SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended May 31, 1996 Commission file number 1-7633
HI-SHEAR INDUSTRIES INC.
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each class on which registered
----------------------- ---------------------
Common Stock, $.10 par value Over The Counter Exchange
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 requirements for the past 90 days.
Yes X No
On August 23, 1996, 5,854,618 shares of the Registrant's Common Stock were
outstanding. Of these shares, 1,676,457 shares were held by persons who
may be deemed to be affiliates. The aggregate market value (based on the
average bid and ask price of these shares on the Over The Counter Exchange
of $2.69 a share) of the 4,178,161 shares held by non-affiliates of the
registrant was $11,239,000.
Documents Incorporated by Reference
None.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
HI-SHEAR INDUSTRIES INC.("the Company"), a Delaware corporation
organized in 1976, was engaged primarily in the manufacture and sale of
high technology Aerospace Fastening Systems products through its wholly-
owned subsidiary, Hi-Shear Corporation ("HSC") until February 26, 1996.
During the fiscal year ended May 31, 1991, the Company adopted a plan
to discontinue the operations of Hi-Shear's Space and Defense segment,
comprised of Hi-Shear Technology Corp. ("HSTC") and Defense Systems
Corporation ("DSC"). The operation of DSC was terminated in March 1991
and in June 1993, the Company completed the sale of HSTC to a group led by
the management of the subsidiary.
In June, 1994, the automotive division of Hi-Shear Corporation was
incorporated as Hi-Shear Automotive Corp.
On February 26, 1996, the Company completed the sale of Hi-Shear
Corporation and its subsidiaries which included Hi-Shear Automotive Corp.,
Hi-Shear Holdings Limited, and Hi-Shear Fasteners Europe Limited, to GFI
Industries S.A. (GFI") of Belfort, France for $46 million. With the
completion of this sale the Company disposed of its last remaining
operating assets and effectively ceased operations.
(b) Narrative Description of Business
With the sale of its last remaining manufacturing operation on
February 26, 1996, the Company no longer conducts an operating business.
As outlined in the Company's "Notice Of Annual Meeting of Stockholders",
the Company currently anticipates that upon final resolution of its claims
against the U.S. Navy, it will complete the distribution of its assets to
stockholders and seek stockholder approval to dissolve the Company.
The Company currently has four full-time employees.
Item 2. Properties
The Company's corporate headquarters are located in an office building
at North Hills, New York, where 5,300 square feet of space are leased at a
current annual rental of approximately $138,000 under a lease which expires
May 31, 1997.
HSI Properties, Inc., a wholly-owned subsidiary of the Company, owns
16 acres of land in Saugus, California, with incidental structures (2,700
sq. ft.) currently being leased to a former subsidiary, Hi-Shear Technology
Corp., for $90,000 per year. The lease expires June 1, 1998.
<PAGE>
Item 3. Legal Proceedings
In 1991, the U.S. Navy terminated for default two contracts held by a
discontinued subsidiary of the Company and sought reimbursement of progress
payments totaling $11.2 million made against these contracts. The Company
appealed the default terminations and on May 31, 1995 its appeal was
sustained. This decision effectively released the Company from any
obligation to repay progress payments received under the contracts. On
January 31, 1996, the Company filed damage claims against the U.S. Navy
totaling $62.9 million
On February 26, 1996, the Company completed the sale of Hi-Shear
Corporation and related entities to GFI Industries S.A. of Belfort, France.
As specified in the Stock Purchase Agreement, the sales price is subject to
adjustment based upon a review of the closing consolidated balance sheet of
Hi-Shear Corporation and verification of the net asset value. To date, the
Company and GFI have been unable to reach an agreement on the net asset
value with GFI requesting downward adjustments to the sales price totaling
$6.4 million. Management of the Company firmly believes that the closing
balance sheet as presented to GFI is in accordance with the terms of the
Stock Purchase Agreement. The disagreement is being submitted to
arbitration as required under the Stock Purchase Agreement. The parties
are currently in the preliminary stages of selecting an arbitrator. See
Commitments and Contingencies in the notes to consolidated financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters
The Company's Common Stock had, until August 1, 1996, been traded on
the New York Stock Exchange ("NYSE") under the symbol "HSI." The following
table sets forth the high and low prices per share of the Company's Common
Stock, as reported on the NYSE Composite Tape for the periods indicated.
<PAGE>
Per Common Share
----------------
Market Price
----------------
High Low
---- ---
Quarter Ended
August 1995......................... $8.13 $6.63
November 1995....................... 7.63 6.75
February 1996....................... 7.88 4.50
May 1996............................ 6.50 5.63
Fiscal Year Ended May 31, 1996 $8.13 $4.50
===== =====
Quarter Ended
August 1994......................... $6.75 $5.63
November 1994....................... 6.00 4.88
February 1995....................... 5.00 3.88
May 1995............................ 5.75 3.88
Fiscal Year Ended May 31, 1995 $6.75 $3.88
===== =====
On August 1, 1996, the Company made an initial liquidating
distribution of approximately $23.4 million ($4.00 per share). Prior to
that the Company had not paid a dividend on common stock since August 1990.
Concurrent with this distribution, the NYSE suspended trading in the
Company's common stock and made application to delist the issue. The
Company's common stock is currently being traded on the Over-The-Counter
bulletin board.
Under the terms of the agreement for the sale of Hi-Shear Corporation,
the Company is restricted from distributing to its stockholders, by means
of a dividend or otherwise, at least $3.0 million of the purchase price
through March 31, 1997. After that date, the Company may distribute all
remaining funds subject to the resolution of purchase price adjustments, if
any, with GFI. See Item 3 - Legal Proceedings and Sale of Subsidiary and
Commitments and Contingencies in Notes To Consolidated Financial
Statements.
As of August 23, 1996 there were approximately 900 holders of record
of the Company's Common Stock.
