SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended __December 31, 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.)
47 FRIENDS LANE
NEWTOWN, PENNSYLVANIA 18940
_________________________________ __________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215)497-8000
700 DRESHER ROAD,HORSHAM, PENNSYLVANIA 19044
___________________________________________________________
(Former Name or Former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
______________________________ _________________________
Common Stock, $1 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
_________________
(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__
The aggregate market value of 4,539,006 shares of Common Stock
held by non-affiliates, computed using the closing price as of
March 1, 1999, was $58,439,702.
Number of shares of Common Stock outstanding as of March 1,
1999 5,220,936.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference:
The Registrant's Schedule 14D-9 filed with the Commission on March
5, 1999 (the "Schedule 14D-9"), including the Information
Statement Pursuant to Section 14(F) of the Securities Exchange Act
of 1934 and Rule 14F-1 Thereunder (the "Information Statement")
filed as Annex A to the Schedule 14D-9 (Part III).
<PAGE>
INDEX TO FORM 10-K
----------------------------------------------------------
This index lists the requirements of Form 10-K and the page number
in this Form 10-K where each item can be found.
PART I
Item 1 Business............................ 2-5
Item 2 Properties.......................... 6
Item 3 Legal Proceedings................... 6
Item 4 Submission of Matters to a Vote
of Security Holders................ 6
PART II
Item 5 Market for the Registrant's Common
Equity and Related Stockholder
Matters............................ 7
Item 6 Selected Financial Data............. 8
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operation........... 9-12
Item 7A Quantitative and Qualitative
Disclosures About Market Risk...... 12
Item 8 Financial Statements and
Supplementary Data................. 13-27
Item 9 Changes In and Disagreements With
Accountants on Accounting and
Financial Disclosure............... 27
PART III
Item 10 Directors and Executive Officers
of the Registrant................. 28
Item 11 Executive Compensation............. 28
Item 12 Security Ownership of Certain
Beneficial Owners and Management.. 28
Item 13 Certain Relationships and
Related Transactions.............. 28
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K. 29-30
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Aydin Corporation (the "Company" or "Aydin") was incorporated
under the laws of the State of Delaware in September, 1967.
The Company consists domestically of two major operating and one
smaller support division, and two foreign operating subsidiaries.
The Company disposed of its 80% interest in its Argentine
subsidiary on December 31, 1996 and now owns 19% of that company.
The divisions and subsidiaries are profit centers each with
engineering, manufacturing, marketing and accounting functions.
In 1998, the Company sold three operating divisions and shut down
a fourth. As of the end of the third fiscal quarter of 1998, the
Company accounted for its Displays Division (which previously had
been a major operating division) as a discontinued operation, and
that division was sold in November 1998. Earlier in 1998, the
Company shut down its Raytor Division and sold both its Molded
Products and West Coast Microwave Components Divisions, all of
which divisions had been smaller support divisions. Going forward,
the Company has the following three major operating business
segments: (1) the Telemetry Division; (2) the Communications
Division, which includes a UK subsidiary, Aydin Europe Ltd., which
provides overseas marketing, sales and customer service support
for the Division; and (3) a wholly-owned Turkish subsidiary, Aydin
Yazilim ve Elektronik Sanayi A.S., which together with a U.S.
based program support office forms a Turkish Operations segment.
In addition, the Company has a support division (Electro Fab)
which produces printed circuit boards, and is part of the Other
segment.
(b) Financial Information About Industry Segments
The Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," ("SFAS 131") during the fourth quarter of 1998.
Financial information regarding the Company's operating segments
for the past three fiscal years is set forth under Note N in the
Notes to Consolidated Financial Statements included under Item 8
in Part II of this Report on Form 10-K, and such information is
incorporated herein by reference.
(c) Narrative Description of Business
The Company operates predominantly in the electronics
manufacturing industry, and the information set forth below is
with respect to the Company's three major business segments. The
Company designs, manufactures, and sells products in the three
major business segments as described below:
Telemetry Segment
Aydin Telemetry products are used by space agencies such as
NASA and in defense and aerospace programs such as aircraft
and weapons development. These products and systems serve
aerospace, satellite and commercial aircraft markets in the
United States and abroad. Aydin designs, manufactures and
markets an extensive product line and provides turnkey
systems integration for airborne and ground-based
applications. These airborne and ground systems gather
critical information from spacecraft, satellites, aircraft,
guided weapons and ground vehicles. This equipment
calibrates, processes and records or transmits information
by radio or microwave links to a fixed or mobile ground
station that receives, processes and analyzes the data.
Communications Segment
Aydin provides a wide range of data and voice communication
systems and products for the commercial and military markets
throughout the world in a variety of public and private
networks. In addition, Aydin custom-designs complex mission-
critical applications such as right-of-way communications
for utility, railway and pipeline companies, and the
establishment of vital links to offshore platforms and
satellite earth stations. Aydin also provides complete air
defense communications systems and commercial air traffic
control solutions.
(page 2)
<PAGE>
Aydin also manufactures and installs communications products
used in satellite earth stations, providing both primary and
back-up links such as Aydin's state-of-the-art Satellite
TDMA Terminals used for commercial and government networks--
among them AT&T, Sprint and WorldCom, and national telecom
operations in the UK, France, Germany, Canada, Singapore and
Brazil.
Aydin Communications has supplied turnkey telecommunications
systems to Australia, Thailand, Turkey, Argentina, Zambia,
Malaysia, Saudi Arabia, Finland and other countries, serving
infrastructure needs with integrated systems that may
include line-of-sight radios, satellite earth stations,
multiplexers, switches, fiber-optic cables, and other
technology.
Turkish Operations Segment
The Turkish Operations Segment produces, installs and
supports a variety of military communications equipment and
systems, including the Government of Turkey's critical
Mobile Air Defense System. To date, nearly all of this
segment's business comes from the Turkish government.
The Company's products and systems are sold directly by Company
sales personnel and manufacturers' representatives. Sales
representatives for the Company are located in many cities across
the United States as well as at key major military bases. With
respect to exports, sales efforts are conducted by its
international subsidiaries, its international sales network and
manufacturers' representatives in many countries.
The Company maintains standard product lines and systems sold by
catalog, although it generally does not maintain an inventory of
finished goods. A portion of current sales is attributable to
such standard products, modifications thereof and turnkey
communications systems using these products. Another portion of
sales is attributable to special, made-to-order equipment based
upon a customer's specific requirements.
The Company's customers include U.S. and foreign communications
and electronic and aerospace firms, electric utilities, regulated
and unregulated telephone organizations, major transportation
organizations, other industrial and financial concerns and process
control companies, research laboratories, universities, large
defense contractors, foreign governments, the U.S. Government
through various agencies of the Department of Defense and the
National Aeronautics and Space Administration.
A breakdown of sales for the last three years including sales to
major customers who accounted for 10% or more of sales is set
forth below. Sales figures for prior years have been restated to
eliminate sales of discontinued operations:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. Government Agencies (direct and indirect),
principally Department of Defense (1) $ 26,567,000 $ 34,847,000 $ 38,728,000
Export and foreign sales including equipment
sold to other U.S. companies for export(1)(2)(3) 30,471,000 45,539,000 41,242,000
U.S. commercial and industrial business 20,850,000 14,468,000 14,362,000
____________ ____________ ____________
TOTAL NET SALES $ 77,888,000 $ 94,854,000 $ 94,332,000
____________ ____________ ____________
____________ ____________ ____________
<FN>
(1) The U.S. Government and the Government of Turkey were the only
customers to whom sales exceeded 10% of consolidated sales during
any of the past three years. Sales to the Government of Turkey
amounted to $ 9,575,000 in 1998, $21,496,000 in 1997, and
$15,116,000 in 1996.
(2) Includes foreign sales of $ 5,699,000 for 1998, $14,918,000
for 1997, and $18,653,000 for 1996.
(3) A breakdown of total export and foreign sales by geographic
area follows in section (d) below.
</TABLE>
(page 3)
<PAGE>
Raw materials for the Company's business consist of manufactured
components and parts. The Company's raw materials are presently
available in adequate supply on the open market.
The Company holds no material patents, trademarks, licenses,
franchises or concessions.
The Company's operations are not seasonal to any material extent.
As stated above, although the Company maintains standard product
lines and systems sold by catalog, it generally does not maintain
a significant level of finished goods inventory. However, the
Company maintains an adequate level of raw materials inventory so
that it will be able to meet initial delivery requirements of
customers. The Company has had no material difficulty in
obtaining goods from suppliers. The Company does not provide
rights to return its products, and generally does not provide
extended payment terms to customers.
The backlog of unfilled orders at December 31, 1998 was $42
million as compared to $64 million at December 31, 1997.
Approximately 20% of the 1998 backlog is not reasonably expected
to be filled within the current year.
The backlog includes approximately $9 million for a command,
control and communications project for the Government of Turkey
for which the work is expected to be completed in 1999. This
contract became effective in October, 1990.
All contracts with the U.S. Government and some of the foreign
governments are subject to cancellation at the convenience of the
government. In the event a contract with the U.S. Government is
so terminated, the Armed Services Procurement Regulations provide
that the Company shall be reimbursed for expenses incurred and
shall be entitled to reasonable profits.
The greater portion of the Company's business is obtained by
competitive bidding, while some is obtained through sole source
negotiation. In the domestic marketplace, the Company competes
with some major U.S. companies from time to time; however, some of
the competition in the U.S. comes from companies which are similar
in size or smaller than Aydin. In the international marketplace,
Aydin competes with major companies in addition to U.S. firms. A
number of such competitors are larger than Aydin with greater
financial resources, while some are similar to or smaller than
Aydin.
Technical capability, reputation, price, ability to meet delivery
schedules and reliability are the principal competitive factors.
Depending on the particular product and the requirements of the
contract documents, the number of firms competing with Aydin
generally ranges from one to ten.
Estimated amounts spent during 1998, 1997, and 1996 on Company-
sponsored research and development activities, and customer-
sponsored research activities relating to the development of new
products, services or techniques or the improvement of existing
products, services or techniques are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Company-sponsored research and
development on direct cost basis $1,502,000 $2,829,000 $8,096,000
Customer-sponsored research
and development activities $1,252,000 $2,747,000 $2,081,000
</TABLE>
The Company, along with others, was responsible for the costs of
cleanup under an order of the State of California at a site leased
by the Company prior to 1984. Cleanup of the site was completed
during 1996 and site monitoring over a 30-year period commenced in
1997. The estimated site monitoring costs to be expended over the
remaining 28-year period are $2.9 million, or approximately
$105,000 per year. The amount to be paid has been included in the
accompanying consolidated balance sheet as an other (non current)
liability discounted at 7% to the expected payment dates.
(page 4)
<PAGE>
The Company, along with others, has been notified by the EPA that
it may be a potentially responsible party for the costs of cleanup
of a waste disposal site. The Company estimates that its ultimate
liability in this matter could be approximately $153,000 and has
recorded this liability as of December 31, 1998.
As of year-end 1998, the Company employed approximately 800
persons, with domestic operations concentrated principally in the
Philadelphia, Pennsylvania metropolitan area, and most of the
Company's foreign employees located in Ankara, Turkey. Employer-
employee relations are considered to be satisfactory.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales
The Company had no significant foreign operations prior to 1991
although a $210 million contract from the Government of Turkey
became effective in October 1990 with approximately 35% of this
contract being performed by the Company's Turkish subsidiary. The
remaining backlog on this contract at December 31, 1998 was
approximately $9 million. Foreign assets included in the
consolidated balance sheet amounted to $10.9 million, $18.6
million, and $17.9 million at December 31, 1998, 1997, and 1996,
respectively. Of these amounts, $2.8 million, $5.1 million, and
$2.5 million at December 31, 1998, 1997, and 1996, respectively,
are cash and short-term investments of the Company's Turkish
subsidiary consisting mainly of U.S. dollar denominated interest-
bearing time deposits and Eurobonds. Foreign sales and pretax
loss for 1998 were $5.7 million and $7.4 million respectively.
