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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File No. 33-49869-01
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0739329
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2702 North 44th Street, Phoenix, Arizona 85008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(602) 957-7711
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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 ]
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, and (2) has been subject
to such filing requirement for the past 90 days. Yes[ X ] No[ ]
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APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by court. Yes[ ] No[ ]
DOCUMENTS INCORPORATED BY REFERENCE
None
OMISSION OF INFORMATION BY CERTAIN
WHOLLY-OWNED SUBSIDIARIES
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The registrant meets the conditions set forth in General Instruction (J)(1)(a) and (b) of Form 10-K
and therefore is filing this Form with the reduced disclosure format. Items 10, 11, 12 and 13 have been
omitted.
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Table of Contents
Page
Part I
Item 1. Business
(a) Developments since January 1, 1993 I-1
(b) Financial Information About Industry
Segments I-2
(c) Narrative Description of Business I-2
(d) Financial Information about Foreign and
Domestic Operations and Export Sales I-25
(e) Provisions of New Debt Agreements I-25
Item 2. Properties I-26
Item 3. Legal Proceedings I-28
Item 4. Submission of Matters to a Vote of
Security Holders I-28
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters II-1
Item 6. Selected Financial Data II-1
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations II-1
Item 8. Financial Statements and Supplementary Data II-1
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-2
Part III
Item 10. Directors and Executive Officers of the
Registrant III-1
Item 11. Executive Compensation III-1
Item 12. Security Ownership of Certain Beneficial
Owners and Management III-1
Item 13. Certain Relationships and Related Transactions III-1
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
Signatures IV-2
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PART I
Item 1. Business.
(a) Developments since January 1, 1993.
In July 1993, Talley Manufacturing and Technology, Inc. ("the
Company", or "Talley Manufacturing"), a wholly owned subsidiary of
Talley Industries, Inc., ("Talley") was formed with the issuance of
1,000 shares of common stock. The formation of the Company was in
connection with an offering, in October, 1993, of Senior Notes by
the Company and Senior Discount Debentures by Talley. Concurrently
with the issuance of these securities, Talley contributed the
capital stock of its operating subsidiaries (other than its real
estate operations) to the Company, which also assumed a substantial
portion of Talley's indebtedness and liabilities. At the same
time, the Company entered into a new credit facility with certain
institutional lenders. The Senior Notes were guaranteed by
substantially all of the Company's subsidiaries. For an additional
discussion see "Basis of Presentation" on page F-15 of the
Company's financial statements for the year ended December 31,
1993, included in a separate section of this report. The terms of
the new debt agreements are summarized below in Section (e) of this
Item 1.
The Company completed the sale of the net assets of its
precision potentiometer business for $2.8 million in July 1993 as
part of the program to reduce outstanding debt.
(b) Financial Information about Industry Segments.
A segment description along with tables showing sales and
operating income for each of the last five years, and identifiable
assets for each of the last three years attributable to each of the
Company's four business segments in continuing operations,
including the year ended December 31, 1993, are incorporated by
reference to the material appearing in the Notes to Consolidated
Financial Statements on pages F-31 through F-35 of the Company's
financial statements for the year ended December 31, 1993, included
in a separate section of this report. For an additional discussion
of segment operations, see also "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages
F-2 through F-9 of the Company's financial statements for the year
ended December 31, 1993, included in a separate section of this
report.
(c) Narrative Description of Business.
General
The Company is a diversified manufacturer of a wide range of
proprietary and other specialized products for defense, industrial
and commercial applications. Through its Government Products and
Services segment, the Company manufactures an extensive array of
propellant devices and electronic components for defense systems
and commercial applications and provides naval architectural and
marine engineering services. The Company participates in the
rapidly expanding market for automotive airbags through its royalty
agreement with TRW, Inc. ("TRW") which provides the Company with a
quarterly royalty payment through April 30, 2001 for any airbag
manufactured and sold by TRW worldwide and for any other airbag
installed in a vehicle manufactured or sold in North America. The
Company's Industrial Products segment manufactures and distributes
stainless steel products, high-voltage ceramic insulators used in
power transmission and distribution systems, and specialized
welding equipment and systems. The Company's Specialty Products
segment manufactures and sells aerosol insecticides, air fresheners
and sanitizers for the commercial and agricultural markets, and
custom designed metal buttons for military and commercial uniforms
and upscale fashion apparel.
(1) Government Products and Services Segment.
The Company's Government Products and Services segment provides
a wide range of products and services for government programs. The
vast majority of the Company's products are smaller components of
larger units and systems and are generally designed to enhance
safety or improve performance. A significant portion of the
Company's government revenue represents the replacement of existing
Company products. Products manufactured by the Company which have
significant replacement requirements include items having finite
shelf lives, such as propellants for pilot ejection seats, as well
as products regularly consumed in training and combat situations.
Many of the Company's existing products and its new product
development efforts are focused on mobile, tactical and "smart"
military weapons and systems.
Solid Propellant Devices and Related Products
A majority of the products manufactured by the Company's
Government Products and Services segment are based upon the
Company's core technologies and expertise in the design and
manufacture of propellants and related products. Propellants are
solid fuels which, when ignited, produce a specified thrust or
volume of gas for a designated period. The Company's propellant
products are typically custom designs developed by the Company in
response to customers' technical requirements and specifications.
The following sets forth a brief summary of several of the
solid propellant devices and related products manufactured by the
Company:
o Pilot Ejection Systems. The Company manufactures ejection
seats and related propellant devices for aircraft ejection
systems in high performance military aircraft. The Company
also manufactures escape systems for a number of foreign
aircraft.
o Rocket Motors. The Company manufactures a wide range of
rocket motors and rocket catapults. These products include
booster rockets for decoy missiles, as well as for unmanned
vehicles. The Company also manufactures rocket catapults for
its aircraft escape systems.
o Gas Generators. The Company manufactures a broad range of
solid propellant gas generators. These products provide
pneumatic power for guidance and control systems, hydraulic
systems, and safe and arming devices on a wide range of
missile systems.
o Extended Range Munitions Components. The Company's extended
range munitions components utilize propellant technologies
to dramatically extend the range of U.S. artillery. The
Company's base burner assembly utilizes a solid propellant
drag reduction system to extend the range of existing
howitzer artillery.
o Dispersion Systems. The Company pioneered the use of airbag
technologies for modern munitions delivery systems. The
Company's dispersion systems utilize airbag assemblies to
eject submunitions (i.e., small bombs or missiles) from
missile systems.
o Weapons Systems. The Company is actively involved in the
development of the next generation of light-weight disposable
shoulder-launched weapons. These weapon systems include the
M72 E-Series light anti-armor weapon and a light-weight
disposable version of a U.S. Marine Corps shoulder-launched
weapon system. The Company has also contracted with the U.S.
Army to develop new warhead and launcher technology for the
next generation of shoulder-launched weapon systems.
o Ejector Racks. Over 8,000 ejector racks manufactured by the
Company are currently installed on various U.S. helicopters.
These ejection racks enable helicopter pilots to discard
munitions, missiles or extra fuel in emergency situations.
o Countermeasure Systems. The Company manufactures several
training and combat countermeasure systems for naval,
aircraft and submarine applications. Countermeasure systems
are designed to divert incoming weapons from their targets.
o Insensitive Munitions. The Company is currently developing
new propellant products which are being qualified to meet
certain rigorous safety requirements. These munitions are
generally insensitive to shock, puncture, and high
temperature and pressure.
o Electro Explosive Devices ("EED"). Electro-explosive devices
manufactured by the Company include rocket motor igniters,
explosive bolts and separation nuts and booster cartridges,
as well as initiators for these and other components.
High Reliability Electronic Products
The Company designs and manufactures specialized electronic
display and monitoring devices, electromechanical instruments and
components, and high performance cable assemblies which are used by
the aerospace and defense industries. The Company's products are
designed to perform at a high level of reliability, conform to
tight tolerance specifications and withstand harsh operating
environments. The following sets forth a brief summary of the
primary electronic products manufactured by the Company:
o Air Traffic Control Systems. The Company has supplied
electronic displays to the FAA for over 20 years for use in
certain air traffic control applications, and is currently the
sole supplier of video mapper systems to the FAA. The
Company's proprietary video mappers superimpose accurate,
high resolution electronic map images, including ground
topography and weather, onto radar screens which are used by
both commercial and military air traffic controllers to
coordinate the position of aircraft.
o Airborne Flight Data Recorders. The Company is the sole
manufacturer of flight data recorders that are used on military
aircraft. These flight data recorders are used to evaluate
training simulations and record flight information, and are
designed to maintain data integrity in the event of a crash.
o Safe and Arming Devices. The Company manufactures electronic
and electromechanical devices which are used to safely control,
arm and fire warheads on torpedoes and missiles. These
products are designed to meet a high standard for safety
requirements.
o Indicators. The Company is a producer of elapsed time
indicators, event counters and fault indicators, with a
significant share of the domestic aerospace market. The
Company's indicator products are capable of functioning with
a high degree of accuracy and are built to withstand the harsh
operating environment present in aerospace applications.
o Interconnect Products. The Company also designs, manufactures
and sells high quality interconnect products and accessories
for military, aerospace and commercial marketplaces. These
products include high voltage silicone wire and cable, multi-
pin high and low voltage connector and cable assembly
interconnection systems, and triax and coax high voltage
connections and cable assemblies. The major applications for
these products include medical equipment, radar and CRT
displays, satellite detectors and power supplies.
Naval Architecture and Marine Engineering Services
The Company's naval architecture and marine engineering
business provides a broad range of consulting services for the U.S.
Navy, as well as for commercial clients and shipyards. The
Company's naval design and engineering business has provided
services for over 35 years and possesses domestic and international
experience in all phases of the design process for military and
commercial ships. These services include initial feasibility
and conceptual studies, contract design, and detail design and
engineering for new and retrofitted ships. The Company also
provides the engineering services necessary to physically
integrate combat systems and electronics into Navy ships and
provides program management and logistics support services to the
Navy and commercial customers. The Company maintains separate
segments to meet the different technical, performance and
administrative needs of its customers.
Direct contracts with the U.S. Navy currently account for
approximately 60% of the Company's naval architecture and marine
engineering revenue, with an additional 20% attributable to
subcontracts under Navy contracts. The remaining 20% of revenues
are derived from commercial shipyards or industrial customers for
ship and other marine design services. The majority of the
Company's contracts with the U.S. Navy are cost plus a fixed fee.
Under these contracts, the Company is reimbursed for its actual
costs plus a percentage fee based on the estimated costs in the
original contract.
The demand for design services for the U.S. Navy is largely
driven by the number of new ship classes being developed or older
classes being retrofitted, versus the actual number of ships within
a class being built or operated. The majority of engineering and
detail design costs are incurred with the introduction of a new
class of ship or the retrofit of one or more ships of an existing
class. Although the current administration has announced its
intention to reduce the number of ships within the U.S. Naval
fleet, the magnitude of this reduction is still uncertain.
Marketing
The Company markets its government products and services
directly to the Department of Defense, other U.S. government
departments and agencies, and other contractors. The Company's
marketing strategy focuses on those contracts and programs which
are likely to be emphasized in the current defense environment and
for which the Company has a competitive advantage in technology and
expertise.
The Company's technical sales personnel are strategically
located across the country for easy access to its customers. The
Company also uses independent sales agents to market its products
to various foreign governments and to sell its electronic component
products. In addition, the Company enters into joint marketing
agreements with foreign manufacturers to provide access to markets
not available to the Company.
Competition
Competition for the Company's government products and services
varies widely. The markets for several of the Company's products
and services are highly competitive, and many of the Company's
competitors have greater financial resources than the Company.
However, the Company also competes in a variety of small niche
markets. Production of the products within these markets
frequently requires government certification, which can be costly
and time-consuming to obtain. Once a contract has been awarded,
the relatively small size of these markets often discourages
additional suppliers from obtaining certification. Within these
markets the Company is frequently a sole supplier, and therefore
faces little or no competition.
A wide variety of industrial companies compete with the Company
in the market for propellant devices, with particularly intense
competition in the markets for gas generators and dispersion
systems.
The market for the Company's electronics components products
is highly competitive. Competition is particularly intense among
Texas Instruments, IBM and Raytheon for air traffic control
equipment. The Company is the sole supplier of data acquisition
and display systems for the B-1, B-2, T-45 and F-4 military
aircraft, but there is significant competition for other
applications. The Company believes that it shares the market
for aerospace elapsed time indicators, fault indicators and
events counters primarily with one competitor, Airpax, a North
American Phillips company. The Company believes that its safe and
arming devices compete with companies such as KDI, Motorola,
Quantic and Magnavox.
The Company believes that its market for naval architectural
and marine engineering services is served by the Company and a
small number of other major firms including M. Rosenblatt & Son,
Inc., Gibbs & Cox, Inc., Advanced Marine Enterprises,
Incorporated, George G. Sharp, Inc. and CDI Marine Company. These
companies actively compete with each other, and to a lesser extent
with smaller design firms, for U.S. Navy programs, foreign
contracts and subcontracts with private shipyards.
Government Contract Matters
Substantially all of the Company's government defense contracts
are fixed-price contracts except for the Company's naval
architecture and marine engineering contracts which are generally
cost reimbursable. Although the Company's fixed-price contracts
generally permit the Company to retain unexpected profits if costs
are less than projected, the Company bears the risk that increased
or unexpected costs may reduce profit or cause the Company to
sustain losses on a particular contract. From time to time the
Company accepts fixed-price contracts for products that have not
been previously developed. In such cases, the Company is subject
to the risk of delays and cost over-runs. Under U.S. Government
regulations, certain costs, including financing and interest
costs and foreign marketing expenses, are not allowable. The U.S.
Government also regulates the methods under which costs are
allocated to Government contracts. With respect to U.S. Government
contracts that are obtained pursuant to an open bid process and
therefore result in a firm fixed price, the Government has no right
to renegotiate any profits earned thereunder. In Government
contracts where the price is negotiated at a fixed price rather
than on a cost-plus basis, as long as the financial and pricing
information supplied to the Government is current, accurate and
complete, the Government similarly has no right to renegotiate any
profits earned thereunder. However, if the Government later
conducts an audit of the contractor and determines that such data
was inaccurate, or incomplete or not current in overstating the
costs, and that the contractor thereby made an excessive profit,
the Government may initiate an action to recover the amount of any
significantly overstated costs plus applicable profit or fee and
interest. If the submission of inaccurate, incomplete or not
current data was knowingly made, then the Government may seek to
recover an additional penalty equal to the amount of the overstated
costs; and if the submission was willful or intentional the
Government may seek additional penalties and damages.
