-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VVXS4l6O45bkM7Er6NjtFOlQLcf26rE1zQydhqX0GxbTgswjBr6uBSdjUXE4yGgU mItC5PiVsPOV39Op0Bb8fw== 0000950135-97-000610.txt : 19970222 0000950135-97-000610.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950135-97-000610 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALILEO ELECTRO OPTICS CORP CENTRAL INDEX KEY: 0000711425 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 042526583 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11309 FILM NUMBER: 97532275 BUSINESS ADDRESS: STREET 1: GALILEO PARK STREET 2: PO BOX 550 CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083479191 MAIL ADDRESS: STREET 1: GALILEO PARK STREET 2: PO BOX 550 CITY: STURBRIDGE STATE: MA ZIP: 01566 10-Q 1 GALILEO CORPORATION FORM 10-Q 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 DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-11309 GALILEO CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 04-2526583 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) GALILEO PARK, P.O. BOX 550, STURBRIDGE, MASSACHUSETTS 01566 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (508) 347-9191 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT DECEMBER 31, 1996 - ---------------------------- -------------------------------- COMMON STOCK, PAR VALUE $.01 6,847,442 SHARES PAGE 1 OF 20 2 GALILEO CORPORATION INDEX PART I. Financial Information: Page No. -------- Item 1. Financial Statements (unaudited) Consolidated Condensed Balance Sheets at December 31, 1996, and September 30, 1996 .......................... 3 Consolidated Condensed Statements of Income for the three months ended December 31, 1996, and December 31, 1995...................... 4 Consolidated Condensed Statements of Cash Flows for the three months ended December 31, 1996, and December 31, 1995......... 5 Notes to Consolidated Condensed Financial Statements................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 8 PART II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other information 11 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2 3 GALILEO CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
Dec. 31, 1996 Sept. 30, 1996 ---------------------------------- ASSETS - ------ Current assets: Cash and cash equivalents $18,882 $18,652 Accounts receivable, net 5,529 5,710 Inventories, net (Note 3) 6,931 6,218 Other current assets 488 598 --------------------------- Total current assets 31,830 31,178 Property, plant and equipment, net 17,283 19,228 Other assets, net 2,608 2,658 --------------------------- Total assets $51,721 $53,064 =========================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable and accrued liabilities $ 4,586 $ 4,174 Other current liabilities -- 542 --------------------------- Total current liabilities 4,586 4,716 Other liabilities 1,182 1,320 Shareholders' equity: Common stock 68 68 Additional paid-in capital 42,796 42,694 Retained earnings 3,089 4,266 --------------------------- Total shareholders' equity 45,953 47,028 --------------------------- Total liabilities and shareholders' equity $51,721 $53,064 =========================== See Notes to Consolidated Condensed Financial Statements
3 4 GALILEO CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands except per share data)
For the Three Months Ended December 31, 1996 1995 ------------------ Net sales (Note 1) $ 9,711 $9,972 Cost of sales 5,436 6,105 ------------------ Gross profit 4,275 3,867 Engineering, selling and administrative expenses 3,344 2,723 Reduction in carrying value of certain long-lived assets (Note 4) 2,226 -- ------------------ Operating profit (loss) (1,295) 1,144 Other income 250 115 ------------------ Income (loss) before income taxes and extraordinary gain (1,045) 1,259 Provision (benefit) for income taxes 121 (107) ------------------ Income (loss) before extraordinary gain (1,166) 1,366 Extraordinary gain on receipt and sale of stock, net of taxes -- 158 ------------------ Net income (loss) $(1,166) $1,524 ================== Net income (loss) per common and common equivalent share outstanding Before extraordinary gain $ (0.17) $ 0.20 Effect of extraordinary gain -- 0.02 ------------------ Net income (loss) $ (0.17) $ 0.22 ================== Weighted average common and common equivalent shares outstanding 6,836 6,865 See Notes to Consolidated Condensed Financial Statements
4 5 GALILEO CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
For the three months ended December 31, 1996 1995 -------------------------- Net income (loss) $(1,166) $ 1,524 Adjustments to reconcile net income to net cash provided (used) by operating activities: Extraordinary gain on receipt and sale of stock -- (319) Depreciation and amortization 900 867 Reduction in carrying value of certain long-lived assets 2,226 -- Other adjustments (1) (18) Increase (decrease) in cash from changes in operating assets and liabilities: Accounts receivable 279 1,169 Inventories (713) 197 Accounts payable and accrued liabilities 412 (2,003) Other changes, net (90) 24 ------------------- Total adjustments 3,013 (83) ------------------- Net cash provided by operating activities 1,847 1,441 Cash flows from investing activities: - ------------------------------------- Proceeds from receipt and sale of stock -- 403 Capital expenditures (1,167) (570) ------------------- Net cash used in investing activities (1,167) (167) Cash flows from financing activities: - ------------------------------------- Payments on notes payable (542) (17) Proceeds from issuance of common stock 102 142 Other financing activities (10) (9) ------------------- Net cash provided (used) by financing activities (450) 116 Net increase in cash and cash equivalents 230 1,390 Cash and cash equivalents at beginning of period 18,652 8,580 ------------------- Cash and cash equivalents at end of period $18,882 $ 9,970 ===================
