<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1996
Commission File Number: 0-11309
GALILEO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2526583
(State of Incorporation) (I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
- - - - - - - - - --------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 9, 1996, 6,847,442 shares of the Registrant's Common Stock
were outstanding, and the aggregate market value of such shares held by
non-affiliates of the Registrant on such date was $185,736,866.
Documents incorporated by reference:
Portions of Registrant's proxy statement dated December 11, 1996, are
incorporated by reference into Part III of this report.
The Index to Exhibits is located on Page 36.
PAGE 1 OF 38
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PART I
Item 1. BUSINESS
--------
General
-------
Galileo Corporation (the "Company") was incorporated in Delaware
in 1973 as the successor to a business which was founded in 1959. The
Company's name was changed from Galileo Electro-Optics Corporation to
Galileo Corporation in 1996.
Since its formation in 1973, the Company has been engaged in
developing, manufacturing and marketing fiberoptic and electro-optic
components which transmit, sense or intensify light or images and a
variety of components for office copiers. The Company's products are
sold primarily to original equipment manufacturers (OEMs) for use in
electronic imaging, scientific, analytical, office products and
medical applications. The Company's capabilities in the formulation
of specialty glass and experience in fiberoptic and electro-optic
technology are fundamental to the development and manufacture of its
products. Although the Company purchases a large quantity of its
glass requirements, it also owns and operates a specialty glass
manufacturing plant which enables it to develop experimental glass
formulations and respond quickly to unique customer requirements.
The Company operates in a single industry segment. Following the
sale of a substantial portion of the Fused Fiberoptic Products
business in fiscal year 1994, the Company's businesses have been
classified into the four product lines described below. The Company
acquired Leisegang Medical, Inc., a privately held distributor and
manufacturer of medical instruments and equipment, in fiscal year
1996. Leisegang's product lines are included in the Company's Medical
Products business.
Office Products
---------------
Sales of Office Products accounted for 50%, 45% and 41% of the
Company's net sales for fiscal years 1996, 1995 and 1994,
respectively. These products are used in a variety of applications to
improve the reliability and performance of high-volume, high-speed
copiers and ion deposition printers. Xerox Corporation is the
principal customer for these products.
The Company's highest volume product is the dicorotron, for
which it is currently the sole source of supply to Xerox. The
dicorotron, which utilizes the Company's proprietary glass-coated
wire technology, generates ions which charge a copier's photoreceptor
during the image transfer process. The quality, cost-effectiveness,
reliability and extended product life of the dicorotron have been key
to the success of the product. The majority of the products sold by
the Company to Xerox are used as replacement units in existing
copiers.
Scientific Detector Products
----------------------------
Sales of Scientific Detector Products accounted for 26%, 29% and
29% of the Company's net sales for fiscal years 1996, 1995 and 1994,
respectively. The principal products within Scientific Detector
Products are the following:
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SINGLE CHANNEL DETECTORS are small glass tubes with
semiconducting inner surfaces which emit electrons when struck by
sub-atomic particles, photons or other electrons. This electron
emission process is repeated many times along the length of the tube
in a multiplying sequence, whereby one electron, ion or photon
entering at one end of the tube generates a pulse containing millions
of electrons at the other end of the tube, which pulse can easily be
measured as it emerges. The major application of this product is as
the detecting element in a mass spectrometer. Mass spectrometers
identify the atoms of unknown elements by determining atomic mass
through the measurement of velocity or path of movement of subatomic
particles and are used in such industries as biotechnology and
pharmaceutical as well as in drug screening applications. A detector
recognizes the time or the place at which an atom exits from the
vacuum chamber of the spectrometer and thereby permits the
identification of the unknown atom.
The Company's Channeltron[Registered Trademark] and
Spiraltron[Trademark] Single Channel Detectors have replaced the
complex multi-electrode structure of older detectors and require
only a single two-terminal power supply. The simplicity of the
Company's Detectors, their mechanical ruggedness and their
resistance to contamination in service have led to their adoption
as the preferred detector in mass spectrometers, ultraviolet
spectrometers and in a growing range of surface-scanning
instruments. The Company's Detectors are used by all major mass
spectrometer manufacturers, and, in many cases, the Company is the
single source.
DETECTOR ASSEMBLIES AND SYSTEMS consist of multichannel electron
multipliers, which multiply electrons that enter the channels of the
device, mated with fiberoptic, mechanical and electronic components.
These value-added devices are used as ion, X-ray or particle
detectors in scientific instrumentation. The Company provides these
detector assemblies primarily to the major manufacturers of
analytical instrumentation and to the research community.
MICROCHANNEL PLATES (MCPs) are multichannel electron
multipliers. The initial manufacturing process of MCPs consists of
producing a small wafer-thin fused fiberoptic disc. These discs are
then further processed by etching out the core of each fiber to
produce hollow channels, approximately 10 microns in diameter, the
surfaces of which are semiconducting. Each channel serves as a
microscopic single channel electron multiplier, multiplying the
electrons that enter the channel in order to intensify faint electron
images.
The Company manufactures an improved, long-life MCP with
enhanced gain stability, resulting in improved brightness and a
significantly longer life expectancy than other MCPs available in the
marketplace. The Company's MCPs are used primarily in military night
vision devices as an integral part of the image intensification
process. MCPs are also employed in electron and field-ion
microscopes.
Remote Sensor Products
----------------------
Sales of Remote Sensor Products accounted for 6%, 5% and 2% of
the Company's net sales for fiscal years 1996, 1995 and 1994,
respectively. Remote Sensor Products provide technically advanced,
cost-effective solutions for industrial process monitoring with
on-line, remote, infrared spectroscopy systems. Applications are
found in markets where cost controls and manufacturing yields are
critical to profitability, including the chemical, food, beverage,
petrochemical, semiconductor, environmental, textile and
pharmaceutical industries.
The Company's infrared transmitting fiberoptic cables are
integrated with on-line sensors which identify a material's chemical
signature and transmit that data to a spectrometer for analysis.
Applications for this technology include raw materials screening,
moisture content and octane measurements, and the monitoring of a
variety of
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manufacturing processes. The Company's IR Link[Trademark] Systems,
a family of integrated sensors and accessories, are valuable for
monitoring quality and also reduce costs by moving process analysis
from the laboratory directly to the manufacturing line. IR Link
Multi-Channel Systems allow up to seven sensing points to be
monitored using just one analytical instrument, resulting in
process analysis systems which provide the lowest cost-per-
measurement.
The Company also manufactures several different probes, sensors
or cells, depending upon the specific application. High-pressure
liquid and gas cells are designed to monitor heated and pressurized
liquid and gas side-streams. Web sensors monitor materials, such as
films, plastics and polymers, while immersible transmission probes
can be installed on-line or dipped into liquid samples or liquid
streams, and diffuse reflectance systems analyze samples such as
powders, slurries and textiles. These accessories help provide
immediate, analytical feedback which enables customers to make
instantaneous adjustments to their processes and allows them to
reduce costs, improve quality and raise productivity.
Flexible Fiberoptic Products, which are also part of the Remote
Sensor Products business, are used to transmit light ("lightguides")
or images ("imagescopes") in a flexible format. Lightguides are used
to supply remote illumination in flexible probes in a variety of
lengths and formats depending upon customer requirements. Lightguides
can also be used as sensors to detect signals, position, dimensions,
images and many other physical phenomena. The applications for
lightguides and sensors range from counting, positioning and
dimensional measurements to laser delivery systems and remote
spectroscopy. Imagescopes are image transfer devices capable of
monitoring remote events and inspecting otherwise inaccessible or
hazardous areas. Imagescopes are used in a variety of applications
such as tank sights, periscopes and industrial endoscopes.
The Company has also developed, and is now starting to market,
an amplifier module using its Fluorolase[Registered Trademark] doped
fluoride fiber, which provides increased bandwidth. The markets for
this product include telecommunications as well as high-speed data
and video transmission.
Medical Products
----------------
Sales of Medical Products accounted for 18%, 21% and 28% of the
Company's net sales for fiscal years 1996, 1995 and 1994,
respectively. The Company's Medical Products include a variety of
endoscopes which are used for minimally invasive surgery
applications. These devices use a combination of glass rods and
plastic lenses or flexible fiber optics resulting in high-quality,
low-cost medical scopes used primarily in single use or limited reuse
applications for arthroscopic, spinal and other surgery. The Company
also distributes high-pixel-count imaging fiber, manufactured by
Fujikura, America, Inc., for endoscopic medical devices, as well as a
hand-held video system made by UROHEALTH Systems.