U.S. Government contracts are, by their terms, subject to
termination by the Government either for its convenience or for
default of the contractor. Fixed-price contracts provide for
payment upon termination for items delivered to and accepted by the
Government. If the termination is for convenience, fixed-price
contracts provide for payment of the contractor's costs incurred
plus the costs of settling and paying claims by terminated
subcontractors, other settlement expenses and a reasonable
profit on its incurred performance costs. However, if a fixed-
price contract termination is for default, (i) the contractor is
paid such amount as may be agreed upon for completed and partially
completed products and services accepted by the Government, (ii)
the Government is not liable for the contractor's costs with
respect to unaccepted items and is entitled to repayment of advance
payments and progress payments, if any, related to the terminated
portions of the contracts and (iii) the contractor may be liable
for excess costs incurred by the Government in procuring
undelivered products and services from another source. Foreign
defense contracts generally contain comparable provisions relating
to termination at the convenience of the government.
Companies supplying defense-related products and services to
the U.S. Government are subject to certain additional business
risks unique to that industry. These risks include: the ability
of the Government to unilaterally suspend the Company from new
contracts pending resolution of alleged violations of certain
procurement laws or regulations; procurements which are dependent
upon appropriated funds by the Government; changes in the
Government's procurement policies (such as a greater emphasis on
competitive procurements or cancellation of programs due to
budgetary changes); the possibility of inadvertent Government
disclosure of a contractor's proprietary information to third
parties; and the possible need to bid on programs in advance of
design completion. A reduction in expenditures by the Government
for the Company's products and services, lower margins resulting
from increasingly competitive procurement policies, a reduction in
the volume of contracts or subcontracts awarded to the Company,
incomplete, inaccurate or non-current data allegations,
terminations or cancellations of programs, or substantial cost
over-runs could have an adverse effect on the Company's results of
operations.
Backlog
The backlog of firm orders in the Government Products and
Services segment amounted to approximately $128 million at December
31, 1993, $143 million at December 31, 1992 and $155 million at
December 31, 1991. The backlog in 1991 and 1992 included a major
non-recurring program for extended range munitions. The Company
estimates that approximately $105 million of the orders outstanding
at December 31, 1993 will be delivered by December 31, 1994.
(2) Airbag Royalties Segment.
As an outgrowth of the research and development efforts in its
core propellant businesses, the Company was a pioneer in the
development of the automotive airbag. Airbags supplied by the
Company were installed by General Motors in approximately 12,000
automobiles during the 1970's and were the first airbags installed
in any significant number of automobiles. While the Company's
program with General Motors was successful, low market awareness
and acceptance prevented the airbag from attaining wide-spread
popularity for a number of years. During this period, Talley
continued to develop and refine its airbag technology, while
establishing relationships with certain U.S. and foreign automakers
and suppliers. As demand for airbags increased in the 1980's, the
Company's technology, manufacturing expertise and strong customer
relationships made it a leading supplier of automobile airbags, and
the Company designed and constructed a highly automated production
facility that began producing airbags in volume during 1988. In
1989, the Company sold its automotive airbag business to TRW, in
part because TRW's offer involved not only an attractive cash price
for the business, but also an opportunity to participate in the
future growth of the industry. This participation comes
through a unique royalty agreement under which royalties are
payable both on TRW's worldwide airbag sales and on its
competitors' airbags installed in vehicles manufactured or sold in
North America.
At the closing of the 1989 sale of TRW, the Company received
$97.8 million in cash and entered into the 12-year Airbag Royalty
Agreement. The Airbag Royalty Agreement requires TRW to pay the
Company quarterly royalties through April 30, 2001 (the "Airbag
Royalty") based upon the following formula: (i) $1.14 for each
airbag "unit" (inflator plus one or more components) manufactured
and sold by TRW worldwide (the per-unit amount increases by $.01 on
May 1 of each year); (ii) 75% of the per-unit amount for each
inflator manufactured and sold separately by TRW worldwide; and
(iii) $0.55 for each airbag unit supplied by any other airbag
manufacturer and installed in any vehicle manufactured or
sold in North America. The Company will receive the Airbag
Royalty for any airbag using a gas-generating composition; the
higher royalty amount for TRW airbags applies regardless of whether
the specific technology used is that which was originally licensed
by the Company to TRW. The Company also is entitled to receive
royalties from TRW for technology licenses and similar arrangements
under which TRW makes its airbag technology available to third
parties. Royalties to the Company from such arrangements have not
been significant to date.
The terms of the Airbag Royalty Agreement allow the Company to
participate in the rapidly expanding market for airbags. A
continued increase in the use of dual vehicle airbags is expected
as a consequence of several factors, including: (i) government
legislation mandating the use of dual airbags in all cars,
light trucks, sport utility vehicles and vans sold in the U.S. on
a phased-in basis; (ii) increasing consumer demand as a result of
the demonstrated effectiveness of airbags at saving lives and
preventing serious injury, and the convenience of airbags as
compared with automatic seatbelts; and (iii) the decreasing price
of airbags as competition and production volumes increase. The
U.S. government has passed legislation mandating that airbags be
installed as standard equipment according to the following
schedule: (i) 95% of 1997 model year cars (100% of 1998 models) are
to be equipped with driver and passenger side airbags for the front
seat, and (ii) 80% of 1998 model-year light trucks, vans and sport
utility vehicles (100% of 1999 models) are to be equipped with
driver and passenger side airbags for the front seat.
(3) Industrial Products Segment.
The Company's Industrial Products segment operates in three
product areas: stainless steel, high-voltage ceramic insulators
and other specialized industrial products. Demand for the
Company's products is directly related to the level of general
economic activity and therefore has been negatively impacted by the
recent recession. The Company's operations are technologically
advanced and its products are highly competitive in terms of
quality, brand recognition and price. The Company's stainless
steel mini-mill has utilized its state-of-the-art computer
automation, strict quality controls, and strong engineering and
technical capabilities to maintain its position as a low cost,
high quality producer.
Stainless Steel
The Company operates a state-of-the-art stainless steel mini-
mill which purchases stainless steel billets and converts them into
a variety of sizes of hot rolled and cold finished bar and rod.
The facility utilizes computer automation and quality control
processes that have resulted in a high standard of product quality,
service and deliveries. Located in South Carolina, the mini-mill
has relatively low labor and power costs and is situated close to
major north-south and east-west interstate highways. The Company
recently installed three annealing furnaces, a new pickling line
and a new cold-drawing facility which will enable the Company to
convert certain shaped bars to smaller sizes with close tolerances.
Prior to these enhancements, the Company either subcontracted these
processes out or was not able to meet customers' custom finishing
requests. The Company sells its products to over 25 independent
steel distributors, including two distributors which are owned by
the Company, and to a lesser extent to industrial end-users. The
Company-owned distributors sell stainless steel sheet, angle and
plate, and also provide certain cutting, grinding and boring
services. The Company's U.S. distributor, which resells
approximately 25% of the mini-mill's production currently, has five
distribution depots in South Carolina, New Jersey, Pennsylvania,
Illinois and Texas. The Canadian distributor, which sells
principally flat stainless steel products (not produced by the
mini-mill), has two locations, in Ontario and Quebec.
High-Voltage Ceramic Insulators
The Company's high-voltage ceramic insulator business
manufactures and sells electrical insulators and related items for
use in power transmission and distribution systems, principally to
electric utilities, municipalities and other government units, as
well as to electrical contractors and OEMs. High-voltage ceramic
insulators are required to perform with high levels of reliability
and typically require product certification from electric utilities
to be used for new or replacement applications. Demand for these
products is influenced by the level of economic activity,
particularly housing starts, with a fairly stable minimum demand
level due to normal replacement and repair cycles.
The Company's primary customers include OEMs as well as many
of the major utilities throughout the U.S. and the world.
Other Specialized Industrial Products
The Company designs, manufactures and sells specialized
advanced-technology welding equipment and systems, power supply
systems and humidistats, and also provides contract assembly and
manufacturing for OEMs. The Company's welding equipment and
systems are highly-engineered and advanced technologically, and
the Company holds over 30 patents for these products. The
Company's product line includes patented welding systems which can
be remotely controlled for use in radioactive and other
contaminated environments. These products are sold to the utility,
pipeline, shipbuilding, aerospace and specialty construction
industries.
The power supply systems manufactured by the Company are
principally low-wattage systems and are sold to OEMs in the
telecommunications, medical, computer and other industrial markets.
The power supply market is highly competitive, with more than 500
manufacturers in the U.S.
The Company also manufactures and sells humidistats.
Humidistats are used to regulate humidity levels and are
principally sold to home appliance manufacturers.
Marketing
The Company markets its industrial products to domestic and
foreign business organizations and government entities. These
organizations vary in size, complexity and purchasing structures.
The Company's sales and marketing efforts use a combination of
direct sales, independent distributors and OEM arrangements.
Competition
The Company's Industrial Products businesses are highly
competitive, with competition typically based on price, quality,
delivery time, engineering expertise and customer service. The
Company's competitors include major domestic and international
companies, many of which have financial, technical, marketing,
manufacturing, distribution and other resources substantially
greater than those of the Company, as well as smaller competitors
which focus on specific market niches.
Backlog
The backlog of firm orders in the Industrial Products segment
totalled approximately $19 million at December 31, 1993, $12
million at December 31, 1992 and $8 million at December 31, 1991.
The Company estimates that substantially all of the orders
outstanding at December 31, 1993 will be delivered by December 31,
1994. Increases are attributed to a major steel mill competitor
exiting the market along with an increase in demand from new and
current customers.
(4) Specialty Products Segment.
The Company's Specialty Products segment is focused on two
primary markets: insect and odor control for the industrial
maintenance supply, pest control and agricultural markets, and
custom designed metal buttons for the military and commercial
uniform and upscale fashion markets.
Insect and Odor Control
The Company offers a complete line of insecticides, air
fresheners and sanitizers for sale through distributors to the
industrial maintenance supply, pest control and agricultural
markets. The Company's insecticide products are sold under the
Q-Mist and CBM trademarks to pest control distributors who sell to
pest control professionals. The Company's insecticide formulations
focus on using natural active ingredients including pyrethrin
(derived from the chrysanthemum flower), boric acid and sassafras.
The Company offers a complete line of insecticides to control the
most common crawling and flying insects. The insecticides are
mixed and packaged at the Company's Louisiana manufacturing plant
and formulated into aerosol, liquid and powder form. Air
freshening and sanitizing products are formulated and packaged for
specific air freshening and sanitizing situations, which vary based
on room size, type of odor to be treated, and desired fragrance.
In addition, the products are designed for one of four different
delivery methods: (i) metered, automatic aerosols for areas up to
6,000 cubic feet, (ii) fan delivered solids for areas up to 1,500
cubic feet, (iii) manual aerosols for immediate air freshening and
(iv) passive solids for small enclosed areas.
In addition to manufacturing odor and insect control
formulations, the Company also manufactures and sells metered and
fan driven dispensers for these products. Metered dispensers
utilize a timing mechanism to deliver aerosol spray at programmable
time intervals. Fan driven dispensers utilize battery operated
fans to distribute the scent of selected air fresheners.
Custom Metal Buttons
The Company designs and manufactures a wide range of custom
metal buttons for the military and commercial uniform and upscale
fashion markets. The Company also produces insignias, cuff links
and other accessories as a complement to its button products. The
buttons are individually stamped from custom designed hand carved
steel dies.
The use of hand carved steel dies and the brass stamping
process allow the Company to produce button designs with extremely
fine detail and high resolution. The Company custom designs and
produces metal buttons for the U.S. military based on detailed
military specifications.
The Company has seen the volume of military sales decline in
recent years as a result of reductions in military personnel.
Management expects future modest reductions in military button
sales as military force reductions continue. Military sales
currently account for less than 20% of the Company's button
revenues. The market for commercial uniform buttons includes local
police, fire departments and other civil servants. The Company
continues to increase its presence in the fashion apparel market by
working with apparel manufactures on custom button designs for
their manufactured garments.
Marketing
The Company utilizes 1,700 independent distributors to market
its insect and odor control products to the various pest control
and sanitation companies that service the industrial maintenance
supply and commercial pest control industry. The agricultural
market is served by over 100 independent agricultural products
distributors. The Company has a three person marketing staff which
is responsible for working with and overseeing the distributors who
carry its products.
The Company's button business maintains a three person sales
force which is responsible for obtaining new and maintaining
existing customer relationships. Sales representatives are focused
on either the military uniform, commercial uniform or fashion
apparel markets. The Company's advertising for its Specialty
Products businesses is limited to product brochures and ads in
various trade publications.
Competition
Competitors for the Company's pest and odor control products
consist of numerous small companies as well as divisions of large
corporations. Because pest and odor control is a broad market,
competitors include a range of chemical, manufacturing and pet care
companies. Competition for pest control products is based on
product efficiency, quality, price and the ability to offer a broad
range of product formulations.
Competitors for the Company's custom button business consist
principally of four companies, all of which are similar in size.
The Company maintains the strongest position in the military and
commercial uniform market, while three of the Company's competitors
dominate the fashion market.
Backlog
The backlog of firm orders in the Specialty Products segment
totalled approximately $1.4 million at December 31, 1993, $2.5
million at December 31, 1992 and $2.5 million at December 31, 1991.
The Company estimates that substantially all of the orders
outstanding at December 31, 1993 will be delivered by December 31,
1994.
(5) Other General information.
Research and Development. During the years ended December 31,
1993, 1992 and 1991, the Company's consolidated expenditures for
Company-sponsored research and development activities were
approximately $3.1 million, $3.9 million and $4.2 million,
respectively. For the same reporting periods, customer-
sponsored research and development expenditures were $11.6 million,
$2.4 million and $4.0 million, respectively.
Environmental Protection. The Company does not anticipate that
compliance with various laws and regulations relating to the
protection of the environment will have any material effect
upon its capital expenditures, earnings or competitive position.
(Also see Item 3 "Legal Proceedings" and "Commitments and
Contingencies" note to the consolidated financial statements,
included in a separate section of this report).
Employees. As of December 31, 1993, the Company employed 2,607
persons, approximately 12% of whom are represented by unions.
Proprietary Rights. Various of the Company's businesses are
dependent in part upon unpatented know-how and technologies,
including the solid propellent businesses. While various patents,
trademarks and tradenames are held by the Company and are used in
its businesses, none is critical to any segment, and the Company's
business is not dependent upon them to a material extent.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales.
Information required by this item is incorporated by reference
to the Notes to Consolidated Financial Statements appearing under
the heading "Segment Operations" on pages F-31 through F-35 of the
Company's financial statements for the year ended December 31,
1993, included in a separate section of this report.
