Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

The aggregate market value of the shares of Common Stock of the registrant held by nonaffiliates of the registrant as of November 3, 2003, was approximately $55,022,819 (based upon the assumption that directors and executive officers are the only affiliates).

The aggregate market value of the shares of Common Stock of the registrant held by nonaffiliates of the registrant as of February 12, 2003, was approximately $26,545,468 (based upon the assumption that directors and executive officers are the only affiliates).

As of November 3, 2003, there were 22,470,004 shares of the registrant's Common Stock outstanding, which does not include 4,933,063 treasury shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following document are incorporated by reference into the designated parts of this Form 10-K:

Luby's, Inc. was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby's Restaurants Limited Partnership, a Texas limited partnership composed of two wholly owned, indirect corporate subsidiaries of the Company.  All restaurant operations are conducted by the partnership.  Unless the context indicates otherwise, the word "Company" as used herein includes the partnership and the consolidated corporate subsidiaries of Luby's, Inc.

As of November 3, 2003, the Company operated 144 restaurants under the name "Luby's."  These establishments are located in close proximity to retail centers, business developments, and residential areas throughout seven states (listed under Item 2).  Of the 144 restaurants, 97 are at locations owned by the Company and 47 are on leased premises.  Two of the restaurants primarily serve seafood, one is a steak buffet, four are full-time buffets, 22 are cafeteria-style restaurants with all-you-can-eat options, and 115 are traditional cafeterias.

The Company's historical marketing research has shown that its products appeal to a broad range of value-oriented consumers with particular success among families with children, seniors, shoppers, travelers, and business people looking for a quick, homestyle meal at a reasonable price.  During fiscal 2003, the Company spent approximately 0.6% of its sales on traditional marketing venues, including newsprint, radio, point-of-purchase, and local-store marketing.  Also in fiscal 2003, the Company continued to invest in distinctive store marquees to enhance guest awareness of specific store promotions.  The total number of operating locations with marquees as of the end of fiscal 2003 was 103.

Luby's restaurants are generally open for lunch and dinner seven days a week.  All of the restaurants sell take-out orders, and many of them have separate food-to-go entrances, which provide guests the option of enjoying complete and flavorful meals at the office or at home.  Take-out orders accounted for 12.9% of sales in fiscal 2003.  Breakfast is served on weekends in 38 of its restaurants, accounting for 0.9% of sales.  Those locations offer a wide array of popular breakfast foods served buffet style.  They also have made-to-order omelette, pancake, and waffle stations.

Each restaurant is operated as a separate unit under the control of a general manager who has responsibility for day-to-day operations, including food production and personnel employment and supervision.   The Company's philosophy is to grant broad authority to its restaurant managers to direct the daily operations of their stores and, in turn, to compensate them on the basis of their performance, believing this strategy to be a significant factor in restaurant profitability.  Of the total number of general managers employed by the Company, 106 have been employed for more than ten years.  Typically, an individual is employed for a period of four to seven years before he or she is considered qualified to become a general manager.  

The Company operates from a centralized purchasing arrangement to obtain the economic benefit of bulk purchasing and lower prices for most of its food products.  The arrangement involves a competitively selected prime vendor for each of its three major purchasing regions.

Foods are prepared fresh daily at the Company's restaurants.  Menus are reviewed periodically by a committee of managers and chefs.  The committee introduces newly developed recipes to ensure offerings are varied and that seasonal food preferences are incorporated.

Quality control teams also help to maintain uniform standards of food preparation.  The teams visit each restaurant as necessary and work with the staff to check adherence to Company recipes, train personnel in new techniques, and implement systems and procedures used universally throughout the Company.

During the fiscal year ended August 27, 2003, the Company closed approximately 50 underperforming units, of which approximately 40 were closed in accordance with its new business plan.  Since August 27, 2003, the Company has closed four other underperforming restaurants.

Of the 144 restaurants currently in operation, two were opened during the year under different concepts, including the second of the Company's seafood concept and its first Steak Buffet.   In addition to changing the concepts in some locations based upon their surrounding demographics, the Company believes one of its primary opportunities for growth centers around improving same-store sales at existing locations.

As of the fiscal year-end, the Company had a workforce of approximately 7,550, consisting of 7,000 nonmanagement restaurant workers; 400 restaurant managers, associate managers, and assistant managers; and 150 clerical, administrative, and executive employees.  Employee relations are considered to be good.  The Company has never had a strike or work stoppage and is not subject to collective bargaining agreements.

The Company is not the sole user of the name Luby's in the cafeteria business.  A cafeteria using the name Luby's is being operated in Texas by an unaffiliated company.  The Company's legal counsel is of the opinion that the Company has the paramount right to use the name Luby's as a service mark in the United States and that the other user could be precluded from expanding its use of the name as a service mark.  