Also included in Medical Products are the products of Leisegang
Medical, Inc., which was acquired by the Company in fiscal year 1996
and is located in Boca Raton, Florida. Leisegang is a distributor and
manufacturer of OB/GYN diagnostic and surgical equipment,
specifically, colposcopes, biopsy instruments, ultrasound equipment,
video equipment, laser and electro-surgical systems and accessories,
cryosurgery equipment, surgical instruments, rigid and flexible
hysteroscopes, bone densitometers and fetal heart monitors.
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Research and New Product Development
------------------------------------
The Company's scientists and engineers conduct research and
development in glass, fiberoptic and electro-optic technologies to
develop new products and to enhance and expand applications for
existing products. The Company's expenditures for research and
development were approximately $3,220,000, $3,054,000 and $3,755,000
in fiscal years 1996, 1995 and 1994, respectively. The research and
development is principally sponsored by the Company.
Current projects include the following: fibers usable as lasers
and optical amplifiers, fiberoptic devices for medical imaging and
laser power delivery, systems and devices for infrared fiber-based
process remote spectroscopy, improved Channeltrons[Registered
Trademark], MCP-based devices for medical imaging and astrophysics
research and advanced detectors for scientific instruments. In
addition, programs are continuing to improve the manufacturing
efficiency as well as the quality of all of the Company's products.
The Company utilizes its own sales and marketing personnel, except in
the case of Leisegang Medical, Inc., it also utilizes manufacturers'
representatives.
Marketing
---------
The Company's strategy is to supply technologically advanced
fiberoptic and electro-optic components, electromechanical assemblies
and medical instruments. Customers include OEMs, as well as
end-users. The Company is continuing to broaden and solidify its
technical relationship with its customers. Marketing and sales
activities are focused on technical support of existing products,
development of future products and technologies, and on providing
cost-effective solutions to complex problems.
Customers
---------
Sales to Xerox Corporation were 48% of net sales in fiscal year
1996. In total, the Company's top twenty customers accounted for 68%
of sales.
Export Sales
------------
Export sales to foreign customers amounted to approximately
$8,716,000, $7,371,000 and $5,857,000 in fiscal years 1996, 1995 and
1994, respectively, principally in Europe and Japan. In addition,
sales to domestic affiliates of foreign customers and to domestic
customers, both for export by the purchaser, amounted to
approximately $287,000, $325,000 and $837,000 in fiscal years 1996,
1995 and 1994, respectively.
Raw Materials and Supplies
--------------------------
The principal raw materials and supplies used by the Company in
the manufacture of its products are glass tubing and glass core bars,
chemicals for glass manufacture, and purchased parts for assemblies
and instruments. In addition, the Company purchases some medical
equipment and instruments which it resells to its customers. The
Company has not experienced any shortages in the past and does not
anticipate any future shortages or unavailability of these items.
Most of these items are available from alternative sources.
Patents
-------
While the Company possesses many patents which relate to its
technology, it does not believe that the protection offered by these
patents is of material importance to the success of its business. The
Company believes that its success depends primarily on its
development, manufacturing and marketing skills.
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Backlog
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At September 30, 1996 and 1995, the sales backlog was $7,247,000
and $8,552,000, respectively. In each case, this backlog is scheduled
for shipment during the following fiscal year.
Competition
-----------
The Company's competitive position depends primarily upon the
technological development of its products, as well as service,
quality and price. Some of the Company's competitors are divisions of
major corporations, which have greater financial resources than the
Company.
Employees
---------
As of September 30, 1996, the Company had 234 full-time
employees, none of whom is a party to a collective bargaining
agreement with the Company. Of these employees, 210 were employed at
the Company's facilities in Sturbridge, Massachusetts and 24 at
Leisegang Medical, Inc., in Boca Raton, Florida. The Company believes
that it has good relations with its employees.
Item 2. PROPERTIES
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The Company's corporate headquarters are located in Sturbridge,
Massachusetts, where the Company owns three buildings, with a total
of 197,000 square feet on a 56 acre tract. Two of these buildings
house a glass plant, draw towers, clean rooms, furnaces and ovens,
extruding, etching, grinding and polishing equipment, and assembly,
research, test and inspection equipment principally for manufacturing
Office Products, Medical Products and Remote Sensor Products. The
third building is used primarily for manufacturing Scientific
Detector Products.
Leisegang Medical, Inc., a wholly owned subsidiary, is located
in Boca Raton, Florida, where it leases 7,700 square feet of space
used for manufacturing, distribution and administration.
In 1988, the Company purchased a 61,000 square foot
manufacturing facility on 51 acres of land in Forest, Virginia.
During the fourth quarter of fiscal year 1993, the Company decided to
consolidate its manufacturing operations in Sturbridge,
Massachusetts. This consolidation was completed in the first half of
fiscal year 1994, and the Forest, Virginia, facility, which had been
for sale since that time, was sold in the second quarter of fiscal
year 1996.
Item 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the
Company is a party or to which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted during the fourth quarter of
fiscal year 1996 to a vote of the Company's security holders, through the
solicitation of proxies or otherwise.
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EXECUTIVE OFFICERS OF THE REGISTRANT
- - - - - - - - - ------------------------------------
The following table indicates the names and ages of all
executive officers of the Company and the offices held by each:
Name Age Officer
---- --- -------
William T. Hanley 49 President and Chief Executive
Officer and Director
Gregory Riedel 38 Vice President, Finance and Chief
Financial Officer
Josef W. Rokus 54 Vice President, Corporate
Development and Corporate
Secretary
David W. Skiles 50 Vice President and General
Manager, Remote Sensor Products
Each officer serves for a term extending until the meeting of
directors following the next annual meeting of shareholders and until
a successor is elected and qualified or until earlier resignation or
removal.
Mr. Hanley holds a B.S. degree in Glass Science from Alfred
University and an A.S. degree from Corning Community College. He
joined Galileo in 1982 as Vice President of Manufacturing, was
subsequently appointed Executive Vice President and Chief Operating
Officer prior to being appointed President, Chief Executive Officer
and Director in 1984. Prior experience includes positions as
Manufacturing Manager, Fiber Optics for Times Fiber Communications,
Inc., a manufacturer of fiberoptic products, and key managerial
positions with Corning Incorporated.
Mr. Riedel holds a B.S. degree in Accounting from Fairfield
University. He joined the Company in 1996 as Vice President, Finance
and Chief Financial Officer. From 1994 to 1996 he served as
Controller and, subsequently, as Chief Financial Officer of IPC
Information Systems, Inc., a manufacturer of communication systems
for the financial trading industry. From 1989 to 1994, Mr. Riedel was
Assistant Corporate Controller of Symbol Technologies, Inc., a
manufacturer of bar code based data capture systems. From 1980 to
1989, Mr. Riedel was employed by Price Waterhouse, holding positions
from staff accountant to audit manager.
Mr. Rokus holds an M.B.A. in Finance from The Tuck School,
Dartmouth College and an M.S. and B.S. in Electrical Engineering from
the University of Illinois. Mr. Rokus joined Galileo as Vice
President, Manufacturing in 1984, was appointed Vice President,
Corporate Development in 1986 and Vice President, Finance in 1988. He
was named Chief Financial Officer in 1990 and Corporate Secretary in
1993. In 1996, he was named Vice President, Corporate Development.
Prior experience includes management and controller positions with
Corning Incorporated.
Mr. Skiles holds a B.S. in Chemistry from Frostburg State
College. Prior to joining Galileo in 1992, Mr. Skiles was Director of
Sales for the MilliGen Division of Millipore Corp., a manufacturer of
biotechnology products from 1988 to 1991, and prior to that he was
Vice President, Marketing, ESA, Inc., a manufacturer of analytical
and clinical instruments and supplies, and National Sales Manager for
Waters Associates, Inc.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
The Company's Common Stock is traded in the over the counter
market, and prices are quoted on the Nasdaq National Market System
under the symbol GAEO. The following table sets forth, for the
periods indicated, the high and low sale prices for the common stock
as reported by Nasdaq.
Fiscal 1995 Low High
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1st Quarter $3-1/8 $4-7/8
2nd Quarter 3-3/4 5-3/4
3rd Quarter 4-1/4 8
4th Quarter 6-7/8 8-1/2
Fiscal 1996 Low High
----------- --- ----
1st Quarter $ 7-1/8 $11-1/2
2nd Quarter 9-7/8 17-3/4
3rd Quarter 15-1/2 31-1/8
4th Quarter 17-1/4 30-1/2
The Company had 433 shareholders of record as of December 9,
1996.
Dividend Policy
---------------
The Company has not paid any dividends since 1979. The Company's
policy is to retain earnings to provide funds for the operation and
expansion of its business, and it does not anticipate paying cash
dividends in the foreseeable future.
Recent Sales of Unregistered Securities
---------------------------------------
On August 6, 1996, the Registrant issued 269,913 shares of its
common stock (the "Shares") in connection with its acquisition of
Leisegang Medical, Inc. ("LMI") pursuant to the Agreement and Plan of
Merger dated as of July 17, 1996, (the "Merger Agreement") among the
Registrant, a wholly-owned subsidiary of the Registrant, LMI and the
principal shareholders of LMI, filed as Exhibit 2.1 to this report.
