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

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

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

.

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

Store management compensation reported for fiscal year 2005 has been reclassified from “Other Operating Expenses” to “Payroll and Related Costs” to provide comparability to financial results reported by the Company’s peers in the industry. Prior period results reported have been reclassified to conform to the current period presentation.

The following is a summary of deferred income tax assets and liabilities as of the current quarter and prior fiscal year-end:

The following table details the categories of deferred income tax assets and liabilities resulting from the cumulative tax effects of temporary differences as of the end of each period presented:

Relative only to continuing operations, the reconciliation of the expense (benefit) for income taxes to the expected income tax expense (benefit), computed using the statutory tax rate, was as follows:

For the twothree quarters ended February 15,May 10, 2006, including both continuing and discontinued operations, the Company generated gross taxable income of approximately $2.9$5.7 million, which will be offset by net operating loss carryforwards from prior years. However, the Company will incur an Alternative Minimum Tax (“AMT”) liability of approximately $64,000.$122,000. The AMT liability may be used as a credit in the future if regular income tax exceeds future AMT. Actual cash payments of estimated income taxes of approximately $137,000$181,000 were made during the twothree quarters ended February 15,May 10, 2006. For the 2005 fiscal year, including both continuing and discontinued operations, the Company generated gross taxable income of approximately $6.2$3.0 million which will bewas offset by net operating loss carryforwards from prior years. However, the Company incurred an AMT liability of approximately $117,000$90,000 for the 2005 fiscal year.

For fiscal years 2004 and 2003, including both continuing and discontinued operations, the Company generated net operating loss carryforwards of approximately $4.0 million and $31.7 million, respectively, which will fully expire in 2024 and 2023, respectively, if not utilized. Due to the Company’s cumulative loss carryforward position, no federal income taxes were paid in fiscal 2004 or fiscal 2003. The balance of the net operating loss carryovers at the end of fiscal year 2005 was approximately $32.3 million. At the end of the third quarter fiscal 2006, which ended May 10, 2006, remaining net operating loss carryovers were approximately $26.6 million.

The tax benefitbenefits of the operating losses and other deferred tax assets for book purposes in fiscal years 2004 and 2003 waswere netted against a valuation allowance because loss carrybacks were exhausted with the fiscal 2002 tax filing and the future realization of loss carryforwards wasand the reversal of deferred tax assets were uncertain. For book purposes in fiscal years after 2004,Because of the Company’s continued financial profitability and expected future results of operations, it is now more likely than not that these tax expenseassets are realizable and, benefits willaccordingly, they may be offset againstrecognized as provided under Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes.” During the third quarter of 2006, the Company had thirty-six consecutive months of operating income. A portion of the valuation allowance until such time as the future realization of loss carryforwards becomes reasonably certain.

The Company's federal income tax returns have been periodically reviewed by the Internal Revenue Service. The Company's 2003, 2002, 2001, and 2000 returns are currently under review. The IRS review could result in a reduction of the cumulative net operating losses that are currently being carried forward to offset future taxable income.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements.  The IRS review could resultAmounts considered probable of settlement within on year have been reflected in the financial statements as a reduction ofcurrent liability within the cumulative net operating losses that are currently being carried forward to offset future taxable income.accrued expenses and other liabilities' line item.

The cost and accumulated depreciation of property, plant and equipment at February 15,May 10, 2006, and August 31, 2005, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:

On August 31, 2005, Luby’s, Inc. entered into an amended and restated $45.0 million unsecured Revolving Credit Facility Agreement (the “Revolving Credit Facility”) among Luby’s, Inc. and a syndicate of three independent banks. The Revolving Credit Facility may, subject to certain terms and conditions, be increased by an additional $15.0 million for a total facility size of $60.0 million. The Revolving Credit Facility allows up to $10.0 million of the available credit to be extended in the form of letters of credit. The Revolving Credit Facility terminates on, and all amounts owing thereunder must be repaid on August 31, 2008.

