Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K7Ix53QKtzNuqzyDqNiMHrDvuVtGMDpBygHA7FGUKVKNtjVPgTEZCRf3TcG9xaQQ R0HjssWWGzMwecQEkF87ow== 0000892251-02-000224.txt : 20021106 0000892251-02-000224.hdr.sgml : 20021106 20021106155336 ACCESSION NUMBER: 0000892251-02-000224 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LSI INDUSTRIES INC CENTRAL INDEX KEY: 0000763532 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 310888951 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13375 FILM NUMBER: 02811219 BUSINESS ADDRESS: STREET 1: 10000 ALLIANCE RD STREET 2: P O BOX 42728 CITY: CINCINNATI STATE: OH ZIP: 45242 BUSINESS PHONE: 5135796411 MAIL ADDRESS: STREET 1: 10000 ALLIANCE RD STREET 2: P O BOX 42728 CITY: CINCINNATI STATE: OH ZIP: 45242 FORMER COMPANY: FORMER CONFORMED NAME: LSI LIGHTING SYSTEMS INC DATE OF NAME CHANGE: 19891121 10-Q 1 form10q093002.htm FOR THE QUARTER ENDED 9/30/02 Form 10-Q

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 SEPTEMBER 30, 2002.

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

Common Shares, no par value. Shares outstanding at November 1, 2002: 15,762,104

LSI INDUSTRIES INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002

INDEX

                                                                     Begins on
                                                                        Page
                                                                        ----

PART I.  Financial Information

       ITEM 1.  Financial Statements
                --------------------

                Consolidated Income Statements.......................    3
                Consolidated Balance Sheets..........................    4
                Consolidated Statements of Cash Flows................    5

                Notes to Financial Statements........................    6

       ITEM 2.  Management's Discussion and Analysis
                  of Financial Condition and Results
                  of Operations......................................   12

       ITEM 3.  Quantitative and Qualitative Disclosures about
                  Market Risk........................................   16

       ITEM 4.  Controls and Procedures..............................   16

PART II.  Other Information

       ITEM 6.  Exhibits and Reports on Form 8-K.....................   16

Signatures...........................................................   17

Certifications of Principal Executive Officer
and Principal Financial Officer......................................   18

“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.

Page 2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               LSI INDUSTRIES INC.
                         CONSOLIDATED INCOME STATEMENTS
                                   (Unaudited)


                                                          Three Months Ended
                                                             September 30
                                                       -------------------------
(in thousands, except per                                2002            2001
 share data)                                           --------        ---------

Net sales                                              $ 56,045        $ 67,049

Cost of products sold                                    40,991          47,965
                                                       --------        --------

     Gross profit                                        15,054          19,084

Selling and administrative expenses                      12,304          12,784
                                                       --------        --------
     Operating income                                     2,750           6,300

Interest (income)                                            (3)            (12)

Interest expense                                            117             248
                                                       --------        --------
     Income before income taxes                           2,636           6,064

Income tax expense                                          421           2,362
                                                       --------        --------
     Net income                                        $  2,215        $  3,702
                                                       ========        ========

Earnings per common share

     Basic                                             $    .14        $    .24

     Diluted                                           $    .14        $    .23


Weighted average common shares outstanding

     Basic                                               15,772          15,675
                                                         ======          ======

     Diluted                                             15,955          15,984
                                                         ======          ======


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

                                     Page 3





                               LSI INDUSTRIES INC.

                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

(In thousands, except share amounts)                    September 30,  June 30,
                                                             2002       2002
                                                        ------------- ----------
ASSETS
- ------

Current Assets
     Cash and cash equivalents                            $     91     $    357
     Accounts and notes receivable                          38,578       42,273
     Inventories                                            38,955       38,846
     Other current assets                                    4,583        4,700
                                                          --------     --------
         Total current assets                               82,207       86,176

Property, Plant and Equipment, net                          55,722       54,825

Goodwill, net                                               41,825       41,825

Intangible Assets, net                                       5,558        5,679

Other Assets, net                                            1,315        1,337
                                                          --------     --------
                                                          $186,627     $189,842
                                                          ========     ========

LIABILITIES & SHAREHOLDERS' EQUITY

Current Liabilities
     Current maturities of long-term debt                 $    368     $    365
     Accounts payable                                       12,896       14,910
     Accrued expenses                                       11,526       15,108
                                                          --------     --------
         Total current liabilities                          24,790       30,383

Long-Term Debt                                              18,841       17,688

Deferred Income Taxes                                        2,451        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 15,760,224 and 15,776,702
            shares, respectively                            52,425       52,497
     Retained earnings                                      88,120       86,852
                                                          --------     --------
         Total shareholders' equity                        140,545      139,349
                                                          --------     --------
                                                          $186,627     $189,842
                                                          ========     ========

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

                                     Page 4







                               LSI INDUSTRIES INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

(In thousands)                                              Three Months Ended
                                                                September 30
                                                            --------------------
                                                              2002        2001
                                                            --------    --------
Cash Flows from Operating Activities
  Net income                                                 $ 2,215    $ 3,702
  Non-cash items included in income
    Depreciation and amortization                              1,386      1,516
    Deferred income taxes                                         29         30
    Deferred compensation plan                                    95         40

  Changes in
    Accounts receivable                                        3,695      1,188
    Inventories                                                 (109)    (3,860)
    Accounts payable and other                                (5,457)     3,789
    Net liabilities from discontinued operations                --         (708)
                                                             -------     -------
      Net cash flows from operating activities                 1,854      5,697
                                                             -------     -------
Cash Flows from Investing Activities
  Purchase of property, plant and equipment                   (2,162)      (968)
                                                             -------     -------
      Net cash flows from investing activities                (2,162)      (968)
                                                             -------     -------
Cash Flows from Financing Activities
  Increase (decrease) of borrowings under line of credit        --        2,848
  Payment of long-term debt                                      (84)    (7,066)
  Proceeds from issuance of long-term debt                     1,240       --
  Cash dividends paid                                           (947)      (889)
  Exercise of stock options                                     --          352
  Purchase of treasury shares                                   (167)      (112)
                                                             -------     -------
      Net cash flows from financing activities                    42     (4,867)
                                                             -------     -------
Increase (decrease) in cash and cash equivalents                (266)      (138)

Cash and cash equivalents at beginning of year                   357        340
                                                             -------     -------
Cash and cash equivalents at end of period                   $    91    $   202
                                                             =======    =======

Supplemental Cash Flow Information
  Interest paid$                                                  92    $   260
  Income taxes paid                                          $    74    $   172

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


                                     Page 5

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 September 30, 2002, and the results of its operations and its cash flows for the periods ended September 30, 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.

Page 6

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.

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 Metal Fabrication, LSI SGI Integrated Graphic Systems, LSI Grady McCauley, LSI Retail Graphics and LSI Adapt (since the January 1, 2001 acquisition). 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 Greenlee Lighting, LSI Marcole, LSI MidWest Lighting and LSI Lightron (since the November 21, 2000 acquisition). The Company’s most significant market is the petroleum / convenience store market with approximately 29% and 34% of net sales concentrated in this market in the three months ended September 30, 2002 and 2001, respectively.

