##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
  
 FORM 10-K (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended February 28, 2005 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 0-22183 MEADE INSTRUMENTS CORP. (Exact Name of Registrant as Specified in Its Charter)
 
 Delaware
    
    95-2988062(State of Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification)6001 Oak Canyon, Irvine, California
    
    92618(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (949) 451-1450 
 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par Value Per Share (Title of Class) 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 þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of Registrants knowledge in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ As of May 20, 2005, there were 20,003,855 outstanding shares of the Registrants common stock,
par value $0.01 per share. As of August 31, 2004, the aggregate market value of the shares of common stock held by
non-affiliates of the Registrant, computed based on the closing sale price of $3.09 per share as
reported by Nasdaq, was approximately $53 million. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12(b)-2). Yes o No þ Documents Incorporated by Reference Portions of the registrants Proxy Statement for the 2005 Annual Meeting of Stockholders,
which will be filed with the Securities and Exchange Commission not later than 120 days after
February 28, 2005, are incorporated by reference into Part III of this Report.




---



TABLE OF CONTENTS PagePART IItem 1
    
    Business
    
    
    1Executive Officers of the Registrant
    
    
    10Item 2.
    
    Properties
    
    
    10Item 3.
    
    Legal Proceedings
    
    
    10Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    11Item 6.
    
    Selected Financial Data
    
    
    12Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 8.
    
    Financial Statements and Supplementary Data
    
    
    22Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    22Item 9A.
    
    Controls and Procedures
    
    
    22Item 9B.
    
    Other Information
    
    
    22PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    23Item 11.
    
    Executive Compensation
    
    
    23Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    24Item 13.
    
    Certain Relationships and Related Transactions
    
    
    24Item 14.
    
    Principal Accountant Fees and Services
    
    
    24PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    25CONSOLIDATED FINANCIAL STATEMENTS AND NOTESReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at February 28, 2005 and February 29, 2004
    
    
    F-2Consolidated Statements of Operations for the three years in the period ended February 28, 2005
    
    
    F-3Consolidated Statements of Stockholders Equity for the three years in the period ended February 28, 2005
    
    
    F-4Consolidated Statements of Cash Flows for the three years in the period ended February 28, 2005
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6EXHIBIT 10.61EXHIBIT 10.62EXHIBIT 10.63EXHIBIT 10.64EXHIBIT 10.65EXHIBIT 10.66EXHIBIT 10.67EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




---



##### Table of Contents



PART I 
 Item 1.Business General Meade Instruments Corp. is a multinational consumer optics company that designs, manufactures,
imports and distributes telescopes, telescope accessories, binoculars, riflescopes, spotting
scopes, microscopes, night vision and other consumer optical products. Meade Instruments is
dedicated to bringing innovative, cutting-edge, consumer-friendly products to the consumer optics
marketplace. The companys brands, which include Meade®, Bresser®, Simmons®, Weaver®, Redfield®,
and Coronado®, are recognized throughout the world and are associated with innovation in the
amateur astronomy, consumer optical and sporting goods markets. Products such as the recently
announced RCX400 high-end telescopes, featuring an advanced Ritchey-Chrétien optical design, the
Deep Sky Imager (DSI), a high-performance charge-coupled device (CCD) camera that has advanced
astro-imaging to near point-and-shoot simplicity, the CaptureView, a binocular with an integrated
digital camera and NightView, a compact night vision monocular built on an innovative and
proprietary digital imaging technology, help sustain the Meade brand as a brand known for
innovation in amateur astronomy and other consumer optical products. The Bresser brand, active in
the European market for nearly 30 years, is known for its wide range of modestly-priced products
including binoculars and smaller-aperture telescopes. In October 2002, the Company acquired Simmons
Outdoor Corp. (Simmons) to expand its brand name offerings and extend its reach into the
worldwide sporting goods marketplace. Simmons offers complete binocular and riflescope product
lines under the Simmons, Weaver and Redfield brand names. The Simmons, Weaver and Redfield brand
names have long histories in the sporting goods channel (the Redfield brand name is nearly 100
years old). In December 2004, in an effort to vertically expand the Companys product offerings,
the company purchased substantially all of the assets and assumed substantially all of the
liabilities of Coronado Technology Group, LLC, a supplier of high-end hydrogen-alpha solar filters
and high-end dedicated solar telescopes, as well as various related accessories and more modestly
priced dedicated solar observation equipment. The Company offers numerous different telescope, riflescope and binocular models as well as
hundreds of accessory products for consumer amateur astronomy and sporting goods buyers. The
Companys telescopes range in aperture from under 2 inches to 16 inches and in retail price from
less than $50 to more than $20,000. The Company offers several families of riflescopes and
binoculars under its various brand names at retail price points from about $10 to more than $500.
Whether a consumer is a serious amateur astronomer, an avid naturalist or someone just looking for
a good binocular, Meade Instruments offers a complete range of quality products to satisfy almost
any desire of a consumer optics buyer. Founded in 1972, Meade has a decades-long reputation for providing the amateur astronomer with
technically sophisticated products at competitive prices. Combining its manufacturing expertise
with its dedication to innovation, quality and value, Meade has developed and produced some of the
industrys most technologically advanced consumer telescopes at affordable prices. Capitalizing on
its brand name recognition among serious amateur astronomers and its ability to bring advanced
technology to lower price points, the Company has marketed successfully its less-expensive
telescopes to beginning and intermediate amateur astronomers. The Company is a major supplier of
consumer optics to such retailers as Discovery Channel Stores, Aldi and Lidl (in Germany),
Wal-Mart, Sams Club, Dicks Sporting Goods and Jerrys Sport Center. Meade has consistently emphasized a business plan that is concentrated on new product
development, supply chain management, effective targeted marketing and customer service. As an
indication of its commitment to product development, the Company spent $2.0 million, $2.0 million
and $3.0 million on research and development during fiscal 2005, 2004 and 2003, respectively, and
has, over the last five fiscal years, committed $11.3 million in the aggregate to research and
development. These research and development expenditures were centered on the development of
technologically advanced telescopes, new products for the general consumer and sports optics
markets as well as product improvement and industrial applications of the Companys existing
technologies. The Company manufactures a complete line of advanced astronomical telescopes in Irvine,
California, including the production of all of the advanced optical systems, which are critical
components of telescopes. Many of the 1




---



##### Table of Contents



Companys less-expensive telescopes and its binoculars and riflescopes, as well as certain
component parts for its small to midrange telescopes, are manufactured under proprietary designs by
manufacturers located in Asia, including mainland China, Taiwan, Korea, the Philippines and Japan.
The Company also assembles many of its small to midrange products and accessories into finished
products in the Companys Mexican assembly plant (See Item 2. Properties). The Company complements its efforts in new product development with an aggressive marketing
plan. The Companys marketing plan includes print advertising in astronomy, outdoor and hunting
related magazines and, at times, in general consumer magazines, as well as jointly developed
advertising campaigns with many of the Companys key retail partners, and point-of-sale marketing
displays. In addition, Meade publishes comprehensive, full-color, high-quality product catalogs
that provide significant product exposure for a broad range of consumers including the serious
amateur astronomer, the avid birder, the weekend sports enthusiast or hunter. On September 1, 1999 the Company acquired 100% of the equity interests in Bresser Optik GmbH &
Co. KG, and Bresser Optik Geschaftsfuhrung und Verwaltungs GmbH (collectively Bresser), for $5.0
million in cash and 201,830 shares of the Companys common stock valued at approximately $2.0
million. Bresser is a German distributor of binoculars, telescopes, microscopes and other consumer
optical products. Bresser has provided the Company greater foreign distribution opportunities for
the Companys products. Moreover, Bressers significant presence in the binocular and low-priced
telescope market in Europe has strengthened the Companys penetration into these markets. The cost
structure at Meade Europe (formerly Bresser), operating as a distribution company with the majority
of its sales coming from product manufactured in the Far East, has resulted in steady profitability
since the Company acquired Bresser in 1999. In January 2000, the Company also purchased what was
formerly its German distributor for approximately $1.1 million cash. On October 25, 2002 the Company acquired 100% of the outstanding common stock of Simmons
Outdoor Corp. for $20.8 million cash ($16.0 million was paid at close; the balance was paid in
December, 2002). Simmons, a designer and distributor of riflescopes, binoculars and other consumer
sports optics, offers products under the Simmons, Weaver and Redfield brand names. To fund a
portion of the purchase price, the Company sold 3,292,000 shares of its common stock in a private
placement for net cash proceeds of $7.3 million. The balance of the purchase price was funded
through borrowings on the Companys bank line of credit. On December 1, 2004, the Company acquired substantially all of the assets and assumed
substantially all of the liabilities of Coronado Technology Group, LLC, for approximately $2.5
million in cash plus contingent consideration. The contingent consideration is based upon
financial performance of the acquired operations for the twelve months ended December 31, 2005.
The contingent consideration is the excess of three times earnings before interest and taxes
(EBIT) over $2.5 million. If three times EBIT does not exceed $2.5 million, no additional
consideration will be paid. Coronado is a supplier of high-quality hydrogen-alpha filters and
dedicated solar telescopes, as well as various related accessories, designed to meet the needs of
amateur as well as professional solar observers. The acquisition of Coronado added a respected name
in the solar observation markets to Meades suite of brands, vertically adding to the Companys
product offerings, particularly the telescope and accessory lines. In the United States and Canada, the Company distributes its products through a network of
more than 600 specialty retailers, distributors and mass merchandisers, which offer the Companys
products in more than 12,000 retail store locations. The Company also sells certain of its products
to selected national mail order dealers. In addition to products sold through Meade Europe
(formerly Bresser) channels, Meade sells its products internationally through a network of over 40
foreign distributors, many of which service dealer locations in their respective countries.
Revenues from customers outside North America were $32.1 million, $36.3 million and $27.2 million
for the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003,
respectively, and accounted for approximately 28.7%, 26.2% and 24.5% of the Companys net sales for
the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively
(See Note 9 of Notes to Consolidated Financial Statements). The Company intends to continue to
pursue an integrated strategy of product line expansion, aggressive marketing, and expansion of the
Companys domestic and international distribution networks. During fiscal 2002, the Company began to pursue industrial applications for its technologies
and its product development and manufacturing capabilities. To that end, the Company announced
several relationships with 2




---



##### Table of Contents



companies involved in free-space optics communication technologies and digital imaging
applications in the scientific research and medical diagnostic equipment markets. Many of those
companies have since ceased doing business. Meades principal source of revenue in the industrial
marketplace is the sale of digital CCD imagers used in a life sciences research system manufactured
and sold by the Eastman Kodak Companys Scientific Imaging Systems group (based in Rochester, NY
and New Haven, CT). However, sales to Eastman Kodak amounted to less
than 1% of net sales for each of the
years ended February 28, 2005, February 29, 2004 and
February 28, 2003. The Company does not believe sales of products into industrial
markets will contribute meaningfully to top-line sales or profitability for the foreseeable future. Industry Overview Market-size data for the consumer optics industry are difficult to obtain because nearly all
of the companies in the industry are privately held. The Company believes the overall size of the
consumer optics market is driven, in part, by the introduction of new products. The Company offers products at numerous price points in the consumer optics market, from
advanced astronomical telescopes, state-of-the-art riflescopes and cutting-edge binoculars with
integrated digital cameras to less-expensive telescopes for beginning amateur astronomers and
low-priced binoculars for the casual observer. The advanced astronomical telescope market is characterized by frequent technological
developments, including the relatively recent introduction of electronic and computer-aided
features. Serious amateur astronomers demand that the optical, electronic and mechanical
performance of the telescopes and accessories they purchase be of very high quality. These advanced
telescopes continue to drive the technological advances specifically in the telescope industry and
generally in the consumer optics industry. Telescopes are generally offered in three different optical configurations: (a) refracting
telescopes, which use a lens at the upper end of the optical tube to collect light; (b) reflecting
telescopes, which use a concave mirror as the primary optical element; and (c) catadioptric
(mirror-lens) telescopes, which employ a combination of mirrors and lenses to form the image. Each
type has its own advantages: refractors are easy to maintain, yield sharp images and are relatively
inexpensive in smaller apertures; reflectors generally are the lowest-cost means of purchasing
larger apertures and are well suited to the intermediate amateur astronomer; and mirror-lens
telescopes are more portable in larger apertures. The binocular market is typically characterized less by technological developments than by
styling, features and price. However, the Company believes its introduction in 2002 of the
CaptureView binocular with an integrated digital camera demonstrated that innovation can drive
binocular sales as well. The principal features considered by binocular buyers include: (1) the
diameter of the objective lenses, which serve to collect light, (2) the types of prisms used to
right the visual image  either porro prisms (which give some binoculars the familiar zig-zag
profile) or roof prisms that permit straight line designs, and (3) the magnification, or power, of
the optical system. A binoculars field of view, anti-reflective lens coatings and eye relief are
also considered by consumers buying binoculars. Binoculars typically range in size from mini
binoculars that generally have objective lenses not larger than 26mm to professional-level
binoculars that can support objective lenses exceeding 60mm in diameter. Binocular retail prices
range from under ten dollars to several thousand dollars. The Companys binoculars, offered under
the Meade, Bresser, Simmons, Weaver and Redfield brand names, as well as various private label
names, generally sell for between $10 and $400 at retail. The riflescope (and pistol scope) market demands a product that is rugged, absolutely
waterproof and unerringly accurate. Like the binocular and telescope markets, features, styling and
price are prime motivators in the riflescope market. Brand reputation is also a critical element in
the riflescope consumers buying decision. The principal features considered by rifle and pistol
scope buyers include: (1) light gathering ability and light transmission which are principally
dependent on the diameter of the objective lens and the effectiveness of the anti-reflective
coatings applied to the various lens surfaces in the scope, (2) waterproof/fogproof/shockproof
integrity and durability of construction, (3) eye relief, which measures the distance from the
shooters eye to the surface of the ocular lens, (4) ease of adjustment for windage and elevation,
and (5) magnification  riflescopes typically offer variable magnification but come in fixed
magnifications as well. Rifle and pistol scopes are sized by the diameter of the objective lens,
which typically ranges from 20mm to 56mm, and are priced from under $30 to nearly $2,000 at 3




---



##### Table of Contents



retail. The Companys rifle and pistol scopes, offered under the Simmons, Weaver and Redfield
brand names, generally sell for between $30 and $600 at retail. Meade Instruments Corp. believes that it is well positioned in the marketplace to capitalize
on its strong family of brand names, its research and development resources, its history of
innovation and its manufacturing capabilities, to bring new and innovative products to the consumer
and sports optics markets. Competitive Strengths The Company believes that it derives significant benefits from its position as a leading
designer and distributor of telescopes, binoculars, riflescopes, spotting scopes, microscopes,
night vision and other consumer optical related products. These benefits include its ability to
offer its customers a broad and innovative, product line embodying both high quality and value. The
Company attributes its success to the following competitive strengths: New Products/Research and Development.The Company places a primary emphasis on product
innovation and quality through its research and development efforts. The Company employs an
in-house engineering staff at both its Irvine, CA and Guangzhou, China facilities that develops new
products for the broad spectrum of markets the Company sells into as well as technological advances
and improvements to existing products. The Company is able to obtain additional benefits by
out-sourcing certain research and development services to supplement its internal expertise. Meade
believes that the members of its senior-level engineering management team are among the most
experienced in the consumer optics industry. The Company, its management and its employees are
dedicated to the goal of producing technically superior yet price-competitive products and have
been responsible for some of the consumer optics industrys most technically advanced, easy to use,
consumer optical products. During fiscal 2004, the Company established an engineering office in
mainland China. The Chinese office is staffed with engineers that work under the supervision of the
Companys domestic engineering team. The Company believes that this facilitys proximity to the
Companys Asian suppliers will allow more efficient coordination between the Company and its Asian
suppliers as well as improve the overall efficiency of the Companys design process. Broad Line of Products.The Company has pursued a strategy in which it uses the advancements
in microprocessor technology to build on its existing know-how in advanced telescope design and
operation to bring computer technology and features to consumer optical products at lower and lower
price points. Through its acquisitions of Bresser in 1999, Simmons in 2002 and Coronado in 2004,
the Company has expanded its product lines to include a wide variety of binoculars and telescopes
under the Bresser brand name (a well-known and respected brand in Germany and throughout Europe), complete lines of riflescopes, pistol scopes and binoculars under the Simmons, Weaver and Redfield
brand names, and a broad assortment of solar viewing equipment under the Coronado brand name. As a
result, the Company offers numerous different telescope, riflescope, spotting scope and binocular
models with several different optical configurations, as well as hundreds of accessory products for
the consumer telescope and sports optics buyers. The Companys telescopes range in aperture from
under 2 to 16 inches and in retail price from less than $50 to more than $20,000. The Company
offers several families of riflescopes and binoculars (including digital camera binoculars) under
its several brand names at retail price points from about $10 to more than $500. During fiscal
2004, Meade and Weaver introduced a compact night vision monocular that is built on an innovative
and proprietary digital imaging technology that yields crisp, detail-rich images. Whether a
consumer is a serious amateur astronomer, an avid hunter or someone just looking for a good
binocular, Meade offers a complete range of quality products to satisfy almost any desire the
consumer optics buyer may have. Optical Systems Expertise.Meade has made substantial investments to develop an expertise in
optical engineering, providing it with the ability to produce high quality optics on-site in
Irvine, California. Meade employs highly skilled opticians who use sophisticated manufacturing
techniques and equipment, including specialized optical polishing machines and vacuum-coating
machines, to produce what the Company believes to be the highest quality optics available in the
more advanced consumer telescope market. Meade uses its optical engineering expertise to ensure
that the optics in its foreign-sourced products meet the strictest of standards. Quality Control.Meades manufacturing and engineering personnel coordinate the manufacturing
process in order to ensure that product quality is maintained at a high level within an efficient
cost structure. The Company has in place quality controls covering all aspects of the manufacturing
process of its products, from each products 4




