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, 1995
                                    OR
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

      For the transition period from                 to              
                      Commission File No. 33-49869-01

                 TALLEY MANUFACTURING AND TECHNOLOGY, INC.
          (Exact name of registrant as specified in its charter)
           Delaware                                   86-0739329
     (State or other jurisdiction                    (I.R.S. Employer
    of incorporation or organization)              Identification No.)
              2702 North 44th Street, Phoenix, Arizona 85008
           (Address of principal executive offices)   (Zip Code)
     Registrant's telephone number, including area code:(602) 957-7711

     Securities registered pursuant to Section 12(b) of the Act:  None
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<S>
     Securities registered pursuant to Section 12(g) of the Act: None

     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 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 ]
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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[   ]                                 
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                    DOCUMENTS INCORPORATED BY REFERENCE

                                   None

                    OMISSION OF INFORMATION BY CERTAIN
                         WHOLLY-OWNED SUBSIDIARIES

     The registrant  meets the conditions set forth in General Instruction (J)(1)(a) and (b) of Form 10-K
and therefore is filing this Form with the reduced disclosure format.  Items 10, 11, 12 and 13 have been
omitted.
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<PAGE>



Table of Contents
                                                                  
                                                               Page
Part I

  Item 1.  Business

            (a) Developments since January 1, 1995             I-1
            (b) Financial Information About Industry
                  Segments                                     I-2
            (c) Narrative Description of Business              I-2
            (d) Financial Information about Foreign and
                  Domestic Operations and Export Sales        I-25
            (e) Executive Officers of the Registrant          I-25

  Item 2.  Properties                                         I-25

  Item 3.  Legal Proceedings                                  I-27

  Item 4.  Submission of Matters to a Vote of
             Security Holders                                 I-27

Part II

  Item 5.  Market for Registrant's Common Equity
             and Related Stockholder Matters                  II-1

  Item 6.  Selected Financial Data                            II-1

  Item 7.  Management's Discussion and Analysis of
             Financial Condition and Results of
             Operations                                       II-1

  Item 8.  Financial Statements and Supplementary Data        II-1

  Item 9.  Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure           II-2

Part III

 Item 10.  Directors and Executive Officers of the
             Registrant                                      III-1

 Item 11.  Executive Compensation                            III-1

 Item 12.  Security Ownership of Certain Beneficial
             Owners and Management                           III-1

 Item 13.  Certain Relationships and Related Transactions    III-1


Part IV

 Item 14.  Exhibits, Financial Statement Schedules and
             Reports on Form 8-K                              IV-1


           Signatures                                         IV-2

<PAGE>

                                  PART I



Item 1.  Business.

(a)  Developments since January 1, 1995.

   On June 27, 1995, the federal district court for the District
of Arizona entered judgment against TRW Inc. in favor of the
Company in TRW Inc. vs. Talley Industries, Inc. et al.  The court
dismissed all claims asserted by TRW, against the Company while the
jury reached a verdict in favor of the Company on its counterclaims
against TRW, awarding the Company a total of $138 million.  TRW has
filed an appeal of the judgment to the Ninth Circuit Court of
Appeals on which oral argument was heard on February 14, 1996.  On
January 26, 1996 the federal district court awarded the Company
$7.1 million in attorneys' fees and expenses incurred in this
litigation.  The Company anticipates that TRW will appeal this
award.  (Also see Commitments and Contingencies note to the
Company's Consolidated Financial Statements, included in a separate
section of this report).
   On February 2, 1996 Talley Industries, Inc.'s Board of
Directors approved a transaction providing for the immediate
conversion of all of the Talley Industries Inc. Series D Cumulative
Convertible Preferred stock (120,293 shares) into 1,905,849 shares
of Talley Common Stock.  Talley Industries, Inc. completed the
conversion and issued the Common stock as of February 16, 1996. 
The conversion automatically extinguishes all unpaid dividends on
that stock totaling approximately $2.6 million as of December 31,
1995.   



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(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, 1995, are incorporated by
reference to the material appearing in the  Notes to Consolidated
Financial Statements on pages F-34 through F-39 of the Company's
financial statements for the year ended December 31, 1995, 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, 1995, included in a separate section of this
report.

(c)  Narrative Description of Business.

General
   In July 1993, Talley Manufacturing and Technology, Inc. ("the
Company", or "Talley Manufacturing"), a wholly owned subsidiary of
Talley Industries, Inc., ("Talley") was formed with the issuance of
1,000 shares of common stock.  The formation of the Company was in
connection with an offering, in October, 1993, of Senior Notes by
the Company and Senior Discount Debentures by Talley.  Concurrently
with the issuance of these securities, Talley contributed the
capital stock of its operating subsidiaries (other than its real
estate operations) to the Company, which also assumed a substantial
portion of Talley's indebtedness and liabilities.  At the same
time, the Company entered into a new credit facility with certain

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institutional lenders.  The Senior Notes were guaranteed by
substantially all of the Company's subsidiaries.  For an additional
discussion see "Basis of Presentation" on page F-17 of the
Company's financial statements for the year ended December 31,
1995, included in a separate section of this report.
   The Company is a diversified manufacturer of a wide range of
proprietary and other specialized products for defense, industrial
and commercial applications.  Through its Government Products and
Services segment, the Company manufactures an extensive array of
propellant devices and electronic components for defense systems
and commercial applications and provides naval architectural and
marine engineering services.  The Company participates in the
rapidly expanding market for automotive airbags through its royalty
agreement with TRW, Inc. ("TRW") which provides the Company with a
quarterly payment through April 30, 2001 for any airbag
manufactured and sold by TRW worldwide and for any other airbag
installed in a vehicle manufactured or sold in North America.  The
Company's Industrial Products segment manufactures and distributes
stainless steel products, high-voltage ceramic insulators used in
power transmission and distribution systems, and specialized
welding equipment and systems.  The Company's Specialty Products
segment manufactures and sells aerosol insecticides, air fresheners
and sanitizers for the commercial and agricultural markets, and
custom designed metal buttons for military and commercial uniforms
and upscale fashion apparel.  

(1)  Government Products and Services Segment.
   The Company's Government Products and Services segment provides
a wide range of products and services for government programs.  The

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majority of the Company's products are smaller components of larger
units and systems and are generally designed to enhance safety or
improve performance.  Products manufactured by the Company which
have significant replacement requirements include items having
finite shelf lives, such as propellants for pilot ejection seats,
as well as products regularly consumed in training and combat
situations.  Many of the Company's existing products and its new
product development efforts are focused on mobile, tactical and
"smart" military weapons and systems.  The Company is developing
new technologies that will enable it to re-enter the automotive
airbag market which it pioneered prior to the sale of that business
segment to TRW, Inc. in 1989.  The Company provides a broad range
of architectural and engineering design consulting services for the
U.S. Navy, commercial clients and shipyards, and has most recently
been expanding its design services into the environmental
protection market.

Solid Propellant Devices and Related Products
   A majority of the products manufactured by the Company's
Government Products and Services segment are based upon the
Company's core technologies and expertise in the design and
manufacture of propellants and related products.  Propellants are
solid fuels which, when ignited, produce a specified thrust or
volume of gas for a designated period.  The Company's propellant
products are typically custom designs developed by the Company in
response to customers' technical requirements and specifications. 
   The following sets forth a brief summary of several of the
solid propellant devices and related products manufactured by the
Company:

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           >   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.
           >   Rocket Motors.  The Company manufactures a wide range of
               rocket motors and rocket catapults.  These products include
               booster rockets for decoy missiles, as well as for unmanned
               vehicles.  The Company also manufactures rocket catapults and
               rocket motors for its aircraft escape systems.
           >   Gas Generators.  The Company manufactures a broad range of
               solid propellant gas generators.  These products provide
               pneumatic power for guidance and control systems, hydraulic
               systems, and safe and arming devices on a wide range of
               missile systems.
           >   Extended Range Munitions Components.  The Company's extended
               range munitions components utilize propellant technologies
               to dramatically extend the range of U.S. artillery.  The
               Company's extended range munitions utilize a solid propellant
               to reduce drag or rocket assist to provide thrust to extend
               the range of new howitzer artillery.  
           >   Dispersion Systems.  The Company pioneered the use of airbag
               technologies for modern munitions delivery systems.  The
               Company's dispersion systems utilize airbag assemblies to
               eject submunitions from carrier missile systems.
           >   Weapons Systems.  These weapon systems include a light anti-
               armor  weapon  for  the  U.S. Navy  and a light-weight
               disposable version of  a U.S. Marine Corps shoulder-launched
               weapon system for the U.S. Army.
                                    I-5
                                    
<PAGE>                                    

           >   Ejector Racks.  These ejection racks enable helicopter pilots
               to discard munitions, missiles or extra fuel in emergency
               situations.
           >   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.
           >   Insensitive Munitions.  The Company develops and manufactures 
               propellant products which are being qualified to meet certain
               rigorous safety requirements.  These munitions are generally
               insensitive to shock, puncture, high temperatures and
               pressure.
           >   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.
           >   Automotive Airbag Products.  The Company is re-entering the
               automotive airbag market, made possible by the expiration of
               the five-year non-compete clause of the TRW Asset Purchase
               Agreement.  New products include advanced, non-sodium azide
               inflators and an inflatable seat belt.

High Reliability Electronic Products
   The Company designs and manufactures specialized electronic
display and monitoring devices, electromechanical instruments and
components, and high performance cable assemblies which are used by
the aerospace and defense industries.  The Company's products are
designed to perform at a high level of reliability, conform to
tight  tolerance  specifications  and  withstand  harsh  operating

                                    I-6
                                    
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environments.  The following sets forth a brief summary of the
primary electronic products manufactured by the Company:
           >   Air Traffic Control Systems.  The Company has supplied
               electronic displays to the Federal Aviation Administration
               ("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.
           >   Airborne Flight Data Recorders.  The Company is a
               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.
           >   Safe and Arming Devices.  The Company manufactures electronic
               and electromechanical devices which are used to safely
               control, arm and fire warheads on torpedoes and missiles. 
               These products are designed to meet a high standard for
               safety requirements.
           >   Indicators.  The Company is a producer of elapsed time
               indicators, event counters and fault indicators, with a
               significant share of the domestic aerospace market.  The
               Company's indicator products are capable of functioning with
               a high degree of accuracy  and  are  built  to  withstand the

                                    I-7
                                    
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               harsh operating environment present in aerospace
               applications.
           >   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, electronic countermeasure systems 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 has been expanding its design
services into the environmental protection market, and has been
successful in obtaining a prime  contract  in  support  of the U.S.

                                    I-8
                                    
<PAGE>                                    

Navy's Hazardous Material Afloat program.  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 a
majority of the Company's naval architecture and marine engineering
revenue, with additional revenue attributable to subcontracts under
Navy contracts.  The remaining 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.

Marketing
   The Company markets its government products and services
directly to the Department of Defense, other U.S. government
departments, foreign government agencies, and other contractors. 
The Company's marketing strategy focuses on those contracts and
programs which are likely to be emphasized in the current defense
environment and for which the Company has a competitive advantage
in technology and expertise.


                                    I-9
                                    
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   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 direct to the Company.

Competition
   Competition for the Company's government products and services
varies widely.  The markets for several of the Company's products
and services are highly competitive, and many of the Company's
competitors have greater financial resources than the Company. 
However, the Company also competes in a variety of small niche
markets.  Production of the products within these markets
frequently requires government/product qualification, 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 pursuing qualification. 
Within these markets the Company is occasionally a sole supplier.
   The market for the Company's electronics components products
is highly competitive.  The Company believes that it shares the
market for aerospace elapsed time indicators, fault indicators and
events counters primarily with one competitor.  The Company
believes that its safe and arming devices compete with several
companies.




                                   I-10
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   The Company believes that its market for naval architectural
and marine engineering services is served by the Company and a
small number of other major firms.  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
   A high percentage of the Company's government defense contracts
are fixed-price contracts.  The Company's naval architecture and
marine engineering contracts 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

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Government 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, 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.  Certain cost reimbursement contracts are also subject
to review and price adjustment by the Government.
   U.S. Government contracts are, by their terms, subject to
termination by the Government either for its convenience or for
default by 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 


                                   I-12
                                   
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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  $469  million  at 

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December 31, 1995, $97 million at December 31, 1994 and $128
million at December 31, 1993.  The Company estimates that
approximately $106 million of the orders outstanding at December
31, 1995 will be delivered by December 31, 1996.  The backlog
amounts as presented herein are composed of funded and unfunded
components.  The government funded components and firm industrial
contracts on December 31, 1995 and 1994 totaled $98.9 million and
$97.3 million, respectively.
   The term funded used herein refers to the aggregate revenue
remaining to be earned at a given time under (i) contracts held by
the Company (excluding renewals or extensions thereof, which are at
the discretion of the customer) to the extent of the funded (i.e.,
appropriated by Congress and allotted to the contract by the
procuring Government agency) amounts thereunder, and (ii) task
orders or delivery orders issued to the Company under contracts
which provide that the customer is obligated to pay only for
services rendered pursuant to specific funded task orders and is
not obligated to issue additional task orders or to pay the
estimated total contract price.  The term unfunded used herein
refers to the portion of the Company's total backlog that
represents the excess of the stated value of the Company's executed
contracts over the amounts funded by the customer for such
contracts including unexercised options.