Most of the loss was from increases in estimated costs at
completion on the TMRC contract with the Government of Turkey at
the Turkish subsidiary. Foreign sales and pretax income for 1997
amounted to $14.9 million and $2.5 million respectively. Foreign
sales and pretax income for 1996 amounted to $18.7 million and $.9
million, respectively. The Company's domestic operations include
sales derived from customers or projects located in areas of the
world outside the United States. Export and foreign sales for
1998, 1997, and 1996 by geographic area are set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Asia $ 3,075,000 $ 2,507,000 $ 3,817,000
Africa 3,235,000 1,785,000 3,203,000
Europe 21,024,000 38,019,000 23,507,000
North America 1,982,000 1,172,000 640,000
South America 1,116,000 1,821,000 9,733,000
Other 39,000 235,000 342,000
Total export and foreign sales $30,471,000 $45,539,000 $41,242,000
</TABLE>
On a percentage basis, export and foreign sales (direct and
indirect) accounted for approximately 39% of total sales in 1998,
48% of total sales in 1997, and 44% of total sales in 1996. A
majority of such export and foreign sales were in the
telecommunications field. Licenses are required from U.S.
Government agencies for most of the Company's export products.
The Company and its foreign subsidiaries may be adversely affected
by certain risks generally associated with foreign contracts and
operations, including ownership and control limitations, currency
fluctuations, restrictions on repatriation of profits, difficulty
in the enforcement of judgments, late delivery penalties,
potential political or labor instability and general worldwide
economic conditions. However, such factors have not had a
material effect on the Company's operations to date, and
management believes that the risks involved in such foreign
business are no greater than the normal risks of any other portion
of the Company's sales. The Company has generally been able to
protect itself against foreign credit risks through contract
provisions, advance payments and irrevocable letters of credit in
its favor. However, it should be noted that foreign contracts are
sometimes subject to foreign laws.
(page 5)
<PAGE>
ITEM 2. PROPERTIES
The Company's total plant capacity at December 31, 1998 is
approximately 298,000 square feet of administrative and production
facilities, 237,000 of which it owns and the balance of which it
leases. Most of the Company's Telemetry Division operations and
all of its Electro Fab Division operations are housed in owned
properties. All foreign facilities are leased. The Company
currently plans to sell two buildings containing approximately
143,000 square feet. In one of these buildings, the Company's
109,000 square foot former headquarters building in Horsham,
Pennsylvania, the Company will lease back approximately 13,000
square feet for use by the Communications Division.
All leased properties are held under leases expiring between
1998 and 2003. As part of the 1997 restructuring and consolidation,
three Company-owned buildings (258,000 square feet) were sold
during 1997. The Company recently moved its corporate headquarters
to Newtown, Pennsylvania, and has sales offices within and outside
the U.S. The administrative and production facilities occupied by
the Company are well maintained and suitable for its operations,
and include plant area, warehouse space, and management, engineering
and clerical offices. The plants of each of the manufacturing
operations generally contain machine shops, assembly areas, testing
facilities and packing and shipping departments in addition to the
engineering and laboratory areas.
ITEM 3. LEGAL PROCEEDINGS
As reported in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997, during 1995 a subcontractor to the
Company in the TMRC program with the Government of Turkey filed a
demand for arbitration alleging a breach of contract and equitable
adjustment of $12.4 million. This claim was subsequently amended
and at December 31, 1997 amounted to $27.8 million. The Company
had filed a claim against this subcontractor, Loral Defense
Systems - - Eagan (now Lockheed Martin Tactical Systems, Inc.),
for an amount in excess of the subcontractor's claim. The
arbitration hearing was concluded and post-hearing briefs were
filed in December 1997.
On April 10, 1998, the arbitration panel in that binding
arbitration proceeding awarded Lockheed Martin approximately $17.2
million. On June 8, 1998 the Registrant announced that it had
reached agreement with Lockheed Martin Corporation regarding
payment of the arbitration award. In accordance with that
agreement, the Registrant made payments to Lockheed Martin over
the next six months, and in November 1998 paid Lockheed Martin the
full remaining balance of the arbitration award and accrued
interest thereon.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the Fourth Quarter of 1998.
(page 6)
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company has no present plans to pay any cash dividends. Due
to the anticipated acquisition of the Company by L-3
Communications Corporation as described below under Management's
Discussion And Analysis Of Financial Condition And Results Of
Operations, it is not expected that the Company will continue to
be publicly held in the future. The Company has contractually
agreed with L-3 Communications Corporation that no dividends would
be declared or paid by the Company pending the anticipated
consummation of the acquisition. In addition, certain covenants
of a Credit Agreement for the funding of a standby Letter of
Credit currently prohibit the payment of a dividend or other
distribution on account of the Company's capital stock.
Set forth below are the high and low trading prices for the
Company's Common Stock for each calendar quarter for 1998 and
1997.
1998 High Low
Fourth Quarter $ 10.250 $ 7.750
Third Quarter 8.875 7.250
Second Quarter 13.375 8.6875
First Quarter 12.500 10.25
1997 High Low
Fourth Quarter $ 14.125 $11.125
Third Quarter 12.625 11.0625
Second Quarter 12.500 10.500
First Quarter 11.625 9.250
As of March 1, 1999, there were approximately 1880 holders of
record of the Company's Common Stock, and approximately 3,700
beneficial owners of the Common Stock.
(page 7)
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
($000 omitted except for per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996* 1995 1994
<S>
For the Year <C> <C> <C> <C> <C>
Net sales $77,888 $ 94,854 $ 94,332 $113,127 $118,453
Cost of sales 79,538 68,106 74,796 80,015 85,518
Income (loss) before
income taxes (20,398) 2,924 (16,620) 6,649 8,189
Income (loss) after
taxes-continuing operations (19,648) 1,806 (12,073) 4,678 6,234
Income (loss) from
discontinued operation (6,659) (3,498) (2,707) (748) (1,187)
Net income (loss) (26,307) (1,692) (14,780) 3,930 5,047
Earnings (loss) per share
Income (loss) from
continuing operations (3.77) 0.34 (2.36) 0.91 1.25
Net income (loss) (5.05) (0.34) (2.88) 0.77 1.01
Cash dividend per share - - - - -
Return on average stockholders'
equity (34%) (2%) (15%) 4% 5%
At Year End
Total assets $82,125 $111,081 $122,803 $164,337 $164,495
Working capital 52,584 76,601 71,158 88,460 85,116
Long-term debt - - - 770 1,549
Stockholders' equity 63,568 89,761 90,672 105,183 99,730
Stockholders' equity per share 12.18 17.23 17.66 20.58 19.98
<FN>
* Income (loss) before income taxes and minority interest includes a $3,730,000
restructuring charge in the third quarter of 1996.
</TABLE>
(page 8)
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1998 versus 1997
For 1998, the Company reported a net loss of $26.3 million, or
$5.05 per share, compared to a net loss of $1.7 million, or $.34
per share, for 1997. The 1998 loss primarily reflects the first
quarter loss of $24.1 million, or $4.64 per share, driven largely
by an arbitration award in April 1998 to Lockheed Martin
Corporation, and a $6.7 million loss from discontinued operations
related to the Displays Division which was sold in the fourth
quarter, partly offset by a $5.6 million gain on the sale of the
West Coast Microwave Components Division which was also sold in
the fourth quarter. The 1998 loss from continuing operations was
$19.6 million, or $3.77 per share, compared to 1997 income from
continuing operations of $1.8 million, or $.34 per share. 1997
figures have been restated to reflect the Displays Division as a
discontinued operation.
Net sales from continuing operations for the full year were $77.9
million compared to $94.9 million for 1997, a decline of $17.0
million or 18%. The decrease year to year relates primarily to a
$12.4 million decrease in sales of the Company's Turkish
operations segment, most of which relates to the TMRC contract
with the government of Turkey, and a $3.4 million decrease in
Telemetry Division sales for the year. The 1997 sales reflected
significant activity on a subcontract which was completed in that
year, and the TMRC contract is winding down as it approaches
completion. The Company believes that the decrease in Telemetry
Division sales is reflective of the impact on the Company's
business from the April arbitration award to Lockheed Martin and
management turnover which took place in 1998. With the
satisfaction of the Company's obligations to Lockheed Martin in
November, the disruption caused by this award has been resolved,
and the Company is now working aggressively to rebuild its
backlog.
Cost of sales for 1998 includes a $19.8 million charge
representing the April 1998 arbitration award to Lockheed Martin,
related interest, and an increase in other estimated completion
costs on the TMRC contract. Cost of sales as a percentage of
sales, without this $19.8 million charge, was 77% for 1998
compared to 72% for 1997. The increased cost of sales percentage
was primarily the result of: (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 Microwave Components Division assets not
included with the sale of that Division which had negligible value
after the sale ($.6 million).
Backlog at December 31, 1998 amounted to $42 million compared to
$71 million at December 31, 1997 (before restatement for the
discontinued operation). Of this $29 million decrease,
approximately $13 million is the result of the disposition in 1998
of four Divisions included in the year end 1997 backlog. The
Company believes that a significant factor in the remainder of the
backlog decline was the impact of the April 1998 arbitration award
to Lockheed Martin. With the satisfaction of the obligations to
Lockheed Martin in November 1998, the disruption caused by this
award has been resolved. The Company is working aggressively to
rebuild its backlog and in this regard booked two contracts
amounting to $18 million in January 1999.
The Company's Turkish operations segment operates in a highly
inflationary economy with corresponding declines in the Turkish
currency versus the U.S. dollar. The Company protected itself
against these conditions by including clauses in its TMRC contract
that escalate contract values from a predetermined base price by
the percentage increase in Turkish inflation. This does not
protect the Company from the contractual consequences of
performance delays, however. To date, the TMRC contract has
represented the vast majority of revenues of this segment.
Selling, general and administrative, and research and development
costs decreased in 1998 by $.9 million to $23.0 million from $23.9
million in 1997. The 1998 costs included $1.8 million of additions
to reserves with respect to various employee claims against the
Company.
(page 9)
<PAGE>
The 1998 restructuring charge of $1.5 million was the result of
decisions in the first quarter of 1998 to close the Raytor
Division ($.9 million) and downsize the Corporate staff ($.6
million) in line with expected declines in backlog and sales
levels. The restructuring was completed in the third quarter. Of
the total charge of $1.5 million, approximately $.6 million was
for cash outlays and $.9 million was for non-cash asset write-
offs. The major charges consisted of: severance benefits for 60
employees ($.6 million); facility exit costs ($.2 million); and
write-offs of inventory, equipment and receivables ($.7 million).
Environmental remediation costs amounted to $.5 million for 1998
compared to $2.6 million for 1997. The 1997 cost represented the
write-off in 1997 of an expected insurance recovery of cleanup
costs under an order of the State of California at a site leased
by the Company prior to 1984. The write-off was caused by the
reversal by a California appellate court in April 1997 of the
lower court's previous declaratory judgment decision against the
Company's insurer. The 1998 cost represents an increase to the
accrual for estimated site monitoring costs over a 30-year period
at this site. Site cleanup was completed in 1996 and site
monitoring commenced in 1997.
Gains on sale of facilities/divisions relate to two company-owned
buildings sold in 1997 and two divisions (West Coast Microwave
Components and Molded Devices) sold in 1998. A third division
(Displays) was sold in 1998 and is accounted for in the
discontinued operations categories of the financial statements.
The income tax recovery for 1998 resulted primarily from federal
refund claims for prior year taxes and a 1998 decrease in deferred
taxes partially offset by foreign taxes. The net recovery of
$750,000 was limited compared to the $20.4 million pre-tax loss
from continuing operations because net operating loss carrybacks
have been exhausted. The 1997 tax provision of $1.1 million
resulted from the effects of foreign income taxes in excess of tax
benefits on U.S. losses.
