Landry’s Restaurant’s, Inc

TABLE OF CONTENTS

SECTION PAGE REFERENCE

Executive Summary 1

Landry’s, Inc Company Background 1

Landry’s, Inc Peer Group Analysis 2

Business Strategy Analysis 3

Value Creation for Customers 4

Value Retention for Shareholders 4

Key Success Factors 5

Business Risks to Value Proposition/Business Model 5

Long-Term Growth Strategy 6

Accounting Analysis 6

Key Accounting Policies 6

Degree of Accounting Flexibility 7

Corporate Accounting Strategy 7

Quality of Disclosure 8

Red Flags Associated with Corporate Accounting Strategy 8

Financial Analysis 9

Quality of Earnings Analysis 9

Return on Equity Analysis 9

Operating Strategy Analysis 10

Investing Strategy Analysis 11

Financing Strategy Analysis 12

Conclusions & Recommendations 13

Exhibits 14 to 18

Executive Summary:

Landry’s Restaurant’s, Inc. is America’s fastest growing casual dining seafood restaurant company. Aside from its core business, Landry’s portfolio also includes some of the finest non-seafood eating establishments like Rainforest Cafй, Saltgrass Steak House, and Vic & Anthony’s. The company has expanded rapidly through acquisition and has plans to grow one of its core restaurants, Joe’s Crab Shack, from 145 units to over 500 in the next ten years. In the last year, Landry’s financing decisions have led to strong operating cash flows. Additionally, by taking advantage of historically low interest rates and strong market demand, the organization was able to improve its working capital position, enhance its capital allocation strategy, and situate itself in a place to take advantage of opportunities to drive shareholder value within the restaurant, entertainment, hospitality, and gaming arenas.

Although expansion will fuel future revenue growth, Landry’s, Inc. must maintain operational efficiency if it intends to maintain positive cash flows. Given the competitive nature of the industry, as well as rising costs associated with fuel, labor, and food, focused acquisition is key to the long-term stability of the organization; simply adding units without thoroughly assessing the cost/benefit of the acquisition will dilute future earnings and diminish shareholder value. This paper will present a five-year historical analysis of company operations and performance and provide detail behind our recommendation on a short-term hold position on the company’s stock.

Company Background:

Landry’s Restaurants, Inc. (NYSE: LNY) is a national, diversified restaurant company engaged in the ownership and operation of full-service, casual dining restaurants. Operating over 300 restaurants in 36 states, Landry’s is the second largest full-service seafood restaurant operator in the United States. The company, headquartered in Houston, TX, opened its first Landry’s Seafood House restaurant in 1980, and has since expanded with the acquisitions of other restaurant chains, including Joe’s Crab Shack, Rainforest Cafй, Inc., and the Chart House. Its recent foray into the gaming and hospitality industry demonstrates its commitment to the development of well-known and respected brands, as well as its unending desire to provide its customer with a memorable experience that exceeds expectations. Further, LNY’s overall strategy of growth through acquisition goes hand-in-hand with its dedication to driving shareholder value through the development of strong brands and operational excellence, which the company feels will engender long-term profitability.

Fiscal year 2004 was marked by solid revenue, earnings-per-share, and net income growth. In 2004, Landry’s enjoyed sales of approximately $1,167.4M, which represented a 5.6% increase over fiscal 2003. This revenue stream is derived from two primary areas: