<PAGE> 1
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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 QUARTER ENDED NOVEMBER 30, 2000
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 451-1450
----------------
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 [ ]
Number of shares of common stock outstanding as of November 30, 2000 is
16,452,746 shares, giving effect to the two-for-one stock split declared by the
company on May 5, 2000 and paid on June 19, 2000 to all stockholders of record
as of May 22, 2000.
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<PAGE> 2
MEADE INSTRUMENTS CORP.
TABLE OF CONTENTS
PAGE
----
PART I -- FINANCIAL INFORMATION
Consolidated Balance Sheets (Unaudited) -- November 30, 2000
and February 29, 2000................................................... 3
Consolidated Statements of Income (Unaudited) -- Three Months
and Nine Months Ended November 30, 2000 and 1999........................ 4
Consolidated Statements of Cash Flows (Unaudited) -- Nine Months
Ended November 30, 2000 and 1999........................................ 5
Notes to Consolidated Financial Statements (Unaudited)................... 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 8 - 12
PART II -- OTHER INFORMATION
Other Information........................................................ 13
Signatures............................................................... 14
Exhibit Index............................................................ --
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
MEADE INSTRUMENTS CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
NOVEMBER 30, FEBRUARY 29,
2000 2000
------------- ------------
<S> <C> <C>
Current assets:
Cash ...................................................................... $ 241,000 $ 2,180,000
Accounts receivable, less allowance for doubtful accounts of $803,000 at
November 30, 2000 and $3,861,000 at February 29, 2000 .................. 37,355,000 8,451,000
Inventories ............................................................... 48,719,000 34,311,000
Deferred income taxes ..................................................... 7,896,000 7,770,000
Prepaid expenses and other current assets ................................. 449,000 326,000
------------- ------------
Total current assets .............................................. 94,660,000 53,038,000
Other assets ................................................................ 3,456,000 4,087,000
Property and equipment, net of accumulated depreciation of $4,966,000 at
November 30, 2000 and $3,915,000 at February 29, 2000 ..................... 7,856,000 6,966,000
------------- ------------
$ 105,972,000 $ 64,091,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit ....................................................... $ 33,743,000 $ 2,784,000
Accounts payable .......................................................... 6,939,000 3,889,000
Accrued liabilities ....................................................... 7,527,000 6,479,000
Income taxes payable ...................................................... 583,000 2,550,000
Current portion of long-term debt and capital lease obligations ........... 1,286,000 783,000
------------- ------------
Total current liabilities ......................................... 50,078,000 16,485,000
------------- ------------
Long-term debt .............................................................. 3,750,000 4,500,000
Long-term capital lease obligations, net of current portion ................. 143,000 441,000
------------- ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 50,000,000 shares authorized; 16,453,000 and
16,214,000 shares issued and outstanding at November 30, 2000 and
February 29, 2000, respectively ........................................ 165,000 162,000
Additional paid-in capital ................................................ 29,893,000 26,749,000
Retained earnings ......................................................... 28,444,000 22,457,000
Accumulated other comprehensive income .................................... (522,000) (333,000)
------------- ------------
57,980,000 49,035,000
Unearned ESOP shares ...................................................... (5,979,000) (6,370,000)
------------- ------------
Total stockholders' equity ........................................ 52,001,000 42,665,000
------------- ------------
$ 105,972,000 $ 64,091,000
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MEADE INSTRUMENTS CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------------------------ --------------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales ......................... $42,424,000 $63,725,000 $100,844,000 $104,960,000
Cost of sales ..................... 28,338,000 38,961,000 63,140,000 62,942,000
----------- ----------- ------------ ------------
Gross profit .................... 14,086,000 24,764,000 37,704,000 42,018,000
Selling expenses .................. 6,436,000 6,158,000 15,119,000 11,386,000
General and administrative expenses 2,081,000 3,401,000 6,819,000 8,169,000
ESOP expense ...................... 808,000 579,000 2,229,000 1,383,000
Research and development expenses . 460,000 370,000 1,464,000 910,000