Item 6. Selected Financial Data
The following table sets forth selected financial information of the
Company and its subsidiaries for the five years ended May 31, 1996. This
selected financial information should be read in conjunction with the
Consolidated Financial Statements and notes thereto, and Management's
Discussion and Analysis of Results of Operations and Financial Condition
included elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended May 31,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
(Dollars in thousands except per share data)
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Statement of
Operations Data:
Revenues from operations(A) $ 46,400 $ 58,639 $ 56,465 $ 71,519 $ 88,113
======== ======== ======== ======== =======
Income (loss) before
discontinued operations $ 1,106 $ (545) $ (2,974) $ (943) $ 1,666
Income (loss) from
discontinued operations(B) - - (2,616) (7,312) 442
Income from extraord-
inary item (C) - - - - 240
-------- -------- -------- -------- -------
Net income (loss) $ 1,106 $ (545) $ (5,590) $ (8,255) $ 2,348
======== ======== ======== ======== ========
Weighted Average Shares
Outstanding 5,855 5,855 5,855 5,855 5,855
======== ======== ======== ======== ========
Per Common Share Data:
Income (loss) before
discontinued operations(A)$ .19 $ (.09) $ (.51) $ (.16) $ .28
Income (loss) from
discontinued operations (B) - - (.45) (1.25) .08
Income from extra-
ordinary item (C) - - - - .04
-------- -------- -------- -------- -------
Net income (loss) $ .19 $ (.09) $ (.96) $ (1.41) $ .40
======== ======== ======== ======== ========
<CAPTION>
As of May 31,
---------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in thousands)
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Current assets(D) $31,103 $34,846 $35,659 $44,324 $54,253
Current liabilities 1,131 12,563 12,013 24,025 14,282
Working capital 29,972 22,283 23,646 20,299 39,971
Total assets 32,748 49,514 49,115 58,826 71,225
Long-term debt - 9,872 9,953 - 12,662
Stockholders' equity(D) 31,617 27,079 27,149 34,801 44,171
(A) Includes revenues and income (loss) from operations of HSC through
February 26, 1996 at which date HSC was sold. With the completion of this
sale, the Company disposed of its last remaining operating assets and
effectively ceased operations.
(B) The loss from discontinued operations in fiscal 1994 includes
additional expenses, legal costs and an unexpected shortfall in amounts
realized in the sale of material and equipment of a discontinued operation.
In fiscal 1993 and 1991 the loss from discontinued operations includes an
after-tax provision of $6.2 million ($1.05 per share) and $22.4 million
($3.83 per share) respectively, to write down the net assets of the
discontinued businesses to their estimated realizable values, record
estimated transaction costs and report operating results during the
phaseout period.
(C) Extraordinary item represents the income tax benefit from the
utilization of an operating loss carryforward.
(D) On a pro forma basis, after giving effect to the initial liquidating
distribution on August 1, 1996, pro forma current assets and stockholders'
equity would have been approximately $7.7 million and $8.2 million,
respectively.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
Page
----
Report of Independent Accountants..................... 9
Consolidated Balance Sheets........................... 10
Consolidated Statements of Operations................. 11
Consolidated Statements of Stockholders' Equity....... 12
Consolidated Statements of Cash Flows................. 13
Notes to Consolidated Financial Statements............ 14
<PAGE>
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
On February 26, 1996, the Company sold its last remaining operating entity,
Hi-Shear Corporation and effectively ceased operations. The Company had
previously disposed of its business activities dealing with space and defense
in June 1993 and had since that time been reporting their operating
activities as discontinued operations. The results of operations of the
Company include the operating activities of Hi-Shear Corporation and
subsidiaries through February 26, 1996.
Results of Operations
Fiscal 1996 compared to 1995
- ----------------------------
The Company's results of operations were significantly impacted by the
shorter period of operating activities due to the sale of Hi-Shear
Corporation on February 26, 1996. Revenues from operations decreased $12.2
million (20.9%) to $46.4 million in fiscal 1996 from $58.6 million in fiscal
1995 due to the sale of Hi-Shear Corporation. For the year ended May 31, 1996,
the Company recorded a gain (net of transaction costs) on the sale of Hi-Shear
Corporation of approximately $1.8 million. Operating income decreased $744,000
from $958,000 in fiscal 1995 to $214,000 in fiscal 1996 due to the shortened
operating period as well as continued downward pressure on pricing levels and
increasing material and labor costs associated with production.
The interest income reported in fiscal 1996 was due to interest earned on the
investment of the proceeds from the sale of Hi-Shear Corporation. Interest
expense declined $227,000 from $1.3 million in fiscal 1995 to $1.1 million in
the comparable 1996 period due to the repayment of approximately $13 million
of amounts outstanding on the Company's loan agreements with proceeds from
the sale of Hi-Shear Corporation.
With the exception of a provision for alternative minimum tax in fiscal 1996
and 1995, the Company did not record a provision or benefit for federal
income taxes due to the Company's tax loss carryforward position.
Fiscal 1995 compared to 1994
- ----------------------------
Revenues from operations increased slightly to $58.6 million in fiscal 1995
compared to $56.5 million in fiscal 1994. The increase of $2.1 million
(3.9%) is due to a stabilization in build rates experienced in the commercial
airframe manufacturing industry after several years of substantial reduction
in both order levels and build rates. Over the past several years, this
reduced order activity has led to severe pricing pressures within the
aircraft fastener market. Lower levels of unit pricing combined with
increased manufacturing costs associated with inefficient production levels
resulted in an operating loss of $1.9 million in
<PAGE>
fiscal 1994. The operating income achieved in fiscal 1995 of $958,000 was
the direct result of a cost reduction program instituted by the Company early
in that fiscal year. The program resulted in cost savings of approximately
$1.8 million.
The interest income reported in fiscal 1994 was primarily due to tax refunds
received during that year. Interest expense increased $259,000 in fiscal
1995 compared to fiscal 1994 due to an increase in borrowing rates
experienced during the period.
Results of Discontinued Operations
In June 1993, the Company completed the sale of Hi-Shear Technology Corp.
