FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002.

[X]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________.

Commission File No. 0-13375

LSI Industries Inc.

State of Incorporation - - Ohio IRS Employer I.D. No. 31-0888951

10000 Alliance Road

Cincinnati, Ohio 45242

(513) 793-3200

Indicate by checkmark whether the 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, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of the latest practicable date.

Common Shares, no par value: Shares outstanding at February 3, 2003: 15,767,751

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2002

INDEX

			Begins on Page
PART I. FINANCIAL INFORMATION
	ITEM 1.	Financial Statements
		Consolidated Income Statements Consolidated Balance Sheets Consolidated Statements of Cash Flows Notes to Financial Statements	3 4 5 6
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	19
	ITEM 4.	Controls and Procedures	19
PART II. OTHER INFORMATION
	ITEM 4.	Submission of Matters to a Vote of Security Holders	19
	ITEM 6.	Exhibits and Reports on Form 8-K	20
Signatures			20
Certifications of Principal Executive Officer and Principal Financial Officer			21

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This Form 10-Q contains forward-looking statements regarding the earnings and projected business, among other things. These are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve substantial risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties include, but are not limited to, the impact of competitive products and services, product demand and market acceptance risks, reliance on key customers, financial difficulties experienced by customers, the adequacy of reserves and allowances for doubtful accounts, fluctuations in operating results or costs, unexpected difficulties in integrating acquired businesses, and the ability to retain key employees of acquired businesses.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONSOLIDATED INCOME STATEMENTS

(Unaudited)

	Three Months Ended December 31						Six Months Ended December 31
(in thousands, except per share data)	2002			2001			2002			2001
Net sales	$	57,275		$	76,694		$	113,320		$	143,743
Cost of products sold		42,255			54,954			83,246			102,919

Gross profit		15,020			21,740			30,074			40,824
Selling and administrative expenses		10,624			14,133			22,928			26,917

Operating income		4,396			7,607			7,146			13,907
Interest (income)		(8	)		(36	)		(11	)		(48	)
Interest expense		106			178			223			426

Income before income taxes		4,298			7,465			6,934			13,529
Income tax expense		1,611			2,858			2,032			5,220

Net income	$	2,687		$	4,607		$	4,902		$	8,309
Earnings per common share
Basic	$	.17		$	.29		$	.31		$	.53

Diluted	$	.17		$	.29		$	.31		$	.52

Weighted average common shares outstanding
Basic		15,763			15,689			15,767			15,682

Diluted		15,929			15,994			15,941			15,991

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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LSI INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	December 31, 2002		June 30, 2002
(In thousands, except share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	354	$	357
Accounts and notes receivable, net		34,582		42,273
Inventories		37,822		38,846
Other current assets		2,442		4,700

Total current assets		75,200		86,176
Property, Plant and Equipment, net		55,820		54,825
Goodwill, net		41,825		41,825
Intangible Assets, net		5,436		5,679
Other Assets, net		1,291		1,337
	$	179,572	$	189,842

LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt	$	240	$	365
Accounts payable		11,073		14,910
Accrued expenses		11,702		15,108

Total current liabilities		23,015		30,383
Long-Term Debt		11,672		17,688
Deferred Income Taxes		2,482		2,422
Shareholders' Equity
Preferred shares, without par value;
Authorized 1,000,000 shares; none issued		--		--
Common shares, without par value;
Authorized 30,000,000 shares;
Outstanding 15,768,741 and 15,776,702
shares, respectively		52,542		52,497
Retained earnings		89,861		86,852

Total shareholders' equity		142,403		139,349

	$	179,572	$	189,842

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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LSI INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended December 31
	2002			2001
(In thousands)
Cash Flows from Operating Activities
Net income	$	4,902		$	8,309
Non-cash items included in income
Depreciation and amortization		2,692			3,030
Deferred income taxes		60			618
Deferred compensation plan		128			133
Changes in
Accounts receivable		7,691			3,748
Inventories		1,024			(4,128	)
Accounts payable and other		(4,939	)		2,272
Net liabilities from discontinued operations		--			(709	)
Net cash flows from operating activities		11,558			13,273
Cash Flows from Investing Activities
Purchase of property, plant and equipment		(3,444	)		(6,282	)
Net cash flows from investing activities		(3,444	)		(6,282	)
Cash Flows from Financing Activities
Increase (decrease) of borrowings under line of credit		--			(552	)
Payment of long-term debt		(7,381	)		(5,168	)
Proceeds from issuance of long-term debt		1,240			--
Cash dividends paid		(1,893	)		(1,830	)
Exercise of stock options		91			512
Purchase of treasury shares		(174	)		(187	)
Net cash flows from financing activities		(8,117	)		(7,225	)
Increase (decrease) in cash and cash equivalents		(3	)		(234	)
Cash and cash equivalents at beginning of year		357			340
Cash and cash equivalents at end of period	$	354		$	106
Supplemental Cash Flow Information
Interest paid$		184		$	456
Income taxes paid	$	187		$	4,362

The accompanying Notes to Financial Statements are an integral part of these financial statements.

