<PAGE>
Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-4778
TALLEY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0180396
(State or other jurisdiction of (I.R.S. Employer
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
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirement for the past 90 days.
YES[ X ] NO[ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 1995
$1.00 par value 10,050,904
<PAGE>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Consolidated Balance Sheet -
March 31, 1995 and December 31, 1994 1
Consolidated Statement of Operations -
Three Months Ended March 31, 1995 and 1994 2
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1995 and 1994 3
Consolidated Statement of Changes in Stockholders'
Equity - Three Months Ended March 31, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-7
Management's Discussion and Analysis 8-13
Part II Other Information
Legal Proceedings 14
Defaults Upon Senior Securities 15
Submission of Matters to a Vote of Security Holders 16
Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
PART I - FINANCIAL INFORMATION
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(thousands)
March 31, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 9,275 $ 13,002
Accounts receivable, net of allowance
for doubtful accounts of $1,089,000
at March 31, 1995 and $994,000 at
December 31, 1994 60,677 55,257
Inventories, net 70,659 66,069
Deferred income taxes 800 800
Prepaid expenses 7,148 7,895
Current assets 148,559 143,023
Realty assets 103,079 110,899
Long-term receivables 13,378 13,277
Property, plant and equipment, net 45,854 46,353
Intangibles 45,828 46,288
Other assets 9,844 10,063
Total assets $366,542 $369,903
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $ 3,554 $ 3,549
Current maturities of realty debt 14,771 19,575
Accounts payable 23,989 25,974
Accrued expenses 39,471 39,696
Current liabilities 81,785 88,794
Long-term debt 225,181 220,447
Long-term realty debt 2,176 5,564
Deferred income taxes 6,655 6,655
Other liabilities 7,189 8,277
Stockholders' equity:
Preferred stock, $1 par value,
authorized 5,000,000 shares:
Series A 67 71
Series B 1,548 1,548
Series D 120 120
Common stock, $1 par value,
authorized 20,000,000 shares 10,051 10,047
Capital in excess of par value 86,026 86,026
Foreign currency translation adjustment (707) (723)
Accumulated deficit (53,549) (56,923)
Total stockholders' equity 43,556 40,166
Total liabilities and
stockholders' equity $366,542 $369,903
The accompanying notes are an integral part of the financial
statements.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(thousands, except per share amounts)
Three Months
Ended
March 31,
1995 1994
Sales $67,666 $58,817
Services 14,475 15,521
Royalties 6,568 3,979
88,709 78,317
Cost of sales 50,610 44,488
Cost of services 12,616 13,523
Selling, general, and administrative
expenses 13,825 17,608
Provision for reserve on realty assets 7,000 -
84,051 75,619
Earnings from operations 4,658 2,698
Other expense, net (660) (1,551)
3,998 1,147
Interest expense 7,012 7,125
Loss before income taxes and
extraordinary gain (3,014) (5,978)
Income tax provision (benefit) 873 (5,472)
Loss before extraordinary gain (3,887) (506)
Extraordinary gain 7,261 -
Net earnings (loss) $ 3,374 $ (506)
Earnings (loss) applicable to common
shares (after deduction of preferred
stock dividends) $ 2,834 $(1,048)
Earnings (loss) per share of
common stock and common stock
equivalents:
Loss before extraordinary gain $ (.28) $ (.10)
Extraordinary gain .52 -
Net earnings (loss) $ .24 $ (.10)
Weighted average shares outstanding 14,005 10,018
The accompanying notes are an integral part of the financial
statements.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(thousands)
Three Months Ended
March 31,
1995 1994
Cash and cash equivalents at beginning
of year $ 13,002 $ 12,194
Cash flows from operating activities:
Net earnings (loss) 3,374 (506)
Adjustments to reconcile net income
to cash flows from operating activities:
Change in deferred income taxes - (5,604)
Depreciation and amortization 2,188 2,400
Original issue discount amortization on
debentures 2,409 2,120
Extraordinary gain (7,261) -
Provision for reserve on Realty assets 7,000 -
Other 415 153
Changes in assets and liabilities, net of
effects from acquired businesses:
(Increase) decrease in accounts receivable (5,420) 5,535
(Increase) decrease in inventories (4,590) 992
Decrease in prepaids 417 176
Decrease in realty assets 820 2,895
Decrease in accounts payable (1,985) (1,796)
Increase in accrued expenses 2,960 5,037
Decrease in other liabilities (1,093) (59)
Other, net - (164)
Cash flows from operating activities (766) 11,179
Cash flows from investing activities:
Purchases of property and equipment (1,238) (875)
Reduction of long-term receivables 54 96
Increase in long-term receivables - (337)
Proceeds from sale of property and equipment 29 8
Cash flows from investing activities (1,155) (1,108)
Cash flows from financing activities:
Repayment of long-term debt (108,938) (96,649)
Repayment of realty debt (4,136) (28)
Proceeds from new long-term debt 111,268 85,057
Cash flows from financing activities (1,806) (11,620)
Net decrease in cash and cash equivalents (3,727) (1,549)
Total cash and cash equivalents at March 31, $ 9,275 $ 10,645
The accompanying notes are an integral part of the financial
statements.
