UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-QQuarterly report pursuant to section 13 or 15 (d)
of the Securities Exchange Act of 1934

|For the quarter ended September 30, 2002 |  | Commission file number 0-13875
|---------------------------------------- |  | ------------------------------

LANCER CORPORATION(Exact name of registrant as specified in its charter)

|Texas(State or other jurisdiction of
incorporation or organization)           |  | 74-1591073(IRS employer
identification no.)
|----------------------------------------------------------------------------- |  | -------------------------------------------
|6655 Lancer Blvd., San Antonio, Texas(Address of principal executive offices) |  | 78219(Zip Code)                            

Registrant's
telephone number, including area code: (210) 310-7000

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 14(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES
X              NO

Indicate
the number of shares outstanding of each of the issuers of classes of common stock, as of the latest practicable date.

|Title                                  |  | Shares outstanding as of
October 31, 2002
|-------------------------------------- |  | -----------------------------------------
|Common stock, par value $.01 per share |  | 9,336,181                                

---



Part IFinancial Information

Item 1Financial Statements

LANCER CORPORATION AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS        (Amounts in thousands, except share data)        ASSETS

|                                                                      |                                                | September 30,
2002                   |                      | December 31,
2001 |       
|--------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------ | -------------------- | ----------------- | ------
|
|Current assets:                                                       |                                                |                                      |                      |                   |       
|                                                                      | Cash                                           |                                      | $                    | 1,679             |       
|                                                                      | Receivables:                                   |                                      |                      |                   |       
|                                                                      |                                                | Trade accounts and notes             |                      |                   | 20,954
|                                                                      |                                                | Other                                |                      |                   | 968   
|                                                                      |                                                |                                      |                      |                   |       
|                                                                      |                                                |                                      | 21,922               |                   |       
|                                                                      |                                                | Less allowance for doubtful accounts |                      |                   | (682  
|                                                                      |                                                |                                      |                      |                   |       
|                                                                      |                                                |                                      | Net receivables      |                   |       
|                                                                      |                                                |                                      |                      |                   |       
|                                                                      | Inventories                                    |                                      |                      | 29,796            |       
|                                                                      | Prepaid expenses                               |                                      |                      | 877               |       
|                                                                      | Deferred tax asset                             |                                      |                      | 267               |       
|                                                                      |                                                |                                      |                      |                   |       
|                                                                      |                                                |                                      | Total current assets |                   |       
|                                                                      |                                                |                                      |                      |                   |       
|Property, plant and equipment, at cost:                               |                                                |                                      |                      |                   |       
|                                                                      | Land                                           |                                      |                      | 1,432             |       
|                                                                      | Buildings                                      |                                      |                      | 21,885            |       
|                                                                      | Machinery and equipment                        |                                      |                      | 23,223            |       
|                                                                      | Tools and dies                                 |                                      |                      | 13,492            |       
|                                                                      | Leaseholds, office equipment and vehicles      |                                      |                      | 11,363            |       
|                                                                      | Assets in progress                             |                                      |                      | 1,437             |       
|                                                                      |                                                |                                      |                      |                   |       
|                                                                      |                                                |                                      | 72,832               |                   |       
|                                                                      | Less accumulated depreciation and amortization |                                      |                      | (37,621           | )     
|                                                                      |                                                |                                      |                      |                   |       
|                                                                      |                                                | Net property, plant and equipment    |                      |                   | 35,211
|                                                                      |                                                |                                      |                      |                   |       
|Long-term receivables ($308 and $407 due from officers, respectively) |                                                |                                      | 418                  |                   |       
|Long-term investments                                                 |                                                |                                      | 2,579                |                   |       
|Intangibles and other assets, at cost, less accumulated amortization  |                                                |                                      | 5,140                |                   |       
|                                                                      |                                                |                                      |                      |                   |       
|                                                                      |                                                | $                                    | 97,207               |                   | $     
|                                                                      |                                                |                                      |                      |                   |       

See
accompanying notes to consolidated financial statements.

2

---

LANCER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)

(Amounts in thousands, except share data)

