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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. 1-4778
TALLEY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0180396
(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:
Name of each Exchange
Title of each class on which registered
Common Stock, $1 Par Value New York Stock Exchange
Series B $1 Cumulative Convertible
Preferred Stock, $1 Par Value New York Stock Exchange
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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[ ]
The aggregate market value of voting stock held by non-affiliates on February 1, 1994 was
$93,749,000.
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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[ ]
As of February 1, 1994 there were 10,047,023 shares of Talley Industries, Inc. Common Stock $1 par value
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year (December 31, 1993) are incorporated by reference in
Part III.
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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-1
(c) Narrative Description of Business I-2
(d) Financial Information about Foreign and
Domestic Operations and Export Sales I-22
(e) Provisions of New Debt Agreements I-22
(f) Executive Officers of the Registrant I-24
Item 2. Properties I-24
Item 3. Legal Proceedings I-25
Item 4. Submission of Matters to a Vote of
Security Holders I-25
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-3
Item 12. Security Ownership of Certain Beneficial
Owners and Management III-3
Item 13. Certain Relationships and Related Transactions III-3
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.
On October 22, 1993 Talley Industries, Inc. (herein referred to as
either "Talley" or the "Company" or the "Registrant") completed a major
debt refinancing program by issuing Senior Notes and Senior Discount
Debentures, and by securing a credit facility with two institutional
lenders. The terms of the 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.
In late 1992, the Company's Board of Directors approved a plan to
discontinue the Realty segment. Accordingly, effective December 31,
1992, the Company classified its Realty segment as a discontinued
operation for financial reporting purposes. In September 1993, in
connection with the offering of the Senior Notes and Senior Discount
Debentures, the staff of the Securities and Exchange Commission (SEC)
informed the Company that it disagreed with the Company's
classification of its Realty segment as a discontinued operation.
Pursuant to these discussions, the Company has reclassified the real
estate operations to continuing operations. The reclassification does
not alter the Company's commitment to exit the real estate business.
An amended Form 10-K on Form 10-K/A was filed in November 1993 to
reflect the restatement.
(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 five
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-40 through F-46 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-11 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
Talley 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. Talley'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. Talley is also engaged in the orderly sale of the
assets of its real estate operations, the net proceeds from which will
be utilized to prepay certain outstanding indebtedness.
(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 Talley products.
Products manufactured by Talley 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 Talley'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. Talley'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 Talley:
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. Talley 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. Talley 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. Talley'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. Talley 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. Talley 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. Talley 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 Talley
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
Talley 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
Talley:
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. Talley 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. Talley 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 Talley 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
Talley.
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 Talley'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 Talley 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, Talley 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, Talley's technology, manufacturing expertise and strong
customer relationships made it a leading supplier of automobile
airbags, and Talley designed and constructed a highly automated
production facility that began producing airbags in volume during 1988.
In 1989, Talley 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, Talley 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 CB
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) Real Estate Held for Orderly Disposition.
In late 1992, the Company initiated a plan for the orderly
disposition of all of its remaining real estate assets and discontinued
its real estate operations for financial reporting purposes. As a
result, the Company's financial statements as reflected in its 1992
Form 10-K and subsequent Form 10-Q's accounted for the real estate
business as a discontinued operation. In connection with the Company's
recent refinancing effort, the staff of the SEC informed the Company
that it disagreed with the Company's presentation of its Realty
business as a discontinued operation because of, among other factors,
the anticipated three to five year disposal period. Pursuant to these
discussions, the Company returned the real estate operation to
continuing operations and amended its 1992 Form 10-K and subsequent
Form 10-Q's in November 1993. The reclassification does not alter the
Company's commitment to exit the real estate business. It is the
Company's intention to dispose of its remaining real estate assets in
an orderly fashion.
The Company's real estate portfolio consists primarily of
undeveloped commercial, industrial and residential land located in the
greater Phoenix, San Diego and San Antonio areas.
(6) 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-40 through F-46 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 completed a major debt refinancing
program. The Company received gross proceeds of $70 million from the
issuance of Senior Discount Debentures, due 2005, which were issued to
yield 12.25%. In addition, Talley Manufacturing and Technology, Inc.,
("Talley Manufacturing") a newly formed wholly owned subsidiary of the
Company, which owns all of the Company's subsidiaries (except the
subsidiaries holding the Company's real estate operations), issued $115
million of Senior Notes, due 2003, with an interest rate of 10.75%.
Talley Manufacturing also completed a secured credit facility with two
institutional lenders. The $185 million gross proceeds of the public
offerings, plus the initial borrowings under the secured credit
facility, 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 indentures for the Senior Notes and the Senior Discount
Debentures 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 and other payments,
incurrence of debt, etc. 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 the Company has
guaranteed the Senior Notes on a subordinated basis. The capital stock
of Talley Manufacturing has been pledged by the Company to secure the
Senior Discount Debentures.
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 Senior
Discount Debentures mature on October 15, 2005. No interest on the
Discount Debentures is payable until April 15, 1999, when interest will
be payable semi-annually on April 15 and October 15 of each year. The
secured credit facility consists of a five year revolving credit
facility of up to $40 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.
(f) Executive Officers of the Registrant.
Reference is hereby made to the information contained in Item 10(b)
of this Form 10-K.
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-34 to F-36 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>
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The information required by this item is incorporated by reference
to the material under the captions "Long-Term Debt" on pages F-24
through F-26, "Capital Stock" on pages F-27 through F-28 and "Stock
Market Data" on pages F-52 through F-53 of the Company's financial
statements for the year ended December 31, 1993, included in a separate
section of this report.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference
to the material under the captions "Summary of Operations," "Selected
Financial Data" and "Stock Market Data" on pages F-47 and F-51 through
F-53, respectively, 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-11 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, along with the material appearing under
the caption "Quarterly Financial Results (Unaudited)" on page F-49 of
the Company's financial statements for the year ended December 31,
1993, are included in a separate section of this report. (See "Index
to Financial Statements and Schedules" on page F-1.)
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>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors.
The information required by this item is incorporated by reference
to the material appearing under the caption "VII - Election of
Directors" of the Company's 1994 Proxy Statement.
(b) Executive Officers.
The names and ages of all executive officers of the Registrant, as
of March 8, 1994, the offices and all other positions with the
Registrant presently held by them, the dates of their first election
to those offices and their other positions and business experience
during the past five years are listed on the following page.
There are no family relationships between any of the executive
officers of the Registrant. All officers of the Registrant are elected
each year at the organizational meeting of the Board of Directors of
the Registrant, held after the annual meeting of stockholders, to serve
at the pleasure of the Board of Directors of the Registrant. There are
no agreements or understandings between any officer of the Registrant
and any person other than the Registrant pursuant to which he was
selected as an officer of the Registrant. There have been no events
under any bankruptcy or insolvency law, no criminal proceedings and no
judgments, orders or injunctions relating to securities or commodities
activities or business practices material to the evaluation of the
ability or integrity of any officer of the Registrant during the past
five years.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
E X E C U T I V E O F F I C E R S O F T H E R E G I S T R A N T
Name Age Offices Business Experience
<S> <C> <S> <S>
William H. Mallender 58 Chairman of the Board (1983) Chairman of the Board (1983) and Chief
and Chief Executive Officer Executive Officer of Registrant (1981);
(1981), Chairman of the President of the Registrant (1983-1981);
Executive Committee (1981) Executive Vice President of Registrant
(1981-1978); General Counsel of Registrant
(1981-1971); Secretary of Registrant
(1981-1973); Vice President of Registrant
(1978-1971)
Jack C. Crim 63 President (1983) and Chief President of Registrant (1983); Chief
Operating Officer (1982) Operating Officer of Registrant (1982);
Executive Vice President of Registrant
1983-1982; President, Townsend Division,
Textron, Inc. (diversified manufacturer)
(1982-1980); Group Vice President,
Textron, Inc. (1980-1973)
Mark S. Dickerson 42 Vice President (1993), General Vice President (1993); Secretary and
Counsel and Secretary (1982) General Counsel of Registrant (1982);
Assistant Counsel of Registrant (1982-1978)
Kenneth May 52 Vice President (1993) and Vice President (1993); Controller of
Controller (1982) Registrant (1982); Assistant Controller
of Registrant (1981); Director of Planning
and Business Analysis for Registrant
(1981-1978)
Daniel R. Mullen 52 Vice President (1993) and Vice President (1993); Treasurer of
Treasurer (1982) Registrant (1982); Vice President of
Finance, Southwest Pipe and Supply Company
(pump manufacturer) (1982); Treasurer and
Chief Financial Officer, AMERCO
(equipment rental) (1982-1970)
</TABLE>
<PAGE>
<PAGE>
(c) Compliance with Section 16(a) of the Exchange Act.
The information required by this item is incorporated by reference
to the material appearing under the caption "XII - Compliance With
Section 16(a) of the Exchange Act" of the Company's 1994 Proxy
Statement.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference
to the material appearing under the captions "IX - Executive
Compensation" and "IV - The Board of Directors and its Committees" of
the Company's 1994 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is incorporated by reference
to the material appearing under the captions "VI - Security Ownership
of Certain Beneficial Owners" and "VIII - Security Ownership of
Management of the Company" of the Company's 1994 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference
to the material appearing under the caption "V - Other Relationships
and Certain Transactions" of the Company's 1994 Proxy Statement. Also,
reference is made to 10-K Schedule II, "Amounts Receivable from Related
Parties and Underwriters, Promoters, and Employees Other Than Related
Parties" on page F-56 of this filing, and Notes to Consolidated
Financial Statements under the caption "Related Parties Transaction"
on page F-39 of the Company's financial statements for the year ended
December 31, 1993, included in a separate section of this report.
<PAGE>
<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>
<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>
<PAGE>
Alex Stamatakis Director March 22, 1994
Alex Stamatakis
<PAGE>
<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-12
Consolidated Balance Sheet - December 31, 1993
and 1992..............................................F-13
Consolidated Statement of Changes in Stockholders'
Equity - Years ended December 31, 1993,
1992 and 1991..........................................F-15
Consolidated Statement of Cash Flows - Years
ended December 31, 1993, 1992 and 1991................F-16
Notes to Consolidated Financial Statements,
including Summary of Segment Operations...............F-17
Summary of Operations...................................F-47
Report of Independent Accountants.......................F-48
Quarterly Financial Results.............................F-49
Selected Financial Data and Supplemental Data...........F-51
Stock Market Data.......................................F-52
Financial Statement Schedules:
II - Amounts Receivable from Related Parties
and Underwriters, Promoters and Employees
Other than Related Parties.......................F-56
III - Condensed Financial Information of
Registrant.......................................F-57
VIII - Valuation and Qualifying Accounts and
Reserves.........................................F-63
IX - Short-Term Borrowings............................F-64
XI - Real Estate and Accumulated Depreciation.........F-65
XII - Mortgage Loans on Real Estate....................F-67
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>
<PAGE>
Introduction
On October 22, 1993 the Company completed the refinancing of
substantially all of its debt. Talley Industries, Inc. issued
Senior Discount Debentures with gross proceeds of $70 million.
Talley Manufacturing and Technology, Inc., a newly formed wholly
owned subsidiary of the Company, which owns all of the Company's
subsidiaries (except for the subsidiaries holding the Company's
real estate operations) issued $115 million in Senior Notes and
obtained a secured credit facility. 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 outstanding non-real estate related 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 the Company had a net loss of $6.5 million,
an improvement over the loss of $14.6 million in 1992, a year that
included an $11.9 million charge to earnings resulting from an
adjustment in the value of foreclosed real estate assets, offset in
part by a $3.5 million reversal of an income tax accrual. Interest
expense decreased by $5.9 million due primarily to a significant
paydown of debt in November 1992.
Revenues in 1993 were $324.2 million, compared to $320.7
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.
In late 1992 the Company also initiated a plan for the orderly
disposition of all its remaining real estate assets. In 1993 sales
of real estate were $6.1 million compared to 1992 sales of $1.2
million.
<PAGE>
<PAGE>
Introduction, continued
The gross profit percentage on sales and services from
continuing operations decreased in 1993 from 25.2% in 1992 to
23.1%, a level more consistent with historical results.