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LSI INDUSTRIES INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: INTERIM FINANCIAL STATEMENTS

The interim financial statements are unaudited and are prepared in accordance with rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, the interim financial statements include all normal adjustments and disclosures necessary to present fairly the Company's financial position as of December 31, 2002, and the results of its operations and its cash flows for the periods ended December 31, 2002 and 2001. These statements should be read in conjunction with the financial statements and footnotes included in the fiscal 2002 annual report.

NOTE 2: RECENT PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS No. 141), "Business Combinations," and issued Statement of Financial Accounting Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets." SFAS No. 141 eliminated the pooling-of-interests method of accounting for business combinations and requires that all business combinations be accounted for as purchases. In addition, SFAS No. 141 establishes new rules concerning recognition of intangible assets arising in a purchase business combination and requires enhanced disclosure of information in the period in which a business combination is completed. SFAS No. 142 establishes new rules on accounting for goodwill whereby goodwill will no longer be amortized to expense, but rather will be subject to impairment review. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001. The Company has adopted SFAS No. 142 effective July 1, 2002 and is currently evaluating the impact to its financial statements, financial position, results of operations and cash flows related to its implementation. Information related to the Company's goodwill and intangible assets is presented in Note 7.

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 (SFAS No. 143), "Accounting for Asset Retirement Obligations," and in August 2001 issued Statement of Financial Accounting Standards No. 144 (SFAS No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 establishes standards of accounting for asset retirement obligations (i.e., legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees) and the associated asset retirement costs. SFAS No. 144 replaces existing accounting pronouncements related to impairment or disposal of long-lived assets. The Company adopted both SFAS No. 143 and No. 144 effective July 1, 2002 with no significant impact on its financial condition or results of operations.

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In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." (SFAS) No. 146 addresses financial accounting and reporting for costs associated with exit or disposal of facilities, and must be implemented not later than December 31, 2002. The Company is currently evaluating the impact of these statements, but does not expect any significant impact on its financial condition or results of operations when they are implemented.

In November 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board issued consensus 00-21, "Revenue Arrangements with Multiple Deliverables." This consensus provides guidance and specific criteria to determine if and how multiple deliverables should be separated, and whether revenue associated with each deliverable should be recorded at a separate time. The Company is currently evaluating the impact of this consensus, but does not expect any significant impact on its financial condition or results of operations upon implementation.

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 148 (SFAS No. 148), "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share. SFAS No. 148 does not require companies to expense employee stock options. The expanded annual disclosure requirements and the transition provisions are effective for fiscal years ending after December 15, 2002 (the Company's fiscal year 2003) and the new interim period disclosures are required in financial statements for interim periods beginning after December 15, 2002 (the Company's fiscal 2003 third quarter). The Company is currently evaluating the impact of this statement, but does not expect any significant impact on its financial condition or results of operations upon implementation.

NOTE 3: BUSINESS SEGMENT INFORMATION

LSI operates in two business segments - the Image Segment and the Commercial / Industrial Lighting Segment. The Image Segment manufactures and sells exterior and interior visual image elements (lighting, graphics, and menu board systems) for the petroleum / convenience store market and for multi-site retail operations. The Image Segment includes the operations of LSI Petroleum Lighting, LSI Automotive, LSI Images, LSI SGI Integrated Graphic Systems, LSI Grady McCauley, LSI Retail Graphics and LSI Adapt. The Commercial / Industrial Lighting Segment manufactures and sells primarily outdoor, indoor, and landscape lighting for the commercial / industrial and multi-site retail markets. The Commercial / Industrial Lighting Segment includes the operations of LSI Lighting Systems, LSI Courtsider Lighting, LSI Metal Fabrication, LSI Greenlee Lighting, LSI Marcole, LSI MidWest Lighting and LSI Lightron. The Company's most significant market is the petroleum / convenience store market with approximately 31% and 36% of net sales concentrated in this market in the three months ended December 31, 2002 and 2001, respectively, and approximately 30% and 35% of net sales concentrated in this market in the six months ended December 31, 2002 and 2001, respectively.

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The following information is provided for the following periods:

	Three Months Ended December 31				Six Months Ended December 31
	2002		2001		2002		2001
(In thousands)
Net sales:
Image Segment	$	34,892	$	51,724	$	68,146	$	93,259
Commercial / Industrial Lighting Segment		22,383		24,970		45,174		50,484

	$	57,275	$	76,694	$	113,320	$	143,743

Operating income:
Image Segment	$	3,687	$	6,574	$	5,790	$	11,756
Commercial / Industrial Lighting Segment		709		1,033		1,356		2,151

	$	4,396	$	7,607	$	7,146	$	13,907

Capital expenditures:
Image Segment	$	666	$	889	$	1,226	$	1,442
Commercial / Industrial Lighting Segment		616		4,425		2,218		4,840

	$	1,282	$	5,314	$	3,444	$	6,282

Depreciation and amortization:
Image Segment	$	686	$	878	$	1,358	$	1,711
Commercial / Industrial Lighting Segment		620		636		1,334		1,319

	$	1,306	$	1,514	$	2,692	$	3,030

	December 31				June 30
	2002		2001		2002		2001
Identifiable assets:
Image Segment	$	89,256	$	107,057	$	98,707	$	105,072
Commercial / Industrial Lighting Segment		89,857		79,127		88,960		75,416

		179,113		186,184		187,667		180,488
Corporate		459		1,575		2,175		1,271

	$	179,572	$	187,759	$	189,842	$	181,759