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 ____June 27, 1998_____
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 principal 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
July 31, 1998.
______5,209,800__________
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AYDIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
($000 omitted except per share amounts)
<TABLE>
3 Months Ended 6 Months Ended
June 27, 1998 June 28, 1997 June 27,1998 June 28, 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 27,478 $ 32,322 $ 53,603 $ 59,236
COST AND EXPENSES
Cost of Sales
Contract arbitration and related 0 0 20,343 0
Other 19,910 25,232 41,828 45,479
Selling, general and administrative 6,897 6,961 13,877 13,173
Research and development 513 672 1,016 2,067
Restructuring costs 0 0 1,548 0
Environmental remediation 0 0 0 2,612
Gain on sale of facility 0 (1,074) 0 (1,074)
Interest expense (income), net (87) (146) (329) (180)
__________ _________ ________ ________
Total 27,233 31,645 78,283 62,077
__________ _________ ________ ________
INCOME (LOSS) BEFORE INCOME TAXES 245 677 (24,680) (2,841)
INCOME TAX PROVISION (RECOVERY) 30 417 (750) 1,168
__________ _________ ________ ________
NET INCOME (LOSS) $ 215 $ 260 $ (23,930) $ (4,009)
__________ _________ ________ ________
__________ _________ ________ ________
INCOME (LOSS) PER SHARE $ 0.04 $ 0.05 $ (4.59) $ (0.78)
__________ _________ ________ ________
__________ _________ ________ ________
Number of shares used for per share
amounts 5,213,284 5,153,400 5,209,727 5,147,491
COMPREHENSIVE NET INCOME (LOSS)
Net income (loss) as above $ 215 $ 260 $ (23,930) $ (4,009)
Foreign currency translation
income (loss) 0 226 2 129
__________ _________ ________ ________
Comprehensive net income (loss) $ 215 $ 486 $ (23,928) $ (3,880)
__________ _________ ________ ________
__________ _________ ________ ________
</TABLE>
AYDIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($000 omitted)
ASSETS
<TABLE>
June 27, 1998 Dec. 31, 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash, including cash equivalents-
1998, $ 6,492; 1997, $ 4,059 $ 6,492 $ 4,059
Restricted cash 3,812 6,102
Accounts receivable 24,929 24,137
Unbilled revenue, after progress billings 36,201 39,682
Inventories:
Raw materials 8,833 9,807
Work-in-process 5,483 6,217
Finished product 2,226 1,889
Prepaid expenses and other 1,679 5,593
__________ ___________
Total current assets 89,655 97,486
PROPERTY, PLANT AND EQUIPMENT
net of accumulated depreciation:
1998, $ 38,077; 1997, $ 59,241 14,147 14,479
OTHER ASSETS 46 90
__________ ___________
TOTAL ASSETS $ 103,848 $ 112,055
__________ ___________
__________ ___________
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
June 27, 1998 Dec. 31, 1997
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 641 $ 200
Accounts payable 7,121 8,668
Accrued contract arbitration and related 17,417 0
Accrued liabilities, other 7,816 6,060
Contract billings in excess of
recognized revenue 3,087 2,507
Accrued and deferred income taxes 1,031 3,869
_________ _________
Total current liabilities 37,113 21,304
DEFERRED INCOME TAXES 461 461
OTHER LIABILITIES 839 948
STOCKHOLDERS' EQUITY:
Common stock, par value $1-
authorized 7,500,000 shares: issued
1998 - 5,209,800 shares;
1997 - 5,208,800 shares; 5,211 5,209
Additional paid-in capital 3,160 3,141
Retained earnings 57,481 81,411
Accumulated other comprehensive income (417) (419)
_________ _________
Stockholders' equity 65,435 89,342
_________ _________
TOTAL LIABILITIES AND EQUITY $ 103,848 $ 112,055
_________ _________
_________ _________
</TABLE>
AYDIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
($000 omitted)
<TABLE>
Six Months Ended
June 27, 1998 June 28, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (23,930) $ (4,009)
Items not affecting cash:
Environmental remediation 0 2,612
Depreciation and amortization 1,148 1,444
Gain on sale of facility 0 (1,074)
Other (63) 24
Changes in certain working capital items:
Accounts Receivable (792) 5,723
Unbilled Revenue 3,481 (2,784)
Contract billings in excess of
recognized revenue 580 (463)
Inventories 1,371 296
Prepaid expenses and other 3,914 (2,732)
Accrued contract arbitration and related 17,417 0
Accounts payable and other