---



##### Table of Contents



precision optical system to its final assembly and testing. Certain of the Companys less
expensive and mid-range telescope models and accessories are assembled at the Companys assembly
plant located in Tijuana, Mexico. The Company manufactures the majority of its high-end advanced
telescopes in its manufacturing facility in Irvine, California, while many of the Companys
less-expensive telescopes, and its binoculars and riflescopes are produced for the Company by
manufacturers located in the Far East, principally mainland China, Taiwan, Japan, Korea and the
Philippines. Through its new Guangzhou, China facility product and design engineers in the Far East
monitor the manufacturing processes at the various plants that produce its products. Meade also
regularly commits at least one of its United States based quality control engineers to the Far
East. Broad Distribution Network.The Companys sales force in the U.S. and in Germany works closely
with specialty retailers, distributors and mass merchandisers on product quality, technical
knowledge and customer service. Meade expanded its distribution network with the acquisition of
Simmons. Simmons distributes its products, inside and outside the U.S., principally through mass
merchandisers and distributors in the sporting goods marketplace. Meade did not have significant
presence in the sporting goods marketplace prior to the acquisition of Simmons. Meade has its own
on-site graphic arts departments in both Irvine, CA and Borken, Germany to work with specialty
retailers, distributors and mass merchandisers to produce print advertising, hang-tags for displays
within retail outlets and other point-of-sale support. This capability provides the Companys
customers with a comprehensive marketing program to assist in their sales efforts. As a result of
these efforts, Meade has become a major supplier of telescopes, binoculars and riflescopes to such
retailers as Discovery Channel Store, Aldi and Lidl (in Germany), Wal-Mart, Sams Club, Dicks
Sporting Goods and Jerrys Sport Center. Meade Europe also has continued to expand the Companys
international presence. Superior Customer Service.Meade believes that its high levels of customer service and
technical support are important factors that differentiate it from its competitors. In an effort to
provide each of the Companys customers with post-sale service and to relieve them of the burden of
such service, Meade has established multiple dedicated toll-free telephone numbers so that its
customers and end users can call the Companys support personnel with any questions relating to its
products. In addition to giving its customers personal attention, the Company believes that
providing this toll-free assistance also reduces product returns by better educating first-time
users about the operation of its products. In addition, to help further enhance the out-of-the-box
experience for first-time telescope buyers, Meade has begun to include instructional DVDs with
many of its entry-level and mid-level telescopes. Products Meade has developed and expanded its product line to include a full line of telescopes and
accessories for the beginning, intermediate and serious amateur astronomer. The Company offers a
complete line of binoculars from small aperture theater glasses to full-size waterproof roof-prism
glasses and the Companys CaptureView binocular with an integrated digital camera. The Companys
product offerings also include a complete line of riflescopes from the lower-to-moderate priced
Simmons line to the higher priced precision scopes in the Weaver and Redfield lines. During fiscal
2004, Meade and Weaver introduced a new compact night vision monocular that is built on an
innovative and proprietary digital imaging technology that yields crisp, detail-rich images.
Moreover, in addition to adding new products, the Company continually refines and improves its
existing products. Certain of Meades products are described in greater detail below: Advanced Astronomical Telescopes.Among the Companys most sophisticated products are its RCX
and LX series Ritchey-Chrétien, Schmidt-Cassegrain and Maksutov-Cassegrain telescopes, which
incorporate optical systems that provide high-quality resolution, contrast and light transmission.
The RCX and LX series offer the serious amateur astronomer a broad range of products, from the
attractively priced Autostar-controlled LX90, to the state-of-the-art RCX400 and LX200GPS lines.
The RCX400 telescopes, currently available in 10 and 12 inch apertures, (with 14 and 16 inch
apertures planned for manufacture during calendar 2005) are the Companys new state-of-the-art
large-aperture scopes specifically targeting serious amateur astronomers interested in
astrophotography. The optical design in the RCX400 is similar to that used in the Hubble Space
Telescope. The RCX line makes observatory-grade optics, mechanics and electronics available at
commercial prices. The LX200GPS telescopes, available in 7, 8, 10, 12, 14 and 16-inch apertures,
are the most popular of the Companys telescopes among serious
amateur astronomers. Both the RCX and the LX200GPS
telescopes feature a Global Positioning System (GPS) receiver for automatic telescope alignment
and a built-in computer library of more than 145,000 celestial 5




---



##### Table of Contents



objects. These objects are cataloged in the Companys proprietary hand-held computerized
Autostar II control system. By entering any of the celestial objects presented on the Autostar II
display, the telescope automatically locates and tracks the selected object. Advanced telescopes
also include the Companys LXD75 series. The LXD75 series offers the more serious amateur a wide
variety of advanced features on larger aperture telescopes at economical prices. With the
acquisition of Coronado in December 2004, the Company added sophisticated, dedicated solar viewing
telescopes to its advanced telescope lines. The SolarMax telescopes, ranging in aperture from
40mm to 90mm, feature Coronados patented hydrogen-alpha (H-alpha) etalon filters. Coronados
H-alpha etalons isolate the hydrogen-alpha wavelength while rejecting all others allowing
naked-eye observation of the sun, its flares, prominences, filaments, spiculae, faculae, and
active regions. Advanced astronomical telescopes collectively represented approximately 1%, 2%,and
3% of telescope units shipped and approximately 11%, 17% and 21% of the Companys net sales for its
fiscal years ended February 28/29, 2005, 2004 and 2003, respectively. Entry-Level Telescopes.Designed specifically for the beginning to intermediate amateur
astronomer or terrestrial observer, the Companys less-expensive 50mm to 130mm refracting,
reflecting and spotting scopes and the ETX series telescopes include many of the features of the
more advanced telescopes at economical prices. With the NG and NGC series of telescopes (the NG
telescopes) and the Digital Electronic Series telescopes (the DS telescopes), with apertures
ranging from 60mm to 130mm, and the ETX series, with apertures ranging from 70mm to 125mm, some of
the most sophisticated features of the Companys advanced telescopes are made available at some of
the Companys lowest retail price points. Equipped with the hand-held Autostar Computer Controller,
the ETX series and the DS telescopes can find and track any one of one thousand or more celestial
objects at the push of a button. The Autostar, with its go to capability, brings to the general
consumer for prices starting at a few hundred dollars, features that have previously been available
only on the most sophisticated high-end telescopes selling for thousands of dollars. The Company
offers several variations of its small refracting and reflecting telescopes (including its
traditional models, the NG telescopes and the DS telescopes) for distribution on a semi-exclusive
basis to specific specialty retailers. With the acquisition of Coronado in December 2004, in
addition to the advanced H-alpha scopes described above, the Company added dedicated solar-viewing
telescopes to its entry-level offerings. The Coronado Personal Solar Telescope (PST) is a 40mm
dedicated solar telescope that makes solar viewing possible at a more consumer friendly price. The
PST uses a filtering technology similar to that which goes into a SolarMax telescope but with a few
unique design characteristics that allow for a lower price to the consumer. These various
telescope models comprise the lower-priced end of the Companys telescope product lines. Sales of
entry-level telescopes comprised approximately 99%, 98% and 97% of the Companys telescope units
shipped and approximately 34%, 35% and 36% of the Companys net sales for the fiscal years ended
February 28/29, 2005, 2004 and 2003, respectively. Binoculars.The Company expanded its market presence in binoculars with the acquisition of
Simmons in 2002 and Bresser in 1999. The Simmons brands are widely recognized in the sports optics
marketplace as quality products at competitive prices. The Bresser name is equally well recognized
in Germany and other countries in Europe as a quality supplier of a wide range of binoculars. Sales
of Bresser branded binoculars accounted for approximately one third of Meade Europes sales during
fiscal 2005, and over one third during fiscal 2004 and fiscal 2003. The Company also sells a
complete line of consumer binoculars through its existing domestic distribution network under the
Meade brand name. The companys CaptureView line of binoculars with integrated digital cameras are
sold under the Meade and Simmons brand names. The binoculars sold by the Company are purchased from
manufacturers outside the United States. Binocular sales, comprising over one million units in each
of the fiscal years ended February 28/29, 2005, 2004 and 2003, respectively, represented
approximately 23%, 21% and 24% of the Companys net sales during those fiscal years, respectively. Rifle and pistol scopes. The Company expanded its product offerings to include riflescopes and
pistol scopes with the acquisition of Simmons in October 2002. Simmons sells riflescopes under the
Simmons, Weaver and Redfield brand names. Riflescope sales accounted for most of the Companys
sales attributed to Simmons during fiscal 2005, 2004 and 2003. The riflescopes sold by the Company
are purchased from manufacturers outside the United States. Riflescopes represented approximately
20%, 18% and 8% of the Companys net sales for its fiscal years ended February 28/29, 2005, 2004
and 2003, respectively. Accessories.The Company also offers accessories for each of its principal product lines that
range from additional eyepieces and celestial observation software for telescopes to bore sighters
for riflescopes. The Coronado 6




---



##### Table of Contents



acquisition added several high-end H-alpha etalon filters to the list of telescope accessories
for the serious amateur astronomer. Sales of accessories represented approximately 8%, 6% and 9%
of the Companys net sales for the fiscal years ended February 28/29, 2005, 2004 and 2003,
respectively. Other miscellaneous products such as industrial optical and digital imaging products,
microscopes, night vision and other consumer optical products accounted for approximately 4%, 3%
and 2% of the Companys net sales for fiscal 2005, 2004 and 2003, respectively. Intellectual Property The Company relies on a combination of patent, trademark and trade secret laws to establish
and protect its proprietary rights and its technology. In general, the Company pursues patent
protection both in the United States and selected foreign countries for subject matter considered
patentable and important to the Companys business strategy. The Company has patents either issued
and/or pending in the U.S. and in several countries including Europe, Australia, Canada and the Far
East. Generally, patents issued in the U.S. are effective for 20 years from the original date of
application. The duration of foreign patents varies in accordance with applicable foreign local
law. While the duration of the Companys patents varies, its most important patents have been
issued within the last five years. The Company believes that its patents, proprietary technology, know-how and trademarks provide
significant protection for the Companys competitive position and the Company intends to protect
and enforce its intellectual property assets. Nevertheless, there can be no assurance that the
steps taken by the Company in this regard will be adequate to prevent misappropriation or
infringement of its technologies or that the Companys competitors will not independently develop
technologies that are substantially equivalent or superior to the Companys technologies.
Effective protection of intellectual property rights may be limited or unavailable in certain
foreign countries. Sales and Marketing The Companys products are sold through a domestic network of mail order dealers, specialty
retailers, distributors and mass merchandisers. Internationally, the Companys products are sold
through its wholly owned subsidiary in Germany to specialty retailers and mass merchandisers and
through a network of foreign distributors and dealers in other countries around the world. The
Companys high-end telescopes are generally sold through mail order dealers or single and
multiple-location specialty retailers. Meades less-expensive telescopes are sold in similar venues
but are sold principally through mass merchandisers. The Companys binoculars and riflescopes are
sold principally through a network of domestic distributors, as well as through specialty retailers
and mass merchandisers. The Company maintains direct contact with its larger dealers and its
domestic and foreign distributors through the Companys sales professionals. A network of
independent representatives is used to maintain contact with its smaller specialty retailers.
Included among the Companys customers are the following retail outlets, mass merchandisers and
foreign distributors: Discovery Channel Stores, Wal-Mart, Aldi and Lidl (in Germany), Sams Club,
Dicks Sporting Goods and Jerrys Sport Center. For additional information about geographic areas,
see Note 9 of Notes to Consolidated Financial Statements. The Companys sales force works closely with its dealers, specialty retailers, distributors
and mass merchandisers on product quality, technical knowledge and customer service. The Company
employs over forty persons in sales and customer service positions in the U.S. and Europe, all of
whom have significant industry experience. The Companys internal sales personnel are supplemented
by a network of regional sales representatives. Together, these individuals advise the Companys
specialty retailers about the quality features of the Companys products and provide answers to
questions from specialty retailers as well as directly from end users of the Companys products.
The Company stresses service to both its customers and end users by providing marketing assistance
in the form of hang-tags, catalog layouts and other print media as well as dedicated toll free
customer service telephone numbers. In addition to giving its customers personal attention, the
Company believes toll free telephone numbers also help reduce the number of product returns from
end users who are generally unfamiliar with the assembly and operation of telescopes, binoculars
and riflescopes. The Companys dedication to providing a high level of customer service is one
factor that management believes sets Meade apart from its competition. 7




---



##### Table of Contents



The Companys telescope products are regularly advertised in most major domestic and
international telescope and astronomy-related magazines and periodicals with comprehensive, full
color, technically informative advertisements which present a consistent message of innovation and
quality about the Company and its products. Innovation and quality is also the theme in the Simmons
advertising and marketing programs. The Simmons brands are regularly advertised in several of the
most widely circulated hunting and outdoors consumer magazines. The Company also focuses
advertising dollars on point-of-sale promotions and displays in partnership with its retail
customers to jointly market the Companys products to the end consumer. Throughout fiscal 2005, the Company sold its products to mail order dealers, to distributors
and to more than 600 specialty retailers and mass merchandisers that offer Meades products in more
than 12,000 retail store outlets. During the fiscal years 2005, 2004 and 2003, Wal-Mart (including
Sams Club), accounted for approximately 11%, 11% and 15% of the Companys net sales, respectively.
During fiscal year 2003 Discovery Channel Store accounted for approximately 11% of the Companys
net sales. The Companys ten largest customers, in the aggregate, accounted for approximately 35%,
34% and 49% of the Companys net sales for the fiscal years ended February 28, 2005, February 29,
2004 and February 28, 2003, respectively. The loss of, or the failure to replace, any significant
portion of the sales made to any significant customer could adversely affect results of operations
of the Company to the extent the Company did not replace any such lost sales with increased sales
to existing or new customers. The Company has experienced, and expects to continue to experience, substantial fluctuations
in its sales, gross margins and profitability from quarter to quarter (see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations  Seasonality). Operations Materials and Supplies.The Company purchases high grade optical glass for its higher-end
telescopes in order to avoid imperfections that can degrade optical performance. Lenses and mirrors
for the Companys domestically manufactured telescopes are individually polished and figured by
master opticians to precise tolerances to achieve a high level of resolution. The Company purchases
metal telescope components from numerous foundries, metal stamping and metal working companies.
Certain of the Companys products contain computerized drive systems and other electronic
circuitry. The components of these computerized drive and electronic systems are purchased from
various suppliers and are generally assembled by third party vendors. Polishing and Figuring.After a Ritchey-Chrétien, Schmidt-Cassegrain, Maksutov-Cassegrain, or
Schmidt-Newtonian glass surface is fine ground, the telescope mirror or lens is polished for up to
16 hours to obtain full transmission or reflectivity. It is at this point that the Companys
opticians perform the final lens or mirror shaping (a process called figuring). Optical Testing.As each of Meades, Ritchey-Chrétien optical sets, Maksutov-Cassegrain
optical sets, Schmidt-Cassegrain optical sets, or parabolic Newtonian primary telescope mirrors
progress through the grinding, polishing and figuring stages of development, they are repeatedly
tested and re-tested for irregularities, smoothness of figure and correction. Optical Alignment and Centration.Finished, individually-matched Ritchey-Chrétien,
Maksutov-Cassegrain and Schmidt-Cassegrain optical sets are sent to the optical alignment and
centration department, where each optical set is placed into a special optical tube that permits
rotation of the optical elements about their optical axes. With optimal orientation fixed, each
optics set is placed into machined housings of an optical tube or collimation lens cell. The
optical system is once again tested and only after passing this final test is a telescopes optical
tube system ready to be used. The Company works closely with factories in the Far East to develop proprietary product
designs. In an effort to mitigate the risks associated with reliance on any one supplier, Meade
maintains relationships with several suppliers in the Far East. Most of such suppliers are located
in mainland China. Many of the Companys products purchased during fiscal 2005 were supplied by
these Chinese manufacturers. The Company owns many of the key designs, molds and dies used by such
suppliers. Through its new Guangzhou, China facility, Meade employs product and design engineers to
monitor the manufacturing processes at the various plants that produce its products and 8




---



##### Table of Contents



accessories. Meade also regularly commits at least one of its United States-based quality
control engineers to the Far East. The Company also utilizes its 50,000 sq. ft. assembly facility in Tijuana, Mexico (the Mexico
Facility) in the manufacturing and assembly process. This facility employs from 100 to over 150
people (based on product sales levels) engaged in the assembly of several products including
less-expensive and mid-range telescopes, electronic sub-assemblies, and accessory products. Competition The consumer optics market is highly competitive and sensitive to consumer needs and
preferences. In the telescope market, Meade competes in the United States and Canada with SW
Technology Corporation (Celestron), and Bushnell Performance Optics, Inc. (Bushnell) and, to a
lesser extent, with other smaller companies which service niche markets. In April 2005, SW
Technology Corporation (a Delaware corporation), an affiliate of Synta Technology Corporation of
Taiwan, a long-time supplier to Celestron, acquired all of the outstanding members ownership
interests in Celestron Acquisition LLC. The Company is unable, at this time, to assess what impact
the sale of Celestron may have on the competitive landscape of the telescope market, if any. In
Europe and Japan, the Company competes primarily with Celestron, Vixen Optical Industries, Ltd.,
and with other smaller regional telescope importers and manufacturers. Some of the Companys
current and potential competitors in the telescope market may possess greater financial or
technical resources and competitive cost advantages due to a number of factors, including, without
limitation, lower taxes and substantially lower costs of labor associated with manufacturing. The binocular and riflescope markets are generally more competitive than the telescope market
with a greater number of competitors at each price point. In the binocular market, the Company
competes primarily with Bushnell, Nikon Inc., Pentax
Corporation, Barska Optics and various smaller manufacturers and resellers. In the riflescope market, the Company
competes primarily with Bushnell, Leupold & Stevens, Inc., Nikon
Inc., BSA Optics, Inc., Burris
Company and Swarovski Optik. Many of these competitors in the binocular and riflescope market have
significantly greater brand name recognition and financial and technical resources than those of
the Company, and many have long-standing positions, customer relationships and established brand
names in their respective markets. Employees As of February 28, 2005, Meade had approximately 530 full-time employees, worldwide. The
Company believes that it offers competitive compensation and benefits and that its employee
relations are good. None of the Companys United States-based employees is represented by a union.
The Companys employees at the Mexico Facility are represented by a union. The success of the
Companys future operations depends in large part on the Companys ability to attract and retain
highly skilled technical, marketing and management personnel. There can be no assurance that the
Company will be successful in attracting and retaining such key personnel. In order to enable its employees to share in the Companys growth and prosperity, Meade
established the Meade Instruments Corp. Employee Stock Ownership Plan (the ESOP), effective March
1, 1996. The ESOP provides participating United States-based employees an opportunity to receive
beneficial ownership of Meades common stock. Available Information Our website is located at http://www.meade.com. We make available free of charge, on or
through our website, our annual, quarterly and current reports, and any amendments to those
reports, as soon as reasonably practicable after electronically filing such reports with the
Securities and Exchange Commission (SEC). The information contained on the Companys website is
not part of this report. The public may read and copy any materials filed by the Company with the
SEC at the SECs Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800- 9




---



##### Table of Contents



SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC at
http://www.sec.gov. 
 Executive Officers of the Registrant See Item 10. Directors and Executive Officers of the Registrantcontained herein. 
 Item 2.Properties During fiscal 2005, the Company leased a 161,000 square foot manufacturing, distribution and
corporate facility located in Irvine, California. This facility lease expires in 2007 and is
renewable at the Companys option for two five-year terms. Simmons leases a 96,000 square foot
distribution facility in Thomasville, Georgia that includes 6,000 square feet of office space. The
Simmons lease expires in December 2007, with an option for the Company to renew this lease for up
to four four-year terms. The Company leases 45,000 square feet of warehouse space in Meridian,
Mississippi on a month-to-month basis. The Company also leases a 50,000 square foot manufacturing
and assembly plant in Tijuana, Mexico. The Tijuana lease expires in 2010 with two, five-year
options remaining. The Company owns a 30,000 square foot office and distribution facility located
in Borken, Germany. The Company also leases a 1,200 square foot office space, in Graefelfing,
Germany with a cancellation notice period of 6 months prior to the end of any calendar year. The
Company also leases 8,280 sq.ft. of office and manufacturing space in Tuscon, Arizona for its
Coronado Instruments subsidiary. The Companys management believes that all facilities occupied by
the Company are adequate for present requirements, and that the Companys current equipment is in
good condition and suitable for the operations involved. 
 Item 3.Legal Proceedings 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. 
 Item 4.Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Companys stockholders during the fourth quarter of
the fiscal year covered by this report. 10




