MEAD » Topics » Results of Operations

This excerpt taken from the MEAD 10-Q filed Jan 16, 2009.

Results of Operations

        The nature of the Company's business is highly seasonal. Historically, sales in the third quarter ended November 30th each year have been significantly higher than sales achieved in each of the other three fiscal quarters of the year. Thus expenses and to a greater extent, operating income may significantly vary by quarter. Therefore, caution 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, 2008 Compared to Three Months Ended November 30, 2007

        Net sales during the third quarter of fiscal year 2009 were $23.4 million, down approximately $28.0 million or 54% from the prior year's third quarter net sales of $51.4 million, due in part to a very challenging macro-economic environment. Reduced distribution outlets, increased competition and weak demand all contributed to the decrease in net revenue. Net revenue was also impacted by the divestiture earlier in the year of the Company's Simmons, Weaver and Redfield sport optics brands. Further, the sales decline was also due to lower sales of the Company's high-end telescopes and related accessories due to the continued ramp-up of the Company's manufacturing facility in Mexico, which is still not producing high-end telescopes at levels that meet customer demand, resulting in backlog for certain high-end telescopes. Revenue associated with sports optics products decreased $6.8 million from the third quarter in the prior year, primarily due to the divestiture of the sports optics brands.

        Gross profit for the quarter ending November 30, 2008 was $5.5 million or 24% of net sales compared with $8.7 million or 17% of net sales in the prior year's comparable quarter. The improvement in gross profit margin was primarily driven by the non-recurrence of inventory write-downs that occurred during the third quarter of the prior year and lower indirect manufacturing costs as a result of the closure of the Company's U.S. manufacturing operations. These improvements were partially offset by the lower sales volumes and lower average selling prices due to changing product mix.

        Selling expenses for the quarter ending November 30, 2008 were $2.4 million, a 53% decrease from $5.0 million for the same quarter in the prior year. While the lower sales volume was the primary contributor to the lower selling expenses such as freight out and commissions, the overall decrease was also driven by lower headcount and reduced discretionary spending.

        General and administrative expenses for the quarter ending November 30, 2008 were $3.2 million compared with $2.4 million in the same quarter in the prior year. Most of the increase in general and administrative expenses was due to excess facility costs for our Irvine, California facility. This excess space has resulted in additional general & administrative expense and the Company is actively seeking alternatives to the current facility, including sublease possibilities. In previous years, such expense was properly classified as cost of sales.

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        Research and development expenses for the quarter ending November 30, 2008 were $0.4 million, consistent with the expense level for the same quarter in the prior year. The Company has maintained R&D spending in anticipation of certain new product introductions in calendar 2009.

        ESOP expense was $0 in the third quarter. During the second quarter of the current year, the Company terminated its ESOP and distributed the remaining shares to eligible employees.

        Restructuring costs of $1.5 million consisted of an anticipated $1.2 million lease termination fee expected to be incurred related to the Company's Irvine, CA facility and $0.3 million in severance for headcount reductions enacted and paid during the quarter. The Company expects to pay the $1.2 million in lease terminations in installments during fiscal 2010.

        Interest expense was $0.1 million during the third quarter of fiscal 2009 compared with $0.6 million in the comparable period. The decrease was primarily due to lower borrowings during the quarter.

        Income tax expense was $0.7 million on a consolidated basis compared with expense of $1.5 million in the same quarter of fiscal 2008. The tax expense relates almost exclusively to the Company's profits in Europe. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

Nine Months Ended November 30, 2008 Compared to Nine Months Ended November 30, 2007

        Net sales during the first nine months of fiscal year 2009 were $48.0 million, down approximately 44% from the prior year's first nine months net sales of $85.3 million, due in part to a very challenging macro-economic environment. Reduced distribution outlets, increased competition and weak demand all contributed to the decrease in net revenue. Net revenue was also impacted by the divestiture earlier in the year of the Company's Simmons, Weaver and Redfield sport optics brands. Further, the sales decline was also due to lower sales of the Company's high-end telescopes and related accessories due to the continued ramp-up of the Company's manufacturing facility in Mexico, which is still not producing high-end telescopes at levels that meet customer demand, resulting in backlog for certain high-end telescopes. Revenue associated with sports optics products decreased $10.5 million from the third quarter in the prior year, primarily due to the divestiture of the sports optics brands.