At any time throughout the term of the loan, the Company has the option to elect one of two bases of interest rates. One interest rate option is the greater of (a) the federal funds effective rate plus 0.5%, or (b) prime, plus, in either case, an applicable spread that ranges from 0% to 0.25% per annum. The other interest rate option is LIBOR (London InterBank Offered Rate) plus an applicable spread that ranges from 1.00% to 1.75% per annum. The applicable spread under each option is dependent upon certain measures of the Company’s financial performance at the time of election.

The Company also pays a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is also dependent upon the Company’s financial performance, ranging from 0.25% to 0.35% per annum. The Company also is obligated to pay certain fees in respect of any letters of credit issued as well as an administrative fee to the lender acting as administrative agent. Finally, the Company was obligated to pay to the lenders a one-time fee in connection with the closing of the Revolving Credit Facility.

The Revolving Credit Facility contains customary events of default and covenants and restrictions on the Company’s ability to engage in certain activities, including financial performance measures and limitations on capital expenditures, asset sales and acquisitions. At February 15,May 10, 2006, the Company was in full compliance with all covenants.

All amounts owed by Luby’s, Inc. under the Revolving Credit Facility are guaranteed by its subsidiaries.

Interest expense incurred year to date as of February 15,May 10, 2006 and February 9,May 4, 2005, was $643,000approximately $0.9 million and $2.9$5.0 million, respectively. Approximated $416,000Approximately $0.5 million and $2.4$3.4 million in interest paymentpayments were made for the same periods, respectively.

In accordance with Company guidelines, management periodically reviews the financial performance of each store for indicators of impairment or indicators that closure would be appropriate. Where indicators are present, such as three full fiscal years of negative cash flows or other unfavorable market conditions, the carrying values of assets are written down to the estimated future discounted cash flows or fully written off in the case of anticipated future negative cash flows anticipated in the future.flows. Estimated future cash flows are based upon regression analyses generated from similar Company restaurants, discounted at the Company's weighted-average cost of capital.

Estimated lease settlements under the Company’s 2001 disposal plan were originally charged to expense under “Provision for (Reversal of) Asset Impairments and Restaurant Closings.” Subsequent adjustments to these lease settlements for actual exit costs incurred are also reflected in the “Provision for (Reversal of) Asset Impairments and Restaurant Closings.”

The activity reflected in the “Provision for (Reversal of) Asset Impairments and Restaurant Closings” during the first twothree quarters of fiscal 2006 is primarily related to a gain on the sale of one propertytwo properties and the move of two former restaurant units from properties held for sale.sale along with the write-off of obsolete equipment, asset impairment and lease settlement costs. The reclassified properties are to be used by operations and facilities services. The amount recorded in the first twothree quarters of 2006 is for the reversal of prior impairments of estimated selling costs of these units.

From the third quarter of fiscal year 2003 through February 15,May 10, 2006, the Company has closed 64 operating stores. The operating results of these locations have been reclassified and reported as discontinued operations for all periods presented as required by Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The following are the sales and pretax lossesincome (loss) reported for all discontinued locations:

The Company has continued to apply the proceeds from the sale of closed restaurants to pay down its debt. Of the total debt paid down during the first twothree quarters of fiscal years 2006 and 2005, $3.7$5.6 million and $10.0$8.9 million, respectively, resulted from sales proceeds related to business plan assets. Proceeds from the sale of properties held for sale as of February 15, 2006, may also be applied to pay down debt, but under the terms of the Company’s Revolving Credit Facility, there is no requirement to do so.

In accordance with 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. For the second quartersthird quarter of fiscal years 2006 and 2005 approximately $50,000,$14,000, and $543,000,$1.4 million, respectively, in interest expense were allocated to discontinued operations, while approximately $122,000,$137,000, and $1.2$2.6 million, respectively, were allocated to discontinued operations in the first twothree quarters of fiscal years 2006 and 2005. The basis of the allocation to discontinued operations 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.

Relative to the business plan, as the Company has formally settled lease terminations or has reached definitive agreements to terminate leases, the related charges have been recorded. As of February 15,May 10, 2006 and August 31, 2005, no lease exit costs associated with the business plan met these criteria and, consequently, were not accrued as of those dates. However, for the quarterthree quarters ended February 15,May 10, 2006, the Company recognized $200,000$610,000 for termination costs paid under definitive lease settlement agreements. Furthermore, the Company has not accrued future rental costs in instances where locations closed; however, management has the ability to sublease at amounts equal to or greater than the rental costs. The Company does not accrue employee settlement costs; these charges are expensed as incurred.

