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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-11309
GALILEO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2526583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
GALILEO PARK, P.O. BOX 550, STURBRIDGE, MASSACHUSETTS 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (508) 347-9191
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
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Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT DECEMBER 31, 1996
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COMMON STOCK, PAR VALUE $.01 6,847,442 SHARES
PAGE 1 OF 20
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GALILEO CORPORATION
INDEX
PART I. Financial Information: Page No.
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Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets at
December 31, 1996, and September 30, 1996 .......................... 3
Consolidated Condensed Statements of Income for the three months
ended December 31, 1996, and December 31, 1995...................... 4
Consolidated Condensed Statements of Cash Flows for the
three months ended December 31, 1996, and December 31, 1995......... 5
Notes to Consolidated Condensed Financial Statements................. 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 8
PART II. Other Information:
Item 4.
Submission of Matters to a Vote of Security Holders 11
Item 5.
Other information 11
Item 6.
Exhibits and Reports on Form 8-K 12
Signatures 13
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GALILEO CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
Dec. 31, 1996 Sept. 30, 1996
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ASSETS
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Current assets:
Cash and cash equivalents $18,882 $18,652
Accounts receivable, net 5,529 5,710
Inventories, net (Note 3) 6,931 6,218
Other current assets 488 598
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Total current assets 31,830 31,178
Property, plant and equipment, net 17,283 19,228
Other assets, net 2,608 2,658
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Total assets $51,721 $53,064
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Accounts payable and accrued liabilities $ 4,586 $ 4,174
Other current liabilities -- 542
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Total current liabilities 4,586 4,716
Other liabilities 1,182 1,320
Shareholders' equity:
Common stock 68 68
Additional paid-in capital 42,796 42,694
Retained earnings 3,089 4,266
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Total shareholders' equity 45,953 47,028
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Total liabilities and shareholders' equity $51,721 $53,064
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See Notes to Consolidated Condensed Financial Statements
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GALILEO CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share data)
For the Three Months Ended
December 31,
1996 1995
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Net sales (Note 1) $ 9,711 $9,972
Cost of sales 5,436 6,105
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Gross profit 4,275 3,867
Engineering, selling and administrative
expenses 3,344 2,723
Reduction in carrying value of certain long-lived
assets (Note 4) 2,226 --
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Operating profit (loss) (1,295) 1,144
Other income 250 115
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Income (loss) before income taxes and
extraordinary gain (1,045) 1,259
Provision (benefit) for income taxes 121 (107)
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Income (loss) before extraordinary gain (1,166) 1,366
Extraordinary gain on receipt and sale
of stock, net of taxes -- 158
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Net income (loss) $(1,166) $1,524
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Net income (loss) per common and common
equivalent share outstanding
Before extraordinary gain $ (0.17) $ 0.20
Effect of extraordinary gain -- 0.02
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Net income (loss) $ (0.17) $ 0.22
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Weighted average common and common
equivalent shares outstanding 6,836 6,865
See Notes to Consolidated Condensed Financial Statements
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GALILEO CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
For the three months ended
December 31,
1996 1995
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Net income (loss) $(1,166) $ 1,524
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Extraordinary gain on receipt and sale of stock -- (319)
Depreciation and amortization 900 867
Reduction in carrying value of certain long-lived assets 2,226 --
Other adjustments (1) (18)
Increase (decrease) in cash from changes in operating
assets and liabilities:
Accounts receivable 279 1,169
Inventories (713) 197
Accounts payable and accrued liabilities 412 (2,003)
Other changes, net (90) 24
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Total adjustments 3,013 (83)
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Net cash provided by operating activities 1,847 1,441
Cash flows from investing activities:
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Proceeds from receipt and sale of stock -- 403
Capital expenditures (1,167) (570)
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Net cash used in investing activities (1,167) (167)
Cash flows from financing activities:
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Payments on notes payable (542) (17)
Proceeds from issuance of common stock 102 142
Other financing activities (10) (9)
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Net cash provided (used) by financing activities (450) 116
Net increase in cash and cash equivalents 230 1,390
Cash and cash equivalents at beginning of period 18,652 8,580
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Cash and cash equivalents at end of period $18,882 $ 9,970
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See Notes to Consolidated Condensed Financial Statements
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GALILEO CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. On February 11, 1997, the Company received written notification from its
largest customer, Xerox Corporation, that Xerox has developed internal
production capabilities for dicorotron assemblies and will no longer
purchase these assemblies from the Company. These assemblies accounted for
approximately $20.4 million, or 48% of the Company's revenues of $42.6
million for fiscal 1996 and approximately $3.8 million, or 39%, of the
Company's revenues of $9.7 million for the quarter ended December 31, 1996.
Reduced revenues from this product will materially adversely affect the
Company's financial performance for at least the remainder of fiscal 1997
and likely will result in a loss for the fiscal year.
2. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring adjustments, except for the item discussed in Note 3
below) necessary to present fairly Galileo Corporation's (the Company)
financial position as of December 31, 1996, and the results of operations
and cash flows for the three month period ended December 31, 1996, in
conformity with generally accepted accounting principles for interim
financial information applied on a consistent basis. The results of
operations for the three months ended December 31, 1996, are not
necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the Company's
1996 Annual Report to Shareholders and Form 10-K for the fiscal year ended
September 30, 1996.
