<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended JUNE 30, 1998
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, 1998
- ---------------------------- ----------------------------
COMMON STOCK, PAR VALUE $.01 8,046,440 SHARES
PAGE 1 OF 17
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GALILEO CORPORATION
INDEX
Page No.
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PART I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets at June 30, 1998,
and September 30, 1997................................................ 3
Consolidated Condensed Statements of Income for the Three
and Nine Months Ended June 30, 1998, and 1997......................... 4
Consolidated Condensed Statements of Cash Flows for the
Nine Months ended June 30, 1998, and 1997............................. 5
Notes to Consolidated Condensed Financial Statements.................. 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 10
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K .................................. 15
Signatures ........................................................... 16
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PART I.
ITEM 1. FINANCIAL STATEMENTS
GALILEO CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1998 Sept. 30, 1997
------------------------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,146 $ 9,546
Accounts receivable, net 7,968 5,639
Inventories, net 11,473 6,614
Other current assets 302 187
------------------------
Total current assets 20,889 21,986
Property, plant and equipment, net 17,950 15,372
Excess of cost over the fair value of assets acquired, net 20,051 3,873
Other assets, net 1,758 1,496
------------------------
Total assets $60,648 $42,727
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 7,810 $ 5,669
Note payable 1,298 --
Short-term debt (See note 5) 10,300 --
------------------------
Total current liabilities 19,408 5,669
Other liabilities 1,148 956
------------------------
Total liabilities 20,556 6,625
Shareholders' equity:
Common stock 80 69
Additional paid-in capital 52,075 42,951
Accumulated deficit (12,063) (6,918)
------------------------
Total shareholders' equity 40,092 36,102
------------------------
Total liabilities and shareholders' equity $60,648 $42,727
========================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
3
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GALILEO CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $12,106 $ 7,516 $32,540 $ 25,948
Cost of sales 8,384 5,499 21,859 16,733
--------------------------------------------------------------
Gross profit 3,722 2,017 10,681 9,215
Engineering expenses 1,644 1,361 4,614 3,844
Selling and administrative expenses 4,289 2,355 10,051 6,868
Provision for potential uncollectible
receivables (See note 3) 984 -- 984 --
Reduction in carrying value of certain
long-lived assets -- -- -- 2,226
Reorganization costs -- -- -- 6,872
--------------------------------------------------------------
6,917 3,716 15,649 19,810
--------------------------------------------------------------
Operating loss before other income
(expense) and income taxes (3,195) (1,699) (4,968) (10,595)
Other income (expense) (179) 198 (241) 691
--------------------------------------------------------------
Loss before income taxes (3,374) (1,501) (5,209) (9,904)
Provision (benefit) for income taxes (44) 12 (64) 153
--------------------------------------------------------------
Net loss $(3,330) $(1,513) $(5,145) $(10,057)
==============================================================
Basic and diluted loss per share $ (0.41) $ (0.22) $ (0.69) $ (1.47)
Weighted average shares outstanding 8,042 6,854 7,509 6,846
</TABLE>
See Notes to Consolidated Condensed Financial Statements
4
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GALILEO CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
1998 1997
-------------------------
<S> <C> <C>
Cash flows from operating activities: $ (5,145) $(10,057)
Net loss
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 2,230 2,363
Provision for potential uncollectible receivables 984 --
Reduction in carrying value of certain long-lived assets -- 2,226
Reorganization provision -- 6,451
Other adjustments, net 8 --
Increase (Decrease) in cash from changes in operating
assets and liabilities:
Accounts receivable 35 1,284
Inventories (1,659) (1,012)
Accounts payable and accrued liabilities (344) 495
Other changes, net 36 (211)
-------------------------
Total adjustments 1,290 11,596
-------------------------
Net cash provided (used) by operating activities (3,855) 1,539
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (10,562) (5,500)
Capital expenditures (2,227) (2,854)
-------------------------
Net cash used in investing activities (12,789) (8,354)
Cash flows from financing activities:
Proceeds from short-term debt 10,300 --
Payments on notes payable (2,219) (542)
Proceeds from issuance of common stock 178 145
Other financing activities, net (15) (32)
-------------------------
Net cash provided by financing activities 8,244 (429)
-------------------------
Net decrease in cash and cash equivalents (8,400) (7,244)
Cash and cash equivalents at beginning of period 9,546 18,652
-------------------------
Cash and cash equivalents at end of period $ 1,146 $ 11,408
=========================
Supplemental disclosure of cash paid for
acquisition of businesses
Fair value of assets acquired $ 27,970 $ 5,500
Gross cash paid 11,275 5,500
Value of common stock issued for acquisition 8,982 --
-------------------------
Liabilities assumed $ 7,713 $ --
=========================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
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GALILEO CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
only normal recurring adjustments except as disclosed in Notes 3. And
7.) necessary to present fairly Galileo Corporation's (the "Company")
financial position as of June 30, 1998, and the results of operations
and cash flows for the periods ended June 30, 1998, 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, 1998, 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
1997 Annual Report to Shareholders and Form 10-K for the fiscal year
ended September 30, 1997.