The loss from operations of the discontinued division (Displays)
was $4.1 million for 1998 and $4.6 million for 1997. The 1998
loss covers the first nine months of 1998. The loss from the sale
of the division ($2.6 million) includes $1.2 million of operating
losses during the fourth quarter phase-out period and a $1.4
million loss on the sale of the division in November 1998. The
loss on the sale of the division includes accruals of $570,000 at
December 31, 1998 for estimated costs in connection with the sale.
1997 versus 1996
Net sales for 1997 of $94.9 million were essentially flat compared
to 1996 sales of $94.3 million. Sales related to the Turkish
subsidiary were up $7.9 million from 1996 primarily because of
significant activity on a subcontract completed in 1997, partially
offset by delays on the TMRC program. There were no 1997 sales
from the Argentine subsidiary, which was sold on December 31,
1996, compared to 1996 sales of $9.3 million. Sales from all other
business areas were essentially unchanged from 1996.
Backlog at December 31, 1997 amounted to $71 million compared to
$84 million at December 31, 1996. Most of the decrease was from
the TMRC contract, which was nearing completion. Backlog from
other business was essentially flat.
Cost of sales as a percentage of sales was 71.8% in 1997 compared
to 79.3% in 1996. The improvement resulted from 1996 delays on the
TMRC program and another large program which was corrected during
1997, and cost savings achieved as a result of the 1996
restructuring plan.
Selling, general, and administrative and research and development
costs decreased by $7.9 million from 1996. Of this decrease, $2.4
million was for 1996 expenses of the Argentine subsidiary, which
was sold on December 31, 1996. Approximately $900,000 of this
decrease was from lower bad debt expense compared to 1996 when
there was $1 million of bad debt write-offs involving mostly
foreign receivables. The 1996 level of write-offs was abnormally
high compared to prior experience and consisted mostly of three
well known foreign government related enterprises including one
for approximately $400,000 which was a customer of the Argentine
subsidiary. The balance of the decrease reflected cost reductions
pursuant to the Company's 1996 restructuring plan including
pruning of certain product lines and a more focused targeting in
1997 of research and development projects to the Company's core
businesses. A significant amount was spent in 1996 on wireless
local loop development projects. A significant amount was also
spent in 1996 on automatic vehicle location development projects,
which have been discontinued.
Interest income (net of interest expense) for 1997 amounted to
$918,000 compared to net interest expense of $189,000 in 1996.
This favorable swing of $1.1 million resulted from IRS interest
income in 1997 on income tax refunds compared
(page 10)
<PAGE>
to IRS interest expense in 1996 on taxes owed. The favorable swing
also reflects the lower level of short-term bank debt during 1997
compared to 1996.
The 1997 income tax provision of $1.1 million on the pre-tax loss
of $574,000 resulted from the effects of foreign income taxes in
excess of tax benefits on U.S. losses.
Financial Condition, Liquidity and Capital Resources
On March 1, 1999 the Company announced that it had entered into a
definitive merger agreement with L-3 Communications Corporation
("L-3") providing for the acquisition by L-3 of all of the
outstanding common shares of the Company at $13.50 per share in
cash. The transaction was unanimously approved by the Company's
Board of Directors. The merger agreement with L-3 provides for a
wholly owned subsidiary of L-3 to commence a cash tender offer to
acquire all of the Company's outstanding shares at $13.50 per
share, which tender offer was commenced on March 5, 1999.
Consummation of the tender offer is conditioned on, among other
things, the valid tender of such number of shares as would
represent at least a majority of the Company's outstanding shares
on a fully diluted basis, and receipt of regulatory approvals.
The tender offer is not subject to financing. Following
completion of the tender offer, L-3 will be entitled to designate
a majority of the Board of Directors of the Company. The parties
will complete a second-step cash merger at $13.50 per share as
promptly as practicable following completion of the tender offer.
Upon consummation of the merger, the Company will cease to be a
publicly held company.
Liquidity at year-end 1998 has improved since December 31, 1997,
despite the Company paying off the full $17.2 million arbitration
award won by Lockheed Martin Corporation in April 1998, plus
approximately $.6 million of related interest. The funds used to
pay Lockheed Martin were generated in part from the sale of three
divisions during 1998 for a total of $15.6 million. The Company
had no long-term debt at December 31, 1998 or 1997, and only
$133,000 of short-term debt at the end of 1998 which has been
subsequently paid off. The total cash balance at December 31,
1998 was $9.5 million, of which $5.9 million was unrestricted
cash, compared to $3.9 million of unrestricted cash at December
31, 1997. Subsequent to December 31, 1998 the cash balance had
grown to approximately $16 million as of March 26, 1999.
At December 31, 1998 the Company had outstanding approximately
$14.2 million of letters of credit (issued by banks to the
Company's customers) with no currently available credit line for
increasing this balance. These letters of credit are liquidated
in the ordinary course of business as customer collections are
made or contract milestones achieved against the contracts to
which the letters of credit pertain. New letter of credit
collateral requirements will be funded with cash payments by the
Company for the near term.
The Company currently has no bank borrowing lines available to it.
The Company believes that cash provided by operations will be
sufficient for the Company's cash requirements in 1999.
Sources of cash from operations during 1998 included a $12.5
million decline in unbilled revenue resulting from improved
performance in meeting target shipping dates. This was the
primary reason that cash used by operating activities was $8.3
million for 1998 while the net loss for the year was $26.3
million. Other sources of cash from operations included $1.8
million of net income tax refunds (U.S. refunds less foreign
payments). The decrease in unbilled revenue reflects shipment
delays from year-end 1997 on a few programs which moved deliveries
and billings into 1998, improved performance in 1998 in meeting
shipment targets, and a lower level of sales and backlog in 1998
versus 1997.
Other significant changes in balance sheet accounts from a year
ago are: (1) a $2.8 million decrease in inventories of which $1.3
million relates to the divisions disposed of during 1998 and $1.5
million relates to improved inventory control and a lower volume
of business in the remaining operations; (2) prepaid expenses and
other declined by $4.1 million primarily because of the refund of
U.S. income taxes which were included in prepaid expenses at year
end 1997; (3) accounts payable declined by $2.8 million primarily
because of a lower level of purchases in 1998, more current vendor
payments and $.4 million of payables pertaining to the divisions
disposed of in 1998; (4) accrued liabilities-other increased by
$3.5 million primarily because of $1.3 million of increases in
reserves for potential contract price adjustments and litigation
matters and $1.2 million of liabilities at year end 1998 related
to the disposition of divisions during 1998; and (5) accrued and
deferred income taxes (current and non-current) decreased by $3.0
million primarily because of foreign tax payments and exchange
gains and a recovery of U.S. taxes.
The balance sheet at December 31, 1997 has been restated to
reclassify $8.0 million of net assets (current plus non-current)
of the Displays Division at that time into a discontinued
operations classification. The Division was sold in November 1998
for approximately $6.4 million. The operating results and balance
sheet items of the Division for the
(page 11)
<PAGE>
current and prior periods are shown in the financial statements in
the discontinued operations classification.
The Company's U.S. Government contracts are subject to audit by
the government and price adjustment under certain circumstances.
The Company also has receivables due from the U.S. Government on
certain contracts whose collectability is dependent on the Company
prevailing in its positions. Management believes it has
sufficient reserves to cover such matters. However, unfavorable
outcomes could have a material impact on future results of
operations.
The Company is currently in the process of evaluating the impact
of the "Year 2000" issue on the Company's operations, suppliers
and customers in preparation for its intended issuance of "Year
2000 Compliance Statements" to its customers. The Company's
various Divisions are testing their respective systems (both
information technology and non-information technology systems) and
products, and they are communicating with their key suppliers to
obtain appropriate assurances and/or Compliance Statements, as may
apply, with respect to the suppliers being Year 2000 prepared and
their products being Year 2000 compliant. To date, nothing has
come to the attention of the Company that would materially impact
the results of operations of the Company. The costs of addressing
the Year 2000 issue have not been material to date, and at present
the Company does not anticipate that they will be material. The
Company has not yet developed a contingency plan with respect to
possible Year 2000 problems and has not yet determined whether
such a contingency plan is necessary.
Based on present backlog and projected cash flows, the Company
anticipates financing its near-term capital needs from internal
sources.
In 1997, cash used by operating activities amounted to $7.0
million. In addition to the $1.7 million net loss, other primary
reasons included a $5.5 million decrease in accounts payable which
became more current at year end 1997 than at year end 1996 and a
$4.5 million increase in inventories and unbilled revenue caused
mainly by delays in shipments on several large programs in 1997.
Also during 1997, three company-owned facilities were sold for
proceeds of $11.5 million.
Other significant changes in balance sheet accounts at year end
1997 compared to year end 1996 included: (1) a $6.8 million
decline in the net book value of property, plant and equipment
from the sale of facilities as noted above, including the sale of
former Displays Division facilities which have been classified in
the discontinued operations category in the financial statements;
(2) a $2.5 million decrease in other assets resulting from the
write-off of an anticipated insurance recovery as explained above
in the discussion of 1998 results of operations; and (3) a $2.2
million decrease in deferred income taxes (non-current portion)
because of book versus tax timing differences in connection with
the sale of facilities in 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not Applicable.