3. Classification of inventories is:
December 31, September 30,
1996 1996
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Finished goods $2,641 $1,402
Work-in-progress 576 635
Raw materials 3,714 4,181
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$6,931 $6,218
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4. For the three months ended December 31, 1996, the Company adopted Statement
of Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement requires impairment losses be recognized for long-lived assets,
when indicators of impairment are present and the fair market values of
assets are estimated to be less than carrying amounts. The adoption of this
Standard resulted in a $2,226, or $0.32 per share, nonrecurring, pretax,
noncash, charge in the quarter, which reduced certain robotic assembly
equipment for the Company's Medical Products Group to its estimated fair
market value. Excluding the impact of this charge, net income for the three
months ended December 31, 1996, was $1,060, or $0.15 per share.
5. Results for the three months ended December 31, 1995, have been restated to
reflect the acquisition of Leisegang Medical, Inc., in fiscal year 1996,
which was accounted for on a pooling of interests basis. For the three
months ended December 31, 1995, Leisegang Medical, Inc.'s, net income was
$436, or $0.06 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
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Galileo Corporation (the "Company") develops, manufactures and markets
fiberoptic and electro-optic components which transmit, sense or intensify light
or images. The Company's products are currently sold primarily to original
equipment manufacturers (OEMs) for use in office products, electronic imaging
and scientific, analytical and medical applications. The Company's capabilities
in the formulation of specialty glass and experience in fiberoptic and
electro-optic technology are fundamental to developing and manufacturing its
products.
On February 11, 1997, the Company received written notification from its largest
customer, Xerox Corporation, that Xerox has developed internal production
capabilities for dicorotron assemblies and will no longer purchase these
assemblies from the Company. These assemblies accounted for approximately $20.4
million, or 48% of the Company's revenues of $42.6 million for fiscal 1996 and
approximately $3.8 million, or 39%, of the Company's revenues of $9.7 million
for the quarter ended December 31, 1996. Reduced revenues from this product will
materially adversely affect the Company's financial performance for at least the
remainder of fiscal 1997 and likely will result in a loss for the fiscal year.
The Company's Scientific Detector Products are used in various analytical
instruments in a wide range of markets including semiconductor processing, life
sciences, failure analysis and quality and process control.
The Company's Remote Sensor Products include Fluorolase[Registered Trademark]
fiberoptic-based optical amplifier technology and products where on-line,
non-destructive testing of material composition is required including, among
others, food processing, bulk and specialty chemicals, petroleum refining, and
biotechnology. Markets for the Company's Fluorolase products include
telecommunications as well as high-speed data and video transmission.
Currently, these products are being tested in these markets, and the Company
believes that the Fluorolase product offers significant future growth
opportunities.
The Company's Medical Products consist of a variety of scopes in support of
minimally invasive medical procedures. Scopes are valuable in any medical
procedure where video imaging can provide accurate diagnosis, improve surgical
performance and reduce patient discomfort. In addition, the acquisition of
Leisegang Medical, Inc., more fully discussed below, positions the Company as a
supplier of certain medical instrument equipment, principally to the obstetric
and gynecological markets. The Company believes that these products offer
significant future growth opportunities.
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Leisegang Medical, headquartered in Boca Raton, FL, was a privately-held
distributor and manufacturer of OB/GYN diagnostic and surgical equipment.
Included in its product line are colposcopes produced by Leisegang GmbH, a
related company based in Berlin, Germany, that is the world's largest and oldest
manufacturer of colposcopes and accessories. The products are sold to OB/GYN
doctors' offices and hospitals through an internal sales force and by
manufacturers' representatives.
Leisegang is well known and highly respected in the gynecological equipment
market, estimated to be $200 million annually, and is a leader in sales to
doctors' offices. In addition to colposcopes, its products include biopsy
instruments, ultrasound, video equipment, laser and electro-surgical systems and
accessories, cryosurgery equipment, surgical instruments, rigid and flexible
hysteroscopes, bone densitometers and fetal heart monitors. This acquisition
enables Galileo to participate immediately in a market that is growing at 15 to
20 percent per year, and is expected to benefit significantly from the trend
toward minimally invasive surgery and office-based procedures. It also provides
Galileo with new distribution channels that enhance the brand name recognition
and market penetration of the Company's medical imaging and sensing products.
In addition to investing in research and development activities for all of its
products, the Company is exploring other acquisition opportunities to enhance
its product offerings to all its customers.
This Report on Form 10-Q contains certain forward-looking statements concerning,
among other things, the Company's plans and objectives for future operations,
planned products and services, expansion into new markets and anticipated
customer demand for its existing and future products and services. Certain
factors that could cause the Company's actual results to differ from those
projected in these forward-looking statements are set forth in Exhibit 99 to
this report and incorporated herein.
