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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K (Mark One) x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended February 29, 2004 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
(Address of principal executive offices)
    
    92618
(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 x 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. x As of May 14, 2004, there were 19,988,857 outstanding shares of the
Registrants common stock, par value $0.01 per share (common stock), which is
the only class of common stock of the Registrant. As
of August 31, 2003, 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 $3.23 per share as reported by Nasdaq, was
approximately $35.6 million. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12(b)-2). Yes
o  No x Documents Incorporated by Reference Portions of the registrants Proxy Statement for the 2004 Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange
Commission not later than 120 days after February 29, 2004, are incorporated by
reference into Part III of this Report.




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TABLE OF CONTENTS PagePART IItem 1.
    
    Business
    
    
    1Executive Officers of the Registrant
    
    
    8Item 2.
    
    Properties
    
    
    8Item 3.
    
    Legal Proceedings
    
    
    9Item 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
    
    
    10Item 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
    
    
    19Item 8.
    
    Financial Statements and Supplementary Data
    
    
    20Item 9.
    
    Change in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    20Item 9A.
    
    Controls and Procedures
    
    
    20PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    21Item 11.
    
    Executive Compensation
    
    
    21Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    21Item 13.
    
    Certain Relationships and Related Transactions
    
    
    22Item 14.
    
    Principal Accountant Fees and Services
    
    
    22PART IVItem 15.
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    23CONSOLIDATED FINANCIAL STATEMENTS AND NOTESReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at February 29, 2004 and February 28, 2003
    
    
    F-2Consolidated Statements of Operations for the three years in the period ended February 29, 2004
    
    
    F-3Consolidated Statements of Stockholders Equity for the three years in the period ended February 29, 2004
    
    
    F-4Consolidated Statements of Cash Flows for the three years in the period ended February 29, 2004
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6EXHIBIT 3.7EXHIBIT 10.55EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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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. Meade® is recognized throughout the world as the premier
name in telescopes, telescope accessories and other innovative consumer optical
products such as CaptureView, a binocular with an integrated digital camera,
and the recently introduced NightView, a new compact night vision monocular
that is built on an innovative and proprietary digital imaging technology. The
Companys Bresser® brand, active in the European market for nearly 30 years, is
the consumers choice in binoculars and smaller-aperture telescopes throughout
Europe. To expand its brand name offerings and extend its reach into the
worldwide sporting goods marketplace, the Company acquired Simmons Outdoor
Corp. (Simmons) in October 2002. Simmons, a highly-regarded and well-known
designer and distributor of riflescopes and binoculars, 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) with loyal customers and an image of high quality, reliability and
superb value. The Company believes that its suite of brand names has uniquely positioned
the Company in the consumer optics marketplace. Strong brand names, backed by
the industrys leading engineering team, allow the Company to bring to market
what it believes to be the broadest, most technically advanced and highly
respected line of consumer optical products available. The Company offers
numerous different telescope, riflescope and binocular models as well as
hundreds of accessory products for consumer telescope and sports optics buyers.
The Companys telescopes range in aperture from under 2 inches to 16 inches and
in retail price from less than $100 to more than $15,000. 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 the consumer optics buyer may have. 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. Although professional and institutional applications of Meades
telescopes are not Meades primary market, the Companys Schmidt-Cassegrain
telescopes are used by many universities, scientific laboratories and aerospace
companies throughout the world. 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 (Germany), Wal-Mart, 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 committed $2.0 million, $3.0 million and $2.2 million
to research and development during fiscal 2004, 2003 and 2002, respectively,
and has, over the last five fiscal years, committed $10.6 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 Companys less-expensive telescopes and its binoculars and riflescopes, as
well as certain component parts for its 1




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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 into finished products in the Companys wholly owned 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
the 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. 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. 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 11,000 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
$36.3 million for the fiscal year ended February 29, 2004, and accounted for
approximately 26% of the Companys net sales for the fiscal year ended February
29, 2004 (See Note 8 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
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 the year ended February 29, 2004. 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. 2




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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 of the CaptureView binocular with an integrated digital camera
demonstrates that innovation can drive binocular sales as well. Among the first
to market with the concept of an integrated binocular/digital camera, Meades
CaptureView series offers a superior quality product at an attractive retail
price (ranging from about $79 to $199 at most retail outlets in the U.S.). 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 $10 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 50mm, and are priced from under $30 to nearly $2,000 at
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 uniquely 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 one of the most innovative, broadest product lines 3




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available, 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 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, and Simmons in 2002, 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) and complete lines of riflescopes, pistol
scopes and binoculars under the Simmons, Weaver and Redfield brand names. As a
result, the Company offers numerous different telescope, riflescope,
spotting scopes 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 $100 to more than
$15,000. The Company offers several families of riflescopes and 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 new 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 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. Meade regularly sends product and design engineers to the Far East
to 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 4




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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. The Company has its own on-site graphic arts
departments 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 (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. 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 recently introduced 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 and Redfield lines to the
higher priced precision scopes in the Weaver line. 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 LX series Schmidt-Cassegrain and Maksutov-Cassegrain
telescopes, which incorporate an optical system that provides high-quality
resolution, contrast and light transmission. The LX series offers the serious
amateur astronomer a broad range of products, from the attractively priced
Autostar-controlled LX90, to the state-of-the-art LX200GPS line. 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. 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 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. The advanced astronomical telescopes collectively
represented approximately 2% of telescope units shipped and approximately 17%
of the Companys net sales for the fiscal year ended February 29, 2004. Entry-Level Telescopes.Designed specifically for the beginning to
intermediate amateur astronomer or terrestrial observer, the Companys
less-expensive 60mm 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, brought to the general consumer for
prices starting at a few hundred dollars, features that had 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 5




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telescopes (including its traditional models, the NG telescopes and the DS
telescopes) for distribution on a semi-exclusive basis to specific specialty
retailers. These telescope models comprise the lower-price end of the Companys
telescope product line. Sales of entry-level telescopes comprised approximately
98% of the Companys telescope units shipped and approximately 35% of the
Companys net sales for the fiscal year ended February 29, 2004. 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 over one third of
Meade Europes sales during fiscal 2004. 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 fiscal
2004, represented approximately 21% of the Companys net sales for the fiscal
year ended February 29, 2004. 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 2004. The riflescopes sold by the Company
are purchased from manufacturers outside the United States. Riflescopes
represented approximately 18% of the Companys net sales for the fiscal year
ended February 29, 2004. 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. Approximately 250
telescope accessory products are currently available from the Company. Sales of
accessories represented approximately 6% of the Companys net sales for the
fiscal year ended February 29, 2004. Other miscellaneous products such as
industrial optical and digital imaging products, microscopes and other consumer
optical products accounted for approximately 3% of the Companys net sales for
fiscal 2004. Intellectual Property Whenever
possible, the Company seeks to obtain intellectual property protection
for the products it designs, develops, manufactures and sells. The
Company also takes steps to protect its intellectual property,
including, without limitation, the initiation of formal legal
proceedings (see Item 3. Legal Proceedings). The Companys
intellectual property includes, among other things, various utility
and design patents, and numerous trademarks relating to the
Companys products. The Company intends to seek the benefit of
its intellectual property for so long as applicable law provides. 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 (Germany), MIC International Corp. (Japan), Sams Club, Dicks
Sporting Goods and Jerrys Sport Center. For additional information about
geographic areas, see Note 8 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 approximately forty-two
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 6




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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. 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 2004, 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 11,000 retail store
outlets. During the fiscal years 2004, 2003 and 2002, Wal-Mart (including Sams
Club), accounted for approximately 11%, 15%, and 13% of the Companys net
sales, respectively. During the fiscal years 2003 and 2002, Discovery Channel
Store accounted for approximately 11% of the Companys net sales,
respectively. The Companys ten largest customers, in the aggregate, accounted
for approximately 34% of the Companys net sales in fiscal 2004. 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 hand-figured by master
opticians 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 Hand Figuring.After a Schmidt-Cassegrain,
Maksutov-Cassegrain, ED-refractor 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 ED-refractors, Maksutov-Cassegrain
optical sets, Schmidt-Cassegrain optical sets, or parabolic Newtonian primary
telescope mirrors progress through the grinding, polishing and hand-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
Maksutov-Cassegrain and Schmidt-Cassegrain optical sets and matched
ED-refractor doublet objective lenses 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 2004 were
supplied by these Chinese manufacturers. The Company owns many of the key
designs, molds and dies used by such suppliers. Meade regularly sends product
and design engineers to such suppliers to 7




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monitor the manufacturing processes at the various plants that produce its
products and accessories. Meade also regularly commits at least one of its
United States-based quality control engineers to the Far East. In fiscal year 2000 the Company began an assembly operation in a 26,000
sq. ft. building located in Tijuana, Mexico (the Mexico Facility). In
December 1999, the Mexico Facility was expanded to approximately 50,000 sq. ft.
At February 29, 2004, this facility employed approximately 250 people 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 Celestron Acquisition LLC (Celestron), and
Bushnell Performance Optics, Inc. (Bushnell) and, to a lesser extent, with
other smaller companies which service niche markets. 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., Canon Inc., Minolta Camera, Co., Ltd., Pentax Corporation and various
smaller manufacturers and resellers. In the riflescope market, the Company
competes primarily with Bushnell, Leupold & Stevens, Inc., BSA Optics, Inc.,
Barska Optics, Burris Company and Kahles GmbH. 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 29, 2004, Meade had approximately 680 full-time employees.
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. 
 Executive Officers of the Registrant See Item 10. Directors and Executive Officers of the Registrantcontained
herein. 
 Item 2.Properties During fiscal 2004, the Company leased a 161,000 square foot
manufacturing, distribution and corporate facility and a 42,000 square foot
warehouse, both of which are located in Irvine, California. The manufacturing,
distribution and corporate facility lease expires in 2007. The warehouse lease
expired in March 2003 and the Company vacated the premises as of April 1, 2003.
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. The Company leases 8




