure of one of the lending banks.

Consistent with our policy to manage our exposure to interest rate risk and in conformity with the requirements of the first and second lien facilities, we entered into interest rate swaps for all of the first and second lien borrowings of the Golden Nugget that fix the interest rates at between 5.4% and 5.5%, plus the applicable margin. We designated $210.0 million of the first lien interest rate swaps and all of the second lien swaps as cash flow hedges. The swaps mirror the terms of the underlying debt and reset using the same index and terms. As of September 30, 2010, an aggregate $96.0 million in second lien term loan debt has been repurchased and retired, and as such a proportional share of the second lien swaps are no longer an effective cash flow hedge. Accordingly, a $1.8 million and $13.3 million non-cash expense associated with this portion of the swaps was recorded as other expense for the three and nine months ended September 30, 2010, respectively. At September 30, 2010, the remaining portion of these swaps were determined to be highly effective, and no ineffective portion was recognized in income. Included in accumulated other comprehensive loss at September 30, 2010 and December 31, 2009 are unrealized losses, net of income taxes, totaling $30.2 million and $27.0 million, respectively, related to these hedges. The remaining interest rate swaps associated with the $120.0 million of first lien borrowings representing the delayed draw construction loan have not been designated as hedges and the change in fair market value is reflected as other

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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

income/expense in the consolidated financial statements. A non-cash expense of approximately $1.7 million and $1.4 million was recorded related to these interest rate swaps for the three months ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010, we recorded a non-cash expense of approximately $5.5 million and a non-cash gain of $3.5 million for the nine months ended September 30, 2009. The impact of these interest rate swaps was an increase to interest expense of $6.5 million during both the three months ended September 30, 2010 and 2009, and $19.3 million and $17.5 million during the nine months ended September 30, 2010 and 2009, respectively.

Our debt agreements contain various restrictive covenants including minimum EBITDA, 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. As of September 30, 2010, we were in compliance with all such covenants. As of September 30, 2010, we had approximately $17.5 million in letters of credit outstanding, and our available borrowing capacity was approximately $60.3 million.

As a primary result of the extraordinary disruption to the credit markets in 2009, our 2009 financing carried substantially higher interest rates and original issue discount than the previous debt instruments. In addition, the Golden Nugget amendments increase its cash interest rate by 0.5% annually and its total interest rate by 1.5% annually on all first lien debt. These higher interest rates, combined with additional borrowing to provide liquidity and pay fees and expenses for the financing as well as funding the hotel tower at the Golden Nugget, will result in substantially higher interest expense over at least the next few years.

Long-term debt is comprised of the following:

	September 30, 2010			December 31, 2009
$75.0 million revolving credit facility, Libor + 6.0% (floor 2.0%), due November 2013	$	—		$	24,000,000
$160.6 million Term loan, Libor + 6.0% (floor 2.0%) $4.0 million principal paid quarterly beginning June 30, 2009, due November 2013		141,759,328			153,014,556
Senior Notes, 9.5% interest only, due December 2014		691,000			735,000
Senior Notes, 7.5% interest only, due December 2014		783,000			783,000
$453.5 million Senior Notes, 11 5/8% interest only, due December 2015		450,415,449			400,168,809
$47.0 million revolving credit facility, Libor + 3.0%, (1.0% PIK) due June 2013		42,117,013			44,755,040
$327.0 million First Lien Term Loan, Libor + 3.0%, (1.0% PIK) 1.0% of principal paid quarterly beginning September 30, 2009, due June 2014		325,057,913			325,495,365
$165.0 million Second Lien Term Loan, Libor + 3.25%, interest only, due November 2014		68,987,232			131,817,628
Non-recourse note payable, 11.39% interest, principal and interest aggregate $101,762 monthly, due May 2025		9,161,851			10,170,682
$4.0 million seller note, 7.0%, interest paid monthly, due November 2014		4,000,000			4,000,000
Total debt		1,042,972,786			1,094,940,080
Less current portion		(29,128,592	)		(30,181,424	)
Long-term portion	$	1,013,844,194		$	1,064,758,656

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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

6. EARNINGS PER SHARE

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Amounts available to Landry’s common stockholders:
Income (loss) from continuing operations	$	(5,509,995	)	$	6,777,341		$	708,213		$	19,489,028
Loss from discontinued operations, net of taxes		(18,965	)		(56,226	)		(114,970	)		(154,996	)
Net income (loss)	$	(5,528,960	)	$	6,721,115		$	593,243		$	19,334,032
Weighted average common shares outstanding—basic		16,240,000			16,140,000			16,240,000			16,140,000
Dilutive common stock equivalents:
Stock options		—			80,000			250,000			55,000
Weighted average common and common share equivalents outstanding—diluted		16,240,000			16,220,000			16,490,000			16,195,000
Earnings per share—basic
Income (loss) from continuing operations	$	(0.34	)	$	0.42		$	0.04		$	1.21
Loss from discontinued operations		—			—			—			(0.01	)
Net income (loss)	$	(0.34	)	$	0.42		$	0.04		$	1.20
Earnings per share—diluted
Income (loss) from continuing operations	$	(0.34	)	$	0.42		$	0.04		$	1.20
Loss from discontinued operations		—			(0.01	)		—			(0.01	)
Net income (loss)	$	(0.34	)	$	0.41		$	0.04		$	1.19

7. STOCK-BASED COMPENSATION

GAAP requires the recognition of the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant. We have several stock-based employee compensation plans, which are more fully described in our 2009 Annual Report on Form 10-K, as amended.

For both the three months ended September 30, 2010 and 2009, total stock-based compensation expense, which includes both stock options and restricted stock, totaled $0.8 million. For the nine months ended September 30, 2010 and 2009, total stock-based compensation expense totaled $2.3 million and $2.7 million, respectively. Stock-based compensation expense is not reported at the segment level as these amounts are not included in internal measurements of segment operating performance.

No restricted stock or stock options were granted during the nine months ended September 30, 2010. All stock options were terminated in connection with the Going Private Transaction.

8. INCOME TAXES

As of January 1, 2010, we had approximately $15.1 million of unrecognized tax benefits, including $2.4 million of interest and penalties, which represents the amount of unrecognized tax benefits that, if recognized, would favorably impact our effective income tax rate in future periods. There were no material changes in unrecognized benefits for the nine months ended September 30, 2010. It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions at September 30, 2010. Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. We have substantially concluded all U.S. federal income tax matters for years through 2005. Substantially all material state and local income tax matters have been concluded for years through 2004.

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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9. COMMITMENTS AND CONTINGENCIES

Building Commitments

As of September 30, 2010, we had future development, land purchases and construction commitments anticipated to be expended within the next twelve months of approximately $2.9 million, including completion of construction of certain new restaurants. We estimate aggregate capital expenditures for the remainder of the year to be approximately $9.3 million.

In 2003, we purchased the Flagship Hotel and Pier from the City of Galveston, Texas, subject to an existing lease. Under this agreement, we have committed to spend $15.0 million to transform the hotel and pier into a 19^th century style inn and entertainment complex complete with rides, games and food and beverage. The property was significantly damaged by Hurricane Ike in 2008. We are currently in litigation with the former tenant due to its failure to purchase adequate insurance and are evaluating our options concerning the property.

Other Commitments

On February 24, 2006, we acquired 80% of T-Rex Cafe, Inc. from Schussler Creative, Inc. (SCI). The agreement with SCI provides that we can acquire SCI’s 20% interest for up to $35.0 million or that SCI can put its interest to us at a calculated amount as determined in the agreement no earlier than January 2010. During the first quarter of 2009, we determined the redemption was probable and began accreting to the expected redemption value on the expected redemption date as an increase to non-controlling interest in temporary equity and a decrease to retained earnings in our consolidated balance sheets. As of December 31, 2009, the total expected redemption value had been fully accreted.

Certain of our casino employees at the Golden Nugget in Las Vegas, Nevada are members of various unions and are covered by union-sponsored, collective bargained, multi-employer health and welfare and defined benefit pension plans. Under such plans, we recorded expenses of $3.8 million and $3.6 million for the three months ended September 30, 2010 and 2009, respectively, and $10.0 million and $10.5 million for the nine months ended September 30, 2010 and 2009, respectively. The plans’ sponsors have not provided sufficient information to permit us to determine its share of unfunded vested benefits, if any. However, based on available information, we do not believe that unfunded amounts attributable to our casino operations are material.

We are self-insured for most health care benefits for our non-union casino employees. The liability for claims filed and estimates of claims incurred but not reported is included in “accrued liabilities” in the accompanying consolidated balance sheets.

In connection with certain of our discontinued operations, we remain the guarantor or assignor of a number of leased locations. In the event of future default under any of such leased locations, we may be responsible for significant damages to existing landlords which may materially affect our financial condition, operating results and/or cash flows. We estimate that lessee rental payment obligations during the remaining terms of the assignments and subleases approximate $56.1 million at September 30, 2010. We have recorded a liability of $1.3 million with respect to these obligations where it is probable that we will make future cash payments.

Litigation and Claims

On February 5, 2009, the Delaware Litigation, a purported class action and derivative lawsuit, was brought against all members of our board of directors, Fertitta Holdings, and Fertitta Acquisition in the Court of Chancery of the State of Delaware. The lawsuit originally alleged, among other things, a breach of a fiduciary duty by the directors for renegotiating the 2008 proposed transaction merger agreement with the Fertitta entities, allowing Mr. Fertitta to acquire shares of stock in the Company and gain majority control thereof, and terminating the 2008 proposed transaction merger agreement without requiring payment of the reverse termination fee. The suit seeks consummation of the transaction at $21.00 a share or damages representing the difference between $21.00 per share and the price at which class members sold their stock in the open market, or damages for allowing Mr. Fertitta to acquire control of the Company without paying a control premium, or alternately requiring payment of the reverse termination fee or damages for the devaluation of the Company’s stock. Plaintiff has amended its complaint on two occasions and now further alleges, among other things, class action claims against the members of our directors for breach of fiduciary duty related to the 2008 proposed transaction merger agreement and derivative clams against the members of our board of directors for failure to seek a reverse termination fee following the abandonment of the 2008 proposed transaction. Plaintiff also asserts a derivative claim for breach of contract against Mr. Fertitta and Fertitta Acquisition for failure to perform under the 2008 proposed transaction. Plaintiff also alleges that in connection with Mr. Fertitta’s proposal to acquire all of our outstanding shares at $14.75 per share, our board of directors violated their fiduciary duties by failing to ensure that the merger transaction was accomplished by fair dealing and in a fair process. Plaintiff alleges that Fertitta Holdings, Fertitta Acquisition, Parent and Merger Sub knowingly participated in the alleged breaches of fiduciary duty by Mr. Fertitta. On May 23, 2010, the parties delivered a Memorandum of Understanding for Partial Settlement to the Vice Chancellor of the Delaware Chancery Court.