Under the Merger Agreement, the Registrant's wholly-owned subsidiary
merged into LMI and as a result of the merger all of the outstanding
capital stock of LMI was exchanged for the Shares.
The Shares were issued without registration under the Securities
Act of 1933, as amended, in reliance upon the exemption provided in
Section 4(2) thereof. Reliance upon this exemption was based upon the
nature of the transaction, the number of shareholders of LMI to whom
the Shares were issued and their relationship to LMI, and investment
representations made by each holder of LMI voting stock.
Specifically, all of the voting stock LMI was held by six
individuals, each of whom was active in the business of LMI or an
affiliate of LMI. The outstanding nonvoting stock, representing 4.7%
of the total outstanding stock of LMI, was held by 17 individuals
who had acquired their shares for no cash consideration as sales
representatives of LMI. The holders of nonvoting stock were not
entitled to vote on the merger under applicable state law and
accordingly made no investment decision.
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<TABLE>
Item 6. SELECTED FINANCIAL DATA
-----------------------
<CAPTION>
Years ended September 30,
(Dollars in thousands, except per share data) 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $42,634 $40,753 $35,937 $ 39,470 $41,626
Operating profit (loss) 5,212 1,176 (1,596) (10,689) (1,474)
Other income, net 404 305 213 426 333
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Income (loss) before income taxes, extraordinary
gain and cumulative effect of a change in
accounting for postretirement benefits other than
pensions 5,616 1,481 (1,383) (10,263) (1,141)
Provision (benefit) for income taxes 89 82 69 (481) (398)
Extraordinary gain (net of taxes) 158 -- -- -- --
Cumulative effect of a change in accounting for
postretirement benefits other than pensions -- -- -- (430) --
-----------------------------------------------------------------------
Net income (loss) $ 5,685 $ 1,399 $(1,452) $(10,212) $ (743)
---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common and common
equivalent share outstanding:
Before extraordinary gain and cumulative effect
of a change in accounting for postretirement
benefits other than pensions $ .80 $ .21 $ (.22) $ (1.46) $ (.11)
Extraordinary gain (net of taxes) .02 -- -- --
--
Cumulative effect of a change in accounting
for postretirement benefits other than
pensions -- -- -- (.06) --
-----------------------------------------------------------------------
Net income (loss) $.82 $ .21 $ (.22) $ (1.52) $ (.11)
---------------------------------------------------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 6,952,409 6,777,516 6,743,567 6,704,274 6,630,347
---------------------------------------------------------------------------------------------------------------------------------
As of September 30,
1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Working capital $26,462 $20,312 $16,856 $13,797 $18,963
Property, plant and equipment, net 19,228 19,891 21,755 24,993 31,626
Total assets 53,064 48,173 46,519 50,560 56,935
Long-term obligations 132 716 653 814 903
Shareholders' equity 47,028 40,934 39,486 40,938 50,838
<FN>
Note: Results have been restated to reflect the acquisition in fiscal year 1996 of Leisegang Medical, Inc., on a pooling of
interests basis.
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
Fiscal Year 1996 Compared to Fiscal Year 1995
- - - - - - - - - ---------------------------------------------
Net sales in fiscal year 1996 of $42,634,000 increased 5% from sales
of $40,753,000 in fiscal year 1995 with sales volume increasing in
three of the Company's four businesses. Operating profit for 1996
amounted to $5,212,000 versus $1,176,000 in 1995 with a net profit of
$5,685,000, or $.82 per share, as compared to $1,399,000, or $.21 per
share, in 1995. Net profit for fiscal year 1996 included an
extraordinary gain of $158,000, or $.02 per share, from the receipt
and sale of stock resulting from the demutualization of the Company's
health insurance carrier. The Company acquired Leisegang Medical,
Inc., in the fourth quarter of the fiscal year, with the acquisition
being accounted for on a pooling of interests basis. Leisegang
Medical, Inc., is now a wholly-owned subsidiary of the Company. All
financial results have been restated to reflect this acquisition.
Profitability improved in fiscal year 1996 versus 1995 as the gross
profit percentage increased from 31% to 44%. This improvement was
primarily due to selective price increases, the elimination of certain
product lines with lower than desired profitability, material cost
reductions and increased productivity. Specifically, productivity, as
measured by sales per employee, rose from $175,000 to $184,000.
Likewise, gross profit per employee increased from $54,000 to $82,000
from 1995 to 1996.
In the Office Products business, sales increased 16% from the previous
year and reached an all-time high. These products consist primarily of
dicorotron glass-coated wire assemblies, which utilize the Company's
proprietary technology to generate ions which charge the photoreceptor
in office copiers, as well as other components for laser and ion
deposition printers. Most Office Products sales are for the
replacement market. Xerox Corporation continues to be the largest
customer for these products as well as the Company's largest customer
accounting for 48% of the Company's total revenues in 1996. Although
the Company is the sole-source supplier of dicorotrons to Xerox
Corporation, there is no long-term commitment by Xerox to purchase
these components from the Company and no assurance that Xerox will not
develop alternative sources of supply in the future. Demand for these
products continued to be strong in fiscal year 1996 with the Company
introducing a "restringable" version of the dicorotron which was well
accepted in the marketplace. The Company is pursuing other
applications for its glass-coated wire technology, has identified a
number of potential customers and hopes to generate some revenue from
these applications in the upcoming fiscal year.
Sales of Scientific Detector Products were down 5% from the previous
fiscal year, but operating margins improved slightly. This business
includes Channeltron single channel detectors, used primarily in mass
spectrometers, microchannel plates and microchannel plate-based
detectors and assemblies. The decline in revenue was caused primarily
by the completion of a large paid engineering program in fiscal year
1995 and the phase-out of a large format microchannel plate by one of
the Company's customers. Softness in the semiconductor capital
equipment industry negatively impacted revenue in the last two
quarters of the year. However, sales of microchannel plate-based
detectors for Time-Of-Flight mass spectrometers were up significantly
and continued to contribute to profitability. Good progress was made
in a number of product development programs which could benefit the
future growth of this business.
Sales of Remote Sensor Products were up 17% from the previous fiscal
year. In fiscal year 1996, this business included flexible fiberoptic
products and fiberoptic cables, sensors and systems for applications
in industrial processes and telecommunications. The Company's strategy
has been to develop marketing partners for these products to deliver
them to end users. During the fiscal year, relationships were
solidified with every significant manufacturer of infrared
spectrographic instruments which is expected to result in increased
demand this coming year. Key installations performed well in two
high-volume pharmaceutical manufacturing plants resulting in possible
additional orders. Excellent progress was made in the development of
the Fluorolase technology for use as fiberoptic amplifiers in
telecommunications applications. The performance data and testing
concluded to date indicates that this product may play a significant
role in the growth and profitability of this business. A full product
launch and commercialization of the Fluorolase technology is planned
for the upcoming fiscal year. The Remote Sensor Products business,
which is currently the Company's smallest, is a developing business
and was not profitable at the operating profit level.
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In the Medical Products business, the Company acquired Leisegang
Medical, Inc., In the fourth quarter of the fiscal year. Leisegang is
a distributor and manufacturer of OB/GYN diagnostic and surgical
equipment. Its products include colposcopes, biopsy instruments,
ultrasound equipment, video equipment, laser and electro-surgical
systems and accessories, cryosurgery equipment, surgical instruments,
rigid and flexible hysteroscopes, bone densitometers and fetal heart
monitors. In addition, the Medical Products business includes a
variety of medical endoscopes for minimally invasive surgery
applications.
Sales of Medical Products were up 4% in fiscal year 1996 versus 1995
with medical endoscope shipments up significantly while the sales of
Leisegang Medical were down slightly. In the endoscope portion of the
business, the first scopes for Sofamor Danek, a manufacturer of spinal
surgical devices, were moved into manufacturing. In addition, another
product is being designed for this customer which is expected to go
into volume production in 1997. During the year, the Company began to
market its endoscope technology platforms to a broad range of
customers for a variety of applications and has development projects
underway involving the use of high-performance, low-cost,
non-repairable endoscopes in spinal, orthopedic, urological, epidural,
cardiovascular and gynecological specialties. In addition, the Company
signed an agreement with Fujikura America, Inc. to distribute
Fujikura's high-pixel-count optical fiber for endoscopic medical
devices and signed an agreement UROHEALTH Systems, Inc., under which
the Company and UROHEALTH will distribute hand-held video systems in
selected markets and UROHEALTH will distribute the Company's
endoscopes.
