-----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, SVQwqp0DeGkbvmusyEd0ES+qOZKWiUOJ6Kb0q+nicphcinzlWRVr4R93p6nA953w DXn3vuP2zJSYqJXdj/MW3w== 0001019687-03-000054.txt : 20030114 0001019687-03-000054.hdr.sgml : 20030114 20030114160612 ACCESSION NUMBER: 0001019687-03-000054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021130 FILED AS OF DATE: 20030114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEADE INSTRUMENTS CORP CENTRAL INDEX KEY: 0001032067 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 952988062 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22183 FILM NUMBER: 03513658 BUSINESS ADDRESS: STREET 1: 6001 OAK CANYON CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9494511450 MAIL ADDRESS: STREET 1: 6001 OAK CANYON CITY: IRVING STATE: CA ZIP: 92618 10-Q 1 meade_10q-113002.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22183 ________________ MEADE INSTRUMENTS CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-2988062 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 6001 OAK CANYON, IRVINE, CA 92618 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (949) 451-1450 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ________________ Indicate by check mark 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 (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b).2 of the Exchange Act). Yes [ ] No [X] Number of shares of common stock outstanding as of November 30, 2002 is 19,783,000. ================================================================================ MEADE INSTRUMENTS CORP. TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION
Page No. -------- Consolidated Balance Sheets (Unaudited)-- November 30, 2002 and February 28, 2002........................ 1 Consolidated Statements of Operations (Unaudited) -- Three and Nine months ended November 30, 2002 and 2001.......................................................................... 2 Consolidated Statements of Cash Flows (Unaudited) -- Three and Nine months ended November 30, 2002 and 2001......................................................................... 3 Notes to Consolidated Financial Statements (Unaudited)................................................... 4 Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 8 PART II -- OTHER INFORMATION Other Information........................................................................................ 13 Signatures............................................................................................... 15 Certifications........................................................................................... 16-17 i
ITEM 1. FINANCIAL STATEMENTS. MEADE INSTRUMENTS CORP. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
NOVEMBER 30, FEBRUARY 28, 2002 2002 -------------- -------------- Current assets: Cash .................................................................. $ 1,316,000 $ 1,249,000 Accounts receivable, less allowance for doubtful accounts of $1,283,000 at November 30, 2002 and $2,232,000 at February 28, 2002 ........... 44,307,000 12,184,000 Inventories ........................................................... 36,866,000 29,803,000 Deferred income taxes ................................................. 7,011,000 7,011,000 Prepaid income taxes .................................................. -- 3,118,000 Prepaid expenses and other current assets ............................. 388,000 661,000 -------------- -------------- Total current assets ........................................ 89,888,000 54,026,000 Other assets .............................................................. 7,921,000 4,189,000 Property and equipment, net of accumulated depreciation of $8,574,000 at November 30, 2002 and $7,256,000 at February 28, 2002 .............. 6,247,000 6,608,000 -------------- -------------- $ 104,056,000 $ 64,823,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank line of credit ................................................... $ 16,376,000 $ 3,234,000 Accounts payable ...................................................... 9,690,000 4,671,000 Accrued liabilities ................................................... 11,906,000 3,601,000 Income taxes payable .................................................. 2,262,000 -- Current portion, long-term debt and capital lease obligations ......... 518,000 718,000 -------------- -------------- Total current liabilities ................................... 40,752,000 12,224,000 Long-term bank debt ....................................................... 2,324,000 2,463,000 Long-term capital lease obligations, net of current portion ............... -- 28,000 -------------- -------------- Commitments and contingencies Stockholders' equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 19,783,000 and 16,481,000 shares issued and outstanding at November 30, 2002 and at February 28, 2002, respectively ........ 198,000 165,000 Additional paid-in capital ............................................ 39,901,000 32,574,000 Retained earnings ..................................................... 24,824,000 22,301,000 Accumulated other comprehensive income ................................ (253,000) (559,000) -------------- -------------- 64,670,000 54,481,000 Unearned ESOP shares .................................................. (3,690,000) (4,373,000) -------------- -------------- Total stockholders' equity .................................. 60,980,000 50,108,000 -------------- -------------- $ 104,056,000 $ 64,823,000 ============== ============== See accompanying notes to consolidated financial statements. 1
MEADE INSTRUMENTS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED NOVEMBER 30, NOVEMBER 30, -------------------------- -------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net sales ........................... $44,519,000 $35,401,000 $88,607,000 $78,707,000 Cost of sales ....................... 29,558,000 26,709,000 60,077,000 57,461,000 ------------ ------------ ------------ ------------ Gross profit ...................... 14,961,000 8,692,000 28,530,000 21,246,000 Selling expenses .................... 5,107,000 4,404,000 11,188,000 9,753,000 General and administrative expenses .......................... 3,645,000 2,572,000 9,368,000 7,149,000 ESOP expense ........................ 303,000 345,000 731,000 997,000 Research and development expenses ... 730,000 398,000 2,210,000 1,584,000 ------------ ------------ ------------ ------------ Operating income .................. 5,176,000 973,000 5,033,000 1,763,000 Interest expense .................... 293,000 328,000 728,000 1,052,000 ------------ ------------ ------------ ------------ Income before income taxes ........ 4,883,000 645,000 4,305,000 711,000 Provision for income taxes .......... 1,987,000 280,000 1,782,000 384,000 ------------ ------------ ------------ ------------ Net income .......................... $ 2,896,000 $ 365,000 $ 2,523,000 $ 327,000 ============ ============ ============ ============ Basic earnings per share ............ $ 0.17 $ 0.02 $ 0.16 $ 0.02 ============ ============ ============ ============ Diluted earnings per share .......... $ 0.17 $ 0.02 $ 0.16 $ 0.02 ============ ============ ============ ============ Weighted average number of shares outstanding-- basic ............... 16,611,000 15,055,000 15,608,000 15,060,000 ============ ============ ============ ============ Weighted average number of shares outstanding-- diluted ............. 16,755,000 15,244,000 15,852,000 15,135,000 ============ ============ ============ ============ See accompanying notes to consolidated financial statements. 2
