Indicate by check mark whether the ~~registrant:~~registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

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

As of ~~December 12, 2010,~~March 4, 2011, there were ~~28,103,620~~28,111,146 shares of the registrant’s common stock outstanding.

We file reports with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The public may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information that we file electronically. Our website address is http://www.lubys.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report.


	November 17, 2010			August 25, 2010			February 9, 2011			August 25, 2010
	*(Unaudited)*						*(Unaudited)*
ASSETS
Current Assets:
Cash and cash equivalents	$	1,789		$	2,300		$	977		$	2,300
Trade accounts and other receivables, net		2,699			2,213			2,506			2,213
Food and supply inventories		4,298			3,097			3,647			3,097
Prepaid expenses		1,216			1,041			1,413			1,041
Assets related to discontinued operations		192			78			202			78
Deferred income taxes		793			431			789			431

Total current assets		10,987			9,160			9,534			9,160
Property held for sale		1,828			1,828			1,077			1,828
Assets related to discontinued operations		16,573			18,419			13,041			18,419
Property and equipment, net		169,785			172,040			167,437			172,040
Intangible assets, net		28,969			29,292			28,646			29,292
Goodwill		195			195			195			195
Deferred incomes taxes		10,853			9,672			10,877			9,672
Other assets		1,840			1,737			1,650			1,737

Total assets	$	241,030		$	242,343		$	232,457		$	242,343

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	14,041		$	12,514		$	11,974		$	12,514
Liabilities related to discontinued operations		898			924			297			924
Credit facility debt		39,500			—			36,000			—
Accrued expenses and other liabilities		20,525			19,007			17,443			19,007

Total current liabilities		74,964			32,445			65,714			32,445
Credit facility debt		—			41,500			—			41,500
Liabilities related to discontinued operations		815			940			815			940
Other liabilities		5,926			6,097			5,778			6,097

Total liabilities		81,705			80,982			72,307			80,982

Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 28,574,614 and 28,564,024, respectively; shares outstanding were 28,074,614 and 28,064,024, respectively		9,144			9,140
Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 28,611,146 and 28,564,024, respectively; shares outstanding were 28,111,146 and 28,064,024, respectively								9,156			9,140
Paid-in capital		23,337			23,089			23,433			23,089
Retained earnings		131,619			133,907			132,336			133,907
Less cost of treasury stock, 500,000 shares		(4,775	)		(4,775	)		(4,775	)		(4,775	)

Total shareholders’ equity		159,325			161,361			160,150			161,361

Total liabilities and shareholders’ equity	$	241,030		$	242,343		$	232,457		$	242,343

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


	Quarter Ended						Quarter Ended						Two Quarters Ended
	November 17, 2010			November 18, 2009			February 9, 2011			February 10, 2010			February 9, 2011			February 10, 2010
	*(12 weeks)*			*(12 weeks)*			*(12 weeks)*			*(12 weeks)*			*(24 weeks)*			*(24 weeks)*
SALES:
Restaurant sales	$	70,290		$	49,028		$	71,757		$	50,800		$	142,047		$	99,828
Culinary contract services		3,332			3,292			3,127			2,959			6,459			6,251
Franchise revenue		1,501			—			1,520			—			3,021			—
Vending revenue		153			—			132			—			285			—

TOTAL SALES		75,276			52,320			76,536			53,759			151,812			106,079
COSTS AND EXPENSES:
Cost of food		20,860			13,185			21,399			13,928			42,259			27,113
Payroll and related costs		25,043			18,769			25,190			18,108			50,234			36,877
Other operating expenses		18,196			12,118			16,843			10,834			35,040			22,950
Opening costs		105			31			38			121			144			152
Cost of culinary contract services		2,985			2,927			2,879			2,788			5,864			5,716
Depreciation and amortization		4,197			3,554			3,983			3,487			8,180			7,041
General and administrative expenses		6,513			5,482			6,491			5,003			13,004			10,485
Net loss on disposition of property and equipment		7			317
Provision for asset impairments, net								—			32			—			32
Net gain on disposition of property and equipment								(35	)		(1,041	)		(28	)		(724	)

Total costs and expenses		77,906			56,383			76,788			53,260			154,697			109,642

LOSS FROM OPERATIONS		(2,630	)		(4,063	)
INCOME (LOSS) FROM OPERATIONS								(252	)		499			(2,885	)		(3,563	)
Interest income		2			9			1			7			4			16
Interest expense		(618	)		(128	)		(553	)		(44	)		(1,171	)		(172	)
Impairment charge for decrease in fair value of investments		—			(459	)		—			20			—			(438	)
Other income, net		241			198			318			215			559			412

Loss before income taxes and discontinued operations		(3,005	)		(4,443	)
Benefit for income taxes		(905	)		(1,417	)
Income (loss) before income taxes and discontinued operations								(486	)		697			(3,493	)		(3,745	)
Provision (benefit) for income taxes								(275	)		556			(1,181	)		(811	)

Loss from continuing operations		(2,100	)		(3,026	)
Loss from discontinued operations, net of income taxes		(188	)		(691	)
Income (loss) from continuing operations								(211	)		141			(2,312	)		(2,934	)
Income (loss) from discontinued operations, net of income taxes								928			(563	)		741			(1,205	)

NET LOSS	$	(2,288	)	$	(3,717	)
NET INCOME (LOSS)							$	717		$	(422	)	$	(1,571	)	$	(4,139	)

Loss per share from continuing operations:
Basic	$	(0.07	)	$	(0.11	)	$	(0.01	)	$	—		$	(0.08	)	$	(0.11	)
Assuming dilution		(0.07	)		(0.11	)		(0.01	)		—			(0.08	)		(0.11	)

Loss per share from discontinued operations:
Income (loss) per share from discontinued operations:
Basic	$	(0.01	)	$	(0.02	)	$	0.03		$	(0.02	)	$	0.02		$	(0.04	)
Assuming dilution		(0.01	)		(0.02	)		0.03			(0.02	)		0.02			(0.04	)

Net loss per share:
Net income (loss) per share:
Basic	$	(0.08	)	$	(0.13	)	$	0.02		$	(0.02	)	$	(0.06	)	$	(0.15	)
Assuming dilution		(0.08	)		(0.13	)		0.02			(0.02	)		(0.06	)		(0.15	)

Weighted average shares outstanding:
Basic		28,164			28,111			28,172			28,121			28,168			28,117
Assuming dilution		28,164			28,111			28,172			28,127			28,168			28,117

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


	Common Stock															Total Shareholders’ Equity			Common Stock										Paid-In Capital		Retained Earnings			Total Shareholders’ Equity
	Issued				Treasury						Paid-In Capital		Retained Earnings						Issued				Treasury
	Shares		Amount		Shares			Amount			Paid-In Capital		Retained Earnings						Shares		Amount		Shares			Amount
BALANCE AT AUGUST 25, 2010		28,564	$	9,140		(500	)	$	(4,775	)	$	23,089	$	133,907		$	161,361			28,564	$	9,140		(500	)	$	(4,775	)	$	23,089	$	133,907		$	161,361
Net loss		—				—			—			—		(2,288	)		(2,288	)		—		—		—			—			—		(1,571	)		(1,571	)
Common stock issued under nonemployee director benefit plans		2		1		—			—			3		—			4
Common stock issued under nonemployee director plans																				2		1		—			—			3		—			4
Common stock issued under employee benefit plans																				5		2		—			—			21		—			23
Excess tax benefits from stock options		—		—		—			—			2		—			2			—		—		—			—			2		—			2
Share based compensation expense		9		3		—			—			243		—			246
Share-based compensation expense																				40		13		—			—			318		—			331

BALANCE AT NOVEMBER 17, 2010		28,575	$	9,144		(500	)	$	(4,775	)	$	23,337	$	131,619		$	159,325
BALANCE AT FEBRUARY 9, 2011																				28,611	$	9,156		(500	)	$	(4,775	)	$	23,433	$	132,336		$	160,150

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


	Quarter ended						Two Quarters ended
	November 17, 2010			November 18, 2009			February 9, 2011			February 10, 2010
	*(12 weeks)*			*(12 weeks)*			*(24 weeks)*			*(24 weeks)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,288	)	$	(3,717	)	$	(1,571	)	$	(4,139	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for asset impairments, net of gains/losses on property sales		(43	)		(862	)
Provision for asset impairments, net of gains and losses on property sales								(1,705	)		(2,267	)
Depreciation and amortization		4,197			3,799			8,182			7,288
Impairment charge for decrease in fair value of investments		—			459
Impairment charge for decrease in fair value of investments, net of gains								—			438
Amortization of debt issuance cost		209			67			417			85
Non-cash compensation expense		57			63			129			126
Share-based compensation expense		189			242			202			466
Tax benefit on stock options		(2	)		—			(2	)		—
Deferred tax benefit		(1,177	)		(1,899	)		(1,195	)		(1,626	)

Cash provided by (used in) operating activities before changes in operating assets and liabilities		1,142			(1,848	)
Cash provided by operating activities before changes in operating assets and liabilities								4,457			371
Changes in operating assets and liabilities:
Increase in trade accounts and other receivables, net		(486	)		(64	)		(293	)		(478	)
Increase in food and supply inventories		(1,201	)		(461	)
Increase in prepaid expenses and other assets		(275	)		(142	)
(Decrease) increase in accounts payable, accrued expenses and other liabilities		2,884			(1,434	)
Decrease (increase) in food and supply inventories								(551	)		302
Decrease (increase) in prepaid expenses and other assets								(521	)		419
Decrease in accounts payable, accrued expenses and other liabilities								(3,010	)		(6,277	)

Net cash provided by (used in) operating activities		2,064			(3,949	)		82			(5,663	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption or maturity of investments		—			1,364			—			1,414
Proceeds from disposal of assets and property held for sale		1,308			3,016			7,541			5,768
Acquisition of Fuddruckers		(265	)		—
Acquisition of Fuddruckers assets								(265	)		—
Purchases of property and equipment		(1,404	)		(933	)		(2,985	)		(1,542	)

Net cash provided by (used in) investing activities		(361	)		3,447
Net cash provided by investing activities								4,291			5,640

CASH FLOWS FROM FINANCING ACTIVITIES:
Credit facility borrowings		17,300			16,400			88,100			20,100
Credit facility repayments		(19,300	)		(15,800	)		(93,600	)		(20,100	)
Debt issuance costs		(220	)		—			(225	)		(105	)
Tax benefit on stock option expense		2			—
Proceeds received on the exercise of nonemployee stock options		4			—
Tax benefit on stock options								2			—
Proceeds received on the exercise of stock options								27			—

Net cash provided by (used in) financing activities		(2,214	)		600
Net cash used in financing activities								(5,696	)		(105	)

Net increase (decrease) in cash and cash equivalents		(511	)		98
Net decrease in cash and cash equivalents								(1,323	)		(128	)
Cash and cash equivalents at beginning of period		2,300			882			2,300			882

Cash and cash equivalents at end of period	$	1,789		$	980		$	977		$	754

Cash paid for:
Income taxes	$	—		$	—		$	—		$	—
Interest		503			34			876			68

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

The accompanying unaudited consolidated financial statements of Luby’s, Inc. (the “Company” or “Luby’s”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) 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 GAAP for complete financial statements that are prepared for the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the period ended ~~November 17, 2010~~February 9, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2011.