Revenue for the year ended December 31, 1992 decreased $16.2
million when compared to 1991. The net loss of $14.6 million in
1992 compares to a net loss of $43.2 million in the prior year, a
year that included a $5.0 million restructuring charge and a $21.0
million provision for reserves on realty assets. The gross profit
percentage from continuing operations increased from 23.0% in 1991
to 25.2% 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 refocus 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>
<PAGE>
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>
<PAGE>
Realty
As noted above, the Company initiated a plan for the orderly
disposition of all its remaining real estate assets. In connection
with this plan and as the result of an improved real estate market,
sales in the Realty segment increased to $6.1 million in 1993 from
$1.2 million in 1992. The 1993 operating loss of $4.4 million is
an improvement compared with the operating loss of $16.4 million in
1992. Results in 1992 included a $1.4 million pretax charge in the
third quarter representing the book value in excess of the fair
value of real estate assets transferred to creditors to settle debt
associated with such assets and a charge to earnings of $11.9
million to adjust the carrying amount of foreclosed assets held for
sale. An extraordinary gain of $1.4 million was also recognized in
1992, which represents the excess of the carrying amount of the
debt over the fair value of the properties transferred to
creditors.
The valuation of one of the Company's major real estate assets
(a fully consolidated joint venture, in which the Company's
interest was $29.2 million on December 31, 1993) is premised upon
the future sale of the property following the completion of planned
improvements. While the venture will continue to try to sell this
property in its current condition, the Company believes that a sale
is not likely unless the joint venture is able to obtain additional
financing to perfect and maintain the development entitlements and
to construct the necessary infrastructure and other improvements to
obtain salable development tracts and lots. If the Company is
unable to sell the property in its current condition and is also
unable to obtain development financing, the Company could incur a
loss of substantially all of its investment in the project.
Outstanding senior mortgage debt and related accrued interest of
approximately $18.5 million matures in 1994. Although there can be
no assurance that the joint venture will be able to restructure the
notes to extend their maturities, the notes have been successfully
restructured in the past and the Company believes they can be
successfully restructured again. It may prove advantageous for the
joint venture to consummate its debt restructuring through
bankruptcy proceedings, particularly if a significant portion of
the debt is converted into equity participation.
Real estate sales were $6.0 million in 1991 and the operating
loss was $26.9 million. The loss included a $21.0 million pretax,
non-cash charge to adjust property values to reflect foreclosures
and net realizable value assessments.
<PAGE>
<PAGE>
Realty, continued
The estimated net realizable value for each Realty property
equals or exceeds its book value. It is currently the Company's
intention to dispose of these properties in an orderly process over
time. Accordingly, the lower of historical cost or estimated net
realizable value is the appropriate carrying value for properties
under generally accepted accounting principles. If, however, the
Company were to change its intention and any of these properties
were sold in bulk at the market values, the Company could incur a
material loss. Additionally, if market conditions deteriorate
further or continue to remain depressed for an extended period of
time (and as a result the sales do not occur as estimated in the
net realizable value analyses), the Company may incur material
losses.
Other Matters
In 1993, other income, net of other expenses was $(3.0)
million, which compares to $(2.7) million in 1992 and $(1.7)
million in 1991. The Company had expenses in connection with
holding and developing real estate properties combined with losses
from realty joint ventures totalling $4.0 million in 1993, $4.2
million in 1992 and $4.1 million in 1991. Interest income, which
is one of the major other components of other income, and is
related to the balance in notes receivable and short-term
investments, was $.6 million in 1993, $2.7 million in 1992 and $3.0
million in 1991.
The effective tax rate on the loss from operations for 1993 is
lower than the United States statutory rate due to an unrecognized
federal tax carryforward benefit, offset by 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 benefit in 1992 on
marginal pretax earnings is the result of a reversal of an accrual
for taxes previously accrued due to a favorable 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.
<PAGE>
<PAGE>
Other Matters, continued
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
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
<PAGE>
<PAGE>
Other Matters, continued
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.
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.
<PAGE>
<PAGE>
Other Matters, continued
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 November 1992, Talley completed a restructuring of
substantially all of its existing senior and senior subordinated
debt. The restructuring was required following certain covenant
defaults resulting from the write-downs in the Company's real
estate portfolio between 1989 and 1992. The terms of the
restructuring included a principal payment of $40.2 million at the
closing. Because over $100 million of the restructured debt was
scheduled to mature during 1994 (including approximately $13
million as of June 30, 1994), Talley, in October 1993, completed a
major refinancing program. 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 the Company to yield 12.25% and $115 million of Senior
Notes due 2003, with an interest rate of 10.75% issued by Talley
Manufacturing. In connection with this refinancing, Talley
Manufacturing 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.
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 non-real estate related debt.
<PAGE>
<PAGE>
Liquidity and Capital Resources, continued
The Company anticipates that the new capital structure will support
the long-term growth of Talley's core businesses and permit the
implementation of its strategy to use proceeds received from the
increasing airbag royalties and from the orderly sale of the assets
of its real estate operations to reduce its total indebtedness.
As a holding company with no significant operating or income-
producing assets beyond its stock interest in Talley Manufacturing
and the subsidiaries holding its real estate operations, Talley
will be dependent primarily upon distributions from those
subsidiaries in order to meet its debt service and other
obligations. Talley will be entitled to receive certain
distributions from Talley Manufacturing (absent certain defaults
under Talley Manufacturing indebtedness) for a period of five
years, to be used to fund certain carrying and other costs
associated with the orderly disposition of Talley's real estate
assets. Additional funding is also available for real estate costs
from the anticipated redemption of preferred stock of Talley
Manufacturing purchased for an agreed upon amount by Talley in
connection with the recent refinancing and from a portion of the
net cash proceeds from the sale of real estate assets. Talley will
be required to use certain funds received from Talley Manufacturing
and certain funds from real estate sales to make offers to redeem
certain indebtedness of Talley. Because the cash available to
Talley is required to be used for these specific purposes, and
because certain debt covenants limit Talley's ability to incur
additional indebtedness, Talley will be dependent upon the payment
of dividends from Talley Manufacturing (which payments will
generally be limited by debt covenants of Talley Manufacturing) and
to future sales of equity securities as its primary sources of
discretionary liquidity. To the extent such sources do not provide
adequate funds, Talley may be unable to fund expected costs and
improvements associated with its real estate holdings or to make
cash interest payments on its outstanding indebtedness when
required. Nevertheless, and particularly in light of the absence
of requirements for Talley to make cash payments of interest on
certain outstanding indebtedness until April 15, 1999, the Company
believes that Talley will have funds available in sufficient
amounts, and at the required times, to permit Talley to meet its
obligations.
<PAGE>
<PAGE>
Liquidity and Capital Resources, continued
At December 31, 1993, the Company had $12.2 million in cash and
cash equivalents and $63.8 million in working capital. During 1993
the Company generated $3.8 million of cash flow from operating
activities. This amount reflects an increase in accounts
receivable of $8.6 million, a decrease in inventories of $1.2
million, an increase in accounts payable and accrued expenses
totalling $9.4 million and an increase in other assets of $10.8
million. The increase in other assets is primarily deferred debt
costs related to the Company's October 1993 refinancing efforts.
The Company used $.5 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, a $2.1 million
reduction in long-term receivables and $.3 million proceeds from
sale of property and equipment, offset by $5.3 million in capital
expenditures and a $.4 million increase in long-term
receivables. Proceeds from the Company's fourth quarter new
financing of approximately $233 million were used to repay
substantially all of the Company's outstanding debt. Borrowings
and pay downs under revolving credit facilities, of approximately
equal amounts, are also included in financing activities.
The Company has not made any dividend payments on its preferred
and common stock since the first quarter of 1991, and the ability
to pay dividends in the future is limited by the provisions of the
Company's debt agreements. Dividends in arrears on preferred
shares totaled $6.0 million at December 31, 1993.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Sales $250,062,000 $261,128,000 $279,867,000
Services 63,270,000 52,976,000 52,713,000
Royalties 10,868,000 6,614,000 4,313,000
324,200,000 320,718,000 336,893,000
Cost of sales 185,900,000 187,976,000 208,923,000
Cost of services 54,927,000 46,980,000 47,048,000
Selling, general and
administrative expenses 57,877,000 58,669,000 60,780,000
Adjustment in value of foreclosed
realty assets - 11,908,000 -
Provision for reserve on realty
assets - - 21,000,000
Restructuring costs - - 5,000,000
298,704,000 305,533,000 342,751,000
Earnings (loss) from operations 25,496,000 15,185,000 (5,858,000)
Other income (expense), net (2,978,000) (2,706,000) (1,682,000)
22,518,000 12,479,000 (7,540,000)
Interest expense 25,744,000 31,630,000 35,788,000
Interest capitalized - - (269,000)
25,744,000 31,630,000 35,519,000
Loss from continuing operations
before income taxes and
extraordinary gains (loss) (3,226,000) (19,151,000) (43,059,000)
Income tax provision (benefit) 2,768,000 (1,947,000) 925,000
Loss from continuing operations
before extraordinary gains (loss) (5,994,000) (17,204,000) (43,984,000)
Earnings from discontinued
operations, net of income taxes - - 825,000
Extraordinary gains (loss), net of
income taxes (504,000) 2,637,000 -
Net loss $ (6,498,000) $(14,567,000) $(43,159,000)
Loss applicable to common shares
(after deduction of preferred
stock dividends) $ (8,665,000) $(16,735,000) $(45,331,000)
Earnings (loss) per share of common
stock and common stock equivalents:
Continuing operations before
extraordinary gains (loss) $ (.85) $ (2.11) $ (5.24)
Discontinued operations - - .09
Extraordinary gains (loss) (.05) .29 -
Net loss $ (.90) $ (1.82) $ (5.15)
Weighted average shares outstanding 9,676,000 9,189,000 8,795,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1993 1992
ASSETS
Cash and cash equivalents $ 12,194,000 $ 10,168,000
Accounts receivable, net of
allowance for doubtful accounts
of $1,091,000 in 1993 and
$867,000 in 1992 60,579,000 48,952,000
Inventories 64,808,000 67,400,000
Deferred income taxes 900,000 1,446,000
Prepaid expenses 9,664,000 7,786,000
Total current assets 148,145,000 135,752,000
Realty assets 117,869,000 108,733,000
Long-term receivables, net 9,900,000 16,858,000
Property, plant and equipment,
at cost, net of accumulated
depreciation of $82,300,000
in 1993 and $77,426,000 in 1992 49,937,000 53,563,000
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 11,659,000 1,835,000
Total assets $382,438,000 $363,822,000
<PAGE>
<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
December 31, 1993 1992
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $ 2,176,000 $ 10,857,000
Current maturities of realty debt 16,795,000 13,211,000
Accounts payable 23,621,000 19,406,000
Accrued expenses 41,775,000 32,390,000
Total current liabilities 84,367,000 75,864,000
Long-term debt 231,669,000 217,304,000
Long-term realty debt 11,446,000 12,452,000
Deferred income taxes 12,320,000 11,086,000
Other liabilities 6,094,000 6,335,000
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1 par value,
authorized 5,000,000;
shares issued:
71,000 shares of Series A
(71,000 in 1992) ($1,775,000
involuntary liquidation
preference) 71,000 71,000
1,548,000 shares of Series B
(1,548,000 in 1992)
($30,960,000 involuntary
liquidation preference) 1,548,000 1,548,000
120,000 shares of Series D
(120,000 in 1992) ($18,000,000
involuntary liquidation
preference) 120,000 120,000
Common stock, $1 par value,
authorized 20,000,000;
shares issued:
10,047,000 shares (9,519,000
in 1992) 10,047,000 9,519,000
Capital in excess of par value 86,026,000 83,537,000
Foreign currency translation
adjustments (370,000) (83,000)
Accumulated deficit (60,429,000) (53,931,000)
37,013,000 40,781,000
Less 33,000 shares of Common stock
in treasury, at cost (471,000) -
Total stockholders' equity 36,542,000 40,781,000
Total liabilities and stockholders'
equity $382,438,000 $363,822,000
The accompanying notes are an integral part of the financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
Capital in Retained
Preferred Stock Common Excess of Treasury Earnings
Series A Series B Series D Stock Par Value Stock (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $ 75,000 $1,549,000 $120,000 $ 8,794,000 $81,404,000 $ -0- $ 4,779,000
Net loss (43,159,000)
Cash dividends:
Series A Preferred -
$.275 per share (21,000)
Series B Preferred -
$.25 per share (387,000)
Series D Preferred -
$1.125 per share (135,000)
Common - $.05 per share (440,000)
Conversions to common stock:
Series B Preferred -
1,000 shares (1,000) 1,000
Decrease in guaranteed debt
of ESOP 333,000
Other (1,000)
Balance at December 31, 1991 75,000 1,548,000 120,000 8,795,000 81,737,000 -0- (39,364,000)
Net loss (14,567,000)
Conversions to common stock:
Series A Preferred -
4,000 shares (4,000) 3,000
Decrease in guaranteed debt
of ESOP 334,000
Debt exchanged for common
stock 721,000 1,466,000
Balance at December 31, 1992 71,000 1,548,000 120,000 9,519,000 83,537,000 -0- (53,931,000)
Net loss (6,498,000)
Stock grants 141,000 403,000
Stock issued 387,000 1,308,000
Treasury stock acquired (528,000)
Treasury stock issued 57,000
Decrease in guaranteed debt
of ESOP 778,000
Balance at December 31, 1993 $ 71,000 $1,548,000 $120,000 $10,047,000 $86,026,000 $(471,000) $(60,429,000)
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<S> <C> <C> <C>
Years Ended December 31, 1993 1992 1991
Cash and cash equivalents at beginning
of year $ 10,168,000 $ 47,031,000 $ 12,038,000
Cash flows from operating activities:
Loss from continuing operations (6,498,000) (14,567,000) (43,984,000)
Adjustments to reconcile net income to
cash flows from operating activities:
Adjustment in value of foreclosed
realty assets - 11,908,000 -
Extraordinary items 504,000 (2,637,000) -
Provision for reserve on
realty assets - - 21,000,000
Change in deferred income taxes 1,780,000 (3,536,000) 13,931,000
Depreciation and amortization 10,085,000 10,598,000 11,235,000
Loss (gain) on sale of property
and equipment (191,000) 190,000 (170,000)
Loss due to transfer of
realty assets 1,166,000 1,433,000 -
Loss on termination of interest
rate swap agreement (1,670,000) - -
Restructuring costs - - 5,000,000
Other 5,279,000 2,233,000 3,779,000
Changes in assets and liabilities,
net of effects of divestitures:
(Increase) decrease in
accounts receivable (8,584,000) 15,714,000 2,682,000
Decrease in inventories 1,176,000 6,921,000 13,168,000
Increase in prepaid expenses (1,899,000) (1,379,000) (2,038,000)
Decrease in realty assets 5,317,000 1,005,000 4,552,000
Increase (decrease) in
accounts payable 3,915,000 130,000 (6,180,000)
Increase (decrease) in
accrued expenses 5,498,000 (7,288,000) (6,777,000)
Increase (decrease) in
other liabilities (1,056,000) (1,426,000) 71,000
Increase in other assets (10,772,000) (663,000) (2,872,000)
Other, net (201,000) - 691,000
Cash flows from operating
activities 3,849,000 18,636,000 14,088,000
Cash flows from investing activities:
Proceeds from sale of savings bank - - 41,603,000
Proceeds from sale of subsidiary 2,756,000 7,691,000 -
Purchases of property and equipment (5,347,000) (4,592,000) (6,575,000)
Reduction of long-term receivables 2,140,000 1,600,000 1,374,000
New long-term receivables (388,000) (937,000) (1,362,000)
Proceeds from sale of property
and equipment 291,000 257,000 364,000
Cash flows from investing
activities (548,000) 4,019,000 35,404,000
Cash flows from financing activities:
Decrease in notes payable - (361,000) (526,000)
Repayment of long-term debt (390,660,000) (146,094,000) (104,514,000)
Repayment of realty debt (5,543,000) (4,015,000) (5,117,000)
Dividends paid - - (2,605,000)
Proceeds from new long-term debt 394,928,000 90,952,000 98,263,000
Cash flows from financing
activities (1,275,000) (59,518,000) (14,499,000)
Net increase (decrease) in cash and cash
equivalents 2,026,000 (36,863,000) 34,993,000
Total cash and cash equivalents at end
of year $ 12,194,000 $ 10,168,000 $ 47,031,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts of
the Company and its majority-owned domestic and foreign
subsidiaries. Real estate joint ventures that are majority-owned
and under the control of the Company are also included in the
consolidated accounts of the Company. All unconsolidated companies
are reflected in the financial statements on the equity basis. 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.