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##### Table of Contents



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 assembly
plant in Tijuana, Mexico. The Tijuana lease expires in 2004 with three,
five-year options. 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 to the end of any calendar year. 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 On October 17, 2001, the Company filed suit (the 376 lawsuit) against
Tasco Sales, Inc. (Tasco) and Celestron International, Inc. (Celestron 1),
charging the two companies with patent infringement and unfair competition. The
complaint, filed in the United States District Court, Central District of
California, Southern Division (Case No. SA-CV 01-976 (GLT)), alleges that Tasco
and Celestron 1 willfully infringed Meades Patent No. 6,304,376, entitled
Fully Automated Telescope System With Distributed Intelligence (the 376
Patent). In addition to seeking compensation for damages incurred, including
enhanced damages, the suit seeks to enjoin Tasco and Celestron 1 from
continuing to manufacture or sell products that infringe Meades patent. On or
around November 7, 2001, the defendants filed an answer, subsequently amended,
to the complaint in which they denied the Companys allegations and set forth
various affirmative defenses. On or around November 19, 2001, the defendants
filed a counterclaim, also subsequently amended, against the Company for
declaratory judgment of non-infringement of the Companys patent, for
declaratory judgment that the Companys patent is unenforceable and invalid,
and for claims that the Company is infringing a Celestron 1 design patent, U.S.
Patent No. D438,221 (the 221 Patent), and Celestron 1s trade dress. The
counterclaim further alleges that the Company has willfully infringed the221
Patent and seeks an unspecified amount of damages, enhanced damages, and an
injunction and other unspecified relief against the Company. However, this
design-patent counterclaim was later dismissed with prejudice as to Meade
products on sale up to that time. On June 4, 2002, the Company filed suit (the 799 lawsuit) against
Celestron 1, Tasco and other related or affiliated parties charging the
defendants with patent infringement. The complaint, filed in the United States
District Court, Central District of California, Southern Division (Case No. SA
CV 02-544 (GLT)), alleges that the defendants willfully infringed Meades
Patent No. 6,392,799, entitled Fully Automated Telescope System With
Distributed Intelligence (the 799 Patent). The 799 Patent covers the
Companys level the telescope and point it North alignment technology (the
Telescope Alignment Technology), which allows a telescope user to easily
align a computer operated telescope. In addition to seeking compensation for
damages incurred, including enhanced damages, the suit seeks to enjoin Tasco,
Celestron 1, and the other defendants from continuing to manufacture or sell
products that infringe Meades telescope alignment patent. On June 7, 2002, the Company filed suit (the 942 lawsuit) against
Celestron 1, Tasco and other related or affiliated parties, charging the
defendants with correction of patent inventorship, false and misleading
representations in violation of the Lanham Act, unfair competition and
fraudulent business practices. The complaint, filed in the United States
District Court, Central District of California, Southern Division (Case No.
SA-CV 02-558 (GLT)), alleges that the defendants misappropriated the Companys
Telescope Alignment Technology and subsequently conspired to obtain United
States Patent No. 6,369,942, entitled Auto-alignment tracking telescope mount
(the 942 Patent), by fraudulently representing themselves as the inventors
and owners of the Telescope Alignment Technology. In addition to other
remedies, the suit seeks to establish that Meade invented the Telescope
Alignment Technology and that equitable and legal title to the 942 Patent
should be vested in the Company Celestron 1 and Tasco, in May 2002, transferred certain of their assets
in an assignment for the benefit of creditors proceeding to James Feltman, an
assignee. Assignee James Feltman subsequently sold the assets on or around June
24, 2002 to a new Celestron entity, Celestron Acquisition LLC (Celestron 2).
Celestron 2 has appeared as a defendant and counterclaimant in the
above-referenced lawsuits. James Feltman is also a named defendant in the 799
lawsuit, but not the 376 and 942 lawsuits. 9




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On November 21, 2002, Celestron 2 filed an action alleging that Meade
products infringe United States Patent No. 6,467,738 entitled Tripod Structure
for Telescopes (the 738 Patent). The complaint seeks injunctive relief,
compensatory and treble damages in an unspecified amount, and attorneys fees
and costs. Meade has filed an answer denying all claims in Celestron 2s
complaint. On September 9, 2003, the Company, Celestron 2, and James Feltman agreed
to pursue non-binding mediation of all pending litigation between the parties.
As part of the mediation process, the parties agreed to stay all pending
litigation (including the discovery process) in the above four cases. This
mediation took place on May 10, 2004. Pursuant to a binding settlement
agreement signed by the parties at the mediation, a settlement was reached as
to all pending litigation among the parties on the terms of one of two
settlement alternatives. In the event the conditions of the first settlement
alternative (the First Alternative) are not satisfied on or before August 15,
2004, the pending litigation will be considered settled on the terms of the
second settlement alternative (the Second Alternative). Pursuant to the
terms of the First Alternative, in exchange for cash payments to be made by
Meade, Meade will acquire the exclusive rights to Celestrons computerized
telescope technology. Consummation of the First Alternative is subject to the
satisfaction of certain conditions, including approval of the United States
Federal Trade Commission and Meade obtaining approval of its board of
directors. If the First Alternative is not consummated, the Second Alternative
will be effective. Pursuant to the terms of the Second Alternative, Meade
grants a license to Celestron under which Celestron will pay Meade a royalty on
any products sold by Celestron that includes or uses any level the telescope
and point it North or similar telescope alignment technology until the
expiration of the last patent licensed by Meade to Celestron. Regardless of
which settlement alternative is consummated: (i) Celestron agrees that Meades
376 and 799 patents are valid and enforceable (such patents relate to Meades
distributed intelligence and level the telescope and point it North
technology); (ii) Meade agrees that Celestrons 221 and 738 patents are valid
and enforceable (such patents relate to the design of certain of Celestrons
telescope tripods and mounts and were the patents alleged by Celestron to have
been infringed by Meade in its counterclaims); (iii) Celestron grants Meade
paid-up, royalty free licenses for the rights to use the designs covered by
Celestrons 221 and 738 patents; (iv) Celestron will stipulate to correction
of inventorship of its 942 patent and will transfer ownership of such patent
to Meade; and (v) the parties will promptly dismiss with prejudice all claims
and counterclaims in the pending litigation between them, including claims for
past damages. The Company is also involved from time to time in litigation incidental to
its business. Management believes that the outcome of such litigation will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company. 
 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. 
 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 29, 2004 and February 28, 2003, respectively, were: Year Ended February 29, 2004:
    
    High
    
    Low
    
    Year Ended February 28, 2003:
    
    High
    
    LowFourth quarter
    
    $
    4.30
    
    
    $
    3.19
    
    
    Fourth quarter
    
    $
    3.75
    
    
    $
    2.75Third quarter
    
    $
    4.76
    
    
    $
    3.15
    
    
    Third quarter
    
    $
    4.75
    
    
    $
    2.56Second quarter
    
    $
    3.59
    
    
    $
    2.71
    
    
    Second quarter
    
    $
    5.87
    
    
    $
    3.00First quarter
    
    $
    3.30
    
    
    $
    2.31
    
    
    First quarter
    
    $
    6.01
    
    
    $
    2.25
 10




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##### Table of Contents



The reported closing sales price of the Companys common stock on the
Nasdaq National Market on May 14, 2004 was $3.25. As of
May 14, 2004, there
were 189 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




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##### 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 29, 2004 and February 28, 2003 and the consolidated statements of
operations for the three years ended February 29, 2004 and the notes thereto
appearing elsewhere herein. Year Ended February 28/29,2004
    
    2003
    
    2002
    
    2001
    2000(In thousands of dollars, except per share amounts)Income Statement Data:Net sales
    
    $
    138,281
    
    
    $
    110,817
    
    
    $
    94,718
    
    
    $
    123,000
    
    
    $
    126,808Cost of sales
    
    
    99,380
    
    
    
    76,923
    
    
    
    70,108
    
    
    
    82,809
    
    
    
    75,780Gross profit
    
    
    38,901
    
    
    
    33,894
    
    
    
    24,610
    
    
    
    40,191
    
    
    
    51,028Selling expenses
    
    
    18,106
    
    
    
    14,248
    
    
    
    12,920
    
    
    
    21,782
    
    
    
    15,471General and administrative expenses
    
    
    12,671
    
    
    
    12,628
    
    
    
    9,098
    
    
    
    8,439
    
    
    
    10,355ESOP contribution expense
    
    
    859
    
    
    
    905
    
    
    
    1,367
    
    
    
    2,997
    
    
    
    1,861Research and development expenses
    
    
    2,038
    
    
    
    3,008
    
    
    
    2,167
    
    
    
    2,062
    
    
    
    1,361Operating income (loss)
    
    
    5,227
    
    
    
    3,105
    
    
    
    (942
    )
    
    
    4,911
    
    
    
    21,980Interest expense
    
    
    1,046
    
    
    
