<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 of 15(d) of the Securities Exchange Act
1934
For the quarterly period ended JUNE 30, 1997
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
--- ---
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 JUNE 30, 1997
- --------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE $.01 6,856,250 SHARES
PAGE 1 OF 15
<PAGE> 2
GALILEO CORPORATION
INDEX
PART I. Financial Information: Page No.
---------
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets at
June 30, 1997, and September 30, 1996................... 3
Consolidated Condensed Statements of Income for the
three and nine months ended June 30, 1997, and June
30, 1996................................................ 4
Consolidated Condensed Statements of Cash Flows for
the nine months ended June 30, 1997, and June 30,
1996.................................................... 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 6.
Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE> 3
GALILEO CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Jun. 30, 1997 Sept. 30, 1996
-------------------------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,408 $ 18,652
Accounts receivable, net 4,578 5,710
Inventories, net (Note 5) 6,412 6,218
Other current assets 393 598
-------- --------
Total current assets 22,791 31,178
Property, plant and equipment, net 14,729 19,228
Excess of cost over the fair value of 3,906 --
assets acquired, net
Other assets, net 1,544 2,658
-------- --------
Total assets $ 42,970 $ 53,064
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued
liabilities $ 4,656 $ 4,174
Other current liabilities -- 542
-------- --------
Total current liabilities 4,656 4,716
Other liabilities 1,199 1,320
Shareholders' equity:
Common stock 69 68
Additional paid-in capital 42,839 42,694
(Accumulated deficit) / retained
earnings (5,793) 4,266
-------- --------
Total shareholders' equity 37,115 47,028
-------- --------
Total liabilities and shareholders' equity $ 42,970 $ 53,064
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
<PAGE> 4
GALILEO CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
June 30, June 30,
1997 1996 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 7,516 $ 11,152 $ 25,948 $ 31,756
Cost of sales 5,499 6,013 16,733 18,619
-------- -------- -------- --------
Gross profit 2,017 5,139 9,215 13,137
Engineering expenses 1,361 1,058 3,844 2,885
Selling and administrative
expenses 2,355 2,500 6,868 6,883
Reduction in carrying value
of certain long-lived
assets (Note 2) -- -- 2,226 --
Reorganization costs (Note 2) -- -- 6,872 --
-------- -------- -------- --------
3,716 3,558 19,810 9,768
-------- -------- -------- --------
Operating profit (loss) (1,699) 1,581 (10,595) 3,369
Other income 198 211 691 534
-------- -------- -------- --------
Income (loss) before income
taxes and extraordinary gain (1,501) 1,792 (9,904) 3,903
Provision (benefit) for
income taxes 12 33 153 (49)
-------- -------- -------- --------
Income (loss) before extraordinary gain (1,513) 1,759 (10,057) 3,952
Extraordinary gain on receipt and sale of
stock, net of taxes -- -- -- 158
======== ======= ======== ========
Net income (loss) (1,513) 1,759 (10,057) 4,110
======== ======== ======== ========
Net income (loss) per common and common
equivalent share outstanding
Before extraordinary gain ($ 0.22) $ 0.25 ($ 1.47) $ 0.57
Effect of extraordinary gain -- -- -- $ 0.02
-------- -------- -------- --------
Net income (loss) ($ 0.22) $ 0.25 ($ 1.47) $ 0.59
======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding 6,854 7,006 6,846 6,935
</TABLE>
See Notes to Consolidated Condensed Financial Statements
4
<PAGE> 5
GALILEO CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine
months ended
June 30,
1997 1996
-----------------------
<S> <C> <C>
Net income (loss) $(10,057) $ 4,110
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 2,363 2,557
Reduction in carrying value of certain
long-lived assets 2,226 --
Reorganization provisions 6,451 --
Increase in cash from changes in
operating assets and liabilities:
Accounts receivable 1,284 1,496
Inventories (1,012) 589
Accounts payable and accrued liabilities 495 (994)
Other changes, net (211) (511)
-------- --------
Total adjustments 11,596 2,818
-------- --------
Net cash provided by operating activities 1,539 6,928
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from receipt and sale of stock -- 403
Proceeds from sale of assets -- 2,412
Capital expenditures (2,854) (2,395)
Acquisitions (5,500) --
-------- --------
Net cash provided (used) in investing activities (8,354) 420
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Payments on notes payable (542) (51)
Proceeds from issuance of common stock 145 311
Other financing activities (32) (28)
-------- --------
Net cash provided (used) by financing activities (429) 232
Net increase (decrease) in cash and cash equivalents (7,244) 7,580
Cash and cash equivalents at beginning of period 18,652 8,580
======== ========
Cash and cash equivalents at end of period $ 11,408 $ 16,160
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
5
<PAGE> 6
GALILEO CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring adjustments, except for the items discussed in Note 2
below) necessary to present fairly Galileo Corporation's (the Company)
financial position as of June 30, 1997, the results of operations for the
three and nine month periods ended June 30, 1997, and cash flows for the
nine months ended June 30, 1997, in conformity with generally accepted
accounting principles for interim financial information applied on a
consistent basis. The results of operations for the three and nine months
ended June 30, 1997, 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.