accrued liabilities 209 (4,303)
Accrued income taxes (2,838) 2,703
_________ _________
Cash Provided (Used) by
Operating Activities 497 (2,563)
INVESTING ACTIVITIES
Net property, plant and equipment
additions (816) (1,486)
Proceeds from sale of facility 0 2,250
_________ _________
Cash Provided (Used) by
Investing Activities (816) 764
FINANCING ACTIVITIES
Net short-term borrowings (repayments) 441 (2,600)
Proceeds from issuance of stock 21 223
_________ _________
Cash Provided (Used) By
Financing Activities 462 (2,377)
INCREASE (DECREASE) IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH 143 (4,176)
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH AT BEGINNING OF YEAR 10,161 13,066
_________ _________
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH AT END OF PERIOD $ 10,304 $ 8,890
_________ _________
_________ _________
</TABLE>
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 1998 balance sheet has been derived
from the audited financial statements contained in the 1997 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 were two significant changes in contingency
disclosures. First, on April 10, 1998 an arbitration panel ruled
in favor of a subcontractor's claim on the TMRC contract with the
Government of Turkey. The impact of this ruling (a $20.3 million
charge) was included in the 1998 First Quarter Statement of
Operations and is reflected herein in the 1998 Six Months
Statement of Operations. Second, the Company re-evaluated its
position regarding contingencies on certain US Government
contracts resulting in a $2.4 million charge against income in the
1998 first quarter. Pretax results for the six month periods
included foreign currency translation gains and losses relating to
the Turkish subsidiary of a $126,000 gain for 1998 and a $175,000
loss for 1997.
INDEPENDENT ACOUNTANTS' REPORT ON REVIEW OF INTERIM FINANCIAL
INFORMATION
Board of Directors and Stockholders
Aydin Corporation
We have reviewed the accompanying condensed consolidated
balance sheets of Aydin Corporation and subsidiaries as of June
27, 1998 and June 28, 1997, and the related condensed consolidated
statements of operations and comprehensive income for the three
and six month periods ended June 27, 1998 and June 28, 1997 and
related statements of cash flows for the six month periods ended
June 27, 1998 and June 28, 1997. These financial statements are
the responsibility 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 inquires 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 reviews, 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, 1997, and the related consolidated statements of
operations and cash flows for the year then ended (not presented
herein) and in our report dated February 2, 1998, 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, 1997 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
July 22, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company reported net income of $215,000, or $.04 per share, in
the second quarter of 1998, compared to net income of $260,000, or
$.05 per share, in the second quarter of 1997. Revenues for the
second quarter were $27.5 million compared to $32.3 million in the
second quarter of 1997. In the 1998 second quarter the Company
generated positive cash flow from operating activities of more
than $1.1 million.
The net loss for the six month period ended June 30, 1998 was
$23.9 million, or $4.59 per share, compared a net loss of $4.0
million, or $0.78 per share, for the comparable period of 1997.
Revenues for the six month periods were $53.6 million in 1998
compared to $59.2 million in 1997. The net loss for the 1998 six
month period primarily reflects the previously reported $17.2
million commercial arbitration award in favor of Lockheed Martin
Corporation and other charges taken in the first quarter.
Although second quarter 1998 net sales revenues declined 15% from
the year ago quarter, a more favorable mix of business and lower
overhead costs enabled the Company to record second quarter pre-
tax operating profit of $245,000. This compares favorably to a
pre-tax operating loss of $397,000 in the 1997 second quarter,
excluding a gain of $1,074,000 in that quarter on the sale of real
estate.