----------- ----------- ------------ ------------
Operating income ................ 4,301,000 14,256,000 12,703,000 20,170,000
Interest expense .................. 799,000 559,000 1,474,000 680,000
----------- ----------- ------------ ------------
Income before income taxes ...... 3,502,000 13,697,000 10,599,000 19,490,000
Provision for income taxes ........ 1,516,000 6,001,000 4,612,000 8,434,000
----------- ----------- ------------ ------------
Net income ........................ $ 1,986,000 $ 7,696,000 $ 5,987,000 $ 11,056,000
=========== =========== ============ ============
Basic earnings per share .......... $ 0.13 $ 0.54 $ 0.41 $ 0.79
=========== =========== ============ ============
Diluted earnings per share ........ $ 0.13 $ 0.50 $ 0.38 $ 0.75
=========== =========== ============ ============
Weighted average number of shares
outstanding -- basic ............ 14,717,000 14,250,000 14,649,000 14,016,000
=========== =========== ============ ============
Weighted average number of shares
outstanding -- diluted .......... 15,679,000 15,286,000 15,810,000 14,816,000
=========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MEADE INSTRUMENTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 30,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 5,987,000 $ 11,056,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .......................... 1,391,000 902,000
ESOP contribution ...................................... 2,229,000 1,383,000
Allowance for doubtful accounts ........................ 444,000 1,123,000
Changes in assets and liabilities:
Increase in accounts receivable ...................... (29,608,000) (19,284,000)
Increase in inventories .............................. (15,086,000) (7,105,000)
Increase in deferred income taxes .................... (214,000) (1,802,000)
Increase in prepaid expenses and other current assets (44,000) (67,000)
Decrease in other assets ............................. 668,000 --
Increase in accounts payable ......................... 3,122,000 3,046,000
(Decrease) increase in accrued liabilities ........... (705,000) 2,316,000
(Decrease) increase in income taxes payable .......... (3,000) 4,091,000
------------ ------------
Net cash used in operating activities ............. (31,819,000) (4,341,000)
------------ ------------
Cash flows from investing activities:
Capital expenditures ...................................... (2,212,000) (1,105,000)
Acquisition of Bresser Optik, net of cash acquired ........ -- (4,968,000)
------------ ------------
Net cash used in investing activities ............. (2,212,000) (6,073,000)
------------ ------------
Cash flows from financing activities:
Net borrowings under bank line of credit .................. 31,173,000 6,674,000
Payments on long-term debt ................................ (250,000)
Proceeds from long-term loan .............................. -- 5,000,000
Exercise of stock options ................................. 1,043,000 410,000
Payments under capital lease obligations .................. (295,000) (262,000)
------------ ------------
Net cash provided by financing activities ......... 31,671,000 11,822,000
------------ ------------
Effect of exchange rate changes on cash ..................... 421,000 (7,000)
------------ ------------
Net increase (decrease) in cash ............................. (1,939,000) 1,401,000
Cash at beginning of period ................................. 2,180,000 1,283,000
------------ ------------
Cash at end of period ....................................... $ 241,000 $ 2,684,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
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 29, 2000.
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
less-expensive telescopes during the Christmas holiday season. The results of
operations for the nine months ended November 30, 2000 and 1999, respectively,
are not necessarily indicative of the operating results for the entire fiscal
year.
B. STOCK SPLIT
On May 5, 2000 the Company declared a two-for-one stock split of the
Company's common stock, to be effected in the form of a dividend. The dividend
was paid on June 19, 2000 to stockholders of record on May 22, 2000. All share
and per share amounts in the accompanying consolidated financial statements and
the notes thereto have been adjusted to reflect the stock split.
C. THE COMPOSITION OF INVENTORIES IS AS FOLLOWS:
NOVEMBER 30, FEBRUARY 29,
2000 2000
------------ ------------
Raw materials .......................... $11,189,000 $ 7,335,000
Work-in-process ........................ 5,386,000 6,600,000
Finished goods ......................... 32,144,000 20,376,000
----------- -----------
$48,719,000 $34,311,000
=========== ===========
D. NET INCOME PER SHARE
Basic earnings per share amounts exclude the dilutive effect of potential
common shares. Basic earnings per share are based upon the weighted-average
number of common shares outstanding. Diluted earnings per share are based upon
the weighted-average number of common shares and dilutive potential common
shares outstanding. Potential common shares are outstanding stock options under
the Company's stock incentive plan which are included under the treasury stock
method.
