<PAGE>
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, 1997
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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, 1997.
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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, 1997 and May 31, 1997 1
Consolidated Statements of Operations
for the three months ended
August 31, 1997 and 1996 2
Consolidated Statements of Cash Flows
for the three months ended
August 31, 1997 and 1996 3
Notes to Consolidated Financial
Statements 4
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 6
Part II. Other Information: 7
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000 Omitted)
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August 31, May 31,
1997 1997
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ASSETS
Current assets:
Cash and equivalents $ 4,023 $ 4,952
Other current assets 369 153
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Total current assets 4,392 5,105
Property and equipment, at cost 213 206
Less: Accumulated depreciation (94) (91)
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Net property & equipment 119 115
Other assets 2,570 2,335
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$ 7,081 $ 7,555
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued income taxes $32 $40
Other accrued expenses 516 600
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Total current liabilities 548 640
Stockholders' equity:
Common stock 614 614
Paid-in capital 11,153 11,153
Accumulated deficit (2,530) (2,148)
Less treasury stock (2,704) (2,704)
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Total Stockholders' Equity 6,533 6,915
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$ 7,081 $ 7,555
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See notes to consolidated financial statements.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000 Omitted)
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Three Months Ended
August 31,
1997 1996
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General and administrative expenses 439 570
Interest (income) (57) (293)
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LOSS BEFORE INCOME TAXES (382) (277)
Provision for (benefit from) income taxes 0 0
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NET LOSS ($382) ($277)
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Weighted average common shares outstanding 5,855 5,855
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NET LOSS PER SHARE OF COMMON STOCK ($0.07) ($0.05)
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See notes to consolidated financial statements.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 Omitted)
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Three Months Ended
August 31,
1997 1996
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Cash flows from operating activities:
Net loss ($382) ($277)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 3 2
Decrease in accrued income taxes (8) (9)
Decrease in other accrued expenses (84) (189)
Increase in other assets (451) (227)
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Net cash used for operating activities (922) (700)
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Cash flows from investing activities:
Capital expenditures (7) 0
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Net cash used for investing activities (7) 0
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Cash flows from financing activities:
Liquidating distribution 0 (23,419)
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Net cash used for financing activities 0 (23,419)
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Net decrease in cash and cash equivalents (929) (24,119)
Cash and cash equivalents - beginning of year 4,952 30,914
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Cash and cash equivalents - end of period $ 4,023 $ 6,795
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See notes to consolidated financial statements
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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 and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. The
financial statements presented herein have not been audited by independent
public accountants, but include all material adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial condition, results of operations and cash
flows for such periods. However, these results are not necessarily indicative
of results for any other interim period or for the full year. The consolidated
balance sheet data presented herein for May 31, 1997 was derived from the
Company's audited consolidated financial statements for the fiscal year then
ended. The preparation of financial statements in accordance with generally
accepted accounting principles requires the Company's management to make
certain estimates and assumptions for the reporting periods covered by the
financial statements. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses. Actual amounts could
differ from these estimates. 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, 1997.
Note B - Contingencies
On January 31, 1996, the Company filed damage claims against the U.S.
Navy totaling $62.9 million arising from the termination of two contracts
held by a subsidiary, Defense Systems Corporation. These claims are subject
to government audit and their amount is being contested by the U.S. Navy.
Therefore the 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 uncertainty of the outcome, however, since the
rendering of the favorable decision in May 1995, the Company began accruing
additional costs incurred, primarily claims preparation and legal, as claims
receivable. At August 31, 1997 and May 31, 1997 claims receivable of $2.5
million and $2.3 million, respectively, are included as other long term
assets on the balance sheet, as management believes such amounts are
reasonable and collectable. 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.
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Note C - Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 supersedes and simplifies the existing computational
guidelines under Accounting Principles Board Opinion No. 15, Earnings Per
Share." It is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary EPS and replaces it with basic EPS for which common
stock equivalents are not considered in the computation. It also revises the
computation of diluted EPS. It is not expected that the adoption of SFAS No.
128 will have a material impact on the earnings per share results reported by
the Company under the Company's current capital structure
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which established standards for reporting and display of comprehensive
income and its components. This statement requires a separate statement to
report the components of comprehensive income for each period reported. The
provisions of this statement are effective for fiscal years beginning after
December 15, 1997. Management believes this statement may require expanded
disclosure in the Company's financial statements.
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<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 its subsidiaries and effectively ceased operations.
Since that time , the Company has reduced corporate staff and expenses to a
minimum level. During the first quarter ended August 31, 1997 and 1996,
corporate overhead totaled $439,000 and $570,000, respectively, which consist
primarily of the ongoing costs necessary to pursue the settlement of the
Company's dispute with the U.S. Navy. The interest income reported during the
quarter was due to interest earned on the investment of the proceeds retained
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, 1997 the Company had
$4.0 million remaining in cash and cash equivalents.
The Company's cash requirements include ongoing costs relating to pursuing
the settlement of the Company's dispute with the U.S. Navy and 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 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.
Forward Looking Statements
The statements in this Management's Discussion and Analysis which are not
historical fact are forward looking statements that are made pursuant to the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
The statements are subject to risks and uncertainties, including, but not
limited to uncertainties surrounding the Company's dispute with the U.S. Navy
which could cause actual results to vary materially from those discussed herein
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
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None
Item 2. Changes in Securities
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None
Item 3. Default Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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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 6, 1997
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