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 $145,000 under a lease which expires May 31, 1998.
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 $93,600 per year. The lease expires May 31, 1999.
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. The government has audited these claims but has not expressed 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. The Board has set a hearing date of April 6, 1998. The hearing is expected to last several weeks after which the Board will render a decision as to the amount of claim damages to be awarded to the Company. See Commitments and Contingencies in the notes to consolidated financial statements.
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 was subject to adjustment based upon a review of the closing consolidated balance sheet of Hi-Shear Corporation and verification of the net asset value. The Company and GFI were unable to reach an agreement on the net asset value with GFI requesting downward adjustments to the sales price totaling $6.4 million. The disagreement was submitted to arbitration as required under the Stock Purchase Agreement. After reviewing material submitted by both parties, the arbitrator decided in favor of the Company and essentially finalized the purchase price at $46 million. See Sale of Subsidiary 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." 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 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 through August 1, 1996. The high and low prices per share for the periods included subsequent to August 1, 1996 were derived from trades executed on the Over-The-Counter Exchange.
Per Common Share Market Price ---------------- High Low ---- ---
Quarter Ended August 1996......................... $6.50 $2.50 November 1996....................... 2.88 2.38 February 1997....................... 2.63 2.38 May 1997............................ 2.91 2.38 ----- ----- Fiscal Year Ended May 31, 1997 $6.50 $2.38 ----- ----- ----- ----- 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 ----- ----- ----- -----
As of August 18, 1997 there were approximately 700 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, 1997. 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.
(A) Includes revenues and income (loss) from operations of HSC through February 26, 1996 at which date HSC was sold. With the completion of this sale, the Company disposed of its last remaining operating assets and effectively ceased operations.
(B) The loss from discontinued operations in fiscal 1994 includes additional expenses, legal costs and an unexpected shortfall in amounts realized from the sale of material and equipment of a discontinued operation. In fiscal 1993 the loss from discontinued operations includes an after-tax provision of $6.2 million ($1.05 per share) to write down the net assets of the discontinued businesses to their estimated realizable values, record estimated transaction costs and report operating results during the phaseout period.
Item 7.
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition
On February 26, 1996, the Company sold its last remaining operating entity, Hi-Shear Corporation and its subsidiaries and effectively ceased operations. The Company had previously disposed of its business activities dealing with space and defense in June 1993 and had since that time been reporting their operating activities as discontinued operations. The results of operations of the Company include the operating activities of Hi-Shear Corporation and subsidiaries through February 26, 1996.
Results of Operations
Fiscal 1997 compared to 1996
The Company had no operating activities subsequent to the sale of Hi-Shear Corporation during fiscal 1996. The $1.8 million of general and administrative costs incurred in fiscal 1997 include professional and other costs associated with the dispute over price adjustment on the sale of Hi-Shear Corporation as well as the ongoing costs necessary to pursue the settlement of the Company's dispute with the U.S. Navy.
The interest income reported in fiscal 1997 was due to interest earned on the investment of the proceeds from the sale of Hi-Shear Corporation. The investable proceeds declined considerably after the initial liquidating distribution to shareholders of approximately $23.4 million on August 1, 1996.
The Company did not record a provision or benefit for federal income taxes due to it's tax loss carryforward position.
Fiscal 1996 compared to 1995
The Company's results of operations were significantly impacted by the shorter period of operating activities due to the sale of Hi-Shear Corporation on February 26, 1996. For the year ended May 31, 1996, the Company recorded a gain (net of transaction costs) on the sale of Hi-Shear Corporation of approximately $1.8 million. Operating income decreased $744,000 from $958,000 in fiscal 1995 to $214,000 in fiscal 1996 due to the shortened operating period as well as continued downward pressure on pricing levels and increasing material and labor costs associated with production.
The interest income reported in fiscal 1996 was due to interest earned on the investment of the proceeds from the sale of Hi-Shear Corporation. Interest expense declined $227,000 from $1.3 million in fiscal 1995 to $1.1 million in the comparable 1996 period due to the repayment of approximately $13 million of amounts outstanding
on the Company's loan agreements with proceeds from the sale of Hi-Shear Corporation.
With the exception of a provision for alternative minimum tax in fiscal 1996 and 1995, the Company did not record a provision or benefit for federal income taxes due to the Company's tax loss carryforward position.