2. As a result of the loss of its then largest customer in its second fiscal
quarter, the Company announced a reorganization plan. In connection with
this plan, the Company recorded a nonrecurring charge of $6,872, $1.00 per
share, in the three months ended March 31, 1997. In the first quarter of
fiscal 1997, the Company recorded a $2,226, or $0.32 per share,
nonrecurring, noncash charge to reduce certain robotic assembly equipment
to its estimated fair market value. Excluding the impact of these charges,
the net loss for the nine months ended June 30, 1997, was $959, or $0.14
per share.
3. On February 28, 1997, the Company acquired the Sani-Spec(TM) business from
C.R. Bard, Inc., for $5,500. The acquisition was accounted for using the
purchase method of accounting and accordingly, results of Sani-Spec's
operations are included in the accompanying statement of operations from
the date of acquisition. Assuming that the acquisition had been made as of
the beginning of fiscal 1996, results for the Company on a pro forma basis,
would have been as follows:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
June 30, June 30,
1996 1997 1996
------------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 12,077 $ 27,490 $ 34,531
Net income (loss) 1,887 (9,844) 4,494
Net income (loss) per share $ 0.27 $ (1.44) $ 0.65
</TABLE>
6
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4. Results for the three and nine months ended June 30, 1996, 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 and nine months ended June 30, 1996, Leisegang Medical, Inc.'s, net
income was $263 and $265, respectively.
5. Classification of inventories is:
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
---------- -------------
<S> <C> <C>
Finished goods $2,060 $1,402
Work-in-progress 549 635
Raw materials 3,803 4,181
------ ------
$6,412 $6,218
====== ======
</TABLE>
6. In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted by December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact on
the calculation of primary and fully diluted earnings per share is not
expected to be material.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
- --------
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 scientific, analytical, medical,
electronic imaging and office product applications. The Company's 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 then
largest customer, Xerox Corporation, that Xerox had 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 fiscal 1996 revenues and approximately
$3.8 million, or 39%, and $2.7 million, or 31%, of revenues for the Company's
first and second fiscal quarters of 1997, respectively. 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. In connection with this loss of business, the
Company adopted a reorganization plan and recorded a charge of $6.9 million in
the three months ended March 31, 1997. The charge includes a noncash $6.5
million provision for related long-lived assets, other assets and inventory, and
a $0.4 million provision for related severance and other obligations.
The Company's Scientific Detector Products include detectors and sensors which
are used in various instruments in a wide range of markets including
semiconductor processing, life sciences, food processing, bulk and specialty
chemicals, petroleum refining, biotechnology, failure analysis and quality and
process control.
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 acquisitions of
Leisegang Medical, Inc. and the Sani-Spec(TM) business from C.R. Bard, Inc.,
more fully discussed below, position 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.
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,
8
<PAGE> 9
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 Medical 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 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.
On February 28, 1997, the Company acquired the Sani-Spec(TM) business from C.R.
Bard, Inc. The Sani-Spec product line includes a comprehensive suite of women's
health-related products used by OB/GYN physicians, clinics and hospitals
including Sani-Spec single-use vaginal speculums, Sani-Scope(TM) anoscopes, Spec
Light(TM) speculum lights and Pap Smear kits. The product line is marketed
through a nationwide network of approximately 80 dealers and has been a market
leader for over 20 years. Last year's revenues were in excess of $4.0 million,
representing approximately 40% of the domestic market.
The Company's Fluorolase(R) fiberoptic-based optical amplifier product is used
in applications for telecommunications as well as high speed data and video
transmission. Currently, this product is being tested in these markets and the
Company believes that the Fluorolase product offers significant future growth
opportunities.
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 99.1 to
the Company's December 31, 1996, SEC Form 10-Q and incorporated herein.
9
<PAGE> 10
RESULTS OF OPERATIONS
- ---------------------
Sales for the three and nine months ended June 30, 1997, of $7.5 million and
$25.9 million decreased 33% and 18%, respectively, from the comparable
prior-year periods. Reduced revenues resulted primarily from the loss of the
Company's largest customer more fully discussed in the "Overview" section above.
The Company completed final shipments to this customer during its second
quarter. Excluding sales activity for this customer, revenues for the three
months ended June 30, 1997, increased 28% and 23% over revenues from the
comparable prior year period and the Company's second fiscal quarter of 1997,
respectively.
