-----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, JT5p2TUYGPyjo7yo0i5/CIMPcxRBkPyzAEKRO0PsNNDoDC0ZnFNfadwqhSEoLKHm gWrRaAQ9o+JJcXppXogCKA== 0000950135-96-005337.txt : 19970220 0000950135-96-005337.hdr.sgml : 19970220 ACCESSION NUMBER: 0000950135-96-005337 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALILEO ELECTRO OPTICS CORP CENTRAL INDEX KEY: 0000711425 STANDARD INDUSTRIAL CLASSIFICATION: 3827 IRS NUMBER: 042526583 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11309 FILM NUMBER: 96682732 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-K405 1 GALILEO CORPORATION 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1996 Commission File Number: 0-11309 GALILEO CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 04-2526583 (State of Incorporation) (I.R.S. Employer Identification No.) GALILEO PARK, P.O. BOX 550, STURBRIDGE, MASSACHUSETTS 01566 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (508) 347-9191 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE - - - - - - - - - -------------------------------------- (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 9, 1996, 6,847,442 shares of the Registrant's Common Stock were outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant on such date was $185,736,866. Documents incorporated by reference: Portions of Registrant's proxy statement dated December 11, 1996, are incorporated by reference into Part III of this report. The Index to Exhibits is located on Page 36. PAGE 1 OF 38 2 PART I Item 1. BUSINESS -------- General ------- Galileo Corporation (the "Company") was incorporated in Delaware in 1973 as the successor to a business which was founded in 1959. The Company's name was changed from Galileo Electro-Optics Corporation to Galileo Corporation in 1996. Since its formation in 1973, the Company has been engaged in developing, manufacturing and marketing fiberoptic and electro-optic components which transmit, sense or intensify light or images and a variety of components for office copiers. The Company's products are sold primarily to original equipment manufacturers (OEMs) for use in electronic imaging, scientific, analytical, office products and medical applications. The Company's capabilities in the formulation of specialty glass and experience in fiberoptic and electro-optic technology are fundamental to the development and manufacture of its products. Although the Company purchases a large quantity of its glass requirements, it also owns and operates a specialty glass manufacturing plant which enables it to develop experimental glass formulations and respond quickly to unique customer requirements. The Company operates in a single industry segment. Following the sale of a substantial portion of the Fused Fiberoptic Products business in fiscal year 1994, the Company's businesses have been classified into the four product lines described below. The Company acquired Leisegang Medical, Inc., a privately held distributor and manufacturer of medical instruments and equipment, in fiscal year 1996. Leisegang's product lines are included in the Company's Medical Products business. Office Products --------------- Sales of Office Products accounted for 50%, 45% and 41% of the Company's net sales for fiscal years 1996, 1995 and 1994, respectively. These products are used in a variety of applications to improve the reliability and performance of high-volume, high-speed copiers and ion deposition printers. Xerox Corporation is the principal customer for these products. The Company's highest volume product is the dicorotron, for which it is currently the sole source of supply to Xerox. The dicorotron, which utilizes the Company's proprietary glass-coated wire technology, generates ions which charge a copier's photoreceptor during the image transfer process. The quality, cost-effectiveness, reliability and extended product life of the dicorotron have been key to the success of the product. The majority of the products sold by the Company to Xerox are used as replacement units in existing copiers. Scientific Detector Products ---------------------------- Sales of Scientific Detector Products accounted for 26%, 29% and 29% of the Company's net sales for fiscal years 1996, 1995 and 1994, respectively. The principal products within Scientific Detector Products are the following: PAGE 2 3 SINGLE CHANNEL DETECTORS are small glass tubes with semiconducting inner surfaces which emit electrons when struck by sub-atomic particles, photons or other electrons. This electron emission process is repeated many times along the length of the tube in a multiplying sequence, whereby one electron, ion or photon entering at one end of the tube generates a pulse containing millions of electrons at the other end of the tube, which pulse can easily be measured as it emerges. The major application of this product is as the detecting element in a mass spectrometer. Mass spectrometers identify the atoms of unknown elements by determining atomic mass through the measurement of velocity or path of movement of subatomic particles and are used in such industries as biotechnology and pharmaceutical as well as in drug screening applications. A detector recognizes the time or the place at which an atom exits from the vacuum chamber of the spectrometer and thereby permits the identification of the unknown atom. The Company's Channeltron[Registered Trademark] and Spiraltron[Trademark] Single Channel Detectors have replaced the complex multi-electrode structure of older detectors and require only a single two-terminal power supply. The simplicity of the Company's Detectors, their mechanical ruggedness and their resistance to contamination in service have led to their adoption as the preferred detector in mass spectrometers, ultraviolet spectrometers and in a growing range of surface-scanning instruments. The Company's Detectors are used by all major mass spectrometer manufacturers, and, in many cases, the Company is the single source. DETECTOR ASSEMBLIES AND SYSTEMS consist of multichannel electron multipliers, which multiply electrons that enter the channels of the device, mated with fiberoptic, mechanical and electronic components. These value-added devices are used as ion, X-ray or particle detectors in scientific instrumentation. The Company provides these detector assemblies primarily to the major manufacturers of analytical instrumentation and to the research community. MICROCHANNEL PLATES (MCPs) are multichannel electron multipliers. The initial manufacturing process of MCPs consists of producing a small wafer-thin fused fiberoptic disc. These discs are then further processed by etching out the core of each fiber to produce hollow channels, approximately 10 microns in diameter, the surfaces of which are semiconducting. Each channel serves as a microscopic single channel electron multiplier, multiplying the electrons that enter the channel in order to intensify faint electron images. The Company manufactures an improved, long-life MCP with enhanced gain stability, resulting in improved brightness and a significantly longer life expectancy than other MCPs available in the marketplace. The Company's MCPs are used primarily in military night vision devices as an integral part of the image intensification process. MCPs are also employed in electron and field-ion microscopes. Remote Sensor Products ---------------------- Sales of Remote Sensor Products accounted for 6%, 5% and 2% of the Company's net sales for fiscal years 1996, 1995 and 1994, respectively. Remote Sensor Products provide technically advanced, cost-effective solutions for industrial process monitoring with on-line, remote, infrared spectroscopy systems. Applications are found in markets where cost controls and manufacturing yields are critical to profitability, including the chemical, food, beverage, petrochemical, semiconductor, environmental, textile and pharmaceutical industries. The Company's infrared transmitting fiberoptic cables are integrated with on-line sensors which identify a material's chemical signature and transmit that data to a spectrometer for analysis. Applications for this technology include raw materials screening, moisture content and octane measurements, and the monitoring of a variety of PAGE 3 4 manufacturing processes. The Company's IR Link[Trademark] Systems, a family of integrated sensors and accessories, are valuable for monitoring quality and also reduce costs by moving process analysis from the laboratory directly to the manufacturing line. IR Link Multi-Channel Systems allow up to seven sensing points to be monitored using just one analytical instrument, resulting in process analysis systems which provide the lowest cost-per- measurement. The Company also manufactures several different probes, sensors or cells, depending upon the specific application. High-pressure liquid and gas cells are designed to monitor heated and pressurized liquid and gas side-streams. Web sensors monitor materials, such as films, plastics and polymers, while immersible transmission probes can be installed on-line or dipped into liquid samples or liquid streams, and diffuse reflectance systems analyze samples such as powders, slurries and textiles. These accessories help provide immediate, analytical feedback which enables customers to make instantaneous adjustments to their processes and allows them to reduce costs, improve quality and raise productivity. Flexible Fiberoptic Products, which are also part of the Remote Sensor Products business, are used to transmit light ("lightguides") or images ("imagescopes") in a flexible format. Lightguides are used to supply remote illumination in flexible probes in a variety of lengths and formats depending upon customer requirements. Lightguides can also be used as sensors to detect signals, position, dimensions, images and many other physical phenomena. The applications for lightguides and sensors range from counting, positioning and dimensional measurements to laser delivery systems and remote spectroscopy. Imagescopes are image transfer devices capable of monitoring remote events and inspecting otherwise inaccessible or hazardous areas. Imagescopes are used in a variety of applications such as tank sights, periscopes and industrial endoscopes. The