Liquidity and Capital Resources
The Company's principal sources of liquidity have consisted of cash provided by operating activities and, until the sale of Hi-Shear Corporation, bank financing. 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. With the sale of Hi-Shear Corporation the Company no longer had operating businesses and announced its intention to liquidate and distribute the proceeds from the sale of Hi-Shear Corporation 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 ($4.00 per share) on August 1, 1996. Under the terms of the agreement for the sale of Hi-Shear Corporation, the Company was required to maintain working capital of not less than $3,000,000 through March 31, 1997. Subsequent to that date there are no restrictions on Company distributions. At May 31, 1997 the Company had $5.0 million remaining in cash and cash equivalents.
On May 31, 1995 the Company learned that is appeal of the default terminations filed by the Navy with regard to the two contracts being held by a subsidiary, Defense Systems Corporation had been sustained and converted to termination for the convenience of the government. On January 31, 1996 the Company filed damage claims against the U.S. Navy totaling $62.9 million. The government has audited these claims but has not expressed 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. The Board has set a hearing date of April 6, 1998. The hearing is expected to last several weeks after which the Board will render a decision as to the amount of claim damages to be awarded to the Company. It is not certain at this time how long it will take the ASBCA to render its decision or whether the government will try to appeal the Boards decision. Therefore the total amount or timing of the ultimate recovery cannot be predicted at this time.
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 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.
Item 8.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
Page ---- Report of Independent Accountants..................... 8 Consolidated Balance Sheets........................... 9 Consolidated Statements of Operations................. 10 Consolidated Statements of Stockholders' Equity....... 11 Consolidated Statements of Cash Flows................. 12 Notes to Consolidated Financial Statements............ 13
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders Hi-Shear Industries Inc. North Hills, New York
We have audited the accompanying consolidated balance sheets of Hi-Shear Industries Inc. and Subsidiaries as of May 31, 1997 and 1996, and the related consolidated statements of operations,stockholders' equity and cash flows for each of the three years in the period ended May 31, 1997, and the financial statement schedule listed in the Index at Item 14(a)(2) of this form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hi-Shear Industries Inc. and Subsidiaries as of May 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 31, 1997 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
As discussed in the Commitments and Contingencies note to Consolidated Financial Statements, the Company is involved in a dispute with the U.S. Navy regarding the termination of certain contracts. The Company has filed damage claims totaling $62.9 million against the Navy with respect to these contracts, however, a settlement has not been reached and the claims may be contested by the Navy. Therefore, the amount or timing of the recovery cannot be predicted at this time and no recognition of income related to this claim has been made in the consolidated financial statements.
On February 26, 1996, the Company sold its last operating asset and effectively ceased operations. The Company is presently in the process of liquidation, and management's plans in regard to this matter are further discussed in the Summary of Significant Accounting Policies Note to Consolidated Financial Statements.
COOPERS & LYBRAND L.L.P.
Los Angeles, California July 18, 1997
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
See notes to consolidated financial statements.
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to consolidated financial statements.
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MAY 31, 1997, 1996 AND 1995
See notes to consolidated financial statements
HI-SHEAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements
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. 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.
Property and Equipment. Land, equipment and fixtures are carried at cost. For financial reporting purposes, depreciation expense is provided on a straight line basis, using estimated useful lives of 3 to 10 years for equipment and fixtures. 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.
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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 was 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. The Company and GFI were unable to reach an agreement on the net asset value with GFI requesting downward adjustments to the sales price totaling $6.4 million. The disagreement was submitted to arbitration as required under the Stock Purchase Agreement. After reviewing material submitted by both parties, the arbitrator decided in favor of the Company and essentially finalized the purchase price at $46 million. Additionally, under the terms of the agreement for the sale of HSC, the Company was 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.
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 1997 and 1996, the Company had no credit facilities or other loan agreements.
Provision For Income Taxes
The components of the income tax provision are summarized as follows:
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components included in determining the provision for income taxes are shown below:
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, 1997 and 1996 were as follows:
As of May 31, 1997, the Company had a federal net operating loss carryforward of approximately $10,400,000 which expires between 2006 and 2012, state net operating loss carryforward of approximately $5,100,000 expiring between 1998 and 2000 and alternative minimum tax credit carryforward of $369,000 with no expiration.
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 and 1995, the Company incurred total pension costs of approximately $ 365,000 and $532,000, respectively.
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 and $62,000 for the years ended May 31, 1996, and 1995, respectively.