See Notes to Consolidated Condensed Financial Statements 5 6 GALILEO CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands except per share data) 1. On February 11, 1997, the Company received written notification from its largest customer, Xerox Corporation, that Xerox has developed internal production capabilities for dicorotron assemblies and will no longer purchase these assemblies from the Company. These assemblies accounted for approximately $20.4 million, or 48% of the Company's revenues of $42.6 million for fiscal 1996 and approximately $3.8 million, or 39%, of the Company's revenues of $9.7 million for the quarter ended December 31, 1996. Reduced revenues from this product will materially adversely affect the Company's financial performance for at least the remainder of fiscal 1997 and likely will result in a loss for the fiscal year. 2. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments, except for the item discussed in Note 3 below) necessary to present fairly Galileo Corporation's (the Company) financial position as of December 31, 1996, and the results of operations and cash flows for the three month period ended December 31, 1996, in conformity with generally accepted accounting principles for interim financial information applied on a consistent basis. The results of operations for the three months ended December 31, 1996, are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's 1996 Annual Report to Shareholders and Form 10-K for the fiscal year ended September 30, 1996. 3. Classification of inventories is:
December 31, September 30, 1996 1996 ------------ ------------- Finished goods $2,641 $1,402 Work-in-progress 576 635 Raw materials 3,714 4,181 ------ ------ $6,931 $6,218 ====== ======
4. For the three months ended December 31, 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires impairment losses be recognized for long-lived assets, when indicators of impairment are present and the fair market values of assets are estimated to be less than carrying amounts. The adoption of this Standard resulted in a $2,226, or $0.32 per share, nonrecurring, pretax, noncash, charge in the quarter, which reduced certain robotic assembly equipment for the Company's Medical Products Group to its estimated fair market value. Excluding the impact of this charge, net income for the three months ended December 31, 1996, was $1,060, or $0.15 per share. 5. Results for the three months ended December 31, 1995, have been restated to reflect the acquisition of Leisegang Medical, Inc., in fiscal year 1996, which was accounted for on a pooling of interests basis. For the three months ended December 31, 1995, Leisegang Medical, Inc.'s, net income was $436, or $0.06 per share. 6 7 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 office products, electronic imaging and scientific, analytical and medical applications. The Company's capabilities in the formulation of specialty glass and experience in fiberoptic and electro-optic technology are fundamental to developing and manufacturing its products. On February 11, 1997, the Company received written notification from its largest customer, Xerox Corporation, that Xerox has developed internal production capabilities for dicorotron assemblies and will no longer purchase these assemblies from the Company. These assemblies accounted for approximately $20.4 million, or 48% of the Company's revenues of $42.6 million for fiscal 1996 and approximately $3.8 million, or 39%, of the Company's revenues of $9.7 million for the quarter ended December 31, 1996. Reduced revenues from this product will materially adversely affect the Company's financial performance for at least the remainder of fiscal 1997 and likely will result in a loss for the fiscal year. The Company's Scientific Detector Products are used in various analytical instruments in a wide range of markets including semiconductor processing, life sciences, failure analysis and quality and process control. The Company's Remote Sensor Products include Fluorolase[Registered Trademark] fiberoptic-based optical amplifier technology and products where on-line, non-destructive testing of material composition is required including, among others, food processing, bulk and specialty chemicals, petroleum refining, and biotechnology. Markets for the Company's Fluorolase products include telecommunications as well as high-speed data and video transmission. Currently, these products are being tested in these markets, and the Company believes that the Fluorolase product offers significant future growth opportunities. The Company's Medical Products consist of a variety of scopes in support of minimally invasive medical procedures. Scopes are valuable in any medical procedure where video imaging can provide accurate diagnosis, improve surgical performance and reduce patient discomfort. In addition, the acquisition of Leisegang Medical, Inc., more fully discussed below, positions the Company as a supplier of certain medical instrument equipment, principally to the obstetric and gynecological markets. The Company believes that these products offer significant future growth opportunities. 