LIABILITIES AND SHAREHOLDERS' EQUITY

|                                               |                                                                                                                                | September 30,
2002         |        | December 31,
2001 |       
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------ | ----------------- | ------
|
|Current liabilities:                           |                                                                                                                                |                            |        |                   |       
|                                               | Accounts payable                                                                                                               |                            | $      | 11,823            |       
|                                               | Current installments of long-term debt                                                                                         |                            |        | 2,724             |       
|                                               | Line of credit with bank                                                                                                       |                            |        | 8,800             |       
|                                               | Deferred licensing and maintenance fees                                                                                        |                            |        | 1,611             |       
|                                               | Accrued expenses and other liabilities                                                                                         |                            |        | 7,309             |       
|                                               | Taxes payable                                                                                                                  |                            |        | 1,069             |       
|                                               |                                                                                                                                |                            |        |                   |       
|                                               |                                                                                                                                | Total current liabilities  |        |                   | 33,336
|                                               |                                                                                                                                |                            |        |                   |       
|Deferred tax liability                         |                                                                                                                                |                            | 1,612  |                   |       
|Long-term debt, excluding current installments |                                                                                                                                |                            | 10,192 |                   |       
|Deferred licensing and maintenance fees        |                                                                                                                                |                            | 2,994  |                   |       
|Other long-term liabilities                    |                                                                                                                                |                            | 326    |                   |       
|                                               |                                                                                                                                |                            |        |                   |       
|                                               |                                                                                                                                | Total liabilities          |        |                   | 48,460
|                                               |                                                                                                                                |                            |        |                   |       
|Commitments and contingencies                  |                                                                                                                                |                            |       |                   |       
|Minority interest                              |                                                                                                                                |                            |       |                   |       
|Shareholders' equity:                          |                                                                                                                                |                            |        |                   |       
|                                               | Preferred stock, without par value 5,000,000 shares authorized; none issued                                                    |                            |        |                  |       
|Common stock, $.01 par value:                  |                                                                                                                                |                            |        |                   |       
|                                               | 50,000,000 shares authorized; 9,389,319 issued and 9,333,115 outstanding in 2002, and 9,127,757 issued and outstanding in 2001 |                            |        | 94                |       
|                                               | Additional paid-in capital                                                                                                     |                            |        | 12,509            |       
|                                               | Accumulated other comprehensive loss                                                                                           |                            |        | (2,725            | )     
|                                               | Retained earnings                                                                                                              |                            |        | 39,187            |       
|Less common stock in treasury, at cost;        |                                                                                                                                |                            |        |                   |       
|56,204 shares in 2002                          |                                                                                                                                |                            | (318   | )                 |       
|                                               |                                                                                                                                |                            |        |                   |       
|                                               |                                                                                                                                | Total shareholders' equity |        |                   | 48,747
|                                               |                                                                                                                                |                            |        |                   |       
|                                               |                                                                                                                                | $                          | 97,207 |                   | $     
|                                               |                                                                                                                                |                            |        |                   |       

See
accompanying notes to consolidated financial statements.

3

---



LANCER CORPORATION AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)  (Amounts in thousands, except share data)

|                                             |                                                                                                  | Three Months Ended                                    |           | Nine Months Ended |      
|-------------------------------------------- | ------------------------------------------------------------------------------------------------ | ----------------------------------------------------- | --------- | ----------------- | -----
|
|Net sales                                    |                                                                                                  | $                                                     | 37,298    |                   | $    
|Cost of sales                                |                                                                                                  |                                                       | 26,267    |                   |      
|                                             |                                                                                                  |                                                       |           |                   |      
|                                             | Gross profit                                                                                     |                                                       |           | 11,031            |      
|Selling, general and administrative expenses |                                                                                                  |                                                       | 7,563     |                   |      
|                                             |                                                                                                  |                                                       |           |                   |      
|                                             | Operating income                                                                                 |                                                       |           | 3,468             |      
|                                             |                                                                                                  |                                                       |           |                   |      
|Other (income) expense:                      |                                                                                                  |                                                       |           |                   |      
|                                             | Interest expense                                                                                 |                                                       |           | 299               |      
|                                             | Loss from joint venture                                                                          |                                                       |           | 232               |      
|                                             | Minority interest                                                                                |                                                       |           |                  |      
|                                             | Other income, net                                                                                |                                                       |           | (1                | )    
|                                             |                                                                                                  |                                                       |           |                   |      
|                                             |                                                                                                  |                                                       | 530       |                   |      
|                                             |                                                                                                  |                                                       |           |                   |      
|                                             |                                                                                                  | Income from continuing operations before income taxes |           |                   | 2,938
|Income tax expense:                          |                                                                                                  |                                                       |           |                   |      
|                                             | Current                                                                                          |                                                       |           | 972               |      
|                                             | Deferred                                                                                         |                                                       |           | 28                |      
|                                             |                                                                                                  |                                                       |           |                   |      
|                                             |                                                                                                  |                                                       | 1,000     |                   |      
|                                             |                                                                                                  |                                                       |           |                   |      
|                                             |                                                                                                  | Income from continuing operations                     |           |                   | 1,938
|Discontinued operations                      |                                                                                                  |                                                       |           |                   |      
|                                             | Loss from operations of discontinued Brazilian subsidiary (including loss on disposal of $1,760) |                                                       |           | 85                |      
|                                             | Income tax benefit                                                                               |                                                       |           | (23               | )    
|                                             |                                                                                                  |                                                       |           |                   |      
|Loss from discontinued operations            |                                                                                                  |                                                       | 62        |                   |      
|                                             |                                                                                                  |                                                       |           |                   |      
|                                             | Net earnings                                                                                     |                                                       | $         | 1,876             |      
|                                             |                                                                                                  |                                                       |           |                   |      
|Common Shares Outstanding:                   |                                                                                                  |                                                       |           |                   |      
|Basic                                        |                                                                                                  |                                                       | 9,333,115 |                   |      
|Diluted                                      |                                                                                                  |                                                       | 9,416,381 |                   |      
|Earnings Per Share:                          |                                                                                                  |                                                       |           |                   |      
|Basic                                        |                                                                                                  |                                                       |           |                   |      
|                                             | Earnings from continuing operations                                                              |                                                       | $         | 0.21              |      
|                                             | Loss from discontinued operations                                                                |                                                       | $         | (0.01             | )    
|                                             |                                                                                                  |                                                       |           |                   |      
|Net earnings                                 |                                                                                                  | $                                                     | 0.20      |                   | $    
|                                             |                                                                                                  |                                                       |           |                   |      
|Diluted                                      |                                                                                                  |                                                       |           |                   |      
|                                             | Earnings from continuing operations                                                              |                                                       | $         | 0.21              |      
|                                             | Loss from discontinued operations                                                                |                                                       | $         | (0.01             | )    
|                                             |                                                                                                  |                                                       |           |                   |      
|Net earnings                                 |                                                                                                  | $                                                     | 0.20      |                   | $    
|                                             |                                                                                                  |                                                       |           |                   |      

