<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM IO-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 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 April 10, 1998.
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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
February 28, 1998 and May 31, 1997 1
Consolidated Statements of Operations
for the three and nine months ended
February 28, 1998 and 1997 2
Consolidated Statements of Cash Flows
for the nine months ended
February 28, 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
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 Omitted)
--------------------------------
February 28, May 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 2,819 $ 4,952
Other current assets 314 153
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Total current assets 3,133 5,105
Property and equipment, at cost 236 206
Less: Accumulated depreciation (101) (91)
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Net property and equipment 135 115
Other assets 3,167 2,335
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$ 6,435 $ 7,555
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued income taxes $ 10 $ 40
Other accrued expenses 512 600
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Total current liabilities 522 640
Stockholders' equity:
Common stock 614 614
Paid-in capital 11,153 11,153
Accumulated deficit (3,150) (2,148)
Less treasury stock (2,704) (2,704)
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Total stockholders' equity 5,913 6,915
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$ 6,435 $ 7,555
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000 Omitted)
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Three Months Ended Nine Months Ended
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February 28, February 28,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
General and administrative expense $ 378 $ 497 $ 1,147 $1,390
Interest (income) (41) (72) (145) (446)
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Loss Before Income Taxes (337) (425) (1,002) (944)
Provision for (benefit from) income taxes 0 0 0 0
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Net Loss ($337) ($425) ($1,002) ($944)
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Basic and diluted earnings per common share:
Net Loss ($0.06) ($0.07) ($0.17) ($0.16)
======================== =======================
Weighted average common shares outstanding 5,855 5,855 5,855 5,855
======================== =======================
</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)
-----------------------
Nine Months Ended
February 28,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,002) ($944)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 10 9
Decrease in accrued income taxes (30) (16)
Decrease in other accrued expenses (88) (415)
Increase in other assets (993) (649)
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Net cash used for operating activities (2,103) (2,015)
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Cash flows from investing activities:
Capital expenditures (30) (31)
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Net cash used for investing activities (30) (31)
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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 (2,133) (25,465)
Cash and cash equivalents - beginning of year 4,952 30,914
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Cash and cash equivalents - end of period $ 2,819 $ 5,449
=======================
</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 February 28,
1998 and May 31, 1997 claims receivable of $3.1 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 tor
the payment of bonuses totaling 8% of the claim proceeds recovered.
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<PAGE>
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 nine month periods ended February
28, 1998 and 1997. Net loss per share and weighted-average shares
outstanding for the period ended February 28, 1997 have been restated in
accordance with SFAS No. 128.
Note D - Impact of Recently Issued Accounting Standards
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 nine month period ended February 28, 1998 and 1997,
corporate overhead totaled $1.1 million and $1.4 million, 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 February 28, 1998 the Company had
$2.8 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.
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/ 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: April 10. 1998
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-8-
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<PAGE>
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<CIK> 0000047268
<NAME> HI-SHEAR INDUSTRIES INC.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 2,819
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,133
<PP&E> 236
<DEPRECIATION> 101
<TOTAL-ASSETS> 6,435
<CURRENT-LIABILITIES> 522
<BONDS> 0
0
0
<COMMON> 614
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,435
<SALES> 0
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<CGS> 0
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<INTEREST-EXPENSE> (145)
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