Company has also developed, and is now starting to market, an amplifier module using its Fluorolase[Registered Trademark] doped fluoride fiber, which provides increased bandwidth. The markets for this product include telecommunications as well as high-speed data and video transmission. Medical Products ---------------- Sales of Medical Products accounted for 18%, 21% and 28% of the Company's net sales for fiscal years 1996, 1995 and 1994, respectively. The Company's Medical Products include a variety of endoscopes which are used for minimally invasive surgery applications. These devices use a combination of glass rods and plastic lenses or flexible fiber optics resulting in high-quality, low-cost medical scopes used primarily in single use or limited reuse applications for arthroscopic, spinal and other surgery. The Company also distributes high-pixel-count imaging fiber, manufactured by Fujikura, America, Inc., for endoscopic medical devices, as well as a hand-held video system made by UROHEALTH Systems. Also included in Medical Products are the products of Leisegang Medical, Inc., which was acquired by the Company in fiscal year 1996 and is located in Boca Raton, Florida. Leisegang is a distributor and manufacturer of OB/GYN diagnostic and surgical equipment, specifically, colposcopes, biopsy instruments, ultrasound equipment, video equipment, laser and electro-surgical systems and accessories, cryosurgery equipment, surgical instruments, rigid and flexible hysteroscopes, bone densitometers and fetal heart monitors. PAGE 4 5 Research and New Product Development ------------------------------------ The Company's scientists and engineers conduct research and development in glass, fiberoptic and electro-optic technologies to develop new products and to enhance and expand applications for existing products. The Company's expenditures for research and development were approximately $3,220,000, $3,054,000 and $3,755,000 in fiscal years 1996, 1995 and 1994, respectively. The research and development is principally sponsored by the Company. Current projects include the following: fibers usable as lasers and optical amplifiers, fiberoptic devices for medical imaging and laser power delivery, systems and devices for infrared fiber-based process remote spectroscopy, improved Channeltrons[Registered Trademark], MCP-based devices for medical imaging and astrophysics research and advanced detectors for scientific instruments. In addition, programs are continuing to improve the manufacturing efficiency as well as the quality of all of the Company's products. The Company utilizes its own sales and marketing personnel, except in the case of Leisegang Medical, Inc., it also utilizes manufacturers' representatives. Marketing --------- The Company's strategy is to supply technologically advanced fiberoptic and electro-optic components, electromechanical assemblies and medical instruments. Customers include OEMs, as well as end-users. The Company is continuing to broaden and solidify its technical relationship with its customers. Marketing and sales activities are focused on technical support of existing products, development of future products and technologies, and on providing cost-effective solutions to complex problems. Customers --------- Sales to Xerox Corporation were 48% of net sales in fiscal year 1996. In total, the Company's top twenty customers accounted for 68% of sales. Export Sales ------------ Export sales to foreign customers amounted to approximately $8,716,000, $7,371,000 and $5,857,000 in fiscal years 1996, 1995 and 1994, respectively, principally in Europe and Japan. In addition, sales to domestic affiliates of foreign customers and to domestic customers, both for export by the purchaser, amounted to approximately $287,000, $325,000 and $837,000 in fiscal years 1996, 1995 and 1994, respectively. Raw Materials and Supplies -------------------------- The principal raw materials and supplies used by the Company in the manufacture of its products are glass tubing and glass core bars, chemicals for glass manufacture, and purchased parts for assemblies and instruments. In addition, the Company purchases some medical equipment and instruments which it resells to its customers. The Company has not experienced any shortages in the past and does not anticipate any future shortages or unavailability of these items. Most of these items are available from alternative sources. Patents ------- While the Company possesses many patents which relate to its technology, it does not believe that the protection offered by these patents is of material importance to the success of its business. The Company believes that its success depends primarily on its development, manufacturing and marketing skills. PAGE 5 6 Backlog ------- At September 30, 1996 and 1995, the sales backlog was $7,247,000 and $8,552,000, respectively. In each case, this backlog is scheduled for shipment during the following fiscal year. Competition ----------- The Company's competitive position depends primarily upon the technological development of its products, as well as service, quality and price. Some of the Company's competitors are divisions of major corporations, which have greater financial resources than the Company. Employees --------- As of September 30, 1996, the Company had 234 full-time employees, none of whom is a party to a collective bargaining agreement with the Company. Of these employees, 210 were employed at the Company's facilities in Sturbridge, Massachusetts and 24 at Leisegang Medical, Inc., in Boca Raton, Florida. The Company believes that it has good relations with its employees. Item 2. PROPERTIES ---------- The Company's corporate headquarters are located in Sturbridge, Massachusetts, where the Company owns three buildings, with a total of 197,000 square feet on a 56 acre tract. Two of these buildings house a glass plant, draw towers, clean rooms, furnaces and ovens, extruding, etching, grinding and polishing equipment, and assembly, research, test and inspection equipment principally for manufacturing Office Products, Medical Products and Remote Sensor Products. The third building is used primarily for manufacturing Scientific Detector Products. Leisegang Medical, Inc., a wholly owned subsidiary, is located in Boca Raton, Florida, where it leases 7,700 square feet of space used for manufacturing, distribution and administration. In 1988, the Company purchased a 61,000 square foot manufacturing facility on 51 acres of land in Forest, Virginia. During the fourth quarter of fiscal year 1993, the Company decided to consolidate its manufacturing operations in Sturbridge, Massachusetts. This consolidation was completed in the first half of fiscal year 1994, and the Forest, Virginia, facility, which had been for sale since that time, was sold in the second quarter of fiscal year 1996. Item 3. LEGAL PROCEEDINGS ----------------- There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- There were no matters submitted during the fourth quarter of fiscal year 1996 to a vote of the Company's security holders, through the solicitation of proxies or otherwise. PAGE 6 7 EXECUTIVE OFFICERS OF THE REGISTRANT - - - - - - - - - ------------------------------------ The following table indicates the names and ages of all executive officers of the Company and the offices held by each: Name Age Officer ---- --- ------- William T. Hanley 49 President and Chief Executive Officer and Director Gregory Riedel 38 Vice President, Finance and Chief Financial Officer Josef W. Rokus 54 Vice President, Corporate Development and Corporate Secretary David W. Skiles 50 Vice President and General Manager, Remote Sensor Products Each officer serves for a term extending until the meeting of directors following the next annual meeting of shareholders and until a successor is elected and qualified or until earlier resignation or removal. Mr. Hanley holds a B.S. degree in Glass Science from Alfred University and an A.S. degree from Corning Community College. He joined Galileo in 1982 as Vice President of Manufacturing, was subsequently appointed Executive Vice President and Chief Operating Officer prior to being appointed President, Chief Executive Officer and Director in 1984. Prior experience includes positions as Manufacturing Manager, Fiber Optics for Times Fiber Communications, Inc., a manufacturer of fiberoptic products, and key managerial positions with Corning Incorporated. Mr. Riedel holds a B.S. degree in Accounting from Fairfield University. He joined the Company in 1996 as Vice President, Finance and Chief Financial Officer. From 1994 to 1996 he served as Controller and, subsequently, as Chief Financial Officer of IPC Information Systems, Inc., a manufacturer of communication systems for the financial trading industry. From 1989 to 1994, Mr. Riedel was Assistant Corporate Controller of Symbol Technologies, Inc., a manufacturer of bar code based data capture systems. From 1980 to 1989, Mr. Riedel was employed by Price Waterhouse, holding positions from staff accountant to audit manager. Mr. Rokus holds an M.B.A. in Finance from The Tuck School, Dartmouth College and an M.S. and B.S. in Electrical Engineering from the University of Illinois. Mr. Rokus joined Galileo as Vice President, Manufacturing in 1984, was appointed Vice President, Corporate Development in 1986 and Vice President, Finance in 1988. He was named Chief Financial Officer in 1990 and Corporate Secretary in 1993. In 1996, he was named Vice President, Corporate Development. Prior experience includes management and controller positions with Corning Incorporated. Mr. Skiles holds a B.S. in Chemistry from Frostburg State College. Prior to joining Galileo in 1992, Mr. Skiles was Director of Sales for the MilliGen Division of Millipore Corp., a manufacturer of biotechnology products from 1988 to 1991, and prior to that he was Vice President, Marketing, ESA, Inc., a manufacturer of analytical and clinical instruments and supplies, and National Sales Manager for Waters Associates, Inc. PAGE 7 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ----------------------------------------------------------------- MATTERS ------- The Company's Common Stock is traded in the over the counter market, and prices are