2. Classification of inventories is:
June 30, 1998 September 30, 1997
------------- ------------------
Finished goods $ 6,620 $2,755
Work-in-progress 1,898 660
Raw materials 2,955 3,199
------- ------
$11,473 $6,614
======= ======
3. In the third quarter of fiscal 1998, the Company recorded a provision
of $984, or $0.12 per share, for potential uncollectibility of
receivables from a significant medical endoscope customer that has
recently experienced severe liquidity issues. Although some or all of
this receivable may be collectible in the future, management believes
that the provision is appropriate given the current circumstances.
4. For the three months ended June 30, 1998, the Company experienced
reduced revenues from its Scientific Detector and Remote Spectroscopy
products due to foreign shipment restrictions placed on the Company's
microchannel plate products by the US Government. In addition,
revenues for Medical Endoscope Products where negatively impacted by
the failure to complete a marketing relationship for a recently
developed application-specific endoscope and reductions in orders for
existing product as a result of lower than expected product
requirements by the Company's marketing partners. Responding to these
reductions, the Company has instituted a reduction in force of
approximately 85 employees, which will result in annualized savings of
approximately $3,600. This reduction will be based principally at the
Company's corporate headquarters in Sturbridge, MA, and involves
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employees that support Scientific Detector and Remote Spectroscopy
Products, Medical Endoscope Products and various corporate
administrative functions. The reduction in force will be completed in
compliance with federal law, which requires a 60-day notice be given
to affected employees. The company's fourth quarter results will
include a charge for as much as $900, or $0.11 per share, in salary
and related benefit expenses for employees who have received
termination notices.
In addition, as a result of the aforementioned reduced revenues, the
Company can no longer invest in its Medical Endoscope Products, and it
has, therefore, suspended all investments for this business and will
eliminate certain significant related activities. In connection with
this action, the Company will incur a non-cash charge during its
fourth quarter of up to $3,700, or $0.46 per share, to reduce the
carrying values of related equipment and inventories to fair value.
5. In January 1998 the Company entered into a $12,000 revolving credit
facility with a bank. At June 30, 1998, $10,300 was outstanding under
this facility. The facility contains certain covenants and
requirements concerning financial ratios and other indebtedness, as
well as limitations regarding payment of dividends.
Due to losses incurred in the quarter ended June 30, 1998, the Company
is in violation of certain covenants under its bank loan, which gives
the bank the right to accelerate the loan. The Company believes that
it will obtain a waiver for this violation shortly and, in addition,
restructure the loan agreement to accommodate the aforementioned
reorganization plan. Until the Company receives this waiver, which
will allow for the continued classification of the loan amount
outstanding as long-term, the Company has reclassified the outstanding
balance to short-term.