(e) Provisions of New Debt Agreements.
On October 22, 1993 the Company, together with its parent
holding company, Talley, completed a major debt refinancing
program. Talley Manufacturing issued $115 million of Senior
Notes, due 2003, with an interest rate of 10.75% and
completed a secured credit facility with two institutional lenders.
Talley received gross proceeds of $70 million from the issuance of
Senior Discount Debentures. The $115 million gross proceeds of the
public offering, plus the initial borrowings under the secured
credit facility, and the proceeds of the Talley Senior Discount
Debentures after payment of underwriting and other fees and
expenses associated with these financings, were used to repay
substantially all of the Company's and Talley's previously
outstanding debt.
The indentures for the Senior Notes and the loan agreement
relating to the secured credit facility contain covenants requiring
specified fixed charge coverage ratios, working capital levels,
capital expenditure limits, net worth levels and certain other
restrictions on dividends, other payments and incurrence of debt.
Substantially all of the receivables, inventory and property, plant
and equipment of Talley Manufacturing and its subsidiaries are
pledged as collateral in connection with the secured credit
facility. In addition, the subsidiaries of Talley Manufacturing
have guaranteed Talley Manufacturing's obligations under the Senior
Notes and the secured credit facility and Talley has guaranteed the
Senior Notes on a subordinated basis. The capital stock of the
Company has been pledged by Talley to secure the Senior Discount
Debentures issued by Talley.
The Senior Notes mature on October 15, 2003 and Talley
Manufacturing is required to make mandatory sinking fund payments
of $11.5 million on October 15, in each of 2000, 2001 and 2002.
Interest is payable semi-annually, commencing April 15, 1994. The
secured credit facility consists of a five year revolving credit
facility of up to $50 million and a five year $20 million term loan
facility; however, upon the occurrence of certain specified events
at any time following the third anniversary of the facility, the
agent thereunder may elect to terminate the facility. The term
facility requires monthly amortization payments based on a seven
year amortization schedule.
Item 2. Properties.
The Company's operations are conducted at a number of
manufacturing and assembly facilities of various sizes and a number
of warehouse, office and sales facilities located in 18 states in
the United States, as well as warehouse, office and sales
facilities in Canada and the Netherlands. The principal facilities
of the Government Products and Services segment include over
750,000 square feet of manufacturing and assembly facilities, as
well as an additional 200,000 square feet of warehouse, office and
sales facilities. The principal manufacturing and assembly
facilities for this segment are located in Mesa, Arizona; Phoenix,
Arizona; Rolling Meadows, Illinois; and Toledo, Ohio. The majority
of these facilities are owned by the Company. The Company owns the
plants and equipment at two of the Arizona facilities, and leases
the underlying land from the State of Arizona under long-term
leases of 10 years and 40 years. The Company's naval architectural
and engineering services are provided out of several offices,
with the major ones located in New York, New York; Arlington,
Virginia; Newport News, Virginia; Ocean Springs, Mississippi; and
Pascagoula, Mississippi, all of which are leased.
Facilities used by the Industrial Products segment include over
800,000 square feet of manufacturing and assembly plants and
related office, warehouse and sales space, located in Davidson,
North Carolina; Carey, Ohio; Knoxville, Tennessee; Hartsville,
South Carolina; and eight sales and warehouse facilities in New
Brunswick, New Jersey; Hermitage, Pennsylvania; Chicago, Illinois;
Houston, Texas; Charlotte, North Carolina; Toronto and Montreal,
Canada, and the Netherlands. The operations of the Specialty
Products segment are conducted in several facilities consisting of
approximately 214,000 square feet of manufacturing and warehouse
space in four locations: Waterbury, Connecticut; Randolph,
Vermont; Biddeford, Maine; and Independence, Louisiana, together
with 13,000 square feet of office space in Waterbury, Connecticut.
All of these facilities are owned by the Company with the exception
of eight Industrial Products segment sales and warehouse facilities
and three Specialty Products segment warehouses which are leased.
In total, approximately two-thirds of all the facilities (by
square footage) are owned by the Company and have been pledged as
collateral to secure the credit facility. The Company's
facilities, which are continually added to or modernized, are
generally considered to be in good condition and adequate for the
business operations currently being conducted.
Item 3. Legal Proceedings.
Information required by this item is incorporated by reference
to the Notes to Consolidated Financial Statements appearing under
the heading "Commitments and Contingencies" on page F-26 to F-29 of
the Company's financial statements for the year ended December 31,
1993, included in a separate section of this report.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the quarter ended December 31, 1993.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's stock is wholly owned by its parent, Talley
Industries, Inc., and is not traded. Dividends can be and are made
when necessary by Talley Manufacturing. Subject to restrictions by
debt agreements, dividends may be declared and paid (See
"Management's Discussion and Analysis" on pages F-2 through F-9 of
the Company's financial statements for the year ended December 31,
1993, included in a separate section of this report, for further
discussion).
Item 6. Selected Financial Data.
The information required by this item is incorporated by
reference to the material under the captions "Summary of
Operations" and "Selected Financial Data" on pages F-36 and F-38 of
the Company's financial statements for the year ended December 31,
1993, included in a separate section of this report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information required by this item is incorporated by
reference to the material on pages F-2 through F-9 of the Company's
financial statements for the year ended December 31, 1993, included
in a separate section of this report.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements, together with the report
thereon by Price Waterhouse, are included in a separate section of
this report. (See "Index to Financial Statements and Schedules"
on page F-1). The Company's stock is wholly owned by the parent
company, Talley, and accordingly, quarterly financial results are
not provided.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
The Company's Independent Accountants during the two most
recent fiscal years have neither resigned, declined to stand for
re-election nor been dismissed.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
(c) Compliance with Section 16(a) of the Exchange Act.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
Item 11. Executive Compensation.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
Item 13. Certain Relationships and Related Transactions.
Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a)-1 Financial Statements
A list of the financial statements included herein is set
forth in the Index to Financial Statements and Schedules
submitted as a separate section of this Report.
(a)-2 Financial Statement Schedules
A list of the financial statement schedules included
herein is contained in the accompanying Index to Financial
Statements and Schedules submitted as a separate section
of this Report.
(a)-3 Exhibits
Exhibits listed in the Exhibit Index on the pages
preceding the exhibits of this report are filed as a part
of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended December 31, 1993.
<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.
TALLEY INDUSTRIES, INC.
By Mark S. Dickerson
March 22, 1994 Mark S. Dickerson
Phoenix, Arizona Vice President,
General Counsel and Secretary
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.
William H. Mallender Director, Chairman
William H. Mallender of the Board
Principal Executive
Officer March 22, 1994
Jack C. Crim Director, President
Jack C. Crim Chief Operating
Officer March 22, 1994
Kenneth May Vice President,
Kenneth May Controller
Principal Accounting
Officer March 22, 1994
Daniel R. Mullen Vice President,
Daniel R. Mullen Treasurer
Principal Financial
Officer March 22, 1994<PAGE>
Neil W. Benson Director March 22, 1994
Neil W. Benson
Director
Paul L. Foster
Townsend W. Hoopes Director March 22, 1994
Townsend W. Hoopes
Fred Israel Director March 22, 1994
Fred Israel
John D. MacNaughton, Jr. Director March 22, 1994
John D. MacNaughton, Jr.
Emiel T. Nielsen, Jr. Director March 22, 1994
Emiel T. Nielsen, Jr.
Joseph A. Orlando Director March 22, 1994
Joseph A. Orlando
John W. Stodder Director March 22, 1994
John W. Stodder
Donald J. Ulrich Director March 22, 1994
Donald J. Ulrich
David Victor Director March 22, 1994
David Victor
<PAGE>
Alex Stamatakis Director March 22, 1994
Alex Stamatakis
SUPPLEMENTAL INFORMATION
Supplemental information to be furnished with reports filed
pursuant to Section 15(d) of the Act by registrants which have not
registered securities pursuant to Section 12 of the Act.
No supplemental information is required.
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following documents are filed as part of this report:
Page in
This Report
(1) Financial Statements:
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................F-2
Consolidated Statement of Operations -
Years ended December 31, 1993, 1992
and 1991.........................................F-10
Consolidated Balance Sheet -
December 31, 1993 and 1992.......................F-11
Consolidated Statement of Changes
in Stockholder's Equity - Years ended
December 31, 1993, 1992 and 1991.................F-13
Consolidated Statement of Cash Flows -
Years ended December 31, 1993, 1992
and 1991.........................................F-14
Notes to Consolidated Financial Statements,
including Summary of Segment Operations..........F-15
Summary of Operations..............................F-36
Report of Independent Accountants'.................F-37
Selected Financial Data and Supplemental Data......F-38
Financial Statement Schedules:
III - Condensed Financial Information of
Registrant..................................F-41
VIII - Valuation and Qualifying Accounts and
Reserves....................................F-47
IX - Short-Term Borrowings.......................F-48
All other schedules are omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
Separate financial statements for 50% or less owned companies
accounted for by the equity method have been omitted because each
such company does not constitute a significant subsidiary.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
In July 1993, the Company was formed as a wholly-owned
subsidiary of Talley Industries, Inc. ("Talley"). The formation
was in connection with an offering of debt securities described
below. Concurrently with the offering, Talley contributed the
capital stock of its operating subsidiaries (other than its real
estate operations) to the Company, which also assumed a substantial
portion of Talley's debt and liabilities. The discussion below
compares the results of operations of the Company for 1993 with the
results of operations of the same businesses prior to their
transfer by Talley to the Company.
On October 22, 1993 the Company completed the refinancing of
substantially all of its debt. The Company issued $115 million in
Senior Notes and obtained a secured credit facility. Talley issued
Senior Discount Debentures with gross proceeds of $70 million. The
$185 million proceeds from the public offerings, plus initial
borrowings under the secured credit facility, were used to repay
substantially all of the Company's and Talley's outstanding debt.
As part of the program to reduce outstanding debt, in July 1993 the
Company also sold its precision potentiometer business.
Results of operations improved significantly over 1992 as the
Company benefited from efforts to restructure the Company's
operations and control costs. The expanding demand for automotive
airbags has increased the Company's airbag royalties, which has
been another major factor in the improved results. For the year
ended December 31, 1993 and 1992 the Company had net earnings of
$4.7 million and $4.7 million, respectively. Interest expense
decreased by $5.6 million due primarily to a significant paydown of
debt in November, 1992. The 1993 results include an extraordinary
loss of $1.1 million as a result of termination of an interest rate
swap agreement and the payoff of the underlying debt.
Revenues in 1993 were $318.1 million, compared to $319.6
million in 1992. Improvement in revenues from the Company's steel
operations of $13.7 million were offset by decreases in certain
defense contract revenues. The reduction in defense contract
revenue is primarily associated with a scheduled pricing reduction
under the extended range munitions program, following the recovery
of the Company's investment in a new production facility associated
with this program. Revenue also decreased as a result of the July
1993 sale of the Company's precision potentiometer business and the
May 1992, sale of the specialty advertising business.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction, continued
The gross profit percentage on sales and services from
continuing operations decreased in 1993 from 25.3% in 1992 to
23.4%, a level more consistent with historical results.
Revenue for the year ended December 31, 1992 decreased $11.3
million when compared to 1991. The net earnings of $4.7 million in
1992 compares to a net loss of $4.9 million in the prior year, a
year that included a $5.0 million restructuring charge. The gross
profit percentage from continuing operations increased from 23.8%
in 1991 to 25.3% in 1992. The 1992 percentage is above historical
levels due to the mix of contracts and product line sales.
Government Products and Services
Revenue from the Government Products and Services segment in
1993 decreased $12.8 million or 7.0% compared with 1992. Operating
income decreased $1.7 million or 6.7%. The decrease in revenue and
operating income resulted primarily from a scheduled pricing
reduction under the extended range munitions program, following the
recovery of the Company's investment in a new production facility.
While pricing declined, unit sales of extended range munitions were
slightly higher than the comparable period in 1992. Revenues from
naval engineering services have improved due to increases in design
requirements for three U.S. Naval projects. U.S. Defense spending
is projected to decline over the next several years as part of the
current Administration's pledge to focus national spending and
reduce the federal budget deficit. However, management believes
that its defense businesses are relatively well-positioned within
their respective markets and are focused on products consistent
with the current military philosophy, which emphasizes "smart",
tactical weapons and lighter, more mobile fighting forces. In
addition, management believes that the diversity of the Company's
programs and significant sales of replacement products should
reduce the impact of cutbacks in, or the elimination of, any
individual program or system.
Revenue and operating income for the year ended December 31,
1992 increased by $14.2 million and $2.2 million, respectively,
when compared to 1991. The increase is associated with increased
production and sales of extended range munitions and rocket motors.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Airbag Royalties
Revenue from airbag royalties increased from $5.6 million in
1992 to $9.6 million in 1993. The improvement was due to an
increase in airbags manufactured and sold. The timing and amount
of increases in the airbag royalty stream are dependent on several
factors, such as the number of vehicles manufactured or sold in the
United States, the timing of U.S. car makers' compliance with
legislative mandates and the market shares of the licensee (both
foreign and domestic), which are beyond the control of the Company.
Discontinuance of such royalty payments for any reason would have
an adverse impact on the Company's future earnings. (See also
"Commitments and Contingencies" note to the consolidated financial
statements.)
Royalty income from automotive airbags increased from $3.2
million in 1991 to $5.6 million in 1992.
Industrial Products
The Industrial Products segment had increased revenue of $12.3
million, or 12.9%, and increased operating income of $2.5 million
in 1993 when compared to 1992. The increase in revenue is
primarily related to the improved demand for stainless steel bars
and rods. Operating results increased due to sales increases and
cost reduction and streamlining efforts at the Company's steel and
ceramic insulator operations.
In 1992, revenue decreased $22.6 million and operating income
decreased $.9 million, respectively, when compared to 1991, due to
softness in many of the markets served by the industrial segment.
Specialty Products
The Specialty Products segment had decreases in revenue and
operating income in 1993 when compared to 1992 of $4.9 million and
$.1 million, respectively. The decrease in earnings was primarily
due to the May 1992 disposition of the specialty advertising
business. The specialty advertising business had sales of $4.5
million prior to the May 1992 disposition, compared to sales of
$13.6 million for the year ended December 31, 1991.
Revenue and operating income in 1992 decreased $5.3 million
and $.3 million, respectively, over 1991, as a result of the
disposition of the specialty advertising business.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other Matters
In 1993, other income, net of other expenses was $.7 million,
which compares to $.7 million in 1992 and $1.3 million in 1991.
Interest income, which is one of the major components of other
income, and is related to the balance in notes receivable and
short-term investments, was $.3 million in 1993, $1.9 million in
1992 and $2.2 million in 1991.