See
accompanying notes to consolidated financial statements.

4

---



LANCER CORPORATION AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)        (Amounts in thousands)

|                                        |                                                                                              | Nine Months Ended                                                   |                     
|--------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------
|
|Cash flow from operating activities:    |                                                                                              |                                                                     |                     
|                                        | Net earnings                                                                                 |                                                                     | $                   
|                                        | Adjustments to reconcile net earnings to net cash provided by (used in) operating activities |                                                                     |                     
|                                        |                                                                                              | Depreciation and amortization                                       |                     
|                                        |                                                                                              | Deferred licensing and maintenance fees                             |                     
|                                        |                                                                                              | Deferred income taxes                                               |                     
|                                        |                                                                                              | Gain on sale and disposal of assets                                 |                     
|                                        |                                                                                              | Minority interest                                                   |                     
|                                        |                                                                                              | Loss from joint venture                                             |                     
|                                        |                                                                                              | Impairment of investment                                            |                     
|                                        |                                                                                              | Stock-based compensation                                            |                     
|                                        |                                                                                              | Loss on disposal of discontinued Brazilian subsidiary, net of taxes |                     
|                                        |                                                                                              | Changes in assets and liabilities:                                  |                     
|                                        |                                                                                              |                                                                     | Receivables         
|                                        |                                                                                              |                                                                     | Prepaid expenses    
|                                        |                                                                                              |                                                                     | Inventories         
|                                        |                                                                                              |                                                                     | Other assets        
|                                        |                                                                                              |                                                                     | Accounts payable    
|                                        |                                                                                              |                                                                     | Accrued expenses    
|                                        |                                                                                              |                                                                     | Income taxes payable
|                                        |                                                                                              |                                                                     |                     
|                                        | Net cash provided by operating activities                                                    |                                                                     |                     
|                                        |                                                                                              |                                                                     |                     
|Cash flow from investing activities:    |                                                                                              |                                                                     |                     
|                                        |                                                                                              | Proceeds from sale of assets                                        |                     
|                                        |                                                                                              | Acquisition of property, plant and equipment                        |                     
|                                        |                                                                                              | Acquisition of assets of service company                            |                     
|                                        |                                                                                              | Acquisition of long-term investments, net                           |                     
|                                        |                                                                                              |                                                                     |                     
|                                        | Net cash used in investing activities                                                        |                                                                     |                     
|                                        |                                                                                              |                                                                     |                     
|Cash flow from financing activities:    |                                                                                              |                                                                     |                     
|                                        |                                                                                              | Net payments under line of credit agreements                        |                     
|                                        |                                                                                              | Retirement of long-term debt                                        |                     
|                                        |                                                                                              | Proceeds from exercise of stock options                             |                     
|                                        |                                                                                              |                                                                     |                     
|                                        | Net cash used in financing activities                                                        |                                                                     |                     
|                                        |                                                                                              |                                                                     |                     
|Effect of exchange rate changes on cash |                                                                                              |                                                                     | 49                  
|                                        |                                                                                              |                                                                     |                     
|Net (decrease) increase in cash         |                                                                                              |                                                                     | (170                
|Cash at beginning of period             |                                                                                              |                                                                     | 1,849               
|                                        |                                                                                              |                                                                     |                     
|Cash at end of period                   |                                                                                              | $                                                                   | 1,679               
|                                        |                                                                                              |                                                                     |                     

See
accompanying notes to consolidated financial statements.