Realty Assets:
Realty assets consist of those parcels and developments which
are expected to be sold within the operating cycle of the Realty
segment. Historically, the operating cycle of the Realty segment
has been three to five years. Realty assets are stated at the
lower of historical cost or estimated net realizable value and
include land held for sale together with related development and
carrying costs (interest and property taxes during development),
and equity investments in realty joint ventures. For financial
reporting purposes, realty assets must be carried at the lower of
historical cost or estimated net realizable value. Net realizable
value differs from market value in that, among other things, market
value is based on the price obtainable in a bulk cash sale at the
present time, considers a potential purchaser's requirement for
future profit and discounts the timing of expected cash receipts at
a market rate of interest, whereas net realizable value is the
<PAGE>
<PAGE>
Significant Accounting Policies (continued)
Realty Assets (continued):
price obtainable in the future for individual properties as
improved, net of disposal costs, without provision for future
profit and without discounting future cash receipts to present
value.
The estimated net realizable value for each property equals or
exceeds its book value. It is currently the Company's intention to
dispose of these properties in an orderly process over time.
Accordingly, the lower of historical cost or estimated net
realizable value is the appropriate carrying value for properties
under generally accepted accounting principles. If, however, the
Company were to change its intention and any of these properties
were sold in bulk at the market values, the Company could incur a
material loss. Additionally, if market conditions deteriorate
further or continue to remain depressed for an extended period of
time (and as a result the sales do not occur as estimated in the
net realizable value analyses), the Company may incur material
losses.
In the fourth quarter of 1992, pursuant to the issuance of
Statement of Position (SOP) - No. 92-3 "Accounting For Foreclosed
Assets," issued by the American Institute of Certified Public
Accountants, the Company changed its accounting for foreclosed
assets and adjusted the carrying amount of foreclosed realty assets
to reflect the fair value less the estimated costs to sell the
assets.
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 automobiles for airbag units not produced by the licensee.
<PAGE>
<PAGE>
Significant Accounting Policies (continued)
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
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:
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.
<PAGE>
<PAGE>
Significant Accounting Policies (continued)
Earnings Per Share:
Net earnings per share of Common stock and Common stock
equivalents has been computed on the basis of the average number of
Common shares outstanding during each year. The average number of
shares has been adjusted for assumed exercise at the beginning of
the year (or date of grant, if later) for any dilutive stock
options, with funds obtained thereby used to purchase shares of the
Company's Common stock at the average price during the year, and
assumed conversion of all dilutive convertible preferred stock. The
conversion of all convertible debt, after elimination of related
interest expense, would result in minimal dilution. Common stock
equivalents that are anti-dilutive are excluded from the
computation of earnings per share and earnings are reduced by the
dividend requirements on such equivalents.
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.
Loss Applicable to Common Shares:
Earnings or loss applicable to Common shares is computed by
reducing the net earnings or loss by dividends, including
undeclared or unpaid dividends, of the Company's Preferred A, B and
D stocks.
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.
<PAGE>
Significant Accounting Policies (continued)
Accounting For Foreclosed Assets:
In Accordance with Statement of Position (SOP) - No. 92-3
"Accounting For Foreclosed Assets," which was issued by the
American Institute of Certified Public Accountants in 1992, the
Company accounts for and reports the value of foreclosed realty
assets at fair value less the estimated costs to sell the assets.
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
Realty Assets
The Company has adopted a plan to divest itself of realty
assets which is expected to be accomplished over several years.
Realty assets at December 31, 1993 of $117,869,000 are primarily
unimproved commercial, industrial and mixed use properties.
During the fourth quarter of 1991 the Company completed a
formal review of its real estate properties held for investment.
The review included valuations and appraisals by professional
appraisal firms. These reviews were updated during 1992 and 1993.
As a result of the 1991 review, the Realty asset reserve and a
corresponding non-cash charge to earnings of $21,000,000 was
recorded. Pursuant to the 1992 and 1993 updated review, no
adjustment to Realty asset values was necessary. In the fourth
quarter of 1992, pursuant to the issuance of Statement of Position
(SOP) No. 92-3, "Accounting For Foreclosed Assets," issued by the
American Institute of Certified Public Accountants, the Company was
required to change its accounting for foreclosed assets and
adjusted the carrying amount of foreclosed realty assets to reflect
the fair value less the estimated costs to sell the assets, which
resulted in an $11,908,000 writedown of realty assets and a
corresponding charge to earnings of realty operations. Those
assets previously had been carried at "net realizable value", which
was the proper carrying value for those assets prior to the change
in accounting rules.
<PAGE>
<PAGE>
Realty Assets, continued
Pretax charges to earnings of $1,166,000 and $1,433,000 were
made during 1993 and 1992, respectively, which represented the book
value in excess of the fair value of real estate assets transferred
to creditors in full payment of non-recourse debt associated with
such assets. Extraordinary gains in amounts equal to the charges
were also recognized reflecting the settlement of the debt.
In reference to the Company's consolidated cash flow in 1993
non-cash Realty asset transactions included an increase in Realty
assets and an increase in Realty debt and accrued expenses in the
amount of $19,128,000 upon the consolidation of a previously
unconsolidated joint venture. Non-cash realty items also included
reductions of $4,677,000 due to forfeitures of properties and other
transactions. In 1992, non-cash Realty asset transactions included
the non-cash writedown related to the change in accounting for
foreclosed assets of $11,908,000 and forfeitures of properties in
settlement of liabilities and exchanges of assets of $8,744,000.
In 1991 non-cash transactions included a $21,000,000 decrease in
Realty assets, resulting from the above-mentioned charge which was
partially offset by a non-cash increase of $11,038,000, as a result
of actual or in-substance foreclosures on notes receivable.
At December 31, 1992, the Company had an investment in an
unconsolidated Realty joint venture of $29,184,000. During 1993,
the joint venture was consolidated with the Company's other
operations and accordingly left no investment in unconsolidated
joint ventures at December 31, 1993. During the three year period
ending December 31, 1993 the joint venture had no sales and no
earnings or losses. At December 31, 1993 the Company had an
unconsolidated joint venture with no net investment which had
assets at December 31, 1993 and 1992 of $6,694,000 and $6,943,000,
respectively. Revenues for this unconsolidated joint venture for
1993, 1992 and 1991 were $522,000, $494,000 and $1,679,000,
respectively. Net losses for the joint venture for 1993, 1992 and
1991 were $322,000, $1,398,000 and $62,000, respectively. The
Company's share of these losses for 1993, 1992 and 1991 were
$214,000, $932,000 and $31,000, respectively.
<PAGE>
<PAGE>
Long-Term Receivables
Long-term receivables consist of the following:
(balances in thousands) 1993 1992
Notes receivable, including accrued
interest and income tax refunds $ 10,103 $ 17,344
Amounts due within one year, included
in accounts receivable (203) (486)
$ 9,900 $ 16,858
Long-term receivables include income tax receivables of
$4,264,000. The remaining notes range in length from one to
fifteen years and bear interest at December 31, 1993 at rates
ranging from 5% to 12%. Payment terms vary by note, but generally
require monthly, quarterly or annual interest and principal
payments. The notes receivable balance is net of reserves of
$2,274,000 and $1,669,000 at December 31, 1993 and 1992,
respectively. Notes receivable related to the Realty segment
include non-cash reductions of $510,000, resulting from
forfeitures, settlements of liabilities and exchanges of assets.
Property, Plant and Equipment
Property, plant and equipment, is summarized as follows:
(balances in thousands) 1993 1992
Machinery and equipment $ 97,054 $ 97,958
Buildings and improvements 32,468 30,312
Land 2,715 2,719
$132,237 $130,989
Depreciation of property, plant and equipment for continuing
operations was $8,286,000, $8,667,000, and $9,254,000 for the years
ended December 31, 1993, 1992 and 1991, respectively.
<PAGE>
<PAGE>
Long-Term Debt
Long-term debt consists of the following:
(balances in thousands) 1993 1992
10-3/4% Senior Notes, due 2003 $115,000 $ -
12-1/4% Senior Discount Debentures,
$126,255,000 face amount, due 2005 71,667 -
Notes, interest based on prime or
other variable market rates, due 1998 20,000 126,347
Revolving credit facilities 26,743 17,616
12.87%-14.59% subordinated notes - 38,344
Subordinated notes, interest based on
prime or LIBOR - 30,000
12.8% note - 2,954
9% convertible subordinated
debentures - 7,677
8-1/8% debentures - 3,894
Capitalized leases and other 435 1,329
233,845 228,161
Less current maturities 2,176 10,857
Long-term debt $231,669 $217,304
On October 22, 1993 the Company completed a major debt
refinancing program. The Company received gross proceeds of
$70,000,000 from the issuance of Senior Discount Debentures, due
2005, which were issued to yield 12.25%. In addition, Talley
Manufacturing and Technology, Inc., ("Talley Manufacturing") a
newly formed wholly-owned subsidiary of the Company, which owns all
of the Company's subsidiaries (except for the subsidiaries holding
the Company's real estate operations), issued $115,000,000 of
Senior Notes, due 2003, with an interest rate of 10.75%. Talley
Manufacturing also completed a secured credit facility with two
institutional lenders. The gross proceeds of the public offerings,
plus an initial borrowing under the secured credit facility, 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.