1998 net sales declined by $4.8 million (15%) from the year ago
quarter and by $5.6 million (9%) from last year's first six months
primarily as a result of lower sales on the TMRC contract with the
Government of Turkey. The year ago TMRC sales reflected
significant activity on a subcontract which was completed last
year.
"Cost of sales, contract arbitration and related" of $20.3 million
for the 1998 six month period represents the first quarter 1998
charge from the arbitration award to Lockheed Martin Corporation,
related interest and an increase in other estimated completion
costs on the TMRC contract, as explained more fully below under
Financial Condition. Other cost of sales as a percentage of sales
for the second quarter improved to 73% from 78% in the year ago
quarter primarily due to a higher proportion of more profitable
sales and a reduction of overhead. Other cost of sales as a
percentage of sales increased to 78% for the first six months of
1998 from 77% in 1997 primarily as a result of first quarter 1998
charges for: (a) the Company's decision to relinquish its position
regarding collectible revenues under a contract with the U.S.
Government ($1.6 million); (b) an increase in litigation
contingency reserves related to several outstanding claims against
the Company ($.9 million); and (c) the write-off of certain West
Coast assets which will not be included with the planned sale of
the Microwave Division but which will have negligible value after
the sale ($.6 million).
As reported in the Report on Form 10-Q for the first quarter of
1998, the Company is concentrating its focus on its core
businesses of Telemetry and Communications. Accordingly, first
quarter 1998 results included a $1.5 million restructuring charge
related to the planned shut-down of the Raytor Division
(approximately $1 million) and a reduction in corporate expenses
($.6 million). Approximately $200,000 has been spent through the
end of the second quarter on the restructuring which is expected
to be completed during the third quarter of 1998. In connection
with the decision to concentrate the Company's focus on its core
businesses, the Company is looking to sell its Displays, West
Coast Microwave Components and Molded Devices Divisions. The
Company continues to negotiate with prospective purchasers of the
West Coast Microwave Components and Displays Divisions,
respectively, and is in the process of finalizing a definitive
purchase agreement with a prospective purchaser of the Molded
Devices Division. Subsequent to the second quarter end, the
Company completed the previously announced shut down of its Raytor
Division.
Environmental remediation expense of $2.6 million in last year's
first quarter resulted from the write-off of an anticipated
insurance recovery of money previously spent ($1.5 million) and to
be spent over a 30 year period on an environmental clean-up at a
site leased by the Company prior to 1984. The write-off resulted
from an unfavorable court ruling in April 1997 involving the
future collection of the insurance recovery. The Company has
appealed this ruling to the California Supreme Court, where a
decision on the appeal is pending, following oral argument held in
June 1998.
Gain on sale of facility relates to two Company-owned buildings
sold in the second quarter of 1997. The operations housed in
these facilities were relocated to other Company-owned buildings.
The income tax recovery for 1998 reflects the available U.S.
carryback of a portion of the 1998 net operating loss. The income
tax provision for 1997 represents foreign taxes on the income of
foreign operations.
Financial Condition
As previously reported in the Company's Report on Form 8-K dated
April 10, 1998, on that date the arbitration panel in the
Company's dispute with Lockheed Martin Corporation ("Lockheed"), a
subcontractor on the Company's TMRC contract with the Government
of Turkey, awarded Lockheed $17.2 million. On June 8, 1998, the
Company announced that it had reached agreement with Lockheed
regarding payment of the arbitration award. Under the terms of
the agreement, the Company has withdrawn its appeal of the
arbitration award and Lockheed withdrew its motion seeking
judgment on the award. As of the date of filing this Report on
Form 10-Q, the Company has paid Lockheed $2 million and agreed to
pay $.5 million monthly through December 1, 1998. The agreement
further provides for accelerated payments upon the sales of
certain of the Company's Divisions as discussed above and for
payment in full of all obligations to Lockheed by December 15,
1998. The award including anticipated interest is recorded as a
$17.4 million current liability at June 27, 1998. The Company
anticipates that the substantial majority of the award will be
paid from the proceeds of the Division sales. If such sales are
not consummated by December 15, 1998, the Company would require
other sources of funds to meet such obligations. While the
Company is continuing to explore other borrowing sources, there
can be no assurance that other sources of funds would be
available.
