Aydin Corp. - Company Profile, Information, Business Description, History, Background Information on Aydin Corp.

P.O. Box 349
Horsham, Pennsylvania 19044

Company Perspectives:

"Aydin is a world class provider of products and systems for the acquisition and distribution of information over electronic communications media."

History of Aydin Corp.

A world class provider of products and systems for the acquisition and distribution of information over electronic communications media, Aydin Corp. operates predominantly in the electronics manufacturing industry. The company develops, manufactures, and sells a wide range of military and commercial telecommunications equipment, including microwave transmission equipment and systems military applications. The company also provides airborne equipment and systems to gather critical information and terminals to receive and analyze this data on the ground. In addition Aydin installs turnkey telecom systems, selling cathode-ray-tube monitors and workstations, developing radars, and selling software for applications such as radar simulation and air-traffic control systems. Turkish-born Ayhan Hakimoglu guided the company from its inception until 1996.

Rocky Start, 1967-1972

Incorporated in 1967, Aydin established executive offices in an industrial park in Fort Washington, Pennsylvania, near Philadelphia. By 1969 Aydin was designing, manufacturing, and selling electronics products and systems for ultimate use in the aerospace and data communications fields. In addition, the company designed, manufactured, and sold electronicallycontrolled machine tools and electrohydraulic and pneumatic equipment and systems; was engaged in sheet- and strip-steel forming and processing and manufactured steel storage racks and storage handling systems.

The vast array of products Aydin offered came through acquisition. Aydin acquired ten firms in its first two years of operation. By 1970 the company owned property in Pennsylvania and California and leased property in seven states. It went public in 1968, raising about $1.5 million from the sale of common stock to reduce debt and pay for new equipment and new-product introduction. Proceeds from the sale of 15-year convertible subordinated debentures in 1969 came to more than $3 million.

Unfortunately, Aydin's acquisitions proved to be ill-advised. In 1968 the company lost $2.8 million on $19.7 million of sales. After a profitable 1969, it lost $4.1 million in 1970 on revenues of $16.1 million and $4.9 million in 1971 on revenues of $15.6 million. Its common stock, which climbed to $52 a share in 1969, fell as low as 25 cents a share in 1972. Aydin did not climb out of the red until 1972, when it earned $415,000 on revenues of $22.2 million. The company's profitability came from streamlining. By 1972, Aydin had sold four of its nonelectronic businesses and discontinued other operations, enabling it to take a charge against income of about $6 million before taxes. Subsequently, the company concentrated its efforts on the areas of microwave and satellite equipment and display terminal systems. In 1974 it organized an international sales network, with headquarters in Brussels, Belgium, to market its products in Europe, the Middle East, Asia, and Africa.

Growing Prosperity, 1976-1983

By 1976 microwave communications equipment was Aydin's largest line of business, accounting for 39 percent of its $42.4 million in revenues. Its products in this field included high-power microwave transmitters, used in satellite earth stations, and troposcatter terminals, used to reflect microwave signals by bouncing them off a layer of the atmosphere called the troposphere. Aydin also manufactured microwave radio sets or systems installed in repeater towers of microwave line-of-sight networks. Aydin's data communications business, including systems used in the space shuttle, cruise missile, and F-15 airplane, generated 30 percent of the company's dollar volume in 1976. Its digital color display terminals, used mainly by electric utilities for power dispatch and control, accounted for 17 percent of revenue. The remaining 14 percent came from support components: precision-fabricated electronic cabinets, high-quality printed circuit boards, and miscellaneous vinyl components.

Aydin lost some luster when sales dropped in 1978 and it was found in 1979 to have violated federal securities law by inflating its 1975 profits. Nevertheless, the company grew rapidly in this period. Its net sales rose from $47.4 million in 1978 to $102.9 million in 1980, and its net profit grew from $2.7 million to $7.3 million in this period.

The company's new products as well as its overseas expansion contributed to growth in the late 1970s. Introduced in 1977, Aydin's Model 5216 display computer was generating significant business in varied government programs, including the cruise missile mission-planning system. About 40 percent of the company's sales were in overseas markets. By late 1979 Aydin had a backlog of about $135 million, including $73.5 million in subcontracts from a subsidiary of Litton Industries for troposcatter equipment earmarked for Saudi Arabia's army, and $23 million for a communications system for the Egyptian national railway. To accommodate the company's growth, Aydin constructed a new facility in San Jose, California in 1979 to house its microwave division, and by the end of the year was about 40 percent physically located in the San Francisco Bay area.