The following information is provided for the following periods:

                                                           Three Months Ended
                                                              September 30
                                                        ----------------------
                                                          2002          2001
            (In thousands)                              --------      --------
     Net sales:
        Image Segment                                   $ 33,254      $ 41,535
        Commercial / Industrial Lighting Segment          22,791        25,514
                                                        --------      --------
                                                        $ 56,045      $ 67,049
                                                        ========      ========

     Operating income:
        Image Segment                                   $  2,103      $  5,181
        Commercial / Industrial Lighting Segment             647         1,119
                                                        --------      --------
                                                        $  2,750      $  6,300
                                                        ========      ========

     Capital expenditures:
        Image Segment                                  $     560     $     553
        Commercial / Industrial Lighting Segment           1,602           415
                                                        --------      --------
                                                       $   2,162     $     968
                                                       =========     =========

     Depreciation and amortization:
        Image Segment                                  $     672     $     833
        Commercial / Industrial Lighting Segment             714           683
                                                        --------      --------
                                                       $   1,386     $   1,516
                                                       =========     =========



                                     Page 7





                                                            September 30
                                                      -------------------------
                                                        2002             2001
                                                      --------         --------
     Identifiable assets:

        Image Segment                                 $ 94,101         $107,509
        Commercial / Industrial Lighting Segment        90,626           76,746
                                                      --------         --------
                                                       184,727          184,255
        Corporate                                        1,900            1,138
                                                      --------         --------
                                                      $186,627         $185,393
                                                      ========         ========

Operating income of the business segments includes sales less all operating expenses including allocations of corporate expense, but excluding interest expense. Sales between business segments are immaterial.

Identifiable assets are those assets used by each segment in its operations, including allocations of shared assets. Corporate assets consist primarily of cash and cash equivalents and refundable income taxes.

NOTE 4: EARNINGS PER COMMON SHARE

All share and per share data have been restated to reflect the Company’s 3-for-2 stock split which was effective November 29, 2001. The following table presents the amounts used to compute earnings per common share and the effect of dilutive potential common shares on net income and weighted average shares outstanding (in thousands, except per share data):

                                                           Three Months Ended
                                                              September 30
                                                        ----------------------
                                                          2002          2001
                                                        --------      --------
BASIC EARNINGS PER SHARE

     Net income                                          $ 2,215       $ 3,702
                                                         =======       =======

     Weighted average shares
         outstanding during the period,
         net of treasury shares                           15,772        15,675
                                                         =======       =======
     Basic earnings per share                            $   .14       $   .24
                                                         =======       =======



                                     Page 8





                                                           Three Months Ended
                                                              September 30
                                                        ----------------------
                                                          2002          2001
                                                        --------      --------
DILUTED EARNINGS PER SHARE
     Net income                                          $ 2,215       $ 3,702
                                                         =======       =======
     Weighted average shares
         outstanding during the period,
         net of treasury shares                           15,772        15,675
     Effect of dilutive securities (A):
         Impact of common shares to be
         issued under stock option plans,
         a deferred compensation plan
         and contingently issuable shares                    183           309
                                                         -------       -------
     Weighted average shares
         outstanding (B)                                  15,955        15,984
                                                         =======       =======
     Diluted earnings per share                          $   .14       $   .23
                                                         =======       =======

(A) Calculated using the “Treasury Stock” method as if dilutive securities were exercised and the funds were used to purchase Common Shares at the average market price during the period.

(B) Options to purchase 298,681 common shares and 1,223 common shares during the three month periods ended September 30, 2002 and 2001, respectively, were not included in the computation of diluted earnings per share because the exercise price was greater than the average market value of the common shares.

NOTE 5: ACCOUNTS AND NOTES RECEIVABLE

The Image Segment has certain customers that have some concentration of accounts or notes receivable. As of September 30, 2002, one petroleum / convenience store customer owes the Company a total of $2.4 million, of which $2.2 million is supported by a collateralized note receivable. Additionally, as of September 30, 2002, the Company has open accounts receivable as well as dedicated inventory related to Kmart with a total exposure of approximately $1.7 million. The Company believes that to the extent amounts are ultimately not collectible, adequate reserves have been established.

NOTE 6: BALANCE SHEET DATA

The following information is provided as of the dates indicated (in thousands):

                                            September 30, 2002     June 30, 2002
                                            ------------------     -------------

                  Inventories
                    Raw Materials                 $17,391              $17,316
                    Work-in-Process and
                      Finished Goods               21,564               21,530
                                                  -------              -------
                                                  $38,955              $38,846
                                                  =======              =======




                                     Page 9





                Accrued Expenses
                  Compensation and benefits       $ 4,659              $ 8,136
                  Customer prepayments              1,898                1,505
                  Other accrued expenses            4,969                5,467
                                                  -------              -------
                                                  $11,526              $15,108
                                                  =======              =======

NOTE 7: GOODWILL AND INTANGIBLE ASSETS

The following tables present information about the Company’s Goodwill and Intangible Assets on the dates or for the periods indicated.

(in thousands)       As of September 30, 2002            As of June 30, 2002
                  -------------------------------  -----------------------------
                   Carrying Accumulated            Carrying Accumulated
                    Amount  Amortization     Net     Amount Amortization   Net
                  --------- ------------ --------  -------- ------------ -------

Goodwill           $46,024    $ 4,199     $41,825   $46,024   $ 4,199    $41,825
                   =======    =======     =======   =======   =======    =======

Intangible Assets  $ 6,450    $   892     $ 5,558   $ 6,450   $   771    $ 5,679
                   =======    =======     =======   =======   =======    =======

                                                      Amortization Expense
                                              ----------------------------------
                                                           Intangible
                                              Goodwill       Assets        Total
Three months ended:                           --------     ----------      -----

September 30, 2002                              $--           $121          $121

September 30, 2001                              $333          $121          $454

The following table presents the effect of the Company's adoption of Statement of Financial Accounting Standards No. 142 (Goodwill and Other Intangible Assets).

