Hi Shear Industries Inc – ‘10-K’ for 5/31/95

As of:  Tuesday, 8/29/95   ·   For:  5/31/95   ·   Accession #:  950112-95-2288   ·   File #:  1-07633

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Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Hi-Shear Industries Inc.                              27    141K 
 2: EX-22       Published Report Regarding Matters Submitted to a      1      5K 
                          Vote of Security Holders                               
 3: EX-23       Consent of Experts or Counsel                          1      6K 
 4: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K 

10-K   —   Hi-Shear Industries Inc.
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------- 
FORM 10-K 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended May 31, 1995    Commission file number 1-1499 

HI-SHEAR INDUSTRIES INC.

A DELAWARE CORPORATION            I.R.S. EMPLOYER IDENTIFICATION  
                                NO. 11-2406878

3333 NEW HYDE PARK ROAD, NORTH HILLS, NY 11042
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 627-8600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: 

                               NAME OF EACH EXCHANGE
TITLE OF EACH CLASS                   ON WHICH REGISTERED       
------------------------------------  ------------------------------------      
Common Stock, $.10 par value            New York Stock Exchange         

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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 and (2) has been subject to such filing     
requirements for the past 90 days. Yes __X__ No _____                           

  On August 18, 1995, 5,854,618 shares of the Registrant's Common Stock were
outstanding. Of these shares, 1,675,457 shares were held by persons who may be  
deemed to be affiliates. The aggregate market value (based on the closing price 
of these shares on the New York Stock Exchange of $7.88 a share) of the         
4,179,161 shares held by non-affiliates of the registrant was $32,911,000.      

DOCUMENTS INCORPORATED BY REFERENCE 

   Portions of the Proxy Statement for the 1995 Annual Meeting of Stockholders
of Registrant                                                                   
(Part III).                                                                     

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PART I

ITEM 1. BUSINESS                                                                

(a) General Development of Business General Development of Business         

HI-SHEAR INDUSTRIES INC., a Delaware corporation organized in 1976, is  
engaged primarily in the manufacture and sale of high technology Aerospace      
Fastening Systems products through its wholly-owned subsidiary, Hi-Shear        
Corporation. Unless the context indicates otherwise, the term "Company" in this 
report refers to Hi-Shear Industries Inc. and its consolidated subsidiaries.    

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 Defense Systems Corporation 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.                                       

(b) Narrative Description of Business                                       

    The Company, through Hi-Shear Corporation ("HSC"), designs, manufactures and
markets a wide variety of high performance fasteners for use in the aerospace   
industry. HSC is a leading designer and manufacturer of advanced structural     
aerospace fasteners and installation tools which have been chosen and designed  
into commercial and military aircraft manufactured by The Boeing Company, Airbus
Industries, McDonnell Douglas Corp., Lockheed Corp., Northrop Grumman           
Corporation, LTV Corporation and other major aircraft manufacturers. HSC's      
proprietary and non-proprietary products include threaded pins, torque-installed
collars, internally and externally wrenched bolts, nuts, blind bolts and        
installation tools. The fasteners are made from titanium and various other      
alloys to exacting specifications in order to withstand temperature extremes,   
high tensile loads and vibration stresses. HSC's fasteners are employed to join 
major structural components and in other high performance applications.         
Specialized engineering, metallurgical and production skills are utilized to    
meet these specifications and the rigid quality controls they demand.           

The principal proprietary fastener lines developed by this subsidiary   
include the following items:                                                    

Hi-Lite(R)--The Hi-Lite(R) system, which was introduced into the
  marketplace in fiscal 1985, offers substantial weight savings and improved
performance characteristics while offering the customer a wide choice of
collars which may be used with a common pin. The Hi-Lite(R) system is   
 qualified at major airframe manufacturers and has gained widespread usage
and acceptance by HSC's customers.                                      

   Hi-Lok(R)/Hi-Tigue(R)--The Hi-Lok(R) fastening system, designed and
introduced by HSC in 1957, is by far the largest selling structural     
    fastening system in the industry. It ensures the proper and safe assembly of
aircraft components by making it extremely difficult to over or under   
tighten the fasteners during the installation process. The product is a 
    threaded fastener system which incorporates the best features of a rivet and
 a bolt, in combination with a highly developed and automated installation
  process. Hi-Lok(R) collars are designed to separate into sections when the
 proper torsional stress is applied to the collar during installation. The
Hi-Tigue(R) incorporates the features of the Hi-Lok(R) pin and frangible
    collar to control preload. In addition, the Hi-Tigue(R) pin is designed with
  a special shape which makes the concept ideally suited for cases where the
pin must be forced into the hole. Upon installation, the Hi-Tigue(R)    
 pre-stresses the material of the structure surrounding the pin, providing
increased fatigue life for the joint.                                   