The effective tax rate on the earnings from operations for
1993 is higher than the United States statutory rate due to higher
state income taxes, resulting from losses in states where no
benefits will be realized due to regulations on carryback and
carryforward provisions for such losses. The income tax provision
in 1992 on pretax earnings is less than the statutory rate due to
a reversal of an accrual for taxes previously accrued due to a
favorable state tax ruling.
Substantially all operations of the Company are located within
the United States. The Company operates a steel distribution
system in Canada which had sales in 1993 of $11.6 million or
3.6% of consolidated revenue and nominal earnings before income
taxes of $3,000.
Foreign exchange gains and losses for each of the last three
years have not been material. The general lack of inflationary
pressures in areas where the Company and its subsidiaries operate
also limited the impact of changing prices on the Company's sales
and income from operations for the three years ended December 31,
1993.
During the first quarter of 1993 the Company adopted the
Statement of Financial Accounting Standards No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The
Company is amortizing an unrecognized transition obligation of
approximately $2.0 million over 20 years for the single subsidiary
affected by the new pronouncement. For the year ended December 31,
1993 the amortization of the unrecognized transition obligation was
approximately $188,000. Current service costs and interest costs
for the year were $16,000 and $96,000, respectively. Other
pronouncements issued by the Financial Accounting Standards Board
with future effective dates are either not applicable or not
material to the consolidated financial statements of the Company.
As more fully explained in the Commitments and Contingencies
note to the Consolidated Financial Statements, litigation between
the Company and TRW, the buyer of the Company's airbag business and
licensee of the Company's patented and unpatented technology
related thereto, has been pending since 1989. In mid-February 1994
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other Matters, continued
TRW filed a new declaratory judgment action asserting claims
already made in the existing action and further claiming the
Company, through the actions of a subsidiary, breached a non-
compete provision of the Asset Purchase Agreement by rendering
services to competitors of TRW, and requesting among other things
a court order that a contemporaneous notice and payment that TRW
sent to the Company are valid, entitling it to terminate the airbag
royalty and obtain a paid up license for the Company's airbag
technology. The Company intends to resist the claims in all the
TRW litigation vigorously, and believes that it has valid defenses
against each and that no such claim gives TRW any right to
terminate or reduce the airbag royalty payment obligation.
A subsidiary of the Company has been named as a potentially
responsible party by the Environmental Protection Agency ("EPA")
under the Comprehensive Environmental Response Compensation and
Liability Act in connection with the remediation of the Beacon
Heights Landfill in Beacon Falls, Connecticut and has been
identified as a potentially responsible party by another company in
connection with the Laurel Park Landfill in Naugatuck, Connecticut.
Management's review indicates that the Company sent ordinary
rubbish and off-specification plastic parts to these landfills and
did not send any hazardous wastes to either site.
With respect to the Beacon Heights Landfill, a coalition of
potentially responsible parties has entered into a consent decree
with the EPA to remediate the site. This coalition has in turn
brought an action against other potentially responsible parties,
including a subsidiary of the Company, to contribute to the cleanup
costs. The court hearing this case recently entered an order
granting a motion for summary judgment in the Company's favor,
which order the Beacon Heights Coalition has indicated it intends
to appeal. The Laurel Park Landfill remediation program has not
advanced as far as the program at Beacon Heights. A coalition of
potentially responsible parties, not including the subsidiary of
the Company, has entered into a consent decree and is undertaking
remediation of the site. The Laurel Park Coalition has thus far
been unsuccessful in its attempts to name the subsidiary in an
action for contribution to the remediation costs. Based upon
management's review and the status of these proceedings,
management believes that these claims will not result in a material
adverse impact on the results of operations or the financial
position of the Company.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other Matters, continued
In March 1992, a trucking company spilled approximately 500
gallons of solvent on the ground at a facility in Athens, Georgia,
formerly operated by a subsidiary of the Company. The current
owner of the site initiated emergency response action, ultimately
including excavation and off-site disposal of contaminated soil.
The current owner has brought an action against the trucking
company, seeking reimbursement for emergency response costs and
related damages from the spill. In March 1993 the trucking company
brought the Company into the litigation pending in United States
District Court for the Middle District of Georgia, claiming that an
unspecified portion of the remediation costs claimed by the current
owner was due to pre-existing soil and groundwater contamination.
The Company has denied any liability to the trucking company and is
separately conducting an investigation of the alleged contamination
in cooperation with the current owner of the site. The Company has
determined from this investigation that it may face some liability
with respect to pre-existing contamination of the site. Based upon
remediation estimates received, management believes that any
reasonably anticipated losses from the alleged contamination will
not result in a material adverse impact on the results of
operations or the financial position of the Company.
Liquidity and Capital Resources
In October 1993, the Company and its parent Talley Industries,
Inc. completed a refinancing of substantially all of their existing
senior and senior subordinated debt. This refinancing program
included an offering of $185 million of debt securities, consisting
of $70 million gross proceeds of Senior Discount Debentures due
2005, issued by Talley Industries, Inc. to yield 12.25% and $115
million of Senior Notes due 2003, with an interest rate of
10.75% issued by the Company. In connection with this
refinancing, the Company also obtained a secured credit facility
with institutional lenders. If one of the lenders shall not have
sold at least $20 million of its percentage interest in the maximum
amount of the facility within 120 days after the closing of the
facility, the maximum will be reduced by $10 million. At December
31, 1993 availability under the facility, based primarily on
inventory and receivable levels, was $57.1 million, of which $46.7
million was borrowed.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources, continued
The proceeds from the offering and the initial borrowings
under the secured credit facility were used to repay substantially
all of the Company's previously outstanding debt. The Company
anticipates that the new capital structure will support the long-
term growth of the Company's core businesses and permit the
implementation of its strategy to use proceeds received from the
increasing airbag royalties and from continuing operations to
reduce its total indebtedness. The Company is permitted (and
intends) to distribute cash to its parent, for specified purposes
and under certain other circumstances. These distributions will be
made using funds available from operations and the secured credit
facility. The payments include (but are not limited to) certain
airbag royalties in excess of $10 million in any year (or in excess
of such greater amount as would be required for the Company to meet
a specified fixed charge coverage ratio) which will be used to
redeem the Senior Discount Debentures issued by Talley and an
annual distribution of up to $1.3 million ($1.7 million for the
period from the issue date of the new indebtedness through December
31, 1994) for a period of five years to fund certain carrying and
other costs associated with Talley's real estate operations. The
Company may also redeem $8.0 million in preferred stock of the
Company purchased by Talley from proceeds of the recent
refinancing. In addition, the Company is a party to a cost sharing
agreement and a tax sharing agreement which will require the
Company to reimburse Talley for certain ongoing general and
administrative expenses and to make certain tax payments to Talley.
The Company believes that the combination of cash flow from
operations, funds available under the credit facility described
above (or any successor facility) and increasing revenue from
airbag royalties (to the extent retained by the Company as
described above) will provide sufficient liquidity to meet its
working capital, debt service and other capital requirements and to
meet its other ongoing business needs over the next five years.
At December 31, 1993, the Company had $6.4 million in cash and
cash equivalents and $84.9 million in working capital. During 1993
the Company generated $5.4 million of cash flow from operating
activities. This amount reflects an increase in accounts
receivable of $8.4 million, a decrease in inventories of $1.2
million, an increase in accounts payable and accrued expenses
totalling $8.9 million and an increase in other assets of $7.7
million. The increase in other assets is primarily deferred debt
costs related to the Company's October 1993 refinancing efforts.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources, continued
The Company used $2.3 million of cash for investing
activities during the year, the result of the $2.8 million received
from the sale of the precision potentiometer business and $.3
million proceeds from the sale of property and equipment, offset by
$5.3 million in capital expenditures. Proceeds from the Company's
fourth quarter new financing of approximately $163 million were
used to repay substantially all of the Company's outstanding debt.
Proceeds from the issuance of preferred stock to the Company's
parent totalled $8.0 million and there was a net decrease of $3.2
million in the investment in the Company by the parent company.
Borrowings and pay downs under revolving credit facilities, of
approximately equal amounts, are also included in financing
activities.
<PAGE>
<TABLE>
<CAPTION>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Sales $243,990,000 $259,973,000 $273,839,000
Services 63,270,000 52,976,000 52,713,000
Royalties 10,868,000 6,614,000 4,313,000
318,128,000 319,563,000 330,865,000
Cost of sales 180,408,000 186,832,000 201,890,000
Cost of services 54,927,000 46,980,000 47,048,000
Selling, general and
administrative expenses 54,961,000 57,473,000 58,810,000
Restructuring costs - - 5,000,000
290,296,000 291,285,000 312,748,000
Earnings from operations 27,832,000 28,278,000 18,117,000
Other income, net 728,000 650,000 1,289,000
28,560,000 28,928,000 19,406,000
Interest expense 16,364,000 21,945,000 24,856,000
Interest capitalized - - (269,000)
16,364,000 21,945,000 24,587,000
Earnings (loss) before income
taxes and extraordinary loss 12,196,000 6,983,000 (5,181,000)
Income tax provision (benefit) 6,392,000 2,312,000 (277,000)
Earnings (loss) before
extraordinary loss 5,804,000 4,671,000 (4,904,000)
Extraordinary loss, net of
income taxes (1,102,000) - -
Net earnings (loss) $ 4,702,000 $ 4,671,000 $ (4,904,000)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1993 1992
ASSETS
Cash and cash equivalents $ 6,417,000 $ 10,118,000
Accounts receivable, net of
allowance for doubtful accounts
of $1,091,000 in 1993 and
$867,000 in 1992 60,376,000 48,466,000
Inventories 64,808,000 67,400,000
Deferred income taxes 900,000 1,446,000
Prepaid expenses 9,367,000 7,769,000
Total current assets 141,868,000 135,199,000
Long-term receivables, net 7,093,000 12,242,000
Property, plant and equipment,
at cost, net of accumulated
depreciation of $82,240,000
in 1993 and $77,381,000 in 1992 49,489,000 51,401,000
Intangibles, at cost, net of
accumulated amortization of
$13,883,000 in 1993 and
$12,619,000 in 1992 44,928,000 47,081,000
Deferred charges and other assets 8,465,000 1,835,000
Total assets $251,843,000 $247,758,000
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
December 31, 1993 1992
LIABILITIES AND STOCKHOLDER'S EQUITY
Current maturities of long-term debt $ 2,176,000 $ 10,857,000
Accounts payable 23,095,000 19,368,000
Accrued expenses 31,652,000 27,881,000
Total current liabilities 56,923,000 58,106,000
Long-term debt 160,002,000 161,283,000
Deferred income taxes 12,320,000 11,086,000
Other liabilities 4,196,000 6,335,000
Commitments and contingencies - -
Stockholder's equity:
Preferred stock, $1 par value,
authorized 100 shares;
issued:
8 shares of Series A
(-0- in 1992) 8 -
Common stock, $1 par value,
authorized 1,000;
shares issued:
1,000 shares (-0- in 1992) 1,000 -
Capital in excess of par value 15,752,992 10,948,000
Foreign currency translation
adjustments (370,000) -
Retained earnings 3,018,000 -
Total stockholder's equity 18,402,000 10,948,000
Total liabilities and stockholder's
equity $251,843,000 $247,758,000
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Changes
in Stockholder's Equity
Other
Preferred Common Common Retained
Stock Stock Equity Earnings
<S> <C> <C> <C> <C>
Balance at December 31, 1990 $ - $ - $ (687,000) $ -
Net loss (4,904,000)
Amounts from Parent 22,034,000
Decrease in guaranteed debt of ESOP 333,000
Balance at December 31, 1991 - - 16,776,000 -
Net earnings 4,671,000
Amounts to Parent (10,833,000)
Decrease in guaranteed debt of ESOP 334,000
Balance at December 31, 1992 - - 10,948,000 -
Net earnings - - - 4,702,000
Amounts to Parent - - (3,972,000) -
Issuance of 1,000 shares of
Common stock - 1,000 (1,000) -
Issuance of 8 shares of
Series A Preferred stock 8 - 7,999,992 -
Dividends - - - (1,684,000)
Decrease in guaranteed debt of ESOP - - 778,000 -
Balance at December 31, 1993 $ 8 $ 1,000 $ 15,752,992 $ 3,018,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Cash and cash equivalents at beginning
of year $ 10,118,000 $ 46,726,000 $ 12,038,000
Cash flows from operating activities:
Earnings (loss) from continuing
operations 4,702,000 4,671,000 (4,904,000)
Adjustments to reconcile net income
(loss) to cash flows from
operating activities:
Change in deferred income taxes 1,780,000 (3,536,000) 13,931,000
Depreciation and amortization 10,070,000 10,565,000 11,195,000
Loss (gain) on sale of property
and equipment (191,000) 188,000 (148,000)
Restructuring costs - - 5,000,000
Other 1,353,000 3,357,000 3,010,000
Changes in assets and liabilities,
net of effects from acquired
businesses:
(Increase) decrease in
accounts receivable (8,386,000) 15,632,000 2,398,000
Decrease in inventories 1,176,000 6,921,000 13,168,000
Increase in prepaid expenses (1,619,000) (1,469,000) (1,998,000)
Increase in other assets (7,714,000) (663,000) (2,872,000)
Increase (decrease) in
accounts payable 3,878,000 132,000 (8,112,000)
Increase (decrease) in
accrued expenses 4,991,000 (8,028,000) (5,699,000)
Increase (decrease) in
other liabilities (2,909,000) (1,426,000) 71,000
Other, net (1,693,000) - (426,000)
Cash flows from operating
activities 5,438,000 26,344,000 24,614,000
Cash flows from investing activities:
Proceeds from sale of subsidiary 2,756,000 7,691,000 -
Purchases of property and
equipment (5,346,000) (4,564,000) (6,567,000)
Reduction of long-term
receivables - - 1,388,000
New long-term receivables - - (364,000)
Proceeds from sale of property
and equipment 291,000 257,000 359,000
Cash flows from investing
activities (2,299,000) 3,384,000 (5,184,000)
Cash flows from financing activities:
Increase in investment by
Parent company 14,156,000 - 41,604,000
Decrease in investment by
Parent company (17,351,000) (10,833,000) (19,569,000)
Decrease in notes payable - (361,000) (526,000)
Issuance of common stock 1,000 - -
Issuance of preferred stock 8,000,000 - -
Dividends (1,684,000) - -
Repayment of long-term debt (334,890,000) (146,094,000) (104,514,000)
Proceeds from new long-term debt 324,928,000 90,952,000 98,263,000
Cash flows from financing
activities (6,840,000) (66,336,000) 15,258,000
Net increase (decrease) in cash and
cash equivalents (3,701,000) (36,608,000) 34,688,000
Total cash and cash equivalents at
end of year $ 6,417,000 $ 10,118,000 $ 46,726,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies
Basis of Presentation
In July 1993, Talley Manufacturing and Technology, Inc. (the
Company), a wholly-owned subsidiary of Talley Industries, Inc., was
formed with the issuance of 1,000 shares of common stock. The
formation of the Company was in anticipation of an offering of
Senior Notes by the Company and Senior Discount Debentures by
Talley. Concurrently with the issuance of these securities, Talley
contributed the capital stock of its operating subsidiaries (other
than its real estate operations held for orderly sale) to the
Company, which also assumed a substantial portion of Talley's
indebtedness and liabilities. At the same time, the Company
entered into a new credit facility with certain lenders. The net
proceeds from the Senior Notes, the Senior Discount Debentures and
the new credit facility were used to repay substantially all of the
indebtedness of the Company and its subsidiaries, including
indebtedness assumed from Talley and certain indebtedness remaining
with Talley.
