##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended November 30, 2005
 or
 o
    
    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
(State or other jurisdiction
of incorporation or organization)
    
    95-2988062
(I.R.S. Employer
Identification No.)6001 Oak Canyon, Irvine, CA
(Address of principal executive offices)
    
    92618
(Zip Code)
 (949) 451-1450
(Registrants telephone number, including area code)
  þ o
  o þ
  o þ




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##### 



MEADE INSTRUMENTS CORP.   TABLE OF CONTENTS
  
 Page No.PART I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets (Unaudited)  November 30, 2005 and February 28, 2005
    
    1Consolidated Statements of Operations (Unaudited)  Three and Nine Months Ended
November 30, 2005 and 2004
    
    2Consolidated Statements of Cash Flows (Unaudited)  Nine Months Ended November 30, 2005 and 2004
    
    3Notes to Consolidated Financial Statements (Unaudited)
    
    4Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    16Item 4.
    
    Controls and Procedures
    
    16PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    17Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    17Item 3.
    
    Defaults Upon Senior Securities
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    17Item 5.
    
    Other Information
    
    17Item 6.
    
    Exhibits
    
    17Signatures
    
    18Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



ITEM 1.
    
    FINANCIAL STATEMENTS.
 MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED BALANCE SHEETS
(Unaudited)
 November 30,
    
    
    February 28,2005
    
    
    2005ASSETSCurrent assets:Cash
    
    $
    934,000
    
    
    $
    3,929,000Accounts receivable, less allowance for doubtful accounts of
$742,000 at November 30, 2005 and $687,000 at February 28, 2005
    
    
    47,353,000
    
    
    
    17,549,000Inventories
    
    
    41,590,000
    
    
    
    47,149,000Deferred income taxes
    
    
    6,056,000
    
    
    
    6,738,000Prepaid expenses and other current assets
    
    
    613,000
    
    
    
    771,000Total current assets
    
    
    96,546,000
    
    
    
    76,136,000Goodwill
    
    
    2,115,000
    
    
    
    4,331,000Acquisition-related intangible assets, net
    
    
    5,039,000
    
    
    
    3,375,000Property and equipment, net
    
    
    5,595,000
    
    
    
    4,343,000Deferred income taxes
    
    
    329,000
    
    
    
    329,000Other assets, net
    
    
    332,000
    
    
    
    235,000$
    109,956,000
    
    
    $
    88,749,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank lines of credit
    
    $
    19,364,000
    
    
    $
    9,827,000Accounts payable
    
    
    15,807,000
    
    
    
    3,954,000Accrued liabilities
    
    
    6,573,000
    
    
    
    4,775,000Income taxes payable
    
    
    1,906,000
    
    
    
    3,225,000Current portion of long-term debt and capital lease obligations
    
    
    704,000
    
    
    
    776,000Total current liabilities
    
    
    44,354,000
    
    
    
    22,557,000Long-term debt and capital lease obligations
    
    
    2,175,000
    
    
    
    1,241,000Commitments and contingenciesStockholders equity:Common stock; $0.01 par value; 50,000,000 shares authorized;
20,004,000 and 20,002,000 shares issued and outstanding at
November 30, 2005 and February 28, 2005, respectively
    
    
    200,000
    
    
    
    200,000Additional paid-in capital
    
    
    41,033,000
    
    
    
    40,442,000Retained earnings
    
    
    24,213,000
    
    
    
    25,016,000Deferred stock compensation
    
    
    (560,000
    )
    
    
    Accumulated other comprehensive income
    
    
    274,000
    
    
    
    1,374,00065,160,000
    
    
    
    67,032,000Unearned ESOP shares
    
    
    (1,733,000
    )
    
    
    (2,081,000
    )Total stockholders equity
    
    
    63,427,000
    
    
    
    64,951,000$
    109,956,000
    
    
    $
    88,749,000
  1




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    53,092,000
    
    
    $
    49,687,000
    
    
    $
    96,494,000
    
    
    $
    92,060,000Cost of sales
    
    
    38,437,000
    
    
    
    35,775,000
    
    
    
    70,866,000
    
    
    
    67,626,000Gross profit
    
    
    14,655,000
    
    
    
    13,912,000
    
    
    
    25,628,000
    
    
    
    24,434,000Selling expenses
    
    
    6,528,000
    
    
    
    5,911,000
    
    
    
    14,327,000
    
    
    
    13,163,000General and administrative
expenses
    
    
    3,028,000
    
    
    
    2,223,000
    
    
    
    8,985,000
    
    
    
    7,410,000ESOP expense
    
    
    91,000
    
    
    
    130,000
    
    
    
    262,000
    
    
    