The consolidated balance sheet dated August 25, 2010, included in this Form 10-Q, has been derived from the audited consolidated financial statements at that date. However, this Form 10-Q does not include all of the information and footnotes required by GAAP for an annual filing of complete financial statements. Therefore, these financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 25, 2010.

The results of operations, assets and liabilities for all units included in the disposal plan discussed in Note 7 have been reclassified to discontinued operations in the statements of operations and balance sheets for all periods presented.

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 for 364 days. Each of the first three quarters of each fiscal year consists of three four-week periods (12 weeks), while the fourth quarter normally consists of four four-week periods (16 weeks). Comparability between accounting periods will be affected by varying lengths of the periods, as well as the seasonality associated with the restaurant business.

Luby’s, Inc., through its subsidiary, Luby’s Fuddruckers Restaurants, LLC (“LFR”), purchased substantially all of the assets of Fuddruckers, Inc., Magic Brands, LLC and certain of their affiliates (collectively, “Fuddruckers”) on July 26, 2010 for $63.1 million in cash. LFR assumed $4.3 million of Fuddruckers’ obligations, real estate leases and contracts. The Company funded the purchase with cash and an expansion of its credit facility. During the first quarter ended November 17, 2010, the ~~ownership of~~Company acquired one additional Fuddruckers location ~~was secured~~ for additional consideration of approximately $0.3 million.

The allocation of the purchase price for the acquisition required extensive use of accounting estimates and judgments to allocate the purchase price to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The purchase price for the Company’s acquisition of substantially all of the assets of Fuddruckers and the assumption of certain liabilities is based on estimates of fair values at the acquisition date. Such valuations require significant estimates and assumptions. The Company believes the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions. The fair value estimates for the purchase price allocation for the Company’s acquisition are considered final. ~~However, future facts and circumstances could necessitate adjustments to currently assigned values.~~

The trade name primarily relates to Fuddruckers, which the Company believes has an estimated accounting life of 21 years based on the expected use of its assets and the restaurant environment in which it is being used. The value assigned to the trade name will be amortized over the estimated accounting life of 21 years. The trade name represents a respected brand with positive customer loyalty; which the Company intends to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, have an estimated accounting life of 21 years and will be amortized over this period of time. The Company recorded ~~$0.3~~$0.6 million of amortization expense during the first ~~quarter~~two quarters of fiscal year 2011, which is classified as ~~Depreciation~~depreciation and ~~Amortization Expense on~~amortization expense in the accompanying consolidated statement of operations. The full year amortization of the trade name and the franchise agreements is expected to total $1.4 million. Because the value of these assets will be amortized using the straight-line method over 21 years, the annual amortization will be the same total each year.

A portion of the acquired lease portfolio contained favorable and unfavorable leases. Acquired lease terms were compared to current market lease terms to determine if the acquired leases were below or above the current rates tenants would pay for similar leases. The favorable lease assets totaled $0.7 million and $0.8 million at ~~November 17, 2010~~February 9, 2011 and August 25, 2010, respectively, and are recorded in other assets and, after considering renewal periods, ~~has~~have an estimated weighted average life of approximately ~~6.0~~5.8 years at ~~November 17, 2010.~~February 9, 2011. The unfavorable leases totaled ~~$2.7~~$2.6 million and $2.9 million at ~~November 17, 2010~~February 9, 2011 and August 25, 2010, respectively, and are recorded in other liabilities and, after considering renewal periods, ~~has~~have an estimated weighted average life of approximately ~~7.3~~6.9 years at ~~November 17, 2010.~~February 9, 2011. The favorable and unfavorable leases are amortized to rent expense on a straight line basis over the lives of the related leases. The following table shows the prospective amortization of the favorable lease assets and unfavorable lease liabilities:


	Fiscal Year Ended										Fiscal Year Ended
	August 31, 2011		August 29, 2012		August 28, 2013		August 27, 2014		August 26, 2015		August 31, 2011		August 29, 2012		August 28, 2013		August 27, 2014		August 26, 2015
	*(In thousands)*														*(In thousands)*
Favorable	$	130	$	130	$	130	$	130	$	130	$	130	$	130	$	130	$	130	$	130

Unfavorable	$	570	$	448	$	380	$	380	$	228	$	570	$	448	$	380	$	380	$	228

The Company also recorded an intangible asset for goodwill in the amount of $0.2 million. Goodwill is considered to have an indefinite useful life and is not amortized. Goodwill was $0.2 million as of ~~November 17, 2010~~February 9, 2011 and August 25, 2010.

GAAP establishes a framework for using fair value to measure assets and liabilities, and expands disclosure about fair value measurements. Fair value measurements guidance applies whenever other statements require or permit asset or liabilities to be measured at fair value.

GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:

Level 2: Defined as pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.

Non-recurring fair value measurements related to impaired property and equipment consisted of the following:

There were no impairments of assets related to discontinued operations during the two quarters ended February 10, 2010.

As of ~~November 17, 2010~~February 9, 2011 and August 25, 2010, the Company had no assets required to be measured at fair value on a recurring basis. The carrying value of cash and cash equivalents, trade accounts and other receivable, accounts payable, accrued expenses and debt approximate fair value based on the ~~short term~~short-term nature of these accounts.

~~For the quarter ended November 17, 2010, including both continuing and discontinued operations, the Company generated a gross taxable loss of approximately $4.6 million.~~ No cash payments of estimated federal income taxes were made during the ~~quarter~~two quarters ended ~~November 17, 2010.~~February 9, 2011.

Deferred tax assets and liabilities are recorded based on differences between the financial reporting basis and the tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized to the extent future taxable income is expected to be sufficient to utilize those assets prior to their expiration. If current available information and projected future results raises doubt about the realization of the deferred tax assets, a valuation allowance is necessary. Such a valuation allowance was established in the fourth quarter ended August 26, 2009 of fiscal year 2009 through a charge to income tax expense which adversely affected the Company’s reported operating results. Management concluded that for the quarter ended November 17, 2010, an increase in the valuation allowance of $0.1 million was necessary. No adjustment was made to the valuation allowance for the quarter ended February 9, 2011. The valuation allowance partially offsets the Company’s deferred tax assets related to net operating loss ~~(“NOL”)~~ carryovers to future years and its carryover of employment tax credits.

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. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet. The Company does not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next thirteen four-week periods.

The cost, net of impairment, and accumulated depreciation of property and equipment at ~~November 17, 2010~~February 9, 2011 and August 25, 2010, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:


	November 17, 2010			August 25, 2010			Estimated Useful Lives		February 9, 2011			August 25, 2010			Estimated Useful Lives
	*(In thousands)*								*(In thousands)*
Land	$	55,468		$	55,468			—	$	55,468		$	55,468			—
Restaurant equipment and furnishings		100,943			100,118			3 to 15 years		101,683			100,118			3 to 15 years
Buildings		164,666			164,421			20 to 33 years		164,768			164,421			20 to 33 years
Leasehold and leasehold improvements		27,800			27,516			Lesser of lease term or estimated useful life		27,877			27,516			Lesser of lease term or estimated useful life
Office furniture and equipment		6,444			6,322			3 to 10 years		6,617			6,322			3 to 10 years
Construction in progress		354			336			—		389			336			—

		355,675			354,181					356,802			354,181
Less accumulated depreciation and amortization		(185,890	)		(182,141	)				(189,365	)		(182,141	)

Property and equipment, net	$	169,785		$	172,040				$	167,437		$	172,040

Note 7. Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale

The Company periodically evaluates long-lived assets held for use and held for sale whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. The Company analyzes historical cash flows of operating locations and compares results of poorer performing locations to more profitable locations. The Company also analyzes lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction activity and the economic and market conditions in the surrounding area.

For assets held for use, the Company estimates future cash flows using assumptions based on possible outcomes of the areas analyzed. If the undiscounted future cash flows are less than the carrying value of the location’s assets, the Company records an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span is longer and could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows.

The Company recognized the following impairment charges (credits) to income from operations:


	Quarter ended				Two Quarters ended
	November 17, 2010		November 18, 2009		February 9, 2011			February 10, 2010
	*(12 weeks)*		*(12 weeks)*		*(24 weeks)*			*(24 weeks)*
	*(In thousands, except per share data)*				*(In thousands, except per share data)*
Provision for asset impairments	$	—	$	196	$	—		$	32
Net loss on disposition of property and equipment		7		121
Net gain on disposition of property and equipment						(28	)		(724	)

					$	(28	)	$	(692	)
	$	7	$	317

Effect on EPS:
Basic		—		0.01		—			(0.02	)
Assuming dilution		—		0.01		—			(0.02	)

The ~~$0.2 million impairment charges taken in~~net gain for the ~~quarter~~two quarters ended ~~November 18, 2009,~~February 9, 2011 includes ~~a pre-tax impairment charge~~the results of ~~$0.1 million related to a~~normal asset retirements and the sale of one previously closed restaurant property that was held for sale.

The net gain for the ~~Company plans to develop as~~two quarters ended February 10, 2010 includes the results of normal asset retirements and the sale of an easement right associated with a restaurant ~~or leased~~ property. ~~The total impairment for the quarter also included a charge of $0.1 million related to the discontinuance of a Culinary Contract Services agreement.~~

As a result of the first quarter fiscal year 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan (“the Plan”), the Company reclassified 23 operating stores and one previously closed location to discontinued operations. The results of operations, assets and liabilities for all units included in the Plan have been reclassified to discontinued operations in the statement of operations and balance sheets for all periods presented.