With the completion of the reorganization of entities under the
common control of Talley described above and the new financing, the
Company owns all of the capital stock of the operating subsidiaries
of Talley (other than the real estate operations held for orderly
sale). Accordingly, all corporate costs, assets and liabilities
are included in the Company's financial statements and interest
expense includes the interest on indebtedness of the operating
subsidiaries and all indebtedness assumed by the Company in
connection with the reorganization. In connection with the
reorganization, Talley and the Company entered into a Tax Sharing
Agreement and Cost Sharing Agreement.
The financial statements of Talley Manufacturing and
Technology, Inc. have been prepared using the historical amounts
included in the Talley Industries, Inc. and subsidiaries
consolidated financial statements giving effect to the
reorganization described above. With the exception of the net
assets of the real estate operations held for orderly sale and
certain debt and related interest expense, the consolidated
financial statements of Talley are substantially identical to the
Company. Inasmuch as the Company is a wholly-owned subsidiary of
Talley Industries, Inc., per share data has not be included as a
part of the results of operations.
Although the financial statements of Talley Manufacturing and
Technology, Inc. separately report its assets, liabilities
(including contingent liabilities) and stockholder's equity, legal
title to such assets and responsibilities for such liabilities was
not affected by such attribution during periods prior to the
reorganization. Accordingly, the Talley Industries, Inc.
consolidated financial statements and related notes should be read
in connection with these financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies (continued)
Principles of Consolidation:
The consolidated financial statements include the accounts of
the Company and all of its subsidiaries, all of which are wholly-
owned. All companies are consolidated in the financial statements.
All material intercompany transactions have been eliminated.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Cash equivalents, which consist primarily of commercial paper and
money market funds are stated at cost plus accrued interest, which
approximates market.
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method for substantially all
commercial inventories. Costs accumulated under government
contracts are stated at actual cost, net of progress payments, not
in excess of estimated realizable value.
Revenue Recognition:
Sales are generally recorded by the Company when products are
shipped or services performed. Sales under government contracts
are recorded when the units are shipped and accepted by the
government or as costs are incurred on the percentage-of-completion
method. Applicable earnings are recorded pro rata based upon total
estimated earnings at completion of the contracts. Anticipated
future losses on contracts are charged to income when identified.
Airbag royalties are recognized on an accrual basis, based on
production of airbag units by the licensee and production and sales
of vehicles for units not produced by the licensee.
Property and Depreciation:
Property, plant and equipment are recorded at cost and include
expenditures which substantially extend their useful lives.
Expenditures for maintenance and repairs are charged to earnings as
incurred. With the exception of items being depreciated under
composite lives, profit or loss on items retired or otherwise
disposed of is reflected in earnings. When items being depreciated
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies (continued)
Property and Depreciation, continued:
under composite lives are retired or otherwise disposed of,
accumulated depreciation is charged with the asset cost and
credited with any proceeds with no effect on earnings; however,
abnormal dispositions of these assets are reflected in earnings.
Depreciation of plant and equipment, other than buildings and
improvements on leased land, is computed primarily by the
straight-line method over the estimated useful lives of the assets.
Depreciation of buildings on leased land and amortization of
leasehold improvements and equipment are computed on the
straight-line method over the shorter of the terms of the related
leases or the estimated useful lives of the buildings or
improvements.
Income Taxes:
During 1992, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting For Income
Taxes", retroactive to January 1, 1992. This pronouncement
requires a Company to recognize deferred tax liabilities and assets
for the expected future tax consequences of events that have been
recognized in a Company's financial statements or tax returns.
Under this method, deferred tax liabilities and assets are
determined based on differences between the financial statement
carrying amounts and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences
are expected to reverse. United States income taxes are provided
on the portion of earnings remitted or expected to be remitted from
foreign subsidiaries.
Prior to 1992, the provision for income taxes was based on
income and expenses included in the accompanying consolidated
statements of operations. Differences between taxes so computed
and taxes payable under applicable statutes and regulations were
classified as deferred taxes arising from timing differences.
The Company is included in the consolidated U.S. income tax
return of Talley Industries, Inc. Accordingly, the provision for
income taxes is determined on a consolidated basis. The allocation
of the income tax provision for the Company has been determined on
a separate return basis.
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies (continued)
Intangibles:
The excess cost of investments in subsidiaries over the equity
in net assets at acquisition date is being amortized using the
straight-line method over periods not in excess of 40 years.
Interest Rate Swap Agreements:
The Company enters into interest rate swap agreements to
effectively convert a portion of its floating-rate borrowings into
fixed-rate obligations. The interest rate differential to be
received or paid is recognized over the lives of the agreements as
an adjustment to interest expense. Terminations of such agreements
may result in a gain or loss based on interest rates in effect and
the calculated market value on the termination date. Such gain or
loss would be amortized as a rate adjustment to the underlying debt
obligation.
Inventories
Inventories are summarized as follows:
(balances in thousands) 1993 1992
Raw material and supplies $ 10,293 $ 11,909
Work-in-process 9,584 8,622
Finished goods 26,470 24,919
Inventories substantially applicable to
fixed-price government contracts in
process, reduced by progress payments
of $9,110,000 and $8,344,000 in 1993
and 1992, respectively 18,461 21,950
$ 64,808 $ 67,400
Long-Term Receivables
Long-term receivables consist of the following:
(balances in thousands) 1993 1992
Notes receivable, including accrued
interest and income tax refunds $ 7,093 $ 12,242
Amounts due within one year, included
in accounts receivable - -
$ 7,093 $ 12,242
<PAGE>
Notes to Consolidated Financial Statements
Long-Term Receivables, continued
Long-term receivables include an income tax receivable of
$4,264,000 and one note of $2,829,000. The final maturity of the
note is March 1995 with an interest rate of 9.5%.
Property, Plant and Equipment
Property, plant and equipment, is summarized as follows:
(in thousands) 1993 1992
Machinery and equipment $ 97,051 $ 97,957
Buildings and improvements 32,059 29,903
Land 2,619 922
$131,729 $128,782
Depreciation of property, plant and equipment for continuing
operations was $8,271,000, $8,634,000, and $9,214,000 for the years
ended December 31, 1993, 1992 and 1991, respectively.
Long-Term Debt
Long-term debt consists of the following:
(balances in thousands) 1993 1992
10-3/4% Senior Notes, due 2003 $115,000 $ -
Notes, interest based on prime or
other variable market rates,
due 1998 20,000 126,347
Revolving credit facilities 26,743 17,616
Subordinated notes, interest based on
prime or LIBOR - 20,000
12.8% note - 2,954
8-1/8% debentures - 3,894
Capitalized leases and other 435 1,329
162,178 172,140
Less current maturities 2,176 10,857
Long-term debt $160,002 $161,283
<PAGE>
Notes to Consolidated Financial Statements
Long-Term Debt, continued
On October 22, 1993 the Company completed a major debt
refinancing program. The Company issued $115,000,000 of Senior
Notes, due 2003, with an interest rate of 10.75% and also completed
a secured credit facility with two institutional lenders. In
connection with the new debt, the Company's parent, Talley
Industries, Inc., also received gross proceeds of $70,000,000 from
the issuance of Senior Discount Debentures. The $115,000,000 gross
proceeds of the public offering, plus an initial borrowing under
the secured credit facility, and certain distribution from its
parent, after payment of underwriting and other fees and expenses
associated with these financings, were used to repay substantially
all of the Company's previously outstanding debt.
The indenture for the Senior Notes and the loan agreement
relating to the secured credit facility contain covenants requiring
specified fixed charge coverage ratios, working capital levels,
capital expenditure limits, net worth levels, cash flow levels and
certain other restrictions on dividends, other payments and
incurrence of debt. Substantially all of the receivables,
inventory and property, plant and equipment of the Company and its
subsidiaries are pledged as collateral in connection with the
secured credit facility. In addition, the subsidiaries of the
Company have guaranteed its obligations under the Senior Notes and
the secured credit facility. The Company's parent, Talley
Industries, Inc., has guaranteed the Senior Notes on a subordinated
basis. Distributions from the subsidiaries of the Company are also
limited by tangible net worth and cash flow covenants. The capital
stock of the Company has been pledged by the Company to secure the
Senior Discount Debentures.
The Senior Notes will mature on October 15, 2003 and Talley
Manufacturing will be required to make mandatory sinking fund
payments of $11,500,000 on October 15, in each of 2000, 2001 and
2002. Interest is payable semi-annually, commencing April 15,
1994. The secured credit facility consists of a five year
revolving credit facility of up to $40,000,000 and a five year
$20,000,000 term loan facility. The balance outstanding under the
revolving credit facility at December 31, 1993 was $26,743,000.
Upon the occurrence of certain specified events at any time
following the third anniversary of the facility, the agent
thereunder may elect to terminate the facility. The five-year term
facility requires monthly amortization payments based on a seven
year amortization schedule, with the balance due upon expiration in
October 1998. The credit facility interest rate is prime plus one
percent or an optional variable rate based on LIBOR with an
additional fee of one quarter of one percent on unused amounts
under the revolving facility.
<PAGE>
Notes to Consolidated Financial Statements
Long-Term Debt, continued
Aggregate maturities of long-term debt for the years ending
December 31, 1994 through December 31, 1998, are $2,176,000,
$3,216,000, $3,233,000, $3,094,000 and $35,461,000, respectively.
Cash payments for total interest, net of amounts capitalized,
during 1993, 1992 and 1991 were $14,378,000, $21,257,000 and
$21,309,000, respectively. Accrued interest expense at December
31, 1993, 1992 and 1991 was $2,404,000, $3,106,000 and $4,662,000,
respectively. Included in deferred charges at December 31, 1993
are debt costs of $7,874,000. The costs were incurred in 1993 in
connection with the newly issued debt and are being amortized over
the life of the respective debt instruments. Amortization of debt
expense in 1993 was $890,000, including $234,000 related to the new
debt. Total capitalized lease obligations on buildings and
equipment included in long-term debt at December 31, 1993 is
$436,000, of which $124,000 is due within one year.
Leases
Rental expense (reduced by rental income from subleases of
$340,000 in 1993, $693,000 in 1992 and $741,000 in 1991 amounted
to $5,622,000 in 1993, $6,660,000 in 1992 and $7,153,000 in 1991.
Aggregate future minimum rental payments required under operating
leases having an initial lease term in excess of one year for years
ending December 31, 1994 through December 31, 1998 are $4,410,000,
$4,087,000, $3,079,000, $2,026,000 and $1,921,000, respectively,
with $1,285,000 payable in future years. Minimum operating lease
payments have not been reduced by future minimum sublease rentals
of $653,000.
Aggregate future minimum payments under capital leases for
years ending December 31, 1994 through December 31, 1997 are
$172,000, $170,000, $170,000 and $18,000, respectively, with no
payments in later years. Minimum capital lease payments have not
been reduced by future minimum sublease rentals of $755,000. The
present value of net minimum lease payments is $436,000 after
deduction of $94,000, representing interest and estimated executory
costs. The net book value of leased buildings and equipment under
capital leases at December 31, 1993 and 1992 amounted to $324,000
and $435,000, respectively.
Employee Benefit Plans
The Company and its subsidiaries have pension plans covering
a majority of their employees. Normal retirement age is 65, but
provisions are made for early retirement. For subsidiaries with
defined benefit plans, benefits are generally based on years of
service and salary levels. Contributions to the respective defined
contribution plans are based on each participant's annual pay and
age.
<PAGE>
Notes to Consolidated Financial Statements
Employee Benefit Plans, (continued)
Pension expense in 1993, 1992 and 1991 was $5,394,000,
$4,085,000 and $5,999,000, respectively.
The Company generally contributes the greater of the amounts
expensed or the minimum statutory funding requirements. Pension
costs for continuing operations for defined benefit plans include
the following components:
(in thousands) 1993 1992 1991
Service cost-benefits earned
during the year $ 1,594 $ 1,251 $ 2,664
Interest cost on projected
benefit obligation 2,504 2,327 2,090
Actual return on assets (5,712) (3,313) (8,985)
Net amortization and deferral 3,173 550 7,296
Net pension cost $ 1,559 $ 815 $ 3,065
The following table sets forth the aggregate funded status of
defined benefit plans at December 31, 1993:
Assets Exceed Accumulated
Accumulated Benefits
(in thousands) Benefits Exceed Assets
Fair value of plan assets $39,879 $1,535
Projected benefit obligation 36,524 1,948
Projected benefit obligation
(in excess of) or less than
plan assets 3,355 (413)
Unrecognized net loss (gain) (3,826) (143)
Unrecognized prior service cost (279) 5
Unrecognized net liability 725 551
Unfunded accumulated benefit
obligation - (413)
Accrued pension liability $ (25) $ (413)
Accumulated benefits $36,524 $1,948
Vested benefits $30,996 $1,932
In accordance with Statement of Financial Accounting Standards
No. 87 "Employers' Accounting for Pensions," the Company has
accrued a liability of $413,000 representing the unfunded
accumulated benefit obligation, and has recognized an equal amount
as an intangible asset.
<PAGE>
Notes to Consolidated Financial Statements
Employee Benefit Plans (continued)
Assumptions used in 1993 to develop the net periodic pension
costs were:
Assumed discount rate 7.0%
Assumed rate of compensation increase 5.0%
Expected rate of return on plan assets 9.0%
Assets of the Company's pension plans consist of marketable
equity securities, guaranteed investment contracts and corporate
and government debt securities. The total value of defined benefit
plan assets exceed total vested benefits by $8,486,000.