This corporation, together with Defense Systems Corporation, which had
previously discontinued operations in 1991, comprised the Company's
discontinued operations. The 1994 loss from discontinued operations of $2.6
million consisted of an addition to the reserve previously established in
1991 for the closing of Defense Systems Corp. This charge was due to
additional expenses and legal costs incurred in maintaining the personnel and
facilities required to pursue legal remedies regarding termination of two
contracts with the U.S. Navy as well as an unexpected shortfall in amounts
realized in the sale of material and equipment.
Liquidity and Capital Resources
The Company's principal sources of liquidity have consisted of cash provided
by operating activities and, until the sale of Hi-Shear Corporation, bank
financing. 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. At May 31, 1996 the
Company had $30.9 million remaining in cash and cash equivalents.
With the sale of Hi-Shear Corporation the Company no longer has operating
businesses and has announced its intention to liquidate and distribute the
proceeds from the sale of Hi-Shear Corporation 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 ($4.00 per share)
on August 1, 1996. 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 with GFI.
<PAGE>
On May 31, 1995 the Company learned that its appeal of the default
terminations filed by the Navy with regard to the two contracts being held by
a subsidiary, Defense Systems Corporation had been sustained and converted to
termination for the convenience of the government. On January 31, 1996 the
Company filed damage claims against the U.S. Navy totaling $62.9 million.
The government is currently in the process of auditing these claims. Therefore
the total amount or timing of the recovery cannot be predicted at this time.
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 (after giving
effect to the dividend paid on August 1, 1996) 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Hi-Shear Industries Inc.
North Hills, New York
We have audited the accompanying consolidated balance sheets of Hi-Shear
Industries Inc. and Subsidiaries as of May 31, 1996 and 1995, and the related
consolidated statements of operations,stockholders' equity and cash flows for
each of the three years in the period ended May 31, 1996, and the financial
statement schedule listed in the Index at Item 14(a)(2) of this form 10-K.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hi-Shear Industries Inc. and Subsidiaries as of May 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended May 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
As discussed in the Commitments and Contingencies note to Consolidated
Financial Statements, on May 31, 1995, the Company was notified that its
appeal was successful regarding the default for terminations filed by the
Navy related to certain contracts and that the contracts had been converted
to terminations for the convenience of the government. On January 31, 1996,
the Company filed damage claims totaling $62.9 million against the Navy with
respect to these contracts. These claims are subject to government audit and
their amount may be contested by the Navy. Therefore, the total amount or
timing of the recovery cannot be predicted at this time and no recognition of
income related to this claim has been made in the consolidated financial
statements.
On February 26, 1996, the Company sold its last operating asset and
effectively ceased operations. The Company is presently in the process of
liquidation, and management's plans in regard to this matter are further
discussed in the Summary of Significant Accounting Policies Note to
Consolidated Financial Statements.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
August 7, 1996
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
May 31,
--------------------------
1996 1995
--------------------------
(000 Omitted)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $30,914 $636
Accounts receivable - 9,879
Inventories - 22,821
Other 189 1,510
--------------------------
Total current assets 31,103 34,846
Property, plant and equipment, at cost:
Land 80 80
Buildings and improvements - 5,547
Machinery, equipment and fixtures 188 21,580
--------------------------
268 27,207
Less, accumulated depreciation and amortization (170) (16,067)
--------------------------
98 11,140
Other assets 1,547 3,528
--------------------------
Total assets $32,748 $49,514
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $- $1,835
Accounts payable - 2,851
Accrued income taxes 43 145
Accrued salaries and wages - 1,607
Other accrued expenses 1,088 6,125
--------------------------
Total current liabilities 1,131 12,563
Long-term debt - 9,872
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred stock, $1 par value: authorized 500,000
shares; none issued - -
Common stock, $.10 par value: authorized 10,000,000
shares; issued 6,139,756 shares 614 614
Paid-in capital 34,572 34,572
Accumulated deficit (865) (1,971)
Cumulative translation, pension and
other adjustments - (3,432)
Less treasury stock, at cost (285,138 shares) (2,704) (2,704)
--------------------------
31,617 27,079
--------------------------
Total liabilities and stockholders' equity $32,748 $49,514
==========================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended May 31,
------------------------------------------
1996 1995 1994
------------- ------------- -------------
(000 Omitted except
per share data)
<S> <C> <C> <C>
Revenues:
Net sales $45,268 $57,484 $55,332
Other 1,132 1,155 1,133
------------- ------------- -------------
46,400 58,639 56,465
------------- ------------- -------------
Cost of goods sold 37,316 46,855 46,979
Selling, general and administrative expenses 8,870 10,826 11,361
------------- ------------- -------------
46,186 57,681 58,340
------------- ------------- -------------
Operating income (loss) 214 958 (1,875)
Gain on sale of subsidiary 1,768 - -
Interest income 434 6 100
Interest expense (1,071) (1,298) (1,039)
------------- ------------- -------------
Income (loss) before income taxes
and discontinued operations 1,345 (334) (2,814)
Provision for income taxes 239 211 160
------------- ------------- -------------
Income (loss) before discontinued
operations 1,106 (545) (2,974)
Loss from discontinued operations
(net of income taxes) - - (2,616)
------------- ------------- -------------
Net income (loss) $1,106 ($545) ($5,590)
============= ============= =============
Weighted average Common shares
outstanding 5,855 5,855 5,855
------------- ------------- -------------
Income (loss) per share before
discontinued operations $0.19 ($0.09) ($0.51)
(Loss) per share from discontinued
operations - - (0.45)
------------- ------------- -------------
Net income (loss) per share $0.19 ($0.09) ($0.96)
============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended May 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Cumulative
translation,
Common Stock Retained pension and Treasury Stock
--------------- Paid-in earnings other --------------
Shares Amount captial (deficit) adjustments Shares Amount
------- ------- ------- ------- ------- ------ ------