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HSC, through its wholly owned subsidiary Hi-Shear Automotive Corp., also
produces proprietary brake cable tension adjusters and wheel bearing retainer   
nuts for the automotive and light truck industry.                               

MARKETING AND CUSTOMERS                                                         

 The Company's marketing organization consists of sales engineers who work
with prime contractors and government agencies and their design and process     
engineers, production employees and procurement personnel; successful marketing 
of the Company's products requires close and constant contact with customers.   

HSC's aircraft fastener products are marketed as complete systems which 
include both fasteners and installation tooling. Generally, a fastener system is
selected based on technical performance, weight and installed cost. Frequently, 
the system's ability to be installed in limited access areas of the structure   
dictates systems selection. Marketing efforts are initially focused on          
design-level acceptance of a fastening system without a particular program. The 
process of acquiring approval for a fastening system at this level may require  
several years. After a system has been specified for use in a particular        
program, marketing emphasis shifts to normal sales calls and order requests. HSC
employs a direct sales force of fifteen individuals, with eleven sales engineers
deployed in the field, three located in its Torrance, California office and one 
located in Rugby, England. In addition to direct sales and customer service, HSC
maintains relationships with nine official distributors who specialize in       
aerospace components supplies. HSC's marketing and sales activities worldwide   
are under the direction of the Torrance, California office. Original equipment  
manufacturers (e.g. The Boeing Company, McDonnell Douglas Corp., etc.) and the  
United States Government represent approximately 36% of annual fastener sales,  
while distributors represent the remainder.                                     

    Approximately 33% of the Company's consolidated net sales for the year ended
May 31, 1995 were to airframe manufacturers for use in various aircraft         
programs, 5% directly to, or to prime contractors directly for, the United      
States Government, 21% to commercial non-aerospace customers and the remaining  
41% to various airframe subcontractors and other customers. Sales during the    
year ended May 31, 1995 represented approximately 700 accounts and approximately
44% of consolidated net sales were to the Company's five largest customers.     
Approximately 17%, 11% and 6% of consolidated net sales during the fiscal year  
were to purchasing entities of The Boeing Company, British Aerospace, and Wesco 
Aircraft, respectively.                                                         

COMPETITION                                                                     

    There are two basic aircraft fastening systems in HSC's primary market, each
represented by several manufacturers which are in direct competition. HSC's     
concepts (Hi-Lok(R)/Hi-Tigue(R)/Hi-Lite(R)) depend on threaded pins and collars 
while the second basic system incorporates a grooved pin with a cylindrical     
collar which is swaged (pressed) into the pin grooves during the installation.  
Both systems have been approved at the design level and there are multiple      
sources for each system. The Hi-Lok(R)/Hi-Lite(R) systems developed by HSC      
remains the more broadly used of the two concepts because the parts are more    
easily installed in areas of limited access.                                    

    Manufacturers in the industry compete on the basis of price (particularly on
large titanium orders), quality, delivery and system design. Competition within 
the aerospace fasteners market is mainly concentrated among less than a dozen   
manufacturers.                                                                  

PATENTS AND LICENSES                                                            

 HSC presently owns or controls many United States and foreign patents and
has filed applications for additional patents which relate with varying degrees 
of significance to products manufactured or employed in aerospace and automotive
fastening systems. In addition it produces certain products under licenses from 
others. While it is believed that the existing patents and applications are of  
material value,                                                                 

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it is also believed that technical knowledge, experience, skill in development  
and production, and the specialized machinery required for production of        
sophisticated fasteners and tools are of material significance in maintaining a 
competitive position. Patents relating to Hi-Lok(R) expired in 1985 and Hi-     
Tigue(R) systems expired in 1988. However, due to the success of the Hi-Lite(R) 
system management does not expect the Company to be significantly affected by   
patent expirations in the near future.                                          

   Historically, the aerospace fastener market has supported two basic classes
of fastener systems, proprietary and standard systems. HSC has developed many   
proprietary products and there are various licenses with other companies under  
some or all of the HSC patents, technical know-how and Hi-Lok(R) and Hi-Tigue(R)
trademarks to manufacture, use and sell fasteners; HSC recorded approximately   
$1.2 million in royalty income under these licenses during the year ended May   
31, 1995 compared with $1.1 million in the prior fiscal year. Unless terminated 
earlier, the technical know-how and trademark licenses continue to pay royalties
but the patent licenses and related royalties expire with respective patents. In
addition, the Hi-Lite(R) system is covered by two issued patents and one        
divisional patent which is pending. The Hi-Lite(R) patent will continue beyond  
the year 2000. Royalty income is expected to be slightly below current levels in
fiscal 1996.                                                                    