Effective January 1, 1984, the Company established an employee
stock purchase plan for eligible U.S. employees. Each eligible
employee who elects to participate may contribute 1% to 5% of his
or her pretax compensation from the Company. The Company
contributes an amount equal to 50% of the employee contributions.
During 1991, 1992 and 1993 the Company also made discretionary
contributions. Pursuant to a 1986 amendment to the Plan which
gives the Administration Committee authority to direct the trustee
to borrow funds to purchase Company securities, a promissory note
for $2,000,000 was executed on April 17, 1989 to purchase 141,500
shares of Talley Industries, Inc. Common stock. Company
contributions to the Plan were used, in part, by the Employee Stock
Ownership Plan (ESOP) to make loan and interest payments. As the
loan is repaid, a portion of the Common stock acquired by the Plan
is allocated to each employee in amounts based on the beginning of
month balances of the respective participant's accounts. Total
Company contributions during 1993 and 1992 were $692,000 and
$781,000, respectively. On October 22, 1993, the loan was paid
down as part of a debt refinancing program. As a result, the
Company's parent, Talley Industries, Inc., acquired the securities
not allocated to the Plan. Interest expense for 1993 and 1992 was
$26,000 and $48,000, respectively.
Any dividends received on the shares held by the ESOP are
reinvested in shares of Company stock. No dividends were received
during 1992 and 1993.
Health care and life insurance benefits are presently provided
to a small number of retired employees of one of the Company's
subsidiaries. The cost of retiree health care and life insurance
benefits are minor in amount and are recognized as benefits are
paid. The Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" in the first quarter of 1993, as
required by the pronouncement. The transition obligation of
approximately $2.0 million is being amortized over a 20 year
period. The amortization of the unrecognized transition obligation
for the single subsidiary affected by the new pronouncement was
$188,000 in 1993. Current service costs and interest costs for
1993 were approximately $16,000 and $96,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements
Income Taxes
Earnings before income taxes and the provision (credit) for
income taxes consists of the following:
(balances in thousands) 1993 1992 1991
Earnings (loss) before income
taxes:
United States $ 12,193 $ 7,511 $ (4,826)
Foreign 3 (528) (355)
$ 12,196 $ 6,983 $ (5,181)
Current tax expense (credit):
United States $ 3,856 $ 5,212 $ (3,051)
Foreign 59 (285) 49
State and local 581 921 (604)
4,496 5,848 (3,606)
Deferred tax expense (credit):
United States (232) (953) 1,806
Foreign 8 94 (112)
State and local 2,120 (2,677) 1,635
1,896 (3,536) 3,329
$ 6,392 $ 2,312 $ (277)
In 1992, the Company adopted the Statement of Financial
Accounting Standards No. 109 "Accounting For Income Taxes". The
adoption of SFAS No. 109 changes the Company's method of accounting
for income taxes from the deferred method to an asset and liability
approach. The adoption had no effect on earnings in 1992. Prior
years' financial statements have not been restated to apply the
provisions of SFAS No. 109.
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities for 1993
and 1992, are as follows:
(balances in thousands) 1993 1992
Gross deferred tax assets:
Net operating losses and tax
credit carryforward $ 1,727 $ 1,332
Debt restructuring charges - 3,195
Accrued expenses 6,794 5,658
Other 1,430 1,153
Valuation allowance for
deferred tax assets (4,946) (4,111)
Net deferred tax asset 5,005 7,227
Gross deferred tax liabilities:
Depreciation 7,642 8,396
Accrued expenses 7,606 6,163
Other 1,177 2,308
Gross deferred tax liability 16,425 16,867
Net deferred tax liabilities $11,420 $ 9,640
<PAGE>
Notes to Consolidated Financial Statements
Income Taxes (continued)
The sources of significant timing differences for 1991 which
gave rise to deferred taxes and their effects were as follows:
(balances in thousands) 1991
Depreciation $ (911)
Restructuring 972
Other 3,268
$ 3,329
Reasons for the differences between the amount of income tax
determined by applying the applicable statutory federal income tax
rate to pretax income from continuing operations are:
1993 1992 1991
Computed tax at statutory U.S.
tax rates $ 4,147 $ 2,374 $ (1,762)
State and local taxes 1,781 (1,158) 680
Goodwill amortization 376 406 447
Other 88 690 358
$ 6,392 $ 2,312 $ (277)
United States income taxes have not been provided on
$2,800,000 of undistributed earnings of subsidiaries incorporated
outside the United States, since it is the Company's intent to
reinvest such earnings. Net cash receipts for income taxes during
1993, 1992 and 1991 were $828,000, $10,491,000 and $7,332,000,
respectively.
During the second quarter of 1992, the Company was granted a
favorable state income tax ruling and, as a result, recognized a
tax benefit of $3,508,000.
<PAGE>
Notes to Consolidated Financial Statements
Commitments and Contingencies
TRW Claims. Litigation between the Company and TRW, Inc. ("TRW")
has been pending in the United States District Court in Phoenix,
Arizona since November 1989. Certain of the claims in the
litigation have previously been resolved by two arbitration
proceedings, but other claims remain outstanding. The outstanding
claims repeat allegations from the arbitration regarding
deficiencies in the airbag plant, insufficient real estate to
permit construction of certain additional facilities and
misrepresentations concerning the airbag plant capacity. During
the second quarter of 1992, an arbitration panel made its
determination on the TRW's $34.0 million plant claims and awarded
TRW a judgment of $5.1 million, which has been paid by the Company.
Based on the outcome of the 1992 arbitration decision and on
remaining claims are not well founded and were resolved by the 1992
arbitration decision. After submission to arbitration, discovery
into TRW's remaining claims was stayed. Other than for the amounts
claimed in the arbitration, TRW has not claimed a specific dollar
amount with respect to these issues in the 1989 action. It is not
possible, therefore, to quantify any damages claimed or to predict
with certainty the ultimate outcome. In April 1993, a second
arbitrator made his determination on the TRW accounting claims and
denied any award.
In mid-February 1994 TRW filed a new declaratory judgment
action asserting claims already made in the existing action and
further claiming the Company, through the actions of a subsidiary,
breached a non-compete provision of the Asset Purchase Agreement by
rendering services to competitors of TRW, and requesting among
other things a court order that a contemporaneous notice and
payment that TRW sent to the Company are valid, entitling it to
terminate the airbag royalty obligation and obtain a paid up
license for the Company's airbag technology. Based on interviews
with Company and subsidiary personnel, review of relevant
documents, and consultation with counsel, the Company believes that
TRW's notice and attempted payment are without any merit and
believes that various legal and factual defenses are available to
the allegations and claims made by TRW. The Company has not had
any discovery into the motives and claimed basis for this latest
move by TRW, nor has it decided the manner or magnitude of the
claims that it will make against TRW, including, but not limited
to, loss of royalties due to mismanagement of TRW's airbag
business.
The Company intends to resist the claims in all the TRW
litigation vigorously, and believes that it has valid defenses
against each and that no such claim gives TRW any right to
terminate or reduce the airbag royalty payment obligations.
<PAGE>
Notes to Consolidated Financial Statements
Commitments and Contingencies (continued)
Environmental. A subsidiary of Talley Manufacturing has been
named as a potentially responsible party by the Environmental
Protection Agency ("EPA") under the Comprehensive Environmental
Response Compensation and Liability Act in connection with the
remediation of the Beacon Heights Landfill in Beacon Falls,
Connecticut and has been identified as a potentially responsible
party by another company in connection with the Laurel Park
Landfill in Naugatuck, Connecticut. Management's review indicates
that the Company sent ordinary rubbish and off-specification
plastic parts to these landfills and did not send any hazardous
wastes to either site.
Two coalitions of potentially responsible parties have entered
into consent decrees with the EPA to remediate the sites. The
Beacon Heights Coalition has in turn brought an action against
other potentially responsible parties, including one of the
Company's subsidiaries, to contribute to cleanup costs. The court
hearing this case recently entered an order granting a motion for
summary judgment in the Company's favor, which order the Beacon
Heights Coalition has indicated it intends to appeal. The Laurel
Park Landfill remediation program has not advanced as far as the
program at Beacon Heights. A coalition of potentially responsible
parties, not including the subsidiary of the Company, has entered
into a consent decree and is undertaking remediation of the site.
The Laurel Park Coalition has thus far been unsuccessful in its
attempts to name the subsidiary in an action for contribution to
the remediation costs. Based upon management's review and the
status of these proceedings, management believes that any
reasonably anticipated losses from these claims will not result in
a material adverse impact on the results of operations or the
financial position of the Company.
In March 1992, a trucking company spilled approximately 500
gallons of solvent on the ground at a facility in Athens, Georgia,
formerly operated by a subsidiary of the Company. The current
owner of the site initiated emergency response action, ultimately
including excavation and off-site disposal of contaminated soil.
The current owner has brought an action against the trucking
company, seeking reimbursement for emergency response costs and
related damages from the spill. In March 1993 the trucking company
brought the Company into the litigation pending in United States
District Court for the Middle District of Georgia, claiming that an
unspecified portion of the remediation costs claimed by the current
owner was due to pre-existing soil and groundwater contamination.
The Company has denied any liability to the trucking company and is
separately conducting an investigation of the alleged contamination
<PAGE>
Notes to Consolidated Financial Statements
Commitments and Contingencies (continued)
Environmental, continued.
in cooperation with the current owner of the site. The Company has
determined from this investigation that it may face some liability
with respect to pre-existing contamination of the site. Based upon
remediation estimates received, management believes that any
reasonably anticipated losses from the alleged contamination will
not result in a material adverse impact on the results of
operations or the financial position of the Company.
In September 1990, the Department of Environmental Quality of
the State of Arizona brought a civil action against a subsidiary of
Talley Manufacturing claiming violations of various environmental
regulations. The subsidiary met with agency officials to resolve
the dispute, and in connection therewith paid $0.5 million as civil
penalty. The subsidiary also agreed to certain restrictions and
procedures imposed by the State of Arizona relating to the disposal
of hazardous waste; the Company does not anticipate that the agreed
restrictions and procedures will interfere with operations or
result in any significant expense.
Tax. The Arizona Department of Revenue issued Notices of
Correction of Income Tax dated March 17, 1986 to the Company for
the fiscal year ending March 31, 1983. These Notices pertain to
whether subsidiaries of the Company must file separate income tax
returns in Arizona rather than allowing the Company to file on a
consolidated basis. The amount of additional Arizona income tax
alleged to be due as a result of the Notices of Correction was $0.4
million plus interest. In May 1992 the Arizona Tax Court granted
judgment in favor of the Company and against the Department on all
claims asserted against the Company. In October 1992 the Tax Court
entered judgment in favor of the Company awarding the Company
approximately $0.6 million for the Arizona income taxes the Company
overpaid for its fiscal year ending March 31, 1983 together with
interest and attorneys' fees. The judgment entered by the Tax
Court was appealed by the Department and is currently pending
before the Arizona Court of Appeals.
In May 1993, the Arizona Department of Revenue issued
assessments with respect to calendar years 1984 through 1989
alleging that the Company owes additional Arizona income tax and
interest in the amount of $16.6 million. Management's preliminary
review of the assessments indicates that they were calculated on
essentially the same basis used by the Department in its previous
claims for income tax due with respect to its fiscal year ended
March 31, 1983. However, due to a change in the applicable law for
tax years commencing after 1985, the outcome of the litigation
<PAGE>
Notes to Consolidated Financial Statements
Commitments and Contingencies (continued)
Tax, continued.
currently pending involving 1983 is not necessarily indicative of
the merits or possible outcome of the claims made by the Arizona
Department of Revenue for the periods commencing after 1985.
Nevertheless, the Company intends to vigorously litigate the recent
assessments. Notwithstanding such change in the law, based upon
the 1992 rulings of the Arizona Tax Court in favor of the Company,
advice from its counsel and the Company's income tax reserves,
management believes that these assessments will not result in a
material adverse impact on the results of operations or the
financial position of the Company.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates
fair value because of the short maturity of those instruments. On
October 22, 1993 the Company completed the refinancing of
substantially all of the Company's debt as more fully explained in
the long-term debt note to the financial statements. Consequently,
at December 31, 1993 the estimated fair value of long-term debt is
approximately equal to the carrying value.
The Company has the right to receive royalty payments under a
license agreement executed in April, 1989 in connection with the
sale of its airbag operations to TRW, Inc. Under the agreement,
the Company is entitled to receive royalties for the twelve year
period commencing May 1, 1989 and ending April 30, 2001. The rates
at which these royalties are to be paid are: $1.14 for each airbag
unit manufactured and sold anywhere in the world by TRW and its
subsidiaries (this amount increases by $.01 per unit on May 1 of
each year of the royalty term); 75% of the per-unit amount
specified above for each inflator manufactured and sold anywhere in
the world by TRW and subsidiaries; and $.55 for each airbag unit
supplied by companies other than TRW for use in a vehicle
manufactured or sold in North America.
The fair value of the royalty stream is dependent upon
automobile production, the number of produced vehicles with airbag
systems and the market share of TRW, Inc.; accordingly, the fair
value cannot be estimated. Royalties recognized in the year ending
December 31, 1993 were $9,606,000.
Research and Development Costs
Research and development costs were $3,122,000, $3,904,000 and
$4,223,000 for the years ended December 31, 1993, 1992, and 1991,
respectively.
<PAGE>
Notes to Consolidated Financial Statements
Extraordinary Loss
As a result of the termination of the interest swap agreement
and the payoff of the underlying debt in 1993, the Company
recognized an extraordinary loss of $1,102,000, net of taxes of
$568,000.
Acquisitions and Dispositions
As part of its restructuring plans the Company sold the net
assets of its precision potentiometer business in July 1993, for a
cash purchase price of $2,756,000, which approximated the book
value of the net assets sold. On May 19, 1992 the Company sold the
net assets of its specialty advertising subsidiary for $7,866,000,
which was approximately $400,000 below its book value. In
connection with restructuring efforts the Company recorded 1991
fourth quarter pretax charges to earnings of $5,000,000.
Restructuring costs were for restructuring fees to lenders and
professional services in connection with the Company's
restructuring of its debt and costs incurred as a part of
downsizing of, or relocations of, subsidiary operations in
connection with cost control efforts.
The excess of cost over tangible and identifiable intangible
assets acquired, net of amortization at December 31, 1993, 1992,
and 1991 was $43,696,000, $45,501,000, and $50,299,000,
respectively.
Related Party Transactions
In each of the last three years the Company and its
subsidiaries incurred legal fees payable to the law firm of one of
the Company's directors. During 1993, 1992 and 1991 total billings
for the firm were $715,000, $1,045,000 and $422,000, respectively,
and were for foreign and domestic services relating to litigation
and general corporate matters. Fees were paid to a second law firm
in 1993 of $329,000. A 1993 addition to the Company's board of
directors was a partner in such firm until he retired in June 1993.