The following is a reconciliation of the denominators of the basic and
diluted earnings per share computations for net income for the three and nine
months ended November 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------------------------ ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income ................... $ 1,986,000 $ 7,696,000 $ 5,987,000 $11,056,000
=========== =========== =========== ===========
Shares outstanding -- basic .. 14,717,000 14,250,000 14,649,000 14,016,000
Effect of dilutive securities:
Stock options ............. 962,000 1,036,000 1,161,000 800,000
----------- ----------- ----------- -----------
Shares outstanding -- diluted 15,679,000 15,286,000 15,810,000 14,816,000
=========== =========== =========== ===========
Net income -- basic .......... 0.13 0.54 0.41 0.79
Net income -- diluted ........ 0.13 0.50 0.38 0.75
</TABLE>
6
<PAGE> 7
MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
E. BANK LOANS
On August 31, 1999 the Company entered into a new loan agreement (the "Loan
Agreement") with a bank, replacing its existing credit facilities. The Loan
Agreement provides the Company with an aggregate $40 million credit facility
consisting of a five year $35 million revolving credit facility (the "Revolving
Loan") and a five year $5 million term loan (the "Term Loan). The Term Loan is
subject to quarterly amortization payments of $250,000 beginning September 30,
2000. The Term Loan is also subject to mandatory prepayments upon the happening
of certain events. Amounts outstanding under the Revolving Loan and Term Loan
bear interest, at the Company's option, at a base rate or eurodollar rate plus
an applicable margin. The Company's obligations under the Loan Agreement are
guaranteed by each of the Company's domestic subsidiaries and are secured by
substantially all of the assets of the Company and its domestic subsidiaries.
The Loan Agreement contains certain financial covenants and customary
affirmative and negative covenants and events of default. As of the quarter
ended November 30, 2000, the Company was in breach of a financial covenant set
forth in the Loan Agreement. Such breach was subsequently waived by the bank
under the Loan Agreement. In connection with the acquisition of its European
subsidiary in September 1999, the Company borrowed $5 million under the Term
Loan on August 31, 1999. On August 31, 2000 the Loan Agreement was amended to
provide for a seasonal increase to the Revolving Loan. For the period from
August 1 through November 30 the Loan Agreement, as amended, provides a $50
million Revolving Loan.
F. COMMITMENTS AND CONTINGENCIES
On June 3, 1998, a claim was filed against the Company alleging
infringement of a U.S. patent by the Company. On April 29, 1999, the Company
filed a motion requesting summary judgment that the Company has not infringed
the patent and a motion requesting summary judgment that the patent is invalid.
On June 30, 1999, the court granted the motion for summary judgment of
non-infringement. On July 2, 1999, the court held that the Company has not
infringed the patent. On July 27, 1999 the opposing party filed a purported
notice of appeal with respect to the summary judgment motion. On May 2, 2000 the
Company filed a motion to dismiss the appeal. On June 23, 2000 the court granted
Meade's motion and ordered a dismissal of the appeal. On July 7, 2000, the
opposing party filed a petition for rehearing of the appeal. In the event of any
further proceedings on the merits, the Company intends to vigorously defend the
judgment before the appellate court. The ultimate liability of the Company under
this action is not presently determinable. After discussion with counsel, and in
light of the summary judgment, it is the opinion of management that such
liability is not expected to have a material effect on the Company's financial
position or results of operations.
G. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income establishes standards for reporting and displaying of
comprehensive income and its components in the Company's consolidated financial
statements. Comprehensive income is defined in SFAS 130 as the change in equity
(net assets) of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. Total comprehensive
income was $1,930,000 and $5,798,000, for the three and nine months ended
November 30, 2000, respectively. The difference from net income as reported is
the change in the cumulative currency translation adjustment.
H. CHANGE IN AUTHORIZED SHARES
On July 13, 2000 the stockholders of Meade Instruments Corp. approved an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of common stock from 20,000,000 to 50,000,000.
7
<PAGE> 8
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 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, 2000 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
1999
Net sales for the third quarter of fiscal 2001 were $42.4 million compared
to $63.7 million for the third quarter of fiscal 2000, a decrease of 33.4%. This
decrease was principally due to lower unit sales of less-expensive telescopes
and telescope accessories. Third quarter fiscal 2001 revenues were also
negatively affected by (i) a seasonal promotional campaign featuring markdowns
and product promotions and (ii) lower unit demand and unfavorable currency
exchange rates at the Company's European subsidiary.
Gross profit decreased from $24.8 million (38.9% of net sales) for the
third quarter of fiscal 2000 to $14.1 million (33.2% of net sales) for the third
quarter of fiscal 2001, a decrease of 43.1%. The decrease in gross profit was
principally due to the decrease in net sales from the prior year and the
decrease in the gross margin percentage. The decrease in the gross margin
percentage was principally due to the effect of a net charge to gross profit of
approximately $3 million taken in the third quarter related to the
aforementioned seasonal product markdowns and promotions. Gross profit was also
negatively affected by lower average gross margins on products sold at the
Company's European subsidiary.
