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 MARCH 31, 2003.

[ ]

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 May 2, 2003: 15,765,483

LSI INDUSTRIES INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2003

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	15

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	22

	ITEM 4.	Controls and Procedures	22

PART II. OTHER INFORMATION

	ITEM 6.	Exhibits and Reports on Form 8-K	22

Signatures			23

“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 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.

Page 2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LSI INDUSTRIES INC.

CONSOLIDATED INCOME STATEMENTS

(Unaudited)

	Three Months Ended March 31						Nine Months Ended March 31
	2003			2002			2003			2002
(in thousands, except per share data)
Net sales	$	44,228		$	58,261		$	157,548		$	202,004
Cost of products sold		33,647			42,364			116,893			145,283

Gross profit		10,581			15,897			40,655			56,721
Selling and administrative expenses		9,740			11,558			32,668			38,475

Operating income		841			4,339			7,987			18,246
Interest (income)		(2	)		(2	)		(13	)		(50	)
Interest expense		76			70			299			496
Other expense		19			--			19			--

Income before income taxes		748			4,271			7,682			17,800
Income tax expense		280			1,722			2,312			6,942

Net income	$	468		$	2,549		$	5,370		$	10,858

Earnings per common share
Basic	$	.03		$	.16		$	.34		$	.69

Diluted	$	.03		$	.16		$	.34		$	.68

Weighted average common shares outstanding
Basic		15,768			15,717			15,767			15,694

Diluted		15,915			16,085			15,935			16,021

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)

	March 31, 2003		June 30, 2002
(In thousands, except share amounts)
ASSETS

Current Assets
Cash and cash equivalents	$	206	$	357
Accounts and notes receivable, net		29,830		42,273
Inventories		41,069		38,846
Other current assets		2,072		4,700

Total current assets		73,177		86,176

Property, Plant and Equipment, net		55,750		54,825

Goodwill, net		41,825		41,825

Intangible Assets, net		5,315		5,679

Other Assets, net		1,288		1,337

	$	177,355	$	189,842


LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities
Current maturities of long-term debt	$	85	$	365
Accounts payable		11,624		14,910
Accrued expenses		9,174		15,108

Total current liabilities		20,883		30,383

Long-Term Debt		12,015		17,688

Deferred Income Taxes		2,512		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 15,766,398 and 15,776,702
shares, respectively		52,561		52,497
Retained earnings		89,384		86,852

Total shareholders' equity		141,945		139,349

	$	177,355	$	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)

	Nine Months Ended March 31
	2003			2002
(In thousands)
Cash Flows from Operating Activities
Net income	$	5,370		$	10,858
Non-cash items included in income
Depreciation and amortization		4,130			4,531
Deferred income taxes		90			648
Deferred compensation plan		165			158
Loss on disposition of fixed assets		19			--

Changes in
Accounts receivable		12,443			9,129
Inventories		(2,223	)		(5,122	)
Accounts payable and other		(6,543	)		195
Net liabilities from discontinued operations		--			(711	)

Net cash flows from operating activities		13,451			19,686

Cash Flows from Investing Activities
Purchase of property, plant and equipment		(4,729	)		(10,733	)
Proceeds from sale of fixed assets		19			2

Net cash flows from investing activities		(4,710	)		(10,731	)

Cash Flows from Financing Activities
Increase (decrease) of borrowings under line of credit		--			(552	)
Payment of long-term debt		(7,715	)		(6,927	)
Proceeds from issuance of long-term debt		1,762			--
Cash dividends paid		(2,838	)		(2,773	)
Exercise of stock options		91			1,273
Purchase of treasury shares		(192	)		(191	)

Net cash flows from financing activities		(8,892	)		(9,170	)

Increase (decrease) in cash and cash equivalents		(151	)		(215	)

Cash and cash equivalents at beginning of year		357			340

Cash and cash equivalents at end of period	$	206		$	125

Supplemental Cash Flow Information
Interest paid$		309		$	570

Income taxes paid	$	1,761		$	4,640

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 March 31, 2003, and the results of its operations and its cash flows for the periods ended March 31, 2003 and 2002. 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 No. 146 (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 has implemented SFAS No. 146 effective December 31, 2002 with no significant impact on its financial condition or results of operations.

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

The Company 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 30% and 36% of net sales concentrated in this market in the three months ended March 31, 2003 and 2002, respectively, and approximately 30% and 35% of net sales concentrated in this market in the nine months ended March 31, 2003 and 2002, respectively.

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The following information is provided for the following periods:

	Three Months Ended March 31					Nine Months Ended March 31
	2003			2002		2003		2002
(In thousands)
Net sales:
Image Segment	$	25,366		$	36,820	$	93,512	$	130,079
Commercial / Industrial Lighting Segment		18,862			21,441		64,036		71,925

	$	44,228		$	58,261	$	157,548	$	202,004

Operating income (loss):
Image Segment	$	1,177		$	3,753	$	6,967	$	15,508
Commercial / Industrial Lighting Segment		(336	)		586		1,020		2,738

	$	841		$	4,339	$	7,987	$	18,246

Capital expenditures:
Image Segment	$	45		$	1,291	$	1,271	$	2,734
Commercial / Industrial Lighting Segment		1,240			3,160		3,458		7,999

	$	1,285		$	4,451	$	4,729	$	10,733

Depreciation and amortization:
Image Segment	$	712		$	860	$