UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
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Commission file number 1-7633
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Hi-Shear Industries Inc.
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(Exact name of registrant as specified in its charter)
A Delaware Corporation I.R.S. Employer Identification
No. 11-2406878
3333 New Hyde Park Road, North Hills, NY 11042
Registrant's telephone number, including area code: (516) 627-8600
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
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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5,854,618 Common Shares were outstanding as of January 5, 1996.
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
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INDEX
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Page
Number
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of
November 30, 1995 and May 31, 1995 1
Consolidated Statements of Operations
for the three and six month
periods ended November 30,
1995 and 1994 2
Consolidated Statements of Cash Flows
for the six month periods ended
November 30, 1995 and 1994 3
Notes to Consolidated Financial
Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 5
Part II. Other Information:
Item 1. Legal Proceedings 7
Item 6. Exhibits and Reports on Form 8-K 7
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(000 Omitted)
------------------------
November 30, May 31,
1995 1995
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ASSETS
Current assets:
Cash and equivalents $106 $636
Accounts receivable - net 10,919 9,879
Inventory 20,872 22,821
Other current assets 1,951 1,510
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Total current assets 33,848 34,846
Property, plant and equipment, at cost 28,440 27,207
Less: Accumulated depreciation 17,069 16,067
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Net property, plant & equipment 11,371 11,140
Other assets 4,030 3,528
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$49,249 $49,514
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $1,930 $1,835
Accounts payable 3,082 2,851
Accrued income taxes 198 145
Accrued salaries and wages 1,640 1,607
Other accrued expenses 5,997 6,125
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Total current liabilities 12,847 12,563
Long-term debt 10,184 9,872
Stockholders' equity:
Common stock 614 614
Paid-in capital 34,572 34,572
Accumulated deficit (2,645) (1,971)
Cumulative translation and pension adjustments (3,619) (3,432)
Less treasury stock (2,704) (2,704)
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Total Stockholders' Equity 26,218 27,079
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$49,249 $49,514
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See notes to consolidated financial statements.
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<PAGE>
<TABLE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
(000 Omitted)
-----------------------------------------------
Three Months Ended Six Months Ended
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November 30, November 30,
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $16,264 $14,303 $31,141 $28,141
------- ------- ------- -------
Cost of goods sold 13,352 11,247 25,904 22,578
Selling, general and administrative
expenses 2,711 2,734 5,181 5,284
------- ------- ------- -------
16,063 13,981 31,085 27,862
------- ------- ------- -------
OPERATING INCOME 201 322 56 279
Interest expense, net (348) (313) (690) (589)
------- ------- ------- -------
EARNINGS (LOSS) BEFORE INCOME
TAXES (147) 9 (634) (310)
Provision for income taxes 52 36 40 45
------- ------- ------- -------
NET LOSS ($199) ($27) ($674) ($355)
======= ======= ======= =======
Net loss per share ($0.03) $- ($0.11) ($0.06)
======= ======= ======= =======
Average Common shares outstanding 5,855 5,855
======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
(000 Omitted)
--------------------
Six Months Ended
--------------------
November 30,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($674) ($355)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 1,248 1,281
Decrease in accounts receivable (1,134) (243)
Decrease (increase)in inventories 1,848 (351)
Increase in accrued income taxes 62 86
Increase (decrease) in accounts payable, accrued
salaries and wages and other accrued expenses 199 (51)
Increase in other assets (964) (930)
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Net cash provided by (used for)operating activities 585 (563)
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Cash flows from investing activities:
Capital expenditures (1,631) (1,493)
Proceeds from sale of property and equipment 83 -
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Net cash used for investing activities (1,548) (1,493)
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Cash flows from financing activities:
Proceeds from (payment of) short-term debt 119 (1)
Proceeds from long-term debt 25,990 25,337
Payment of long-term debt (25,678) (23,988)
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Net cash provided by financing activities 431 1,348
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Effect of exchange rate changes on cash 2 144
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Net decrease in cash and equivalents (530) (564)
Cash and cash equivalents - beginning of year 636 940
------- -------
Cash and cash equivalents - end of period $106 $376
======= =======
</TABLE>
See notes to consolidated financial statements
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<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying consolidated financial statements of Hi-Shear
Industries Inc. and its subsidiaries ("Company") have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-
Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. The results of operations of any interim
period are subject to year-end audit and adjustments, and are not
necessarily indicative of the results of operations for the fiscal
year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1995.
Note B - Other Event
On October 9, 1995, the Company signed a definitive agreement
for the sale of its aerospace fastener subsidiary, Hi-Shear
Corporation and allied companies, to GFI Industries S.A. for $46
million in cash. GFI, a publicly traded French company, has
aerospace, automotive and industrial fastener operations which
primarily serve the European market. The proposed sale, which is
expected to be finalized in early 1996, has been favorably reviewed
by the regulatory authorities and is now only subject to the
approval of the Company's stockholders. The transaction represents
the sale of substantially all of the Registrant's operating assets
except for its net operating loss carryforwards and its claims
against the U.S. Navy in respect of the termination of certain
contracts. A decision in favor of the Registrant by the Armed
Services Board of Contract Appeals has been appealed by the U.S.