---



##### Table of Contents



PART II 
 Item 5.Market for the Registrants Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities The Companys common stock is listed on the Nasdaq National Market under the symbol MEAD.
The high and low sales prices on a per share basis for the Companys common stock during each
quarterly period for the fiscal years ended February 28, 2005 and February 29, 2004, respectively,
were: Year Ended February 28, 2005
    
    High
    
    
    Low
    
    
    Year Ended February 29, 2004:
    
    High
    
    
    LowFourth quarter
    
    $
    3.53
    
    
    $
    3.03
    
    
    Fourth quarter
    
    $
    4.30
    
    
    $
    3.19Third quarter
    
    $
    3.65
    
    
    $
    2.89
    
    
    Third quarter
    
    $
    4.76
    
    
    $
    3.15Second quarter
    
    $
    3.50
    
    
    $
    2.87
    
    
    Second quarter
    
    $
    3.59
    
    
    $
    2.71First quarter
    
    $
    4.28
    
    
    $
    2.84
    
    
    First quarter
    
    $
    3.30
    
    
    $
    2.31
 The reported closing sales price of the Companys common stock on the Nasdaq National Market
on May 20, 2005 was $2.70. As of May 20, 2005, there were 180 holders of record of the Companys
common stock. Other than dividends paid to the Companys ESOP in August 1996, the Company has not paid any
cash dividends on its common stock and does not anticipate declaring or paying any cash dividends
on its common stock in the foreseeable future. Although the Company intends to make future
contributions to the ESOP upon Board approval, no cash dividends (other than dividends paid to all
holders of common stock) will be paid to the ESOP with respect to future periods. 11




---



##### Table of Contents



Item 6.Selected Financial Data SELECTED CONSOLIDATED FINANCIAL INFORMATION The following data have been derived from the Companys audited consolidated financial
statements, including the consolidated balance sheets at February 28, 2005 and February 29, 2004
and the consolidated statements of operations for the three years ended February 28, 2005 and the
notes thereto appearing elsewhere herein and should be read in conjunction with such financial
statements. Such data should also be read in conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations included in this report. The consolidated balance
sheet data as of February 28, 2003, 2002 and 2001, and the consolidated income statement data for
each of the two fiscal years in the period ended February 28, 2002, are derived from audited
consolidated financial statements of the Company, which are not included herein. Year Ended February 28/29,2005
    
    
    2004
    
    
    2003 (a)
    
    
    2002
    
    
    2001(In thousands of dollars, except per share amounts)Statement of Operations Data:Net sales
    
    $
    111,799
    
    
    $
    138,281
    
    
    $
    110,817
    
    
    $
    94,718
    
    
    $
    123,000Cost of sales
    
    
    83,605
    
    
    
    99,380
    
    
    
    76,923
    
    
    
    70,108
    
    
    
    82,809Gross profit
    
    
    28,194
    
    
    
    38,901
    
    
    
    33,894
    
    
    
    24,610
    
    
    
    40,191Selling expenses
    
    
    16,046
    
    
    
    18,106
    
    
    
    14,248
    
    
    
    12,920
    
    
    
    21,782General and administrative expenses(b)
    
    
    10,211
    
    
    
    12,671
    
    
    
    12,628
    
    
    
    9,098
    
    
    
    8,439ESOP contribution expense
    
    
    419
    
    
    
    859
    
    
    
    905
    
    
    
    1,367
    
    
    
    2,997Research and development expenses
    
    
    2,018
    
    
    
    2,038
    
    
    
    3,008
    
    
    
    2,167
    
    
    
    2,062Operating income (loss)
    
    
    (500
    )
    
    
    5,227
    
    
    
    3,105
    
    
    
    (942
    )
    
    
    4,911Interest expense
    
    
    888
    
    
    
    1,046
    
    
    
    1,137
    
    
    
    1,345
    
    
    
    2,036Income (loss) before income taxes
    
    
    (1,388
    )
    
    
    4,181
    
    
    
    1,968
    
    
    
    (2,287
    )
    
    
    2,875Income tax provision (benefit)
    
    
    (513
    )
    
    
    1,729
    
    
    
    830
    
    
    
    (845
    )
    
    
    1,589Net income (loss)
    
    $
    (875
    )
    
    $
    2,452
    
    
    $
    1,138
    
    
    $
    (1,442
    )
    
    $
    1,286Per share information:Net income (loss)  basic
    
    $
    (0.05
    )
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )
    
    $
    0.09Net income (loss)  diluted
    
    $
    (0.05
    )
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )
    
    $
    0.08Weighted average common shares outstanding
 basic
    
    
    19,288
    
    
    
    18,983
    
    
    
    16,410
    
    
    
    15,100
    
    
    
    14,700Weighted average common shares outstanding
 diluted
    
    
    19,288
    
    
    
    19,174
    
    
    
    16,624
    
    
    
    15,100
    
    
    
    15,600Balance Sheet Data:Working capital
    
    $
    53,579
    
    
    $
    57,523
    
    
    $
    51,275
    
    
    $
    41,802
    
    
    $
    38,867Total assets
    
    
    88,749
    
    
    
    88,562
    
    
    
    84,995
    
    
    
    64,823
    
    
    
    76,466Total current liabilities
    
    
    22,557
    
    
    
    20,901
    
    
    
    21,403
    
    
    
    12,224
    
    
    
    25,944Long-term debt, net of current portion
    
    
    1,241
    
    
    
    1,729
    
    
    
    2,139
    
    
    
    2,463
    
    
    
    Stockholders equity
    
    
    64,951
    
    
    
    64,878
    
    
    
    60,255
    
    
    
    50,108
    
    
    
    50,351
   (a)
    
    The Company acquired Simmons on October 25, 2002 (see Note 4. of Notes to
Consolidated Financial Statements).(b)
    
    The Company adopted SFAS No. 142 on March 1, 2002 and as such ceased amortizing
goodwill (see Note 1. of Notes to Consolidated Financial Statements). 
 Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the Companys financial condition and results of
operations is qualified in its entirety by, and should be read in conjunction with, the more
detailed information and consolidated financial statements, including the notes thereto, appearing
elsewhere in this Report. 12




---



##### Table of Contents



Critical Accounting Policies and Estimates The Companys financial statements are prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires
management to make certain estimates, judgments and assumptions that it believes are reasonable
based upon the information available. These estimates and assumptions affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. Actual results may differ from these estimates
under different assumptions or conditions. The significant accounting policies which management
believes are the most critical to aid in fully understanding and evaluating the Companys reported
financial results include the following: Revenue Recognition The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the price to the buyer is fixed or determinable, and collectibility is reasonably
assured. Those criteria are typically met when product is shipped. Revenue is not recognized at
the time of shipment if these criteria are not met. Although there are many factors that influence
revenue recognition, the principal reason the Company may not recognize revenue at the time of
shipment is if the substance of the transaction is a consignment. Consignment type arrangements
happen on a limited basis. Under certain circumstances, the Company accepts product returns.
Product returns are principally related to lower-end Meade branded products. Management judgments
must be made and used in connection with establishing the sales return estimates. The Company
continuously monitors and tracks returns and records revenues net of provisions for returns. The
Companys estimate of sales returns is based upon several factors including historical experience,
current market and economic conditions, customer demand and acceptance of the Companys products
and/or any notification received by the Company of such a return. Historically, sales returns have
been within managements estimates and, for the lower-end Meade branded products, have run at
approximately 20% of gross sales of such products in each of the years ended February 28, 2005,
February 29, 2004 and February 28, 2003, respectively. However, actual returns may differ
significantly, either favorably or unfavorably, from managements estimates depending on actual
market conditions at the time of the return. The Company has not identified any trends, events or
uncertainties that would require a change in managements methodologies or assumptions related to
sales return estimates. Inventories Inventories are stated at the lower of cost, as determined using the first-in, first-out
(FIFO) method, or market. Costs include materials, labor and manufacturing overhead. The Company
evaluates the carrying value of its inventories taking into account such factors as historical and
anticipated future sales compared with quantities on hand and the price the Company expects to
obtain for its products in their respective markets. The Company also evaluates the composition of
its inventories to identify any slow-moving or obsolete product. These evaluations require material
management judgments, including estimates of future sales, continuing market acceptance of the
Companys products, and current market and economic conditions. Inventory reserves are established,
based on such judgments, for any inventories that are identified as having a net realizable value
less than its cost. Inventory reserves represented 15.5%, 16.9% and 15.8% of gross inventory value
at February 28/29, 2005, 2004 and 2003, respectively (see Item 15. Exhibits and Financial Statement
Schedules  Schedule II Valuation and Qualifying Accounts). Historically, the net realizable value
of the Companys inventories has generally been within managements estimates. However, if the
Company is not able to meet its sales expectations, or if market conditions deteriorate
significantly from managements estimates, reductions in the net realizable value of the Companys
inventories could have a material adverse impact on future operating results. The Company has not
identified any trends, events or uncertainties that would require a change in managements
methodologies or assumptions related to determining the net realizable value of its inventories. 13




---



##### Table of Contents



Results of Operations The following table sets forth, for the periods indicated, certain items from the Companys
statements of operations as a percentage of net sales for the periods indicated. Year Ended February 28/29 ,2005
    
    
    2004
    
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    74.8
    
    
    
    71.9
    
    
    
    69.4Gross profit
    
    
    25.2
    
    
    
    28.1
    
    
    
    30.6Operating expenses:Selling expenses
    
    
    14.4
    
    
    
    13.1
    
    
    
    12.9General and administrative expenses
    
    
    9.1
    
    
    
    9.2
    
    
    
    11.4ESOP contribution expense
    
    
    0.4
    
    
    
    0.6
    
    
    
    0.8Research and development expenses
    
    
    1.8
    
    
    
    1.5
    
    
    
    2.7Total operating expenses
    
    
    25.7
    
    
    
    24.4
    
    
    
    27.8Income (loss) from operations
    
    
    (0.5
    )
    
    
    3.7
    
    
    
    2.8Interest expense
    
    
    0.8
    
    
    
    0.7
    
    
    
    1.0Income (loss) before income taxes
    
    
    (1.3
    )
    
    
    3.0
    
    
    
    1.8Provision (benefit) for income taxes
    
    
    (0.5
    )
    
    
    1.2
    
    
    
    0.8Net income (loss)
    
    
    (0.8
    )
    
    
    1.8
    
    
    
    1.0
 Overview Net sales during fiscal 2005 decreased significantly from the prior year. Sales of most of
the companys product lines were down from fiscal 2004 levels. Management believes that current
fiscal year sales were negatively influenced by several key factors including the Mars opposition
that occurred during the summer months of calendar 2003, a lack of new product introductions during
the current year, certain promotions during the fourth quarter of fiscal 2004 and general softness
in the markets for the Companys products, principally in telescopes and digital camera/binoculars. Management believes that the Mars opposition (Mars passed notably close to earth during 2003)
pulled sales of mid-priced to higher-priced telescopes that might otherwise have been made in
fiscal 2005, into fiscal 2004. That belief is based, in part, on the significant decrease in sales
to one of the Companys key retailers of those types of products, (the Company experienced a
decrease in sales to this customer of approximately 60% from fiscal 2004 to fiscal 2005). Sales to
many of the Companys other retailers of mid-priced to higher-priced telescopes were also down from
the prior year. Management believes those decreases were influenced by both the Mars opposition
and product introductions that came late in the year. Softness in the telescope market was also
manifest in sales decreases to the Companys largest customer, Wal-Mart (down approximately 15%
from the prior year). The Companys change to a year-around telescope supplier to Wal-Mart from,
principally, a seasonal supplier in previous years, also influenced sales. That change in supplier
status improved the product return rate from Wal-Mart but negatively affected current year sales.
Management believes that full year sales of telescope products introduced during fiscal 2005
coupled with new products already in production (such as the new RCX400 line of telescopes) and
slated for introduction throughout fiscal 2006 will positively impact sales for the 2006 fiscal
year. Decreases in unit and dollar sales of the Companys CaptureView also affected sales during
fiscal 2005. The Company has continued to see price competition in the CaptureView market brought
on, at least partially management believes, by the fact that the pixel count of CMOS imaging chips
(used in nearly all binoculars with integrated digital imagers because of power and weight
constraints) has not kept pace with the pixel count of CCD imaging chips (used in nearly all
digital cameras). As the CMOS suppliers narrow the pixel count gap between the CMOS and CCD
imaging chips, management believes the Company is positioned to utilize the improving technology to
maintain its share of the market for binoculars with integrated digital imagers. Sales at the Companys Simmons subsidiary were down from the prior year as well.
Notwithstanding the decrease in sales, the Simmons subsidiary continued to be profitable. The cost
structure at Simmons, operating as a 14




---



##### Table of Contents



distribution company principally selling riflescopes and binoculars manufactured in the Far
East, has resulted in steady profitability since the Company acquired Simmons in 2002. The
decrease in sales at Simmons (down approximately 5% from the prior year) was principally due to the
inclusion in the prior year of sales of significant amounts of discontinued and close-out product
that had been identified when the Company purchased Simmons. Sales of discontinued and close-out
Simmons inventory were significantly less in the current fiscal year. Management believes that
sales at the Simmons subsidiary will be positively impacted by the many newly engineered Simmons
brand riflescopes expected to be introduced during fiscal 2006. These new Simmons brand scopes
have been completely re-engineered and include many new proprietary technologies protected by
intellectual property filings that management believes will differentiate them in the marketplace. The Companys European subsidiary continues to be profitable as well. The cost structure at
Meade Europe is similar to that of the Simmons subsidiary  it operates as a distribution company
with the majority of its sales coming from product manufactured in the Far East. Meade Europe
(formerly Bresser) has been steadily profitable since the Company purchased Bresser in 1999. Fiscal 2005 Compared to Fiscal 2004 Net sales decreased from $138.3 million in fiscal 2004 to $111.8 million in fiscal 2005, a
decrease of 19.2%. Sales of the Companys mid-priced and higher-priced telescopes were down
approximately $19 million from the prior year period. This decrease in sales reflects current-year
weakness in the mid-to-higher priced telescope categories. In addition, management believes that
sales of mid-to-higher priced telescopes in the prior year were higher because of the Mars
opposition and certain promotions during the fourth quarter of the prior year. As the effects of
the Mars opposition and the promotions (i.e. high inventory levels at several of the Companys
dealers and distributors and sales pull from a unique celestial event) diminish, and with the
introduction of new products both during the latter part of fiscal 2005 and into fiscal 2006,
management believes that sales trends in these telescope categories will improve. Sales of
smaller-aperture telescopes were also down approximately $3 million. The decrease in
smaller-aperture telescopes was broad-based across the Companys customers with decreased sales to
one of the Companys significant customers playing a major role in the decrease. Binocular sales
were down approximately $4 million, primarily due to continuing price competition in the digital
camera/binocular market. Sales of riflescopes were down approximately $3 million principally due
to lower sales of close-out and discontinued items in the current year as compared to the prior
year. Partially offsetting these reductions was an increase of approximately $2 million in the
Companys new night vision products, and an increase of approximately $1 million in microscope
sales due to a large order in Europe. Included in the above discussion of specific year over year
changes is the positive effect of the weakened dollar versus the euro compared to the prior year
(European U.S. dollar sales were positively affected by approximately $2 million). Gross profit decreased from $38.9 million (28.1% of net sales) in fiscal 2004 to $28.2 million
(25.2% of net sales) in fiscal 2005, a decrease of 27.5%. The decrease was due to decreased sales
compared to the prior year period. Gross margin (gross profit as a percent of net sales) decreased
overall due to changes in sales mix and the effect of relatively fixed costs on lower sales volume,
especially in the mid to higher-priced telescope lines. The weakened dollar versus the euro did not
have a significant effect on gross profit because the European subsidiary utilizes forward
contracts on substantially all of its significant dollar inventory purchases. Selling
expenses decreased from $18.1 million (13.1% of net sales) in fiscal 2004 to $16.0
million (14.4% of net sales) in fiscal 2005, a decrease of 11.4%. The decrease was primarily due to
lower in-store advertising costs, down approximately $1.5 million from the prior year, and lower
freight costs on lower sales volume, down approximately $0.7 million from the prior year. General and administrative expenses decreased from $12.7 million (9.2% of net sales) in fiscal
2004 to $10.2 million (9.1% of net sales) in fiscal 2005, a decrease of 19.4%. The decrease was
principally due to lower performance based compensation, which was down approximately $2.0 million
from the prior year, and consulting and professional fees which were down approximately $0.5
million. ESOP contribution expense decreased from $0.9 million (0.6% of net sales) in fiscal 2004 to
$0.4 million (0.4% of net sales) in fiscal 2005, a decrease of 51.2%. The decrease in this
non-cash charge was principally due to a 15




---



##### Table of Contents



decrease in the number of shares allocated to the Employee Stock Ownership Plan during the
period as compared to the prior year. A slightly lower average common stock price during the
current year also contributed to the decrease. 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 remained flat at $2.0 million in fiscal 2005 (1.8% of net
sales) and fiscal 2004 (1.5% of net sales). The Companys research and development efforts are
principally concentrated on product improvement and new product development for the Companys core
consumer products market. Interest
expense decreased from $1.0 million for fiscal 2004 (0.7% of net sales) to $0.9
million for fiscal 2005 (0.8% of net sales), a decrease of 15.1%. This decrease was principally due
to lower average borrowings (in line with lower sales for the year) offset partially by higher
costs of funds as compared to the prior year. Fiscal 2004 Compared to Fiscal 2003 Net sales increased from $110.8 million in fiscal 2003 to $138.3 million in fiscal 2004, an
increase of 24.8%. The increase over the prior year is principally due to the inclusion of a full
year of net sales at Simmons. The Company acquired Simmons in October 2002. Simmons sales included
in net sales for the fiscal years ended 2004 and 2003 were approximately $32 million and $10
million, respectively. Sales of the Companys mid-priced and higher-priced telescopes increased
over the prior year by approximately $7 million, due in part, management believes, to increased
demand fostered by the Mars opposition that occurred during the summer months of calendar 2003
(Mars passed notably close to earth during 2003). Partially offsetting those increases were
decreases in sales of digital camera/binoculars and accessories. Gross profit increased from $33.9 million (30.6% of net sales) in fiscal 2003 to $38.9 million
(28.1% of net sales) in fiscal 2004, an increase of 14.8%. The increase in gross profit was due to
higher sales volume during fiscal 2004. Contributing to the decrease in gross profit as a percent
of net sales were increased sales of riflescopes and binoculars, products that typically carry
margins that are lower than historical Company-wide margins. Meade branded products continued to
experience pricing pressure, which also contributed to the lower gross margins. Selling expenses increased from $14.2 million (12.9% of net sales) in fiscal 2003 to $18.1
million (13.1% of net sales) in fiscal 2004, an increase of 27.1%. This increase was due,
principally, to the inclusion of a full year of selling expenses at Simmons. The increase in
selling expenses over the prior year attributable to Simmons was approximately $4 million. General and administrative expenses remained relatively flat at $12.6 million (11.4% of net
sales) in fiscal 2003 and $12.7 million (9.2% of net sales) in fiscal 2004. The full year Simmons
general and administrative expenses increased by approximately $1 million over the prior year. Also
increasing by approximately $1 million over the prior year were compensation expenses offset by
decreases in professional and consulting fees. ESOP contribution expense for the fiscal years ended 2003 and 2004 remained flat at $0.9
million (0.8% and 0.6% of net sales, respectively). The ESOP expense remained relatively flat
because the number of shares allocated to the plan for fiscal 2004 was unchanged from 2003 and the
average market price of the stock over the fiscal 2004 year was little changed from the prior year.
Changes in this non-cash charge are due to changes 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 year.
The non-cash ESOP contribution expense may fluctuate as the number of shares allocated and/or the
market value of the Companys common stock changes. Research and development expenses decreased from $3.0 million (2.7% of net sales) in fiscal
2003 to $2.0 million (1.5% of net sales) in fiscal 2004, a decrease of 32.2%. This decrease was due
to a reduction in engineering personnel and outside consulting costs principally in response to
diminished demand for the Companys industrial optical products. The Companys research and
development efforts are principally concentrated on product improvement and new product development
for the Companys core consumer products market. 16