6. Acquisitions
(a) Leisegang Feinmechanik-Optik GmbH & Co., KG
In October 1997 the Company acquired all of the outstanding shares of
Leisegang Feinmechanik-Optik GmbH & Co., KG ("Leisegang GmbH") for
$2,520 in cash. Leisegang GmbH was a privately held manufacturer and
distributor of colposcopes and accessories. These diagnostic products
are sold to OB/GYN physicians' offices and hospitals primarily through
a worldwide network of sales representatives and distributors. The
acquisition was accounted for using the purchase method of accounting.
The purchase price allocations are preliminary and the resulting
excess of the cost over the fair value of net assets acquired is being
amortized over 30 years. Included in notes payable is $1,223
associated with the final acquisition payment due in October 1998.
(b) OFC Corporation
In January 1998 the Company acquired all the outstanding shares of OFC
Corporation ("OFC") for approximately $6,518 in cash and 1,154,258
shares of Galileo Common Stock. OFC designs, manufactures and markets
a broad range of
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optical components and systems which incorporate the latest advances
in photonic technology and optical coatings. The acquisition was
accounted for using the purchase method of accounting. The purchase
price allocations are preliminary and the resulting excess of the cost
over the fair value of net assets acquired is being amortized over 30
years.
(c) Les Entreprises Galenica, Inc.
In February 1998 the Company acquired all the outstanding shares of
Les Entreprises Galenica, Inc., ("Galenica") for approximately $3,458
in cash. Galenica manufactures and markets a broad line of disposable,
single-use vaginal specula, the most frequently used diagnostic
instrument by OB/GYN physicians, clinics and hospitals. The
acquisition was accounted for using the purchase method of accounting.
The purchase price allocations are preliminary, and the resulting
excess of the cost over the fair value of net assets acquired is being
amortized over 30 years.
Assuming that these acquisitions had been made as of the beginning of
fiscal 1998 and 1997, results for the Company on a pro forma basis
would have been net sales of $37,469 and $40,312 and a net loss of
$4,862 and $8,748, or a loss of $0.65 and $1.28 per share for the nine
months ended June 30, 1998 and 1997, respectively.
7. Fiscal 1997 Nonrecurring Charges
(a) Loss of a Major Customer and Related Reorganization
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 would
no longer purchase these assemblies from the Company. On March 12,
1997, the Company announced a reorganization plan in response to this
lost business. In connection with this plan, the Company recorded a
nonrecurring charge of $6,872, or $1.01 per share, in the three months
ended March 31, 1997. Sales to Xerox Corporation amounted to $2,593
and $6,273 for the three and six months ended March 31, 1997,
respectively. The Company completed final shipments to Xerox during
the second quarter of fiscal 1997.
(b) Impairment of Long-Lived Assets
In the first quarter of fiscal 1997, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires impairment losses be recognized for long-lived
assets when indicators of impairment are present and the fair market
values of assets are estimated to be less than carrying amounts. The
adoption of this Standard resulted in a $2,226, or $0.32 per share,
nonrecurring, pretax, noncash charge in the first quarter which
reduced certain robotic assembly
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equipment for the Company's Medical Products Group to its estimated
fair market value.
8. In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings per Share." Statement
128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effect of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for
all periods of have been presented, and where necessary, restated to
conform to Statement 128 requirements.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
- --------
Galileo Corporation (the "Company") along with its recently acquired
wholly-owned subsidiary, OFC Corporation, develops, manufactures and markets
products based on its core optical and photonic technologies for applications in
medical products and instruments, telecommunications products, analytical
instruments and office equipment. The Company's core competencies in glass
sciences and experience in fiberoptic and photonic technology are fundamental to
developing and manufacturing its products. The Company markets its products to
original equipment manufacturers (OEMs), through marketing partners,
distributors and direct to end-users. Leisegang Medical, a wholly-owned
subsidiary, develops, manufactures, and markets women's health-related medical
products.
On February 11, 1997, the Company received written notification from its then
largest customer, Xerox Corporation ("Xerox"), that Xerox had developed internal
production capabilities for dicorotron assemblies and would 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. Reduced revenues
from this product materially adversely affected the Company's financial
performance and resulted in subsequent period losses. 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.
