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 August 31, 1996
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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, New York 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 October 3, 1996.
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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
August 31, 1996 and May 31, 1996 1
Consolidated Statements of Operations
for the three months ended
August 31, 1996 and 1995 2
Consolidated Statements of Cash Flows
for the three months ended
August 31, 1996 and 1995 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 6. Exhibits and Reports on Form 8-K 6
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(000 Omitted)
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August 31, May 31,
1996 1996
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ASSETS
Current assets:
Cash and equivalents $6,795 $30,914
Other current assets 182 189
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Total current assets 6,977 31,103
Property, plant and equipment, at cost 211 268
Less: Accumulated depreciation (115) (170)
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Net property, plant & equipment 96 98
Other assets 1,781 1,547
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$8,854 $32,748
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued income taxes $34 $43
Other accrued expenses 899 1,088
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Total current liabilities 933 1,131
Stockholders' equity:
Common stock 614 614
Paid-in capital 11,153 34,572
Accumulated deficit (1,142) (865)
Less treasury stock (2,704) (2,704)
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Total Stockholders' Equity 7,921 31,617
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$8,854 $32,748
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See notes to consolidated financial statements.
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<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000 Omitted)
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Three Months Ended
August 31,
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1996 1995
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Revenues $0 $14,877
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Cost of goods sold 0 12,552
Selling, general and administrative expenses 570 2,470
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570 15,022
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OPERATING LOSS (570) (145)
Interest income (expense), net 293 (342)
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LOSS BEFORE INCOME TAXES (277) (487)
Provision for (benefit from) income taxes 0 (12)
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NET LOSS ($277) ($475)
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Average Common shares outstanding 5,855 5,855
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NET LOSS PER SHARE OF COMMON STOCK ($0.05) ($0.08)
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See notes to consolidated financial statements.
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<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000 Omitted)
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Three Months Ended
August 31,
----------------------
1996 1995
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Cash flows from operating activities:
Net loss ($277) ($475)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 2 613
Decrease (increase) in accounts receivable 0 (544)
Decrease in inventories 0 685
Increase (decrease) in accrued income taxes (9) 160
Increase (decrease) in accounts payable,
accrued salaries and wages and other
accrued expenses (189) 234
Increase in other assets (227) (555)
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Net cash provided by (used for)
operating activities (700) 118
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Cash flows from investing activities:
Capital expenditures 0 (664)
Proceeds from sale of property and equipment 0 85
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Net cash used for investing activities 0 (579)
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Cash flows from financing activities:
Distribution to stockholders (23,419) 0
Proceeds from (payment of) short-term debt 0 638
Proceeds from long-term debt 0 12,332
Payment of long-term debt 0 (12,096)
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Net cash provided by (used for) financing
activities (23,419) 874
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Effect of exchange rate changes on cash 0 (107)
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Net increase (decrease) in cash and cash equivalents (24,119) 306
Cash and cash equivalents - beginning of year 30,914 636
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Cash and cash equivalents - end of period $6,795 $942
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See notes to consolidated financial statements
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<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying consolidated financial statements of Hi-Shear Industries
Inc. and its subsidiaries (The Company) have been prepared in accordance
with generally accepted accounting principles for interim financial
information 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, 1996.
Note B - Contingencies
On January 31, 1996, the Company filed damage claims against the U.S. Navy
totaling $62.9 million. These claims arose from the termination of two
contracts held by a subsidiary, Defense Systems Corporation. These claims are
currently being audited by the government and their amount may be contested by
the U.S. Navy. Therefore the amount or timing of the recovery cannot be
predicted at this time. The Company has, since May 1995, been accruing
additional costs incurred, primarily claims preparation and legal, as claims
receivable. At August 31, 1996 claims receivable of $1.7 million are included
as other long term assets on the balance sheet, as management believes
collection of such amounts are probable. Since the amount of recovery of these
claims cannot presently be determined, no recognition from any settlement
proposal, other than the claim receivable noted above, has been reflected
in the accompanying financial statements.
In connection with the sale of Hi-Shear Corporation in February 1996, the
Company and the purchaser have been unable to reach an agreement as to the
proper valuation of certain assets and liabilities contained in the closing
balance sheet of HSC. The purchaser has requested a downward adjustment to the
sales price of $6.4 million and as required under the Stock Purchase Agreement,
the matter is being referred to an arbitrator. Management of the Company does
not believe that adjustments, if any, will have a material adverse impact on its
financial position. Due to the uncertainty of the outcome of this arbitration,
no adjustments which may occur as a result of the arbitration have been
recognized in the Company's August 31, 1996 financial statements.
-4-
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Results of Operations
On February 26, 1996, the Company sold its last remaining operating entity,
Hi-Shear Corporation and effectively ceased operations. Since that time , the
Company has made an effort to reduce corporate staff and expenses to a minimum
level. During the first quarter ended August 31, 1996, corporate overhead
totaled $570,000 which included approximately $150,000 in termination costs.
The interest income reported during the quarter was due to interest earned on
the investment of the proceeds from the sale of Hi-Shear Corporation.
Liquidity and Capital Resources
On February 26, 1996, the Company completed the sale of Hi-Shear
Corporation to GFI Industries S.A. for a total purchase price of $46 million
generating net proceeds from the sale , after deducting transaction costs, of
$44.4 million. Of that amount, approximately $13 million was used to repay all
amounts outstanding under the Company's loan agreements and the remaining
balance was deposited in short term investment accounts. The Company has
previously announced its intention to liquidate and distribute the proceeds from
this sale as well as any settlement received from the resolution of the
Company's long standing dispute with the U.S. Navy. In this regard, the Company
made an initial liquidating distribution to shareholders of Approximately $23.4
million ($4 per share) on August 1, 1996. At August 31, 1996 the Company had
$6.8 million remaining in cash and cash equivalents.
Under the terms of the agreement for the sale of Hi-Shear Corporation, the
Company must maintain working capital of not less than $3,000,000 through March
31, 1997. Subsequent to that date the Company may distribute all remaining
funds subject to the resolution of purchase price adjustments, if any, with GFI.
The Company's cash requirements include (i) ongoing costs relating to
pursuing the settlement of the Company's dispute with the U.S. Navy, (ii)
professional fees and other costs associated with defending GFI's request for
purchase price adjustments; and (iii) general and administrative expenses. The
Company anticipates that existing cash and cash equivalents will be sufficient
to satisfy the Company's cash requirements through the time of settlement with
the U.S. Navy and GFI and final liquidation of the Company. Although management
cannot currently estimate when these situations will be resolved, the Company
has retained what it considers sufficient funds to allow it to pursue equitable
settlements with regard to all open matters currently pending.
-5-
<PAGE>
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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On July 16, 1996 the Company reported that it announced an initial
liquidating distribution of $4.00 per share payable August 1, 1996 to
stockholders of record July 25, 1996.
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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: October 10, 1996
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