MEADE INSTRUMENTS CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED NOVEMBER 30, ----------------------------- 2002 2001 ------------- ------------- Cash flows from operating activities: Net income ...................................................... $ 2,523,000 $ 327,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................................... 1,409,000 1,606,000 ESOP contribution ............................................... 731,000 997,000 Allowance for doubtful accounts ................................. 493,000 986,000 Changes in assets and liabilities, net of effects of acquisition: Increase in accounts receivable .............................. (27,541,000) (22,135,000) Decrease in inventories ...................................... 7,146,000 13,486,000 Decrease in prepaid expenses and other assets ................ 4,411,000 1,716,000 Increase in accounts payable ................................. 3,957,000 4,642,000 Increase in accrued liabilities .............................. 2,104,000 1,062,000 Increase in income taxes payable ............................. 1,523,000 -- ------------- ------------- Net cash provided by (used in) operating activities ... (3,244,000) 2,687,000 ------------- ------------- Cash flows from investing activities: Capital expenditures ............................................ (679,000) (860,000) Acquisition of Simmons, net of cash acquired .................... (16,000,000) -- ------------- ------------- Net cash used in investing activities ................. (16,679,000) (860,000) ------------- ------------- Cash flows from financing activities: Net borrowings (payments) under bank lines of credit ............ 12,941,000 (302,000) Borrowings on long-term bank notes .............................. -- 1,151,000 Payments on long-term bank notes ................................ (407,000) (2,480,000) Net proceeds from the sale of common stock ...................... 7,344,000 -- Payments under capital lease obligations ........................ (118,000) (187,000) ------------- ------------- Net cash provided by (used in) financing activities ... 19,760,000 (1,818,000) ------------- ------------- Effect of exchange rate changes on cash ............................. 230,000 (113,000) ------------- ------------- Net increase (decrease) in cash ..................................... 67,000 (104,000) Cash at beginning of period ......................................... 1,249,000 1,186,000 ------------- ------------- Cash at end of period ............................................... $ 1,316,000 $ 1,082,000 ============= ============= See accompanying notes to consolidated financial statements. 3
MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. THE CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED BY THE COMPANY AND ARE UNAUDITED. In management's opinion, the information and amounts furnished in this report reflect all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of the financial position and results of operations for the interim periods presented. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2002. The Company has experienced, and expects to continue to experience, substantial fluctuations in its sales, gross margins and profitability from quarter to quarter. Factors that influence these fluctuations include the volume and timing of orders received, changes in the mix of products sold, market acceptance of the Company's products, competitive pricing pressures, the Company's ability to meet demand and delivery schedules and the timing and extent of research and development expenses, marketing expenses and product development expenses. In addition, a substantial portion of the Company's net sales and operating income typically occur in the third quarter of the Company's fiscal year primarily due to disproportionately higher customer demand for the Company's less-expensive products during the holiday season. The results of operations for the quarters ended November 30, 2002 and 2001, respectively, are not necessarily indicative of the operating results for the entire fiscal year. B. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS The composition of inventories is as follows: NOVEMBER 30, FEBRUARY 28, 2002 2002 ------------- ------------- Raw materials................................... $ 8,821,000 $ 8,529,000 Work-in-process................................. 3,620,000 4,997,000 Finished goods.................................. 24,425,000 16,277,000 ------------- ------------- $ 36,866,000 $ 29,803,000 ============= ============= C. ACQUISITION OF SIMMONS OUTDOOR CORP. On October 25, 2002 the Company acquired 100% of the outstanding common stock of Simmons Outdoor Corp. ("Simmons") for $20,829,000 cash ($16,000,000 was paid at close; the balance, included in accrued liabilities on the accompanying balance sheet, was paid in December, 2002). Simmons is a designer and distributor of riflescopes, binoculars and other consumer sports optics doing business under the Simmons, Weaver and Redfield brand names. The acquisition of Simmons presents the Company with opportunities to enter into the consumer sports optics marketplace with brand names that management believes are highly recognized and well regarded. To fund a portion of the purchase price, the Company sold 3,291,801 shares of its common stock in a private placement for net cash proceeds of $7,344,000. The balance of the purchase price was funded through borrowings on the Company's bank line of credit. The acquisition of Simmons was accounted for as a purchase as prescribed by Statement of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS. The purchase price allocation is based upon preliminary evaluations and other studies of the fair value of the assets acquired. The excess of the purchase price over the estimated fair value of the net tangible assets acquired is included in other assets at November 30, 2002, and has been allocated to the value of the brand names and customer relationships acquired; both of which have been assigned indefinite lives. A summary of the purchase price allocation of the acquisition is as follows: Current assets (excluding cash of $3,000)...................... $ 18,476,000 Property, plant and equipment.................................. 239,000 Intangible assets.............................................. 4,182,000 Current liabilities............................................ (2,071,000) -------------- Total purchase price................................. $ 20,826,000 ============== As of December 6, 2001, Simmons was a wholly owned subsidiary of Blount International, Inc. ("Blount"). On December 7, 2001, Blount sold Simmons to Alliant Techsystems, Inc. ("ATK"). The accompanying unaudited pro forma consolidated condensed financial information reflects Blount's (predecessor) basis for periods prior to December 7, 2001 and ATK's (successor) basis for periods subsequent to December 6, 2001. 4 The following table presents unaudited pro forma condensed consolidated financial information for the nine months ended November 30, 2002 and 2001, respectively, as though the acquisition occurred on March 1, 2001. The pro forma information for the nine months ended November 30, 2002 has been prepared by combining the statements of Meade for the nine months ended November 30, 2002 and the statement of operations of Simmons (successor) for the nine months ended September, 2002. The pro forma information for the nine months ended November 30, 2001 has been prepared by combining the statements of Meade for the nine months ended November 30, 2001 and the statement of operations of Simmons (predecessor) for the nine months ended September, 2001. NINE MONTHS ENDED NOVEMBER 30, ------------------------------ 2002 2001 -------------- -------------- Net sales..................................... $ 107,310,000 $ 99,138,000 Operating income.............................. $ 5,680,000 $ 1,730,000 Net income (loss)............................. $ 2,063,000 $ (992,000) Earnings per share Basic....................................... $ 0.11 $ (0.05) Diluted..................................... $ 0.11 $ (0.05) The unaudited pro forma financial information is presented for information purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions taken place on March 1, 2001. In addition, the pro forma results are not intended to be a projection of the future results and do not reflect any synergies that might be achieved from the combined operations. D. CREDIT AGREEMENT AMENDMENT On October 25, 2002, the Company amended its credit agreement with its U.S. bank. The amendment principally involved increasing the revolving credit facility and incorporating the Simmons acquisition into the credit agreement. The amended agreement provides the Company with a $35.6 million credit facility consisting of a $34 million revolving credit line and a $1.6 million term loan. Availability under the revolving credit line is subject to a borrowing base with standard advance rates against eligible accounts receivable and inventories. The term loan is collateralized by domestic machinery and equipment. The amended facility has a three-year term, is collateralized by substantially all of the domestic assets of the Company and its domestic subsidiaries and contains certain financial covenants. Outstanding amounts under the revolving facility bear interest at the bank's base rate or LIBOR rate plus applicable margins. Amounts outstanding under the term loan bear interest at a fixed rate of approximately 7.9% pursuant to an interest rate swap agreement in place between the Company and the bank. E. COMMITMENTS AND CONTINGENCIES In October, 2001 and June, 2002, the Company filed suit against Tasco Sales, Inc. ("Tasco") and Celestron International, Inc. ("Celestron"), and other related parties, charging the defendants with patent infringement and unfair competition. The complaints allege that a number of Tasco's and Celestron's consumer telescopes willfully infringe two of the Company's U.S. patents. In addition to seeking compensation for damages incurred, the suits seek to enjoin Tasco and Celestron from continuing to manufacture or sell products that infringe the Company's patents. Tasco and Celestron filed an answer to the October, 2001 suit and a counterclaim which deny the Company's allegations. The counterclaim also alleges, among other things, that the Company is infringing a Celestron design patent. Also in June, 2002, the Company filed suit against Tasco, Celestron and other related parties, charging the defendants, among other things, with fraudulently obtaining a U.S. patent. In May, 2002, Tasco and Celestron transferred certain of their assets to an assignee in an assignment for the benefit of creditors proceeding. The successor company to Celestron, Celestron Acquisition LLC, and the assignee have become defendants in the above described lawsuits. Due to the uncertainties of litigation, the Company is unable to provide an evaluation of the likelihood of either a favorable or unfavorable outcome in these matters. The Company is involved from time to time in litigation incidental to its business. Management believes that the outcome of such litigation will not have a material adverse effect on the financial position, results of operations or cash flows of the Company. 5 F. NET INCOME PER SHARE Basic earnings per share amounts exclude the dilutive effect of potential shares of common stock. Basic earnings per share are based upon the weighted-average number of shares of common stock outstanding. Diluted earnings per share are based upon the weighted-average number of shares of common stock and dilutive potential shares of common stock outstanding for each period presented. Potential shares of common stock include outstanding stock options which are included under the treasury stock method. The sole difference between the basic weighted average number of shares outstanding and the diluted weighted average number of shares outstanding for the periods ended November 30, 2002 and 2001, is additional potential shares of common stock for outstanding stock options. G. COMPREHENSIVE INCOME Comprehensive income is defined as a change in the equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. In addition to net income, comprehensive income in the accompanying financial statements includes foreign currency translation adjustments and adjustments to the fair value of highly effective derivative instruments. For the periods ended November 30, 2002, the Company had other comprehensive income as follows:
THREE MONTHS NINE MONTHS ENDED ENDED NOVEMBER 30, NOVEMBER 30, 2002 2002 -------------- -------------- Net income..................................................... $ 2,896,000 $ 2,523,000 Currency translation adjustment................................ 28,000 380,000 Change in fair value of foreign currency forward contracts..... 140,000 (53,000) Change in fair value of interest rate swap..................... -- (21,000) -------------- -------------- Total other comprehensive income............................... $ 3,064,000 $ 2,829,000 ============== ==============