(000 Omitted)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1993 6,140 $614 $34,572 $4,164 ($1,845) (285) ($2,704)
Unrealized foreign currency translation adjustments - - - - (176) - -
Net loss - - - (5,590) - - -
Pension adjustment - - - - (1,886) - -
-------- ------- -------- -------- --------- -------- --------
Balance, May 31, 1994 6,140 614 34,572 (1,426) (3,907) (285) (2,704)
Unrealized foreign currency translation adjustments - - - - 378 - -
Net loss - - - (545) - - -
Pension adjustment - - - - 97 - -
-------- ------- -------- -------- --------- -------- --------
Balance, May 31, 1995 6,140 614 34,572 (1,971) (3,432) (285) (2,704)
Unrealized foreign currency translation adjustments - - - - (265) - -
Realized foreign currency translation and pension
adjustments upon sale of subsidiary - - - - 3,697 - -
Net Income - - - 1,106 - - -
-------- ------- -------- -------- --------- -------- --------
Balance, May 31, 1996 6,140 $614 $34,572 ($865) $0 (285) ($2,704)
=======================================================================
See notes to consolidated financial statements
</TABLE>
<PAGE>
HI-SHEAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended May 31,
-------------------------------------------------------
1996 1995 1994
------------------ ----------------- -----------------
(000 Omitted)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,106 ($545) ($5,590)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Net gain on sale of subsidiary (1,768) - -
Depreciation and amortization 1,789 2,006 2,686
DefLossdfromodiscontinued operations - - 2,616
(Increase) decrease in accounts receivable (1,181) 235 1,247
Decrease in inventories 693 813 1,725
Increase in other assets (842) (1,642) (208)
Increase (decrease) in accrued income taxes 95 (61) (117)
Increase (decrease) in accounts payable, accrued
salaries and wages and other accrued expenses (1,295) (144) (404)
Cash used for discontinued operations - - (1,223)
------------------ ----------------- -----------------
Net cash provided by (used for) operating activities (1,403) 662 732
------------------ ----------------- -----------------
Cash flows from investing activities:
Capital expenditures (3,344) (1,649) (1,596)
Net proceeds from sale of subsidiary 45,397 - -
Proceeds from sale of property and equipment 83 45 9
Proceeds from sale of discontinued operations - - 4,100
------------------ ----------------- -----------------
Net cash provided by (used for) investing activities 42,136 (1,604) 2,513
------------------ ----------------- -----------------
Cash flows from financing activities:
Proceeds from (payment of) short-term debt (409) 701 (13,108)
Proceeds from long-term debt 39,141 50,918 50,808
Payment of long-term debt (49,188) (50,999) (40,855)
------------------ ----------------- -----------------
Net cash provided by (used for) financing activities (10,456) 620 (3,155)
------------------ ----------------- -----------------
Effect of exchange rate changes on cash 1 18 6
------------------ ----------------- -----------------
Net increase (decrease) in cash and cash equivalents 30,278 (304) 96
Cash and cash equivalents - beginning of year 636 940 844
------------------ ----------------- -----------------
Cash and cash equivalents - end of year $30,914 $636 $940
================== ================= =================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $1,049 $1,232 $1,427
Income taxes 341 239 283
See notes to consolidated financial statements
</TABLE>
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements of Hi-Shear Industries Inc.
and Subsidiaries (the "Company") are summarized below:
Basis of Presentation. The financial statements reflect the operating
results of Hi-Shear Corporation and Subsidiaries ("HSC") until its sale on
February 26, 1996.
The financial statements also reflect the results of the former
subsidiaries, Hi-Shear Technology Corp. ("HSTC") and Defense Systems
Corporation ("DSC"), as discontinued operations. Respective operating
results of these subsidiaries for all prior periods presented have been
segregated along with related taxes, and reported as discontinued operations
on the Consolidated Statements of Operations. Net assets of discontinued
operations have been segregated on the Consolidated Statements of Cash Flows.
With the sale of HSC,the Company no longer conducts an operating business.
The Company currently anticipates that upon final resolution of its claims
against the U.S. Navy, it will complete the distribution of its assets to
stockholders and seek stockholder approval to dissolve the Company.
Principles of Consolidation. The consolidated financial statements
include the accounts of Hi-Shear Industries Inc. and its majority-owned
subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates and Assumptions. 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 dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Cash and Equivalents. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The cash balances on deposit are held principally at one
financial institution and exceed insurable amounts. The Company believes it
mitigates its risks by investing in or through a major financial institution.
Cash and cash equivalents are reflected in the accompanying consolidated
balance sheet at amounts considered by management to reasonably approximate
fair value.
Inventory Valuation. Inventories are valued at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment. Land, buildings, and equipment are
carried at cost. For financial reporting purposes,
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Significant Accounting Policies - (Continued)
depreciation expense is provided on a straight line basis, using estimated
useful lives of 2 to 40 years for buildings and improvements, and 3 to 10
years for machinery and equipment. Accelerated methods have been used for
tax purposes where permitted. Upon disposition, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain
or loss is reflected in earnings for the period.
Income Taxes. The Company and its subsidiaries file consolidated
federal and state income tax returns. Deferred provision is made for income
taxes resulting from timing differences in the recognition of income and
expense for tax and financial reporting purposes. Effective June 1, 1993 the
Company adopted Statement of Financial Standards No. 109 "Accounting for
Income Taxes" which requires recognition of deferred tax assets and
liabilities for temporary differences and net operating loss (NOL) and tax
credit carryforwards. Under this statement, deferred income taxes are
established based on enacted tax rates expected to be in effect when
temporary differences are scheduled to reverse and NOL and tax credit
carryforwards are expected to be utilized. A valuation allowance is provided
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The adoption of Statement 109 did not have a
material effect on the 1994 consolidated financial statements.
Earnings Per Share. Earnings per share are computed based on weighted
average number of common shares outstanding (excludes treasury stock) during
the periods. The effect of common stock equivalents is not significant for
any periods presented.