quoted on the Nasdaq National Market System under the symbol GAEO. The following table sets forth, for the periods indicated, the high and low sale prices for the common stock as reported by Nasdaq. Fiscal 1995 Low High ----------- --- ---- 1st Quarter $3-1/8 $4-7/8 2nd Quarter 3-3/4 5-3/4 3rd Quarter 4-1/4 8 4th Quarter 6-7/8 8-1/2 Fiscal 1996 Low High ----------- --- ---- 1st Quarter $ 7-1/8 $11-1/2 2nd Quarter 9-7/8 17-3/4 3rd Quarter 15-1/2 31-1/8 4th Quarter 17-1/4 30-1/2 The Company had 433 shareholders of record as of December 9, 1996. Dividend Policy --------------- The Company has not paid any dividends since 1979. The Company's policy is to retain earnings to provide funds for the operation and expansion of its business, and it does not anticipate paying cash dividends in the foreseeable future. Recent Sales of Unregistered Securities --------------------------------------- On August 6, 1996, the Registrant issued 269,913 shares of its common stock (the "Shares") in connection with its acquisition of Leisegang Medical, Inc. ("LMI") pursuant to the Agreement and Plan of Merger dated as of July 17, 1996, (the "Merger Agreement") among the Registrant, a wholly-owned subsidiary of the Registrant, LMI and the principal shareholders of LMI, filed as Exhibit 2.1 to this report. Under the Merger Agreement, the Registrant's wholly-owned subsidiary merged into LMI and as a result of the merger all of the outstanding capital stock of LMI was exchanged for the Shares. The Shares were issued without registration under the Securities Act of 1933, as amended, in reliance upon the exemption provided in Section 4(2) thereof. Reliance upon this exemption was based upon the nature of the transaction, the number of shareholders of LMI to whom the Shares were issued and their relationship to LMI, and investment representations made by each holder of LMI voting stock. Specifically, all of the voting stock LMI was held by six individuals, each of whom was active in the business of LMI or an affiliate of LMI. The outstanding nonvoting stock, representing 4.7% of the total outstanding stock of LMI, was held by 17 individuals who had acquired their shares for no cash consideration as sales representatives of LMI. The holders of nonvoting stock were not entitled to vote on the merger under applicable state law and accordingly made no investment decision. PAGE 8 9 Item 6. SELECTED FINANCIAL DATA -----------------------
Years ended September 30, (Dollars in thousands, except per share data) 1996 1995 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Net sales $42,634 $40,753 $35,937 $ 39,470 $41,626 Operating profit (loss) 5,212 1,176 (1,596) (10,689) (1,474) Other income, net 404 305 213 426 333 ----------------------------------------------------------------------- Income (loss) before income taxes, extraordinary gain and cumulative effect of a change in accounting for postretirement benefits other than pensions 5,616 1,481 (1,383) (10,263) (1,141) Provision (benefit) for income taxes 89 82 69 (481) (398) Extraordinary gain (net of taxes) 158 -- -- -- -- Cumulative effect of a change in accounting for postretirement benefits other than pensions -- -- -- (430) -- ----------------------------------------------------------------------- Net income (loss) $ 5,685 $ 1,399 $(1,452) $(10,212) $ (743) --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) per common and common equivalent share outstanding: Before extraordinary gain and cumulative effect of a change in accounting for postretirement benefits other than pensions $ .80 $ .21 $ (.22) $ (1.46) $ (.11) Extraordinary gain (net of taxes) .02 -- -- -- -- Cumulative effect of a change in accounting for postretirement benefits other than pensions -- -- -- (.06) -- ----------------------------------------------------------------------- Net income (loss) $.82 $ .21 $ (.22) $ (1.52) $ (.11) --------------------------------------------------------------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding 6,952,409 6,777,516 6,743,567 6,704,274 6,630,347 --------------------------------------------------------------------------------------------------------------------------------- As of September 30, 1996 1995 1994 1993 1992 --------------------------------------------------------------------------------------------------------------------------------- Working capital $26,462 $20,312 $16,856 $13,797 $18,963 Property, plant and equipment, net 19,228 19,891 21,755 24,993 31,626 Total assets 53,064 48,173 46,519 50,560 56,935 Long-term obligations 132 716 653 814 903 Shareholders' equity 47,028 40,934 39,486 40,938 50,838 Note: Results have been restated to reflect the acquisition in fiscal year 1996 of Leisegang Medical, Inc., on a pooling of interests basis.
PAGE 9 10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS Fiscal Year 1996 Compared to Fiscal Year 1995 - - - - - - - - - --------------------------------------------- Net sales in fiscal year 1996 of $42,634,000 increased 5% from sales of $40,753,000 in fiscal year 1995 with sales volume increasing in three of the Company's four businesses. Operating profit for 1996 amounted to $5,212,000 versus $1,176,000 in 1995 with a net profit of $5,685,000, or $.82 per share, as compared to $1,399,000, or $.21 per share, in 1995. Net profit for fiscal year 1996 included an extraordinary gain of $158,000, or $.02 per share, from the receipt and sale of stock resulting from the demutualization of the Company's health insurance carrier. The Company acquired Leisegang Medical, Inc., in the fourth quarter of the fiscal year, with the acquisition being accounted for on a pooling of interests basis. Leisegang Medical, Inc., is now a wholly-owned subsidiary of the Company. All financial results have been restated to reflect this acquisition. Profitability improved in fiscal year 1996 versus 1995 as the gross profit percentage increased from 31% to 44%. This improvement was primarily due to selective price increases, the elimination of certain product lines with lower than desired profitability, material cost reductions and increased productivity. Specifically, productivity, as measured by sales per employee, rose from $175,000 to $184,000. Likewise, gross profit per employee increased from $54,000 to $82,000 from 1995 to 1996. In the Office Products business, sales increased 16% from the previous year and reached an all-time high. These products consist primarily of dicorotron glass-coated wire assemblies, which utilize the Company's proprietary technology to generate ions which charge the photoreceptor in office copiers, as well as other components for laser and ion deposition printers. Most Office Products sales are for the replacement market. Xerox Corporation continues to be the largest customer for these products as well as the Company's largest customer accounting for 48% of the Company's total revenues in 1996. Although the Company is the sole-source supplier of dicorotrons to Xerox Corporation, there is no long-term commitment by Xerox to purchase these components from the Company and no assurance that Xerox will not develop alternative sources of supply in the future. Demand for these products continued to be strong in fiscal year 1996 with the Company introducing a "restringable" version of the dicorotron which was well accepted in the marketplace. The Company is pursuing other applications for its glass-coated wire technology, has identified a number of potential customers and hopes to generate some revenue from these applications in the upcoming fiscal year. Sales of Scientific Detector Products were down 5% from the previous fiscal year, but operating margins improved slightly. This business includes Channeltron single channel detectors, used primarily in mass spectrometers, microchannel plates and microchannel plate-based detectors and assemblies. The decline in revenue was caused primarily by the completion of a large paid engineering program in fiscal year 1995 and the phase-out of a large format microchannel plate by one of the Company's customers. Softness in the semiconductor capital equipment industry negatively impacted revenue in the last two quarters of the year. However, sales of microchannel plate-based detectors for Time-Of-Flight mass spectrometers were up significantly and continued to contribute to profitability. Good progress was made in a number of product development programs which could benefit the future growth of this business. Sales of Remote Sensor Products were up 17% from the previous fiscal year. In fiscal year 1996, this business included flexible fiberoptic products and fiberoptic cables, sensors and systems for applications in industrial processes and telecommunications. The Company's strategy has been to develop marketing partners for these products to deliver them to end users. During the fiscal year, relationships were solidified with every significant manufacturer of infrared spectrographic instruments which is expected to result in increased demand this coming year. Key installations performed well in two high-volume pharmaceutical manufacturing plants resulting in possible additional orders. Excellent progress was made in the development of the Fluorolase technology for use as fiberoptic amplifiers in telecommunications applications. The performance data and testing concluded to date indicates that this product may play a significant role in the growth and profitability of this business. A full product launch and commercialization of the Fluorolase technology is planned for the upcoming fiscal year. The Remote Sensor Products business, which is currently the Company's smallest, is a developing business and was not profitable at the operating profit level. PAGE 10 11 In the Medical Products business, the Company acquired Leisegang Medical, Inc., In the fourth quarter of the fiscal year. Leisegang is a distributor and manufacturer of OB/GYN diagnostic and surgical equipment. Its products include colposcopes, biopsy instruments, ultrasound equipment, video equipment, laser and electro-surgical systems and accessories, cryosurgery equipment, surgical instruments, rigid and flexible hysteroscopes, bone densitometers and fetal heart monitors. In addition, the Medical Products business includes a