As a result of the arbitration award, the Company is in default
under a credit agreement with AT&T Commercial Finance Corporation
("AT&T"). During the first quarter of 1998, the Company borrowed
$2 million on a two year term loan under this credit agreement.
At June 27, 1998, the remaining unpaid balance of the loan has
been reduced to $641,000 and is recorded as a current liability,
which liability was satisfied by July 31, 1998, under an agreement
reached with AT&T. Also under this agreement, the Company has
agreed to provide cash collateral by not later than November 13,
1998 for the full amount then outstanding of a letter of credit
issued pursuant to the original AT&T credit agreement, which
letter of credit has a balance outstanding of approximately $1.1
million as of the date of filing this Report.
Backlog at June 27, 1998 was $63 million, compared to $71 million
at December 31, 1997. The decrease was primarily due to reduced
backlog on the TMRC program which is nearing completion and delays
in the receipt of certain Telemetry Division orders.
Unbilled revenue (after progress billings) declined by $3.5
million from December 31, 1997 through June 27, 1998. Of this
amount, $1.9 million relates to the impact of the first quarter
1998 increase in estimated costs to complete the TMRC contract,
and $1.6 million relates to the Company's decision in the first
quarter of 1998 to relinquish its position regarding collectible
revenues under a contract with the US Government, as described in
the Company's First Quarter 1998 Form 10-Q.
Prepaid expenses and other declined by $3.9 million during the
1998 six month period as the result of the refund of U.S. income
taxes which were included in prepaid expenses at year end 1997.
"Accrued liabilities, other" increased by $1.7 million from year
end 1997 to June 27, 1998 primarily due to $1.1 million of
increases in litigation contingency reserves (of which $.9 million
was recorded in the first quarter) and $759,000 of liabilities
recorded in connection with the first quarter restructuring
charge.
Accrued and deferred income taxes decreased by $2.8 million from
December 31, 1997 to June 27, 1998 primarily because of a $.9
million carryback of U.S. taxes resulting from the first quarter
1998 loss and $1.3 million of foreign tax payments and translation
gains.
Except for the historical matters contained in this Report on Form
10-Q, statements made herein are forward-looking and are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that these
forward-looking statements reflect numerous assumptions and
involve risks and uncertainties which may affect the Company's
business and prospects and cause actual results to differ
materially from these forward-looking statements, including loss
of current customers, reductions in orders from current customers,
or delays in ordering by current customers, failure to obtain
anticipated contracts or orders from new customers, or expected
volume from such customers, higher material or labor costs,
unfavorable results in litigation against the Company, the
availability of adequate sources of working capital, consummation
of planned Division sales, and economic, competitive,
technological, governmental, and other factors discussed in the
Company's previous filings with the Securities and Exchange
Commission.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Part 1, Item 3 - "Legal Proceedings" in
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, describing the arbitration claims and
counterclaims involving the Registrant and a subcontractor (Loral
Defense Systems - Eagan, now Lockheed Martin Tactical Systems,
Inc.) on the TMRC program with the Government of Turkey, to the
Registrant's Report on Form 8-K dated April 10, 1998, and to Part
II, Item 1 - Legal Proceedings of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 4, 1998.
As described in Part I, Item 2 of this Report, on June 8, 1998 the
Company announced that it had reached agreement with Lockheed
Martin Corporation ("Lockheed") regarding payment of the
arbitration award. Under the terms of the agreement, the Company
has withdrawn its appeal of the arbitration award and Lockheed
withdrew its motion seeking judgment on the award. As of the date
of this Report on Form 10-Q, the Company has paid Lockheed $2
million and agreed to pay $.5 million monthly through December 1,
1998. The agreement further provides for accelerated payments
upon the sales of certain of the Company's Divisions as discussed
in Part I of this Report and for payment in full of all
obligations to Lockheed by December 15, 1998.