Assets related to discontinued operations include food inventory, prepaid expenses, deferred tax assets, unimproved land, closed restaurant properties and related equipment for locations classified as discontinued operations. The following table sets forth the assets and liabilities for all discontinued operations:


	February 9, 2011		August 25, 2010
	*(in thousands)*
Prepaid expenses	$	76	$	78
Deferred income taxes		126		—

Assets related to discontinued operations – current	$	202	$	78

Property and equipment	$	12,971	$	17,692
Deferred income taxes		62		717
Other assets		8		10

Assets related to discontinued operations – non-current	$	13,041	$	18,419

Deferred income taxes	$	—	$	162
Accrued expenses and other liabilities		297		762

Liabilities related to discontinued operations – current	$	297	$	924

Other liabilities	$	815	$	940

Liabilities related to discontinued operations – non-current	$	815	$	940

No impairments related to discontinued operations were recognized in the first ~~quarter~~two quarters of fiscal year 2010. However, in the first ~~quarter~~two quarters of fiscal year 2011, ~~two~~four properties were further impaired by a total of ~~$190,000.~~$0.5 million.

In the ~~first~~second quarter of fiscal year ~~2010,~~2011, the Company sold ~~two~~three closed properties and recognized a gain of ~~$1.2~~$1.9 million. One property was sold in the first quarter of fiscal year 2011 and a gain of $0.2 million was recognized. The Company also ~~settled~~terminated two in-line (strip shopping center) lease agreements in the first quarter of fiscal year 2011.

As of August 25, 2010, the Company had 23 properties classified as discontinued operations assets. As of August 25, 2010, the asset carrying value of the owned properties was $17.7 million and is included in assets related to discontinued operations. The asset carrying values of the ground leases and in-line leases have previously been impaired to zero.

As of ~~November 17, 2010,~~February 9, 2011, the Company had 2017 properties classified as discontinued operations assets. As of ~~November 17, 2010,~~February 9, 2011, the asset carrying value of the owned properties was ~~$16.5~~$13.0 million and is included in assets related to discontinued operations. The asset carrying values of the ground ~~leases and in-line~~ leases have previously been impaired to zero.

The Company is actively marketing these properties for lease or sale and the Company’s results of discontinued operations will be affected by the disposal of properties related to discontinued operations to the extent proceeds from the sales exceed or are less than net book value.

The following table sets forth the sales and pretax losses reported for all discontinued locations:

The Company incurred zero and $0.7 million in employee settlement costs in the first two quarters of fiscal years 2011 and 2010, respectively.

The following table summarizes discontinued operations for the first two quarters of fiscal years 2011 and 2010:


	Quarter ended						Two Quarters ended
	November 17, 2010			November 18, 2009			February 9, 2011			February 10, 2010
	*(12 weeks)*			*(12 weeks)*			*(24 weeks)*			*(24 weeks)*
	*(In thousands, except per share data)*						*(In thousands, except per share data)*
Impairments	$	(190	)	$	—		$	(467	)	$	—
Gains		240			1,179			2,144			1,575

Net impairments		50			1,179
Net gains								1,677			1,575
Other		(238	)		(1,870	)		(936	)		(2,780	)

Discontinued operations, net of taxes	$	(188	)	$	(691	)
Discontinued operations							$	741		$	(1,205	)

Effect on EPS from discontinued operations – decrease – basic	$	(0.01	)	$	(0.02	)
Effect on EPS from discontinued operations - basic							$	0.02		$	(0.04	)

Within discontinued operations, the Company offsets gains from applicable property disposals against total impairments. The amounts in the table described as “Other” include employment termination and shut-down costs, as well as operating losses through each restaurant’s closing date and carrying costs until the locations are finally disposed.

The impairment charges included above relate to properties closed and designated for immediate disposal. The assets of these individual operating units have been written down to their net realizable values. In turn, the related properties have either been sold or are being actively marketed for sale. All dispositions are expected to be completed within one to three years. Within discontinued operations, the Company also recorded the related fiscal year-to-date net operating results, employee terminations and basic carrying costs of the closed units.

The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of properties. If the Company decides to dispose of a property, it will be moved to property held for sale and actively marketed. The Company analyzes market conditions each reporting period and records additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like the Company’s. Gains are not recognized until the properties are sold.

Property held for sale includes unimproved land, closed restaurant properties and related equipment for locations not classified as discontinued operations. The specific assets are valued at the lower of net depreciable value or net realizable value.

At ~~November 17, 2010,~~February 9, 2011, the Company had a total of ~~three~~two owned properties and one ground lease recorded at approximately ~~$1.8~~$1.1 million in property held for sale. At August 25, 2010, the Company had ~~the same total of~~ three owned properties and one ground lease recorded at approximately $1.8 million in property held for sale. The Company is actively marketing the locations currently classified as property held for sale.

The Company ~~did not dispose of any properties held for sale or record any impairment charges to properties~~sold one property held for sale during the ~~first~~second quarter of fiscal year ~~2011. Therefore, the balance~~2011 resulting in a gain of ~~property held for sale was $1.8 million at August 25, 2010 and November 17, 2010.~~$35,000.

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

Certain current and former hourly restaurant employees filed a lawsuit against the Company in the U.S. District Court for the Southern District of Texas alleging violations of the Fair Labor Standards Act with respect to the inclusion of certain employees in a tip pool. The lawsuit seeks back wages, penalties and attorney’s fees and was conditionally certified as a collective action in October 2008. On October 22, 2010, the Company agreed to a court settlement amount of $1.6 million, recognized in general and administrative expenses in the fourth quarter fiscal year 2010. ~~Related~~The Company has made related payments of $0.6 million as of February 9, 2011, will ~~be made~~continue making payments during fiscal year 2011 ~~beginning with~~and expects to complete all payments by the ~~quarter ending February 9,~~end of calendar year 2011.

From time to time, the Company is subject to various other private lawsuits, administrative proceedings and claims that arise in the ordinary course of its business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. The Company currently believes that the final disposition of these types of lawsuits, proceedings and claims will not have a material adverse effect on the Company’s financial position, results of operations or liquidity. It is possible, ~~however;~~however, that the Company’s future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims.

From time to time, the Company enters into non-cancelable contracts for the construction of its new restaurants. This construction activity exposes the Company to the risks inherent in new construction including but not limited to rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by workers. The Company has no non-cancelable contracts as of ~~November 17, 2010.~~February 9, 2011.

The Company’s Chief Executive Officer, Christopher J. Pappas, and Chief Operating Officer, Harris J. Pappas, own two restaurant entities (the “Pappas entities”) that from time to time may provide services to the Company and its subsidiaries, as detailed in the Master Sales Agreement dated December 9, 2005 among the Company and the Pappas entities.

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. The total costs under the Master Sales Agreement of custom-fabricated and refurbished equipment in the ~~quarter~~two quarters ended ~~November 17,~~February 9, 2011 and February 10, 2010 were $22,700 and ~~November 18, 2009 were zero and $25,900,~~$32,500, respectively. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Company’s Board of Directors.

The Company previously leased property from the Pappas entities that was used to accommodate the Company’s in-house repair and fabrication center, which was referred to as the Houston Service Center. The Company terminated this lease in August 2008. The Company paid zero dollars pursuant to the terms of this lease in the first quarter ended November 17, 2010 and November 18, 2009. The Company leases from an unrelated third party a ~~new~~ property that combines both the offices of the Company’s Facility Services and Warehouse Operations. The property is approximately 60,000 square feet.

The Company also previously leased from the Pappas entities approximately 27,000 square feet of warehouse space to complement the Houston Service Center at a monthly rate of approximately $0.21 per square foot. On February 29, 2008, the Company terminated this lease.

In the third quarter of fiscal year 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partnership interest and a 50% general partnership interest in the limited partnership. A third party company manages the center. One of the Company’s restaurants has rented and occupied space in that center since July ~~1969 through~~of 1969. In November of 2006, the Company executed a new lease

agreement with respect to this restaurant along with a relocation into a new space in that center in July of 2008. The new lease agreement was approved by the Finance and Audit Committee of our Board of Directors.

On November 22, 2006, the Company executed a new lease agreement in connection with the replacement of the existing restaurant with a new prototype restaurant in the retail strip center described above. The new restaurant opened in July 2008 and the new lease agreement provides for a primary term of approximately twelve years with two subsequent five-year options. The new lease also gives the landlord an option to buy out the agreement on or after the calendar year 2015 by paying the unamortized cost of the Company’s improvements. The Company is currently obligated to pay rent of $20.00 per square foot ($22.00 per square foot beginning January 2014) plus maintenance, taxes, and insurance during the primary term of the lease. Thereafter, the lease provides for ~~reasonable~~ increases in rent at set intervals. The Company made payments of ~~$88,000~~$175,000 and ~~$57,000~~$144,000 in the ~~first~~two quarters ended ~~November 17,~~February 9, 2011 and February 10, 2010, ~~and November 18, 2009,~~ respectively. The new lease agreement was approved by the Finance and Audit Committee and full Board of Directors.

Affiliated rents paid for a Houston restaurant property lease represented ~~3.1%~~3.0% and ~~2.8%~~5.6% of total rents for continuing operations for the ~~first~~two quarters ended ~~November 17,~~February 9, 2011 and February 10, 2010, ~~and November 18, 2009,~~ respectively.


	First Quarter Ended						Two Quarters ended
	November 17, 2010			November 18, 2009			February 9, 2011			February 10, 2010
	*(12 weeks)*			*(12 weeks)*			*(24 weeks)*			*(24 weeks)*
	(In thousands, except percentages)						*(In thousands, except percentages)*
AFFILIATED COSTS INCURRED:
General and administrative expenses – professional and other costs	$	17		$	13		$	29		$	33
Capital expenditures – custom-fabricated and refurbished equipment and furnishings		—			26			23			33
Other operating expenses and opening costs, including property leases		90			57			149			153

Total	$	107		$	96		$	201		$	219

RELATIVE TOTAL COMPANY COSTS:
General and administrative expenses	$	6,513		$	5,482		$	13,004		$	10,485
Capital expenditures		1,404			933			2,985			1,542
Other operating expenses and opening costs		18,301			12,149			35,184			23,102

Total	$	26,218		$	18,564		$	51,173		$	35,129

AFFILIATED COSTS INCURRED AS A PERCENTAGE OF RELATIVE TOTAL COMPANY COSTS		0.41	%		0.52	%		0.39	%		0.62	%

Pursuant to the terms of a Purchase Agreement dated March 9, 2001, entered into by and among the Company, Christopher J. Pappas and Harris J. Pappas, the Company agreed to submit three persons designated by Christopher J. Pappas and Harris J. Pappas as nominees for election at the 2002 Annual Meeting of Shareholders. Messrs. Pappas designated themselves and Frank Markantonis as their nominees for directors, all of whom were subsequently elected. Christopher J. Pappas and Harris J. Pappas are brothers and Frank Markantonis is an attorney whose principal client is Pappas Restaurants, Inc., an entity owned by Harris J. Pappas and Christopher J. Pappas.