(2)  Airbag Royalties Segment.
   This segment of the Company's business consists of the
Company's royalty entitlement under the license agreement it signed
with TRW Inc. in April 1989 in connection with the sale of the
Company's automotive airbag business to TRW at that time.  Under

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the terms of that license agreement, the Company is entitled to
receive a royalty each quarter from TRW measured by the level of
TRW's airbag sales and the level of industry sales, as more fully
described below.
   As described in the Notes to Consolidated Financial Statements
under the heading  Commitments  and  Contingencies on page F-28 to
F-31 of the Company's financial statements for the year ended
December 31, 1995, included in a separate section of this report,
a judgment was entered in the Company's favor in June 1995 to the
effect that TRW had breached its obligations under the license
agreement, and the Company was awarded $138 million, as the jury's
calculation of the present value of the royalties estimated to be
payable by TRW to the Company under the license agreement for the
balance of its term.  That judgment is currently on appeal by TRW,
but pending resolution of the appeal, the trial court has ordered
TRW to continue to make quarterly payments to the Company in the
amount of royalties that otherwise would be due under the license
agreement.  If and when the judgment is affirmed on appeal, TRW
will be obligated to pay the judgment to the Company (plus accrued
interest from the date of the judgment, but net of the quarterly
payments made by TRW since the date of the judgment).  At that
time, TRW's obligation to make further royalty payments would
cease, because the effect of the judgment award is to pre-pay the
royalties otherwise accruing under the license agreement.
   Accordingly, the descriptions below of this segment of the
Company's business and the Company's royalty entitlement under the
1989 license agreement are subject to the judgment entered in the
Company's favor and the effect of that judgment (as, if and when

                                   I-15
                                   
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affirmed on the pending appeal) upon the Company's entitlement to
any further royalties once the judgment has been paid by TRW.
   As an outgrowth of the research and development efforts in its
core propellant businesses, the Company was a pioneer in the
development of the automotive airbag.  Airbags supplied by the
Company were installed by General Motors in approximately 12,000
automobiles during the 1970's and were the first airbags installed
in any significant number of automobiles.  While the Company's
program with General Motors was successful, low market awareness
and acceptance prevented the airbag from attaining wide-spread
popularity for a number of years.  During this period, the Company
continued to develop and refine its airbag technology, while
establishing relationships with certain U.S. and foreign automakers
and suppliers.  As demand for airbags increased in the 1980's, the
Company's technology, manufacturing expertise and strong customer
relationships made it a leading supplier of automobile airbags, and
the Company designed and constructed a highly automated production
facility that began producing airbags in volume during 1988.  In
1989, the Company sold its automotive airbag business to TRW, in
part because TRW's offer involved not only an attractive cash price
for the business, but also an opportunity to participate in the
future growth of the industry.  This participation comes through a
royalty agreement under which royalties are payable both on TRW's
worldwide airbag sales and on its competitors' airbags installed in
vehicles manufactured or sold in North America.
   At the closing of the 1989 sale of TRW, the Company received
$97.8 million in cash and entered into the 12-year Airbag Royalty
Agreement.  The Airbag Royalty Agreement requires TRW to pay the

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Company quarterly royalties through April 30, 2001 (the "Airbag
Royalty") based upon the following formula: (i) $1.16 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 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

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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 positively impacted most
recently by an improved national economy and increased construction
activity.  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 
utilizes modern computer automation, strict quality controls, and 
strong engineering and technical capabilities to maintain its
position as a low cost, high quality producer of stainless bar and
rod products.

Stainless Steel
   The Company operates a modern stainless steel mini-mill which
converts purchased stainless steel billets into a variety of
grades, sizes and shapes 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 delivery.  Located in South Carolina, the mini-mill has

                                   I-18
                                   
<PAGE>                                   

relatively low operating costs and is situated close to major
north-south and east-west interstate highways.  The Company has
annealing, shot blasting, pickling and cold finishing capabilities,
which broaden the product range, shorten lead times, improve
product quality and lower costs.  The Company sells its products to
a number of steel distributors, including a master distributor
which is owned by the Company, and to a lesser extent to industrial
end-users.  The Company-owned master distributor sells stainless
steel bar, angle and flats to independent distributors, and also
provides cutting, grinding and boring services.  The Company's
master distributor, which resells approximately 15% of the mini-
mill's total production currently, has five distribution depots
located in South Carolina, New Jersey, Pennsylvania, Illinois and
Texas.  The Company also owns a Canadian distributor, which sells
primarily flat stainless steel products (not produced by the mini-
mill). This distributor has 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 original equipment
manufacturers.  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.
                                   I-19
                                   
<PAGE>                                   

   The Company's primary customers include original equipment
manufacturers 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 original equipment manufacturers.  The Company's
welding equipment and systems are highly-engineered and advanced
technologically.  The Company's product lines include 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 original equipment 
manufacturers in the telecommunications, medical, computer and
other industrial markets.  The power supply market is highly
competitive, with numerous 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 original equipment
manufacturers arrangements.
                                   I-20
                                   
<PAGE>                                   

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
totaled approximately $34 million at December 31, 1995, $32 million
at December 31, 1994 and $19 million at December 31, 1993.  The 
Company estimates that substantially all of the orders outstanding
at December 31, 1995 will be delivered by December 31, 1996.  
Increases are attributed to general improvement in the economy,
a major steel mill competitor exiting the market and 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 fashion markets.

Insect and Odor Control
   The Company offers a complete line of insecticides, air
fresheners and sanitizers for sale through distributors to the


                                   I-21
                                   
<PAGE>                                   

industrial maintenance supply, pest control and agricultural
markets.   The  Company's insecticide  products are sold under
unique trademarks to agricultural and pest control distributors,
respectively, 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 fashion

                                   I-22
                                   
<PAGE>                                   

markets.  The Company also produces insignias, cuff links, money
clips, tie bars and other accessories as a complement to its button
products.   The buttons are individually stamped from custom
designed steel dies.
   The use of steel dies and a 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 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 manufacturers on custom button
designs for their manufactured garments.

Marketing
   The Company utilizes several hundred independent distributors
to market its insect and odor control products to the various pest
control and sanitary supply companies that service the industrial
maintenance supply and commercial pest control industry.  The
agricultural market is served by a large number of independent
agricultural products distributors.  The Company has a small
marketing staff which is responsible for working with and
overseeing the distributors who carry its products.
   The Company's button business maintains a small sales force
which is responsible for obtaining new and maintaining existing
customer relationships.  Individual sales representatives are
focused on the military commercial uniform market the fashion
apparel markets and the men's accessories market.  The Company's
advertising for its Specialty Products businesses is limited to
product brochures and ads in various trade publications.
                                   
                                   I-23
                                   
<PAGE>                                   

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 two companies, both of which are similar in size to
the Company's button operations.  The Company maintains the
strongest position in the military and commercial uniform market.
Both of the Company's competitors maintain an equal presence with
the Company in the fashion markets.

Backlog
   The backlog of firm orders in the Specialty Products segment
totaled approximately $.9 million at December 31, 1995, $1.4
million at December 31, 1994 and $1.4 million at December 31, 1993. 
The Company estimates that substantially all of the orders
outstanding at December 31, 1995 will be delivered by December 31,
1996.

(5) Other General information.
   Research and Development.  During the years ended December 31,
1995, 1994 and 1993, the Company's consolidated expenditures for
Company-sponsored research and development activities were
approximately $4.2 million, $4.3 million and $3.1 million,
respectively.  For the same reporting periods, customer-sponsored
research and development expenditures were $10.1 million, $8.2
million and $11.6 million, respectively.
                                   
                                   I-24
                                   
<PAGE>                                   

   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, 1995, the Company had 2,353
employees, approximately 17% 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 of them are 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-34 through F-39 of the
Company's financial statements for the year ended December 31,
1995, included in a separate section of this report.

(e)  Executive Officers of the Registrant.
   Reference is hereby made to the information contained in Item
10 of this Form 10-K.

Item 2.  Properties.
   The Company's operations are conducted at numerous 
manufacturing and assembly plants, warehouses, offices and sales
facilities located in 20 states, as well as warehouses, offices and 

                                   I-25
                                   
<PAGE>                                   

sales facilities in Canada and the Netherlands.  The principal
facilities of the Government Products and Services segment include
over 939,000 square feet of manufacturing and assembly facilities,
in addition to related 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.  However, at the two Arizona facilities, the
Company owns the plants and equipment, and leases the underlying
land from the State of Arizona.  One of these locations is leased
under long-term leases, while the second location is currently
under a year-to-year lease.  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; Washington, D.C.; and Pascagoula,
Mississippi, all of which are leased.
   Facilities used by the Industrial Products segment include
approximately 826,000 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 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 192,000 square feet of manufacturing,
warehouse, and office space in four locations:  Waterbury,
Connecticut; Randolph, Vermont; and Independence, Louisiana.  All

                                   I-26
                                   
<PAGE>                                   

of these facilities are owned by the Company with the exception of
eight Industrial Products segment sales and warehouse facilities
consisting of 176,000 square feet and 20,500 square feet of 
Specialty Products segment warehouses which are leased.
   In total, over two-thirds of all the facilities (by square
footage) are owned by the Company and have been pledged as
collateral to secure a 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-28 to F-31 of
the Company's financial statements for the year ended December 31,
1995, 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, 1995.



"Safe harbor" statement under the Private Securities Litigation
Reform Act of 1995:
   Various statements in the Management's Discussion and Analysis,
and elsewhere in this report are based upon projections and
estimates, as distinct from past or historical facts and events. 
These forward-looking statements, based as they are on estimates
and  projections  of  future results, conditions and other factors,
are subject to a number of risks and uncertainties that could cause

                                   I-27
                                   
<PAGE>                                   

actual results to be materially different, including changes in
future economic conditions, the competitive environment for our
products and services and customer acceptance, the success of
research and development activities, the future values of real
estate assets being disposed of, the level of Government defense
spending, litigation involving the Company, the Company's
anticipated results of operations and financial position, and a
number of other factors and assumptions.





















                                   I-28
                                   
<PAGE>                                   

                                  PART II


Item 5.  Market for the Registrant's Common Equity and Related
Stockholder Matters.

   The Company's stock is wholly owned by its parent, Talley
Industries, Inc., and is not traded.  Dividends can be and are made
when necessary by Talley Manufacturing.  Subject to restrictions by
debt agreements, dividends may be declared and paid (See
"Management's Discussion and Analysis" on pages F-2 through F-11 of
the Company's financial statements for the year ended December 31,
1995, included in a separate section of this report, for further
discussion).

Item 6. Selected Financial Data.

   The information required by this item is incorporated by
reference to the material under the captions "Five Year Summary of
Operations" and "Selected Financial Data" on pages F-40 and F-42 of
the Company's financial statements for the year ended December 31,
1995, 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,
1995, 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 LLP, are included in a separate section
of this report.  (See "Index to Financial Statements and 
Schedules" on page F-1).  The Company's stock is wholly owned by

                                   II-1
                                   
<PAGE>                                   

the parent company, Talley, and accordingly, quarterly financial
results are not provided.

Item 9.  Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.

   The Company's Independent Accountants during the two most
recent fiscal years have neither resigned, declined to stand for
re-election nor been dismissed.













































                                   II-2
                                   
<PAGE>                                   

                                 PART III



Item 10.  Directors and Executive Officers of the Registrant.
   Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.

(c)  Compliance with Section 16(a) of the Exchange Act.
   Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.

Item 11.  Executive Compensation.
   Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.

Item 12.  Security Ownership of Certain Beneficial Owners and
Management.
   Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.

Item 13.  Certain Relationships and Related Transactions.

   Information under this item has been omitted pursuant to
conditions set forth in General Instruction (J)(1)(a) and (b) of
Form 10-K.





                                   III-1
                                   
<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, 1995.  A Form 8-K was filed with
        a report date of February 2, 1996, reporting the amendment
        to the Preferred Share Purchase Rights Agreement for
        Talley Industries, Inc., originally issued in 1986.  The
        Form 8-K also reported the approval by Talley Industries,
        Inc.'s Board of Directors of a transaction providing for
        the immediate conversion of Talley Industries, Inc.,
        Series D Cumulative Convertible Preferred Stock into
        Common Stock.



















                                   IV-1
                                   
<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 MANUFACTURING AND TECHNOLOGY, INC.


                          By Mark S. Dickerson                  
February 28, 1996            Mark S. Dickerson
Phoenix, Arizona             Vice President 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             February 28, 1996


Jack C. Crim                Director, President
Jack C. Crim                Chief Operating
                              Officer             February 28, 1996


Kenneth May                 Vice President, 
Kenneth May                 Controller
                            Principal Accounting
                              Officer             February 28, 1996


Daniel R. Mullen            Vice President,
Daniel R. Mullen            Treasurer
                            Principal Financial
                              Officer             February 28, 1996







                                   IV-2
                                   
<PAGE>                                   


                                  Director                        
Neil W. Benson



Paul L. Foster                   Director         February 28, 1996
Paul L. Foster



Townsend W. Hoopes                Director        February 28, 1996
Townsend W. Hoopes



Fred Israel                      Director         February 28, 1996
Fred Israel



John D. MacNaughton, Jr.          Director        February 28, 1996
John D. MacNaughton, Jr.



Joseph A. Orlando                 Director        February 28, 1996
Joseph A. Orlando      



John W. Stodder                   Director        February 28, 1996
John W. Stodder  



Donald J. Ulrich                  Director        February 28, 1996
Donald J. Ulrich



David Victor                      Director        February 28, 1996
David Victor



Alex Stamatakis                   Director        February 28, 1996
Alex Stamatakis










                                   IV-3
                                   
<PAGE>                                   


SUPPLEMENTAL INFORMATION

       Supplemental information to be furnished with reports filed
pursuant to Section 15(d) of the Act by registrants which have not
registered securities pursuant to Section 12 of the Act.

         No supplemental information is required.















































                                   IV-4
                                   
<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, 1995, 1994
         and 1993.........................................F-12
       Consolidated Balance Sheet -
         December 31, 1995 and 1994.......................F-13
       Consolidated Statement of Changes
         in Stockholder's Equity - Years ended
         December 31, 1995, 1994 and 1993.................F-15
       Consolidated Statement of Cash Flows -
         Years ended December 31, 1995, 1994
         and 1993.........................................F-16
       Notes to Consolidated Financial Statements,
         including Summary of Segment Operations..........F-17
       Five Year Summary of Operations....................F-40
       Report of Independent Accountants..................F-41
       Selected Financial Data and Supplemental Data......F-42

       Financial Statement Schedules:

          I - Condensed Financial Information of
              Registrant..................................F-45

         II - Valuation and Qualifying Accounts and
              Reserves....................................F-51

         

    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.





                                    F-1
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


Introduction

    In July 1993, the Company was formed as a wholly-owned
subsidiary of Talley Industries, Inc. ("Talley").  The formation
was in connection with an offering of debt securities described
below.  Concurrently with the offering, Talley contributed the
capital stock of its operating subsidiaries (other than its real
estate operations) to the Company, which also assumed a substantial
portion of Talley's debt and liabilities.
    Revenue and results of operations improved significantly over
1994.  General economic improvement and operating efficiencies have
benefited the Company's stainless steel production and distribution
business, which has been a major factor in the improved financial
results.  The expanding demand for automotive airbags has increased
the Company's airbag royalties.  For the year ended December 31,
1995 the Company had  net earnings of $16.9 million, an improvement
over the earnings of $11.2 million in 1994.  
    Revenues in 1995 were $383.0 million, compared to $320.6
million in 1994.  Increases in revenues from the Company's steel
operations of $47.9 million was partially offset by decreases in
certain defense contract revenues.  The reduction in defense
contract revenue is primarily associated with the overall reduction
in defense spending and the completion of certain contracts.
    The gross profit percentage on sales and services (exclusive
of airbag and other royalties) decreased from 24.5% in 1994 to
23.5% in 1995.  The decrease is primarily due to completion in 1994
of certain non-recurring high margin defense contracts.
    Revenue for the year ended December 31, 1994 increased $2.5
million when compared with 1993.  Net earnings of $11.2 million in
1994 compares with net earnings of $4.7 million in 1993.  
    The gross profit percentage increased from 23.4% in 1993 to
24.5% in 1994, primarily due to a change in the mix of defense
contracts and improvement in stainless steel pricing.