ITEM 5. Other Information
Stockholder Proposals
Any stockholder who, in accordance with and subject to the
provisions of the proxy rules of the Securities and Exchange
commission, wishes to submit a proposal for inclusion in the
Company's proxy statement for its 1999 Annual Meeting of
Stockholders must deliver such proposal in writing to the
Company's Secretary at the Company's principal executive offices
at 700 Dresher Road, Horsham, PA 19044, not later than February
16, 1999.
Pursuant to new amendments to Rule 14a-4(c) of the Securities
Exchange Act of 1934, as amended, if a stockholder who intends to
present a proposal at the 1999 Annual Meeting of Stockholders does
not notify the Company of such proposal on or prior to February
16, 1999, then management proxies will be allowed to use their
discretionary authority to vote on the proposal when the proposal
is raised at the 1999 Annual Meeting of Stockholders, even though
there is no discussion of the proposal in the 1999 proxy
statement.
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 - Inapplicable
Exhibit 3(i) - Restated Certificate of
Incorporation (incorporated herein
by reference to Exhibit 3(i) to
Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1994).
Exhibit 3(ii)- By-Laws (incorporated herein
by reference to Exhibit 3(ii) to
Registrant's Annual Report on Form
10-K for the year ended December
31, 1996).
Exhibit 4 - Inapplicable
Exhibit 10 - Aydin Corporation Director
Retirement Plan (filed herewith)
Exhibit 11 - Inapplicable
Exhibit 15 - Letter re unaudited interim
financial information (filed
herewith)
Exhibit 18 - Inapplicable
Exhibit 19 - Inapplicable
Exhibit 22 - Inapplicable
Exhibit 23 - Inapplicable
Exhibit 24 - Inapplicable
Exhibit 27 - Financial Data Schedule (electronic
filing only)
Exhibit 99 - Inapplicable
(b) Reports on Form 8-K
A Report on Form 8-K dated April 10, 1998 was filed on April 22,
1998. As indicated in Item 2 of Part I of this Report on Form 10-
Q, that Form 8-K reported that the arbitration panel in the
Company's dispute with Lockheed Martin Corporation had awarded
Lockheed $17.2 million. No financial statements were filed with
such Report.
<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 August 10, 1998 /s/ James R. Henderson
James R. Henderson
Vice President, Treasurer and
Chief Financial Officer
DATE August 10, 1998 /s/ Gene S. Schneyer
Gene S. Schneyer,
Vice President, Secretary
and General Counsel
<PAGE>
EXHIBIT 10
AYDIN CORPORATION
DIRECTOR RETIREMENT PLAN
1. Purpose. The purpose of the Aydin Corporation Director
Retirement Plan (the "Plan") is to promote the long-term growth of
Aydin Corporation (the "Company") by offering long-term incentives
to Directors in the Company and to attract and retain highly
qualified and capable Directors.
2. Definitions. Unless the context clearly indicates
otherwise, the following terms shall have the following meanings:
2.1 "Award" means an award granted to a Director under the
Plan in the form of Retirement Shares.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Director" means a director of the Company.
2.4 "Fair Market Value" means, with respect to any date, the
mean between the highest and lowest sale prices per Share on the
New York Stock Exchange on such date, provided that is there shall
be no sale of Shares reported on such date, the Fair Market Value
of a Share on such date shall be deemed to be equal to the average
between the highest and lowest sale prices per Share on the New
York Stock Exchange for the last preceding date on which sales of
Shares were reported.
2.5 "Retirement Shares" means any Shares credited to a
Director's book account in accordance with Article 6 of this Plan.
2.6 "Shares" means shares of the Common Stock, par value
$1.00 per share, of the Company.
2.7 "Total Disability" means complete and permanent
inability by reason of illness or accident to perform the duties
of a Director when such disability commenced. All determination
as of the date and extent of the disability of any participant
shall be made by the Committee, upon the basis of such evidence as
the Committee (as defined below) deems necessary and desirable.
3. Administration of the Plan. The Plan shall be
administered by the Company's Board of Directors ("Board").