As amended in June 2004, the Purchase Agreement allows Messrs. Pappas to continue to nominate persons for election to the board which, if such nominees are elected, would result in Messrs. Pappas having nominated three of the then-serving directors of the Company. Messrs. Pappas retain their right for so long as they both are executive officers of the Company.

Christopher J. Pappas is a member of the Advisory Board of Amegy Bank, National Association, which is a lender and syndication agent under the Company’s revolving credit facility.

In November 2005, Christopher and Harris Pappas entered into new employment agreements that were subsequently amended in April 2009 to extend the termination date thereof to August 2011. Both continue to devote their primary time and business efforts to the Company while maintaining their roles at Pappas Restaurants, Inc.

On July 26, 2010, Christopher and Harris Pappas ~~have~~ guaranteed the payment of up to $13.0 million of ~~our~~the Company’s indebtedness under the ~~2009 Credit Facility.~~revolving credit facility in connection with the expansion of the Company’s revolving credit facility that accompanied the Company’s acquisition of substantially all of the assets of Fuddruckers. The maximum amount of this guaranty was reduced to $9.5 million on February 28, 2011 and will be reduced to $6.0 million on May 31, 2011.

On February 1, ~~2010,~~2011, the Board of Directors of the Company approved the renewal of a consultant agreement with Ernest Pekmezaris, the Company’s former Chief Financial Officer. Under the agreement, Mr. Pekmezaris will continue to furnish to the Company advisory and consulting services related to finance and accounting matters and other related consulting services. The agreement ~~expiring on January 31, 2011~~ was renewed for twelve months at ~~a lower~~the same monthly ~~rate.~~rate, expiring on January 31, 2012. Mr. Pekmezaris 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, Administration, General Counsel and Secretary of the Company, is an attorney who, in the past, has provided litigation services to entities controlled by Christopher J. Pappas and Harris J. Pappas. Mr. Tropoli is the stepson of Frank Markantonis, who 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 Incentive Stock Plan 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. Approximately ~~2.8~~2.7 million shares were authorized for issuance under the Company’s plans as of ~~November 17, 2010,~~February 9, 2011, of which approximately ~~1.1~~0.9 million shares were available for future issuance. Stock options granted under the Incentive Stock Plan and the Non-employee Director Stock Option Plan have an exercise price equal to the market price of the Company’s common stock at the date of grant. 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.

A summary of the Company’s stock option activity for the ~~first quarter~~two quarters ended ~~November 17, 2010~~February 9, 2011 is presented below:


	Shares Under Fixed Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value		Shares Under Fixed Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
					*(Years)*		*(In thousands)*						*(Years)*		*(In thousands)*
Outstanding at August 25, 2010		1,296,887	$	7.53		4.4	$	711		1,296,887	$	7.53		4.4	$	711
Granted		—		—		—		—		106,533		5.39		6.6		33
Exercised		2,000		1.98		—		—		7,125		3.77		—		—
Forfeited or Expired		20,473		11.10		—		—		34,473		9.00		—		—

Outstanding at November 17, 2010		1,274,414	$	7.48		4.3	$	704
Outstanding at February 9, 2011										1,361,822	$	7.35		4.4	$	930

Exercisable at November 17, 2010		694,801	$	9.98		2.4	$	70
Exercisable at February 9, 2011										805,573	$	9.15		2.8	$	291

Restricted stock grants consist of the Company’s common stock and generally vest after three years, with the exception of grants under the Nonemployee Director Stock Option Plan, which vest when granted because they are granted in lieu of a cash payment. All restricted stock grants are cliff-vested. Restricted stock awards are valued at the average market price of the Company’s common stock at the date of grant.

A summary of the Company’s restricted stock activity ~~during~~for the ~~first quarter~~two quarters ended ~~November 17, 2010~~February 9, 2011 is presented in the following table:


	Restricted Stock Units		Weighted-Average Fair Value		Weighted-Average Remaining Contractual Term		Restricted Stock Units		Weighted-Average Fair Value		Weighted-Average Remaining Contractual Term
			*(Per share)*		*(Years)*				*(Per share)*		*(Years)*
Unvested at August 25, 2010		65,189	$	8.13		0.8		65,189	$	8.13		0.8
Granted		—		—		—		77,769		5.39		2.8
Vested		30,189		11.10		—		30,189		11.10		—
Forfeited		—		—		—		—		—		—

Unvested at November 17, 2010		35,000	$	5.57		1.0
Unvested at February 9, 2011								112,769	$	5.45		2.2

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding and unvested restricted stock 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 stock options determined using the treasury stock method. Stock options with exercise prices exceeding current market prices that were excluded from the ~~computation~~computations of net income per share amounted to approximately ~~961,000 shares and 1,010,000~~1,009,000 shares for the ~~first~~ quarter ended ~~November 17,~~February 10, 2010. Due to losses from continuing operations for the quarter ended February 9, 2011 and the two quarters ended February 9, 2011 and February 10, 2010 ~~and November 18, 2009, respectively.~~the denominator for earnings per share assuming dilution is equal to the denominator for basic earnings per share.


	Quarter Ended						Quarter Ended						Two Quarters Ended
	November 17, 2010			November 18, 2009			February 9, 2011			February 10, 2010			February 9, 2011			February 10, 2010
	*(12 weeks)*			*(12 weeks)*			*(12 weeks)*			*(12 weeks)*			*(24 weeks)*			*(24 weeks)*
	*(In thousands expect per share data)*						*(In thousands except share data)*
Numerator:
Income (loss) from continuing operations	$	(2,100	)	$	(3,026	)	$	(211	)	$	141		$	(2,312	)	$	(2,934	)
Loss from discontinued operations		(188	)		(691	)		928			(563	)		741			(1,205	)

Net income (loss)	$	(2,288	)	$	(3,717	)	$	717		$	(422	)	$	(1,571	)	$	(4,139	)

Denominator:
Denominator for basic earnings per share – weighted-average shares		28,164			28,111			28,172			28,121			28,168			28,117
Effect of potentially dilutive securities:
Employee and non-employee stock options		—			—			—			6			—			—

Denominator for earnings per share assuming dilution		28,164			28,111			28,172			28,127			28,168			28,117

Income (loss) per share from continuing operations:
Basic	$	(0.07	)	$	(0.11	)	$	(0.01	)	$	—		$	(0.08	)	$	(0.11	)
Assuming dilution		(0.07	)		(0.11	)	$	(0.01	)	$	—		$	(0.08	)	$	(0.11	)

Loss per share from discontinued operations:
Basic	$	(0.01	)	$	(0.02	)	$	0.03		$	(0.02	)	$	0.02		$	(0.04	)
Assuming dilution		(0.01	)		(0.02	)	$	0.03		$	(0.02	)	$	0.02		$	(0.04	)

Net income (loss) per share:
Basic	$	(0.08	)	$	(0.13	)	$	0.02		$	(0.02	)	$	(0.06	)	$	(0.15	)
Assuming dilution		(0.08	)		(0.13	)	$	0.02		$	(0.02	)	$	(0.06	)	$	(0.15	)

ASU 2009-17 codifies SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” ASU 2009-17 eliminates exceptions to consolidating qualifying special-purpose entities, contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. ASU 2009-17 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated and also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purposes and design and a company’s ability to direct the activities of the entity that most significantly impacts the entity’s economic performance. ASU 2009-17 is effective for the Company’s 2011 fiscal ~~2011,~~year, and its implementation had no material affect on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This guidance amends the disclosure requirements related to recurring and nonrecurring fair value measurements and requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for the Company’s 2011 fiscal ~~2011,~~year, and its implementation had no material affect on ~~our~~the Company’s consolidated financial statements.

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and footnotes for the period ended ~~November 17, 2010~~February 9, 2011 included in Item 1 of Part I of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended August 25, 2010.

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

Luby’s, Inc. is a multi-branded company operating in the restaurant industry and the contract food services industry. Our primary brands include Luby’s ~~Cafeteria,~~Cafeterias, Luby’s Culinary Contract Services and Fuddruckers. Also included in our brands are Luby’s, Etc. and Koo Koo Roo Chicken Bistro. We purchased substantially all of the assets of Fuddruckers, Inc., Magic Brands, LLC and certain of their affiliates (collectively, “Fuddruckers”) in July 2010; accordingly, the first quarter ended November 17, 2010 represents the first full fiscal quarter in which the operations of Fuddruckers branded restaurants are included in our results of operations.

As of ~~November 17, 2010,~~February 9, 2011, we owned and operated 155 restaurants, of which 95 are traditional cafeterias, 56 are gourmet hamburger restaurants, 3 are upscale fast serve chicken restaurants, and one primarily serves seafood. These establishments are located in close proximity to retail centers, business developments and residential areas mostly throughout the United States.

Also as of ~~November 17, 2010,~~February 9, 2011, we operated 1819 culinary contract service facilities. These facilities are located within healthcare and education settings in Texas and Louisiana. These facilities provide food service options to varied populations including in-hospital-room patient meal service, retail food-court style restaurant dining, and coffee/snack kiosks.

Also as of ~~November 17, 2010,~~February 9, 2011, we are a franchisor for a network of ~~130~~129 Fuddruckers restaurants. The owners of these franchise units pay royalty revenue to us as a franchisor.

Our fiscal year ends on the last Wednesday in August. As such, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. 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 quarters may be affected by varying lengths of the 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. Our same-store sales calculation measures the relative performance of a certain group of restaurants. To qualify for inclusion in this group, a store must have been in operation for 18 consecutive accounting periods. Our Fuddruckers units will not be included in this measurement until after we have operated them for the required period. Stores that close on a permanent basis are removed from the group in the fiscal quarter when operations cease at the restaurant, but remain in the same-store group for previously reported fiscal quarters. 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.