<PAGE>
<PAGE>
Long-Term Debt, (continued)
The indentures for the Senior Notes and the Senior Discount
Debentures 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.
As a holding company with no significant operating or income-
producing assets beyond its stock interests in Talley Manufacturing
and the subsidiaries holding its real estate operations, Talley is
dependent primarily upon distributions from these subsidiaries to
meet its debt service and other obligations. Payments from the
subsidiaries are generally limited by the debt covenants of Talley
Manufacturing.
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 Talley
Manufacturing has been pledged by Talley to secure the Senior
Discount Debentures.
The Senior Notes mature on October 15, 2003 and Talley
Manufacturing is 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
Senior Discount Debentures mature on October 15, 2005. No interest
on the Discount Debentures will be payable until April 15, 1999,
when interest will be payable semi-annually on April 15 and October
15 of each year. In the event that certain financial and other
conditions are satisfied, the Discount Debentures require
prepayments based on defined levels of airbag royalties received
and proceeds from real estate sales.
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 with an
additional fee of one-quarter of one percent on unused amounts
under the revolving facility.
<PAGE>
<PAGE>
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 $21,675,000, $30,459,000 and
$32,465,000, respectively. Accrued interest expense at December
31, 1993, 1992 and 1991 was $10,999,000, $3,689,000 and $5,453,000,
respectively. Included in deferred charges at December 31, 1993
are debt costs of $11,362,000. 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 $952,000, including $296,000 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.
Realty Debt
Realty debt consists primarily of amounts payable in
connection with properties acquired by the Company's real estate
operations. The various notes bear interest at rates ranging from
7.6% to 12.0% with maturities ranging from 1994 through 2004.
Payment terms vary by note, but generally require monthly,
quarterly or annual interest and principal payments. Realty debt
at December 31, 1993 and 1992 was $28,241,000 and $25,663,000,
respectively. Aggregate maturities of Realty debt for the years
ending December 31, 1994 through 1998 are $16,795,000, $4,111,000,
$5,357,000, $560,000 and $232,000, respectively. Realty debt is
collateralized by properties and notes receivable of the Company's
real estate operations with a carrying value of approximately
$103,000,000.
Stock Options
At December 31, 1993, under the 1990 and 1978 Stock Option
Plans, 544,000 and 478,000 shares of Common stock, respectively,
were reserved for sale to officers and employees. The plans
require incentive stock option prices to be no less than the market
value of the stock at the date of grant and that all options,
incentive and non-qualified, become exercisable in ten years or
less from the date of grant, as specified in the individual grants.
During the year ended December 31, 1993 438,000 options were
granted under the 1990 Stock Option Plan and 132,000 grants were
made under the 1978 Stock Option Plan. During the year ended
December 31, 1993, no options were exercised under either of the
two stock option plans. There were 63,000 options that expired or
were canceled under the 1978 Stock Option Plan during the year
ended December 31, 1993. Prior to 1993 there were no options
granted under the 1990 Stock Option Plan.
<PAGE>
<PAGE>
Stock Options, (continued)
In 1992, no options were exercised and 49,500 options were
canceled under the 1978 Stock Option Plan. In 1991, no options
were exercised, and 58,750 options were canceled under the 1978
Stock Option Plan.
At December 31, 1993, there were 856,000 total options
outstanding at an average price of $6.09, with 205,000 options
exercisable. At December 31, 1992, 335,000 options were
outstanding at an average price of $9.53 with 211,000 exercisable.
Common stock reserved for future option grants under the 1978 Plan
amounted to 60,000 and 130,000 shares at December 31, 1993 and
1992, respectively. Common stock reserved for future option grants
under the 1990 Plan amounted to 105,000 and 444,000 at December 31,
1993 and 1992, respectively.
During the year ended December 31, 1993, 476,000 and 52,000
shares were issued under the 1983 Long-Term Incentive Plan and the
1983 Restricted Stock Plans, respectively. There were no shares
issued under either of these Plans in 1992 or 1991.
Capital Stock
Each share of Series A Convertible Preferred stock entitles
its holder to receive an annual cash dividend of $1.10 per share;
to convert it into .95 of a share of Common stock, as adjusted in
the event of future dilution; to receive up to $25.00 per share in
the event of involuntary or voluntary liquidation; and, subject to
certain conditions in loan agreements, may be redeemed at the
option of the Company at a price of $25.00 per share.
Each share of Series B $1.00 Cumulative Convertible Preferred
stock entitles its holder to receive an annual cash dividend of
$1.00 per share; to convert it into 1.31 shares of Common stock, as
adjusted in the event of future dilution; to receive up to $20.00
per share in the event of involuntary or voluntary liquidation;
and, subject to certain conditions in loan agreements, may be
redeemed at the option of the Company at a price of $52.50 per
share.
Each share of Common stock has a preferred stock purchase
Right attached, allowing the holder, upon the occurrence of a
change in control, as defined in a Rights agreement, to buy one
one-hundredth of a share of Series C Junior Participating Preferred
stock at an exercise price of $70. The Series C stock, which may
be purchased upon exercise of the Rights, is nonredeemable and
junior to other series of the Company's preferred stock. No shares
of Series C stock have been issued as of December 31, 1993.
<PAGE>
<PAGE>
Capital Stock, (continued)
Each share of Series D Convertible Preferred stock entitles
its holder to receive an annual cash dividend of $4.50 per share
($15.75 after February 28, 1998); to convert it into 10 shares of
Common stock, as adjusted in the event of future dilution; to
receive $150 per share ($175 after February 28, 1998) in the event
of involuntary or voluntary liquidation; and subject to certain
conditions in loan agreements, may be redeemed at the option of the
Company at the higher of $150 per share ($175 after February 28,
1998) or the average of the conversion value per share for the last
ten trading days prior to redemption (not to exceed $200 per
share).
Dividends on the shares of Series A, Series B and Series D
Preferred stock are cumulative and must be paid in the event of
liquidation and before any distribution to holders of Common stock.
The Company has not made any dividend payments on its preferred and
common stock since the first quarter of 1991, and the ability to
pay dividends in the future is limited by the provision of the
Company's debt agreements. Cumulative dividends on preferred
shares that have not been declared or paid since the first quarter
of 1991 are approximately: Series A - $215,000 ($3.025 per share),
Series B - $4,258,000 ($2.750 per share) and Series D - $1,489,000
($12.375 per share). The failure to pay the regular quarterly
dividends for the first three quarters of 1992 on the Preferred
stock gave rise at that time to the right of the holders of the
three series to elect two directors to the Company's Board of
Directors.
At December 31, 1993 there were 5,161,000 shares of Common
stock reserved for conversion of preferred stock, for exercise of
stock options, and for issuance of shares under the Employee Stock
Purchase Plan.
Leases
Rental expense for continuing operations (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, $6,641,000 in
1992 and $7,203,000 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.
<PAGE>
<PAGE>
Leases, (continued)
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 its 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.
Pension expense for continuing operations 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:
(balances 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
<PAGE>
<PAGE>
Employee Benefit Plans, (continued)
The following table sets forth the aggregate funded status of
defined benefit plans at December 31, 1993:
Assets Exceed Accumulated
Accumulated Benefits
(balances 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.
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.
<PAGE>
<PAGE>
Employee Benefit Plans, (continued)
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 Company paid down
the loan as part of the debt refinancing program. As a result, the
Company acquired the securities not allocated to the Plan.
Treasury stock valued at $471,000 at December 31, 1993 represents
the shares to be allocated to the Plan upon receipt of future
payments from the Plan. Interest expense on the amount payable by
the Plan 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 $2,000,000 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>
<PAGE>
Income Taxes
Earnings from continuing operations 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 $ (3,229) $(18,623) $(42,704)
Foreign 3 (528) (355)
$ (3,226) $(19,151) $(43,059)
Current tax expense (credit):
United States $ 347 $ 953 $(12,451)
Foreign 59 (285) 49
State and local 581 921 (604)
987 1,589 (13,006)
Deferred tax expense (credit):
United States (347) (953) 12,408
Foreign 8 94 (112)
State and local 2,120 (2,677) 1,635
1,781 (3,536) 13,931
$ 2,768 $ (1,947) $ 925
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 $ 8,964 $ 1,332
Reserves on realty assets 12,201 17,285
Debt restructuring charges - 3,966
Accrued expenses 7,919 5,658
Other 1,518 1,153
Valuation allowance for
deferred tax assets (25,597) (22,167)
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>
<PAGE>
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
Losses on realty assets not
utilized 10,602
Other 3,268
$ 13,931
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 $(1,098) $ (6,511) $(14,640)
Operating losses not utilized 1,098 6,525 14,597
State and local taxes 2,701 (1,756) 1,031
Other 67 (205) (63)
$ 2,768 $ (1,947) $ 925
United States income taxes have not been provided on
$2,800,000 of undistributed earnings from continuing operations 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.
At December 31, 1993, the Company had an unrecognized net
operating loss carryforward for financial statement purposes of
approximately $67,000,000. The Company's 1993 net operating loss
for federal tax purposes of approximately $21,000,000 is available
for carryforward for 15 years. In addition, the Company has
alternative minimum tax credits of approximately $1,700,000 which
can be utilized against regular taxes in the future.
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>
<PAGE>
Commitments and Contingencies
TRW Claims. Litigation between the Company and TRW has been
pending in the United States District Court in Phoenix, Arizona
since November 1989. Certain of the claims raised in this
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 claim 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
consultation with counsel the Company believes that TRW's remaining
claims are not well founded and were resolved by the 1992
arbitration decision. After submission to arbitration, discovery
was stayed. Other than for the amounts claimed in the arbitration,
TRW has not claimed a specific dollar amount with respect to those
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 claim 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 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>
<PAGE>
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
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.
<PAGE>
<PAGE>
Commitments and Contingencies (continued)
Environmental, continued.
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
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.
<PAGE>
<PAGE>
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates
fair value because of the short maturity of those instruments.
Long-term receivables and Realty debt instruments have been issued
in connection with the Company's real estate operations and as a
result of foreclosure, forfeiture and renegotiation of such
instruments in conjunction with the constant evaluation of the real
estate portfolio it is believed that the fair value of such
instruments as they have been restructured, or renegotiated,
approximates the carrying value of these 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.
Extraordinary Gains (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 $1,670,000. Due to the
consolidated tax position of the Company there was no tax
benefit recognized in connection with this loss. During December
1993, an extraordinary gain of $1,166,000 was recognized in
<PAGE>
<PAGE>
Extraordinary Gains (Loss) (continued)
connection with the transfer of real estate assets to creditors to
settle debt associated with such assets. The gain represents the
excess of the carrying value of the debt over the fair value of the
properties transferred to the creditor. Included in losses from
operations is a corresponding charge representing the book value in
excess of the fair value of the properties transferred.
During June 1992, the Company completed two transactions in
which it exchanged 200,824 and 519,922 newly issued shares of its
common stock with institutional investors for $1,200,000 principal
amount of its 9% convertible subordinated debentures and $2,100,000
principal amount of its 12.87% subordinated notes, respectively.
An extraordinary gain of $1,204,000 was recognized in connection
with the extinguishment of debt. Due to the tax position of the
Company there were no taxes applicable to the exchange of shares.
An extraordinary gain was also recognized in the third quarter
of 1992 with the transfer of real estate assets to creditors to
settle debt associated with such assets. The gain of $1,433,000
represents the excess of the carrying amount of the debt over the
fair value of the properties transferred to the creditors.
Included in losses from operations is a corresponding $1,433,000
charge representing the book value in excess of the fair value of
the properties transferred.
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.
<PAGE>
<PAGE>
Discontinued Operations
On May 30, 1991 the Company sold its federal savings bank,
(which was acquired on January 30, 1989), for $41.6 million cash,
which approximated book value on the date of closing. For the five
months ended May 31, 1991 net interest income for the savings bank
operations was $8,418,000. Earnings from the discontinued savings
bank operations for the five months preceding the sale was
$825,000.
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.
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.
Also in 1992, pursuant to the issuance of Statement of
Position (SOP) No. 92-3, "Accounting For Foreclosed Assets," issued
by the American Institute of Certified Public Accountants, the
Company changed its accounting for foreclosed assets and adjusted
the carrying amount of foreclosed realty assets to reflect the fair
value less the estimated costs to sell the assets, which resulted
in an $11,908,000 writedown of realty assets and a corresponding
charge to earnings from operations.
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
<PAGE>
<PAGE>
Recently Issued Accounting Standards (continued)
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. Talley'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. The Company is also
engaged in the orderly sale of the assets of its real estate
operations.
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.
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.
<PAGE>
<PAGE>
Segment Operations, (continued)
Government Products and Services, continued
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 Talley 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.