3.1 The Board shall have full power and authority to: (i)
interpret and construe the Plan and adopt such rules and
regulations as it shall deem necessary and advisable to implement
and administer the Plan, and (ii) designate persons other than
members of the Board to carry out its responsibilities, subject to
such limitations, restrictions and conditions as it may prescribe,
such determinations to be made in accordance with the Board's best
business judgment as to the best interests of the Company and its
stockholders and in accordance with the purposes of the Plan. The
Board may delegate administrative duties under the Plan to one or
more agents as it shall deem necessary or advisable.
3.2 A majority of the Board shall constitute a quorum at any
meeting of the Board and all determinations of the Board shall be
made by a majority of its members present at such meeting. Any
determination of the Board under the Plan may be made without
notice or a meeting of the Board by a written consent signed by
all members of the Board.
3.3 No member of the Board shall be personally liable for
any action or determination made in good faith with respect to the
Plan or any Award or to any settlement of any dispute between a
Director and the Company. Any decision or action taken by the
Board with respect to an Award or the administration or
interpretation of the Plan shall be conclusive and binding upon
all persons.
4. Eligibility. Directors of the Company who are not
executive officers or employees of the Company on the effective
date of the Plan shall be eligible to participate in the Plan in
accordance with Article 6 of this Plan and any director elected or
appointed as director on or after the effective date shall be
eligible to participate provided they have served as a Director of
the Company for at least three full years.
5. Retirement Shares. Awards under this Plan shall be
granted to a participant in the form of Retirement Shares, which
shall be credited to a Retirement Share Account to be maintained
for such participant.
5.1 Each Retirement Share shall be deemed to be equivalent
in value to one Share. The award of Retirement Shares under the
Plan shall not entitle the recipient to any dividend or voting
rights or any other rights of a stockholder with respect to such
Retirement Shares.
5.2 The maximum number of Retirement Shares that may be
awarded under the Plan shall not exceed an aggregate of 25,000
Retirement Shares. If any Retirement Shares awarded under the
Plan shall be forfeited or canceled, such Retirement Shares may
again be awarded under the Plan.
5.3 The Board may in its sole discretion substitute other
forms of awards (such as restricted stock) for Retirement Shares.
Notwithstanding the foregoing provisions of this section, the
Board shall not substitute any other form of award for Retirement
Shares unless, in the opinion of the Board such substitution would
not result in any significant increase in the cost of the Plan to
the Company, or otherwise adversely affect it.
6. Time of Grant of Retirement Shares and Number of
Retirement Shares Granted. On the first business day of March of
each year, each Director shall become entitled to Retirement
Shares in such amount as shall be determined by the Board of
Directors to be determined by the Board of Directors at its
meeting held in February of such year.
7. Timing and Right to Payment of Retirement Shares. A
Director shall have no right to receive payment for any part of
his or her Retirement Shares until the earlier to occur of the
following events (the "Distribution Date"): such Director's (a)
retirement from the Board after having served at least three full
years as a Director; (b) failure to be elected or re-elected to
the Board; (c) death or (d) Total Disability. If such director
leaves the Company prior to the occurrence of such event, such
Director's Retirement Shares shall be forfeited. The Board may,
if in the opinion of the Board circumstances warrant such action,
approve payment of any or all of Retirement Shares that would
otherwise be forfeited as a result of a participant failing to
remain as a Director for the required period.
8. Form of Payment. Payments shall be made to the holder of
Retirement Shares (a) wholly in cash, in an amount equal to the
number of Shares represented by the Retirement Shares times the
Fair Market Value on the Distribution Date, or (b) wholly in an
equal number of Shares, or (c) partly in cash and partly in Shares
in such proportion as the Board deems appropriate. Shares issued
upon payment of Retirement Shares may be either treasury Shares,
or authorized and unissued Shares, or both. Payment in respect of
Retirement Shares shall be made as soon as practicable after the
Distribution Date; provided, however, that before the distribution
of any award, a Director may elect that the payment of his
Retirement Shares should be made in a specified number of
installments.