Sale of Subsidiary
On February 26, 1996, pursuant to approval received at the Annual
Meeting of Shareholders on February 23, 1996, the Company sold its aerospace
fastener subsidiary Hi-Shear Corporation and its subsidiaries to GFI
Industries S.A. of Belfort, France for $46 million in cash. The sale was
treated as a sale of stock for accounting purposes. As a result, the Company
recognized a gain of approximately $1.8 million in its statement of
operations and the related balance sheet accounts of Hi-Shear Corporation and
its affiliated companies were removed from the Company's consolidated balance
sheet. The sales price is subject to adjustment based upon a review of the
closing balance sheet of Hi-Shear Corporation and verification by GFI of the
net asset value as required under the terms of the sale. To date, the
Company and GFI have been unable to reach an agreement on the net asset value
with GFI requesting downward adjustments to the sales price totaling $6.4
million. Management of the Company firmly believes that the closing balance
sheet as presented to GFI is in accordance with the terms of the Stock
Purchase Agreement. The disagreement is being submitted to arbitration as
required under the Stock Purchase Agreement. The parties are currently in
the preliminary
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
stages of selecting an arbitrator. Under the terms of the agreement for the
sale of HSC, the Company is restricted from distributing to its stockholders,
by means of dividend or otherwise, at least $3.0 million of the purchase
price 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. See Commitments and Contingencies in notes to
consolidated financial statements.
Discontinued Operations
In fiscal 1991, the Company adopted a plan to discontinue its Space and
Defense operations, which were comprised of HSTC and DSC. A provision of
$22.4 million (net of income tax benefit of $2.6 million) was recorded in
fiscal 1991 to write down the net assets of these businesses to their
estimated realizable values, record estimated transaction costs and report
operating results during the phaseout period. During fiscal 1992, management
reevaluated HSTC and decided to reinstate this subsidiary to continuing
operations. An amount of $3.4 million previously reserved for discontinued
operations of HSTC was reallocated to provide for additional losses
associated with the disposal of DSC. In the fourth quarter of fiscal 1993,
the Company entered into an agreement to sell HSTC to a newly formed
corporation led by two managers of the subsidiary. An amount of $6.2 million
was recorded in fiscal 1993 to provide for losses associated with the
disposal of HSTC. The sale of this facility for an amount of $4.1 million was
successfully concluded in June 1993. Proceeds from the sale were used to pay
down bank debt. During fiscal 1994, the Company recorded an additional
provision for loss on disposal of discontinued operations on DSC due to
additional expenses, legal costs and lower than anticipated proceeds on the
sale of material and equipment.
Loan Agreements
Prior to February 26, 1996, the Company maintained a revolving line of
credit which provided for borrowings tied to a percentage of eligible
accounts receivable and inventory with a maximum borrowing capacity of $15
million. Borrowings under this agreement were collateralized by
substantially all of the assets of HSC. Concurrent with the sale of HSC, the
Company used a portion of the proceeds of the sale to pay off this loan
obligation as well as a term loan facility maintained by a foreign subsidiary
of HSC. At May 31, 1995, the Company had no credit facilities or other loan
agreements.
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Inventories
Inventories consist of:
May 31,
---------------------
1995
----
(000 Omitted)
Raw materials...................... $4,074
Work in process.................... 6,504
Finished goods .................... 12,243
-------
$22,821
=======
Cost elements included in determining inventory values are raw
materials, freight, direct labor and manufacturing overhead.
Provision For Income Taxes
The components of the income tax provision are summarized as follows:
Years ended May 31,
------------------------
1996 1995 1994
--------- ------ ------
(000 Omitted)
Current:
Domestic
Federal................... $160 $ 24 $ 17
State and local........... 58 27 28
Foreign....................... 21 187 132
------- ------- -------
239 238 177
------- ------- -------
Deferred:
Domestic
Federal................... - - (17)
State and local........... - - (6)
Foreign....................... - (27) 6
------- ------- -------
- (27) (17)
------- ------- -------
Total income tax provision ... $239 $211 $160
======= ======= =======
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Provision For Income Taxes - (Continued)
The components included in determining the provision for income taxes are
shown below:
Years ended May 31,
------------------------
1996 1995 1994
------ ------ ------
(000 Omitted)
Tax provision at federal income tax
statutory rate..................... $457 $(113) $(957)
Increase (decrease) in taxes
resulting from:
Permanent differences............ - (11) (115)
Foreign tax rate differences..... 1 39 8
Alternative minimum tax.......... 177 24 -
Benefit of operating loss
carryforwards (457) - -
Unrecognized tax benefit - 236 1,210
State and local taxes on income,
net of federal tax benefit..... 38 18 14
Other............................ 23 18 -
------ ------ ------
Income tax provision per consolidated
statements of operations.......... $239 $211 $160
====== ====== ======
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes, and the amounts used for income tax purposes.
The major components of deferred tax liabilities and assets as of May 31,
1996 and 1995 were as follows:
May 31,
---------------
1996 1995
------- -------
(000 Omitted)
Liabilities
Property, plant and equipment $ - $ (426)
------- -------
Total deferred tax liabilities - (426)
------- -------
Assets
Bad debt reserves - 132
Pension benefits - 392
Accrued vacation pay - 374
Federal net operating loss carryforwards 2,841 6,239
State net operating loss caryforwards 299 376
Foreign tax credit carryforwards 39 76
Capital loss carryforwards - 320
Alternative minimum tax credit carryforwards 369 178
Charitable contribution carryforwards 119 116
Other 190 211
------- -------
Total deferred tax assets 3,857 8,414
------- -------
Valuation allowance (3,857) (7,988)
------- -------
Net deferred taxes $ - $ -
======== =======
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of May 31, 1996, the Company had a federal net operating loss
carryforward of approximately $8,400,000 which expires between 2006 and 2009,
state net operating loss carryforward of approximately $4,900,000 expiring
between 1998 and 2000, foreign tax credit carryforward of $39,000 expiring in
1997 and alternative minimum tax credit carryforward of $369,000 with no
expiration.