17

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NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On June 22, 2010, following negotiations, the parties to the Delaware Litigation entered into the May Settlement, memorializing the terms of the May 23, 2010 Memorandum of Understanding for Partial Settlement of the Delaware Litigation. The May Settlement will settle and release certain claims that were asserted and/or could have been asserted against the defendants in connection with Counts IV through VIII of the amended complaint. On the same day, the parties submitted the May Settlement to the Delaware Chancery Court.

Thereafter, the parties to the Delaware Litigation agreed to mediate the claims remaining in the Delaware Litigation and not resolved by the May Settlement. On July 7, 2010, the parties to the Delaware Litigation and their respective counsel engaged in a mediation conducted by a retired federal judge, which resulted in the parties reaching an agreement in principle to settle the remaining claims asserted against the defendants in the amended complaint. The parties memorialized the July Settlement in a term sheet executed on July 14, 2010.

On July 23, 2010, the parties entered into the July Settlement Stipulation which would settle and release all remaining claims asserted or that could have been asserted against the defendants in the amended complaint that will not be settled and released pursuant to the May Settlement, including the claims asserted against the defendants in Counts I, II, III and IX of the amended complaint. On July 23, 2010, the parties submitted the July Settlement Stipulation to the Delaware Chancery Court and requested that the Delaware Chancery Court enter a scheduling order for notice and hearing for final approval of the May and July Settlements.

On July 26, 2010, the Delaware Chancery Court entered a scheduling order setting the May and July Settlements for a hearing to consider final approval on October 6, 2010. The court granted final approval on October 6, 2010.

On November 6, 2007, a purported class action lawsuit against Joe’s Crab Shack, Inc. was filed in the Superior Court of California in Los Angeles County by Roberto Martinez. On or about March 24, 2008, the Company was also added as a Defendant as the Company owned the Joe’s Crab Shack locations during a portion of the relevant time period. The lawsuit alleges, among other things, that Joe’s Crab Shack violated the California Labor Code by misclassifying managers as exempt and, therefore, not properly paying overtime wages, and failing to provide mandatory meal or rest breaks or payment in lieu of the break. The Company denies plaintiffs’ claims and is vigorously defending this matter.

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 those matters will have a material adverse effect on our financial position, results of operations or cash flows.

10. INSURANCE RECOVERIES

In connection with flooding damage sustained at our Nashville, Tennessee locations, we recorded asset impairments totaling $5.9 million during the nine months ended September 30, 2010, which were offset entirely by an insurance receivable. We also maintain business interruption insurance coverage and recorded approximately $0.9 million and $2.0 million during the three and nine months ended September 30, 2010, respectively, for amounts to be received related to lost profits. This amount was recorded as revenue in our consolidated financial statements.

On September 13, 2008, Hurricane Ike struck the Gulf Coast of the United States. The difference between impairments of book value arising from Hurricane Ike damage and the associated insurance proceeds resulted in the recognition of a $0.4 million gain during the three months ended September 30, 2009. No gain was recorded for the three months ended September 30, 2010. For the nine months ended September 30, 2010 and 2009, a $1.2 million and $4.4 million gain was recognized, respectively.

We also recorded approximately $0.2 million in business interruption insurance recoveries during the nine months ended September 30, 2009 related to lost profits at our affected locations in Galveston and the Kemah Boardwalk. This amount was recorded as revenue in our consolidated financial statements.

18

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11. SEGMENT INFORMATION

The following table presents certain financial information for continuing operations with respect to our reportable segments:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenue:
Restaurant and hospitality	$	235,901,612		$	224,217,505		$	672,025,748		$	650,001,318
Gaming		55,598,420			52,391,358			172,812,488			164,902,868
Total	$	291,500,032		$	276,608,863		$	844,838,236		$	814,904,186
Unit level profit:
Restaurant and hospitality	$	53,613,969		$	52,201,632		$	148,764,469		$	155,986,968
Gaming		7,668,058			7,558,723			33,105,310			32,750,906
Total	$	61,282,027		$	59,760,355		$	181,869,779		$	188,737,874
Depreciation, amortization and impairment:
Restaurant and hospitality	$	12,520,621		$	13,170,295		$	40,759,545		$	37,953,699
Gaming		7,141,624			5,340,762			21,444,033			16,019,056
Total	$	19,662,245		$	18,511,057		$	62,203,578		$	53,972,755
Income before taxes:
Unit level profit	$	61,282,027		$	59,760,355		$	181,869,779		$	188,737,874
Depreciation, amortization and impairment		19,662,245			18,511,057			62,203,578			53,972,755
General and administrative		13,424,942			11,544,501			50,347,385			36,225,055
Gain on insurance claims		—			(406,994	)		(1,237,856	)		(4,410,642	)
Loss (gain) on disposal of assets		—			—			(938,268	)		(1,363,315	)
Pre-opening		288,503			177,867			734,490			893,429
Interest expense, net		29,615,190			29,309,564			88,178,433			82,466,181
Other expense (income)		3,221,930			(13,429,264	)		(19,493,676	)		(13,985,261	)
Consolidated income (loss) from continuing operations before taxes	$	(4,930,783	)	$	14,053,624		$	2,075,693		$	34,939,672
							September 30, 2010			December 31, 2009
Segment assets:
Restaurant and hospitality							$	806,584,986		$	805,375,785
Gaming								684,485,022			703,718,596
Corporate and other (1)								181,603,140			190,973,436
							$	1,672,673,148		$	1,700,067,817

(1) Includes intersegment eliminations and assets and liabilities related to discontinued operations

12. SUPPLEMENTAL GUARANTOR INFORMATION

In November 2009, we issued, in a private offering, $406.5 million of 11 5/8% Senior Secured Notes due in 2015 (see Note 5). In April 2010, we issued an additional $47.0 million of the 11 5/8% Senior Secured Notes. These notes are fully and unconditionally and joint and severally guaranteed by us and certain of our 100% owned subsidiaries, “Guarantor Subsidiaries”.

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

19

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Unaudited Consolidating Financial Statements

Balance Sheet

September 30, 2010

	Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	3,855,878	$	56,773,013		$	(693,897	)	$	59,934,994
Restricted cash and cash equivalents		74,515,185		—		—			—			74,515,185
Accounts receivable—trade and other, net		7,801,976		7,937,994		4,367,820			—			20,107,790
Inventories		10,914,852		13,298,791		2,769,485			—			26,983,128
Deferred taxes		23,323,647		1,082,638		3,554,492			—			27,960,777
Assets related to discontinued operations		1,500,000		460,344		—			—			1,960,344
Other current assets		5,097,435		2,872,240		4,063,616			—			12,033,291
Total current assets		123,153,095		29,507,885		71,528,426			(693,897	)		223,495,509
PROPERTY AND EQUIPMENT, net		8,520,426		656,225,674		652,124,925			—			1,316,871,025
GOODWILL		—		18,527,547		—			—			18,527,547
OTHER INTANGIBLE ASSETS, net		2,173,029		14,922,181		27,916,222			—			45,011,432
INVESTMENT IN AND ADVANCES TO SUBSIDIARIES		844,712,885		46,313,630		(210,512,037	)		(680,514,478	)		—
OTHER ASSETS, net		30,185,559		6,511,587		32,070,489			—			68,767,635
Total assets	$	1,008,744,994	$	772,008,504	$	573,128,025		$	(681,208,375	)	$	1,672,673,148
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	9,750,289	$	16,235,652	$	7,019,199		$	(693,897	)	$	32,311,243
Accrued liabilities		64,820,524		45,573,762		37,935,904			—			148,330,190
Current portion of long-term debt and other obligations		16,691,000		—		12,437,592			—			29,128,592
Liabilities related to discontinued operations		—		1,489,378		—			—			1,489,378
Total current liabilities		91,261,813		63,298,792		57,392,695			(693,897	)		211,259,403
LONG-TERM NOTES, NET OF CURRENT PORTION		576,957,777		—		436,886,417			—			1,013,844,194
DEFERRED TAXES		—		1,475,052		—			(1,475,052	)		—
OTHER LIABILITIES		28,255,477		21,969,226		85,074,921			—			135,299,624
Total liabilities		696,475,067		86,743,070		579,354,033			(2,168,949	)		1,360,403,221
COMMITMENTS AND CONTINGENCIES
Redeemable noncontrolling interest		11,112,898		—		—			—			11,112,898
TOTAL EQUITY		301,157,029		685,265,434		(6,226,008	)		(679,039,426	)		301,157,029
Total liabilities and equity	$	1,008,744,994	$	772,008,504	$	573,128,025		$	(681,208,375	)	$	1,672,673,148

20

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Consolidating Financial Statements