(page 12)
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
_____________________________________________________________
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 77,888,000 $ 94,854,000 $ 94,332,000
Costs and expenses
Cost of sales
Contract arbitration and related 19,814,000 - -
Other 59,724,000 68,106,000 74,796,000
Selling, general and administrative 21,496,000 21,101,000 24,141,000
Research and development 1,502,000 2,829,000 8,096,000
Interest expense (income), net (701,000) (918,000) 189,000
Restructuring costs 1,548,000 - 3,730,000
Environmental remediation costs 511,000 2,612,000 -
Gain on sale of facilities - (1,800,000) -
Gain on sale of divisions (5,608,000) - -
__________________________________________
Total costs and expenses 98,286,000 91,930,000 110,952,000
Income (loss) from continuing operations
before income taxes (20,398,000) 2,924,000 (16,620,000)
Income tax provision (recovery) (750,000) 1,118,000 (4,547,000)
__________________________________________
Income (loss) from continuing operations (19,648,000) 1,806,000 (12,073,000)
Discontinued operations
Loss from operations of discontinued
division (4,069,000) (4,572,000) (2,707,000)
Gain (loss) on disposal of discontinued
division (2,590,000) 1,074,000 -
__________________________________________
Total loss from discontinued operation (6,659,000) (3,498,000) (2,707,000)
Net loss $(26,307,000) $(1,692,000) $(14,780,000)
__________________________________________
__________________________________________
Earnings (loss) per common and common
equivalent share-
Continuing operations-
Basic $ (3.77) $ 0.35 $ (2.36)
Fully diluted $ (3.77) $ 0.34 $ (2.36)
__________________________________________
__________________________________________
Discontinued operation-
Basic $ (1.28) $ (0.68) $ (0.52)
Fully diluted $ (1.28) $ (0.68) $ (0.52)
__________________________________________
__________________________________________
Net income (loss)
Basic $ (5.05) $ (0.33) $ (2.88)
Fully diluted $ (5.05) $ (0.34) $ (2.88)
__________________________________________
__________________________________________
</TABLE>
(page 13)
<PAGE>
CONSOLIDATED BALANCE SHEETS
_____________________________________________________________
<TABLE>
<CAPTION>
December 31,
__________________________
1998 1997
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 5,861,000 $ 3,883,000
Restricted cash and investment securities 3,589,000 6,102,000
Accounts receivable, net of allowances for doubtful
accounts of $681,000 (1998) and $616,000 (1997) 21,738,000 21,511,000
Unbilled revenue 26,128,000 39,079,000
Inventories, net of obsolesence allowances of
$176,000 (1998) and $566,000 (1997) 10,361,000 13,121,000
Prepaid expenses and other 1,378,000 5,472,000
Net current assets of discontinued operation - 7,344,000
__________________________
Total Current Assets 69,055,000 96,512,000
Property, Plant and Equipment, at cost,
net of accumulated depreciation and amortization of
$20,903,000 (1998) and $42,099,000 (1997) 12,587,000 13,857,000
Other assets 483,000 89,000
Net equipment of discontinued operation 0 623,000
Total Assets $82,125,000 $111,081,000
__________________________
__________________________
Liabilities and Stockholders' Equity
Current Liabilities
Short-term bank debt $ 133,000 $ 200,000
Accounts payable 4,859,000 7,662,000
Accrued liabilities:
Compensation 3,370,000 3,746,000
Other 5,448,000 1,972,000
Contract billings in excess of recognized revenues 2,279,000 2,462,000
Accrued and deferred income taxes 382,000 3,869,000
__________________________
Total Current Liabilities 16,471,000 19,911,000
Deferred Income Taxes 905,000 461,000
Other Liabilities 1,181,000 948,000
Stockholders' Equity:
Common stock, par value$1--authorized,
7,500,000 shares; issued and outstanding,
1998-5,220,900 shares; 1997-5,208,800 shares 5,221,000 5,209,000
Additional paid-in capital 3,243,000 3,141,000
Retained earnings 55,104,000 81,411,000
__________________________
Total Stockholders' Equity 63,568,000 89,761,000
__________________________
Total Liabilities and Stockholders' Equity $82,125,000 $111,081,000
__________________________
__________________________
</TABLE>
(page 14)
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
_____________________________________________________________
<TABLE>
<CAPTION>
Year Ended December 31,
______________________________________
1998 1997 1996
______________________________________
<S> <C> <C> <C>
Operating Activities
Net loss $(26,307,000) $(1,692,000) $(14,780,000)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Loss from discontinued operation 4,069,000 4,572,000 2,707,000
Loss (gain) from disposal of discontinued
operation 2,590,000 (1,074,000) -
Gain on sale of divisions (5,608,000)
Depreciation and amortization 1,985,000 2,873,000 3,008,000
Deferred income taxes 573,000 4,116,000 (3,891,000)
Gain on sale of facilities - (1,800,000) (216,000)
Environmental remediation costs - 2,612,000 (2,612,000)
Changes in other operating assets and
liabilities, net:
Accounts receivable (1,506,000) 641,000 25,937,000
Unbilled revenue 12,490,000 (1,086,000) 8,872,000
Contract billings in excess of
recognized revenues (183,000) 184,000 (565,000)
Inventories 1,503,000 (3,417,000) 5,837,000
Prepaid expenses and other 3,983,000 701,000 (4,807,000)
Accounts payable (2,412,000) (5,549,000) (13,176,000)
Accrued liabilities 3,730,000 142,000 (1,496,000)
Other long-term liabilities 233,000 (186,000) 1,134,000
Accrued income taxes (3,616,000) (6,918,000) (5,141,000)
Other (547,000) (81,000) 327,000
______________________________________
Net cash provided (used) by continuing
operations (9,023,000) (5,962,000) 1,138,000
Net cash provided (used) by discontinued
operations 685,000 (996,000) (945,000)
______________________________________
Cash provided (used) by operating activities (8,338,000) (6,958,000) 193,000
Investing Activities
Proceeds from sale of facilities - 8,896,000 1,159,000
Proceeds from sale of divisions 9,202,000 - -
Purchase of property, plant, and equipment (1,410,000) (3,133,000) (880,000)
Equipment purchases of discontinued operation (36,000) (67,000) (187,000)
______________________________________
Cash provided by investing activities 7,756,000 5,696,000 92,000
Financing Activities
Principal payments on long-term debt - - (1,112,000)
Proceeds from exercise of stock options 114,000 781,000 269,000
Net short-term borrowings (67,000) (2,600,000) (2,686,000)
______________________________________
Cash provided (used) by financing activities 47,000 (1,819,000) (3,529,000)
Decrease in cash and cash equivalents (535,000) (3,081,000) (3,244,000)
Cash and cash equivalents at beginning of year 9,985,000 13,066,000 16,310,000
______________________________________
Cash and cash equivalents at end of year $ 9,450,000 $ 9,985,000 $13,066,000
______________________________________
______________________________________
</TABLE>
(page 15)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____________________________________________________________
Note A--- Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant inter-
company transactions and balances are eliminated in consolidation.
Contract Accounting
Revenue on long-term type contracts which are greater than
$100,000 is generally recorded on the percentage-of-completion
method. For such contracts, a portion of the total contract price
is included in sales in the proportion that costs incurred to date
bear to total estimated costs at completion. The impact of
periodic revisions in costs and estimated profit is reflected in
the accounting period in which the facts become known.
For all other contracts, revenue is recognized upon completion of
the contract or upon shipment of identifiable units.
The entire amount of ultimate losses estimated to be incurred upon
completion of contracts is charged to income when such losses
become known.
Contract progress billings are based upon contract provisions for
customer advance payments, contract costs incurred, and completion
of specified contract objectives. Progress billing balances at
December 31, 1998 and 1997 amounted to $2,092,000 and $3,096,000,
respectively. Progress billings are netted against unbilled
revenue on the consolidated balance sheet. Contracts may provide
for customer retainage of a portion of amounts billed until
contract completion. All contract retainage of $370,000 at
December 31, 1998 matures in 1999. Contract retainage is included
on the consolidated balance sheet as part of accounts receivable.
Substantially all of the accounts receivable and unbilled revenue
balances at December 31, 1998 are expected to be collected during
1999, although collection of the unbilled revenue is dependent
upon the Company meeting performance milestones.
Use of Estimates
In preparing its financial statements in accordance with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expense during the reported periods. Actual results could
differ from those estimates. One such area where the use of
estimates could have a significant impact on future results is
estimated costs at completion and, in some cases, contract value
on the Company's larger long-term type contracts. During 1998
and 1997, changes to these estimates on the Company's larger long-
term type contracts had no negative significant aggregate impact,
except for the TMRC contract with the Government of Turkey. For
TMRC, there was a negative impact in 1998 of approximately $21.5
million pre-tax resulting from increases of estimates of costs to
complete the contract. Of this amount, approximately $19.8
million resulted from the arbitration award to Lockheed Martin and
other contract costs (described in Note B) booked in the first
quarter and $1.7 million related to subsequent increases to
estimated costs at completion. Other areas where use of
estimates could have a significant impact on future results are
inventory obsolescence, accounts receivable bad debts, warranties,
claims and litigation.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. Cash equivalent balances at December 31, 1998 and
1997 amounted to $5,861,000 and $3,883,000, respectively. All of
this cash and cash equivalents is in high quality banks.
Restricted cash and investment securities at December 31, 1998 and
1997 represents interest bearing cash collateral required to be
maintained against letters of credit. Approximately $2.8 million
of the Company's total cash (restricted and non-restricted)
balances at December 31, 1998 were in foreign banks in Turkey.
Almost all of this cash in Turkey is in dollar denominated
instruments. As a result, there is no material effect of exchange
rate changes on cash balances. At December 31. 1997 restricted
cash and investment securities included $4 million of foreign
corporate bonds which were sold in 1998 at no material gain or
loss.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) and average cost
method which approximates FIFO.
(page 16)
<PAGE>
Fair Value of Financial Instruments
The Company's financial instruments include cash equivalents and
receivables. The carrying amounts of these instruments
approximate their market value.
Depreciation and Amortization
Depreciation is provided by the straight-line method over the
estimated useful lives of the depreciable assets. Amortization of
leasehold improvements under operating leases is provided over the
terms of the related leases or the asset lives, if shorter.
Buildings are depreciated over lives ranging up to 35 years.
Machinery and equipment is depreciated over useful lives ranging
from 3 to 5 years. Accelerated methods are used for tax purposes.
Advertising, Research and Development Costs and Interest Expense
The Company expenses advertising costs and research and
development costs as incurred. Advertising costs were $333,000,
$489,000 and $441,000 for 1998, 1997 and 1996, respectively.
Interest expense for the years 1998, 1997 and 1996 amounted to
$380,000, $114,000 and $988,000, respectively. Interest paid for
the years 1998, 1997 and 1996 amounted to $1,079,000, $164,000 and
$1,417,000, respectively.
Income Taxes
The Company accounts for income taxes on the liability method in
accordance with Statement of Financial Accounting Standards (SAS)
No. 109, "Accounting for Income Taxes."
Foreign Currency Translation
Balance sheet accounts of the Company's United Kingdom subsidiary
(most of which business was sold during 1998 as part of the
discontinued Displays Division described in Note C) were
translated from the local currency into U.S. dollars at year-end
rates while income and expenses were translated at the weighted
average exchange rate for the year. The resulting unrealized net
translation losses were shown as a separate component of
stockholders' equity in years prior to 1998. These translation
losses became realized in 1998 and were written off as part of the
loss on the sale of the discontinued operation. The translation
effects of the Turkish subsidiary are reflected in the statements
of operations because of the high inflation in the Turkish
economy. Pretax income includes foreign currency translation
losses relating to the Turkish subsidiary of $148,000 for 1998 and
$428,000 for 1997, and a foreign currency gain of $274,000 for
1996.
Earnings (Loss) Per Common and Common Equivalent Share
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted-
average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that
could occur if securities or other contracts to issue common stock
were exercised and converted into common stock. Weighted average
shares outstanding for 1998, 1997 and 1996 were 5,215,331,
5,151,600 and 5,123,622, respectively.
The number of shares to be purchased from outstanding stock
options were not included in the computation of 1998, 1997 or 1996
diluted loss per share. The number of shares and the
corresponding weighted average exercise prices for each period are
shown in Note I. Also, warrants for 200,000 shares at a weighted
exercise price of $12.65 were not included in the computation of
loss per share for these periods.
Warranty Costs
The usual warranty period on the Company's contracts and products
is one year, which is provided for in warranty accruals.
Long-Lived Assets
The Company continually reviews long-lived assets to assess
recoverability from future operations using undiscounted cash
flows. Impairments would be recognized in operating results if a
permanent dimunition in value had occurred.
New Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" which the Company adopted in 1998 with no
resulting material impact on the financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which was
adopted in 1998. See note N for this disclosure.
(page 17)
<PAGE>
Reclassifications
Certain reclassifications, none of which affected net income, have
been made to prior years' amounts in order to conform to the
current year's presentation.
NOTE B---CONTRACT ARBITRATION
As previously reported, the Company previously submitted to
arbitration its dispute with a subcontractor (Lockheed Martin
Tactical Systems, Inc.) on the TMRC contract with the Government
of Turkey. On April 10, 1998, the arbitration panel awarded
Lockheed $17,162,000 plus interest. As of December 31, 1998, the
award and interest was paid in full. The consolidated statement
of operations caption "Cost of sales-contract arbitration and
related" includes this charge as well as other related costs on
the TMRC contract.