H. GOODWILL In June, 2001, the Financial Accounting Standards Board issued Financial Accounting Standards No. 141, Business Combinations, ("SFAS 141") and Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 established new accounting and reporting standards for business combinations that require the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 established new standards for goodwill acquired in a business combination, eliminated amortization of goodwill and set forth methods for periodically evaluating goodwill for impairment. The Company adopted the provisions of these statements in the quarter ended May 31, 2002. The implementation of SFAS 142 resulted in a reduction of goodwill amortization of approximately $60,000 per quarter. The Company performed its initial impairment evaluation of goodwill as of the end of August 31, 2002 and determined that no impairment had occurred. Implementation of SFAS 141 was not material to the Company's financial position or results of operations. The following pro forma summary presents the Company's net income (loss) and per share information as if the Company had been accounting for its goodwill under SFAS No. 142 for the three and nine months ended November 30, 2002 and 2001 and for the three most recently completed fiscal years:
THREE MONTHS ENDED NINE MONTHS ENDED NOVEMBER 30, NOVEMBER 30, YEAR ENDED FEBRUARY 28(29) -------------------------- -------------------------- ----------------------------------------- 2002 2001 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Reported net income (loss) ... $ 2,896,000 $ 365,000 $ 2,523,000 $ 327,000 $(1,442,000) $ 1,286,000 $11,955,000 Add back goodwill amortization, net of tax ..... -- 36,000 -- 109,000 144,000 144,000 72,000 ------------ ------------ ------------ ------------ ------------ ------------ ------------ Adjusted net income (loss).... $ 2,896,000 $ 401,000 $ 2,523,000 $ 436,000 $(1,298,000) $ 1,430,000 $12,027,000 ============ ============ ============ ============ ============ ============ ============ Reported basic earnings (loss) per share..... $ 0.17 $ 0.02 $ 0.16 $ 0.02 $ (0.10) $0.09 $ 0.85 ============ ============ ============ ============ ============ ============ ============ Reported diluted earnings (loss) per share..... $ 0.17 $ 0.02 $ 0.16 $ 0.02 $ (0.10) $0.08 $ 0.80 ============ ============ ============ ============ ============ ============ ============ Adjusted basic earnings (loss) per share..... $ 0.17 $ 0.03 $ 0.16 $ 0.03 $ (0.09) $0.10 $ 0.85 ============ ============ ============ ============ ============ ============ ============ Adjusted diluted earnings (loss) per share.... $ 0.17 $ 0.03 $ 0.16 $ 0.03 $ (0.09) $0.09 $ 0.80 ============ ============ ============ ============ ============ ============ ============
6 I. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company utilizes a variety of derivative financial instruments to manage its currency exchange rate and interest rate risks as summarized below. The Company does not enter into these arrangements for trading or speculation purposes.
NOVEMBER 30, 2002 FEBRUARY 28, 2002 ----------------------------- ----------------------------- NOTIONAL NOTIONAL AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------- ------------- ------------- ------------- Interest rate swap agreement $ 1,610,000 $ (47,000) $ 1,925,000 $ (26,000) Fair value forward currency contracts $ -- $ -- -- -- Cash flow forward currency contracts $ 1,087,000 $ (53,000) -- --
At November 30, 2002, the fair values of forward currency contracts and interest rate swap agreements are recorded in accrued liabilities on the accompanying balance sheets. Changes in the fair value of the interest rate swap agreement and the cash flow forward currency contracts have been recorded as a component of other comprehensive income as these items have been designated and qualify as cash flow hedges. The change in the fair value of the fair value forward currency contracts has been recorded in earnings. The settlement dates on the forward currency contracts vary based on the underlying instruments through February, 2003. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The nature of the Company's business is seasonal. Historically, sales in the third quarter have been higher than sales achieved in each of the other three fiscal quarters of the year. Thus, expenses and, to a greater extent, operating income vary by quarter. Caution, therefore, is advised when appraising results for a period shorter than a full year, or when comparing any period other than to the same period of the previous year. THREE MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 2001 Net sales for the third quarter of fiscal 2003 were $44.5 million compared to $35.4 million for the third quarter of fiscal 2002, an increase of 25.8%. Approximately $4 million of the increase over the prior year was attributable to sales of the Company's higher-end telescope products coupled with an increase of approximately $5 million in sales of binoculars, including the Company's digital camera/binocular. Also included in net sales for the third quarter of fiscal 2003 was approximately $3.4 million in net sales from the Simmons subsidiary. Partially offsetting these increases was a decrease in sales of smaller-aperture, less-expensive telescopes. Gross profit increased from $8.7 million (24.6% of net sales) for the third quarter of fiscal 2002 to $15.0 million (33.6 % of net sales) for the third quarter of fiscal 2003, an increase of 72.1%. The increase in gross profit as a percent of net sales was due principally to the change in product sales mix. Sales from the Simmons subsidiary contributed less than $1.0 million to gross profit. The gross margin on the Simmons sales was well below the overall Company gross margin for the quarter due, in part, to sales of close-out inventory on hand at the date of the acquisition. Selling expenses increased from $4.4 million (12.4% of net sales) for the third quarter of fiscal 2002 to $5.1 million (11.5% of net sales) for the third quarter of fiscal 2003, an increase of 16.0% which is generally in line with the increase in net sales for the quarter. General and administrative expenses increased from $2.6 million (7.3% of net sales) for the third quarter of fiscal 2002, to $3.6 million (8.2% of net sales) for the third quarter of fiscal 2003, an increase of 41.7%. This increase was due principally to increased legal, professional and consulting fees, including approximately $600,000 incurred in connection with the ongoing Tasco and Celestron patent infringement litigation. ESOP contribution expense decreased from $345,000 (1.0% of net sales) for the third quarter of fiscal 2002 to $303,000 (1.0% of net sales) for the third quarter of fiscal 2003, a decrease of 12.2%. The decrease in this non-cash charge was due principally to decreases in the average market price of the Company's stock allocated to the Employee Stock Ownership Plan during the quarter. The non-cash ESOP contribution expense may fluctuate as the number of shares allocated and the market value of the Company's common stock change. Research and development expenses increased from $398,000 (1.1% of net sales) for the third quarter of fiscal 2002 to $730,000 (1.6% of net sales) for the third quarter of fiscal 2003, an increase of 83.4%. For the third quarter of fiscal 2002, approximately $500,000 of research and development expenses incurred were reimbursed by a customer of the Company on a non-contingent basis. A similar expense reimbursement did not occur for the current year quarter. Interest expense decreased from $328,000 for the third quarter of fiscal 2002 to $293,000 for the third quarter of fiscal 2003, a decrease of 10.7%. This decrease was principally due to lower average borrowing rates as compared to the prior years' quarter. NINE MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED NOVEMBER 30, 2001 Net sales for the nine months ended November 30, 2002 were $88.6 million compared to $78.7 million for the comparable prior year period, an increase of 12.6%. Sales of the Company's binoculars, including the digital camera/binocular, and sales of the Company's telescope products for the more serious amateur astronomer accounted for increases of approximately $12 million and approximately $5 million, respectively, during the nine months ended November 30, 2002. Also included in net sales for the nine months ended November 30, 2002 was approximately $3.4 million in net sales from the Simmons subsidiary. Partially offsetting those increases was a decrease in sales of smaller-aperture, less-expensive telescopes. 