Balance Sheet

December 31, 2009

	Parent		Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	4,074,225		$	68,574,641		$	(1,064,544	)	$	71,584,322
Restricted cash and cash equivalents		73,076,532		—			—			—			73,076,532
Accounts receivable—trade and other, net		17,268,549		8,097,176			3,365,219			—			28,730,944
Inventories		10,918,326		13,524,572			3,115,596			—			27,558,494
Deferred taxes		11,310,384		980,806			3,367,024			—			15,658,214
Assets related to discontinued operations		2,500,000		460,514			—			—			2,960,514
Other current assets		6,314,582		2,632,425			4,417,750			—			13,364,757
Total current assets		121,388,373		29,769,718			82,840,230			(1,064,544	)		232,933,777
PROPERTY AND EQUIPMENT, net		8,471,808		646,800,684			679,062,145			—			1,334,334,637
GOODWILL		—		18,527,547			—			—			18,527,547
OTHER INTANGIBLE ASSETS, net		2,079,922		8,468,181			28,171,222			—			38,719,325
INVESTMENT IN AND ADVANCES TO SUBSIDIARIES		800,537,567		(12,976,475	)		(179,551,749	)		(608,009,343	)		—
OTHER ASSETS, net		45,907,510		1,951,878			27,693,143			—			75,552,531
Total assets	$	978,385,180	$	692,541,533		$	638,214,991		$	(609,073,887	)	$	1,700,067,817
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	21,055,261	$	19,845,357		$	24,484,023		$	(1,064,544	)	$	64,320,097
Accrued liabilities		43,341,610		45,191,555			33,742,793			—			122,275,958
Income taxes payable		—		740,874			—			(740,874	)		—
Current portion of long-term debt and other obligations		16,735,000		—			13,446,424			—			30,181,424
Liabilities related to discontinued operations		—		2,850,225			—			—			2,850,225
Total current liabilities		81,131,871		68,628,011			71,673,240			(1,805,418	)		219,627,704
LONG-TERM NOTES, NET OF CURRENT PORTION		561,966,365		—			502,792,291			—			1,064,758,656
DEFERRED TAXES		—		1,862,190			—			(1,862,190	)		—
OTHER LIABILITIES		23,414,072		19,140,020			61,254,493			—			103,808,585
Total liabilities		666,512,308		89,630,221			635,720,024			(3,667,608	)		1,388,194,945
COMMITMENTS AND
CONTINGENCIES
Redeemable noncontrolling interest		10,318,386		—			—			—			10,318,386
TOTAL EQUITY		301,554,486		602,911,312			2,494,967			(605,406,279	)		301,554,486
Total liabilities and equity	$	978,385,180	$	692,541,533		$	638,214,991		$	(609,073,887	)	$	1,700,067,817

21

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Three Months Ended September 30, 2010

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
REVENUES
Restaurant and hospitality	$	666,698		$	232,075,808		$	3,956,395		$	(797,289	)	$	235,901,612
Gaming:
Casino		—			—			30,768,936			—			30,768,936
Rooms		—			—			14,747,912			—			14,747,912
Food and beverage		—			—			11,786,598			—			11,786,598
Other		—			—			4,114,066			—			4,114,066
Promotional allowances		—			—			(5,819,092	)		—			(5,819,092	)
Net gaming revenue		—			—			55,598,420			—			55,598,420
Total revenue		666,698			232,075,808			59,554,815			(797,289	)		291,500,032
OPERATING COSTS AND EXPENSES:
Restaurant and hospitality:
Cost of revenues		—			56,042,467			541,847			—			56,584,314
Labor		—			65,542,503			923,731			—			66,466,234
Other operating expenses		313,079			58,314,712			1,406,593			(797,289	)		59,237,095
Gaming:
Casino		—			—			17,797,842			—			17,797,842
Rooms		—			—			7,015,136			—			7,015,136
Food and beverage		—			—			7,142,652			—			7,142,652
Other		—			—			15,974,732			—			15,974,732
General and administrative expense		13,280,524			144,418			—			—			13,424,942
Depreciation and amortization		806,644			11,316,807			7,538,794			—			19,662,245
Pre-opening expenses		—			288,503			—			—			288,503
Total operating costs and expenses		14,400,247			191,649,410			58,341,327			(797,289	)		263,593,695
OPERATING INCOME		(13,733,549	)		40,426,398			1,213,488			—			27,906,337
OTHER EXPENSES (INCOME):
Interest expense, net		18,099,146			(33	)		11,516,077			—			29,615,190
Other, net		(402,480	)		—			3,624,410			—			3,221,930
Total other expense		17,696,666			(33	)		15,140,487			—			32,837,120
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(31,430,215	)		40,426,431			(13,926,999	)		—			(4,930,783	)
PROVISION (BENEFIT) FOR INCOME TAXES		(24,311,470	)		27,158,267			(2,506,318	)		—			340,479
INCOME (LOSS) FROM CONTINUING OPERATIONS		(7,118,745	)		13,268,164			(11,420,681	)		—			(5,271,262	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES		—			(18,965	)		—			—			(18,965	)
EQUITY IN EARNINGS OF SUBSIDIARIES		1,828,518			—			—			(1,828,518	)		—
NET INCOME (LOSS)		(5,290,227	)		13,249,199			(11,420,681	)		(1,828,518	)		(5,290,227	)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		238,733			—			—			—			238,733
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S		(5,528,960	)		13,249,199			(11,420,681	)		(1,828,518	)		(5,528,960	)
LESS: ACCRETION OF REDEEMABLE NONCONTROLLING INTERESTS		—			—			—			—			—
NET INCOME (LOSS) AVAILABLE TO LANDRY’S COMMON STOCKHOLDERS	$	(5,528,960	)	$	13,249,199		$	(11,420,681	)	$	(1,828,518	)	$	(5,528,960	)

22

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Three Months Ended September 30, 2009

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
REVENUES
Restaurant and hospitality	$	616,372		$	220,240,556		$	4,102,585		$	(742,008	)	$	224,217,505
Gaming:
Casino		—			—			31,911,212			—			31,911,212
Rooms		—			—			11,778,137			—			11,778,137
Food and beverage		—			—			10,841,517			—			10,841,517
Other		—			—			3,863,607			—			3,863,607
Promotional allowances		—			—			(6,003,115	)		—			(6,003,115	)
Net gaming revenue		—			—			52,391,358			—			52,391,358
Total revenue		616,372			220,240,556			56,493,943			(742,008	)		276,608,863
OPERATING COSTS AND EXPENSES:
Restaurant and hospitality:
Cost of revenues		—			53,118,754			591,703			—			53,710,457
Labor		—			63,178,789			983,162			—			64,161,951
Other operating expenses		(214,778	)		53,649,930			1,450,321			(742,008	)		54,143,465
Gaming:
Casino		—			—			17,180,494			—			17,180,494
Rooms		—			—			6,025,464			—			6,025,464
Food and beverage		—			—			6,508,405			—			6,508,405
Other		—			—			15,118,272			—			15,118,272
General and administrative expense		11,544,501			—			—			—			11,544,501
Depreciation and amortization		986,609			11,080,480			5,836,384			—			17,903,473
Asset impairment expense		—			—			607,584			—			607,584
Gain on insurance claims		—			(59,076	)		(347,918	)		—			(406,994	)
Loss (gain) on disposal of assets		—			—			—			—			—
Pre-opening expenses		—			177,867			—			—			177,867
Total operating costs and expenses		12,316,332			181,146,744			53,953,871			(742,008	)		246,674,939
OPERATING INCOME		(11,699,960	)		39,093,812			2,540,072			—			29,933,924
OTHER EXPENSES (INCOME):
Interest expense, net		20,410,946			(39	)		8,898,657			—			29,309,564
Other, net		(474,409	)		—			(12,954,855	)		—			(13,429,264	)
Total other expense		19,936,537			(39	)		(4,056,198	)		—			15,880,300
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(31,636,497	)		39,093,851			6,596,270			—			14,053,624
PROVISION (BENEFIT) FOR INCOME TAXES		(12,672,440	)		15,673,543			2,024,743			—			5,025,846
INCOME (LOSS) FROM CONTINUING OPERATIONS		(18,964,057	)		23,420,308			4,571,527			—			9,027,778
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES		—			(56,226	)		—			—			(56,226	)
EQUITY IN EARNINGS OF SUBSIDIARIES		27,935,609			—			—			(27,935,609	)		—
NET INCOME (LOSS)		8,971,552			23,364,082			4,571,527			(27,935,609	)		8,971,552
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		165,027			—			—			—			165,027
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S		8,806,525			23,364,082			4,571,527			(27,935,609	)		8,806,525
LESS: ACCRETION OF REDEEMABLE NONCONTROLLING INTERESTS		2,085,410			—			—			—			2,085,410
NET INCOME (LOSS) AVAILABLE TO LANDRY’S COMMON STOCKHOLDERS	$	6,721,115		$	23,364,082		$	4,571,527		$	(27,935,609	)	$	6,721,115

23

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Nine Months Ended September 30, 2010

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
REVENUES
Restaurant and hospitality	$	1,848,476		$	662,760,301		$	10,012,660		$	(2,595,689	)	$	672,025,748
Gaming:
Casino		—			—			100,297,635			—			100,297,635
Rooms		—			—			43,710,823			—			43,710,823
Food and beverage		—			—			35,072,294			—			35,072,294
Other		—			—			12,256,930			—			12,256,930
Promotional allowances		—			—			(18,525,194	)		—			(18,525,194	)
Net gaming revenue		—			—			172,812,488			—			172,812,488
Total revenue		1,848,476			662,760,301			182,825,148			(2,595,689	)		844,838,236
OPERATING COSTS AND EXPENSES:
Restaurant and hospitality:
Cost of revenues		—			161,447,365			1,373,225			—			162,820,590
Labor		—			189,129,712			2,512,426			—			191,642,138
Other operating expenses		818,941			166,646,391			3,928,908			(2,595,689	)		168,798,551
Gaming:
Casino		—			—			54,142,605			—			54,142,605
Rooms		—			—			19,575,383			—			19,575,383
Food and beverage		—			—			20,265,470			—			20,265,470
Other		—			—			45,723,720			—			45,723,720
General and administrative expense		50,013,381			334,004			—			—			50,347,385
Depreciation and amortization		2,535,551			33,222,206			22,639,043			—			58,396,800
Asset impairment expense		—			3,806,778			—			—			3,806,778
Gain on insurance claims		—			(669,826	)		(568,030	)		—			(1,237,856	)
Loss (gain) on disposal of assets		(938,268	)		—			—			—			(938,268	)
Pre-opening expenses		—			734,490			—			—			734,490
Total operating costs and expenses		52,429,605			554,651,120			169,592,750			(2,595,689	)		774,077,786
OPERATING INCOME		(50,581,129	)		108,109,181			13,232,398			—			70,760,450
OTHER EXPENSES (INCOME):
Interest expense, net		53,796,266			(113	)		34,382,280			—			88,178,433
Other, net		(167,551	)		(5,823,739	)		(13,502,386	)		—			(19,493,676	)
Total other expense		53,628,715			(5,823,852	)		20,879,894			—			68,684,757
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(104,209,844	)		113,933,033			(7,647,496	)		—			2,075,693
PROVISION (BENEFIT) FOR INCOME TAXES		(28,780,264	)		31,463,941			(2,110,709	)		—			572,968
INCOME (LOSS) FROM CONTINUING OPERATIONS		(75,429,580	)		82,469,092			(5,536,787	)		—			1,502,725
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES		—			(114,970	)		—			—			(114,970	)
EQUITY IN EARNINGS OF SUBSIDIARIES		76,817,335			—			—			(76,817,335	)		—
NET INCOME (LOSS)		1,387,755			82,354,122			(5,536,787	)		(76,817,335	)		1,387,755
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		794,512			—			—			—			794,512
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S		593,243			82,354,122			(5,536,787	)		(76,817,335	)		593,243
LESS: ACCRETION OF REDEEMABLE NONCONTROLLING INTERESTS		—			—			—			—			—
				��
NET INCOME (LOSS) AVAILABLE TO LANDRY’S COMMON STOCKHOLDERS	$	593,243		$	82,354,122		$	(5,536,787	)	$	(76,817,335	)	$	593,243