For the ~~First~~Second Quarter and Year-to-Date Fiscal Year 2011 versus the ~~First~~Second Quarter and Year-to-Date Fiscal Year 2010

Total sales increased approximately ~~$23.0~~$22.8 million, or ~~43.9%~~42.4%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to the quarter ended ~~November 18, 2009,~~February 10, 2010, consisting of a ~~$21.3~~$21.0 million increase in restaurant sales, ~~and a~~ $1.5 million ~~increase~~ in Fuddruckers franchise revenue, a $0.2 million increase in ~~the fiscal quarter ended November 17, 2010.~~ Culinary Contract sales, ~~were $3.3~~and $0.1 million in ~~both the quarter ended November 17, 2010 and in the quarter ended November 18, 2009.~~vending revenue from our Company-operated Fuddruckers units. The ~~$21.3~~$21.0 million increase in restaurant sales included a ~~$2.1~~$1.4 million increase in sales at Luby’s ~~branded~~Cafeteria-branded restaurants and ~~$19.2~~$19.6 million in sales from ~~Fuddruckers branded restaurants. Total sales also included $150,000~~Fuddruckers-branded restaurants in ~~vending revenue from our company operated Fuddruckers units.~~the quarter ended February 9, 2011. On a same-store basis, restaurant sales at the Luby’s Cafeteria restaurants increased ~~5.5%. The prior year results of restaurants closed as part of our Cash Flow Improvement and Capital Redeployment Plan (the “Plan”) have been reclassified~~2.7% during the quarter ended February 9, 2011 compared to ~~discontinued operations.~~the quarter ended February 10, 2010. The year-over-year same store sales increase of ~~5.5%~~2.7% in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to a year-over-year decrease of ~~13.3%~~12.5% in the quarter ended ~~November 18, 2009~~February 10, 2010. The improved same store sales is primarily due to improving economic conditions and our focus on local restaurant marketing efforts and limited time offers used to generate customer traffic at the Luby’s Cafeteria restaurant units, partially offset by unusual weather that we estimate reduced sales by approximately $0.9 million in the quarter ended February 9, 2011.

Total sales increased approximately $45.7 million, or 43.1%, in the two quarters ended February 9, 2011 compared to the two quarters ended February 10, 2010, consisting of a $42.2 million increase in restaurant sales, $3.0 million in Fuddruckers franchise revenue, a $0.2 million increase in Culinary Contract sales, and $0.3 million in vending revenue from our Company-operated Fuddruckers units. The $42.2 million increase in restaurant sales included a $3.5 million increase in sales at Luby’s Cafeteria-branded restaurants and $38.7 million in sales from Fuddruckers-branded restaurants in the two quarters ended February 9, 2011. On a same-store basis, restaurant sales at the Luby’s Cafeteria restaurants increased 4.1% during the two quarters ended February 9, 2011 compared to the two quarters ended February 10, 2010. The improved same-store sales is primarily due to improving economic conditions and our focus on local restaurant marketing efforts and limited time offers used to generate customer traffic at the Luby’s Cafeteria restaurant units, partially offset by unusual weather in the quarter which we estimate reduced sales by approximately $0.9 million in the two quarters ended February 9, 2011.

The prior year results of restaurants closed as part of our Cash Flow Improvement and Capital Redeployment Plan (the “Plan”) have been reclassified to discontinued operations.

Food costs increased approximately ~~$7.7~~$7.5 million, or ~~58.2%~~53.6%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to the quarter ended ~~November 18, 2009,~~February 10, 2010 due to the ~~acquisition~~inclusion in our operations of the Fuddruckers ~~units.~~units acquired in July 2010. As a percentage of restaurant sales, food costs increased ~~2.8%~~2.4%, to ~~29.7%~~29.8%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to ~~26.9%~~27.4% in the quarter ended ~~November 18, 2009,~~February 10, 2010, primarily due to (1) higher food commodity costs, particularly in the areas of beef, seafood, poultry, and fresh produce; (2) adding the all-you-can eat breakfast offer in approximately 70% of our cafeteria units; and (3) offering select menu items at a lower price on a limited time basis to generate customer ~~traffic; (2) increasing~~traffic.

Food costs increased approximately $15.1 million, or 55.9%, in the ~~number~~two quarters ended February 9, 2011 compared to the two quarters ended February 9, 2010, due to the inclusion in our operations of the Fuddruckers units ~~where we are offering an all-you-can eat breakfast; and (3)~~acquired in July 2010. As a percentage of restaurant sales, food costs increased 2.5%, to 29.7% in the two quarters ended February 9, 2011 compared to 27.2% in the two quarters ended February 10, 2010, primarily due to (1) higher food commodity costs, particularly in ~~several~~the areas of beef, seafood, poultry, and fresh produce; (2) adding the all-you-can eat breakfast offer in approximately 70% of our ~~primary~~cafeteria units; and (3) offering select menu ~~offerings.~~items at a lower price on a limited time basis to generate customer traffic.

Payroll and related costs increased approximately ~~$6.3~~$7.1 million in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to the quarter ended ~~November 18, 2009.~~February 10, 2010 acquired in July 2010. Payroll and related expenses increased ~~primarily~~ due to the ~~acquisition~~inclusion in our operations of the Fuddruckers ~~units and the staff required to operate these restaurants.~~units. As a percentage of restaurant sales, these costs decreased ~~2.7%~~0.5%, to ~~35.6%~~35.1%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to ~~38.3%~~35.6% in the quarter ended ~~November 18, 2009. The change in payroll and related costs, as a percentage of restaurant sales, decreased primarily as the result of the~~February 10, 2010, due to inclusion of lower restaurant labor costs associated with the acquired Fuddruckers ~~units.~~units partially offset by higher worker’s compensation expense, deployment of additional hourly labor to accommodate the increased customer traffic at our Luby’s Cafeteria units driven by longer operating hours at approximately 70% of units that now serve breakfast, as well as increased customer traffic from limited time offers. The restaurant labor costs as a percentage of restaurant sales at a Fuddruckers unit are typically lower than that of a Luby’s Cafeteria unit due to the smaller size and lower complexity of operations.

Payroll and related costs increased approximately $13.4 million in the two quarters ended February 9, 2011 compared to the two quarters ended February 10, 2010, due to the inclusion in our operations of the Fuddruckers units acquired in July 2010. As a percentage of restaurant sales, these costs decreased 1.5%, to 35.4%, in the two quarters ended February 9, 2011 compared to 36.9% in the two quarters ended February 10, 2010, due to inclusion of lower restaurant labor costs associated with the acquired Fuddruckers units partially offset by higher worker’s compensation expense, additional hourly labor to accommodate the increased customer traffic at our cafeteria units driven by longer operating hours at approximately 70% of units that now serve breakfast, as well as increased customer traffic from limited time offers.

Other operating expenses primarily include restaurant-related expenses for utilities, repairs and maintenance, advertising, insurance, services, supplies and occupancy costs. Other operating expenses increased by approximately ~~$6.1~~$6.0 million, or ~~50.2%~~55.5%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to the quarter ended ~~November 18, 2009,~~February 10, 2010, primarily due to the inclusion in our operations of the Fuddruckers units acquired ~~Fuddruckers operations~~in July 2010, partially offset by lower marketing and advertising costs of approximately ~~$0.7~~$0.2 million. As a percentage of restaurant sales, other operating expenses increased ~~1.2%~~2.2%, to ~~25.9%~~23.5%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to ~~24.7%~~21.3% in the quarter ended ~~November 18, 2009,~~February 10, 2010, due to (1) the increase in the mix of leased units with the acquisition of ~~substantially all the~~Fuddruckers assets, ~~of Fuddruckers,~~ (2) higher repairs, maintenance, and supplies costs related to upgrades at Fuddruckers units, partially offset by (3) lower marketing and advertising expenses, and (4) lower utility expenses.

Other operating expenses increased by approximately $12.1 million, or 52.7%, in the two quarters ended February 9, 2011 compared to the two quarters ended February 10, 2010, primarily due to the inclusion in our operations of the Fuddruckers units acquired in July 2010, partially offset by lower marketing and advertising costs of approximately $0.9 million. As a percentage of restaurant sales, other operating expenses increased 1.7%, to 24.7%, in the two quarters ended February 9, 2011 compared to 23.0% in the two quarters ended February 10, 2010, due to (1) the increase in the mix of leased units with the acquisition of Fuddruckers assets, (2) higher repairs, maintenance, and supplies costs related to upgrades at Fuddruckers units, partially offset by (3) lower marketing and advertising expenses, and (4) lower utility expenses.

Opening costs include labor, supplies, occupancy, and other costs necessary to support the restaurant through its opening period. Opening costs were approximately ~~$0.1 million in the quarter ended November 17, 2010 compared to approximately $31~~$38 thousand in the quarter ended ~~November18, 2009.~~February 9, 2011 compared to approximately $121 thousand in the quarter ended February 10, 2010. The quarter ended ~~November 17,~~February 9, 2011 and the quarter ended February 10, 2010 included carrying costs of locations to be developed for future restaurant openings. The quarter ended February 10, 2010 also included an impairment charge of less than $0.1 million for assets that will not be fully incorporated into the final design of the unit.

Opening costs were approximately $144 thousand in the two quarters ended February 9, 2011 compared to approximately $152 thousand in the two quarters ended February 10, 2010. Opening costs in the two quarters ended February 9, 2011 and the two quarters ended February 10, 2010 included the carrying costs of locations to be developed for future restaurant openings. The two quarters ended February 9, 2011 also included the opening costs for

one ~~company operated~~Company-operated unit that was previously operated as a franchisee unit, and the support costs associated with franchisees opening two ~~units, and~~units. The two quarters ended February 10, 2010 also included an impairment charge of less than $0.1 million for assets that will not be fully incorporated into the ~~carrying costs for locations to be developed for future openings. The quarter ended November 18, 2009 includes~~final design of the ~~carrying costs for locations to be developed for future openings.~~unit.

Cost of culinary contract services increased by approximately $91 thousand in the quarter ended February 9, 2011 compared to the quarter ended February 10, 2010. Cost of culinary contract services includes the food, labor, and other direct operating expenses associated with culinary contract services. During the quarter ended February 9, 2011, culinary services operated 19 facilities compared to 16 for the quarter ended February 10, 2010.

Cost of culinary contract services increased by approximately ~~$58~~$148 thousand in the ~~quarter~~two quarters ended ~~November 17, 2010~~February 9, 2011 compared to the ~~quarter~~two quarters ended ~~November 18, 2009. During the quarter ended November 17, 2010, culinary contract services operated 18 facilities compared to 15 for the quarter ended November 18, 2009.~~February 10, 2010.