        Gross profit for the nine months ending November 30, 2008 was $10.7 million or 22% of net sales compared with $12.8 million or 15% of net sales in the prior year's comparable nine month period. The improvement in gross profit margin was primarily driven by the non-recurrence of inventory write-downs that occurred during the prior year and lower indirect manufacturing costs as a result of the closure of the Company's U.S. manufacturing operations. These improvements were partially offset by the lower sales volumes and lower average selling prices due to changing product mix.

        Selling expenses for the nine months ending November 30, 2008 were $6.3 million, a 38% decrease from $10.2 million for the same nine month period in the prior year. While the lower sales volume was the primary contributor to the lower selling expenses such as freight out and commissions, the overall decrease was also driven by lower headcount and reduced discretionary spending.

        General and administrative expenses for the nine months ending November 30, 2008 were $9.3 million compared with $7.9 million in the same nine month period in the prior year. Most of the increase in general and administrative expenses was due to excess facility costs for our Irvine, California facility. This excess space has resulted in additional general & administrative expense and the Company is actively seeking alternatives to the current facility, including sublease possibilities. In previous years, such expense was properly classified as cost of sales.

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        Research and development expenses for the nine months ending November 30, 2008 were $1.3 million compared with $1.4 million for the same nine month period in the prior year. The decrease was principally due to headcount reductions and lower consulting fees associated with the ongoing restructuring of the Company, offset partially by higher spending on development for certain new products expected to be released in calendar 2009.

        Restructuring costs of $1.5 million consisted of an anticipated $1.2 million lease termination fee expected to be incurred related to the Company's Irvine, CA facility and $0.3 million in severance for headcount reductions enacted and paid during the quarter. The Company expects to pay the $1.2 million in lease terminations in installments during fiscal 2010.

        During the nine months ended November 30, 2008 the Company sold its Simmons, Weaver and Redfield sport optics brands and associated inventory to three separate buyers for gross cash proceeds of approximately $15 million. These sales resulted in a gain of approximately $5.2 million. Excluding this gain, the Company would have reported a net loss of $8.3 million, or $0.35 per share.

        Interest expense decreased to $0.2 million from $0.9 million in the comparable period. The decrease was primarily due to lower borrowings during the quarter. Income tax expense was $0.1 million on a consolidated basis compared with expense of $1.6 million in the same quarter of fiscal 2008. The tax expense relates almost exclusively to the Company's profits in Europe, which was offset by the write off of certain deferred tax liabilities associated with the intangible assets sold as part of the Simmons, Weaver and Redfield brand sales. The Company did not record any income tax benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

This excerpt taken from the MEAD 10-Q filed Oct 20, 2008.

Results of Operations

        The nature of the Company's business is highly seasonal. Historically, sales in the third quarter ended November 30th each year have been significantly higher than sales achieved in each of the other three fiscal quarters of the year. Thus expenses and to a greater extent, operating income may significantly vary by quarter. Therefore, caution 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 August 31, 2008 Compared to Three Months Ended August 31, 2007

        Net sales during the second quarter of fiscal year 2009 were $12.6 million, down approximately $3.6 million or 22% from the prior year's second quarter net sales of $16.2 million. Approximately $2.7 million or 75% of the decrease in net revenue was driven by the Company's divestiture of its Simmons and Weaver sports optics brands earlier in fiscal 2009, as riflescope and binocular sales were lower in the second quarter of fiscal 2009 versus the prior year due to these divestures. The remaining $0.9 million of the decrease was driven by lower high-end telescope sales primarily due to the manufacturing transition to Mexico; the Company has not been able to ship high-end telescopes that meet demand and a backlog for these products has developed. The Company expects to clear this backlog by the end of the fiscal year.

        Gross profit for the quarter ending August 31, 2008 was $2.6 million or 21% of net sales compared with $2.3 million or 14% of net sales in the prior year's comparable quarter. The improvement in gross profit margin was primarily driven by lower indirect manufacturing costs as a result of the closure of the Company's U.S. manufacturing operations, offset in part by the lower sales volumes, and lower average selling prices due to changing product mix.

        Selling expenses for the quarter ending August 31, 2008 were $2.0 million, a 31% decrease from $2.9 million for the same quarter in the prior year. While the lower sales volume contributed to the lower selling expenses such as freight out and commissions, the overall decrease was also driven by lower headcount and reduced discretionary spending.