5

---



LANCER CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation

All
adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair presentation of financial position and results of operations. All intercompany balances and
transactions have been eliminated in consolidation. It is suggested that the consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto
included in the December 31, 2001 Annual Report on Form 10-K.

Certain
amounts in the consolidated financial statements for prior periods have been reclassified to conform with the current year's presentation.

2.    New Accounting Pronouncements

Effective
January 1, 2002 the Company adopted Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and other Intangible Assets." SFAS No. 142 provides guidance on
how goodwill and other intangible assets that are acquired or have already been recognized in the financial statements should be accounted for. Under SFAS No. 142 goodwill and certain other
intangible assets will no longer be amortized, but will be required to be reviewed periodically for impairment of value. The
Company tested goodwill for impairment using the two-step process described in SFAS No. 142. The first step is to screen for potential impairment, if any, while the second step
measures the amount of impairment, if any. The Company has performed an impairment analysis and concluded that the value of its goodwill is not impaired. With the adoption of SFAS No. 142, the
Company ceased the amortization of goodwill with a book value of $1.6 million as of January 1, 2002. Had amortization of goodwill not been recorded during the quarter ended
September 30, 2001, the net earnings would have been increased by approximately $21,000, net of taxes, basic and diluted earnings per share would have remained unchanged. For the nine months
ended September 30, 2001, the net earnings would have been increased by approximately $75,000, net of taxes; basic earnings per share would have increased to $0.22 and diluted earnings per
share would have increased to $0.21.

SFAS
No. 143, "Accounting for Asset Retirement Obligations," issued in June 2001, establishes financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and (or) normal use of the asset. The Company is required and plans to adopt the provisions of SFAS No. 143 for the quarter ending
March 31, 2003. To accomplish this, the Company must identify all legal obligations for asset retirement obligations, if any, and determine the fair value of these obligations on the date of
adoption. The Company believes the adoption of SFAS No. 143 will not have a material impact on the Company's financial statements.

Effective
January 1, 2002 the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
to Be Disposed of." However, it retains the fundamental provisions of Statement 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used
and (b) measurement of long-lived assets to be disposed of by sale. The adoption of SFAS No. 144 did not have a material impact on the Company's financial statements.

In
April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical

6

---

Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64, "Extinguishment of Debt
Made to Satisfy Sinking-Fund Requirements." This Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." This Statement amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have
economic effects that are similar to lease-back transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for transactions occurring after May 15, 2002. The Company adopted SFAS No. 145 on
May 16, 2002 with no material impact on the Company's financial statements.

SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," issued in July 2002, addresses financial accounting and reporting for costs associated with exit or
disposal activities. It nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." SFAS No. 146 requires that a liability be recognized for the cost associated with an exit or disposal activity only when the liability is incurred, that is, when
it meets the definition of a liability in the FASB conceptual framework. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or
disposal activities. The Statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company believes the adoption of SFAS No. 146 will not
have a material impact on the Company's financial statements.

3.    Discontinued Operations

During
the quarter ended June 30, 2002, the Company decided to close its Brazilian subsidiary. The Company expects the closure will be completed by December 31, 2002, through
liquidation. In connection with the closure of the Brazilian subsidiary, the Company recorded an estimated loss from disposal of discontinued operations of $1.8 million in the quarter ended
June 30, 2002 related to the write-down of the Brazilian subsidiary assets net of expected proceeds, foreign currency translation losses, and an accrual for estimated exit costs.
Accordingly, the Company has reported the results of operations of the Brazilian subsidiary as discontinued operations for the three and nine months ended September 30, 2002 and 2001 in the
Consolidated Statements of Operations. For business segment reporting purposes, the Brazil operation was previously classified as the segment "Brazil."