8 8 Leisegang Medical, headquartered in Boca Raton, FL, was a privately-held distributor and manufacturer of OB/GYN diagnostic and surgical equipment. Included in its product line are colposcopes produced by Leisegang GmbH, a related company based in Berlin, Germany, that is the world's largest and oldest manufacturer of colposcopes and accessories. The products are sold to OB/GYN doctors' offices and hospitals through an internal sales force and by manufacturers' representatives. Leisegang is well known and highly respected in the gynecological equipment market, estimated to be $200 million annually, and is a leader in sales to doctors' offices. In addition to colposcopes, its products include biopsy instruments, ultrasound, video equipment, laser and electro-surgical systems and accessories, cryosurgery equipment, surgical instruments, rigid and flexible hysteroscopes, bone densitometers and fetal heart monitors. This acquisition enables Galileo to participate immediately in a market that is growing at 15 to 20 percent per year, and is expected to benefit significantly from the trend toward minimally invasive surgery and office-based procedures. It also provides Galileo with new distribution channels that enhance the brand name recognition and market penetration of the Company's medical imaging and sensing products. In addition to investing in research and development activities for all of its products, the Company is exploring other acquisition opportunities to enhance its product offerings to all its customers. This Report on Form 10-Q contains certain forward-looking statements concerning, among other things, the Company's plans and objectives for future operations, planned products and services, expansion into new markets and anticipated customer demand for its existing and future products and services. Certain factors that could cause the Company's actual results to differ from those projected in these forward-looking statements are set forth in Exhibit 99 to this report and incorporated herein. RESULTS OF OPERATIONS - --------------------- Sales for the quarter ended December 31, 1996, were $9.7 million, a decrease of $0.3 million, or 3% from the same quarter last year. The Company has completed a rationalization program whereby certain less profitable product lines have been discontinued. Approximately $1.2 million of revenues for the first quarter of last year were realized from such discontinued products. Gross profit (as a percentage of revenues) of 44.0% improved from 38.8% for the comparable prior-year period as a result of the aforementioned rationalization program. Engineering, selling and administrative expenses of $3.3 million increased from $2.7 million in the same quarter last year primarily due to increased engineering and other operating 9 9 expenses to support the development of new medical scopes and the Company's Fluorolase products. For the quarter ended December 31, 1996, the Company adopted Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived assets to be Disposed Of." This statement requires impairment losses be recognized on long-lived assets when indicators of impairment are present and the fair market values of assets are estimated to be less than carrying amounts. The adoption of this statement resulted in a $2.2 million, or $0.32 per share, nonrecurring, pretax, noncash charge in the quarter, which reduced certain robotic assembly equipment for the Company's Medical Products Group to its estimated fair market value. Excluding the impact of this charge, net income for the three months ended December 31, 1996, was $1.1 million, or $0.15 per share. Other income principally relates to interest earned on investments. The effective tax rate differs from the statutory rate primarily due to tax loss carryforwards which the Company has available for the three months ended December 31, 1996, and the comparable prior-year period. FINANCIAL CONDITION - ------------------- The Company's working capital at December 31, 1996, of $27.2 million increased $0.8 million from the balance at September 30, 1996, of $26.4 million. The change in working capital was primarily due to the increase in inventories to support higher revenue levels for the Company's Medical Products Group. The Company considers its working capital position to be adequate to support its currently planned operations. Capital spending for the quarter amounted to $1.2 million. This compares with $0.6 million of capital expenditures in the first fiscal quarter of last year. Capital spending for the quarter primarily relates to building improvements and machinery and equipment to support the development of new medical scopes and the Company's Fluorolase products. The Company does not have any significant commitments for capital expenditures. LOSS OF A SIGNIFICANT CUSTOMER - ------------------------------ The Company anticipates that its results of operations and financial condition will be materially adversely impacted by the loss of a significant customer as more fully discussed in the "Overview" section above. 10 10 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The following matters were submitted to a vote of the Company's shareholders at the Annual Meeting of Shareholders held on January 14, 1997: 1. The following persons were elected as directors of the Company: FOR WITHHOLD --- -------- William T. Burgin 5,389,277 47,015 Allen E. Busching 5,389,077 47,215 Kenneth W. Draeger 5,389,277 47,015 William T. Hanley 5,388,876 47,416 William D. Happ 5,389,277 47,015 2. Amendment to certificate of incorporation to increase the number of authorized shares of common stock from 18,000,000 shares to 36,000,000 shares was approved by a vote of 5,129,729 in favor, 272,898 against, 9,465 abstaining and 24,200 shares not voting. 