24

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Income

Nine Months Ended September 30, 2009

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
REVENUES
Restaurant and hospitality	$	1,604,650		$	638,829,814		$	11,979,557		$	(2,412,703	)	$	650,001,318
Gaming:
Casino		—			—			102,307,294			—			102,307,294
Rooms		—			—			36,625,590			—			36,625,590
Food and beverage		—			—			33,045,827			—			33,045,827
Other		—			—			11,585,914			—			11,585,914
Promotional allowances		—			—			(18,661,757	)		—			(18,661,757	)
Net gaming revenue		—			—			164,902,868			—			164,902,868
Total revenue		1,604,650			638,829,814			176,882,425			(2,412,703	)		814,904,186
OPERATING COSTS AND EXPENSES:
Restaurant and hospitality:
Cost of revenues		—			155,874,260			1,605,600			—			157,479,860
Labor		—			183,665,766			2,681,782			—			186,347,548
Other operating expenses		(684,329	)		149,288,052			3,995,922			(2,412,703	)		150,186,942
Gaming:
Casino		—			—			54,312,094			—			54,312,094
Rooms		—			—			17,407,301			—			17,407,301
Food and beverage		—			—			18,942,321			—			18,942,321
Other		—			—			41,490,246			—			41,490,246
General and administrative expense		36,225,055			—			—			—			36,225,055
Depreciation and amortization		2,945,235			33,039,191			17,380,745			—			53,365,171
Asset impairment expense		—			—			607,584			—			607,584
Gain on insurance claims		—			(4,062,724	)		(347,918	)		—			(4,410,642	)
Loss (gain) on disposal of assets		(4,931	)					(1,358,384	)		—			(1,363,315	)
Pre-opening expenses		—			893,429			—			—			893,429
Total operating costs and expenses		38,481,030			518,697,974			156,717,293			(2,412,703	)		711,483,594
OPERATING INCOME		(36,876,380	)		120,131,840			20,165,132			—			103,420,592
OTHER EXPENSES (INCOME):
Interest expense, net		56,796,305			(108	)		25,669,984			—			82,466,181
Other, net		3,389,584			(121	)		(17,374,724	)		—			(13,985,261	)
Total other expense		60,185,889			(229	)		8,295,260			—			68,480,920
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(97,062,269	)		120,132,069			11,869,872			—			34,939,672
PROVISION (BENEFIT) FOR INCOME TAXES		(27,682,898	)		34,260,243			3,382,914			—			9,960,259
INCOME (LOSS) FROM CONTINUING OPERATIONS		(69,379,371	)		85,871,826			8,486,958			—			24,979,413
INCOME (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAXES		—			(154,996	)		—			—			(154,996	)
EQUITY IN EARNINGS OF SUBSIDIARIES		94,203,788			—			—			(94,203,788	)		—
NET INCOME (LOSS)		24,824,417			85,716,830			8,486,958			(94,203,788	)		24,824,417
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		679,335			—			—			—			679,335
NET INCOME (LOSS) ATTRIBUTABLE TO LANDRY’S		24,145,082			85,716,830			8,486,958			(94,203,788	)		24,145,082
LESS: ACCRETION OF REDEEMABLE NONCONTROLLING INTERESTS		4,811,050			—			—			—			4,811,050
NET INCOME (LOSS) AVAILABLE TO LANDRY’S COMMON STOCKHOLDERS	$	19,334,032		$	85,716,830		$	8,486,958		$	(94,203,788	)	$	19,334,032

25

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Cash Flows

Nine months ended September 30, 2010

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,387,755		$	82,354,122		$	(5,536,787	)	$	(76,817,335	)	$	1,387,755
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,535,551			33,222,206			22,639,043			—			58,396,800
Asset impairment expense		—			3,806,778			—			—			3,806,778
Gain in debt repurchase		—			—			(32,998,237	)		—			(32,998,237	)
Gain on disposition of assets		(938,268	)		—			—			—			(938,268	)
Gain on insurance claims		—			(669,826	)		(568,030	)		—			(1,237,856	)
Gain on business acquisitions		—			(5,926,958	)		—			—			(5,926,958	)
Change in assets and liabilities, net and other		(13,473,729	)		(66,755,053	)		51,408,479			77,187,982			48,367,679
Total adjustments		(11,876,446	)		(36,322,853	)		40,481,255			77,187,982			69,469,938
Net cash provided (used) by operating activities		(10,488,691	)		46,031,269			34,944,468			370,647			70,857,693
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions		(2,002,292	)		(26,484,570	)		(11,608,520	)		—			(40,095,382	)
Proceeds from disposition of assets		1,952,715			2,278,076			568,030			—			4,798,821
Increase in restricted cash		(1,438,653	)		—			—			—			(1,438,653	)
Business acquisitions, net of cash acquired		—			(22,043,122	)		—			—			(22,043,122	)
Net cash provided by (used in) investing activities		(1,488,230	)		(46,249,616	)		(11,040,490	)		—			(58,778,336	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for treasury		(143,476	)		—			—			—			(143,476	)
Payments of debt and related expenses, net		(12,000,000	)		—			(33,304,916	)		—			(45,304,916	)
Financing proceeds		49,820,000			—			—			—			49,820,000
Repayment of bonds		(44,000	)		—			—			—			(44,000	)
Debt issuance costs		(1,655,603	)		—			(1,789,137	)		—			(3,444,740	)
Proceeds from credit facility		103,000,000			—			62,245,226			—			165,245,226
Payments on credit facility		(127,000,000	)		—			(62,856,779	)		—			(189,856,779	)
Net cash provided (used) in financing activities		11,976,921			—			(35,705,606	)		—			(23,728,685	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			(218,347	)		(11,801,628	)		370,647			(11,649,328	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			4,074,225			68,574,641			(1,064,544	)		71,584,322
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		$	3,855,878		$	56,773,013		$	(693,897	)	$	59,934,994

26

LANDRY’S RESTAURANTS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Unaudited Consolidating Financial Statements

Statement of Cash Flows

Nine Months Ended September 30, 2009

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Entity
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,824,417		$	85,716,830		$	8,486,958		$	(94,203,788	)	$	24,824,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,945,235			33,039,191			17,380,745			—			53,365,171
Asset impairment expense		—			—			607,584			—			607,584
Gain on disposition of assets		(4,931	)		—			(1,358,384	)		—			(1,363,315	)
Gain on insurance claims		—			(4,062,724	)		(347,918	)		—			(4,410,642	)
Gain on repurchase of debt		—			(19,406,543	)		—			—			(19,406,543	)
Change in assets and liabilities, net and other		6,967,194			(64,535,815	)		(23,346,076	)		95,138,107			14,223,410
Total adjustments		9,907,498			(54,965,891	)		(7,064,049	)		95,138,107			43,015,665
Net cash provided (used) by operating activities		34,731,915			30,750,939			1,422,909			934,319			67,840,082
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions		998,432			(33,699,462	)		(95,769,323	)		—			(128,470,353	)
Proceeds from disposition of assets		4,931			347,920			10,385,743			—			10,738,594
Net cash provided by (used in) investing activities		1,003,363			(33,351,542	)		(85,383,580	)		—			(117,731,759	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for treasury		(47,931	)		—			—			—			(47,931	)
Proceeds from exercise of stock options		30,628			—			—			—			30,628
Payments of debt and related expenses, net		(5,003,832	)		—			(15,214,758	)		—			(20,218,590	)
Proceeds from issuance of bonds		390,040,000			—			—			—			390,040,000
Repayment of bonds		(398,482,000	)		—			—			—			(398,482,000	)
Debt issuance costs		(18,089,340	)		—			(287,846	)		—			(18,377,186	)
Proceeds from credit facility		99,633,246			—			172,060,606			—			271,693,852
Payments on credit facility		(103,816,049	)		—			(77,000,000	)		—			(180,816,049	)
Net cash provided by (used in) financing activities		(35,735,278	)		—			79,558,002			—			43,822,724
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		—			(2,600,603	)		(4,402,669	)		934,319			(6,068,953	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—			5,705,232			46,595,810			(1,234,237	)		51,066,805
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		$	3,104,629		$	42,193,141		$	(299,918	)	$	44,997,852

13. SUBSEQUENT EVENTS

On October 6, 2010, we completed a merger under which Mr. Tilman J. Fertitta, our Chairman and Chief Executive Officer, acquired all of our outstanding common stock for $24.50 per share in cash. Our board of directors, on the unanimous recommendation of a special committee composed entirely of non-employee directors, approved the agreement and recommended that our stockholders approve the merger. Our stockholders, including those stockholders holding a majority of the common stock not held by Mr. Fertitta, voted to approve the merger agreement at a special meeting held on October 4, 2010.