    318,000Research and development expenses
    
    
    395,000
    
    
    
    672,000
    
    
    
    1,066,000
    
    
    
    1,639,000Operating income
    
    
    4,613,000
    
    
    
    4,976,000
    
    
    
    988,000
    
    
    
    1,904,000Interest expense
    
    
    419,000
    
    
    
    283,000
    
    
    
    854,000
    
    
    
    633,000Income before income taxes
    
    
    4,194,000
    
    
    
    4,693,000
    
    
    
    134,000
    
    
    
    1,271,000Provision for income taxes
    
    
    2,730,000
    
    
    
    1,894,000
    
    
    
    937,000
    
    
    
    512,000Net income (loss)
    
    $
    1,464,000
    
    
    $
    2,799,000
    
    
    $
    (803,000
    )
    
    $
    759,000Net income (loss) per share  basic
and diluted
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    (0.04
    )
    
    $
    0.04Weighted average number of shares
outstanding  basic
    
    
    19,410,000
    
    
    
    19,312,000
    
    
    
    19,326,000
    
    
    
    19,269,000Weighted average number of shares
outstanding  diluted
    
    
    19,446,000
    
    
    
    19,477,000
    
    
    
    19,326,000
    
    
    
    19,445,000
  2




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MEADE INSTRUMENTS CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months EndedNovember 30,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    (803,000
    )
    
    $
    759,000Adjustments to reconcile net income (loss) to net cash
used in operating activities:Depreciation and amortization expense
    
    
    1,853,000
    
    
    
    1,346,000Valuation allowance on deferred taxes
    
    
    936,000ESOP contribution
    
    
    262,000
    
    
    
    318,000Changes in assets and liabilities:Increase in accounts receivable
    
    
    (30,254,000
    )
    
    
    (20,292,000
    )Decrease (increase) in inventories
    
    
    4,666,000
    
    
    
    (9,585,000
    )Decrease in prepaid expenses and other assets
    
    
    16,000
    
    
    
    940,000Increase in accounts payable
    
    
    12,027,000
    
    
    
    5,603,000Increase (decrease) in accrued liabilities
    
    
    1,475,000
    
    
    
    (571,000
    )Decrease in income taxes payable
    
    
    (898,000
    )
    
    
    (190,000
    )Net cash used in operating activities
    
    
    (10,720,000
    )
    
    
    (21,672,000
    )Cash flows from investing activities:Capital expenditures
    
    
    (2,634,000
    )
    
    
    (562,000
    )Net cash used in investing activities
    
    
    (2,634,000
    )
    
    
    (562,000
    )Cash flows from financing activities:Net borrowings under bank lines of credit
    
    
    9,618,000
    
    
    
    16,032,000Borrowings on a long-term bank note
    
    
    1,643,000Payments on long-term bank notes
    
    
    (612,000
    )
    
    
    (431,000
    )Proceeds from the sale of stock options
    
    
    
    
    
    
    32,000Payments under capital lease obligations
    
    
    (10,000
    )
    
    
    Net cash provided by financing activities
    
    
    10,639,000
    
    
    
    15,633,000Effect of exchange rate changes on cash
    
    
    (280,000
    )
    
    
    (311,000
    )Net decrease in cash
    
    
    (2,995,000
    )
    
    
    (6,912,000
    )Cash at beginning of period
    
    
    3,929,000
    
    
    
    7,806,000Cash at end of period
    
    $
    934,000
    
    
    $
    894,000Noncash investing and financing activities:Issuance of restricted stock
    
    $
    681,000
    
    
    
    Purchase of equipment under capital lease
    
    
    21,000
    
    
    
    Taxes paid
    
    
    953,000
    
    
    
    
  3




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MEADE INSTRUMENTS CORP.
 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
 A. The Consolidated Financial Statements Have Been Prepared by the Company and are Unaudited.
   B. Stock Based Compensation
  Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reported net income (loss)
    
    $
    1,464,000
    
    
    $
    2,799,000
    
    
    $
    (803,000
    )
    
    $
    759,000Add back restricted stock compensation
expense recognized, net of tax
    
    
    33,000
    
    
    
    
    
    
    
    120,000
    
    
    
    Compensation expense determined under fair value
method, net of tax
    
    
    (126,000
    )
    
    
    (268,000
    )
    
    
    (391,000
    )
    
    
    (781,000
    )Pro forma net income (loss)
    
    $
    1,371,000
    
    
    $
    2,531,000
    
    
    $
    (1,074,000
    )
    
    $
    (22,000
    )Reported net income (loss) per share  basic
and diluted
    
    $
    0.08
    
    
    $
    0.14
    
    
    $
    (0.04
    )
    
