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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22183
________________
MEADE INSTRUMENTS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2988062
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6001 OAK CANYON, IRVINE, CA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(949) 451-1450
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b).2 of the Exchange Act).
Yes [ ] No [X]
Number of shares of common stock outstanding as of November 30, 2002 is
19,783,000.
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MEADE INSTRUMENTS CORP.
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Page No.
--------
Consolidated Balance Sheets (Unaudited)-- November 30, 2002 and February 28, 2002........................ 1
Consolidated Statements of Operations (Unaudited) -- Three and Nine months ended
November 30, 2002 and 2001.......................................................................... 2
Consolidated Statements of Cash Flows (Unaudited) -- Three and Nine months ended
November 30, 2002 and 2001......................................................................... 3
Notes to Consolidated Financial Statements (Unaudited)................................................... 4
Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 8
PART II -- OTHER INFORMATION
Other Information........................................................................................ 13
Signatures............................................................................................... 15
Certifications........................................................................................... 16-17
i
ITEM 1. FINANCIAL STATEMENTS.
MEADE INSTRUMENTS CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
NOVEMBER 30, FEBRUARY 28,
2002 2002
-------------- --------------
Current assets:
Cash .................................................................. $ 1,316,000 $ 1,249,000
Accounts receivable, less allowance for doubtful accounts of $1,283,000
at November 30, 2002 and $2,232,000 at February 28, 2002 ........... 44,307,000 12,184,000
Inventories ........................................................... 36,866,000 29,803,000
Deferred income taxes ................................................. 7,011,000 7,011,000
Prepaid income taxes .................................................. -- 3,118,000
Prepaid expenses and other current assets ............................. 388,000 661,000
-------------- --------------
Total current assets ........................................ 89,888,000 54,026,000
Other assets .............................................................. 7,921,000 4,189,000
Property and equipment, net of accumulated depreciation of $8,574,000
at November 30, 2002 and $7,256,000 at February 28, 2002 .............. 6,247,000 6,608,000
-------------- --------------
$ 104,056,000 $ 64,823,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit ................................................... $ 16,376,000 $ 3,234,000
Accounts payable ...................................................... 9,690,000 4,671,000
Accrued liabilities ................................................... 11,906,000 3,601,000
Income taxes payable .................................................. 2,262,000 --
Current portion, long-term debt and capital lease obligations ......... 518,000 718,000
-------------- --------------
Total current liabilities ................................... 40,752,000 12,224,000
Long-term bank debt ....................................................... 2,324,000 2,463,000
Long-term capital lease obligations, net of current portion ............... -- 28,000
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 50,000,000 shares authorized;
19,783,000 and 16,481,000 shares issued and outstanding
at November 30, 2002 and at February 28, 2002, respectively ........ 198,000 165,000
Additional paid-in capital ............................................ 39,901,000 32,574,000
Retained earnings ..................................................... 24,824,000 22,301,000
Accumulated other comprehensive income ................................ (253,000) (559,000)
-------------- --------------
64,670,000 54,481,000
Unearned ESOP shares .................................................. (3,690,000) (4,373,000)
-------------- --------------
Total stockholders' equity .................................. 60,980,000 50,108,000
-------------- --------------
$ 104,056,000 $ 64,823,000
============== ==============
See accompanying notes to consolidated financial statements.
1
MEADE INSTRUMENTS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-------------------------- --------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales ........................... $44,519,000 $35,401,000 $88,607,000 $78,707,000
Cost of sales ....................... 29,558,000 26,709,000 60,077,000 57,461,000
------------ ------------ ------------ ------------
Gross profit ...................... 14,961,000 8,692,000 28,530,000 21,246,000
Selling expenses .................... 5,107,000 4,404,000 11,188,000 9,753,000
General and administrative
expenses .......................... 3,645,000 2,572,000 9,368,000 7,149,000
ESOP expense ........................ 303,000 345,000 731,000 997,000
Research and development expenses ... 730,000 398,000 2,210,000 1,584,000
------------ ------------ ------------ ------------
Operating income .................. 5,176,000 973,000 5,033,000 1,763,000
Interest expense .................... 293,000 328,000 728,000 1,052,000
------------ ------------ ------------ ------------
Income before income taxes ........ 4,883,000 645,000 4,305,000 711,000
Provision for income taxes .......... 1,987,000 280,000 1,782,000 384,000
------------ ------------ ------------ ------------
Net income .......................... $ 2,896,000 $ 365,000 $ 2,523,000 $ 327,000
============ ============ ============ ============
Basic earnings per share ............ $ 0.17 $ 0.02 $ 0.16 $ 0.02
============ ============ ============ ============
Diluted earnings per share .......... $ 0.17 $ 0.02 $ 0.16 $ 0.02
============ ============ ============ ============
Weighted average number of shares
outstanding-- basic ............... 16,611,000 15,055,000 15,608,000 15,060,000
============ ============ ============ ============
Weighted average number of shares
outstanding-- diluted ............. 16,755,000 15,244,000 15,852,000 15,135,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
2
MEADE INSTRUMENTS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
NOVEMBER 30,
-----------------------------
2002 2001
------------- -------------
Cash flows from operating activities:
Net income ...................................................... $ 2,523,000 $ 327,000