NOTE C---SALE OF DIVISIONS
In November 1998, the Company sold its Displays Division business
segment pursuant to a plan adopted in the third quarter 1998. The
current and prior period results of the Division are reported in
the accompanying financial statements in the discontinued
operations categories. Prior period operations have been
reclassified as discontinued operations. The Division was sold
for a cash payment of approximately $6.4 million. The sale
resulted in a loss of $1,390,000, and an operating loss of
$1,200,000 (pre-tax and after tax) was incurred during the fourth
quarter phase out period. These losses included accruals of
$570,000 at December 31, 1998 for estimated costs in connection
with the sale, including severance, employee incentives and legal
fees. The net assets sold consisted primarily of inventories and
accounts receivable. Summarized results of the Displays Division
for the three year period ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
_______________________________________
<S> <C> <C> <C>
Net sales $13,326,000 $20,517,000 $22,246,000
Costs and expenses 17,395,000 24,015,000 25,385,000
_______________________________________
Loss before income taxes (4,069,000) (3,498,000) (3,139,000)
Provision (benefit) for income taxes - - (432,000)
_______________________________________
Net loss from discontinued operations (4,069,000) (3,498,000) (2,707,000)
Loss from sale of discontinued
operations (2,590,000) - -
_______________________________________
Total loss related to discontinued
operations $(6,659,000) $(3,498,000) $(2,707,000)
_______________________________________
_______________________________________
</TABLE>
In October 1998, the Company sold the West Coast Microwave
Division component of its Communications segment for a cash
payment of approximately $8.8 million. The sale resulted in a
gain of $5.6 million (pre-tax and after tax) which is reported in
the accompanying statement of operations.
NOTE D-INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials $ 4,810,000 $ 6,711,000
Work in process 4,593,000 5,716,000
Finished product 958,000 694,000
____________________________
$10,361,000 $13,121,000
____________________________
____________________________
</TABLE>
(page 18)
<PAGE>
NOTE E-PROPERTY, PLANT, AND EQUIPMENT
The Company's investment in property, plant, and equipment is
shown below.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 1,456,000 $ 1,456,000
Buildings 9,511,000 10,641,000
Machinery and equipment 22,523,000 43,859,000
_____________________________
33,490,000 55,956,000
Less accumulated
depreciation and
amortization 20,903,000 42,099,000
_____________________________
$12,587,000 $ 13,857,000
_____________________________
_____________________________
Note F-CREDIT ARRANGEMENTS
At December 31, 1998, $7.2 million of letters of credit were
outstanding for various foreign contracts under a credit line
which is renewable annually. The letters of credit have been
issued to foreign entities principally to guarantee performance
under contracts or the return of advance payments. The Company's
real estate has been pledged as security against these letters of
credit which carry a commission rate of 1.5% annually. The Company
is in default of certain financial covenants against this
agreement. The bank has placed a prospective $5 million limit on
this credit line. As a result, new letters of credit cannot be
issued until existing ones are liquidated to bring the current
balance under $5 million.
Also at December 31, 1998 there was a $7 million of letter of
credit balance open with a foreign bank for the completion of the
company's TMRC contract with the government of turkey. Cash
collateral of $2.5 million was on deposit with this bank at
December 31, 1998 as security for this letter of credit which
carries a commission rate of .8%. This letter of credit was
originally $49 million in 1990. The letter of credit has been
liquidated in the past based on collections against the contract.
The customer is currently requesting that further liquidation of
the balance ($7 million) be based on progress by the Company in
satisfying certain remaining contractual obligations rather than
collections against the contract. The Company is currently
seeking an appropriate source to establish a replacement letter of
credit along the lines requested by the customer.
In addition, there was an outstanding letter of credit against a
foreign contract at December 31, 1998 for approximately $1 million
which was 100% secured with cash collateral.
The weighted average interest rates on short-term borrowings
outstanding at December 31, 1998 and 1997 were 10% and 10.5%,
respectively. Subsequent to year end, all short-term borrowings
were paid off.
Note G-ENVIRONMENTAL REMEDIATION
The Company, along with others, was responsible for the costs of
cleanup under an order of the State of California at a site
leased by the Company prior to 1984. Cleanup of the site was
completed during 1996 and site monitoring over a thirty (30) year
period commenced in 1997. The estimated site monitoring costs to
be expended over the remaining 28 year period are $2.9 million, or
approximately $105,000 per year. The amount to be paid has been
included in the accompanying consolidated balance sheet as an
other (non current) liability discounted at 7% to the expected
payment dates.
The December 31, 1996 balance sheet included an other (non
current) asset of $2.6 million representing an expected insurance
recovery based on a declaratory judgment in favor of the Company
by the State of California. The declaratory judgment was reversed
in April 1997 resulting in a $2.6 million write-off in 1997.
(page 19)
<PAGE>
NOTE H-STOCKHOLDERS' EQUITY
The changes in common stock, additional paid-in capital, and
retained earnings during the years 1996, 1997, and 1998 were as
follows:
</TABLE>
<TABLE>
<CAPTION>
Common Additional
Stock Paid-In Retained
Par $1 Capital Earnings
<S > <C> <C> <C>
Balance, January 1, 1996
(5,112,127 common shares) $5,112,000 $2,188,000 $97,883,000
Issuance of 21,273 shares on exercise of
stock options 21,000 237,000 -
Tax benefit related to shares acquired by
employees under stock options - 11,000 -
Net loss - - (14,780,000)
______________________________________________
Balance, December 31, 1996
(5,133,400 common shares) 5,133,000 2,436,000 83,103,000
Issuance of 75,400 shares on exercise of
stock options 76,000 699,000 -
Tax benefit related to shares acquired by
employees under stock options - 6,000 -
Net loss - - (1,692,000)
______________________________________________
Balance, December 31, 1997
(5,208,800 common shares) 5,209,000 3,141,000 81,411,000
Issuance of 1,136 shares pursuant to a
stock grant 1,000 18,000 -
Issuance of 11,000 shares in payment of
employee bonuses 11,000 84,000 -
Net loss - - (26,307,000)
______________________________________________
Balance, December 31, 1998
(5,220,936 common shares) $5,221,000 $3,243,000 $55,104,000
______________________________________________
______________________________________________
</TABLE>
NOTE I-STOCK OPTIONS AND WARRANTS
Pursuant to stock option plans, the Company has granted certain
officers, directors, and key employees options to purchase shares
of its common stock. Options granted under the plans must have an
option price determined by the Board of Directors, but in any
event, not less than the fair market value of the stock on the
date of grant. Generally, options become exercisable one-fourth
annually beginning one year after grant, on a cumulative basis,
and expire ten years after grant. Prior to April 1997, the
expiration was five years after grant.
There is no charge to income with respect to stock options under
the plans. A summary of the changes in options during 1996, 1997,
and 1998 follows:
<TABLE>
<CAPTION>
Shares Under Weighted Average Shares Available
Option Exercise Price for Option
________________________________________
<S> <C> <C> <C>
At January 1, 1996 258,663 $ 12.02 91,022
Options granted:
Option plan 378,000 $ 10.39 (378,000)
Options exercised (10,275) $ 12.69 -
Options cancelled (113,300) $ 9.89 113,300
Authorization of 1996 options - $ - 500,000
Cancellations of authorizations - $ - (70,000)
________________________________________
At December 31, 1996 513,088 $ 10.81 256,322
Options granted:
Option plan 124,450 $ 11.73 (124,450)
Options exercised (17,500) $ 10.31 -
Options cancelled (123,925) $ 11.46 123,925
Cancellations of authorizations - (10,000)
________________________________________
At December 31, 1997 496,113 $ 10.89 245,797
Options granted:
Option plan 325,400 $ 9.25 (325,400)
Options cancelled (396,963) $ 10.85 396,963
Cancellations of authorizations (9,322)
________________________________________
At December 31, 1998 424,550 $ 9.67 308,038
________________________________________
________________________________________
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable stock options:
<TABLE>
<CAPTION>
Total Shares Under Option Shares Exercisable
- ---------------------------------------------------------------------------------
Weighted-Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8.00-$12.00 411,300 9.2 $ 9.54 30,431 $10.30
- ---------------------------------------------------------------------------------
$12.01-$16.75 13,250 8.7 $13.59 8,770 $13.30
----------- ----------
424,550 39,201
- ---------------------------------------------------------------------------------
</TABLE>
The Company has adopted only the disclosure provisions of
Financial Accounting Standard No. 123, "Accounting for Stock -
Based Compensation" (FAS 123). It applies APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other
than restricted stock. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date
for awards under these plans consistent with the methodology
prescribed by FAS 123, the Company's net income and earnings per
share would be reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
NET LOSS As reported $(26,307,000) $(1,692,000) $(14,780,000)
Pro-forma $(27,366,000) $(2,452,000) $(15,128,000)
LOSS PER SHARE As reported $ ( 5.05) $ ( 0.34) $ (2.88)
Pro-forma $ (5.25) $ (0.48) $ (2.95)
</TABLE>
These pro forma amounts may not be representative of future
disclosures because they do not take into effect pro forma
compensation expense related to grants made before 1995. The fair
value of each option grant is estimated on the date of grant using
the Black-Sholes options-pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and
1996, respectively: dividend yield of 0 percent for all years;
expected volatility of 27.9, 27.9 and 27.3 percent; risk-free
interest rates of 5.36, 6.08 and 6.23 percent; and expected lives
of 5 to 10 years. In May 1997, the Company issued warrants with three year
expiration dates for 200,000 shares of its common stock at
exercise prices of $12.10 and $13.20 per share. These warrants
remain outstanding and have had no impact on the Company's
earnings per share calculations.
(page 21)
<PAGE>
Note J-Taxes on Income
The provision (recovery) for income taxes is shown below. The
recoveries shown on the current lines for each year represent tax
loss carrybacks to earlier years, utilization of foreign tax
credits, and other items.
<TABLE>
<CAPTION>
Federal State Foreign Total
<S> <C> <C> <C> <C>
1998
Current $ (693,000) 0 $ 516,000 $ (177,000)
Deferred (573,000) 0 0 (573,000)
____________________________________________________
$(1,266,000) 0 $ 516,000 $ (750,000)
____________________________________________________
____________________________________________________
1997
Current $(4,466,000) $ (622,000) $2,417,000 $(2,671,000)
Deferred 3,161,000 622,000 - 3,783,000
Charge equivalent to tax
benefit related to shares
acquired under stock options 6,000 - - 6,000
____________________________________________________
$(1,299,000) $ - $2,417,000 $ 1,118,000
____________________________________________________
____________________________________________________
1996
Current $(4,587,000) $ (3,000) $3,923,000 $ (667,000)
Deferred 21,000 (344,000) (3,568,000) (3,891,000)
Charge equivalent to tax
benefit related to shares
acquired under stock options 11,000 11,000
____________________________________________________
$(4,555,000) $ (347,000) $ 355,000 $(4,547,000)
____________________________________________________
____________________________________________________
</TABLE>
The components of deferred income tax balances follow.
<TABLE>
<CAPTION>
Year Ended December 31,
_______________________________________
1998 1997 1996
<S> <C> <C> <C>
Federal net operating loss
carryforward $ 4,984,000 $ - $ -
Valuation reserve against
net operating loss (4,984,000) - -
Contract accounting 835,000 1,350,000 2,271,000
Excess of tax over book
depreciation 1,306,000 1,357,000 2,755,000
Inventory valuation (163,000) (613,000) (829,000)
State deferred taxes - - (211,000)
Environmental clean-up (402,000) (322,000) 503,000
Other, net (1,099,000) (722,000) 344,000
_______________________________________
Total deferred liability $ 477,000 $ 1,050,000 $ 4,833,000
_______________________________________
_______________________________________
</TABLE>
A reconciliation between the federal statutory rate and the
effective income tax rate (computed by dividing income taxes by
income before income taxes) is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Federal statutory rate (34.0%) (34.0%) (34.0%)
State income taxes net of federal tax benefit 0 (32.8) (0.50)
Benefit from non-taxable FSC income 0 (29.2) (1.00)
Effects of higher foreign income taxes,
including dividends of a foreign subsidiary
and foreign tax credits 13.6 286.8 6.1
Valuation allowance due to net operating loss 18.4 - -
Other, net ( .8) 4.0 2.0
___________________________
Effective income tax rate (2.8%) 194.8% (27.40%)
___________________________
___________________________
</TABLE>
Income tax refunds, net of payments, amounted to $1,802,000 in
1998. Income tax payments, net of refunds, amounted to
$6,989,000 in 1996 and $383,000 in 1997.