MANUFACTURING AND PRODUCTION                                                    

    Fastener production requires the use of various machine tools, including hot
and cold headers, trimmers, pointers, presses, thread rollers, screw machines,  
lathes and precision grinders. The production process includes various cleaning,
plating and heat treating operations and numerous quality assurance inspections.
Aerospace fasteners are manufactured from a variety of materials including      
stainless, carbon and alloy steels, aluminum, titanium, nickel base and other   
high temperature alloys. A constant desire to reduce aircraft weight and improve
operating performance has increased the demand for titanium fasteners. All raw  
materials are readily available from multiple sources and are usually purchased 
domestically. HSC has not experienced any significant disruption of its         
operation as a result of energy or material shortage although no representation 
can be made as to the possible impact of shortages of this nature which may     
arise in the future as well as the possible impact of government controls such  
as allocation, rationing or import restrictions.                                

ENGINEERING AND PRODUCT DEVELOPMENT                                             

 These activities include development engineering, product engineering and
sales support and a continuing engagement in the development of new fastening   
systems, new applications for existing products and problem solving capability  
in the highly technical aspects of separation, initiation and actuation systems.
At present, almost all of HSC's products have been conceived and developed in-  
house by their respective engineering departments. Expenditures for these       
activities which are expensed by the Company as incurred amounted to $1.2       
million, $1.0 million, and $1.3 million, for the years ended May 31, 1995, 1994 
and 1993, respectively.                                                         

FOREIGN OPERATIONS                                                              

HSC manufactures its principal product line and markets its full line of
fastening systems in Europe through its wholly-owned subsidiary, Hi-Shear       
Fasteners Europe Ltd., located in Rugby, England. Certain products are          
manufactured by HSC in the United States and exported from the United States to 
foreign customers; the dollar value of goods exported from the United States to 
foreign customers was $8.3 million, $7.2 million and $14.6 million, for the     
years ended May 31, 1995, 1994 and 1993, respectively. Revenues of Hi-Shear     
Fasteners Europe Ltd. to unaffiliated customers were $12.1 million, $10.3       
million and $13.4 million, for the years ended May 31, 1995, 1994 and 1993,     
respectively.                                                                   

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BACKLOG                                                                         

Backlog, consisting of unfilled purchase orders with scheduled delivery 
dates and therefore believed to be firm and excluding backlog that is not       
reasonably expected to be filled within the subsequent year, for continuing     
operations was approximately $23.5 million at May 31, 1995, $23.8 million at May
31, 1994 and $32.5 million at May 31, 1993.                                     

BUSINESS FLUCTUATIONS                                                           

   The Company's businesses are not seasonal in nature. However, the Aerospace
Fastening Systems segment is cyclical in nature as it depends on the rate of the
new aircraft production for both commercial and military applications. The rate 
of commercial aircraft production, which was severely depressed during the      
period 1974 to early 1977, began to improve during late 1977 and continued to   
increase during 1978 through 1980. Commercial aircraft production decreased     
during 1981 through mid-1984 due to reduced orders and cancellations related to 
losses incurred by domestic and international airlines as well as the emergence 
of newer fuel efficient designs and the extended building period required to    
attain full production capabilities. The effects of the 1981-1984 decline in    
commercial aircraft production were somewhat moderated by increased military    
expenditures in both segments of the Company's business. There was a significant
improvement in the number of commercial jet transport orders from 1985 to 1991  
which resulted in additional increases in the production of commercial jet      
aircraft.                                                                       

    At present, the Company is experiencing a decline in the level of commercial
aircraft order activity. The economic downturn has prompted the world's airlines
to curtail orders of commercial aircraft. The depressed rate of new orders is   
expected to continue through calendar 1995 and most likely into 1996. U.S. and  
foreign airlines are forecasted to experience 5 to 6 percent growth rates in    
passenger travel over the next 15 to 20 years.                                  

WORKING CAPITAL PRACTICES                                                       

    The Company generates the most significant part of its sales from production
against firm orders, rather than from inventory stock, although there are, at   
certain times, standard items that are produced for inventory. Sales terms to   
its customers are consistent with industry practices.                           