        General and administrative expenses for the quarter ending August 31, 2008 were $3.3 million compared with $2.7 million in the same quarter in the prior year. The increase in general and administrative expenses was partially due to the timing of expenses, including the non-recurrence of certain benefits that were recorded during the second quarter of the prior year, including a bad debt recovery of $0.2 million. In addition, due to the closure of its U.S. manufacturing operations, the Company is incurring excess facility costs for its Irvine, California facility. This excess space has resulted in additional general & administrative expense and the Company is actively seeking alternatives to the current facility, including sublease possibilities. In previous years, such expense was properly classified as cost of sales.

        Research and development expenses for the quarter ending August 31, 2008 were $0.6 million, consistent with the expense level for the same quarter in the prior year. The Company has maintained R&D spending in anticipation of certain new product introductions in early calendar 2009.

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        ESOP expense was $0.1 million in the second quarter, consistent with prior year's expense. During the second quarter, the Company terminated its ESOP and distributed the remaining shares to eligible employees. The Company expects that the only impact of the ESOP termination on its consolidated financial statements will be the lack of associated expenses on a forward-looking basis.

        During the quarter, the Company sold its Simmons sport optics brand and associated inventory to Bushnell Outdoor Products for gross cash proceeds of $7.3 million. This sale resulted in a gain of approximately $0.8 million. Excluding this gain, the Company would have reported a net loss of $2.8 million, or $0.12 per share.

        Interest expense was de minimus during the second quarter of fiscal 2009 compared with $0.2 million in the comparable period. Due to the cash generated from the sale of Simmons, the Company reduced usage of its credit facilities during the quarter.

        Income tax benefit was $0.7 million on a consolidated basis compared with a benefit of $0.2 million in the same quarter of fiscal 2008. The tax benefit relates almost exclusively to the write-off of a deferred tax liability associated with intangible assets sold as part of the brand sales. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

Six Months Ended August 31, 2008 Compared to Six Months Ended August 31, 2007

        Net sales during the first six months of fiscal year 2009 were $24.5 million, down approximately 27% from the prior year's first six months net sales of $33.8 million. The decrease in net revenue was primarily driven by lower high-end telescope sales and accessories due to the manufacturing transition to Mexico and lower sales of sports optics products due to the Company's divestiture of its Simmons and Weaver sports optics brands in the current fiscal year and weaker demand for sports optics products in general. The Company closed down its high-end manufacturing operations in the U.S. during the last quarter of fiscal 2008 and transferred this production to its facilities in Mexico. These facilities have not yet ramped up production to levels that meet market demand and the Company has accumulated a backlog for high-end telescopes. The Company expects to clear this backlog by the end of fiscal 2009. However, due to the current market conditions, even if this backlog is cleared, there can be no assurance that the demand for high-end telescopes will not decrease.

        Gross profit for the six months ending August 31, 2008 was $5.2 million or 21% of net sales compared with $4.1 million or 12% of net sales in the prior year's comparable six month period. The improvement in gross profit margin was primarily driven by lower direct and indirect manufacturing costs as a result of the closure of the Company's U.S. manufacturing operations.

        Selling expenses for the six months ending August 31, 2008 were $4.0 million, a 23% decrease from $5.2 million for the same six month period in the prior year. While the lower sales volume contributed significantly to the lower selling expenses, the overall decrease was also driven by lower headcount and reduced discretionary spending.

        General and administrative expenses for the six months ending August 31, 2008 were $6.2 million compared with $5.6 million the same six month period in the prior year. The increase in general and administrative expenses was partially due to the timing of expenses, including the non-recurrence of certain benefits that were recorded during the second quarter of the prior year, including a bad debt recovery of $0.2 million. In addition, due to the closure of its U.S. manufacturing operations, the Company is incurring excess facility costs for its Irvine, California facility. This excess space has resulted in additional general & administrative expense and the Company is actively seeking alternatives to the current facility, including sublease possibilities. In previous years, such expense was properly classified as cost of sales.

        Research and development expenses for the six months ending August 31, 2008 were $0.9 million compared with $1.0 million for the same six month period in the prior year. The decrease was

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principally due to headcount reductions associated with the ongoing restructuring of the Company, offset partially by higher spending on development for certain new products expected to be released in calendar 2009.