7

---

Certain
information with respect to the discontinued Brazilian operation for the three and nine months ended September 30, 2002 and 2001 is as follows (amounts in thousands):

|                                                               |  | Three Months Ended |     | Nine Months Ended |  
|-------------------------------------------------------------- |  | ------------------ | --- | ----------------- | -
|
|Net sales                                                      |  | $                  | 91  |                   | $
|                                                               |  |                    |     |                   |  
|Pretax loss from discontinued operations                       |  |                    | 85  |                   |  
|Pretax loss on disposal of discontinued operations, net of tax |  |                    |    |                   |  
|Income tax benefit                                             |  |                    | (23 | )                 |  
|                                                               |  |                    |     |                   |  
|Net loss from discontinued operations                          |  | $                  | 62  |                   | $
|                                                               |  |                    |     |                   |  

Assets and liabilities of the discontinued operation are as follows (amounts in thousands):

|                                   |                                                    | September 30,
2002 |        | December 31,
2001 |  
|---------------------------------- | -------------------------------------------------- | ------------------ | ------ | ----------------- | -
|Current assets                     |                                                    | $                  | 493    |                   | $
|Property, plant and equipment, net |                                                    |                    | 456    |                   |  
|Current liabilities                |                                                    |                    | (1,750 | )                 |  
|                                   |                                                    |                    |        |                   |  
|                                   | Net (liabilities) assets of discontinued operation |                    | $      | (801              | )
|                                   |                                                    |                    |        |                   |  

4.    Inventory Components

Inventories
are stated at the lower of cost or market on a first-in, first-out basis. Inventory components are as follows (amounts in thousands):

September 30,
2002

December 31,
2001Finished goods

$
11,522

$
14,350Work in process


7,854


8,199Raw material and supplies


10,420


9,611$
29,796

$
32,160


5.    Earnings Per Share

Basic
earnings per share is calculated using the weighted average number of common shares outstanding. Diluted earnings per share is calculated assuming the issuance of common shares for all potential
dilutive common shares outstanding during the reporting period. The dilutive effect of stock options approximated 83,266 shares and 200,648 shares for the three months ended September 30, 2002
and 2001, and 89,058 shares and 200,456 shares for the nine months ended September 30, 2002 and 2001, respectively.

8

---

6.    Comprehensive Income

The
following are the components of comprehensive income (amounts in thousands):

|                                                                                 |                                                                            | Three Months Ended                           |       | Nine Months Ended |     
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------------------------- | ----- | ----------------- | ----
|
|Net earnings                                                                     |                                                                            | $                                            | 1,876 |                   | $   
|Foreign currency translation gain (loss):                                        |                                                                            |                                              |       |                   |     
|                                                                                 | Foreign currency gain (loss) arising during the period                     |                                              |       | (277              | )   
|                                                                                 | Reclassification adjustment for losses included in discontinued operations |                                              |       |                  |     
|                                                                                 |                                                                            |                                              |       |                   |     
|                                                                                 |                                                                            | Net foreign currency translation gain (loss) |       |                   | (277
|Unrealized gain (loss) on investment, net of tax                                 |                                                                            |                                              |      |                   |     
|Reclassification adjustment for realized loss included in net income, net of tax |                                                                            |                                              | 3     |                   |     
|Unrealized loss on derivative instruments:                                       |                                                                            |                                              |       |                   |     
|                                                                                 | Initial loss upon adoption of SFAS No. 133                                 |                                              |       |                  |     
|                                                                                 | Reclassification adjustment for loss included in interest expense          |                                              |       | 3                 |     
|                                                                                 |                                                                            |                                              |       |                   |     
|Comprehensive income                                                             |                                                                            | $                                            | 1,605 |                   | $   
|                                                                                 |                                                                            |                                              |       |                   |     

Accumulated
other comprehensive loss on the accompanying consolidated balance sheet includes foreign currency gains (losses), unrealized gain (loss) on investment and unrealized loss on derivative
instruments.

7.    Income Taxes

The
Company elected to treat the Brazilian subsidiary as a partnership for U.S. tax purposes for the year ended December 31, 1999. This election has enabled the Company to recognize for U.S.
income tax purposes a loss of $7.7 million on its investment in the Brazilian operation. The Internal Revenue Service (the "Service") is examining the Company's U.S. income tax return for 1999
including the deduction of the loss on its investment in the Brazilian operation, and has proposed the disallowance of the deduction. The Company believes that the Service's proposal is without merit,
and intends to vigorously defend its position. The Company does not believe that any significant adjustments will be required as a result of this examination.

8.    Segment and Geographic Information

The
Company and its subsidiaries are engaged in the manufacture and distribution of beverage dispensing equipment and related parts and components. The Company manages its operations geographically.
Sales are attributed to a region based on the ordering location of the customer.