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ................................... 1,409,000 1,606,000
ESOP contribution ............................................... 731,000 997,000
Allowance for doubtful accounts ................................. 493,000 986,000
Changes in assets and liabilities, net of effects of acquisition:
Increase in accounts receivable .............................. (27,541,000) (22,135,000)
Decrease in inventories ...................................... 7,146,000 13,486,000
Decrease in prepaid expenses and other assets ................ 4,411,000 1,716,000
Increase in accounts payable ................................. 3,957,000 4,642,000
Increase in accrued liabilities .............................. 2,104,000 1,062,000
Increase in income taxes payable ............................. 1,523,000 --
------------- -------------
Net cash provided by (used in) operating activities ... (3,244,000) 2,687,000
------------- -------------
Cash flows from investing activities:
Capital expenditures ............................................ (679,000) (860,000)
Acquisition of Simmons, net of cash acquired .................... (16,000,000) --
------------- -------------
Net cash used in investing activities ................. (16,679,000) (860,000)
------------- -------------
Cash flows from financing activities:
Net borrowings (payments) under bank lines of credit ............ 12,941,000 (302,000)
Borrowings on long-term bank notes .............................. -- 1,151,000
Payments on long-term bank notes ................................ (407,000) (2,480,000)
Net proceeds from the sale of common stock ...................... 7,344,000 --
Payments under capital lease obligations ........................ (118,000) (187,000)
------------- -------------
Net cash provided by (used in) financing activities ... 19,760,000 (1,818,000)
------------- -------------
Effect of exchange rate changes on cash ............................. 230,000 (113,000)
------------- -------------
Net increase (decrease) in cash ..................................... 67,000 (104,000)
Cash at beginning of period ......................................... 1,249,000 1,186,000
------------- -------------
Cash at end of period ............................................... $ 1,316,000 $ 1,082,000
============= =============
See accompanying notes to consolidated financial statements.
3
MEADE INSTRUMENTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. THE CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED BY THE COMPANY AND
ARE UNAUDITED.
In management's opinion, the information and amounts furnished in this
report reflect all adjustments (consisting of normal recurring adjustments)
considered necessary for the fair presentation of the financial position and
results of operations for the interim periods presented. These financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 2002.
The Company has experienced, and expects to continue to experience,
substantial fluctuations in its sales, gross margins and profitability from
quarter to quarter. Factors that influence these fluctuations include the volume
and timing of orders received, changes in the mix of products sold, market
acceptance of the Company's products, competitive pricing pressures, the
Company's ability to meet demand and delivery schedules and the timing and
extent of research and development expenses, marketing expenses and product
development expenses. In addition, a substantial portion of the Company's net
sales and operating income typically occur in the third quarter of the Company's
fiscal year primarily due to disproportionately higher customer demand for the
Company's less-expensive products during the holiday season. The results of
operations for the quarters ended November 30, 2002 and 2001, respectively, are
not necessarily indicative of the operating results for the entire fiscal year.
B. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
The composition of inventories is as follows:
NOVEMBER 30, FEBRUARY 28,
2002 2002
------------- -------------
Raw materials................................... $ 8,821,000 $ 8,529,000
Work-in-process................................. 3,620,000 4,997,000
Finished goods.................................. 24,425,000 16,277,000
------------- -------------
$ 36,866,000 $ 29,803,000
============= =============
C. ACQUISITION OF SIMMONS OUTDOOR CORP.
On October 25, 2002 the Company acquired 100% of the outstanding common
stock of Simmons Outdoor Corp. ("Simmons") for $20,829,000 cash ($16,000,000 was
paid at close; the balance, included in accrued liabilities on the accompanying
balance sheet, was paid in December, 2002). Simmons is a designer and
distributor of riflescopes, binoculars and other consumer sports optics doing
business under the Simmons, Weaver and Redfield brand names. The acquisition of
Simmons presents the Company with opportunities to enter into the consumer
sports optics marketplace with brand names that management believes are highly
recognized and well regarded. To fund a portion of the purchase price, the
Company sold 3,291,801 shares of its common stock in a private placement for net
cash proceeds of $7,344,000. The balance of the purchase price was funded
through borrowings on the Company's bank line of credit. The acquisition of
Simmons was accounted for as a purchase as prescribed by Statement of Financial
Accounting Standards No. 141, BUSINESS COMBINATIONS. The purchase price
allocation is based upon preliminary evaluations and other studies of the fair
value of the assets acquired. The excess of the purchase price over the
estimated fair value of the net tangible assets acquired is included in other
assets at November 30, 2002, and has been allocated to the value of the brand
names and customer relationships acquired; both of which have been assigned
indefinite lives.
A summary of the purchase price allocation of the acquisition is as
follows:
Current assets (excluding cash of $3,000)...................... $ 18,476,000
Property, plant and equipment.................................. 239,000
Intangible assets.............................................. 4,182,000
Current liabilities............................................ (2,071,000)
--------------
Total purchase price................................. $ 20,826,000
==============
As of December 6, 2001, Simmons was a wholly owned subsidiary of Blount
International, Inc. ("Blount"). On December 7, 2001, Blount sold Simmons to
Alliant Techsystems, Inc. ("ATK"). The accompanying unaudited pro forma
consolidated condensed financial information reflects Blount's (predecessor)
basis for periods prior to December 7, 2001 and ATK's (successor) basis for
periods subsequent to December 6, 2001.
