As of December 18, 2003, there were 22,470,004 shares of the registrant's Common Stock outstanding, which does not include 4,933,063 treasury shares.

Item 1.  Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements as are prepared for the Company's Annual Report on Form 10-K.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the quarter ended November 19, 2003, are not necessarily indicative of the results that may be expected for the fiscal year ended August 25, 2004.

The balance sheet included in this Form 10-Q dated August 27, 2003, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  Therefore, these financial statements should be read in conjunction with the consolidated financial statements and footnotes included in Luby's Annual Report on Form 10-K for the year ended August 27, 2003.

Prior period results have been reclassified to show the retroactive effect of discontinued operations per the Company's business plan.  Reclassification facilitates more meaningful comparability to the Company's current information.  As stores are closed in the future and presented in discontinued operations, quarterly and annual financial amounts, where applicable, will be reclassified for further comparability.

In fiscal year 2002, the Company changed its reporting-period measurement from 12 calendar months to 13 four-week periods ending on the last Wednesday in August.  Fiscal year 2002 began September 1, 2001, and ended on August 28, 2002.  It contained 362 days, compared to 364 days in fiscal 2003.  Fiscal 2004 will also contain 364 days.

The short-term investment balances of $20.3 million and $20.5 million as of November 19, 2003, and August 27, 2003, consisted primarily of money-market funds and time deposits.

As of November 19, 2003, approximately $2.3 million of the Company's short-term investments was also pledged as collateral for four separate letters of credit.  There have been no draws upon these letters of credit.

Following is a summarization of deferred income tax assets and liabilities as of the current quarter and prior fiscal year-end:

The tax effect of temporary differences results in the following deferred income tax assets and liabilities as of the current quarter and prior fiscal year-end:

The reconciliation of the benefit for income taxes to the expected income tax benefit from continuing operations computed using the statutory tax rate was as follows:  

The Company has generated a tax operating loss of approximately $8.8 million for the quarter ended November 19, 2003.  The tax benefits for book purposes of $1.3 million and $11.1 million for the quarter ended November 19, 2003, and for the fiscal year ended August 27, 2003, respectively, were netted against a valuation allowance because loss carrybacks were exhausted with the fiscal 2002 tax filing, making the realization of loss carryforwards uncertain.  Due to the Company's loss position, no federal income taxes were paid in the first quarters of fiscal 2004 or 2003.  

The Company generated a tax operating loss carryforward of approximately $31.7 million for the fiscal year ended August 27, 2003, which will expire in 2023 if not utilized.  

Historically, the Company has been periodically reviewed by the Internal Revenue Service.  The Company is currently under review for the 2002, 2001, and 2000 fiscal years.  Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items.

The cost and accumulated depreciation and amortization of property, plant, and equipment at November 19, 2003, and August 27, 2003, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:

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 that 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 quarter, and no default in interest payments due under the credit facility has occurred.  The existing bank group has taken no formal action other than to notify the Company that it reserves all of its rights and remedies.

Management actively communicated with the credit-facility bank group while it developed its business plan in fiscal 2003.  The plan 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 plan.

After thorough review of several strategic alternatives - including the 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 46 of those 50 restaurants were closed by the end of the first quarter of fiscal 2004.  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 strategic plan.  Initially, cash resources have been reduced pursuant to the current business 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 covering all of fiscal 2003 and 2004, the Company expects to report net losses from discontinued operations, including charges for impairment and store closures due to its decision to close the locations specified in the business plan.  Including operating costs for all of fiscal 2003 and the first quarter of 2004, $32.6 million in discontinued operating activity has been incurred.  Of that amount, $2.0 million was incurred in the first quarter of fiscal 2004.

For the remainder of fiscal 2004, the Company expects more carrying and settlement costs; however, it also expects that these amounts will ultimately be offset by certain property gains.  The Company adjusts its property held for sale to the lower of cost or net realizable value.  Relative to that process, while the Company had net book values that had to be written down, it also had net book values that could not be written up before their actual sale.  The anticipated gains relate to those assets that could not be written up before the property disposals.

During the first quarter of fiscal 2004, the Company recorded noncash impairment charges of approximately $742,000, which were included in discontinued operations.  Included in this amount was $456,000 related to a seafood property previously operated under a joint venture with WaterStreet, Inc.  The joint venture was dissolved in November 1999, with the Company retaining ownership of the property.  Initially, after the dissolution, that location was vacant.  Then in November 2000, the location was leased to an unrelated third party.  Subsequently, the Company decided to sell the property and entered into a contract to do so during the first quarter of fiscal 2004, with the sale being completed early in the second quarter.  