Pension and Incentive Compensation Plans
Prior to February 26, 1996, the Company maintained a defined benefit
pension plan and deferred investment profit sharing plan covering
substantially all of its eligible domestic employees. The Company also had
contractual arrangements with certain key employees which provided for
supplemental retirement benefits. The Company's policy was to fund pension
costs annually based on accrued amounts and to amortize past service pension
costs over a thirty-year period. Effective with the sale of HSC on February
26, 1996, these plans and related liabilities and assets were assumed by the
purchaser of HSC. For the fiscal year ended May 31, 1996, the Company
incurred total pension costs of approximately $365,000. The components of
such costs are not available as the Company did not prepare actuarial
calculations for the fiscal year ended May 31, 1996. The following financial
information regarding these plans, relates to periods prior to the sale.
Net periodic pension cost for fiscal years 1995 and 1994 consists of the
following:
Fiscal Years Ended May 31,
--------------------------------
1995 1994
--------------- ---------------
Funded Unfunded Funded Unfunded
------ -------- ------ --------
(000 Omitted)
Service cost for
benefits earned
during the year $ - $107 $ - $171
Interest cost on
projected
benefit
obligation..... 522 185 520 152
Actual return
on plan assets (166) - (185) -
Asset gain (loss) (321) 38 (317) 6
Net amortization 95 72 (10) 72
----- ----- ----- -----
Net periodic
pension cost... $130 $402 $8 $401
===== ===== ===== =====
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension and Incentive Compensation Plans - (Continued)
The following table sets forth the funded status of the Company's
domestic pension plans:
As of the Fiscal Year Ended
-----------------------------------
May 31, 1995
-----------------
Funded Unfunded
------ --------
(000 Omitted)
Actuarial present value of:
Vested benefit obligation $6,877 $2,336
Accumulated benefit
obligation............. 6,877 2,549
Projected benefit
obligation............. 6,877 2,549
Plan assets at fair value,
primarily mutual funds. 5,489 -
Projected benefit oblig-
ation in excess of
plan assets............ $(1,388) $(2,549)
Unrecognized net (asset)
obligation............... (138) 503
Unrecognized net
loss..................... 1,932 681
------- -------
Pension asset (liability).. $406 $(1,365)
======= =======
The weighted average discount rate in 1995 was 8.00% for all plans. The
expected long-term rate of return on funded plan assets was 9%. Plan assets
for the unfunded plan consist of life insurance policies on the lives of the
plan participants; accounting principles do not permit recognition of such
policies as plan assets.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87 "Employers Accounting for Pensions," the Company recorded
additional minimum pension liabilities totaling $2,978,000 at May 31, 1995.
This amount was included in "Other accrued liabilities" on the Company's
balance sheet. This liability was offset by an intangible asset of $484,000
resulting in a cumulative reduction to retained earnings of $2,494,000 as of
May 31, 1995.
HSC had a discretionary incentive compensation plan which provided
current and deferred compensation to various employees based upon the
achievement of specific levels of operational earnings and other financial
performance criteria. The amounts charged to expense under these plans were
$0, $62,000 and $75,000 for the years ended May 31, 1996, 1995 and 1994,
respectively.
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Pension and Incentive Compensation Plans - (Continued)
Pension coverage for employees of Hi-Shear Corporation's foreign
subsidary was provided through a separate plan. Obligations under this plan
were provided for by depositing funds with a trustee. The 1996, 1995 and
1994 pension cost for the plan was approximately $150,000, $197,000 and
$190,000, respectively. In 1995, approximately $470,000 represented the excess
of the accumulated pension cost over the payment of contributions to the pension
fund and was included in "Other accrued liabilities" on the Company's balance
sheet.
Contributions to Hi-Shear Corporation's Deferred Investment Profit
Sharing Plan under Section 401(k) of the Internal Revenue Code were
$285,000, $444,000 and $399,000 for the years ended May 31, 1996, 1995 and
1994, respectively. Subsequent to the sale of HSC, the Company transferred
the balances of its corporate employees who participated in this plan to a
new Hi-Shear Industries Inc. 401(k) Profit Sharing Plan. Company
contributions to this Plan for the year ended May 31, 1996 were $28,000.
Capital Stock
Common stock outstanding at May 31, 1996 does not include 284,222 shares
reserved under the Company's stock option incentive plan. At May 31, 1996,
there were no options outstanding under this plan.
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Operating Segment Information and Concentration of Credit Risk
Prior to the sale of Hi-Shear Corporation on February 26, 1996, the Company
operated primarily in one industry segment, the manufacture and sale of
precision fastening systems and components. The Company serviced its
worldwide customer base from two manufacturing facilities located in Torrance
California and Rugby England. Financial information for fiscal 1996,
includes the operating activity for the nine month period prior to the sale.
Sales and transfers between geographic areas were generally priced to recover
cost plus an appropriate mark-up for profit. Sales and transfers from
domestic to foreign locations amounted to $1,110,000, $1,566,000, and
$579,000 for fiscal 1996, 1995 and 1994, respectively. Sales and transfers
from foreign to domestic locations were not material for any period
presented. Operating profit is revenue less related costs and direct and
allocated operating expenses, excluding interest and corporate expenses.
Corporate assets are those assets maintained for general purposes,
principally cash and cash equivalents and corporate facilities.
In fiscal 1996, 1995 and 1994, approximately 13%, 17% and 15% respectively,
of revenue was attributable to a single customer who purchases through
several different divisions and plants.
