SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 1-7203
AYDIN CORPORATION
________________________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 23-1686808
________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
700 DRESHER ROAD, HORSHAM, PA 19044
________________________________________________________________
(Address of principle executive offices) (Zip Code)
(215) 657-7510
________________________________________________________________
(Registrant's telephone number, including area code)
________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
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.
Shares of common stock, $1.00 par value, outstanding as of May
12, 1997.
______5,173,400______
<PAGE>
AYDIN CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein by reference are the Condensed Consolidated Financial
Statements of Aydin Corporation and the related Notes to Financial
Statements as set forth on pages 3 through 6 of the "1997 First Quarter
Report" to Stockholders. These condensed consolidated financial statements
for the three month period ended March 29, 1997 have been subjected to a
limited review by Grant Thornton LLP, the Registrant's independent
accountants, whose report, set forth on page 7 of the "1997
First Quarter Report" to Stockholders, is incorporated herein by reference.
Earnings per share are based on the weighted average number of common
shares outstanding plus shares issuable upon the assumed exercise of
dilutive common stock options. The number of shares used in the
computation of earnings per share for the three months ended March 29, 1997
and March 30, 1996 were 5,141,582 and 5,162,831, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(1) Material Changes in Financial Condition (3/29/97 versus 12/31/96)
Accounts receivable decreased by $4.4 million because of lower balances and
faster collections during the quarter by the Turkish subsidiary on the TMRC
Contract with the Government of Turkey. Accounts payable decreased by $5.7
million because of lower payables at the Turkish subsidiary and more
current payments generally to vendors.
Other assets declined by $2.6 million (as more fully explained in Part II,
Item 1(b) because of an unfavorable court ruling in April 1997 involving an
anticipated insurance recovery of monies previously spent ($1.5 million)
and to be spent ($1.1 million) over a 30 year period on an environmental
clean-up at a site leased by Company prior to 1984.
The $6.3 million of restricted cash is being held as collateral by a bank
against a letter of credit on the TMRC contract.
Although the Company's liquidity and financial condition continue to
improve, the Company continues to seek new financing arrangements.
Based on the present backlog and projected cash flows, the Company
anticipates financing its capital needs from internal sources and
additional borrowings.
(2) Material Changes in Operations (1st Quarter 1997 vs. 1996)
Net sales decreased to $26.9 million from $36.3 million (a 26% decline)
because of the disposal at 12/31/96 of the majority interest in the
Argentine subsidiary and lower sales in the communication systems business.
The communications systems business involves large contracts with U.S. and
foreign governments, and is inherently subject to variations in timing.
Cost of sales as a percentage of sales increased to 75.2% from 70.0%
primarily because of the absence in 1997 of a favorable change in a cost at
completion estimate on a large contract in the 1996 quarter.
Selling, general and administrative and research and development costs
decreased by $2.2 million (18%) reflecting cost reductions started in the
third quarter 1996 pursuant to the Company's restructuring plans.
Environmental remediation expense of $2.6 million is explained under Item
2(1) above and more fully in Part II, Item 1(b).
Income taxes reflects a 1997 provision for foreign income taxes against
foreign income. There is no recovery recorded against the U.S. losses
because the Company has exhausted its U.S. tax loss carrybacks.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) Reference is made to Item 3, "Legal Proceedings", in Registrant's
Annual Report on Form 10-K, Part I, for the year ended December
31, 1996, regarding the arbitration cross-claims of Loral Defense
Systems - Eagan and Registrant. The parties have completed
depositions and the exchange of documents is to be completed by
June, 1997. Arbitration hearings are scheduled to start July 21,
1997.
(b) Reference is made to Note J - "Commitments and Contingencies" in
Registrant's Notes to Consolidated Financial Statements for the
year ended December 31, 1996 set forth in Registrant's 1996 Annual
Report to Stockholders, regarding an appeal by one of Registrant's
insurance carriers from a declaratory judgment obtained by
Registrant requiring that the insurance carrier pay clean-up costs
in excess of the sum of $6.7 million that Registrant had received
in settlement with its other three insurance carriers. The total
amounts paid and to be paid by Registrant in excess of the $6.7
million recovered totaled $2.6 million, of which $1.5 million has
been incurred and $1.1 million is to be incurred over a 30 year
period.