(In thousands, except per                          For the Three Months Ended
share data)                                        --------------------------
                                                   9/30/02            9/30/01
                                                   -------            -------
       Net Income:
         Reported net income                        $2,215             $3,702
         Add back:  Goodwill
           amortization, net of tax                     --                230
                                                    ------             ------
         Adjusted net income                        $2,215             $3,932
                                                    ======             ======
       Basic Earnings Per Share:
         Reported basic earnings
           per share                                $  .14             $  .24
         Goodwill amortization                          --                .01
                                                    ------             ------
         Adjusted basic earnings
           per share                                $  .14             $  .25
                                                    ======             ======
       Diluted Earnings Per Share:
         Reported diluted earnings
           per share                                $  .14             $  .23
         Goodwill amortization                          --                .01
                                                    ------             ------
         Adjusted diluted earnings
           per share                                $  .14             $  .24
                                                    ======             ======

                                     Page 10

NOTE 8: REVOLVING LINES OF CREDIT AND LONG-TERM DEBT

The Company has an unsecured $50 million revolving line of credit with its bank group. As of September 30, 2002 the available portion of this line of credit was $32.3 million. A portion of this credit facility is a $20 million line of credit that expires in the third quarter of fiscal 2003. The remainder of the credit facility is a $30 million three year committed line of credit that expires in fiscal 2005. Annually in the third quarter, the credit facility is renewable with respect to adding an additional year of commitment to replace the year just ended. Interest on the revolving lines of credit is charged based upon an increment over the LIBOR rate as periodically determined, an increment over the Federal Funds Rate as periodically determined, or at the bank’s base lending rate, at the Company’s option. The increment over the LIBOR borrowing rate, as periodically determined, fluctuates between 50 and 75 basis points depending upon the ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA). The increment over the Federal Funds borrowing rate, as periodically determined, fluctuates between 150 and 200 basis points, and the commitment fee on the unused balance of the $30 million committed portion of the line of credit fluctuates between 15 and 25 basis points based upon the same leverage ratio. At September 30, 2002 the average interest rate on borrowings under this revolving line of credit was approximately 2.3%. Under terms of these agreements, the Company has agreed to a negative pledge of assets, to maintain minimum levels of profitability and net worth, and is subject to certain maximum levels of leverage.

          Long-term debt:  (In thousands)             September 30,   June 30,
                                                           2002         2002
                                                      -------------   ---------

           Revolving Line of Credit
             (3 year committed line)                      $17,662       $16,422
           Industrial Revenue Development
             Bond at 1.85%                                    780           780
           Equipment loans (average rate of 4.8%)             767           851
                                                          -------       -------
                Total long-term debt                       19,209        18,053

           Less current maturities of long-term debt          368           365
                                                          -------       -------
                Long-term debt                            $18,841       $17,688
                                                          =======       =======

NOTE 9: CASH DIVIDENDS

The Company paid cash dividends of $947,000 and $889,000 in the three month periods ended September 30, 2002 and 2001, respectively. In October 2002, the Company’s Board of Directors declared a $0.06 per share regular quarterly cash dividend (approximately $946,000) payable on November 12, 2002 to shareholders of record November 5, 2002.

NOTE 10: SHAREHOLDERS' EQUITY

The Company has a non-qualified Deferred Compensation Plan with all Plan investments in common shares of the Company. A total of 140,956 and 124,478 common shares were held in the Plan as of September 30, 2002 and June 30, 2002, respectively, and, accordingly, have been recorded as treasury shares.

Page 11

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Net Sales by Business Segment

(In thousands, unaudited)

                                               Three Months Ended
                                                 September 30
                                            -------------------------
                                             2002               2001
                                            -------           -------
     Image Segment                          $33,254           $41,535
     Commercial / Industrial
     Lighting Segment                        22,791            25,514
                                            -------           -------
                                            $56,045           $67,049
                                            =======           =======

Results of Operations

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001

Net sales of $56,045,000 in the first quarter of fiscal 2003 decreased 16% from the first quarter fiscal 2002 net sales of $67,049,000. Commercial / Industrial Lighting Segment net sales decreased 11% and Image Segment net sales decreased 20% as compared to the prior year. The decrease in Commercial / Industrial Lighting Segment net sales is attributed to economic softness in the commercial / industrial market. The decrease in Image Segment net sales is primarily attributed to continued softness in the petroleum / convenience store market for both lighting and graphics products. Additionally, net sales of the current significant menu board program that concludes in the second quarter were down 41% as compared to last year’s first quarter. A new menu board program, with shipments scheduled to begin late in the third quarter of fiscal 2003, has been identified to replace a good portion of this business. Net sales of the Image Segment to the petroleum / convenience store market represented 29% and 34% of total net sales in first quarters of fiscal 2003 and fiscal 2002, respectively. Sales to this market decreased 27% in the first quarter of fiscal 2003 as compared to the same period last year due to general economic conditions in this market and much lower volume associated with an image conversion program of a major oil company. The Company believes concerns about the Middle East have had the effect of reducing spending by the major oil companies. The Company believes this slow down is temporary and that the re-imaging programs will start back up in the second half of fiscal 2003. The petroleum / convenience store market has been, and will continue to be a very important niche market for the Company. While sales prices in some markets that the Company serves were increased, inflation did not have a significant impact on sales in fiscal 2003 as competitive pricing pressures held price increases to a minimum.

Gross profit of $15,054,000 in the first quarter of fiscal 2003 decreased 21% from last year’s gross profit of $19,084,000. The decrease in amount of gross profit is due primarily to the 16% decrease in net sales. Selling and administrative expenses decreased 4% to $12,304,000 from $12,784,000. The Company recorded $1.1 million more bad debt expense in the first quarter of fiscal 2003 as compared to the same period last year with just over half of the bad debt provision related to recent Image Segment customer bankruptcy filings and the

Page 12

remainder to provide additional reserves for unknown loss exposures. The Company adopted Financial Accounting Standards Statement No. 142 effective July 1, 2002, and accordingly did not record any goodwill amortization expense in fiscal 2003. First quarter 2002 selling and administrative expense includes $333,000 of goodwill amortization expense. See Note 7 to these financial statements for further discussion. Excluding the goodwill amortization and incremental bad debt expense, selling and administrative expenses in the first quarter of fiscal 2003 as compared to the same period last year would have decreased 10%, primarily as a result of the 16% reduction in net sales. As a percentage of net sales, selling and administrative expenses were at 22.0% in the first quarter of fiscal 2003 as compared to 19.1% last year. The Company continued the task of converting its business operating software system company-wide. Total implementation costs expensed were $313,000 ($0.01 per share, diluted) in the first quarter of fiscal 2003, as compared to expense of $134,000 ($0.01 per share, diluted) in the same period last year. Expenditures are expected to continue into calendar year 2004. See additional discussion in Liquidity and Capital Resources regarding depreciation of this business operating system.

The Company reported interest expense of $117,000 in the first quarter of fiscal 2003 as compared to $248,000 in the same period last year. The change between years is primarily reflective of both reduced interest rates and reduced average outstanding borrowings on the Company’s line of credit. The effective tax rate in the first quarter of fiscal 2003 was reduced to 16.0%, compared to 39.0% last year, as a result of the Company recording federal and state income tax credits that had not previously been recognized. The Company expects a 37½% effective income tax rate in the remaining quarters of fiscal 2003.

Net income of $2,215,000 in the first quarter of fiscal 2003 decreased 40% from $3,702,000 in the same period last year. The decrease is primarily the result of decreased gross profit from decreased net sales, partially offset by decreased operating expenses, interest expense and income taxes. Diluted earnings per share of $0.14 in the first quarter of fiscal 2003 decreased 39% from $0.23 per share reported in the same period of fiscal 2002. The weighted average common shares outstanding for purposes of computing diluted earnings per share in the first quarter of fiscal 2003 was 15,955,000 shares as compared to 15,984,000 shares in the same period of last year.