The Company's facilities and food products are subject to state and local health and sanitation laws.  In addition, the Company's operations are subject to federal, state, and local regulations with respect to environmental and safety matters, including regulations concerning air and water pollution and regulations under the Americans with Disabilities Act and the federal Occupational Safety and Health Act.  Over the years, such laws and regulations have resulted in increased costs that have been absorbed by the Company, in turn, improving its compliance.

The Company's restaurants constructed prior to 1999 typically contain 9,000 to 10,500 square feet of floor space and can seat 250 to 300 guests simultaneously.  In more recent years, the Company built several more-contemporary units.  They contain 6,000 to 8,600 square feet of floor space and can seat 170 to 214 guests simultaneously.  

Luby's restaurants are well maintained and in good condition.  The Company refurbishes and updates restaurants and equipment as necessary to maintain their appearance and utility.  

As of November 3, 2003, the Company's restaurants are regionally located as follows:  two in Arizona, two in Arkansas, two in Louisiana, one in Missouri, three in Oklahoma, one in Tennessee, and 133 in Texas.  

The Company owns the underlying land and buildings in which 97 of its restaurants are located.  Several of these restaurant properties contain excess building space, which is rented to tenants unaffiliated with the Company.

In addition to the owned locations, 47 other restaurants are held under leases, including 22 in regional shopping malls.  Most of the leases provide for a combination of fixed-dollar and percentage rentals.  Many require the Company to pay additional amounts related to property taxes, hazard insurance, and maintenance of common areas.  See Note 9 of the Notes to Consolidated Financial Statements for information concerning the Company's lease rental expenses and lease commitments.  Of the 47 restaurant leases, the current terms of 27 expire before 2009, ten from 2009 to 2013, and ten thereafter.  Forty-three of the leases can be extended beyond their current terms at the Company's option.

In addition to the properties currently in operation, the Company also has 34 locations on the market for sale.

The Company's primary administrative offices are located in a building owned by the Company containing approximately 40,000 square feet of useable office space.  

The Company maintains public liability insurance and property damage insurance on its properties in amounts which management believes to be adequate.

The Company is from time to time subject to pending claims and lawsuits arising in the ordinary course of business.  In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material adverse effect on the Company's operations or consolidated financial position.  There are no material legal proceedings to which any director, officer, or affiliate of the Company, or any associate of any such director or officer, is a party, or has a material interest, adverse to the Company.

No matter was submitted during the fourth quarter of the fiscal year ended August 27, 2003, to a vote of security holders of the Company.  

Certain information is set forth below concerning the executive officers of the Company, each of whom has been elected to serve until his successor is duly elected and qualified:

There were no sales of unregistered securities in fiscal 2003.  As of November 3, 2003, there were approximately 3,777 record holders of the Company's common stock.

Five-Year Summary Notes continued on next page.

Note:  In fiscal year 2002, the Company moved from 12 calendar months to 13 four-week periods.  The first period of fiscal year 2002 began September 1, 2001, and covered 26 days.  All subsequent periods covered 28 days.  Fiscal year 2002, the Company's conversion year from months to periods, was 362 days in length.  Fiscal 2003 and most years hereafter are 364 days in length.

Note:  The Company's new business plan, as approved in fiscal 2003, called for the closure of approximately 50 locations.  In accordance with the plan, the entire fiscal activity of the applicable stores closed through the end of the 2003 fiscal year were reclassified to discontinued operations.  For comparison purposes, in prior fiscal years the entire activity for the same locations closed in fiscal 2003 have also been reclassified to discontinued operations.

Sales decreased $16.0 million, or 4.8%, in fiscal 2003 compared to fiscal 2002.  Of the total decline, $12.2 million was due to the closure of 20 restaurants since August 31, 2001, that were not included in the new business plan, and $8.7 million was due to a 2.7% decrease in same-store sales.  These decreases were offset by the positive impact of two additional days of sales of $2.2 million and the opening of three restaurants since August 28, 2002, that accounted for $2.7 million in sales.

The cost of food increased $1.8 million, or 2.1%, and as a percentage of sales increased from 25.5% to 27.3% in fiscal 2003 compared to fiscal 2002.  Early in the fiscal year, the increase in food cost was related primarily to efforts to implement value offerings for the Company's guests.  Those offerings were a planned part of the Company's strategy aimed at increasing value while maintaining quality.  Also in the beginning of the year, fresh produce pricing was negatively impacted by increased transportation costs due to the higher cost of diesel fuel.  Toward the end of the year, upward pressure on beef pricing due to lower availability, reduced cattle weights, and an overall higher demand negatively impacted food cost.  These increases completely offset reductions due to store closures.  Even so, the increases were partially mitigated in the later part of the year by targeted cost control programs.