        During the six months ended August 31, 2008 the Company sold its Simmons, Weaver and Redfield sport optics brands and associated inventory to three separate buyers for gross cash proceeds of approximately $15 million. These sales resulted in a gain of approximately $5.3 million. Excluding this gain, the Company would have reported a net loss of $5.5 million, or $0.24 per share.

        Interest expense decreased to $0.1 million from $0.3 million in the comparable period. Due to the cash generated from the sale of Simmons, Weaver and Redfield brands, the Company reduced it usage of its credit facilities during the period.

        Income tax benefit was $0.6 million on a consolidated basis compared to $0.2 million expense in the comparable period of the prior year. The tax benefit relates almost exclusively to the write-off of a deferred tax liability associated with intangible assets sold as part of the brand sales. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

This excerpt taken from the MEAD 10-Q filed Jul 18, 2008.

Results of Operations

        The nature of the Company's business is highly seasonal. Historically, sales in the third quarter ended November 30th each year have been significantly higher than sales achieved in each of the other three fiscal quarters of the year. Thus expenses and to a greater extent, operating income may significantly vary by quarter. Therefore, caution 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 May 31, 2008 Compared to Three Months Ended May 31, 2007

        Net sales during the first quarter of fiscal year 2009 were $12.0 million, down approximately 32% from the prior year's first quarter net sales of $17.6 million. Of the $5.6 million decrease in net sales, approximately 50% was driven by lower revenue for high-end telescope products and accessories. The Company closed down its high-end manufacturing operations in the U.S. during the last quarter of fiscal 2008 and transferred this production to its facilities in Mexico. These facilities have not yet ramped up production to levels that meet market demand and the Company has accumulated a backlog for high-end telescopes. The Company expects to clear this backlog by the third quarter of fiscal 2009. In addition, riflescope revenue decreased by $1.7 million from the year ago levels as a result of weaker demand.

        Gross profit for the quarter ending May 31, 2008 was $2.6 million or 21% of net sales compared with $1.8 million or 10% of net sales in the prior year's comparable quarter. The improvement in gross profit margin was primarily driven by lower indirect manufacturing costs as a result of the closure of the Company's U.S. manufacturing operations. In addition, during the first quarter of fiscal 2008 the Company sold certain inventory at lower margins as part of the Company's ongoing campaign to reduce inventory levels.

        Selling expenses for the quarter ending May 31, 2008 were $1.9 million, a 14% decrease from $2.3 million for the same quarter in the prior year. While the lower sales volume contributed to the lower selling expenses, the overall decrease was also due to lower headcount and reduced discretionary spending.

        General and administrative expenses for the quarter ending May 31, 2008 were $2.8 million, consistent with the same quarter in the prior year.

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        Research and development expenses for the quarter ending May 31, 2008 were $0.3 million compared with $0.4 million for the same quarter in the prior year. The decrease was principally due to headcount reductions associated with the ongoing restructuring of the Company.

        During the quarter the Company sold its Weaver and Redfield sport optics brands and associated inventory for gross cash proceeds of $8 million. This sale resulted in a gain of approximately $4.5 million. Excluding this gain, the Company would have reported a net loss of $2.7 million, or $0.12 per share.

        Interest expense was consistent at approximately $0.1 million in both comparable periods.

        Income tax expense was $0.1 million on consolidated basis compared with $0.3 million in the same quarter of fiscal 2008. The tax expense relates almost exclusively to taxes that the Company will pay in Germany for its profitable European subsidiary. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

This excerpt taken from the MEAD 10-K filed Jun 13, 2008.

Results of Operations

        The nature of the Company's business is highly seasonal. Historically, sales in the third quarter ended November 30th each year 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 may significantly vary by quarter. Therefore, caution 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.

        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.

 
  Fiscal Years Ended
 
 
  February 29,
2008

  February 28,
2007

 
Net sales   100.0 % 100.0 %
Cost of sales   86.4   82.8  
   
 
 
Gross profit   13.6   17.2  
Operating expenses:          
  Selling expenses   13.1   17.4  
  General and administrative expenses   11.9   14.9  
  Restructuring costs   0.4    
  ESOP contribution expense   0.2   0.3  
  Research and development expenses   1.9   1.8  
  Goodwill impairment   1.6    
   
 
 
    Total operating expenses   29.1   34.4  
   
 
 
Loss from operations   (15.5 ) (17.2 )
Interest expense   1.3   0.8  
   
 
 
Loss before income taxes   (16.8 ) (18.0 )
Provision for income taxes   1.1   0.9  
   
 
 
Net loss   (17.9 )% (18.9 )%
   
 
 

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        The following table summarizes our net sales by product category.