9

---

The
Brazil segment is reported as discontinued operations for the three and nine months ended September 30, 2002 and 2001 in the Consolidated Statement of Operations. See footnote 3 for further
discussion of discontinued operations.

|(Amounts in Thousands)                |                         | North
America |   | Latin
America |  | Pacific |       | Europe |   | Asia   |  | Corporate |       | Total
|------------------------------------- | ----------------------- | ------------- | - | ------------- |  | ------- | ----- | ------ | - | ------ |  | --------- | ----- | -----
|Three months ended
September 30, 2002 |                         |               |   |               |  |         |       |        |   |        |  |           |       |      
|                                      | Total revenues          |               | $ | 27,132        |  | $       | 2,888 |        | $ | 4,298  |  | $         | 2,606 |      
|                                      | Operating income (loss) |               |   | 5,806         |  |         | 467   |        |   | 313    |  |           | 322   |      
|Three months ended
September 30, 2001 |                         |               |   |               |  |         |       |        |   |        |  |           |       |      
|                                      | Total revenues          |               | $ | 22,723        |  | $       | 2,062 |        | $ | 3,002  |  | $         | 2,700 |      
|                                      | Operating income (loss) |               |   | 3,426         |  |         | 232   |        |   | 425    |  |           | 289   |      
|Nine months ended
September 30, 2002  |                         |               |   |               |  |         |       |        |   |        |  |           |       |      
|                                      | Total revenues          |               | $ | 76,810        |  | $       | 7,661 |        | $ | 10,878 |  | $         | 8,205 |      
|                                      | Operating income (loss) |               |   | 13,921        |  |         | 835   |        |   | 771    |  |           | 1,808 |      
|Nine months ended
September 30, 2001  |                         |               |   |               |  |         |       |        |   |        |  |           |       |      
|                                      | Total revenues          |               | $ | 65,412        |  | $       | 7,560 |        | $ | 9,243  |  | $         | 8,119 |      
|                                      | Operating income (loss) |               |   | 9,458         |  |         | 788   |        |   | 934    |  |           | 1,675 |      

All
intercompany revenues are eliminated in computing revenues and operating income. The corporate component of operating income represents corporate general and administrative expenses.

9.    Stock Based Compensation

During
the third quarter of 2002, the Company's Board of Directors extended the life of the Company's outstanding stock options by five years. The change resulted in an expense of $0.4 million,
$0.2 million of which was recognized in the third quarter of 2002. The remaining $0.2 million is treated as deferred compensation in additional paid in capital, and will be recognized as
the options vest.

10.    Long Term Investments and Acquisitions

During
the second quarter of 2002, the Company bought the assets of a service company in Australia for $0.3 million. The primary assets acquired were equipment and inventory. In the third
quarter of 2002, the Company invested $0.5 million in a company engaged in the commercialization of milk products.

10

---

LANCER CORPORATION AND SUBSIDIARIES

Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations

This
document contains certain "forward-looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to the Company and its subsidiaries
that are based on the beliefs of the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect," "forecast," "plan," and "intend" and words or phrases of
similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties
and assumptions which exist or must be made as a result of certain factors including, without limitation, competitive factors, general economic conditions, customer relations, relationships with
vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, one-time events and other factors
described herein and in other filings made by the Company with the Securities and Exchange Commission. Based upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, forecast, planned or
intended. The Company does not intend to update these forward-looking statements.

Results of Operations

Comparison of the Three-Month Periods Ended September 30, 2002 and 2001

Continuing Operations

Net
sales for the three months ended September 30, 2002 were $37.3 million, a 20% increase from sales in the third quarter of 2001. Sales rose 19% in the North America region, primarily
because of improved sales of Lancer's core fountain equipment. Revenue rose 43% in the Pacific region on strong sales of beer dispensing systems. Incremental sales from a new office in Melbourne,
Australia and from a newly acquired service operation in Brisbane, Australia helped the Pacific region results. Sales in Latin America rose 40% from 2001 levels. Solid revenues in Mexico helped offset
weakness in much of the rest of Latin America. While market activity has been generally flat in Mexico, the Company's Mexican subsidiary benefited from a single large order that is expected to carry
over into the fourth quarter. Sales in Europe fell slightly from the prior year, while revenues in Asia fell 45% in what continues to be a very weak market.

Effective
May 1, 2002, the Company's joint venture that manufactures frozen beverage equipment sells directly to third party customers, and pays a commission to the Company. Prior to
May 1, 2002, the joint venture sold substantially all of its production to the Company, and the Company distributed the equipment to third party customers. The change will tend to reduce the
Company's reported revenues because the joint venture's operations are not consolidated with those of the Company for reporting purposes.

Gross
margin was 29.6% in the third quarter of 2002, up from 23.2% in the third quarter last year. Favorable shifts in product mix combined with the benefits of higher throughput drove much of the
margin improvement.

11

---

Selling,
general and administrative expenses were $7.6 million in the three months ended September 30, 2002, up from $5.4 million in the same period of 2001. Higher expenses
related to employee compensation, employee benefits, and professional fees caused most of the increase. SFAS No. 142, which the Company adopted on January 1, 2002, eliminates the
amortization of goodwill. Goodwill amortization expense was $31 thousand in the third quarter of 2001.