The acquisition of Leisegang reinforces the Company's focus on women's
health as a medical specialty where it intends to build a marketing
presence. The Company intends to complement its manufacturing skills
and financial strength with Leisegang's knowledge of the market, its
distribution system and broad range of products to bring new,
cost-effective capabilities to this medical field resulting in the
growth of the Medical Products business which is still considered to
be a developing business and is not yet profitable at the operating
profit level.
Fiscal Year 1995 Compared to Fiscal Year 1994
---------------------------------------------
Net sales in fiscal year 1995 of $40,753,000 increased 13% from sales
of $35,937,000 in fiscal year 1994 with sales volume increasing in
three of the Company's four businesses. Commercial sales increased 18%
from fiscal year 1994 and set a new record of $39,047,000, while
military sales declined 37%. Military sales represented 4% of total
sales in 1995 versus 8% of total sales in 1994. Operating profit for
1995 amounted to $1,176,000 versus an operating loss of $1,596,000 in
1994 with a net profit of $1,399,000, or $.21 per share, as compared
to a net loss of $1,452,000, or $.22 per share, in 1994.
The improvement in profitability was the result of higher sales volume
in most of the Company's businesses, a favorable sales mix, selective
price increases, the elimination of certain unprofitable product lines
and the reduction of fixed costs, primarily due to the consolidation
of the Company's manufacturing operations in fiscal year 1994.
In the Office Products business, sales increased 24% from the previous
year and reached a new high of $18,226,000. These products include
dicorotron glass-coated wire assemblies, which utilize the Company's
proprietary technology to generate ions which charge the photoreceptor
in office copiers, as well as a variety of other components for
copiers and laser and ion deposition printers. Most Office Products
sales are for the replacement market. Xerox Corporation is the largest
customer for these products as well as the Company's largest customer,
accounting for 43% of the Company's total revenues in 1995. Although
the Company is the sole-source supplier of dicorotrons to Xerox
Corporation, there is no long-term commitment by Xerox to purchase
these components from the Company and no assurance that Xerox will not
develop alternative sources of supply in the future. Demand for these
products continued to be strong in fiscal year 1995 as they were
designed into new products and the installed base of office machines
continued to grow. In addition, moderate price increases were
implemented for selective products, and several products were phased
out because they did not meet the Company's profitability criteria. In
fiscal year 1995, the Company established three new customers for its
Office Products and started to explore new applications for its
glass-coated wire technology.
PAGE 11
<PAGE> 12
Sales of Scientific Detector Products also increased from fiscal year
1994, being up $1,155,000 or 11%. This business includes Channeltron
single-channel detectors, used primarily in mass spectrometers,
microchannel plates and microchannel plate-based detectors and
assemblies. Shipments of Channeltrons and microchannel plates were up
15% and 14%, respectively, from the previous year while sales of
microchannel plate assemblies were essentially flat. Channeltron
shipments increased due in part to strong demand for detectors by the
semiconductor industry and the success of a new mass spectrometer
detector. Also, billings for engineering services were up 10% as the
Company completed its two-year, $1.9 million contract it was awarded
in 1993 by the National Institute of Standards and Technology to
develop new fabrication methods for microchannel plates. The product
mix for this business was favorable due to higher sales of
Channeltrons and microchannel plates and the above average incremental
profitability associated with these products.
Sales of Remote Sensor Products were up $410,000 or 65% in fiscal year
1995 versus 1994. This business includes fiberoptic cables, sensors
and systems for a variety of industrial process and telecommunications
applications. Several new products were introduced to the marketplace
this year which contributed to the higher sales, with the Hand-Held
Diffuse Reflectance Probe, which is designed to perform incoming
inspection of raw materials, being particularly well received. Good
progress was also made in fiscal year 1995 in the development of the
Fluorolase technology for use as fiber amplifiers in
telecommunications applications. This business, which is the smallest
of the Company's four businesses, is a developing business and was
unprofitable at the operating profit level.
The Medical Products business includes fused products, flexible
fiberoptic products, medical endoscopes and a variety of medical
products manufactured and distributed by the Company's subsidiary,
Leisegang Medical, Inc., acquired by the Company in fiscal year 1996.
In fiscal year 1994, fused products and flexible products were part of
the Electro-Optic Components business which was merged into the
Company's present four businesses. In fiscal year 1995, sales of fused
products declined 53% from the previous year due to the sale of a
substantial portion of that business in fiscal year 1994 while
shipments of flexible fiberoptics increased 40% from 1994.
Sales of medical endoscopes for minimally invasive surgery
applications were essentially unchanged from the 1994 level. The
Company continued to improve its existing products and developed
several low-cost, high-quality, single-use and limited re-use medical
endoscopes which underwent successful clinical trials and are being
actively marketed through medical instrument distributors in the
United States as well as abroad.
Significant progress was made in the development of the Company's
Fractal Fiberoptics imaging conduit which is being designed into small
diameter, low-cost endoscopes. Sales of medical endoscopes constituted
a small percentage of the Company's sales in fiscal year 1995. The
Company's medical endoscopes business is a developing business and was
not profitable at the operating profit level in fiscal year 1995.
Sales of medical products from Leisegang Medical, Inc., the Company's
wholly-owned subsidiary, increased 18% from fiscal year 1994 to fiscal
year 1995. The principal reason for this increase was the addition of
Leisegang's ultrasound equipment product line as a result of the
commencement of a distribution agreement between Leisegang and Pie
Medical Equipment B.V. In addition, Leisegang introduced its
electro-surgical products to the marketplace. Research and development
costs declined in fiscal year 1995 as the development work on these
electro-surgical products was completed.
The consolidation of manufacturing operations, which involved the
relocation of the medical endoscope, office and flexible fiberoptic
products from Forest, Virginia, to Sturbridge, Massachusetts, and
which was completed in fiscal year 1994, impacted fiscal year 1995
favorably due to the reduction of fixed costs and better utilization
of capacity. The consolidation was also largely responsible for
achieving a record level of productivity, as measured by sales per
employee. The reserves related to the consolidation, which were
established at the end of 1993, were adequate since the expenditures
were consistent with management's expectations. In fiscal year 1995,
these expenditures consisted primarily of maintenance costs for the
Forest, Virginia facility which was being actively marketed. At the
end of fiscal year 1995, the reserve balance was $290,000 which was
expected to be adequate for the anticipated ongoing expenses of that
facility for a portion of fiscal year 1996.
PAGE 12
<PAGE> 13
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL POSITION
Working capital at September 30, 1996, was $26,462,000, an increase of
$6,150,000 from the working capital balance of $20,312,000 at
September 30, 1995. Cash and short-term investments were $18,652,000
at the end of fiscal year 1996 as compared to $8,580,000 at the end of
the previous fiscal year, for an increase of $10,072,000. The increase
in working capital was primarily due to the increase in cash as well
as a decrease in accounts payable, partially offset by a decrease in
accounts receivable. The cash increase resulted from the cash
generated by profitable operations and, to a lesser degree, the
proceeds received from the sale of the Company's Forest, Virginia
facility in the second quarter of the year.
Capital expenditures amounted to $3,069,000 versus expenditures of
$1,239,000 in fiscal year 1995. The Company expects that its need for
capital in 1997 will be comparable to that in fiscal year 1996. The
Company's long-term obligations as of September 30,1996, consisted of
capitalized lease obligations for computer equipment. The nature of
the Company's business is such that its sales are not subject to
extended payment terms or return privileges, except for defective
goods. The Company does not anticipate a need for external financing
to support its currently planned operations.
PAGE 13
<PAGE> 14
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Consolidated Financial Statements and Consolidated
Financial Statement Schedule at pages 16 through 33 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
See "Executive Officers of the Registrant" at the end of Part
I of this report and the information contained in the Company's Proxy
Statement dated December 11, 1996, relating to the 1997 Annual
Meeting of Shareholders (the "Proxy Statement") under the captions
"Election of Directors" and "Share Ownership," which information is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
----------------------
See the information contained in the Proxy Statement under the
captions "Election of Directors -- Director Compensation," "Executive
Compensation" and "Compensation Committee Interlocks and Insider
Participation," which information is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
See the information contained in the Proxy Statement under the
heading "Share Ownership," which information is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Not applicable.
PAGE 14
<PAGE> 15
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Documents filed as a part of this Form 10-K
-------------------------------------------
1. Financial Statements.
The Financial Statements filed as a part of this Form 10-K are
listed on the Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedule on page 16.
2. Financial Statement Schedule.
The Financial Statement Schedule filed as a part of this Form
10-K is listed on the Index to Consolidated Financial
Statements and Consolidated Financial Statement Schedule on
page 16.
3. Exhibits.
The Exhibits filed as a part of this Form 10-K are listed on
the Exhibit Index on page 36.