3. The 1997 Employee Stock Purchase Plan was approved by a vote of 4,613,230 in favor, 105,798 against, 35,968 abstaining and 681,296 shares not voting. 4. Amendment to the 1991 Employee Stock Option Plan to increase the aggregate number of shares of common stock that may be subject to grants under the plan from 350,000 to 500,000 was approved by a vote of 4,496,448 in favor, 222,432 against, 36,116 abstaining and 681,296 shares not voting. 5. Amendment to the 1991 Employee Stock Option Plan to limit the number of shares that may be granted under the plan to any one person within any fiscal year to 100,000 shares was approved by a vote of 4,783,277 in favor, 14,960 against, 37,052 abstaining and 601,003 shares not voting. ITEM 5. OTHER INFORMATION See Exhibit 99.2 to this report for information regarding loss of the Company's largest customer. 11 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 11 Calculation of Earnings per Share 27 Financial Data Schedule (EDGAR filing only) 99.1 Important Factors Regarding Forward-Looking Statements 99.2 Press Release Dated February 12, 1997 b. Reports on Form 8-K: 1. On October 21, 1996, the Registrant filed a Form 8-K for an Amendment to the Agreement and Plan of Merger dated July 17, 1996, among the Registrant, a subsidiary of the Registrant, Leisegang Medical, Inc., and the principal shareholders of Leisegang, under which the Registrant acquired Leisegang effective August 6, 1996. 2. On January 21, 1997, the Registrant filed a Form 8-K for a Press Release dated January 16, 1997, regarding the Registrant's first quarter results. 12 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GALILEO CORPORATION Dated: February 13, 1997 /s/ William T. Hanley ------------------------------------------- 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 13 GALILEO CORPORATION INDEX TO EXHIBITS Exhibit No. Page No. ----------- -------- 11 Calculation of Earnings Per Share 15 27 Financial Data Schedule EDGAR Filing Only 99.1 Important Factors Regarding Forward-Looking Statements 16 99.2 Press Release Dated February 13, 1997 20 14 EX-11 2 CALCULATION OF EARNINGS PER SHARE 1 EXHIBIT 11 GALILEO CORPORATION CALCULATION OF EARNINGS PER SHARE
Three Months Ended December 31, 1996 1995 --------------------------- Primary Average shares outstanding 6,836,453 6,763,573 Net effect of dilutive stock options - based on the treasury stock method using average market price -- 101,723 ----------- ---------- Total 6,836,453 6,865,296 =========== ========== Net income (loss) $(1,166,000) $1,524,000 Per share amount $ (.17) $ .22 Fully Diluted Average shares outstanding 6,836,453 6,763,573 Net effect of dilutive stock options - based on the treasury stock method using the quarter-end market price, if higher than average market price -- 110,009 ----------- ---------- Total 6,836,453 6,873,582 =========== ========== Net income (loss) $(1,166,000) $1,524,000 Per share amount $ (.17) $ .22
15 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS SEP-30-1997 OCT-01-1996 DEC-31-1996 1 18,882,000 0 5,649,000 120,000 6,931,000 31,830,000 39,611,000 22,329,000 51,720,000 4,576,000 0 0 0 68,000 41,630,000 51,720,000 9,711,000 9,711,000 5,436,000 5,436,000 0 0 0 (1,045,000) 121,000 (1,166,000) 0 0 0 (1,166,000) (.17) (.17)
EX-99.1 4 IMPORTANT FACTORS REGARDING FORWARD LOOKING STMNTS 1 EXHIBIT 99.1 GALILEO CORPORATION Important Factors Regarding Forward-Looking Statements ------------------------------------------------------ From time to time, Galileo Corporation, through its management, may make forward-looking public statements, such as statements concerning then expected future revenues or earnings or concerning projected plans and performance, as well as other estimates relating to future operations. Forward-looking statements may be in reports filed under the Securities Exchange Act of 1934, as amended, in press releases or in oral statements made with the approval of an authorized executive officer. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "believes," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, as enacted by the Private Securities Litigation Reform Act. of 1995. The Company wishes to caution readers not to place undue reliance on these forward-looking statements which speak only as of the date on which they are made. In addition, the Company wishes to advise readers that the factors listed below, as well as other factors not currently identified by management, could affect the Company's financial or other performance and could cause the Company's actual results for the future periods to differ materially from any opinions or statements expressed with respect to future periods or events in any current statements. The Company will not undertake and specifically declines any obligation to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events which may cause management to re-evaluate such forward-looking statements. In connection with the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby filing cautionary statements identifying factors that could cause the Company's actual results to differ from those projected in forward-looking statements of the Company, made by or on behalf of the Company. LOSS OF A SIGNIFICANT CUSTOMER On February 11, 1997, the Company received written notification from its largest