Government Products and Services

    Revenue from the Government Products and Services segment in
1995 decreased $1.5 million or 1% compared with 1994.  Operating
income decreased $8.0 million or 44%.  The decrease in revenue and
operating income resulted primarily from the overall reduction in
U.S. Defense spending and the completion of certain non-recurring
contracts.  Decreases were also attributed to certain contract
delays.
  U.S. Defense spending has declined over the last several years as
part of efforts to refocus national spending and reduce the federal
budget deficit.  The Company has experienced a reduction in some
defense contract revenue and has not been fully excluded from the
effects of defense budget cuts.  However, management believes that


                                    F-2
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


Government Products and Services, (continued)

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 is emphasizing non-military products to lessen the
Company's dependency on government contracts.
    Revenue and operating income for the year ended December 31,
1994 decreased by $29.2 million and $6.2 million, respectively,
when compared with 1993.  The decrease in revenue and operating
income resulted primarily from the completion of certain non-
recurring contracts and a scheduled pricing reduction under an
extended range munitions program.

Airbag Royalty

    Under the terms of an airbag licensing agreement executed in
April 1989, the Company has the right to receive royalty payments
for a period of twelve years ending April 30, 2001.  Revenue from
airbag royalties increased from $17.3 million in 1994 to $24.0
million in 1995.  The increase is primarily a result of the
increasing airbag installation rates.  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. 
On June 27, 1995, the Company was awarded a lump sum payment of
$138 million which represents the jury's determination of the
present value of the royalties that would otherwise have been paid
to the Company through April 2001.  This award is being appealed;
however, the federal district court has ordered the quarterly
payments to continue during the appeal.  Discontinuance of
quarterly 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 $9.6
million in 1993 to $17.3 million in 1994.

Industrial Products

    The Industrial Products segment had increased revenue of $54.6
million, or 42%, and increased operating income of $15.2 million in 
1995 when compared to 1994.  The increase in revenue is
primarily related to the increased orders and higher selling prices
for stainless steel bars and rods and increased demand for ceramic
insulator products due to an improved national economy, increased


                                    F-3
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


Industrial Products, (continued)

construction activity, a reduction in the number of competitors and
improved market share.  In early 1995 the U.S. Commerce Department
placed anti-dumping tariffs on stainless steel bars imported from
certain countries, which the Company believes have aided in the
continuance of the positive performance of the steel operations. 
Sales from the Company's steel operations for the years ended
December 31, 1995 and 1994 were $145.8 million and $97.9 million,
respectively.  Operating income for 1995 and 1994 was $19.7 million
and $6.7 million, respectively.
    In 1994, revenue and operating income for this segment
increased $21.7 million and $5.0 million, respectively, when
compared to 1993.  The increases were due primarily to the improved
demand for stainless steel bars and rods.  Operating results also
increased due to rising prices in stainless steel bars and rods and
due to cost reduction efforts at the Company's steel and ceramic
insulator operations.  

Specialty Products

    The Specialty Products segment had increased revenue and a
slight increase in operating income in 1995 when compared to 1994
of $2.7 million and $.3 million, respectively.  The acquisition of
a manufacturer of metal buttons in mid 1994 was the primary reason
for the sales improvement over the 1994 results, in spite of
sluggish demand for certain other consumer products.  
    Revenue in 1994 increased $2.4 million, while operating income
decreased slightly by $.1 million over 1993.  The increase in
revenue resulted from the mid-year acquisition of the manufacturer
of metal buttons.

Other Matters

    In 1995, other income, net of other expenses was a net expense
of $.6 million,  compared to a net income of $.1 million in 1994
and $.7 million in 1993.  Interest  income,  which  is  one of the
major components of other income, and is related to the balance in
notes receivable and short-term investments, was $.2 million in
1995, $.1 million in 1994 and $.3 million in 1993.  Corporate 
overhead was $15.5 million in 1995, $17.2 million in 1994, and
$14.8 million in 1993.  The amounts are above normal levels due to
a provision for litigation costs in 1995 of approximately $5.0
million and in 1994 of approximately $6.0 million related to
resolution of claims in connection with airbag royalties being
received from the licensee and the inclusion in 1993 of certain
period costs associated with the Company's refinancing efforts in
that year.  On January 26, 1996, the federal district court awarded


                                    F-4
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


Other Matters, (continued)

the Company $7.1 million in attorney fees and expenses incurred in
its litigation with the licensee (see Commitments and Contingencies
note to the Consolidated Financial Statements).  The Company
anticipates that the licensee will appeal the award.
    The income tax net provision for 1995 was $12.5 million
compared to a net tax provision of $2.3 million in 1994.  The
increase in net tax provision in 1995 is primarily due to increased
earnings.  In 1994, a favorable state tax legislation in the State
of Arizona, resulted in a $5.6 million reversal of state income
taxes previously accrued.  This benefit is partially offset by
other tax provisions.  
    The Company's backlog was approximately $503.3 million as of
December 31, 1995 and $130.9 million as of December 31, 1994.
Approximately 27.9% of the backlog as of December 31, 1995 is
expected to result in revenue during 1996, with the remaining 72.1%
expected to result in revenue during subsequent periods.  The
backlog amounts as presented herein are composed of funded and
unfunded components.  The government funded components and firm
industrial contracts on December 31, 1995 and 1994 totaled $133.5
million and $130.9 million, respectively.
    The term "funded" used herein refers to the aggregate revenue
remaining to be earned at a given time under (i) contracts held by
the Company (excluding renewals or extensions thereof, which are at
the discretion of the customer) to the extent of the funded (i.e.,
appropriated by Congress and allotted to the contract by the
procuring Government agency) amounts thereunder, and (ii) "task
orders" or "delivery orders" issued to the Company under contracts
which provide that the customer is obligated to pay only for
services rendered pursuant to specific funded task orders and is
not obligated to issue additional task orders or to pay the
estimated total contract price.  The term "unfunded" used herein
refers to the portion of the Company's total backlog that
represents the excess of the stated value of the Company's executed
contracts over the amounts funded by the customer for such
contracts including unexercised options.
    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 1995 of $15.6 million or 4% of
consolidated revenue and earnings before income taxes of $2.4
million.
    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,
1995.


                                    F-5
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


  Recently Issued Accounting Pronouncements

    In October 1994 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 119
"Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments" effective for the Company at December 31,
1994.  The Company does not presently have nor has it had any
derivative type instruments since mid-1993 when a single interest
rate swap agreement was terminated as described in the notes to the
financial statements.
    In October 1995 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," which is effective for
transactions entered into in fiscal years that begin after
December 15, 1995.  The Company has employee incentive arrangements
wherein employees receive shares of Talley Industries, Inc. stock. 
When this pronouncement becomes effective, the Company will be
required to account for such transactions under the "fair value"
based method or the "intrinsic value" based method.  Under the
"fair value" based method, compensation cost is measured at the 
grant date, based on the value of the award and is recognized over
the service period, which is usually the vesting period.  Under the
"intrinsic value" based method, (present accounting), compensation
cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date, over the amount an
employee must pay to acquire the stock.  For stock options, fair
value is determined using an option-pricing model that takes into
account the stock price at the grant date, the exercise price, the
expected life of the option, the volatility of the underlying stock
and the expected dividend on it, and the risk-free interest rate
over the expected life of the option.  Certain pro-forma
disclosures are required when a Company uses the "intrinsic value"
based method instead of the "fair value" based method.
    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.

  Litigation

    On  June 27, 1995, the federal district court for the District
of Arizona entered judgment against TRW Inc. in favor of the
Company in TRW Inc. vs. Talley Industries, Inc. et al.  The court
dismissed all claims asserted by TRW against the Company while the
jury reached a verdict in favor of the Company on its counterclaims
against TRW, awarding the Company a total of $138 million.  The
award (which is in addition to (i) royalty payments of $24.4
million paid prior to the judgment and during the pendency of this 


                                    F-6
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


  Litigation, (continued)

action pursuant to a preliminary injunction order, and (ii) the
court's January 26, 1996 award of $7.1 million for attorneys' fees
and recoverable costs relating to this litigation) represents the
jury's determination of the present value of the royalties that
would otherwise have been paid to the Company by TRW for the period
from April 1995 through April 2001.
    The litigation in which this judgment was entered arose out of
the Asset Purchase Agreement dated February 4, 1989 and the License
Agreement  dated  April  21,  1989,  between  TRW  and  the Company
pursuant to which TRW acquired the Company's airbag business.  The
court dismissed TRW's claims that the Company had breached a non-
compete provision contained in the Asset Purchase Agreement, 
thereby entitling TRW to terminate airbag royalty payments to the
Company under the License Agreement (which it purported to do in
February 1994) and obtain a paid-up license to use the Company's
airbag technology.  The jury found in fact that TRW had improperly
terminated and repudiated the License Agreement.  TRW has filed an
appeal of the judgment to the Ninth Circuit Court of Appeals, on
which oral argument was heard on February 14, 1996.  The Company
anticipates that TRW will also appeal the district court's award of
attorneys' fees and expenses.
    On July 26, 1995 the district court granted a stay of
enforcement of the judgment pending appeal upon the posting by TRW
of a $175 million bond and the continuation of quarterly payments
to the Company in the amount of royalties that otherwise would be
due under the License Agreement.  Upon affirmation of the judgment
on appeal, TRW would be required to pay the judgment plus interest
(which the court ruled will accrue from June 27, 1995 at the rate
specified by the 1989  License Agreement - i.e., prime plus five
percent), offset by the continued quarterly payments made in the
interim as ordered by the court.  TRW has sought and the Court of
Appeals has denied emergency review of the district court's order
requiring the continued quarterly payments pending appeal.  The
denial of emergency relief by the Court of Appeals is without
prejudice to TRW's appeal from the district court's order.
    Certain other claims asserted by TRW and the Company against
each other are the subject of a separate action which remains
pending.  In that action, TRW has challenged certain
representations by the Company that the airbag manufacturing plant
sold to TRW by the Company in 1989 met applicable government
requirements, and that the associated  real  estate  was sufficient
to permit construction of certain additional facilities.  The
Company's claims against TRW include claims that TRW failed to
properly exploit the license granted to TRW by the Company in 1989
and denied the Company certain contractually provided audit rights. 



                                    F-7
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


  Litigation, (continued)

It is currently anticipated that these remaining claims will come
to trial early in the spring of 1996.  Management anticipates that
the above-described claims will be resolved without any material
adverse impact on the results of operations  or financial position
of the Company.
    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 paid approximately
$1.3 million in taxes and interest for the period ending March 31,
1983.  The Company believes the appellate court erred in its
decision; however, the Company held discussions with state 
authorities in an effort to resolve the dispute for the periods
ending on December 31, 1984 and 1985.  The tax and related interest
assessment in dispute is approximately $5.0 million.  If the
Company is unsuccessful in reaching an agreement with the state, it
intends to vigorously litigate these tax and interest assessments. 
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.

Environmental

    A subsidiary of the Company has been named as a potentially
responsible party under the Comprehensive  Environmental  Response
Compensation and Liability Act in connection with the remediation
of the Beacon Heights Landfill in Beacon Falls, Connecticut and 
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 Environmental Protection Agency to
remediate these sites.  Each coalition has in turn brought an
action against other potentially responsible parties, including a
subsidiary of the Company, to contribute to the cleanup costs. 






                                    F-8
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


Environmental, (continued)

In October 1995, the Company settled the Laurel Park matter,
including a payment by the Company that was not material to the
results of operations of the Company.  The  federal  court  hearing
the case has dismissed claims brought against the subsidiary by the
Beacon Heights coalition.  However, the coalition has indicated
that it intends to appeal the court's ruling.  Based upon
management's review and the status of the proceedings, with respect
to the Beacon Heights matter, management believes that any
reasonably anticipated losses from this claim will not result in a
material adverse impact on the results of operations or the
financial position of the Company.
    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.  The Georgia
Environmental Protection Division made a determination in 1995 that
the site should be listed on its Hazardous Site Inventory.  No
lawsuit or administrative enforcement proceedings have been
initiated in this matter.  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.

Liquidity and Capital Resources

    In October 1993, the Company and its parent Talley Industries,
Inc. completed a refinancing of substantially all of their existing
senior and senior subordinated debt.  This refinancing program
included an offering of $185.0 million of debt securities,
consisting of $70.0 million gross proceeds of Senior Discount
Debentures due 2005, issued by Talley Industries, Inc. to yield
12.25% and $115.0 million of Senior Notes due 2003, with an
interest rate of 10.75% issued by the Company.  In connection with
this refinancing, the Company also obtained a $60.0 million secured
credit facility with institutional lenders.  At December 31, 1995
availability under the facility, based on inventory and receivable
levels, and certain plant and equipment, was approximately $48.0
million, of which $25.0 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 debt.  The Company
anticipates that the new capital structure will support the long-
term growth of the Company's core businesses and permit the
implementation of its strategy to use proceeds received from the
increasing airbag royalties and from continuing operations to
reduce its total indebtedness.