On November 5, 2010, we entered into an Agreement and Plan to Merger with Bubba Gump Shrimp Co. Restaurants, Inc. (“Bubba Gump”) whereby we are to acquire Bubba Gump for approximately $112.5 million plus certain assumed liabilities. The transaction is subject to certain regulatory requirements and customary closing conditions.

27

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

Introduction

The following presents an analysis of the results and financial condition of our continuing operations. Except where indicated otherwise, the results of discontinued operations are excluded from this discussion.

We are a national, diversified, restaurant, hospitality and entertainment company principally engaged in the ownership and operation of full service, casual dining restaurants and gaming facilities. We locate our restaurants in high-profile, specialty locations in markets that provide a balanced mix of tourist, convention, business and residential clientele. We focus on providing quality food at reasonable prices while offering a memorable atmosphere for our guests. As of September 30, 2010, we operated 181 restaurants, as well as several limited menu restaurants and other properties, including the Golden Nugget Hotels and Casinos (“Golden Nugget”) in Las Vegas and Laughlin, Nevada.

Going Private Transaction

In August 2009, we established a special committee comprised entirely of independent directors to review strategic alternatives. On November 3, 2009, the special committee recommended that our board accept a proposal from Mr. Fertitta to acquire all of our stock that he does not already own for $14.75 per share, in cash, and the board of directors approved the execution of a merger agreement with companies wholly-owned by Mr. Fertitta (original merger agreement).

On May 23, 2010, we entered into an amendment to the original merger agreement (first amended merger agreement). Pursuant to the first amended merger agreement, Mr. Fertitta agreed to acquire all of our stock that he does not already own for $24.00 per share, in cash.

On June 20, 2010, we entered into a second amendment to the original merger agreement (second amended merger agreement, and collectively with the original merger agreement and the first amended merger agreement, the merger agreement). Pursuant to the second amended merger agreement, Mr. Fertitta agreed to acquire all of our stock that he does not already own for $24.50 per share, in cash. In connection with the second amended merger agreement, we entered into voting agreements with Pershing Square Capital Management, L.P. and Pershing Square GP, LLC and with Richard T. McGuire (collectively, the Pershing Square Group), whereby the Pershing Square Group has agreed to support the merger, subject to the terms and conditions set forth in the voting agreements. As of June 20, 2010, the Pershing Square Group beneficially owned approximately 9.9% of our outstanding shares of common stock.

On May 24, 2010, we announced that a partial settlement (the May Settlement) has been reached to settle derivative and certain other claims against Mr. Fertitta, affiliates of Mr. Fertitta and our directors in the lawsuit entitledLouisiana Municipal Police Employees’ Retirement System, on behalf of itself and all other similarly situated shareholders of Landry’s Restaurants, Inc. and derivatively on behalf of nominal defendant Landry’s Restaurants, Inc. v. Tilman J. Fertitta, et al., C.A. No. 4339-VCL, in the Court of Chancery of the State of Delaware (the Delaware litigation).

On July 15, 2010, we also reached an agreement (the July Settlement) with plaintiff’s attorneys to settle all remaining claims in the Delaware litigation for $14.5 million. Under the July Settlement, defendants will deposit $14.5 million in escrow to pay the class claims and their attorney’s fees. The proceeds of the July Settlement will be paid primarily from existing insurance policies. The July Settlement is subject to approval by the court after notice and a fairness hearing. In addition, we reached agreement on the May settlement to pay attorney’s fees of $8.0 million, subject to court approval all of which have been accrued as of September 30, 2010.

On October 6, 2010, we completed a merger under which Mr. Tilman J. Fertitta, our Chairman and Chief Executive Officer, acquired all of our outstanding common stock for $24.50 per share in cash. Our board of directors, on the unanimous recommendation of a special committee composed entirely of non-employee directors, approved the agreement and recommended that our stockholders approve the merger. Our stockholders, including those stockholders holding a majority of the common stock not held by Mr. Fertitta, voted to approve the merger agreement at a special meeting held on October 4, 2010.

28

Oceanaire Acquisition

On April 30, 2010, we completed the acquisition of all of the capital stock of the Oceanaire, Inc. (Oceanaire), and its wholly owned subsidiaries, a seafood restaurant company with 12 locations, in accordance with a plan of reorganization submitted by the unsecured creditors of Oceanaire in a U.S. Bankruptcy court for $23.4 million in cash, plus the assumption of certain additional working capital liabilities. The acquisition of Oceanaire provides additional growth within our high end seafood line, as well as a known brand.

Nashville Flood

In May 2010, Nashville, Tennessee experienced severe flooding that resulted in closing the Opry Mills Mall where we operated both a Rainforest Café and an Aquarium restaurant. These restaurants remain closed and cannot effectively reopen until the mall reopens. We cannot estimate the reopening date at this time, but believe it may not occur until 2011. We have sufficient insurance for reconstruction, and substantial business interruption coverage, enhanced by rent abatement during the mall closure. There is no assurance that the restaurant will reopen prior to exhausting such coverage.

Other Matters

The restaurant and gaming industries are intensely competitive and affected by changes in consumer tastes and by national, regional, and local economic conditions and demographic trends. The performance of individual restaurants or casinos may be affected by factors such as: traffic patterns, demographic considerations, marketing, weather conditions, and the type, number, and location of competing operations. 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 considering expansion, as well as competitors planning to expand in the same regions. We face significant competition from other casinos in the markets in which we operate and from other 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.

The current economic conditions in the United States have had a negative impact on our results of operations during 2010. A decline in discretionary spending attributable to tighter credit markets, high unemployment, increased home foreclosures, and other factors have impacted our customer’s level of spending on dining out, gaming, and tourism in general. Although recent trends have been more favorable, it is difficult to predict if the current economic conditions will persist, whether they will improve or deteriorate further, and the extent to which our operations will be affected.

29

Results of Operations

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

	Three Months  Ended September 30,						Nine Months  Ended September 30,
	2010			2009			2010			2009
Restaurant and hospitality:
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		24.0	%		24.0	%		24.2	%		24.2	%
Labor		28.2	%		28.6	%		28.5	%		28.7	%
Other operating expenses (1)		25.1	%		24.1	%		25.2	%		23.1	%
Unit Level Profit (1)		22.7	%		23.3	%		22.1	%		24.0	%
Gaming:
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Casino costs		32.0	%		32.8	%		31.3	%		32.9	%
Rooms costs		12.6	%		11.5	%		11.3	%		10.6	%
Food and beverage costs		12.8	%		12.4	%		11.7	%		11.5	%
Other operating expenses (1)		28.8	%		28.9	%		26.5	%		25.1	%
Unit Level Profit (1)		13.8	%		14.4	%		19.2	%		19.9	%

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

Three months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009

Restaurant and Hospitality

Restaurant and hospitality revenues increased $11,684,107, or 5.2%, from $224,217,505 to $235,901,612 for the three months ended September 30, 2010 compared to the prior year comparable period. The change in revenue is the result of the following approximate amounts: acquisition of Oceanaire—increase $12.5 million; new restaurant openings—increase $4.2 million; same store sales (restaurants open all of the first quarter 2010 and 2009)—increase $1.7 million; closed or sold restaurants—decrease $6.9 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 September 30, 2010 and 2009 was 181 and 173, respectively.

Cost of revenues increased $2,873,857, or 5.4%, from $53,710,457 to $56,584,314 for the three months ended September 30, 2010 as compared to the prior year and such expenses as a percentage of revenues remained flat at 24.0% for both three month periods ended September 30, 2009 and 2010. This increase in costs is due primarily to the increase in revenues.

Labor expense increased $2,304,283, or 3.6%, from $64,161,951 to $66,466,234 for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. Labor expenses as a percentage of revenues for 2010 decreased to 28.2% from 28.6% in 2009. The increase in labor expense was primarily associated with increased revenues.

Other operating expenses increased $5,093,630 or 9.4%, from $54,143,465 to $59,237,095 for the three months ended September 30, 2010 as compared to the prior year period and such expenses increased as a percentage of revenues to 25.1% in 2010 from 24.1% in 2009. The increase in expense is primarily related to the increase in revenues and loyalty program costs.

Gaming

Casino revenues decreased $1,142,276, or 3.6%, from $31,911,212 to $30,768,936 for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. This decrease is primarily the result of lower table game revenue, primarily in Las Vegas.

Room revenues increased $2,969,775, or 25.2%, from $11,778,137 to $14,747,912 for the three months ended September 30, 2010 as compared to the prior year period. This increase is the result of additional occupied rooms associated with the opening of Rush Tower in the fourth quarter of 2009.

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Food and beverage revenues increased $945,081, or 8.7%, from $10,841,517 to $11,786,598 for the three months ended September 30, 2010 as compared to the comparable prior year period. This increase is primarily a result of additional occupied rooms associated with the opening of Rush Tower in the fourth quarter of 2009.

Casino expenses increased $617,348, or 3.6%, from $17,180,494 to $17,797,842 for the three months ended September 30, 2010 as compared to the comparable prior year period. This increase is primarily the result of increased promotional expenses.

Room expenses increased $989,672 or 16.4% from $6,025,464 to $7,015,136 for the three months ended September 30, 2010 as compared to the comparable prior year period. This increase is primarily the result of additional occupied rooms associated with the opening of Rush Tower in the fourth quarter of 2009.

Food and beverage expenses increased $634,247 or 9.7% from $6,508,405 to $7,142,652 for the three months ended September 30, 2010 as compared to the comparable prior year period. This increase is primarily the result of additional revenues.

Other expenses increased $856,460, or 5.7%, from $15,118,272 to $15,974,732 for the three months ended September 30, 2010 as compared to the comparable period in the prior year. This increase resulted primarily from increased staffing levels, maintenance, and utilities associated with the opening of Rush Tower in the fourth quarter of 2009.

Consolidated

General and administrative expenses increased $1,880,441, or 16.3%, from $11,544,501 to $13,424,942 for the three months ended September 30, 2010 as compared to the comparable prior year period and increased as a percentage of revenue to 4.6% in 2010 from 4.2% in 2009. This increase is primarily the result of fees and expenses associated with acquisitions, as well as the Going Private Transaction.