customer, Xerox Corporation, that Xerox has developed internal production capabilities for dicorotron assemblies and will no longer purchase these assemblies form the Company. These assemblies accounted for approximately $20.4 million, or 48% of the Company's revenues of 16 2 $42.6 million for fiscal 1996 and approximately $3.8 million, or 39%, of the Company's revenues of $9.7 million for the quarter ended December 31, 1996. Reduced revenues from this product will materially adversely affect the Company's financial performance for at least the remainder of fiscal 1997 and likely will result in a loss for the fiscal year. There can be no assurance whether or how quickly the Company will be able to replace this business. TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT The market for the Company's products is characterized by rapidly changing technology. The Company's future success will continue to depend upon its ability to enhance its current products and to develop and introduce new products that keep pace with technological developments and evolving industry standards, respond to changes in customer requirements and achieve market acceptance. Any failure by the Company to anticipate or respond adequately to technological developments and customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on the Company's business, financial condition and results of operations. In order to develop new products successfully, the Company is dependent upon close relationships with its customers and their willingness to share proprietary information with the Company. There can be no assurance that the Company's customers will continue to provide it with timely access to such information or that the Company will be successful in developing and marketing new products and services or product and service enhancements in a timely manner and respond effectively to technological changes or new product announcements by others. In addition, there can be no assurance that the new products and services or product and service enhancements, if any, developed by the Company will achieve market acceptance. ACHIEVEMENT OF STRATEGIC PLAN As part of its strategic plan, the Company is seeking to grow through acquisitions. The Company regularly reviews various acquisition prospects of business, technologies or products complementary to the Company's business and periodically engages in discussions regarding such possible acquisitions. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations and products of the acquired companies, the ability to manage effectively geographically remote units, the diversion of management's attention from other business concerns, risks of entering markets in which the Company has limited or no direct experience and the potential loss of key employees of the acquired companies. In addition, acquisitions may result in dilutive issuances of equity securities, the incurrance of debt, reduction in existing cash balances, amortization expenses related to goodwill and other intangible assets and other charges to operations that may materially adversely affect the Company's business, financial condition and results of operations. 17 3 Although management expects to carefully analyze any such opportunity before committing the Company's resources, there can be no assurance that the Company will be successful in making acquisitions, that the prices and terms of any acquisitions will be favorable to the Company, that any completed acquisition will result in long-term benefits to the Company or that the Company's management will be able to manage effectively the resulting businesses. COMPETITION The Company's competitive position depends primarily on the technological development of its products, as well as on service, quality and price. Some of the Company's competitors are major corporations, or divisions of major corporations, which have greater financial, technological and personnel resources than the Company and may represent significant competition for the Company. Such companies may succeed in developing technologies and products that are more effective or less costly than any of those that may be developed by the Company, and such companies may be more successful than the Company in developing, manufacturing and marketing products. There can be no assurance that the Company will be able to compete successfully in the future or that developments by others will not render the Company's products obsolete or non-competitive or that the Company's customers will not choose to use competing technologies or products. Further, the entry of new competitors into the markets for the Company's products could cause downward pressure on the prices of such products and a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON PROPRIETARY TECHNOLOGY Although the Company does not believe that its success is dependent upon the protection offered by patents, the Company possesses many patents which relate to its technology. There can be no assurance that the steps taken by the Company to protect its proprietary technology will be adequate to prevent misappropriation of its technology by third parties or will be adequate under the laws of some foreign countries, which may not protect the Company's proprietary rights to the same extent as do laws of the United States. In addition, there remains the possibility that others will "reverse engineer" the Company's products in order to determine their method of operation and introduce competing products or that others will develop