Payroll and related costs decreased $14.6 million, or 13.6%, and as a percentage of sales decreased from 32.0% to 29.0%.  The decrease was due primarily to the Company's continued operational focus on labor efficiencies coupled with lower workers' compensation expense in fiscal 2003.  Of the total reduction, $7.5 million was due to improved labor deployments and efficiencies resulting from various Company initiatives to reduce labor costs.  An additional $1.9 million of the total decline was due to lower workers' compensation costs resulting from the Company's in-house training and safety programs.  The remainder related to stores closed prior to the adoption of the new business plan.

Occupancy and other operating expenses decreased $3.5 million, or 3.4%.  Several factors contributed to this fluctuation.  Net repairs and maintenance costs decreased primarily due to increased efficiencies from the Company's in-house repair program as provided by its in-house service center.  Food-to-go packaging costs further declined due to less expensive packaging.  These decreases were partially offset by property/employee insurance, which increased principally due to premium increases for owned properties coupled with pass-through insurance adjustments from landlords of leased properties, as well as premium increases for directors' and officers' liability.

Depreciation and amortization expense was approximately equal to the prior fiscal year, with a slight decrease of $18,000.

General and administrative expenses increased $2.1 million, or 9.9%.  Several factors contributed to this increase.  Professional fees increased principally due to a fixed-asset, cost segregation study on tax depreciation.  Consulting costs increased principally due to fees paid to outside firms relating to the Company's bank group.  Excluding those items, the Company showed higher year-over-year general and administrative expenses because of the increased investment in support personnel to improve its focus on operational efficiencies and facilities maintenance.

The provision for asset impairments and restaurant closings charged to continuing operations increased by $1.8 million due to impairments on various locations that were either not yet closed per the new business plan or were a part of prior impairment and disposal plans.

Interest expense was approximately equal to the prior fiscal year, with only a slight decrease of $66,000.  The payoff of loans on officers' life insurance policies, which were surrendered during the prior year, in addition to amortization of the loss on interest rate swaps and principal reductions on the outstanding bank debt, contributed to this decrease.  These decreases were partially offset by an increase in the effective interest rate on outstanding debt coupled with an increase in the amortization of the discount on the subordinated notes.  Approximately $2.7 million and $2.6 million were reclassified from interest expense to discontinued operations in fiscal 2003 and 2002, respectively.  These reclassifications related to the launch of the Company's new business plan whereby the proceeds from certain properties closed and sold are committed to paying down debt.

Other income increased $4.8 million primarily due to gains on the sales of assets, which reflect the sale of nine previously closed stores.  These gains were partially offset by a loan commitment fee expensed in fiscal 2003.

The income tax benefit decreased by $1.0 million.  No benefit was recorded in fiscal 2003 because the realization of loss carryforward utilization is uncertain.

The loss from discontinued operations increased by $23.7 million principally due to approximately $19.2 million in noncash impairments, with the remainder in carrying costs, allocated bank debt interest, and certain settlement fees incurred on various locations closed as part of the Company's new business plan.  The impairment charges included reductions in the fourth quarter of 2003 from gains on the disposal of properties previously held for sale.  Also see the discussion below entitled Debt/The New Business Plan.

Relative to prior closure plans, the Company had a reserve for restaurant closings of approximately $1.7 million and $3.1 million at August 27, 2003, and August 28, 2002, respectively.  Excluding certain lease termination settlements, all material cash outlays required for the store closings originally planned as of August 31, 2001, were made prior to August 27, 2003.  See further discussion in Note 7 of the Notes to Consolidated Financial Statements.

Cost of food decreased $10.6 million, or 11.0%, due primarily to fewer restaurants and the decline in same-store sales.  Food cost as a percentage of sales increased from 24.9% to 25.5% in fiscal 2002 in comparison with fiscal 2001.  Various "manager's special" promotions coupled with new "all-you-can-eat" offerings at selected locations contributed to higher food costs as a percent of sales.

Payroll and related costs decreased $27.9 million, or 20.7%, due primarily to restaurant closures unrelated to the new business plan, lower workers' compensation expense, and three fewer days in fiscal 2002.  Of the total reduction, $16.3 million was due to lower wages and associated payroll taxes resulting from numerous store closures and $11.6 million was due to lower workers' compensation costs.  Relative to the latter, in fiscal 2001, there was a large increase for estimated claims expense under the Company's historical third-party program.  The Company initiated a safety training and accident prevention program in October 2001 that substantially lowered fiscal 2002 costs.

Occupancy and other operating expenses decreased $12.7 million, or 11.2%.  Although the dollar decrease was primarily due to store closures, other factors contributed to the fluctuation.  Utility expenses decreased due to lower energy commodity costs coupled with moderate temperatures and conservation.  Advertising costs declined due to a reduced emphasis on television media spending.  Food-to-go packaging costs further declined due to the intentional redirection at many locations to inside dining coupled with less expensive packaging.