                                    F-9
                                    
<PAGE>                                    

      TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


Liquidity and Capital Resources, (continued)

    The Company is permitted (and intends) to distribute cash to
its parent, for specified purposes and under certain other
circumstances.  These distributions will be made using funds
available from operations and the secured credit facility.  The
payments include (but are not limited to) certain airbag royalties
in excess of $10 million in any year (or in excess of such greater
amount as would be required for the Company to meet a specified
fixed charge coverage ratio) which will be used to redeem the
Senior Discount Debentures issued by Talley and an annual
distribution of up to $1.3 million ($1.7 million for the period
from the issue date of the new indebtedness through December 31,
1994) for a period of five years to fund certain carrying and other
costs associated with Talley's real estate operations.  The Company
may also redeem preferred stock of the Company purchased by Talley
from proceeds of the recent refinancing.  In addition, the Company
is a party to a cost sharing agreement and a tax sharing agreement
which will require the Company to reimburse Talley for certain
ongoing general and administrative expenses and to make certain tax
payments to Talley.
    The Company believes that the combination of cash flow from
operations, funds available under the credit facility described
above (or any successor facility) and increasing revenue from
airbag royalties (to the extent retained by the Company as
described above) will provide sufficient liquidity to meet its
working capital, debt service and other capital requirements and to
meet its other ongoing business needs over the next five
years.   At December 31, 1995, the Company had $3.5 million in
cash and cash equivalents and $93.9 million in working capital. 
During 1995 the Company generated $8.3 million of cash flow from
operating activities.  This amount reflects cash generated due to
earnings offset by an increase in accounts receivable of $12.8
million, an increase in inventory of $1.1 million, and a decrease
in accounts payable and accrued expenses totaling $4.4 million. 
Since the Company is engaged in government contracting activities,
the amount of receivables may fluctuate based on the timing of
contract shipments and collections on such contracts.  Accordingly,
the  balances of receivables at the end of 1995, 1994, and 1993
reflect this fluctuation.  The increase in receivables in 1995 also
reflects the impact of a significant increase in sales and related
working capital increases from the Company's steel operations.  In
1995 the Company used $8.4 million of cash for investing activities
during the year, which consisted primarily of $8.9 million in
purchases of property and equipment and $.8 million proceeds from
the sale of property and equipment.   Cash generated in financing 





                                   F-10
                                   
<PAGE>                                   

       TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Management's Discussion and Analysis of Financial Condition and
Results of Operations
                                                                  


Liquidity and Capital Resources, (continued)

activities of $.8 million reflects investments by the parent
company in excess of dividends and stock redemptions.  Dividend
paid to the Parent's company totalled $1.3 million; the Company
redeemed $4.0 million of preferred stock from the Company's parent
and there was also an increase of $9.1 million in the investment in
the Company by the parent company.   Borrowings and pay downs under
revolving credit facilities are also included in financing
activities.








































                                   F-11
                                   
<PAGE>                                   

             TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES




Consolidated Statement of Operations




Years Ended December 31,              1995           1994           1993
                              ------------   ------------   ------------
Sales                         $299,070,000   $242,044,000   $243,990,000
Services                        58,821,000     59,989,000     63,270,000
Royalties                       25,169,000     18,570,000     10,868,000
                              ------------   ------------   ------------
                               383,060,000    320,603,000    318,128,000
                              ------------   ------------   ------------
Cost of sales                  222,184,000    175,880,000    180,408,000
Cost of services                51,485,000     52,314,000     54,927,000
Selling, general and
  administrative expenses       62,131,000     61,866,000     54,961,000
                              ------------   ------------   ------------
                               335,800,000    290,060,000    290,296,000
                              ------------   ------------   ------------
Earnings from operations        47,260,000     30,543,000     27,832,000

Other income (expense), net       (602,000)       160,000        728,000
                              ------------   ------------   ------------
                                46,658,000     30,703,000     28,560,000
                              ------------   ------------   ------------

Interest expense                17,173,000     17,180,000     16,364,000
                              ------------   ------------   ------------
                                17,173,000     17,180,000     16,364,000
                              ------------   ------------   ------------
Earnings before income taxes
  and extraordinary loss        29,485,000     13,523,000     12,196,000
Income tax provision            12,546,000      2,308,000      6,392,000
                              ------------   ------------   ------------

Earnings before extraordinary
  loss                          16,939,000     11,215,000      5,804,000
Extraordinary loss, net of
  income taxes                           -              -     (1,102,000)
                              ------------   ------------   ------------
Net earnings                  $ 16,939,000   $ 11,215,000   $  4,702,000
                              ============   ============   ============






The accompanying notes are an integral part of the financial statements.














                                      F-12
                                      
<PAGE>                                      

       TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES






Consolidated Balance Sheet


December 31,                                  1995          1994
                                      ------------  ------------
ASSETS

Cash and cash equivalents             $  3,461,000  $  2,756,000

Accounts receivable, net of
  allowance for doubtful accounts
  of $1,275,000 in 1995 and
  $994,000 in 1994                      69,065,000    55,672,000

Inventories                             67,191,000    66,069,000

Deferred income taxes                    1,200,000       800,000


Prepaid expenses                         7,899,000     7,523,000
                                      ------------  ------------
  Total current assets                 148,816,000   132,820,000


Long-term receivables, net               9,732,000    10,317,000

Property, plant and equipment, 
 at cost, net of accumulated 
 depreciation of $92,305,000
 in 1995 and $87,894,000 in 1994        48,341,000    45,920,000

Intangibles, at cost, net of
  accumulated amortization of
  $16,985,000 in 1995 and 
  $15,376,000 in 1994                   43,969,000    46,288,000

Deferred charges and other assets        5,498,000     7,160,000
                                      ------------  ------------

  Total assets                        $256,356,000  $242,505,000
                                      ============  ============










                                   F-13
                                   
<PAGE>                                   

        TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES









December 31,                                  1995          1994
                                      ------------  ------------
LIABILITIES AND STOCKHOLDER'S EQUITY

Current maturities of long-term debt  $  3,734,000  $  3,549,000
Accounts payable                        21,709,000    25,560,000
Accrued expenses                        29,498,000    28,620,000
                                      ------------  ------------
  Total current liabilities             54,941,000    57,729,000


Long-term debt                         136,858,000   139,756,000
Deferred income taxes                    7,437,000     6,655,000
Other liabilities                        4,283,000     6,488,000
Commitments and contingencies                    -             -

Stockholder's equity: 
  Preferred stock, $1 par value,
    authorized 100 shares;
    shares issued:
      -0- shares  in 1995 and
      4 shares in 1994 of Series A               -             4
  Common stock, $1 par value,
    authorized 1,000;
    shares issued:
      1,000 shares                           1,000         1,000
  Capital in excess of par value        23,494,000    18,365,996
  Foreign currency translation
    adjustments                           (530,000)     (723,000)
  Retained earnings                     29,872,000    14,233,000
                                      ------------  ------------
  Total stockholder's equity            52,837,000    31,877,000
                                      ------------  ------------
  Total liabilities and stockholder's
    equity                            $256,356,000  $242,505,000
                                      ============  ============







The accompanying notes are an integral part of the financial
statements.




                                   F-14
                                   
<PAGE>                                   
<TABLE>

                                              TALLEY MANUFACTURING AND TECHNOLOGY, INC.


<CAPTION>
Consolidated Statement of Changes in Stockholders' Equity

                                                                      Other     
                                           Preferred    Common       Common        Retained
                                             Stock       Stock        Stock        Earnings 
                                           ---------    -------    -----------    -----------  
<S>                                        <C>          <C>        <C>            <C>                             
Balance at December 31, 1992               $       -    $     -    $10,948,000    $         -
  Net earnings                                                                      4,702,000
  Amounts to Parent                                                 (3,972,000)
  Issuance of 1,000 shares of
    Common stock                                   -      1,000         (1,000)             -
  Issuance of 8 shares of 
    Series A Preferred stock                       8          -      7,999,992              -
  Dividends                                        -          -              -     (1,684,000)
  Decrease in guaranteed debt of ESOP                                  778,000             
                                           ---------    -------    -----------    -----------
Balance at December 31, 1993                       8      1,000     15,752,992      3,018,000
  Net earnings                                                                     11,215,000
  Amounts from Parent                                                6,613,000
  Redemption of 4 shares of
    Series A Preferred stock                      (4)               (3,999,996)            

Balance at December 31, 1994                       4      1,000     18,365,996     14,233,000
  Net earnings                                                                     16,939,000
  Amounts from Parent                                                9,128,000  
  Dividends                                                                        (1,300,000)
  Redemption of 4 shares of 
    Series A Preferred stock                      (4)               (3,999,996)            
                                           ---------    -------    -----------    -----------
Balance at December 31, 1995               $       -    $ 1,000    $23,494,000    $29,872,000
                                           =========    =======    ===========    ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

               TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows


Years Ended December 31,                         1995           1994           1993
                                         ------------   ------------   ------------
<S>                                      <C>            <C>            <C>     
Cash and cash equivalents at beginning
 of year                                 $  2,756,000   $  6,417,000   $ 10,118,000
                                         ------------   ------------   ------------
Cash flows from operating activities:
  Net earnings                             16,939,000     11,215,000      4,702,000
  Adjustments to reconcile net income
    to cash flows from operating
    activities:
      Change in deferred income taxes         382,000     (5,565,000)     1,780,000
      Depreciation and amortization         8,428,000      9,542,000     10,070,000
      Gain on sale of property and
        equipment                             (62,000)      (173,000)      (191,000)
      Other                                 3,218,000      4,242,000      1,353,000
  Changes in assets and liabilities,
    net of effects from acquired
    businesses:
      (Increase) decrease in accounts
        receivable                        (12,808,000)     2,281,000     (8,386,000)
      (Increase) decrease in inventories   (1,122,000)       (93,000)     1,176,000
      (Increase) decrease in prepaid
        expenses                             (376,000)     1,844,000     (1,619,000)
      Increase in other assets               (166,000)      (587,000)    (7,714,000)
      Increase (decrease)in accounts
        payable                            (3,851,000)     2,465,000      3,878,000
      Increase (decrease) in accrued
        expenses                             (547,000)    (2,100,000)     4,991,000
      Decrease in other liabilities        (1,383,000)      (454,000)    (2,909,000)
      Other, net                             (314,000)             -     (1,693,000)
                                         ------------   ------------   ------------
Cash flows from operating activities        8,338,000     22,617,000      5,438,000
                                         ------------   ------------   ------------
Cash flows from investing activities:
      Purchase of assets of acquired
        business                             (287,000)    (5,688,000)             -
      Proceeds from sale of subsidiary              -              -      2,756,000
      Purchases of property and
        equipment                          (8,930,000)    (3,932,000)    (5,346,000)
      Proceeds from sale of property
        and equipment                         772,000        302,000        291,000
                                         ------------   ------------   ------------
          Cash flows from investing
            activities                     (8,445,000)    (9,318,000)    (2,299,000)
                                         ------------   ------------   ------------
Cash flows from financing activities:
      Increase in investment by
        Parent company                      9,128,000      6,613,000     14,156,000
      Decrease in investment by
        Parent company                              -              -    (17,351,000)
      Issuance of common stock                      -              -          1,000
      Issuance of preferred stock                   -              -      8,000,000
      Redemption of preferred stock        (4,000,000)    (4,000,000)             -
      Dividends                            (1,300,000)             -     (1,684,000)
      Repayment of long-term debt        (494,576,000)  (402,127,000)  (334,890,000)
      Proceeds from new long-term debt    491,560,000    382,554,000    324,928,000
                                         ------------   ------------   ------------
          Cash flows from financing
            activities                        812,000    (16,960,000)    (6,840,000)
                                         ------------   ------------   ------------
Net increase (decrease) in cash and
  cash equivalents                            705,000     (3,661,000)    (3,701,000)
                                         ------------   ------------   ------------
Total cash and cash equivalents at
  end of year                            $  3,461,000   $  2,756,000   $  6,417,000
                                         ============   ============   ============
</TABLE>


The accompanying notes are an integral part of the financial statements.

                                       F-16




                                       
<PAGE>                                       

Notes to Consolidated Financial Statements



Significant Accounting Policies

  Basis of Presentation

   In July 1993, Talley Manufacturing and Technology, Inc. (the
Company), a wholly-owned subsidiary of Talley Industries, Inc., was
formed with the issuance of 1,000 shares of common stock.  The
formation of the Company was in anticipation of an offering of
Senior Notes by the Company and Senior Discount Debentures by
Talley.  Concurrently with the issuance of these securities, Talley 
contributed the capital stock of its operating subsidiaries (other
than its real estate operations held for orderly sale) to the
Company, which also assumed a substantial portion of Talley's
indebtedness and liabilities.  At the same time, the Company 
entered into a new credit facility with certain lenders.  The net
proceeds from the Senior Notes, the Senior Discount Debentures and
the new credit facility were used to repay substantially all of the
indebtedness of the Company and its subsidiaries, including
indebtedness assumed from Talley and certain indebtedness remaining
with Talley.
   With the completion of the reorganization of entities under the
common control of Talley described above and the new financing, the
Company owns all of the capital stock of the operating subsidiaries
of Talley (other than the real estate operations held for orderly
sale).  Accordingly, all corporate costs, assets and liabilities
are included in the Company's financial statements and interest
expense includes the interest on indebtedness of the operating
subsidiaries and all indebtedness assumed by the Company in
connection with the reorganization.  In connection with the
reorganization, Talley and the Company entered into a Tax Sharing
Agreement and Cost Sharing Agreement.
   The financial statements of Talley Manufacturing and
Technology, Inc. have been prepared using the historical amounts
included in the Talley Industries, Inc. and subsidiaries
consolidated financial statements giving effect to the
reorganization described above.  With the exception of the net
assets of the real estate operations held for orderly sale and
certain debt and related interest expense, the consolidated
financial statements of Talley are substantially identical to the
Company.  Inasmuch as the Company is a wholly-owned subsidiary of
Talley Industries, Inc., per share data has not be included as a
part of the results of operations.
   Although the financial statements of Talley Manufacturing and
Technology, Inc. separately report its assets, liabilities
(including contingent liabilities) and stockholder's equity, legal
title to such assets and responsibilities for such liabilities was
not affected by such attribution during periods prior to the
reorganization.  Accordingly, the Talley Industries, Inc.
consolidated financial statements and related notes should be read
in connection with these financial statements.




                                   F-17
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Significant Accounting Policies (continued)


  Principles of Consolidation:

   The consolidated financial statements include the accounts of
the Company and all of its subsidiaries, all of which are wholly-
owned.  All companies are consolidated in the financial statements. 
All material intercompany transactions have been eliminated.  

  Nature of Operations:

   Talley Manufacturing and Technology, Inc., a wholly owned
subsidiary of Talley Industries, Inc., 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 vast majority of the Government Products
and Services are for U.S. Defense and are smaller components of
larger units and systems that are generally designed to enhance
safety or improve performance.  The Company participates in the
expanding market for automotive airbags through a royalty agreement
and is currently developing new airbag technologies.  The Company's
Industrial Products segment manufactures and distributes stainless
steel rods and bars and other 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, and
custom designed metal buttons.  Substantially all of the Company's
facilities are located in and provide sales and services to the
United States and Canada.

  Accounting Estimates:

   The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period.

  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.

                                   F-18

<PAGE>

Notes to Consolidated Financial Statements



Significant Accounting Policies (continued)


  Inventories:

   Inventories are valued at the lower of cost or market.  Cost is
determined by the first-in, first-out method for substantially all
commercial inventories.  Costs accumulated under government
contracts are stated at actual cost, net of progress payments, not
in excess of estimated realizable value.

  Revenue Recognition:

   Sales are generally recorded by the Company when products are
shipped or services performed.  Sales under government contracts
are recorded when the units are shipped and accepted by the
government or as costs are incurred on the percentage-of-completion
method.  Applicable earnings are recorded pro rata based upon total
estimated earnings at completion of the contracts.  Anticipated
future losses on contracts are charged to income when identified. 
Airbag royalties are recognized on an accrual basis, based on
production of airbag units by the licensee and production and sales
of automobiles for airbag units not produced by the licensee.

