<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 November 30, 1997
Commission file number 1-7633
Hi-Shear Industries Inc.
(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
5,854,618 Common Shares were outstanding as of January 6, 1998.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
INDEX
Page
Number
------
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of
November 30, 1997 and May 31, 1997 1
Consolidated Statements of Operations
for the three and six months ended
November 30, 1997 and 1996 2
Consolidated Statements of Cash Flows
for the six months ended
November 30, 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
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 OMITTED)
------------------------
NOVEMBER 30, MAY 31,
1997 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................... $ 3,359 $ 4,952
Other current assets........................... 341 153
----------- -----------
Total current assets......................... 3,700 5,105
Property and equipment, at cost.................. 226 206
Less: Accumulated depreciation................... (97) (91)
----------- -----------
Net property and equipment....................... 129 115
Other assets..................................... 2,977 2,335
----------- -----------
$ 6,806 $ 7,555
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued income taxes........................... $ 29 $ 40
Other accrued expenses......................... 527 600
----------- -----------
Total current liabilities.................... 556 640
Stockholders' equity:
Common stock................................... 614 614
Paid-in capital................................ 11,153 11,153
Accumulated deficit............................ (2,813) (2,148)
Less treasury stock............................ (2,704) (2,704)
----------- -----------
Total stockholders' equity................... 6,250 6,915
----------- -----------
$ 6,806 $ 7,555
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(000 OMITTED)
---------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
--------- --------- --------- ---------
General and administrative expense........... $ 330 $ 323 $ 769 $ 893
Interest (income)............................ (47) (81) (104) (374)
--------- --------- --------- ---------
Loss Before Income Taxes................... (283) (242) (665) (519)
Provision for (benefit from) income taxes.... 0 0 0 0
--------- --------- --------- ---------
Net Loss................................... $ (283) $ (242) $ (665) $ (519)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding... 5,855 5,855 5,855 5,855
--------- --------- --------- ---------
--------- --------- --------- ---------
Net Loss Per Share of Common Stock........... $ (0.05) $ (0.04) $ (0.11) $ (0.09)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(000 OMITTED)
---------------------
SIX MONTHS ENDED
NOVEMBER 30,
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................................. $ (665) $ (519)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization........................................................... 6 6
Decrease in accrued income taxes........................................................ (11) (12)
Decrease in other accrued expenses...................................................... (73) (388)
Increase in other assets................................................................ (830) (477)
--------- ----------
Net cash used for operating activities................................................ (1,573) (1,390)
--------- ----------
Cash flows from investing activities:
Capital expenditures...................................................................... (20) (31)
--------- ----------
Net cash used for investing activities................................................ (20) (31)
--------- ----------
Cash flows from financing activities:
Liquidating distribution.................................................................. 0 (23,419)
--------- ----------
Net cash used for financing activities................................................ 0 (23,419)
Net decrease in cash and cash equivalents................................................... (1,593) (24,840)
Cash and cash equivalents--beginning of year................................................ 4,952 30,914
--------- ----------
Cash and cash equivalents--end of period.................................................... $ 3,359 $ 6,074
--------- ----------
--------- ----------
</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 (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
capitalizing additional costs incurred, primarily claims preparation and
legal, as claims receivable. At November 30, 1997 and May 31, 1997 claims
receivable of $2.9 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.
Subsequent to the completion of the trial against the U.S. Navy,
certain individuals involved in preparing the case were promised a
discretionary bonus contingent upon the successful recovery of monetary
claims. In this regard, the Company has entered into agreements with two of
these individuals providing for the payment of bonuses totaling 8% of the
claim proceeds recovered.
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<PAGE>
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.
-5-
<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 six month period ended November 30,
1997 and 1996, corporate overhead totaled $769,000 and $893,000,
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 respective periods 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 HiShear Corp-
oration 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 November
30, 1997 the Company had $3.4 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 and its legal counsel
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. However, should this situation continue beyond a reasonable
period of time, other arrangements may become necessary.
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 Securitiei 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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<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
-7-
<PAGE>
SIGNATURES
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/s David A. Wingate
---------------------------
David A. Wingate, Chairman,
President & Chief Executive
By: s/s Victor J. Galgano
---------------------------
Victor J. Galgano, Vice
President
& Chief Financial Officer
Date: January 8, 1998
-8-
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<PAGE>
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 3,359
<SECURITIES> 0
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 3,700
<PP&E> 226
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0
0
<COMMON> 614
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<TOTAL-LIABILITY-AND-EQUITY> 6,806
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<TOTAL-COSTS> 769
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