8 Gross profit increased from $21.2 million (27.0% of net sales) for the nine months ended November 30, 2001 to $28.5 million (32.2% of net sales) for the comparable current year period, an increase of 34.3%. The increase in gross profit as a percent of net sales was due to the change in product sales mix. Sales from the Simmons subsidiary contributed less than $1.0 million to gross profit. The gross margin on the Simmons sales was well below the overall Company gross margin for the quarter due, in part, to sales of close-out inventory on hand at the date of the acquisition. Selling expenses increased from $9.8 million (12.4% of net sales) for the nine months ended November 30, 2001 to $11.2 million (12.6% of net sales) for the comparable current year period, an increase of 14.7%. This increase was due primarily to television, radio and print advertising costs associated with the introduction of the Company's digital camera/binocular. The promotional campaign associated with the launch of the new digital camera/binocular was completed principally in first-quarter of fiscal 2003. General and administrative expenses increased from $7.1 million (9.1% of net sales) for the nine months ended November 30, 2001 to $9.4 million (10.6% of net sales) for the comparable current year period, an increase of 31.0%. This increase was principally due to increased legal, professional and consulting fees including approximately $1.1 million incurred in connection with the ongoing Tasco and Celestron patent infringement litigation and $700,000 incurred in connection with the Company's effort to acquire certain of the assets of Tasco and Celestron. The Company did not consummate such proposed acquisition. ESOP contribution expense decreased from $997,000 (1.3% of net sales) for the nine months ended November 30, 2001 to $731,000 (1.0% of net sales) for the comparable current year period, a decrease of 26.7%. The decrease in this non-cash charge was due to decreases in the average market price of the Company's stock and in the number of shares allocated to the Employee Stock Ownership Plan during the period. The non-cash ESOP contribution expense may fluctuate as the number of shares allocated and the market value of the Company's common stock changes. Research and development expenses increased from $1.6 million (2.0% of net sales) for the nine months ended November 30, 2001 to $2.2 million (2.5% of net sales) for the comparable current year period, an increase of 39.5%. For the third quarter of fiscal 2002, approximately $500,000 of research and development expenses incurred were reimbursed by a customer of the Company on a non-contingent basis. A similar expense reimbursement did not occur for the current year quarter, thus accounting for most of the increase year-over-year. Interest expense decreased from $1.1 million for the nine months ended November 30, 2001 to $728,000 for the comparable current year period, a decrease of 30.8%. This decrease was due to lower average bank borrowings and lower cost of funds as compared to the prior year period. The income tax provision was 54.0% of income before income taxes for the nine months ended November 30, 2001 compared to 41.4% for the nine months ended November 30, 2002. The fluctuations in the income tax provision are due to the tax effect of the non-deductible portion of the ESOP charge. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended November 30, 2002, the Company principally funded its operations with short-term bank borrowings and proceeds from the sale of its common stock. The Company used approximately $3.2 million in cash flows from operating activities. This was a result of increases in accounts receivable offset by decreases in inventories and prepaid expenses and increases in accounts payable, accrued liabilities and income taxes payable. Accounts receivable increased due to the timing and amount of shipments as compared to the period ended February 28, 2002. Inventories decreased meeting seasonal demand for the Company's products. Prepaid and other current assets decreased principally due to the receipt of income tax refunds. The increase in accounts payable was principally due to cash management. The increase in accrued liabilities was principally due to the accrual of consulting, legal and professional costs during the period. The Company paid $16.0 million during the third quarter and $4.8 million in December, 2002 to acquire all of the outstanding common stock of Simmons Outdoor Corp. (see footnote C. to the accompanying financial statements). The purchase price was funded by proceeds from the sale of the company's common stock as well as by funds borrowed on the Company's bank line of credit. Net working capital totaled approximately $49.1 million at November 30, 2002, compared to $41.8 million at February 28, 2002. Working capital requirements fluctuate during the year due to the seasonal nature of the business. These requirements are typically financed through a combination of internally generated cash flow from operating activities and short-term bank borrowings. 