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<TABLE>
<CAPTION>
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 1995 and 1994
(thousands)
Capital in
Preferred Stock Common Excess of Treasury Retained
Series A Series B Series D Stock Par Value Stock Earnings
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 71 $1,548 $ 120 $10,047 $86,026 $(471) $(60,429)
Net loss (506)
Treasury stock issued 82
BALANCE AT MARCH 31, 1994 $ 71 $1,548 $ 120 $10,047 $86,026 $(389) $(60,935)
BALANCE AT DECEMBER 31, 1994 $ 71 $1,548 $ 120 $10,047 $86,026 $ -0- $(56,923)
Net earnings 3,374
Conversion to Common stock (4) 4
BALANCE AT MARCH 31, 1995 $ 67 $1,548 $ 120 $10,051 $86,026 $ -0- $(53,549)
</TABLE>
The accompanying notes are an integral part of the financial statements.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - General
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1995 and
December 31, 1994 and the results of operations for the
three-month periods ended March 31, 1995 and 1994, and cash flows
and changes in stockholders' equity for the Three-month periods
ended March 31, 1995 and 1994. Such results, however, may not be
indicative of the results for the full year.
For additional information regarding significant accounting
policies, and accounting matters applicable to the Company,
reference should be made to the Company's Annual Report to
Shareholders for the year ended December 31, 1994.
Note 2 - Inventories
Inventories are summarized as follows (in thousands):
March 31, December 31,
1995 1994
Raw materials and supplies $15,337 $11,757
Work-in-process 11,728 11,733
Finished goods 24,134 24,616
Inventories applicable to
government contracts 19,460 17,963
$70,659 $66,069
Note 3 - Earnings Per Share
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 period. The average number of
shares has been adjusted for assumed exercise at the beginning of
the period (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
period, and assumed conversion of all dilutive convertible
preferred stock. 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.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4 - Income Taxes
In September 1994, the Arizona Court of Appeals reversed a 1992
Arizona Tax Court ruling that entitled the Company to file a
combined tax return in the State of Arizona for the fiscal year
ended March 31, 1983, and in April 1995, the Supreme Court of the
State of Arizona denied the Company's Petition for Review. Based
on the appellate court decision, the Company will be liable for
approximately $1.1 million in taxes and interest for 1983. The
Company believes the appellate court erred in its decision and
the Company intends to vigorously litigate tax and interest
assessments for 1984 and 1985, of $5.3 million. Legislation
adopted in 1994 in Arizona specifically allows companies to file
combined tax returns in Arizona for periods from January 1, 1986,
and on December 8, 1994 the Arizona Department of Revenue
withdrew its assessments against the Company for 1986 and
subsequent years. Management believes that the final resolution
of the above matter will not result in a material adverse impact
on the results of operations or financial position of the
Company.