    1,137
    
    
    
    1,345
    
    
    
    2,036
    
    
    
    977Income (loss) before income taxes
    
    
    4,181
    
    
    
    1,968
    
    
    
    (2,287
    )
    
    
    2,875
    
    
    
    21,003Income tax provision (benefit)
    
    
    1,729
    
    
    
    830
    
    
    
    (845
    )
    
    
    1,589
    
    
    
    9,048Net income (loss)
    
    
    2,452
    
    
    
    1,138
    
    
    
    (1,442
    )
    
    
    1,286
    
    
    
    11,955Per share information:Net income (loss)  basic
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )
    
    $
    0.09
    
    
    $
    0.85Net income (loss)  diluted
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )
    
    $
    0.08
    
    
    $
    0.80Weighted average common shares outstanding  basic
    
    
    18,983
    
    
    
    16,410
    
    
    
    15,100
    
    
    
    14,700
    
    
    
    14,112Weighted average common shares outstanding  diluted
    
    
    19,174
    
    
    
    16,624
    
    
    
    15,100
    
    
    
    15,600
    
    
    
    14,944Balance Sheet Data:Working capital
    
    $
    57,523
    
    
    $
    51,275
    
    
    $
    41,802
    
    
    $
    38,867
    
    
    $
    36,553Total assets
    
    
    88,562
    
    
    
    84,995
    
    
    
    64,823
    
    
    
    76,466
    
    
    
    64,091Total current liabilities
    
    
    20,901
    
    
    
    21,403
    
    
    
    12,224
    
    
    
    25,944
    
    
    
    16,485Long-term debt, net of current portion
    
    
    1,729
    
    
    
    2,139
    
    
    
    2,463
    
    
    
    
    
    
    
    4,500Stockholders equity
    
    
    64,878
    
    
    
    60,255
    
    
    
    50,108
    
    
    
    50,351
    
    
    
    42,665
 
 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. 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 Revenues are generally recorded when title transfers and the risks of
ownership are passed to customers. Under certain circumstances, the Company
accepts product returns. Material management judgments must be made and 12




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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. 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 would be required. While
credit losses have been generally 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. 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 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. 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. 13




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##### 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 ,2004
    
    2003
    
    2002Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    71.9
    
    
    
    69.4
    
    
    
    74.0Gross profit
    
    
    28.1
    
    
    
    30.6
    
    
    
    26.0Operating expenses:Selling expenses
    
    
    13.1
    
    
    
    12.9
    
    
    
    13.7General and administrative expenses
    
    
    9.2
    
    
    
    11.4
    
    
    
    9.6ESOP contribution expense
    
    
    0.6
    
    
    
    0.8
    
    
    
    1.4Research and development expenses
    
    
    1.5
    
    
    
    2.7
    
    
    
    2.3Total operating expenses
    
    
    24.4
    
    
    
    27.8
    
    
    
    27.0Income (loss) from operations
    
    
    3.7
    
    
    
    2.8
    
    
    
    (1.0
    )Interest expense
    
    
    0.7
    
    
    
    1.0
    
    
    
    1.4Income (loss) before income taxes
    
    
    3.0
    
    
    
    1.8
    
    
    
    (2.4
    )Provision (benefit) for income taxes
    
    
    1.2
    
    
    
    0.8
    
    
    
    (0.9
    )Net income (loss)
    
    
    1.8
    
    
    
    1.0
    
    
    
    (1.5
    )
 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 (13.9% 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. 14




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##### Table of Contents



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. Interest expense for the fiscal years ended 2003 and 2004 remained flat at
approximately $1.1 million (1.0% and 0.8% of net sales, respectively). Average
borrowing rates and average outstanding borrowing remained relatively unchanged
during fiscal 2004. Fiscal 2003 Compared to Fiscal 2002 Net sales increased from $94.7 million in fiscal 2002 to $110.8 million in
fiscal 2003, an increase of 17.0%. Sales of the Companys binoculars, including
the digital camera/binocular, and sales of the Companys telescope products for
the more serious amateur astronomer accounted for increases of approximately
$16 million and $9 million, respectively, over net sales in the prior year.
Also included in net sales for the year ended February 28, 2003 was
approximately $10 million from Simmons. Partially offsetting those increases
was a decrease in sales of smaller-aperture, less-expensive telescopes. Gross profit increased from $24.6 million (26.0% of net sales) in fiscal
2002 to $33.9 million (30.6% of net sales) in fiscal 2003, an increase of
37.7%. The increase in gross profit as a percent of net sales was due to a
change in product sales mix and covering fixed costs with higher volume. Sales
from Simmons contributed approximately $1.7 million to gross profit. Gross
margin on Simmons sales was below the consolidated Company gross margin for the
year due, in part, to sales of close-out inventory on hand at the date of the
acquisition. Selling expenses increased from $12.9 million (13.7% of net sales) in
fiscal 2002 to $14.2 million (12.9% of net sales) in fiscal 2003, an increase
of 10.3%. This increase was due, in part, to an increase of approximately $1.8
in advertising and marketing expenses with a significant portion of that
increase related to television, radio and print advertising associated with the
introduction of the Companys digital camera/binocular. Selling expenses also
include approximately $0.6 million associated with Simmons. These increases
were partially offset by a decrease in the Companys provision for bad debts
during the year. General and administrative expenses increased from $9.1 million (9.6% of
net sales) in fiscal 2002 to $12.6 million (11.4% of net sales) in fiscal 2003,
an increase of 38.8%. This increase was due, in part, to an over $2.5 million
increase in legal, professional and consulting fees with a significant portion
of that increase incurred in connection with the ongoing Tasco and Celestron
patent infringement litigation and with the Companys effort to acquire certain
of the assets of Tasco and Celestron. The Company did not consummate such
proposed acquisition. Also contributing to the increase over the prior year was
approximately $0.5 million in general and administrative expenses from Simmons
and an increase of approximately $0.5 million in salaries, wages and bonuses
over the prior year. ESOP contribution expense decreased from $1.4 million (1.4% of net sales)
in fiscal 2002 to $0.9 million (.8% of net sales) in fiscal 2003, a decrease of
33.8%. The decrease in this non-cash charge was due to decreases in the average
market price of the Companys stock and in the number of shares allocated to
the Employee Stock Ownership Plan during the year. The non-cash ESOP
contribution expense may fluctuate as the number of shares allocated and the
market value of the Companys common stock changes. Research and development expenses increased from $2.2 million (2.3% of net
sales) in fiscal 2002 to $3.0 million (2.7% of net sales) in fiscal 2003, an
increase of 38.8%. In the prior year, approximately $500,000 of research and
development expenses incurred were reimbursed by a customer of the Company on a
non-contingent basis. A similar expense reimbursement did not occur during the
current year, thus accounting for most of the increase year-over-year. The
Company does not expect research and development expenses to continue to
increase by the dollar amounts or at the rate experienced in the current year.
With demand for the Companys industrial products diminished, research and
development costs associated with those product lines will be rationalized. 15




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Interest expense decreased from $1.3 million for fiscal 2002 (1.4% of net
sales) to $1.1 million for fiscal 2003 (1.0% of net sales), a decrease of
15.5%. This decrease was principally due to lower average borrowings and lower
cost of funds as compared to the prior year. 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 telescopes 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 29, 2004, the Company had $7.8 million in cash. The
Company funded its operations during the fiscal year with internally generated
cash flow. Operating cash flows were generated principally by net income,
positive adjustments to net income for depreciation, amortization,
bad debt and ESOP
charges, and net positive cash flows from changes in its balance sheet
accounts, principally from an increase in income taxes payable. For the year,
cash flows from operations totaled approximately $9.1 million. Continuing its
effort to manage its inventories, the Company achieved inventory turns of
approximately 2.5 times in fiscal 2004 compared to just under 2.5 times in
fiscal 2003 (excluding the effects of the Simmons acquisition). 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). The amendment principally involved
increasing the revolving credit facility and incorporating the Simmons
acquisition into the credit agreement. The amended agreement provided the
Company with a $35.6 million credit facility consisting of a $34.0 million
revolving credit line (the U.S. revolving loan) and a $1.6 million term loan
(the U.S. term loan). Amounts outstanding on the U.S. revolving loan and U.S. term loan at
February 29, 2004 were approximately $5.0 million and $1.1 million,
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 29, 2004 was approximately $12.0 million. The U.S.
term loan is collateralized by domestic machinery and equipment. The credit
facility has a three-year term, is collateralized by substantially all of the
domestic assets of the Company and its domestic subsidiaries and contains
certain financial covenants including, but not limited to, fixed charge
coverage ratios. Amounts outstanding under the U.S. revolving loan bear
interest at the banks base rate (or LIBOR rate) plus applicable margins (4.25%
at February 29, 2004). 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) is currently higher than that which
would have been available if the variable rate had been applied during the
period. Under the interest-rate swap contract, the Company has agreed with the
bank to exchange, at specified intervals, the difference between variable-rate
and fixed-rate interest amounts, calculated by reference to agreed-upon
notional amounts. The change in the fair value of the interest rate swap for
the year ended February 29, 2004 was an unrealized gain of $32,000 which is
included in other comprehensive income for the year ended February 29, 2004. 16