Selling expenses increased from $6.2 million (9.7% of net sales) for the
third quarter of fiscal 2000 to $6.4 million (15.2% of net sales) for the third
quarter of fiscal 2001, an increase of 4.5%. Selling expenses were relatively
flat with sundry expenses down from the prior year and increased advertising and
marketing expenses more than offsetting those decreases. The Company expects
advertising and marketing expenses to continue to increase during the remainder
of the fiscal year over the prior year period primarily due to an expanded print
advertising campaign aimed at marketing the Company's less-expensive telescope
lines.
General and administrative expenses decreased from $3.4 million (5.3% of
net sales) for the third quarter of fiscal 2000, to $2.1 million (4.9% of net
sales) for the third quarter of fiscal 2001, a decrease of 38.8%. This decrease
was principally due to a decrease in compensation expenses during the quarter.
8
<PAGE> 9
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
ESOP contribution expense increased from $579,000 for the third quarter of
fiscal 2000 to $808,000 for the third quarter of fiscal 2001, an increase of
39.6%. The increase in this non-cash charge was due to increases 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 market value of the Company's common stock changes.
Research and development expenses increased from $370,000 for the third
quarter of fiscal 2000 to $460,000 for the third quarter of fiscal 2001, an
increase of 24.3%. This increase was due to increased engineering personnel
costs to support the development of telescope and other consumer related
products, the development of industrial optical products for TeraBeam
Corporation and the development of certain commercial products.
Interest expense increased from $559,000 for the third quarter of fiscal
2000 to $799,000 for the third quarter of fiscal 2001, an increase of 42.9%. The
increase was due to higher average borrowings on the Company's bank line of
credit coupled with higher average market interest rates compared to the prior
period.
NINE MONTHS ENDED NOVEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED NOVEMBER 30,
1999
Net sales for the nine months ended November 30, 2000 were $100.8 million
compared to $105.0 million for the comparable prior year period, a decrease of
3.9%. Sales of less-expensive telescopes manufactured in Asia, sales of
telescope accessories and sales from the Company's European subsidiary were all
down from the prior year, more than offsetting increased sales of both the
Company's advanced telescopes manufactured domestically and mid-to-lower priced
products assembled in the Company's Mexican facility.
Gross profit decreased from $42.0 million (40.0% of net sales) for the nine
months ended November 30, 1999 to $37.7 million (37.4% of net sales) for the
comparable current year period, a decrease of 10.3%. The decrease in gross
profit was principally due to the decrease in net sales from the prior year and
the decrease in the gross margin percentage. The decrease in the gross margin
percentage was principally due to the effect of a net charge to gross profit of
approximately $3 million taken in the third quarter related to the
aforementioned seasonal product markdowns and promotions. Gross profit was also
negatively affected by lower average gross margins on products sold at the
Company's European subsidiary.
Selling expenses increased from $11.4 million (10.8% of net sales) for the
nine months ended November 30, 1999 to $15.1 million (15.0% of net sales) for
the comparable current year period, an increase of 32.8%. This increase was
primarily due to increases in advertising and marketing expenses. The Company
expects advertising and marketing expenses to continue to increase during the
remainder of the fiscal year over the prior year period primarily due to an
expanded print advertising campaign aimed at marketing the Company's
less-expensive telescope lines.
9
<PAGE> 10
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
General and administrative expenses decreased from $8.2 million (7.8 % of
net sales) for the nine months ended November 30, 1999 to $6.8 million (6.8% of
net sales) for the comparable current year period, a decrease of 16.5%. This
decrease was principally due to a decrease in compensation expenses during the
period.
ESOP contribution expense increased from $1.4 million for the nine months
ended November 30, 1999 to $2.2 million for the comparable current year period,
an increase of 61.2%. The increase in this non-cash charge was due to increases
in the average market price of the Company's stock allocated to the Employee
Stock Ownership Plan during the period. The non-cash ESOP contribution expense
may fluctuate as the market value of the Company's common stock changes.
Research and development expenses increased from $910,000 for the nine
months ended November 30, 1999 to $1.5 million for the comparable current year
period, an increase of 60.9%. This increase was due to increased engineering
personnel costs, outside consulting costs and parts and supplies costs related
to the development of telescope and other consumer related products, the
development of industrial optical products for TeraBeam Corporation and the
development of certain commercial products.