Liquidity and Capital Resources

The Company considers its level of cash on hand, its current ratio and working capital levels to be its most important measures of short-term liquidity. For long-term liquidity indicators, the Company believes its ratio of long-term debt to equity and its historical levels of net cash flows from operating activities to be the most important measures.

At September 30, 2002 the Company had working capital of $57.4 million, compared to $55.8 million at June 30, 2002. The ratio of current assets to current liabilities increased to 3.32 to 1 from 2.84 to 1. The increased working capital is primarily attributed to increased inventories, and decreased accounts payable and accrued expenses, partially offset by decreased accounts and notes receivable, and decreased cash and other current assets. The reduction in accounts receivable is attributed to both lower net sales in the first quarter of fiscal 2003 as compared to last year’s fourth quarter and to a reduction in the days sales outstanding. The reduction in accrued expenses is primarily due to the first quarter funding of compensation and benefit plans.

The Company generated $1.9 million of cash from operating activities in the first quarter of fiscal 2003 as compared to $5.7 million in the same period of fiscal 2002. The decrease in

Page 13

net cash flows from operating activities in the first quarter of fiscal 2003 is primarily the net result of decreased net income, decreases in accounts payable and accrued expenses, and decreased depreciation and amortization expense, partially offset by a larger decrease in accounts receivable and less of an increase in inventories.

As of September 30, 2002, the Company’s days sales outstanding were at approximately 64 days, the same as at June 30, 2002. Net accounts and notes receivables were $38.6 million and $42.3 million at September 30, 2002 and June 30, 2002, respectively. Collection cycles from a few large customers in the Image Segment, as well as several other customers, have been very slow due to a combination of factors, including customer cash availability and economic conditions. The majority of one such open customer account (petroleum / convenience store customer) was converted into a collateralized note receivable during fiscal 2002, with the balance of the note at $2.2 million and the unsecured receivable at $0.2 million as of September 30, 2002. This note provides for scheduled payments and is to be paid in full by an extended date of April 30, 2003. The Company also has unsecured accounts receivable, as well as dedicated inventory, from Kmart, the large national retailer that filed Chapter 11 bankruptcy in January 2002. The Company’s total exposure is approximately $1.7 million. Subject to continual review, shipments to Kmart have resumed on a limited basis on open account. Two additional customers in the Image Segment filed bankruptcy subsequent to September 30, 2002. The Company recorded an additional $1.0 million bad debt expense and $0.2 million inventory obsolescence expense as a result of these unexpected bankruptcies, with just over half of this total expense to cover exposure to these bankruptcies and the remainder to provide additional reserves for unknown loss exposures. The four customers discussed above represent approximately 10% of the Company’s total net accounts and notes receivable. The Company believes that the receivables and inventory discussed above are ultimately collectible or recoverable, net of certain reserves, and that aggregate allowances for doubtful accounts are adequate.

Cash generated from operations is the Company’s primary source of liquidity. In addition, the Company has an unsecured $50 million revolving line of credit with its bank group. As of October 25, 2002 there was approximately $34.4 million available on this line of credit. This line of credit is composed of a $30 million three year committed credit facility expiring in fiscal 2005 and a $20 million credit facility with an annual renewal in the third quarter of fiscal 2003. The Company believes that the total of available lines of credit plus cash flows from operating activities is adequate for the Company’s fiscal 2003 operational and capital expenditure needs. The Company is in compliance with all of its loan covenants.

Capital expenditures of $2.2 million in the first quarter of fiscal 2003 compares to $1.0 million in the same period of fiscal 2002. The primary cause of the increased spending is the completion of the new manufacturing facility and equipment installation for LSI Lightron. Capital expenditures in fiscal 2003 are expected to be approximately $8 million, exclusive of business acquisitions.

The Company generated less than $0.1 million in financing activities in the first quarter of fiscal 2003 as compared to a use of $4.9 million in the same period of fiscal 2002. The change is the net result of a $1.2 million borrowing of long-term debt in the first quarter of fiscal 2003 as compared to a net $5.4 million repayment of funded debt in the same period of fiscal 2002, and the difference between years in the amount of stock options exercised.

The Company has been implementing a fully integrated enterprise resource planning / business operating system over the past three fiscal years, and will continue to do so into fiscal 2004. A certain portion of the $7.5 million of software expenditures that are capitalized to date

Page 14

are being depreciated by the subsidiary companies currently using the software. More of this capitalized asset will be depreciated as additional companies implement this software, with scheduled full write-off to occur in fiscal 2008. Some additional capitalization of this internal-use software is expected.

On October 21, 2002 the Board of Directors declared a regular quarterly cash dividend of $0.06 per share (approximately $946,000), payable November 12, 2002 to shareholders of record on November 5, 2002. During the first quarter of fiscal 2003, the Company paid cash dividends in the amount of $947,000, as compared to $889,000 in the same period of fiscal 2002.

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.

The Company continues to seek opportunities to invest in new products and markets, and in acquisitions which fit its strategic growth plans in the lighting and graphics markets. The Company believes that adequate financing for any such investments or acquisitions will be available through future borrowings or through the issuance of common or preferred shares in payment for acquired businesses.

Page 15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Nothing to report.

ITEM 4. CONTROLS AND PROCEDURES.

(a)

Evaluation of Disclosure Controls and Procedures.

An evaluation was performed as of September 23, 2002 under the supervision and with the participation of the Registrant’s management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based upon this evaluation, these disclosure controls and procedures were found to be effective with no significant weaknesses noted.

(b)	Changes in Internal Controls. There were no significant changes in the Registrant’s internal controls or in other factors that could significantly affect these controls after the date of their evaluation.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

Exhibit
No.

10.1

Description of Exhibit

LSI Industries Inc. Nonqualified Deferred Compensation Plan, and Rabbi Trust Agreement

Reports on Form 8-K

None

[All other items required in Part II have been omitted because they are not applicable or are not required.]

Page 16

SIGNATURES

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.

LSI Industries Inc.