(b) A Form 8-K was filed by the Registrant during the last quarter
of the period covered by this Form 10-K to report the
acquisition of Leisegang Medical, Inc., by the Registrant,
accounted for as a pooling of interests. Subsequent to the
period covered by the Form 10-K, the Registrant filed a Form
8K/A consisting of the financial statements and pro forma
financial information related to the acquisition.
PAGE 15
<PAGE> 16
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
ITEM 14(a)
Financial Statements:
- - - - - - - - - --------------------
Report of Independent Auditors 17
Consolidated Balance Sheets at September 30, 1996 and 1995 18
Consolidated Statements of Operations for the fiscal years ended
September 30, 1996, 1995 and 1994 20
Consolidated Statements of Changes in Shareholders' Equity for the
fiscal years ended September 30, 1996, 1995 and 1994 21
Consolidated Statements of Cash Flows for the fiscal years ended
September 30, 1996, 1995 and 1994 22
Notes to Consolidated Financial Statements 23
Supplementary Information:
- - - - - - - - - -------------------------
Unaudited Quarterly Financial Information 32
Schedule:
- - - - - - - - - --------
II. Valuation and qualifying accounts for the fiscal years ended
September 30, 1996, 1995 and 1994 33
Schedules Omitted:
- - - - - - - - - -----------------
All other schedules are omitted as they are not applicable or the information
is shown in the financial statements or notes thereto.
PAGE 16
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Galileo Corporation
We have audited the accompanying consolidated balance sheets of Galileo
Corporation as of September 30, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended September 30, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Galileo
Corporation at September 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Providence, Rhode Island
October 22, 1996 ERNST & YOUNG LLP
PAGE 17
<PAGE> 18
<TABLE>
CONSOLIDATED BALANCE SHEETS
---------------------------
<CAPTION>
September 30,
(Dollars in thousands) 1996 1995
- - - - - - - - - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,652 $ 8,580
Accounts receivable, less allowance of $184 in
1996 and $126 in 1995 5,710 7,585
Inventories:
Finished goods 1,402 1,439
Work-in-process 635 367
Raw materials 4,181 4,768
--------------------------------------
6,218 6,574
Deferred income taxes 368 435
Other current assets 230 97
Assets held for sale, net -- 2,345
--------------------------------------
Total current assets 31,178 25,616
Property, plant and equipment:
Land, buildings and improvements 16,593 16,147
Machinery, equipment and furniture 24,918 24,121
Capital projects in process 1,174 1,110
--------------------------------------
42,685 41,378
Less accumulated depreciation (23,457) (21,487)
--------------------------------------
Net property, plant and equipment 19,228 19,891
Other assets, net 2,658 2,666
--------------------------------------
Total assets $ 53,064 $ 48,173
======================================
</TABLE>
See accompanying notes.
PAGE 18
<PAGE> 19
<TABLE>
CONSOLIDATED BALANCE SHEETS
---------------------------
<CAPTION>
September 30,
(Dollars in thousands) 1996 1995
- - - - - - - - - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,425 $ 3,043
Note payable 542 69
Accrued liabilities 2,749 2,192
--------------------------------------
Total current liabilities 4,716 5,304
Deferred income taxes 529 596
Long-term obligation - Capital leases 132 174
Long-term note payable -- 542
Accrued postretirement benefits other than pensions 659 623
Shareholders' equity:
Common stock, $.01 par value, 18,000,000 shares
authorized; 6,825,442 shares issued and
outstanding in 1996 and 6,754,345 shares in 1995 68 68
Additional paid-in capital 42,694 42,285
Retained earnings (accumulated deficit) 4,266 (1,419)
--------------------------------------
Total shareholders' equity 47,028 40,934
--------------------------------------
Total liabilities and shareholders' equity $53,064 $48,173
======================================
</TABLE>
See accompanying notes.
PAGE 19
<PAGE> 20
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<CAPTION>
Years ended September 30,
(Dollars in thousands, except per share data) 1996 1995 1994
- - - - - - - - - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $42,634 $40,753 $35,937
Cost of sales 23,706 28,244 26,083
--------------------------------------------------
Gross profit 18,928 12,509 9,854
Operating expenses:
Engineering 4,018 3,554 3,942
Selling and administrative 9,698 7,779 7,508
--------------------------------------------------
13,716 11,333 11,450
--------------------------------------------------
Operating profit (loss) 5,212 1,176 (1,596)
Other income, net 404 305 213
--------------------------------------------------
Income (loss) before income taxes and
extraordinary gain 5,616 1,481 (1,383)
Provision for income taxes 89 82 69
--------------------------------------------------
Income (loss) before extraordinary gain 5,527 1,399 (1,452)
Extraordinary gain (net of taxes) 158 -- --
--------------------------------------------------
Net income (loss) $ 5,685 $ 1,399 $(1,452)
==================================================
Net income (loss) per common and common
equivalent share outstanding:
Before extraordinary gain $ .80 $ .21 $ (.22)
Extraordinary gain .02 -- --
--------------------------------------------------
Net income (loss) $ .82 $ .21 $ (.22)
==================================================
Weighted average common and common
equivalent shares outstanding 6,952,409 6,777,516 6,743,657
==================================================
</TABLE>
See accompanying notes.
PAGE 20
<PAGE> 21
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
<CAPTION>
Retained
Additional Earnings Total
Common Paid-In (Accumulated Shareholders'
(In thousands) Stock Capital Deficit) Equity
- - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 30, 1993 $68 $42,236 $(1,366) $40,938
Net loss -- -- (1,452) (1,452)
---------------------------------------------------------------
Balance, September 30, 1994 68 42,236 (2,818) 39,486
Net income -- -- 1,399 1,399
Exercise of stock options -- 49 -- 49
---------------------------------------------------------------
Balance, September 30, 1995 68 42,285 (1,419) 40,934
Net income -- -- 5,685 5,685
Exercise of stock options and related tax benefit -- 409 -- 409
---------------------------------------------------------------
Balance, September 30, 1996 $68 $42,694 $ 4,266 $47,028
===============================================================
</TABLE>
See accompanying notes.
PAGE 21
<PAGE> 22
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<CAPTION>
Years ended September 30,
(In thousands) 1996 1995 1994
- - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,685 $ 1,399 $(1,452)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Extraordinary gain on receipt and sale of stock (319) -- --
Depreciation and amortization 3,311 3,243 3,384
Provision for losses on accounts receivable, net 198 42 16
Loss (gain) on sale of fixed assets 358 (61) --
Gain on sale of marketable securities -- (29) --
Restructuring charge (18) -- --
Loss on cancellation of lease -- 37 --
Increase (decrease) in cash from changes in
operating assets and liabilities:
Accounts receivable 1,677 (1,851) 9
Refundable income taxes -- 17 17
Inventories 356 (327) (178)
Other current assets (133) 53 117
Other assets, net (60) 129 46
Accounts payable (1,618) 115 405
Accrued liabilities 545 249 (2,733)
Postretirement benefits 36 18 27
-------------------------------------------
Total adjustments 4,333 1,635 1,110
-------------------------------------------
Net cash provided (used) by operating activities $10,018 $ 3,034 $ (342)
Cash flows from investing activities:
Proceeds from sales of assets $ 2,418 $ 127 $ 1,279
Proceeds from receipt and sale of stock 403 -- --
Proceeds from sale of marketable securities -- 126 --
Capital expenditures (3,069) (1,239) (1,352)
-------------------------------------------
Net cash used in investing activities (248) (986) ( 73)
Cash flows from financing activities:
Proceeds from note payable to related party -- 27 --
Proceeds on notes payable -- -- 60
Payments on note payable to related party (69) (92) (26)
Payments on notes payable -- (60) --
Principal payments under capital lease (38) (58) (62)
Proceeds from issuance of common stock 409 49 --
-------------------------------------------
Net cash provided (used) by financing activities 302 (134) (28)
Net increase (decrease) in cash and cash equivalents 10,072 1,914 (443)
Cash and cash equivalents at beginning of year 8,580 6,666 7,109
-------------------------------------------
Cash and cash equivalents at end of year $18,652 $ 8,580 $ 6,666
===========================================
Supplemental cash flow information:
Interest payments $ 60 $ 64 $ 55
Income tax payments 132 129 81
</TABLE>
See accompanying notes.
PAGE 22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
-------------------
ORGANIZATION - The Company develops, manufactures and markets the following
three principal classes of products: devices which charge photoreceptors in
high-speed office copiers; components, assemblies and systems which
transmit, sense or intensify light, images or atomic particles; and
diagnostic and surgical equipment principally for obstetrics or
gynecological applications. These products are sold primarily to original
equipment manufacturers for applications in electronic imaging, analytical
instrumentation, office equipment, medical instrumentation and process
analysis and, in the case of medical instruments, to doctors and hospitals.
The majority of the Company's customers are located in North America with
most international customers in Europe and the Far East.