ENVIRONMENT/ENERGY/GOVERNMENT REGULATION                                        

   Compliance with Federal, state and local laws and regulations pertaining to
the discharge of materials into the environment or otherwise relating to the    
protection of the environment has not had and is not anticipated to have any    
material effect on the capital expenditures, earnings or competitive position of
the Company. Additional information regarding these matters is provided in the  
Commitments and Contingencies footnote in the Notes to Consolidated Financial   
Statements.                                                                     

   The Company, as is common with many manufacturers, has expended, and can be
expected to expend in the future, modest amounts for investigation of           
environmental conditions and installation of environmental control facilities,  
remediation of environmental conditions and other similar matters.              

    The Company has not experienced any significant disruption of its operations
as a result of any energy or material shortages although no representation can  
be made as to the possible impact of shortages of this nature which may arise in
the future as well as the possible impact of governmental controls such as      
allocation, rationing or import restrictions.                                   

EMPLOYEES                                                                       

Approximately 625 persons are employed by the Company's continuing      
operations, none of whom are covered by a collective bargaining agreement.      
Management believes that, in general, wages,                                    

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bonuses, fringe benefits and other conditions of employment offered throughout  
the Company are equivalent to those found elsewhere in similar business         
operations.                                                                     

ITEM 2. PROPERTIES                                                              

HSC's fastener operations are conducted at a number of buildings in     
Torrance, California (288,000 square feet) located on approximately 26 acres of 
land leased from the City of Torrance, under leases expiring in 2004 at an      
annual rental rate of $8,800. Approximately 6 acres of the land are surplus and 
can be used for future expansion. Title to this land was acquired by the City of
Torrance from the United States under a deed containing certain conditions which
could result in reversion of the property. However, it is believed that there is
no likelihood of this occurring during the period of occupancy. At expiration or
termination of the lease, all interest in the buildings located on the leased   
premises will terminate.                                                        

   HSC's European facility is located in Rugby, England. The facility consists
of a 56,300 sq. ft. building leased for approximately $266,000 per year. The    
lease will expire in 2004.                                                      

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 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.                                                                           

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 learned that its appeal   
had been sustained. This decision releases the Company from any obligation to   
repay progress payments received under the contracts. See Commitments and       
Contingencies in the notes to the financial statements.                         

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                     

None                                                                    

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PART II 

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS   

    The Company's Common Stock is 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.                                                      

                                                        [Enlarge/Download Table]

                                                                                PER COMMON  
                                                                                  SHARE     
                                                                              --------------
                                                                               MARKET PRICE 
                                                                              --------------
                                                                              HIGH      LOW 
                                                                              -----    -----
                                                                                            
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
                                                                              -----    -----
                                                                              -----    -----
Quarter Ended                                                                               
  August 1993................................................................ $5.88    $4.88
  November 1993..............................................................  5.75     4.38
  February 1994..............................................................  5.38     3.75
  May 1994...................................................................  6.63     4.63

Fiscal Year Ended May 31, 1994............................................... $6.63    $3.75
                                                                              -----    -----
                                                                              -----    -----

The Company has not paid a dividend on common stock since August 1990.  

   As of August 23, 1995 there were approximately 900 holders of record of the
Company's Common Stock.                                                         

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, 1995. 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.     

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                                                        [Enlarge/Download Table]

                                                     FOR THE FISCAL YEAR ENDED MAY 31,           
                                            ---------------------------------------------------- 
                                             1995       1994       1993       1992        1991   
                                            -------    -------    -------    -------    -------- 
                                                (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)     
                                                                                                 
SELECTED STATEMENT OF OPERATIONS DATA:                                                           
Revenues from continuing operations........ $58,639    $56,465    $71,519    $88,113    $104,873 
                                            -------    -------    -------    -------    -------- 
                                            -------    -------    -------    -------    -------- 
Earnings (loss) from continuing                                                                  
operations................................. $  (545)   $(2,974)   $  (943)   $ 1,666    $  8,034 
Earnings (loss) from discontinued                                                                
operations(A)..............................   --        (2,616)    (7,312)       442     (25,667)
Earnings from extraordinary item (B).......   --         --         --           240       --    
                                            -------    -------    -------    -------    -------- 
Net earnings (loss)........................ $  (545)   $(5,590)   $(8,255)   $ 2,348    $(17,633)
                                            -------    -------    -------    -------    -------- 
                                            -------    -------    -------    -------    -------- 
Weighted Average Shares Outstanding........   5,855      5,855      5,855      5,855       5,855 
                                            -------    -------    -------    -------    -------- 
                                            -------    -------    -------    -------    -------- 
PER COMMON SHARE DATA:                                                                           
Earnings (loss) from continuing                                                                  
operations................................. $  (.09)   $  (.51)   $  (.16)   $   .28    $   1.37 
Earnings (loss) from discontinued                                                                
  operations (A)...........................   --          (.45)     (1.25)       .08       (4.38)
Earnings from extraordinary item (B).......   --         --         --           .04       --    
                                            -------    -------    -------    -------    -------- 
Net earnings (loss)........................ $  (.09)   $  (.96)   $ (1.41)   $   .40    $  (3.01)
                                            -------    -------    -------    -------    -------- 
                                            -------    -------    -------    -------    -------- 
Dividends per Common Share.................   --         --         --         --       $   .055 
                                            -------    -------    -------    -------    -------- 
                                            -------    -------    -------    -------    -------- 
                                                        [Enlarge/Download Table]

