AYDIN CORPORATION Telephone 700 Dresher Road (215) 657-7510 P.O. Box 349 FAX Horsham, PA 19044 (215) 657-3830 U.S.A. Telex 685 1211 AYDIN UW August 15, 1994 (VIA EDGAR) SECURITIES & EXCHANGE COMMISSION Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549-1004 Attn: Filing Desk, Stop 1-4 RE: Form 10-Q Second Quarter, 1994 File No. 1-7203 Gentlemen: We are enclosing for filing Aydin Corporation's Form 10-Q for the Second Quarter ending July 2, 1994. Very truly yours, /s/ Robert A. Clancy Robert A. Clancy Secretary and Corporate Counsel RAC:cak Enclosures cc: John W. Kauffman, Esq. Kenneth W. Banet, Grant Thornton James W. Kay, Peat Marwick SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended _______July 2, 1994_______________ OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _________________ Commission file number ________1-7203_________________________________ AYDIN CORPORATION ______________________________________________________________________ (Exact name of registrant as specified in its charter) DELAWARE 23-1686808 ______________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 DRESHER ROAD, HORSHAM, PA 19044 ______________________________________________________________________ (Address of principle executive offices) (Zip Code) (215) 657-7510 ______________________________________________________________________ (Registrant's telephone number, including area code) ______________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ________X___________ NO ____________________ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of common stock, $1.00 par value, outstanding as of August 15, 1994 _____4,998,900_____ AYDIN CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Incorporated herein by reference are the Condensed Consolidated Financial Statements of Aydin Corporation and the related Notes to Financial Statements as set forth on pages 2 through 5 of the "1994 Second Quarter Report" to Stockholders. These condensed consolidated financial statements for the three and six-month periods ended July 2, 1994 have been subjected to a limited review by Grant Thornton, the Registrant's independent accountants, whose report, set forth on page 6 of the "1994 Second Quarter Report" to Stockholders, is incorporated herein by reference. Earnings per share are based on the weighted average number of common shares outstanding plus shares issuable upon the assumed exercise of dilutive common stock options. The number of shares used in the computation of earnings per share for the three months ended July 2, 1994 and July 3, 1993 were 4,995,784 and 5,012,949, respectively, and for the six-month periods then ended 5,001,563 and 5,017,930, respectively. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (1) Material Changes in Financial Condition (7/02/94 versus 12/31//93) Accounts receivable increased by $10.5 million because of higher billings this quarter compared to the fourth quarter of 1993 particularly on a large contract with the Government of Turkey. Unbilled revenue decreased by $15.6 million because of these higher billings and also because of the lower level of percentage completion sales this quarter compared to the fourth quarter of 1993. Accrued liabilities decreased by $3.7 million primarily because of $2 million of payments made and other costs incurred in connection with the terms of a settlement made with the Department of Justice on the AN/GRC- 222 microwave radio contract with the U.S. Army (see Note K of the 12/31/93 Annual Report). Short-term bank debt was reduced by $6.5 million owing to the favorable cash flow for the six months of 1994. Of the total of $20.6 million of cash and short-term investments at July 2, 1994, approximately $14.9 million represents interest bearing collateral required to be maintained against letters of credit for the Turkish Contract. The Company at July 2, 1994 had short-term bank borrowings outstanding of $15 million. The banks are requesting partial or full reductions of these short-term borrowings. The Company anticipates full payment of these bank loans within six months from internal cash flow. The Company expects to make new banking arrangements within six months to cover its future potential needs. Based on the present backlog and projected cash flows, the company anticipates financing its capital needs from internal sources and from some short-term borrowings in the foreseeable future. (2) Material Changes in Operations (Second Quarter and Six Months 1994 versus 1993) Net sales declined by 26% in the quarter and 24% in the six months because of delays in booking new foreign business and the continuing increasingly competitive U.S. Government defense business environment. Cost of sales as a percentage of sales decreased in the quarter to 66.4% from 74.0% and in the six months to 70.4% from 72.4% primarily as a result of operating efficiencies achieved particularly on a large foreign contract. In spite of a higher percentage of selling expenses to sales, selling, general and administrative expenses declined by $568,000 in the quarter and $1,956,000 in the six months because of net foreign currency translation gains of $307,000 in the quarter and $802,000 in the six months, in addition to cost reductions necessitated by the decreases in sales. The income tax provision as a percentage of pre-tax income decreased to 19.2 % from 33.1% for the quarter and to 22.1% from 35.7% for the six months, primarily because the foreign currency translation gains referred to above are not subject to tax, and also because of lower foreign income tax rates. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following is a list of Exhibits filed as part of this report: Exhibit 2 - None Exhibit 4 - None Exhibit 10 - None Exhibit 11 - None Exhibit 15 - Letter re unaudited interim financial information Exhibit 18 - None Exhibit 19 - "1994 SECOND QUARTER REPORT" to Stockholders Exhibit 22 - None Exhibit 23 - None Exhibit 24 - None Exhibit 27 - None Exhibit 99 - None (b) Reports on Form 8-K A report on Form 8-K, dated June 13, 1994, was filed by the Registrant on June 15, 1994, covering Item 4 (Changes in Registrant's Certifying Accountant). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AYDIN CORPORATION DATE ____August 15, 1994____ /s/ Herbert Welber Herbert Welber, Controller DATE ____August 15, 1994____ /s/ Robert A. Clancy Robert A. Clancy, Secretary EXHIBIT 15 Grant Thornton 2000 Market Street Philadelphia, PA 19103-3290 215 561-4200 FAX 215 561-1066 Securities and Exchange Commission Washington, D.C. 20549 We have made a review of the condensed financial statements of Aydin Corporation as of July 2, 1994 and for the three-month and six-month periods ended July 2, 1994, in accordance with standards established by the American Institute of Certified Public Accountants, and issued our report thereon dated July 29, 1994. We are aware that such financial statements and our above-mentioned report appearing in the Form 10-Q of Aydin Corporation for the quarter ended July 2, 1994 are being incorporated by reference in the Registration Statement Nos. 33-53549; 33-34863; 33-22016; 33-14284; 2-97645; 2-93603; 2-77623; 2-64093 and that such report pursuant to Rule 436(c) of the Securities Act of 1933 is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Paragraphs 7 and 11 of that Act. /s/ Grant Thornton Grant Thornton Philadelphia, Pennsylvania August 12, 1994 Exhibit 19 Dear Stockholder: The 1994 second quarter sales were $27,306,000, a decrease from the $36,969,000 in sales during the same period in 1993. Net income for the second three month period was $1,130,000 or $.22 per share, being essentially flat as compared to $1,152,000 or $.23 per share earned in last year's second quarter. Sales for the 1994 first half were $56,751,000, a decrease from the $74,403,000 in sales for the same period last year. Net income was $2,157,000 or $.43 per share, representing a decline of 17% from the $2,588,000 or $.52 per share earned in the same period in 1993. The Company attributes the general decline in sales and earnings to, among other things, the increasingly competitive U.S. Government business, slow bookings, and higher percentage of selling and R&D expenses to sales. This trend will probably continue until new orders in the industrial and export markets improve. Backlog at the end of the first half was approximately $158 million, as compared to $150 million at this time last year, and $149 million at the end of the 1994 first quarter. Backlog figures do not include probable production options. During the second quarter, Aydin received two contracts totalling $12 million to supply airborne miniature data communications systems, including signal conditioners, for a U.S. military aircraft. Further, a $3.5 million contract has been received to provide a Turnkey Communication System for a major offshore oil platform project in Southeast Asia. Aydin has also jointly received initial orders to design, manufacture, and install "Second Generation" Time Division Multiple Access (TDMA) satellite ground terminals for the International Telecommunications Satellite Organization (INTELSAT) Network. These initial orders total over four million dollars ($4M). As announced earlier, management is pursuing the strategy of aggressively bidding U.S. Government and export programs, as in the past. A major effort is underway also to develop products to augment the industrial business, particularly in the digital wireless communications and computer equipment areas, for telecommunications applications. The Company plans to utilize its experience in microwave and TDMA (Time Division Multiple Access), which increases channel capacity in a given frequency band, to develop digital cellular products and systems. Also, the Company is developing a microcell, which provides cost effective communications to inaccessible areas. To accelerate this activity, Aydin has added to its staff a number of experienced wireless engineers. Expansion of its network access products for voice, data and video applications in public networks is also the Company's plan. The Company has also strengthened its sales and marketing force. /s/ Ayhan Hakimoglu July 29, 1994 President (page 1) AYDIN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME ($000 omitted except for per share amounts) Three Months Ended Six Months Ended 7/02/94 7/03/93 7/02/94 7/03/93 (Unaudited) (Unaudited) NET SALES $27,306 $36,969 $56,751 $74,403 COST AND EXPENSES Cost of sales 18,137 27,206 39,949 53,848 Selling, general and administrative 6,173 6,741 11,382 13,338 Research and development 1,389 1,223 2,461 2,853 Interest expense, net 209 72 190 175 _______ _______ _______ _______ Total 25,908 35,242 53,982 70,214 _______ _______ _______ _______ INCOME BEFORE INCOMES TAXES AND MINORITY INTEREST 1,398 1,727 2,769 4,189 INCOME TAXES 268 572 612 1,495 _______ _______ _______ _______ INCOME BEFORE MINORITY INTEREST 1,398 1,155 2,157 2,694 LESS MINORITY INTEREST - 0 - 3 - 0 - 106 _______ _______ _______ _______ NET INCOME $ 1,130 $ 1,152 $ 2,157 $ 2,588 _______ _______ _______ _______ _______ _______ _______ _______ EARNINGS PER SHARE $ .22 $ .23 $ .43 $ .52 _______ _______ _______ _______ _______ _______ _______ _______ (page 2) AYDIN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($000 