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 and 1995 pension cost for the plan was $150,000 and $197,000, respectively.
Contributions to Hi-Shear Corporation's Deferred Investment Profit Sharing Plan under Section 401(k) of the Internal Revenue Code were $285,000 and $444,000 for the years ended May 31, 1996 and 1995, 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 were $12,000 and $28,000 for the years ended May 31, 1997 and 1996, respectively.
Capital Stock
Common stock outstanding at May 31, 1997 does not include 284,222 shares reserved under the Company's stock option incentive plan. At May 31, 1997, 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 and $1,566,000 for fiscal 1996 and 1995, 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 and 1995, approximately 13% and 17% 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:
HI-SHEAR INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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 and $8,300,000 for the years ended May 31, 1996 and 1995, 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 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, 1997 claims receivable of $2.3 million are included as other long term assets on the balance sheet, as management believes such amounts are reasonable and collectable. 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.
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.
HI-SHEAR INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, $138,000, $950,000 and $1,278,000, for the years ended May 31, 1997, 1996 and 1995, respectively. At May 31, 1997 the Company's commitment for future minimum lease payments under a noncancellable operating leases is $145,000.
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, 1997 and May 31, 1996:
(A) Includes gain on sale of subsidiary of $2,013
(B) Includes revenue, gross profit and income (loss) from operations of HSC through February 26, 1996 at which date HSC was sold. With the completion of this sale, the Company disposed of its last remaining operating assets and effectively ceased operations. As a result of the sale, the Company had no revenue or gross profit during fiscal 1997.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Company
Item 11.
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 1997, 1996 and 1995, paid to or accrued for those persons who were, at May 31, 1997, 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 1997 $325,000 0 Chairman, President & Chief Executive 1996 462,000 0 1995 458,000 0
Robert A. Schell 1997 175,000 0 Vice President & Chief Operating 1996 175,000 0 Officer/Space and Defense 1995 175,000 0
Victor J. Galgano 1997 162,000 0 Vice President and Chief Financial 1996 162,000 0 Officer 1995 150,000 0
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of August 18, 1997, 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. 1,475,690 (1)(2) 25.21% 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 669,950 (4) 11.44% 2330 West Joppa Rd., Suite 108 Lutherville, MD 21093
Philip M. Slonim 446,067 (5) 7.62% P.O. 27835 San Diego, CA 92128
All directors and officers as a group 1,677,218 28.65% --------- ------
(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. 46 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.
Item 13.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14.
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 herein.
(a) (2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are inapplicable, not required, or the required information is included elsewhere in the financial statements or notes thereto.
(a) (3) Exhibits
(3)(a) Certificate of Incorporation of the Company, restated to include amendments adopted September 30, 1980, filed as an Exhibit to the Company's Report on Form 10-K filed with the Commission on August 28, 1981 and incorporated herein by reference.
(3)(b) By Laws of the Company, as amended March 27, 1986, filed as an Exhibit to the Company's Report on Form 10-K filed with the Commission on August 26, 1986 and incorporated herein by reference.
(10)(a) Contingent Compensation Agreement between the Company and an executive signed as of December 26, 1985 (updated November 17, 1987), filed as an Exhibit to the Company's Report on Form 10-K filed with the Commission on August 26, 1986 and incorporated herein by reference.
(10)(b) Employment agreement dated October 16, 1989 between the Company and an executive, filed as an Exhibit to the Company's Report on Form 10-K filed with the Commission on August 24, 1991 and incorporated herein by reference.
(22) Subsidiaries of the Company, filed herewith.
All other required exhibits have been previously reported in the Company's prior 10-K's.
Item 14 (b) Reports on Form 8-K
None.
SCHEDULE II
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the years ended May 31, 1997, 1996 and 1995
(A) Deductions are the result of utilization of net operating loss carryforwards and reversal of other temporary differences.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Company 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 -------------------- David A. Wingate, Chairman, President and Chief Executive
By /s/ Victor J. Galgano --------------------- Victor J. Galgano, Vice President and Chief Financial Officer
August 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
By /s/ Harold L. Bernstein ----------------------- Harold L. Bernstein, Director
August 26, 1997 .................... Date
By /s/ Philip M. Slonim -------------------- Philip M. Slonim, Director
August 26, 1997 ..................... Date
By /s/ Arthur M. Winston --------------------- Arthur M. Winston, Director
August 26, 1997 ..................... Date