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
<PAGE>
<PAGE>
Segment Operations, (continued)
Industrial Products, continued
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, Talley 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.
Realty
In 1992, management adopted a plan to dispose of the Company's
real estate operations, reflecting a strategic decision to exit
this business. Talley's real estate portfolio consists primarily
of undeveloped commercial, industrial and residential land located
in the greater Phoenix, San Diego and San Antonio areas.
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 stockholders'
equity decreased from $(83,000) at December 31, 1992 to $(370,000)
at December 31, 1993.
<PAGE>
<PAGE>
Segment Operations, (continued)
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>
<PAGE>
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
Realty 121,355 116,064 136,713
354,236 342,187 392,943
Corporate 28,202 21,635 73,948
$382,438 $363,822 $466,891
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
Realty 15 33 40
9,743 10,203 10,791
Corporate 342 395 444
$ 10,085 $ 10,598 $ 11,235
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
Realty 1 28 8
5,245 4,296 6,514
Corporate 102 296 61
$ 5,347 $ 4,592 $ 6,575
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, 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
Realty 6,072 1,155 6,028 1,818 587
$324,200 $320,718 $336,893 $336,449 $373,801
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
Realty (4,416) (16,449) (26,946) (57,839) (30,333)
36,983 20,228 6,339 (35,243) 75,820
Corporate expenses (14,846) (9,672) (16,127) (14,058) (13,332)
Non-segment interest income 381 1,923 2,248 2,003 2,233
Interest expense (25,744) (31,630) (35,519) (23,915) (22,741)
Earnings (loss) from continuing
operations before income taxes
and extraordinary gains (loss) $ (3,226) $(19,151) $(43,059) $(71,213) $ 41,980
</TABLE>
<PAGE>
<PAGE>
Summary of Segment Operations, (continued)
Operating income in 1992 includes a charge to earnings of
$11,908,000 to adjust the carrying value of foreclosed assets of the
Realty segment. Operating income in 1991 includes a pretax provision
for a reserve on real estate assets of $21,000,000 and an increase to
the restructuring reserve of $5,000,000. Operating income in 1990
includes a charge of $15,000,000 related to the Company's restructuring
program and the Realty segment includes a $65,000,000 reserve provision
for real estate assets. 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, while the operating loss for the Realty
segment includes a pretax charge to earnings for a reserve established
for real estate assets of $36,600,000. Sales from the airbag operations
included in the Industrial Products segment were $11,567,000 in 1989.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Summary of Operations
(in thousands, except per share amounts)
Years Ended December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Revenue $324,200 $320,718 $336,893 $336,449 $373,801
Cost of sales and services 240,827 234,956 255,971 255,467 276,905
Selling, general and
administrative expenses 57,877 58,669 60,780 57,687 64,036
Restructuring costs - - 5,000 15,000 -
Provision for reserve on realty
assets - - 21,000 65,000 36,600
Adjustment in foreclosed realty
assets - 11,908 - - -
Gain on sale of airbag operations - - - - (59,997)
298,704 305,533 342,751 393,154 317,544
Earnings (loss) from operations 25,496 15,185 (5,858) (56,705) 56,257
Other income, net (2,978) (2,706) (1,682) 9,407 8,464
22,518 12,479 (7,540) (47,298) 64,721
Interest expense 25,744 31,630 35,788 31,493 31,885
Interest capitalized - - (269) (7,578) (9,144)
25,744 31,630 35,519 23,915 22,741
Earnings (loss) from continuing
operations before income taxes
and extraordinary gains (loss) (3,226) (19,151) (43,059) (71,213) 41,980
Income tax provision (benefit) 2,768 (1,947) 925 (18,379) 17,630
Earnings (loss) from continuing
operations (5,994) (17,204) (43,984) (52,834) 24,350
Earnings from discontinued
operations, net of income taxes - - 825 2,647 1,572
Extraordinary gains (loss), net
of income tax (504) 2,637 - - -
Net earnings (loss) $ (6,498) $(14,567) $(43,159) $(50,187) $ 25,922
Earnings (loss) applicable to
common shares (after deduction
of preferred stock dividends) $ (8,665) $(16,735) $(45,331) $(52,347) $ 25,922
Earnings (loss) per share of
common stock and common stock
equivalents:
Continuing operations $ (.85) $ (2.11) $ (5.24) $ (6.25) $ 1.95
Discontinued operations - - .09 .30 .13
Extraordinary gains (loss) (.05) .29 - - -
Net earnings (loss) $ (.90) $ (1.82) $ (5.15) $ (5.95) $ 2.08
Weighted average shares
outstanding 9,676 9,189 8,795 8,791 12,491
</TABLE>
<PAGE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Talley Industries, 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 Industries, 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 and foreclosed assets in 1992.
PRICE WATERHOUSE
Phoenix, Arizona
February 22, 1994
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Quarterly Financial Results (Unaudited)
(in thousands, except per share amounts)
Quarter Ended March June September December
Year Ended December 31, 1993
<S> <C> <C> <C> <C>
Revenue $ 77,117 $ 85,675 $ 84,400 $ 77,008
Gross profit on sales and services 17,715 18,395 19,978 16,417
Loss before extraordinary gain (loss) (1,071) (524) (1,685) (2,714)
Extraordinary gain (loss) - - - (504)
Net loss (1,071) (524) (1,685) (3,218)
Earnings (loss) per share:
Loss before extraordinary gain (loss) (.17) (.11) (.23) (.34)
Extraordinary gain (loss) - - - (.05)
Net loss (.17) (.11) (.23) (.39)
Year Ended December 31, 1992
Revenue $ 86,139 $ 86,473 $ 74,079 $ 74,027
Gross profit on sales and services 20,178 21,687 18,713 18,570
Earnings (loss) before extraordinary gains (3,292) 110 (2,864) (11,158)
Extraordinary gains - 1,204 1,433 -
Net earnings (loss) (3,292) 1,314 (1,431) (11,158)
Earnings (loss) per share:
Loss before extraordinary gains (.44) (.05) (.36) (1.23)
Extraordinary gains - .14 .15 -
Net earnings (loss) (.44) .09 (.21) (1.23)
Year Ended December 31, 1991
Revenue $ 74,899 $ 85,576 $ 79,882 $ 96,536
Gross profit on sales and services 15,454 18,884 20,146 22,125
Loss from continuing operations (7,666) (4,285) (2,538) (29,495)
Discontinued operations 349 476 - -
Net loss (7,317) (3,809) (2,538) (29,495)
Earnings (loss) per share:
Continuing operations (.93) (.55) (.35) (3.41)
Discontinued operations .04 .05 - -
Net loss (.89) (.50) (.35) (3.41)
</TABLE>
<PAGE>
<PAGE>
Talley Industries, Inc. and Subsidiaries
Quarterly Financial Results (Unaudited) - continued
In the fourth quarter of 1993, the Company recognized an
extraordinary loss of $1,670,000 due to the termination of an
interest rate swap agreement and the payoff of the underlying debt.
An extraordinary gain of $1,166,000 was also recognized in the
fourth quarter in connection with the transfer of real estate
assets to creditors to settle debt associated with such assets.
During the second quarter of 1992 the Company recognized an
extraordinary gain of $1,204,000 in connection with the debt
exchange for common stock transaction. An extraordinary gain of
$1,433,000 was also recognized in the third quarter with the
transfer of real estate assets to creditors to settle corresponding
debt. In the fourth quarter of 1992 a charge to earnings of
$11,908,000 was recorded to adjust the carrying value of foreclosed
assets of the Company's real estate operations. In the fourth
quarter of 1991 the Company increased the reserve on real estate
assets by $21,000,000 and an increase to the reserve related to the
Company's restructuring program of $5,000,000.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, 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 $ 5,347 $ 4,592 $ 6,575 $ 14,554 $ 14,098
Depreciation and amortization 10,085 10,598 11,235 11,740 12,422
Current assets 148,145 135,752 209,051 228,931 373,205
Current liabilities 84,367 75,864 387,085 * 412,901 * 157,004
Working capital 63,778 59,888 (178,035)* (183,970)* 216,201
Total assets 382,438 363,822 466,891 525,994 569,135
Total debt 262,086 253,824 322,247 334,174 314,080
Long-term debt 231,669 217,304 - - 230,272
Long-term realty debt 11,446 12,452 - - -
Long-term debt, subject to
acceleration - - 248,642 * 258,321 * -
Stockholders' equity 36,542 40,781 53,697 97,435 153,052
Current ratio 1.8 1.8 .5 .6 2.4
Debt to equity ratio 7.2 6.2 6.0 3.4 2.1
<CAPTION>
For the dividends per common share see Stock Market Data on page F-52.
* Long-term debt, subject to acceleration is included in current liabilities
SUPPLEMENTAL DATA
(in thousands)
Years Ended December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Taxes, other than income:
Payroll $7,060 $7,209 $7,350 $7,417 $7,596
Property 1,557 1,721 1,931 1,812 1,678
Other 328 382 627 461 623
8,945 9,312 9,908 9,690 9,897
Maintenance and repairs 4,669 4,626 4,628 4,499 4,025
Rent 5,962 7,334 7,944 7,826 6,815
Advertising 648 720 958 1,164 1,162
Research and development 3,122 3,904 4,223 3,996 3,822
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Talley Industries, Inc. and Subsidiaries
Stock Market Data
SECURITIES
Two of the Company's securities are listed on the New York Stock Exchange: Common stock
(TAL) and Series B $1.00 Cumulative Preferred stock (TALB). Series A Preferred stock is
traded occasionally in the over-the-counter market. Series D Convertible Preferred stock is
owned by one individual and has never been traded. As of February 1, 1994, there were
2,928 holders of record of Talley Industries, Inc. Common stock.
The high and low sales prices of the Common and Series B Preferred stock on the New York
Stock Exchange, by quarter, for the years ended December 31, 1993 and 1992 were as follows:
Common Stock (TAL) Series B (TALB)
Quarter 1993 1992 1993 1992
Ended High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March $5 $3 1/8 $4 1/4 $2 3/4 $ 9 3/4 $ 6 1/2 $7 1/2 $5
June 6 3/4 4 1/8 3 1/4 2 1/2 11 1/2 8 3/4 6 1/8 5
September 8 6 1/8 3 1/8 2 1/4 13 1/4 11 6 5/8 5 1/4
December 9 5 1/2 4 2 3/8 14 1/2 10 3/4 7 7/8 5 1/2
<PAGE>
<PAGE>
Talley Industries, Inc. and Subsidiaries
Stock Market Data (continued)
DIVIDENDS
No Preferred dividends were declared or paid for the four
quarters of 1993 and 1992 and the last three quarters of 1991.
Quarterly dividend payments on Series A Preferred and Series B
Preferred stock amounted to 27.5 cents and 25 cents per share,
respectively, during each quarter of 1986 through 1990 and the
first quarter of 1991. Dividends on Preferred D stock are paid at
a quarterly rate of $1.125 per share through the first quarter of
1991.
No Common stock dividends were declared or paid for the four
quarters of 1993 and 1992 and the last three quarters of 1991. In
1989, the dividend was increased from 7.5 cents to 12.5 cents per
share. Three quarters in 1989 and all quarters in 1990 were paid
at this increased rate. In February 1991, the quarterly dividend
was reduced to 5 cents per share.
REGISTRAR
Chemical Trust Company of California, Post Office Box 712399,
Los Angeles, California 90071.
TRANSFER AGENT
Common stock, Series A Preferred stock and Series B Preferred
stock. Chemical Trust Company of California, Post Office Box
712399, Los Angeles, California 90071.
10.75% Senior Notes and 12.25% Senior Discount Debentures.
Bank One Ohio Trust Company, 100 E. Broad Street, Columbus, Ohio
43271-0181.
FORM 10-K
A copy of Talley Industries' Annual Report on Form 10-K to the
Securities and Exchange Commission may be obtained, without charge,
by writing to the Treasurer at the Company's Executive Offices.
ANNUAL MEETING
The annual meeting of shareholders of Talley Industries, Inc.
will be held on May 3, 1994, 11:00 a.m., Mountain Standard Time, at
the Ritz-Carlton Hotel, 2401 E. Camelback Road, Phoenix, Arizona
85016.
<PAGE>
<PAGE>
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, Inc., Davidson, North Carolina. Arthur M. Squicciarini,
President.
SPECIALTY PRODUCTS
Waterbury Companies, Inc., Waterbury, Connecticut. Michael J.
Tragakiss, President.
REALTY
Talley Realty Group, Phoenix, Arizona. Charles Freericks,
President.