Note 5 - Acquisition
In July 1994, a subsidiary of the Company acquired certain assets
of a manufacturer of metal buttons. The purchase price was
approximately $5.7 million, including cash of $2.1 million,
323,232 shares of the Company's Common stock scheduled for
issuance two years after closing, and certain liabilities assumed
and acquisition costs incurred.
Note 6 - Depreciation of Plant and Equipment
During the first quarter of 1995, the Company completed a review
of the fixed asset lives at its stainless steel production
facility. The Company determined that as a result of actions
taken to increase its preventive maintenance and programs
initiated with its suppliers to increase the quality of their
products, actual lives for certain asset categories were
generally longer than the useful lives used for depreciation
purposes. Therefore, the Company extended the estimated useful
lives of certain categories of plant and equipment at its
stainless steel production facility, effective January 1, 1995.
The effect of this change in estimate reduced depreciation
expense for the quarter ended March 31, 1995 by approximately
$354,000 and accordingly increased earnings before income taxes
and extraordinary gain by the same amount.
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Note 7 - Extraordinary Gain
During the first quarter of 1995 the Company realized a net gain
of $7,261,000, as a result of extinguishment of realty debt. The
gain represents the difference between the value of the debt
recorded on the books of the Company and the consideration given
and costs incurred to settle the obligations. Due to the
Company's net operating loss position, there is no tax provision
in connection with the gain.
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TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following is management's discussion and analysis of certain
significant factors which have affected the Company.
A summary of period-to-period changes in the consolidated
statement of earnings is shown below (in thousands):
Three Months
Ended
March 31,
1995 1994
REVENUES:
Government Products and Services $ 30,819 $ 36,258
Airbag Royalty 6,276 3,896
Industrial Products 43,420 29,200
Specialty Products 7,131 5,762
Realty 1,063 3,201
$ 88,709 $ 78,317
OPERATING INCOME:
Government Products and Services $ 1,288 $ 4,186
Airbag Royalty 6,276 3,896
Industrial Products 6,296 720
Specialty Products 826 610
Realty (8,018) (1,742)
Total operating income 6,668 7,672
Corporate expense (2,814) (6,584)
Non-segment interest income 144 61
Interest expense (7,012) (7,125)
Loss before income taxes and
extraordinary gain $ (3,014) $ (5,976)
Revenues for the three-month period ended March 31, 1995
increased $10.4 million from $78.3 million to $88.7 million,
compared with the corresponding period in the prior year. The
increase is primarily the result of increased revenue in the
Airbag Royalties segment, a result of the expanding demand for
automotive airbags, and the Steel Operations in the Industrial
Products segment, the result of continued improvement in the
stainless steel market. These increases were partially offset by
decreasing revenue in the Government Products and Services
segment. The pretax loss for the three months ended March 31,
1995 was $3 million compared with $6 million pretax loss in the
first three months of the previous year. The loss in the first
three months of 1995 includes a $7 million provision for reserve
on realty assets resulting from the decision to sell a property
over the short term in bulk rather than to pursue parcel sales
over the next several years.
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Net earnings for the three months ended March 31, 1995 was $3.4
million, which reflects an extraordinary gain of $7.3 million,
resulting from the extinguishment of real estate debt for less
than book value.
Earnings from both the Airbag Royalty segment and the Industrial
Products segment improved compared with the prior year.
Royalties in the Airbag Royalty segment increased by $2.4 million
from $3.9 million in the first three months of 1994 to $6.3
million for the first three months of 1995, while earnings from
the Industrial Products segment, and Specialty Products segment
improved $5.6 million and $.2 million, respectively. Earnings
from the Government Products and Services segment for the first
three months of 1995, when compared with the first three months
of 1994, were $2.9 million lower. Losses in the Realty segment
increased by $6.3 million for the first three months of 1995,
when compared with the prior year, mainly due to the $7 million
provision for reserve on realty assets.
The gross profit percentage, excluding airbag royalties and the
provision for reserve on realty assets, of 23.3%, for the three
months ended March 31, 1995 was down from the gross profit
percentage of 24.4% for the comparable period in 1994. The
decrease from the prior year is primarily due to the change in
the mix of government contracts and revenues from other
operations.