---



##### Table of Contents



Interest expense for the fiscal years ended 2003 and 2004 remained flat at approximately $1.1
million (1.0% and 0.7% of net sales, respectively). Average borrowing rates and average outstanding
borrowing remained relatively unchanged during fiscal 2004. Seasonality 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 increasing demand and delivery schedules, the timing and extent of research and development
expenses, the timing and extent of product development costs and the timing and extent of
advertising expenditures. In addition, a substantial portion of the Companys net sales and
operating income typically occurs in the third quarter of the Companys fiscal year primarily due
to disproportionately higher customer demand for less-expensive consumer products during the
holiday season. The Company continues to experience significant sales to mass merchandisers. Mass
merchandisers, along with specialty retailers, purchase a considerable amount of their inventories
to satisfy such seasonal customer demand. These purchasing patterns have caused the Company to
increase its level of inventory during its second and third quarters in response to such demand or
anticipated demand. As a result, the Companys working capital requirements have correspondingly
increased at such times. Liquidity and Capital Resources As of February 28, 2005, the Company had $3.9 million in cash. The Company funded its
operations during the fiscal year with cash and short-term bank borrowings. Operating cash flows
were augmented principally by a $4.9 million decrease in accounts receivable. The decrease in
accounts receivable resulted from significantly lower sales during the fourth quarter of fiscal
2005 compared to the fourth quarter of the prior year. Contributions to operating cash flows were
more than offset by significant increases in inventories and a significant decrease in accrued
liabilities resulting in the use of $4.7 million from operating activities. Sales decreased by
19.2% for fiscal year 2005; that decrease and inventory purchases for anticipated orders that did
not materialize, led to an increase in inventories of approximately $6.7 million. The increase in
inventories led to a decline in inventory turns to approximately 1.9 times in fiscal 2005 compared
to 2.5 times in fiscal 2004. Certain compensation costs that were accrued at the end of fiscal
2004 were paid during fiscal 2005, resulting in a decrease in accrued liabilities. Net cash used
in financing activities was $3.4 million in fiscal 2005, principally resulting from a $2.5 million
cash payment by the Company in connection with its acquisition of substantially all of the assets
and assumption of substantially all of the liabilities of Coronado Technologies Group, LLC.
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 October 25, 2002, the Company amended its credit agreement with its U.S. bank (the U.S.
credit agreement) to provided the Company with a $35,645,000 credit facility consisting of a
$34,000,000 revolving credit line (the U.S. revolving loan) and a $1,645,000 term loan (the U.S.
term loan). On July 9, 2004 the Company executed the Second Amendment to Amended and Restated Credit
Agreement (the Second Amendment). The Second Amendment made the following key changes to the U.S.
credit agreement, it: (1) extended the term of the facility to September 30, 2007, (2) eliminated
the U.S. EBITDA covenant, (3) added a U.S. fixed charge coverage ratio requirement and (4) adjusted
the pricing grid to allow improved pricing, based on performance. On December 15, 2004 the Company executed the Third Amendment to Amended and Restated Credit
Agreement (the Third Amendment). The Third Amendment made the following key changes to the U.S.
credit agreement, it: (1) amended the U.S. fixed charge coverage ratio and the consolidated fixed
charge coverage ratio covenants, (2) set minimum availability requirements and (3) added a higher
pricing level to the pricing grid. The impetus behind the Second and Third Amendments was the Companys performance falling below
the requirements underlying the fixed charge coverage ratios. After execution of the amendments,
the Companys was 17




---



##### Table of Contents



in compliance with the amended fixed charge coverage ratio requirements. Due to continuing
losses during the fourth quarter of fiscal 2005, the Company
concluded that it was not in
compliance with the consolidated fixed charge coverage ratio covenant as set forth in the U.S.
credit agreement for the year ended February 28, 2005. Accordingly, on May 27, 2005, the Company executed the Fourth Amendment to
Amended and Restated Credit Agreement (the Fourth Amendment). The Fourth Amendment made the
following key changes to the U.S. credit agreement, it: (1) reset the consolidated and U.S. fixed
charge coverage ratio covenants, (2) added a $1 million availability reserve until the Company
reaches certain consolidated fixed charge coverage ratio levels and (3) added higher pricing levels
to the pricing grid. The Company is required to report its covenant
calculations to the bank for the year ended February 28, 2005
based upon the terms of the Fourth Amendment. Upon execution of the Fourth Amendment the Company was in compliance with all
of its bank covenants. Amounts outstanding on the U.S. revolving loan and U.S. term loan at February 28, 2005 were
approximately $9,816,000 and $665,000, respectively. Availability under the U.S. revolving loan
(which is subject to a borrowing base with standard advance rates against eligible accounts
receivable and inventories) at February 28, 2005 was approximately $6,000,000. The U.S. term loan
is collateralized by domestic machinery and equipment. The credit facility expires in September
2007, is collateralized by substantially all of the domestic assets of the Company and its domestic
subsidiaries and contains certain financial covenants including, but not limited to, fixed charge
coverage ratios and minimum tangible net worth. Amounts outstanding under the U.S. revolving loan
bear interest at the banks base rate (or LIBOR rate) plus applicable margins (5.5% at February 28,
2005). Under the terms of the U.S. credit agreement, the Company was required to enter into an
interest-rate swap to convert the variable interest rate on its U.S. term loan to a fixed interest
rate. The resulting cost of funds (7.9% per annum) was 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 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 swap contract expired on September 1, 2004. The U.S. credit agreement does
not require the Company to renew the swap contract on the remaining principal outstanding on the
term note. In July 2004, the Companys German subsidiary renegotiated its agreement with a bank to
provide up to approximately $4,800,000 in revolving loans (subject to a borrowing base of eligible
accounts receivable and inventories) expiring in July 2005. The German subsidiary also has an
agreement with the bank that provides a term loan expiring June 2006 collateralized by land and
buildings owned by the German subsidiary (collectively, the European Loans). The European Loans
are guaranteed by the U.S. parent company up to approximately $3,400,000 at February 28, 2005. The
guarantee expires on the earlier of the termination of the bank agreement or July 31, 2008.
Outstanding amounts on the revolving loan and the term loan in Europe at February 28, 2005 were
approximately $11,000 and $1,129,000, respectively. The European Loans bear interest at the banks
base rate plus or minus applicable margins (7.5% and 6.0%, respectively at February 28, 2005). The Company continues to depend on operating cash flow and availability under its bank lines
of credit to provide short-term liquidity. 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. However, management believes that
operating cash flow and bank borrowing capacity in connection with the Companys business should
provide sufficient liquidity for the Companys obligations for at least the next twelve months. Capital expenditures aggregated $0.9 million, $0.6
million and $0.7 million for the fiscal years ended February 28, 2005, and February 29, 2004 and
February 28, 2003, respectively. Contributions to the Companys Employee Stock Ownership Plan (ESOP) are accounted for as a
contribution expense on the Companys statement of operations and are accrued quarterly based upon
the expected annual contribution amount. As quarterly contributions are accrued, the corresponding
number of shares are added to the Weighted Average Common Shares Outstanding and Unearned ESOP
Shares on the Companys Balance Sheet are reduced. The ESOP uses the contributions to repay amounts
due on the ESOP Loan. The ESOP contribution expense is a net non-cash charge which is added back to
net income to arrive at cash flows provided by operating activities. As the Company makes these
non-cash contributions to the ESOP to fund the repayment of the ESOP Loan, the 18




---



##### Table of Contents



Company will realize cash tax savings equal to the product of the tax basis of the
contributions, multiplied by the applicable statutory tax rates in effect at the time. The following table summarizes the Companys contractual obligations as of February 28, 2005,
and the effect such obligations are expected to have on its liquidity and cash flows in future
periods: Payments due by period:Up to
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations:
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt
    
    $
    1,982,000
    
    
    $
    765,000
    
    
    $
    1,217,000
    
    
    $
    
    
    
    $
    Non-cancelable operating leases
and other contractual obligations
    
    
    5,724,000
    
    
    
    1,856,000
    
    
    
    3,145,000
    
    
    
    495,000
    
    
    
    228,000Total contractual cash obligations
    
    $
    7,706,000
    
    
    $
    2,621,000
    
    
    $
    4,362,000
    
    
    $
    495,000
    
    
    $
    228,000
 The preceding table assumes that any operating leases with renewal options that expire during
fiscal 2005 or fiscal 2006 will be renewed under the terms of the governing lease agreement. On December 1, 2004, the Company acquired substantially all of the assets and assumed
substantially all of the liabilities of Coronado Technology Group, LLC, for approximately $2.5
million in cash plus contingent consideration. The contingent consideration is based upon
financial performance of the acquired operations for the twelve months ended December 31, 2005.
The contingent consideration is the excess of three times earnings before interest and taxes
(EBIT) over $2.5 million. If three times EBIT does not exceed $2.5 million, no additional
consideration will be paid. Inflation The Company does not believe that inflation has had a material effect on the results of
operations during the past three years. There can be no assurance that the Companys business will
not be affected by inflation in the future. New Accounting Pronouncements In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The American
Jobs Creation Act of 2004 (the Jobs Creation Act) was enacted on October 22, 2004. FSP 109-2
states that an enterprise is allowed time beyond the financial reporting period of enactment to
evaluate the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of
foreign earnings for purposes of applying SFAS No. 109. The Company is currently evaluating the
impact of this new law on its operations and effective tax rate. In particular, the Company is
evaluating the laws provisions relating to allowable deductions, beginning in 2005, for income
attributable to United States production activities. At this time, the Company is unable to
determine the effects of this new law and will continue to analyze its potential impact as guidance
is made available. In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that . . . under
some circumstances, items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current period charges. . . . This
Statement requires that those items be recognized as current-period charges regardless of whether
they meet the criterion of so abnormal. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The
Company does not expect the adoption of SFAS No. 151 to have a material impact on its results of
operations or financial position. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assetsan amendment
of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions, is based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets 19




---



##### Table of Contents



exchanged. The guidance in that Opinion, however, included certain exceptions to that
principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. SFAS 153 is effective for fiscal periods beginning
after June 15, 2005. The Company does not anticipate that the application of this statement will
have a material impact on the Companys financial position or results of operations. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. SFAS No.
123R supersedes APB Opinion No. 25, which requires recognition of an expense when goods or services
are provided. SFAS No. 123R requires the determination of the fair value of the share-based
compensation at the grant date and the recognition of the related expense over the period in which
the share-based compensation vests. SFAS No. 123R permits a prospective or two modified versions of
retrospective application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods by the original SFAS No.
123. We are required to adopt the provisions of SFAS No. 123R effective March 1, 2006, at which
time we will begin recognizing an expense for unvested share-based compensation that has been
issued or will be issued after that date. The Company has not determined whether the adoption will
result in amounts that are similar to the current pro forma disclosures under SFAS No. 123. 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, microscopes, night vision and other optical
products; the Companys ability to continue to develop and bring to market new and innovative
products that will be accepted by consumers; 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s ability to recognize any benefits from its engineering office in
China; 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: Our business is vulnerable to changing economic conditions, including:  
    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. Our intellectual property rights are subject to risks, including:  
    the potential that we may be unable to obtain and maintain patents and copyrights
to protect our computerized telescope and other product technology; 20




---



##### Table of Contents




    competitors infringement upon Meades existing intellectual property; and  
    approval of competitors patent applications that may restrict our ability to compete effectively. Our business is subject to other risks, including:  
    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 and riflescope 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. 
 Item 7A.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 countries and is primarily exposed to currency
exchange-rate risk with respect to its transactions and net assets denominated in the Euro.
Business activities in various currencies expose the Company to the risk that the eventual net
United States dollar cash inflows resulting from transactions with foreign customers and suppliers
denominated in foreign currencies may be adversely affected by changes in currency exchange rates.
In prior years foreign currency fluctuations have not had a material impact on Meades revenues or
results of operations. There can be no assurance that European or other 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, financial
condition or cash flows. The Company has adopted a hedging program to manage its foreign currency exchange rate and, at times, interest rate risks. Upon continuing evaluation and when deemed appropriate by management, the
Company may enter into hedging instruments to manage its foreign currency exchange and interest
rate risks. From time to time, the Company enters into forward
exchange contracts to establish with certainty the U.S. dollar amount
of future firm commitments denominated in a foreign currency. The
notional amounts of the forward exchange contracts vary, typically
with the seasonal inventory requirements of the Companys German
subsidiary. The Companys German subsidiary purchases inventory
from Far Eastern suppliers in U.S. dollars. A forward exchange
contract is typically entered into when the U.S. dollar amount of the
inventory purchase is firm.  Given our foreign exchange position, an adverse change in foreign exchange rates upon which these
foreign exchange contracts are based would result in exchange gains
and losses. In all material aspects, these exchange gains and losses
would be fully offset by exchange gains and losses on the underlying
net monetary exposures for which the contracts are designated as
hedges. We do not expect material exchange rate gains and losses from
unhedged foreign currency exposures. As of February 28, 2005, the Company did not have
any outstanding forward exchange contracts. Under the terms of its credit agreement, the Company was required to enter into an
interest-rate swap to convert the variable interest rate on its U.S. 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 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 swap contract matured on September 1, 2004. The Companys financial instruments consist of cash, accounts receivable, accounts payable,
short-term obligations, and long-term obligations. The Companys
principal exposure to interest rate fluctuations relates primarily to
the U.S. revolving and term loans. The debt under the U.S. revolving
and term loans bears interest at a floating rate tied to either the
LIBOR rate or the bank prime rate of interest. Had interest rates
been one percentage point higher during fiscal 2005, interest expense
for the year ended February 28, 2005 would have increased by
approximately $0.1 million. 21




---



##### Table of Contents



Item 8.Financial Statements and Supplementary Data The consolidated financial statements commence at page F-1 of this report and an index thereto
is included in Part IV, Item 15 of this report. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table (in thousands of dollars, except per share amounts) presents unaudited
financial results for each of the eight quarters in the period ended February 28, 2005. The Company
believes that all necessary adjustments have been included to present fairly the quarterly
information when read in conjunction with the consolidated financial statements and notes included
elsewhere in this Report. The operating results for any quarter are not necessarily indicative of
the results for any subsequent quarter. Fiscal 2005
    
    
    Fiscal 2004First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterNet sales
    
    $
    19,617
    
    
    $
    22,511
    
    
    $
    49,687
    
    
    $
    19,739
    
    
    $
    24,491
    
    
    $
    28,284
    
    
    $
    54,448
    
    
    $
    31,058Gross profit
    
    
    4,705
    
    
    
    5,572
    
    
    
    13,912
    
    
    
    3,760
    
    
    
    5,733
    
    
    
    8,161
    
    
    
    16,556
    
    
    
    8,451Operating income (loss)
    
    
    (1,801
    )
    
    
    (1,271
    )
    
    
    4,976
    
    
    
    (2,404
    )
    
    
    (966
    )
    
    
    297
    
    
    
    5,905
    
    
    
    (9
    )Net income (loss)
    
    
    (1,159
    )
    
    
    (881
    )
    
    
    2,799
    
    
    
    (1,634
    )
    
    
    (712
    )
    
    
    40
    
    
    
    3,376
    
    
    
    (252
    )Net income (loss) per
share  basic
    
    
    (0.06
    )
    
    
    (0.05
    )
    
    
    0.14
    
    
    
    (0.08
    )
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    0.18
    
    
    
    (0.01
    )Net income (loss) per
share  diluted
    
    
    (0.06
    )
    
    
    (0.05
    )
    
    
    0.14
    
    
    
    (0.08
    )
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    0.17
    
    
    
    (0.01
    )
 Quarterly results can be affected by a number of factors including the timing of orders,
production delays or inefficiencies, and raw materials availability.. 
 Item 9.Changes in and Disagreements With Accountants On Accounting and Financial Disclosure None. 
 Item 9A.Controls and Procedures As of the end of the period covered by this report, the Companys chief executive officer and
chief financial officer have evaluated the effectiveness of the Companys disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).
These disclosure controls and procedures are designed 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. The Companys chief executive officer and chief financial officer concluded, based on their
evaluation, that the Companys disclosure controls and procedures are effective for the Company. No change in the Companys internal control over financial reporting occurred during the last
fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. 
 Item 9B.Other Information None. 22




---



##### Table of Contents



PART III 
 Item 10.Directors and Executive Officers of the Registrant Information with respect to this item is incorporated by reference from the Companys
definitive Proxy Statement to be filed with the Commission within 120 days after the close of the
Companys fiscal year. Executive Officers of the Registrant Set forth below are the names, ages, titles and present and past positions of the persons
serving as executive officers of the Company as of May 10, 2005: Name
    