4
The following table presents unaudited pro forma condensed consolidated
financial information for the nine months ended November 30, 2002 and 2001,
respectively, as though the acquisition occurred on March 1, 2001. The pro forma
information for the nine months ended November 30, 2002 has been prepared by
combining the statements of Meade for the nine months ended November 30, 2002
and the statement of operations of Simmons (successor) for the nine months ended
September, 2002. The pro forma information for the nine months ended November
30, 2001 has been prepared by combining the statements of Meade for the nine
months ended November 30, 2001 and the statement of operations of Simmons
(predecessor) for the nine months ended September, 2001.
NINE MONTHS ENDED
NOVEMBER 30,
------------------------------
2002 2001
-------------- --------------
Net sales..................................... $ 107,310,000 $ 99,138,000
Operating income.............................. $ 5,680,000 $ 1,730,000
Net income (loss)............................. $ 2,063,000 $ (992,000)
Earnings per share
Basic....................................... $ 0.11 $ (0.05)
Diluted..................................... $ 0.11 $ (0.05)
The unaudited pro forma financial information is presented for
information purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisitions taken place on March 1,
2001. In addition, the pro forma results are not intended to be a projection of
the future results and do not reflect any synergies that might be achieved from
the combined operations.
D. CREDIT AGREEMENT AMENDMENT
On October 25, 2002, the Company amended its credit agreement with its
U.S. bank. The amendment principally involved increasing the revolving credit
facility and incorporating the Simmons acquisition into the credit agreement.
The amended agreement provides the Company with a $35.6 million credit facility
consisting of a $34 million revolving credit line and a $1.6 million term loan.
Availability under the revolving credit line is subject to a borrowing base with
standard advance rates against eligible accounts receivable and inventories. The
term loan is collateralized by domestic machinery and equipment. The amended
facility has a three-year term, is collateralized by substantially all of the
domestic assets of the Company and its domestic subsidiaries and contains
certain financial covenants. Outstanding amounts under the revolving facility
bear interest at the bank's base rate or LIBOR rate plus applicable margins.
Amounts outstanding under the term loan bear interest at a fixed rate of
approximately 7.9% pursuant to an interest rate swap agreement in place between
the Company and the bank.
E. COMMITMENTS AND CONTINGENCIES
In October, 2001 and June, 2002, the Company filed suit against Tasco
Sales, Inc. ("Tasco") and Celestron International, Inc. ("Celestron"), and other
related parties, charging the defendants with patent infringement and unfair
competition. The complaints allege that a number of Tasco's and Celestron's
consumer telescopes willfully infringe two of the Company's U.S. patents. In
addition to seeking compensation for damages incurred, the suits seek to enjoin
Tasco and Celestron from continuing to manufacture or sell products that
infringe the Company's patents. Tasco and Celestron filed an answer to the
October, 2001 suit and a counterclaim which deny the Company's allegations. The
counterclaim also alleges, among other things, that the Company is infringing a
Celestron design patent. Also in June, 2002, the Company filed suit against
Tasco, Celestron and other related parties, charging the defendants, among other
things, with fraudulently obtaining a U.S. patent. In May, 2002, Tasco and
Celestron transferred certain of their assets to an assignee in an assignment
for the benefit of creditors proceeding. The successor company to Celestron,
Celestron Acquisition LLC, and the assignee have become defendants in the above
described lawsuits. Due to the uncertainties of litigation, the Company is
unable to provide an evaluation of the likelihood of either a favorable or
unfavorable outcome in these matters.
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of such litigation will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
5
F. NET INCOME PER SHARE
Basic earnings per share amounts exclude the dilutive effect of
potential shares of common stock. Basic earnings per share are based upon the
weighted-average number of shares of common stock outstanding. Diluted earnings
per share are based upon the weighted-average number of shares of common stock
and dilutive potential shares of common stock outstanding for each period
presented. Potential shares of common stock include outstanding stock options
which are included under the treasury stock method. The sole difference between
the basic weighted average number of shares outstanding and the diluted weighted
average number of shares outstanding for the periods ended November 30, 2002 and
2001, is additional potential shares of common stock for outstanding stock
options.