    $
    0.04Pro forma net income (loss) per share  basic
and diluted
    
    $
    0.07
    
    
    $
    0.13
    
    
    $
    (0.06
    )
    
    $
    (0.00
    )
  Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted average expected life (years)
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.0Volatility
    
    
    33.1
    %
    
    
    69.3
    %
    
    
    33.1
    %
    
    
    69.3
    %Risk-free interest rate
    
    
    3.98
    %
    
    
    3.38
    %
    
    
    3.98
    %
    
    
    3.38
    %Expected dividends
    
    None
    
    None
    
    None
    
    NoneWeighted average fair value of options granted
    
    $
    2.28
    
    
    $
    2.01
    
    
    $
    2.28
    
    
    $
    2.01
 4




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C. Composition of Certain Balance Sheet Accounts
  November 30,
    
    
    February 28,2005
    
    
    2005Raw materials
    
    $
    6,817,000
    
    
    $
    7,449,000Work-in-process
    
    
    7,737,000
    
    
    
    6,023,000Finished goods
    
    
    27,036,000
    
    
    
    33,677,000$
    41,590,000
    
    
    $
    47,149,000
  November 30,
    
    
    February 28,2005
    
    
    2005Brand names  non-amortizing
    
    $
    2,041,000
    
    
    $
    2,041,000Trademarks
    
    
    1,938,000
    
    
    
    1,398,000Customer relationships
    
    
    1,390,000
    
    
    
    1,390,000Completed technologies
    
    
    1,620,000
    
    
    
    Other
    
    
    56,000
    
    
    
    Accumulated amortization
    
    
    (2,006,000
    )
    
    
    (1,454,000
    )Total amortizing acquisition-related intangible assets
    
    
    2,998,000
    
    
    
    1,334,000Total acquisition-related intangible assets
    
    $
    5,039,000
    
    
    $
    3,375,000
  Acquisition-related
    
    Amortization periodintangible asset
    
    (in years)
    
    
    Gross carrying amountCompleted technologies
    
    
    12
    
    
    $
    1,620,000Trademarks
    
    
    9
    
    
    
    540,000Other
    
    
    1
    
    
    
    56,000Goodwill
    
    none
    
    
    567,000Total
    
    
    
    
    
    $
    2,783,000
  Fiscal Year
    
    Amount2006
    
    $
    565,0002007
    
    
    336,0002008
    
    
    336,0002009
    
    
    336,0002010
    
    
    336,000Thereafter
    
    
    1,089,000
  D. Commitments and Contingencies
  5




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E. Earnings (Loss) Per Share
   November 30,
    
    
    November 30,2005
    
    
    2004Stock options outstanding
    
    
    3,885,000
    
    
    
    3,976,000Restricted shares outstanding
    
    
    247,500
    
    
    
    
  Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic weighted average number of shares
    
    
    19,410,000
    
    
    
    19,312,000
    
    
    
    19,326,000
    
    
    
    19,269,000Dilutive potential shares of common stock.
    
    
    36,000
    
    
    
    165,000
    
    
    
    
    
    
    
    176,000Diluted weighted average number of
shares outstanding
    
    
    19,446,000
    
    
    
    19,477,000
    
    
    
    19,326,000
    
    
    
    19,445,000Number of options excluded from the
calculation of weighted average shares
because the exercise prices were greater
than the average market price of the
Companys common stock
    
    
    3,310,000
    
    
    
    2,260,000
    
    
    
    3,439,000
    
    
    
    2,359,000
  F. Comprehensive Income (Loss)
  Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    1,464,000
    
    
    $
    2,799,000
    
    
    $
    (803,000
    )
    
    $
    759,000Currency translation adjustments
    
    
    (310,000
    )
    
    
    540,000
    
    
    
    (824,000
    )
    
    
    392,000Change in fair value of interest rate swap, net of tax
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    17,000Change in fair value of foreign currency forward
contracts, net of tax
    
    
    1,082,000
    
    
    
    165,000
    
    
    
    (276,000
    )
    
    
    (674,000
    )Total other comprehensive income (loss)
    
    $
    2,236,000
    
    
    $
    3,506,000
    
    
    $
    (1,903,000
    )
    
    $
    494,000
 G. Product Warranties
  6




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Three months ended
    
    
    Nine months endedNovember 30,
    
    
    November 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Beginning balance
    
    $
    1,102,000
    
    
    $
    1,159,000
    
    
    $
    1,173,000
    
    
    $
    1,427,000Warranty accrual
    
    
    180,000
    
    
    
    70,000
    
    
    
    365,000
    
    
    
    326,000Labor and material usage
    
    
    (261,000
    )
    
    
    (151,000
    )
    
    
    (517,000
    )
    