                                                                AS OF MAY 31,                   
                                             ---------------------------------------------------
                                              1995       1994       1993       1992       1991  
                                             -------    -------    -------    -------    -------
                                                (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)    
                                                                                                
SELECTED BALANCE SHEET DATA:                                                                    
Current assets.............................. $34,846    $35,659    $44,324    $54,253    $62,447
Current liabilities.........................  12,563     12,013     24,025     14,282     14,713
Working capital.............................  22,283     23,646     20,299     39,971     47,734
Total assets................................  49,514     49,115     58,826     71,225     74,453
Long-term debt..............................   9,872      9,953      --        12,662     16,530
Stockholders' equity........................  27,079     27,149     34,801     44,171     41,598

------------                                                                    

(A) The loss from discontinued operations in fiscal 1994 includes additional    
    expenses, legal costs and an unexpected shortfall in amounts realized in the
  sale of material and equipment of a discontinued operation. In fiscal 1993
and 1991 the loss from discontinued operations includes an after-tax    
provision of $6.2 million ($1.05 per share) and $22.4 million ($3.83 per
share) respectively, 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.

(B) Extraordinary item represents the income tax benefit from the utilization of
an operating loss carryforward.                                         

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND       
FINANCIAL CONDITION                                                             

 The Company disposed of its last remaining business activity dealing with
space and defense in June 1993 and is now primarily engaged in the manufacture  
and sale of commercial aerospace fastening systems and components.              

RESULTS OF CONTINUING OPERATIONS                                                

  Revenues from continuing operations increased slightly to $58.6 million in
fiscal 1995 after having declined 21% to $56.5 million in fiscal 1994 and 19% to
$71.5 million in 1993. The current year increase is due to a stabilization in   
build rates experienced in the commercial airframe manufacturing industry       

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after several years of substantial reduction in both order levels and build     
rates. Over the past several years, this reduced order activity has led to      
severe pricing pressures within the aircraft fastener market. Lower levels of   
unit pricing combined with increased manufacturing costs associated with        
inefficient production levels resulted in an operating loss of $1.9 million in  
fiscal 1994 after a small profit of $277,000 in fiscal 1993. The operating      
income achieved in fiscal 1995 of $958,000 was the direct result of a cost      
reduction program instituted by the Company early in this fiscal year. The      
program resulted in cost savings of approximately $1.8 million. An extensive    
manufacturing reorganization effort currently underway, together with additional
cost savings, is expected to stabilize operations and lead to acceptable        
operating profit margins.                                                       

 The interest income reported in fiscal 1993 and 1994 was primarily due to
tax refunds received during those years. Interest expense increased in the      
current fiscal period after having declined in fiscal 1993 and 1994 due to an   
increase in borrowing rates experienced during the current period. The overall  
level of borrowing has remained fairly constant over the last two fiscal periods
after having declined in fiscal 1993.                                           

    With the exception of a provision for alternative minimum tax in the current
period, the Company did not record a provision or benefit for federal income    
taxes in any fiscal period presented due to the Company's tax loss carryforward 
position.                                                                       

RESULTS OF DISCONTINUED OPERATIONS                                              

    In June 1993, the Company completed the sale of Hi-Shear Technology Corp. to
a corporation led by two managers of that former subsidiary. This corporation,  
together with Defense Systems Corporation, which had previously discontinued    
operations in 1991, comprise the Company's discontinued operations. The 1993    
loss from discontinued operations of $7.3 million included a provision of $6.2  
million for the disposal of Hi-Shear Technology Corporation. The 1994 loss from 
discontinued operations of $2.6 million consisted of an addition to the reserve 
previously established in 1991 for the closing of Defense Systems Corp. This    
charge was due to additional expenses and legal costs incurred in maintaining   
the personnel and facilities required to pursue legal remedies regarding        
termination of two contracts with the US Navy as well as an unexpected shortfall
in amounts realized in the sale of material and equipment. On May 31, 1995, the 
Company was notified that its appeal of the default termintations filed by the  
Navy with regard to these contracts had been sustained and converted to         
terminations for the convenience of the government. Although the Navy has a     
period of time in which to appeal , the Company firmly believes that this       
decision will prevail and is currently preparing a settlement proposal to       
recover contract costs as well as costs incurred in defending its position. See 
Commitments and Contingencies in the Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company, through a subsidiary, maintains a revolving credit and term
loan facility primarily to provide working capital for the domestic aerospace   
fastening operation. This facility extends until May 1997 with a two year       
renewal option. At May 31, 1995 the amount outstanding under this facility was  
$10,992,000, a slight reduction from 1994's year end balance. A U.K. subsidiary 
also maintains a separate $2.4 million working capital term loan facility which 
had a year end balance outstanding of $715,000.                                 