Depreciation and amortization expense increased by approximately ~~$0.6~~$0.5 million, or ~~18.1%~~14.2%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to the quarter ended ~~November 18, 2009,~~February 10, 2010 due to the ~~addition~~acquisition of ~~assets acquired with Fuddruckers.~~Fuddruckers assets.

Depreciation and amortization expense increased by approximately $1.1 million, or 16.2%, in the two quarters ended February 9, 2011 compared to the two quarters ended February 10, 2010 due to the acquisition of Fuddruckers assets.

General and administrative expenses include corporate salaries and benefits-related costs, including restaurant area leaders, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. General and administrative expenses increased by approximately ~~$1.0~~$1.5 million, or ~~18.8%~~29.7%, in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to the quarter ended ~~November 18, 2009.~~February 10, 2010. The increase was due to (1) an increase of $0.8 million in salaries and benefits expense, primarily as a ~~$0.5 million increase~~result of the addition of staff related to the Fuddruckers-branded restaurants acquired in ~~professional fees,~~July 2010 and (2) ~~a $0.4 million~~an increase in travel, supplies, insurance, and ~~supplies largely due~~professional fees, also primarily related to supporting the ~~addition of~~ Fuddruckers-branded restaurants, which have a larger geographic footprint, and (3) a $0.1 million increase in salaries and benefits expense as the addition of corporate staff and related expenses was largely offset by the reductions in corporate staffing and related expenses in the prior year.footprint. As a percentage of total sales, general and administrative expenses decreased to ~~8.7%~~8.5% in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to ~~10.5%~~9.3% in the quarter ended ~~November 18, 2009.~~February 10, 2010.

General and administrative expenses increased by approximately $2.5 million, or 24.0%, in the two quarters ended February 9, 2011 compared to the two quarters ended February 10, 2010. The increase was due to (1) an increase of $0.9 million in salaries and benefits expense as the addition of corporate staff was partially offset by the reductions in corporate staffing in the prior year; (2) an increase of $0.6 million in professional fees and corporate services; (3) an increase of $0.7 million in travel and supplies, largely related to supporting the Fuddruckers-branded restaurants, which have a larger geographic footprint; and (4) an increase of $0.4 million in insurance and other corporate-related expenses. As a percentage of total sales, general and administrative expenses decreased to 8.6% in the two quarters ended February 9, 2011 compared to 9.9% in the two quarters ended February 10, 2010.

The net ~~loss~~gain on disposition of property and equipment was approximately ~~$0.3 million less~~$35 thousand in the quarter ended ~~November 17, 2010 compared to the quarter ended November 18, 2009.~~February 9, 2011. The net ~~loss~~gain on ~~the~~ disposition of property and equipment was approximately $1.0 million in the quarter ended ~~November 18, 2009~~February 10, 2010. The net gain in the quarter ended February 10, 2010 primarily reflects ~~asset retirements at one culinary unit~~the sale of ~~$0.1~~an easement right.

The net gain on disposition of property and equipment was approximately $28 thousand in the two quarters ended February 9, 2011. The net gain on disposition of property and equipment was approximately $0.7 million in the two quarters ended February 10, 2010 and ~~$0.2 million~~included a gain on the sale of an easement right offset by normal asset retirement activity atin our cafeteria units.

Interest income decreased by approximately ~~$7,000~~$6 thousand in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to the quarter ended ~~November 18, 2009,~~February 10, 2010, primarily related to lower cash ~~balances.~~and cash equivalents.

Interest income decreased by approximately $12 thousand in the two quarters ended February 9, 2011 compared to the two quarters ended February 10, 2010, primarily related to lower cash and cash equivalents.

Interest expense in the quarter ended ~~November 17, 2010~~February 9, 2011 increased by approximately $0.5 million compared to the interest expense in the quarter ended ~~November 18, 2009~~February 10, 2010, due to larger debt balances resulting from borrowings related to the acquisition of substantially all of the assets of Fuddruckers.

Interest expense in the two quarters ended February 9, 2011 increased approximately $1.0 million in the two quarters ended February 11, 2010 compared to the two quarters ended February 10, 2010, due to larger debt balances as a result of borrowings related to the acquisition of substantially all of the assets of Fuddruckers.

Gain on Sales and Redemptions (Impairment of Fair Market Value) of Investments

The impairment charge for decrease in fair market value of investments of ~~approximately $0.5~~$0.4 million ~~for~~in the ~~quarter~~two quarters ended ~~November 18, 2009~~February 10, 2010 was due to the illiquidity of the market for auction rate securities investments. The reduction in fair value of the investments was derived through valuation and was considered ~~“other-than-temporary.”~~“other than temporary”. However, the investments were sold at par by the end of ~~the~~ fiscal year 2010 and the loss was recouped.

The Company has no similar investments as of the quarter ended ~~November 17, 2010.~~February 9, 2011.

Other income, net consisted primarily of the following components: net rental property income and expenses relating to property for which we are the landlord; prepaid sales tax discounts earned through our participation in state ~~sales~~ tax prepayment programs; and oil and gas royalty income. Other income, net in the quarter ended ~~November 17, 2010~~February 9, 2011 increased approximately ~~$43 thousand~~$0.1 million compared to the quarter ended ~~November 18, 2009~~February 10, 2010. The increase was partially due to net rental income on properties that we lease to third parties and partially reflects higher prepaid sales tax discounts earned on a higher sales volume with the inclusion of sales from Fuddruckers restaurants.

Other income, net in the two quarters ended February 9, 2011 increased approximately $0.1 million compared to the two quarters ended February 10, 2010. The increase was partially due to (1) net rental income on properties that we lease to third parties; (2) higher prepaid sales tax discounts earned on a higher sales volume with the inclusion of sales from Fuddruckers units; and (3) oil and gas royalty income earned in the ~~current quarter~~two quarters ended February 9, 2011 that was not earned in the ~~prior year quarter.~~two quarters ended February 10, 2010.

~~The income tax benefit for~~For the quarter ended ~~November 17, 2010 is approximately $1.0~~February 9, 2011 the income taxes related to continuing operations resulted in a net tax benefit of $0.3 million compared to a net tax ~~benefit~~provision of ~~approximately $1.4~~$0.6 million for the quarter ended ~~November 18, 2009.~~

~~The income tax benefit for~~February 10, 2010. For the quarter ended ~~November 17, 2010 reflects an average tax rate of 30.1% of the pre-tax loss from continuing operations after an increase of~~February 9, 2011 there was no change to the valuation allowance ~~of $101,000 at the end of the quarter.~~

~~The income~~related to deferred tax ~~benefit for~~assets. For the quarter ended ~~November 18, 2009, reflects an average tax rate of 31.9% of the pre-tax loss from continuing operations after an increase of~~February 10, 2010 the valuation allowance related to deferred tax assets was increased by $0.3 million.

For the two quarters ended February 9, 2011 the income taxes related to continuing operations resulted in a net tax benefit of ~~$69,000 at~~$1.2 million compared to a net tax benefit of $0.8 million for the ~~end of~~two quarters ended February 10, 2010. For the ~~quarter.~~two quarters ended February 9, 2011 the valuation allowance related to deferred tax assets was increased by $0.1 million. For the two quarters ended February 10, 2010 the valuation allowance related to deferred tax assets was increased by $0.4 million.

The ~~loss~~net income from discontinued operations was ~~$0.2~~$0.9 million in the quarter ended ~~November 17, 2010~~February 9, 2011 compared to a $0.6 million loss in the quarter ended February 10, 2010. The net income for in the quarter ended February 9, 2011 included a $1.9 million gain on sales of ~~$0.7~~assets that were classified as discontinued operations assets, offset by (1) $0.3 million in carrying costs associated with assets that are classified as discontinued operations assets; (2) a $0.3 million impairment charge for assets that are classified as discontinued operations assets; and (3) a net $0.4 million income tax provision related to discontinued operations.

The net loss from discontinued operations of $0.6 million in the quarter ended ~~November 18, 2009 primarily due the disposal of certain~~February 10, 2010 included $1.2 million in carrying costs associated with assets ~~included in~~classified as discontinued operations ~~as well as~~assets, offset by (1) a $0.4 million gain ~~recognized~~ on the sale of ~~one property~~assets that were classified as discontinued operations assets and (2) a net tax benefit of $0.2 million related to discontinued operations.

The net income from discontinued operations was $0.7 million in the ~~quarter~~two quarters ended ~~November 17,~~February 9, 2011 compared to a $1.2 million loss in the two quarters ended February 10, 2010. The net income for the two quarters ended February 9, 2011 included $2.1 million in gains on the sale of assets classified as discontinued operations assets, offset by (1) $0.7 million in

carrying costs associated with assets that are classified as discontinued operations assets (2) $0.4 million impairment charge for assets that are classified as discontinued operations assets; and (3) a net $0.3 million income tax provision related to discontinued operations.

The net loss from discontinued operations of $1.2 million in the two quarters ended February 10, 2010 included a $3.4 million in carrying costs associated with assets classified as discontinued operations assets, offset by (1) a $1.6 million gain on the sale of assets that were classified as discontinued operations assets and (2) a net tax benefit of $0.6 million related to discontinued operations.

General.Our primary sources of short-term and long-term liquidity are cash flows from operations, proceeds from the sale of assets and our revolving credit facility. ~~Although the~~The current macroeconomic conditions continue to adversely affect our cash flows from ~~operations, we generated $2.1~~operations. Net cash provided by operating activities was $0.1 million for the two quarters ended February 9, 2011 compared to $5.7 million cash used in ~~cash from~~ operating ~~activities.~~activities for the two quarters ended February 10, 2010. We plan to continue the level of capital and repair and maintenance expenditures necessary to keep our restaurants attractive and operating efficiently.

As of ~~November 17, 2010,~~February 9, 2011, we had ~~$39.5~~$36.0 million outstanding under our ~~amended~~ 2009 ~~Revolving~~ Credit Facility. Under the current terms, the outstanding balance matures and the 2009 Credit Facility expires September 1, 2011. We ~~expect to repay all or a portion of the balance debt using cash generated from operating activities and proceeds from the disposal of assets and property held for sale, or we~~ expect to refinance any remaining portion of the debt and renew or replace our existing credit facility prior to September 1, 2011. We may be unable to generate sufficient cash flow from operating activities or sales of assets to repay the 2009 Credit Facility in full at its maturity date, in which case we might refinance the facility. Nevertheless, we may not be able to refinance the existing facility or enter into a new facility on a timely basis or on terms that are acceptable to ~~us. Our~~us and our inability to ~~repay or~~ refinance the 2009 Credit Facility could have a material adverse effect on our financial condition.