Recently Issued Accounting Standards
At the beginning of 1993 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The
new standard requires that companies use the accrual method of
accounting to expense the estimated cost of providing
postretirement health-care and other benefits over the years of
each employee's active service.
<PAGE>
Notes to Consolidated Financial Statements
Recently Issued Accounting Standards (continued)
In 1992, the Company elected early adoption of the provisions
of Statement of Accounting Standard No. 109, "Accounting For Income
Taxes", which is more fully explained in the "Significant
Accounting Policies" and "Income Taxes" Notes to Consolidated
Financial Statement.
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" was issued in
November 1992 and requires adoption no later than fiscal years
beginning after December 15, 1993. This Statement establishes
accounting standards for employers who provide benefits to former
or inactive employees after employment but before retirement. The
Company does not presently provide any material postemployment
benefits defined in this pronouncement.
Other pronouncements issued by the Financial Accounting
Standards Board or other rule making body, with future effective
dates, are either not applicable or not material to the
consolidated financial statements of the Company.
Segment Operations
The Company is a diversified manufacturer of a wide range of
proprietary and other specialized products for defense, industrial
and commercial applications. Through its Government Products and
Services segment, the Company manufactures an extensive array of
propellant devices and electronic components for defense systems
and commercial applications and provides naval architectural and
marine engineering services. The Company participates in the
rapidly expanding market for automotive airbags through its royalty
agreement with TRW, which provides the Company with a quarterly
royalty payment through April 30, 2001 for any airbag manufactured
and sold by TRW worldwide and for any other airbag installed in a
vehicle manufactured or sold in North America. The Company's
Industrial Products segment manufactures and distributes stainless
steel products, high-voltage ceramic insulators used in the power
transmission and distribution systems, and specialized welding
equipment and systems. The Company's Specialty Products segment
manufactures and sells aerosol insecticides, air fresheners and
sanitizers, and custom designed metal buttons.
Government Products and Services
The Company's Government Products and Services segment
provides a wide range of products and services for government
programs. The vast majority of the Company's products are smaller
components of larger units and systems and are generally designed
to enhance safety or improve performance. A significant portion of
the Company's government revenue represents the replacement of
existing Company products.
<PAGE>
Notes to Consolidated Financial Statements
Segment Operations, (continued)
Government Products and Services, continued
The Company manufactures proprietary propellant products
which, when ignited, produce a specified thrust or volume of gas
within a desired time period. Propellant products manufactured
include ballistic devices for aircraft ejection systems, rocket
motors, extended range munitions components and dispersion systems.
The Company's propellant devices are currently used on ejection
seats on high performance domestic and foreign military aircraft.
Rocket motors manufactured by the Company include a complete line
of rocket boosters and propulsion systems used for reconnaissance,
surveillance, and target acquisition. The Company's extended range
munitions components utilize propellant technologies to
significantly extend the range of existing U.S. artillery. Naval
architecture and marine engineering services provided by the
Company include detail design and engineering services for new
military and commercial construction as well as a significant
amount of maintenance and retrofit work for existing ships.
The Company's Government Products and Services segment also
manufactures specialized electronic display and monitoring devices
and high performance cable connection assemblies.
Direct sales to the U.S. Government and its agencies,
primarily from the Government Products and Services segment
accounted for approximately 24%, 32% and 28% of the Company's sales
from continuing operations for the years ended December 31, 1993,
1992 and 1991, respectively. At December 31, 1993 and 1992 the
amount billed but not paid by customers under retainage
provisions in long-term contracts was $1,402,000 and $1,659,000,
respectively. The $1,402,000 receivable under retainage provisions
is expected to be collected in 1994 through 1997 in the amounts of
$288,000, $100,000, $168,000 and $846,000, respectively. Amounts
in process but unbilled at December 31, 1993 and 1992 were
$5,425,000 and $6,396,000, respectively.
Airbag Royalties
The Company participates in the rapidly expanding market for
automotive airbags through its royalty agreement with TRW. The
Company entered into the Airbag Royalty Agreement as part of the
1989 sale of its automotive airbag manufacturing business. The
terms of the Airbag Royalty Agreement require TRW to make quarterly
royalty payments to the Company through April 30, 2001 for any
airbag units manufactured and sold worldwide by TRW as well as for
any other airbags installed in vehicles manufactured or sold in
North America.
<PAGE>
Notes to Consolidated Financial Statements
Segment Operations, (continued)
Industrial Products
The Company's Industrial Products segment operates in three
product areas: stainless steel, high-voltage ceramic insulators
and automated welding equipment. Demand for these products is
directly related to the level of general economic activity.
Through its stainless steel operation, the Company operates a
state-of-the-art mini-mill which converts purchased stainless steel
billets into a variety of sizes of both hot rolled and cold
finished bar and rod. The Company's stainless steel mini-mill has
utilized advanced computer automation, strict quality controls, and
strong engineering and technical capabilities to maintain its
position as a low cost, high quality producer. In addition to its
stainless steel manufacturing operation, the Company distributes
stainless steel and other specialty steel products through seven
locations in the U.S. and Canada. The Industrial Products segment
also manufactures and distributes high-voltage ceramic insulators
for electric utilities, municipalities and other governmental
units, as well as for electrical contractors and OEMs. In
addition, the Company manufactures specialized advanced-technology
welding systems, power supply systems and humidistats for the
utility, pipeline and OEM markets.
Specialty Products
The Company's Specialty Products segment is focused on two
distinct markets: aerosol insecticides, air fresheners and
sanitizers servicing the industrial maintenance supply, pest
control and agricultural markets, and custom designed metal buttons
for the military and commercial uniform and upscale fashion
markets. The majority of the Company's aerosol insecticides are
proprietary formulations of natural active ingredients.
The Company's U.S. operations had export sales of $26,672,000,
$16,216,000 and $30,095,000 for the years ended December 31, 1993,
1992 and 1991, respectively.
Substantially all facilities and operations of the Company's
continuing operations are located within the United States. The
Company operates a steel distribution system located in Canada with
sales for the year ended December 31, 1993 and total assets at
December 31, 1993 of $11.6 million and $8.0 million, respectively.
Foreign exchange losses included in earnings for the years
ended December 31, 1993, 1992 and 1991 were not material. The
foreign currency translation adjustment included in stockholder's
equity was $(370,000) at December 31, 1993.
Sales between segments are not significant and have been
eliminated. Operating income is total revenue less operating
expenses and excludes general Corporate expenses, non-segment
interest income and interest expense. Interest income associated
with segment assets is included in segment operations income.
Corporate assets consist principally of cash and cash equivalents,
notes receivable, income taxes receivable and a building.
<PAGE>
Notes to Consolidated Financial Statements
Segment Operations (continued)
The tables which follow show assets, depreciation and amortization
and capital expenditures by segment:
(in thousands) 1993 1992 1991
Assets by Segment
Government Products and Services $114,347 $113,385 $119,489
Airbag Royalties 3,704 1,644 2,260
Industrial Products 86,879 83,904 95,656
Specialty Products 27,951 27,190 38,825
232,881 226,123 256,230
Corporate 18,961 21,635 73,948
$251,842 247,758 330,178
Depreciation and Amortization
by Segment
Government Products and Services $ 4,163 $ 4,235 $ 4,227
Airbag Royalties - - -
Industrial Products 4,427 4,616 4,739
Specialty Products 1,138 1,319 1,785
9,728 10,170 10,751
Corporate 342 395 444
$ 10,070 $ 10,565 $ 11,195
Capital Expenditures by Segment
Government Products and Services $ 1,648 $ 2,122 $ 4,766
Airbag Royalties - - -
Industrial Products 2,842 1,045 804
Specialty Products 754 1,101 936
5,244 4,268 6,506
Corporate 102 296 61
$ 5,346 $ 4,564 $ 6,567
<PAGE>
<TABLE>
<CAPTION>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Summary of Segment Operations
(in thousands)
Years Ended December 31, 1993 1992 1991 1990 1989
Revenue from continuing operations
by segment:
<S> <C> <C> <C> <C> <C>
Government Products and Services $170,323 $183,162 $168,961 $149,377 $159,743
Airbag Royalties 9,606 5,566 3,161 2,956 881
Industrial Products 107,402 95,097 117,682 133,728 156,519
Specialty Products 30,797 35,738 41,061 48,570 56,071
$318,128 $319,563 $330,865 $334,631 $373,214
Operating income from continuing
operations by segment:
Government Products and Services $ 24,354 $ 26,101 $ 23,940 $ 21,413 $ 26,431
Airbag Royalties 9,606 5,566 3,161 2,956 881
Industrial Products 2,438 (45) 839 (4,235) 70,962
Specialty Products 5,001 5,055 5,345 2,462 7,879
41,399 36,677 33,285 22,596 106,153
Corporate expenses (13,151) (9,672) (16,127) (14,058) (13,332)
Non-segment interest income 312 1,923 2,248 2,003 2,233
Interest expense (16,364) (21,945) (24,587) (19,846) (19,089)
Earnings (loss) from continuing
operations before income taxes $ 12,196 $ 6,983 $ (5,181) $ (9,305) $ 75,965
Operating income includes a charge of $15,000,000 in 1990 and $5,000,000 in 1991 related to the Company's
restructuring program. Operating income in 1989 for the Industrial Products segment includes a pretax gain
on sale of the Company's airbag operations of $59,997,000. Sales from the airbag operations included in
the Industrial Products segment were $11,567,000 in 1989.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Summary of Operations
(in thousands)
Years Ended December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Revenue $318,128 $319,563 $330,865 $334,631 $373,214
Cost of sales and services 235,335 233,812 248,938 253,649 276,318
Selling, general and administrative
expenses 54,961 57,473 58,810 56,300 63,152
Restructuring costs - - 5,000 15,000 -
Gain on sale of airbag operations - - - - (59,997)
290,296 291,285 312,748 324,949 279,473
Earnings from operations 27,832 28,278 18,117 9,682 93,741
Other income, net 728 650 1,289 859 1,313
28,560 28,928 19,406 10,541 95,054
Interest expense 16,364 21,945 24,856 20,537 19,219
Interest capitalized - - (269) (691) (130)
16,364 21,945 24,587 19,846 19,089
Earnings (loss) from continuing
operations before income taxes
and extraordinary gains 12,196 6,983 (5,181) (9,305) 75,965
Income tax provision (benefit) 6,392 2,312 (277) (1,974) 29,001
Earnings (loss) from continuing
operations 5,804 4,671 (4,904) (7,331) 46,964
Extraordinary loss, net of income
tax (1,102) - - - -
Net earnings (loss) $ 4,702 $ 4,671 $ (4,904) $ (7,331) $ 46,964
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder
of Talley Manufacturing and Technology, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing on page F-1 present fairly, in all material
respects, the financial position of Talley Manufacturing and
Technology, Inc. and its subsidiaries at December 31, 1993 and
1992, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. These
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
of these financial statements in accordance with generally accepted
auditing standards which 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, the evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above.
As discussed in the notes to the financial statements titled
"Employee Benefit Plans" and "Significant Accounting Policies" the
Company changed its method of accounting for postretirement
benefits other than pensions in 1993 and changed its method of
accounting for income taxes in 1992.
PRICE WATERHOUSE
Phoenix, Arizona
February 22, 1994
<PAGE>
<TABLE>
<CAPTION>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
FINANCIAL DATA
Selected Financial Data
(in thousands)
Years Ended December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Capital expenditures $ 5,346 $ 4,564 $ 6,567 $ 14,544 $ 14,075
Depreciation and amortization 10,070 10,565 11,195 11,711 12,397
Current assets 141,868 135,199 206,759 184,758 181,782
Current liabilities 56,923 58,106 287,294 * 307,524 * 113,429
Working capital 84,945 77,093 (80,535)* (122,766)* 68,353
Total assets 251,843 247,758 330,178 322,495 316,958
Total debt 162,178 172,140 227,977 235,086 209,534
Long-term debt 160,002 161,283 - - 161,599
Long-term debt, subject to
acceleration - - 159,933 * 189,956 * -
Stockholder's equity 18,402 10,948 16,776 (687) 13,123
Current ratio 2.5 2.3 .7 .6 1.6
Supplemental Data
(in thousands)
Years Ended December 31, 1993 1992 1991 1990 1989
Taxes, other than income:
Payroll $ 7,037 $ 7,195 $ 7,321 $ 7,387 $ 7,564
Property 1,557 1,721 1,891 1,810 1,675
Other 328 382 626 461 622
8,922 9,298 9,838 9,658 9,861
Maintenance and repairs 4,668 4,626 4,624 4,494 4,017
Rent 5,962 7,353 7,845 7,735 6,727
Advertising 648 720 958 1,164 1,162
Research and development 3,122 3,904 4,223 3,996 3,822
</TABLE>
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Subsidiaries/Divisions
Government Products and Services
Electrodynamics, Inc., Rolling Meadows, Illinois. John W. Kravcik,
President.
John J. McMullen Associates, Inc., New York, New York. P. Thomas
Diamant, President.
Rowe Industries, Inc., Toledo, Ohio. Haywood W. Bower, Chairman of
the Board.
Talley Defense Systems, Inc., Mesa, Arizona. Edward T. Ryan, Jr.,
President.
Universal Propulsion Company, Inc., Phoenix, Arizona. Harold G.
Watson, President.
Industrial Products
Amcan Specialty Steels, Inc., Hermitage, Pennsylvania. Bruce
Olson, President.
Diversified Stainless Steel of Canada, Inc., Downsview, Ontario,
Canada. Frank Szabo, President.
Porcelain Products Co., Carey, Ohio. Haywood W. Bower, President.
Talley Metals Technology, Inc., McBee, South Carolina. Donald
Bailey, President.
Dimetrics, Davidson, North Carolina. Arthur M. Squicciarini,
President.
Specialty Products
Waterbury Companies, Inc., Waterbury, Connecticut. Michael J.
Tragakiss, President.
<PAGE>
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Directors and Corporate Management
DIRECTORS
William H. Mallender - Chairman of the Board and Chief
Executive Officer
Jack C. Crim - President and Chief Operating Officer
Neil W. Benson - Chartered Accountant, Lewis Golden & Co.
Paul L. Foster - Professor of Finance, Saint Joseph's
University
Townsend Hoopes - Retired, formerly President, Association
of American Publishers, Inc.
Fred Israel - Retired, formerly Senior Partner Israel
and Raley
John D. MacNaughton, Jr. - President, The MacNaughton Co.