Depreciation and amortization expense decreased $530,000, or 2.8%, due to fewer depreciable properties resulting from previous impairments and property sales.

General and administrative expenses decreased $4.1 million, or 16.1%.  Several factors contributed to the decline.  Officers' compensation decreased principally due to a reduction in relative headcount coupled with accelerated vesting of noncash option compensation in fiscal 2001.  Charges related to the proxy and restructuring advice contributed to higher professional costs in fiscal 2001.  Consulting fees were less principally due to a preliminary search for new senior management in fiscal 2001.

The provision for asset impairments and restaurant closings decreased by $30.1 million due to numerous impairments and provisions for impairments recorded in the prior year.  Charges of $271,000 were recorded in fiscal 2002 principally to account for labor termination costs and an additional store closing, net of unrelated lease settlements that were more favorable than anticipated.

Interest expense decreased $459,000, or 5.6%, due primarily to lower effective interest rates on outstanding bank debt, the payoff of the loans on surrendered officers' life insurance policies, and principal reductions in the outstanding bank debt.  These factors were offset by interest on the $10 million in subordinated debt, amortization of the loss on interest rate Swaps, and the amortization of amendment fees for the credit facility.  Approximately $2.6 million and $3.5 million were reclassified from interest expense to discontinued operations in fiscal 2002 and 2001, respectively.  This was done for comparability to fiscal 2003, which includes the launch of the Company's new business plan whereby the proceeds of properties closed and sold are being used to pay down debt.

The income tax benefit decreased by $12.6 million, or 92.4%, primarily due to a significantly lower incurred loss in fiscal 2002 versus fiscal 2001.

The loss from discontinued operations increased by $801,000, or 13.3%.  This was due primarily to increased operating losses on properties later associated with the Company's new business plan.

EBITDA
The Company's operating performance is evaluated using several measures.  One of those measures, EBITDA, is derived from the Income (Loss) From Operations GAAP measurement.  EBITDA has historically been used by the Company's credit-facility lenders to measure compliance with certain financial debt covenants. The Company's credit-facility debt agreement defines EBITDA as the sum of operating income, plus nonrecurring, noncash charges which decrease operating income, plus depreciation and amortization, minus nonrecurring credits which are included in operating income.  The agreement further specifies that EBITDA shall exclude the noncash portion of the CEO's and the COO's stock option compensation, cost of stock options with employees, accounting requirements for future store closings required by GAAP, and costs of closing a store location.

EBITDA decreased by $1.8 million from fiscal 2002 to 2003 compared to an increase of $3.7 million from fiscal 2001 to 2002.  These net changes were due to various applicable reasons noted in the Results of Operations section above.  Prior year amounts have been reclassified to conform to the current year presentation.

While the Company and many in the financial community consider EBITDA to be an important measure of operating performance, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States, such as operating income and net income.  In addition, the Company's definition of EBITDA is not necessarily comparable to similarly titled measures reported by other companies.

The $7.2 million income tax receivable balance as of the prior fiscal year-end related to 2002 tax benefits.  The Company received a comprehensive refund of $13.4 million in the third quarter of fiscal 2003 that resulted from changes in tax legislation that extended carrybacks of net operating losses.  The refund was higher than the original fiscal 2002 estimate primarily due to increases in tax depreciation relative to an updated cost-segregation study.

After taking into account the current classification of its senior and subordinated debt, the Company had a working capital deficit of $103.3 million as of August 27, 2003, compared to $119.5 million as of August 28, 2002.  The improvement was primarily attributable to paydowns on the Company's senior credit facility.  Excluding the reclassification of the credit-facility balance and subordinated notes explained in the Debt section below, the Company's working capital deficit increased $3.7 million.  That increase in the deficit was primarily attributable to continued requirements to internally fund cash needs, including capital acquisitions.  The increase was partially offset by the collection of the income tax receivable explained above.

As of August 27, 2003, the Company owned 34 properties held for sale, including three undeveloped land sites.

Capital expenditures for the fiscal year ended August 27, 2003, were $9.1 million.  Consistent with prior fiscal years, the Company used most of its capital funds to maintain its investment in existing operating units.  Based on the business plan for fiscal 2004, the Company again intends to fund all capital expenditures from cash flows from operations and expects them to be no more than $11.5 million for that fiscal year.

Current management recognized the need to arrange financing that would better match long-term assets with the existing debt.  Accordingly, early in the second quarter of fiscal 2003, the Company executed a commitment letter with a third-party lender for an $80 million loan to replace that amount of debt in the existing credit facility.  Simultaneously, when the current bank group provided a waiver and amendment, it also added a stipulation that required the new $80 million financing be completed and funded by January 31, 2003.  However, the Company was unable to finalize the new financing arrangement because of changes in the proposed agreement terms that the Company believed were not in its best interest.  This led to a default under the credit facility that the Company is currently focused on rectifying.  Even though the lack of replacement financing caused a default, the Company was in compliance with its financial performance covenants at the end of the second quarter and no default in interest payments has occurred as of the date this SEC report was filed.  Also as of that date, the existing bank group has taken no legal action related to the default other than to notify the Company that it reserves all of its rights and remedies.