G. COMPREHENSIVE INCOME
Comprehensive income is defined as a change in the equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. In addition to net income, comprehensive income in the
accompanying financial statements includes foreign currency translation
adjustments and adjustments to the fair value of highly effective derivative
instruments. For the periods ended November 30, 2002, the Company had other
comprehensive income as follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
2002 2002
-------------- --------------
Net income..................................................... $ 2,896,000 $ 2,523,000
Currency translation adjustment................................ 28,000 380,000
Change in fair value of foreign currency forward contracts..... 140,000 (53,000)
Change in fair value of interest rate swap..................... -- (21,000)
-------------- --------------
Total other comprehensive income............................... $ 3,064,000 $ 2,829,000
============== ==============
H. GOODWILL
In June, 2001, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 141, Business Combinations, ("SFAS 141") and
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS 142"). SFAS 141 established new accounting and reporting standards for
business combinations that require the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS 142 established
new standards for goodwill acquired in a business combination, eliminated
amortization of goodwill and set forth methods for periodically evaluating
goodwill for impairment. The Company adopted the provisions of these statements
in the quarter ended May 31, 2002. The implementation of SFAS 142 resulted in a
reduction of goodwill amortization of approximately $60,000 per quarter. The
Company performed its initial impairment evaluation of goodwill as of the end of
August 31, 2002 and determined that no impairment had occurred. Implementation
of SFAS 141 was not material to the Company's financial position or results of
operations. The following pro forma summary presents the Company's net income
(loss) and per share information as if the Company had been accounting for its
goodwill under SFAS No. 142 for the three and nine months ended November 30,
2002 and 2001 and for the three most recently completed fiscal years:
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30, YEAR ENDED FEBRUARY 28(29)
-------------------------- -------------------------- -----------------------------------------
2002 2001 2002 2001 2002 2001 2000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Reported net income (loss) ... $ 2,896,000 $ 365,000 $ 2,523,000 $ 327,000 $(1,442,000) $ 1,286,000 $11,955,000
Add back goodwill
amortization, net of tax ..... -- 36,000 -- 109,000 144,000 144,000 72,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Adjusted net income (loss).... $ 2,896,000 $ 401,000 $ 2,523,000 $ 436,000 $(1,298,000) $ 1,430,000 $12,027,000
============ ============ ============ ============ ============ ============ ============
Reported basic
earnings (loss) per share..... $ 0.17 $ 0.02 $ 0.16 $ 0.02 $ (0.10) $0.09 $ 0.85
============ ============ ============ ============ ============ ============ ============
Reported diluted
earnings (loss) per share..... $ 0.17 $ 0.02 $ 0.16 $ 0.02 $ (0.10) $0.08 $ 0.80
============ ============ ============ ============ ============ ============ ============
Adjusted basic
earnings (loss) per share..... $ 0.17 $ 0.03 $ 0.16 $ 0.03 $ (0.09) $0.10 $ 0.85
============ ============ ============ ============ ============ ============ ============
Adjusted diluted
earnings (loss) per share.... $ 0.17 $ 0.03 $ 0.16 $ 0.03 $ (0.09) $0.09 $ 0.80
============ ============ ============ ============ ============ ============ ============
6
I. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company utilizes a variety of derivative financial instruments to
manage its currency exchange rate and interest rate risks as summarized below.
The Company does not enter into these arrangements for trading or speculation
purposes.
NOVEMBER 30, 2002 FEBRUARY 28, 2002
----------------------------- -----------------------------
NOTIONAL NOTIONAL
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
Interest rate swap agreement $ 1,610,000 $ (47,000) $ 1,925,000 $ (26,000)
Fair value forward currency
contracts $ -- $ -- -- --
Cash flow forward currency
contracts $ 1,087,000 $ (53,000) -- --
At November 30, 2002, the fair values of forward currency contracts and
interest rate swap agreements are recorded in accrued liabilities on the
accompanying balance sheets. Changes in the fair value of the interest rate swap
agreement and the cash flow forward currency contracts have been recorded as a
component of other comprehensive income as these items have been designated and
qualify as cash flow hedges. The change in the fair value of the fair value
forward currency contracts has been recorded in earnings. The settlement dates
on the forward currency contracts vary based on the underlying instruments
through February, 2003.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The nature of the Company's business is seasonal. Historically, sales
in the third quarter have been higher than sales achieved in each of the other
three fiscal quarters of the year. Thus, expenses and, to a greater extent,
operating income vary by quarter. Caution, therefore, is advised when appraising
results for a period shorter than a full year, or when comparing any period
other than to the same period of the previous year.
THREE MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 2001
Net sales for the third quarter of fiscal 2003 were $44.5 million
compared to $35.4 million for the third quarter of fiscal 2002, an increase of
25.8%. Approximately $4 million of the increase over the prior year was
attributable to sales of the Company's higher-end telescope products coupled
with an increase of approximately $5 million in sales of binoculars, including
the Company's digital camera/binocular. Also included in net sales for the third
quarter of fiscal 2003 was approximately $3.4 million in net sales from the
Simmons subsidiary. Partially offsetting these increases was a decrease in sales
of smaller-aperture, less-expensive telescopes.
Gross profit increased from $8.7 million (24.6% of net sales) for the
third quarter of fiscal 2002 to $15.0 million (33.6 % of net sales) for the
third quarter of fiscal 2003, an increase of 72.1%. The increase in gross profit
as a percent of net sales was due principally to the change in product sales
mix. Sales from the Simmons subsidiary contributed less than $1.0 million to
gross profit. The gross margin on the Simmons sales was well below the overall
Company gross margin for the quarter due, in part, to sales of close-out
inventory on hand at the date of the acquisition.