<PAGE>
<PAGE>
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**
* Executive Committee Members
** Audit Committee
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>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II
Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other than Related Parties
December 31, 1993
(dollars in thousands)
Balance at DEDUCTIONS BALANCE AT
Beginning of Additions/ Amounts Amounts END OF PERIOD
Name of Debtor Period (Deletions) Collected Written off Current Not Current
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993:
$ - $ - $ - $ - $ - $ -
December 31, 1992:
Realty Segment:
John & Sharon Andersen (a) $ 275 $ (275) $ $ $ $
A&K Partners (b) 200 (200)
John & Sharon Andersen (c) 125 (125)
$ 600 $ (600) $ - $ - $ - $ -
December 31, 1991:
Realty Segment:
John & Sharon Andersen (a) $ 275 $ $ $ $ 275 $ -
A&K Partners (b) 205 5 5 195
John & Sharon Andersen (c) 140 15 17 108
$ 620 $ - $ 20 $ - $ 297 $ 303
<CAPTION>
FOOTNOTES:
(a) Note receivable from an officer of one of the Company's subsidiaries, due April, 1992, accruing
interest at 9%, collateralized by a 50% interest in A&K Partners, an Arizona general partnership.
During 1992, the note was exchanged for property, leaving a zero balance at December 31, 1992.
(b) Note receivable from a partnership, of which an officer of one of the Company's subsidiaries is a
partner, accruing interest at 10%, payment by monthly installments of principal and interest of
$2,084 until January 12, 1998 with the balance due February 12, 1998, collateralized by a 30%
interest in an Arizona joint venture. During 1992, the note was exchanged for property, leaving a
zero balance at December 31, 1992.
(c) Note receivable from an officer of one of the Company's subsidiaries, accruing interest at 10%,
annual payments of principal and interest of $29,294 due on each December 1, from 1989 to 1993, with
the balance due on December 1, 1994, collateralized by a 50% interest in a partnership, of which an
officer of one of the Company's subsidiaries is a partner. During 1992, the note was exchanged for
property, leaving a zero balance at December 31, 1992.
</TABLE>
<PAGE>
<PAGE>
SCHEDULE III
Page 1 of 6
TALLEY INDUSTRIES, INC.
(Registrant Only)
STATEMENT OF CONDITION (BALANCE SHEET)
(IN THOUSANDS)
DECEMBER 31,
1993 1992
Assets
Current assets:
Cash and cash equivalents $ 5,750 $ -
Prepaid expenses 296 -
Total current assets 6,046 -
Investment in and advances to affiliates 100,968 97,385
Deferred charges and other assets 3,194 -
Total assets $110,208 $ 97,385
See accompanying notes and the notes to the consolidated financial
statements.
<PAGE>
<PAGE>
SCHEDULE III
Page 2 of 6
TALLEY INDUSTRIES, INC.
(Registrant Only)
STATEMENT OF CONDITION (BALANCE SHEET)
(IN THOUSANDS)
DECEMBER 31,
1993 1992
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses 101 583
Total current liabilities 101 583
Long-term debt 71,667 56,021
Other liabilities 1,898 -
Stockholders' equity:
Preferred stock, $1 par value,
authorized 5,000,000 shares
- Series A 71 71
- Series B 1,548 1,548
- Series D 120 120
Common stock, $1 par value,
authorized 20,000,000 shares 10,047 9,519
Capital in excess of par value 86,026 83,537
Foreign currency translation adjustments (370) (83)
Retained earnings (60,429) (53,931)
37,013 40,781
Less 33,000 shares of Common stock in
treasury, at cost 471 -
Total stockholders' equity 36,542 40,781
Total liabilities and
stockholders' equity $110,208 $ 97,385
See accompanying notes and the notes to the consolidated financial
statements.
<PAGE>
<PAGE>
SCHEDULE III
Page 3 of 6
TALLEY INDUSTRIES, INC.
(Registrant Only)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
1993 1992 1991
Selling, general and administrative expenses $ 1,695 $ - $ -
Administrative allocations to subsidiaries - - -
1,695 - -
Other income 69 - -
1,626 - -
Interest expense 7,367 6,942 7,382
(8,993) (6,942) (7,382)
Income tax provision (benefit) (3,624) (4,259) 1,202
Loss before earnings of subsidiaries and
extraordinary gains (5,369) (2,683) (8,584)
Extraordinary gain (loss), net of taxes (568) 1,204 -
Loss from subsidiaries (561) (13,088) (35,400)
Earnings from discontinued operations, net
of taxes - - 825
Net loss $ (6,498) $(14,567) $(43,159)
See accompanying notes and the notes to the consolidated financial statements.
<PAGE>
<PAGE>
SCHEDULE III
Page 4 of 6
TALLEY INDUSTRIES, INC.
(Registrant Only)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
1993 1992 1991
Cash flows from operating activities $ (6,919) $(16,848) $(42,949)
Cash flows from investing activities:
Net (increase) decrease in investment
in subsidiaries, net (168) 20,544 17,056
Cash from investing activities (168) 20,544 17,056
Cash flows from financing activities:
Proceeds from long-term debt 70,000 - -
Reduction of long-term debt (56,021) - -
Proceeds from sale of savings bank - - 41,603
Dividends paid - - (984)
Decrease in due from affiliates, net (1,142) (3,696) (14,726)
Cash from financing activities 12,837 (3,696) 25,893
Increase in cash and cash equivalents 5,750 - -
Balance at beginning of year - - -
Balance at end of year $ 5,750 $ - $ -
See accompanying notes and the notes to the consolidated financial statements.
<PAGE>
<PAGE>
SCHEDULE III
Page 5 of 6
TALLEY INDUSTRIES, 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. ("Talley
Manufacturing"), a wholly-owned subsidiary of Talley Industries, Inc.
("Talley"), was formed. The formation of the Company was in anticipation
of the offering of Senior Notes by Talley Manufacturing 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 Talley Manufacturing, 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 Talley and its subsidiaries, including indebtedness
assumed by Talley Manufacturing.
Upon completion of the reorganization of entities under the common
control of Talley described above and the new financing, Talley
Manufacturing owns all of the capital stock of the operating subsidiaries
of Talley (other than the real estate operations held for orderly sale).
The financial statements of Talley have been prepared for all periods
presented, giving effect to the reorganization described above.
2. Long-Term Debt
December 31,
Long-term debt consists of the following: 1993 1992
(balances in thousands)
12-1/4% Senior Discount Debentures, due 2005 $ 71,667 $ -
12.87% - 14.59% subordinated notes - 38,344
9% convertible subordinated debentures - 7,677
Subordinated notes, interest based on prime
or LIBOR - 10,000
71,667 56,021
Less current maturities - -
Long-term debt $ 71,667 $ 56,021
<PAGE>
<PAGE>
SCHEDULE III
Page 6 of 6
TALLEY INDUSTRIES, 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 from, or made contributions to
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 $2,752,000, $(10,499,000) and
$22,367,000, respectively.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
TALLEY INDUSTRIES, 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 1,670 1,485 - 881 2,274
Year Ended December 31, 1992:
Allowance for doubtful
accounts - accounts
receivable $ 881 $ 471 $ - $ 485 (a) $ 867
Reserves for notes receivable 5,279 - - 3,609 1,670
Year Ended December 31, 1991:
Allowance for doubtful
accounts - accounts
receivable $ 760 $ 666 $ - $ 545 (a) $ 881
Reserves for notes receivable 4,303 3,783 - 2,807 5,279
Notes:
(a) Uncollectible accounts charged against reserves, net of bad debt recoveries.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
TALLEY INDUSTRIES, 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
Talley Industries, Inc. $ -0- .0% $ -0- $ -0- .0%
Year Ended December 31, 1992:
Notes Payable to Banks
Talley Industries, Inc. $ -0- .0% $37,350 $32,890 7.7%
Year Ended December 31, 1991:
Notes Payable to Banks
Talley Industries, Inc. $37,361 7.4% $37,938 $37,538 7.5%
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE XI
Page 1 of 2
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1993
(In thousands)
Initial Cost to Subsequent To Gross Amount at Which
Company Acquisition Carried at Close of Period
Bldgs Bldgs
and Land Carrying and (c) (a)(b)(d) Accum Date of Date
Description Encumbrances Land Improve Improve Costs Land Improve Reserve Total Deprec. Constr. Acquired
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona Corporate
Park North - $ 33 $ 6,209 $-0- $ 85 $ 206 $ 6,500 $-0- $ -0- $ 6,500 N/A N/A 12/89
(Developed Business
Park - Ariz.)
Elliot & McQueen - 1,796 17,528 0 2,006 2,528 22,062 0 (9,041) 13,021 N/A N/A 11/85
(Industrial Property
Ariz.)
West Wing Ranch - 1,047 11,053 0 156 3,705 14,914 0 (2,388) 12,526 N/A N/A 12/87
(Residential Property
Ariz.)
McGinty Ranch - 6,793 12,824 0 250 3,638 16,712 0 (4,348) 12,364 N/A N/A 3/86
(Resort & Residential
Calif.)
Las Montanas - 12,708 11,679 0 28,554 8,079 48,312 0 0 48,312 N/A N/A Various
(Resort & Residential
Calif.)
San Antonio - - 14,322 0 6 649 14,977 0 (8,194) 6,783 N/A N/A 5/90
(Industrial, Commercial
& Residential - Texas)
Other - (Each less
than 5%) (Commercial 3,054 40,512 0 1,042 5,581 47,135 0 (28,772) 18,363 N/A N/A 9/81-7/93
Industrial & Residential
Ariz.)
Collateralized credit
lines - 2,809 - - - - - - - -
(Various properties)
$28,240 $114,127 $-0- $32,099 $24,386 $170,612 $-0- $(52,743) $117,869
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE XI
Page 2 of 2
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1993
(In thousands)
NOTES:
(a) CARRYING COSTS - RECONCILIATION OF BEGINNING AND ENDING BALANCE:
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
BALANCE JANUARY 1 $108,733 $125,596 $137,126
ADDITIONS
Acquisition through foreclosure 250 - 11,038
Full consolidation of previously
unconsolidated joint ventures 19,128 - -
Improvements and carrying costs - 187 2,330
DEDUCTIONS
Cost of Real Estate sold (5,272) (1,086) (6,882)
Forfeitures and other - (4,056) -
Property given in exchange (4,970) - -
Increase in reserve - (11,908) (18,016)
BALANCE DECEMBER 31 $117,869 $108,733 $125,596
<CAPTION>
(b) The total aggregate cost for income tax purposes is $152,000,000.
(c) Writedown to net realizable or fair value.
(d) There were no intercompany profits recognized in connection with above listed properties.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE XII
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES Page 1 of 2
Mortgage Loans on Real Estate
December 31, 1993
(In thousands)
Principal
Amount of
Loans Sub-
ject to
Periodic Face Amount Carrying(a)(c) Delinquent
Interest Payment Prior of Amount of Principal
Description Rate Date Terms Liens Mortgages Mortgages or Interest
<S> <C> <S> <S> <S> <C> <C> <S>
Georgia/Canada
Commercial properties
with buildings - 2nd
Mortgage 9.5% Mar 1995 (b) - $3,829 $2,829 This amount
represents
a receivable
which is in
default at
12-31-93.
Arizona
Unimproved commercial
properties - 1st Jul 1994-
Mortgage 5.0%-11% Oct 2008 (b) - 3,133 2,422
Unimproved commercial
properties - 2nd Jul 1994-
Mortgage 10%-11% Jul 2011 (b) - 416 163
Commercial properties
with buildings - 2nd
Mortgage 12% Nov 2002 (b) - 377 425
California
Unimproved commercial
properties - 1st
Mortgage 10.0% Jul 1994 (b) - 250 -
$8,005 $5,839
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE XII
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES Page 2 of 2
Mortgage Loans on Real Estate
December 31, 1993
(In thousands)
Notes:
(a) Carrying amount of mortgages reconciliation of beginning and ending balances:
Years Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Balance January 1, $ 8,931 $ 14,277 $ 28,971
Additions
New mortgage loans - principal 318 665 1,361
Net change in accrued interest - 227 -
Recognition of deferred gain - 1 22
Deductions
Collections of principal (1,888) (1,079) (1,374)
Net change in accrued interest (12) - (283)
Write-off of interest - (338) -
Foreclosures (d) (510) - (12,593)
Exchange of notes for other assets
or in settlement of debt - (8,431) -
Reclassification to realty assets - - -
Change in reserves (1,000) 3,609 (1,827)
Balance December 31, $ 5,839 $ 8,931 $ 14,277
<CAPTION>
(b) Payment terms vary by note, but generally require monthly, quarterly or annual interest and principal
payments.
(c) The income tax basis of these notes at December 31, 1993 is $8,012,000. All loans are of the
conventional type.
(d) Actual or in-substance foreclosures or deeds received in lieu of foreclosure.