variety of medical endoscopes for minimally invasive surgery applications. Sales of Medical Products were up 4% in fiscal year 1996 versus 1995 with medical endoscope shipments up significantly while the sales of Leisegang Medical were down slightly. In the endoscope portion of the business, the first scopes for Sofamor Danek, a manufacturer of spinal surgical devices, were moved into manufacturing. In addition, another product is being designed for this customer which is expected to go into volume production in 1997. During the year, the Company began to market its endoscope technology platforms to a broad range of customers for a variety of applications and has development projects underway involving the use of high-performance, low-cost, non-repairable endoscopes in spinal, orthopedic, urological, epidural, cardiovascular and gynecological specialties. In addition, the Company signed an agreement with Fujikura America, Inc. to distribute Fujikura's high-pixel-count optical fiber for endoscopic medical devices and signed an agreement UROHEALTH Systems, Inc., under which the Company and UROHEALTH will distribute hand-held video systems in selected markets and UROHEALTH will distribute the Company's endoscopes. The acquisition of Leisegang reinforces the Company's focus on women's health as a medical specialty where it intends to build a marketing presence. The Company intends to complement its manufacturing skills and financial strength with Leisegang's knowledge of the market, its distribution system and broad range of products to bring new, cost-effective capabilities to this medical field resulting in the growth of the Medical Products business which is still considered to be a developing business and is not yet profitable at the operating profit level. Fiscal Year 1995 Compared to Fiscal Year 1994 --------------------------------------------- Net sales in fiscal year 1995 of $40,753,000 increased 13% from sales of $35,937,000 in fiscal year 1994 with sales volume increasing in three of the Company's four businesses. Commercial sales increased 18% from fiscal year 1994 and set a new record of $39,047,000, while military sales declined 37%. Military sales represented 4% of total sales in 1995 versus 8% of total sales in 1994. Operating profit for 1995 amounted to $1,176,000 versus an operating loss of $1,596,000 in 1994 with a net profit of $1,399,000, or $.21 per share, as compared to a net loss of $1,452,000, or $.22 per share, in 1994. The improvement in profitability was the result of higher sales volume in most of the Company's businesses, a favorable sales mix, selective price increases, the elimination of certain unprofitable product lines and the reduction of fixed costs, primarily due to the consolidation of the Company's manufacturing operations in fiscal year 1994. In the Office Products business, sales increased 24% from the previous year and reached a new high of $18,226,000. These products include dicorotron glass-coated wire assemblies, which utilize the Company's proprietary technology to generate ions which charge the photoreceptor in office copiers, as well as a variety of other components for copiers and laser and ion deposition printers. Most Office Products sales are for the replacement market. Xerox Corporation is the largest customer for these products as well as the Company's largest customer, accounting for 43% of the Company's total revenues in 1995. Although the Company is the sole-source supplier of dicorotrons to Xerox Corporation, there is no long-term commitment by Xerox to purchase these components from the Company and no assurance that Xerox will not develop alternative sources of supply in the future. Demand for these products continued to be strong in fiscal year 1995 as they were designed into new products and the installed base of office machines continued to grow. In addition, moderate price increases were implemented for selective products, and several products were phased out because they did not meet the Company's profitability criteria. In fiscal year 1995, the Company established three new customers for its Office Products and started to explore new applications for its glass-coated wire technology. PAGE 11 12 Sales of Scientific Detector Products also increased from fiscal year 1994, being up $1,155,000 or 11%. This business includes Channeltron single-channel detectors, used primarily in mass spectrometers, microchannel plates and microchannel plate-based detectors and assemblies. Shipments of Channeltrons and microchannel plates were up 15% and 14%, respectively, from the previous year while sales of microchannel plate assemblies were essentially flat. Channeltron shipments increased due in part to strong demand for detectors by the semiconductor industry and the success of a new mass spectrometer detector. Also, billings for engineering services were up 10% as the Company completed its two-year, $1.9 million contract it was awarded in 1993 by the National Institute of Standards and Technology to develop new fabrication methods for microchannel plates. The product mix for this business was favorable due to higher sales of Channeltrons and microchannel plates and the above average incremental profitability associated with these products. Sales of Remote Sensor Products were up $410,000 or 65% in fiscal year 1995 versus 1994. This business includes fiberoptic cables, sensors and systems for a variety of industrial process and telecommunications applications. Several new products were introduced to the marketplace this year which contributed to the higher sales, with the Hand-Held Diffuse Reflectance Probe, which is designed to perform incoming inspection of raw materials, being particularly well received. Good progress was also made in fiscal year 1995 in the development of the Fluorolase technology for use as fiber amplifiers in telecommunications applications. This business, which is the smallest of the Company's four businesses, is a developing business and was unprofitable at the operating profit level. The Medical Products business includes fused products, flexible fiberoptic products, medical endoscopes and a variety of medical products manufactured and distributed by the Company's subsidiary, Leisegang Medical, Inc., acquired by the Company in fiscal year 1996. In fiscal year 1994, fused products and flexible products were part of the Electro-Optic Components business which was merged into the Company's present four businesses. In fiscal year 1995, sales of fused products declined 53% from the previous year due to the sale of a substantial portion of that business in fiscal year 1994 while shipments of flexible fiberoptics increased 40% from 1994. Sales of medical endoscopes for minimally invasive surgery applications were essentially unchanged from the 1994 level. The Company continued to improve its existing products and developed several low-cost, high-quality, single-use and limited re-use medical endoscopes which underwent successful clinical trials and are being actively marketed through medical instrument distributors in the United States as well as abroad. Significant progress was made in the development of the Company's Fractal Fiberoptics imaging conduit which is being designed into small diameter, low-cost endoscopes. Sales of medical endoscopes constituted a small percentage of the Company's sales in fiscal year 1995. The Company's medical endoscopes business is a developing business and was not profitable at the operating profit level in fiscal year 1995. Sales of medical products from Leisegang Medical, Inc., the Company's wholly-owned subsidiary, increased 18% from fiscal year 1994 to fiscal year 1995. The principal reason for this increase was the addition of Leisegang's ultrasound equipment product line as a result of the commencement of a distribution agreement between Leisegang and Pie Medical Equipment B.V. In addition, Leisegang introduced its electro-surgical products to the marketplace. Research and development costs declined in fiscal year 1995 as the development work on these electro-surgical products was completed. The consolidation of manufacturing operations, which involved the relocation of the medical endoscope, office and flexible fiberoptic products from Forest, Virginia, to Sturbridge, Massachusetts, and which was completed in fiscal year 1994, impacted fiscal year 1995 favorably due to the reduction of fixed costs and better utilization of capacity. The consolidation was also largely responsible for achieving a record level of productivity, as measured by sales per employee. The reserves related to the consolidation, which were established at the end of 1993, were adequate since the expenditures were consistent with management's expectations. In fiscal year 1995, these expenditures consisted primarily of maintenance costs for the Forest, Virginia facility which was being actively marketed. At the end of fiscal year 1995, the reserve balance was $290,000 which was expected to be adequate for the anticipated ongoing expenses of that facility for a portion of fiscal year 1996. PAGE 12 13 LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL POSITION Working capital at September 30, 1996, was $26,462,000, an increase of $6,150,000 from the working capital balance of $20,312,000 at September 30, 1995. Cash and short-term investments were $18,652,000 at the end of fiscal year 1996 as compared to $8,580,000 at the end of the previous fiscal year, for an increase of $10,072,000. The increase in working capital was primarily due to the increase in cash as well as a decrease in accounts payable, partially offset by a decrease in accounts receivable. The cash increase resulted from the cash generated by profitable operations and, to a lesser degree, the proceeds received from the sale of the Company's Forest, Virginia facility in the second quarter of the year. Capital expenditures amounted to $3,069,000 versus expenditures of $1,239,000 in fiscal year 1995. The Company expects that its need for capital in 1997 will be comparable to that in fiscal year 1996. The Company's long-term obligations as of September 30,1996, consisted of capitalized lease obligations for computer equipment. The nature of the Company's business is such that its