At December 31, 1998 the Company had available approximately $14.7
million of unused net operating losses which expire in 20 years
and approximately $2.1 million of unused foreign tax credits which
expire in 2002. Pre-tax income from foreign operations is shown
under Note K below.
(page 23)
<PAGE>
NOTE K-NATURE OF OPERATIONS, EXPORT SALES, MAJOR CUSTOMERS, AND
FOREIGN OPERATIONS
The Company designs, engineers, manufactures, markets,
distributes, and installs technologically advanced communications
products and systems which are sold worldwide. Aydin generates
approximately 30% of its sales from standard products and systems
and the balance of its sales from custom-designed systems and
equipment based on customers' specific requirements. Aydin offers
a broad range of products due to its ability to combine analog
microwave engineering methods with digital techniques and
software.
Export sales by geographic area are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Asia $ 3,075,000 $ 2,507,000 $ 3,817,000
Africa 3,235,000 1,785,000 3,203,000
Europe 15,425,000 18,992,000 8,588,000
North America 1,982,000 1,172,000 640,000
South America 1,116,000 1,821,000 433,000
Other 39,000 235,000 342,000
_____________________________________
Total export sales $24,872,000 $26,512,000 $17,023,000
_____________________________________
_____________________________________
</TABLE>
The U.S. Government and the Government of Turkey were the only
customers to whom sales exceeded 10% of consolidated sales during
any of the past three years. Sales to U.S. Government agencies,
principally the Department of Defense, amounted to $26,567,000,
$34,847,000, and $38,728,000 in 1998, 1997 and 1996, respectively.
Sales to the Government of Turkey amounted to $9,575,000,
$21,496,000 and $15,116,000 in 1998, 1997 and 1996, respectively.
Foreign assets included in the consolidated balance sheet amounted
to $10.9 million and $18.6 million at December 31, 1998 and 1997,
respectively. Of these amounts, $2.8 million and $5.1 million, at
December 31, 1998 and 1997, respectively, are cash and short-term
investments of the Company's Turkish subsidiary consisting
primarily of U.S. dollar denominated interest-bearing time
deposits. Foreign sales and pretax loss for 1998 were $5.7 million
and $7.4 million, respectively. Most of the loss was from
increases in estimated costs at completion on the TMRC contract
with the Government of Turkey at the Turkish subsidiary. Foreign
sales and pretax income for 1997 amounted to $14.9 million and
$2.5 million, respectively, of which substantially all of the
income was from the Turkish subsidiary. Foreign sales and pretax
income for 1996 amounted to $18.7 million and $.9 million,
respectively, of which substantially all of the income was from
the Turkish subsidiary. The 1996 results included an Argentine
subsidiary in which a majority interest was disposed of on
December 31, 1996.
NOTE L-RESTRUCTURING COSTS
During the first quarter of 1998 the Company recorded a
restructuring charge of $1.5 million as a result of a decision to
close the Raytor Division ($961,000) and downsize the corporate
staff ($587,000) in line with expected declines in backlog and
sales levels. The restructuring was completed during the third
quarter. Of the total charge of $1.5 million, approximately $.6
million was for cash outlays and $.9 million was for non-cash
asset write-offs. The major charges consisted of: severance
benefits for 60 employees ($.6 million); facility exit costs ($.2
million); and write-offs of inventory, equipment, and receivables
($.7 million).
During the third quarter of 1996, the Company recorded a charge of
$3.7 million to consolidate and restructure its domestic
operations. Approximately $1.5 million of this charge was for
cash outlays and $2.2 million was for non-cash asset write-offs.
The restructuring was completed during the third quarter of 1997.
The major charges consisted of: severance benefits for 150
terminated employees ($.6 million); loss on sale of a product line
($.5 million); inventory write-offs ($1 million) and capital
equipment write-offs ($.3 million); and write-off of goodwill in
connection with the sale of a product line ($.4 million).
Note M-COMMITMENTS AND CONTINGENCIES
The Company's U.S. Government contracts are subject to audit by
the government and price adjustment under certain circumstances.
The Company also has receivables due from the US Government on
certain contracts whose collectability is dependent on the Company
prevailing in its positions. Management believes it has
sufficient reserves to cover such matters. However, unfavorable
outcomes could have a material impact on future results of
operations.
Future annual minimum rental payments required under operating
leases that have lease terms in excess of one year at December 31,
1998 are $45,000 for each of the years 1999 through 2003.
(page 24)
<PAGE>
NOTE N-SEGMENT REPORTING
Aydin adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during the fourth quarter of
1998. SFAS No. 131 established standards for reporting
information about the operating segments in annual financial
statements and requires selected information about operating
segments in interim financial reports issued to stockholders.
Operating segments are defined as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
The Company's current chief operating decision maker is the
President and Chief Operating Officer, formerly it was the Chief
Executive Officer. The operating segments are managed separately
by operating unit heads reporting to the chief operating decision
maker.
The Company's reportable operating segments include the Telemetry
Division, the Communications Division and the Turkish Operations.
The Telemetry segment designs, manufactures and markets components
and systems worldwide for flight and ground testing for military
and commercial applications. The Communications segment designs,
manufactures and markets data and voice communication systems and
products worldwide for commercial and military markets. The
Turkish segment consists of the 100% owned Turkish subsidiary
(Aydin Yazilim) and includes a US support program office. This
segment designs, manufactures and markets a range of
communications products. This segments main area of business is
the design and manufacture of a command, control and
communications system (the TMRC program) for the Turkish military.
The other segment manufactures and markets printed circuit boards
used in commercial products.
The accounting policies used for the operating segments are the
same as those described in the summary of significant accounting
policies in Note A.
<TABLE>
<CAPTION>
Communi- Turkish
Telemetry cations Operations Other Total
<S> <C> <C> <C> <C> <C>
1998
Net sales from external
Customers $43,818,000 $16,434,000 $ 9,575,000 $3,013,000 $72,840,000
Net sales-intersegment 69,000 1,014,000
Depreciation 572,000 468,000 383,000 124,000 1,547,000
Interest income 577,000 577,000
Interest expense 0
Pre-tax income (loss) 1,460,000 (134,000) (22,122,000) 436,000 (20,360,000)
Segment assets 33,531,000 20,003,000 19,252,000 2,018,000 74,804,000
Capital expenditures 335,000 368,000 392,000 306,000 1,401,000
1997
Net sales from external
Customers $47,249,000 $13,073,000 $21,966,000 $3,113,000 $85,401,000
Net sales-intersegment - - - 1,644,000
Depreciation 633,000 844,000 433,000 70,000 1,980,000
Interest income 4,000 - 232,000 - 236,000
Interest expense - - - - -
Pre-tax income (loss) 3,223,000 (4,289,000) 3,258,000 847,000 3,039,000
Segment assets 36,860,000 22,188,000 26,866,000 1,798,000 87,712,000
Capital expenditures $ 920,000 $ 1,059,000 $ 250,000 $ 149,000 $ 2,378,000
1996
Net sales from external
Customers $41,002,000 $11,786,000 $16,055,000 $2,851,000 $71,694,000
Net sales-intersegment 32,000 110,000 1,475,000
Depreciation 580,000 674,000 389,000 62,000 1,705,000
Interest income 1,000 - 264,000 - 265,000
Interest expense - - - - -
Pre-tax income (loss) 6,886,000 (13,982,000) 1,211,000 596,000 (5,289,000)
Segment assets 24,572,000 19,608,000 27,595,000 1,511,000 73,286,000
Capital expenditures $ 486,000 $ 917,000 $ 482,000 $ 112,000 $ 1,997,000
</TABLE>
A reconciliation of the totals reported for the operating segments to the
applicable lines in the consolidated financial statements is as follows:
(page 25)
<PAGE>
<TABLE>
<CAPTION>
Disposed Divisions
___________________________
Reportable Accounted for
Segment as Discontinued Eliminations Consolidated
Total Total Operation & Corporate Total
(A)
<S> <C> <C> <C> <C> <C>
1998
Net sales from
external customers $72,840,000 $20,345,000 $(13,326,000) $(1,971,000) $ 77,888,000
Depreciation 1,547,000 407,000 (174,000) 31,000 1,811,000
Interest income 577,000 504,000 1,081,000
Interest expense 0 380,000 380,000
Pre-tax income (loss) (20,360,000) (6,718,000) 6,659,000 21,000 (20,398,000)
Segment assets 74,804,000 846,000 6,475,000 82,125,000
Capital expenditures 1,401,000 135,000 ( 36,000) (90,000) 1,410,000
1997
Net sales from
external customers $85,401,000 $30,270,000 $(20,517,000) $ (300,000) $ 94,854,000
Depreciation 1,980,000 861,000 (464,000) 32,000 2,409,000
Interest income 236,000 - - 796,000 1,032,000
Interest expense - - - 114,000 114,000
Pre-tax income (loss) 3,039,000 (4,772,000) 3,498,000 1,159,000 2,924,000
Segment assets 87,712,000 15,231,000 (8,940,000) 17,078,000 111,081,000
Capital expenditures 2,378,000 668,000 (67,0000 154,000 3,133,000
1996
Net sales from
external customers $71,694,000 $46,906,000 $(22,246,000) $(2,022,000) $ 94,332,000
Depreciation 1,705,000 1,283,000 (512,000) 20,000 2,496,000
Interest income 265,000 17,000 - 517,000 799,000
Interest expense - - - 988,000 988,000
Pre-tax income (loss) (5,289,000) (12,245,000) 3,139,000 (2,225,000) (16,620,000)
Segment assets 73,286,000 36,676,000 (11,961,000) 24,802,000 122,803,000
Capital expenditures 1,997,000 359,000 (187,000) (1,289,000) 880,000
</TABLE>
(A) Represents amount pertaining to the Displays Division sold in
November 1998. These amounts have been included in the discontinued
operations classifications in the financial statements.
(page 25)
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Aydin Corporation
We have audited the consolidated balance sheets of Aydin
Corporation and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations and cash flows
for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements 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 Aydin Corporation and subsidiaries as of
December 31, 1998 and 1997 and the consolidated results of their
operations and their consolidated cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
February 19, 1999
(page 26)
<PAGE>
Quarterly Financial Data
($000 omitted except for per share amounts)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Year
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 20,839 $ 23,569 $ 20,803 $ 12,677 $ 77,888
Cost of sales 37,813 15,949 14,596 11,180 79,538
Income (loss) before
income taxes (23,948) 1,937 1,470 143 (20,398)
Income (loss) after taxes-
continuing operations (23,168) 1,907 1,470 143 (19,648)
Income (loss) from
discontinued operation (978) (1,691) (3,990) - (6,659)
Net income (loss) $(24,146) $ 216 $ (2,520) $ 143 $(26,307)
Earnings (loss) per share:
Income (loss) from
continuing operations $ (4.45) $ 0.37 $ 0.28 $ 0.03 $ (3.77)
Net income (loss) $ (4.64) $ 0.04 $ (0.48) $ 0.03 $ (5.05)
1997
Net sales $ 22,896 $ 25,738 $ 21,006 $ 25,214 $ 94,854
Cost of sales 16,500 18,937 14,910 17,759 68,106
Income (loss) before
income taxes (2,376) 2,285 1,781 1,234 2,924
Income (loss) after taxes-
continuing operations (3,127) 1,868 1,634 1,431 1,806
Income (loss) from
discontinued operation (1,142) (1,608) 260 (1,008) (3,498)
Net income (loss) $ (4,269) $ 260 $ 1,894 $ 423 $ (1,692)
Earnings (loss) per share:
Income (loss) from
continuing operations $ (0.61) $ 0.36 $ 0.31 $ 0.28 $ 0.34
Net income (loss) $ (0.83) $ 0.05 $ 0.36 $ 0.08 $ (0.34)
<FN>
Note-the first two quarters of 1998 and all of the 1997 quarters
have been restated to reflect the discontinued operation
treatment in the third quarter of 1998 of the sale of the
Displays Division. First quarter 1998 reflects a $20.3 million
charge included in cost of sales from an arbitration award
related to the TMRC contract. Fourth quarter 1998 reflects a
gain of $5.6 million relating to the sale of a division.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
(page 27)
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference is the information under the heading,
"Right to Designate Directors; the Parent Designees" on pages A-1
to A-2 of the Information Statement, the information under the
heading, "Directors and Executive Officers of the Company" on
pages A-2 to A-3 of the Information Statement, the information
under the heading, "Directors and Executive Officers of Parent,
Purchaser and Holdings" on pages A-11 to A-13 of the Information
Statement, and the information under the heading, "Compliance
With Section 16(A) of the Exchange Act" on page A-10 of the
Information Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference is the information under the heading
"Compensation of Directors" on page A-4 of the Information
Statement, and under the headings "Summary Compensation Table,"
"Stock Option Grants 1998," "Aggregated Option/SAR Exercises in
Last Fiscal Year and For Year-End Option/SAR Values," "Employment
Contracts and Termination of Employment and Change in Control
Agreements," and "Common Stock Performance" on pages A-7 to A-11
of the Information Statement.