  Property and Depreciation:

   Property, plant and equipment are recorded at cost and include
expenditures which substantially extend their useful lives. 
Expenditures for maintenance and repairs are charged to earnings as
incurred.  With the exception of items being depreciated under
composite lives, profit or loss on items retired or otherwise
disposed of is reflected in earnings.  When items being depreciated 
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:

   Effective January 1, 1992, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting
For Income Taxes".  This pronouncement requires the Company to
recognize deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in the 



                                   F-19
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Significant Accounting Policies (continued)


  Income Taxes, (continued)

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.
   The Company is included in the consolidated U.S. income tax
return of Talley Industries, Inc.   Accordingly, the provision for
income taxes is determined on a consolidated basis.  The allocation
of the income tax provision for the Company has been determined on
a separate return basis.

  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.  The
majority of the Company's intangibles consist of goodwill, which is
the excess of cost over tangible and identifiable intangible assets
acquired.  The carrying value of intangibles is evaluated
periodically in relation to the operating performance and future
cash flow of the underlying businesses.

Inventories

     Inventories are summarized as follows:

(balances in thousands)                       1995         1994
                                          --------     --------
Raw material and supplies                 $ 11,878     $ 11,757
Work-in-process                             11,222       11,733
Finished goods                              28,955       24,616
Inventories substantially applicable to 
  fixed-price government contracts in
  process, reduced by progress payments
  of $5,870,000 and $8,273,000 in 1995
  and 1994, respectively                    15,136       17,963
                                          --------     --------
                                          $ 67,191     $ 66,069
                                          ========     ========








                                   F-20
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Long-Term Receivables

   Long-term receivables consist of the following:

(balances in thousands)                       1995         1994
                                          --------     --------
Notes receivable, including accrued
  interest and income tax refunds         $  9,732     $ 10,317
Amounts due within one year, included
  in accounts receivable                         -            - 
                                          --------     --------
                                          $  9,732     $ 10,317
                                          ========     ========

   Long-term receivables include income tax receivables of
$5,975,000, which must be approved by the Congressional Joint
Committee on Taxation before payment will be received, and
accordingly are classified as non-current; and one note of
$2,829,000.  The final maturity of the note was March 1995 with an
interest rate of 9.5%;  However, payment on the note is not current
and collection is not expected during 1996.


Property, Plant and Equipment

   Property, plant and equipment, is summarized as follows:

(in thousands)                                1995         1994
                                          --------     --------
Machinery and equipment                   $107,574     $100,381
Buildings and improvements                  30,381       30,814
Land                                         2,691        2,619
                                          --------     --------
                                          $140,646     $133,814
                                          ========     ========

   Depreciation of property, plant and equipment was $6,819,000,
$7,720,000, and $8,271,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
   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 action taken
to increase its preventative 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 estimate useful lives of certain
categories of plant and equipment at is stainless steel production
facility effective January 1, 1995.  The effect of this change in
estimated useful lives reduced depreciation expense for 1995 by
approximately $1,602,000, and accordingly increased earnings before
income taxes by the same amount.




                                   F-21
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Long-Term Debt

   Long-term debt consists of the following:

(balances in thousands)                       1995         1994
                                          --------     --------
10-3/4% Senior Notes, due 2003            $115,000     $115,000
Notes, interest based on prime or
  other variable market rates,
  due 1998                                  14,341       17,949
Revolving credit facilities                 10,579        9,377
Capitalized leases and other                   672          979
                                          --------     --------
                                           140,592      143,305
Less current maturities                      3,734        3,549
                                          --------     --------
Long-term debt                            $136,858     $139,756
                                          ========     ========

   On October 22, 1993 the Company completed a major debt
refinancing program.  The Company issued $115,000,000 of Senior
Notes, due 2003, with an interest rate of 10.75% and also completed
a $60,000,000 secured credit facility with two institutional
lenders.  In connection with the new debt, the Company's parent,
Talley Industries, Inc., also received gross proceeds of
$70,000,000 from the issuance of Senior Discount Debentures.  The
$115,000,000 gross proceeds of the public offering, plus an initial
borrowing under the secured credit facility, and certain 
distribution from its parent, after payment of underwriting and
other fees and expenses associated with these financings, were used
to repay substantially all of the Company's previously outstanding
debt.
   The indenture for the Senior Notes and the loan agreement
relating to the secured credit facility contain covenants requiring
specified fixed charge coverage ratios, working capital levels,
capital expenditure limits, net worth levels, cash flow levels and
certain other restrictions on dividends and other payments and
incurrence of debt.  Substantially all of the receivables,
inventory and property, plant and equipment of the Company and its
subsidiaries are pledged as collateral in connection with the
secured credit facility.  In addition, the subsidiaries of the
Company have guaranteed its obligations under the Senior Notes and
the secured credit facility.  The Company's parent, Talley
Industries, Inc., has guaranteed the Senior Notes on a subordinated
basis.  Distributions from the subsidiaries of the Company are also
limited by tangible net worth and cash flow covenants.  The capital
stock of the Company has been pledged by the Company to secure the
Senior Discount Debentures.
   The Senior Notes will mature on October 15, 2003 and the
Company will be required to make mandatory sinking fund payments of
$11,500,000 on October 15, in each of 2000, 2001 and 2002. 
Interest is payable semi-annually, having commenced April 15, 1994.



                                   F-22
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Long-Term Debt, (continued)

   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.  At December 31, 1995 availability under the
facility, based on inventory and receivable levels and certain
plant and equipment, was approximately $48,000,000, of which
approximately $25,000,000 was borrowed.  Upon the occurrence of
certain specified events at any time following the third
anniversary of the facility, the agent thereunder may elect to
terminate the facility.  The five-year term facility requires
monthly amortization payments based on a seven year amortization
schedule, with the balance due upon expiration in October 1998. 
The credit facility interest rate is prime plus one percent or
LIBOR plus 3-1/4%, with an additional fee of one-quarter of one
percent on unused amounts under the revolving facility.
   Aggregate maturities of long-term debt for the years ending
December 31, 1996 through December 31, 2000, are $3,734,000,
$3,094,000, $18,764,000, $-0-, and $11,500,000, respectively.  Cash
payments for total interest, net of amounts capitalized, during
1995, 1994 and 1993 were $15,972,000, $16,063,000 and $14,378,000,
respectively.  Accrued interest expense at December 31, 1995, 1994
and 1993 was $2,687,000, $2,640,000 and $2,404,000, respectively.
Deferred debt issue costs at December 31, 1995, 1994 and 1993 were
$5,606,000, $6,723,000 and $7,872,000, respectively.  Deferred debt
issue costs are amortized over the life of the respective debt
instruments using the straight-line method.  Amortization of debt
expense in 1995, 1994 and 1993 was $1,117,000, $1,117,000 and
$890,000, respectively.  Total capitalized lease obligations on
buildings and equipment included  in long-term debt at December 31,
1995 is $338,000, of which $322,000 is due within one year.  

Leases

   Rental expense for continuing operations, (reduced by rental
income from subleases of $441,000 in 1995, $329,000 in 1994 and
$340,000 in 1993) amounted to $4,753,000 in 1995, $5,179,000 in
1994 and $5,622,000 in 1993.  Aggregate future minimum rental
payments required under operating leases having an initial lease
term in excess of one year for years ending December 31, 1996
through December 31, 2000 are $4,233,000, $3,362,000, $2,908,000,
$1,535,000 and $682,000, respectively, with $1,335,000 payable in
future years.  Minimum operating lease payments have not been
reduced by future minimum sublease rentals of $248,000.
   Aggregate future minimum payments under capital leases for
years ending December 31, 1996 and December 31, 1997 are $343,000 
and $18,000, respectively, with no payments in later years. 
Minimum capital lease payments have not been reduced by future
minimum sublease rentals of $265,000.  The present value of net
minimum lease payments is $339,000 after deduction of $22,000, 




                                   F-23
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Leases, (continued)

representing interest and estimated executory costs.  The net book
value of leased buildings and equipment under capital leases at
December 31, 1995 and 1994 amounted to $656,000 and $213,000,
respectively.

Employee Benefit Plans

   The Company and its subsidiaries have pension plans covering
a majority of their employees.  Normal retirement age is 65, but
provisions are made for early retirement.  For subsidiaries with
defined benefit plans, benefits are generally based on years of
service and salary levels.  Contributions to the respective defined
contribution plans are based on each participant's annual pay and
age.  The Company also has a retirement plan for its Board of
Directors.  Benefits are payable under the plan after five years of
service, upon reaching age 68 or retirement if later.
   Net pension cost in 1995, 1994 and 1993 was $4,132,000,
$4,837,000 and $5,069,000, respectively.  
   The Company generally contributes the greater of the amounts
expensed or the minimum statutory funding requirements.  Pension
costs for defined benefit plans include the following components:


(in thousands)                      1995        1994       1993
                                --------    --------   --------
Service cost-benefits earned
  during the year               $  1,138    $  1,377   $  1,594
Interest cost on projected
  benefit obligation               2,781       2,360      2,504
Actual return on assets          (11,377)        643     (5,712)
Net amortization and deferral      8,035      (3,493)     3,173
                                --------    --------   --------
Net pension cost                $    577    $    887   $  1,559
                                ========    ========   ========



















                                   F-24
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Employee Benefit Plans, (continued)

    The following table sets forth the aggregate funded status of
defined benefit plans at December 31, 1995 and 1994:


                                              1995            
                                  ----------------------------
                                  Assets Exceed   Accumulated
                                   Accumulated     Benefits
(balances in thousands)              Benefits    Exceed Assets
                                  -------------  -------------
Fair value of plan assets              $ 45,857        $ 1,852
Projected benefit obligation            (41,955)        (1,998)
Projected benefit obligation
  (in excess of) or less than
  plan assets                             3,902           (146)
Unrecognized net loss (gain)             (5,008)          (175)
Unrecognized prior service cost            (252)             4
Unrecognized net liability                  520            344
Unfunded accumulated benefit      
  obligation                                  -           (173)
                                  -------------  -------------
Pension liability                      $   (838)       $  (146)
                                  =============  =============


Accumulated benefits                   $ 37,046        $ 1,998

Vested benefits                        $ 35,094        $ 1,955



                                              1994            
                                  ----------------------------            
                                  Assets Exceed   Accumulated
                                   Accumulated     Benefits
(balances in thousands)              Benefits    Exceed Assets
                                  -------------  -------------
Fair value of plan assets              $ 36,474       $ 1,451 
Projected benefit obligation            (30,004)       (1,641)
Projected benefit obligation
  (in excess of) or less than
  plan assets                             6,470          (190) 
Unrecognized net loss (gain)             (7,612)         (260) 
Unrecognized prior service cost            (266)            4 
Unrecognized net liability                  622           413 
Unfunded accumulated benefit
  obligation                                  -          (157)
                                  -------------  ------------
Pension liability                      $   (786)      $  (190)
                                  =============  ============

Accumulated benefits                   $ 27,160       $ 1,641

Vested benefits                        $ 25,535       $ 1,611



                                   F-25
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Employee Benefit Plans, (continued)


    The provisions of Statement of Financial Accounting Standards
No. 87 "Employers' Accounting for Pensions," require the
recognition of an additional liability and related intangible asset
to the extent that accumulated benefits exceed plan assets.  At
December 31, 1995 and 1994 the Company's additional liabilities
were $173,000 and $157,000, respectively.  The Company recorded an
intangible asset in the same amount.  At December 31, 1995 the
Directors' Pension plan was unfunded with a projected benefit
obligation of $897,000 and an additional liability of $201,000. 
The net pension cost for 1995 was $234,000.
    Assumptions used in 1995, 1994 and 1993 to determine the
actuarial present value of plan benefit obligations were:

                                              1995   1994   1993
                                              ----   ----   ----
    Assumed discount rate                     6.5%   8.5%   7.0%
    Assumed rate of compensation increase     4.5%   5.0%   4.5%
    Expected rate of return on plan assets    9.0%   9.0%   9.0%

    Net periodic pension cost is determined using the assumptions
as of the beginning of the year.  The funded status is determined
using the assumptions as of the end of the year.  Assets of the
Company's pension plans consist of marketable equity securities,
guaranteed investment contracts and corporate and government debt
securities.  At December 31, 1995, the total value of defined
benefit plan assets exceed total vested benefits by $10,660,000.
    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. 
Total Company contributions during 1995 and 1994 were $502,000 and
$713,000, respectively.  Any dividends received on the shares held
by the ESOP are reinvested in shares of Company stock.  No
dividends were received during 1995, 1994 or 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 Pension" in the first quarter of 1993, as
required by the pronouncement.  The transition obligation of
approximately $1,474,000 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 $72,000 in
1995.  Current service costs and interest costs for 1995 were
approximately $10,000 and $99,000, respectively.  



                                   F-26
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Income Taxes

    Earnings before income taxes and extraordinary loss and the
provision (credit) for income taxes consists of the following:

(balances in thousands)             1995       1994       1993
                                --------   --------   --------
Earnings (loss) before income
  taxes and extraordinary loss:
  United States                 $ 27,054   $ 11,981   $ 12,193 
  Foreign                          2,431      1,542          3 
                                --------   --------   --------
                                $ 29,485   $ 13,523   $ 12,196
Current tax expense:            ========   ========   ========

  United States                 $  9,855   $  6,613   $  3,856
  Foreign                          1,155        731         59 
  State and local                  1,154        530        581
                                --------   --------   --------
                                  12,164      7,874      4,496
                                --------   --------   --------
Deferred tax expense (credit):
  United States                     (701)         -       (232)
  Foreign                             25         16          8 
  State and local                  1,058     (5,582)     2,120 
                                --------   --------   --------
                                     382     (5,566)     1,896 
                                --------   --------   --------
                                $ 12,546   $  2,308   $  6,392
                                ========   ========   ========

    Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities for 1995
and 1994, are as follows:

(balances in thousands)                        1995       1994
                                           --------   --------
Gross deferred tax assets:
  Accrued expenses                         $  3,648   $  5,015
  Other                                       2,498      1,721
  Valuation allowance for
    deferred tax assets                        (589)    (1,019)
                                           --------   --------
  Net deferred tax asset                      5,557      5,717
                                           --------   --------
Gross deferred tax liabilities:
  Depreciation                                5,957      6,662
  Accrued expenses                            4,604      3,908
  Other                                       1,233      1,001
                                           --------   --------
  Gross deferred tax liability               11,794     11,571
                                           --------   --------
Net deferred tax liabilities               $  6,237   $  5,854
                                           ========   ========

    Reasons for the differences between the amount of income tax
determined by applying the applicable statutory federal income tax
rate to pretax income are:






                                   F-27
<PAGE>

Notes to Consolidated Financial Statements


Income Taxes, (continued)



                                   1995        1994        1993
                                -------   ---------   ---------
Computed tax at statutory U.S.
   tax rates                    $10,025   $   4,597   $   4,147 
State and local taxes             1,460      (3,334)      1,781 
Goodwill amortization               404         404         376
Other                               657         641          88
                                -------   ---------   ---------
                                $12,546   $   2,308   $   6,392
                                =======   =========   =========

    United States income taxes have not been provided on
$1,000,000 of undistributed earnings of subsidiaries incorporated
outside the United States, since it is the Company's intent to
reinvest such earnings.  Net cash (payments) refunds for income
taxes during 1995, 1994 and 1993 were $(2,675,000), $(569,000) and
$828,000, respectively.
    Pursuant to legislation passed in 1994 in the State of Arizona
regarding the rules for filing consolidated state income tax
returns, the Company reversed $5,600,000 of state income tax
accruals to reflect the change in the law.  