Omitted) ASSETS July 2, 1994 Dec. 31, 1993 (Unaudited) CURRENT ASSETS: Cash, including cash equivalents- 1994, $7,744; 1993, $10,908 $ 8,991 $ 11,822 Short-term investments 11,655 13,058 Accounts receivable 44,071 33,525 Unbilled revenue, after progress billings 50,950 66,559 Inventories: Raw materials 8,249 8,549 Work-in-process 6,806 6,036 Finished product 3,489 3,012 Prepaid expenses 2,187 1,470 ________ ________ Total current assets 136,398 144,031 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation: 1994, $55,351; 1993, $53,623 24,959 25,182 OTHER ASSETS 491 508 ________ ________ TOTAL ASSETS $161,848 $169,721 ________ ________ ________ ________ __________________________________________________________________ <FN> NOTE TO FINANCIAL STATEMENTS: Interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the periods. The 1993 balance sheet has been derived from the audited financial statements contained in the 1993 Annual Report to Stockholders. These interim financial statements conform with the requirements for interim financial statements and consequently do not include all the disclosures normally required by generally accepted accounting principles. Disclosures are updated where appropriate. There are no changes in contingency disclosures. Pretax income for 1994 includes foreign currency translation gains relating to the Turkish subsidiary of $307,000 for the second quarter and $802,000 for the six months. (page 3) AYDIN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($000 Omitted) LIABILITIES AND STOCKHOLDERS' EQUITY July 2, 1994 Dec. 31, 1993 (Unaudited) CURRENT LIABILITIES: Current maturities of long-term debt $ 399 $ 397 Short-term bank debt 15,025 21,525 Accounts payable 20,594 21,731 Accrued liabilities 11,615 15,295 Advanced payments and contract billings in excess of recognized revenue 1,572 1,563 Accrued and deferred income taxes 8,630 7,014 ________ _______ Total current liabilities 57,835 67,525 LONG-TERM DEBT, less current maturities 1,698 1,902 DEFERRED INCOME TAXES 6,087 6,230 MINORITY INTEREST - 0 - 105 STOCKHOLDERS' EQUITY: Common stock, par value $1- authorized 7,500,000 shares: issued 1994, 4,988,900 shares; 1993, 4,981,273 shares 4,989 4,981 Additional paid-in capital 770 697 Retained earnings 91,063 88,906 Foreign currency translation effects (594) (625) ________ _______ Stockholders' equity 96,228 93,959 ________ _______ TOTAL LIABILITIES AND EQUITY $161,848 $169,721 ________ _______ ________ _______ (page 4) AYDIN CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($000 omitted) Six Months Ended July 2, 1994 July 3, 1993 (Unaudited) (Unaudited) OPERATING ACTIVITIES Net Income $ 2,157 $ 2,588 Items not affecting cash: Depreciation and amortization 1,796 2,411 Deferred income taxes (100) 41 Minority Interest 0 106 Other 35 59 Changes in certain working capital items: Accounts receivable (10,546) 8,612 Unbilled revenue 15,609 (18,197) Advance payments and contract billings in excess of recognized revenue 9 727 Inventories (947) 519 Prepaid expenses (717) 468 Accounts payable and accrued liabilities (4,817) 607 Accrued income taxes 1,573 (440) ________ _________ Cash Provided (Used) By Operating Activities 4,052 (2,499) INVESTING ACTIVITIES Net property, plant and equipment additions (1,560) (1,134) Short-term investments 1,403 (3,469) ________ _________ Cash Provided (Used) By Investing Activities (157) (4,603) FINANCING ACTIVITIES Principal payments on long-term debt (202) (197) Net repayments of short-term borrowings (6,500) (4,200) Minority investment in consolidated subsidiary (105) (2,316) Proceeds from exercise of stock options 81 186 ________ _________ Cash (Used) By Financing Activities (6,726) (6,527) ________ _________ DECREASE IN CASH AND CASH EQUIVALENTS (2,831) (13,629) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,822 17,086 ________ _________ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,991 $ 3,457 ________ _________ ________ _________ (page 5) INDEPENDENT ACCOUNTANTS' REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION Board of Directors and Stockholders Aydin Corporation We have reviewed the condensed consolidated balance sheet of Aydin Corporation and subsidiaries as of July 2, 1994, and the related condensed consolidated statements of income and cash flows for the three and six month periods ended July 2, 1994. The condensed consolidated statements of income and cash flows for the three and six-month periods ended July 3, 1993 were reviewed by other accountants. These condensed consolidated financial statements are the responsibility of the Company's management. Our review and that of the prior accountants was conducted in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, and that of the prior accountants, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. The consolidated balance sheet of Aydin Corporation and subsidiaries as of December 31, 1993, and the related consolidated statements of operations and cash flows for the year then ended (not presented herein), were audited by other accountants in accordance with generally accepted auditing standards. In their report dated February 25, 1994, they expressed an unqualified opinion on those consolidated financial statements. In their opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1993 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. Philadelphia, Pennsylvania /s/ Grant Thornton July 29, 1994 __________________________________________________________________________ A copy of Aydin Corporation's Form 10Q may be obtained without charge, upon written request sent to Aydin Corporation. (page 6)