Selling expenses increased from $4.4 million (12.4% of net sales) for
the third quarter of fiscal 2002 to $5.1 million (11.5% of net sales) for the
third quarter of fiscal 2003, an increase of 16.0% which is generally in line
with the increase in net sales for the quarter. General and administrative
expenses increased from $2.6 million (7.3% of net sales) for the third quarter
of fiscal 2002, to $3.6 million (8.2% of net sales) for the third quarter of
fiscal 2003, an increase of 41.7%. This increase was due principally to
increased legal, professional and consulting fees, including approximately
$600,000 incurred in connection with the ongoing Tasco and Celestron patent
infringement litigation.
ESOP contribution expense decreased from $345,000 (1.0% of net sales)
for the third quarter of fiscal 2002 to $303,000 (1.0% of net sales) for the
third quarter of fiscal 2003, a decrease of 12.2%. The decrease in this non-cash
charge was due principally to decreases in the average market price of the
Company's stock allocated to the Employee Stock Ownership Plan during the
quarter. The non-cash ESOP contribution expense may fluctuate as the number of
shares allocated and the market value of the Company's common stock change.
Research and development expenses increased from $398,000 (1.1% of net
sales) for the third quarter of fiscal 2002 to $730,000 (1.6% of net sales) for
the third quarter of fiscal 2003, an increase of 83.4%. For the third quarter of
fiscal 2002, approximately $500,000 of research and development expenses
incurred were reimbursed by a customer of the Company on a non-contingent basis.
A similar expense reimbursement did not occur for the current year quarter.
Interest expense decreased from $328,000 for the third quarter of
fiscal 2002 to $293,000 for the third quarter of fiscal 2003, a decrease of
10.7%. This decrease was principally due to lower average borrowing rates as
compared to the prior years' quarter.
NINE MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
NOVEMBER 30, 2001
Net sales for the nine months ended November 30, 2002 were $88.6
million compared to $78.7 million for the comparable prior year period, an
increase of 12.6%. Sales of the Company's binoculars, including the digital
camera/binocular, and sales of the Company's telescope products for the more
serious amateur astronomer accounted for increases of approximately $12 million
and approximately $5 million, respectively, during the nine months ended
November 30, 2002. Also included in net sales for the nine months ended November
30, 2002 was approximately $3.4 million in net sales from the Simmons
subsidiary. Partially offsetting those increases was a decrease in sales of
smaller-aperture, less-expensive telescopes.
8
Gross profit increased from $21.2 million (27.0% of net sales) for the
nine months ended November 30, 2001 to $28.5 million (32.2% of net sales) for
the comparable current year period, an increase of 34.3%. The increase in gross
profit as a percent of net sales was due to the change in product sales mix.
Sales from the Simmons subsidiary contributed less than $1.0 million to gross
profit. The gross margin on the Simmons sales was well below the overall Company
gross margin for the quarter due, in part, to sales of close-out inventory on
hand at the date of the acquisition.
Selling expenses increased from $9.8 million (12.4% of net sales) for
the nine months ended November 30, 2001 to $11.2 million (12.6% of net sales)
for the comparable current year period, an increase of 14.7%. This increase was
due primarily to television, radio and print advertising costs associated with
the introduction of the Company's digital camera/binocular. The promotional
campaign associated with the launch of the new digital camera/binocular was
completed principally in first-quarter of fiscal 2003.
General and administrative expenses increased from $7.1 million (9.1%
of net sales) for the nine months ended November 30, 2001 to $9.4 million (10.6%
of net sales) for the comparable current year period, an increase of 31.0%. This
increase was principally due to increased legal, professional and consulting
fees including approximately $1.1 million incurred in connection with the
ongoing Tasco and Celestron patent infringement litigation and $700,000 incurred
in connection with the Company's effort to acquire certain of the assets of
Tasco and Celestron. The Company did not consummate such proposed acquisition.
ESOP contribution expense decreased from $997,000 (1.3% of net sales)
for the nine months ended November 30, 2001 to $731,000 (1.0% of net sales) for
the comparable current year period, a decrease of 26.7%. The decrease in this
non-cash charge was due to decreases in the average market price of the
Company's stock and in the number of shares allocated to the Employee Stock
Ownership Plan during the period. The non-cash ESOP contribution expense may
fluctuate as the number of shares allocated and the market value of the
Company's common stock changes.
Research and development expenses increased from $1.6 million (2.0% of
net sales) for the nine months ended November 30, 2001 to $2.2 million (2.5% of
net sales) for the comparable current year period, an increase of 39.5%. For the
third quarter of fiscal 2002, approximately $500,000 of research and development
expenses incurred were reimbursed by a customer of the Company on a
non-contingent basis. A similar expense reimbursement did not occur for the
current year quarter, thus accounting for most of the increase year-over-year.
Interest expense decreased from $1.1 million for the nine months ended
November 30, 2001 to $728,000 for the comparable current year period, a decrease
of 30.8%. This decrease was due to lower average bank borrowings and lower cost
of funds as compared to the prior year period.