Commitments and Contingencies

  TRW Claims.  On  June 27, 1995, the federal district court for
the District of Arizona entered judgment against TRW Inc. in favor
of the Company in TRW Inc. vs. Talley Industries, Inc. et al.  The
court dismissed all claims asserted by TRW against the Company
while the jury reached a verdict in favor of the Company on its
counterclaims against TRW, awarding the Company a total of
$138,000,000.  The award (which is in addition to (i) royalty
payments of $24,400,000  paid prior to the judgment and during the
pendency of this action pursuant to a preliminary injunction order,
and (ii) the court's January 26, 1996 award of $7,085,000 for
attorneys' fees and recoverable costs relating to this litigation)
represents the jury's determination of the present value of the
royalties that would otherwise have been paid to the Company by TRW
for the period from April 1995 through April 2001.
    The litigation in which this judgment was entered arose out of
the Asset Purchase Agreement dated February 4, 1989 and the License
Agreement dated April 21, 1989, between TRW and the Company
pursuant to which TRW acquired the Company's airbag business.  The
court dismissed TRW's claims that the Company had breached a non-
compete provision contained in the Asset Purchase Agreement, 
thereby entitling TRW to terminate airbag royalty payments to the
Company under the License Agreement (which it purported to do in
February 1994) and obtain a paid-up license to use the Company's
airbag technology.  The jury found in fact that TRW had improperly
terminated and repudiated the License Agreement.  TRW has filed an 



                                   F-28
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements


Commitments and Contingencies, (continued)

  TRW Claims, continued

appeal of the judgment to the Ninth Circuit Court of Appeals, on
which oral argument was heard on February 14, 1996.  The Company
anticipates that TRW will also appeal the district court's award of
attorneys' fees and expenses.
    On July 26, 1995 the district court granted a stay of
enforcement of the judgment pending appeal upon the posting by TRW
of a $175,000,000 bond and the continuation of quarterly payments
to the Company in the amount of royalties that otherwise would be
due under the License Agreement.  Upon affirmation of the judgment
on appeal, TRW would be required to pay the judgment plus interest
(which the court ruled will accrue from June 27, 1995 at the rate
specified by the 1989  License Agreement - i.e., prime plus five
percent), offset by the continued quarterly payments made in the
interim as ordered by the court.  TRW has sought and the Court of
Appeals has denied emergency review of the district court's order
requiring the continued quarterly payments pending appeal.  The
denial of emergency relief by the Court of Appeals is without
prejudice to TRW's appeal from the district court's order.
    Certain other claims asserted by TRW and the Company against
each other are the subject of a separate action which remains
pending.  In that action, TRW has challenged certain
representations by the Company that the airbag manufacturing plant
sold to TRW by the Company in 1989 met applicable government
requirements, and that the associated  real  estate  was sufficient
to permit construction of certain additional facilities.  The
Company's claims against TRW include claims that TRW failed to
properly exploit the license granted to TRW by the Company in 1989
and denied the Company certain contractually provided audit rights. 
It is currently anticipated that these remaining claims will come
to trial early in the spring of 1996.  Management anticipates that
the above-described claims will be resolved without any material
adverse impact on the results of operations  or financial position
of the Company.

  Environmental.  A subsidiary of the Company has been named as a
potentially responsible party under the Comprehensive Environmental 
Response Compensation and Liability Act in connection with the
remediation of the Beacon Heights Landfill in Beacon Falls,
Connecticut and 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 Environmental Protection Agency to
remediate these sites.  Each coalition has in turn brought an
action against other potentially responsible parties, including a
subsidiary of the Company, to contribute to the cleanup costs. 




                                   F-29
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements


Commitments and Contingencies, (continued)

  Environmental, (continued)

In October 1995, the Company settled the Laurel Park matter,
including a payment by the Company that was not material to the
results of operations of the Company.  The  federal  court  hearing
the case has dismissed claims brought against the subsidiary by the
Beacon Heights coalition.  However, the coalition has indicated
that it intends to appeal the court's ruling.  Based upon
management's review and the status of the proceedings, with respect
to the Beacon Heights matter, management believes that any
reasonably anticipated losses from this claim will not result in a
material adverse impact on the results of operations or the
financial position of the Company.
    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.  The Georgia
Environmental Protection Division made a determination in 1995 that
the site should be listed on its Hazardous Site Inventory.  No
lawsuit or administrative enforcement proceedings have been
initiated in this matter.  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.

  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
approximately $400,000 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 $600,000 for the Arizona income
taxes the Company overpaid for its fiscal year ending March 31,
1983 together with interest and attorneys' fees.
    In September 1994, the Arizona Court of Appeals reversed the
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 paid approximately
$1,300,000 in taxes and interest for the period ending March 31,
1983.  The Company believes the appellate court erred in its
decision; however, the Company held discussions with state 
authorities in an effort to resolve the dispute for the periods 



                                   F-30
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements


Commitments and Contingencies, (continued)

  Tax, (continued)

ending on December 31, 1984 and 1985.  The tax and related interest
assessment in dispute is approximately $5,000,000.  If the Company
is unsuccessful in reaching an agreement with the state, it intends
to vigorously litigate these tax and interest assessments. 
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.

Fair Value of Financial Instruments

    The following table presents the carrying amounts and fair
values of the Company's financial instruments for which it is
practicable to estimate.  Financial Accounting Standards Board
Statement No. 107 "Disclosures about Fair Value of Financial
Instruments", defines the fair value of a financial instrument as
the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a force or
liquidation sale.


(balances in thousands)             1995                  1994        
                            -------------------   -------------------
                            Carrying    Fair      Carrying    Fair  
                             Amount     Value      Amount     Value  
                            --------   --------   --------   --------
Cash & cash equivalents     $  3,461   $  3,461   $  2,756   $  2,756
Non-trade receivables          9,732      9,732     10,317     10,317
Debt                         140,592    141,764    143,305    127,780


    The following notes summarize the major methods and
assumptions used by the Company in estimating the fair values of
financial instruments.

Cash and cash equivalents

    The carrying amount of cash and cash equivalents approximates
fair value because of the short maturity of those instruments.

Non-trade receivables

    Interest rules on non-trade receivables, including the current
portion, are generally at current market rates.  Accordingly the
carrying value and fair value of the receivables are equal after
considering allowances for the carrying value of certain notes.




                                   F-31
                                   
<PAGE>          

Notes to Consolidated Financial Statements


Fair Value of Financial Instruments, (continued)

Debt

    The fair value of the Company's debt, including the current
portion, at December 31, 1995 and 1994 is based on quoted market
prices or, if market prices are not available, the fair value is
estimated using discounted cash flow analysis based on estimated
rates for similar instruments.

    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.  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: $1.16 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 many
factors, including automobile production, the number of produced
vehicles with airbag systems and the market share of TRW. 
Royalties  recognized in the year ending  December 31, 1995  were
$23,977,000.  Also see Commitments and Contingencies note.

Research and Development Costs

    Company-sponsored research and development costs were
$4,227,000, $4,304,000 and $3,122,000 for the years ended December
31, 1995, 1994, and 1993, respectively.  For the same periods,
customer-sponsored research and development expenditures were
$10,093,000, $8,231,000 and $11,620,000, respectively.

Extraordinary Loss

    In 1993, as a result of the termination of the interest swap
agreement and the payoff of the underlying debt, the Company
recognized an extraordinary loss of $1,102,000, net of taxes of
$568,000.

Acquisitions and Dispositions

    In July 1994, a subsidiary of the Company acquired certain
assets of the Ball and Socket Manufacturing Company, Inc., a
manufacturer of metal buttons.  The purchase price was
approximately $4,800,000, including cash of $2,100,000; 323,232
shares of the Company's Common stock scheduled for issuance two
years after closing and certain liabilities assumed and acquisition
costs incurred.


                                   F-32
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements


Acquisitions and Dispositions, (continued)

    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.  
    The excess of cost over tangible and identifiable intangible
assets acquired, net of amortization at December 31, 1995, 1994,
and 1993 was $43,392,000, $45,716,000, and $43,696,000,
respectively.

Related Party Transactions

    In each of the last three years the Company and its
subsidiaries incurred legal fees payable to the law firm of one of
the Company's directors.  During 1995, 1994 and 1993 total billings
for the firm were $249,000, $610,000 and $715,000, respectively,
and were for foreign and domestic services relating to litigation
and general corporate matters.  In 1995, the Company also paid
$120,000 in consulting fees to one of the Company's directors. 
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

    In October 1994 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 119
"Disclosure About Derivative Financial Instruments and Fair Value
of Financial Instruments" effective for the Company at December 31,
1994.  The Company does not presently have nor has it had any
derivative type instruments since mid-1993 when a single interest
rate swap agreement was terminated as described in the notes to the
financial statements.
    In October 1995 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," which is effective for
transactions entered into in fiscal years that begin after December
15, 1995.  The Company has employee incentive arrangements wherein
employees receive shares of Talley Industries, Inc. stock.  When
this pronouncement becomes effective, the Company will be required
to account for such transactions under the "fair value" based
method or the "intrinsic value" based method.  Under the "fair
value" based method, compensation  cost is measured  at the  grant
date,  based on the value of the award and is recognized over the
service  period,  which is usually the vesting period.   Under the
"intrinsic value" based method, (present accounting), compensation
cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date, over the amount an
employee must pay to acquire the stock.  For stock options, fair
value is determined using an option-pricing model that takes into
account the stock price at the grant date, the exercise price, the 
expected life of the option, the volatility of the underlying stock 



                                   F-33
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements


Recently Issued Accounting Standards, (continued)

and the expected dividend on it, and the risk-free interest rate
over the expected life of the option.  Certain pro-forma
disclosures are required when a Company uses the "intrinsic value"
based method instead of the "fair value" based method.
    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.

Segment Operations

    The Company is a diversified manufacturer of a wide range of
proprietary and other specialized products for defense, industrial
and commercial applications.  Through its Government Products and
Services segment, the Company manufactures an extensive array of
propellant devices and electronic components for defense systems
and commercial applications and provides naval architectural and
marine  engineering  services.  The  Company  participates in the
rapidly expanding market for automotive airbags through its royalty
agreement with TRW, which provides the Company with a quarterly
royalty payment through April 30, 2001 for any airbag manufactured
and sold by TRW worldwide and for any other airbag installed in a 
vehicle manufactured or sold in North America.  The Company's
Industrial Products segment manufactures and distributes stainless
steel products, high-voltage ceramic insulators used in the power
transmission and distribution systems, and specialized welding
equipment and systems.  The Company's Specialty Products segment
manufactures and sells aerosol insecticides, air fresheners and
sanitizers, and custom designed metal buttons.  

  Government Products and Services

    The Company's Government Products and Services segment
provides a wide range of products and services for government
programs.  The vast majority of the Company's products are smaller
components of larger units and systems and are generally designed
to enhance safety or improve performance.  The Company manufactures
proprietary propellant products which, when ignited, produce a
specified thrust or volume of gas within a desired time period. 
Propellant products manufactured include ballistic devices for
aircraft ejection systems, rocket motors, extended range munitions
components and dispersion systems.  
    The Company's propellant devices are currently used on
ejection seats on high performance domestic and foreign military
aircraft.  Rocket motors manufactured by the Company include a
complete line of rocket boosters and propulsion systems used for
reconnaissance, surveillance, and target acquisition.  The
Company's extended range munitions components utilize propellant
technologies to significantly extend the range of existing U.S.
artillery.  Other electronic products include sub-miniature elapsed 



                                   F-34
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements


Segment Operations (continued)

  Government Products and Services, (continued)

time indicators, events counters, fault annunciators, and lighting
products used in aerospace and military applications to monitor
equipment performance.  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 18%, 23% and 24% of the Company's sales
for the years ended December 31, 1995, 1994 and 1993, respectively. 
At December 31, 1995 and 1994 the amount billed but not paid by
customers under retainage provisions in long-term contracts was
$1,212,000 and $1,075,000, respectively.  The $1,212,000 receivable
under retainage provisions is expected to be collected in 1996
through 2001 in the amounts of $391,000, $38,000, $119,000
$637,000, $0 and $27,000, respectively.  Amounts in process but
unbilled at December 31, 1995 and 1994 were $5,976,000 and
$6,257,000, respectively.

  Airbag Royalties

    The Company participates in the rapidly expanding market for
automotive airbags through its royalty agreement with TRW.  The
Company entered into the Airbag Royalty Agreement as part of the
1989 sale of its automotive airbag manufacturing business.  The
terms of the Airbag Royalty Agreement require TRW to make quarterly
royalty payments to the Company through April 30, 2001 for any
airbag units manufactured and sold worldwide by TRW as well as for
any other airbags installed in vehicles manufactured or sold in
North America. (See Commitments and Contingencies Note).

  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 
mini-mill which converts purchased stainless steel billets into a
variety of sizes of both hot rolled and cold finished bar and rod. 
The Company's stainless steel mini-mill has utilized advanced
computer automation, strict quality controls, and  strong
engineering and technical capabilities to maintain its position as
a low cost, high quality producer.   In addition to its stainless 



                                   F-35
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Segment Operations (continued)

  Industrial Products, (continued)

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 original equipment
manufacturers.  Products include a wide array of transformer
bushings and accessories, special and standard porcelain for high
and low-voltage applications, apparatus bushing assemblies, and
transmission and distribution class insulators which are
manufactured for both domestic and international markets.  In
addition, the Company manufactures specialized advanced-technology
welding systems, power supply systems and humidistats for the
utility, pipeline and original equipment manufacturer markets. 
Welding equipment manufactured by the Company includes systems that
are specially designed to operate in hostile environments such as
nuclear radiation.