  Working capital at May 31, 1995 was $22,283,000 compared to $23,646,000 at
May 31, 1994. The decrease is due primarily to a reduction in the level of      
inventories as well as the utilization of the short term loan facility by our   
U.K. subsidiary. Cash generated from these activities has been used to satisfy  
operating and capital expenditure requirements.                                 

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The Company believes that cash flow from operations and available credit
facilities will provide sufficient liquidity to meet working capital, capital   
expenditure and other ongoing business requirements. Capital expenditures,      
consisting primarily of plant modifications and the normal upgrading and        
replacement of existing machinery and equipment, were $1.6 million in fiscal    
1995. With the extensive manufacturing reorganization effort currently underway,
capital expenditures are expected to increase to $3.5 million in fiscal 1996.   
The Company's performance is dependent to a significant extent on commercial    
airline build and order rates. Operations over the past several years have been 
significantly affected by the sharp decline in the commercial airline industry. 
Although this industry has recently shown signs of improvement, the Company     
expects difficult operating conditions to continue over the near term. We are   
continuing in our efforts to reduce production costs and overhead levels and    
improve the efficiency of our manufacturing operations.                         

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 

                                                        [Enlarge/Download Table]

                                                                                       PAGE
                                                                                       ----
                                                                                           
Report of Independent Accountants.....................................................  10 
Consolidated Balance Sheets...........................................................  11 
Consolidated Statements of Operations.................................................  12 
Consolidated Statements of Stockholders' Equity.......................................  13 
Consolidated Statements of Cash Flows.................................................  14 
Notes to Consolidated Financial Statements............................................  15 

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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, 1995 and 1994, and the related   
consolidated statements of operations,stockholders' equity and cash flows for   
each of the three years in the period ended May 31, 1995, 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, 1995 and 1994, and the           
consolidated results of their operations and their cash flows for each of the   
three years in the period ended May 31, 1995 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, on May 31, 1995, the Company was notified that its appeal 
was successful regarding the default for terminations filed by the Navy related 
to certain contracts and that the contracts had been converted to terminations  
for the convenience of the government. The Navy has 120 days to appeal the      
decision and therefore, the ultimate outcome is not certain at this time. No    
provision for liability, if any, that may result upon a successful appeal by the
Navy has been made in the consolidated financial statements.                    

As discussed in the Summary of Significant Accounting Policies note to  
Consolidated Financial Statements, the Company changed its method of accounting 
for income taxes effective June 1, 1993.                                        

                            COOPERS & LYBRAND L.L.P.

Los Angeles, California                                                         
August 4, 1995                                                                  

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                                              MAY 31,        
                                                                        -------------------- 
                                                                          1995        1994   
                                                                        -------------------- 
                                                                           (000 OMITTED)     
                                                                                             
    ASSETS                                                                                   
Current assets:                                                                              
  Cash and equivalents................................................. $    636    $    940 
  Accounts receivable..................................................    9,879       9,976 
  Inventories..........................................................   22,821      23,417 
  Other................................................................    1,510       1,326 
                                                                        --------    -------- 
        Total current assets...........................................   34,846      35,659 
Property, plant and equipment, at cost:                                                      
  Land.................................................................       80          80 
  Buildings and improvements...........................................    5,547       5,505 
  Machinery, equipment and fixtures....................................   21,580      19,648 
                                                                        --------    -------- 
                                                                          27,207      25,233 
  Less, accumulated depreciation and amortization......................  (16,067)    (13,824)
                                                                        --------    -------- 
                                                                          11,140      11,409 
Other assets...........................................................    3,528       2,047 
                                                                        --------    -------- 
        Total assets................................................... $ 49,514    $ 49,115 
                                                                        --------    -------- 
                                                                        --------    -------- 
    LIABILITIES AND STOCKHOLDERS' EQUITY                                                     
Current liabilities:                                                                         
  Notes payable........................................................ $  1,835    $  1,121 
  Accounts payable.....................................................    2,851       2,668 
  Accrued income taxes.................................................      145         188 
  Accrued salaries and wages...........................................    1,607       1,601 
  Other accrued expenses...............................................    6,125       6,435 
                                                                        --------    -------- 
        Total current liabilities......................................   12,563      12,013 
Long-term debt.........................................................    9,872       9,953 
Commitments and contingencies                                                                
Stockholders' equity:                                                                        
  Capital stock:                                                                             
    Preferred stock, $1 par value: authorized 500,000 shares; none                           
      issued...........................................................    --          --    
    Common stock, $.10 par value: authorized 10,000,000 shares; issued                       
      6,139,756 shares.................................................      614         614 
    Paid-in capital....................................................   34,572      34,572 
    Accumulated deficit................................................   (1,971)     (1,426)
    Cumulative translation, pension and other adjustments..............   (3,432)     (3,907)
    Less treasury stock, at cost (285,138 shares)......................   (2,704)     (2,704)
                                                                        --------    -------- 
                                                                          27,079      27,149 
                                                                        --------    -------- 
        Total liabilities and stockholders' equity..................... $ 49,514    $ 49,115 
                                                                        --------    -------- 
                                                                        --------    -------- 