9 Capital expenditures, including financed purchases of equipment, aggregated $679,000 and $860,000 for the nine months ended November 30, 2002 and 2001, respectively. The Company had no material capital expenditure commitments at November 30, 2002. The Company continues to depend upon operating cash flow and availability under its bank lines of credit to provide short-term liquidity. Availability under its bank lines of credit at November 30, 2002 was over $13 million. Management believes that operating cash flow and bank borrowing capacity in connection with the Company's existing business and the business of Simmons should provide sufficient liquidity for the Company's obligations for the next twelve months. In the event the Company's plans require more capital than is presently anticipated, additional sources of liquidity such as debt or equity financings, may be required to meet its capital needs. There can be no assurance that such additional sources of capital will be available on reasonable terms, if at all. NEW ACCOUNTING PRONOUNCEMENTS The FASB issued Statement of Accounting Financial Standards No. 143 ("SFAS No. 143"), ACCOUNTING FOR OBLIGATIONS ASSOCIATED WITH THE RETIREMENT OF LONG-LIVED ASSETS, SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, SFAS No. 145, RESCISSION OF FASB STATEMENTS No. 4,44,64, AMENDMENT OF SFAS No. 13 and TECHNICAL CORRECTIONS, and SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, in August and October 2001, and April and June 2002, respectively. SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with early adoption permitted. The Company is currently evaluating the provisions of SFAS No. 143 but expects that the provisions will not have a material effect on its financial position or results of operations upon adoption. SFAS 145, among other matters, rescinds SFAS No.4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT, thereby eliminating the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. As a result, the criteria in APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, will be used to classify those gains and losses. SFAS No. 145 is effective for financial statements for fiscal years beginning after May 15, 2002. The Company is currently evaluating the provisions of SFAS No. 145 but expects that the provisions will not have a material effect on its financial position or results of operations upon adoption. SFAS No. 146 addresses significant issues relating to the recognition, measurement and reporting costs associated with exit and disposal activities, including restructuring activities, and nullifies the guidance in Emerging Issues Task Force 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 146 is effective for exit or disposal activities initiated after December 31, 2002, with early adoption permitted. The Company is currently evaluating the provisions of SFAS No. 146 but expects that the provisions will not have a material effect on its financial position or results of operations upon adoption. 10 FORWARD-LOOKING INFORMATION The preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations" section contains various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which represent the Company's reasonable judgment concerning the future and are subject to risks and uncertainties that could cause the Company's actual operating results and financial position to differ materially, including the following: the Company's ability to expand the markets for telescopes, binoculars, riflescopes and other optical products; the Company's ability to continue to develop and bring to market new and innovative products; the Company's ability to integrate, develop and grow the Simmons business; the Company's ability to further develop its wholly owned manufacturing facility in Mexico in combination with its existing manufacturing capabilities; the Company expanding its distribution network; the Company's ability to further develop the business of its European subsidiary; the Company experiencing fluctuations in its sales, gross margins and profitability from quarter to quarter consistent with prior periods; the Company's expectation that its contingent liabilities will not have a material effect on the Company's financial position or results of operations; the extent to which the Company will be able to leverage its design and manufacturing expertise in the areas of free-space optics and digital imaging; and the Company's expectation that it will have sufficient funds to meet any working capital requirements during the foreseeable future with internally generated cash flow and borrowing ability. In addition to other information in this report, the Company cautions that certain factors, including, without limitation, the following, should be considered carefully in evaluating the Company and its business and that such factors may cause the Company's actual operating results to differ materially from those set forth in the forward looking statements described above or to otherwise be adversely affected: any significant decline in general economic conditions or uncertainties affecting consumer spending; any general decline in demand for the Company's products; any inability to continue to design and manufacture products that will achieve and maintain commercial success; any failure of the Company to penetrate and expand the binocular and riflescope markets and achieve meaningful sales; any significant interruption of the Company's manufacturing abilities in its domestic or Mexican facilities or in any of its suppliers located in the far east; greater than anticipated competition; any loss of, or the failure to replace, any significant portion of the sales made to any significant customer of the Company; the inherent risks associated with international sales, including variations in local economies, fluctuating exchange rates increased difficulty of inventory management, greater difficulty in accounts receivable collections, costs and risks associated with localizing products for foreign countries, changes in tariffs and other trade barriers, adverse foreign tax consequences, cultural differences affecting product demand and customer service and burdens of complying with a variety of foreign laws; the inherent risks associated with products manufactured or assembled outside of the United States, including, among other things, imposition of quotas or trade sanctions, fluctuating exchange rates, shipment delays or political instability; with respect to the Simmons Acquisition, the inherent risks associated with acquisitions such as integration risks and general ongoing business risks; risks that the Company will not achieve meaningful growth in the Simmons subsidiary; and increasing ESOP charges in the event the market price of the Company's stock increases. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain levels of market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. The Company conducts business in a number of foreign currencies, principally in Europe. These currencies have been relatively stable against the U.S. dollar for the past several years. As a result, foreign currency fluctuations have not had a material impact historically on Meade's revenues or results of operations. There can be no assurance, however, that foreign currencies will remain stable relative to the U.S. dollar or that future fluctuations in the value of foreign currencies will not have a material adverse effect on the Company's business, operating results, revenues and financial condition. 11 The Company has adopted a foreign currency hedging program that utilizes foreign currency forward contracts to hedge variable cash flows associated with recognized liabilities and to hedge exposure to changes in the fair value of unrecognized firm commitments. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. The instruments that Meade uses for hedging are readily marketable traded forward contracts with financial institutions. Meade expects that the changes in fair value of such contracts will have a high correlation to the price changes in the related hedged cash flow. Any gains and losses on these hedge contracts are expected to offset changes in the value of the related exposures. During the nine months ended November 30, 2002, the Company entered into fair value forward currency contracts with notional amounts aggregating $1.9 million and cash flow forward currency contracts with notional amounts aggregating $4.6 million. At November 30, 2002, all of the fair value forward currency contracts had been settled. The fair value of the cash flow forward currency contracts at November 30, 2002 was ($53,000). Under the terms of the Company's bank agreement, the Company was required to enter into an interest-rate swap to convert the variable interest rate on its long-term loan to a fixed interest rate. The resulting cost of funds (7.9% per annum) is currently higher than that which would have been available if the variable rate had been applied during the period. Under the interest-rate swap contract, the Company has agreed with the bank to exchange, at specified intervals, the difference between variable-rate and fixed-rate interest amounts, calculated by reference to agreed-upon notional amounts. The change in the fair value of the interest rate swap for the nine months ended November 30, 2002 was a loss of $21,000 which is included in other comprehensive income for the nine months then ended. The Company's financial instruments consist of cash, accounts receivable, accounts payable and long-term obligations. The Company's exposure to market risk for changes in interest rates relates primarily to short-term investments and short-term obligations. As a result, the Company does not expect fluctuations in interest rates to have a material impact on the fair value of these instruments. ITEM 4. CONTROLS AND PROCEDURES A. Evaluation of Disclosure Controls and Procedures. - ---------------------------------------------------- The Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-14 (c), promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) are sufficiently effective to ensure that the information required to be disclosed by the Company in the reports it files under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures conducted within 90 days prior to the date hereof. B. Changes in internal controls. - -------------------------------- There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above. 12 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 17, 2001, the Company filed suit against Tasco Sales, Inc. ("Tasco") and Celestron International, Inc. ("Celestron"), charging the two companies with patent infringement and unfair competition. The complaint, filed in the United States District Court, Central District of California, Southern Division (Case No. SA-CV 01-976 (GLT)), alleges that Tasco and Celestron willfully infringed Meade's Patent No. 6,304,376, entitled "Fully Automated Telescope System With Distributed Intelligence." In addition to seeking compensation for damages incurred, including enhanced damages, the suit seeks to enjoin Tasco and Celestron from continuing to manufacture or sell products that infringe Meade's patent. On or around November 7, 2001, the defendants filed an answer, subsequently amended, to the complaint in which it denied the Company's allegations and set forth various affirmative defenses. On or around November 19, 2001, Defendants filed a counterclaim, also subsequently amended, against the Company for declaratory judgment of non-infringement of the Company's patent, for declaratory judgment that the Company's patent is unenforceable and invalid, and for claims that the Company is infringing a Celestron design patent, U.S. Patent No. D438,221, and Celestron's trade dress. The counterclaim further alleges that the Company has willfully infringed Celestron's design patent and seeks an unspecified amount of damages, enhanced damages, and an injunction and other unspecified relief against the Company. Meade has filed a summary judgment motion on infringement and validity issues and Celestron has filed a summary judgment motion on non-infringement and invalidity issues. Both motions are expected to be heard by the court during the Company's fourth quarter of fiscal 2003. Due to the uncertainties of litigation, the Company is unable to provide an evaluation of the likelihood of either a favorable or unfavorable outcome in these cases. On June 4, 2002, the Company filed suit against Celestron, Tasco and other related or affiliated parties charging the defendant with patent infringement. The complaint, ("the '799 lawsuit") filed in the United States District Court, Central District of California, Southern Division (Case No. SA CV 02-544 (GLT)), alleges that the defendants willfully infringed Meade's Patent No. 6,392,799, entitled "Fully Automated Telescope System With Distributed Intelligence." The patent covers the Company's "level the telescope and point it North" alignment technology (the "Telescope Alignment Technology"), which allows a telescope user to easily align a computer operated telescope. In addition to seeking compensation for damages incurred, including enhanced damages, the suit seeks to enjoin Tasco, Celestron and the other defendants from continuing to manufacture or sell products that infringe Meade's telescope alignment patent. Due to the uncertainties of litigation, the Company is unable to provide an evaluation of the likelihood of either a favorable or unfavorable outcome in this case. On June 7, 2002, the Company filed suit against Celestron, Tasco and other related or affiliated parties, charging the defendants with correction of patent inventorship, false and misleading representations in violation of the Lanham Act, unfair competition and fraudulent business practices. The complaint, ("the `942 lawsuit) filed in the United States District Court, Central District of California, Southern Division (Case No. SA-CV 02-558 (GLT)), alleges that the defendants misappropriated the Company's Telescope Alignment Technology and subsequently conspired to obtain United States Patent No. 6,369,942, entitled "Auto-alignment tracking telescope mount" ("the `942 Patent"), by fraudulently representing themselves as the inventors and owners of the Telescope Alignment Technology. In addition to other remedies, the suit seeks to establish that the Company invented the Telescope Alignment Technology and that equitable and legal title to the `942 Patent should be vested in the Company. Due to the uncertainties of litigation, the Company is unable to provide an evaluation of the likelihood of either a favorable or unfavorable outcome in this case. Celestron and Tasco, in May 2002, transferred certain of their assets in an assignment for the benefit of creditors proceeding to James Feltman, an assignee. Assignee James Feltman subsequently sold the assets on or around June 24, 2002 to a new Celestron entity, Celestron Acquisition LLC. Celestron Acquisition LLC, along with Celestron and Tasco, is a defendant in the above-referenced lawsuits. James Feltman is also a named defendant in the `799 lawsuit, but not the `942 lawsuit. The Company is also involved from time to time in litigation incidental to its business. Management believes that the outcome of such litigation will not have a material adverse effect on the financial position, results of operations or cash flows of the Company. 