The income tax provision was 54.0% of income before income taxes for
the nine months ended November 30, 2001 compared to 41.4% for the nine months
ended November 30, 2002. The fluctuations in the income tax provision are due to
the tax effect of the non-deductible portion of the ESOP charge.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended November 30, 2002, the Company principally
funded its operations with short-term bank borrowings and proceeds from the sale
of its common stock. The Company used approximately $3.2 million in cash flows
from operating activities. This was a result of increases in accounts receivable
offset by decreases in inventories and prepaid expenses and increases in
accounts payable, accrued liabilities and income taxes payable. Accounts
receivable increased due to the timing and amount of shipments as compared to
the period ended February 28, 2002. Inventories decreased meeting seasonal
demand for the Company's products. Prepaid and other current assets decreased
principally due to the receipt of income tax refunds. The increase in accounts
payable was principally due to cash management. The increase in accrued
liabilities was principally due to the accrual of consulting, legal and
professional costs during the period. The Company paid $16.0 million during the
third quarter and $4.8 million in December, 2002 to acquire all of the
outstanding common stock of Simmons Outdoor Corp. (see footnote C. to the
accompanying financial statements). The purchase price was funded by proceeds
from the sale of the company's common stock as well as by funds borrowed on the
Company's bank line of credit. Net working capital totaled approximately $49.1
million at November 30, 2002, compared to $41.8 million at February 28, 2002.
Working capital requirements fluctuate during the year due to the seasonal
nature of the business. These requirements are typically financed through a
combination of internally generated cash flow from operating activities and
short-term bank borrowings.
9
Capital expenditures, including financed purchases of equipment,
aggregated $679,000 and $860,000 for the nine months ended November 30, 2002 and
2001, respectively. The Company had no material capital expenditure commitments
at November 30, 2002.
The Company continues to depend upon operating cash flow and
availability under its bank lines of credit to provide short-term liquidity.
Availability under its bank lines of credit at November 30, 2002 was over $13
million. Management believes that operating cash flow and bank borrowing
capacity in connection with the Company's existing business and the business of
Simmons should provide sufficient liquidity for the Company's obligations for
the next twelve months. In the event the Company's plans require more capital
than is presently anticipated, additional sources of liquidity such as debt or
equity financings, may be required to meet its capital needs. There can be no
assurance that such additional sources of capital will be available on
reasonable terms, if at all.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Accounting Financial Standards No. 143
("SFAS No. 143"), ACCOUNTING FOR OBLIGATIONS ASSOCIATED WITH THE RETIREMENT OF
LONG-LIVED ASSETS, SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS, SFAS No. 145, RESCISSION OF FASB STATEMENTS No. 4,44,64,
AMENDMENT OF SFAS No. 13 and TECHNICAL CORRECTIONS, and SFAS No. 146, ACCOUNTING
FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES, in August and October
2001, and April and June 2002, respectively.
SFAS No. 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. It also provides accounting guidance for legal obligations
associated with the retirement of tangible long-lived assets. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002, with early adoption
permitted. The Company is currently evaluating the provisions of SFAS No. 143
but expects that the provisions will not have a material effect on its financial
position or results of operations upon adoption.
SFAS 145, among other matters, rescinds SFAS No.4, REPORTING GAINS AND
LOSSES FROM EXTINGUISHMENT OF DEBT, thereby eliminating the requirement that
gains and losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect. As a
result, the criteria in APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS
- - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, will
be used to classify those gains and losses. SFAS No. 145 is effective for
financial statements for fiscal years beginning after May 15, 2002. The Company
is currently evaluating the provisions of SFAS No. 145 but expects that the
provisions will not have a material effect on its financial position or results
of operations upon adoption.
SFAS No. 146 addresses significant issues relating to the recognition,
measurement and reporting costs associated with exit and disposal activities,
including restructuring activities, and nullifies the guidance in Emerging
Issues Task Force Issue No. 94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE
TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY INCLUDING CERTAIN COSTS
INCURRED IN A RESTRUCTURING. SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002, with early adoption permitted. The
Company is currently evaluating the provisions of SFAS No. 146 but expects that
the provisions will not have a material effect on its financial position or
results of operations upon adoption.
10
FORWARD-LOOKING INFORMATION
The preceding "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section contains various "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
which represent the Company's reasonable judgment concerning the future and are
subject to risks and uncertainties that could cause the Company's actual
operating results and financial position to differ materially, including the
following: the Company's ability to expand the markets for telescopes,
binoculars, riflescopes and other optical products; the Company's ability to
continue to develop and bring to market new and innovative products; the
Company's ability to integrate, develop and grow the Simmons business; the
Company's ability to further develop its wholly owned manufacturing facility in
Mexico in combination with its existing manufacturing capabilities; the Company
expanding its distribution network; the Company's ability to further develop the
business of its European subsidiary; the Company experiencing fluctuations in
its sales, gross margins and profitability from quarter to quarter consistent
with prior periods; the Company's expectation that its contingent liabilities
will not have a material effect on the Company's financial position or results
of operations; the extent to which the Company will be able to leverage its
design and manufacturing expertise in the areas of free-space optics and digital
imaging; and the Company's expectation that it will have sufficient funds to
meet any working capital requirements during the foreseeable future with
internally generated cash flow and borrowing ability.