  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.

  Other Matters

    The Company's U.S. operations had export sales of $20,354,000,
$15,932,000 and $26,672,000 for the years ended December 31, 1995,
1994 and 1993, 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, 1995 and total assets at
December 31, 1995 of $15,600,000 and $9,600,000, respectively.
    Foreign exchange losses included in earnings for the years
ended December 31, 1995, 1994 and 1993 were not material.  The
foreign currency translation adjustment included in stockholder's
equity decreased from $(723,000) at December 31, 1994 to $(530,000)
at December 31, 1995.
    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. 


                                   F-36
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Segment Operations (continued)

  Other Matters, (continued)

Corporate assets consist principally of cash and cash equivalents,
notes receivable, income taxes receivable and a building.
    The Company's backlog was approximately $503,300,000 as of
December 31, 1995 and $130,900,000 as of December 31, 1994.
Approximately 27.9% of the backlog as of December 31, 1995 is
expected to result in revenue during 1996, with the remaining 72.1%
expected to result in revenue during subsequent periods.  The
backlog amounts as presented herein are composed of funded and
unfunded components.  The government funded components and firm
industrial contracts on December 31, 1995 and 1994 totaled
$133,500,000 and $130,900,000, respectively.
    The term "funded" used herein refers to the aggregate revenue
remaining to be earned at a given time under (a) contracts held by
the Company (excluding renewals or extensions thereof, which are at
the discretion of the customer) to the extent of the funded (i.e.,
appropriated by Congress and allotted to the contract by the
procuring Government agency) amounts thereunder, and (b) "task
orders" or "delivery orders" issued to the Company under contracts
which provide that the customer is obligated to pay only for
services rendered pursuant to specific (funded) task orders and is
not obligated to issue additional task orders or to pay the
estimated total contract price.  The term "unfunded" used herein
refers to the portion of the Company's total backlog that
represents the excess of the stated value of the Company's executed
contracts over the amounts funded by the customer for such
contracts including unexercised options.
























                                   F-37
                                   
<PAGE>                                   

Notes to Consolidated Financial Statements



Segment Operations (continued)

    The tables which follow show assets, depreciation and
amortization and capital expenditures by segment:



(in thousands)                         1995       1994      1993
                                   --------   --------  --------
Assets by Segment

Government Products and Services   $100,226   $ 98,424  $114,347
Airbag Royalties                      5,434      4,700     3,704
Industrial Products                  98,263     86,583    86,879
Specialty Products                   35,170     34,698    27,951
                                   --------   --------  --------
                                    239,093    224,405   232,881
Corporate                            17,263     18,100    18,962
                                   --------   --------  --------
                                   $256,356   $242,505  $251,843
                                   ========   ========  ========

Depreciation and Amortization
  by Segment

Government Products and Services   $  3,143   $  3,306  $  4,163
Airbag Royalties                          -          -         -
Industrial Products                   3,783      4,750     4,427
Specialty Products                    1,198      1,161     1,138
                                   --------   --------  --------
                                      8,124      9,217     9,728
Corporate                               304        325       342
                                   --------   --------  --------
                                   $  8,428   $  9,542  $ 10,070
                                   ========   ========  ========
Capital Expenditures by Segment

Government Products and Services   $  2,532   $  1,820  $  1,648
Airbag Royalties                          -          -         -
Industrial Products                   4,867      1,420     2,842
Specialty Products                    1,423        561       754
                                   --------   --------  --------
                                      8,822      3,801     5,244
Corporate                               108        131       102
                                   --------   --------  --------
                                   $  8,930   $  3,932  $  5,346
                                   ========   ========  ========













                                   F-38
                                   
<PAGE>                                   
<TABLE>



                                             TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES


<CAPTION>
Summary of Segment Operations

(in thousands)
Years Ended December 31,                 1995       1994       1993       1992       1991
                                     --------   --------   --------   --------   --------
<S>                                  <C>        <C>        <C>        <C>        <C>        
Revenue by segment:

Government Products and Services     $139,600   $141,074   $170,323   $183,162   $168,961

Airbag Royalties                       23,977     17,292      9,606      5,566      3,161

Industrial Products                   183,649    129,080    107,402     95,097    117,682

Specialty Products                     35,834     33,157     30,797     35,738     41,061
                                     --------   --------   --------   --------   --------
                                     $383,060   $320,603   $318,128   $319,563   $330,865
                                     ========   ========   ========   ========   ========
Operating income by segment:

Government Products and Services     $ 10,225   $ 18,194   $ 24,354   $ 26,101   $ 23,940

Airbag Royalties                       23,977     17,292      9,606      5,566      3,161

Industrial Products                    22,632      7,464      2,438        (45)       839 

Specialty Products                      5,119      4,854      5,001      5,055      5,345
                                     --------   --------   --------   --------   --------
                                       61,953     47,804     41,399     36,677     33,285

Corporate expenses                    (15,468)   (17,163)   (13,151)    (9,672)   (16,127)

Non-segment interest income               173         62        312      1,923      2,248 

Interest expense                      (17,173)   (17,180)   (16,364)   (21,945)   (24,587)
                                     --------   --------   --------   --------   --------
Earnings (loss) before income taxes  $ 29,485   $ 13,523   $ 12,196   $  6,983   $ (5,181)
                                     ========   ========   ========   ========   ========
</TABLE>

                                                         F-39

<PAGE>






<TABLE>


                                             TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES




<CAPTION>
Five Year Summary of Operations


(in thousands)
Years Ended December 31,                 1995        1994        1993        1992        1991
                                     --------    --------    --------    --------    --------
<S>                                  <C>         <C>         <C>         <C>         <C>  
Revenue                              $383,060    $320,603    $318,128    $319,563    $330,865

Cost of sales and services            273,669     228,194     235,335     233,812     248,938
Selling, general and administrative
  expenses                             62,131      61,866      54,961      57,473      58,810
Restructuring costs                         -           -           -           -       5,000
                                     --------    --------    --------    --------    --------
                                      335,800     290,060     290,296     291,285     312,748
                                     --------    --------    --------    --------    --------
Earnings from operations               47,260      30,543      27,832      28,278      18,117
Other income (expense), net              (602)        160         728         650       1,289
                                     --------    --------    --------    --------    --------
                                       46,658      30,703      28,560      28,928      19,406
Interest expense                       17,173      17,180      16,364      21,945      24,856
Interest capitalized                        -           -           -           -        (269)
                                     --------   ---------    --------    --------    --------
                                       17,173      17,180      16,364      21,945      24,587
Earnings (loss) from continuing
  operations before income taxes
  and extraordinary loss               29,485      13,523      12,196       6,983      (5,181)
Income tax provision (benefit)         12,546       2,308       6,392       2,312        (277)
                                     --------    --------    --------    --------    --------
Earnings (loss) from continuing
  operations                           16,939      11,215       5,804       4,671      (4,904)

Extraordinary loss, net of income
   tax                                      -           -      (1,102)          -           -
                                     --------    --------    --------    --------    --------
Net earnings (loss)                  $ 16,939    $ 11,215    $  4,702    $  4,671    $ (4,904)
                                     ========    ========    ========    ========    ========
</TABLE>

                                                          F-40

<PAGE>
                     

                     Report of Independent Accountants






To the Board of Directors and Shareholder
of Talley Manufacturing and Technology, Inc.


In our opinion, the consolidated financial statements listed in the
index appearing on page F-1 present fairly, in all material
respects, the financial position of Talley Manufacturing and
Technology, Inc. and its subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, 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 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 LLP


Phoenix, Arizona
February 19, 1996







                                   F-41
                                   
<PAGE>                                   
<TABLE>
  
  
                                       TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
<CAPTION>
  
  FINANCIAL DATA
  
  Selected Financial Data
  
  (in thousands)
  Years Ended December 31,            1995        1994        1993        1992        1991
                                  --------    --------    --------    --------    --------
<S>                               <C>         <C>         <C>         <C>         <C>               
  Capital expenditures            $  8,930    $  3,932    $  5,346    $  4,564    $  6,567
  Depreciation and amortization      8,428       9,542      10,070      10,565      11,195
  Current assets                   148,816     132,820     141,868     135,199     206,759
  Current liabilities               54,941      57,729      56,923      58,106     287,294 *
  Working capital                   93,875      75,091      84,945      77,093     (80,535)*
  Total assets                     256,356     242,505     251,843     247,758     330,178
  Total debt                       140,592     143,305     162,178     172,140     227,977
  Long-term debt                   136,858     139,756     160,002     161,283           -
  Long-term debt, subject to
    acceleration                         -           -           -           -     159,933 *
  Stockholder's equity              52,837      31,877      18,402      10,948      16,776
  Current ratio                        2.7         2.3         2.5         2.3          .7
                                  ========    ========    ========    ========    ========
  
  
  Supplemental Data
  
  (in thousands)
  
  Years Ended December 31,            1995        1994        1993        1992        1991
                                  --------    --------    --------    --------    --------
  <S>                             <C>         <C>         <C>         <C>         <C>      
Taxes, other than income:
    Payroll                       $  7,231    $  7,181    $  7,037    $  7,195    $  7,321
    Property                         1,991       1,660       1,557       1,721       1,891
    Other                              412         338         328         382         626
                                  --------    --------    --------    --------    --------
                                     9,634       9,179       8,922       9,298       9,838
  
  Maintenance and repairs            6,220       4,557       4,668       4,626       4,624
  Rent                               5,211       5,508       5,962       7,353       7,845
  Advertising                        1,053         786         648         720         958
  Research and development        $  4,227    $  4,304    $  3,122    $  3,904    $  4,223
                                  ========    ========    ========    ========    ========
  
</TABLE>
  

                                                        F-42

<PAGE>

           TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Subsidiaries/Divisions


GOVERNMENT PRODUCTS AND SERVICES

Electrodynamics, Inc.                        - Rolling Meadows,
                                               Illinois.  John W.
                                               Kravcik, President.

John J. McMullen Associates, Inc.            - New York, New York.
                                               P. Thomas Diamant,
                                               President.

Rowe Industries, Inc.                        - Toledo, Ohio.  Haywood
                                               W. Bower, President.

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 R. 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.               - Hartsville, South
                                               Carolina.  Donald
                                               Bailey, President.

Dimetrics, Inc.                              - Davidson, North
                                               Carolina.  Arthur M.
                                               Squicciarini, President. 


SPECIALTY PRODUCTS

Waterbury Companies, Inc.                    - Waterbury, Connecticut. 
                                               Gerald J. Palanzo, Jr.,
                                               President.







                                   F-43
                                   
<PAGE>                                   

            TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES



Directors and Corporate Management

DIRECTORS

 William H. Mallender      - Chairman of the Board and Chief
                             Executive Officer

 Jack C. Crim              - President and Chief Operating Officer

 Neil W. Benson            - Chartered Accountant, Lewis Golden & Co.

 Paul L. Foster            - Professor of Finance, Saint Joseph's
                             University

 Townsend Hoopes           - Retired, formerly President, Association
                             of American Publishers, Inc.

 Fred Israel               - Retired, formerly Senior Partner Israel
                             and Raley

 John D. MacNaughton, Jr.  - President, The MacNaughton Co.

 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, Ruffner
                             & Bivens, P.L.C.

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





                                   F-44
                                   
<PAGE>                                   

                                                       SCHEDULE I
                                                      Page 1 of 6



                 TALLEY MANUFACTURING AND TECHNOLOGY, INC.
                             (Registrant Only)
                  STATEMENT OF CONDITION (BALANCE SHEET)



                                               DECEMBER 31,     
                                            1995         1994  
                                       ------------  ------------      

Assets

Current assets:
  Cash and cash equivalents            $  1,414,000  $    514,000
  Due from affiliates                     3,064,000     6,373,000
  Accounts receivable                     7,822,000     8,735,000
  Prepaid expenses                        1,317,000       991,000
                                       ------------  ------------
        Total current assets             13,617,000    16,613,000



Investment in and advances to
  affiliates                            154,622,000   134,359,000

Long-term receivables                     3,757,000     3,757,000

Property, plant and equipment,
  at cost, net of accumulated
  depreciation of $1,641,000 in
  1995 and $1,596,000 in 1994               476,000       581,000

Deferred charges and other assets        12,697,000    10,078,000

Deferred income taxes                             -       192,000
                                       ------------  ------------
         Total assets                  $185,169,000  $165,580,000
                                       ============  ============







See accompanying notes and the notes to the consolidated financial
statements.







                                   F-45
                                   
<PAGE>                                   

                                                       SCHEDULE I
                                                      Page 2 of 6

                  TALLEY MANUFACTURING AND TECHNOLOGY, INC.
                              (Registrant Only)
                    STATEMENT OF CONDITION (BALANCE SHEET)



                                                DECEMBER 31,       
                                             1995          1994    
                                        ------------   ------------  
                                            
Liabilities and Stockholder's Equity

Current liabilities:
  Current maturities of long-term debt  $    448,000   $    434,000
  Due to affiliates                                -          2,000
  Accounts payable                         1,342,000      2,059,000
  Accrued expenses                         9,118,000      9,197,000
  Deferred income taxes                    3,376,000      3,263,000
                                        ------------   ------------
        Total current liabilities         14,284,000     14,955,000

  Deferred income taxes                      968,000              -
  Long-term debt                         115,000,000    115,448,000
  Other liabilities                        2,080,000      3,300,000

Stockholders' equity:
  Preferred stock, $1 par value,
     authorized 100 shares 
       - Series A: Issued 0 shares
         in 1995 and 4 shares in 1994              -              4
  Common stock, $1 par value,
     authorized 1,000 shares                   1,000          1,000
  Capital in excess of par value          23,494,000     18,365,996
  Foreign currency translation
    adjustments                             (530,000)      (723,000)
  Retained earnings                       29,872,000     14,233,000
                                        ------------   ------------
       Total stockholders' equity         52,837,000     31,877,000
                                        ------------   ------------
       Total liabilities and
         stockholders' equity           $185,169,000   $165,580,000
                                        ============   ============






See accompanying notes and the notes to the consolidated financial
statements.