CONSOLIDATION - The consolidated balance sheets at September 30, 1996 and
1995, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the
period ended September 30, 1996, include the accounts of Galileo
Corporation and its wholly-owned subsidiaries. Intercompany transactions
have been eliminated in consolidation.
CASH FLOWS - For purposes of the statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months or
less at the time of purchase to be cash equivalents.
In 1995, the capital leases pertaining to computer equipment then in effect
were replaced with a new capital lease obligation of $180,000 for new
computer equipment.
INVENTORIES - Inventories are valued at the lower of cost (first in, first
out) or market.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is computed using either the
straight-line or accelerated methods. The estimated useful lives used in
computing depreciation and amortization are:
Buildings and improvements 10-30 years
Machinery, equipment and furniture 3-10 years
ENGINEERING EXPENSE - Engineering expense includes research and
development, engineering support of manufacturing operations relating to
problem solving and process improvement, the preparation of bids and
proposals and sales support of customers. The amounts charged to income for
research and development were approximately $3,220,000, $3,054,000 and
$3,755,000 for fiscal years 1996, 1995 and 1994, respectively.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE - Net income per common
and common equivalent share is computed using the weighted average number
of common and common equivalent shares outstanding. The exercise of stock
options has not been assumed for fiscal year 1994 because the effect was
antidilutive.
GOODWILL - Goodwill, which is included in other assets, is being amortized
on a straight-line basis over a period of 40 years.
REVENUE RECOGNITION - The Company records a sale and recognizes revenue
when title passes to the customer or when services are performed in
accordance with contracts.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
PAGE 23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATION - Certain reclassifications have been made to the amounts
in the 1996, 1995 and 1994 financial statements.
EXTRAORDINARY GAIN - In the first quarter of fiscal year 1996, the Company
recognized an extraordinary gain on the receipt and sale of stock of
$158,000, net of applicable income taxes of $160,000, following the
demutualization of the Company's health insurance carrier.
CURRENT ACCOUNTING DEVELOPMENTS - In March 1995 the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of," which the
Company is required to adopt effective with its fiscal year 1997 which ends
September 30, 1997. Under the definition of Impaired Assets included in
this Statement, the Company has certain assets primarily related to its
Medical Products business, consisting principally of robotic assembly
equipment which are underutilized and which may be impaired.
The Company anticipates that the book value of these assets may be adjusted
in fiscal year 1997 to their current fair market value for a potential net
write-down of $2,200,000. The Company is in the process of a) determining
when these assets will no longer be impaired as a result of increased
manufacturing volume; b) determining whether or not these assets can be
productively employed in applications other than those originally intended
in one of the Company's current operations other than the Medical Products
business; c) utilizing these assets in operations of other companies which
are currently being considered as possible acquisitions or; d) exploring
the possible sale or donation of these assets. The Company anticipates
making a decision regarding these assets and the possible write-down early
in fiscal year 1997.
In October 1995 the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." This statement
encourages the expensing of the fair value of employee stock options but
allows the continuance of current practice with disclosure of the pro forma
effect on net income had the fair value of the options been expensed. The
Company expects to continue to account for stock option grants in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," as allowed under the provisions of Statement
No. 123, and accordingly, recognizes no compensation expense for these
grants.
2. ACQUISITION
-----------
On August 6, 1996, the Company acquired Leisegang Medical, Inc., by issuing
269,913 shares of its common stock in exchange for all of the outstanding
common stock of Leisegang. The acquisition was accounted for as a pooling
of interests with Leisegang becoming a wholly-owned subsidiary of the
Company. Accordingly, the Company's consolidated financial statements have
been restated to include the accounts and operations of Leisegang Medical,
Inc., for all periods prior to the merger. Leisegang Medical, headquartered
in Boca Raton, Florida, is a distributor and manufacturer of OB/GYN
diagnostic and surgical equipment. Included in its product line are
colposcopes, biopsy instruments, ultrasound equipment, video equipment,
laser and electro-surgical systems and accessories, cryosurgery equipment,
surgical instruments, rigid and flexible hysteroscopes, bone densitometers
and fetal heart monitors. These products are sold to OB/GYN doctors'
offices and to hospitals through an internal sales force and by
manufacturers' representatives.
PAGE 24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Separate results of operations of the merged entities are presented in the following table:
<CAPTION>
Years ended September 30,
1996 1995 1994
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Net sales
Galileo $36,438 $34,043 $30,241
Leisegang 6,196 6,710 5,696
----------------------------------------------
Total 42,634 40,753 35,937
Extraordinary gain (net of taxes)
Galileo 158 -- --
Leisegang -- -- --
----------------------------------------------
Total 158 -- --
Net income (loss)
Galileo 6,124 1,110 (1,121)
Leisegang 250 289 (331)
Merger and acquisition
expenses (689) -- --
----------------------------------------------
Net income (loss) $ 5,685 $ 1,399 $(1,452)
==============================================
</TABLE>
In connection with the acquisition, $689,000 of acquisition costs and
expenses were incurred and have been charged to expenses in the fourth
quarter of 1996. The acquisition costs and expenses consisted primarily of
legal, accounting and broker fees.
3. RETIREMENT PLANS
----------------
PENSION PLAN - The Company has a noncontributory pension plan covering
substantially all employees who joined the Company prior to January 1,
1995. None of the employees of Leisegang Medical, Inc., the Company's
wholly owned subsidiary, are eligible to participate in the Pension Plan
since Leisegang Medical, Inc., was acquired in fiscal year 1996. The Plan
provides pension benefits based upon years of service and average
compensation during the five years preceding retirement. The Company's
policy is to fund the maximum amount that can be deducted for federal
income tax purposes.
<TABLE>
Net pension cost consists of:
<CAPTION>
Years ended September 30,
1996 1995 1994
------------------------------------
(In thousands)
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 254 $ 245 $ 256
Interest cost on projected benefit obligations 490 469 447
Actual return on assets (317) (1,447) 495
Net amortization and deferral (404) 854 (1,169)
------------------------------------
$ 23 $ 121 $ 29
====================================
</TABLE>
The assumptions used in calculating pension expense included discount rates
of 8% and expected long-term rates of return on Plan assets of 9%. In
addition, the rate of increase in compensation levels was assumed to be 5%
for 1996 and 1995, and 5.5% for 1994.
PAGE 25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The following table sets forth the Plan's funded status and the amounts
recognized in the Company's Consolidated Balance Sheets at September 30,
1996 and 1995, for the Plan:
<CAPTION>
Years ended September 30,
1996 1995
---------------------------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $(4,861) $(4,661)
===========================
Accumulated benefit obligations $(5,021) $(4,986)
===========================
Projected benefit obligations for services
rendered to date $(6,531) $(6,215)
Plan assets at fair value 7,633 7,564
---------------------------
Plan assets in excess of projected benefit
obligations 1,102 1,349
Unrecognized prior service cost (71) (77)
Unrecognized net loss 188 50
Unrecognized net asset (435) (481)
---------------------------
Prepaid pension costs included in other assets $ 784 $ 841
===========================
</TABLE>
TAX DEFERRED SAVINGS PLAN - The Company has a tax deferred savings plan
under Section 401(k) of the Internal Revenue Code under which, subject to
certain limitations, each eligible employee may contribute up to 15% of
gross wages per year. The Company matches 50% of the first 6% of employee
contributions. Company contributions to the Plan were approximately
$146,000, $139,000 and $126,000 in fiscal years 1996, 1995 and 1994,
respectively.
LEISEGANG MEDICAL, INC., PROFIT SHARING PLAN - The Company's wholly-owned
subsidiary, Leisegang Medical, Inc., has had a discretionary,
noncontributory profit sharing plan available to essentially all full-time
employees. In August 1996 the Plan was terminated and distributions were
made to employees according to each employee's vested percentage. On August
6, 1996, the effective date of the acquisition of Leisegang Medical, Inc.,
by the Company, all participants in the profit sharing plan became eligible
to participate in the Galileo Employee 401(k) Plan. Expenses for the Plan
were $30,000, $60,000 and $60,000 in fiscal years 1996, 1995 and 1994,
respectively.
OTHER RETIREMENT PLANS - In addition to the Company's defined benefit
pension plan, the Company sponsors a defined benefit postretirement medical
and life insurance plan. Employees who retire from the Company and who have
attained age 65 with 15 years of service (10 years of service for employees
hired before October 1, 1989) and who were hired prior to October 1, 1993,
are eligible. Employees who retired prior to October 1, 1989, are not
required to contribute; employees who retired after October 1, 1989,
contribute a portion of the cost beyond a Company subsidy. The Plan is
not funded.