RESULTS OF OPERATIONS
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Sales for the quarter ended December 31, 1996, were $9.7 million, a decrease of
$0.3 million, or 3% from the same quarter last year. The Company has completed a
rationalization program whereby certain less profitable product lines have been
discontinued. Approximately $1.2 million of revenues for the first quarter of
last year were realized from such discontinued products.
Gross profit (as a percentage of revenues) of 44.0% improved from 38.8% for the
comparable prior-year period as a result of the aforementioned rationalization
program.
Engineering, selling and administrative expenses of $3.3 million increased from
$2.7 million in the same quarter last year primarily due to increased
engineering and other operating
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expenses to support the development of new medical scopes and the Company's
Fluorolase products.
For the quarter ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived assets to be Disposed Of." This statement
requires impairment losses be recognized on long-lived assets when indicators of
impairment are present and the fair market values of assets are estimated to be
less than carrying amounts. The adoption of this statement resulted in a $2.2
million, or $0.32 per share, nonrecurring, pretax, noncash charge in the
quarter, which reduced certain robotic assembly equipment for the Company's
Medical Products Group to its estimated fair market value. Excluding the impact
of this charge, net income for the three months ended December 31, 1996, was
$1.1 million, or $0.15 per share.
Other income principally relates to interest earned on investments. The
effective tax rate differs from the statutory rate primarily due to tax loss
carryforwards which the Company has available for the three months ended
December 31, 1996, and the comparable prior-year period.
FINANCIAL CONDITION
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The Company's working capital at December 31, 1996, of $27.2 million increased
$0.8 million from the balance at September 30, 1996, of $26.4 million. The
change in working capital was primarily due to the increase in inventories to
support higher revenue levels for the Company's Medical Products Group. The
Company considers its working capital position to be adequate to support its
currently planned operations.
Capital spending for the quarter amounted to $1.2 million. This compares with
$0.6 million of capital expenditures in the first fiscal quarter of last year.
Capital spending for the quarter primarily relates to building improvements and
machinery and equipment to support the development of new medical scopes and the
Company's Fluorolase products. The Company does not have any significant
commitments for capital expenditures.
LOSS OF A SIGNIFICANT CUSTOMER
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The Company anticipates that its results of operations and financial condition
will be materially adversely impacted by the loss of a significant customer as
more fully discussed in the "Overview" section above.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to a vote of the Company's
shareholders at the Annual Meeting of Shareholders held on January 14,
1997:
1. The following persons were elected as directors of the Company:
FOR WITHHOLD
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William T. Burgin 5,389,277 47,015
Allen E. Busching 5,389,077 47,215
Kenneth W. Draeger 5,389,277 47,015
William T. Hanley 5,388,876 47,416
William D. Happ 5,389,277 47,015
2. Amendment to certificate of incorporation to increase the number of
authorized shares of common stock from 18,000,000 shares to 36,000,000
shares was approved by a vote of 5,129,729 in favor, 272,898 against,
9,465 abstaining and 24,200 shares not voting.
3. The 1997 Employee Stock Purchase Plan was approved by a vote of
4,613,230 in favor, 105,798 against, 35,968 abstaining and 681,296
shares not voting.
4. Amendment to the 1991 Employee Stock Option Plan to increase the
aggregate number of shares of common stock that may be subject to
grants under the plan from 350,000 to 500,000 was approved by a vote
of 4,496,448 in favor, 222,432 against, 36,116 abstaining and 681,296
shares not voting.
5. Amendment to the 1991 Employee Stock Option Plan to limit the number
of shares that may be granted under the plan to any one person within
any fiscal year to 100,000 shares was approved by a vote of 4,783,277
in favor, 14,960 against, 37,052 abstaining and 601,003 shares not
voting.
ITEM 5. OTHER INFORMATION
See Exhibit 99.2 to this report for information regarding loss of the
Company's largest customer.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
11 Calculation of Earnings per Share
27 Financial Data Schedule (EDGAR filing only)
99.1 Important Factors Regarding Forward-Looking Statements
99.2 Press Release Dated February 12, 1997
b. Reports on Form 8-K:
1. On October 21, 1996, the Registrant filed a Form 8-K for an
Amendment to the Agreement and Plan of Merger dated July 17,
1996, among the Registrant, a subsidiary of the Registrant,
Leisegang Medical, Inc., and the principal shareholders of
Leisegang, under which the Registrant acquired Leisegang
effective August 6, 1996.
2. On January 21, 1997, the Registrant filed a Form 8-K for a
Press Release dated January 16, 1997, regarding the
Registrant's first quarter results.
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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.
GALILEO CORPORATION
Dated: February 13, 1997 /s/ William T. Hanley
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William T. Hanley, President and
Chief Executive Officer (Principal
Executive Officer)
/s/ Gregory Riedel
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Gregory Riedel, Vice President,
Finance and Chief Financial Officer
(Principal Financial and Accounting
Officer)
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GALILEO CORPORATION
INDEX TO EXHIBITS
Exhibit No. Page No.
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11 Calculation of Earnings Per Share 15
27 Financial Data Schedule EDGAR
Filing
Only
99.1 Important Factors Regarding
Forward-Looking Statements 16
99.2 Press Release Dated February 13, 1997 20
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