After experiencing a growth in revenue of 60 percent in 1980, Aydin's sales volume slumped to $100.4 million in 1981, but its net profit remained a comfortable $6.3 million. In a New York Times interview that year, Hakimoglu conceded that small orders "come on a more regular basis, so they are more stable," but indicated the company would continue going after major contracts, such as a military communications system in Saudi Arabia that would bring in $100 million worth of business.

The company bolstered its financial position by focusing on nuclear-fusion electronics, a field it entered in 1977. This sector accounted for $15 million of Aydin's sales in 1980. To enhance the company's position in the field, it purchased the fusion-electronics unit of Gulton Industries in 1981. By 1982 the company had also entered into the manufacture of radar subassemblies. Also in that year, Aydin became a partner in a Turkish manufacturing joint venture called Havelsan-Aydin and received a contract from Western Union to provide up to 24 earth stations.

Although reduced federal funds for the fusion-electronics field in 1982 threw off Aydin's predictions, the company's sales rebounded in 1982, reaching $124.3 million. The company's net profit rose to $10.3 million, and its backlog of business to $192 million, including $100 million in troposcatter systems for an unidentified Middle Eastern country and an unidentified South American country. Telecommunications accounted for 59 percent of sales in 1982. Color display terminals and computers accounted for another 29 percent and included sales of Patriot, the first high-resolution color monitor made in the United States.

Big-Ticket Defense Contracts, 1984-1990

Aydin's sales grew to a record $153 million in 1983 and its profit to an all-time high of $15.8 million, but the following year saw an abrupt halt to its growth. Hakimoglu blamed the company's downturn to a drop in international orders caused by a surge in the value of the dollar and the decline in oil prices that made oil-exporting countries no longer viable buyers.

Aydin then redirected its efforts toward the federal government, including developing tactical air-defense radar systems for the military. The company, for example, built the airborne data-communications equipment for the Patriot missile.

By 1986 the company's efforts to focus on marketing its products in the United States paid off. Sales to the U.S. government reached 44 percent of the 1986 total of $136.9 million and included equipment and systems on board almost every major missile, aircraft, or weapons systems in the world. Aydin also enjoyed an 80 percent market share of color displays to the electric utilities. Telecommunications accounted for 57 percent of sales in 1986; computer equipment and systems for 35 percent; and radars, electronic warfare, and support components to 8 percent. U.S. industrial clients accounted for 28 percent and overseas sales for another 28 percent. Six company divisions were outside Philadelphia (with head offices having moved from Fort Washington to Horsham) and three in San Jose; a subsidiary was in Great Britain.

In 1987 Aydin won a five-year, $94-million Air Force contract to provide a system to train pilots and test airborne radar warning and electronic countermeasures. Delivery of this AN/MST-TIA multiple-threat emitter simulator began in 1990. As the Reagan Administration's military buildup continued, 1987 sales by Aydin to U.S. government agencies came to 61 percent of the total. Revenues reached an apex of $170 million in 1988. With the cold war coming to an end, revenues sank to $142 million in 1990. Nevertheless, Aydin's backlog reached a record $311 million as the company signed a contract with the Turkish government for a set of mobile radar complexes expected to contribute $200 million in sales over a six-year period. The Havelsen-Aydin joint venture was expected to provide about $86 million of this total.

Difficulties in the 1990s

By 1992 Aydin's backlog of work had fallen to $175 million, and sales to the U.S. military came to only 27 percent of the total, compared to 54 percent for exports, including 34 percent to the Turkish government alone. Aydin created a new business segment: environmental consultation, remediation, and remediation equipment. It also planned to step up sales efforts in its foreign and software businesses.