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In July 2003, the Companys German subsidiary renegotiated its agreement
with a bank to provide up to approximately $4.8 million in revolving loans
(subject to a borrowing base of eligible accounts receivable and inventories)
expiring in July 2004. 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 $3.3 million at February 29, 2004. The guarantee expires 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 29, 2004
were approximately $13,000 and $1.2 million, respectively. The European Loans
bear interest at the banks base rate plus or minus applicable margins (7.75%
and 6.0%, respectively at February 28, 2003). 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, including financed purchases of equipment,
aggregated $0.6 million, $0.7 million and $0.7 million for the fiscal years
ended February 29, 2004, and February 28, 2003 and 2002, respectively. Contributions to the Companys Employee Stock Ownership Plan (ESOP) are
accounted for as a contribution expense on the Companys income statement 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
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 29, 2004, 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
    
    $
    2,309,000
    
    
    $
    580,000
    
    
    $
    1,729,000
    
    
    $
    
    
    
    $
    Non-cancelable operating leases
    
    
    7,215,000
    
    
    
    1,722,000
    
    
    
    3,476,000
    
    
    
    1,561,000
    
    
    
    456,000Total contractual cash obligations
    
    $
    9,524,000
    
    
    $
    2,302,000
    
    
    $
    5,205,000
    
    
    $
    1,561,000
    
    
    $
    456,000
 The preceding table assumes that any operating leases with renewal options
that expire during fiscal 2004 or fiscal 2005 will be renewed under the terms
of the governing lease agreement. 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 January 2003, the Company adopted SFAS 146, which addresses accounting
for costs associated with exit or disposal activities. In addition, the FASB
issued FIN 46, which requires that certain variable interest entities be
consolidated by the primary beneficiary of the entity if the equity investors
in the entity do not have a controlling financial interest or do not have
sufficient equity at risk. FIN 46 is effective immediately for all variable
interest 17




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##### Table of Contents



entities created after January 31, 2003. For all such entities created
prior to February 1, 2003, FIN 46 is effective for interim or annual fiscal
periods ending after December 15, 2003. The adoption of these statements did
not have a material effect on the Companys financial position or results of
operations. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities. This statement is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. It amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. SFAS 149 amends SFAS 133 for decisions made as part of the
Derivatives Implementation Group process that effectively required amendments
to SFAS 133, in connection with other FASB projects dealing with financial
instruments and in connection with implementation issues raised in relation to
the application of the definition of a derivative. The application of this
statement did not have an impact on the Companys consolidated financial
statements. In May 2003, the FASB issued SFAS No. 150, Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. This statement establishes
standards for how a company clarifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires a
company to classify such instruments as liabilities, whereas they previously
may have been classified as equity. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. The application of this statement did not have an
impact on the Companys consolidated financial statements. 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. 18




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##### Table of Contents



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;  
    
    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 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. 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 has agreed with the bank to exchange, at specified
intervals, the difference between variable-rate and fixed-rate interest
amounts, calculated by reference to agreed-upon notional 19




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##### Table of Contents



amounts. The change in the fair value of the interest rate swap for the
period ended February 29, 2004 was an unrealized gain of $32,000 which is
included in other comprehensive income for the year ended February 29, 2004. The Companys financial instruments consist of cash, accounts receivable,
accounts payable, and long-term obligations. The Companys exposure to market
risk for changes in interest rates relates primarily to short-term investments
and short-term obligations. As a result, the Company does not expect
fluctuations in interest rates to have a material impact on the fair value of
these instruments. 
 Item 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 29, 2004. 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 2004
    
    Fiscal 2003First
    
    Second
    
    Third
    
    Fourth
    
    First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    24,491
    
    
    $
    28,284
    
    
    $
    54,448
    
    
    $
    31,058
    
    
    $
    20,053
    
    
    $
    24,035
    
    
    $
    44,519
    
    
    $
    22,210Gross profit
    
    
    5,733
    
    
    
    8,161
    
    
    
    16,556
    
    
    
    8,451
    
    
    
    6,187
    
    
    
    7,382
    
    
    
    14,961
    
    
    
    5,364Operating income (loss)
    
    
    (966
    )
    
    
    297
    
    
    
    5,905
    
    
    
    (9
    )
    
    
    (595
    )
    
    
    452
    
    
    
    5,176
    
    
    
    (1,928
    )Net income (loss)
    
    
    (712
    )
    
    
    40
    
    
    
    3,376
    
    
    
    (252
    )
    
    
    (507
    )
    
    
    134
    
    
    
    2,896
    
    
    
    (1,385
    )Net income (loss) per share - basic
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    0.18
    
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.04
    )
    
    
    0.17
    
    
    
    (0.07
    )Net income (loss) per share - diluted
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    0.17
    
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.04
    )
    
    
    0.17
    
    
    
    (0.07
    )
 Quarterly results can be affected by a number of factors including the
timing of orders, production delays or inefficiencies, and raw materials
availability. See Item 1, Business  Operations  Materials and Supplies. 
 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, taking into consideration the
size and nature of the Companys business and operations. 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. 20




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##### Table of Contents



PART III 
 Item 10.Directors and Executive Officers of the Registrant 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 14, 2004: Name
    
    Age
    
    PositionSteven G. Murdock
    
    
    52
    
    
    Chief Executive Officer, President, Secretary, DirectorBrent W. Christensen
    
    
    45
    
    
    Senior Vice President  Finance and Chief Financial OfficerMark D. Peterson
    
    
    42
    
    
    Senior Vice President and General CounselRobert L. Davis
    
    
    37
    
    
    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. 
 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. 21




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##### Table of Contents



Equity Compensation Plan Information The following table provides information as of February 29, 2004 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
    
    
    3,436,181
    
    
    $
    4.54
    
    
    
    1,346,073Equity compensation plans not approved by
shareholders
    
    
    310,000
    
    
    
    25.87
    
    
    
    0Total
    
    
    3,746,181
    
    
    $
    6.31
    
    
    
    1,346,073
 
 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. 22




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##### Table of Contents



PART IV 
 Item 15.Exhibits, Financial Statement Schedules, and Reports On Form 8-K  (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 29, 2004 and February 28, 2003
    
    F-2Consolidated Statements of Operations for each of the three years in the period ended
February 29, 2004
    
    F-3Consolidated Statements of Stockholders Equity for each of the three years in the period ended
February 29, 2004
    
    F-4Consolidated Statements of Cash Flows for each of the three years in the period ended
February 29, 2004
    
    F-5Notes to Consolidated Financial Statements
    
    F-62. Financial Statement Schedules:For each of the three years in the period ended February 29, 2004  II  Valuation and
Qualifying Accounts. All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted3. Exhibits included or incorporated herein: See Exhibit Index
  (b)
    
    Reports on Form 8-K. The Company filed the following Reports with the SEC:  1.
    
    Form 8-K, filed on January 15, 2004, furnishing a press
release announcing the Companys financial results for the quarterly
period ended November 30, 2003.2.
    
    Form 8-K, filed on February 18, 2004, covering a press
release announcing the Companys participation in an investors
conference. 23




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##### 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 23, present fairly, in all material
respects, the financial position of Meade Instruments Corp. and its
subsidiaries at February 29, 2004 and February 28, 2003, and the results of
their operations and their cash flows for each of the three years in the period
ended February 29, 2004, 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 23, 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. A discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets on March 1, 2002 and as a result changed its
method of accounting for goodwill. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Orange County, California
May 21, 2004 F-1




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##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED BALANCE SHEETS February 29,
    
    February 28,2004
    
    2003ASSETSCurrent assets:Cash
    
    $
    7,806,000
    
    
    $
    2,445,000Accounts receivable, less allowance for doubtful accounts of
$704,000 in 2004 and $714,000 in 2003
    
    
    22,462,000
    
    
    
    22,364,000Inventories
    
    
    39,777,000
    
    
    
    40,050,000Deferred income taxes
    
    
    7,888,000
    
    
    
    6,438,000Prepaid income taxes
    
    
    
    
    
    
    818,000Prepaid expenses and other current assets
    
    
    491,000
    
    
    
    563,000Total current assets
    
    
    78,424,000
    
    
    
    72,678,000Goodwill
    
    
    1,548,000
    
    
    
    1,548,000Acquisition-related intangible assets, net
    
    
    3,742,000
    
    
    
    4,109,000Property and equipment, net
    
    
    4,551,000
    
    
    
    5,842,000Other assets, net
    
    
    297,000
    
    
    
    818,000$
    88,562,000
    
    
    $
    84,995,000LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank line of credit
    
    $
    5,059,000
    
    
    $
    9,063,000Accounts payable
    
    
    5,319,000
    
    
    
    5,464,000Accrued liabilities
    
    
    6,884,000
    
    
    
    6,293,000Income taxes payable
    
    
    3,059,000
    
    
    
    Current portion of long-term debt and capital lease obligations
    
    
    580,000
    
    
    
    583,000Total current liabilities
    
    
    20,901,000
    
    
    
    21,403,000Long-term debt
    
    
    1,729,000
    
    
    
    2,139,000Deferred income taxes
    
    
    1,054,000
    
    
    
    1,198,000Commitments and contingenciesStockholders equity:Common stock; $0.01 par value; 50,000,000 shares authorized;
19,989,000 and 19,806,000 shares issued and outstanding at
February 29, 2004 and February 28, 2003, respectively
    
    
    200,000
    
    
    
    198,000Additional paid-in capital
    
    
    40,445,000
    
    
    
    39,979,000Retained earnings
    
    
    25,891,000
    
    
    
    23,439,000Accumulated other comprehensive income
    
    
    882,000
    
    
    