 
  Fiscal Years Ended
 
  February 29,
2008

  February 28,
2007

Telescopes & related products   $ 54.5   $ 60.4
Riflescopes     12.8     21.5
Binoculars     15.0     10.7
Other     16.2     8.9
   
 
  Net sales   $ 98.5   $ 101.5
   
 
This excerpt taken from the MEAD 10-Q filed Jan 14, 2008.

Results of Operations

        The nature of the Company's business is highly seasonal. Historically, sales in the third quarter ended November 30th each year 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 may significantly vary by quarter. Therefore, caution 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.

        The following table summarizes our net sales by product category.

 
  Three Months Ended
November 30,

  Nine Months Ended
November 30,

 
  2007
  2006
  2007
  2006
Telescopes & related products   $ 26,663   $ 25,363   $ 48,200   $ 49,035
Riflescopes     4,107     3,600     9,878     8,939
Binoculars     4,938     5,133     9,362     12,015
Other     15,733     14,403     17,816     15,841
   
 
 
 
  Net sales   $ 51,441   $ 48,498   $ 85,256   $ 85,829
   
 
 
 

Three Months Ended November 30, 2007 Compared to Three Months Ended November 30, 2006

        Net sales during the third quarter of fiscal year 2008 were $51.4 million, an increase of approximately 6% from the prior year's third quarter net sales of $48.5 million. This increase was largely driven by strength in low-end telescopes, the introduction of new products (notably the mySKY™) and continued recovery in sales of the Company's riflescopes. This increase in sales was partially offset by the loss of customer Discovery Channel Stores, to which the Company sold $2.2 million in the third quarter ended November 30, 2006, as they announced closure of all of their retail locations earlier in calendar 2007. The U.S. dollar weakened versus the Euro from the prior year quarter which positively affected the Company's reported sales by approximately $2.8 million.

        Gross profit for the quarter ending November 30, 2007 was $8.7 million or 17% of net sales compared with $10.3 million or 21% of net sales in the prior year's comparable quarter. The decrease in gross profit margin was predominantly due to a $3.0 write-down in inventory the Company recognized during the quarter. During the third quarter ended November 30, 2007, the Company announced a restructuring that involved the closure of its manufacturing operations in Irvine, California, where the Company was performing manufacturing and assembly of high-end telescopes. Production previously done in Irvine, California is in the process of being transferred to the Company's manufacturing facility in Tijuana, Mexico and, on a more limited basis, to certain of the Company's contract manufacturers located in Asia. As part of restructuring, the Company determined that it would eliminate certain SKUs as a means of streamlining operations and increasing operating efficiency.

        Selling expenses for the quarter ending November 30, 2007 were $5.0 million, a 9% decrease from $5.5 million for the same quarter in the prior year. Although revenue increased, selling expenses

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decreased compared to prior year. This decrease was largely due to lower headcount and other expense reductions related to the restructuring of the Company.

        General and administrative expenses for the quarter ending November 30, 2007 were $2.4 million, a 38% decrease from $3.9 million for the same quarter in the prior year. The decrease versus the prior year was primarily due to two factors: 1) savings from headcount reductions and the consolidation of four domestic facilities into one, and 2) a $0.6 million reduction in legal and accounting fees from the prior year due to the non-recurrence of certain one-time costs associated with the prior year's restatements of the Company's financial statements.

        Research and development expenses for the quarter ending November 30, 2007 were $0.4 million compared with $0.5 million for the same quarter in the prior year. The decrease was principally due to headcount reductions associated with the ongoing restructuring of the Company.

        Interest expense increased by $0.3 million due to higher debt balances and fees related to amendments to its domestic revolving line of credit.

        Income tax expense was $1.5 million on a consolidated basis compared with $1.3 million in the same quarter of fiscal 2007. The tax expense relates almost exclusively to taxes that the Company will pay in Germany for its profitable European subsidiary. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations and valuation allowances placed against the deferred tax assets.