See notes to consolidated financial statements. 

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                                     YEARS ENDED MAY 31,      
                                                                ----------------------------- 
                                                                 1995       1994       1993   
                                                                -------    -------    ------- 
                                                                     (000 OMITTED EXCEPT      
                                                                       PER SHARE DATA)        
                                                                                              
Revenues:                                                                                     
  Net sales.................................................... $57,484    $55,332    $69,923 
  Other........................................................   1,155      1,133      1,596 
                                                                -------    -------    ------- 
                                                                 58,639     56,465     71,519 
                                                                -------    -------    ------- 
Cost of goods sold.............................................  46,855     46,979     59,714 
Selling, general and administrative expenses...................  10,826     11,361     11,528 
                                                                -------    -------    ------- 
                                                                 57,681     58,340     71,242 
                                                                -------    -------    ------- 
        Operating income (loss)................................     958     (1,875)       277 
Interest income................................................       6        100        196 
Interest expense...............................................  (1,298)    (1,039)    (1,178)
                                                                -------    -------    ------- 
        Loss from continuing operations before income taxes....    (334)    (2,814)      (705)
Provision for income taxes.....................................     211        160        238 
                                                                -------    -------    ------- 
        Loss from continuing operations........................    (545)    (2,974)      (943)
Loss from discontinued operations (net of income taxes)........   --        (2,616)    (7,312)
                                                                -------    -------    ------- 
        Net loss............................................... $  (545)   $(5,590)   $(8,255)
                                                                -------    -------    ------- 
                                                                -------    -------    ------- 
Weighted average Common shares outstanding.....................   5,855      5,855      5,855 
                                                                -------    -------    ------- 
Loss per share from continuing operations...................... $ (0.09)   $ (0.51)   $ (0.16)
Loss per share from discontinued operations....................   --         (0.45)     (1.25)
                                                                -------    -------    ------- 
        Net loss per share..................................... $ (0.09)   $ (0.96)   $ (1.41)
                                                                -------    -------    ------- 
                                                                -------    -------    ------- 

See notes to consolidated financial statements. 

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
YEARS ENDED MAY 31, 1995, 1994 AND 1993 

                                                        [Enlarge/Download Table]

                                                                      CUMULATIVE                      
                                                                      TRANSLATION,                    
                                 COMMON STOCK             RETAINED    PENSION AND    TREASURY STOCK   
                               ----------------  PAID-IN  EARNINGS       OTHER      ----------------- 
                               SHARES    AMOUNT  CAPITAL  (DEFICIT)   ADJUSTMENTS   SHARES    AMOUNT  
                               ------    ------  -------  --------    -----------   ------    ------- 
                                                          (000 OMITTED)                               
                                                                                                      
Balance, May 31, 1992.........  6,140     $614   $34,572  $ 12,419      $  (730)     (285)    $(2,704)
Unrealized foreign currency                                                                           
translation adjustments.......   --       --       --        --            (871)     --         --    
Net loss......................   --       --       --       (8,255)      --          --         --    
Pension adjustment............   --       --       --        --            (244)     --         --    
                               ------    ------  -------  --------    -----------   ------    ------- 
Balance, May 31, 1993.........  6,140      614    34,572     4,164       (1,845)     (285)     (2,704)
Unrealized foreign currency                                                                           
translation adjustments.......   --       --       --        --            (176)     --         --    
Net loss......................   --       --       --       (5,590)      --          --         --    
Pension adjustment............   --       --       --        --          (1,886)     --         --    
                               ------    ------  -------  --------    -----------   ------    ------- 
Balance, May 31, 1994.........  6,140      614    34,572    (1,426)      (3,907)     (285)     (2,704)
Unrealized foreign currency                                                                           
translation adjustments.......   --       --       --        --             378      --         --    
Net loss......................   --       --       --         (545)      --          --         --    
Pension adjustment............   --       --       --        --              97      --         --    
                               ------    ------  -------  --------    -----------   ------    ------- 
Balance, May 31, 1995.........  6,140     $614   $34,572  $ (1,971)     $(3,432)     (285)    $(2,704)
                               ------    ------  -------  --------    -----------   ------    ------- 
                               ------    ------  -------  --------    -----------   ------    ------- 