Emiel T. Nielsen, Jr. - Retired, formerly Vice Chairman, FMC
Corporation
Joseph A. Orlando - Independent financial consultant
Alex Stamatakis - Chairman of the Board, Stamatakis
Industries, Inc.
John W. Stodder - Vice Chairman, Jostens, Inc.
Donald J. Ulrich - Owner and Vice Chairman, Ventura Coastal
Corporation
David Victor - Member, Meyer, Hendricks, Victor, Osborn
& Maledon
CORPORATE MANAGEMENT
William H. Mallender - Chairman of the Board and Chief
Executive Officer
Jack C. Crim - President and Chief Operating Officer
William E. Bonnell - Vice President - Human Resources
Mark S. Dickerson - Vice President, General Counsel and
Secretary
Kenneth May - Vice President and Controller
Daniel R. Mullen - Vice President and Treasurer
George W. Poole - Vice President - Government Relations
<PAGE>
SCHEDULE III
Page 1 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF CONDITION (BALANCE SHEET)
DECEMBER 31,
1993 1992
Assets
Current assets:
Cash and cash equivalents $ 2,069,000 $ 7,472,000
Due from affiliates 1,648,000 23,021,000
Accounts receivable 11,078,000 13,032,000
Deferred income taxes - 371,000
Prepaid expenses 1,552,000 975,000
Total current assets 16,347,000 44,871,000
Investment in and advances to affiliates 122,844,000 163,624,000
Long-term receivables 2,829,000 3,829,000
Property, plant and equipment, at cost,
net of accumulated depreciation of
$1,532,000 in 1993 and $1,403,000
in 1992 682,000 846,000
Deferred charges and other assets 9,062,000 2,373,000
Deferred income taxes - 291,000
Total assets $151,764,000 $215,834,000
See accompanying notes and the notes to the consolidated financial
statements.
<PAGE>
SCHEDULE III
Page 2 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF CONDITION (BALANCE SHEET)
DECEMBER 31,
1993 1992
Liabilities and Stockholder's Equity
Current liabilities:
Current maturities of long-term debt $ 88,000 $ 7,762,000
Due to affiliates 2,000 70,048,000
Accounts payable 4,545,000 2,855,000
Accrued expenses 3,549,000 5,651,000
Deferred income taxes 5,182,000 -
Total current liabilities 13,366,000 86,316,000
Deferred income taxes 4,411,000 -
Long-term debt 115,121,000 114,142,000
Other liabilities 464,000 4,428,000
Stockholder's equity:
Preferred stock, $1 par value,
authorized 100 shares -
Series A: Issued 8 shares 8 -
Common stock, $1 par value,
authorized 1,000 shares 1,000 -
Capital in excess of par value 15,752,992 10,948,000
Foreign currency translation adjustments (370,000) -
Retained earnings 3,018,000 -
Total stockholder's equity 18,402,000 10,948,000
Total liabilities and
stockholder's equity $151,764,000 $215,834,000
See accompanying notes and the notes to the consolidated financial
statements.
<PAGE>
SCHEDULE III
Page 3 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
Selling, general and
administrative expenses $ 13,045,000 $ 9,381,000 $ 8,940,000
Administrative allocations
to subsidiaries (16,643,000) (19,218,000) (22,549,000)
(3,598,000) (9,837,000) (13,609,000)
Restructuring costs - - (5,000,000)
Other income (expense), net 264,000 3,253,000 (1,692,000)
(3,862,000) (13,090,000) (6,917,000)
Interest expense 16,323,000 21,789,000 25,808,000
Interest charges to
subsidiaries, net (167,000) (494,000) (3,572,000)
16,156,000 21,295,000 22,236,000
(12,294,000) (8,205,000) (15,319,000)
Income tax benefit (3,600,000) (5,564,000) (4,460,000)
Loss before earnings of
subsidiaries and
extraordinary gains (8,694,000) (2,641,000) (10,859,000)
Extraordinary loss,
net of taxes (1,102,000) - -
Earnings from subsidiaries 14,498,000 7,312,000 5,955,000
Net earnings (loss) $ 4,702,000 $ 4,671,000 $ (4,904,000)
See accompanying notes and the notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
Page 4 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities $ 9,223,000 $ 2,455,000 $ 18,526,000
Cash flows from investing activities:
Reduction of investment in
subsidiaries, net 83,140,000 3,493,000 (18,890,000)
Additional investment in
subsidiaries (42,360,000) (1,807,000) (530,000)
Decrease (increase) in long-term
receivables, net - (958,000) 958,000
Cash from investing activities 40,780,000 728,000 (18,462,000)
Cash flows from financing activities:
Reduction of notes payable - (32,648,000) -
Proceeds from long-term debt 120,885,000 - -
Reduction of long-term debt (126,802,000) (67,000) (60,000)
Proceeds from issuance of stock 8,000,000 - -
Amounts (to) from Parent, net (8,816,000) (10,833,000) 22,034,000
Decrease (increase) in due from
affiliates, net (48,673,000) 4,228,000 12,738,000
Cash from financing activities (55,406,000) (39,320,000) 34,712,000
Increase (decrease) in cash and cash
equivalents (5,403,000) (36,137,000) 34,776,000
Balance at beginning of year 7,472,000 43,609,000 8,833,000
Balance at end of year $ 2,069,000 $ 7,472,000 $ 43,609,000
See accompanying notes and the notes to the consolidated financial statements.
</TABLE>
<PAGE>
SCHEDULE III
Page 5 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
Notes to Financial Statements
The following notes supplement information provided in the notes
accompanying the consolidated financial statements.
1. Basis of Presentation
Investments in and advances to affiliates represents interest in
majority-owned subsidiaries and associated companies. The investments
are accounted for on the equity method and, accordingly, the carrying
value approximates the Company's equity in the recorded value of the
underlying net assets. In July 1993, Talley Manufacturing and
Technology, Inc. ("the Company"), a wholly owned subsidiary of Talley
Industries, Inc., ("Talley") was formed with the issuance of 1,000 shares
of common stock. The formation of the Company was in anticipation of an
offering, in October, 1993, of Senior Notes by the Company and Senior
Discount Debentures by Talley. Concurrently with the issuance of these
securities, Talley contributed the capital stock of its operating
subsidiaries (other than its real estate subsidiaries) to the Company,
which also assumed a substantial portion of Talley's indebtedness and
liabilities. (See Basis of Presentation note to the Company's
consolidated financial statements).
Certain reclassifications have been made in the prior year Statement of
Operations to be consistent with current year classifications.
2. Long-Term Debt
December 31,
Long-term debt consists of the following: 1993 1992
(balances in thousands)
10-3/4% Senior Notes, due 2003 $115,000 $ -
Notes, interest based on prime or other
variable market rate - 116,852
8-1/8% debentures - 3,894
Capitalized leases and other 209 1,158
115,209 121,904
Less current maturities 88 7,762
Long-term debt $115,121 $114,142
The Company and Talley Industries, Inc. completed a major debt
refinancing program on October 22, 1993. The proceeds from the new
financing were used to repay substantially all of the Company's debt.
(See Long-term debt note to the Company's consolidated financial
statements).
Aggregate maturities of long-term debt for the years ended December 31,
1994 through 1998 are $88,000, $101,000, $114,000, $-0- and $-0-,
respectively.
<PAGE>
SCHEDULE III
Page 6 of 6
TALLEY MANUFACTURING AND TECHNOLOGY, INC.
(Registrant Only)
Notes to Financial Statements
3. Income Taxes
The parent company and its domestic subsidiaries file a consolidated
federal income tax return. The provision for income taxes represents the
difference between amounts attributable to each subsidiary, generally
determined on a separate return basis, and the tax computed on a
consolidated basis.
During 1992, the Company adopted the provisions of the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
retroactive to January 1, 1992. This accounting pronouncement requires
a change from the deferred to the liability method of computing deferred
income taxes. This change had no effect on reported net earnings or loss
for 1992 or prior years.
4. Dividends Received
The registrant received dividends, net of contributions from consolidated
subsidiaries, unconsolidated subsidiaries and 50 percent or less owned
persons accounted for by the equity method during the years ended
December 31, 1993, 1992 and 1991 of $97,475,000, $8,251,000 and $928,000,
respectively.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
December 31, 1993
(thousands)
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Allowance for doubtful
accounts - accounts
receivable $ 867 $ 987 $ - $ 763 (a) $1,091
Reserves for notes receivable - 1,000 - - 1,000
Year Ended December 31, 1992:
Allowance for doubtful
accounts - accounts
receivable $ 881 $ 471 $ - $ 485 (a) $ 867
Year Ended December 31, 1991:
Allowance for doubtful
accounts - accounts
receivable $ 760 $ 666 $ - $ 545 (a) $ 881
Notes:
(a) Uncollectible accounts charged against reserves, net of bad debt recoveries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
Short-Term Borrowings
December 31, 1993
(dollars in thousands)
Weighted Maximum Average Weighted
Category of Average Amount Amount Average
Aggregate Balance Interest Outstanding Outstanding Interest Rate
Short-term at Rate at During the During the During the
Borrowings End of Period End of Period Reporting Period Reporting Period Reporting Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Notes Payable to Banks $ -0- .0% $ -0- $ -0- .0%
Year Ended December 31, 1992:
Notes Payable to Banks $ -0- .0% $37,350 $32,890 7.7%
Year Ended December 31, 1991:
Notes Payable to Banks $37,361 7.4% $37,938 $37,538 7.5%
</TABLE>
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Incorporation of Talley Manufacturing and
Technology, Inc., attached as Exhibit 3(d) to Talley's
Registration Statement on Form S-1 dated October 15, 1993,
incorporated herein by this reference.
3.2 By-laws of Incorporation of Talley Manufacturing and Technology,
Inc., attached as Exhibit 3(e) to the Company's Form S-1 dated
October 15, 1993, incorporated herein by this reference.
4.1 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of Talley Manufacturing and Technology, Inc.,
attached as Exhibit 4(e) to the Company's Form S-1 dated October
15, 1993, incorporated herein by reference.
4.2 Indenture Agreement among Talley Manufacturing and Technology,
Inc., the Subsidiary Guarantors (as defined), Talley Industries,
Inc. and Bank One, Columbus, N.A., a national banking
association, as Trustee, dated as of October 15, 1993 relating
to the 10-3/4% Senior Notes due 2003 issued by Talley
Manufacturing and Technology, Inc. and the exhibits thereto,
attached as Exhibit 4.1 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
10.1 Form of Indemnification Procedures Agreement between Talley
Manufacturing and each of its directors, attached as Exhibit
10(jj) to Amendment No. 1 to Form S-1 dated September 10, 1993,
incorporated herein by reference.
10.2 Tax Sharing Agreement among Talley Industries, Inc., Talley
Manufacturing and Technology, Inc. and each of their respective
subsidiaries, dated as of October 22, 1993, attached as Exhibit
10.3 to the Company's Form 10-Q for the quarter ended September
30, 1993, incorporated herein by reference.
10.3 Restructuring, Assumption and Cost sharing Agreement among
Talley Industries, Inc., Talley Manufacturing and Technology,
Inc. and Talley Real Estate Company, Inc. dated as of October
22, 1993, attached as Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended September 30, 1993, incorporated herein
by reference.
10.4 Loan and Security Agreement among Talley Manufacturing and
Technology, Inc., the Lenders listed therein and Transamerica
Business Credit Corporation, as Agent dated October 22, 1993,
attached as Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
10.5 Airbag Collateral Security, Intercreditor and Agency Agreement
dated as of October 22, 1993 among Talley Manufacturing and
Technology, Inc., Talley Technology, Inc., Talley Defense
Systems, Inc., Talley Automotive Products, Inc., Talley Metals
Technology, Inc. and Transamerica Business Credit Corporation
as Agent and as collateral agent for the Lenders (as defined)
and the Senior Note Trustee, Lenders and Bank One, Columbus,
N.A., a national banking association, as Trustee for the holders
of the 10-3/4% Senior Notes due 2003 issued by Talley
Manufacturing and Technology, Inc., attached as Exhibit 10.2 to
the Company's Form 10-Q for the quarter ended September 30,
1993, incorporated herein by reference.
10.6 Form of Subsidiary Loan Agreement dated as of October 22, 1993
between Talley Manufacturing and Technology, Inc. and each of
certain subsidiaries, attached as Exhibit 99.1 to the Company's
Form 10-Q for the quarter ended September 30, 1993, incorporated
herein by reference.
10.7 Subsidiary Loan and Security Agreement dated as of October 22,
1993 between Talley Manufacturing and Technology, Inc. and
Talley Technology, Inc., attached as Exhibit 99.2 to the
Company's Form 10-Q for the quarter ended September 30, 1993,
incorporated herein by reference.
10.8 Form of Subsidiary Continuing Guaranty and Security Agreement
dated as of October 22, 1993 between Transamerica Business
Credit Corporation, a Delaware corporation and each of certain
subsidiaries, attached as Exhibit 99.3 to the Company's
Form 10-Q for the quarter ended September 30, 1993, incorporated
herein by reference.
21* Subsidiaries of the Registrant.
23.1* Consent of Company's Independent Public Accountants to the
incorporation by reference of their reports for the current year
accompanying the financial statements included in the
Registrant's Forms S-1 Registration Statements.
* Documents marked with an asterisk are filed with this report.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21
Subsidiaries of Talley Manufacturing and Technology, Inc.
The following are the subsidiaries of the Registrant, as of December 31, 1993:
Percentage
of Voting Jurisdiction
Securities of
Owned Incorporation
<C> <C> <S>
1. Amcan Specialty Steels, Inc. 100% New Jersey
2. Dimetrics, Inc. 100% Delaware
3. Electrodynamics, Inc. 100% Arizona
4. John J. McMullen Associates, Inc. 100% Delaware
5. Porcelain Products Co. 100% Delaware
6. Rowe Industries, Inc. 100% Delaware
7. Talley Canada, Inc. 100% Canada
8. Talley Defense Systems, Inc. 100% Delaware
9. Talley Metals Technology, Inc. 100% Delaware
10. Talley Technology, Inc. 100% Delaware
11. Universal Propulsion Company, Inc. 100% Delaware
12. Waterbury Companies, Inc. 100% Delaware
<CAPTION>
Each of the above subsidiaries is included in the Company's Consolidated Financial
Statements. Several inactive or minor corporations are not included above because
all of them, when taken in the aggregate, do not constitute a significant
subsidiary.
</TABLE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statement on
Form S-1 (No. 33-49869-01) of Talley Manufacturing and Technology,
Inc. of our report dated February 22, 1994 appearing on page F-37
of this Form 10-K.
PRICE WATERHOUSE
Phoenix, Arizona
March 23, 1994