The company suffered a blow in 1993, when the army fined it $2 million for faking test results showing that a battlefield radio system Aydin built worked under high temperature conditions. This system was used extensively during the Persian Gulf War and was found to be so deficient that soldiers had to hook up air conditioning units to them in the field and wear cold weather gear to operate them. Two company managers were convicted on multiple felony counts of conspiracy and making false statements in connection with the fraudulent tests. It cost Aydin $9.4 million to settle a suit brought by the federal government and the company incurred a $5 million net loss for the year. The company also received bad publicity when Hakimoglu sued two Atlantic City casinos in 1993, alleging that they caused him to lose $8 million by getting him drunk.

Sales remained flat from 1993 to 1995, ranging between $140 million and $142 million. The company earned $5 million in 1994 and $3.9 million in 1995. In 1995 the Turkish subsidiary accounted for no less than 82 percent of net income. That year sales to U.S. government agencies came to 32 percent of the total and export sales to 41 percent. A new division, Aydin Telecom, was formed in 1994 to manufacture, market, and sell digital wireless telephony equipment and systems, digital telephony networks for video cable systems, network access equipment, satellite modems, TDMA next-generation equipment transcoders, and multiplexers.

Aydin announced in mid-1995 that the company was being put up for sale. There were no immediate developments, but in May 1996 the electronic manufacturing concern EA Industries Inc. announced it had purchased 11.7 percent of the common stock from Hakimoglu for $10.75 million. Hakimoglu resigned as chairman and chief executive officer of Aydin and was replaced by I. Gary Bard, who had previously served two stints as an Aydin executive. Aydin and EA Industries subsequently held merger talks that ended in October 1996 without an agreement. EA said it had made "a fair and reasonable offer," but Aydin described the proposal as "inadequate." In an interview with the Philadelphia Business Journal shortly after assuming the helm, Bard said, "What you're seeing now represents a culmination of the past poor judgments. Aydin in the past has not done well for a high-technology company. I think its investments have been made in the wrong direction."

Bard went on to blame the company's poor earnings on bad management, which he said over the years had focused too much attention on technology without considering whether there were specific markets that would want specific products. He also said the company had made a mistake by using its reserves to buy back stock and thus raise the price of its shares instead of investing the money in product. He said that he planned to increase market research, focusing first on the question of whether there is demand before creating a supply. A good part of future investment and marketing, he indicated, would be in the telecommunications area. Bard said one potential growth area was vehicle-tracking technology, which allows organizations to put a device in cars that will permit the vehicle location to be tracked.

Aydin's stock fell to a year-long low in September on the news that company president Donald S. Taylor had resigned. Bard said that he and Taylor had been unable to see the company's future from the same perspective and that the company charter would probably be modified to eliminate the need for a president. Aydin ended 1996 with sharply reduced net sales of $116.6 million, of which U.S. government agencies accounted for 33 percent, export and foreign sales for 41 percent, and U.S. commercial and industrial business for 26 percent. Aydin lost $14.8 million during the year.

Principal Subsidiaries: Aydin, S.A. (Argentina, 19%); Aydin Europe Limited (Great Britain); Aydin Foreign Sales Limited (Guam); Aydin Investments, Inc.; Aydin Zailim ve Elektronik Sanayi A.S. (Turkey).

Additional Details

Further Reference

"Aydin Corporation," Modern Data, September 1975, p. 22."Aydin Corp. (AYD)," Wall Street Transcript, June 8, 1987, pp. 85795-85796."Aydin May Find Last Year's Act Tough to Follow," New York Times, August 17, 1981, p. 4D.Campanella, Frank W., "Better Account?" Barron's, November 19, 1979, pp. 58-59, 62."Multiple Threat Emitter Simulator Ready for Delivery to Air Force," Aviation Week and Space Technology, October 22, 1990, p. 62.Stets, Dan, "Aydin Says It's for Sale," Philadelphia Inquirer, July 4, 1995, pp. 1C-2C.Troxell, Thomas N., Jr., "Operating Results of Aydin Beamed toward Fresh Advance," Barron's, October 1, 1977, pp. 37-38.------, "Record Display," Barron's, March 4, 1983, pp. 49-50.Turner, Dan, "San Jose Firm Fined $2 Million for Faking Tests," San Francisco Chronicle, January 8, 1994, pp. 15A-16A.Webber, Maura, "The Man Who Would Save Aydin Rose through Ranks," Philadelphia Business Journal, September 6, 1995, p. 1B.

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