Interest
expense was $0.3 million in the third quarter of 2002, down from $0.8 million in the same period last year. $0.2 million of the decrease in interest expense was caused by
the required mark-to-market adjustments of the Company's interest rate swap agreements. Lower average interest rates, combined with lower average borrowings, caused the
remainder of the decline. The Company reported a loss of $0.2 million from its frozen beverage equipment joint venture in the third quarters of 2002 and 2001. Soft sales and expenses related to
the development of products scheduled to be commercialized in 2003 contributed to the loss in the 2002 period, and are expected to impact the fourth quarter of 2002 as well. The effective tax rate was
34.0% in the third quarter of 2002, compared to 35.1% in the 2001 period. The lower rate in 2002 reflects the fact that a larger proportion of the Company's income was earned in lower tax
jurisdictions. Income from continuing operations was $1.9 million in the third quarter of 2002, compared to $0.6 million in the same period of 2001.

Discontinued Operations

Lancer
decided to close its Brazilian subsidiary during the second quarter of 2002. The Brazilian subsidiary's results are now classified as discontinued operations.

Revenues
from discontinued operations were $0.1 million in the third quarter of 2002, versus $0.2 million in the third quarter of 2001. In the second quarter of 2002, Lancer incurred
$0.2 million of closing expenses. The loss (net of tax) from discontinued operations was $62 thousand in the third quarter of 2002, and $51 thousand in the same period last year.

Comparison of the Nine-Month Periods Ended September 30, 2002 and 2001

Continuing Operations

Net
sales for the nine months ended September 30, 2002 were $104.9 million, up 14% from $92.0 million in the first three quarters of 2001. Revenues rose 17% in the North America
region, primarily because of improved sales of Lancer's core fountain equipment. Sales rose 18% in the Pacific region on strong sales of beer dispensing systems. A new sales office in Melbourne,
Australia, and a newly acquired service operation in Brisbane, Australia added to the Pacific region's sales. Revenue rose slightly in Latin America and Europe. Sales fell 24% in Asia, which continues
to be a very weak market.

Effective
May 1, 2002, the Company's joint venture that manufactures frozen beverage equipment sells directly to third party customers, and pays a commission to the Company. Prior to
May 1, 2002, the joint venture sold substantially all of its production to the Company, and the Company distributed the equipment to third party customers. The change will tend to reduce the
Company's reported revenues because the joint venture's operations are not consolidated with those of the Company for reporting purposes.

12

---

Gross
margin was 26.7% in the first nine months of 2002, up from 23.4% in the same period of 2001. Favorable shifts in product mix combined with the benefits of higher throughput drove much of the
margin improvement.

Selling,
general and administrative expenses were $20.0 million in the first three quarters of 2002, up from $16.8 million in the first nine months of 2001. Higher expenses related to
employee compensation, employee benefits, and professional fees caused most of the increase. SFAS No. 142, which the Company adopted on January 1, 2002, eliminates the amortization of
goodwill. Goodwill amortization expense was $113 thousand in the first three quarters of 2001.

Interest
expense was $1.1 million in the first nine months of 2002, down from $2.7 million in the same period of 2001. $0.7 million of the decrease in interest expense was caused
by the required mark-to-market adjustments of the Company's interest rate swap agreements. Lower average interest rates, combined with lower average borrowings, caused the
remainder of the decline. The Company reported a loss of $0.4 million from its frozen beverage equipment joint venture in the nine months ended September 30, 2002, compared to a loss of
$0.2 million in the same period last year. Soft sales and expenses related to the development of products scheduled to be commercialized in 2003 contributed to the loss in the 2002 period, and
are expected to impact the fourth quarter of 2002 as well. Other income of $1.2 million in the first three quarters of 2001 includes a $1.0 million gain relating to the cancellation of a
project. The effective tax rate was 34.9% in the first nine months of 2002,
compared to 38.6% in the same period last year. The lower rate in 2002 reflects the fact that a larger proportion of the Company's income was earned in lower tax jurisdictions. Income from continuing
operations was $4.4 million in the first nine months of 2002, and $2.0 million in the same period of 2001.

Discontinued Operations

Lancer
decided to close its Brazilian subsidiary during the second quarter of 2002. The Brazilian subsidiary's results are now classified as discontinued operations.

Revenues
from discontinued operations were $0.3 million in the first nine months of 2002, down from $0.8 million in the same period of 2001. During the nine months ended
September 30, 2002, the Company recognized $1.8 million for the estimated loss from disposal of discontinued operations, and incurred a $0.5 million operating loss from
discontinued operations. The Company's loss (net of tax) from discontinued operations was $1.5 million in the first nine months of 2002, and $0.1 million in the same period of 2001.