    96,00067,418,000
    
    
    
    63,712,000Unearned ESOP shares
    
    
    (2,540,000
    )
    
    
    (3,457,000
    )Total stockholders equity
    
    
    64,878,000
    
    
    
    60,255,000$
    88,562,000
    
    
    $
    84,995,000
 See accompanying notes to consolidated financial statements. F-2




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##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended February 28/292004
    
    2003
    
    2002Net sales
    
    $
    138,281,000
    
    
    $
    110,817,000
    
    
    $
    94,718,000Cost of sales
    
    
    99,380,000
    
    
    
    76,923,000
    
    
    
    70,108,000Gross profit
    
    
    38,901,000
    
    
    
    33,894,000
    
    
    
    24,610,000Selling expenses
    
    
    18,106,000
    
    
    
    14,248,000
    
    
    
    12,920,000General and administrative expenses
    
    
    12,671,000
    
    
    
    12,628,000
    
    
    
    9,098,000ESOP contribution expense
    
    
    859,000
    
    
    
    905,000
    
    
    
    1,367,000Research and development expenses
    
    
    2,038,000
    
    
    
    3,008,000
    
    
    
    2,167,000Operating income (loss)
    
    
    5,227,000
    
    
    
    3,105,000
    
    
    
    (942,000
    )Interest expense
    
    
    1,046,000
    
    
    
    1,137,000
    
    
    
    1,345,000Income (loss) before income taxes
    
    
    4,181,000
    
    
    
    1,968,000
    
    
    
    (2,287,000
    )Provision (benefit) for income taxes
    
    
    1,729,000
    
    
    
    830,000
    
    
    
    (845,000
    )Net income (loss)
    
    $
    2,452,000
    
    
    $
    1,138,000
    
    
    $
    (1,442,000
    )Net income (loss) per share  basic and diluted
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )Weighted average common shares outstanding  basic
    
    
    18,983,000
    
    
    
    16,410,000
    
    
    
    15,100,000Weighted average common shares outstanding  diluted
    
    
    19,174,000
    
    
    
    16,624,000
    
    
    
    15,100,000
 See accompanying notes to consolidated financial statements. F-3




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##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AccumulatedCommon Stock
    
    AdditionalPaid-in
    
    OtherComprehensive
    
    Retained
    
    UnearnedShares
    
    Amount
    
    Capital
    
    Income (Loss)
    
    Earnings
    
    ESOP Shares
    
    TotalBalance at February
28, 2001
    
    
    16,472,000
    
    
    $
    165,000
    
    
    $
    32,367,000
    
    
    $
    (359,000
    )
    
    $
    23,743,000
    
    
    $
    (5,565,000
    )
    
    $
    50,351,000Shares issued as
compensation
    
    
    9,000
    
    
    
    
    
    
    
    32,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,000Release of ESOP
shares
    
    
    
    
    
    
    
    
    
    
    175,000
    
    
    
    
    
    
    
    
    
    
    
    1,192,000
    
    
    
    1,367,000Comprehensive income:Currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174,000
    )
    
    
    
    
    
    
    
    
    
    
    (174,000
    )Interest rate swap
valuation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,000
    )
    
    
    
    
    
    
    
    
    
    
    (26,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,442,000
    )
    
    
    
    
    
    
    (1,442,000
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,642,000
    )Balance 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
    )
    
    $
    64,878,000
 See accompanying notes to consolidated financial statements. F-4




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##### Table of Contents



MEADE INSTRUMENTS CORP. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended February
28/29,2004
    
    2003
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    2,452,000
    
    
    $
    1,138,000
    
    
    $
    (1,442,000
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depreciation and amortization
    
    
    2,427,000
    
    
    
    2,161,000
    
    
    
    2,092,000ESOP contribution
    
    
    859,000
    
    
    
    905,000
    
    
    
    1,367,000Allowance for doubtful accounts
    
    
    1,210,000
    
    
    
    163,000
    
    
    
    2,090,000Changes in assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    (1,095,000
    )
    
    
    (5,268,000
    )
    
    
    (4,061,000
    )Inventories
    
    
    828,000
    
    
    
    4,987,000
    
    
    
    11,342,000Deferred income taxes
    
    
    (1,695,000
    )
    
    
    1,942,000
    
    
    
    (107,000
    )Prepaid expenses and other current assets
    
    
    458,000
    
    
    
    2,416,000
    
    
    
    1,105,000Other assets
    
    
    290,000
    
    
    
    595,000
    
    
    
    (581,000
    )Accounts payable
    
    
    (277,000
    )
    
    
    (265,000
    )
    
    
    2,166,000Accrued liabilities
    
    
    637,000
    
    
    
    1,192,000
    
    
    
    (543,000
    )Income taxes payable
    
    
    3,039,000
    
    
    
    
    
    
    
    Net cash provided by operating activities
    
    
    9,133,000
    
    
    
    9,966,000
    
    
    
    13,428,000Cash flows from investing activities:Capital expenditures
    
    
    (626,000
    )
    
    
    (734,000
    )
    
    
    (731,000
    )Acquisition of Simmons, net of cash acquired
    
    
    
    
    
    
    (20,826,000
    )
    
    
    Net cash used in investing activities
    
    
    (626,000
    )
    
    
    (21,560,000
    )
    
    
    (731,000
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (667,000
    )
    
    
    (565,000
    )
    
    
    (2,575,000
    )Net proceeds from the sale of common stock
    
    
    
    
    
    
    7,344,000
    
    
    
    Proceeds
from long-term debt
    
    
    
    
    
    
    
    
    
    
    1,075,000Net (payments) borrowings under bank lines of credit
    
    
    (4,032,000
    )
    
    
    5,710,000
    
    
    
    (11,243,000
    )Exercise of stock options
    
    
    426,000
    
    
    
    67,000
    
    
    
    Payments under capital lease obligations
    
    
    (25,000
    )
    
    
    (190,000
    )
    
    
    (242,000
    )Net cash provided by (used in) financing activities
    
    
    (4,298,000
    )
    
    
    12,366,000
    
    
    
    (12,985,000
    )Effect of exchange rate changes on cash
    
    
    1,152,000
    
    
    
    477,000
    
    
    
    351,000Net increase in cash
    
    
    5,361,000
    
    
    
    1,196,000
    
    
    
    63,000Cash at beginning of year
    
    
    2,445,000
    
    
    
    1,249,000
    
    
    
    1,186,000Cash at end of year
    
    $
    7,806,000
    
    
    $
    2,445,000
    
    
    $
    1,249,000Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    1,046,000
    
    
    $
    1,141,000
    
    
    $
    1,364,000Income taxes
    
    $
    
    
    
    $
    250,000
    
    
    $
    350,000
 See accompanying notes to consolidated financial statements. F-5




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##### 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 Revenues are generally recorded when title transfers and the risks of
ownership are passed to customers. 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, principally 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 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. 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. 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 F-6




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##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 Company adopted
SFAS No. 142 effective March 1, 2002. 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 and Simmons. 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 discounted cash flows. As of February 29, 2004, the Company does not
believe any impairment of goodwill has occurred. Acquisition-related intangible assets 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 are written
down to their fair value, less costs to sell. Fair value is generally based on
a discounted cash flow analysis. Assets that are to be disposed of are measured
at the lower of cost or fair value, less costs to sell. F-7




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) At February 29, 2004 and February 28, 2003, goodwill and
acquisition-related intangible assets included the following: February 28/29,2004
    
    2003Amortization Periods
    
    Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    Accumulated(Years)
    
    Amount
    
    Amortization
    
    Amount
    
    AmortizationGoodwill
    
    none
    
    $
    1,548,000
    
    
    $
    
    
    
    $
    1,548,000
    
    
    $
    Acquisition-related
intangible assets:Brand names
    
    none
    
    
    2,041,000
    
    
    
    
    
    
    
    2,041,000
    
    
    
    Customer relationships
    
    10
    
    
    1,390,000
    
    
    
    (139,000
    )
    
    
    1,390,000
    
    
    
    Trademarks
    
    7-15
    
    
    1,398,000
    
    
    
    (948,000
    )
    
    
    1,398,000
    
    
    
    (720,000
    )Total
acquisition-related
intangible assets
    
    
    
    
    4,829,000
    
    
    
    (1,087,000
    )
    
    
    4,829,000
    
    
    
    (720,000
    )Total goodwill and
acquisition-related
intangible assets
    
    
    
    $
    6,377,000
    
    
    $
    (1,087,000
    )
    
    $
    6,377,000
    
    
    $
    (720,000
    )
 The changes in the carrying amount of goodwill and acquisition-related
intangible assets for the years ended February 29, 2004 and February 28, 2003
are as follows: Non-amortizing
    
    Amortizingintangible assets
    
    intangible assetsBalance, net, February 28, 2002
    
    $
    1,907,000
    
    
    $
    905,000New assets acquired
    
    
    2,041,000
    
    
    
    1,390,000Adjustment to goodwill
    
    
    (359,000
    )
    
    
    Amortization
    
    
    
    
    
    
    (227,000
    )Balance, net, February 28, 2003
    
    
    3,589,000
    
    
    
    2,068,000Amortization
    
    
    
    
    
    
    (367,000
    )Balance, net, February 29, 2004
    
    $
    3,589,000
    
    
    $
    1,701,000
 As
of February 29, 2004, estimated amortization expense for the
next two fiscal years is approximately $367,000 per year and
$139,000 per year beginning in fiscal 2007. The following pro forma summary presents the Companys net income (loss)
and per share information as if the Company had been accounting for its
goodwill under SFAS No. 142 for the three years ended February 29, 2004. Year ended February 28/29,2004
    
