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.
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.
Item 3.
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.
Item 4. Submission of Matters to a Vote of Security Holders None
PART II
Item 5.
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.
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.
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.
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended May 31, 1996, 1995 and 1994
HI-SHEAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
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,
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
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.
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Inventories
Inventories consist of: May 31, --------------------- ---- (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 ======= ======= =======
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 $ - $ - ======== =======
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 ===== ===== ===== =====
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.
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.
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 ======= ======= =======
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
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.
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:
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:
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% --------- ------
(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
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.