Government Products and Services. Revenue and earnings in the
first three months of 1995 decreased $5.4 million and $2.9
million, respectively, when compared with the same period in the
prior year. These decreases are primarily due to a scheduled
pricing reduction under the extended range munitions program, and
also due to the timing of completion and shipments under other
contracts.
Airbag Royalties. Revenue from airbag royalties increased from
$3.9 million in the first three months of 1994 to $6.3 million in
the first three months of 1995. The increased royalty is
primarily the result of increasing airbag implementation rates,
both in terms of the number of vehicles containing airbags and
the number of airbags installed in a given vehicle. (Also see
"Other Matters" as a separate caption within Management's
Discussion and Analysis of Financial Condition and Results of
Operations)
Industrial Products. In the first three months of 1995
Industrial Products sales and earnings increased $14.2 million
and $5.6 million, respectively, when compared with the first
three months of 1994. Increases in sales resulted from increased
orders and higher selling prices for stainless steel bars and
rods and increased demand for ceramic insulator products, along
with an increase in market share. These increases partially were
offset by lower welder products sales and earnings.
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Specialty Products. During the first three months of 1995,
sales for the Specialty Products segment increased 22%, from $5.8
million to $7.1 million, while earnings increased from $.6
million to $.8 million, when compared with the same period in
1994. The increase in sales and earnings when compared with the
prior year is primarily a result of the acquisition of a
manufacturer of metal buttons in July 1994.
Realty. Sales of real estate in the first three months of 1995
were $1.1 million compared with $3.2 million for the comparable
period in 1994. The operating loss increased from $1.7 million
in the first three months of 1994 to $8 million in the first
three months of 1995, due primarily to a provision for reserve on
realty assets of $7 million. On March 28, 1994, a fully
consolidated real estate joint venture, in which the Company has
a $29.2 million interest, instituted Chapter 11 proceedings in
the United States Bankruptcy Court for the District of Arizona.
At the same time the joint venture filed a proposed plan of
reorganization that would provide for the conversion of
substantially all outstanding debt of the joint venture into
equity in a new company to be formed to continue the project. On
April 28, 1995, the Court approved the plan, subject to the
consummation of certain settlement agreements with several
creditors of the joint venture. A subsidiary of the Company
would own approximately 90% of the equity in the new company,
when the plan is effective.
Other. Interest expense in the first three months of 1995
decreased slightly to $7 million, from $7.1 million in the
comparable period in 1994. Corporate overhead decreased from
$6.5 million to $2.8 million over the comparable period in 1994
due primarily to a $4.0 million provision in the prior year for
litigation costs related to resolution of claims in connection
with airbag royalties being received from the licensee. The
income tax provision for the first three months of 1995 was $.9
million compared to a tax benefit of $5.4 million in the
comparable period in 1994. The tax benefit in 1994 is the result
of favorable state tax legislation which resulted in a $5.6
million reversal of state income taxes previously accrued. Due
to unrecognized federal tax carryforward benefits, primarily the
result of losses in the Company's real estate segment, the
Company has no Federal tax provision in 1994 or 1995. The tax
provision in 1995 is provided for foreign and state
jurisdictions.
Financial Condition, Liquidity and Capital Resources
At March 31, 1995, the Company had $9.3 million in cash and cash
equivalents and net working capital of $66.8 million. Cash used
in operating activities for the three months ended March 31, 1995
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was $.8 million, primarily the result of increases in trade
receivables, inventories and earnings. Cash generated from
operations during the first three months of 1994 was $11.2
million. Cash used in investing activities during the three
months ended March 31, 1995 was $1.2 million, consisting
primarily of capital expenditures of $1.2 million. Cash used in
financing activities of $1.8 million reflects a reduction in debt
from cash generated from operations and from cash available at
the beginning of the year.