The following summarizes discontinued operations for the periods presented:

The impairments are related to write downs taken on properties closed and designated for immediate disposal. The assets of these individual closed units have been written down to their net realizable values. Impairments in value are determined based on comparisons made to similar property values in their respective markets and historical sale results. As the assets are recorded at their estimated net realizable value, there can be no assurance that the carrying value will equal the actual net proceeds upon sale. The Company offsets any gains or losses from applicable property disposals against impairments to arrive at net impairments. Dispositions of properties held for sale are expected to be completed within one year.

Other items include allocated interest, lease settlements, employment termination and shut-down costs, as well as operating losses through each restaurant's closing date and carrying costs incurred until the final disposal of these locations.

There are no active restaurant operations included in discontinued operations. Continuing cash flows used by discontinued operations consist primarily of costs related to the ownership and maintenance of properties that are being held for sale, and rental costs associated with leases that have not yet terminated. These activities are expected to cease within the next year as Company-owned properties are sold and leases are settled.

At February 15,May 10, 2006, the Company had a total of six4 properties recorded at approximately $4.2$2.6 million in property held for sale. Of the six4 properties remaining, one is related to prior disposal plans. In the first quarter of fiscal year 2006, two properties were reclassified from property held for sale to property and equipment. These properties are to be used to support operations. Five properties were sold during fiscal year 2006. On August 31, 2005, the Company had a total of thirteen properties recorded at $9.3 million in property held for sale. Two properties were reclassified from property held for sale to property, plant and equipment during the first quarter fiscal year 2006. These reclassified properties are to be used to support operations. During the first three quarters of fiscal year 2006, seven properties were sold.

The Company is actively marketing the locations currently classified as property held for sale. When sold, proceeds from properties that have been identified as held for sale, are expected to be used to reduce outstanding debt. Property held for sale consists primarily of already-closed restaurant properties. Property held for sale is valued at the lower of net depreciable value or net realizable value.

The Company’s results of discontinued operations will be affected to the extent proceeds from the sales exceed or are less than net book value.

The Company has no off-balance sheet structured financing arrangements.

The Company presently, and from time to time, is subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the resolution of any pending legal proceedings will not have a material adverse effect on the Company's operations or financial position.

By February 15, 2006, the Company replaced the $5 million in surety bonds with letters of credit under the Company’s Revolving Credit Facility (as described in Note 6). This replacement allowed for a reduction in the required amount of security to cover the insurance obligations and provide the Company with a more cost effective collateral option as security for the insurance obligations.

Christopher J. Pappas, the Company's Chief Executive Officer, and Harris J. Pappas, the Company's Chief Operating Officer, own two companies, Pappas Partners, L.P. and Pappas Restaurants, Inc. (the "Pappas Entities"), that may provide services to the Company under the terms of the Master Sales Agreement.

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, to the Company. 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 monitoring pricing of the transactions associated with the Master Sales Agreement, the Finance and Audit Committee of the Company’s Board of Directors has periodically in the past used independent valuation consultants. The Company paid $2,000 in the first twothree quarters of fiscal year 2006 and approximately $48,000$148,000 in the first twothree quarters of fiscal year 2005 under the terms of the Master Sales Agreement, which related to custom-fabricated and refurbished equipment.

Prior to January 1, 2006, the Pappas Entities provided general business services to the Company under the terms of the Affiliate Services Agreement. Under the Affiliate Services Agreement, which terminated in the second quarter of 2006, the Company incurred no costs during the first twothree quarters of 2006, and $11,000$153,000 in costs during the first twothree quarters of 2005.

The Company leases a facility, which is referred to as the Houston Service Center, from the Pappas Entities. The Houston Service Center serves as a centralized restaurant service center to support field operations. The facility is also used for repair and storage of new and used equipment.  The building at this location has 22,253 square feet of warehouse space and 5,664 square feet of office space. The lease is on a month-to-month basis and the monthly rental rate is approximately $0.24 per square foot. The Company paid approximately $34,000$54,000 and $41,000, repsectively,$61,000, respectively, in each of the first twothree quarters of fiscal years 2006 and 2005 under the terms of that lease.