13 ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 6(a) Exhibits filed with this Form 10-Q. Exhibit No. 10.50 Employee Stock Ownership Plan Amendment No. 2 to Amended and Restated Plan. 6(b) Reports on Form 8-K. The Company filed the following Reports with the SEC on the following dates: 1. Form 8-K, filed on November 7, 2002, covering the acquisition of Simmons and excluding the related financial information. 2. Form 8-K/A, filed on November 27, 2002, covering the acquisition of Simmons and including (i) the audited financial statements of Simmons at December 31, 2001 and the three years then ended, (ii) the unaudited financial statements of Simmons at June 30, 2002 and for the six months ended June 30, 2002 and 2001, and (iii) the unaudited pro forma combined consolidated condensed financial statements of the Company for the twelve months ended February 28, 2002 and for the six months ended August 31, 2002 reflecting the acquisition of Simmons. 14 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. Date: January 14, 2003 MEADE INSTRUMENTS CORP. By: /s/ JOHN C. DIEBEL ---------------------------------- John C. Diebel CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICE By: /s/ BRENT W. CHRISTENSEN ---------------------------------- Brent W. Christensen SENIOR VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER 15 CERTIFICATIONS I, John C. Diebel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Meade Instruments Corp.; 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 officer 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 officer 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 6. The registrant's other certifying officer 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: January 14, 2003 By: /s/ JOHN C. DIEBEL, CHAIRMAN AND CEO - ---------------------------------------- 16 CERTIFICATIONS I, Brent W. Christensen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Meade Instruments Corp.; 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 officer 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 officer 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 6. The registrant's other certifying officer 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: January 14, 2003 By: /s/ BRENT W. CHRISTENSEN, SENIOR VICE PRESIDENT AND CFO - ----------------------------------------------------------- 17 EX-10.50 3 meade_10qex10-50.txt Exhibit 10.50 MEADE INSTRUMENTS CORP. ----------------------- EMPLOYEE STOCK OWNERSHIP PLAN ----------------------------- Amendment No. 2 to Amended and Restated Plan -------------------------------------------- WHEREAS, Meade Instruments Corp. (the "Company") maintains the Meade Instruments Corp. Employee Stock Ownership Plan (the "Plan") for the benefit of eligible Employees; WHEREAS, it is necessary to amend the Plan to conform to certain provisions of the Internal Revenue Code of 1986, as amended by the Taxpayer Relief Act of 1997, the Community Renewal Tax Relief Act of 2000 and the Economic Growth and Tax Relief Reconciliation Act of 2001; and WHEREAS, it is desirable to clarify certain existing Plan provisions. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 2 is amended by restating the definition of "Compensation" to read as follows, effective as of January 1, 2002: Compensation......... The total wages and other compensation paid to an Employee by the Company during each Plan Year, as reported on the Employee's Tax and Wage Statement (Form W-2), including any Elective Deferrals made on his behalf to the 401(k) Plan, any amounts withheld pursuant to the Company's Cafeteria Plan (under Section 125 of the Code) and any "qualified transportation benefits" under Section 132(f)(4) of the Code, but excluding employer contributions to a plan of deferred compensation, amounts realized in connection with stock options, amounts which receive special tax benefits, and any amount in excess of $200,000 (as adjusted periodically by the Internal Revenue Service after 2002 for increases in the cost of living pursuant to Section 401(a)(17) of the Code). 2. Section 7(a) is amended by restating the first sentence thereof to read as follows, effective as of January 1, 2002: The Annual Additions for each Plan Year with respect to any Participant may not exceed the lesser of: (1) 100% of his Compensation; or (2) $40,000, as adjusted for increases in the cost of living pursuant to Section 415(d)(1)(C) of the Code. 3. Section 11(b) is amended by restating the last sentence thereof to read as follows, effective as of October 17, 2000: If the value of a Participant's Capital Accumulation exceeds $5,000, no portion of his Capital Accumulation may be distributed to him without his written consent before he attains age 62. -2- 4. Section 13(b) is amended by restating the last sentence thereof to read as follows, effective as of January 1, 1999: A deceased Participant's entire Capital Accumulation shall be distributed to his Beneficiary on or before the December 31st of the calendar year that includes the fifth anniversary of his death, except to the extent that distribution has previously commenced in accordance with Section 11(b)(2). 5. Section 13(d) is restated to read as follows, effective as of January 1, 2002: If a distribution of a Participant's Capital Accumulation is neither one of a series of annual installments over a period of ten years (or more), a hardship withdrawal nor the minimum amount required to be distributed pursuant to the second sentence of Section 11(c) (an "eligible rollover distribution"), the Committee shall notify the Participant (or any spouse or former spouse who is his alternate payee under a "qualified domestic relations order" (as defined in Section 414(p) of the Code)) or the Participant's surviving spouse of his right to elect to have the "eligible rollover distribution" paid directly to an "eligible retirement plan" (within the meaning of Section 401(a)(31) of the Code) that is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, a qualified trust described in Section 401(a) of the Code, a qualified annuity plan described in Section 403(a) of the Code, an annuity contract described in Section 403(b) or an eligible plan described in Section 457(b) of the Code (which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state) that accepts "eligible rollover distributions." Any election under this Section 13(d) shall be made and effected in accordance with such rules and procedures as may be established from time to time by the Committee in order to comply with Section 401(a)(31) of the Code. -3- To record the adoption of this Amendment No. 2 to the Plan, the Company has caused it to be executed this 18th day of December, 2002. MEADE INSTRUMENTS CORP. By /s/ Brent W. Christensen ------------------------------- Brent W. Christensen -4- -----END PRIVACY-ENHANCED MESSAGE-----