9. Designation of Beneficiaries. Each Director shall have
the right to designate beneficiaries who are to succeed to such
Director's contingent right to receive future payments hereunder
in the event of death. In case of the failure of a Director to
make a designation or the death of a designated beneficiary
without the Director having designated a successor, distribution
shall be made to the Director's estate. No designation of
beneficiaries shall be valid unless it is in writing, signed by
the Director, dated, and filed with the Board. Beneficiaries may
be changed without the consent of any prior beneficiaries.
10. Amendment and Termination. The Board may discontinue or
terminate this Plan in whole or in part at any time, or the Board
may from time to time change or amend the Plan in such respects as
the Board may deem advisable, in its sole discretion, subject to
any required stockholder approval or any stockholder approval that
the Board may deem advisable for any reason, such as for the
purpose of obtaining or retaining any statutory or regulatory
benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. The fact that a
director is or had been designated as a participant under this
Plan shall not disqualify him from voting as a Director for or
against the Plan or for or against any change or amendment
thereto. However, no action authorized by this Article shall
adversely change the number of Retirement Shares outstanding.
11. Adjustment Provisions. If the Company shall at any time
change the number of issued Shares without new consideration to
the Company (such as by stock dividend, stock split,
recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the
Shares) or make a distribution of cash or property which has a
substantial impact on the value of issued Shares, the total number
of Retirement Shares outstanding under the Plan shall be
appropriately adjusted so that the value of each such Retirement
Share shall not be changed.
11.1 Notwithstanding any other provision of the Plan, and
without affecting the number of Retirement Shares reserved or
available hereunder, the Board shall authorize continuance or
assumption of outstanding Retirement Shares or provide for other
equitable adjustments after changes in the Shares resulting from
any merger, consolidation, sale of assets, acquisition of property
or stock, recapitalization, reorganization or similar occurrence
in which the Company is the continuing or surviving corporation,
upon such terms and conditions as it may deem necessary to
preserve Directors' rights under the Plan.
11.2 In the case of the sale of substantially all of the
assets, merger, consolidation or combination of the Company with
or into another entity, other than a transaction in which the
Company is the continuing or surviving corporation, and which does
not result in the outstanding Retirement Shares being converted
into or exchanged for different securities, cash or other
property, or any combination thereof (an "Acquisition"), any
Director granted Retirement Shares shall have the right (subject
to the provisions of the Plan) thereafter to receive the
Acquisition Consideration (as defined below) receivable upon the
Acquisition by a holder of the number of Shares equal to the
number of Retirement Shares granted to the Director. The term
"Acquisition Consideration" shall mean the kind and amount of
shares of the surviving or new corporation, cash, securities,
evidence of indebtedness, other property or any combination
thereof receivable in respect of one Share of the Company upon
consummation of an Acquisition.
12. Effective Date. The Plan shall be submitted to the
stockholders of the Company for approval and, if approved at the
next annual meeting of stockholders, shall become effective as of
January 1, 1998. If stockholder approval is not obtained at such
annual meeting stockholders, the Plan shall be nullified.
13. Forfeiture for Dishonesty. Notwithstanding anything to
the contrary in the Plan, if the Board finds, by a majority vote,
after full consideration of the facts presented on behalf of both
the Company and any Director, that the Director has been engaged
in fraud, embezzlement, theft, commission of a felony or dishonest
conduct in the course of his service or retention by the Company
or any subsidiary of the Company that damaged the Company or any
subsidiary of the Company or that the Director has disclosed
confidential information of the Company or any subsidiary of the
Company, the Director shall forfeit all Retirement Shares. The
decision of the Board in interpreting and applying the provisions
of this Section 13 shall be final.
14. Miscellaneous Provisions.
14.1 A Director's rights and interests under the Plan may
not be assigned or transferred. In the case of a Director's
death, the distribution of Shares or cash due under this Plan
shall be made to his designated beneficiary, or in the absence of
such designation, to the Director's estate.
14.2 No Director shall have any claim or right to be granted
an Award under this Plan. Neither this Plan nor any action taken
hereunder shall be construed as giving any person any right to be
retained as a Director.