    Age
    
    PositionSteven G. Murdock
    
    
    53
    
    
    Chief Executive Officer, President, Secretary, DirectorBrent W. Christensen
    
    
    46
    
    
    Senior Vice President  Finance and Chief Financial
OfficerMark D. Peterson
    
    
    43
    
    
    Senior Vice President and General CounselRobert L. Davis
    
    
    38
    
    
    Senior Vice President  Corporate Development
 Steven G. Murdockhas been the Companys President, Chief Executive Officer and Secretary
since June 1, 2003 and a director of the Company since April 1996. Mr. Murdock was the Companys
President and Chief Operating Officer from October 1990 to May 31, 2003 and the Companys Secretary
since April 1996. From May 1980 to October 1990, Mr. Murdock was the Companys Vice President of
Optics. From November 1968 to May 1980, Mr. Murdock worked as the optical manager for Coulter
Optical, Inc., an optics manufacturer. Mr. Murdock received a BS degree in business administration
from California State University at Northridge. Brent W. Christensenhas been the Companys Senior Vice President  Finance and Chief
Financial Officer since March 2002. Mr. Christensen was the Companys Vice President  Finance from
June 1995 and Chief Financial Officer from April 1996. From August 1993 to June 1995, he worked as
the Companys controller. Mr. Christensen is a Certified Public Accountant, and from January 1985
to August 1993, he worked as an audit manager with Ernst & Young LLP. Mr. Christensen received a BA
degree in business administration from California State University at Fullerton. Mark D. Petersonhas been the Companys Senior Vice President and General Counsel since March
2002. Mr. Peterson was the Companys Vice President and General Counsel from October 1997. From
October 1991 to October 1997, Mr. Peterson was an attorney with OMelveny & Myers LLP, specializing
in corporate and securities law. Mr. Peterson received a BS degree in accounting from Brigham Young
University and a JD degree from the University of California  Berkeley, Boalt Hall School of Law. Robert L. Davishas been the Companys Senior Vice President  Corporate Development since
March 2003. Mr. Davis was the Companys Senior Vice President and Assistant General Counsel from
March 2002 to February 2003. Mr. Davis was the Companys Vice President and Assistant General
Counsel from December 1999 to February 2002. From September 1996 to December 1999, Mr. Davis was an
attorney with OMelveny & Myers LLP, specializing in corporate and securities law. From August 1994
to September 1996 he worked as an attorney with Morrison & Foerster LLP, specializing in corporate
finance and labor and employment law. Mr. Davis received a BA degree in English and a JD degree
from Brigham Young University. 
 Item 11.Executive Compensation Information with respect to this item is incorporated by reference from the Companys
definitive Proxy Statement to be filed with the Commission within 120 days after the close of the
Companys fiscal year. 23




---



##### Table of Contents



Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters Information with respect to this item is incorporated by reference from the Companys
definitive Proxy Statement to be filed with the Commission within 120 days after the close of the
Companys fiscal year. Equity Compensation Plan Information The following table provides information as of February 28, 2005 with respect to shares of
Meade common stock that may be issued under the Companys various equity compensation plans. A
    
    
    B
    
    
    CNumber ofSecuritiesRemaining Availablefor Future IssuanceNumber of
    
    
    
    
    
    
    Under EquitySecurities to be
    
    
    
    
    
    
    Compensation PlansIssued upon
    
    
    
    
    
    
    (ExcludingExercise of
    
    
    Weighted Average
    
    
    SecuritiesOutstanding
    
    
    Exercise Price of
    
    
    Reflected in ColumnPlan Category
    
    Options
    
    
    Outstanding Options
    
    
    A)Equity
compensation plans
approved by
Shareholders
    
    
    3,969,905
    
    
    $
    4.26
    
    
    
    799,351Equity compensation
plans not approved by
shareholders
    
    
    310,000
    
    
    
    25.87
    
    
    
    0Total
    
    
    4,279,905
    
    
    $
    5.82
    
    
    
    799,351
 
 Item 13.Certain Relationships and Related Transactions Information with respect to this item is incorporated by reference from the Companys
definitive Proxy Statement to be filed with the Commission within 120 days after the close of the
Companys fiscal year. 
 Item 14.Principal Accountant Fees and Services Information with respect to this item is incorporated by reference from the Companys
definitive Proxy Statement to be filed with the Commission within 120 days after the close of the
Companys fiscal year. 24




---



##### Table of Contents



PART IV 
 Item 15.Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: PageNumber1. Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at February 28, 2005 and February 29, 2004
    
    
    F-2Consolidated Statements of Operations for each of the three years in the period ended February 28, 2005
    
    
    F-3Consolidated Statements of Stockholders Equity
for each of the three years in the period ended February 28, 2005
    
    
    F-4Consolidated Statements of Cash Flows for each of the three years in the period ended February 28, 2005
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-62. Financial Statement Schedule:For each of the three years in the period ended February 28, 2005  II  Valuation and Qualifying
Accounts.3. Exhibits included or incorporated herein: See Exhibit Index
 25




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of
Meade Instruments Corp. In our opinion, the consolidated financial statements listed in the index appearing under Item
15(a)(1) on page 25, present fairly, in all material respects, the financial position of Meade
Instruments Corp. and its subsidiaries at February 28, 2005 and February 29, 2004, and the results
of their operations and their cash flows for each of the three years in the period ended February
28, 2005 in conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in the index
appearing under 15(a)(2) on page 25, presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP
Orange County, California
May 27, 2005 F-1




---



##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED BALANCE SHEETS February 28,
    
    
    February 29,2005
    
    
    2004ASSETSCurrent assets:Cash
    
    $
    3,929,000
    
    
    $
    7,806,000Accounts receivable, less allowance for doubtful accounts of
$687,000 in 2005 and $704,000 in 2004
    
    
    17,549,000
    
    
    
    22,462,000Inventories
    
    
    47,149,000
    
    
    
    39,777,000Deferred income taxes
    
    
    6,738,000
    
    
    
    7,888,000Prepaid expenses and other current assets
    
    
    771,000
    
    
    
    491,000Total current assets
    
    
    76,136,000
    
    
    
    78,424,000Goodwill
    
    
    4,331,000
    
    
    
    1,548,000Acquisition-related intangible assets, net
    
    
    3,375,000
    
    
    
    3,742,000Property and equipment, net
    
    
    4,343,000
    
    
    
    4,551,000Deferred income taxes
    
    
    329,000
    
    
    
    Other assets, net
    
    
    235,000
    
    
    
    297,000$
    88,749,000
    
    
    $
    88,562,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank lines of credit
    
    $
    9,827,000
    
    
    $
    5,059,000Accounts payable
    
    
    3,954,000
    
    
    
    5,319,000Accrued liabilities
    
    
    4,775,000
    
    
    
    6,884,000Income taxes payable
    
    
    3,225,000
    
    
    
    3,059,000Current portion of long-term debt and capital lease obligations
    
    
    776,000
    
    
    
    580,000Total current liabilities
    
    
    22,557,000
    
    
    
    20,901,000Long-term debt
    
    
    1,241,000
    
    
    
    1,729,000Deferred income taxes
    
    
    
    
    
    
    1,054,000Commitments and contingenciesStockholders equity:Common stock; $0.01 par value; 50,000,000 shares authorized;
20,002,000 and 19,989,000 shares issued and outstanding at
February 28, 2005 and February 29, 2004, respectively
    
    
    200,000
    
    
    
    200,000Additional paid-in capital
    
    
    40,442,000
    
    
    
    40,445,000Retained earnings
    
    
    25,016,000
    
    
    
    25,891,000Accumulated other comprehensive income
    
    
    1,374,000
    
    
    
    882,00067,032,000
    
    
    
    67,418,000Unearned ESOP shares
    
    
    (2,081,000
    )
    
    
    (2,540,000
    )Total stockholders equity
    
    
    64,951,000
    
    
    
    64,878,000$
    88,749,000
    
    
    $
    88,562,000
 See accompanying notes to consolidated financial statements. F-2




---



##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended February 28/292005
    
    
    2004
    
    
    2003Net sales
    
    $
    111,799,000
    
    
    $
    138,281,000
    
    
    $
    110,817,000Cost of sales
    
    
    83,605,000
    
    
    
    99,380,000
    
    
    
    76,923,000Gross profit
    
    
    28,194,000
    
    
    
    38,901,000
    
    
    
    33,894,000Selling expenses
    
    
    16,046,000
    
    
    
    18,106,000
    
    
    
    14,248,000General and administrative expenses
    
    
    10,211,000
    
    
    
    12,671,000
    
    
    
    12,628,000ESOP contribution expense
    
    
    419,000
    
    
    
    859,000
    
    
    
    905,000Research and development expenses
    
    
    2,018,000
    
    
    
    2,038,000
    
    
    
    3,008,000Operating (loss) income
    
    
    (500,000
    )
    
    
    5,227,000
    
    
    
    3,105,000Interest expense
    
    
    888,000
    
    
    
    1,046,000
    
    
    
    1,137,000(Loss) income before income taxes
    
    
    (1,388,000
    )
    
    
    4,181,000
    
    
    
    1,968,000(Benefit) provision for income taxes
    
    
    (513,000
    )
    
    
    1,729,000
    
    
    
    830,000Net (loss) income
    
    $
    (875,000
    )
    
    $
    2,452,000
    
    
    $
    1,138,000Net (loss) income per share  basic and diluted
    
    $
    (0.05
    )
    
    $
    0.13
    
    
    $
    0.07Weighted average common shares outstanding  basic
    
    
    19,288,000
    
    
    
    18,983,000
    
    
    
    16,410,000Weighted average common shares outstanding  diluted
    
    
    19,288,000
    
    
    
    19,174,000
    
    
    
    16,624,000
 See accompanying notes to consolidated financial statements. F-3




---



##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Retained
    
    
    UnearnedShares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    ESOP Shares
    
    
    TotalBalance at February 28, 2002
    
    
    16,481,000
    
    
    
    165,000
    
    
    
    32,574,000
    
    
    
    (559,000
    )
    
    
    22,301,000
    
    
    
    (4,373,000
    )
    
    
    50,108,000Release of ESOP shares
    
    
    
    
    
    
    
    
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    916,000
    
    
    
    905,000Shares issued as compensation
    
    
    8,000
    
    
    
    
    
    
    
    38,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,000Exercise of stock options
    
    
    25,000
    
    
    
    
    
    
    
    67,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,000Shares issued in common stock
offering
    
    
    3,292,000
    
    
    
    33,000
    
    
    
    7,311,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,344,000Comprehensive income (loss):Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    678,000
    
    
    
    
    
    
    
    
    
    
    
    678,000Interest rate swap valuation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,000
    )
    
    
    
    
    
    
    
    
    
    
    (23,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,138,000
    
    
    
    
    
    
    
    1,138,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,793,000Balance at February 28, 2003
    
    
    19,806,000
    
    
    
    198,000
    
    
    
    39,979,000
    
    
    
    96,000
    
    
    
    23,439,000
    
    
    
    (3,457,000
    )
    
    
    60,255,000Release of ESOP shares
    
    
    
    
    
    
    
    
    
    
    (58,000
    )
    
    
    
    
    
    
    
    
    
    
    917,000
    
    
    
    859,000Exercise of stock options
    
    
    183,000
    
    
    
    2,000
    
    
    
    424,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    426,000Tax benefit of stock options
exercised
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Comprehensive income (loss):Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    851,000
    
    
    
    
    
    
    
    
    
    
    
    851,000Interest rate swap valuation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,000
    
    
    
    
    
    
    
    
    
    
    
    32,000Unrealized loss in marketable
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97,000
    )
    
    
    
    
    
    
    
    
    
    
    (97,000
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,452,000
    
    
    
    
    
    
    
    2,452,000Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,238,000Balance at February 29, 2004
    
    
    19,989,000
    
    
    $
    200,000
    
    
    $
    40,445,000
    
    
    $
    882,000
    
    
    $
    25,891,000
    
    
    $
    (2,540,000
    )
    
    $
    64,878,000Release of ESOP shares
    
    
    
    
    
    
    
    
    
    
    (40,000
    )
    
    
    
    
    
    
    
    
    
    
    459,000
    
    
    
    419,000Exercise of stock options
    
    
    13,000
    
    
    
    
    
    
    
    32,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,000Tax benefit of stock options
exercised
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Comprehensive income (loss):Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    378,000
    
    
    
    
    
    
    
    
    
    
    
    378,000Interest rate swap valuation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,000
    
    
    
    
    
    
    
    
    
    
    
    17,000Reclassification
of realized loss on sale of
marketable securities, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,000
    
    
    
    
    
    
    
    
    
    
    
    97,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (875,000
    )
    
    
    
    
    
    
    (875,000
    )Total comprehensive (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (383,000
    )Balance at February 28, 2005
    
    
    20,002,000
    
    
    $
    200,000
    
    
    $
    40,442,000
    
    
    $
    1,374,000
    
    
    $
    25,016,000
    
    
    $
    (2,081,000
    )
    
    $
    64,951,000
 See accompanying notes to consolidated financial statements. F-4




---



##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net (loss) income
    
    $
    (875,000
    )
    
    $
    2,452,000
    
    
    $
    1,138,000Adjustments to reconcile net (loss) income to net cash provided
by operating activities:Depreciation and amortization
    
    
    2,014,000
    
    
    
    2,427,000
    
    
    
    2,161,000ESOP contribution
    
    
    419,000
    
    
    
    859,000
    
    
    
    905,000Allowance for doubtful accounts
    
    
    203,000
    
    
    
    1,210,000
    
    
    
    163,000Deferred income taxes
    
    
    (421,000
    )
    
    
    (1,695,000
    )
    
    
    1,942,000Changes in assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    4,869,000
    
    
    
    (1,095,000
    )
    
    
    (5,268,000
    )Inventories
    
    
    (6,658,000
    )
    
    
    828,000
    
    
    
    4,987,000Prepaid expenses and other current assets
    
    
    (289,000
    )
    
    
    458,000
    
    
    
    2,416,000Other assets
    
    
    321,000
    
    
    
    290,000
    
    
    
    595,000Accounts payable
    
    
    (1,823,000
    )
    
    
    (277,000
    )
    
    
    (265,000
    )Accrued liabilities
    
    
    (2,565,000
    )
    
    
    637,000
    
    
    
    1,192,000Income taxes payable
    
    
    114,000
    
    
    
    3,039,000
    
    
    
    Net cash (used in) provided by operating activities
    
    
    (4,691,000
    )
    
    
    9,133,000
    
    
    
    9,966,000Cash flows from investing activities:Capital expenditures
    
    
    (898,000
    )
    
    
    (626,000
    )
    
    
    (734,000
    )Acquisitions, net of cash acquired
    
    
    (2,474,000
    )
    
    
    
    
    
    
    (20,826,000
    )Net cash used in investing activities
    
    
    (3,372,000
    )
    
    
    (626,000
    )
    
    
    (21,560,000
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (583,000
    )
    
    
    (667,000
    )
    
    
    (565,000
    )Net proceeds from the sale of common stock
    
    
    
    
    
    
    
    
    
    
    7,344,000Net (payments) borrowings under bank lines of credit
    
    
    4,768,000
    
    
    
    (4,032,000
    )
    
    
    5,710,000Exercise of stock options, with tax benefit
    
    
    37,000
    
    
    
    426,000
    
    
    
    67,000Payments under capital lease obligations
    
    
    (27,000
    )
    
    
    (25,000
    )
    
    
    (190,000
    )Net cash provided by (used in) financing activities
    
    
    4,195,000
    
    
    
    (4,298,000
    )
    
    
    12,366,000Effect of exchange rate changes on cash
    
    
    (9,000
    )
    
    
    1,152,000
    
    
    
    477,000Net (decrease) increase in cash
    
    
    (3,877,000
    )
    
    
    5,361,000
    
    
    
    1,196,000Cash at beginning of year
    
    
    7,806,000
    
    
    
    2,445,000
    
    
    
    1,249,000Cash at end of year
    
    $
    3,929,000
    
    
    $
    7,806,000
    
    
    $
    2,445,000Supplemental
disclosures of cash flow information: Cash paid (received)
during the period for:Interest
    
    $
    888,000
    
    
    $
    1,046,000
    
    
    $
    1,141,000Income taxes
    
    $
    (245,000
    )
    
    $
    
    
    
    $
    250,000
 See accompanying notes to consolidated financial statements. F-5




---



##### Table of Contents



MEADE INSTRUMENTS CORP. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The Company and Operations The Company Meade Instruments Corp. (the Company), a Delaware corporation, is a multinational consumer
and industrial optics company that designs, manufactures, imports and distributes telescopes,
telescope accessories, binoculars, riflescopes, spotting scopes, microscopes, night vision and
other consumer optical products. The Company has operations in the United States, Germany, Mexico
and China. 2. Summary of Significant Accounting Policies Principles of consolidation The accompanying consolidated financial statements include the accounts of the Company and all
of its subsidiaries and reflect the elimination of all significant intercompany account balances
and transactions. Revenue recognition The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has
occurred, the price to the buyer is fixed or determinable, and collectibility is reasonably
assured. Those criteria are typically met when product is shipped. Revenue is not recognized at
the time of shipment if these criteria are not met. Although there are many factors that influence
revenue recognition, the principal reason the Company may not recognize revenue at the time of
shipment is if the substance of the transaction is a consignment. Consignment type arrangements
happen on a limited basis. Under certain circumstances, the Company accepts product returns.
Material management judgments must be made and used in connection with establishing the sales
returns estimates. The Company continuously monitors and tracks returns and records revenues net of
provisions for returns. The Companys estimate of sales returns is based upon several factors
including historical experience, current market and economic conditions, customer demand and
acceptance of the Companys products and/or any notification received by the Company of such a
return. Historically, sales returns have been within managements estimates; however, actual
returns may differ significantly, either favorably or unfavorably, from managements estimates
depending on actual market conditions at the time of the return. Foreign currency translation The assets and liabilities of the Companys foreign operations are translated at end of period
exchange rates for the Euro. Revenues and expenses are translated at the average exchange
rates prevailing during the period. The effects of unrealized exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are accumulated in
stockholders equity as a component of accumulated other comprehensive income. The effects of
foreign currency transactions denominated in a currency other than its foreign entities functional
currency are included in general and administrative expenses. Foreign
currency exchange gains included in general and administrative
expenses were approximately $200,000 in each of the fiscal years
ended February 28, 2005, February 29, 2004 and
February 28, 2003, respectively. Allowance for doubtful accounts Management analyzes specific customer accounts receivable, customer credit-worthiness,
historical bad debt expenses, current economic trends and changes in customer payment terms when
evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of any
of the Companys customers were to deteriorate to the point of impairing the customers ability to
make payments on its account, additional allowances may be required. While credit losses have
historically been within managements expectations and the provisions established, significant
deterioration in the liquidity or financial position of any of the Companys major customers or any
group of customers could have a material adverse impact on the collectibility of accounts
receivable and future operating results. F-6