Interest expense increased from $680,000 for the nine months ended November
30, 1999 to $1.5 million for the comparable current year period, an increase of
116.8%. The increase was due to interest expense on the $5.0 million Term Loan,
higher average borrowings on the Company's bank line of credit and higher
average market interest rates compared to the prior period.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended November 30, 2000, the Company funded its
operations with internally generated cash flow and short-term borrowings from
banks. Internally generated cash flow from net income adjusted for non-cash
charges was more than offset by increases in accounts receivable and
inventories. A substantial portion of the Company's net sales typically occur in
the third quarter primarily due to disproportionately higher customer demand for
less-expensive telescopes during the Christmas holiday season. The increase in
inventories is due to significantly lower than expected unit sales for the third
quarter of the Company's fiscal year 2001. The increase in accounts receivable
is due to relatively higher sales in the third quarter of fiscal year 2001
compared to the fourth quarter of fiscal 2000. Net working capital totaled
approximately $44.6 million at November 30, 2000, up from $36.6 million at
February 29, 2000. 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.
On August 31, 1999 the Company entered into a new loan agreement (the "Loan
Agreement") with a bank, replacing its existing credit facilities. The Loan
Agreement provides the Company with an aggregate $40 million credit facility
consisting of a five year $35 million revolving credit facility (the "Revolving
Loan") and a five year $5 million term loan (the "Term Loan). The Term Loan is
subject to quarterly amortization payments of $250,000 beginning September 30,
2000. The Term Loan is also subject to mandatory prepayments upon the happening
of certain events. Amounts outstanding under the Revolving Loan and Term Loan
bear interest, at the Company's option, at a base rate or eurodollar rate plus
an applicable margin. The Company's obligations under the Loan Agreement are
guaranteed by each of the Company's domestic subsidiaries and are secured by
substantially all of the assets of the Company and its domestic subsidiaries.
The Loan Agreement contains certain financial covenants and customary
affirmative and negative covenants and events of default. As of the quarter
ended November 30, 2000, the Company was in breach of a financial covenant set
forth in the Loan Agreement. Such breach was subsequently waived by the bank
under the Loan Agreement. In connection with the acquisition of its European
subsidiary in September 1999, the Company borrowed $5 million under the Term
Loan on August 31, 1999. On August 31, 2000 the Loan Agreement was amended to
provide for a seasonal increase to the Revolving Loan. For the period from
August 1 through November 30 the Loan Agreement, as amended, provides a $50
million Revolving Loan.
10
<PAGE> 11
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Capital expenditures, including financed purchases of equipment, aggregated
$2.2 million and $1.1 million for the nine months ended November 30, 2000 and
1999, respectively. The Company had no material capital expenditure commitments
at November 30, 2000.
The Company believes that internally generated cash flow and borrowing
ability will be sufficient to meet its operating, working capital and capital
expenditure requirements through the next twelve months. In the event the
Company's plans require more capital than is presently anticipated, the
Company's remaining cash balances may be consumed and additional sources of
liquidity, such as debt or equity financings, may be required to meet its
capital needs. There can be no assurance that additional capital beyond the
amounts the Company currently requires will be available on reasonable terms, if
at all.
In March 2000, the Company announced that it will be an original equipment
manufacturer for TeraBeam Corporation, an emerging service provider for gigabit
IP connectivity in metropolitan areas. Meade will supply the Seattle-based
company with key components for TeraBeam's optical wireless network. The current
components generally use existing Meade telescope technology and are being
shipped in limited quantities. The ultimate quantities and timing of the
products ordered by TeraBeam will depend upon TeraBeam's market roll-out.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (the "SEC")
released Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Company is required to be in conformity with the
provisions of SAB 101 no later than fourth quarter 2001 and the Company does not
expect a material change in its financial condition or results of operations as
a result of SAB 101.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133; Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 is required to be adopted in
fiscal years beginning after June 15, 2000 and establishes accounting and
reporting standards for derivative instruments and for hedging activities. In
June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 138 ("SFAS 138") that amends SFAS 133 and is
required to be adopted concurrently with SFAS 133. The Company does not
anticipate that the adoption of SFAS 133, as amended by SFAS 138, will have a
material impact on its financial position or result of operations.
FORWARD-LOOKING INFORMATION
The preceding "Management's Discussion and Analysis of Financial Conditions
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 and other optical products as a result of its advertising and
marketing efforts; the Company's ability to continue to develop and bring to
market new and innovative products; the Company's ability to integrate and
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 integrate and further develop the business of
Bresser Optik GmbH & Co. KG, which the Company acquired in September 1999, in
combination with the Company's existing business; the Company experiencing
fluctuations in its sales, gross margins and profitability from quarter to
quarter consistent with prior periods; the extent to which Meade will supply key
components for TeraBeam Corporation or other businesses generally unrelated to
its core telescope and binocular products; 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.