As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies. However, high levels of accounts receivable are typical for culinary contract services.

Cash and cash equivalents decreased to ~~$1.8~~$1.0 million at ~~November 17, 2010~~February 9, 2011 from $2.3 million at the beginning of the fiscal year. This decrease was primarily due to cash used to repay debt of ~~$2.0~~$5.5 million, ~~and~~ capital expenditures of ~~$1.4~~$3.0 million and the acquisition of one additional Fuddruckers location for $0.3 million, offset by proceeds from disposal of assets of ~~$1.3 million and cash provided by operating activities.~~$7.5 million. We generally reinvest available cash flows from operations to develop new restaurants, enhance existing restaurants and to support culinary contract services.

The following table summarizes our cash flows from operating, investing and financing activities:


	Quarter Ended						Two Quarters ended
	November 17, 2010			November 18, 2009			February 9, 2011			February 10, 2010
	*(12 weeks)*			*(12 weeks)*			*(24 weeks)*			*(24 weeks)*
	(In thousands)						(In thousands)
Total cash provided by (used in):
Operating activities	$	2,064		$	(3,949	)	$	82		$	(5,663	)
Investing activities		(361	)		3,447			4,291			5,640
Financing activities		(2,214	)		600			(5,696	)		(105	)

Increase (decrease) in cash and cash equivalents	$	(511	)	$	98
Decrease in cash and cash equivalents							$	(1,323	)	$	(128	)

Operating Activities. In the ~~quarter~~two quarters ended ~~November 17, 2010,~~February 9, 2011, cash ~~flow from~~used in operating activities ~~increased $6.0~~decreased $5.7 million compared to the ~~quarter~~two quarters ended ~~November 18, 2009, primarily due to cash~~February 10, 2010. Cash provided by operating activities ~~and~~before changes in operating assets and ~~liabilities.~~liabilities was $4.5 million for the two quarters ended February 9, 2011 compared to $0.4 million for the two quarters ended February 10, 2010, an increase of $4.1 million. Changes in operating assets and liabilities provided $4.4 million cash for the two quarters ended February 9, 2011 compared to $6.0 million for the two quarters ended February 10, 2010, an increase of $1.6 million.

Investing Activities. Cash ~~flows used in~~provided by investing activities was ~~$0.4~~$4.3 million in the ~~quarter~~two quarters ended ~~November 17, 2010~~February 9, 2011 compared to ~~$3.4~~$5.6 million of cash flows provided by investing activities in the ~~quarter~~two quarters ended ~~November 18, 2009.~~February 10, 2010. The ~~$3.8~~$1.3 million change is due to a $1.4 million reduction in proceeds from the redemption of investments, ~~and~~ a ~~$1.7~~$1.8 million ~~reduction~~increase in proceeds from the disposal of assets and property held for sale, ~~offset by~~ a ~~$0.5~~$1.4 million increase in purchases of property and equipment and $0.3 million for the acquisition of one additional Fuddruckers location. Our purchase of property and equipment includes, among other things, restaurant remodeling, information technology enhancements and Culinary Contract Service locations. We expect to spend approximately ~~$10.0~~$7.0 million to ~~$15.0~~$10.0 million on capital expenditures in fiscal year 2011.

Financing Activities. Cash ~~provided by (used in)~~used in financing activities ~~changed~~increased from ~~a $0.6~~$0.1 million ~~source of cash~~ to ~~a $2.2~~$5.7 million, ~~use of cash,~~ compared to the ~~quarter~~two quarters ended ~~November 18, 2009,~~February 10, 2010, due primarily to net repayment of prior net borrowings under our 2009 Credit Facility during the quarter ended ~~November 17, 2010.~~February 9, 2011.

We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for uncollectability as appropriate. Credit terms of accounts receivable associated with our culinary contract service business vary from 30 to 60 days based on contract terms.

We had a working capital deficit of ~~$64.0~~$56.2 million as of ~~November 17, 2010,~~February 9, 2011, compared to a working capital deficit of $23.3 million as of August 25, 2010. The ~~$40.7~~$32.9 million increase of the deficit is primarily due to the ~~$39.5~~$36.0 million ~~credit facility and $1.2~~outstanding under the 2009 Credit Facility offset by decreases in cash of $1.3 million, ~~in increases in~~ accounts payable and accrued expenses and other liabilities of $2.1 million partially offset by increased accounts ~~receivable.~~receivable, food and supply inventories and prepaid expenses. We expect to meet our working capital requirements through cash flows from operations, sales of properties and availability under our 2009 Credit Facility.

Capital expenditures consist of purchases of real estate for future restaurant sites, new units construction, purchases of new and replacement restaurant furniture and equipment, and ongoing remodeling programs. Capital expenditures for the ~~quarter~~two quarters ended ~~November 17, 2010~~February 9, 2011 were approximately ~~$1.4~~$3.0 million, and related to maintaining our investment in existing operating units. We expect to be able to fund all capital expenditures in fiscal year 2011 using cash flows from operations and availability under our 2009 Credit ~~Facility (as defined below).~~Facility. We expect to spend approximately ~~$10.0~~$7.0 million to ~~$15.0~~$10.0 million on capital expenditures in fiscal year 2011.

In November 2009, we entered into a revolving credit facility with Wells Fargo Bank, National Association, as Administrative Agent, and Amegy Bank, National Association, as Syndication Agent. The following description summarizes the material terms of the revolving credit facility, as subsequently amended as of January 31, 2010, July 26, 2010, September 30, 2010 and October 31, 2010 (the revolving credit facility, together with all amendments thereto, is referred to as the “2009 Credit Facility”).

The aggregate amount of the lenders’ commitments under the 2009 Credit Facility currently is ~~$50.4~~$48.8 million and will be reduced to ~~$48.8 million on February 28, 2011; to~~ $43.9 million on May 31, ~~2011;~~2011 and to $40.0 million on August 31, 2011. The 2009 Credit Facility also provides for the issuance of letters of credit in a maximum aggregate amount of $15.0 million outstanding at any one time.

The 2009 Credit Facility is guaranteed by all of our present or future subsidiaries. In addition, in connection with the expansion of the 2009 Credit Facility that accompanied our acquisition of substantially all of the assets of Fuddruckers in July 2010, Christopher J. Pappas, our President and Chief Executive Officer, and Harris J. Pappas, our Chief Operating Officer, ~~have~~ guaranteed the payment of up to $13.0 million of our indebtedness under the 2009 Credit Facility. The maximum amount of this guaranty ~~will be~~was reduced to $9.5 million on February 28, 2011 and will be reduced to $6.0 million on May 31, 2011.

~~All~~The 2009 Credit Facility expires on September 1, 2011 and all amounts owed by us under the 2009 Credit Facility must be repaid in full upon the maturity date onof September 1, 2011.

At any time throughout the term of the 2009 Credit Facility, we have 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 0.50%, or (b) prime, plus, in either case, an applicable spread that ranges from 1.00% to 1.75% per annum, subject to an interest rate floor of 4.00%. The other

interest rate option is the London InterBank Offered Rate plus a spread that ranges from 2.75% to 4.50% per annum, subject to an interest rate floor of 4.00%. The applicable spread under each option is dependent upon the Total Leverage Ratio (as defined below) at the most recent determination date.

We are obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the average daily unused amount of the commitment of such lender, ranging from 0.30% to 0.45% per annum depending on the Total Leverage Ratio at the most recent determination date.

The proceeds of the 2009 Credit Facility may be used for our general corporate purposes and general working capital purposes.

Borrowings under the 2009 Credit Facility are subject to mandatory repayment with the proceeds of sales of certain of our real property, subject to certain exceptions.

The 2009 Credit Facility is secured by a perfected first priority lien on certain of our real property and all of the material personal property owned by us or any of our subsidiaries, other than certain excluded assets (as defined in the agreement governing the 2009 Credit Facility (as amended, the “Credit Agreement”)).

We are ~~currently~~ in compliance with the covenants contained in the Credit Agreement. To comply with our quarterly minimum EBITDA covenant for the fiscal quarter ended November 17, 2010, however, we requested and received approval from the lenders to add to EBITDA non-recurring expenses, as defined, related to our acquisition of substantially all of the assets of Fuddruckers. The definition of EBITDA in the Credit Agreement permits us to make adjustments to EBITDA for certain non-recurring expenses, as defined, or income items, among others, subject to the approval of the Administrative Agent. If we had not received approval to adjust our EBITDA, we would not have been in compliance with the minimum EBITDA covenant as of the end of the first quarter of fiscal 2011. Although we expect to ~~our~~ meet the requirements of the minimum EBITDA covenant in the future, noncompliance could have a material adverse affect on our financial condition and would represent an event of default under the Credit Agreement.

The Credit Agreement also includes customary events of default. If a default occurs and is continuing, the lenders’ commitments under the 2009 Credit Facility may be immediately terminated and/or we may be required to repay all amounts outstanding under the 2009 Credit Facility.

As of ~~November 17, 2010,~~February 9, 2011, we had ~~$39.5~~$36.0 million in outstanding loans and $1.2 million committed under letters of credit, which were issued as security for the payment of insurance obligations.

At ~~November 17, 2010, $9.7~~February 9, 2011, $13.2 million was available under the 2009 Credit Facility.

The Credit Agreement was amended on September 30, 2010 to extend the timeframe for completing appraisals on all scheduled properties and was further amended on October 31, 2010 to accelerate the reduction of the aggregate amount of the lenders’ commitments from $53.0 million to $50.4 million approximately 30 days sooner than the parties had originally agreed.

The Consolidated Financial Statements included in Item 1 of Part 1 of this report were prepared in conformity with U.S. generally accepted accounting principles. Preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the amounts of assets and liabilities in the financial statements and revenues and expenses during the reporting periods. Due to the significant, subjective and complex judgments and estimates used when preparing our consolidated financial statements, management regularly reviews these assumptions and estimates with the Finance and Audit Committee of our Board of Directors. Management believes the following are critical accounting policies used in the preparation of these financial statements.

The estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We periodically review the recoverability of tax assets recorded on the balance sheet and provide valuation allowances as management deems necessary.