    2003
    
    2002Reported net income (loss)
    
    $
    2,452,000
    
    
    $
    1,138,000
    
    
    $
    (1,442,000
    )Add back goodwill amortization, net
of tax
    
    
    
    
    
    
    
    
    
    
    101,000Adjusted net income (loss)
    
    $
    2,452,000
    
    
    $
    1,138,000
    
    
    $
    (1,341,000
    )Reported earnings (loss) per
share, basic and diluted
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )Adjusted basic and diluted earnings
(loss) per share
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.09
    )
 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 F-8




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Company files its tax return for the year ending August 31, rather than
for the financial reporting period ending the last day of February. Advertising The
Company expenses the costs of advertising, including production costs, as incurred. For
the years ended February 29, 2004, and February 28, 2003 and 2002, the Company
incurred advertising and marketing expenses of approximately $5,465,000,
$4,406,000 and $2,857,000, respectively. 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
65,000 have been excluded from diluted weighted average shares of common stock
for fiscal 2002, as the effect would be anti-dilutive. The following is a reconciliation of the denominators of the basic and
diluted earnings (loss) per share computations for the fiscal years ended
February 29, 2004, and February 28, 2003 and 2002. Year Ended February 28/29 ,2004
    
    2003
    
    2002Net income (loss)
    
    $
    2,452,000
    
    
    $
    1,138,000
    
    
    $
    (1,442,000
    )Shares outstanding  basic
    
    
    18,983,000
    
    
    
    16,410,000
    
    
    
    15,100,000Effect of dilutive securities:Stock options
    
    
    191,000
    
    
    
    214,000
    
    
    
    Shares outstanding  diluted
    
    
    19,174,000
    
    
    
    16,624,000
    
    
    
    15,100,000Net income  basic and diluted
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )
 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 29, 2004, includes
foreign currency translation adjustments, an unrealized loss in marketable
securities and adjustments to the fair value of highly effective derivative
instruments. As of February 29, 2004 and February 28, 2003, accumulated other
comprehensive income consists of the following: February 28/292004
    
    2003Foreign currency translation adjustments
    
    $
    996,000
    
    
    $
    145,000Unrealized loss in marketable securities, net of tax
    
    
    (97,000
    )
    
    
    Change in fair value of interest rate swap
    
    
    (17,000
    )
    
    
    (49,000
    )Total accumulated other comprehensive income
    
    $
    882,000
    
    
    $
    96,000
 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 F-9




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) management based on historical and other factors that affect
collectibility. Several customers filed for bankruptcy during fiscal 2002 and
2001. 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 provisions related to these receivables. Fair value of financial instruments The carrying amounts of accounts receivable, prepaid expenses and other
current assets, accounts payable, accrued liabilities, and short-term loans
approximate fair value due to the short maturity of these instruments. The
carrying value 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 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 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 or 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 F-10




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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 Sheet, follows. February 28/29,2004
    
    2003Beginning balance
    
    $
    1,794,000
    
    
    $
    461,000Warranty accrual
    
    
    367,000
    
    
    
    1,731,000Labor and material usage
    
    
    (775,000
    )
    
    
    (1,154,000
    )Effect of change in foreign currency exchange rates
    
    
    41,000
    
    
    
    Simmons warranty liability assumed
    
    
    
    
    
    
    756,000Ending balance
    
    $
    1,427,000
    
    
    $
    1,794,000
 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 28/29,2004
    
    2003
    
    2002Reported net income (loss)
    
    $
    2,452,000
    
    
    $
    1,138,000
    
    
    $
    (1,442,000
    )Compensation cost
    
    
    (682,000
    )
    
    
    (1,587,000
    )
    
    
    (2,079,000
    )Pro forma net income (loss)
    
    $
    1,770,000
    
    
    $
    (449,000
    )
    
    $
    (3,521,000
    )Reported earnings (loss) per share  basic and diluted
    
    $
    0.13
    
    
    $
    0.07
    
    
    $
    (0.10
    )Pro forma earnings (loss) per share  basic and diluted
    
    $
    0.09
    
    
    $
    (0.03
    )
    
    $
    (0.23
    )
 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
28/29,2004
    
    2003
    
    2002Weighted average expected life (years)
    
    
    6.0
    
    
    
    6.0
    
    
    
    4.0Volatility
    
    
    69.3
    %
    
    
    100.9
    %
    
    
    93.8
    %Risk-free interest rate
    
    
    3.01
    %
    
    
    3.75
    %
    
    
    4.18
    %Expected dividends
    
    None
    
    None
    
    NoneWeighted average fair value of options granted
    
    $
    1.90
    
    
    $
    2.19
    
    
    $
    3.62
 Accounting pronouncements In January 2003, the Company adopted SFAS 146, which addresses accounting
for costs associated with exit or disposal activities. In addition, the FASB
issued FIN 46, which requires that certain variable interest entities be
consolidated by the primary beneficiary of the entity if the equity investors
in the entity do not have a controlling financial interest or do not have
sufficient equity at risk. FIN 46 is effective immediately for all variable
interest entities created after January 31, 2003. For all such entities created
prior to February 1, 2003, FIN 46 is effective for F-11




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) interim or annual fiscal periods ending after December 15, 2003. The
adoption of these statements did not have a material effect on the Companys
financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities. This statement is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. It amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. SFAS 149 amends SFAS 133 for decisions made as part of the
Derivatives Implementation Group process that effectively required amendments
to SFAS 133, in connection with other FASB projects dealing with financial
instruments and in connection with implementation issues raised in relation to
the application of the definition of a derivative. The application of this
statement did not have an impact on the Companys consolidated financial
statements. In May 2003, the FASB issued SFAS No. 150, Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. This statement establishes
standards for how a company clarifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires a
company to classify such instruments as liabilities, whereas they previously
may have been classified as equity. SFAS 150 is effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective July 1, 2003. The application of this statement did not have an
impact on the Companys consolidated financial statements. Reclassifications Certain reclassifications have been made to conform prior year information
to the fiscal 2004 presentation.  3.
    
    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 presents the Company with opportunities to
enter into the consumer sports optics marketplace with brand names that
management believes are highly recognized and well regarded. To fund a portion
of the purchase price, the Company sold 3,291,801 shares of its common stock in
a private placement for net cash proceeds of $7,344,000. The balance of the
purchase price was funded through borrowings on the Companys bank line of
credit. The acquisition of Simmons was accounted for as a purchase as
prescribed by Statement of Financial Accounting Standards No. 141, Business
Combinations.The purchase price allocation is based upon evaluations and other
studies of the fair value of the assets acquired. The excess of the purchase
price over the estimated fair value of the net tangible assets acquired is
included in 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 of the acquisition is as
follows: Current assets (excluding cash of $3,000)
    
    $
    19,227,000Property, 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 Blounts (predecessor)
basis for periods prior to December 7, 2001 and ATKs (successor) basis for
periods subsequent to December 6, 2001. The following table presents unaudited pro forma condensed consolidated
financial information for the years ended February 28, 2003 and 2002,
respectively, as though the acquisition occurred on March 1, 2001. The pro F-12




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. The pro forma information for the year ended
February 28, 2002 has been prepared by combining the statement of operations of
Meade for the year ended February 28, 2002 and the statement of operations of
Simmons (predecessor) for the year ended December, 2001. Year EndedFebruary 28,2003
    
    2002Net sales
    
    $
    128,441,000
    
    
    $
    121,644,000Operating income (loss)
    
    $
    4,258,000
    
    
    $
    (3,274,000
    )Net income (loss)
    
    $
    982,000
    
    
    $
    (4,496,000
    )Basic and diluted earnings (loss) per share
    
    $
    0.05
    
    
    $
    (0.24
    )
 The unaudited pro forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions taken place on March 1, 2001. In
addition, the pro forma results are not intended to be a projection of the
future results and do not reflect any synergies that might have been achieved
from the combined operations.  4.
    
    Bank Debt On October 25, 2002, the Company amended its credit agreement with its
U.S. bank (the U.S. credit agreement). The amendment principally involved
increasing the revolving credit facility and incorporating the Simmons
acquisition into the credit agreement. The amended agreement 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). Amounts outstanding on the U.S. revolving loan and U.S. term loan at
February 29, 2004 were approximately $5,047,000 and $1,085,000, 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 29, 2004 was approximately $12,000,000. The U.S. term
loan is collateralized by domestic machinery and equipment. The credit facility
has a three-year term, is collateralized by substantially all of the domestic
assets of the Company and its domestic subsidiaries and contains certain
financial covenants including, but not limited to, fixed charge coverage
ratios. Amounts outstanding under the U.S. revolving loan bear interest at the
banks base rate (or LIBOR rate) plus applicable margins (4.25% at February 29,
2004). 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) is currently higher than that which would have been available if the
variable rate had been applied during the period. Under the interest-rate swap
contract, the Company has agreed with the bank to exchange, at specified
intervals, the difference between variable-rate and fixed-rate interest
amounts, calculated by reference to agreed-upon notional amounts. The change in
the fair value of the interest rate swap for the year ended February 29, 2004
was an unrealized gain of $32,000 which is included in other comprehensive
income for the year ended February 29, 2004. In July 2003, 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 2004. 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 $3,250,000 at February 29, 2004. 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 29, 2004
were approximately $13,000 and $1,224,000, respectively. The European Loans
bear interest at the banks base rate plus or minus applicable margins (7.75%
and 6.0%, respectively at February 29, 2004). Aggregate maturities of long-term debt at February 29, 2004 are as
follows: F-13




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fiscal Year:
    
    Amount2005
    
    $
    580,0002006
    
    
    825,0002007
    
    
    904,000Total
    
    $
    2,309,000
 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.  5.
    