Depreciation and amortization expense increased $1,758,772, or 9.8%, from $17,903,473 to $19,662,245 for the three months ended September 30, 2010 as compared to the comparable prior year period as a result of increased depreciation expense associated with the opening of Rush Tower in the fourth quarter of 2009 and the Oceanaire acquisition.

Asset impairment expense was $607,584 for the three months ended September 30, 2009 relating to one closed restaurant. There was no impairment expense for the three months ended September 30, 2010.

We recorded a gain on insurance claims of $406,994 during 2009, representing insurance proceeds associated with Hurricane Ike that exceeded the recorded book value of the assets which were damaged. No gain was recorded in 2010.

Pre-opening expenses increased by $110,636, or 62.2% from $177,867 to $288,503 for the three months ended September 30, 2010 as compared to the comparable prior year period due to increased activity in the period.

Net interest expense for the three months ended September 30, 2010 increased by $305,626, or 1.0%, from $29,309,564 to $29,615,190 as compared to the comparable prior year period. This increase is primarily due to increased borrowings associated with our refinancing, the Oceanaire acquisition, the Going Private Transaction and construction of the Rush Tower at the Golden Nugget.

Other expense amounted to $3,221,930 for the three months ended September 30, 2010 as compared to other income totaling $13,429,264 for the three months ended September 30, 2009. The 2010 amount primarily relates to non-cash charges related to interest rate swaps not considered hedges. The 2009 amount consists primarily of a gain of $19.4 million recognized in connection with the repurchase of an aggregate $33.2 million face amount of the Golden Nugget’s second lien debt by an unrestricted subsidiary of Landry’s. This was partially offset by non-cash losses related to interest rate swaps not considered hedges.

A provision for income taxes of $340,479 was recorded for three months ended September 30, 2010 compared with a provision of $5,025,846 for the three months ended September 30, 2009. The effective tax rate for 2010 was a negative 6.9% compared to 35.8% for the prior year period. The negative rate in 2010 is primarily related to certain non-deductible items.

Nine months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009

Restaurant and Hospitality

Restaurant and hospitality revenues increased $22,024,430, or 3.4%, from $650,001,318 to $672,025,748 for the nine months ended September 30, 2010 compared to the prior year comparable period. The change in revenue is the result of the

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following approximate amounts: acquisition of Oceanaire—increase $22.4 million; new restaurant openings—increase $11.1 million; same store sales (restaurants open all of the first nine months of 2010 and 2009)—decrease $0.3 million; closed or sold restaurants—decrease $13.4 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 September 30, 2010 and 2009 was 181 and 173, respectively.

Cost of revenues increased $5,340,730, or 3.4%, from $157,479,860 to $162,820,590 for the nine months ended September 30, 2010 as compared to the prior year and such expenses as a percentage of revenues for the nine months ended September 30, 2010 were flat at 24.2%. This increase in costs is due primarily to the increase in revenues.

Labor expense increased $5,294,590, or 2.8%, from $186,347,548 to $191,642,138 for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. Labor expenses as a percentage of revenues for 2010 decreased to 28.5% from 28.7% in 2009. The increase in expense was due primarily to the increase in revenues.

Other operating expenses increased $18,611,609, or 12.4%, from $150,186,942 to $168,798,551 for the nine months ended September 30, 2010 as compared to the prior year period and such expenses increased as a percentage of revenues to 25.2% in 2010 from 23.1% in 2009. This increase primarily relates to decreased rent expense in 2009 associated with a $7.5 million lease termination payment received from a landlord, increased revenues as compared to 2009 and increased marketing and promotion expenditures as compared to the comparable prior year period.

Gaming

Casino revenues decreased $2,009,659, or 2.0%, from $102,307,294 to $100,297,635 for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. This decrease is primarily the result of lower table game, slot revenue and hold percentages, primarily in Las Vegas.

Room revenues increased $7,085,233, or 19.3%, from $36,625,590 to $43,710,823 for the nine months ended September 30, 2010 as compared to the prior year period. This increase is the result of additional occupied rooms associated with the opening of Rush Tower in the fourth quarter of 2009, partially offset by reduced average daily room rates in Las Vegas as compared to the prior year period.

Food and beverage revenues increased $2,026,467, or 6.1%, from $33,045,827 to $35,072,294 for the nine months ended September 30, 2010 as compared to the comparable prior year period. This increase is a result of additional occupied rooms associated with the opening of Rush Tower in the fourth quarter of 2009, as well as the temporary closure of certain outlets in the first quarter of 2009 as a cost saving measure.

Other revenues increased $671,016, or 5.8%, from $11,585,914 to $12,256,930 for the nine months ended September 30, 2010 primarily as a result of increased retail and pool revenues in Las Vegas associated with the opening of Rush Tower.

Casino expenses decreased $169,489, or 0.3%, from $54,312,094 to $54,142,605 for the nine months ended September 30, 2010 as compared to the comparable prior year period. This decrease is primarily the result of lower payroll related costs.

Room expenses increased $2,168,082 or 12.5% from $17,407,301 to $19,575,383 for the nine months ended September 30, 2010 as compared to the comparable prior year period. This increase is primarily the result of additional occupied rooms associated with the opening of Rush Tower in the fourth quarter of 2009.

Food and beverage expenses increased $1,323,149, or 7.0%, from $18,942,321 to $20,265,470 for the nine months ended September 30, 2010 as compared to the comparable prior year period. This increase is primarily attributable to increased revenues.

Other expenses increased $4,233,474, or 10.2%, from $41,490,246 to $45,723,720 for the nine months ended September 30, 2010 as compared to the comparable period in the prior year. This increase resulted primarily from increased staffing levels, maintenance, and utilities associated with the opening of Rush Tower in the fourth quarter of 2009 and increased cost of additional retail sales.

Consolidated

General and administrative expenses increased $14,122,330, or 39.0%, from $36,225,055 to $50,347,385 for the nine months ended September 30, 2010 as compared to the comparable prior year period and increased as a percentage of revenue

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to 6.0% in 2010 from 4.4% in 2009. This increase is primarily the result of charges associated with the settlements reached in the Delaware litigation, as well as fees and expenses associated with the Oceanaire and Claim Jumper acquisitions and the Going Private Transaction.

Depreciation and amortization expense increased $5,031,629, or 9.4%, from $53,365,171 to $58,396,800 for the nine months ended September 30, 2010 as compared to the comparable prior year period largely as a result of increased depreciation expense associated with the opening of Rush Tower in the fourth quarter of 2009 and the Oceanaire acquisition.

Asset impairment expense was $3,806,778 for the nine months ended September 30, 2010 as compared to $607,584 recorded in the comparable prior year period. The current year amount relates to two underperforming restaurant locations, while the amount in the prior year relates to one closed restaurant.

We recorded $1,237,856 for the nine months ended September 30, 2010 as income representing insurance proceeds associated with Hurricane Ike that exceeded the book value of the assets which were damaged. Gains recorded in 2009 amounted to $4,410,642.

Gains on disposals of assets amounted to $938,268 for the nine months ended September 30, 2010 as a result of gains on the disposition of two restaurant properties. Gains on disposals of fixed assets amounted to $1,363,315 for the nine months ended September 30, 2009 as a result of a gain on the disposition of property in Galveston, Texas and a single restaurant location.

Pre-opening expenses decreased by $158,939, or 17.8% from $893,429 to $734,490 for the nine months ended September 30, 2010 as compared to the comparable prior year period due to reduced activity during the period.

Net interest expense for the nine months ended September 30, 2010 increased by $5,712,252, or 6.9%, from $82,466,181 to $88,178,433 as compared to the comparable prior year period. This increase is primarily due to increased borrowings associated with our refinancing, the Oceanaire acquisition, the Going Private Transaction and construction of the Rush Tower at the Golden Nugget.

Other income amounted to $19,493,676, for the nine months ended September 30, 2010 as compared to other income totaling $13,985,261 for the nine months ended September 30, 2009. The 2010 amount primarily relates to a $33.0 million gain related to the repurchase of $62.8 million of the Golden Nugget second lien indebtedness, as well as a $5.9 million bargain purchase gain associated with the Oceanaire acquisition, partially offset by non-cash charges of $18.7 million related to interest rate swaps not considered hedges. The 2009 amount is primarily comprised of a gain of $19.4 million recognized in connection with the repurchase of an aggregate $33.2 million face amount of the Golden Nugget’s second lien debt by an unrestricted subsidiary of Landry’s. This gain was partially offset by non-cash losses related to interest rate swaps not considered hedges and $4.0 million in call premiums associated with refinancing our 7.5% and 9.5% senior notes.

A provision for income taxes of $572,968 was recorded for the nine months ended September 30, 2010 compared with a provision of $9,960,259 for the nine months ended September 30, 2009. The effective tax rate for 2010 was 27.6% compared to 28.5% for the prior year period.

Liquidity and Capital Resources

On April 28, 2010, we announced the completion of an offering of an additional $47.0 million aggregate principal amount of 11 ⁵/8% senior secured notes due 2015 (the “Additional Notes”) unconditionally guaranteed on a senior secured basis by all of our current and future domestic restricted subsidiaries (the “Guarantors”). The Additional Notes were sold in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and to non-U.S. persons in accordance with Regulation S under the Securities Act. The Additional Notes were registered under the Securities Act in October 2010. Gross proceeds from the Additional Notes of approximately $49.8 million were used to pay for the acquisition of Oceanaire, to reduce outstanding revolver balances and for general corporate purposes.

On November 30, 2009, we completed the offering of $406.5 million in aggregate principal amount of 11 ⁵/8% senior secured notes due 2015 (the “Initial Notes”). The gross proceeds from the offering and sale of the Initial Notes were $400.1 million, (the Initial Notes and the Additional Notes are herein referred to as the “Notes”). The Notes are unconditionally guaranteed on a senior secured basis as to principal, premium, if any, and interest by all of our current and future domestic restricted subsidiaries (each individually a Guarantor and collectively, the Guarantors) and are secured by a second lien position on substantially all assets of Landry’s and the Guarantors.