If the future consequences of differences between financial reporting bases and tax bases of our assets and liabilities result in a net deferred tax asset, management will evaluate the probability of our ability to realize the future benefits of such asset. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that all or some portion of the deferred tax asset will not be realized. The realization of such net deferred tax will generally depend on whether we will have sufficient taxable income of an appropriate character within the carryforward period permitted by the tax law.

Management evaluates both positive and negative evidence, including its forecasts of our future taxable income adjusted by varying probability factors, in making a determination as to whether it is more likely than not that all or some portion of the deferred tax asset will be realized. Based on its analysis, management concluded that a valuation allowance was necessary.

The valuation allowance partially offsets our operating loss (“NOL”) carryovers to future years and our carryover of general business tax credits. Both of these items may be carried over up to twenty years in the future for possible utilization in the future. The carryover of the NOLs began in fiscal year 2008 and will begin to expire at the end of fiscal year 2028 through the end of fiscal year 2031 if not utilized by then. The carryover of the general business credits began in fiscal year 2006 and will begin to expire at the end of fiscal year 2026 through the end of fiscal year 2031 if not utilized by then.

Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions as well as by the Internal Revenue Service. In management’s opinion, adequate provisions for income taxes have been made for all open tax years. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that adequate provisions have been made for reasonable and foreseeable outcomes related to uncertain tax matters. Management has recently been notified that the IRS will review the income tax return for fiscal year 2008. The details and scope of the planned review are not known at this time. There are no other audits or reviews at this time.

We periodically evaluate long-lived assets held for use and held for sale, whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We analyze historical cash flows of operating locations and compare results of poorer performing locations to more profitable locations. We also analyze lease terms, condition of the assets and related need for capital expenditures or repairs, construction activity in the surrounding area as well as the economic and market conditions in the surrounding area.

For assets held for use, we estimate future cash flows using assumptions based on possible outcomes of the areas analyzed. If the undiscounted future cash flows are less than the carrying value of our location’s assets, we record an impairment based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the

property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span is longer and could be 20 to 25 years for newer properties, but only 5 to 10

years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. We consider the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows. We operated 155 restaurants as of ~~November 17, 2010~~February 9, 2011 and periodically experience unanticipated changes in our assumptions and estimates. Those changes could have a significant impact on discounted cash flow models with a corresponding significant impact on the measurement of an impairment. We believe we have 5 locations with an aggregate net carrying value of assets held for use of $1.5 million where it is possible that an impairment charge could be taken over the next 12 months. Gains are not recognized until the assets are disposed.

We evaluate the useful lives of our intangible assets, primarily the Fuddruckers trade name and franchise agreements to determine if they are definite or indefinite-lived. Reaching a determination or useful life requires significant judgments and assumptions regarding the future effects of obsolescence, contract term, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.

Investments include available-for-sale securities, classified as long-term and reported at fair value. Securities available-for-sale consist of auction rate securities. Declines in fair value of available-for-sale securities are analyzed to determine if the decline is temporary or “other-than-temporary.” Temporary unrealized gains and losses on available-for-sale securities are excluded from earnings and reported in shareholders’ equity. Other-than-temporary declines reduce earnings. Any increases in other-than-temporary declines in fair value will not be realized until the securities are sold.

We periodically review long-lived assets against our plans to retain or ultimately dispose of properties. If we decide to dispose of a property, it will be moved to property held for sale and actively marketed. Property held for sale is recorded at amounts not in excess of what management currently expects to receive upon sale, less costs of disposal. We analyze market conditions each reporting period and record additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like ours. Gains are not recognized until the properties are sold.

We self-insure a significant portion of risks and associated liabilities under our employee injury, workers’ compensation and general liability programs. We maintain insurance coverage with third party carriers to limit our per-occurrence claim exposure. We have recorded accrued liabilities for self-insurance based upon analysis of historical data and actuarial estimates, and we review these amounts on a quarterly basis to ensure that the liability is appropriate.

The significant assumptions made by the actuary to estimate self-insurance reserves, including incurred but not reported claims, are as follows: (1) historical patterns of loss development will continue in the future as they have in the past (Loss Development Method), (2) historical trend patterns and loss cost levels will continue in the future as they have in the past (Bornhuetter-Ferguson Method), and (3) historical claim counts and exposures are used to calculate historical frequency rates and average claim costs are analyzed to get a projected severity (Frequency and Severity Method). The results of these methods are blended by the actuary to provide the reserves estimates.

Actual workers’ compensation and employee injury claims expense may differ from estimated loss provisions. The ultimate level of claims under the in-house safety program are not known, and declines in incidence of claims as well as claims costs experiences or reductions in reserve requirements under the program may not continue in future periods.

Share-based compensation is recognized as compensation expense in the income statement utilizing the fair value on the date of the grant. The fair value of restricted stock units is valued at the closing market price of the Company’s common stock at the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Assumptions for volatility, expected option life, risk free interest rate and dividend yield are used in the model.

In July 2010, the FASB issued guidance to enhancement disclosures about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit loses. The amended guidance is effective for period-end balances beginning with the first interim or annual reporting period ending on or after December 15, 2010. The amended guidance is effective for activity during a reporting period beginning with the first interim or annual reporting period beginning on or after December 15, 2010. We are currently evaluating the impact on our consolidated financial statements.

It is generally our policy is to maintain stable menu prices without regard to seasonal variations in food costs. Certain increases in costs of food, wages, supplies, transportation and services may require us to increase our menu prices from time to time. To the extent prevailing market conditions allow, we intend to adjust menu prices to maintain profit margins.

This Quarterly Report on Form 10-Q contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Form 10-Q, other than statements of historical facts, are “forward-looking statements” for purposes of these provisions, including any statements ~~regarding:~~regarding

In some cases, investors can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “outlook,” “may” “should,” “will,” and “would” or similar words. Forward-looking statements are based on certain assumptions and analyses made by management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe are relevant. Although management believes that our assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of our control. The following factors, as well as the factors set forth in Item 1A of this Form 10-Q and any other cautionary language in this Form 10-Q, provide examples of risks, uncertainties, and events that may cause our financial and operational results to differ materially from the expectations described in our forward-looking ~~statements:~~statements

Each forward-looking statement speaks only as of the date of this Form 10-Q, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should be aware that the occurrence of the events described above and elsewhere in this Form 10-Q could have material adverse effect on our business, results of operations, cash flows and financial condition.

We are exposed to market risk from changes in interest rates affecting our variable-rate debt. During the quarter ended ~~November 17, 2010,~~February 9, 2011, the total amount of debt subject to interest rate fluctuations outstanding under our ~~Amended New~~2009 Credit Facility was ~~$39.5~~$36.0 million. Assuming an average debt balance of ~~$39.5~~$36.0 million, a 1.0% increase in prevailing interest rates above our 4.00% interest rate floor per our 2009 Credit Facility ~~as amended, effective July 26, 2010,~~ would increase our annual interest expense by $0.4 million.

Although we are not currently using interest rate swaps, we have previously used and may in the future use these instruments to manage cash flow risk on a portion of our variable-rate debt.

Many ingredients in the products sold in our restaurants are commodities, subject to unpredictable price fluctuations. We attempt to minimize price volatility by negotiating fixed price contracts for the supply of key ingredients and in some cases by passing increased commodity costs through to the customer by adjusting menu prices or menu offerings. Our ingredients are available from multiple suppliers so we are not dependent on a single vendor for our ingredients.

Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of ~~November 17, 2010.~~February 9, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~November 17, 2010,~~February 9, 2011, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in our internal control over financial reporting during the quarter ended ~~November 17, 2010~~February 9, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to our legal proceedings as disclosed in “Legal Proceedings” in Item 3 of Part I of our Annual Report on Form 10-K for the fiscal year ended August 25, 2010.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


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


		Page

Part I - Financial Information

Item 1	Financial Statements		43

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1716

Item 3	Quantitative and Qualitative Disclosures about Market Risk		27

Item 4	Controls and Procedures		27

Part II - Other Information

Item 1	Legal Proceedings		28

Item 6	Exhibits		28

Signatures			29


			Fair Value Measurement Using						Total Impairments
	Quarter Ended November 17, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments
Long-lived assets related to discontinued operations	$	2,510	$	—	$	—	$	2,510	$	(190	)


			Fair Value Measurement Using
	Two Quarters Ended February 9, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments
Long-lived assets related to discontinued operations	$	5,218	$	—	$	—	$	5,218	$	(467	)


4.1		~~Third Amendment to Credit~~Rights Agreement dated January 27, 2011 between Luby’s, Inc. and American Stock Transfer and Trust Company, LLC, as of September 30, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agentRights Agent (incorporated by reference to Exhibit ~~4(f)~~4.1 to the Company’s ~~Annual~~current Report on Form ~~10-K for the fiscal year ended August 25, 2010 (File No. 001-08308))~~8-K filed on February 2, 2011).

~~4.2~~10.1		~~Fourth~~ Amendment No. 5, dated as of September 2, 2010, to ~~Credit~~Employment Agreement dated as of November 9, 2005 and as amended on October ~~30,~~29, 2007, November 19, 2008, November 19, 2009, and April 15, 2010 ~~among the Company, the lenders from time~~between Luby’s, Inc. and Christopher J. Pappas.

10.2		Amendment No. 5, dated as of September 2, 2010, to ~~time party thereto, Wells Fargo Bank, National Association,~~Employment Agreement dated as ~~administrative agent,~~of November 9, 2005 and ~~Amegy Bank National Association,~~ as ~~syndication agent (incorporated by reference to Exhibit 4(g) to the Company’s Annual Report~~amended on ~~Form 10-K for the fiscal year ended August 25,~~October 29, 2007, November 19, 2008, November 19, 2009, and April 15, 2010 ~~(File No. 001-08308)).~~between Luby’s, Inc. and Harris J. Pappas.

31.1		Rule 13a-14(a)/15d-14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Rule 13a-14(a)/15d-14(a) certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Section 1350 certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


		LUBY’S, INC. (Registrant)

Date: ~~December 20, 2010~~	March 11, 2011	By:	/s/ Christopher J. Pappas
			Christopher J. Pappas President and Chief Executive Officer (Principal Executive Officer)

Date: ~~December 20, 2010~~	March 11, 2011	By:	/s/ K. Scott Gray
			K. Scott Gray
			Senior Vice President, Chief Financial Officer and (Principal Financial and Accounting Officer)