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Inventories Inventories are stated at the lower of cost, as determined using the first-in, first-out
(FIFO) method, or market. Costs include materials, labor and manufacturing overhead. The Company
evaluates the carrying value of its inventories taking into account such factors as historical and
anticipated future sales compared with quantities on hand and the price the Company expects to
obtain for its products in their respective markets. The Company also evaluates the composition of
its inventories to identify any slow-moving or obsolete product. These evaluations require material
management judgments, including estimates of future sales, continuing market acceptance of the
Companys products, and current market and economic conditions. Inventory reserves are established,
based on such judgments, for any inventories that are identified as having a net realizable value
less than its cost. Historically, the net realizable value of the Companys inventories has been
within managements estimates. However, if the Company is not able to meet its sales expectations;
or if market conditions deteriorate significantly from managements estimates, reductions in the
net realizable value of the Companys inventories could have a material adverse impact on future
operating results. Property and equipment Property and equipment are stated at cost and are depreciated using the straight-line method
over the estimated useful lives of the assets. Buildings and related improvements are depreciated
over seven to twenty-five years. All other property and equipment, except property held under
capital leases, is depreciated over three to seven years. Properties held under capital leases are
recorded at the present value of the noncancellable lease payments over the term of the lease and
are amortized over the shorter of the lease term or the estimated useful lives of the assets. Goodwill and acquisition-related intangible assets In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations initiated after June 30,
2001, and establishes specific criteria for the recognition of goodwill separate from other
intangible assets. SFAS No. 142 requires that goodwill and identifiable intangible assets
determined to have an indefinite life no longer be amortized, but instead be tested for impairment
at least annually. The difference between the purchase price and the fair value of net tangible assets at the
date of acquisition is included in the accompanying consolidated balance sheet as goodwill and
acquisition-related intangible assets. Amortization periods for the intangible assets subject to
amortization range from seven to fifteen years depending on the nature of the assets acquired. The
carrying value of goodwill and acquisition-related intangible assets, including the related
amortization period, are evaluated in the fourth quarter of each fiscal year. The Companys reporting units for purposes of applying the provisions of SFAS 142 are Meade
Europe, Simmons and Coronado. SFAS 142 requires the Company to compare the fair value of the
reporting unit to its carrying amount on an annual basis to determine if there is potential
impairment. If the fair value of the reporting unit is less than its carrying value, an impairment
loss is recorded to the extent that the fair value of the goodwill within the reporting unit is
less than its carrying value. If the carrying amount of the goodwill exceeds its fair value, an
impairment loss is recognized. Fair value is determined based on
market multiples. As of
February 28, 2005, the Company does not believe any impairment of goodwill has occurred. Acquisition-related intangible assets with finite lives are reviewed whenever events or
changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
The Company reviews the recoverability by comparing the estimated future cash flows on an
undiscounted basis to the net book value of the assets. In the event that projected undiscounted
cash flows are less than the net book value of the assets, the carrying value of the assets F-7




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) are written down to their fair value, less costs to sell. Fair value is generally based on
discounted cash flows. Assets that are to be disposed of are measured at the lower of cost or fair
value, less costs to sell. At February 28, 2005 and February 29, 2004, goodwill and acquisition-related intangible assets
included the following: February 28/29,2005
    
    
    2004Amortization Periods
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    Accumulated(Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationGoodwill
    
    none
    
    $
    4,331,000
    
    
    $
    
    
    
    $
    1,548,000
    
    
    $
    Acquisition-related
intangible assets:Brand names
    
    none
    
    
    2,041,000
    
    
    
    
    
    
    
    2,041,000
    
    
    
    Customer
relationships
    
    
    10
    
    
    
    1,390,000
    
    
    
    (278,000
    )
    
    
    1,390,000
    
    
    
    (139,000
    )Trademarks
    
    
    7-15
    
    
    
    1,398,000
    
    
    
    (1,176,000
    )
    
    
    1,398,000
    
    
    
    (948,000
    )Total
acquisition-related
intangible assets
    
    
    
    
    
    
    4,829,000
    
    
    
    (1,454,000
    )
    
    
    4,829,000
    
    
    
    (1,087,000
    )Total goodwill and
acquisition-related
intangible assets
    
    
    
    
    
    $
    9,160,000
    
    
    $
    (1,454,000
    )
    
    $
    6,377,000
    
    
    $
    (1,087,000
    )
 The changes in the carrying amount of goodwill and acquisition-related intangible assets for
the years ended February 28, 2005 and February 29, 2004 are as follows: Non-amortizing
    
    
    Amortizingintangible assets
    
    
    intangible assetsBalance, net, February 28, 2003
    
    $
    3,589,000
    
    
    $
    2,068,000Amortization
    
    
    
    
    
    
    (367,000
    )Balance, net, February 29, 2004
    
    
    3,589,000
    
    
    
    1,701,000New assets acquired
    
    
    2,783,000
    
    
    
    Amortization
    
    
    
    
    
    
    (367,000
    )Balance, net, February 28, 2005
    
    $
    6,372,000
    
    
    $
    1,334,000
 Amortization of trademarks and customer relationships over the next five fiscal years is
estimated as follows: Fiscal Year
    
    Amount2006
    
    $
    361,0002007
    
    
    139,0002008
    
    
    139,0002009
    
    
    139,0002010
    
    
    139,000
 F-8




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Income taxes The Company uses the liability method of accounting for income taxes. Under this method
deferred tax assets and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax rates that will be
in effect when the differences are expected to reverse. The Company files its tax return for the
year ending August 31, rather than for the financial reporting period ending the last day of
February. Shipping and handling costs The Company records shipping and handling costs in selling expenses. For the years ended
February 28, 2005, and February 29, 2004 and February 28, 2003, the Company incurred shipping and
handling costs of $4,861,000, $5,476,000, and $4,134,000, respectively. Advertising The Company expenses the costs of advertising, including production costs, as incurred. For the
years ended February 28, 2005, and February 29, 2004 and February 28, 2003, the Company incurred
advertising, including cooperative advertising, and marketing expenses of approximately $4,090,000,
$5,465,000 and $4,406,000, respectively. Cooperative advertising arrangements exist through which
customers receive a certain allowance of the total purchases or an otherwise agreed upon amount from
the Company if certain qualitative advertising criteria are met and if specified amounts are spent
on the advertisements. To receive the allowance, a customer must deliver to the Company evidence of
all advertising performed that includes the Companys products. Because the Company receives an
identifiable advertising benefit from the customer, the Company recognizes the cost of cooperative
advertising as an advertising expense in selling expenses. Research and development Expenditures for research and development costs are charged to expense as incurred. Earnings (loss) per share Basic earnings (loss) per share amounts exclude the dilutive effect of potential shares of
common stock. Basic earnings (loss) per share is based upon the weighted-average number of shares
of common stock outstanding, which excludes unallocated ESOP shares. Diluted earnings (loss) per
share is 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. Potential
shares of common stock of 159,000 have been excluded from diluted weighted average shares of common
stock for fiscal 2005, as the Company incurred a loss and the effect would be anti-dilutive.
For fiscal years 2005, 2004 and 2003, options to purchase 2,271,000,
1,889,000, and 2,994,000 shares of common stock, respectively, were
also excluded from diluted weighted average shares of common stock,
as the option exercise prices were greater than the average market
price of the Companys common stock and, therefore, the effect
would be anti-dilutive. F-9




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following is a reconciliation of the denominators of the basic and diluted earnings (loss)
per share computations for the fiscal years ended February 28, 2005, and February 29, 2004 and
February 28, 2003. Year Ended February 28/29 ,2005
    
    
    2004
    
    
    2003Net (loss) income
    
    $
    (875,000
    )
    
    $
    2,452,000
    
    
    $
    1,138,000Shares outstanding  basic
    
    
    19,288,000
    
    
    
    18,983,000
    
    
    
    16,410,000Effect of dilutive securities: Stock
options
    
    
    
    
    
    
    191,000
    
    
    
    214,000Shares outstanding  diluted
    
    
    19,288,000
    
    
    
    19,174,000
    
    
    
    16,624,000Net (loss) income  basic and diluted
    
    $
    (0.05
    )
    
    $
    0.13
    
    
    $
    0.07
 Comprehensive income Comprehensive income (loss) 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 and, at
February 28, 2005, includes foreign currency translation
adjustments. During fiscal year 2005 the Company
sold the underlying security that generated the unrealized loss in the prior year. As of February
28, 2005 and February 29, 2004, accumulated other comprehensive income consists of the following: February 28/292005
    
    
    2004Foreign currency translation adjustments
    
    $
    1,374,000
    
    
    $
    996,000Unrealized loss in marketable securities, net of tax
    
    
    
    
    
    
    (97,000
    )Fair value of interest rate swap, net of tax
    
    
    
    
    
    
    (17,000
    )Total accumulated other comprehensive income
    
    $
    1,374,000
    
    
    $
    882,000
 Concentration of credit risk Financial instruments which potentially subject the Company to concentration of credit risk
are principally accounts receivable. The Company maintains an allowance for doubtful accounts at a
level deemed appropriate by management based on historical and other factors that affect
collectibility. Several customers filed for bankruptcy during fiscal 2002 and 2001. The frequency
and significance of customer bankruptcy filings has diminished since the 2001 and 2002 years.
Based upon the Companys assessment of the recoverability of the receivables from these customers
and in the opinion of management, the Company has established adequate reserves related to these
receivables. Fair value of financial instruments The carrying amounts of accounts receivable, accounts payable, accrued liabilities, and
short-term loans approximate fair value due to the short maturity of these instruments. The
carrying value of long-term debt approximates its fair value. Derivative Instruments and Hedging Activities The Company may enter into interest rate swap agreements or foreign exchange contracts to
offset certain operational and balance sheet exposures and to manage its exposure to interest and
exchange rate movements. These contracts are entered into to support product sales, purchases and
financing transactions made in the normal course of business, and accordingly, are not speculative
in nature. The Company uses interest rate swaps to convert floating-rate debt to fixed-rate debt.
Interest rate swap agreements are executed as an integral part of specific debt F-10




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) transactions and involve payment of a fixed rate and receipt of a floating rate and specified
intervals. The Company may enter into foreign exchange contracts to manage risk associated with
fluctuations on certain firm sales and purchase commitments denominated in foreign currencies. All derivatives are recognized on the balance sheet at their fair value. On the date that the
Company enters into a derivative contract, it designates the derivative as either (a) a hedge of a
forecasted transaction or the variability of cash flows that are to be received or paid in
connection with a recognized asset or liability (a cash flow hedge), or (b) a hedge of an
exposure to changes in the fair value of an asset, liability, or an unrecognized firm commitment (a
fair value hedge). Changes in the fair value of a derivative that is highly effective, and that
is designated and qualifies as a cash flow hedge to the extent that the hedge is effective, are
recorded in Other Comprehensive Income until earnings are affected by the variability of cash flows
of the hedged transaction (e.g., until periodic settlements of a variable asset or liability are
recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes
in the fair value of the derivative exceed the variability in the cash flows of the forecasted
transaction) is recorded in current-period earnings. Changes in the fair value of a derivative that
is highly effective, and that is designated and qualifies as a foreign-currency hedge, are recorded
in either current-period earnings or accumulated other comprehensive income, depending on whether
the hedging relationship satisfies the criteria for a fair-value or cash-flow hedge. The Company formally documents all relationships between hedging instruments and hedged items,
as well as its risk-management objective and strategy for undertaking various hedge transactions.
This process includes linking all derivatives that are designated as cash flow hedges to specific
firm commitments or forecasted transactions. The Company also formally assesses (both at the
hedges inception and on an ongoing basis) whether the derivatives that are used in hedging
transactions have been highly effective in offsetting changes in the cash flows of hedged items and
whether those derivatives may be expected to remain highly effective in future periods. All
components of each derivatives gain or loss are included in the assessment of hedge effectiveness. When it is determined that a derivative is not, or has ceased to be, highly effective as a
hedge, the Company discontinues hedge accounting prospectively. A derivative ceases to be highly
effective when (a) the Company determines that the derivative is no longer effective in offsetting
changes in the cash flows of a hedged item such as firm commitments or forecasted transactions, (b)
it is no longer probable that the forecasted transaction will occur, (c) the derivative expires or
is sold, terminated or exercised, or (d) management determines that designating the derivative as a
hedging instrument is no longer appropriate. When the Company discontinues hedge accounting because it is no longer probable that the
forecasted transaction will occur in the originally expected period, the gain or loss on the
derivative remains in Accumulated Other Comprehensive Income and is reclassified into earnings when
the forecasted transaction affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified time period or within an
additional two-month period of time thereafter, the gains and losses that were accumulated in
Accumulated Other Comprehensive Income will be recognized immediately in earnings. In a situation
in which hedge accounting is discontinued and the derivative remains outstanding, the Company will
carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value
in current-period earnings. Use of estimates in the preparation of financial statements The preparation of consolidated financial statements, in conformity with accounting principles
generally accepted in the United States, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the respective reporting periods. Actual results could differ from those estimates.
Estimates are used in accounting for, among other items, sales returns and reserves, allowances for
doubtful accounts, excess and obsolete inventory, income taxes, asset impairment, anticipated
transactions to be hedged, litigation reserves and contingencies. F-11




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Product warranties The Company provides reserves for the estimated cost of product warranty-related claims at the
time of sale, and periodically adjusts the provision to reflect actual experience. The amount of
warranty liability accrued reflects managements best estimate of the expected future cost of
honoring Company obligations under its warranty plans. Additionally, from time to time, specific
warranty accruals may be made if unforeseen technical problems arise. Meade and Bresser branded
products, principally telescopes and binoculars, are generally covered by a one-year limited
warranty. Many of the Simmons products, principally riflescopes and binoculars, have lifetime
limited warranties. Changes in the warranty liability, which is included as a component of accrued
liabilities on the accompanying Consolidated Balance Sheets, follows. February 28/29,2005
    
    
    2004Beginning balance
    
    $
    1,427,000
    
    
    $
    1,794,000Warranty accrual
    
    
    623,000
    
    
    
    367,000Labor and material usage
    
    
    (898,000
    )
    
    
    (775,000
    )Effect of change in foreign currency exchange rates
    
    
    21,000
    
    
    
    41,000Ending balance
    
    $
    1,173,000
    
    
    $
    1,427,000
 Stock-based compensation The Company accounts for employee stock-based compensation in accordance with the intrinsic
value method described in Accounting Principles Board Opinion No. 25 and related interpretations.
The Company has adopted the disclosure only provisions of SFAS No. 123. Accordingly, no
compensation cost has been recognized for the fixed stock option plans. Had compensation cost for
the Companys stock-based compensation plans been determined based on the fair value at the grant
dates for awards under those plans, consistent with the method prescribed by SFAS No. 123, the
Companys net income (loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below. Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Reported net (loss) income
    
    $
    (875,000
    )
    
    $
    2,452,000
    
    
    $
    1,138,000Compensation cost, net of taxes
    
    
    (886,000
    )
    
    
    (682,000
    )
    
    
    (1,587,000
    )Pro forma net (loss) income
    
    $
    (1,761,000
    )
    
    $
    1,770,000
    
    
    $
    (449,000
    )Reported (loss) earnings per
share  basic and diluted
    
    $
    (0.05
    )
    
    $
    0.13
    
    
    $
    0.07Pro forma (loss) earnings per
share  basic and diluted
    
    $
    (0.09
    )
    
    $
    0.09
    
    
    $
    (0.03
    )
 F-12




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of the Companys stock options used to compute pro forma net income and
earnings per share disclosures is the estimated present value at grant date using the Black-Scholes
option-pricing model with the following assumptions: Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Weighted average expected life (years)
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.0Volatility
    
    
    33.1
    %
    
    
    69.3
    %
    
    
    100.9
    %Risk-free interest rate
    
    
    3.65
    %
    
    
    3.01
    %
    
    
    3.75
    %Expected dividends
    
    None
    
    None
    
    NoneWeighted average fair value of options granted
    
    $
    1.99
    
    
    $
    1.90
    
    
    $
    2.19
 Accounting pronouncements In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The American
Jobs Creation Act of 2004 (the Jobs Creation Act) was enacted on October 22, 2004. FSP109-2states
that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate
the effect of the Jobs Creation Act on its plan for reinvestment or repatriation of foreign
earnings for purposes of applying SFAS No. 109. The Company is currently evaluating the impact of
this new law on its operations and effective tax rate. In particular, the Company is evaluating the
laws provisions relating to allowable deductions, beginning in 2005, for income attributable to
United States production activities. At this time, the Company is unable to determine the effects
of this new law and will continue to analyze its potential impact as guidance is made available. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. SFAS No.
123R supersedes APB Opinion No. 25, which requires recognition of an expense when goods or services
are provided. SFAS No. 123R requires the determination of the fair value of the share-based
compensation at the grant date and the recognition of the related expense over the period in which
the share-based compensation vests. SFAS No. 123R permits a prospective or two modified versions of
retrospective application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods by the original SFAS No.
123. We are required to adopt the provisions of SFAS No. 123R effective March 1, 2006, at which
time we will begin recognizing an expense for unvested share-based compensation that has been
issued or will be issued after that date. The Company has not determined whether the adoption will
result in amounts that are similar to the current pro forma disclosures under SFAS No. 123. In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4. This Statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that . . . under
some circumstances, items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current period charges. . . . This
Statement requires that those items be recognized as current-period charges regardless of whether
they meet the criterion of so abnormal. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The
Company does not expect the adoption of SFAS No. 151 to have a material impact on its results of
operations or financial position. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assetsan amendment
of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions, is based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces F-13




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) it with a general exception for exchanges of nonmonetary assets that do not have commercial
substance. SFAS 153 is effective for fiscal periods beginning after June 15, 2005. The Company does
not anticipate that the application of this statement will have a material impact on the Companys
financial position or results of operations. Reclassifications Certain reclassifications have been made to conform prior year information to the current year
presentation. 3. Acquisition of Coronado Technology Group, LLC On December 1, 2004, the Company acquired substantially all of the assets and assumed
substantially all of the liabilities of Coronado Technology Group, LLC, for approximately $2.5
million in cash plus contingent consideration. The contingent consideration is based upon
financial performance of the acquired operations for the twelve months ended December 31, 2005.
The contingent consideration is the excess of three times earnings before interest and taxes
(EBIT) over $2.5 million. If three times EBIT does not exceed $2.5 million, no additional
consideration will be paid. Coronado is a supplier of high-quality hydrogen-alpha filters and
dedicated solar telescopes, as well as various related accessories, designed to meet the needs of
amateur as well as professional solar observers. The acquisition of Coronado added a respected
name in the solar observation markets to Meades suite of brands, vertically adding to the
Companys product offerings, particularly the telescope and accessory lines. The acquisition of
Coronado was accounted for as a purchase in accordance with Statement of Financial Accounting
Standards No. 141, Business Combinations.The purchase price allocation is based upon evaluations
and other studies of the fair value of the assets acquired. The preliminary allocation of the
excess of the purchase price over the estimated fair value of the net tangible assets acquired is
included in goodwill. The Company has engaged a third party valuation firm to assist in its final
determination of the allocation of excess purchase price. If the financial results during the
earnout period result in additional consideration, the fair value of the additional consideration
will be added to the cost of the acquired assets. On an unaudited pro-forma basis, the effects of
the acquisition were not significant to the Companys results of operations. A summary of the purchase price allocation (net of $25,000 cash acquired) is as follows: Accounts receivable
    
    $
    72,000Inventories
    
    
    312,000Property, plant, equipment
    
    
    367,000Other assets
    
    
    70,000Intangible assets (preliminarily goodwill)
    
    
    2,783,000Current liabilities
    
    
    (1,071,000
    )Long-term liabilities, net of current portion
    
    
    (59,000
    )Total purchase price
    
    $
    2,474,000
 4. 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,
$4,829,000 was paid in December, 2002). Simmons is a designer and distributor of riflescopes,
binoculars and other consumer sports optics offering products under the Simmons, Weaver and
Redfield brand names. The acquisition of Simmons presented 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
evaluations and other F-14