sales are not subject to extended payment terms or return privileges, except for defective goods. The Company does not anticipate a need for external financing to support its currently planned operations. PAGE 13 14 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- See Consolidated Financial Statements and Consolidated Financial Statement Schedule at pages 16 through 33 of this report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- See "Executive Officers of the Registrant" at the end of Part I of this report and the information contained in the Company's Proxy Statement dated December 11, 1996, relating to the 1997 Annual Meeting of Shareholders (the "Proxy Statement") under the captions "Election of Directors" and "Share Ownership," which information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION ---------------------- See the information contained in the Proxy Statement under the captions "Election of Directors -- Director Compensation," "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation," which information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- See the information contained in the Proxy Statement under the heading "Share Ownership," which information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- Not applicable. PAGE 14 15 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K --------------------------------------------------------------- (a) Documents filed as a part of this Form 10-K ------------------------------------------- 1. Financial Statements. The Financial Statements filed as a part of this Form 10-K are listed on the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule on page 16. 2. Financial Statement Schedule. The Financial Statement Schedule filed as a part of this Form 10-K is listed on the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule on page 16. 3. Exhibits. The Exhibits filed as a part of this Form 10-K are listed on the Exhibit Index on page 36. (b) A Form 8-K was filed by the Registrant during the last quarter of the period covered by this Form 10-K to report the acquisition of Leisegang Medical, Inc., by the Registrant, accounted for as a pooling of interests. Subsequent to the period covered by the Form 10-K, the Registrant filed a Form 8K/A consisting of the financial statements and pro forma financial information related to the acquisition. PAGE 15 16 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE ITEM 14(a) Financial Statements: - - - - - - - - - -------------------- Report of Independent Auditors 17 Consolidated Balance Sheets at September 30, 1996 and 1995 18 Consolidated Statements of Operations for the fiscal years ended September 30, 1996, 1995 and 1994 20 Consolidated Statements of Changes in Shareholders' Equity for the fiscal years ended September 30, 1996, 1995 and 1994 21 Consolidated Statements of Cash Flows for the fiscal years ended September 30, 1996, 1995 and 1994 22 Notes to Consolidated Financial Statements 23 Supplementary Information: - - - - - - - - - ------------------------- Unaudited Quarterly Financial Information 32 Schedule: - - - - - - - - - -------- II. Valuation and qualifying accounts for the fiscal years ended September 30, 1996, 1995 and 1994 33 Schedules Omitted: - - - - - - - - - ----------------- All other schedules are omitted as they are not applicable or the information is shown in the financial statements or notes thereto. PAGE 16 17 REPORT OF INDEPENDENT AUDITORS The Board of Directors Galileo Corporation We have audited the accompanying consolidated balance sheets of Galileo Corporation as of September 30, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended September 30, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Galileo Corporation at September 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Providence, Rhode Island October 22, 1996 ERNST & YOUNG LLP PAGE 17 18 CONSOLIDATED BALANCE SHEETS ---------------------------
September 30, (Dollars in thousands) 1996 1995 - - - - - - - - - ---------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 18,652 $ 8,580 Accounts receivable, less allowance of $184 in 1996 and $126 in 1995 5,710 7,585 Inventories: Finished goods 1,402 1,439 Work-in-process 635 367 Raw materials 4,181 4,768 -------------------------------------- 6,218 6,574 Deferred income taxes 368 435 Other current assets 230 97 Assets held for sale, net -- 2,345 -------------------------------------- Total current assets 31,178 25,616 Property, plant and equipment: Land, buildings and improvements 16,593 16,147 Machinery, equipment and furniture 24,918 24,121 Capital projects in process 1,174 1,110 -------------------------------------- 42,685 41,378 Less accumulated depreciation (23,457) (21,487) -------------------------------------- Net property, plant and equipment 19,228 19,891 Other assets, net 2,658 2,666 -------------------------------------- Total assets $ 53,064 $ 48,173 ======================================
See accompanying notes. PAGE 18 19 CONSOLIDATED BALANCE SHEETS ---------------------------
September 30, (Dollars in thousands) 1996 1995 - - - - - - - - - ---------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,425 $ 3,043 Note payable 542 69 Accrued liabilities 2,749 2,192 -------------------------------------- Total current liabilities 4,716 5,304 Deferred income taxes 529 596 Long-term obligation - Capital leases 132 174 Long-term note payable -- 542 Accrued postretirement benefits other than pensions 659 623 Shareholders' equity: Common stock, $.01 par value, 18,000,000 shares authorized; 6,825,442 shares issued and outstanding in 1996 and 6,754,345 shares in 1995 68 68 Additional paid-in capital 42,694 42,285 Retained earnings (accumulated deficit) 4,266 (1,419) -------------------------------------- Total shareholders' equity 47,028 40,934 -------------------------------------- Total liabilities and shareholders' equity $53,064 $48,173 ======================================
See accompanying notes. PAGE 19 20 CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
Years ended September 30, (Dollars in thousands, except per share data) 1996 1995 1994 - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------- Net sales $42,634 $40,753 $35,937 Cost of sales 23,706 28,244 26,083 -------------------------------------------------- Gross profit 18,928 12,509 9,854 Operating expenses: Engineering 4,018 3,554 3,942 Selling and administrative 9,698 7,779 7,508 -------------------------------------------------- 13,716 11,333 11,450 -------------------------------------------------- Operating profit (loss) 5,212 1,176 (1,596) Other income, net 404 305 213 -------------------------------------------------- Income (loss) before income taxes and extraordinary gain 5,616 1,481 (1,383) Provision for income taxes 89 82 69 -------------------------------------------------- Income (loss) before extraordinary gain 5,527 1,399 (1,452) Extraordinary gain (net of taxes) 158 -- -- -------------------------------------------------- Net income (loss) $ 5,685 $ 1,399 $(1,452) ================================================== Net income (loss) per common and common equivalent share outstanding: Before extraordinary gain $ .80 $ .21 $ (.22) Extraordinary gain .02 -- -- -------------------------------------------------- Net income (loss) $ .82 $ .21 $ (.22) ================================================== Weighted average common and common equivalent shares outstanding 6,952,409 6,777,516 6,743,657 ==================================================
See accompanying notes. PAGE 20 21 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ----------------------------------------------------------
Retained Additional Earnings Total Common Paid-In (Accumulated Shareholders' (In thousands) Stock Capital Deficit) Equity - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1993 $68 $42,236 $(1,366) $40,938 Net loss -- -- (1,452) (1,452) --------------------------------------------------------------- Balance, September 30, 1994 68 42,236 (2,818) 39,486 Net income -- -- 1,399 1,399 Exercise of stock options -- 49 -- 49 --------------------------------------------------------------- Balance, September 30, 1995 68 42,285 (1,419) 40,934 Net income -- -- 5,685 5,685 Exercise of stock options and related tax benefit -- 409 -- 409 --------------------------------------------------------------- Balance, September 30, 1996 $68 $42,694 $ 4,266 $47,028 ===============================================================
See accompanying notes. PAGE 21 22 CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Years ended September 30, (In thousands) 1996 1995 1994 - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $ 5,685 $ 1,399 $(1,452) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Extraordinary gain on receipt and sale of stock (319) -- -- Depreciation and amortization 3,311 3,243 3,384 Provision for losses on accounts receivable, net 198 42 16 Loss (gain) on sale of fixed assets 358 (61) -- Gain on sale of marketable securities -- (29) -- Restructuring charge (18) -- -- Loss on cancellation of lease -- 37 -- Increase (decrease) in cash from changes in operating assets and liabilities: Accounts receivable 1,677 (1,851) 9 Refundable income taxes -- 17 17 Inventories 356 (327) (178) Other current assets (133) 53 117 Other assets, net (60) 129 46 Accounts payable (1,618) 115 405 Accrued liabilities 545 249 (2,733) Postretirement benefits 36 18 27 ------------------------------------------- Total adjustments 4,333 1,635 1,110 ------------------------------------------- Net cash provided (used) by operating activities $10,018 $ 3,034 $ (342) Cash flows from investing activities: Proceeds from sales of assets $ 2,418 $ 127 $ 1,279 Proceeds from receipt and sale of stock 403 -- -- Proceeds from sale of marketable securities -- 126 -- Capital expenditures (3,069) (1,239) (1,352) ------------------------------------------- Net cash used in investing activities (248) (986) ( 73) Cash flows from financing activities: Proceeds from note payable to related party -- 27 -- Proceeds on notes payable -- -- 60 Payments on note payable to related party (69) (92) (26) Payments on notes payable -- (60) -- Principal payments under capital lease (38) (58) (62) Proceeds from issuance of common stock 409 49 -- ------------------------------------------- Net cash provided (used) by financing activities 302 (134) (28) Net increase (decrease) in cash and cash equivalents 10,072 1,914 (443) Cash and cash equivalents at beginning of year 8,580 6,666 7,109 ------------------------------------------- Cash and cash equivalents at end of year $18,652 $ 8,580 $ 6,666 =========================================== Supplemental cash flow information: Interest payments $ 60 $ 64 $ 55 Income tax payments 132 129 81