BY:   /s/ Robert J. Ready
      Robert J. Ready
      President and Chief Executive Officer
      (Principal Executive Officer)

BY:   /s/ Ronald S. Stowell
      Ronald S. Stowell
      Vice President, Chief Financial Officer and Treasurer
      (Principal Financial and Accounting Officer)

November 1, 2002

Page 17

Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427

I, Robert J. Ready, the principal executive officer of LSI Industries Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of LSI Industries Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data, and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Page 18

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 1, 2002

/s/ Robert J. Ready
Robert J. Ready
Principal Executive Officer

Page 19

Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
and Securities and Exchange Commission Release 34-46427

I, Ronald S. Stowell, the principal financial officer of LSI Industries Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of LSI Industries Inc.;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Page 20

Date: November 1, 2002

/s/ Ronald S. Stowell
Ronald S. Stowell
Principal Financial Officer

Page 21

CERTIFICATION OF ROBERT J. READY

Pursuant to 18 U.S.C.ss.1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of LSI Industries Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2002 (the “Report”), I, Robert J. Ready, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert J. Ready
Robert J. Ready
Chairman of the Board, Chief Executive Officer
and President

November 1, 2002

Page 22

CERTIFICATION OF RONALD S. STOWELL

Pursuant to 18 U.S.C.ss.1350, as adopted pursuant to
§ 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing with the Securities and Exchange Commission of the Quarterly Report of LSI Industries Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2002 (the “Report”), I, Ronald S. Stowell, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ronald S. Stowell
Ronald S. Stowell
Vice President, Chief Financial Officer, and Treasurer

November 1, 2002

Page 23

EX-10 3 ex101093002.htm EXHIBIT 10.1 Exhibit 10.1

LSI INDUSTRIES INC.NONQUALIFIED
DEFERRED COMPENSATION PLAN

PREAMBLE

LSI Industries Inc. and each Employer hereby amend and restate the Plan effective as of July 1, 2002 as set forth herein. The Plan was originally effective as of September 15, 1996. The Plan was amended and restated as of July 1, 1998. This Plan is an unfunded deferred compensation arrangement for a select group of management or highly compensated employees who are rendering service to an Employer.

ARTICLE I - DEFINITIONS

1.1 “Beneficiary” shall mean the person or persons entitled to receive the distributions, if any, payable under the Plan upon or after a Participant’s death, to such person or persons as such Participant’s Beneficiary. Each Participant may designate a Beneficiary by filing the proper form with the Committee. A Participant may designate one or more contingent Beneficiaries to receive any distributions after the death of a prior Beneficiary. A designation shall be effective upon said filing, provided that it is so filed during such Participant’s lifetime, and may be changed from time to time by the Participant.

1.2 “Committee” shall mean the Compensation Committee of the Board of Directors of LSI Industries Inc. which is responsible for the administration of this Plan in accordance with the provisions of the Plan as set forth in this document.

1.3 “Compensation” shall mean the total amount of earnings (including bonuses) paid by an Employer to an Executive or which would otherwise be paid but for a deferral election hereunder or a salary reduction election under any Section 401(k) or 125 plan.

1.4 “Deferred Compensation Account” shall mean the account to be established by an Employer as a book reserve to reflect the amounts deferred by a Participant, the amounts credited by the Employer, and the earnings adjustment under Article VI. A Participant’s Deferred Compensation Account shall be reduced by distributions under Section 6.2, Article VII and Article VIII.

1.5 “Effective Date” shall mean July 1, 2002 for purposes of this amendment and restatement.

1.6 “Employer” shall mean LSI Industries Inc., any affiliate of LSI Industries Inc. (whether or not incorporated) which has adopted the Plan with the consent of LSI Industries Inc., or any successor or assignee of any of them.

1.7 “Executive” shall mean any employee designated by the Committee (in conjunction with senior management of LSI Industries Inc.) as a member of the select group of management or highly compensated employees eligible for participation in this Plan.

1.8 “Participant” shall mean any Executive who has a right to a benefit under the Plan and a person who was such at the time of his death or termination of service and who retains, or whose Beneficiary retains, a benefit under the Plan which has not been distributed.

1.9 “Plan” shall mean the LSI Industries Inc. Nonqualified Deferred Compensation Plan as described in this instrument, amended and restated effective July 1, 2002, and, as may be amended thereafter.

1.10 “Plan Year” shall mean the 12-consecutive month period beginning on July 1.

ARTICLE II - PARTICIPANT’S ELECTION TO DEFER

2.1 Each Executive may elect to have up to 100% of his Compensation (in whole percentages) for a Plan Year deferred and credited with earnings in accordance with the terms and conditions of the Plan. The Committee may allow separate elections with respect to regular earnings and bonuses.

2.2 An Executive desiring to exercise an election under Paragraph 2.1 shall notify the Committee of his deferral election. Such notice must be in writing, on a form provided by the Committee, and delivered to the Committee by such date as the Committee shall specify, but in all events before the first day of the Plan Year to which such election is to apply.

2.3 A deferral election shall be effective with respect to the entire Plan Year to which it relates and may not be modified or terminated for that Plan Year; provided, however, in the Plan year beginning July 1, 2002, Participants may increase their deferral election during a two week period designated by the Committee.

2.4 The Compensation otherwise payable to the Executive during the Plan Year shall be reduced pursuant to the Executive’s election under this Article II. Such amounts shall be credited to the Executive’s Deferred Compensation Account.

ARTICLE III - EMPLOYER MAKE-UP ALLOCATIONS

3.1 If, by reason of an election under Article II, a Participant receives a smaller allocation of Employer contributions and/or forfeitures under the LSI Industries Inc. Retirement Plan for a plan year of that plan than he would have received had no such election been made, then there shall be credited to the Participant’s Deferred Compensation Account an amount equal to the amount which bears the same relationship to the amounts deferred under Article II and credited to the Participant’s Deferred Compensation Account during the Plan Year as the Participant’s allocations (of Employer contributions and/or forfeitures) under the LSI Industries Inc. Retirement Plan bear to the Participant’s compensation taken into account under that plan. Such amount shall be credited to the Participant’s Deferred Compensation Account at such time as the Committee shall determine.

3.2 (a) If, by reason of the application of the compensation limitation imposed by Section 401(a)(17) of the Internal Revenue Code of 1986 (or any corresponding successor provision), including any provision in the LSI Industries Inc. Retirement Plan providing such limitation, a Participant receives a smaller allocation of Employer contributions and/or forfeitures under the LSI Industries Inc. Retirement Plan for any plan year of that plan than he would have received had no such limitation been in effect, then there shall be credited to his Deferred Compensation Account the amount determined under (b) below. Such amount shall be credited to the Participant’s Deferred Compensation Account at such time as the Committee shall determine.

(b) The amount hereunder shall be equal to the amount which is the same percentage of the Participant’s compensation (as defined in the LSI Industries Inc. Retirement Plan) in excess of the compensation limitation referred to in (a) above as the percentage allocated under the LSI Industries Inc. Retirement Plan on compensation in excess of the Social Security taxable wage base (but not in excess of the limitation referred to in (a) above).

ARTICLE IV - LSI INCENTIVE ALLOCATIONS

4.1 Subject to Paragraph 4.2, each Participant shall be eligible for an Employer incentive allocation for a Plan Year, to be determined in accordance with Paragraph 4.3, if he satisfies both of the following requirements:

(a) The Participant must have elected to make Compensation deferrals under the Plan for the Plan Year of the LSI incentive allocation, the immediately preceding Plan Year and/or the second preceding Plan Year; and

(b) The Participant must be employed by an Employer at the time the Committee determines that the Performance Goal (defined below) was satisfied for the Plan Year.