    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. F-14




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MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Aggregate future minimum commitments under noncancellable leases and other
agreements at February 29, 2004 that have remaining terms in excess of one year
are as follows: Fiscal Year
    
    Operating2005
    
    $
    1,722,0002006
    
    
    1,689,0002007
    
    
    1,787,0002008
    
    
    1,294,0002009
    
    
    267,000Thereafter
    
    
    456,000Net minimum lease payments
    
    $
    7,215,000
 The preceding table assumes that any operating leases with renewal options
that expire during fiscal 2004 or fiscal 2005 will be renewed under the terms
of the governing lease agreement. For the fiscal years ended February 29, 2004,
and February 28, 2002 and 2001, the Company incurred rent expense of
$2,371,000, $2,731,000 and $2,312,000, 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
allege that a number of Tascos and Celestrons consumer telescopes willfully
infringe certain of the Companys U.S. patents. In addition to seeking
compensation for damages incurred, the suits seek to enjoin Tasco and Celestron
from continuing to manufacture or sell products that infringe certain of the
Companys patents. Tasco and Celestron filed answers and certain counterclaims
which deny the Companys allegations. The counterclaims also allege, among
other things, that the Company is infringing a Celestron design patent. On September 9, 2003, the Company and Celestron agreed to pursue
non-binding mediation of all pending litigation between the parties. As part
of the mediation process, the parties agreed to stay all pending litigation
between them (including the discovery process). This mediation took place on
May 10, 2004. Pursuant to a binding settlement agreement signed by the parties
at the mediation, a settlement was reached as to all pending litigation among
the parties on the terms of one of two settlement alternatives. In the event
the conditions of the first settlement alternative (the First Alternative)
are not satisfied on or before August 15, 2004, the pending litigation will be
considered settled on the terms of the second settlement alternative (the
Second Alternative). Pursuant to the terms of the First Alternative, in
exchange for cash payments to be made by Meade, Meade will acquire the
exclusive rights to Celestrons computerized telescope technology.
Consummation of the First Alternative is subject to the satisfaction of certain
conditions, including approval of the United States Federal Trade Commission
and Meade obtaining approval of its board of directors. If the First
Alternative is not consummated, the Second Alternative will be effective.
Pursuant to the terms of the Second Alternative, Meade grants a license to
Celestron under which Celestron will pay Meade a royalty on any products sold
by Celestron that include or use any level the telescope and point it north
or similar telescope alignment technology until the expiration of the last
patent licensed by Meade to Celestron. Regardless of which settlement
alternative is consummated: (i) Celestron agrees that Meades distributed
intelligence and level north patents are valid and
enforceable; (ii) Meade
agrees that certain of Celestrons tripod and mount patents are valid (these
patents are alleged by Celestron to have been infringed by Meade in its
counterclaims); (iii) Celestron grants Meade paid-up, royalty free licenses for
the rights to use the designs covered by the aforementioned tripod and mount
patents; (iv) Celestron will stipulate to correction of inventorship of its
United States Patent No. 6,369,942, entitled Auto-alignment tracking telescope
mount and will transfer ownership of such patent to Meade; and (v) the parties
will promptly dismiss with prejudice all claims and counterclaims in the
pending litigation between them, including claims for past damages. The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect on the Companys financial condition, results of
operations, or cash flows. F-15




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##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)  6.
    
    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% 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 29, 2004 and February 28, 2003 and 2002, the
Company recognized ESOP contribution expense of $859,000, $905,000 and
$1,367,000, respectively. As of February 29, 2004, approximately 2,001,000 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 999,000 shares in suspense at February 29, 2004,
including approximately 250,000 shares committed to be released as of February
29, 2004. 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 29, 2004 was $3.74 per share, the market price as
determined by the Nasdaq National Market. At February 29, 2004 there was no
repurchase obligation.  7.
    
    Income Taxes Pretax income (loss) from continuing operations for each of the three
years ended February 29, 2004 and February 28, 2003 and 2002 consists of the
following: Year Ended February 28/29,2004
    
    2003
    
    2002Domestic
    
    $
    979,000
    
    
    $
    1,045,000
    
    
    $
    (2,496,000
    )Foreign
    
    
    3,202,000
    
    
    
    923,000
    
    
    
    209,000$
    4,181,000
    
    
    $
    1,968,000
    
    
    $
    (2,287,000
    )
 F-16




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##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Significant components of the provision for income taxes are as follows: Year Ended February 28/29,2004
    
    2003
    
    2002Current:Federal
    
    $
    1,191,000
    
    
    $
    (785,000
    )
    
    $
    (609,000
    )State
    
    
    482,000
    
    
    
    (262,000
    )
    
    
    (84,000
    )Foreign
    
    
    1,157,000
    
    
    
    97,000
    
    
    
    (168,000
    )2,830,000
    
    
    
    (950,000
    )
    
    
    (861,000
    )Deferred:Federal
    
    
    (1,081,000
    )
    
    
    1,130,000
    
    
    
    51,000State
    
    
    (208,000
    )
    
    
    356,000
    
    
    
    (51,000
    )Foreign
    
    
    188,000
    
    
    
    294,000
    
    
    
    16,000(1,101,000
    )
    
    
    1,780,000
    
    
    
    16,000$
    1,729,000
    
    
    $
    830,000
    
    
    $
    (845,000
    )
 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 EndedFebruary 28/29,2004
    
    2003
    
    2002Federal income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    (34.0)
    %State income taxes, of federal income tax benefit
    
    
    4.3
    
    
    
    3.4
    
    
    
    (8.1
    )Non-deductible ESOP charge
    
    
    
    
    
    
    
    
    
    
    2.6Foreign income
    
    
    1.8
    
    
    
    4.6
    
    
    
    3.0Other
    
    
    1.3
    
    
    
    0.2
    
    
    
    (0.4
    )41.4
    %
    
    
    42.2
    %
    
    
    (36.9)
    %
 The significant components of the net deferred tax asset were as follows: February 29,
    
    February 28,2004
    
    2003Sales returns
    
    $
    979,000
    
    
    $
    1,038,000Inventory and accounts receivable
    
    
    4,099,000
    
    
    
    3,768,000Accrued liabilities
    
    
    2,780,000
    
    
    
    1,629,000Intangibles
    
    
    (1,054,000
    )
    
    
    (1,198,000
    )Other
    
    
    30,000
    
    
    
    3,000$
    6,834,000
    
    
    $
    5,240,000
 As of February 29, 2004, Meade had approximately $2,408,000 of state net
operating loss carry forwards available to offset future taxable income, which
begin to expire in 2014.  8.
    
    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 present information about product
sales and geographic data for the fiscal years ended February 29, 2004 and
February 28, 2003 and 2002. F-17




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##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) Year Ended February 28/29,2004
    
    2003
    
    2002Product sales:Telescope and telescope accessories
    
    $
    81,024,000
    
    
    $
    73,489,000
    
    
    $
    81,864,000Binoculars
    
    
    28,991,000
    
    
    
    26,611,000
    
    
    
    9,960,000Riflescopes
    
    
    24,878,000
    
    
    
    8,300,000
    
    
    
    Other
    
    
    3,388,000
    
    
    
    2,417,000
    
    
    
    2,894,000$
    138,281,000
    
    
    $
    110,817,000
    
    
    $
    94,718,000
 Year Ended February 28/29,2004
    
    2003
    
    2002Geographic data  product sales:North America
    
    $
    101,995,000
    
    
    $
    83,628,000
    
    
    $
    69,290,000Germany
    
    
    14,477,000
    
    
    
    18,120,000
    
    
    
    16,631,000Other foreign/export
    
    
    21,809,000
    
    
    
    9,069,000
    
    
    
    8,797,000$
    138,281,000
    
    
    $
    110,817,000
    
    
    $
    94,718,000
 February 28/29,2004
    
    2003
    
    2002Geographic data  long-lived assets:North America
    
    $
    5,916,000
    
    
    $
    8,701,000
    
    
    $
    6,218,000Germany
    
    
    3,420,000
    
    
    
    3,616,000
    
    
    
    4,579,000$
    9,336,000
    
    
    $
    12,317,000
    
    
    $
    10,797,000
 The Company generated 11%, 15% and 13% of its revenue from one customer
during the years ended February 29, 2004, and February 28, 2003 and 2002,
respectively. The Company generated 11% of its revenue from another customer
during the years ended February 28, 2003 and 2002. 9. 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-18




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##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) Option activity under the Plan during fiscal years 2004, 2003 and 2002 was
as follows: WeightedOption
    
    AverageShares
    
    Exercise PriceOptions outstanding at February 29, 2001
    
    
    3,423,000
    
    
    
    6.41Granted
    
    
    43,000
    
    
    
    5.33Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (9,000
    )
    
    
    6.51Options 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
    
    
    
    4.54
 Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageExercise Prices
    
    Shares
    
    Contractual Life
    
    Exercise Price
    
    Shares
    
    Exercise Price$2.31  $3.81
    
    
    1,565,000
    
    
    7.4 years
    
    $
    2.83
    
    
    
    791,000
    
    
    $
    2.86$4.44  $5.59
    
    
    1,612,000
    
    
    5.3 years
    
    $
    4.94
    
    
    
    1,601,000
    
    
    
    4.95$6.25  $10.31
    
    
    46,000
    
    
    6.0 years
    
    $
    7.75
    
    
    
    46,000
    
    
    
    7.71$11.06  $12.13
    
    
    175,000
    
    
    5.9 years
    
    $
    11.23
    
    
    
    175,000
    
    
    
    11.23$17.13  $27.75
    
    
    38,000
    
    
    6.3 years
    
    $
    22.90
    
    
    
    35,000
    
    
    
    22.903,436,000
    
    
    
    
    
    
    
    
    
    
    
    2,648,000
 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 25% after one year and ratably over the following 36 months or as
otherwise determined by the Board of Directors. At February 29, 2004, 3,418,000
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. F-19




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##### Table of Contents



MEADE INSTRUMENTS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Composition of Certain Balance Sheet Accounts The composition of inventories is as follows: February 29,
    
    February 28,2004
    
    2003Raw materials
    
    $
    7,691,000
    
    
    $
    7,442,000Work in process
    
    
    6,193,000
    
    
    
    4,972,000Finished goods.
    