                                     F-46
                                     
<PAGE>                                     

                                                       SCHEDULE I
                                                      Page 3 of 6

                  TALLEY MANUFACTURING AND TECHNOLOGY, INC.
                              (Registrant Only)
                           STATEMENT OF OPERATIONS
                             FOR THE YEARS ENDED
                       DECEMBER 31, 1995, 1994 AND 1993




                                      1995           1994           1993
                              ------------   ------------   ------------

Selling, general and
  administrative expenses     $ 15,691,000   $ 16,658,000   $ 13,045,000
Administrative allocations
  to subsidiaries              (20,236,000)   (14,965,000)   (16,643,000)
                              ------------   ------------   ------------
                                (4,545,000)     1,693,000     (3,598,000)

Other income (expense), net       (624,000)      (588,000)       264,000
                              ------------   ------------   ------------
                                (3,921,000)     2,281,000     (3,862,000)
                              ------------   ------------   ------------
Interest expense                17,066,000     17,154,000     16,323,000
Interest charges to
  subsidiaries,  net            (4,287,000)    (3,885,000)      (167,000)
                              ------------   ------------   ------------
                                12,779,000     13,269,000     16,156,000
                              ------------   ------------   ------------
                                (8,858,000)   (15,550,000)   (12,294,000)
Income tax provision (benefit)   2,291,000      8,641,000     (3,600,000)
                              ------------   ------------   ------------
Loss before earnings of
  subsidiaries and
  extraordinary gains           (6,567,000)    (6,909,000)    (8,694,000)

Extraordinary loss,
  net of taxes                           -              -     (1,102,000)

Earnings from subsidiaries      23,506,000     18,124,000     14,498,000
                              ------------   ------------   ------------
Net earnings (loss)           $ 16,939,000   $ 11,215,000   $  4,702,000
                              ============   ============   ============











See accompanying notes and the notes to the consolidated financial
statements.






                                     F-47
                                     
<PAGE>                                     
<TABLE>
                                                       SCHEDULE I
                                                      Page 4 of 6
<CAPTION>
                  TALLEY MANUFACTURING AND TECHNOLOGY, INC.
                              (Registrant Only)
                           STATEMENT OF CASH FLOWS
                             FOR THE YEARS ENDED
                       DECEMBER 31, 1995, 1994 AND 1993




                                              1995           1994           1993
                                      ------------   ------------   ------------
<S>                                   <C>            <C>            <C>                 
Cash flows from operating activities  $ 16,776,000   $ 14,297,000   $  9,223,000

Cash flows from investing activities:

  Decrease (increase) in investment
     in subsidiaries, net              (20,263,000)   (11,515,000)    40,780,000
                                      ------------   ------------   ------------
      Cash from investing activities   (20,263,000)   (11,515,000)    40,780,000
                                      ------------   ------------   ------------
Cash flows from financing activities:

  Reduction of long-term debt          (85,573,000)   (70,597,000)  (126,802,000) 
  Proceeds from long-term debt          81,523,000     68,372,000    120,885,000
  Proceeds from issuance of stock                -              -      8,000,000
  Redemption of preferred stock         (4,000,000)    (4,000,000)             -
  Amounts (to) from Parent, net          9,128,000      6,613,000     (8,816,000)  
  Decrease (increase) in due from
    affiliates, net                      3,309,000     (4,725,000)   (48,673,000)
                                      ------------   ------------   ------------
      Cash from financing activities     4,387,000     (4,337,000)   (55,406,000)
                                      ------------   ------------   ------------
Decrease in cash and cash
  equivalents                              900,000     (1,555,000)    (5,403,000)

    Balance at beginning of year           514,000      2,069,000      7,472,000
                                      ------------   ------------   ------------
    Balance at end of year            $  1,414,000   $    514,000   $  2,069,000
                                      ============   ============   ============







</TABLE>



See accompanying notes and the notes to the consolidated financial
statements.







                                      F-48

<PAGE>


                                                       SCHEDULE I
                                                      Page 5 of 6

                 TALLEY MANUFACTURING AND TECHNOLOGY, INC.
                             (Registrant Only)
                       Notes to Financial Statements


The following notes supplement information provided in the notes
accompanying the consolidated financial statements.

1.  Basis of Presentation

    Investments in and advances to affiliates represents interest
in majority-owned subsidiaries and associated companies.  The
investments are accounted for on the equity method and,
accordingly, the carrying value approximates the Company's equity
in the recorded value of the underlying net assets.  
    In July 1993, Talley Manufacturing and Technology, Inc. ("the
Company"), a wholly owned subsidiary of Talley Industries, Inc.,
("Talley") was formed with the issuance of 1,000 shares of common
stock.  The formation of the Company was in anticipation of an
offering, in October, 1993, of Senior Notes by the Company and
Senior Discount Debentures by Talley.  Concurrently with the
issuance of these securities, Talley contributed the capital stock
of its operating subsidiaries (other than its real estate
subsidiaries) to the Company, which also assumed a substantial
portion of Talley's indebtedness and liabilities.  (See Basis of
Presentation note to the Company's consolidated financial
statements).
    Certain reclassifications have been made in the prior year
Statement of Condition to be consistent with current year
classifications.

2.  Long-Term Debt
                                                 December 31,   
Long-term debt consists of the following:       1995        1994
(balances in thousands)                     --------    --------

10-3/4% Senior Notes, due 2003              $115,000    $115,000
Capitalized leases and other                     448         882
                                            --------    --------
                                             115,448     115,882
Less current maturities                          448         434
                                            --------    --------
Long-term debt                              $115,000    $115,448
                                            ========    ========             
    
    The Company and Talley Industries, Inc. completed a major debt
refinancing program on October 22, 1993.  The proceeds from the new
financing were used to repay substantially all of the Company's
debt.  The Company will be required to make mandatory sinking fund
payments of $11,500,000 on October 15, in each of 2000, 2001 and
2002.  Interest is payable semi-annually, having commenced April
15, 1994. (See Long-term debt note to the Company's consolidated
financial statements).
    Aggregate maturities of long-term debt for the years ended
December 31, 1996 through 2000 are $448,000, $-0-, $-0-, $-0- and 
$11,500,000, respectively.  


                                   F-49
                                   
<PAGE>                                   

                                                       SCHEDULE I
                                                      Page 6 of 6

                 TALLEY MANUFACTURING AND TECHNOLOGY, INC.
                             (Registrant Only)
                       Notes to Financial Statements





2.  Long-Term Debt, continued

Deferred debt issue costs at December 31, 1995, 1994 and 1993 were
$5,606,000, $6,723,000 and $7,872,000, respectively.  Deferred debt
issue costs are amortized over the life of the respective debt
instruments using the straight-line method.  Amortization of debt
expense in 1995, 1994 and 1993 was $1,117,000, $1,117,000 and
$324,000, respectively.


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.


4.  Dividends Received

    The registrant received dividends, net of contributions from
consolidated subsidiaries, unconsolidated subsidiaries and 50
percent or less owned persons accounted for by the equity method
during the years ended December 31, 1995, 1994 and 1993 of
$9,971,000, $11,360,000 and $97,475,000, respectively.





















                                   F-50
                                   
<PAGE>                                   
<TABLE>
                                                                            SCHEDULE II       


                       TALLEY MANUFACTURING AND TECHNOLOGY, INC. AND SUBSIDIARIES
<CAPTION>
                             Valuation and Qualifying Accounts and Reserves
                                            December 31, 1995
                                               (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, 1995:
----------------------------  
  Allowance for doubtful
     accounts - accounts
     receivable                     $  994     $  406      $  -       $ (125)      $1,275

  Reserves for notes receivable      1,008          -         -           (5)       1,003


Year Ended December 31, 1994:
----------------------------
  Allowance for doubtful
     accounts - accounts
     receivable                     $1,091     $  372      $  -       $ (469)      $  994

  Reserves for notes receivable      1,000          8         -            -        1,008


Year Ended December 31, 1993:
----------------------------
  Allowance for doubtful
     accounts - accounts
     receivable                     $  867     $  987      $  -       $  763 (a)   $1,091

  Reserves for notes receivable          -      1,000         -            -        1,000

<S>
Notes:
-----
  (a)  Uncollectible accounts charged against reserves, net of bad debt recoveries.
</TABLE>
                                                      F-51
<PAGE>

                               EXHIBIT INDEX


3.1    Certificate of Incorporation of Talley Manufacturing and
       Technology, Inc., attached as Exhibit 3(d) to Registration
       Statement on Form S-1 dated October 15, 1993, incorporated
       herein by this reference.

3.2    By-laws of Incorporation of Talley Manufacturing and
       Technology, Inc., attached as Exhibit 3(e) to the Company's
       Form S-1 dated October 15, 1993, incorporated herein by
       this reference.

4.1    Certificate of Designation, Preferences and Rights of
       Series A Preferred Stock of Talley Manufacturing and
       Technology, Inc., attached as Exhibit 4(e) to the Company's
       Form S-1 dated October 15, 1993, incorporated herein by
       reference.

4.2    Indenture Agreement among Talley Manufacturing and
       Technology, Inc., the Subsidiary Guarantors (as defined),
       Talley Industries, Inc. and Bank One, Columbus, N.A., a
       national banking association, as Trustee, dated as of
       October 15, 1993 relating to the 10-3/4% Senior Notes due
       2003 issued by Talley Manufacturing and Technology, Inc.
       and the exhibits thereto, attached as Exhibit 4.1 to the
       Company's Form 10-Q for the quarter ended September 30,
       1993, incorporated herein by reference.

10.1   Form of Indemnification Procedures Agreement between Talley
       Manufacturing and Technology, Inc. and each of its
       directors, attached as Exhibit 10(jj) to Amendment No. 1 to
       Form S-1 dated September 10, 1993, incorporated herein by
       reference.

10.2   Tax Sharing Agreement among Talley Industries, Inc., Talley
       Manufacturing and Technology, Inc. and each of their
       respective subsidiaries, dated as of October 22, 1993,
       attached as Exhibit 10.3 to the Company's Form 10-Q for the
       quarter ended September 30, 1993, incorporated herein by
       reference.

10.3   Restructuring, Assumption and Cost Sharing Agreement among
       Talley Industries, Inc., Talley Manufacturing and
       Technology, Inc. and Talley Real Estate Company, Inc. dated
       as of October 22, 1993, attached as Exhibit 10.4 to the
       Company's Form 10-Q for the quarter ended September 30,
       1993, incorporated herein by reference.

10.4   Loan and Security Agreement among Talley Manufacturing and
       Technology, Inc., the Lenders listed therein and
       Transamerica Business Credit Corporation, as Agent dated
       October 22, 1993, attached as Exhibit 10.1 to the Company's
       Form 10-Q for the quarter ended September 30, 1993,
       incorporated herein by reference.

<PAGE>

10.5   Airbag Collateral Security, Intercreditor and Agency
       Agreement dated as of October 22, 1993 among Talley
       Manufacturing and Technology, Inc., Talley Technology,
       Inc., Talley Defense Systems, Inc., Talley Automotive
       Products, Inc., Talley Metals Technology, Inc. and
       Transamerica Business Credit Corporation as Agent and as
       collateral agent for the Lenders (as defined) and the
       Senior Note Trustee, Lenders and Bank One, Columbus, N.A.,
       a national banking association, as Trustee for the holders
       of the 10-3/4% Senior Notes due 2003 issued by Talley
       Manufacturing and Technology, Inc., attached as Exhibit
       10.2 to the Company's Form 10-Q for the quarter ended
       September 30, 1993, incorporated herein by reference.

10.6   Form of Subsidiary Loan Agreement dated as of October 22,
       1993 between Talley Manufacturing and Technology, Inc. and
       each of certain subsidiaries, attached as Exhibit 99.1 to
       the Company's Form 10-Q for the quarter ended September 30,
       1993, incorporated herein by reference.

10.7   Subsidiary Loan and Security Agreement dated as of October
       22, 1993 between Talley Manufacturing and Technology, Inc.
       and Talley Technology, Inc., attached as Exhibit 99.2 to
       the Company's Form 10-Q for the quarter ended September 30,
       1993, incorporated herein by reference.

10.8   Form of Subsidiary Continuing Guaranty and Security
       Agreement dated as of October 22, 1993 between Transamerica
       Business Credit Corporation, a Delaware corporation and
       each of certain subsidiaries,  attached  as  Exhibit  99.3
       to the Company's  Form 10-Q for the quarter ended September
       30, 1993, incorporated herein by reference.

10.9   First Amendment to Loan and Security Agreement dated April
       29, 1994, by and among Talley Manufacturing and Technology,
       Inc. and Transamerica Business Credit Corporation, as
       agent, attached as Exhibit 10.1 to the Company's Form 10-Q
       for the quarter ended June 30, 1994, incorporated herein by
       reference.

10.10  Second Amendment to Loan and Security Agreement dated June
       30, 1994, by and among Talley Manufacturing and Technology,
       Inc. and Transamerica Business Credit Corporation, as agent
       attached as Exhibit 10.2 to the Company's Form 10-Q for the
       quarter ended June 30, 1994, incorporated herein by
       reference.

10.11  Third amendment to Loan and Security Agreement dated
       December 16, 1994, by and among Talley Manufacturing and
       Technology, Inc. and Transamerica Business Credit
       Corporation, as agent.

10.12  First Amendment to Subsidiary Loan and Security Agreement,
       dated as of December 16, 1994 between Talley Manufacturing
       and Technology, Inc. and each of certain subsidiaries.

<PAGE>

10.13  First Amendment to Subsidiary Continuing Guaranty and
       Security Agreement dated as of December 16, 1994 between
       Transamerica Business Credit Corporation, and each of the
       Guarantors (certain subsidiaries).

10.14  Consulting Agreement dated February 7, 1996 by and among
       the Registrant and McMullen Consultants Inc., attached as
       Exhibit 10.1 to the Company's Form 8-K under current report
       date of February 2, 1996, incorporated herein by reference.

99.1   Amended and Restated Rights Agreement by and among Talley
       Industries, Inc. and Chemical Mellon Shareholder Services,
       L.L.C., successor to Manufacturers Hanover Trust Company of
       California, as Rights Agent, dated as of April 30, 1986,
       and amended as of July 21, 1986, and further amended and
       restated as of February 2, 1996, and all exhibits thereto,
       specifying the terms of the Rights (the "Amended Rights
       Agreement"),attached as Exhibit 99.1 to the Company's Form
       8-K under current report date of February 2, 1996,
       incorporated herein by reference.

99.2   Amended and Restated Voting Trust Agreement dated February
       7, 1996 by and among Talley Industries, Inc., John J.
       McMullen and First Interstate Bank of Arizona, N.A., as
       Trustee, attached as Exhibit 99.2 to the Company's Form 8-K
       under current report date of February 2, 1996, incorporated
       herein by reference

  21*  Subsidiaries of the Registrant.

  27*  Financial Data Schedule for Talley Manufacturing and
       Technology, Inc., December 31, 1995.


















    *  Documents marked with an asterisk are filed with this
       report.