The Company also leases a warehouse facility, which is referred to as the Storage Facility, from the Pappas Entities. The Storage Facility is used to house the Company's equipment inventory. The Storage Facility complements the Houston Service Center with approximately 27,000 square feet of warehouse space at an approximate monthly lease rate of $0.21 per square foot. The Company paid $28,000$44,000 and $35,000,$50,000, respectively, for the first twothree quarters of each of the fiscal years 2006 and 2005 under the terms of this lease.

The Company also leases space for one of its restaurants in a retail strip center in Houston, Texas, that is owned by a limited partnership of which 50% is owned by Christopher J. Pappas and Harris J. Pappas. The Company's restaurant has rented approximately 7% of the space in that center since July 1969. The Company paid approximately $83,000 in each of$177,000 and $191,000, respectively, for the first twothree quarters of fiscal years 2006 and 2005 respectively, under the terms of this lease.

Affiliated rents paid for the Houston Service Center, the Storage Facility and the Houston restaurant lease combined represented 9.9%9.5% and 8.8%11.2% of total rents for continuing operations during the first twothree quarters of each of the fiscal years 2006 and 2005, respectively.

Under the terms of a Purchase Agreement, dated as of March 9, 2001, and as amended as of June 7, 2004, among the Company, Christopher J. Pappas and Harris J. Pappas, the Company has agreed to submit three persons designated by Christopher J. Pappas and Harris J. Pappas as nominees for election to the Company's Board of Directors. Christopher J. Pappas and Harris J. Pappas have designated themselves and Frank Markantonis to serve on the Board of Directors. Messrs. Pappas retain their right for so long as they both are executive officers of the Company.

Christopher J. Pappas, the Company’s President and Chief Executive Officer, is a member of the Board of Directors of Amegy Bank, National Association, which is a lender under, and Documentation Agent of, the Revolving Credit Facility.

On November 9, 2005, the Company entered into new three year employment agreements with each of Christopher J. Pappas and Harris J. Pappas.Pappas, which extend their employment with the Company through August 31, 2008. Christopher J. Pappas and Harris J. Pappas are brothers.

Ernest Pekmezaris, Chief Financial Officer of the Company, is also the Treasurer of Pappas Restaurants, Inc. Compensation for the services provided by Mr. Pekmezaris to Pappas Restaurants, Inc. is paid entirely by that entity.

Peter Tropoli, Senior Vice President-President, General Counsel and Secretary of the Company, is an attorney who, from time to time, has provided litigation services to entities controlled by Christopher J. Pappas and Harris J. Pappas. Mr. Tropoli is the stepson of Frank Markantonis, who, as previously mentioned, is a director of the Company.

Paulette Gerukos, Vice President of Human Resources of the Company, is the sister-in-law of Harris J. Pappas, the Chief Operating Officer.

The Company has an Executive Stock Option Plan as well as Incentive Stock Plans for officers and employees (“Employee Stock Plans”) and a Non-employee Director Stock Option Plan for non-employee directors. These plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans (See Note 12 to the Company's Consolidated Financial Statements included in the 2005 Form 10-K). The number of shares authorized for issuance under the Company's plans as of February 15,May 10, 2006 totals approximately 5,200,000, of which 2,113,461approximately 2,100,000 shares wereare available for future issuance. Stock options granted under these plansthe Incentive Stock Plans and the Non-employee Director Stock Option Plan are granted with an exercise price equal to the market price of the Company's stock at the date of grant except for the Executive Stock Option Plan.grant. Option awards under the Executive Stock Option Plan vest 50% on the first anniversary of the grant date, 25% on the second anniversary of the grant date, and the remaining 25% on the third anniversary of the grant date and expire ten years from the grant date. Option awards under the Employee Stock Plans generally vest 25% each year on the anniversary of the grant date and expire six to ten years from the grant date. Option awards under the Non-employee Director Stock Option Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date.