Gross profit (as a percentage of revenues) of 26.8% and 35.5% for the three and
nine months ended June 30, 1997, decreased from 46.1% and 41.4% from the
comparable prior year periods, respectively, primarily due to the impact of
reduced revenues on fixed manufacturing expenses.
Engineering expenses increased to $1.4 million and $3.8 million from $1.1
million and $2.9 million for the three and nine months ended June 30, 1997,
respectively, primarily due to increased spending to support the development of
the medical and Fluorolase products.
Selling and administrative expenses remained relatively stable for the three and
nine months ended June 30, 1997, from comparable prior-year periods.
As a result of the loss of its then largest customer more fully described in the
"Overview" section above, the Company announced a reorganization plan. In
connection with this plan, the Company recorded a nonrecurring charge of $6.9
million, or $1.00 per share, in the three months ended March 31, 1997. In the
first quarter of fiscal 1997, the Company recorded a $2,226, or $0.32 per share,
nonrecurring charge to reduce the value of certain robotic assembly equipment to
its estimated fair market value. Excluding the impact of these charges, net
income for the nine months ended June 30, 1997, was a loss of $1.0 million or
$0.14 per share.
Other income principally relates to interest earned on investments. For both the
current and comparable prior year periods, the Company's effective tax rate
differs from the statutory rate primarily due to available tax loss
carryforwards. The current year provision relates principally to state and
franchise taxes.
FINANCIAL CONDITION
- -------------------
The Company's working capital at June 30, 1997, of $18.1 million, decreased $8.4
million from the balance at September 30, 1996, of $26.5 million. The change in
working capital was primarily the result of the $5.5 million acquisition of the
Sani-Spec(TM) business
10
<PAGE> 11
described in more detail in the "Overview" section above and operating losses
for the year to date.
The Company considers its working capital position to be adequate to support its
currently planned operations.
Capital spending for the nine months ended June 30, 1997, amounted to $2.9
million. This compares with $2.4 million of capital expenditures for the
comparable prior-year period. Capital spending for fiscal 1997 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
currently has commitments for capital expenditures of approximately $1.0
million.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
11 Calculation of Earnings per Share
27 Financial Data Schedule (EDGAR filing only)
b. Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months
ended June 30, 1997.
12
<PAGE> 13
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: July 30, 1997 /s/ William T. Hanley
-----------------------------------------
William T. Hanley, President and
Chief Executive Officer (Principal
Executive Officer)
/s/ Gregory Riedel
-----------------------------------------
Gregory Riedel, Vice President,
Finance and Chief Financial Officer
(Principal Financial and Accounting
Officer)
13
<PAGE> 14
GALILEO CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. PAGE NO.
----------- --------
11 Calculation of Earnings Per Share 15
27 Financial Data Schedule EDGAR
Filing
Only
14
<PAGE> 1
EXHIBIT 11
GALILEO CORPORATION
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding 6,854,668 6,806,159 6,846,147 6,787,587
Net effect of dilutive stock
options - based on the treasury
stock method using average market price -- 196,611 -- 146,290
----------- ----------- ----------- -----------
Total 6,854,668 7,002,770 6,846,147 6,933,877
=========== =========== =========== ===========
Net income (loss) (1,513,000) 1,759,000 (10,057,000) 4,110,000
Per share amount (0.22) 0.25 (1.47) 0.59
Fully Diluted
Average shares outstanding 6,854,668 6,806,159 6,846,147 6,787,587
Net effect of dilutive stock options - based
on the treasury stock method using the
quarter-end market price, if higher than
average market price -- 199,622 -- 147,290
----------- ----------- ----------- -----------
Total 6,854,668 7,005,781 6,846,147 6,934,877
=========== =========== =========== ===========
Net income (loss) (1,513,000) 1,759,000 (10,057,000) 4,110,000
Per share amount (0.22) 0.25 (1.47) 0.59
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> JUN-30-1997
<CASH> 11,408
<SECURITIES> 0
<RECEIVABLES> 4,710
<ALLOWANCES> (132)
<INVENTORY> 6,805
<CURRENT-ASSETS> 22,791
<PP&E> 47,750
<DEPRECIATION> (27,571)
<TOTAL-ASSETS> 42,970
<CURRENT-LIABILITIES> 5,855
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 37,046
<TOTAL-LIABILITY-AND-EQUITY> 42,970
<SALES> 25,948
<TOTAL-REVENUES> 25,948
<CGS> 16,733
<TOTAL-COSTS> 16,733
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,904)
<INCOME-TAX> 153
<INCOME-CONTINUING> (10,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,057)
<EPS-PRIMARY> ($1.47)
<EPS-DILUTED> ($1.47)
</TABLE>