Leisegang Medical, headquartered in Boca Raton, FL, was a privately-held
distributor and manufacturer of OB/GYN diagnostic and surgical equipment
acquired in 1996. Included in its product line are colposcopes produced by
Leisegang GmbH, a related company based in Berlin, Germany. In October 1997 the
Company announced the acquisition of Leisegang GmbH. Leisegang GmbH was a
privately-held manufacturer and worldwide distributor of colposcopes and
accessories and the supplier of colposcopes for Leisegang Medical with
approximately $3.0 million of revenues in the fiscal year preceding acquisition.
These products are sold to OB/GYN physicians' offices and hospitals through an
internal sales force, sales representatives and distributors. 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 physicians'
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,
and fetal heart monitors.
In February 1997 the Company acquired the Sani-Spec(R) product line. This
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 specula, 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.
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In February 1998 the Company acquired Galenica, Inc. Galenica, based near
Montreal, Canada, was a privately-held company that manufactures and markets a
broad line of disposable, single-use vaginal specula, the most frequently used
diagnostic instrument used by OB/GYN physicians, clinics and hospitals. These
products are marketed primarily in the United States, Canada, Latin America and
Europe through an extensive international distributor network. Galenica's
revenues for the fiscal year preceding the acquisition were approximately $3.0
million.
In February 1998 the Company entered into a medical products supply and
distribution agreement with PSS World Medical, Inc. The agreement covers
distribution to physicians' offices and other office-based healthcare providers
throughout the United States and includes purchase requirements to retain
exclusivity to certain Leisegang products.
In January 1998 the Company acquired OFC Corporation. OFC designs, manufactures
and markets a broad range of optical components and systems which incorporate
the latest advances in photonic technology and optical coating. OFC's revenues
for the fiscal year preceding the acquisition were approximately $14.0 million.
OFC's products include optical filters, optical lens coatings for medical
devices, laser systems, infrared thermal imaging devices and optical analytical
instruments. OFC's operations also include one of the world's largest and most
technically advanced diamond point turning facilities which manufactures
highly-sophisticated optical components and systems for industrial lasers and
semiconductor instrumentation.
The Company's Medical Endoscope Products consist of a variety of endoscopes in
support of minimally invasive procedures. Endoscopes are valuable in any medical
procedure where video imaging can provide accurate diagnosis, improve surgical
performance and reduce patient discomfort. For the three months ended June 30,
1998, the Company experienced reduced revenues in these products and
subsequently suspended operations in this product line as more fully explained
in the "Results of Operations" section below.
The Company's Scientific Detector and Spectroscopy 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. For the three months ended June 30, 1998, the
company experienced reduced revenues in these products more fully explained in
the "Results of Operations" section below.
As a result of reduced revenues from Medical Endoscope Products and Scientific
Detector Products, the Company has adopted a reorganization plan more fully
explained in the "Results of Operations" section below.
The Company's Fluorolase(R) fiberoptic-based optical amplifier products are
targeted at applications for telecommunications as well as high-speed data and
video transmission. The Company believes that the Fluorolase products, when
sales are initiated, offer significant future growth opportunities.
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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 or implied in these forward-looking statements are set forth in
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's September 30, 1997, SEC Form 10-K and
incorporated herein.
RESULTS OF OPERATIONS
- ---------------------
Revenues for the three and nine months ended June 30, 1998, increased to $12.1
million and $32.5 million from $7.5 million and $25.9 million, respectively,
from the comparable prior-year period. Current fiscal year revenues from
acquisitions, particularly OFC, and revenues from new products have more than
offset the loss of fiscal 1997 revenues from Xerox, as more fully discussed in
the "Overview" section above.
Revenues for the three months ended June 30, 1998, of $12.1 million represent a
modest improvement over revenues of $11.9 million for the three months ended
March 31, 1998. This improvement was realized by increases from Leisegang's
women's health products and OFC products, substantially offset by reduced
revenues in the Company's Scientific Detector and Remote Spectroscopy Products
and Medical Endoscope Products.