11
<PAGE> 12
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
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 the binocular market and achieve meaningful
sales; any unexpected termination or interruption of the Company's manufacturing
arrangements, both internally, at the Taiwanese Factory or at any other material
supplier's facilities; 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 (including
conversion to Euros), increased difficulty of inventory management, greater
difficulty in accounts receivable collections, fluctuating ESOP charges in the
event the market price of the Company's stock changes materially, 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; and 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.
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 overseas 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 that European 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. The
Company has and will continue to consider the adoption of a foreign currency
hedging program.
The Company does not enter into derivatives or other financial instruments
for trading, speculative purposes or to manage its interest rate risk. 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 related 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.
12
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Meade Instruments Corporation v. Reddwarf Starware, LLC, aka Reddwarf
Instruments, LLC ("Reddwarf"), Civil No. 98-240 GLT. United States District
Court for the Central District of California. Appeal No. 99-1517. United States
Court of Appeals for the Federal Circuit. Action for declaratory relief
initiated by a complaint filed March 16, 1998, by the Company for declaratory
judgment of non-infringement of Reddwarf's U.S. Patent No. 4,764,881, for
declaratory judgment that Reddwarf's patent is invalid, void and unenforceable,
and for an injunction and damages under Federal antitrust statutes and for an
injunction and other relief under California unfair competition statutes. A
counterclaim dated June 3, 1998 alleging infringement by the Company's LX200
series telescope system (and unspecified other products) of Reddwarf's U.S.
Patent No. 4,764,881 was also filed against the Company. The counterclaim
further alleges that the infringement is willful and seeks unspecified damages,
an injunction and other relief against the Company. The Company contends the
counterclaim is without merit and vigorously contests its allegations. On April
29, 1999, the Company filed a motion requesting summary judgment that the
Company has not infringed Reddwarf's patent and a motion requesting summary
judgment that the patent is invalid. On June 30, 1999, the District Court
granted the motion for summary judgment of non-infringement. On July 2, 1999,
the court held that the Company has not infringed Reddwarf's patent and that
Reddwarf shall take nothing by its counterclaim. On July 27, 1999 Reddwarf filed
a purported notice of appeal to the Federal Circuit from the District Court's
order granting summary judgment. On May 2, 2000, Meade filed a motion in the
Federal Circuit to dismiss Reddwarf's appeal on the ground that Reddwarf had
failed to properly appeal from the District Court's final judgment. On June 23,
2000, the Federal Circuit granted Meade's motion and ordered dismissal of the
appeal. On or about July 7, 2000, Reddwarf filed with the Federal Circuit a
petition for rehearing and a suggestion for rehearing en banc. The Federal
Circuit has not yet ruled on that petition. In the event of any further
proceedings on the merits, the Company intends to vigorously defend the judgment
before the appellate court. Due to the uncertainties of litigation, the Company
is unable to provide an evaluation of the likelihood of an unfavorable outcome
in the case, or an estimate of the amount of potential loss in the event of an
unfavorable outcome.
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. 27 Financial Data Schedule for the nine months ended
November 30, 2000.
6(b) Reports on Form 8-K.
None.
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<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MEADE INSTRUMENTS CORP.
By: /s/ JOHN C. DIEBEL
-------------------------------
John C. Diebel
Chairman of the Board and
Chief Executive Officer
Dated: January 5, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN C. DIEBEL Chairman of the Board and January 5, 2001
---------------------------------------- Chief Executive Officer
John C. Diebel (Principal Executive Officer)
/s/ STEVEN G. MURDOCK Director, President, January 5, 2001
---------------------------------------- Chief Operating Officer and Secretary
Steven G. Murdock
/s/ BRENT W. CHRISTENSEN Vice President, Finance January 5, 2001
---------------------------------------- and Chief Financial Officer
Brent W. Christensen (Principal Financial and Accounting Officer)
/s/ JOSEPH A. GORDON, JR. Director and Senior Vice President January 5, 2001
---------------------------------------- of North American Sales
Joseph A. Gordon, Jr.
/s/ TIMOTHY C. MCQUAY Director January 5, 2001
----------------------------------------
Timothy C. McQuay
Director
----------------------------------------
Harry L. Casari
Director
----------------------------------------
Michael P. Hoopis
</TABLE>
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule for the nine months ended
November 30, 2000
