<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, 1998
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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 8, 1998.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of
August 31, 1998 and May 31, 1998 .................. 1
Consolidated Statements of Operations
for the three months ended
August 31, 1998 and 1997 .......................... 2
Consolidated Statements of Cash Flows
for the three months ended
August 31, 1998 and 1997 .......................... 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 ................................. 7
Part II. Other Information: ............................................. 7
</TABLE>
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 Omitted)
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August 31, May 31,
1998 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ......................... $ 1,539 $ 2,254
Other current assets ......................... 67 54
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Total current assets ................... 1,606 2,308
Property and equipment, at cost .................. 253 235
Less: Accumulated depreciation ................... (115) (110)
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Net property and equipment ....................... 138 125
Other assets ..................................... 4,070 3,703
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$ 5,814 $ 6,136
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued income taxes ......................... $ 22 $ 25
Other accrued expenses ....................... 344 357
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Total current liabilities .............. 366 382
Stockholders' equity:
Common stock ................................. 614 614
Paid-in capital .............................. 11,153 11,153
Accumulated deficit .......................... (3,615) (3,309)
Less treasury stock .......................... (2,704) (2,704)
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Total stockholders' equity ............. 5,448 5,754
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$ 5,814 $ 6,136
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</TABLE>
See notes to consolidated financial statements.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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Three Months Ended
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August 31,
1998 1997
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<S> <C> <C>
General and administrative expense ................. $ 331 $ 439
Interest (income) .................................. (25) (57)
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Loss Before Income Taxes ....................... (306) (382)
Provision for income taxes ......................... -- --
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Net Loss ....................................... ($ 306) ($ 382)
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Basic and diluted earnings per common share:
Net Loss ....................................... ($ 0.05) ($ 0.07)
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Weighted average common shares outstanding ......... 5,855 5,855
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</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)
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Three Months Ended
August 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................... ($ 306) ($ 382)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization ................. 5 3
Decrease in accrued income taxes .............. (3) (8)
Decrease in other accrued expenses ............ (13) (84)
Increase in other assets ...................... (380) (451)
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Net cash used for operating activities .. (697) (922)
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Cash flows from investing activities:
Capital expenditures ............................... (18) (7)
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Net cash used for investing activities .. (18) (7)
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Net decrease in cash and cash equivalents .............. (715) (929)
Cash and cash equivalents - beginning of period ........ 2,254 4,952
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Cash and cash equivalents - end of period .............. $ 1,539 $ 4,023
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</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, 1998 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, 1998.
With the sale of Hi-Shear Corporation and Subsidiaries ("HSC") on
February 26, 1996, 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. Until that time,
management's plans to continue as a going concern include reducing expenses, the
possible sale of certain property and banks or stockholders' loans, if required.
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. The government audited these
claims but did not express a willingness to negotiate a settlement of these
claims with the Company. As a result, on February 11, 1997, the Company filed an
appeal before the Armed Services Board of Contract Appeals requesting an
adjudication of this dispute. At a hearing which concluded September 17, 1998,
the Board heard evidence regarding this matter and will now consider the facts
brought out at the hearing as well as briefs to be filed by both sides no later
than January 15, 1999 in determining the amount of claim damages to be awarded
to the Company. As a result of the above, 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 by the Armed
Services Board of Contract Appeals, the Company began capitalizing additional
costs incurred, primarily claims preparation and legal costs, as claims
receivable. At August 31, 1998 and May 31, 1998 claims receivable of $3.9
million and $3.5 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
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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 Company employees 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
employees providing tor the payment of bonuses totaling 8% of the claim proceeds
recovered.
Note C - Net Income Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
SFAS No. 128 supersedes and simplified the previous computational guidelines
under APB Opinion No. 15, "Earnings Per Share." 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.
Basic net income (loss) per share is computed by dividing the net
income (loss) attributable to common shareholders by the weighted average number
of common shares outstanding during the period. Diluted net income per share is
computed by dividing the net income (loss) attributable to common shareholders
by the weighted average number of common and common equivalent shares
outstanding during the period. The Company did not have any common equivalent
shares outstanding during the three month periods ended August 31, 1998 and
1997. Net loss per share and weighted-average shares outstanding for the period
ended August 31, 1997 have been restated in accordance with SFAS No. 128.
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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 three month periods ended August 31, 1998 and
1997, corporate overhead totaled $331,000 and $439,000 , 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 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, 1998 the Company had
$1.5 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 normal
recurring 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, the Company believes
it has the ability to acquire additional capital if necessary.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year thus causing
date-sensitive software to recognize a date using "00" as the year 1900 rather
than the year 2000. Since the Company no longer has operating activities,
Management believes that the Year 2000 Issue will not have a material impact on
the financial position, operations or cash flows of the Company.
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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<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
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<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
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David A. Wingate, Chairman,
President & Chief Executive
By: s/s Victor J. Galgano
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Victor J. Galgano, Vice President
& Chief Financial Officer
Date: October 8, 1998
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 1,539
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,606
<PP&E> 253
<DEPRECIATION> 115
<TOTAL-ASSETS> 5,814
<CURRENT-LIABILITIES> 366
<BONDS> 0
614
0
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<TOTAL-LIABILITY-AND-EQUITY> 5,814
<SALES> 0
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<TOTAL-COSTS> 331
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<INTEREST-EXPENSE> (25)
<INCOME-PRETAX> (306)
<INCOME-TAX> 0
<INCOME-CONTINUING> (306)
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<EXTRAORDINARY> 0
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<NET-INCOME> (306)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