On April 21, 1997, the California Court of Appeal issued its
decision in the case: Aydin Corporation, Respondent vs. First
State Insurance Company, Appellant, No. A068910 (97 Daily Journal
D.A.R. 5087), reversing the decision of the trial court that had
entered a judgment of Declaratory Relief in favor of the
Registrant regarding insurance coverage for the clean-up costs at
a site formerly leased by Registrant. The Court of Appeal ruled
that an "exception" to an exclusion in an insurance policy must be
treated as part of the policy's coverage provision, and that the
burden of proving the applicability of the exception be borne by
the insured. It was therefore prejudicial error for the trial
court to instruct the jury that it was the burden of the
insurance company to prove the nonexistence of the policy
coverage.
The Registrant is reviewing the decision to determine whether a
further appeal to the California Supreme Court will be made or
allow the case to be returned to the trial court for a new trial.
As a result of this decision, the Registrant has recorded a
non-cash charge of $2.6 million for the First Quarter 1997.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The Registrant held its Annual Meeting of Stockholders on
April 25, 1997.
(b) Proxies for the meeting were solicited pursuant to
Regulation 14A. There was no solicitation in opposition
to management's nominees for directors as listed in the
Proxy Statement. All such nominees were elected.
(c) The matters voted upon and the results of the voting
were as follows:
(1) Election of Directors
<TABLE>
<CAPTION>
Broker
For Withheld Non-Votes
<S> <C> <C> <C>
I. Gary Bard 4,008,756 351,132 None
Nev A. Gokcen 4,008,728 351,160 None
Irwin L. Gross 4,008,756 351,132 None
Gary Mozenter 4,008,756 351,132 None
Harry D. Train II 4,008,726 351,160 None
John F. Vanderslice 4,008,827 351.061 None
</TABLE>
(2) To approve an amendment to the 1994 Incentive Stock Plan.
For Against Abstain Broker Non-Votes*
2,045,087 955,017 20,656 1,339,128
(3) To approve the 1996 Equity Incentive Plan.
For Against Abstain Broker Non-Votes*
2,107,734 687,639 21,936 1,542,579
(4) To approve an amendment to extend the expiration date of
outstanding stock options five years.
For Against Abstain Broker Non-Votes*
2,437,433 954,663 23,934 943,858
(5) To approve the stock Bonus Plan.
For Against Abstain Broker Non-Votes*
2,146,732 1,040,954 24,893 1,147,309
(*) Broker non-votes are not considered shares present in
person or represented by proxy and had no effect on these
votes.
ITEM 5. OTHER INFORMATION
(a) The FASB has issued Statement of Financial Accounting Standards
No. 128, Earnings Per Share, which is effective for financial
statements issued after December 15, 1997. The new standard
eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share
together with disclosure of how the per share amounts
were computed. The adoption of this new Standard is not expected
to have a material impact on the disclosure of earnings per share
in the financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following is a list of Exhibits filed as part of
this report:
Exhibit 2 - None
Exhibit 3(i) - Restated Certificate of Incorporation
(filed as Exhibit 3(i) to Registrant's
Annual Report on Form 10-K for the
year ended December 31, 1994 and
incorporated herein by reference).
Exhibit 3(ii) - By-Laws (filed as Exhibit 3(ii) to
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996 and
incorporated herein by reference).
Exhibit 4 - None
Exhibit 10 - None
Exhibit 11 - None
Exhibit 15 - Letter re unaudited interim financial
information
Exhibit 18 - None
Exhibit 19 - "1997 FIRST QUARTER REPORT" to
Stockholders
Exhibit 22 - None
Exhibit 23 - None
Exhibit 24 - None
Exhibit 27 - Financial Data Schedule (electronic
filing only)
Exhibit 99 - None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the First
Quarter 1997.
<PAGE>
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.