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation as presently in effect,
a copy of which was attached as Exhibit 2 of Registrant's
current report on Form 8-K for the month of July, 1976,
incorporated herein by this reference.
3.2 Certificate of Amendment of Certificate of Incorporation dated
May 22, 1987, attached as Exhibit 3 to the Company's Form 10-Q
for the quarter ended March 31, 1988, incorporated herein by
this reference.
3.3 By-laws of Registrant as amended March 9, 1993, attached as
Exhibit 3.3 to the Company's Form 10-K for the year ended
December 31, 1992, incorporated herein by this reference.
4.1 Rights Agreement between Registrant and Manufacturers Hanover
Trust Company of California, as Rights Agent, dated as of
April 30, 1986, specifying the terms of the Rights (the
"Rights Agreement"), attached as Exhibit (a) to the Company's
Form 8-K dated April 29, 1986, incorporated herein by this
reference.
4.2 Certificate of Designations for Registrant's Series C $1
Junior Participating Preferred Stock (Exhibit A to the Rights
Agreement), attached as Exhibit (b) to the Company's Form 8-K
dated April 29, 1986, incorporated herein by this reference.
4.3 Specimen Right Certificate (Exhibit B to the Rights
Agreement), attached as Exhibit (c) to the Company's Form 8-K
dated April 29, 1986, incorporated herein by this reference.
4.4 First Amendment to Rights Agreement, dated April 30, 1986,
attached as Exhibit 4 to the Company's Form 10-Q for the
quarter ended June 30, 1986, incorporated herein by this
reference.
4.5 Form of Purchase Agreement between the Company and a selling
shareholder or a representative thereof, attached as Exhibit
28.1 to the Company's Form S-3 filed on November 14, 1986
(Registration No. 33-10193), incorporated herein by this
reference.
4.6 Report dated May 4, 1987 reporting the April 28, 1987 Board of
Directors' declaration of a five-for-four split of the
Company's Common Stock, filed on Form 8-K on May 4, 1987,
incorporated herein by this reference.
4.7 Certificate of Designation, Preferences and Rights of Series
D Cumulative Convertible Preferred Stock which was attached as
Exhibit 4 of Registrant's current report on Form 8-K dated
March 17, 1988, incorporated herein by this reference.
4.8 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.
4.9 Indenture Agreement between Talley Industries, Inc. and Bank
One, Columbus, N.A., a national banking association, as
Trustee, dated as of October 15, 1993 relating to the 12-1/4%
Senior Discount Debentures due 2005 issued by Talley
Industries, 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.
4.10 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 4.2 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
9 Voting Trust Agreement entered into as of February 29, 1988,
by and among Talley Industries, Inc., John J. McMullen and
First Interstate Bank of Arizona, N.A. attached as Exhibit 9
of Registrant's current report on Form 8-K dated March 17,
1988, incorporated herein by this reference.
10.1** Employment Agreement dated June 26, 1984 between the Company
and William H. Mallender, attached as Exhibit 10.1 to the
Company's Form 10-K for the year ended December 31, 1984,
incorporated herein by this reference.
10.2** Amendment to Employment Agreement dated September 30, 1985,
between the Company and William H. Mallender, attached as
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
September 30, 1985, incorporated herein by this reference.
10.3** Second Amendment to Employment Agreement dated February 25,
1986 between the Company and William H. Mallender, attached as
Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1988, incorporated herein by
this reference.
10.4** Third Amendment to Employment Agreement dated December 1, 1988
between the Company and William H. Mallender, attached as
Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1988, incorporated herein by
this reference.
10.5** Fourth Amendment to Employment Agreement dated February 27,
1990 between the Company and William H. Mallender, attached as
Exhibit 28.2 to the Company's Form 10-Q for the quarter ended
March 31, 1990, incorporated herein by this reference.
10.6** Executive Incentive Plan of the Company adopted March 9, 1983,
effective April 1, 1983, attached as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended March
31, 1983, incorporated herein by this reference.
10.7** Long-Term Incentive Plan of the Company adopted July 26, 1983,
attached as Exhibit 4.1 to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1983, incorporated
herein by this reference.
10.8** Amended and Restated 1978 Stock Option Plan of the Company,
adopted July 26, 1983, attached as Exhibit 4.3 to the
Company's quarterly report on Form 10-Q for the quarter ended
June 30, 1983, incorporated herein by this reference.
10.9** 1990 Stock Option Plan of the Company attached as Exhibit A to
the Company's Proxy Statement dated March 21, 1990,
incorporated herein by this reference.
10.10 Partnership Agreement for Phoenix Metro Investors dated
December 30, 1983, between Talley Realty Development, Inc., a
wholly-owned subsidiary of the Company and Empire Holding
Company Limited Partnership, attached as Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1983, incorporated herein by this reference.
10.11 Plan for Deferral of Directors' Fees as established by the
Company on December 30, 1975, attached as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the period ended
December 31, 1983, incorporated herein by this reference.
10.12 Amendment dated December 14, 1979 to the Plan for Deferral of
Directors' Fees established by the Company on December 30,
1975, attached as Exhibit 10.16 to the Company's Annual Report
on Form 10-K for the period ended December 31, 1983,
incorporated herein by this reference.
10.13** Second Amended and Restated 1978 Stock Option Plan of the
Company, dated July 8, 1987, attached as Exhibit 4.8 to the
Company's Form S-8 Registration Statement, filed June 18,
1987, incorporated herein by this reference.
10.14 Restated Talley Industries, Inc. Retirement Plan Directors
Only effective July 28, 1987, dated June 14, 1988, attached as
Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the period ended December 31, 1988, incorporated herein by
this reference.
10.15 License Agreement by and between Talley Industries, Inc.,
Talley Defense Systems, Inc. and Talley Automotive Products,
Inc., and TRW Inc., dated April 21, 1989 attached as Exhibit
28.1 to the Company's Form 8-K dated April 21, 1989,
incorporated herein by this reference.
10.16** First Amendment to the Talley Industries, Inc. Executive Death
and Retirement Supplemental Plan, dated March 25, 1981,
attached as Exhibit 10.34 to the Company's Form 10-K for the
period ended December 31, 1990, incorporated herein by this
reference.
10.17** Talley Industries, Inc. Executive Death and Retirement
Supplemental Plan dated July 1, 1987, attached as Exhibit
10.31 to the Company's Form 10-K for the period ended December
31, 1989, incorporated herein by this reference.
10.18** Talley Industries, Inc. Restoration Benefit Plan dated
November 30, 1975, attached as Exhibit 7 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31,
1976, incorporated herein by this reference.
10.19** First Amendment to the Restoration Benefit Plan of Talley
Industries, Inc., dated January 2, 1990, attached as Exhibit
10.34 to the Company's Form 10-K for the period ended December
31, 1989, incorporated herein by this reference.
10.20** Second Amendment to The Restoration Benefit Plan of Talley
Industries, Inc. dated March 25, 1991, attached as Exhibit
10.39 to the Company's Form 10-K for the period ended December
31, 1990, incorporated herein by this reference.
10.21 Interest Rate Swap Agreement dated February 3, 1988 between
Security Pacific National Bank and Talley Industries, Inc.,
attached as Exhibit 28.7 to the Company's Annual Report on
Form 10-K for the period ended December 31, 1988, incorporated
herein by this reference.
10.22 First Amendment to Interest Rate Swap Agreement, dated as of
November 10, 1992, by and among Bank of America National Trust
and Savings Association, Talley Industries, Inc., and Talley
Realty Holding Company, Inc., attached as Exhibit (2.7) to the
Company's Form 8-K dated November 20, 1992, incorporated
herein by this reference.
10.23 Second Amendment to Talley Industries, Inc. Retirement Plan
Directors Only effective January 1, 1991, dated May 7, 1991,
attached as Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended June 30, 1991, incorporated herein by reference.
10.24** 1983 Restricted Stock Plan of the Company attached as Exhibit
B to the Company's Proxy Statement dated June 8, 1983,
incorporated herein by reference.
10.25 Form of Indemnification Procedures Agreement between each
director of Holdings and Holdings, attached as Exhibit 10(hh)
to Amendment No. 1 of the Company's Form S-1 dated September
10, 1993, incorporated herein by reference.
10.26 Form of Indemnification Procedures Agreement between Holdings
and each director of Holdings who is also an officer, attached
as Exhibit 10(ii) to Amendment No. 1 of the Company's Form S-1
dated September 10, 1993, incorporated herein by reference.
10.27 Form of Indemnification Procedures Agreement between Talley
Manufacturing and each of its directors, attached as Exhibit
10(jj) to Amendment No. 1 of the Company's Form S-1 dated
September 10, 1993, incorporated herein by reference.
10.28** Memorandum of Terms and Conditions applicable to: Performance
Units granted for calendar years 1993 through 1997 under the
1983 Long-Term Incentive Plan and Stock Options granted in
1993 under The Second Amended and Restated 1978 Stock Option
Plan and the 1990 Stock Option Plan, attached as Exhibit 10.1
to the Company's Form 10-Q for the quarter ended March 31,
1993, incorporated herein by reference.
10.29 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 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
10.30 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 10.2 to the Company's Form 10-Q
for the quarter ended September 30, 1993, incorporated herein
by reference.
11* Computation of earnings per share.
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, S-3 and S-8 Registration Statements.
23.2* Consent of Company's Independent Public Accountants to the
incorporation by reference of their report for the current
year accompanying the financial statements included in the
Form 11-K Annual Report (Exhibit 99.1 herein) for the year
ended December 31, 1993 into the Registrant's applicable Form
S-8 Registration Statements.
99.1* Annual Report on Form 11-K for The Employee Stock Purchase
Plan of Talley Industries, Inc. and Affiliated Companies for
the year ended December 31, 1993.
99.2 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 99.1 to the Company's Form 10-Q for the
quarter ended September 30, 1993, incorporated herein by
reference.
99.3 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 99.2
to the Company's Form 10-Q for the quarter ended September 30,
1993, incorporated herein by reference.
99.4 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 99.3 to the
Company's Form 10-Q for the quarter ended September 30, 1993,
incorporated herein by reference.
99.5 Subsidiary Loan and Security Agreement dated as of October 22,
1993 between Talley Manufacturing and Technology, Inc. and
Talley Technology, Inc., attached as Exhibit 99.4 to the
Company's Form 10-Q for the quarter ended September 30, 1993,
incorporated herein by reference.
99.6 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 99.5 to the Company's Form
10-Q for the quarter ended September 30, 1993, incorporated
herein by reference.
* Documents marked with an asterisk are filed with this report.
** An executive compensation plan or arrangement.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Computation of Earning per Share
(In thousands, except per share amounts)
The computations of earnings per share on both the primary and fully diluted basis for the years ended December 31, 1993, 1992,
1991, 1990 and 1989 were as follows:
Y E A R S E N D E D D E C E M B E R 3 1,
1993 1992 1991 1990 1989
Primary Diluted Primary Diluted Primary Diluted Primary Diluted Primary Diluted
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) from continuing
operations $(5,994) $(5,994) $(17,204) $(17,204) $(43,984) $(43,984) $(52,834) $(52,834) $ 24,350 $ 24,350
Preferred stock dividends (2,167) (2,167) (2,168) (2,168) (2,172) (2,172) (2,160) (2,160) - -
Interest on convertible
subordinated debt - - - - - - - - - 1,135
Earnings (loss) for computation
from continuing operations (8,161) (8,161) (19,372) (19,372) (46,156) (46,156) (54,994) (54,994) 24,350 25,485
Discontinued operations - - - - 825 825 2,647 2,647 1,572 1,572
Extraordinary gains (loss) (504) (504) 2,637 2,637 - - - - - -
Net earnings (loss) for
computation $(8,665) $(8,665) $(16,735) $(16,735) $(45,331) $(45,331) $(52,347) $(52,347) $ 25,922 $ 27,057
Average number of common shares
outstanding during the year 9,676 9,676 9,189 9,189 8,795 8,795 8,788 8,788 9,041 9,041
Common stock equivalents:
Stock options - - - - - - 3 3 48 48
Convertible preferred stock - - - - - - - - 3,282 3,282
Convertible subordinated debt - - - - - - - - - 1,105
Contingent shares issuable
based on acquired company's
level of earnings - - - - - - - - 120 240
Shares for computation 9,676 9,676 9,189 9,189 8,795 8,795 8,791 8,791 12,491 13,716
Earnings (loss) per share from
continuing operations $ (.85) $ (.85) $ (2.11) $ (2.11) $ (5.24) $ (5.24) $ (6.25) $ (6.25) $ 1.95 $ 1.86
Discontinued operations - - - - .09 .09 .30 .30 .13 .11
Extraordinary gains (loss) (.05) (.05) .29 .29 - - - - - -
Net earnings (loss) per share $ (.90) $ (.90) $ (1.82) $ (1.82) $ (5.15) $ (5.15) $ (5.95) $ (5.95) $ 2.08 $ 1.97
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of Talley Industries, Inc.