In addition to other information in this report, the Company cautions
that certain factors, including, without limitation, the following, should be
considered carefully in evaluating the Company and its business and that such
factors may cause the Company's actual operating results to differ materially
from those set forth in the forward looking statements described above or to
otherwise be adversely affected: any significant decline in general economic
conditions or uncertainties affecting consumer spending; any general decline in
demand for the Company's products; any inability to continue to design and
manufacture products that will achieve and maintain commercial success; any
failure of the Company to penetrate and expand the binocular and riflescope
markets and achieve meaningful sales; any significant interruption of the
Company's manufacturing abilities in its domestic or Mexican facilities or in
any of its suppliers located in the far east; greater than anticipated
competition; any loss of, or the failure to replace, any significant portion of
the sales made to any significant customer of the Company; the inherent risks
associated with international sales, including variations in local economies,
fluctuating exchange rates increased difficulty of inventory management, greater
difficulty in accounts receivable collections, costs and risks associated with
localizing products for foreign countries, changes in tariffs and other trade
barriers, adverse foreign tax consequences, cultural differences affecting
product demand and customer service and burdens of complying with a variety of
foreign laws; the inherent risks associated with products manufactured or
assembled outside of the United States, including, among other things,
imposition of quotas or trade sanctions, fluctuating exchange rates, shipment
delays or political instability; with respect to the Simmons Acquisition, the
inherent risks associated with acquisitions such as integration risks and
general ongoing business risks; risks that the Company will not achieve
meaningful growth in the Simmons subsidiary; and increasing ESOP charges in the
event the market price of the Company's stock increases.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain levels of market risks, including
changes in foreign currency exchange rates and interest rates. Market risk is
the potential loss arising from adverse changes in market rates and prices, such
as foreign currency exchange and interest rates.
The Company conducts business in a number of foreign currencies,
principally in Europe. These currencies have been relatively stable against the
U.S. dollar for the past several years. As a result, foreign currency
fluctuations have not had a material impact historically on Meade's revenues or
results of operations. There can be no assurance, however, that foreign
currencies will remain stable relative to the U.S. dollar or that future
fluctuations in the value of foreign currencies will not have a material adverse
effect on the Company's business, operating results, revenues and financial
condition.
11
The Company has adopted a foreign currency hedging program that
utilizes foreign currency forward contracts to hedge variable cash flows
associated with recognized liabilities and to hedge exposure to changes in the
fair value of unrecognized firm commitments. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.
The instruments that Meade uses for hedging are readily marketable traded
forward contracts with financial institutions. Meade expects that the changes in
fair value of such contracts will have a high correlation to the price changes
in the related hedged cash flow. Any gains and losses on these hedge contracts
are expected to offset changes in the value of the related exposures. During the
nine months ended November 30, 2002, the Company entered into fair value forward
currency contracts with notional amounts aggregating $1.9 million and cash flow
forward currency contracts with notional amounts aggregating $4.6 million. At
November 30, 2002, all of the fair value forward currency contracts had been
settled. The fair value of the cash flow forward currency contracts at November
30, 2002 was ($53,000).
Under the terms of the Company's bank agreement, the Company was
required to enter into an interest-rate swap to convert the variable interest
rate on its long-term loan to a fixed interest rate. The resulting cost of funds
(7.9% per annum) is currently higher than that which would have been available
if the variable rate had been applied during the period. Under the interest-rate
swap contract, the Company has agreed with the bank to exchange, at specified
intervals, the difference between variable-rate and fixed-rate interest amounts,
calculated by reference to agreed-upon notional amounts. The change in the fair
value of the interest rate swap for the nine months ended November 30, 2002 was
a loss of $21,000 which is included in other comprehensive income for the nine
months then ended.
The Company's financial instruments consist of cash, accounts
receivable, accounts payable and long-term obligations. The Company's exposure
to market risk for changes in interest rates relates primarily to short-term
investments and short-term obligations. As a result, the Company does not expect
fluctuations in interest rates to have a material impact on the fair value of
these instruments.
ITEM 4. CONTROLS AND PROCEDURES
A. Evaluation of Disclosure Controls and Procedures.
- ----------------------------------------------------
The Company's chief executive officer and chief financial officer have
concluded that the Company's disclosure controls and procedures (as defined in
Rule 13a-14 (c), promulgated under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act")) are sufficiently effective to ensure that the
information required to be disclosed by the Company in the reports it files
under the Exchange Act is gathered, analyzed and disclosed with adequate
timeliness, accuracy and completeness, based on an evaluation of such controls
and procedures conducted within 90 days prior to the date hereof.
B. Changes in internal controls.
- --------------------------------
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation referred to above.
12
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 17, 2001, the Company filed suit against Tasco Sales, Inc.