Nine Months Ended November 30, 2007 Compared to Nine Months Ended November 30, 2006

        Net sales during the nine months ending November 30, 2007 were $85.3 million, a decrease of less than 1% from net sales of $85.8 million for the same period in the prior year. Increased revenue from new products (most notably the mySKY™) and higher sales of riflescopes were largely offset by lower sales of high-end and intermediate-level telescopes as well as decreased sales of binoculars. Sales to the Discovery Channel Stores were $5.0 million less in the current period versus the year ago period, as this customer announced earlier in calendar 2007 that it was closing all of its retail operations. The U.S. dollar weakened versus the Euro from the prior year which positively affected the Company's reported sales by approximately $4.0 million.

        Gross profit for the nine months ending November 30, 2007 was $12.8 million or 15% of net sales compared with $16.7 million or 19% of net sales in the prior year. The decrease in gross profit margin was largely due to a $3.0 write-down in inventory the Company recognized during the third quarter of fiscal 2008. During the third quarter ended November 30, 2007, the Company announced a restructuring that involved the closure of its manufacturing operations in Irvine, California, where the Company was performing manufacturing and assembly of high-end telescopes. Production previously done in Irvine, California is in the process of being transferred to the Company's manufacturing facility in Tijuana, Mexico and, on a more limited basis, to certain of the Company's contract manufacturers located in Asia. As part of the restructuring, the Company determined that it would eliminate certain SKUs as a means of streamlining operations and increasing operating efficiency. In addition, during the nine months ended November 30, 2007, the Company sold certain inventory at lower margins as part of the Company's ongoing campaign to reduce inventory levels. The Company also experienced a shift in product mix toward lower margin products and a higher-than-anticipated increase in warranty claims for which it adjusted its reserve for warranties accordingly.

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        Selling expenses for the nine months ending November 30, 2007 were $10.2 million, a 23% decrease from $13.3 million for the same period in the prior year. Although revenue increased, selling expenses decreased compared to prior year. This decrease was largely due to lower headcount and other expense reductions related to the restructuring of the Company, including a savings from the consolidation of four domestic facilities into one, and $0.4 million of lower bad debt expenses.

        General and administrative expenses for the nine months ending November 30, 2007 were $7.9 million, a 27% decrease from $10.9 million for the same period in the prior year. The decrease versus the prior year was primarily due to two factors: 1) savings from headcount reductions and the consolidation of four domestic facilities into one, and 2) a reduction in legal and accounting fees from the prior year due to the non-recurrence of certain one-time costs associated with the prior year's restatements of the Company's financial statements.

        Research and development expenses for the nine months ending November 30, 2007 were $1.4 million compared with $1.2 million for the same quarter in the prior year. The increase was principally due to an increase in the development of new products slated for market introduction during the current fiscal year, partially offset by headcount reductions associated with the ongoing restructuring of the Company.

        Interest expense increased $0.4 million due to higher debt balances and fees related to amendments to its domestic revolving line of credit.

        Income tax expense was $1.6 million on a consolidated basis for the nine months ending November 30, 2007 compared with $1.3 million in the same period of fiscal 2007. The tax expense relates almost exclusively to taxes that the Company will pay in Germany for its profitable European subsidiary. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

This excerpt taken from the MEAD 10-Q filed Oct 15, 2007.

Results of Operations

The nature of the Company’s business is highly seasonal. Historically, sales in the third quarter ended November 30th each year 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 may significantly vary by quarter. Therefore, caution 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 August 31, 2007 Compared to Three Months Ended August 31, 2006

Net sales during the second quarter of fiscal year 2008 were $16.2 million, a decrease of approximately 13% from the prior year’s second quarter net sales of $18.6 million. This decrease was largely driven by a reduction in sales to one of the Company’s largest customers due to the timing of order fulfillment, and the closure of Discovery Channel Stores’ retail locations. Sales to Discovery Channel Stores were $0.1 million during the quarter ended August 31, 2007 versus $1.1 million in the same period last year. This Discover Channel reduction primarily affected the Company’s sales of low-end and intermediate telescopes. Overall sales of telescopes were $12.2 million in the second quarter of fiscal 2008 compared with $14.5 million in the same quarter of fiscal 2007. Sales of riflescopes were $3.0 million, an 18% increase compared with $2.6 million in the same quarter last year as the Company began shipping riflescope models that had not been available in the prior year due to supply chain constraints. The Company expects to be essentially stocked in riflescopes for the upcoming season. The U.S. dollar weakened versus the Euro from the prior year quarter which positively affected the Company’s reported sales by approximately $0.2 million.