The total impairment charges were reduced by $331,000 in gains on the sale of certain properties held for sale as part of the business plan.  This resulted in net impairment charges within discontinued operations of $411,000.  The Company also recorded the related fiscal year-to-date net operating results, allocated interest expense, employee termination costs, lease settlements, and basic carrying costs of the closed units in discontinued operations.

As of November 19, 2003, $213.8 million of the Company's total book value, or 78.2% 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 cross-default provisions that are 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 notes, 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 fiscal 2003's 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 under the subordinated notes.  The note holders waived all defaults through May 19, 2003, yet they have reserved all of their rights and remedies associated with the d ebt.  Effective May 20, 2003, the notes bear interest at 10% per year.  Even if the Company's defaults 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.

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 subordinated note balance.

In accordance with certain provisions of the debt instruments, accrued interest may be converted, along with the notes, to common stock at $5.00 per share.  As of the end of the first quarter of fiscal 2004, $680,000 remained as accrued interest on the subordinated notes.

Initially, the $4.7 million conversion feature, which excludes accrued interest, was amortized over the original 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 November 19, 2003, net of the unamortized discount, was approximately $7.5 million.  The comparative carrying value of the notes at August 27, 2003, was approximately $7.0 million.

The operating results of the 47 locations have been reclassified and reported as discontinued operations for all periods presented as required by Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144), adopted by the Company in the first quarter of fiscal 2003.  The following are the sales and pretax losses reported in discontinued operations for these stores:

During fiscal 2003, after the original designation of stores, two were removed from the list and replaced by two other locations.  Specifically, one in Bossier City, Louisiana, and one in Houston, Texas, were neutrally exchanged for one location in San Antonio, Texas, and one in Lufkin, Texas.  In early 2004, one other property - the prior joint-venture seafood location mentioned above - was adopted into the plan.

Pursuant to the business plan and expectations of its bank group, the Company is committed to applying the proceeds from the sales of closed restaurants to pay down its credit-facility debt.  Of the total paid down in the first quarter of fiscal 2004, $2.8 million resulted from sales proceeds related to business plan assets.  As of November 19, 2003, the Company also had 26 properties valued at $27.4 million in property held for sale, which also related to the business plan.  Management therefore estimated the total amount related to the current quarter and future business plan disposals was the combined amount of $30.2 million.

In accordance with Emerging Issues Task Force (EITF) 87-24, "Allocation of Interest to Discontinued Operations," interest on debt that is required to be repaid as a result of a disposal transaction should be allocated to discontinued operations.  Accordingly, the Company has reclassified approximately $501,000 and $586,000 in interest expense to that category in the first quarters of fiscal 2004 and 2003, respectively.  The basis of the reclassifications was an application of the credit facility's historical effective interest rates to the portion of the estimated total debt that equals the amount related to current and future business plan disposals as explained in the previous paragraph.

The Company does not accrue employee settlement costs; these charges are expensed as incurred.

Relative to the business plan, as the Company has formally settled lease terminations or has reached definitive terms to terminate leases, the related charges have been recorded.  For the quarter ended November 19, 2003, no lease exit costs associated with the business plan met this criteria and, consequently, were not accrued as of the quarter-end.  Furthermore, the Company did not accrue future rental costs in instances where locations closed; however, management has the ability to sublease.

The following is a summary of the amounts recognized as accrued expenses or accrual reductions together with cash payments made against such accruals for the first quarter ended November 19, 2003, under the fiscal year 2001 plan:

At both November 19, 2003, and August 27, 2003, 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 m eet 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 November 19, 2003, based on the market price on that day, approximately $332,000, or 20.6% of the note balances, could have been covered by stock, while approximately $1.3 million, or 79.4%, would have remained outstanding.

Under the terms of the Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables.  No costs were incurred under the Master Sales Agreement for the first quarter of fiscal 2004. The total cost under the Master Sales Agreement of custom-fabricated and refurbished equipment for the first quarter of fiscal 2003 was approximately $47,000.  All amounts charged under the agreements through November 19, 2003, have been paid.

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 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 effective August 1, 2003.  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 $21,000 for the first quarter of fiscal 2003.

Affiliated rents paid for the Houston Service Center, the separate storage facility, and the Dallas property leases combined represented 3.4% and 3.5% of total rents for continuing operations for the first quarter of fiscal 2004 and 2003, respectively.