4.2 The Employer shall make an incentive allocation determined under Paragraph 4.3 below only if the Performance Goal (defined below) is met for the Plan Year as determined in the sole discretion of the Committee.

(a) “Performance Goal” shall mean a Return on Beginning Shareholders’ Equity as determined in the sole discretion of the Committee each year based on the annual operating plan for the relevant fiscal year.

4.3 If the Performance Goal (defined above) is met for a Plan Year, those Participants eligible for an Employer incentive allocation under Paragraph 4.1 above shall receive such an allocation determined by the Committee as follows:

(a) The Committee shall determine the number of LSI Common Shares deemed to have been acquired during the Plan Year and each of the two immediately preceding Plan Years with the Compensation deferrals for such years.

In making that determination, the Committee shall consider only Compensation deferrals for a Plan Year up to 40% of the Participant’s Compensation.

(b) The Committee shall determine the percentages applicable to each eligible Participant for the current Plan Year and for each of the two preceding Plan Years from the following:

                     Return on Average Shareholders' Equity

                                              At least
                           At least       Performance Goal
                       Performance Goal       plus 0.5%
                        but less than     but less than       Performance Goal
                       Performance Goal   Performance Goal         plus 1.0%
                          plus 0.5%         plus 1.0%               or more
- --------------------   ----------------   -----------------   ------------------
Corporate Officers
 and Top Executives          20%                 25%              30%


All Other Employees          10%                12.5%             15%

The Participant’s status (as a “corporate officer” or “top executive”) as determined by the Committee at the end of the Plan Year in which he makes his Compensation deferrals will determine the level of Employer allocations under this Paragraph attributable to such Compensation deferrals for that Plan Year.

(c) The applicable percentages determined for a Participant for the Plan Year and the two immediately preceding Plan Years shall be applied against the number of LSI Common Shares determined for the respective Plan Years (under (a) above). The resulting number shall be rounded to the nearest whole share.

(d) The Committee shall determine the value of the number of LSI Common Shares (determined under (c) above) as of such date as it deems appropriate. That amount shall be credited to the Participant’s Deferred Compensation Account at such time as the Committee shall determine.

ARTICLE V - PARTICIPANT’S INTEREST

No Participant or his designated Beneficiary shall acquire any property interest in his Deferred Compensation Account or any other assets of the Employer, their rights being limited to receiving from the Employer a deferred payment as set forth in this Plan, and these rights are conditioned upon continued compliance with the terms and conditions of this Plan. To the extent that any Participant or Beneficiary acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Employer.

ARTICLE VI - CREDITING OF EARNINGS

6.1 General. There shall be credited to the Deferred Compensation Account of each Participant an additional amount of earnings (or losses) determined under this Article VI.

6.2 Investment of Compensation Deferrals in LSI Common Shares. All Compensation deferrals for a Plan Year shall be credited with earnings (or losses) as though invested in LSI Common Shares. Participants who, prior to the amendment and restatement, had amounts attributable to their Deferred Compensation Account credited with earnings or losses based on any investment election other than the LSI Common Shares investment election shall receive a cash distribution before July 1, 1998 equal to such value of all accounts subject to such other investment elections under the Plan as it then existed.

6.3 Employer Allocations. Employer allocations under Article III and Article IV shall be credited with earnings (or losses) as if it were invested in LSI Common Shares. The Participant shall have no right to elect that alternative investments be used.

6.4 Determination of Rate of Return. The Committee shall determine the rate of return throughout each Plan Year quarter or other period for the investment in LSI Common Shares.

6.5 Investment Adjustment. For each Plan Year quarter or other period, the Participant’s Deferred Compensation Account shall be increased or decreased as if it had earned the rate of return corresponding to the amount determined by the Committee under Paragraph 6.5. Such increase or decrease shall be based on the balance in the Deferred Compensation Account throughout the Plan Year quarter or other period and shall be credited at such time as the Committee in its sole discretion shall determine.

ARTICLE VII - PLAN BENEFITS

7.1 (a) A Participant’s rights to that portion of his Deferred Compensation Account attributable to his Compensation deferrals under Article II (as adjusted for earnings and losses) shall be nonforfeitable at all times.

(b) A Participant shall have a vested interest in that portion of his Deferred Compensation Account attributable to Employer allocations under Article III and Article IV (as adjusted for earnings and losses) determined in accordance with the following schedule:

       YEARS OF VESTED SERVICE                              PERCENTAGE
       -----------------------                              ----------

       Less than two                                              0
       Two but less than three                                   20
       Three but less than four                                  40
       Four but less than five                                   60
       Five but less than six                                    80
       Six or more                                              100

For purposes of this Paragraph, "Years of Vested Service" shall be determined in accordance with the provisions of the LSI Industries Inc. Retirement Plan.

(c) Notwithstanding Paragraph 7.1(b) above, Employer allocations under Article III and Article IV (as adjusted for earnings and losses) shall become fully vested upon the Participant’s retirement after age 62 and completion of at least three (3) years of service, disability or death.

(d) Notwithstanding any provision to the contrary, Employer allocations under Article III and Article IV (as adjusted for earnings and losses) shall be forfeited if the Participant commits any dishonest act or violates any noncompete or nonsolicitation agreement (as the Committee in its sole discretion shall determine).

7.2 (a) At the time an Executive makes his first deferral election under Article II, he shall also elect to have the amounts represented by his Deferred Compensation Account paid in one of the following two forms commencing as soon as administratively feasible upon termination of his service with all Employers:

(1) single lump sum payment, or

(2) approximately equal annual installments to last not more than 10 years.

If installment payments are in effect, the Participant’s Deferred Compensation Account shall continue to be credited with earnings (or losses) under Article VI until payment of the final installment.

(b) A Participant may change the election referred to in (a) above. Payment shall be made in accordance with any such changed election only if the Participant terminates service with all Employers at least one year following the date of the election. Otherwise, the payment shall be made in accordance with the election (if any) in effect immediately prior to the changed election.

(c) If a Participant has no election concerning the form of benefit payment under this Paragraph 7.2 in effect at the time he terminates service with all Employers, payment shall be made in a single lump sum payment.

(d) Elections shall be made in writing, on a form provided by the Committee, and shall be made in accordance with the rules established by the Committee.

7.3 Distribution of LSI Common Shares. Participants shall receive benefit payments in the form of whole shares of LSI Common Shares. Any fractional shares shall be paid in cash. Any expenses attributable to such payments may be deducted from the Participant’s Deferred Compensation Account.

7.4 Hardship Distribution. Subject to the approval of the Committee, a Participant may withdraw all or a portion of his Deferred Compensation Account in the event of a hardship in cash. A hardship distribution shall only be made in the event of an unforeseeable emergency that would result in severe financial hardship to the Participant if hardship distributions were not permitted. Withdrawals of amounts because of an unforeseeable emergency shall only be permitted to the extent reasonably needed to satisfy the emergency need. An unforeseeable emergency is defined as severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependant of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. An unforeseeable emergency shall also include the death of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent such hardship is or may be received (1) through reimbursement or compensation by insurance or otherwise or (2) by cessation of deferrals under the Plan.