For the three months ended June 30, 1998, revenues for Scientific Detector and
Remote Spectroscopy Products were adversely impacted by foreign shipment
restrictions placed on certain microchannel plate products by the US Department
of Defense. For the last four years these products were shipped to foreign
customers under licenses granted by the US Department of Commerce. During the
quarter, the Department of Defense restricted foreign shipments pending a
jurisdictional ruling of licenses between these two departments. The
jurisdictional ruling will decide whether any future licenses will be granted.
The Company is aggressively working with these departments and its elected
officials to keep jurisdiction with the Department of Commerce. As of the date
of this report, no decision has been reached, and there can be no assurances
that the outcome will be favorable to the Company. In addition, third quarter
revenues were negatively impacted by reduced shipments of the Company's detector
products to semiconductor capital equipment manufacturers who have significantly
reduced orders in response to the Asian economic downturn.
For the three months ended June 30, 1998, revenues for Medical Endoscope
Products where negatively impacted by the failure to complete a marketing
relationship for a recently developed application-specific endoscope and
reductions in orders for existing product as a result of lower than expected
product requirements by the Company's marketing partners. As a result of the
aforementioned reduced revenues from the Company's Scientific Detector and
Remote Spectroscopy Products and the Medical Endoscope Products, the Company has
adopted a reorganization plan to significantly reduce costs. The Company is
reducing its labor force by approximately 85 employees, which will result in an
annualized savings of approximately $3.6 million. This reduction is based
principally at
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the Company's corporate headquarters in Sturbridge, MA, and involves employees
that support Scientific Detector and Remote Spectroscopy Products, Medical
Endoscope Products and various corporate administrative functions. The reduction
in force will be completed in compliance with federal law, which requires that a
60-day notice be given to affected employees. The Company's fourth quarter
results will include a charge for as much as $0.9 million in salary and related
benefit expenses for employees who have received termination notices.
In addition, the Company can no longer continue to invest in its Medical
Endoscope Products, and it has, therefore, suspended all investments for this
business and will eliminate certain significant related activities. In
connection with this action, during the fourth quarter the Company will record a
charge of up to $3,700, or $0.46 per share, to reduce the carrying values of
related equipment and inventories to fair market value.
Gross profit (as a percentage of revenues) for the three months ended June 30,
1998, of 30.7%, increased from 26.8% from the comparable prior-year period
primarily due to the impact of product mix and improved operating efficiencies.
Gross profit of 32.8% for the nine months ended June 30, 1998, decreased from
35.5% for the comparable prior-year period as revenues from acquisitions and
revenues from new products are at gross margins lower than prior-year
Xerox-related revenues.
Engineering expenses increased to $1.6 million and $4.6 million for the three
and nine months ended June 30, 1998, respectively, from $1.4 million and $3.8
million in the comparable prior-year periods due to the inclusion of expenses
from acquisitions and increased spending to support the development of the
Company's products.
Selling and administrative expenses increased to $4.3 million and $10.0 million
for the three and nine months ended June 30, 1998, respectively, from $2.4
million and $6.9 million in the comparable prior-year periods due to the
inclusion of operating expenses and goodwill amortization from acquisitions and
an increase in selling expenses in support of the PSS World Medical, Inc. supply
and distribution agreement more fully described in the "Overview" section above.
Included in the operating results for the three months ended June 30, 1998, is a
charge of approximately $1.0 million principally related to the potential
uncollectibility of receivables from a significant medical endoscope customer
that has recently experienced severe liquidity issues. Management is currently
in negotiations with this customer in an attempt to resolve this issue. Although
some or all of this receivable may be collectible in the future, management
believes that the provision is appropriate under current circumstances.
Other income or expense principally relates to interest earned on investments or
interest paid on bank borrowings.
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 provisions principally relate to foreign, state and franchise
taxes.