AYDIN CORPORATION
DATE May 12, 1997 /s/ James R. Henderson
James R. Henderson,
Vice President-Finance, Treasurer
and Chief Financial Officer
DATE May 12, 1997 /s/ Robert A. Clancy
Robert A. Clancy, Secretary
<PAGE>
AYDIN CORPORATION
FORM 10-Q QUARTERLY REPORT
EXHIBIT INDEX
N0. DESCRIPTION OF EXHIBIT
15 Letter re unaudited interim financial information
19 1997 First Quarter Report to Stockholders
27 Financial Data Schedule
<PAGE>
Exhibit 15
Securities and Exchange Commission
Washington, D.C. 20549
We have made a review of the condensed consolidated financial
statements of Aydin Corporation and subsidiaries as of March 29,
1997 and for the three-month periods ended March 29, 1997 and
March 30, 1996, in accordance with standards established by the
American Institute of Certified Public Accountants, and issued
our report thereon dated April 23, 1997. We are aware that such
financial statements and our above-mentioned report appearing in
the Form 10-Q of Aydin Corporation for the quarter ended March
29, 1997 are being incorporated by reference in the Registration
Statement Nos. 333-24591; 33-61537; 33-53549; 33-34863; 33-22016; 33-14284;
2-97645; 2-93603; 2-77623; 2-64093 and that such report pursuant
to Rule 436(c) of the Securities Act of 1933 is not considered a
part of a registration prepared or certified by an accountant or
a report prepared or certified by an accountant within the
meaning of Paragraphs 7 and 11 of that Act.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
May 12, 1997
<PAGE>
Exhibit 19
Dear Stockholder:
AYDIN's first quarter operating results were on target with
management s restructuring plan. Performance of our divisions has
improved and we are building backlog in most product groups.
AYDIN incurred an unexpected charge in the first quarter, as a
result of an appeals court s reversal of a prior favorable court
ruling regarding insurance recoveries on an environmental issue
initiated in 1986. A non-cash charge of $2.6 million was recorded
for the quarter.
First quarter sales were $26,914,000, a decrease of 26% versus
the first quarter of 1996. The net loss for the quarter was
$1,657,000 before the environmental charge and $4,269,000 ($.83
per share) including the environmental charge compared to net
income of $963,000 ($.19 per share) in last year s first quarter.
The decrease in sales resulted from the disposal of the majority
ownership in the Company s Argentine subsidiary on 12/31/96 and
lower sales in the communication systems business. The
communications systems business involves large contracts with US
and foreign governments, and is inherently subject to variations
in timing.
Improvements due to our restructuring plan are evident. The
first quarter loss excluding the environmental charge represents
a 51% improvement over the 1996 fourth quarter loss. The Company
is confident that further cost savings will follow. We sold two
company owned buildings in Fort Washington after the end of the
first quarter, consolidating business operations into our Horsham
facility. The gain on this sale (approximately $1.2 million) will
be reflected in second quarter results. There is also an
agreement of sale on a third company owned facility. The
consolidation of operations into fewer buildings allowed us to
combine manufacturing operations and consolidate several product
lines. These changes will also yield operating cost savings.
We achieved milestones on two large programs in the first
quarter. The fourth and fifth of thirteen TMRC sites were
accepted
(page 1)
this quarter. We also resolved long standing contractual issues
on the RIS NATO program.
AYDIN's cash balance decreased during the first quarter,
primarily due to a difference in timing between improving the
Horsham facility to accommodate our Fort Washington production
lines and completing the sale of our Fort Washington buildings.
The cash balance decreased $842,000 since year end, with most of
that cash spent upgrading the Horsham facility to accommodate the
move. The proceeds from the Fort Washington sale, which will be
included in the second quarter, are $2.4 million.
Ending backlog for the first quarter was $82 million versus
$95 million a year ago and $85 million at the end of 1996. The
decline in backlog is primarily due to the wind down on the TMRC
program in Turkey. Excluding the TMRC program from backlog, our
backlog in the first quarter grew 5% over the first quarter of
1996 and 9% from year end. The company currently has several
competitive bids outstanding on similar large programs, whose
aggregate contract value exceeds $100 million.