7.5 Other Distributions. Subject to the approval of the Committee, a Participant may withdraw all or a portion of his Deferred Compensation Account in cash in the event a written request is made nine (9) months in advance of such withdrawal.

ARTICLE VIII- DEATH

Upon the death of a Participant prior to commencement of payment under Article VII, the amounts represented by the Participant’s Deferred Compensation Account, increased by any amounts due to be credited but not yet credited under Article II, Article III or Article IV shall be payable to the Participant’s Beneficiary as soon as administratively feasible in the form of distribution elected by the Participant pursuant to Paragraph 7.2(a). If the Participant has already commenced receiving the amounts represented by the Participant’s Deferred Compensation Account in the installment payment form, the installment payments shall continue to be paid to the Participant’s Beneficiary. The Beneficiary shall receive any benefit payments in the form of whole shares of LSI Common Shares. The Beneficiary shall be eligible to request a Hardship Withdrawal pursuant to Paragraph 7.4, or otherwise shall be able to request a change to a final lump sum withdrawal provided that a written request is made twelve (12) months in advance of such withdrawal.

ARTICLE IX - NON-ASSIGNABLE/NON-ATTACHMENT

Except as required by law, no right of the Participant or designated Beneficiary to receive payments under this Plan shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law and any attempt, voluntary or involuntary, to effect any such action shall be null and void and of no effect. An Employer may not assign its obligations hereunder.

ARTICLE X - CONSTRUCTION

This Plan shall be construed under the laws of the State of Ohio. Article headings are for convenience only and shall not be considered as part of the terms and provisions of the Plan. The Committee shall have full power and authority to interpret, construe and administer this Plan.

ARTICLE XI - AMENDMENT OR TERMINATION OF PLAN

The Plan may be terminated at any time or amended in whole or in part from time to time by LSI Industries Inc. provided that no such termination or amendment may directly or indirectly reduce a Participant’s Deferred Compensation Account (other than through a distribution thereof to the Participant (or his Beneficiary in the event of his death)); and any such amendment shall be binding on each Employer, Participant and designated Beneficiary.

ARTICLE XII - MISCELLANEOUS

12.1 Neither this Plan, nor any action of LSI Industries Inc., an Employer or the Committee, nor any election to defer Compensation hereunder shall be held or construed to confer on any person any legal right to be continued as an employee of LSI Industries Inc. or any Employer.

12.2 LSI Industries Inc. and the Participant’s Employer shall have the right to deduct from all payments and amounts credited hereunder any taxes required by law to be withheld with respect to any benefits under this Plan.

IN WITNESS WHEREOF, LSI Industries Inc. and each Employer, with the consent of LSI Industries Inc., have caused this amended and restated Plan to be executed as of this 30th day of September, 2002.

LSI INDUSTRIES, INC.

BY:/s/Ronald S. Stowell

RABBI TRUST AGREEMENT

UNDER THE

LSI INDUSTRIES INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN

RABBI TRUST AGREEMENT UNDER THE

LSI INDUSTRIES INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN

This Agreement made this 15th day of September, 1996, by and between LSI Industries Inc., Greenlee Lighting L.P. and SGI Integrated Graphic Systems L.P. (collectively, the "Company") and The Fifth Third Bank ("Trustee"):

WHEREAS, Company has adopted the LSI Industries Inc. Nonqualified Deferred Compensation Plan ("Plan");

WHEREAS, Company has incurred or expects to incur liability under the terms of such Plan with respect to the individuals participating in such Plan;

WHEREAS, Company wishes to establish a trust (hereinafter called “Trust”) and to contribute to the Trust assets that shall be held therein, subject to the claims of Company’s creditors in the event of Company’s Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plan;

WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974;

WHEREAS, it is the intention of the Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plan;

NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:

Section 1. Establishment of Trust.

(a) Company hereby deposits with Trustee in trust $10.00, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement.

(b) The Trust hereby established shall be irrevocable.

(c) The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.

(d) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company’s general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein.

(e) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Subject to (f) below, neither Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits.

(f) Upon a Change of Control, Company shall, as soon as possible, but in no event longer than 30 days following the Change of Control, as defined herein, make an irrevocable contribution to the Trust in an amount that is sufficient to pay each Plan participant or beneficiary the benefits to which Plan participants or their beneficiaries would be entitled pursuant to the terms of the Plan as of the date on which the Change of Control occurred.

Section 2. Payments to Plan Participants and Their Beneficiaries.

(a) Company shall deliver to Trustee a schedule (the “Payment Schedule”) that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company.

(b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan.

(c) Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plan. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan, Company shall make the balance of each such payment as it falls due. Trustee shall notify Company where principal and earnings are not sufficient.

Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When Company Is Insolvent.

(a) Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. Company shall be considered “Insolvent” for purposes of this Trust Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.

(b) At all times during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Company under federal and state law as set forth below.

(1) The Board of Directors and the Chief Financial Officer of Company shall have the duty to inform Trustee in writing of Company’s Insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has been Insolvent, Trustee shall determine whether Company is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries.

(2) Unless Trustee has actual knowledge of Company’s Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have no duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning Company’s solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Company’s solvency.

(3) If at any time Trustee has determined that Company is Insolvent, Trustee shall discontinue payments to Plan participants, their beneficiaries and shall hold the assets of the Trust for the benefit of Company’s general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of Company with respect to benefits due under the Plan or otherwise.

(4) Trustee shall resume payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Company is not Insolvent (or is no longer Insolvent).

(c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance.

(d) Any notice, report, demand or waiver required or permitted hereunder shall be in writing and shall be given personally or by prepaid registered or certified mail, return receipt requested, addressed as follows:

If to the Company:

If to the Trustee:

Mailing Address--
LSI Industries Inc.
10000 Alliance Road,
P.O. Box 42728
Cincinnati, Ohio 45242

The Fifth Third Bank
Trust Department
38 Fountain Square Plaza
Cincinnati, Ohio 45263

Section 4. Payments to Company.

Except as provided in Section 3 hereof, Company shall have no right or power to direct Trustee to return to Company or to divert to others any of the Trust assets before all payment of benefits have been made to Plan participants and their beneficiaries pursuant to the terms of the Plan.

Section 5. Investment Authority.

(a) Trustee may invest in securities (including stock or rights to acquire stock) or obligations issued by LSI Industries Inc. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants, except that voting rights with respect to Trust assets will be exercised by Company.