A summary of the Company's operations by geographic area is presented below:
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------
Net Revenues to Unaffiliated
Customers:
United States $36,547 $46,547 $46,162
Foreign 9,853 12,092 10,303
------- ------- -------
$46,400 $58,639 $56,465
======= ======= =======
Operating Profit:
United States $2,518 $3,233 $577
Foreign 189 341 422
------- ------- -------
2,707 3,574 999
Gain on Sale of Subsidiary 1,768 - -
Corporate Expenses (2,493) (2,616) (2,874)
Interest, net (637) (1,292) (939)
------- ------- -------
Profit (Loss) before
income taxes $1,345 $(334) $(2,814)
======= ======= =======
Identifiable Assets
United States $ - $37,146 $39,157
Foreign - 9,000 7,812
Corporate 32,748 3,368 2,146
------- ------- -------
$32,748 $49,514 $49,115
======= ======= =======
<PAGE>
HI-SHEAR INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Operating Segment Information and Concentration of Credit Risk - (Continued)
Foreign operations were conducted primarily in Europe. Certain products were
manufactured in the United States and exported to foreign customers. Export
sales from domestic operations were $4,700,000, $8,300,000 and $7,200,000 for
the years ended May 31, 1996, 1995 and 1994, respectively.
The Company sold aerospace and transportation fastening systems worldwide,
primarily to major aircraft and automotive manufacturers. Concentrations of
credit risk were limited due to the large number of customers which comprise
the Company's customer base. Credit was extended based upon an evaluation of
each customer's financial condition, and generally, collateral was not
required. Credit losses, if any, have been provided for in the financial
statements, and have been consistently within management's expectations.
Commitments and Contingencies
In March 1991, the Company terminated the operations of one of its
subsidiaries, Defense Systems Corporation in Reno, Nevada. As a result of
shutting down operations at this facility, two contracts with the U.S. Navy
were terminated for default. The Company appealed the default terminations
and on May 31, 1995 its appeals from the default terminations was sustained
by the armed services Board of Contract Appeals. This decision released the
Company from any obligation to repay progress payments received under the
contracts, and entitled the Company to recover contract and additional costs
expended in connection with the contracts. On January 31, 1996, the Company
filed damage claims against the U.S. Navy totaling $62.9 million. These
claims are subject to government audit and their amount may be contested by
the U.S. Navy. Therefore the total amount or timing of the recovery cannot be
predicted at this time. The Company had previously written off additional
costs associated with this matter due to the uncertainty of the outcome,
however, since the rendering of the favorable decision, the Company began
accruing additional costs incurred, primarily claims preparation and legal,
as claims receivable. At May 31, 1996 claims receivable of $1.4 million are
included as other long term assets on the balance sheet, as management
believes collection of such amounts are probable. Since the ultimate 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 statments.
In connection with the sale of its aeropsace fastener subsidiary Hi-
Shear Corporation in February 1996, the Company and the purchaser have been
conducting financial reviews dealing with the valuation of certain assets and
liabilities contained in the closing balance sheet of HSC and its related
subsidiaries. To date, the Company and GFI have been unable to reach an
agreement
<PAGE>
HI-SHEAR INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Commitments and Contingencies - (Continued)
on the net asset value with GFI requesting downward adjustments to the sales
price totaling $6.4 million. Management of the Company firmly believes that
the closing balance sheet as presented to GFI is in accordance with the terms
of the Stock Purchase Agreement. The disagreement is being submitted to
arbitration as required under the Stock Purchase Agreement. The parties are
currently in the preliminary stages of selecting an arbitrator. Management
of the Company does not believe that adjustments, if any, resulting from this
arbitration 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 May 31, 1996 financial statements.
The Company is involved in various other actions arising in the normal
course of business with respect to contracts and employment claims.
Management, after taking into consideration legal counsel's evaluation of all
contingent matters believes that the disposition of these matters will not
have a material adverse effect on the Company's financial position, net
income or cash flows.
The Company's operations were conducted from leased facilities, all of
which were under operating leases which expired at various dates through
2004. The Company also had operating leases covering machinery and equipment
which provided for the Company to pay operating expenses. All leases, other
than the lease of corporate office space, were assigned to the purchaser of
HSC or terminated.
In addition to related property taxes and insurance, the Company made
net rental payments of approximately, $950,000, $1,278,000 and $1,260,000, for
the years ended May 31, 1996, 1995 and 1994, respectively. At May 31, 1996
the Company's commitment for future minimum lease payments under a
noncancellable operating leases is $138,000.
Subsequent Event
On August 1, 1996, the Company made an initial liguidating distribution
of approximately $23,400,000 ($4.00 per share) to stockholders of record on
July 25, 1996.
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Summary Of Quarterly Results (Unaudited)
The following summarizes unaudited quarterly financial data for the fiscal
years ended May 31, 1996 and May 31, 1995:
<TABLE>
<CAPTION>
For The Quarter Ended
------------------------------------------------------------
Aug 31, Nov 30, Feb 28, May 31,
1995 1995 1996 1996
-------- -------- -------- --------
(000 Omitted, except per share data)
<S> <C> <C> <C> <C>
Revenues $14,877 $16,264 $15,144 $115
======== ======== ======== ========
Gross profit $2,325 $2,912 $3,198 $649
======== ======== ======== ========
Net incone (loss) ($475) ($199) $1,709 (A) $71
======== ======== ======== ========
Net income (loss) per share $(.08) $(.03) $.29 $.01
======== ======== ======== ========
Aug 31, Nov 30, Feb 28, May 31,
1994 1994 1995 1995
-------- -------- -------- --------
Revenues $13,838 $14,303 $14,461 $16,037
======== ======== ======== ========
Gross profit $2,507 $3,056 $2,847 $3,374
======== ======== ======== ========
Net income (loss) ($328) ($27) ($241) $51
======== ======== ======== ========
Net income (loss) per share ($0.06) $- ($0.04) $0.01
======== ======== ======== ========
(A) Includes an estimated gain on sale of subsidiary of approximately
$2 million which was adjusted in the Fourth Quarter.
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
Name Principal Occupation and Position
- ---- ---------------------------------
Harold L. Bernstein Lawyer. Secretary of the Company.
Director of Pressure Piping
Components, Inc. (until 1985 a
manufacturer of industrial products).
Victor J. Galgano Vice President and Chief Financial Officer
of the Company. Director of Pressure Piping
Components, Inc.
Philip M. Slonim Private investor. Chairman of Pressure
Piping Components, Inc.
David A. Wingate Chairman of the Board, Chief Executive
Officer and President of the Company.