Prior to August 31, 2005, the Company accounted for its stock based compensation under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and the disclosures required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." In accordance with APB Opinion No. 25, no stock-based compensation cost was reflected in the Company's prior year net income for grants of stock options to employees because the Company granted stock options with an exercise price equal to the market value of the stock on the date of grant. The reported stock based compensation expense, net of related tax effects, in the table below, represents compensation costs associated with restricted stock grants.

Had the Company used the fair value based accounting method for stock compensation expense prescribed by SFAS Nos. 123 and 148 for the periods ended February 9,May 4, 2005, the Company's consolidated net income and net income per share would have been decreased to the pro-forma amounts illustrated as follows:

Effective September 1, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123R using the modified prospective method. Under this method, compensation cost in the first twothree quarters of fiscal year 2006 includes the portion of awards vesting in the period for (a) all share-based payments granted prior to, but not vested as of August 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No.123 and (b) all share based payments granted subsequent to August 31, 2005, based on the grant date fair value estimated using the Black-Scholes option pricing model. Before adoption of SFAS No. 123R, pro forma disclosures reflected the fair value of each option grant estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Results of prior periods do not reflect any restated amounts, and the Company had no cumulative effect adjustment upon adoption of SFAS No. 123R under the modified prospective method. The Company's policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight line basis over the requisite service period for the entire award. Additionally, the Company's policy is to reserve shares held in treasury to satisfy stock option exercises under the Executive Stock Option Plan.

The adoption of SFAS No. 123R decreased the Company's reported operating income, income before income taxes and reported net income for the first twothree quarters of fiscal year 2006 by $184,000,$289,000, and reduced both basic and diluted net income per share by $0.01. The expense, before income tax effect, is reflected in general and administrative expenses. The Company's adoption of SFAS No. 123R did not affect operating income, income before income taxes, net income, cash flow from operations, cash flow from financing activities, or basic and diluted net income per share in the comparable period of fiscal year 2005.

Partly in anticipation of the adoption of SFAS No.123R, in recent years the Company has adjusted the mix of employee long-term incentive compensation by reducing stock options awarded and increasing certain cash based compensation and other equity based awards. Compensation cost for share-based payment arrangements recognized in general and administrative expenses for the first twothree quarters of fiscal year 2006 was $184,000approximately $289,000 for stock options and $97,000$166,000 for restricted stock. The total income tax effect of these expenses was offset by a valuation allowance and, therefore, no benefit was recognized in the income statement for the first twothree quarters of fiscal year 2006 for share-based compensation arrangements.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model, which determines inputs as shown in the following table. Because of differences in option terms and historical exercise patterns among the plans, the Company has segregated option awards into three homogenous groups for the purpose of determining fair values for its options. Valuation assumptions are determined separately for the three groups which represent, respectively, the Executive Stock Option Plan, the Employee Stock Plans and the Non-employee Director Stock Option Plan. The assumptions are as follows:

A summary of the Company's stock option activity as of February 15,May 10, 2006, and changes during the first twothree quarters of fiscal year 2006 is presented in the following table:

The weighted-average grant-date fair value of options granted during the first twothree quarters of fiscal year 2006 was $6.72 per share. The intrinsic value for stock options is defined as the difference between the current market value and the grant price. The total intrinsic value of options exercised during the first twothree quarters of fiscal year 2006 was $390,000.approximately $427,000.

Restricted stock grants consist of the Company's common stock and generally vest after three years, except the current grants under the Nonemployee Director Stock Option Plan, which vest when granted. All restricted stock grants are cliff vested. Generally,Restricted stock awards are valued at the fair value of each restricted stock grant is equal to theaverage market price of the Company's stock at the date of grant.

A summary of the Company's restricted stock activity at February 15,May 10, 2006, and changes during the first twothree quarters of fiscal year 2006, is presented in the following table:

At February 15,May 10, 2006, there was $1.6approximately $1.5 million of total unrecognized compensation cost related to unvested share-based compensation arrangements that is expected to be recognized over a weighted-average period of 3.522.98 years. During the first twothree quarters of fiscal year 2006, 6,51610,636 shares of restricted stock grants vested.