While the insurance ruling this quarter was an unexpected
disappointment, overall results are consistent with management s
plan for 1997. AYDIN management remains committed to making the
company profitable and increasing backlog. We are continuing to
execute our plan and expect to return to profitability in the
second half of the year.
/s/ I. Gary Bard
I. Gary Bard
Chairman and Chief Executive Officer
April 28, 1997
(page 2)
<PAGE>
AYDIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except for per share amounts)
<TABLE>
<CAPTION>
3 Months Ended
March 29, 1997 March 30,
1996
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 26,914 $ 36,283
COST AND EXPENSES
Cost of Sales 20,247 25,308
Selling, general
and administrative 6,212 7,100
Research and development 1,395 2,230
Environmental remediation 2,612 -0-
Interest expense (income), net (34) 204
_______ ______
Total 30,432 34,842
_______ ______
INCOME (LOSS) BEFORE INCOMES TAXES
AND MINORITY INTEREST (3,518) 1,441
INCOME TAXES 751 472
_______ ______
INCOME (LOSS) BEFORE
MINORITY INTEREST (4,269) 969
LESS MINORITY INTEREST 0 6
_______ ______
NET INCOME (LOSS) $ (4,269) $ 963
_______ ______
_______ ______
EARNINGS (LOSS) PER SHARE $ (.83) $ .19
_______ ______
_______ ______
</TABLE>
(page 3)
<PAGE>
AYDIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($000 Omitted)
ASSETS
<TABLE>
<CAPTION>
March 29, 1997 Dec. 31,
1996
_____________
_____________
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash, including cash equivalents-
1997, $3,278; 1996, $1,584 $ 4,653 $ 5,495
Restricted cash 6,311 7,571
Accounts receivable 20,723 25,156
Unbilled revenue, after
progress billings 39,738 37,993
Inventories:
Raw materials 8,690 7,938
Work-in-process 5,204 5,957
Finished product 2,472 2,520
Prepaid expenses 1,778 2,331
________ ________
Total current assets 89,569 94,961
PROPERTY, PLANT AND EQUIPMENT,
net of accumulated depreciation: 23,003 22,739
1997, $60,879; 1996, $59,261
OTHER ASSETS 10 2,622
________ ________
TOTAL ASSETS $112,582 $120,322
________ ________
________ ________
_______________________________________________________________
<FN>
NOTE TO FINANCIAL STATEMENTS:
Interim financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
periods. The 1996 balance sheet has been derived from the audited
financial statements contained in the 1996 Annual Report to Stockholders.
These interim financial statements conform with the requirements for
interim financial statements and consequently do not include all the
disclosures normally required by generally accepted accounting principles.
Reporting developments have been updated where appropriate. In this
connection, there are no significant changes in contingency disclosures,
except for the environmental clean-up matter where an unfavorable court
ruling has been rendered, resulting in the write-off during the quarter of
$2.6 million. Although the Company's liability and financial position have
improved, the Company continues to seek new financing arrangements. Pretax
results for the first quarter include foreign currency translation gains
relating to the Turkish subsidiary of $147,000 for 1997 and $219,000 for
1996.