In October 1993, the Company 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 and Technology, Inc. ("Talley Manufacturing"). In
connection with this refinancing, Talley Manufacturing obtained
a secured credit facility with institutional lenders, of which
approximately $48 million was initially borrowed.
Borrowings under the secured credit facility may not exceed the
collateral base as defined in the governing credit agreement.
The facility consists of a five-year revolving credit facility of
up to $40 million and a five-year $20 million term loan facility.
At March 31, 1995 availability under the facility, based
primarily on inventory and receivable levels, was approximately
$38.6 million, of which approximately $29.7 million was borrowed.
Upon the occurrence of certain specified events, at any time
following the third anniversary of the secured credit facility,
the agent thereunder may elect to terminate the facility.
The Company anticipates that the present capital structure will
support the long-term growth of the Company's core businesses and
permit the implementation of its strategy to use proceeds
received from the increasing airbag royalties and from 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 interests in Talley
Manufacturing and the subsidiaries holding its real estate
operations, the Company will be dependent primarily upon
distributions from those subsidiaries in order to meet its debt
service and other obligations. The Company 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 the
Company's real estate assets. The Company will be required to
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use certain funds received from Talley Manufacturing and certain
funds from real estate sales to make offers to redeem certain
indebtedness of the Company. Because the cash available to the
Company is required to be used for these specific purposes, and
because certain debt covenants limit the Company's ability to
incur additional indebtedness, the Company will be dependent upon
the payment of dividends from Talley Manufacturing (which
payments will generally be limited by debt covenants of the
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, the Company 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 the
Company to make cash payments of interest on its Discount
Debentures until April 15, 1999, the Company believes that funds
will be available in sufficient amounts, and at the required
times, to permit the Company to meet its obligations.
Other Matters
Litigation
As more fully explained in the Commitments and Contingencies note
to the December 31, 1994 Consolidated Financial Statements,
litigation between the Company and TRW, Inc. (TRW), the buyer of
the Company's airbag business and licensee of the Company's
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 a
$26.5 million one-time payment that TRW sent to the Company was
valid, entitling it to terminate that airbag royalty and obtain
a paid up license to use the Company's airbag technology. On
March 1, 1994 the Company answered TRW's complaint and also filed
counterclaims alleging that TRW had wrongfully terminated the
license agreement, had intentionally interfered with the
Company's business relationships and had failed to exert
reasonable efforts to exploit the exclusive license granted to
TRW by the Company.
On March 14, 1994 the Company filed a Motion for an Order
requiring TRW to make payment of all quarterly royalties until
the lawsuit is finally resolved. The Company sought the Order to
avoid the potential harm from cash flow interruption and/or
potential loan covenant defaults caused by TRW's failure to pay
scheduled royalty payments. A three day hearing on the Company's
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<PAGE>
Motion was completed on May 3, 1994 and on May 19, 1994 the Court
granted the Company's motion for a preliminary injunction. The
Court ordered TRW to continue paying royalties to the Company
pending conclusion of the lawsuit. On August 24, 1994 the Court
refused TRW's motion to suspend the injunction. A trial of
certain of the claims in the matter is presently in process.
While it is not possible to predict the outcome of litigation,
the Company believes that it has meritorious defenses to TRW's
claims and that it will ultimately prevail. Therefore,
management anticipates that the above-described action will be
resolved without any material adverse impact on the results of
operations, liquidity or financial position of the Company.
As previously reported, a subsidiary of the Company is conducting
an investigation of alleged groundwater contamination at a
facility in Athens, Georgia, in cooperation with the current
owner of the site. The site was owned by the subsidiary until
March 1988. No lawsuit has been filed in this matter, but the
Georgia Environmental Protection Division listed the site on its
Hazardous Site Inventory in March, 1995. Based on 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.
Recently Issued Accounting Standards
In late March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of", which is effective for fiscal
years beginning after December 15, 1995. The application of this
Statement will require the Company to carry real estate projects
that are substantially complete and ready for their intended use
at the lower of cost or fair value, less cost to sell. If the
sum of the expected future net cash flow (undiscounted and
without interest charges) is less than the carrying amount of
projects that are not substantially complete and ready for their
intended use, an impairment loss would be recognized. The
Company, consistent with existing generally accepted accounting
principles, currently states the majority of its land and land
under development at the lower of cost or net realizable value.