    
    25,893,000
    
    
    
    27,636,000$
    39,777,000
    
    
    $
    40,050,000
 The composition of property and equipment is as follows: February 29,
    
    February 28,2004
    
    2003Land
    
    $
    198,000
    
    
    $
    180,000Buildings
    
    
    2,110,000
    
    
    
    1,891,000Molds and dies
    
    
    5,947,000
    
    
    
    5,770,000Machinery and equipment
    
    
    3,659,000
    
    
    
    3,426,000Furniture and fixtures
    
    
    2,765,000
    
    
    
    2,426,000Autos and trucks
    
    
    176,000
    
    
    
    176,000Leasehold improvements
    
    
    1,280,000
    
    
    
    1,259,00016,135,000
    
    
    
    15,128,000Less accumulated depreciation and amortization
    
    
    (11,584,000
    )
    
    
    (9,286,000
    )$
    4,551,000
    
    
    $
    5,842,000
 The gross value of assets under capital leases included above is $0 and
$589,000 at February 29, 2004, and February 28, 2003, respectively. For the
fiscal years ended February 29, 2004 and February 28, 2003 and 2002, the
Company incurred depreciation expense of $2,298,000, $2,030,000 and $1,790,000,
respectively. The composition of accrued liabilities is as follows: February 29,
    
    February 28,2004
    
    2003Salaries, wages, bonuses and other associated payroll costs
    
    $
    3,028,000
    
    
    $
    1,950,000Advertising and marketing expenses
    
    
    1,012,000
    
    
    
    351,000Professional fees
    
    
    332,000
    
    
    
    745,000Warranty costs
    
    
    1,427,000
    
    
    
    1,794,000Other
    
    
    1,085,000
    
    
    
    1,453,000$
    6,884,000
    
    
    $
    6,293,000
 F-20




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Date: May 28, 2004
    MEADE INSTRUMENTS CORP.By:
    /s/ STEVEN G. MURDOCKSteven G. MurdockPresident, Chief Executive Officerand Secretary By:
    /s/ BRENT W. CHRISTENSENBrent W. ChristensenSenior Vice President, Finance andChief Financial Officer




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##### Table of Contents



II  VALUATION AND QUALIFYING ACCOUNTS Balance AtBeginning of
    
    Charged to Costs
    
    Charged to Other
    
    
    
    
    
    Balance At EndAllowance for Doubtful Accounts
    
    Period
    
    and Expenses
    
    Accounts(3)
    
    Deductions(1)
    
    of PeriodYear ended February 28, 2002
    
    $
    2,175,000
    
    
    $
    2,090,000
    
    
    
    
    
    
    $
    2,033,000
    
    
    $
    2,232,000Year 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
    
    
    $
    704,000
 Balance AtBeginning of
    
    Charged to Costs
    
    Charged to Other
    
    
    
    
    
    Balance At EndAllowance for Excess Inventories
    
    Period
    
    and Expenses
    
    Accounts(3)
    
    Deductions(2)
    
    of PeriodYear ended February 28, 2002
    
    $
    9,106,000
    
    
    $
    281,000
    
    
    
    
    
    
    $
    288,000
    
    
    $
    9,099,000Year 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
    
    
    $
    8,115,000
   (1)
    
    Principally recoveries and write-off of delinquent accounts(2)
    
    Principally sale or destruction of previously reserved inventory(3)
    
    Effect of exchange rate changes during the period




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##### Table of Contents



EXHIBIT INDEX Exhibit
    
    
    
    IncorporationNumber
    
    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, Rudolph Bresser, the Company and
Meade Instruments Europe Corp., a California corporation (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).
    
    (o)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.
    
    (o)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.
    
    (o)3.1
    
    Certificate of Incorporation of the Company, as amended
    
    (c)3.7
    
    Amended and Restated Bylaws of
the Company, as amended4.1
    
    Specimen stock certificate
    
    (d)10.7
    
    Industrial Lease (Single Tenant;
Net; Stand-Alone), dated December 20, 1996, between The
Irvine Company and the Company
    
    (a)10.13+
    
    Meade Instruments Corp. Employee Stock Ownership Plan (the ESOP), as amended and
restated effective as of January 1, 1999.
    
    (f)10.14+
    
    Employee Stock Ownership Trust Agreement, as Amended and Restated as of April 9, 1997,
between the Company and Wells Fargo Bank, N.A
    
    (e)10.15+
    
    Employee Stock Ownership Plan Loan
and Pledge Agreement, dated April 23, 1996, between the
ESOP and the Company, as amended
    
    (a)10.20
    
    Form of Trademark Distribution Agreement for EEC Countries
    
    (a)10.21
    
    Form of Trademark Distribution Agreement for Non-EEC Countries
    
    (a)10.24
    
    Celtic Master Lease, dated as of February 23, 1995, by and between the Company and Celtic
Leasing Corp.
    
    (b)




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##### Table of Contents



Exhibit
    
    
    
    IncorporationNumber
    
    Description
    
    Reference10.29+
    
    Meade Instruments Corp. 1997 Stock Incentive Plan, as amended
    
    (m)10.30
    
    Form of Agreement of Merger, by and between the Company and the predecessor of the Company
    
    (b)10.33
    
    Agreement, dated as of May 5, 1998, by and between the Company and Weidy Optical Co., Ltd.10.35+
    
    Form Indemnification Agreement, by and between the Company and each member of the Board
of Directors and certain executive officers
    
    (e)10.42+
    
    Form Employment Agreement, by and between the Company and current executive officers of
the Company
    
    (j)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)10.44+
    
    Amendment No. 1 to Amended and Restated Employee Stock Ownership Plan
    
    (k)10.45
    
    Credit Agreement, dated as of September 24, 2001, between Bank of America, N.A. as the
Lender and Meade Instruments Corp. as the Borrower (excluding Exhibits and Schedules
thereto)
    
    (l)10.46
    
    Amendment No. 1 to Credit Agreement, dated as of April 15, 2002, between Bank of America,
N.A. as the Lender and Meade Instruments Corp. as the Borrower (excluding Exhibits and
Schedules thereto)
    
    (n)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)
    
    (o)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
    
    (o)10.49
    
    Registration Rights Agreement, dated as of October 22, 2002, by and among Meade
Instruments Corp. and each of the Purchasers Named on the Signature Page thereof
    
    (o)10.50+
    
    Amendment No. 2 to Amended and Restated Employee Stock Ownership Plan
    
    (p)10.51
    
    Transition Agreement, dated as of April 18, 2003, by and between Meade Instruments Corp.,
a Delaware corporation, and John C. Diebel, an individual (excluding the Exhibit thereto)
    
    (q)10.52
    
    Registration Rights Agreement, dated as of April 18, 2003, by and between Meade
Instruments Corp., a Delaware corporation, and John C. Diebel, an individual
    
    (q)10.53+
    
    Nonqualified Stock Option Agreement, dated as of April 12, 2000, by and between Meade
Instruments Corp. and Rolf Bresser
    
    (q)10.54
    
    First Amendment to Amended and
Restated Credit Agreement, dated October 23, 2003
    
    (r)10.55
    
    Lease Agreement, dated
March 26, 1992, as amended, by and between Realty Four and
Simmons Outdoor Corporation23.1
    
    Consent of PricewaterhouseCoopers LLP31.1
    
    Sarbanes-Oxley Act Section 302 Certification by Steven G. Murdock




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##### Table of Contents



Exhibit
    
    
    
    IncorporationNumber
    
    Description
    
    Reference31.2
    
    Sarbanes-Oxley Act Section 302 Certification by Brent W. Christensen.32.1
    
    Sarbanes-Oxley Act Section 906 Certification by Steven G. Murdock32.2
    
    Sarbanes-Oxley Act Section 906 Certification by Brent W. Christensen




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##### Table of Contents




    
    Previously filed with the Securities and Exchange Commission as set forth
in the following table:+
    
    Management contract or compensatory plan or arrangement.(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 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.(l)
    
    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.(m)
    
    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.(n)
    
    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.(o)
    
    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.(p)
    
    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.(q)
    
    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.(r)
    
    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.