Compensation Committee Interlocks and Insider Participation
Mr. I. Gary Bard, a director of the Company, was Chairman and
Chief Executive Officer of the Company until October 19, 1998, and
while serving as such officer also served as a member of the
Executive Compensation Committee and voted on the compensation
recommendations of such Committee for other executive officers of
the Company. Pursuant to his employment agreement with the
Company, Mr. Bard had received a bonus of 20,000 shares of the
Company's Common Stock in consideration of his execution of such
agreement, and a loan sufficient to pay all income taxes payable
with respect to the issuance to him of such stock. The loan
carries interest at the lesser of 10% or the prime rate. The
largest amount of such indebtedness outstanding at any time during
1998 was $87,614; the loan was repaid in full after December 31,
1998.
Mr. John Vanderslice was a director and the President and Chief
Operating Officer of the Company until his resignation from all
such positions in September 1998. While serving as such officer
Mr. Vanderslice voted, as a director, on the compensation
recommendations of the Executive Compensation Committee for other
executive officers of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference is the information under the headings,
"Agreements with Parent or the Purchaser" and "Agreements with
Executive Officers, Directors or Affiliates of the Company" on
pages 1-12 of the Schedule 14D-9, information under the heading
"Right to Designate Directors; the Parent Designees" on pages A-1
to A-2 of the Information Statement, and information under the
headings "Stock Ownership of Certain Beneficial Holders" and
"Security Ownership of Management" on pages A-5 to A-6 of the
Information Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the second paragraph under Item 11 of
this Report on Form 10-K is incorporated herein by reference.
(page 28)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
The Company files as part of this report the following documents:
(a) 1. Financial Statements
The following is a list of the Consolidated Financial
Statements of Aydin Corporation and Subsidiaries which are
set forth in Item 8 - "Financial Statements and
Supplementary Data":
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Balance Sheets, as of December 31, 1998 and
1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Certified Public Accountants.
2. Schedules
The following is a list of the Schedules of Aydin
Corporation and Subsidiaries filed as part of this report:
Schedule II - Valuation and Qualifying Accounts
Report of Independent Auditors
All other schedules not listed above are omitted because
they are inapplicable or are not required.
3. Exhibits
The following is a list of Exhibits filed as part of this
report:
2(i) Agreement and Plan of Merger, dated as of March 1,
1999, by and among L-3 Communications Corporation,
Angel Acquisition Corporation, and the Company
(filed as Exhibit 99.2 to Registrant's Schedule 14D-
9 on March 5, 1999 and incorporated herein by
reference)
3(i) Restated Certificate of Incorporation (filed as
Exhibit No. 3(i) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
3(ii) By-laws, as amended (i) on October 19, 1998 to
eliminate that provision of Article V, Section 6
which required that the Chairman of the Board serve
as the Company's Chief Executive Officer, and (ii)
on December 30, 1998 to modify Article III, Section
1 to reduce the number of Directors which shall
constitute the whole Board from six to five.
10.1 Employment Agreement, I. Gary Bard (filed as Exhibit
No. 10.1 to Registrant's Quarterly Report on Form 10-
Q for the quarter ended September 28, 1996 and
incorporated herein by reference).
10.2 Form of Retention Agreement between the Company and
certain key employees, including James R. Henderson
and Gene S. Schneyer (filed as Exhibit 99.4 to
Registrant's Schedule 14D-9 on March 5, 1999 and
incorporated herein by reference).
10.3 The 1994 Incentive Stock Option Plan, as amended
(filed as Exhibit No. 10.5 to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by
reference).
10.4 The 1996 Equity Incentive Plan, as amended (filed as
Exhibit No. 10.5 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference).
10.5 Amended and Restated Warrant of Registrant issued to
I. Gary Bard to purchase up to 133,334 shares of
Common Stock (filed as Exhibit No. 10.7 to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by
reference).
(page 29)
<PAGE>
10.6 Amended and Restated Warrant of Registrant issued to
John F. Vanderslice to purchase up to 66,666 shares of Common
Stock (filed as Exhibit No. 10.8 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference).
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule (electronic filing only)
99 Independent Auditors' Report
All other exhibits not listed above are omitted because
they are inapplicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Fourth Quarter
of 1998.
(page 30)
<PAGE>
<TABLE>
<CAPTION>
AYDIN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS 1998, 1997, AND 1996
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
DESCRIPTION Balance at ADDITIONS Deductions- Balance at
Beginning Charged to Charged to Describe End of Period
of Period Costs and Other Accounts
Expenses - Describe
<S> <C> <C> <C> <C> <C>
Year 1998
_________
Deducted from asset accounts:
Allowance for doubtful accounts $ 616,000 $ 541,000 $ 476,000(1) $ 681,000
Raw materials inventory reserve 566,000 0 390,000(2) 176,000
__________ __________ __________ __________
Totals $1,182,000 $ 541,000 $ 572,000 $ 616,000
Year 1997
_________
Deducted from asset accounts:
Allowance for doubtful accounts $ 942,000 $ 246,000 $ 572,000(1) $ 616,000
Raw materials inventory reserve 1,514,000 445,000 1,393,000(2) 566,000
__________ __________ __________ __________
Totals $2,456,000 $ 691,000 $1,965,000 $1,182,000
Year 1996
_________
Deducted from asset accounts:
Allowance for doubtful accounts $ 259,000 $1,037,000 $ 354,000(1) $ 942,000
Raw materials inventory reserve 1,062,000 3,542,000 3,090,000(2) 1,514,000
__________ __________ ____________ __________
Totals $1,321,000 $4,579,000 $3,444,000 $2,456,000
<FN>
(1) Uncollectible accounts written off, net of recoveries. The
increase in 1997 write-offs reflects primarily foreign
receivables provided for in 1996.
(2) Obsolete inventory written off.
</TABLE>
(page 31)
<PAGE>
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.
Aydin Corporation
Dated: __March 29, 1999__ By: ____/s/ Gene S. Schneyer_____
Gene S. Schneyer
Vice President, Secretary
And General Counsel
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: ___/s/ James R. Henderson____ Dated: __March 29, 1999__
James R. Henderson
President, Chief Operating Officer,
Treasurer and Chief Financial Officer
By: __/s/ Herbert Welber_________ Dated: __March 29, 1999__
Herbert Welber
Controller and Assistant Treasurer
Principal Accounting Officer
By: _/s/ Warren G. Lichtenstein__ Dated: __March 29, 1999__
Warren G. Lichtenstein
Chairman of the Board and Director
By: __/s/ I. Gary Bard___________ Dated: __March 29, 1999__
I. Gary Bard Director
By: __/s/ Keith Lane-Zucker______ Dated: __March 29, 1999__
Keith Lane-Zucker Director
By: __/s/ Mark Schwarz____________ Dated: __March 29, 1999__
Mark Schwarz Director
By: __/s/ Harry D. Train, II______ Dated: __March 29, 1999__
Harry D. Train, II Director
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
2(i) Agreement and Plan of Merger, dated as of March 1, 1999,
by and among L-3 Communications Corporation, Angel
Acquisition Corporation, and the Company (filed as
Exhibit 99.2 to Registrant's Schedule 14D-9 on March 5,
1999 and incorporated herein by reference)
3(i) Restated Certificate of Incorporation (filed as Exhibit
No. 3(i) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 and incorporated herein
by reference).
3(ii) By-laws, as amended (i) on October 19, 1998 to eliminate
that provision of Article V, Section 6 which required
that the Chairman of the Board serve as the Company's
Chief Executive Officer, and (ii) on December 30, 1998
to modify Article III, Section 1 to reduce the number of
Directors which shall constitute the whole Board from
six to five.
10.1 Employment Agreement, I. Gary Bard (filed as Exhibit No.
10.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 28, 1996 and incorporated
herein by reference).
10.2 Form of Retention Agreement between the Company and
certain key employees, including James R. Henderson and
Gene S. Schneyer (filed as Exhibit 99.4 to Registrant's
Schedule 14D-9 on March 5, 1999 and incorporated herein by
reference).
10.3 The 1994 Incentive Stock Option Plan, as amended (filed
as Exhibit No. 10.5 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 and
incorporated herein by reference).
10.4 The 1996 Equity Incentive Plan, as amended (filed as
Exhibit No. 10.5 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference).
10.5 Amended and Restated Warrant of Registrant issued to
I. Gary Bard to purchase up to 133,334 shares of Common
Stock (filed as Exhibit No. 10.7 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by reference).
10.6 Amended and Restated Warrant of Registrant issued to
John F. Vanderslice to purchase up to 66,666 shares of
Common Stock (filed as Exhibit No. 10.8 to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference).
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule (electronic filing only)
99 Independent Auditors' Report
<PAGE>
Exhibit 3(ii)
AYDIN CORPORATION
BY-LAWS
(Last Amended December 30, 1998)
*******
ARTICLE I
OFFICERS
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
Directors shall be held in the City of Fort Washington, State of
Pennsylvania, at such place as may be fixed from time to time by
the Board of Directors, or at such other place either within or
without the State of Delaware as shall be designed from time to
time by the Board of Directors and stated in the notice of the
meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on the
third Thursday of April if not a legal holiday, and if a legal
holiday, then on the next secular day following at 3:00 P.M. or at
such other date and time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting,
at which they shall elect by a plurality vote a board of Directors,
and transact such other business as may properly be brought before
this meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor
more than fifty days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who
is present.
Section 5. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by
the certificate of incorporation, may be called by the Chairman of
the Board and shall be called by the Chairman of the Board or
Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not less than ten nor
more than fifty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meeting of
the stockholders for the transaction of business except as
otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholder, the stockholders
entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting
at which a quorum shall be present or represented any business may
be transaction which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the
meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holder of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by
express provision of the statutes or of the certificate of
incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such
question.
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each
share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period.
Section 11. Whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection
with any corporate action, by any provision of the statutes, the
meeting and vote of stockholders may be dispensed with if all of
the stockholder who would have been entitled to vote upon the
action if such meeting were held shall consent in writing to such
corporate action being taken; or if the certificate of
incorporation authorizes the action to be taken with the written
consent of the holders of less than all of the stock who would have
been entitled to vote upon the action if a meeting were held, then
on the written consent of the stockholders having not less than
such percentage of the total number of votes as may be authorized
in the certificate of incorporation; provided that in no case shall
the written consent be by the holders of stock having less than the
minimum percentage of the total vote required by statute for the
proposed corporate action, and provided that prompt notice must be
given to all stockholders of the taking of corporate action without
a meeting and by less than unanimous written consent.