The effect of implementing this new accounting pronouncement has
not yet been quantified.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As more fully explained in the Commitments and Contingencies note
to the December 31, 1994 Consolidated Financial Statements,
litigation between the Company and TRW, Inc. (TRW), the buyer of
the Company's airbag business and licensee of the Company's
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 a
$26.5 million one-time payment that TRW sent to the Company was
valid, entitling it to terminate that airbag royalty and obtain
a paid up license to use the Company's airbag technology. On
March 1, the Company answered TRW's complaint and also filed
counterclaims alleging that TRW had wrongfully terminated the
license agreement, had intentionally interfered with the
Company's business relationships and had failed to exert
reasonable efforts to exploit the exclusive license granted to
TRW by the Company.
On March 14, 1994 the Company filed a Motion for an Order
requiring TRW to make payment of all quarterly royalties until
the lawsuit is finally resolved. The Company sought the Order to
avoid the potential harm from cash flow interruption and/or
potential loan covenant defaults caused by TRW's failure to pay
scheduled royalty payments. A three day hearing on the Company's
Motion was completed on May 3, 1994 and on May 23, 1994 the Court
granted the Company's motion for a preliminary injunction. The
Court ordered TRW to continue paying royalties to the Company
pending conclusion of the lawsuit. On August 24, 1994 the Court
refused TRW's motion to suspend the injunction. A trial of
certain of the claims in the matter is presently in process.
While it is not possible to predict the outcome of litigation,
the Company believes that it has meritorious defenses to TRW's
claims and that it will ultimately prevail. Therefore,
management anticipates that the above-described action will be
resolved without any material adverse impact on the results of
operations, liquidity or financial position of the Company.
On March 28, 1994, a fully consolidated real estate joint
venture, in which the Company has a $29.2 million interest,
instituted Chapter 11 proceedings in the United States Bankruptcy
Court for the District of Arizona. At the same time the joint
venture filed a proposed plan of reorganization that would
provide for the conversion of substantially all outstanding debt
of the joint venture into equity in a new company to be formed to
continue the project. On April 28, 1995, the Court approved the
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plan, subject to the consummation of certain settlement
agreements with several creditors of the joint venture. A
subsidiary of the Company would own approximately 90% of the
equity in the new company, when the plan is effective.
In September 1994, the Arizona Court of Appeals reversed a 1992
Arizona Tax Court ruling that entitled the Company to file a
combined tax return in the State of Arizona for the fiscal year
ended March 31, 1983, and in April 1995, the Supreme Court of the
State of Arizona denied the Company's Petition for Review. Based
on the appellate court decision, the Company will be liable for
approximately $1.1 million in taxes and interest for 1983. The
Company believes the appellate court erred in its decision and
the Company intends to vigorously litigate tax and interest
assessments for 1984 and 1985, of $5.3 million. Legislation
adopted in 1994 in Arizona specifically allows companies to file
combined tax returns in Arizona for periods from January 1, 1986,
and on December 8, 1994 the Arizona Department of Revenue
withdrew its assessments against the Company for 1986 and
subsequent years. Management believes that the final resolution
of the above matter will not result in a material adverse impact
on the results of operations or financial position of the
Company.
As previously reported, a subsidiary of the Company is conducting
an investigation of alleged groundwater contamination at a
facility in Athens, Georgia, in cooperation with the current
owner of the site. The site was owned by the subsidiary until
March 1988. No lawsuit has been filed in this matter, but the
Georgia Environmental Protection Division listed the site on its
Hazardous Site Inventory in March, 1995. Based on 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.