Department of Justice. The Company plans to use approximately
$12.5 million of the proceeds to repay existing indebtedness and
anticipates distributing one half of the net proceeds after
expenses, or approximately $15.2 million, to shareholders. Proxy
materials will be disseminated to stockholders in early January
1996. David A. Wingate, Chairman and Chief Executive Officer of
the Company, Philip M. Slonim, a director of the Company, and
certain other stockholders of the Company, who together hold
approximately 30.4% of the outstanding common stock, have agreed to
vote in favor ofthe transaction.
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Results of Operations
Revenues for the second quarter ended November 30, 1995 were
$16.3 million compared with $14.3 million for last year's second
quarter. Revenues increased to $31.1 million for the six months
ended November 30, 1995 from $28.1 million for the same last year
period. The Company achieved operating income of $201,000 for the
second quarter of fiscal 1996 compared to operating income of
$322,000 for the second quarter of the prior year. For the first
six months of fiscal 1996, the Company's operating income was
$56,000, compared to last year's six month operating income of
$279,000. The net loss for the three months ended November 30,
1995 was $199,000 or $.03 a share versus a net loss of $27,000 for
the same three month period last year. For the six months ended
November 30, 1995, the net loss was $674,000 or $.11 a share as
compared to a net loss of $355,000 or $.06 a share for the same
period last year.
The decline in operating results, despite an increase in
revenues, is primarily attributable to the prolonged downturn in
production of commercial aircraft. The low level of aircraft
production has negatively impacted the domestic and foreign
fasterner industry resulting in overcapacity, downward pressure on
pricing levels and decreased profitability. Although orders for
aircraft fasteners are improving, increases in pricing levels
remain difficult to achieve. Operating margins remain tight and
the Company is still working off older, lower price contracts which
is having an adverse effect on operating results. In addition,
increasing material and labor costs are beginning to erode the
savings achieved on cost reduction and production improvement
programs instituted over the past 18 months. We have instituted
measures to effectively deal with these costs and expect that
operating conditions will gradually improve over the next several
quarters.
Interest expense increased in the current quarter and six
month period due to an increase in interest rates.
The Company did not record a provision or benefit for federal
income taxes in the second quarter or six months of fiscal 1995 due
to the Company's tax loss carryforward position, in accordance with
the rules of Statement on Financial Accounting Standards No. 109,
"Accounting For Income Taxes."
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<PAGE>
Liquidity and Capital Resources
The Company currently maintains a secured three year revolving
credit and term loan facility primarily to provide working capital
for the domestic Aerospace Fastening Systems operation. At
November 30, 1995 the Company had $11,304,000 outstanding under
this facility at 10.75%. The Company also utilizes operating
leases to satisfy the larger capital expenditure requirements of
its fastener operations. A U.K. subsidiary maintains a separate
$2.3 million working capital loan facility of which $810,000 was
outstanding at November 30, 1995.
Working capital at November 30, 1995 was $21,001,000 compared
to $22,283,000 at May 31, 1995. The decline is primarily due to a
reduction in inventories and an increase in short term debt, offset
by increases in accounts receivable.
The Company believes that cash flow from operations and
available credit facilities will provide sufficient liquidity to
meet working capital, capital expenditures and other ongoing
business requirements. Capital expenditures, consisting primarily
of plant modifications and the normal upgrading and replacement of
existing machinery and equipment is expected to be approximately
$3.5 million in fiscal 1996.
-6-
<PAGE>
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
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On September 28, 1995 the Company reported that the United
States Department of Justice had appealed the Armed Services Board
of Contract Appeals May 30, 1995 decision converting the 1991
terminations for default of two contracts with the U.S. Navy into
terminations for the convenience of the Government.
The Department of Justice was granted an extension until
February 2, 1996 from its original due date of December 29, 1995 to
file a brief stating the basis for the appeal.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
On October 10, 1995, the Company reported that it had signed a
definitive agreement for the sale of its aerospace fastener
subsidiary, Hi-Shear Corporation and allied companies, to GFI
Industries S.A. for $46 million in cash.
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<PAGE>
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HI-SHEAR INDUSTRIES INC.
By: s/David A. Wingate
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David A. Wingate, Chairman,
President & Chief Executive
By: s/Victor J. Galgano
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Victor J. Galgano, Vice
President & Chief Financial
Officer
Date: January 5, 1996
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-8-
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<NAME> HI-SHEAR INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1995
<CASH> 106
<SECURITIES> 0
<RECEIVABLES> 10,919
<ALLOWANCES> 0
<INVENTORY> 20,872
<CURRENT-ASSETS> 33,848
<PP&E> 28,440
<DEPRECIATION> 17,069
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<CURRENT-LIABILITIES> 12,847
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<COMMON> 614
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<INTEREST-EXPENSE> 690
<INCOME-PRETAX> (634)
<INCOME-TAX> 40
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