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FINANCIAL CONDITION
- -------------------
In January 1998 the Company entered into a $12 million revolving credit facility
with a bank. At June 30, 1998, $10.3 million was outstanding under this
facility. The facility contains certain covenants and requirements concerning
financial ratios and other indebtedness, as well as limitations regarding
payment of dividends.
Due to losses incurred in the quarter ended June 30, 1998, the Company is in
violation of certain covenants under its bank loan, which gives the bank the
right to accelerate the loan. The Company believes that it will obtain a waiver
for this violation shortly and, in addition, restructure the loan agreement to
accommodate the aforementioned reorganization plan. Until the Company receives
this waiver, which will allow for the continued classification of the loan
amount outstanding as long-term, the Company has reclassified the outstanding
balance to short-term.
Giving effect to reclassifying the loan outstanding to short-term, the Company's
working capital at June 30, 1998, of $1.5 million decreased from $16.3 million
at September 30, 1997. The change in working capital was primarily the result of
the aforementioned reclassification, the use of cash for acquisitions, the
inclusion of acquired company balances and operating losses for the year to
date. Assuming receipt of the anticipated bank waiver, working capital would
have been $11.7 million.
Capital spending for the nine months ended June 30, 1998, amounted to $2.2
million. This compares with $2.9 million of capital expenditures for the
comparable prior-year period. Capital spending for fiscal 1998 primarily relates
to machinery and equipment to support the development of new products.
Cash flows used in operating activities amounted to $3.8 million for the
nine-months ended June 30, 1998, as compared with cash flows provided by
operating activities of $1.5 million in the comparable prior-year period. The
Company anticipates that the changes contemplated by the reorganization plan
will have a significant positive effect on cash flows. Additionally, the Company
is having discussions with its lender about increasing its borrowing capacity
under its revolving line of credit facility by $2 million. Management and its
lender have discussed the terms and conditions associated with these changes in
its lending arrangements, and it is expected that such terms will be finalized
in an amendment to the existing arrangement shortly. Management believes that
these initiatives and several others presently being explored will provide the
Company with sufficient liquidity over the near term. If the Company is
unsuccessful in obtaining the waiver and restructured loan agreement, the
Company will need to secure alternative financing to support its planned
operations.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended June 30, 1998, the Company
issued a total of 3,000 shares of common stock to 17 individuals in
recognition of their superior performance as independent distributors
of the Company's medical products. No separate consideration was paid
by the recipients of the shares. The Company issued the shares
without registration under the Securities Act of 1933 because the
issue did not involve a sale of the shares. If the issue of shares
were deemed to involve a sale, the exemption provided in Section 4(2)
of the Act would be applicable based upon the number and nature of
the recipients and the investment representations made by each of
them.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
27. Financial Data Schedule (EDGAR filing only)
b. Reports on Form 8-K
1. On April 2, 1998, the Registrant filed on a Form 8-K/A
an amendment for the acquisition of OFC Corporation
including pro forma financial statements.
2. On August 5, 1998, the Registrant filed a Form 8-K for
a Press Release dated July 23, 1998, regarding the
Registrant's third quarter results.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GALILEO CORPORATION
Dated: August 14, 1998 /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)
16
<PAGE> 17
GALILEO CORPORATION
INDEX TO EXHIBITS
Exhibit No. Page No.
- ----------- --------
27 Financial Data Schedule EDGAR
Filing
Only
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,146
<SECURITIES> 0
<RECEIVABLES> 8,960
<ALLOWANCES> 992
<INVENTORY> 11,473
<CURRENT-ASSETS> 20,889
<PP&E> 55,482
<DEPRECIATION> (37,532)
<TOTAL-ASSETS> 60,648
<CURRENT-LIABILITIES> 19,408
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 40,012
<TOTAL-LIABILITY-AND-EQUITY> 60,648
<SALES> 32,540
<TOTAL-REVENUES> 32,540
<CGS> 21,859
<TOTAL-COSTS> 21,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,209)
<INCOME-TAX> (64)
<INCOME-CONTINUING> (5,145)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,145)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