Item 3. Defaults Upon Senior Securities
(b) The Company has not made any dividend payments on its
preferred and common shares 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
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. Dividends on Series D Preferred Stock currently
accrue at $4.50 per share annually. As of February 28,
1998, dividends of $15.75 per share are to be paid annually
to holders of any Series D Preferred Stock still outstanding
at that time. Annual dividends of $1.10 per share, and
$1.00 per share, accrue with respect to outstanding shares
of Series A Preferred Stock and Series B Preferred Stock,
respectively. Cumulative dividends on preferred shares that
have not been declared or paid are approximately: Series
A - $295,000 ($4.40 per share), Series B - $6,193,000 ($4.00
per share) and Series D - $2,165,000 ($18.00 per share).
-15-
<PAGE>
The Company's preferred stockholders have certain voting
rights with respect to the election of two directors which
were triggered by the dividend arrearages. The preferred
stock does not provide any other voting rights or remedies
to the preferred stockholders in the event of a dividend
arrearage.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant held its Annual Meeting of Stockholders on
April 4, 1995.
(b) All of management's nominees for directors as listed in the
proxy statement were elected.
(c) The results of the election of directors were as follows:
Votes Votes
For Withheld
Directors Elected by
Common Stockholders
Fred Israel 8,800,524 294,234
John W. Stodder 8,814,807 279,951
David Victor 8,804,526 290,232
Directors Elected by
Preferred Stockholders
Paul L. Foster 1,330,471 33,881
Joseph A. Orlando 1,329,015 35,337
No other matters were voted upon at the annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11* Computation of Earnings per Common and Common
Equivalent Share.
27* Financial Data Schedule for Talley Industries,
Inc. March 31, 1995.
* Documents marked with an asterisk are filed with this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three
months ended March 31, 1995.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TALLEY INDUSTRIES, INC.
(Registrant)
Date: May 8, 1995 By Kenneth May
Kenneth May
Vice President, Controller
Principal Accounting
Officer
Date: May 8, 1995 By Mark S. Dickerson
Mark S. Dickerson
Vice President, General
Counsel and Secretary
-17-
<PAGE>
EXHIBIT 11
TALLEY INDUSTRIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Common
and Common Equivalent Share
(thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31,
1 9 9 5 1 9 9 4
Fully Fully
Primary Diluted Primary Diluted
Loss before extraordinary gain $(3,887) $(3,887) $ (506) $ (506)
Preferred stock dividend - - (542) (542)
Loss before extraordinary gain $(3,887) $(3,887) $(1,048) $(1,048)
Extraordinary gain 7,261 7,261 - -
Net earnings (loss) $ 3,374 $ 3,374 $(1,048) $(1,048)
Average common shares
outstanding during period 14,005 14,005 10,018 10,018
Shares for computation 14,005 14,005 10,018 10,018
Earnings (loss) per share:
Before extraordinary gain $ (.28) $ (.28) $ (.10) $ (.10)
Extraordinary gain .52 .52 - -
Net earnings (loss) $ .24 $ .24 $ (.10) $ (.10)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S BALANCE SHEET AND
STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 9,275,000
<SECURITIES> 0
<RECEIVABLES> 60,677,000
<ALLOWANCES> 1,089,000
<INVENTORY> 70,659,000
<CURRENT-ASSETS> 148,559,000
<PP&E> 135,404,000
<DEPRECIATION> 89,550,000
<TOTAL-ASSETS> 366,542,000
<CURRENT-LIABILITIES> 81,785,000
<BONDS> 227,357,000
<COMMON> 10,051,000
0
1,735,000
<OTHER-SE> 31,770,000
<TOTAL-LIABILITY-AND-EQUITY> 366,542,000
<SALES> 67,666,000
<TOTAL-REVENUES> 88,709,000
<CGS> 50,610,000
<TOTAL-COSTS> 63,226,000
<OTHER-EXPENSES> 21,485,000
<LOSS-PROVISION> 118,000
<INTEREST-EXPENSE> 7,012,000
<INCOME-PRETAX> (3,014,000)
<INCOME-TAX> 873,000
<INCOME-CONTINUING> (3,887,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 7,261,000
<CHANGES> 0
<NET-INCOME> 3,374,000
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.00
</TABLE>