</TABLE>
(page 4)
<PAGE>
AYDIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($000 Omitted)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 29, 1997 Dec. 31, 1996
_____________ _____________
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term bank debt $ 2,200 $ 2,800
Accounts payable 9,140 14,865
Accrued liabilities 6,563 5,827
Advanced payments and
contract billings in
excess of recognized
revenue 3,864 2,278
Accrued and deferred
income taxes 831 426
________ _______
Total current liabilities 22,598 26,196
DEFERRED INCOME TAXES 2,666 2,665
OTHER LIABILITIES 1,134 1,134
STOCKHOLDERS' EQUITY:
Common stock, par value $1-
authorized 7,500,000
shares: issued 1997,
5,153,400 shares;
1996, 5,133,400 shares 5,153 5,133
Additional paid-in capital 2,639 2,436
Retained earnings 78,834 83,103
Foreign currency
translation effects (442) (345)
________ _______
Stockholders' equity 86,184 90,327
________ _______
TOTAL LIABILITIES
AND EQUITY $112,582 $120,322
________ _______
________ _______
</TABLE>
(page 5)
<PAGE>
AYDIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
($000 omitted)
<TABLE>
<CAPTION>
Three Months Ended
March 29, 1997 March 30, 1996
_____________ _____________
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ (4,269) $ 963
Items not affecting cash:
Environmental remediation 2,612 -0-
Depreciation and
amortization 744 852
Deferred income taxes 0 150
Minority Interest 0 6
Gain on sale of facility 0 (216)
Other (97) (66)
Changes in certain
working capital items:
Accounts receivable 4,433 15,541
Unbilled revenue (1,745) (2,473)
Advance payments and
contract billings in
excess of recognized
revenue 1,586 (1,441)
Inventories 49 (577)
Prepaid expenses 553 110
Accounts payable and
accrued liabilities (4,989) (10,188)
Accrued income taxes 406 (2,671)
________ _________
CASH USED BY
OPERATING ACTIVITIES (717) (10)
INVESTING ACTIVITIES
Net property, plant and
equipment additions (1,008) (868)
Proceeds from sale
of facility 0 1,159
________ _________
CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (1,008) 291
FINANCING ACTIVITIES
Release of collateral on
restricted cash 1,260 (121)
Principal payments on
long-term debt 0 (1,112)
Net repayments of
short-term borrowings (600) (300)
Proceeds from Issuance
of Stock 223 53
________ _________
CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 883 (1,480)
________ _________
DECREASE IN CASH AND CASH
EQUIVALENTS (842) (1,199)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,495 4,638
________ _________
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 4,653 $ 3,439
________ _________
________ _________
</TABLE>
(page 6)
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT ON REVIEW OF
INTERIM FINANCIAL INFORMATION
Board of Directors and Stockholders
Aydin Corporation
We have reviewed the accompanying condensed consolidated balance
sheet of Aydin Corporation and subsidiaries as of March 29, 1997,
and the related condensed consolidated statements of operations
and cash flows for the three month periods ended March 29, 1997
and March 30, 1996. All information included in these condensed
consolidated financial statements is the representation of the
management of Aydin Corporation and subsidiaries.
We conducted the review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1996, and the related consolidated statements of operations
and cash flows for the year then ended (not presented herein) and
in our report dated March 7, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1996 is fairly
stated, in all material respects in relation to the consolidated
balance sheet from which it has been derived
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
April 23, 1997
_________________________________________________________________
A copy of Aydin Corporation's Form 10Q may be obtained without
charge, upon written request sent to Aydin Corporation
(page 7)
<PAGE>
[logo]
AYDIN CORPORATION
Aydin Corporation designs, engineers, manufactures, markets,
distributes, installs, and operates technologically advanced
communication and information systems.
The Company's capabilities include: telecommunications; airborne
and ground data acquisition and avionics; computer equipment and
software; air and other traffic control; radars, radar
simulation, integration and modernization; command control and
communications systems; and systems integration.
Aydin is a world-class provider of products and services for the
acquisition and distribution of information over electronic
communications media.
The Company has facilities in the United States, the United
Kingdom, Turkey and South America.
(page 8)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from First Quarter Report to Stockholders and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-29-1997
<CASH> 4,653
<SECURITIES> 6,311
<RECEIVABLES> 20,723
<ALLOWANCES> 0
<INVENTORY> 16,366
<CURRENT-ASSETS> 89,569
<PP&E> 83,882
<DEPRECIATION> 60,879
<TOTAL-ASSETS> 112,582
<CURRENT-LIABILITIES> 22,598
<BONDS> 0
<COMMON> 5,153
0
0
<OTHER-SE> 81,031
<TOTAL-LIABILITY-AND-EQUITY> 112,582
<SALES> 26,914
<TOTAL-REVENUES> 26,914
<CGS> 20,247
<TOTAL-COSTS> 27,820
<OTHER-EXPENSES> 2,612
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (34)
<INCOME-PRETAX> (3,518)
<INCOME-TAX> 751
<INCOME-CONTINUING> (4,269)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,269)
<EPS-PRIMARY> (.83)
<EPS-DILUTED> (.83)
</TABLE>