(b) Subject to the direction of the Company, the Trustee is authorized and empowered, in addition to powers granted under any applicable statutes, regulations or rules which, to the extent of their granting of powers applicable to trusts of a similar nature to the Trust, are incorporated herein by reference:

(1) to purchase and subscribe for any securities or other property and to retain such securities or other property in trust;

(2) to sell at public or private sale, for cash, or upon credit, or otherwise dispose of any property, real or personal, and no person dealing with the Trustee shall be bound to see to the application or to inquire into the validity, expediency or propriety of any such sale or other disposition;

(3) to exercise any conversion privilege, subscription right or other option pertaining to or in connection with securities or other property held by it;

(4) to exercise itself, or by general or limited power of attorney, any right, including the right to vote, incident to any securities or other property held by it;

(5) to join in, dissent from or oppose the reorganization, recapitalization, consolidation, sale or merger of corporations or properties of which it may hold stocks, bonds or other securities or in which it may be interested, to pay any expenses, assessments or subscriptions in connection therewith, and to accept and to hold any other securities issued in connection therewith;

(6) to manage, administer, operate, repair, improve, mortgage, or lease for any number of years, or to otherwise deal with any real property or interest therein; to renew or extend or to participate in the renewal or extension of any mortgage, and to agree to the reduction in the interest on any mortgage or other modification or change in the terms of any mortgage or guarantee thereof in any manner and upon such terms as may be deemed advisable; to waive any defaults whether in the performance of any covenant or condition of any mortgage or in the performance of any guarantee or to enforce any such default in such a manner as may be deemed advisable, including the exercise and enforcement of any and all rights of foreclosure;

(7) to register any investment held in its own name or in the name of a nominee or to hold any investment in bearer form;

(8) to employ suitable agents, accountants and counsel and to pay their reasonable expenses and compensation;

(9) to hold any part or all of the assets uninvested;

(10) to invest in savings accounts, certificates of deposit and other deposits which bear a reasonable rate of interest, with any financial institution or quasi-financial institution, either domestic or foreign, including any such financial institution operated or maintained by the Trustee (or an affiliate) in its corporate capacity; (11) to form corporations and partnerships and to create trusts to hold title to any securities or other property, all upon such terms and conditions as it may deem advisable;

(12) to invest in open-end and closed-end investment companies (including those for which the Trustee serves as investment advisor), investment trusts, and in any partnership, limited or unlimited, joint venture or other form of joint enterprise created for any lawful purpose;

(13) to adjust, settle, contest, compromise and arbitrate any claims, debts, or damages due or owing to or from the assets, and to sue, commence or defend any legal proceedings in reference thereto;

(14) to borrow money upon such terms and conditions as may be deemed advisable to carry out the purposes of the Trust and to pledge securities or other property in repayment of any such loan; provided, however, that loans or advances may be made by the Trustee by way of overdrafts or otherwise on a temporary basis on which no interest is payable;

(15) to enter into any type of contract with any insurance company or companies, either for the purpose of investment or otherwise, and, to the extent the Plan so provides, to purchase any life insurance policy or annuity contract;

(16) to buy, sell, and deal in options as writer of call options against securities, stocks, convertible preferred stocks, convertible bonds and warrants, which are owned by the Trust, to repurchase written call options in a closing transaction, to deliver the securities for cash if the option is exercised, to buy put options for securities, stock, convertible preferred stock, convertible bonds and warrants, which are owned by the Trust, to resell put options in a closing transaction, and to deliver the securities for cash if the option is exercised;

(17) to invest in any collective or common trust fund operated and maintained by the Trustee, including, but not limited to, demand notes, short-term notes and cash equivalent funds;

(18) to make, execute and deliver as Trustee any and all deeds, leases, mortgages, advances, contracts, waivers, releases or other instruments in writing necessary or proper in the employment of any of the foregoing powers; and

(19) to exercise, generally, any of the powers which an individual owner might exercise in connection with property either real, personal or mixed and to do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth in this Section 5 or otherwise in the best interests of the Trust.

(c) Company shall have the right at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. This right is exercisable by Company in a nonfiduciary capacity without the approval or consent of any person in a fiduciary capacity.

Section 6. Disposition of Income.

During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested.

Section 7. Accounting by Trustee.

Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within 60 days following the close of each Plan year and within 30 days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and shown all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.

Section 8. Responsibility of Trustee.

(a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Company. In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute.

(b) If Trustee undertakes or defends any litigation or claims arising in connection with this Trust, Company agrees to indemnify Trustee against Trustee’s reasonable costs, expenses and liabilities (including, without limitation, reasonable attorneys’ fees and expenses) relating thereto and to be primarily liable for such payments. If Company does not pay such reasonable costs, expenses and liabilities in a reasonably timely manner, Trustee may obtain reasonable payment from the Trust.

(c) Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder.

(d) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder.

(e) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.

(f) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 9. Compensation and Expenses of Trustee.

Company shall pay all administrative and Trustee’s fees and reasonable expenses. If not so paid, the fees and expenses shall be paid from the Trust.

Section 10. Resignation and Removal of Trustee.

(a) Trustee may resign at any time by written notice to LSI Industries Inc., which shall be effective 60 days after receipt of such notice unless LSI Industries Inc. and Trustee agree otherwise.

(b) Trustee may be removed by LSI Industries Inc. on 60 days notice or upon shorter notice accepted by Trustee.

(d) If Trustee resigns within 2 years of a Change of Control, as defined herein, Trustee shall select a successor Trustee in accordance with the provisions of Section 11(b) hereof prior to the effective date of Trustee’s resignation or removal.

(e) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 60 days after receipt of notice of resignation, removal or transfer, unless LSI Industries Inc. extends the time limit.

(f) If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 10 hereof, by the effective date of resignation or removal under paragraphs (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.

Section 11. Appointment of Successor.

(a) If Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, LSI Industries Inc. may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer.

(b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Section 7 and 8 hereof. The successor Trustee shall not be responsible for and Company shall indemnify and defend successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

Section 12. Amendment and Termination.

(a) This Trust Agreement may be amended by a written instrument executed by Trustee and LSI Industries Inc. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plan or shall make the Trust revocable.

(b) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company.

Section 13. Miscellaneous.

(a) Any provisions of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.

(b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.

(d) For purposes of this Trust, Change of Control shall mean the purchase or other acquisition by any person, entity or group of persons, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934 (“Act”), or any comparable successor provisions, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or more of either the outstanding shares of common stock or the combined voting power of Company’s then outstanding voting securities entitled to vote generally, or the approval by the stockholders of Company of a reorganization, merger or consolidation, in each case, with respect to which persons who were stockholders of Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50 percent of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated Company’s then outstanding securities, or a liquidation or dissolution of Company or of the sale of all or substantially all of Company’s assets.

Section 14. Effective Date.

The effective date of this Trust Agreement shall be September 15, 1996.

COMPANY:

LSI INDUSTRIES INC.

By:  /s/Ronald S. Stowell
Title: Chief Financial Officer & Treasurer

GREENLEE LIGHTING L.P.

By:  /s/Ronald S. Stowell
Title: Treasurer

SGI INTEGRATED GRAPHIC SYSTEMS L.P.

By:  /s/Ronald S. Stowell
Title: Treasurer

TRUSTEE:

THE FIFTH THIRD BANK

By: /s/Jack S. Rybka, JD
Its: Vice President

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FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549