See accompanying notes. PAGE 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES ------------------- ORGANIZATION - The Company develops, manufactures and markets the following three principal classes of products: devices which charge photoreceptors in high-speed office copiers; components, assemblies and systems which transmit, sense or intensify light, images or atomic particles; and diagnostic and surgical equipment principally for obstetrics or gynecological applications. These products are sold primarily to original equipment manufacturers for applications in electronic imaging, analytical instrumentation, office equipment, medical instrumentation and process analysis and, in the case of medical instruments, to doctors and hospitals. The majority of the Company's customers are located in North America with most international customers in Europe and the Far East. CONSOLIDATION - The consolidated balance sheets at September 30, 1996 and 1995, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended September 30, 1996, include the accounts of Galileo Corporation and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. CASH FLOWS - For purposes of the statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. In 1995, the capital leases pertaining to computer equipment then in effect were replaced with a new capital lease obligation of $180,000 for new computer equipment. INVENTORIES - Inventories are valued at the lower of cost (first in, first out) or market. PROPERTY, PLANT AND EQUIPMENT - Depreciation is computed using either the straight-line or accelerated methods. The estimated useful lives used in computing depreciation and amortization are: Buildings and improvements 10-30 years Machinery, equipment and furniture 3-10 years ENGINEERING EXPENSE - Engineering expense includes research and development, engineering support of manufacturing operations relating to problem solving and process improvement, the preparation of bids and proposals and sales support of customers. The amounts charged to income for research and development were approximately $3,220,000, $3,054,000 and $3,755,000 for fiscal years 1996, 1995 and 1994, respectively. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE - Net income per common and common equivalent share is computed using the weighted average number of common and common equivalent shares outstanding. The exercise of stock options has not been assumed for fiscal year 1994 because the effect was antidilutive. GOODWILL - Goodwill, which is included in other assets, is being amortized on a straight-line basis over a period of 40 years. REVENUE RECOGNITION - The Company records a sale and recognizes revenue when title passes to the customer or when services are performed in accordance with contracts. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PAGE 23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RECLASSIFICATION - Certain reclassifications have been made to the amounts in the 1996, 1995 and 1994 financial statements. EXTRAORDINARY GAIN - In the first quarter of fiscal year 1996, the Company recognized an extraordinary gain on the receipt and sale of stock of $158,000, net of applicable income taxes of $160,000, following the demutualization of the Company's health insurance carrier. CURRENT ACCOUNTING DEVELOPMENTS - In March 1995 the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of," which the Company is required to adopt effective with its fiscal year 1997 which ends September 30, 1997. Under the definition of Impaired Assets included in this Statement, the Company has certain assets primarily related to its Medical Products business, consisting principally of robotic assembly equipment which are underutilized and which may be impaired. The Company anticipates that the book value of these assets may be adjusted in fiscal year 1997 to their current fair market value for a potential net write-down of $2,200,000. The Company is in the process of a) determining when these assets will no longer be impaired as a result of increased manufacturing volume; b) determining whether or not these assets can be productively employed in applications other than those originally intended in one of the Company's current operations other than the Medical Products business; c) utilizing these assets in operations of other companies which are currently being considered as possible acquisitions or; d) exploring the possible sale or donation of these assets. The Company anticipates making a decision regarding these assets and the possible write-down early in fiscal year 1997. In October 1995 the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation." This statement encourages the expensing of the fair value of employee stock options but allows the continuance of current practice with disclosure of the pro forma effect on net income had the fair value of the options been expensed. The Company expects to continue to account for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as allowed under the provisions of Statement No. 123, and accordingly, recognizes no compensation expense for these grants. 2. ACQUISITION ----------- On August 6, 1996, the Company acquired Leisegang Medical, Inc., by issuing 269,913 shares of its common stock in exchange for all of the outstanding common stock of Leisegang. The acquisition was accounted for as a pooling of interests with Leisegang becoming a wholly-owned subsidiary of the Company. Accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of Leisegang Medical, Inc., for all periods prior to the merger. Leisegang Medical, headquartered in Boca Raton, Florida, is a distributor and manufacturer of OB/GYN diagnostic and surgical equipment. Included in its product line are colposcopes, biopsy instruments, ultrasound equipment, video equipment, laser and electro-surgical systems and accessories, cryosurgery equipment, surgical instruments, rigid and flexible hysteroscopes, bone densitometers and fetal heart monitors. These products are sold to OB/GYN doctors' offices and to hospitals through an internal sales force and by manufacturers' representatives. PAGE 24 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Separate results of operations of the merged entities are presented in the following table:
Years ended September 30, 1996 1995 1994 ---------------------------------------------- (In thousands) Net sales Galileo $36,438 $34,043 $30,241 Leisegang 6,196 6,710 5,696 ---------------------------------------------- Total 42,634 40,753 35,937 Extraordinary gain (net of taxes) Galileo 158 -- -- Leisegang -- -- -- ---------------------------------------------- Total 158 -- -- Net income (loss) Galileo 6,124 1,110 (1,121) Leisegang 250 289 (331) Merger and acquisition expenses (689) -- -- ---------------------------------------------- Net income (loss) $ 5,685 $ 1,399 $(1,452) ==============================================
In connection with the acquisition, $689,000 of acquisition costs and expenses were incurred and have been charged to expenses in the fourth quarter of 1996. The acquisition costs and expenses consisted primarily of legal, accounting and broker fees. 3. RETIREMENT PLANS ---------------- PENSION PLAN - The Company has a noncontributory pension plan covering substantially all employees who joined the Company prior to January 1, 1995. None of the employees of Leisegang Medical, Inc., the Company's wholly owned subsidiary, are eligible to participate in the Pension Plan since Leisegang Medical, Inc., was acquired in fiscal year 1996. The Plan provides pension benefits based upon years of service and average compensation during the five years preceding retirement. The Company's policy is to fund the maximum amount that can be deducted for federal income tax purposes. Net pension cost consists of:
Years ended September 30, 1996 1995 1994 ------------------------------------ (In thousands) Service cost -- benefits earned during the period $ 254 $ 245 $ 256 Interest cost on projected benefit obligations 490 469 447 Actual return on assets (317) (1,447) 495 Net amortization and deferral (404) 854 (1,169) ------------------------------------ $ 23 $ 121 $ 29 ====================================
The assumptions used in calculating pension expense included discount rates of 8% and expected long-term rates of return on Plan assets of 9%. In addition, the rate of increase in compensation levels was assumed to be 5% for 1996 and 1995, and 5.5% for 1994. PAGE 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the Plan's funded status and the amounts recognized in the Company's Consolidated Balance Sheets at September 30, 1996 and 1995, for the Plan:
Years ended September 30, 1996 1995 --------------------------- (In thousands) Actuarial present value of benefit obligations: Vested benefit obligations $(4,861) $(4,661) =========================== Accumulated benefit obligations $(5,021) $(4,986) =========================== Projected benefit obligations for services rendered to date $(6,531) $(6,215) Plan assets at fair value 7,633 7,564 --------------------------- Plan assets in excess of projected benefit obligations 1,102 1,349 Unrecognized prior service cost (71) (77) Unrecognized net loss 188 50 Unrecognized net asset (435) (481) --------------------------- Prepaid pension costs included in other assets $ 784 $ 841 ===========================