Liquidity and Capital Resources

The
Company's principal sources of liquidity are cash flows from operations and amounts available under the Company's existing lines of credit. The Company has met, and currently expects that it will
continue to meet, substantially all of its working capital and capital expenditure requirements, as well as its debt service requirements, with funds provided by operations and borrowings under its
credit facilities. The Company is in compliance with, or has obtained waivers of, the financial covenants contained in the credit agreement that governs the Company's primary credit facilities.

13

---

Cash
provided by operating activities was $11.5 million in the first nine months of 2002, up from $5.8 million in the same period of 2001. The Company made capital expenditures of
$2.6 million in the first nine months of 2002, primarily for production tooling and equipment. During the 2002 period, the Company bought the assets of a service company in Australia for
$0.3 million. The primary assets acquired were equipment and inventory. Also in 2002, the Company invested $0.5 million in a company
engaged in the commercialization of milk products. The capital spending, the assets acquired in Australia, and the milk investment were financed with cash from operations. Additionally, pursuant to a
relocation agreement, the Company bought the home of an officer for $0.4 million. The Company sold the home in the third quarter of 2002.

The
Company's primary lenders have agreed to extend the expiration of the Company's credit facilities to July 15, 2005.

Accounting Matters

The
Company maintains a DISC in order to defer income taxes on its foreign sales. At the same time, the Internal Revenue Code (the "Code") was amended to permit the creation of a Foreign Sales
Corporation ("FSC"). Under the current Code, the FSC is no longer a separate foreign sales entity. A new category of incomeextraterritorial income has been created. Under the Code, as
amended, a portion of the extraterritorial income is subject to federal income taxes, while a portion is permanently exempt from federal income taxes. Current tax regulations prevent the Company from
maintaining the DISC and have qualifying foreign trade income concurrently. At the time of liquidation of the DISC, the Company would be required to provide for federal income taxes on the
$2.4 million of undistributed earnings of the DISC, for which federal income taxes have not previously been provided. The Company would be able to pay such federal income taxes over a
ten-year period.

The
Company elected to treat the Brazilian subsidiary as a partnership for U.S. tax purposes for the year ended December 31, 1999. This election has enabled the Company to recognize for U.S.
income tax purposes a loss of $7.7 million on its investment in the Brazilian operation. The Internal Revenue Service (the "Service") is examining the Company's U.S. income tax return for 1999
including the deduction of the loss on its investment in the Brazilian operation, and has proposed the disallowance of the deduction. The Company believes that the Service's proposal is without merit,
and intends to vigorously defend its position. The Company does not believe that any significant adjustments will be required as a result of this examination.

Item 3Quantitative and Qualitative Disclosures About Market Risk

There
have been no significant changes in the Company's market risk factors since December 31, 2001.

Item 4Controls and Procedures

14

---



Item 6Exhibits and Reports on Form 8-K

| | (a) |  | Exhibits:                                                                                                                                                                                                                                              |  |                                                                                                                                                                        
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  | 99.1                                                                                                                                                                                                                                                   |  | Certification of Chief Executive Officer of Lancer Corporation Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| |     |  | 99.2                                                                                                                                                                                                                                                   |  | Certification of Chief Financial Officer of Lancer Corporation Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | (b) |  | Reports on Form 8-K:                                                                                                                                                                                                                                  
| |     |  | The Company filed a report on Form 8-K dated November 6, 2002. The report incorporated the Company's press release dated November 5, 2002 announcing the termination of an agreement to purchase marketing rights associated with the VRTX
technology.

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.

LANCER CORPORATION
(Registrant)

|November 12, 2002 |  | By: | /s/GEORGE F. SCHROEDERGeorge F. Schroeder Chief Executive Officer
|----------------- |  | --- | -----------------------------------------------------------------
|November 12, 2002 |  | By: | /s/RICHARD N. WINTERRichard N. Winter Chief Financial Officer    

15

---



CERTIFICATIONS
I, George F. Schroeder, certify that:

Date:
November 12, 2002

/s/
GEORGE F. SCHROEDER
George F. Schroeder
Chief Executive Officer

16

---

CERTIFICATIONS
I, Richard N. Winter, certify that:

Date:
November 12, 2002

/s/
RICHARD N. WINTER
Richard N. Winter
Chief Financial Officer

17

---

INDEX TO EXHIBITS

|EXHIBIT
NUMBER |  | DESCRIPTION                                                                                                                                                            
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.1           |  | Certification of Chief Executive Officer of Lancer Corporation Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|99.2           |  | Certification of Chief Financial Officer of Lancer Corporation Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

18

---

QuickLinks