Management has actively communicated with the credit-facility bank group, while working on its new business plan that is focused on returning the Company to profitability.  The Company also engaged the financial advisory firms of Morgan Joseph & Co. and ING Capital LLC ("Morgan-ING") to review the new plan.

After thorough review of several strategic alternatives - including the new business plan - and after consultation with the Morgan-ING advisors, the Company's Board of Directors approved the plan on March 29, 2003.  Subsequent to Board approval, management initiated immediate implementation of the plan, which calls for closure of approximately 50 of the Company's operating stores.  In cases where those properties are owned by the Company, the proceeds from the sale of the properties are being used to pay down bank debt under the existing agreement.  The first 43 of those 50 restaurants were closed by the end of fiscal 2003.  Most of the remaining locations are leased units that will close as soon as commercially feasible after negotiations with landlords or at the end of lease terms that expire in the near future.

With the assistance of Morgan-ING, the Company continues to have constructive discussions with its credit-facility lenders.  In the meantime, the Company is focused on day-to-day operations and the implementation of its new strategic plan.  Initially, cash resources have been reduced pursuant to the new plan, especially relative to lease settlements and termination costs.  The Company used part of its fiscal 2002 federal income tax refund of $13.4 million to support cash needs during the initial stages of the plan.

Over a time span starting in the third quarter of fiscal 2003 through the fourth quarter of fiscal 2004, the Company expects to report net losses from discontinued operations, including charges for impairments and store closures due to its decision to close the locations specified in the new business plan.  To date through the 2003 fiscal year-end, $30.6 million has been incurred.  In fiscal year 2004, the Company expects more carrying and settlement costs; however, it also expects that these amounts will ultimately be offset by certain property gains through the next fiscal year.

Through the end of fiscal 2003, the Company recorded noncash impairment charges of approximately $19.2 million, which were included in discontinued operations.  The assets of these individual operating units have been written down to their net realizable values and are being actively marketed for sale.  The impairment charges were reduced by $2.1 million in gains on the sale of certain properties held for sale as part of the new business plan.  The Company also recorded the related fiscal year-to-date net operating results, employee terminations, lease settlements, and basic carrying costs of the closed units in discontinued operations.

The Company also incurred approximately $2.3 million in impairment costs that were charged to continuing operations.  The impairments in this category were slightly offset by $223,000 in gains on the sale of other properties held for sale.  The net amount primarily reflects either impairments on properties designated for closure under the new business plan but not yet closed or impairments on properties included in prior disposal plans.  Relative to the latter, most properties designated for closure prior to the new business plan were primarily lease locations.  Those impairments were computed with the aid of discounted cash flow models that were consistent with prior years.

The reserve for store closures balance as of August 27, 2003, related to the 2001 asset disposal plan.

As of August 27, 2003, $219.1 million of the Company's total book value, or 78.3% of its total assets, including the Company's owned real estate, improvements, equipment, and fixtures, was pledged as collateral under the credit facility.  Although the current lenders have reserved all of their rights and remedies as a result of the January 31, 2003, default - including the right to demand immediate repayment of the entire outstanding balance or the right to pursue foreclosure on the assets pledged as collateral - they have not announced any intention to take such action.

The subordinated notes include a cross-default provision that is tied to the Company's credit facility.  The Company was notified of the declared default by the note holders just after the end of the third quarter of fiscal 2003.  Also pursuant to the terms of the note, it was determined that the quarterly interest payment made effective March 1, 2003, could not be retained by the note holders, who in turn forwarded the payment of approximately $84,000 to the bank group.  That amount was applied to the principal of the credit facility after the end of the third quarter.  Furthermore, no principal or interest payments may be made to the subordinated note holders while the credit-facility debt is in default.  This restriction in turn caused a second default.  The note holders waived all defaults through May 19, 2003, yet they have reserved all of their rights and remedies associated with the debt.  Effective May 20, 2 003, the notes bear interest at 10% per year.  Even if the Company's performance covenants are cured under the senior credit facility, continuation of the default with respect to the subordinated notes will continue to result in a default on the senior indebtedness under existing cross-default provisions.