Director of Pressure Piping
Components, Inc.
Arthur M. Winston Investment Manager, Glickenhaus & Co.
Director of Lea Ronal, Inc. (a processor of
chemical specialties for the electronics
and metal finishing industries). Director
of Pressure Piping Components, Inc.
Item 11. Executive Compensation
The following table sets forth the cash compensation for services
rendered to the Company and its subsidiaries during the fiscal years 1996,
1995 and 1994, paid to or accrued for those persons who were, at May 31,
1996, the Company's Chief Executive and all of the other executive officers
of the Company and subsidiaries whose total annual salary and bonus exceeded
$100,000:
<PAGE>
Summary Compensation Table
- --------------------------
Annual
---------------
Compensation
---------------
Salary Bonus
Name and Principal Position Year $ $
- --------------------------- ---- ------ -----
David A. Wingate 1996 $462,000 0
Chairman, President & Chief Executive 1995 458,000 0
1994 458,000 0
Robert A. Schell 1996 175,000 0
Vice President & Chief Operating 1995 175,000 0
Officer/Space and Defense 1994 175,000 0
Victor J. Galgano 1996 162,000 0
Vice President and Chief Financial 1995 150,000 0
Officer 1994 150,000 0
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of August 23, 1996, certain
information concerning the persons known to management to be the beneficial
owners of more than 5% of the Company's common stock, and for all of the
Company's officers and directors as a group. Except as otherwise indicated,
the persons listed have sole voting and investment power with respect to
shares beneficially owned by them.
Percent
of
Name and Address of Amount Common
Beneficial Owner Beneficially Owned Stock
- ------------------- ------------------ -------
GAMCO Investors, Inc. 1,871,390 (1)(2) 31.96%
One Corporate Center
Rye, NY 10580
David A. Wingate 1,181,494(3) 20.18%
3333 New Hyde Park Road
North Hills, NY 11042
Corbyn Invesment Management 645,360(4) 11.02%
2330 West Joppa Rd., Suite 108
Lutherville, MD 21093
Greenspring Fund, Inc. 532,260(4) 9.09%
2330 West Joppa Rd., Suite 110
Lutherville, MD 21093
Philip M. Slonim 446,067(5) 7.62%
P.O. 27835
San Diego, CA 92128
Dimensional Fund Advisors Inc. 406,900(6) 6.95%
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
All directors and officers as a
group 1,676,457 28.63%
--------- ------
<PAGE>
(1) Firm and related entities have investment discretion regarding this
aggregatenumber of shares, which are beneficially owned by many investment
clients.
(2) Share ownership is based upon information in Amendment No. 40 to
Schedule 13D filed with the Securities and Exchange Commission.
(3) Include shares held by Mr. Wingate as the sole trustee of The Wingate
Family Trust of 1980 and shares held by Mr. Wingate's spouse as the sole
trustee of a revocable trust. Does not include 150,000 shares owned by The
David A. & Shoshanna Wingate Foundation Inc. of which Mr. Wingate is one of
four directors.
(4) Share ownership is based upon information in Schedule 13G filed with
the Securities and Exchange Commission.
(5) Mr. Slonim and spouse hold these shares as trustees of a revocable
trust.
(6) Share ownership is based upon information in Amendment No. 7 to
Schedule 13G filed with the Securities and Exchange Commission; the firm
certifies that the shares were not acquired for the purpose of changing or
influencing control of the Company. Shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company,
or the DFA Group Trust, an investment vehicle for qualified employee benefit
plans, both of which Dimensional Fund Advisors Inc. serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements - See "Index to Consolidated
Financial Statements" in Part II Item 8 herein.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are inapplicable, not
required, or the required information is included elsewhere in the financial
statements or notes thereto.
<PAGE>
(a)(3) Exhibits
(3)(a) Certificate of Incorporation of the Company, restated
to include amendments adopted September 30, 1980, filed as an Exhibit to the
Company's Report on Form 10-K filed with the Commission on August 28, 1981
and incorporated herein by reference.
(3)(b) By Laws of the Company, as amended March 27, 1986, filed as an
Exhibit to the Company's Report on Form 10-K filed with the Commission on
August 26, 1986 and incorporated herein by reference.
(10)(a) Contingent Compensation Agreement between the Company and an
executive signed as of December 26, 1985 (updated November 17, 1987), filed
as an Exhibit to the Company's Report on
Form 10-K filed with the Commission on August 26, 1986 and incorporated
herein by reference.
(10)(b) Employment agreement dated October 16, 1989 between the Company
and an executive, filed as an Exhibit to the Company's Report on Form 10-K
filed with the Commission on August 24, 1991 and incorporated herein by
reference.
(22) Subsidiaries of the Company, filed herewith.
All other required exhibits have been previously reported in the
Company's prior 10-K's.
Item 14 (b) Reports on Form 8-K
On March 6, 1996, the Company reported that it had completed the
sale of its aerospace fastener business through the sale of all of the
outstanding stock of its wholly-owned subsidiary, Hi-Shear Corporation to GFI
Industries S.A. of Belfort, France.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended May 31, 1996, 1995 and 1994
Balance Charged to Charged Balance
beginning of costs and to other at end of
Description period expenses accounts Deductions (A) period
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1996:
Valuation adjustment for deferred
income tax assets .................. $7,988 $0 $0 $4,131 $3,857
====================================================================
1995:
Valuation adjustment for deferred
income tax assets ................ $7,139 $0 $849 $0 $7,988
====================================================================
1994:
Valuation adjustment for deferred
income tax assets ................ $0 $0 $7,139 $0 $7,139
====================================================================
(A) Deductions are the result of utilization of net operating loss carryforwards and reversal
of other temporary differences.
</TABLE>
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
State or Country
Subsidiaries of the Company: of Incorporation
- --------------------------- ----------------
Defense Systems Corporation Nevada
HSI Properties, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 000047268
<NAME> HI-SHEAR INDUSTRIES INC.
<MULTIPLIER> 1,000
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