14.3 Unless earlier terminated in accordance with the
provisions of this Plan, the Plan shall remain in effect until all
Shares reserved under the Plan have been issued.
14.4 The Company, during the term of the Plan, will at all
times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of
the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any shares
hereunder, shall relieve the Company of any liability for the
failure to issue or sell such shares as to which such requisite
authority shall not have been obtained.
14.5 No provision of the Plan shall be construed to prevent
the Company or any officer or director thereof from taking any
action deemed by the Company or such officer or director to be
appropriate or in the Company's best interest, whether or not such
action could have an adverse effect on the Plan or any Retirement
Shares granted hereunder, and no Director or Director's estate,
personal representative or beneficiary shall have any claim
against the Company or any officer or director thereof as a result
of the taking of such action.
14.6 With respect to the administration of the Plan, the
Company shall indemnify each present and future member of the
Board against, and each member of the Board shall be entitled
without further action on his part to indemnity from the Company
for, all expenses (including the amount of judgments and the
amount of approved settlements made with a view to the curtailment
of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising
out of, any action, suit or proceeding in which he may be involved
by reason of his being or having been a member of the Board,
whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity
shall not include any expenses incurred by any such member of the
Board (i) in respect of matters as to which he shall be finally
adjudged in any such action, suit or proceeding to have been
guilty of gross negligence or willful misconduct in the
performance of his duty as such member of the Board; or (ii) in
respect of any matter in which any settlement is effected for an
amount in excess of the amount approved by the Company on the
advice of its legal counsel; and provided further that no right of
indemnification under the provisions set forth herein shall be
available to or enforceable by any such member of the Board
unless, within 60 days after institution of any such action, suit
or proceeding, he shall have offered the Company in writing the
opportunity to handle and defend same at its own expense. The
foregoing right of indemnification shall inure to the benefit of
the heirs, executors or administrators of each such member of the
Board and shall be in addition to all other rights to which such
member may be entitled as a matter of law, contract or otherwise.
14.6 In the discretion of the Board, no Shares, other
securities or property of the Company or other forms of payment
shall be issued hereunder with respect to any Retirement Shares
unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal, state,
local and foreign legal, securities exchange and other applicable
requirements.
14.7 To the extent that Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, applies to Shares or Retirement
Shares granted under the Plan, it is the intention of the Company
that the Plan comply in all respects with the requirements of Rule
16b-3, that any ambiguities or inconsistencies in construction of
the Plan be interpreted to give effect to such intention and that
if the Plan shall not so comply, whether on the date of adoption
or by reason of any later amendment to or interpretation of Rule
16b-3, the provisions of the Plan shall be deemed to be
automatically amended so as to bring them into full compliance
with such rule.
<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 July 27,
1998 and for the three-month and six-month periods ended June 27,
1998 and June 28, 1997 in accordance with standards established by
the American Institute of Certified Public Accountants and issued
our report thereon dated July 22, 1998. 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 June 27,
1998 are being incorporated by reference in the Registration
Statement Nos. 333-31263; 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
August 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the financial statements in the Quarterly Report on Form 10-Q
for the period ended June 27, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-27-1998
<CASH> 4,059
<SECURITIES> 6,102
<RECEIVABLES> 24,137
<ALLOWANCES> 0
<INVENTORY> 16,542
<CURRENT-ASSETS> 89,655
<PP&E> 52,224
<DEPRECIATION> 38,077
<TOTAL-ASSETS> 103,848
<CURRENT-LIABILITIES> 37,113
<BONDS> 0
<COMMON> 5,211
0
0
<OTHER-SE> 60,224
<TOTAL-LIABILITY-AND-EQUITY> 103,848
<SALES> 53,603
<TOTAL-REVENUES> 53,603
<CGS> 62,171
<TOTAL-COSTS> 78,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (329)
<INCOME-PRETAX> (24,680)
<INCOME-TAX> (750)
<INCOME-CONTINUING> (23,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,930)
<EPS-PRIMARY> (4.59)
<EPS-DILUTED> (4.59)
</TABLE>