Gross profit for the quarter ending August 31, 2007 was $2.3 million or 14.2% of net sales compared with $2.9 million or 15.7% of net sales in the prior year’s comparable quarter. The decrease in gross profit margin was due to the lower sales volume over which our fixed costs were absorbed as well as a shift in product mix toward lower margin products.

Selling expenses for the quarter ending August 31, 2007 were $2.9 million, a 34% decrease from $4.4 million for the same quarter in the prior year. The decrease in selling expenses versus the prior year was due to lower sales commissions associated with lower revenue, lower freight expenses, headcount reductions related to the restructuring of the Company and the consolidation of four domestic facilities into one, and a deliberate reduction in advertising and marketing costs.

General and administrative expenses for the quarter ending August 31, 2007 were $2.7 million, a 33% decrease from $4.0 million for the same quarter in the prior year. The decrease versus the prior year was primarily due to headcount reductions related to the restructuring of the Company and the consolidation of four domestic facilities into one, an increased focus on cost controls and a reduction in legal and audit fees from the prior year due to the non-recurrence of certain one-time costs associated with the prior year’s restatements of the Company’s financial statements.

Research and development expenses for the quarter ending August 31, 2007 were $0.6 million compared with $0.4 million for the same quarter in the prior year. The increase was principally due to an increase in the development of new products slated for market introduction during the current fiscal year.

17




Interest expense increased by $0.1 million due to a higher balance on the U.S. bank revolving line of credit.

Income tax benefit was $0.2 million on a consolidated basis compared with $0.1 million in the same quarter of fiscal 2007. The tax benefit relates almost exclusively to taxes that the Company will pay in Germany for its profitable European subsidiary. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, and valuation allowances placed against the deferred tax assets.

Six Months Ended August 31, 2007 Compared to Six Months Ended August 31, 2006

Net sales during the six months ending August 31, 2007 were $33.8 million, a decrease of approximately 9% from net sales of $37.3 million for the same period in the prior year. This decrease was largely driven by a reduction in sales to one of the Company’s largest customers due to the timing of order fulfillment and the closure of Discovery Channel Stores’ retail locations which had historically been a significant customer of the Company. Sales to Discovery Channel Stores were $0.3 million during the six months ended August 31, 2007 versus $3.1 million in the same period last year. This Discovery Channel reduction primarily affected the Company’s sales of low-end and intermediate telescopes. Overall sales of telescopes were $20.8 million in the six months ended August 31, 2007 compared with $26.7 million in the same period of fiscal 2007. Sales of riflescopes were $6.8 million, a 28% increase compared with $5.4 million in the same period last year as the Company began shipping riflescope models that had not been available in the prior year due to supply chain constraints. The Company expects to be essentially stocked in riflescopes for the upcoming season. The U.S. dollar weakened versus the Euro from the prior year which positively affected the Company’s reported sales by approximately $0.7 million.

Gross profit for the six months ending August 31, 2007 was $4.1 million or 12% of net sales compared with $6.4 million or 17% of net sales in the prior year. The decrease in gross profit was due to lower sales, the sale of inventory at low margins as part of the Company’s ongoing campaign to reduce inventory levels and inventory that the Company otherwise determined was excess or obsolete and wrote down accordingly. The Company also saw a shift in product mix toward lower margin products. In addition, the Company experienced a higher-than-anticipated increase in warranty claims and adjusted its reserve for warranties accordingly.

Selling expenses for the six months ending August 31, 2007 were $5.2 million, a 34% decrease from $7.8 million for the same period in the prior year. The decrease in selling expenses versus the prior year was due to lower sales commissions and freight costs associated with lower revenue, headcount reductions related to the restructuring of the Company and the consolidation of four domestic facilities into one, lower bad debt expense that included a bad debt recovery, and a deliberate reduction in advertising and marketing costs.

General and administrative expenses for the six months ending August 31, 2007 were $5.5 million, a 22% decrease from $7.0 million for the same period in the prior year. The decrease versus the prior year was due to headcount reductions related to the restructuring of the Company and the consolidation of four domestic facilities into one, a reduction in legal fees from the prior year due to non-recurrence of certain one-time costs and an increased focus on cost controls.