During the first twothree quarters of fiscal year 2006, cash received from options exercised was $937,000approximately $991,000 and the calculated but unrecognized tax benefit for the tax deductions from stock options exercised totaled $127,000.approximately $149,000.

In November 2004, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF 03-13, “Applying the Conditions in Paragraph 42 of SFAS No. 144 in Determining Whether to Report Discontinued Operations,” which provides guidance on how to evaluate the discontinued operations criteria. The consensus should be applied in fiscal periods beginning after December 15, 2004. The Company has applied the consensus effective fiscal year 2006, with no significant effect on reporting of discontinued operations. (See Note 7 of Notes to Consolidated Financial Statements.)

In October 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 13-1 (“FSP 13-1”), which addresses the accounting for rental costs associated with building and ground operating leases that are incurred during a construction period. The FASB decided that such rental costs incurred during a construction period shall be recognized as rental expense. A lessee shall cease capitalizing rental costs as of the effective date of FSP 13-1 for operating lease arrangements entered into prior to the effective date of FSP 13-1. The guidance in FSP 13-1 has been applied during the first quarter of fiscal year 2006. Because it has been the Company’s practice to charge rental costs during construction periods to expense, the adoption of FSP 13-1 has not had, and will not have, an impact on the Company’s financial position, results of operations or cash flows.

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of restricted stock, phantom stock, and stock options determined using the treasury stock method. Stock options with exercise prices exceeding current market prices that were excluded from the computation of net income per share amounted to 59,00013,000 shares and 618,000328,000 shares for the quarters ended February 15,May 10, 2006 and February 9,May 4, 2005, respectively. For the twothree quarters ended February 15,May 10, 2006 and February 9,May 4, 2005, respectively, the Company had approximately 107,000120,000 and 750,000593,000 stock options outstanding that were not included in the diluted earnings per share calculation because the effect would have been antidilutive.

Store management compensation has beenwas reclassified from “Other Operating Expenses” to “Payroll and Related Costs” to provide comparability to financial results reported by our peers in the industry. Prior period results reported have been reclassified to conform to the current period presentation.

The Company's business plan, as approved in fiscal year 2003, called for the closure of approximately 50 locations. In accordance with the plan, the entire fiscal activity of the applicable stores closed after the inception of the plan have been reclassified to discontinued operations. For comparison purposes, prior period results related to these same locations have also been reclassified to discontinued operations.

The Company's fiscal year ends on the last Wednesday in August. As such, each fiscal year normally consists of 13 four-week periods (“Accounting Periods”), accounting for 364 days.  Each of the first three quarters of each fiscal year consists of three four-week periods, while the fourth quarter normally consists of four four-week periods. Comparability between accounting periodsquarters may be affected by varying lengths of the periods,quarters, as well as the seasonality associated with the restaurant business.

The restaurant business is highly competitive with respect to food quality, concept, location, price, and service, all of which may have an effect on same-store sales. The Company's same-store sales calculation measures the relative performance of a certain group of restaurants. Specifically, to qualify for inclusion in this group, a store must have been in operation for 18 consecutive accounting periods.Accounting Periods. Although management believes this approach leads to more effective year-over-year comparisons, neither the time frame nor the exact practice may be similar to those used by other restaurant companies.

Hurricane Rita impacted a number of the Company’s markets during the first quarter of 2006 as Luby’s was forced to temporarily close many stores due to mandatory evacuations and subsequent power outages. The Company experienced a store closure impact of 236 store days of operations due to Hurricane Rita.operations. One unit in Port Arthur, Texas suffered permanent damage and remains closed. All other restaurants impacted by the storm suffered minimal damage and were reopened soon after the storm passed. The store closure impact on the Company’s results of operations was offset by increased traffic at certain units and catering events relating to the hurricane relief effort.

Sales increased approximately $4.1$2.6 million, or 5.7%3.4%, in the secondthird quarter of fiscal year 2006 compared to the secondthird quarter of fiscal year 2005. On a same-store basis, sales increased $4.7$3.0 million or 6.7%4.0%, excluding one unit that was open in the secondthird quarter of 2005 but was temporarily closed due to storm damage throughout the secondthird quarter of 2006.