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 acquisition related
intangible assets at February 29, 2004, and has been allocated to the value of the brand names and
customer relationships acquired. A summary of the purchase price allocation (net of $3,000 cash acquired) is as follows: Net accounts receivable
    
    $
    4,820,000Net inventories
    
    
    14,407,000Property, plant and equipment
    
    
    239,000Intangible assets
    
    
    3,431,000Current 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 ATKs
(successor) basis for periods subsequent to December 6, 2001. The following table presents unaudited pro forma condensed consolidated financial information
for the year ended February 28, 2003, as though the acquisition occurred on March 1, 2002. The pro
forma information for the year ended February 28, 2003 has been prepared by combining the statement
of operations of Meade for the year ended February 28, 2003 and the statement of operations of
Simmons (successor) for the eight months ended October 2002. February 28,2003Net sales
    
    $
    128,441,000Operating income
    
    $
    4,258,000Net income
    
    $
    982,000Basic and diluted earnings per share
    
    $
    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, 2002. 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 have been
achieved from the combined operations. 5. Bank and other debt On October 25, 2002, the Company amended its credit agreement with its U.S. bank (the U.S.
credit agreement) to provide the Company with a $35,645,000 credit facility consisting of a
$34,000,000 revolving credit line (the U.S. revolving loan) and a $1,645,000 term loan (the U.S.
term loan). On July 9, 2004 the Company executed the Second Amendment to Amended and Restated Credit
Agreement (the Second Amendment). The Second Amendment made the following key changes to the U.S.
credit agreement, it: (1) extended the term of the facility to September 30, 2007, (2) eliminated
the U.S. EBITDA covenant, (3) added a U.S. fixed charge coverage ratio requirement and (4) adjusted
the pricing grid to allow improved pricing, based on performance. F-15




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On December 15, 2004 the Company executed the Third Amendment to Amended and Restated Credit
Agreement (the Third Amendment). The Third Amendment made the following key changes to the U.S.
credit agreement, it: (1) amended the U.S. fixed charge coverage ratio and the consolidated fixed
charge coverage ratio covenants, (2) set minimum availability requirements and (3) added a higher
pricing level to the pricing grid. The impetus behind the Second and Third Amendments was the Companys performance falling below
the requirements underlying the fixed charge coverage ratios. After execution of the amendments,
the Companys was in compliance with the amended fixed charge coverage ratio requirements. Due to
continuing losses during the fourth quarter of fiscal 2005, the
Company concluded that it was not
in compliance with the consolidated fixed charge coverage ratio covenant as set forth in the
U.S. credit agreement for the year ended February 28, 2005. Accordingly, on May 27, 2005, the Company executed the Fourth Amendment to
Amended and Restated Credit Agreement (the Fourth Amendment). The Fourth Amendment made the
following key changes to the U.S. credit agreement, it: (1) reset the consolidated and U.S. fixed
charge coverage ratio covenants, (2) added a $1 million availability reserve until the Company
reaches certain consolidated fixed charge coverage ratio levels and (3) added higher pricing levels
to the pricing grid. The Company is required to report its covenant
calculations to the bank for the year ended February 28, 2005
based upon the terms of the Fourth Amendment. Upon execution of the Fourth Amendment the Company was in compliance with all
of its bank covenants. Amounts outstanding on the U.S. revolving loan and U.S. term loan at February 28, 2005 were
approximately $9,816,000 and $665,000, respectively. Availability under the U.S. revolving loan
(which is subject to a borrowing base with standard advance rates against eligible accounts
receivable and inventories) at February 28, 2005 was approximately $6,000,000. The U.S. term loan
is collateralized by domestic machinery and equipment. The credit facility expires in September
2007, is collateralized by substantially all of the domestic assets of the Company and its domestic
subsidiaries and contains certain financial covenants including, but not limited to, fixed charge
coverage ratios and minimum tangible net worth. Amounts outstanding under the U.S. revolving loan
bear interest at the banks base rate (or LIBOR rate) plus applicable margins (5.5% at February 28,
2005). Under the terms of the U.S. credit agreement, the Company was required to enter into an
interest-rate swap to convert the variable interest rate on its U.S. term loan to a fixed interest
rate. The resulting cost of funds (7.9% per annum) was 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 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 swap contract expired on September 1, 2004. In July 2004, the Companys German subsidiary renegotiated its agreement with a bank to
provide up to approximately $4,800,000 in revolving loans (subject to a borrowing base of eligible
accounts receivable and inventories) expiring in July 2005. The German subsidiary also has an
agreement with the bank that provides a term loan expiring June 2006 collateralized by land and
buildings owned by the German subsidiary (collectively, the European Loans). The European Loans
are guaranteed by the U.S. parent company up to approximately $3,400,000 at February 28, 2005. The
guarantee expires on the earlier of the termination of the bank agreement or July 31, 2008.
Outstanding amounts on the revolving loan and the term loan in Europe at February 28, 2005 were
approximately $11,000 and $1,129,000, respectively. The European Loans bear interest at the banks
base rate plus or minus applicable margins (7.5% and 6.0%, respectively at February 28, 2005). In connection with the purchase of certain assets and the assumption of certain liabilities of
Coronado in December 2004, the Company assumed an unsecured note, payable in monthly installments
of $6,400, including interest at 10% per annum through May 2006 and a note, collateralized by
equipment, payable in monthly installments of $26,000, including interest at 6% per annum through
April 2005. F-16




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Aggregate maturities of
long-term debt not including capital leases at February 28, 2005 are as follows: Fiscal Year:
    
    Amount2006
    
    $
    765,0002007
    
    
    1,217,000Total
    
    $
    1,982,000
 The current portion of long-term debt consists of 1) $420,000 related to the U.S. term note,
2) $169,000 related to the European term loan and 3) $176,000 related to the Coronado notes payable
assumed. The Company continues to depend on operating cash flow and availability under its bank
lines of credit to provide short-term liquidity. 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. However, management
believes that operating cash flow and bank borrowing capacity in connection with the Companys
business should provide sufficient liquidity for the Companys obligations for at least the next
twelve months. 6. Commitments and Contingencies In December 1996 the Company executed a lease commencing October 1, 1997 for its corporate
office and manufacturing facilities in California. The lease term is ten years, extendable for an
additional ten years (two terms of five years each) at the Companys option. Lease commitments for
this lease are subject to 9% increases at the beginning of the months 31, 61 and 91. In February
2000, the Company entered into a lease for warehouse space located near the Companys corporate
headquarters. That warehouse lease expired in March 2003 and the Company vacated the premise on
April 1, 2003. In November 2003, a lease for office space in Florida was terminated. The Simmons
subsidiary operates in a leased facility in Georgia. The Simmons facility lease term is eight years
expiring in December 2007, with an option to renew for four additional four-year terms. Monthly
rentals are adjusted at prescribed dates generally based on changes in the consumer price index. In
November 2002, the Company leased warehouse space in Mississippi. The Mississippi facility lease is
on a month-to-month basis. In August 1999, the Company entered into a lease for an assembly facility in Tijuana, Mexico.
The lease term is five years with three, five-year renewal options. In January 2000, the Company
entered into a lease for an office, repair and distribution facility in Graefelfing, Germany.
During fiscal 2003, the Graefelfing space was reduced to office space only. In connection with the
purchase of certain assets and the assumption of certain liabilities of Coronado in December 2004,
the Company assumed a capital lease for equipment used in the manufacture of Coronado product. The
equipment had an initial cost of $56,000, interest is 7.1% per annum with monthly payments of
principal and interest of $1,100. Aggregate future minimum commitments under noncancellable leases and other agreements at
February 28, 2005 that have remaining terms in excess of one year are as follows: Fiscal Year
    
    Capital
    
    
    Operating2006
    
    $
    13,000
    
    
    $
    1,843,0002007
    
    
    13,000
    
    
    
    1,825,0002008
    
    
    13,000
    
    
    
    1,294,0002009
    
    
    
    
    
    
    267,0002010
    
    
    
    
    
    
    228,000Thereafter
    
    
    
    
    
    
    228,000Net minimum lease payments
    
    
    39,000
    
    
    $
    5,685,000Less amount representing interest
    
    
    4,000Capital lease obligations
    
    $
    35,000
 F-17




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The preceding table assumes that any operating leases with renewal options that expire during
fiscal 2005 or fiscal 2006 will be renewed under the terms of the governing lease agreement. For
the fiscal years ended February 28, 2005, and February 29, 2004 and February 28, 2003, the Company
incurred rent expense of $2,337,000, $2,371,000 and $2,731,000, respectively. In 2001 and 2002, the Company filed suits against Tasco Sales, Inc. (Tasco) and Celestron
International, Inc. (Celestron), charging the two companies with patent infringement and unfair
competition. The complaints alleged that a number of Tascos and Celestrons consumer telescopes
willfully infringe certain of the Companys U.S. patents. Tasco and Celestron filed answers and
certain counterclaims denying the Companys allegations. The counterclaims also alleged, among
other things, that the Company infringed certain Celestron patents. On July 8, 2004, the Company
announced that it had reached an agreement, effective May 10, 2004, under which all outstanding
litigation between the parties had been resolved. As stipulated in the agreement, Celestron acknowledges the validity of Meades claims to two
utility patents (Meades Patents), including the level-North alignment technology for
computerized telescopes, as well as a patented architecture by which several microprocessors in a
computerized telescope optimally communicate with one another. Also as stipulated in the
agreement, Meade acknowledges the validity of Celestrons claim to two design patents and one
utility patent covering certain telescope tripods and mounts (Celestrons Patents). Celestron
also transfers to Meade ownership of a patent, originally claimed by Celestron, covering
level-North technology. The settlement includes a licensing agreement under which, effective August 15, 2004, and
continuing for the life of the Meade Patents, Meade granted Celestron a non-exclusive license to
utilize the patents, and Celestron will pay to Meade royalties equal to the greater of
$100-per-unit or 8% of Celestrons net revenue from sales of all telescopes that utilize the
level-North technology. Celestron in turn granted Meade royalty-free, non-exclusive licenses for
the rights to use the designs and technology covered by Celestrons Patents. Included in net sales
for the year ended February 28, 2005 was approximately $135,000 for royalties received. In accordance with the terms of the agreement the parties have dismissed with prejudice all
claims and counterclaims in the pending litigation between them, including for past damages. 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. 7. Employee Stock Ownership Plan Adoption of the ESOP was effective March 1, 1996 and covers all employees of the Company who
meet certain service and eligibility requirements. A participant becomes 100% vested in his ESOP
account if, while employed at the Company, the participant (i) reaches his 60th birthday, (ii)
becomes disabled (as defined), (iii) dies, or (iv) achieves three years of credited service (as
defined). Distributions of a participants vested account are directed by the ESOPs Administrative
Committee. The Company provides a put option to any participant who receives a distribution of
Company stock, unless the stock is readily tradable on an established market. In April 1996, the ESOP purchased 3,000,000 shares of common stock held by the existing
stockholders for $11,000,000. The ESOP financed the purchase of the common stock (the financed
shares) with the proceeds of an $11,000,000 term loan (the acquisition loan) from the Company.
The financed shares are held by the Meade Instruments Corp. Employee Stock Ownership Trust (the
ESOP trust). The ESOP pledged the financed shares to the Company as collateral for the
acquisition loan. The financed shares were initially credited to a suspense account on the books of
the ESOP and will be allocated to the accounts of individual ESOP participants, as of each plan
year end, for payments made on the acquisition loan. The acquisition loan has a twenty-year term
and bears interest at 6% F-18




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) per annum. Principal and interest is due annually, subject to the Company making contributions
to the ESOP to fund the principal and interest payments. The release of financed shares from
collateral is based on a formula defined in the plan. The Company accounts for its ESOP in
accordance with Statement of Position 93-6. Accordingly, the shares pledged as collateral are
reported as unearned ESOP shares in the balance sheet. As shares are committed to be released from
collateral, the Company records compensation expense, and the shares become outstanding for net
income per share purposes. Any dividends on allocated shares are recorded as a reduction of
retained earnings; any dividends on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest. For the years ended February 28, 2005 and February 29, 2004 and February 28, 2003, the Company
recognized ESOP contribution expense of $419,000, $859,000 and $905,000, respectively. As of February 28, 2005, approximately 2,251,000 shares in the ESOP trust have been allocated
to individual participants. Allocations to individual participant accounts are generally made in
the ratio that the compensation of each participant bears to the total compensation of all such
participants. There are approximately 749,000 shares in suspense at February 28, 2005, including
approximately 125,000 shares committed to be released as of February 28, 2005. The fair value of the common stock upon purchase from the existing stockholders in April 1996
was determined to be $3.67 per share. Under the terms of the ESOP, the fair value of the common
stock at any plan year end is to be determined by an independent appraiser so long as the stock is
not readily tradable on an established market. The fair value of the shares held by the ESOP at
February 28, 2005 was $3.10 per share, the closing market price as determined by the Nasdaq
National Market. At February 28, 2005 there was no repurchase obligation. 8. Income Taxes Pretax income (loss) from continuing operations for each of the three years February 28, 2005,
February 29, 2004 and February 28, 2003 consists of the following: Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Domestic
    
    $
    (4,302,000
    )
    
    $
    979,000
    
    
    $
    1,045,000Foreign
    
    
    2,914,000
    
    
    
    3,202,000
    
    
    
    923,000$
    (1,388,000
    )
    
    $
    4,181,000
    
    
    $
    1,968,000
 Significant components of the provision for income taxes are as follows: Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Current:Federal
    
    $
    (521,000
    )
    
    $
    1,191,000
    
    
    $
    (785,000
    )State
    
    
    (261,000
    )
    
    
    482,000
    
    
    
    (262,000
    )Foreign
    
    
    502,000
    
    
    
    1,157,000
    
    
    
    97,000(280,000
    )
    
    
    2,830,000
    
    
    
    (950,000
    )Deferred:Federal
    
    
    (346,000
    )
    
    
    (1,081,000
    )
    
    
    1,130,000State
    
    
    (509,000
    )
    
    
    (208,000
    )
    
    
    356,000Foreign
    
    
    622,000
    
    
    
    188,000
    
    
    
    294,000(233,000
    )
    
    
    (1,101,000
    )
    
    
    1,780,000$
    (513,000
    )
    
    $
    1,729,000
    
    
    $
    830,000
 F-19




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The provision for income taxes differed from the amount computed by applying the U.S.
federal statutory rate to income before income taxes due to the effects of the following: Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Federal income tax rate
    
    
    (34.0
    )%
    
    
    34.0
    %
    
    
    34.0
    %State income taxes, of federal
income tax benefit
    
    
    (9.9
    )
    
    
    4.3
    
    
    
    3.4Federal and state refunds
received from refund claims
    
    
    (33.2
    )
    
    
    
    
    
    
    Foreign income
    
    
    37.4
    
    
    
    1.8
    
    
    
    4.6Research and development credits
    
    
    (2.2
    )
    
    
    
    
    
    
    Other
    
    
    4.9
    
    
    
    1.3
    
    
    
    0.2(37.0
    )%
    
    
    41.4
    %
    
    
    42.2
    %
 The significant components of the net deferred tax asset were as follows: February 28,
    
    
    February 29,2005
    
    
    2004Sales returns
    
    $
    1,154,000
    
    
    $
    979,000Inventory and accounts receivable
    
    
    4,367,000
    
    
    
    4,099,000Accrued liabilities
    
    
    1,217,000
    
    
    
    2,780,000Intangibles
    
    
    (1,224,000
    )
    
    
    (1,054,000
    )Credits
    
    
    1,549,000
    
    
    
    Other
    
    
    4,000
    
    
    
    30,000$
    7,067,000
    
    
    $
    6,834,000
 As of February 29, 2004, Meade had approximately $2,408,000 of state net operating loss carry
forwards available to offset future taxable income. Those net operating loss carryforwards were
utilized in full during the fiscal year ended February 28, 2005. The Company has foreign tax
credits of approximately $936,000 which begin to expire during the fiscal year ending February 28,
2013 and research and experimentation credits of approximately $612,000 which begin to expire
during the fiscal year ending February 28, 2024. The future realization of these credits is
dependent upon the Company generating sufficient income both outside the United States and within
the United States. Management currently believes that it is more likely than not that realization
of the credits will occur within the carryforward period. 9. Business Segments, Geographic Data and Major Customers The Company is a multinational consumer optics company that designs, manufactures, imports and
distributes telescopes, telescope accessories, binoculars, riflescopes and other optical products.
The Company is organized and operates as one segment in two principal geographic locations  North
America and Europe. The following tables F-20




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) present information about product sales and geographic data for the fiscal years ended
February 28, 2005 and February 29, 2004 and February 28, 2003. Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Product sales:Telescope and telescope accessories
    
    $
    58,823,000
    
    
    $
    81,024,000
    
    
    $
    73,489,000Binoculars
    
    
    25,192,000
    
    
    
    28,991,000
    
    
    
    26,611,000Riflescopes
    
    
    21,643,000
    
    
    
    24,878,000
    
    
    
    8,300,000Other
    
    
    6,141,000
    
    
    
    3,388,000
    
    
    
    2,417,000$
    111,799,000
    
    
    $
    138,281,000
    
    
    $
    110,817,000
 Year Ended February 28/29,2005
    
    
    2004
    
    
    2003Geographic data  product sales:North America
    
    $
    79,732,000
    
    
    $
    101,995,000
    
    
    $
    83,628,000Germany
    
    
    12,296,000
    
    
    
    14,477,000
    
    
    
    12,124,000Other foreign/export
    
    
    19,771,000
    
    
    
    21,809,000
    
    
    
    15,065,000$
    111,799,000
    
    
    $
    138,281,000
    
    
    $
    110,817,000
 February 28/29,2005
    
    
    2004
    
    
    2003Geographic data  long-lived assets:North America
    
    $
    9,046,000
    
    
    $
    5,916,000
    
    
    $
    8,701,000Germany
    
    
    3,238,000
    
    
    
    3,420,000
    
    
    
    3,616,000$
    12,284,000
    
    
    $
    9,336,000
    
    
    $
    12,317,000
 The Company generated 11%, 11% and 15% of its revenue from one customer during the fiscal
years ended February 28, 2005, February 29, 2004 and February 28, 2003, respectively. The Company
generated 11% of its revenue from another customer during the fiscal year ended February 28, 2003. 10. Stock Incentive Plan In February 1997, the Companys Board of Directors adopted the 1997 Stock Incentive Plan (the
Plan). The Plan provides for the grant of incentive and non-qualified stock options, restricted
stock, stock appreciation rights (SARs), and performance share awards to certain key employees
(including officers, whether or not directors) of the Company or its subsidiaries. The Company has
received director and stockholder approval to grant options and other awards with respect to
5,500,000 shares of common stock under the Plan. Awards under the Plan generally vest after six
months and become exercisable over a two to four-year period, or as determined by the Compensation
Committee of the Board of Directors. Stock options generally remain exercisable for a period of ten
years from the date of grant. The Board of Directors has also granted non-qualified stock options
to purchase common stock to each of the Companys non-employee directors. The non-employee
directors are granted 5,000 options each when elected and 5,000 each upon their re-election to the
Board of Directors at the Companys Annual Meeting each year. The directors options generally
become exercisable in equal annual amounts over three years. F-21