PAGE 26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The actuarial and recorded liabilities for the Plan were as follows:
<CAPTION>
Years ended September 30,
1996 1995
-------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation: (In thousands)
Retirees $428 $391
Fully eligible active plan participants 21 21
Other active plan participants 131 160
---------------------
Accumulated postretirement benefit obligation 580 572
Plan assets at fair value -- --
---------------------
Unfunded accumulated benefit obligation in excess of plan assets 580 572
Unrecognized net gain 79 51
---------------------
Accrued postretirement benefit cost $659 $623
=====================
Net periodic postretirement benefit cost in 1996 and 1995
includes the following components:
Service cost $ 9 $ 12
Interest cost 44 43
---------------------
Net periodic postretirement benefit cost $ 53 $ 55
=====================
</TABLE>
For measurement purposes, a 9.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for fiscal year 1996. The
rate was assumed to decrease gradually down to 6% for fiscal year 2003 and
remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing
the assumed health care cost trend rate one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
September 30, 1996, by $30,000 (or by 5.2%) and the aggregate of the service
and interest cost components of the net periodic postretirement benefit cost
for fiscal year 1996 by $3,200 (or by 6.0%).
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8%. As the plan is unfunded, no
assumption was needed as to the long-term rate of return on assets.
PAGE 27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LEASE COMMITMENTS
-----------------
<TABLE>
The cost of computer equipment capitalized under capital lease agreements
approximated $174,000 and $180,000 as of September 30, 1996 and 1995,
respectively. Associated accumulated amortization as of September 30, 1996
and 1995, approximated $71,000 and $18,000, respectively. Future minimum
lease payments relating to the computer equipment under capital leases as of
September 30, 1996, are as follows:
<CAPTION>
<S> <C>
1997 56,750
1998 56,750
1999 56,750
2000 36,500
--------
Total minimum lease payments 206,750
Less amount representing imputed interest 32,750
--------
Net present value, minimum lease payments 174,000
Less current portion 42,000
--------
Long-term portion of lease obligation $132,000
========
</TABLE>
Minimum rental commitments under all noncancelable operating leases,
primarily machinery and equipment, as well as office and manufacturing space
for Leisegang Medical, Inc., in effect at September 30, 1996, are $180,000,
$67,000, $31,000 and $14,000 in fiscal years 1997, 1998, 1999 and 2000,
respectively.
Total rental expense for all operating leases was approximately $246,000,
$243,000 and $236,000 in fiscal years 1996, 1995 and 1994, respectively.
5. NOTE PAYABLE
------------
The Company had a 7% note payable of $542,000 at September 30, 1996, to a
former shareholder of Leisegang Medical Inc., which was paid in full on
October 17, 1996.
6. COMMON STOCK
------------
EMPLOYEE STOCK OPTION PLAN - Under the Company's 1991 Stock Option Plan,
which succeeded the 1981 Stock Option Plan, the Plan Administrative
Committee of the Board of Directors may grant options to purchase common
stock to officers and key employees of the Company and its subsidiaries. The
stock options are exercisable at a price not less than the fair market value
of the common stock on the date of grant. The Plan also provides that the
Committee may issue stock appreciation rights. The exercise price of the
stock appreciation rights may not be less than the fair market value of the
common stock on the date of grant or if issued with a stock option, the
exercise price of the related option. Stock appreciation rights provide for
the issuance of common stock, or the payment of cash, or a combination of
both equal to the difference between the exercise price of the stock
appreciation right and the fair market value of the common stock on the date
of exercise.
PAGE 28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Transactions during the last three years under the 1981 Stock Option Plan
and the 1991 Stock Option Plan are summarized as follows:
<CAPTION>
Shares Price Range Aggregate
-----------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 30, 1993 243,670 $ 4.375 7.500 $1,254,000
Granted 15,000 3.000 - 3.625 51,250
Exercised -- -- --
Canceled (46,267) 3.625 - 7.500 (271,239)
------- ----------
Balance, September 30, 1994 212,403 3.000 - 7.500 1,034,011
Granted 92,000 4.625 - 8.250 722,125
Exercised (10,778) 4.438 - 4.625 (49,287)
Canceled (41,778) 3.625 - 7.500 (189,443)
------- ----------
Balance, September 30, 1995 251,847 3.000 - 8.250 1,517,406
Granted 102,000 10.375 - 30.375 1,520,750
Exercised (68,597) 4.375 - 8.250 (380,610)
Canceled (6,000) 7.500 - 17.875 (96,875)
------- ----------
Balance, September 30, 1996 279,250 $ 3.000 - 30.375 $2,560,671
</TABLE>
As of September 30, 1996, 118,000 option shares were available for grant
under the 1991 Plan, and 103,500 options were exercisable at prices ranging
from $3.00 to $8.250, aggregating approximately $539,295 under the 1981 and
1991 Plans. The remainder of the outstanding options become exercisable on
various dates through 2000.
DIRECTOR STOCK OPTION PLAN - The Company's 1989 Director Stock Option Plan
was amended in 1996 to increase the number of shares of Common Stock
available for grants to an aggregate of 200,000 shares and to change the
grant formula to grant each non-employee director options to purchase 2,500
shares of common stock on the director's election at each Annual Meeting of
Shareholders of the Company. Under the Plan, which became the 1996 Director
Stock Option Plan, options become exercisable one year after grant or
earlier upon the death or disability of the director and upon a change in
control of the Company, as defined in the Plan. No option may be exercised
more than one year after the director's termination as a director for any
reason. The option exercise price is the fair market value of the common
stock on the date of grant.
Under the Director Stock Option Plan, options to purchase 10,000 shares of
common stock were granted in fiscal year 1996, and as of September 30, 1996,
20,000 shares were exercisable at prices ranging from $5.25 to $9.00 per
share, aggregating $162,422. Options covering 162,500 shares remain
available for grant under the Plan.
No accounting recognition is given to stock options until they are
exercised, at which time the proceeds are credited to the capital accounts.
The Company recognizes a tax benefit upon exercise of nonstatutory options
in an amount equal to the difference between the option price and the fair
market value of the common stock. With respect to incentive stock options,
tax benefits arising from disqualifying dispositions are recognized at the
time of disposition. Tax benefits related to stock options are credited to
additional paid-in capital.
EMPLOYEE STOCK PURCHASE PLAN - The Company has an Employee Stock Purchase
Plan under which it contributes up to 37.5% of amounts contributed by
participating employees to a combined maximum of $1,375 per calendar year.
All contributions are made to a trust for investment in the
PAGE 29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's common stock. Shares are purchased in the open market. The Plan
held 23,159 and 26,357 shares at September 30, 1996 and 1995, respectively.
7. MAJOR CUSTOMERS AND EXPORT SALES
--------------------------------
Sales were made to Xerox Corporation in an amount exceeding 10% of
consolidated revenues in fiscal years 1996, 1995 and 1994. Sales to this
customer were $20,350,000, $17,674,000 and $14,330,000 in fiscal years 1996,
1995 and 1994, respectively.
Export sales to various foreign customers amounted to approximately
$8,716,000, $7,371,000 and $5,857,000 in fiscal years 1996, 1995 and 1994,
respectively. In addition, sales to domestic affiliates of foreign customers
and to domestic customers, both for export by the purchaser, amounted to
approximately $287,000, $325,000 and $837,000 in fiscal years 1996, 1995 and
1994, respectively.
At September 30, 1996 and 1995, accounts receivable from Xerox Corporation,
represented approximately 44% and 51%, respectively, of total accounts
receivable. The Company extends credit based on evaluating individual
customers' financial condition, and collateral is generally not required.
Credit losses are provided for in the financial statements and have
historically been within management's expectations.
8. INCOME TAXES
------------
<TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of
September 30, 1996 and 1995, respectively, are as follows:
<CAPTION>
Years ended September 30,
1996 1995
-------------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 2,448 $ 2,629
Pension cost 351 329
-----------------------
Total deferred tax liabilities 2,799 2,958
-----------------------
Deferred tax assets:
Inventory adjustments 202 577
Restructuring accruals 8 124
Other accruals 700 673
Net operating loss carryforwards 3,303 5,459
General business credits 1,280 1,188
-----------------------
Total deferred tax assets 5,493 8,021
Valuation allowance for deferred tax assets (2,855) (5,224)
-----------------------
Net deferred tax assets 2,638 2,797
-----------------------
Net deferred tax liabilities $ 161 $ 161
=======================
</TABLE>
The net change in the total valuation allowance for the fiscal years ended
September 30, 1996 and 1995, amounted to a decrease of $2,369,000 and an
increase of $65,000, respectively.