Research and development expenses for the six months ending August 31, 2007 were $1.0 million compared with $0.7 million for the same quarter in the prior year. The increase was principally due to an increase in the development of new products slated for market introduction during the current fiscal year.

Interest expense increased $0.1 million due to higher borrowing on the U.S. bank revolving line of credit. During the six months ended August 31, the Company finalized a renewal of it credit facility with

18




Bank of America, which was filed as an exhibit to its Annual Report on Form 10-K for the fiscal year ended February 28, 2007.

Income tax expense (benefit) was an expense of $0.2 million on a consolidated basis for the six months ending August 31, 2007 compared with a benefit of $23 thousand in the same period of fiscal 2007. The tax benefit relates almost exclusively to taxes that the Company will pay in Germany for its profitable European subsidiary. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses and valuation allowances placed against the deferred tax assets.

This excerpt taken from the MEAD 10-Q filed Jul 16, 2007.

Results of Operations

The nature of the Company’s business is highly seasonal. Historically, sales in the third quarter ended November 30th each year 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 may significantly vary by quarter. Therefore, caution 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 May 31, 2007 Compared to Three Months Ended May 31, 2006

Net sales during the first quarter of fiscal year 2008 were $17.6 million, down approximately 6% from the prior year’s first quarter net sales of $18.7 million. The decrease was largely driven by the recently announced closure of the Discovery Channel Stores’ retail locations, which has historically been a significant customer of the Company. Sales to Discovery Channel Stores were $0.2 million during the quarter ended May 31, 2007 versus $2.0 million in the same period last year and this reduction primarily affected the Company’s sales of low-end telescopes. Overall sales of telescopes were $8.7 million in the

15




first quarter of fiscal 2008 compared with $11.6 million in the same quarter of fiscal 2007. Sales of riflescopes were $3.8 million, a 41% increase compared with $2.7 million in the same quarter last year as the Company began shipping riflescope models that had not been available in the prior year due to supply chain constraints. The Company expects to be essentially fully stocked in riflescopes for the upcoming season. The U.S. dollar weakened versus the Euro from the prior year quarter which positively affected the Company’s reported sales by approximately $0.3 million.

Gross profit for the quarter ending May 31, 2007 was $1.8 million or 10% of net sales compared with $3.4 million or 18% of net sales in the prior year’s comparable quarter. There were several factors that contributed to this decrease in gross profit. First, approximately $1 million of the decrease in gross profit related to inventory that was either sold at low margins as part of the Company’s ongoing campaign to reduce inventory levels or inventory that the Company otherwise determined was excess or obsolete and wrote down accordingly. Second, the Company saw a shift in product mix shifted toward lower margin products. Finally, the Company experienced a higher-than-anticipated increase in warranty claims and adjusted its reserve for warranties accordingly.

Selling expenses for the quarter ending May 31, 2007 were $2.2 million, a 33% decrease from $3.4 million for the same quarter in the prior year. The decrease versus the prior year was due to headcount reductions related to the restructuring of the Company and the consolidation of four domestic facilities into one, lower bad debt expense including a bad debt recovery, and a deliberate reduction in advertising and marketing costs.

General and administrative expenses for the quarter ending May 31, 2007 were $2.8 million, a 7% decrease from $3.0 million for the same quarter in the prior year. The decrease versus the prior year was due to headcount reductions related to the restructuring of the Company and the consolidation of four domestic facilities into one, a reduction in legal fees from the prior year due, non-recurrence of certain one-time costs and an increased focus on cost controls.

Research and development expenses for the quarter ending May 31, 2007 were $0.4 million compared with $0.3 million for the same quarter in the prior year. The increase was principally due to an increase in the development of new products slated for market introduction during the fiscal year ending 2008.

Interest expense decreased slightly in the comparable periods. During the quarter the Company finalized a renewal of it credit facility with Bank of America, which was filed as an exhibit to its Annual Report on Form 10-K for the fiscal year ended February 28, 2007.

The tax provision was $0.3 million on consolidated basis compared with $0.1 million in the same quarter of fiscal 2007. The tax provision relates almost exclusively to taxes that the Company will pay in Germany for its profitable European subsidiary. The Company did not record any income tax provision or benefit in the U.S. due to its loss from operations, level of net operating losses, and valuation allowances placed against the deferred tax assets.

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