The following are the subsidiaries of the Registrant, as of December 31,
1993:
Percentage
of Voting Jurisdiction
Securities of
Owned Incorporation
1. Talley Manufacturing and Technology, Inc. 100% Delaware
a. Amcan Specialty Steels, Inc. 100% New Jersey
b. Dimetrics, Inc. 100% Delaware
c. Electrodynamics, Inc. 100% Arizona
d. John J. McMullen Associates, Inc. 100% Delaware
e. Porcelain Products Co. 100% Delaware
f. Rowe Industries, Inc. 100% Delaware
g. Talley Canada, Inc. 100% Canada
h. Talley Defense Systems, Inc. 100% Delaware
i. Talley Metals Technology, Inc. 100% Delaware
j. Talley Technology, Inc. 100% Delaware
k. Universal Propulsion Company, Inc. 100% Delaware
l. Waterbury Companies, Inc. 100% Delaware
2. Talley Real Estate Company, Inc. 100% Delaware
a. Talley Realty Development, Inc. 100% Delaware
b. Talley Realty Holding Company, Inc. 100% Delaware
c. Talley Realty Investment Group, Inc. 100% Delaware
d. Talley Realty Finance and
Investment Company, Inc. 100% Arizona
d.(1) New California Corp. 100% California
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.
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on
Forms S-1, S-3 and S-8 (Nos. 33-2270, 33-10193, 2-85486, 2-85487,
2-91162, 2-85473, 33-5432, 2-63214, 33-22657, 33-30335, 33-37258,
33-15175, 33-47065, 33-51492, 33-60922, 33-49869 and 33-51511) of
Talley Industries, Inc. of our report dated February 22, 1994
appearing on page F-48 of this Form 10-K.
PRICE WATERHOUSE
Phoenix, Arizona
March 23, 1994
<PAGE>
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectuses constituting part of the Registration Statements on
Forms S-8 (Nos. 2-85473, 33-5432, 33-47065 and 33-51492) of Talley
Industries, Inc. of our report dated March 15, 1994 appearing on
page F-1 of this Annual Report on Form 11-K.
PRICE WATERHOUSE
Phoenix, Arizona
March 23, 1994
<PAGE>
EXHIBIT 99.1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-4778
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
B. Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office:
TALLEY INDUSTRIES, INC.
2702 North 44th Street
Phoenix, Arizona 85008
<PAGE>
<PAGE>
TABLE OF CONTENTS
Financial Statements and Exhibits
Page
Report of Independent Accountants F-1
Statement of Financial Condition - December 31, 1993
and 1992 F-2
Statement of Income and Changes In Plan Equity -
For the Years Ended December 31, 1993, 1992
and 1991 F-3
Notes to Financial Statements F-4 to F-9
Schedules:
Schedules I, II and III have been omitted because
the required information is shown in the financial
statements.
Exhibits:
None
<PAGE>
<PAGE>
Report of Independent Accountants
To The Participants and Administrator
of Talley Savings Plus, The Employee
Stock Purchase Plan of Talley
Industries, Inc. and Affiliated Companies
In our opinion, the accompanying statement of financial condition
and the related statement of income and changes in plan equity
present fairly, in all material respects, the financial status of
Talley Savings Plus, The Employee Stock Purchase Plan of Talley
Industries, Inc. and Affiliated Companies at December 31, 1993
and 1992, and the changes in its financial status 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 plan's management; our
responsibility is to express an opinion on these financial
statements based upon our audits. We conducted our audits of
these 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, 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.
PRICE WATERHOUSE
Phoenix, Arizona
March 15, 1994
F-1
<PAGE>
<PAGE>
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
STATEMENT OF FINANCIAL CONDITION
December 31,
Assets 1993 1992
Investments, at market:
Common Stock of Talley Industries, Inc. -
947,972 shares and 850,527 shares
(cost $6,897,492 and $6,300,414) in
1993 and 1992, respectively $5,569,336 $2,657,896
Preferred Stock (Series B convertible)
of Talley Industries, Inc. - 394,294
and 376,994 shares (cost $6,621,147
and $6,425,132) in 1993 and 1992,
respectively 4,485,094 2,356,213
Money market fund and cash 112,851 473,036
Receivables from Talley Industries, Inc.
and Affiliated Companies:
Employee contributions 27,022 39,025
Employer contributions 13,521 19,522
Other 5,695 -
Interest receivable 224 1,203
Total assets 10,213,743 5,546,895
Liabilities
Note payable 472,158 805,439
Withdrawals and terminations payable 251,934 167,989
Forfeitures - 18,816
Total liabilities 724,092 992,244
Plan equity $9,489,651 $4,554,651
The accompanying notes are an integral part of the financial
statements.
F-2
<PAGE>
<PAGE>
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
Years Ended December 31,
Additions: 1993 1992 1991
Dividend income $ - $ - $ 107,600
Interest income 11,577 38,525 53,289
Unrealized appreciation
(depreciation) in market
value of investments 4,247,228 378,739 (1,699,188)
Contributions:
Employee 935,332 932,667 1,154,024
Employer 696,695 781,156 859,707
5,890,832 2,131,087 475,432
Deductions:
Withdrawals and terminations
paid 639,212 1,140,212 773,648
Withdrawals and terminations
payable 251,934 167,989 133,806
Forfeitures 32,966 15,638 14,138
Interest expense 31,720 51,035 83,473
955,832 1,374,874 1,005,065
Net increase (decrease) 4,935,000 756,213 (529,633)
Plan equity:
Beginning of year 4,554,651 3,798,438 4,328,071
End of year $9,489,651 $4,554,651 $3,798,438
The accompanying notes are an integral part of the financial
statements.
F-3
<PAGE>
<PAGE>
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS
Significant Accounting Policies
The accounts of the Plan are maintained on an accrual basis.
Assets of the Plan are valued at current value. Securities are
valued at the last reported sales price on the last business day
of the year.
Description of Plan
The following brief description of the Talley Savings Plus Plan
is provided for general information purposes only. Reference
should be made to the Plan agreement for more complete
information.
General - Talley Savings Plus is an employee stock
purchase plan adopted January 1, 1984 for the
employees of Talley Industries, Inc. and
Affiliated Companies. The Plan is classified
as a "defined contribution plan", an
"individual account plan" and an "employee
pension benefit plan" under the Employee
Retirement Income Security Act of 1974
(ERISA). A participant's benefits at any time
depend on the amount credited to his
individual account and accordingly the
Company, the Committee and the Trustee do not
guarantee any level of benefits.
Eligibility - Employees eligible to participate under the
Plan are those who have attained the age of
twenty-one (21) years and have completed one
(1) "year of continuous service" as defined in
the Plan.
Employee
Contributions - Each eligible employee who elects to
participate may contribute, out of amounts he
or she would otherwise receive in cash, 1% to
5% of his or her pretax compensation from the
Company to the Plan's trust fund.
F-4
<PAGE>
<PAGE>
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Employer
Contributions - For so long as the Plan is in effect, the
Company will contribute property having a
value equal to 50% of employee contributions.
Under the terms of the Plan, the Company may
contribute Common stock, Series B $1.00
Cumulative Convertible Preferred stock, cash
or other property. The Company made
additional contributions to the Plan of .5% of
the aggregate compensation of those employees
who were participants in the payroll stock
ownership plan (PAYSOP) prior to the Tax
Reform Act of 1986, which repealed the PAYSOP
provision in the tax code. In its sole
discretion, the Company may make a
contribution to the Plan in such amount as it
may determine, from time to time. Such
contributions may be made without regard to
the existence of profits. The Company's
discretionary contribution is allocated based
on the relationship of the Company
contribution account balances of participants
eligible for discretionary contribution to
Company contribution account balances for all
participants. In addition, in its sole
discretion, the Company may make a
contribution to the Plan for the purpose of
paying the interest due on the note payable.
The Company contributions for the match of 50%
of the employee contributions, for the
discretionary contribution, and for the
interest payments were $467,667, $198,678, and
$30,350, respectively, in 1993 and $468,883,
$257,919 and $54,354, respectively, in 1992.
F-5
<PAGE>
<PAGE>
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Investment
Program - Amounts contributed at an employee's
direction, along with all contributions made
by the Company other than PAYSOP
contributions, are invested in one fund
consisting of shares of Common stock and
Series B Preferred stock of the Company and a
money market fund. PAYSOP contributions are
invested solely in Common stock of the
Company. Investment earnings or losses are
allocated monthly based on beginning of month
balances of the respective participant's
accounts. At December 31, 1993 and 1992,
unallocated shares, which collateralize a note
payable, consisted of 33,405 shares and 56,985
shares, respectively, with respective values
of $196,255 and $178,078. During 1993, 23,580
shares were released and allocated to
participant accounts as principal payments
were made on the loan collateralized by such
shares.
During the years ended December 31, 1993, 1992
and 1991, there were no sales of purchased
securities. There were distributions of stock
to participants, related to withdrawals and
terminations, valued at $373,076, $781,815 and
$526,764 for 1993, 1992 and 1991,
respectively.
Vesting - Each participant will at all times be fully
vested as to all amounts credited or allowable
to him under the participant's own employee
contribution account and the Company PAYSOP
account. Company matching contributions will
vest 20% per year of service until fully
vested; however, such contributions will
F-6
<PAGE>
<PAGE>
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Vesting - be fully vested upon termination by death,
(continued) disability or retirement, upon attainment of
age 65 or upon termination of the Plan or
complete discontinuance of Company matching
contributions. Non-vested Company
contributions will be forfeited upon
termination of employment with the Company.
Amounts allowable as forfeitures will be
applied to Plan expenses.
Distributions - Upon the death, disability, retirement or
other separation from employment of a
participant, distribution of all vested
amounts credited to such participant will be
made in a lump sum. All such distributions
will be in cash or Company Common stock or
Series B Preferred stock at the discretion of
the Committee, except the participant may
request that distribution from his accounts
will be made in Common stock or Series B
Preferred stock of the Company, in which event
distribution from the accounts will be made in
such stock.
Expenses - All commissions and trustee fees and other
administrative expenses have been paid by
forfeitures due to the Company for the years
ended December 31, 1993 and 1992. Expenses
are paid by the Company to the extent not paid
by forfeitures. The Company has also
contributed amounts to the plan to pay the
interest expense on the note payable.
Participants - At December 31, 1993 there were 653
participants in the Plan.
F-7
<PAGE>
<PAGE>
TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Income Tax Status
Talley Industries, Inc. has received a ruling from the Internal
Revenue Service substantiating that the Plan qualifies under
Section 401 of the Internal Revenue Code of 1986. A plan that
qualifies is exempt from Federal Income Tax, and amounts
contributed are not taxed to the employee until a distribution
from the Plan is received. If a former employee receives a full
distribution of his or her Plan accounts due to his or her
termination of employment with the Company, he or she will
realize taxable income in an amount by which the value of his or
her distribution exceeds the amount of his or her own
undistributed contributions that have previously been taxed.
Under federal laws effective beginning in 1993, the Company is
required to withhold 20% of each distribution a participant
receives unless the distribution is transferred directly into an
IRA or a qualified plan, or unless the distribution is
specifically exempted by the law.
In addition to the foregoing tax consequences, special rules are
applicable if the distribution to the employee includes shares of
Common stock. If the employee receives a lump sum distribution
of the entire vested amount of his or her accounts in a single
taxable year due to separation from employment, and the
distribution includes shares of Common stock, the difference
between the fair market value of the stock distributed and its
cost to the Trustee (the "net unrealized appreciation"), if the
fair market value is greater than such cost, is not recognized
for tax purposes at the time of distribution. Only the aggregate
cost of the distributed stock to the Trustee is includable in the
employee's gross income at the time of distribution. When the
employee disposes of the stock in a subsequent sale or taxable
transfer, any excess of the amount realized by such recipient
over the costs of such stock to the Trustee will constitute and
be taxed as a capital gain.
F-8
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TALLEY SAVINGS PLUS
THE EMPLOYEE STOCK PURCHASE PLAN
OF
TALLEY INDUSTRIES, INC. AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS (Continued)
Note Payable
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. The note payable,
with a balance at December 31, 1993 of $472,158, is payable in
minimum monthly payments of $27,778 plus accrued interest. The
final payment is due April 1, 1995. The note bears interest at
a rate equivalent to 81% of the bank's prime rate. On October
22, 1993 Talley Industries, Inc. paid down the loan and as a
result, has a receivable from the Plan at December 31, 1993 for
the outstanding loan balance.
F-9