ARTICLE III
DIRECTORS
Section 1. The number of Directors which shall constitute the
whole Board shall be five (5). The Directors shall be elected at
the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each Director elected shall hold
office until his successor is elected and qualified. Directors
need not be stockholders.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of Directors may be
filled by a majority of the Directors then in office, though less
than a quorum, or by a sole remaining director, and the Directors
so chosen shall held office until the next annual election and
until their successors are duly elected and shall qualify, unless
sooner displaced. If their are no Directors in office, then an
election of Directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly
created directorship, the Directors then in office shall constitute
less than a majority of the whole board (as constituted immediately
prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten
percent of the total number of the shares at the time outstanding
having the right to vote for such Directors, summarily order an
election to be held to fill any such vacancies or newly created
directorships, or to replace the Directors chosen by the Directors
then in office.
Section 3. The business of the corporation shall be managed by
its Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these by-laws
directed or required to be exercised or done by the stockholders.
MEETING OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the
State of Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by
the vote of the stockholders at the annual meeting and no notice of
such meeting shall be necessary to the newly elected Directors in
order legally to constitute the meeting, provided a quorum shall be
present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected Board
of Directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver signed by
all of the Directors.
Section 6. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from
time to time be determined by the Board.
Section 7. Special meetings of the Board may be called by the
Chairman of the Board on one day's notice to each director, either
personally, by telephone, by mail or by telegram; special meetings
shall be called by the Chairman of the Board or Secretary in like
manner and on like notice on the written request of two directors.
Section 8. At all meetings of the Board, a majority of the
directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall
not be present at any meeting of the Board of Directors the
directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of
the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
COMMITTEES OF DIRECTORS
Section 10. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the
directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee.
Any such committee, to the extent provided in the resolution, shall
have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers
which may require it; provided, however, that in the absence or
disqualification of any member of such committee or committees, the
member of members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or
disqualified member. Such committee or committees shall have such
name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
Section 11. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when
required.
COMPENSATION OF DIRECTORS
Section 12. The Directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board
of Directors or a stated salary as Director. No such payment shall
preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special
or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation or of these by-laws, notice is
required to be given to any Director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given
in writing, by mail, addressed to such Director or stockholder, at
his address as it appears on the records of the corporation, with
postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United
States mail. Notice to Directors may also be given by telegram, or
by telephone.
Section 2. Whenever any notice is required to be given under
the provisions of the statutes or of the Certificate of
Incorporation or of these by-laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a Chairman of the Board, a
President, an Executive Vice President, a Secretary and a
Treasurer. The Board of Directors may also choose additional Vice
Presidents, and one or more Assistant Secretaries and Assistant
Treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation of these by-laws otherwise
provide.
Section 2. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a Chairman of the
Board, a President, an Executive Vice President, a Secretary and a
Treasurer, and may choose additional Vice Presidents, and one or
more Assistant Secretaries and Assistant Treasurers.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualified. Any officer
elected or appointed by the Board of Directors may be removed at
any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, subject to the control of
the Board of Directors, shall have the general direction and
supervision over the business and affairs of the corporation. He
shall preside at all meetings of the stockholders and of the Board
of Directors and shall be an ex officio member of all committees
and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall participate in
determining the policies to be followed by the corporation and
shall perform such other duties as the Board of Directors shall
from time to time request.
THE PRESIDENT
Section 7. The President shall undertake such duties as may be
delegated to him by the Chairman of the Board and shall also have
such other powers and duties as the Board of Directors may from
time to time determine. In the absence of the Chairman of the
Board or in the event of his inability or refusal to act, the
President shall perform the duties of the Chairman of the Board,
and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Chairman of the Board.
THE VICE PRESIDENTS
Section 8. In the absence of the President or in the event of
his inability or refusal to act, the Executive Vice President, (or
in the event of the absence or inability of or refusal to act by
the Executive Vice President and in the further event there be more
than one Vice President, the Vice Presidents in the order
designated, or in the absence of any designation, then in the order
of their election) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all
the restrictions upon the President. Such powers of and
restrictions upon the President shall include the performance of
the duties of the Chairman of the Board in the further event that
the Chairman is absent or is unable or refuses to act. Vice
Presidents shall perform such other duties and have such other
powers as the Board or Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all
the proceedings of the meetings of the corporation and of the Board
of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He
shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board
of Directors or Chairman of the Board, under whose supervision he
shall be. He shall have custody of the corporate seal of the
corporation and he, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
Section 10. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there is no such determination, then in
the order of their election), shall, in the absence of the
Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate
accounts if receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects
in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors.
Section 12. He shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chairman of the
Board and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial conditions of the
corporation.
Section 13. If required by the Board of Directors, he shall
give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or
removal form office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the corporation.
Section 14. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by
the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the
Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the
corporation by, the Chairman or Vice Chairman of the Board of
Directors, the President or a Vice President and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation, certifying the number of shares owned by him in
the corporation.
Section 2. Where a certificate is countersigned (1) by a
transfer agent other than the corporation or its employee, or, (2)
by a registrar other than the corporation or its employee, the
signatures of the officers of the corporation may be facsimiles.
In case any officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the
date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, cancel the
old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days
prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books
as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash,
in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends
such sum or sums as the Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other
purpose as the Directors shall think conducive to the interest of
the corporation, and the Directors may notify or abolish any such
reserve in the manner in which it was created.
ANNUAL REPORT
Section 3. (a) The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement
of the business and condition of the corporation.
(b) On or before 120 days from the close of each
fiscal year, the Board of Directors shall cause to be delivered to
each stockholder of record an audited statement of financial
condition of the corporation as at the close of such fiscal year,
together with a statement of operations, including profit and loss
for such fiscal year. For the purposes of subsection (b), it will
be sufficient if such report is mailed in the ordinary course of
business to those shareholder of record as at the date on which the
record of shareholders has been taken for the purpose of the annual
meeting, pursuant to Section 5 of ARTICLE VI of these by-laws.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to
time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. (a) Directors, Officers and Employees of the
Corporation. Every person now or hereafter serving as a Director,
Officer or Employee of the Corporation shall be indemnified and
held harmless by the corporation from and against any and all loss,
cost, liability and expense that may be imposed upon or incurred by
him in connection with or resulting from any claim, action, suit,
or proceeding, civil or criminal, in which he may become involved,
as a party or otherwise, by reason of his being or having been a
director, officer or employee of the corporation, whether or not he
continues to be such at the time such loss, cost, liability or
expense shall have been imposed or incurred. As used herein, the
term "loss, cost, liability and expense" shall include, but shall
not be limited to, counsel fees and disbursements and amounts of
judgments, fines or penalties against, and amounts paid in
settlement by, any such director, officer or employee; provided,
however that no such director, officer or employee shall be
entitled to claim such indemnity: (1) with respect to any matter
as to which there shall have been a final adjudication that he has
committed or allowed some act or omission, (a) otherwise than in
good faith in what he considers to be the best interests of the
corporation, and (b) without reasonable cause to believe that such
act or omission was proper and legal; or (2) in the event of a
settlement of such claim, action, suit, or proceeding unless (a)
the court having jurisdiction thereof shall have approved of such
settlement with knowledge of the indemnity provided herein, or (b)
a written opinion of independent legal counsel, selected by or in
manner determined by the Board of Directors, shall have been
rendered substantially concurrently with such settlement, to the
effect that it was not probable that the matter as to which
indemnification is being made would have resulted in a final
adjudication as specified in clause (1) above and that the said
loss, cost, liability or expense may properly be borne by the
corporation. A conviction or judgment (whether based on a plea of
guilty or nolo contendere or its equivalent, or after trial) in a
criminal action, suit or proceeding shall not be deemed an
adjudication that such director, officer or employee has committed
or allowed some act or omission as hereinabove provided if
independent legal counsel, selected as hereinabove set forth, shall
substantially concurrently with such conviction or judgement give
to the corporation a written opinion that such director, officer or
employee was acting in good faith in what he considered to be the
best interests of the corporation or was not without reasonable
cause to believe that such act or omission was proper and legal.
(b) Directors, Officers and Employees of Subsidiaries.
Every person (including a director, officer or employee of the
corporation) who at the request of the corporation acts as a
director, officer or employee of any other corporation in which the
corporation owns shares of stock or of which it is a creditor shall
be indemnified to the same extent and subject to the same
conditions that the directors, officers, and employees of the
corporation are indemnified under the preceding paragraph, except
that the amount of such loss, cost, liability or expense paid to
any such director, officer or employee shall be reduced by and to
the extent of any amounts which may be collected by him from such
other corporation.
(c) Miscellaneous. The provisions of this section shall
cover claims, actions, suits and proceedings, civil or criminal,
whether now pending or hereafter commenced and shall be retroactive
to cover acts or omissions or alleged acts or omissions which
heretofore have taken place. In the event of death of any person
having a right of indemnification under the provisions of this
section, such right shall inure to the benefit of his heirs,
executors, administrators and personal representatives. If any
part of this section should be found to be invalid or ineffective
in any proceeding, the validity and effect of the remaining
provisions shall not be affected.
(d) Indemnification Not Exclusive. The foregoing right
of indemnification shall not be deemed exclusive of any other right
to which those indemnified may be entitled, and the corporation may
provide additional indemnity and rights to its directors, officers
or employees.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any
regular meeting of the stockholders or of the Board of Directors or
at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration or repeal be contained in
the notice of such special meeting.
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME (and name under which JURISDICTION PERCENTAGE
they do business-same) OF INCORPORATION OWNED
- -------------------------- ----------------- ----------
<S> <C> <C>
Aydin Europe Limited United Kingdom 100%
Aydin, S.A. Argentina 19%
Aydin Foreign Sales Limited Guam 100%
Aydin Investments, Inc. Delaware 100%
Aydin Yazilim ve Elektronik
Sanayi A.S. Turkey 100% (1)
<FN>
- --------------
(1) Ninety nine (99%) percent of the 100% is owned by
registrant's wholly owned subsidiary, Aydin Investments,
Inc.
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We have issued our reports dated February 19, 1999, accompanying
the consolidated financial statements and schedules in the Annual
Report of Aydin Corporation and Subsidiaries on Form 10-K for the
year ended December 31, 1998. We hereby consent to the
incorporation by reference of said reports in the Registration
Statements of Aydin Corporation and Subsidiaries on Forms S-8
Registration Statement Numbers 333-31263, 33-61537, 33-53549, 33-
34863, 33-22016, 33-14284, 2-97645, 2-93603, 2-77623 and 2-64093.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
March 26, 1999
<PAGE>
Exhibit 99
Report of Auditors on Schedules
Board of Directors
Aydin Corporation
In connection with our audit of the consolidated financial
statements of Aydin Corporation and Subsidiaries referred to in
our report dated February 19, 1999, which is included in Part II
of this form, we have also audited Schedule II for each of the
three years in the period ended December 31, 1998. In our
opinion, this schedule presents fairly, in all material respects,
theinformation required to be set forth therein.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
February 19, 1999
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<ARTICLE> 5
<RESTATED>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,861
<SECURITIES> 3,589
<RECEIVABLES> 21,738
<ALLOWANCES> 0
<INVENTORY> 10,361
<CURRENT-ASSETS> 69,055
<PP&E> 33,490
<DEPRECIATION> 20,903
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<CURRENT-LIABILITIES> 16,471
<BONDS> 0
<COMMON> 5,221
0
0
<OTHER-SE> 58,347
<TOTAL-LIABILITY-AND-EQUITY> 82,125
<SALES> 77,888
<TOTAL-REVENUES> 77,888
<CGS> 79,538
<TOTAL-COSTS> 104,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (701)
<INCOME-PRETAX> (20,398)
<INCOME-TAX> (750)
<INCOME-CONTINUING> (19,648)
<DISCONTINUED> (6,659)
<EXTRAORDINARY> 0
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<NET-INCOME> (26,307)
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