    
    (675,000
    )Ending balance
    
    $
    1,021,000
    
    
    $
    1,078,000
    
    
    $
    1,021,000
    
    
    $
    1,078,000
 H. Derivative Instruments and Hedging Activities
   November 30, 2005
    
    
    
    
    
    
    February 28, 2005Notional
    
    
    
    
    
    
    Notionalamount
    
    
    Fair Value
    
    
    amount
    
    
    Fair ValueForward currency contracts
    
    $
    2,600,000
    
    
    $
    (460,000
    )
    
    
    
    
    
    
    
  I. Bank Borrowings
    7




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November 30,
    
    
    February 28,2005
    
    
    2005U.S. bank revolving line of credit
    
    $
    15,233,000
    
    
    $
    9,816,000European bank revolving line of credit
    
    
    4,131,000
    
    
    
    11,000Total bank lines of credit
    
    $
    19,364,000
    
    
    $
    9,827,000U.S. term loan
    
    $
    350,000
    
    
    $
    665,000European term loan no.1
    
    
    886,000
    
    
    
    1,129,000European term loan no.2
    
    
    1,571,000
    
    
    
    Notes payable and capital lease obligations
    
    
    72,000
    
    
    
    223,000Total debt and capital lease obligations
    
    
    2,879,000
    
    
    
    2,017,000Less current portion
    
    
    (704,000
    )
    
    
    (776,000
    )Total long-term debt and capital lease obligations
    
    $
    2,175,000
    
    
    $
    1,241,000
 J. Restricted stock
  K. Income Taxes
  8




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L. New Accounting Pronouncements
  Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
    M. Reclassifications
  9




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Results of Operations
  Overview
  Three Months Ended November 30, 2005 Compared to Three Months Ended November 30, 2004
    10




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Nine Months Ended November 30, 2005 Compared to Nine Months Ended November 30, 2004
    11




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Seasonality
  Liquidity and Capital Resources
  12




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New Accounting Pronouncements
  Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
 13




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Forward-Looking Information
   14




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
    
    a decline in general economic conditions;
    
    uncertainties affecting consumer spending; and
    
    changes in interest rates causing a reduction of investment income or in the value
of market interest rate sensitive instruments.
  
    
    the potential that we may be unable to obtain and maintain
patents and trademarks to protect our proprietary technologies and
trade names;
    
    competitors infringement upon Meades existing and future intellectual property; and
    
    competitors intellectual property rights that may restrict our ability to compete effectively.
  
    
    a general decline in demand for the Companys products;
    
    an inability to continue to design and manufacture products that will achieve and maintain commercial success;
    
    the potential that we may fail to penetrate the binocular, riflescope and solar
observing markets and achieve meaningful sales;
    
    any significant interruption of our manufacturing abilities in our domestic or
Mexican facilities or in any of our 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; and
    
    increasing ESOP charges in the event the market price of the Companys stock increases.
 15




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   November 30, 2005
    
    
    
    
    
    
    February 28, 2005Notional
    
    
    
    
    
    
    Notionalamount
    
    
    Fair Value
    
    
    amount
    
    
    Fair ValueForward currency contracts
    
    $
    2,600,000
    
    
    $
    (460,000
    )
    
    
    
    
    
    
    
  
 ITEM 4. CONTROLS AND PROCEDURES
    16




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PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 1.
    
    Exhibit 10.68 Fifth Amendment to Amended and Restated Credit Agreement and
Limited Waiver of Defaults dated October 12, 2005, and entered into by and among Bank
of America, N.A. and Meade Instruments Corp., a Delaware corporation, Simmons Outdoor
Corp., a Delaware corporation, and Coronado Instruments, Inc., a California corporation
(Incorporated by reference to the Companys Current Report on Form 8-K, as filed with
the Securities and Exchange Commission on October 17, 2005)2.
    
    Exhibit 31.1 Sarbanes-Oxley Act Section 302 Certification by Steven G. Murdock3.
    
    Exhibit 31.2 Sarbanes-Oxley Act Section 302 Certification by Brent W. Christensen4.
    
    Exhibit 32.1 Sarbanes-Oxley Act Section 906 Certification by Steven G. Murdock5.
    
    Exhibit 32.2 Sarbanes-Oxley Act Section 906 Certification by Brent W. Christensen
    
    Exhibit filed with this Report
 17




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SIGNATURES
  Date: January 17, 2006MEADE INSTRUMENTS CORP.By:
    
    /s/ STEVEN G. MURDOCKSteven G. MurdockPresident, Chief Executive Officerand SecretaryBy:
    
    /s/ BRENT W. CHRISTENSENBrent W. ChristensenSenior Vice President, Finance andChief Financial Officer
 18