TAX DEFERRED SAVINGS PLAN - The Company has a tax deferred savings plan under Section 401(k) of the Internal Revenue Code under which, subject to certain limitations, each eligible employee may contribute up to 15% of gross wages per year. The Company matches 50% of the first 6% of employee contributions. Company contributions to the Plan were approximately $146,000, $139,000 and $126,000 in fiscal years 1996, 1995 and 1994, respectively. LEISEGANG MEDICAL, INC., PROFIT SHARING PLAN - The Company's wholly-owned subsidiary, Leisegang Medical, Inc., has had a discretionary, noncontributory profit sharing plan available to essentially all full-time employees. In August 1996 the Plan was terminated and distributions were made to employees according to each employee's vested percentage. On August 6, 1996, the effective date of the acquisition of Leisegang Medical, Inc., by the Company, all participants in the profit sharing plan became eligible to participate in the Galileo Employee 401(k) Plan. Expenses for the Plan were $30,000, $60,000 and $60,000 in fiscal years 1996, 1995 and 1994, respectively. OTHER RETIREMENT PLANS - In addition to the Company's defined benefit pension plan, the Company sponsors a defined benefit postretirement medical and life insurance plan. Employees who retire from the Company and who have attained age 65 with 15 years of service (10 years of service for employees hired before October 1, 1989) and who were hired prior to October 1, 1993, are eligible. Employees who retired prior to October 1, 1989, are not required to contribute; employees who retired after October 1, 1989, contribute a portion of the cost beyond a Company subsidy. The Plan is not funded. PAGE 26 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The actuarial and recorded liabilities for the Plan were as follows:
Years ended September 30, 1996 1995 ------------------------- Accumulated postretirement benefit obligation: (In thousands) Retirees $428 $391 Fully eligible active plan participants 21 21 Other active plan participants 131 160 --------------------- Accumulated postretirement benefit obligation 580 572 Plan assets at fair value -- -- --------------------- Unfunded accumulated benefit obligation in excess of plan assets 580 572 Unrecognized net gain 79 51 --------------------- Accrued postretirement benefit cost $659 $623 ===================== Net periodic postretirement benefit cost in 1996 and 1995 includes the following components: Service cost $ 9 $ 12 Interest cost 44 43 --------------------- Net periodic postretirement benefit cost $ 53 $ 55 =====================
For measurement purposes, a 9.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for fiscal year 1996. The rate was assumed to decrease gradually down to 6% for fiscal year 2003 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rate one percentage point in each year would increase the accumulated postretirement benefit obligation as of September 30, 1996, by $30,000 (or by 5.2%) and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for fiscal year 1996 by $3,200 (or by 6.0%). The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8%. As the plan is unfunded, no assumption was needed as to the long-term rate of return on assets. PAGE 27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. LEASE COMMITMENTS ----------------- The cost of computer equipment capitalized under capital lease agreements approximated $174,000 and $180,000 as of September 30, 1996 and 1995, respectively. Associated accumulated amortization as of September 30, 1996 and 1995, approximated $71,000 and $18,000, respectively. Future minimum lease payments relating to the computer equipment under capital leases as of September 30, 1996, are as follows:
1997 56,750 1998 56,750 1999 56,750 2000 36,500 -------- Total minimum lease payments 206,750 Less amount representing imputed interest 32,750 -------- Net present value, minimum lease payments 174,000 Less current portion 42,000 -------- Long-term portion of lease obligation $132,000 ========
Minimum rental commitments under all noncancelable operating leases, primarily machinery and equipment, as well as office and manufacturing space for Leisegang Medical, Inc., in effect at September 30, 1996, are $180,000, $67,000, $31,000 and $14,000 in fiscal years 1997, 1998, 1999 and 2000, respectively. Total rental expense for all operating leases was approximately $246,000, $243,000 and $236,000 in fiscal years 1996, 1995 and 1994, respectively. 5. NOTE PAYABLE ------------ The Company had a 7% note payable of $542,000 at September 30, 1996, to a former shareholder of Leisegang Medical Inc., which was paid in full on October 17, 1996. 6. COMMON STOCK ------------ EMPLOYEE STOCK OPTION PLAN - Under the Company's 1991 Stock Option Plan, which succeeded the 1981 Stock Option Plan, the Plan Administrative Committee of the Board of Directors may grant options to purchase common stock to officers and key employees of the Company and its subsidiaries. The stock options are exercisable at a price not less than the fair market value of the common stock on the date of grant. The Plan also provides that the Committee may issue stock appreciation rights. The exercise price of the stock appreciation rights may not be less than the fair market value of the common stock on the date of grant or if issued with a stock option, the exercise price of the related option. Stock appreciation rights provide for the issuance of common stock, or the payment of cash, or a combination of both equal to the difference between the exercise price of the stock appreciation right and the fair market value of the common stock on the date of exercise. PAGE 28 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Transactions during the last three years under the 1981 Stock Option Plan and the 1991 Stock Option Plan are summarized as follows:
Shares Price Range Aggregate ----------------------------------------------- Balance, September 30, 1993 243,670 $ 4.375 7.500 $1,254,000 Granted 15,000 3.000 - 3.625 51,250 Exercised -- -- -- Canceled (46,267) 3.625 - 7.500 (271,239) ------- ---------- Balance, September 30, 1994 212,403 3.000 - 7.500 1,034,011 Granted 92,000 4.625 - 8.250 722,125 Exercised (10,778) 4.438 - 4.625 (49,287) Canceled (41,778) 3.625 - 7.500 (189,443) ------- ---------- Balance, September 30, 1995 251,847 3.000 - 8.250 1,517,406 Granted 102,000 10.375 - 30.375 1,520,750 Exercised (68,597) 4.375 - 8.250 (380,610) Canceled (6,000) 7.500 - 17.875 (96,875) ------- ---------- Balance, September 30, 1996 279,250 $ 3.000 - 30.375 $2,560,671
As of September 30, 1996, 118,000 option shares were available for grant under the 1991 Plan, and 103,500 options were exercisable at prices ranging from $3.00 to $8.250, aggregating approximately $539,295 under the 1981 and 1991 Plans. The remainder of the outstanding options become exercisable on various dates through 2000. DIRECTOR STOCK OPTION PLAN - The Company's 1989 Director Stock Option Plan was amended in 1996 to increase the number of shares of Common Stock available for grants to an aggregate of 200,000 shares and to change the grant formula to grant each non-employee director options to purchase 2,500 shares of common stock on the director's election at each Annual Meeting of Shareholders of the Company. Under the Plan, which became the 1996 Director Stock Option Plan, options become exercisable one year after grant or earlier upon the death or disability of the director and upon a change in control of the Company, as defined in the Plan. No option may be exercised more than one year after the director's termination as a director for any reason. The option exercise price is the fair market value of the common stock on the date of grant. Under the Director Stock Option Plan, options to purchase 10,000 shares of common stock were granted in fiscal year 1996, and as of September 30, 1996, 20,000 shares were exercisable at prices ranging from $5.25 to $9.00 per share, aggregating $162,422. Options covering 162,500 shares remain available for grant under the Plan. No accounting recognition is given to stock options until they are exercised, at which time the proceeds are credited to the capital accounts. The Company recognizes a tax benefit upon exercise of nonstatutory options in an amount equal to the difference between the option price and the fair market value of the common stock. With respect to incentive stock options, tax benefits arising from disqualifying dispositions are recognized at the time of disposition. Tax benefits related to stock options are credited to additional paid-in capital. EMPLOYEE STOCK PURCHASE PLAN - The Company has an Employee Stock Purchase Plan under which it contributes up to 37.5% of amounts contributed by participating employees to a combined maximum of $1,375 per calendar year. All contributions are made to a trust for investment in the PAGE 29 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company's common stock. Shares are purchased in the open market. The Plan held 23,159 and 26,357 shares at September 30, 1996 and 1995, respectively. 7. MAJOR CUSTOMERS AND EXPORT SALES -------------------------------- Sales were made to Xerox Corporation in an amount exceeding 10% of consolidated revenues in fiscal years 1996, 1995 and 1994. Sales to this customer were $20,350,000, $17,674,000 and $14,330,000 in fiscal years 1996, 1995 and 1994, respectively. Export sales to various foreign customers amounted to approximately $8,716,000, $7,371,000 and $5,857,000 in fiscal years 1996, 1995 and 1994, respectively. In addition, sales to domestic affiliates of foreign customers and to domestic customers, both for export by the purchaser, amounted to approximately $287,000, $325,000 and $837,000 in fiscal years 1996, 1995 and 1994, respectively. At September 30, 1996 and 1995, accounts receivable from Xerox Corporation, represented approximately 44% and 51%, respectively, of total accounts receivable. The Company extends credit based on evaluating individual customers' financial condition, and collateral is generally not required. Credit losses are provided for in the financial statements and have historically been within management's expectations. 8. INCOME TAXES ------------ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of September 30, 1996 and 1995, respectively, are as follows:
Years ended September 30, 1996 1995 ------------------------- (In thousands) Deferred tax liabilities: Tax over book depreciation $ 2,448 $ 2,629 Pension cost 351 329 ----------------------- Total deferred tax liabilities 2,799 2,958 ----------------------- Deferred tax assets: Inventory adjustments 202 577 Restructuring accruals 8 124 Other accruals 700 673 Net operating loss carryforwards 3,303 5,459 General business credits 1,280 1,188 ----------------------- Total deferred tax assets 5,493 8,021 Valuation allowance for deferred tax assets (2,855) (5,224) ----------------------- Net deferred tax assets 2,638 2,797 ----------------------- Net deferred tax liabilities $ 161 $ 161 =======================
The net change in the total valuation allowance for the fiscal years ended September 30, 1996 and 1995, amounted to a decrease of $2,369,000 and an increase of $65,000, respectively. PAGE 30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant components of the provision for income taxes from continuing operations are as follows:
Years ended September 30, 1996 1995 1994 --------------------------------------- (In thousands) Current: Federal $ 170 $-- $-- State 72 82 69 --------------------------------------- 242 82 69 Deferred: Federal (116) -- -- State (37) -- -- --------------------------------------- (153) -- -- --------------------------------------- Total $ 89 $82 $69 =======================================
The reconciliation of the statutory federal income tax rate and the effective tax rate from continuing operations is as follows:
Years ended September 30, 1996 1995 1994 ------------------------------------- Income tax per statutory rate 34.0% 34.0% 34.0% Utilization of net operating loss carryforwards (33.0) (32.9) -- Loss on which no income tax benefits realized -- -- (34.8) State income taxes, net of federal income tax benefit 0.8 4.5 (3.8) Other (0.2) 1.3 (2.0) -------------------------------------- 1.6% 6.9% (6.6)% ======================================
At September 30, 1996, the Company had net operating loss carryforwards of $8,266,000 for federal income tax purposes that expire in years 2007 through 2010. PAGE 31 32 QUARTERLY FINANCIAL INFORMATION
(In thousands, except per share data) (Unaudited) FISCAL YEAR 1996 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 - - - - - - - - - --------------------------------------------------------------------------------------------------------------------- Net sales $ 9,972 $10,632 $11,152 $10,878 Cost of sales 6,105 6,501 6,013 5,087 -------------------------------------------------------- Gross profit 3,867 4,131 5,139 5,791 Operating expenses 2,723 3,487 3,558 3,948 -------------------------------------------------------- Operating profit 1,144 644 1,581 1,843 Other income, net 115 208 211 (130) -------------------------------------------------------- Income before income taxes and extraordinary gain 1,259 852 1,792 1,713 Provision (benefit) for income taxes (107) 25 33 138 Extraordinary gain 158 -- -- -- -------------------------------------------------------- Net income $ 1,524 $ 827 $ 1,759 $ 1,575 ======================================================== Net income per common and common equivalent share $ .22 $ .12 $ .25 $ .23 ======================================================== FISCAL YEAR 1995 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 - - - - - - - - - --------------------------------------------------------------------------------------------------------------------- Net sales $ 8,845 $9,945 $10,442 $11,521 Cost of sales 6,391 6,824 7,503 7,526 -------------------------------------------------------- Gross profit 2,454 3,121 2,939 3,995 Operating expenses 2,817 2,977 2,591 2,948 -------------------------------------------------------- Operating profit (loss) (363) 144 348 1,047 Other income, net 83 (34) 143 113 -------------------------------------------------------- Income (loss) before income taxes (280) 110 491 1,160 Provision for income taxes 24 16 24 18 -------------------------------------------------------- Net income (loss) $ (304) $ 94 $ 467 $ 1,142 ======================================================== Net income (loss) per common and common equivalent share $ (.05) $ .01 $ .07 $ .17 ======================================================== Note: Results have been restated to reflect the acquisition in fiscal year 1996 of Leisegang Medical, Inc., on a pooling of interests basis.
PAGE 32 33 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
- - - - - - - - - ------------------------------------------------------------------------------------------------------------ Column A Column B Column C Column D Column E Column F - - - - - - - - - ------------------------------------------------------------------------------------------------------------ Additions Additions Deductions Balance at charged to charged to written off Balance at beginning cost and other against end of Description of period expenses accounts reserve period - - - - - - - - - ------------------------------------------------------------------------------------------------------------ SEPTEMBER 30, 1994: - - - - - - - - - ------------------ Allowance for doubtful accounts 470 16 -- 334 152 SEPTEMBER 30, 1995: - - - - - - - - - ------------------ Allowance for doubtful accounts 152 42 -- 68 126 SEPTEMBER 30, 1996: - - - - - - - - - ------------------ Allowance for doubtful accounts 126 198 -- 140 184
PAGE 33 34 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 18, 1996 GALILEO CORPORATION /s/ William T. Hanley --------------------------------- William T. Hanley, President and Chief Executive Officer PAGE 34 35 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on December 18, 1996. /s/ William T. Hanley -------------------------------------------------- William T. Hanley, President and Chief Executive Officer and Director (Principal Executive Officer) /s/ Gregory Riedel -------------------------------------------------- Gregory Riedel, Vice President, Finance (Principal Financial and Accounting Officer) /s/ William T. Burgin -------------------------------------------------- William T. Burgin Director /s/ Allen E. Busching -------------------------------------------------- Allen E. Busching Director /s/ Kenneth W. Draeger -------------------------------------------------- Kenneth W. Draeger Director /s/ Robert D. Happ -------------------------------------------------- Robert D. Happ Director PAGE 35 36 INDEX TO EXHIBITS
Exhibit Page - - - - - - - - - ------- ---- 2.1 Agreement and Plan of Merger dated July 17, 1996, among the Registrant, a wholly-owned subsidiary of the Registrant, Leisegang Medical, Inc., and the principal shareholders of Leisegang, under which the Registrant acquired Leisegang, effective August 6, 1996 (Filed as exhibit 2.1 to the Registrant's Form 8-K, file no. 33-13752, and hereby incorporated herein by reference). 2.2 Promissory Note from Incom, Inc. to the Company dated September 29, 1994 (filed as exhibit 2.4 to the Registrant's Form 10-K for the year ended September 30, 1994, file no. 0-11309, and hereby incorporated by reference). 3.1 Registrant's Restated Certificate of Incorporation and amendment thereto (filed as exhibit 4.1 to the Registrant's registration statement on Form S-2, file no. 33-13752, and hereby incorporated herein by reference). 3.2 Registrant's amended and restated By-Laws (filed as exhibit 4.2 to the Registrant's registration statement on Form S-2, file no. 33-13752, and hereby incorporated herein by reference). 4.1 Specimen Certificate of the Registrant's Common Stock (filed as exhibit 4.1 to the Registrant's registration statement on Form S-2, file no. 33-13752, and hereby incorporated herein by reference). 10.1 Stock option plan adopted October 23, 1991 (filed as an exhibit to the Registrant's proxy statement dated December 17, 1991, and hereby incorporated herein by reference). 10.2 Director stock option plan adopted November 10, 1995 (filed as an exhibit to the Registrant's proxy statement dated December 11, 1995, and hereby incorporated by reference.) 11 Computation of net income (loss) per common and common equivalent share. 38 23 Consent of Independent Auditors for incorporation by reference in previously filed Registration Statements. 39 27 Financial Data Schedule (for electronic filing only).
Executive Compensation Plans and Arrangements - - - - - - - - - --------------------------------------------- Exhibits 10.1 and 10.2 are management contracts or compensatory plans or arrangements in which the executive officers or directors of the Company participate. PAGE 36 EX-11 2 COMPUTATION OF NET INCOME (LOSS) 1 EXHIBIT 11 COMPUTATION OF NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Fiscal years ended September 30, --------------------------------------------------- 1996 1995 1994 --------------------------------------------------- PRIMARY Average common shares outstanding 6,794,662 6,747,715 6,743,567 Net effect of dilutive stock options - based on the treasury stock method using average market price 157,747 29,801 -- --------------------------------------------------- Total 6,952,409 6,777,516 6,743,567 Net income (loss) $5,685,000 $1,399,000 $(1,452,000) Per share amount $ 0.82 $ 0.21 $ (0.22) =================================================== FULLY DILUTED Average common shares outstanding 6,794,662 6,747,715 6,743,567 Net effect of dilutive stock options - based on the treasury stock method using the quarter- end market price, if higher than average 158,757 29,801 -- market price --------------------------------------------------- Total 6,953,419 6,777,516 6,743,567 Net income (loss) $5,685,000 $1,399,000 $(1,452,000) Per share amount $ 0.82 $ 0.21 $ (0.22) ===================================================
PAGE 37 EX-23 3 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8, Nos. 2-92671, 33-5142, 33-47589, 33-47588 and 333-02435) pertaining to the Stock Option and Purchase Plans of Galileo Corporation of our report dated October 22, 1996, with respect to the consolidated financial statements and schedule of Galileo Corporation included in the Annual Report (Form 10-K) for the year ended September 30, 1996. Providence, Rhode Island ERNST & YOUNG LLP December 16, 1996 PAGE 38 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-1996 OCT-01-1996 SEP-30-1996 18,652 0 5,710 184 6,218 31,178 19,228 23,457 53,064 4,248 0 68 0 0 46,960 53,064 42,634 42,634 23,724 23,724 0 0 0 5,616 89 5,527 0 158 0 5,685 .82 .82
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