competing technology independently. Any such adverse circumstances could have a material adverse effect on the Company's business, financial condition and results of operations. Further, some of the markets in which the Company competes are characterized by the existence of a large number of patents and frequent litigation for financial gain that is based on patents with broad, and often questionable, application. As the number of its products increases, the markets in which its products are sold expands, and the functionality of those products grows and overlaps with products offered by competitors, the Company believes that it may become increasingly subject to infringement claims. Although the Company does not believe any of its products or proprietary rights infringe the rights of third parties, there can be no assurance that infringement claims will not be asserted against the 18 4 Company in the future or that any such claims will not require the Company to enter into royalty arrangements or result in costly litigation. The Company also relies upon trade secrets, technical know-how and continuing technological innovation to develop and maintain its competitive position. The Company typically requires its employees, consultants and advisors to execute confidentiality and assignment of inventions agreements in connection with their employment, consulting or advisory relationships with the Company. There can be no assurance, however, that these agreements will not be breached or that the Company will have adequate remedies for any breach. Furthermore, there can be no assurance that competitors will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's proprietary technology, or that the Company can meaningfully protect its rights in unpatented proprietary technology. Several of the Company's management and scientific personnel were formerly associated with competitive companies. In some cases, these individuals are conducting research in similar areas with which they were involved prior to joining the Company. As a result, the Company, as well as these individuals, could be subject to claims of violation of trade secrets and similar claims. The Company intends to vigorously protect and defend its intellectual property. Costly and time-consuming litigation brought by the Company may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company, or to determine the enforceability, scope and validity of the proprietary rights of others. POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE The Company's products, particularly its Medical Products, may expose the Company to product liability claims, and there can be no assurance that the Company will not experience material product liability losses in the future. The Company currently has product liability insurance coverage for the commercial sale of its products. However, a successful claim brought against the Company in excess of available insurance coverage, or a claim or product recall that results in significant adverse publicity against the Company, may have a material adverse effect on the Company's business, financial condition and results of operations. 19 EX-99.2 5 PRESS RELEASE DATED FEBRUARY 13, 1997 1 EXHIBIT 99.2 GALILEO NEWS =============================================================================== Contact: Greg Riedel, Chief Financial Officer - (508) 347-4222 GALILEO REPORTS LOSS OF LARGEST CUSTOMER - ------------------------------------------------------------------------------- STURBRIDGE, MA, FEBRUARY 12, 1997 - Galileo Corporation (NASDAQ, NM:GAEO), today reported that it has received written notification from its largest customer, Xerox Corporation, that Xerox has developed internal production capabilities for dicorotron assemblies and will no longer purchase these assemblies from Galileo. These assemblies accounted for approximately $20.4 million, or 48%, of Galileo's revenues of $42.6 million for fiscal 1996 and approximately $3.8 million, or 39%, of Galileo's revenues of $9.7 million for the quarter ended December 31, 1996. Reduced revenues from this product will materially adversely affect Galileo's financial performance for at least the remainder of fiscal 1997 and likely will result in a loss for the fiscal year. William Hanley, President and Chief Executive Officer, commented, "While we are disappointed by the abrupt end of our relationship with Xerox and understand that the impact of reduced revenues from Xerox will be significant to Galileo's financial performance for the near-term, we believe that our strategy of diversification into both medical and telecommunication products, as well as the continued health of our Scientific Detector Products Group, provides a strong foundation for future growth." He continued, "As an example of the potential of our Medical Products Group, we recently signed a multi-million dollar initial order with Sofamor Danek Group, Inc., for a new proprietary single use endoscope to be used in a new minimally invasive spinal procedure. We will be issuing further details regarding this order shortly." Galileo Corporation develops, manufactures, and markets products based on its core fiberoptics and electro-optics technologies for applications in office equipment, analytical instruments, process analysis, telecommunications, and medical instruments. Galileo markets its products to OEMs, through marketing partners, and direct to end-users. Galileo Corporation Galileo Park P.O. Box 550 Sturbridge, MA 01566 USA -----END PRIVACY-ENHANCED MESSAGE-----