On April 26, 2010 and July 23, 2010, we and the Guarantors commenced an offer to exchange the Initial Notes and Additional Notes, respectively, for notes registered under the Securities Act, having substantially identical terms as the Initial

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Notes. The offer to exchange the Initial Notes was completed on May 28, 2010 and all $406.5 million of the Initial Notes Series A were exchanged for registered Initial Notes Series B. The exchange offer for the Additional Notes was completed in October 2010.

The Indenture under which the Notes have been issued contains covenants that will limit our ability and the ability of the Guarantors to, among other things: incur or guarantee additional indebtedness or issue disqualified capital stock; transfer or sell assets; pay dividends or distributions, redeem subordinated indebtedness, make certain types of investments or make other restricted payments; create or incur liens; incur dividend or other payment restrictions affecting certain subsidiaries; consummate a merger, consolidation or sale of all or substantially all assets; enter into transactions with affiliates; designate subsidiaries as unrestricted subsidiaries; engage in business other than a business that is the same or similar to the current business and reasonably related businesses; take or omit to take any actions that would adversely affect or impair in any material respect the collateral securing the Notes.

On November 30, 2009, we also amended and restated our Credit Agreement (the Amended Credit Facility) to allow us to borrow $235.6 million. The Amended Credit Facility provides for a term loan of $160.6 million and a revolving credit line of $75.0 million. The obligations under the Amended Credit Facility are unconditionally guaranteed by the Guarantors and are secured by a first lien position on substantially all assets of Landry’s and the Guarantors.

Interest on the Amended Credit Facility accrues at a base rate (which is the greater of 4.0%, the Federal Funds Rate plus 0.5% or Wells Fargo’s prime rate) plus a credit spread of 5.0%, or at our option, at the Eurodollar base rate but no less than 2.0%, plus a credit spread of 6.0%, and matures on November 30, 2013.

The Amended Credit Facility contains covenants that limit our ability and the ability of the Guarantors to, among other things, incur or guarantee additional indebtedness; create liens; make capital expenditures; pay dividends on or repurchase stock; make certain types of investments; sell assets or merge with other companies. The Amended Credit Facility contains financial covenants, including a maximum leverage ratio, a maximum senior leverage ratio, and a minimum fixed charge coverage ratio.

Proceeds from the Initial Notes and the Amended Credit Facility were used to repay all of our then outstanding 14.0% Senior Secured Notes due 2011, pay fees and expenses and provide approximately $73.0 million in restricted cash available to complete a proposed merger of an affiliate of Tilman Fertitta and us. In connection with the repayment of the 14.0% Senior Secured Notes, we expensed $35.6 million in interest expense, primarily associated with early recognition of unamortized discount and deferred loan costs.

On February 13, 2009, we completed an offering of $295.5 million in aggregate principal amount of 14.0% Senior Secured Notes due 2011 (the “Series A Notes”). The gross proceeds from the offering and sale of the Series A Notes were $260.0 million were used in conjunction with borrowing under our then outstanding credit facility to refinance substantially all of our outstanding $400.0 million of 9.5% and 7.5% senior notes due 2014. The Series A Notes were unconditionally guaranteed by the Guarantors and were secured by a second lien position on substantially all of our and the Guarantors’ assets.

On February 17, 2010, the Golden Nugget, Inc., a wholly owned, unrestricted subsidiary of ours, entered into Amendment No. 2 and Waiver to the First Lien Credit Agreement (First Lien Second Amendment) by and among Golden Nugget, Inc., Wachovia Bank, National Association, as Administrative Agent, Collateral Agent, Swing Line Bank and Issuing Bank, and each of the Lender parties thereto, dated June 14, 2007.

The First Lien Second Amendment replaced the existing first lien financial covenants with minimum EBITDA, minimum liquidity, minimum cage cash and maximum capital expenditure (CAPEX) covenants. In addition, consenting First Lien lenders received a consent fee of 0.5% and all First Lien lenders will receive a 0.5% annual consent fee on outstanding commitments through maturity. First Lien Lenders will also receive additional interest in an amount equal to 1.00% per annum on unpaid Advances in the form of “PIK” interest, or at the option of Golden Nugget, cash. The First Lien Second Amendment precludes dividends or other restricted payments, limits incurring additional debt, making investments and other cash distributions from the Golden Nugget, increases the excess cash flow sweep to 75% from 50% if certain liquidity levels are reached and requires additional reporting of financial performance including cash flow reports. Certain potential defaults under the existing First Lien Credit Agreement were waived.

Concurrently with the First Lien Second Amendment, the Golden Nugget entered into Amendment No. 2 and Waiver to the Second Lien Credit Agreement (Second Lien Second Amendment) by and among Golden Nugget, Inc., Wachovia Bank, National Association and the other financial institutions parties thereto, dated June 14, 2007. The Second Lien Second Amendment replaced the existing second lien financial covenants with minimum EBITDA, minimum liquidity, minimum

34

cage cash and maximum CAPEX covenants and waived certain potential defaults under the existing Second Lien Credit Agreement. The Second Lien Second Amendment advances the maturity date on the second lien facility from December 31, 2014 to November 2, 2014. The maturity date on the existing $4.0 million Seller note was extended to November 2, 2014 from November 2, 2010.

In connection with the Golden Nugget amendments, affiliates of the Golden Nugget provided $50.0 million in additional funds to the Golden Nugget in return for non-interest bearing subordinated notes. $20.0 million of these funds was used for operating liquidity and to pay fees and expenses associated with the amendments. $30.0 million was available to purchase second lien indebtedness at 40% of face value. At closing, approximately $62.8 million of second lien indebtedness was acquired and retired at 40% of face value and accordingly, a $33.0 million gain was recognized in other income, net during the three months ended March 31, 2010. The remaining balance of the $30.0 million not used to purchase second lien debt by December 31, 2010, if any, will be used to purchase first lien debt at par value. All such purchased debt shall be immediately retired. The Golden Nugget may also incur up to an additional $8.0 million in affiliate subordinated debt during the remaining term of the First Lien Credit Agreement to meet liquidity requirements.

On September 25, 2009, an unrestricted subsidiary of Landry’s completed the acquisition of $33.2 million face amount of Golden Nugget second lien term loan debt through a dutch tender and open market purchases at a weighted average cost approximating 41% of face value. In connection with the debt purchases, the unrestricted subsidiary agreed to forgive the face amount of the debt acquired and accordingly, a $19.4 million gain was recognized in other income, net during the three months ended September 30, 2009.

Previously in June 2007, our wholly owned unrestricted subsidiary, Golden Nugget, Inc., completed a new $545.0 million credit facility consisting of a $330.0 million first lien term loan, a $50.0 million revolving credit facility, and a $165.0 million second lien term loan. The $330.0 million first lien term loan includes a $120.0 million delayed draw component to finance the expansion at the Golden Nugget Hotel and Casino in Las Vegas, Nevada. The revolving credit facility expires on June 30, 2013 and the first lien term loan matures on June 30, 2014. Both the first lien term loan and the revolving credit facility bear interest at Libor or the bank’s base rate, plus a financing spread of 2.0% and 0.75%, respectively, at September 30, 2010. In addition, the credit facility requires a commitment fee on the unfunded portion for both the $50.0 million revolving credit facility and the $120.0 million delayed draw component of the first lien term loan. The second lien term loan matures on November 2, 2014 and bears interest at Libor or the bank’s base rate, plus a financing spread of 3.25% and 2.0%, respectively, at September 30, 2010. The financing spreads and commitment fees for the revolving credit facility increase or decrease depending on the leverage ratio as defined in the credit facility. The first lien term loan requires one percent of the outstanding principal balance due annually to be paid in equal quarterly installments commencing on September 30, 2009, with the balance due on maturity. Principal of the second lien term loan is due at maturity. The Golden Nugget’s subsidiaries have granted liens on substantially all real property and personal property as collateral under the credit facility and are guarantors of the credit facility.

Consistent with our policy to manage our exposure to interest rate risk and in conformity with the requirements of the first and second lien facilities, we entered into interest rate swaps for all of the first and second lien borrowings of the Golden Nugget that fix the interest rates at between 5.4% and 5.5%, plus the applicable margin. We designated $210.0 million of the first lien interest rate swaps and all of the second lien swaps as cash flow hedges. The swaps mirror the terms of the underlying debt and reset using the same index and terms. As of September 30, 2010, an aggregate $96.0 million in second lien term loan debt has been repurchased and retired, and as such a proportional share of the second lien swaps are no longer an effective cash flow hedge. Accordingly, a $1.8 million and $13.3 million non-cash expense associated with this portion of the swaps was recorded as other expense for the three and nine months ended September 30, 2010, respectively. At September 30, 2010, the remaining portion of these swaps were determined to be highly effective, and no ineffective portion was recognized in income. Included in accumulated other comprehensive loss at September 30, 2010 and December 31, 2009 are unrealized losses, net of income taxes, totaling $30.2 million and $27.0 million, respectively, related to these hedges. The remaining interest rate swaps associated with the $120.0 million of first lien borrowings representing the delayed draw construction loan have not been designated as hedges and the change in fair market value is reflected as other income/expense in the consolidated financial statements. A non-cash expense of approximately $1.7 million and $1.4 million was recorded related to these interest rate swaps for the three months ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010, we recorded a non-cash expense of approximately $5.5 million and a non-cash gain of $3.5 million for the nine months ended September 30, 2009. The impact of these interest rate swaps was an increase to interest expense of $6.5 million during both the three months ended September 30, 2010 and 2009, and $19.3 million and $17.5 million during the nine months ended September 30, 2010 and 2009, respectively.

Our debt agreements contain various restrictive covenants including minimum EBITDA, fixed charge, net worth, and financial leverage ratios as well as limitations on dividend payments, capital expenditures and other restricted payments as

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defined in the agreements. As of September 30, 2010, we were in compliance with all such covenants. As of September 30, 2010, we had approximately $17.5 million in letters of credit outstanding, and our available borrowing capacity was approximately $60.3 million.

As a primary result of the extraordinary disruption to the credit markets in 2009, our 2009 financing carried substantially higher interest rates and original issue discount than the previous debt instruments. In addition, the Golden Nugget amendments increase its cash interest rate by 0.5% annually and its total interest rate by 1.5% annually on all first lien debt. These higher interest rates, combined with additional borrowing to provide liquidity and pay fees and expenses for the financing as well as to fund the hotel tower at the Golden Nugget, will result in substantially higher interest expense over at least the next few years.