Notwithstanding any accrued interest that may also be converted to stock, the notes are convertible into the Company's common stock at $5.00 per share for 2.0 million shares at the option of the holders at any time after January 2, 2003, and prior to the stated redemption date.  The per share market price of the Company's stock on the commitment date (as determined by the closing price on the New York Stock Exchange on the date of issue) was $7.34.  The difference between the market price and strike price of $5.00, or $2.34 per share, multiplied by the 2.0 million convertible shares equaled approximately $4.7 million.  Under the Company's adopted intrinsic value method, applicable accounting principles require that this amount, which represents the beneficial conversion feature, be recorded as both a component of paid-in capital and a discount from the $10 million.

Initially, the conversion feature was amortized over the ten-year term of the notes.  The subordinated note defaults triggered an acceleration of the discount amortization over the remaining term of the senior debt, which is currently set to mature in October 2004.  That shorter amortization time frame was determined to be appropriate as the notes are subordinate to the credit facility and, accordingly, no payoff of those notes could occur before the debt of the senior creditors is addressed.

The carrying value of the notes at August 27, 2003, net of the unamortized discount, was approximately $7.0 million.  The comparative carrying value of the notes at August 28, 2002, was approximately $5.9 million.

In fiscal 1999, the Company guaranteed loans of approximately $1.9 million relating to purchases of Luby's stock by various officers of the Company pursuant to the terms of a shareholder-approved plan.  Under the officer loan program, shares were purchased and funding was obtained from JPMorgan Chase Bank, one of the four members of the bank group that participate in the Company's credit facility.  Per the original terms of the agreements, these instruments only required annual interest to be paid by the individual debtors, with the entire principal balances due upon their respective maturity dates, which occur during the period from January through March of 2004, unless extended by the note holders.

At both August 27, 2003, and August 28, 2002, the notes had a combined outstanding balance of approximately $1.6 million.  The underlying guarantee on these loans includes a cross-default provision.  The Company received notice from JPMorgan Chase Bank that the default in the Company's credit facility led to a default in the officer loans.  JPMorgan Chase Bank initially requested that the Company repurchase the notes; however, such action cannot be completed without comprehensive resolution with the entire bank group.  On July 10, 2003, JPMorgan Chase Bank notified the Company that although it continues to reserve all rights and remedies, it has not elected to pursue those rights and remedies in order to allow further discussions among the bank group.  This notice did not constitute a waiver.  The Company is therefore working constructively with all members of the bank group in an effort to cure all defaults and satisfactorily mee t each lender's expectations.

In the event of individual debtor default, the Company could be required to purchase the loans from JPMorgan Chase Bank, become holder of the notes, record the receivables, and pursue collection.  The purchased Company stock has been and can be used by borrowers to satisfy a portion of their loan obligation.  As of August 27, 2003, based on the market price on that day, approximately $213,000, or 13.2% of the note balances, could have been covered by stock, while approximately $1.4 million, or 86.8%, would have remained outstanding.

The Company has no off-balance-sheet structured financing arrangements.  The shareholder-approved guaranteed loans, as described above, were intended to encourage officer stock ownership.  Under the terms of applicable SEC rules, the Company's obligation to repurchase the loans could be deemed a guarantee contract, which the SEC considers an off-balance-sheet arrangement.  If the Company is required to purchase the loans, it would have to expend approximately $1.6 million to do so.  The Company expects that the borrowers will fully repay the obligations.  However, since management is currently unable to determine the individual ability of each borrower to pay the underlying debt in full, it is difficult to assess the potential effect on liquidity.

The Company entered into an Affiliate Services Agreement effective August 31, 2001, with two companies, Pappas Partners, L.P. and Pappas Restaurants, Inc., which are restaurant entities owned by Christopher J. Pappas and Harris J. Pappas.  That agreement, as amended on July 23, 2002, limited the scope of expenditures therein to professional and consulting services.  The Company completed this amendment due to a significant decline in the use of professional and consulting services from Pappas entities.

Additionally, on July 23, 2002, the Company entered into a Master Sales Agreement with the same Pappas entities.  Through this agreement, the Company contractually separated the design and fabrication of equipment and furnishings from the Affiliate Services Agreement.  The Master Sales Agreement covers the costs incurred for modifications to existing equipment, as well as custom fabrication, including stainless steel stoves, shelving, rolling carts, and chef tables.  These items are custom-designed and built to fit the designated kitchens and are also engineered to give a longer service life than comparably manufactured equipment.

The pricing of equipment, repair, and maintenance is set and evaluated periodically and is considered by management to be primarily at or below market for comparable goods and services.  To assist in periodically monitoring pricing of the transactions associated with the Master Sales Agreement and the Affiliate Services Agreement, the Finance and Audit Committee of the Company's Board of Directors has periodically in the past used independent valuation consultants.

As part of the affiliation with the Pappas entities, the Company leases a facility, the Houston Service Center, in which Luby's has installed a centralized restaurant service center to support field operations.  The building at this location has 22,253 square feet of warehouse space and 5,664 square feet of office space.  It is leased from the Pappas entities by the Company at an approximate monthly rate of $0.24 per square foot.  From this center, Luby's repair and service teams are dispatched to the Company's restaurants when facility or equipment maintenance and servicing are needed.  The facility is also used for repair and storage of new and used equipment.