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Option activity under the Plan during fiscal years 2005, 2004 and 2003 was as follows: WeightedOption
    
    
    AverageShares
    
    

Exercise PriceOptions outstanding at February 28, 2002
    
    
    3,457,000
    
    
    
    6.39Granted
    
    
    918,000
    
    
    
    2.41Exercised
    
    
    (25,000
    )
    
    
    2.31Cancelled
    
    
    (450,000
    )
    
    
    11.17Forfeited
    
    
    (108,000
    )
    
    
    5.15Options outstanding at February 28, 2003
    
    
    3,792,000
    
    
    
    4.92Granted
    
    
    653,000
    
    
    
    2.92Exercised
    
    
    (183,000
    )
    
    
    2.33Cancelled
    
    
    
    
    
    
    Forfeited
    
    
    (826,000
    )
    
    
    5.51Options outstanding at February 29, 2004
    
    
    3,436,000
    
    
    
    4.54Granted
    
    
    588,000
    
    
    
    3.07Exercised
    
    
    (13,000
    )
    
    
    2.48Cancelled
    
    
    
    
    
    
    Forfeited
    
    
    (41,000
    )
    
    
    7.96Options outstanding at February 28, 2005
    
    
    3,970,000
    
    
    
    4.26
 Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageExercise Prices
    
    Shares
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$2.31  $4.10
    
    
    2,121,000
    
    
    7.2 years
    
    $
    2.90
    
    
    
    1,591,000
    
    
    $
    2.78$4.44  $5.59
    
    
    1,604,000
    
    
    4.3 years
    
    $
    4.94
    
    
    
    1,594,000
    
    
    
    4.95$6.25  $10.31
    
    
    46,000
    
    
    5.0 years
    
    $
    7.75
    
    
    
    46,000
    
    
    
    7.75$11.06  $12.13
    
    
    175,000
    
    
    4.9 years
    
    $
    11.23
    
    
    
    175,000
    
    
    
    11.23$17.13  $27.75
    
    
    24,000
    
    
    5.3 years
    
    $
    21.28
    
    
    
    24,000
    
    
    
    21.283,970,000
    
    
    
    
    
    
    
    
    
    
    
    3,430,000
 The exercise price of options granted to employees was equal to the market price at the grant
date. Options granted to employees generally become exercisable 33% or 25% after one year and
ratably over the following 24 to 36 months, respectively, or as otherwise determined by the Board
of Directors. At February 28, 2005, 3,965,000 outstanding options for common stock were vested
under the Plan. The option prices under the Plan range from $2.31 to $27.75 per share and are
exercisable over periods ending no later than 2014. 11. Composition of Certain Balance Sheet Accounts The composition of inventories is as follows: February 28,
    
    
    February 29,2005
    
    
    2004Raw materials
    
    $
    7,449,000
    
    
    $
    7,691,000Work in process
    
    
    6,023,000
    
    
    
    6,193,000Finished goods
    
    
    33,677,000
    
    
    
    25,893,000$
    47,149,000
    
    
    $
    39,777,000
 F-22




---



##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The composition of property and equipment is as follows: February 28,
    
    
    February 29,2005
    
    
    2004Land
    
    $
    205,000
    
    
    $
    198,000Buildings
    
    
    2,222,000
    
    
    
    2,110,000Molds and dies
    
    
    6,482,000
    
    
    
    5,947,000Machinery and equipment
    
    
    3,900,000
    
    
    
    3,659,000Furniture and fixtures
    
    
    3,168,000
    
    
    
    2,765,000Autos and trucks
    
    
    176,000
    
    
    
    176,000Leasehold improvements
    
    
    1,427,000
    
    
    
    1,280,00017,580,000
    
    
    
    16,135,000Less accumulated depreciation and amortization
    
    
    (13,237,000
    )
    
    
    (11,584,000
    )$
    4,343,000
    
    
    $

    4,551,000
 The gross value of assets under capital leases included above is $56,000 at February 28, 2005;
there were no assets under capital lease at February 29, 2004. For the fiscal years ended February
28, 2005, February 29, 2004 and February 28, 2003, the Company incurred depreciation expense of
$1,653,000, $2,298,000 and $2,030,000, respectively. The composition of accrued liabilities is as follows: February 28,
    
    
    February 29,2005
    
    
    2004Salaries, wages, bonuses and other associated payroll costs
    
    $
    1,349,000
    
    
    $
    3,028,000Advertising and marketing expenses
    
    
    425,000
    
    
    
    1,012,000Professional fees
    
    
    437,000
    
    
    
    332,000Warranty costs
    
    
    1,173,000
    
    
    
    1,427,000Other
    
    
    1,391,000
    
    
    
    1,085,000$
    4,775,000
    
    
    $
    6,884,000
 F-23




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: May 31, 2005
    MEADE INSTRUMENTS CORP.By:
    /s/ STEVEN G. MURDOCKSteven G. MurdockPresident, Chief Executive Officer
and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated. Signature
    
    Title
    
    Date/s/ Steven G. Murdock
    
    Director, President, Chief Executive Officer
    
    May 31, 2005and SecretarySteven G. Murdock
    
    (Principal Executive Officer)/s/ Brent W. Christensen
    
    Senior Vice President  Finance and
    
    May 31, 2005Chief Financial OfficerBrent W. Christensen
    
    (Principal Financial and Accounting Officer)/s/ Harry L. Casari
    
    Director and Chairman of the Board
    
    May 31, 2005Harry L. Casari/s/ Timothy C. McQuay
    
    Director
    
    May 31, 2005Timothy C. McQuay/s/ Michael P. Hoopis
    
    Director
    
    May 31, 2005Michael P. Hoopis/s/ Vernon L. Fotheringham
    
    Director
    
    May 31, 2005Vernon L. Fotheringham/s/ Frederick H. Schneider
    
    Director
    
    May 31, 2005Frederick H. Schneider




---



##### Table of Contents



II  VALUATION AND QUALIFYING ACCOUNTS Balance AtAllowance for
    
    Beginning of
    
    
    Charged to Costs
    
    
    Charged to Other
    
    
    
    
    
    
    Balance At EndDoubtful Accounts
    
    Period
    
    
    and Expenses
    
    
    Accounts(3)
    
    
    Deductions(1)
    
    
    of PeriodYear ended February 28,
2003
    
    $
    2,232,000
    
    
    $
    163,000
    
    
    
    
    
    
    $
    1,681,000
    
    
    $
    714,000Year ended February 29,
2004
    
    $
    714,000
    
    
    $
    1,210,000
    
    
    $
    (5,000
    )
    
    $
    1,215,000
    
    
    $
    704,000Year ended February 28,
2005
    
    $
    704,000
    
    
    $
    203,000
    
    
    $
    5,000
    
    
    $
    225,000
    
    
    $
    687,000
 Balance AtAllowance for
    
    Beginning of
    
    
    Charged to Costs
    
    
    Charged to Other
    
    
    

    
    
    
    Balance At EndExcess Inventories
    
    Period
    
    
    and Expenses
    
    
    Accounts(3)
    
    
    Deductions(2)
    
    
    of PeriodYear ended February 28,
2003
    
    $
    9,099,000
    
    
    
    
    
    
    
    
    
    
    $
    1,590,000
    
    
    $
    7,509,000Year ended February 29,
2004
    
    $
    7,509,000
    
    
    $
    1,471,000
    
    
    $
    236,000
    
    
    $
    1,101,000
    
    
    $
    8,115,000Year ended February 28,
2005
    
    $
    8,115,000
    
    
    $
    2,788,000
    
    
    $
    99,000
    
    
    $
    2,331,000
    
    
    $
    8,671,000
    (2) Principally sale or destruction of previously reserved inventory  (3)
    Effect of exchange rate changes during the period




---



##### Table of Contents



EXHIBIT INDEX IncorporationExhibit
    
    Description
    
    Reference2.1
    
    Interest Purchase Agreement, dated as of July 15-16, 1999, by and among
Bresser Optik GmbH & Co. KG, a German limited partnership, Bresser Optik
Geschaftsfuhrung und Verwaltungs GmbH, a German limited liability company,
and Rudolf Bresser, an individual, on the one hand, and the Company and
Meade Instruments Europe Corp., a California corporation, on the other
(excluding Exhibits and Schedules thereto)
    
    (h)2.2
    
    Stock Purchase Agreement, dated as of September 14, 2002, by and among
Alliant Techsystems, Inc., a Delaware corporation, ATK Commercial Ammunition
Company Inc., a Delaware corporation, Meade Instruments Corp., a Delaware
corporation, and MTSC Holdings Corp., a California corporation and
wholly-owned subsidiary of Meade Instruments Corp. (excluding Exhibits and
Schedules thereto)
    
    (p)2.3
    
    First Amendment to Stock Purchase Agreement, dated as of October 4, 2002, by
and among Alliant Techsystems, Inc., a Delaware corporation, ATK Commercial
Ammunition Company Inc., a Delaware corporation, Meade Instruments Corp., a
Delaware corporation, and MTSC Holdings Corp., a California corporation and
wholly-owned subsidiary of Meade Instruments Corp.
    
    (p)2.4
    
    Second Amendment to Stock Purchase Agreement, dated as of October 24, 2002,
by and among Alliant Techsystems, Inc., a Delaware corporation, ATK
Commercial Ammunition Company Inc., a Delaware corporation, Meade
Instruments Corp., a Delaware corporation, and MTSC Holdings Corp., a
California corporation and wholly-owned subsidiary of Meade Instruments
Corp.
    
    (p)3.1
    
    Certificate of Incorporation of the Company, as amended
    
    (c)3.4
    
    Certificate of Amendment of Certificate of Incorporation of Meade
Instruments Corp.
    
    (k)3.7
    
    Amended and Restated Bylaws of the Company, as amended
    
    (u)4.1
    
    Specimen Stock Certificate
    
    (d)4.2
    
    Subscription Agreement, dated as of
October 22, 2002, by and among Meade and
the Purchasers Named on the Signature Page thereto
    
    (q)4.3
    
    Registration Rights Agreement, dated as of October 22, 2002, by and among
Meade and Purchasers Named therein
    
    (q)4.4
    
    Registration Rights Agreement,
dated as of April 18, 2003, by and between Meade Instruments
Corp. and John C. Diebel
    
    (s)10.7
    
    Industrial Lease (Single Tenant; Net; Stand-Alone), dated December 20, 1996,
between the Company and The Irvine Company
    
    (a)10.14+
    
    Employee Stock Ownership Plan (ESOP) Trust Agreement, as Amended and
Restated as of April 9, 1997, between the Company and Wells Fargo Bank, N.A.
    
    (e)10.24
    
    Celtic Master Lease, dated as of February 23, 1995, between the Company and
Celtic Leasing Corp.
    
    (b)




---



##### Table of Contents



IncorporationExhibit
    
    Description
    
    Reference10.35
    
    Form Indemnification Agreement between the Company and each member of the
Board of Directors and certain executive officers of the Company
    
    (e)10.43
    
    Lease Agreement, dated as of August 16, 1999, as amended, by and among
Refugio Geffroy De Flourie, Meade Instruments Mexico, S. De R. L. De C.V.
and Meade Instruments Holding Corp.
    
    (j)10.47
    
    Amended and Restated Credit Agreement, dated as of October 25, 2002, by and
among Bank of America, N.A., as the Lender, and Meade Instruments Corp. and
Simmons Outdoor Corporation, as the Borrowers (excluding Exhibits and
Schedules thereto)
    
    (p)10.48
    
    Subscription Agreement, dated as of October 22, 2002, by and among Meade
Instruments Corp. and each of the Purchasers Named on the Signature Page
thereof.
    
    (p)10.51
    
    Transition Agreement, by and between Meade Instruments Corp. and John
Diebel, dated April 18, 2003
    
    (s)10.53+
    
    Nonqualified Stock Option Agreement, dated as of April 12, 2000, by and
between Meade and Rolf Bresser
    
    (bb)10.54
    
    First Amendment to Amended and Restated Credit Agreement dated October 27,
2003
    
    (t)10.55
    
    Lease Agreement, dated as of March 26, 1992, between Simmons Outdoor
Corporation and Realty Four, and three Addendum Agreements thereto, dated
April 1, 1992, June 6, 1995 and November 2, 1999 respectively
    
    (u)10.56
    
    Settlement Agreement, effective May 10, 2004, between Meade Instruments Corp.
on the one hand, and Celestron Acquisition, LLC and James Feltman, on the
other (excluding Exhibits thereto)
    
    (v)10.57
    
    Second Amendment to Amended and Restated Credit Agreement, dated July 9, 2004
    
    (w)10.58
    
    Asset Purchase Agreement, dated as of October 20, 2004, by and between
Coronado Technology Group, L.L.C., an Arizona limited liability company,
together with Geraldine Hogan, David Lunt, Jordan Frazier, Andrew G. Lunt,
and Nicholas J. Ilka on the one hand, and Meade Instruments Corp., a
Delaware corporation and Coronado, Inc., a California corporation
    
    (x)10.59
    
    First Amendment to Asset Purchase Agreement, dated as of December 1, 2004,
by and between Coronado Technology Group, L.L.C., .an Arizona limited
liability company, together with Geraldine Hogan, David Lunt, Jordan
Frazier, Andrew G. Lunt, and Nicholas J. Ilka on the one hand, and Meade
Instruments Corp., a Delaware corporation and Coronado, Inc., a California
corporation and wholly-owned subsidiary of Meade that subsequently changed
its name to Coronado Instruments, Inc., a California corporation, on the
other, excluding Schedules and Exhibits
    
    (y)10.60
    
    Third Amendment to Amended and Restated Credit Agreement, dated December 15,
2004, and entered into by and among Bank of America, N.A. and Meade
Instruments
    
    (z)




---



##### Table of Contents



IncorporationExhibit
    
    Description
    
    ReferenceCorp., a Delaware corporation, Simmons Outdoor Corp., a Delaware
corporation, and Coronado Instruments, Inc., a California corporation10.61+
    
    Amended and Restated Meade
Instruments Corp. Employee Stock Ownership Plan, as amended10.62+
    
    Meade Instruments Corp. Employee Stock Ownership Plan Loan and Pledge
Agreement, between the ESOP and the Company, as
amended10.63+
    
    Meade Instruments Corp. 1997 Stock Incentive Plan, as amended.10.64+
    
    Form Employment Agreement between the Company and executive officers of the
Company10.65+
    
    Form Non-Qualified Stock Option Agreement between the Company and recipients
of non-qualified options granted pursuant to the Meade Instruments 1997
Stock Incentive Plan, as amended10.66+
    
    Form Non-Qualified Stock Option Agreement between the Company and
non-employee directors of the Company receiving options granted pursuant to
Section 8 of the Meade Instruments 1997 Stock Incentive Plan, as amended10.67+
    
    Form Restricted Stock Agreement by and between the Company and recipients of
restricted shares of the Companys Common Stock granted pursuant to the
Companys 1997 Stock Incentive Plan, as amended10.68
    
    Fourth Amendment to Amended and Restated Credit Agreement, dated May 27,
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
    
    (aa)21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of PricewaterhouseCoopers LLP31.1
    
    Sarbanes-Oxley Act Section 302 Certification by Steven G. Murdock31.2
    
    Sarbanes-Oxley Act Section 302 Certification by Brent W. Christensen32.1
    
    Sarbanes-Oxley Act Section 906 Certification by Steven G. Murdock32.2
    
    Sarbanes-Oxley Act Section 906 Certification by Brent W. Christensen
   
    
    Previously filed with the Securities Exchange Commission as set forth in the following
table:+
    
    Management contract or compensatory plan or arrangement.




---



##### Table of Contents



(a)
    
    Incorporated by reference to the Companys Registration Statement on Form S-1 (Registration
No. 333-21123), as filed with the Securities and Exchange Commission on February 4, 1997.(b)
    
    Incorporated by reference to the Companys Amendment No. 1 to Registration Statement on Form
S-1 (Registration No. 333-21123), as filed with the Securities and Exchange Commission on
February 27, 1997.(c)
    
    Incorporated by reference to the Companys Amendment No. 2 to Registration Statement on Form
S-1 (Registration No. 333-21123), as filed with the Securities and Exchange Commission on
March 13, 1997.(d)
    
    Incorporated by reference to the Companys Amendment No. 3 to Registration Statement on Form
S-1 (Registration No. 333-21123), as filed with the Securities and Exchange Commission on
March 25, 1997.(e)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the Fiscal Year
Ended February 28, 1998, as filed with the Securities and Exchange Commission on May 29, 1998.(f)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 relating to the
Companys Employee Stock Ownership Plan, as filed with the Securities and Exchange Commission
on April 16, 1999.(g)
    
    Incorporated by reference to the Companys 1999 Proxy Statement on Schedule 14A, as filed
with the Securities and Exchange Commission on June 8, 1999.(h)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on September 15, 1999.(i)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the Quarterly
Period Ended November 30, 1999, as filed with the Securities and Exchange Commission on
January 14, 2000.(j)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the Fiscal Year
Ended February 29, 2000, as filed with the Securities and Exchange Commission on May 29, 2000.(k)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the Quarterly
Period Ended May 31, 2000, as filed with the Securities and Exchange Commission on July 17,
2000.(l)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the Fiscal Year
Ended February 29, 2001, as filed with the Securities and Exchange Commission on May 29, 2001.(m)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the Quarterly
Period Ended August 31, 2001, as filed with the Securities and Exchange Commission on October
15, 2001.(n)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 (Registration
No. 333-86818), relating to the Companys Stock Incentive Plan, as amended, as filed with the
Securities and Exchange Commission on April 24, 2002.(o)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the Fiscal Year
Ended February 28, 2002, as filed with the Securities and Exchange Commission on May 29, 2002.(p)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on November 7, 2002.(q)
    
    Incorporated by reference to the Companys Registration Statement on Form S-3 (Registration
No. 333-101404), as filed with the Securities and Exchange Commission on November 22, 2002.(r)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the Quarterly
Period Ended November 30, 2002, as filed with the Securities and Exchange Commission on
January 14, 2003.




---



##### Table of Contents



(s)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on April 22, 2003.(t)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the Quarterly
Period Ended November 30, 2003, as filed with the Securities and Exchange Commission on
January 14, 2004.(u)
    
    Incorporated by reference to the Companys Annual Report on Form 10-K for the Fiscal Year
Ended February 29, 2004, as filed with the Securities and Exchange Commission on June 1, 2004.(v)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on July 12, 2004.(w)
    
    Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the Quarterly
Period Ended May 31, 2004, as filed with the Securities and Exchange Commission on July 15,
2004.(x)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on October 21, 2004.(y)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on December 6, 2004.(z)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on December 16, 2004.(aa)
    
    Incorporated by reference to the Companys Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on May 31, 2005.(bb)
    
    Incorporated by reference to the Companys
Annual Report on Form 10-K for the Fiscal Year Ended
February 28, 2003, as filed with the
Securities and Exchange Commission on May 29, 2003.