Working capital decreased from $13.3 million as of December 31, 2009 to $12.2 million as of September 30, 2010. Cash flow to fund future operations, new restaurant development and acquisitions will be generated from operations, available capacity under our credit facilities and additional financing, if appropriate.

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 for the next twelve months.

Capital expenditures for the nine months ended September 30, 2010 were $25.6 million. We expect capital expenditures to be approximately $9.3 million for the remainder of the year.

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 the other two quarters. We have and will continue to open restaurants in highly seasonal tourist markets. 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. Goodwill and other non-amortizing intangible assets are reviewed for impairment at least annually. Significant estimates used in these reviews include projected operating results and cash flows, discount rates, terminal value growth rates, capital expenditures, changes in future working capital requirements, cash flow multiples, control premiums and assumed royalty rates. 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 values, reduced for estimated disposal costs, and are included in other current assets.

We operate approximately 181 restaurants and periodically we expect to experience unanticipated individual unit deterioration in revenues and profitability, on a short-term and occasionally longer-term basis. When such events occur and we determine that the associated assets are impaired, we will record an asset impairment expense in the quarter such determination is made. Due to our average restaurant net investment cost, such amounts could be significant when and if they occur. However, such asset impairment expense does not affect our financial liquidity, and is usually excluded from many valuation model calculations.

We maintain a large deductible insurance policy related to property, general liability and workers’ compensation coverage. Predetermined loss limits have been arranged with insurance companies to limit our per occurrence cash outlay. Accrued expenses and other liabilities include estimated costs to settle unpaid claims and estimated incurred but not reported claims using actuarial methodologies.

GAAP requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carry forwards and certain temporary differences. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be recognized. We regularly assess the likelihood of realizing the deferred tax assets based on forecasts of future taxable income and available tax planning strategies that could be implemented and adjust the related valuation allowance if necessary.

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Our income tax returns are subject to examination by the Internal Revenue Service and other tax authorities. We regularly assess the potential outcomes of these examinations in determining the adequacy of our provision for income taxes and our income tax liabilities. Inherent in our determination of any necessary reserves are assumptions based on past experiences and judgments about potential actions by taxing authorities. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We believe that we have adequately provided for any reasonable and foreseeable outcome related to uncertain tax matters.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived assets and costs to settle unpaid claims. Actual results may differ materially from those estimates.

Recent Accounting Pronouncements

In September 2009, the FASB amended authoritative guidance associated with multiple-deliverable revenue arrangements. This amended guidance addresses the determination of when individual deliverables within an arrangement may be treated as separate units of accounting and modifies the manner in which consideration is allocated across the separately identifiable deliverables. The amendments to authoritative guidance associated with multiple-deliverable revenue arrangements are effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the potential impact this guidance may have on our consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06,Improving Disclosures about Fair Value Measurements(“ASU No. 2010-06”). The new standard addresses, among other things, guidance regarding activity in Level 3 fair value measurements. Portions of ASU No. 2010-06 that relate to the Level 3 activity disclosures are effective for the annual reporting period beginning after December 15, 2010. We are currently evaluating the potential impact this guidance may have on our consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-16,“Accruals for Casino Jackpot Liabilities”, which clarifies when a casino entity is required to accrue a jackpot liability. ASU No. 2010-16 will be effective for fiscal years beginning on or after December 15, 2010, with early adoption permitted. We are currently evaluating the potential impact this guidance may have on our consolidated financial statements.

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 commodity costs, labor costs, including expected future increases in federal and state minimum wages, energy costs, and land and construction costs could adversely affect our profitability and ability to expand.

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 September 30, 2010, included $190.7 million of floating-rate debt attributed to borrowings at an average interest rate of 7.0%. As a result, our annual interest cost in 2010 will fluctuate based on short-term interest rates.

Consistent with our policy to manage our exposure to interest rate risk, and in conformity with the requirements of our first and second lien facilities, we entered into interest rate swaps with notional amounts covering all of the first and second lien borrowings of the Golden Nugget. The hedges are designed to convert the lien facilities’ floating interest rates to fixed rates at between 5.4% and 5.5%, plus the applicable margin.

The impact on annual cash flow of a ten percent change in the floating-rate (approximately 0.7%) would be approximately $1.3 million annually based on the floating-rate debt and other obligations outstanding at September 30, 2010; however, there are no assurances that possible rate changes would be limited to such amounts.

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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 September 30, 2010, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2010, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. During the nine months ended September 30, 2010, 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.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

On February 5, 2009, the Delaware Litigation, a purported class action and derivative lawsuit, was brought against all members of our board of directors, Fertitta Holdings, and Fertitta Acquisition in the Court of Chancery of the State of Delaware. The lawsuit originally alleged, among other things, a breach of a fiduciary duty by the directors for renegotiating the 2008 proposed transaction merger agreement with the Fertitta entities, allowing Mr. Fertitta to acquire shares of stock in the Company and gain majority control thereof, and terminating the 2008 proposed transaction merger agreement without requiring payment of the reverse termination fee. The suit seeks consummation of the transaction at $21.00 a share or damages representing the difference between $21.00 per share and the price at which class members sold their stock in the open market, or damages for allowing Mr. Fertitta to acquire control of the Company without paying a control premium, or alternately requiring payment of the reverse termination fee or damages for the devaluation of the Company’s stock. Plaintiff has amended its complaint on two occasions and now further alleges, among other things, class action claims against the members of our directors for breach of fiduciary duty related to the 2008 proposed transaction merger agreement and derivative clams against the members of our board of directors for failure to seek a reverse termination fee following the abandonment of the 2008 proposed transaction. Plaintiff also asserts a derivative claim for breach of contract against Mr. Fertitta and Fertitta Acquisition for failure to perform under the 2008 proposed transaction. Plaintiff also alleges that in connection with Mr. Fertitta’s proposal to acquire all of our outstanding shares at $14.75 per share, our board of directors violated their fiduciary duties by failing to ensure that the merger transaction was accomplished by fair dealing and in a fair process. Plaintiff alleges that Fertitta Holdings, Fertitta Acquisition, Parent and Merger Sub knowingly participated in the alleged breaches of fiduciary duty by Mr. Fertitta. On May 23, 2010, the parties delivered a Memorandum of Understanding for Partial Settlement to the Vice Chancellor of the Delaware Chancery Court.

On June 22, 2010, following negotiations, the parties to the Delaware Litigation entered into the May Settlement, memorializing the terms of the May 23, 2010 Memorandum of Understanding for Partial Settlement of the Delaware Litigation. The May Settlement will settle and release certain claims that were asserted and/or could have been asserted against the defendants in connection with Counts IV through VIII of the amended complaint. On the same day, the parties submitted the May Settlement to the Delaware Chancery Court.

Thereafter, the parties to the Delaware Litigation agreed to mediate the claims remaining in the Delaware Litigation and not resolved by the May Settlement. On July 7, 2010, the parties to the Delaware Litigation and their respective counsel engaged in a mediation conducted by a retired federal judge, which resulted in the parties reaching an agreement in principle to settle the remaining claims asserted against the defendants in the amended complaint. The parties memorialized the July Settlement in a term sheet executed on July 14, 2010.

On July 23, 2010, the parties entered into the July Settlement Stipulation which would settle and release all remaining claims asserted or that could have been asserted against the defendants in the amended complaint that will not be settled and released pursuant to the May Settlement, including the claims asserted against the defendants in Counts I, II, III and IX of the amended complaint. On July 23, 2010, the parties submitted the July Settlement Stipulation to the Delaware Chancery Court and requested that the Delaware Chancery Court enter a scheduling order for notice and hearing for final approval of the May and July Settlements.

On July 26, 2010, the Delaware Chancery Court entered a scheduling order setting the May and July Settlements for a hearing to consider final approval on October 6, 2010. The court granted final approval on October 6, 2010.

On November 6, 2007, a purported class action lawsuit against Joe’s Crab Shack, Inc. was filed in the Superior Court of California in Los Angeles County by Roberto Martinez. On or about March 24, 2008, the Company was also added as a

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Defendant as the Company owned the Joe’s Crab Shack locations during a portion of the relevant time period. The lawsuit alleges, among other things, that Joe’s Crab Shack violated the California Labor Code by misclassifying managers as exempt and, therefore, not properly paying overtime wages, and failing to provide mandatory meal or rest breaks or payment in lieu of the break. The Company denies plaintiffs’ claims and is vigorously defending this matter.

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 those matters will have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 1A. Risk Factors

There have been no material changes to the Risk Factors disclosed in our 2009 Annual Report on Form 10-K.

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. In March, July and November 2007 and August 2010, we authorized an additional $50.0 million, $75.0 million, $1.5 million and $750 thousand, respectively, of open market stock repurchases. These programs have resulted in our aggregate repurchasing of approximately 24.0 million shares of common stock for approximately $472.6 million through September 30, 2010.

All repurchases of our common stock during the quarter ended September 30, 2010 were made pursuant to our open market stock repurchase program. We have exhausted substantially all funds authorized for purchases under previously existing programs. The following table summarizes repurchases of our common stock during the quarter ended September 30, 2010 pursuant to our open market stock purchase 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
July 1 - 31, 2010		—	$	—		—	$	21,048
Aug 1 - 31, 2010		4,143	$	24.28		4,143	$	670,456
Sep 1 - 30, 2010		—	$	—		—	$	670,456
Total shares purchased		4,143	$	24.28		4,143	$	670,456

On October 6, 2010, we completed a merger under which Mr. Tilman J. Fertitta, our Chairman and Chief Executive Officer, acquired all of our outstanding common stock for $24.50 per share in cash. Our board of directors, on the unanimous recommendation of a special committee composed entirely of non-employee directors, approved the agreement and recommended that our stockholders approve the merger. Our stockholders, including those stockholders holding a majority of the common stock not held by Mr. Fertitta, voted to approve the merger agreement at a special meeting held on October 4, 2010.

ITEM 6. Exhibits

The following Exhibits are set forth herein:

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

Executive Vice President and

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: November 9, 2010

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