("Tasco") and Celestron International, Inc. ("Celestron"), charging the two
companies with patent infringement and unfair competition. The complaint, filed
in the United States District Court, Central District of California, Southern
Division (Case No. SA-CV 01-976 (GLT)), alleges that Tasco and Celestron
willfully infringed Meade's Patent No. 6,304,376, entitled "Fully Automated
Telescope System With Distributed Intelligence." In addition to seeking
compensation for damages incurred, including enhanced damages, the suit seeks to
enjoin Tasco and Celestron from continuing to manufacture or sell products that
infringe Meade's patent. On or around November 7, 2001, the defendants filed an
answer, subsequently amended, to the complaint in which it denied the Company's
allegations and set forth various affirmative defenses. On or around November
19, 2001, Defendants filed a counterclaim, also subsequently amended, against
the Company for declaratory judgment of non-infringement of the Company's
patent, for declaratory judgment that the Company's patent is unenforceable and
invalid, and for claims that the Company is infringing a Celestron design
patent, U.S. Patent No. D438,221, and Celestron's trade dress. The counterclaim
further alleges that the Company has willfully infringed Celestron's design
patent and seeks an unspecified amount of damages, enhanced damages, and an
injunction and other unspecified relief against the Company. Meade has filed a
summary judgment motion on infringement and validity issues and Celestron has
filed a summary judgment motion on non-infringement and invalidity issues. Both
motions are expected to be heard by the court during the Company's fourth
quarter of fiscal 2003. Due to the uncertainties of litigation, the Company is
unable to provide an evaluation of the likelihood of either a favorable or
unfavorable outcome in these cases.
On June 4, 2002, the Company filed suit against Celestron, Tasco and
other related or affiliated parties charging the defendant with patent
infringement. The complaint, ("the '799 lawsuit") filed in the United States
District Court, Central District of California, Southern Division (Case No. SA
CV 02-544 (GLT)), alleges that the defendants willfully infringed Meade's Patent
No. 6,392,799, entitled "Fully Automated Telescope System With Distributed
Intelligence." The patent covers the Company's "level the telescope and point it
North" alignment technology (the "Telescope Alignment Technology"), which allows
a telescope user to easily align a computer operated telescope. In addition to
seeking compensation for damages incurred, including enhanced damages, the suit
seeks to enjoin Tasco, Celestron and the other defendants from continuing to
manufacture or sell products that infringe Meade's telescope alignment patent.
Due to the uncertainties of litigation, the Company is unable to provide an
evaluation of the likelihood of either a favorable or unfavorable outcome in
this case.
On June 7, 2002, the Company filed suit against Celestron, Tasco and
other related or affiliated parties, charging the defendants with correction of
patent inventorship, false and misleading representations in violation of the
Lanham Act, unfair competition and fraudulent business practices. The complaint,
("the `942 lawsuit) filed in the United States District Court, Central District
of California, Southern Division (Case No. SA-CV 02-558 (GLT)), alleges that the
defendants misappropriated the Company's Telescope Alignment Technology and
subsequently conspired to obtain United States Patent No. 6,369,942, entitled
"Auto-alignment tracking telescope mount" ("the `942 Patent"), by fraudulently
representing themselves as the inventors and owners of the Telescope Alignment
Technology. In addition to other remedies, the suit seeks to establish that the
Company invented the Telescope Alignment Technology and that equitable and legal
title to the `942 Patent should be vested in the Company. Due to the
uncertainties of litigation, the Company is unable to provide an evaluation of
the likelihood of either a favorable or unfavorable outcome in this case.
Celestron and Tasco, in May 2002, transferred certain of their assets
in an assignment for the benefit of creditors proceeding to James Feltman, an
assignee. Assignee James Feltman subsequently sold the assets on or around June
24, 2002 to a new Celestron entity, Celestron Acquisition LLC. Celestron
Acquisition LLC, along with Celestron and Tasco, is a defendant in the
above-referenced lawsuits. James Feltman is also a named defendant in the `799
lawsuit, but not the `942 lawsuit.
The Company is also involved from time to time in litigation incidental
to its business. Management believes that the outcome of such litigation will
not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
13
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
6(a) Exhibits filed with this Form 10-Q.
Exhibit No. 10.50 Employee Stock Ownership Plan Amendment No. 2 to
Amended and Restated Plan.
6(b) Reports on Form 8-K.
The Company filed the following Reports with the SEC on the following
dates:
1. Form 8-K, filed on November 7, 2002, covering the acquisition
of Simmons and excluding the related financial information.
2. Form 8-K/A, filed on November 27, 2002, covering the
acquisition of Simmons and including (i) the audited financial
statements of Simmons at December 31, 2001 and the three years
then ended, (ii) the unaudited financial statements of Simmons
at June 30, 2002 and for the six months ended June 30, 2002
and 2001, and (iii) the unaudited pro forma combined
consolidated condensed financial statements of the Company for
the twelve months ended February 28, 2002 and for the six
months ended August 31, 2002 reflecting the acquisition of
Simmons.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 14, 2003
MEADE INSTRUMENTS CORP.
By: /s/ JOHN C. DIEBEL
----------------------------------
John C. Diebel
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICE
By: /s/ BRENT W. CHRISTENSEN
----------------------------------
Brent W. Christensen
SENIOR VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
15
CERTIFICATIONS
I, John C. Diebel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Meade
Instruments Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 14, 2003
By: /s/ JOHN C. DIEBEL, CHAIRMAN AND CEO
- ----------------------------------------
16
CERTIFICATIONS
I, Brent W. Christensen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Meade
Instruments Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 14, 2003
By: /s/ BRENT W. CHRISTENSEN, SENIOR VICE PRESIDENT AND CFO
- -----------------------------------------------------------
17