The Company previously leased a location from an unrelated third party.  That location is used to house increased equipment inventories due to store closures under the business plan.  The Company considered it more prudent to lease this location rather than to pursue purchasing a storage facility, as its strategy is to focus its capital expenditures on the its operating restaurants.  In a separate transaction, the third-party property owner sold the location to the Pappas entities during the fourth quarter of fiscal 2003, with the Pappas entities becoming the Company's landlord for that location.  The storage site complements the Houston Service Center with approximately 27,000 square feet of warehouse space at an approximate monthly rate of $0.21 per square foot.

In another separate contract, pursuant to the terms of a ground lease dated March 25, 1994, the Company paid rent to PHCG Investments for a Luby's restaurant the Company operated in Dallas, Texas, until that location was closed early in the third quarter of fiscal 2003.  Christopher J. Pappas and Harris J. Pappas are general partners of PHCG Investments.  Preceding the store's closure, the Company entered into a lease termination agreement with a third party unaffiliated with the Pappas entities.  That agreement severed the Company's interest in the PHCG property in exchange for a payment of cash to the Company.  The Company also obtained the right to remove fixtures and equipment from the premises, and it was released from any future obligations under the lease agreement.  The closing of the transaction was completed during the third quarter of fiscal 2003, resulting in a gain of $735,000, and the gross proceeds were used to pay down debt.  The amount paid by the Company pursuant to the terms of this lease before its termination was approximately $42,000 and $85,000 for the years ended August 27, 2003, and August 28, 2002, respectively.

Affiliated rents paid for the Houston Service Center, the separate storage facility, and the Dallas property leases combined represented 2.4% and 2.9% of total rents for continuing operations for fiscal 2003 and fiscal 2002, respectively.

The following compares current and prior fiscal year charges incurred under the Master Sales Agreement, the Affiliate Services Agreement, and affiliated property leases to the Company's total general and administrative expenses, capital expenditures, and occupancy and other operating expenses included in continuing operations:

The following shows the quarterly comparative change in same-store sales:

The Company enacted price increases in the third and fourth quarters of fiscal 2001.  The first quarter of fiscal 2002 includes September 11, 2001.  In the third and fourth quarters of fiscal 2002, the Company was able to maintain its comparative cash flow level with declining sales by lowering operating costs.  Even with national economic issues, such as continued concerns about domestic terrorism and a military offensive overseas, there was less quarterly same-store sales variability in fiscal 2003 than in the prior fiscal year.

The Company may find additional opportunities to lower costs; however, continued declines in net same-store sales could reduce operating cash flow.  If severe declines in cash flow were to develop without offsetting reductions in uses of cash, such as capital expenditures, the Company's liquidity, the current status of the Company's credit facility, and the ability of the Company to refinance its indebtedness could be further impacted.  As a possible result, the current lenders may choose to terminate the credit facility, accelerate the maturity of any outstanding obligation under that facility, and pursue foreclosure on assets pledged as collateral.

The Company may be the subject of claims or litigation from guests and employees alleging injuries as a result of its operations.  In addition, unfavorable publicity from such allegations could have an adverse impact on financial results, regardless of their validity or ultimate outcome.

The Company's reserve for restaurant closings is associated with prior disposal plans.  The reserve declined from $3.1 million at August 28, 2002, to $1.7 million at August 27, 2003, primarily due to the payment of and reductions in certain accrued lease settlement costs of approximately $1.3 million.  (See Note 7 of the Notes to Consolidated Financial Statements.)

The Company has identified the following policies as critical to its business and the understanding of its results of operations.  The Company believes it is improbable that materially different amounts would be reported relating to the accounting policies described below if other acceptable approaches were adopted.  However, the application of these accounting policies, as described below, involve the exercise of judgment and use of assumptions as to future uncertainties; therefore, actual results could differ from estimates generated from their use.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived Assets."  The Company was required to adopt SFAS 144 as of August 29, 2002.  The adoption of SFAS 144 extended the reporting of discontinued operations to all components of an entity from a segment of an entity.  In the current year, all qualifying disposal plans were reported as discontinued operations, and operations related to those disposals in prior years were reclassified as required.  The results of disposal plans prior to the adoption were included in continuing operations for all periods presented.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)."  SFAS 146 requires that costs associated with an exit or disposal activity be recognized only when the liability is incurred (that is, when it meets the definition of a liability in the FASB's conceptual framework).  SFAS 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities.  SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002.  The Company adopted SFAS in the first quarter of fiscal 2003.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others."  For certain guarantees issued after December 31, 2002, FIN 45 requires a guarantor to recognize, upon issuance of a guarantee, a liability for the fair value of the obligations it assumes under the guarantee.  Guarantees issued prior to January 1, 2003, are not subject to liability recognition, but are subject to expanded disclosure requirements.  The Company does not believe that the adoption of this Interpretation has had a material effect on its consolidated financial position or statement of operations.