PAGE 30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Significant components of the provision for income taxes from continuing
operations are as follows:
<CAPTION>
Years ended September 30,
1996 1995 1994
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 170 $-- $--
State 72 82 69
---------------------------------------
242 82 69
Deferred:
Federal (116) -- --
State (37) -- --
---------------------------------------
(153) -- --
---------------------------------------
Total $ 89 $82 $69
=======================================
</TABLE>
<TABLE>
The reconciliation of the statutory federal income tax rate and the
effective tax rate from continuing operations is as follows:
<CAPTION>
Years ended September 30,
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Income tax per statutory rate 34.0% 34.0% 34.0%
Utilization of net operating loss
carryforwards (33.0) (32.9) --
Loss on which no income tax benefits realized -- -- (34.8)
State income taxes, net of federal income
tax benefit 0.8 4.5 (3.8)
Other (0.2) 1.3 (2.0)
--------------------------------------
1.6% 6.9% (6.6)%
======================================
</TABLE>
At September 30, 1996, the Company had net operating loss carryforwards of
$8,266,000 for federal income tax purposes that expire in years 2007 through
2010.
PAGE 31
<PAGE> 32
<TABLE>
QUARTERLY FINANCIAL INFORMATION
<CAPTION>
(In thousands, except per share data) (Unaudited)
FISCAL YEAR 1996 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
- - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,972 $10,632 $11,152 $10,878
Cost of sales 6,105 6,501 6,013 5,087
--------------------------------------------------------
Gross profit 3,867 4,131 5,139 5,791
Operating expenses 2,723 3,487 3,558 3,948
--------------------------------------------------------
Operating profit 1,144 644 1,581 1,843
Other income, net 115 208 211 (130)
--------------------------------------------------------
Income before income taxes and extraordinary gain 1,259 852 1,792 1,713
Provision (benefit) for income taxes (107) 25 33 138
Extraordinary gain 158 -- -- --
--------------------------------------------------------
Net income $ 1,524 $ 827 $ 1,759 $ 1,575
========================================================
Net income per common and common
equivalent share $ .22 $ .12 $ .25 $ .23
========================================================
FISCAL YEAR 1995 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
- - - - - - - - - ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $ 8,845 $9,945 $10,442 $11,521
Cost of sales 6,391 6,824 7,503 7,526
--------------------------------------------------------
Gross profit 2,454 3,121 2,939 3,995
Operating expenses 2,817 2,977 2,591 2,948
--------------------------------------------------------
Operating profit (loss) (363) 144 348 1,047
Other income, net 83 (34) 143 113
--------------------------------------------------------
Income (loss) before income taxes (280) 110 491 1,160
Provision for income taxes 24 16 24 18
--------------------------------------------------------
Net income (loss) $ (304) $ 94 $ 467 $ 1,142
========================================================
Net income (loss) per common and common
equivalent share $ (.05) $ .01 $ .07 $ .17
========================================================
<FN>
Note: Results have been restated to reflect the acquisition in fiscal year 1996 of Leisegang Medical, Inc., on a
pooling of interests basis.
</TABLE>
PAGE 32
<PAGE> 33
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<CAPTION>
- - - - - - - - - ------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - - - - - - - - ------------------------------------------------------------------------------------------------------------
Additions Additions Deductions
Balance at charged to charged to written off Balance at
beginning cost and other against end of
Description of period expenses accounts reserve period
- - - - - - - - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1994:
- - - - - - - - - ------------------
Allowance for
doubtful accounts 470 16 -- 334 152
SEPTEMBER 30, 1995:
- - - - - - - - - ------------------
Allowance for
doubtful accounts 152 42 -- 68 126
SEPTEMBER 30, 1996:
- - - - - - - - - ------------------
Allowance for
doubtful accounts 126 198 -- 140 184
</TABLE>
PAGE 33
<PAGE> 34
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 18, 1996 GALILEO CORPORATION
/s/ William T. Hanley
---------------------------------
William T. Hanley, President
and Chief Executive Officer
PAGE 34
<PAGE> 35
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on December 18, 1996.
/s/ William T. Hanley
--------------------------------------------------
William T. Hanley, President and Chief Executive
Officer and Director (Principal Executive Officer)
/s/ Gregory Riedel
--------------------------------------------------
Gregory Riedel, Vice President, Finance
(Principal Financial and Accounting Officer)
/s/ William T. Burgin
--------------------------------------------------
William T. Burgin
Director
/s/ Allen E. Busching
--------------------------------------------------
Allen E. Busching
Director
/s/ Kenneth W. Draeger
--------------------------------------------------
Kenneth W. Draeger
Director
/s/ Robert D. Happ
--------------------------------------------------
Robert D. Happ
Director
PAGE 35
<PAGE> 36
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit Page
- - - - - - - - - ------- ----
<S> <C> <C>
2.1 Agreement and Plan of Merger dated July 17, 1996, among the Registrant,
a wholly-owned subsidiary of the Registrant, Leisegang Medical, Inc., and
the principal shareholders of Leisegang, under which the Registrant
acquired Leisegang, effective August 6, 1996 (Filed as exhibit 2.1 to the
Registrant's Form 8-K, file no. 33-13752, and hereby incorporated herein
by reference).
2.2 Promissory Note from Incom, Inc. to the Company dated September 29,
1994 (filed as exhibit 2.4 to the Registrant's Form 10-K for the
year ended September 30, 1994, file no. 0-11309, and hereby
incorporated by reference).
3.1 Registrant's Restated Certificate of Incorporation and amendment thereto
(filed as exhibit 4.1 to the Registrant's registration statement on Form
S-2, file no. 33-13752, and hereby incorporated herein by reference).
3.2 Registrant's amended and restated By-Laws (filed as exhibit 4.2 to the
Registrant's registration statement on Form S-2, file no. 33-13752, and
hereby incorporated herein by reference).
4.1 Specimen Certificate of the Registrant's Common Stock (filed as exhibit
4.1 to the Registrant's registration statement on Form S-2, file no.
33-13752, and hereby incorporated herein by reference).
10.1 Stock option plan adopted October 23, 1991 (filed as an exhibit to
the Registrant's proxy statement dated December 17, 1991, and
hereby incorporated herein by reference).
10.2 Director stock option plan adopted November 10, 1995 (filed as an
exhibit to the Registrant's proxy statement dated December 11,
1995, and hereby incorporated by reference.)
11 Computation of net income (loss) per common and common equivalent
share. 38
23 Consent of Independent Auditors for incorporation by reference in
previously filed Registration Statements. 39
27 Financial Data Schedule (for electronic filing only).
</TABLE>
Executive Compensation Plans and Arrangements
- - - - - - - - - ---------------------------------------------
Exhibits 10.1 and 10.2 are management contracts or compensatory plans or
arrangements in which the executive officers or directors of the Company
participate.
PAGE 36
<PAGE> 1
EXHIBIT 11
<TABLE>
COMPUTATION OF NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
<CAPTION>
Fiscal years ended September 30,
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Average common shares outstanding 6,794,662 6,747,715 6,743,567
Net effect of dilutive stock options - based on
the treasury stock method using average market
price 157,747 29,801 --
---------------------------------------------------
Total 6,952,409 6,777,516 6,743,567
Net income (loss) $5,685,000 $1,399,000 $(1,452,000)
Per share amount $ 0.82 $ 0.21 $ (0.22)
===================================================
FULLY DILUTED
Average common shares outstanding 6,794,662 6,747,715 6,743,567
Net effect of dilutive stock options - based on
the treasury stock method using the quarter-
end market price, if higher than average 158,757 29,801 --
market price
---------------------------------------------------
Total 6,953,419 6,777,516 6,743,567
Net income (loss) $5,685,000 $1,399,000 $(1,452,000)
Per share amount $ 0.82 $ 0.21 $ (0.22)
===================================================
</TABLE>
PAGE 37
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, Nos. 2-92671, 33-5142, 33-47589, 33-47588 and 333-02435) pertaining
to the Stock Option and Purchase Plans of Galileo Corporation of our report
dated October 22, 1996, with respect to the consolidated financial statements
and schedule of Galileo Corporation included in the Annual Report (Form 10-K)
for the year ended September 30, 1996.
Providence, Rhode Island ERNST & YOUNG LLP
December 16, 1996
PAGE 38
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 18,652
<SECURITIES> 0
<RECEIVABLES> 5,710
<ALLOWANCES> 184
<INVENTORY> 6,218
<CURRENT-ASSETS> 31,178
<PP&E> 19,228
<DEPRECIATION> 23,457
<TOTAL-ASSETS> 53,064
<CURRENT-LIABILITIES> 4,248
<BONDS> 0
68
0
<COMMON> 0
<OTHER-SE> 46,960
<TOTAL-LIABILITY-AND-EQUITY> 53,064
<SALES> 42,634
<TOTAL-REVENUES> 42,634
<CGS> 23,724
<TOTAL-COSTS> 23,724
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,616
<INCOME-TAX> 89
<INCOME-CONTINUING> 5,527
<DISCONTINUED> 0
<EXTRAORDINARY> 158
<CHANGES> 0
<NET-INCOME> 5,685
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
</TABLE>