In January 2003, FASB issued Interpretation No. 46 (FIN 46), an interpretation of Accounting Research Bulletin No. 51, which requires the Company to consolidate variable interest entities for which it is deemed to be the primary beneficiary and disclose information about variable interest entities in which it has a significant variable interest.  FIN 46 became effective immediately for variable interest entities formed after January 31, 2003, and effective for periods ending after December 15, 2003, for any variable interest entities formed prior to February 1, 2003.  The Company does not believe that this Interpretation will have a material impact on its consolidated financial statements.

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," which requires that the extinguishment of debt not be considered an extraordinary item under APB Opinion No. 30 ("APB 30"), "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," unless the debt extinguishment meets the "unusual in nature and infrequent of occurrence" criteria in APB 30.  SFAS 145 is effective for fiscal years beginning after May 15, 2002, and, upon adoption, companies must reclassify prior period items that do not meet the extraordinary item classification criteria in APB 30.  The Company adopted SFAS 145 and related rules as of August 29, 2002.  The adoption of SFAS 145 had no effect on the Company's financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity."  This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  The provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of this Statement did not have an impact on the Company's financial results of operations and financial position.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."  This statement is effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003.  The adoption of this statement did not have a impact on the Company's operating results or financial position.

In August 2001, the FASB issued Statement of Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations."  SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  The Company adopted SFAS 143 as of August 29, 2002.  The adoption of SFAS 143 had no effect on the Company's financial position or results of operations.

The Company's policy is to maintain stable menu prices without regard to seasonal variations in food costs.  General increases in costs of food, wages, supplies, and services make it necessary for the Company to increase its menu prices from time to time.  To the extent prevailing market conditions allow, the Company intends to adjust menu prices to maintain profit margins.  

The Company wishes to caution readers that various factors could cause its actual financial and operational results to differ materially from those indicated by forward-looking statements made from time to time in news releases, reports, proxy statements, registration statements, and other written communications (including the preceding sections of this Management's Discussion and Analysis), as well as oral statements made from time to time by representatives of the Company.  Except for historical information, matters discussed in such oral and written communications are forward-looking statements that involve risks and uncertainties, including but not limited to general business conditions, the impact of competition, the success of operating initiatives, changes in the cost and supply of food and labor, the seasonality of the Company's business, taxes, inflation, governmental regulations, and the availability of credit, as well as other risks and uncertainties d isclosed in periodic reports on Form 10-K and Form 10-Q.

The Company is exposed to market risk from changes in interest rates affecting its variable-rate debt.  As of August 27, 2003, $91.6 million was outstanding under its credit facility at prime plus 4.0%.  Additionally, the Company has $10 million in notes which bore interest at LIBOR plus 2% through the third quarter of fiscal 2003.  The total amount of debt subject to interest rate fluctuations was $101.6 million.  Assuming a consistent level of debt, a 1% change in interest rates effective from the beginning of the year would result in an increase or decrease in annual interest expense of $1.0 million.  Although the Company is not currently using interest rate swaps, it has previously used and may in the future use these instruments to manage cash flow risk on a portion of its variable-rate debt.

Relative to subordinated debt, the interest rate was increased early in the fourth quarter of 2003 by the note holders to a default rate of 10%.  The rise in the rate resulted in an increase in interest costs of $187,000 for the fourth quarter of fiscal 2003.

Report of Independent Auditors

The Board of Directors and Shareholders of Luby's, Inc. and Subsidiaries  

We have audited the accompanying consolidated balance sheets of Luby's, Inc. and Subsidiaries at August 27, 2003, and August 28, 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended August 27, 2003.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  

We conducted our audits in accordance with auditing standards generally accepted in the United States.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.  

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Luby's, Inc. and Subsidiaries at August 27, 2003, and August 28, 2002, and the results of their operations and their cash flows for each of the three years in the period ended August 27, 2003, in conformity with accounting principles generally accepted in the United States.  

As discussed in Note 1 to the consolidated financial statements, in 2003 the Company was required to change its method of accounting for discontinued operations.

The accompanying consolidated financial statements have been prepared assuming that Luby's, Inc. and Subsidiaries will continue as a going concern.  As more fully described in Note 6, there are no assurances that the Company will be able to obtain financing necessary to satisfy payments required by the Company's amended bank facility.  This condition raises substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to this matter are also described in Note 6.  The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/ERNST & YOUNG LLP
San Antonio, Texas
November 14, 2003