See notes to consolidated financial statements

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HI-SHEAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                     YEARS ENDED MAY 31,       
                                                               ------------------------------- 
                                                                 1995        1994       1993   
                                                               --------    --------    ------- 
                                                                        (000 OMITTED)          
                                                                                               
Cash flows from operating activities:                                                          
Net loss...................................................... $   (545)   $ (5,590)   $(8,255)
Adjustments to reconcile net loss to net cash provided by                                      
  operating activities:                                                                        
  Depreciation and amortization...............................    2,006       2,686      2,388 
  Deferred income taxes                                                                        
  Loss from discontinued operations...........................    --          2,616      7,312 
  Decrease in accounts receivable.............................      235       1,247      2,144 
  Decrease in inventories.....................................      813       1,725         54 
  Increase in other assets....................................   (1,642)       (208)       (31)
  Decrease in accrued income taxes............................      (61)       (117)      (518)
  Increase (decrease) in accounts payable, accrued salaries                                    
    and wages and other accrued expenses......................     (144)       (404)        46 
  Cash used for discontinued operations.......................    --         (1,223)    (1,464)
                                                               --------    --------    ------- 
    Net cash provided by operating activities.................      662         732      1,676 
                                                               --------    --------    ------- 
Cash flows from investing activities:                                                          
  Capital expenditures........................................   (1,649)     (1,596)    (2,703)
  Proceeds from sale of property and equipment................       45           9         44 
  Proceeds from sale of discontinued operations...............    --          4,100      --    
                                                               --------    --------    ------- 
    Net cash provided by (used for) investing activities......   (1,604)      2,513     (2,659)
                                                               --------    --------    ------- 
Cash flows from financing activities:                                                          
  Proceeds from (payment of) short-term debt..................      701     (13,108)       195 
  Proceeds from long-term debt................................   50,918      50,808      --    
  Payment of long-term debt...................................  (50,999)    (40,855)     --    
                                                               --------    --------    ------- 
    Net cash provided by (used for) financing activities......      620      (3,155)       195 
                                                               --------    --------    ------- 
Effect of exchange rate changes on cash.......................       18           6      --    
                                                               --------    --------    ------- 
Net increase (decrease) in cash and cash equivalents..........     (304)         96       (788)
                                                               --------    --------    ------- 
Cash and cash equivalents--beginning of year..................      940         844      1,632 
                                                               --------    --------    ------- 
Cash and cash equivalents--end of year........................ $    636    $    940    $   844 
                                                               --------    --------    ------- 
                                                               --------    --------    ------- 
Supplemental disclosures of cash flow information                                              
  Cash paid during the year for:                                                               
    Interest.................................................. $  1,232    $  1,427    $ 1,352 
    Income taxes..............................................      239         283        883 

Supplemental disclosure of non cash transactions                                               
  Minimum pension liability charge to equity--see note on                                      
    Pension and Incentive Compensation Plans                                                   

See notes to consolidated financial statements

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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 are summarized below:            

The financial statements reflect the results of the former subsidiaries,
Hi-Shear Technology Corp. and Defense Systems Corporation, 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.                                                                  

  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.                                                                  

Reclassifications. Certain amounts in the 1994 and 1993 consolidated    
financial statements have been reclassified to conform with the 1995            
presentation.                                                                   

 Cash and Equivalents. The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. At    
times, the Company's cash deposited in financial institutions may be in excess  
of federally insured limits.                                                    

   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, 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.                                                              

DISCONTINUED OPERATIONS                                                         

In fiscal 1991, the Company adopted a plan to discontinue its Space and 
Defense operations, which were comprised of Hi-Shear Technology Corp ("HSTC")   
and Defense Systems Corporation ("DSC").                                        

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

DISCONTINUED OPERATIONS--(CONTINUED)                                            
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 Defense Systems Corporation due to additional        
expenses, legal costs and lower than anticipated proceeds on the sale of        
material and equipment. During the current fiscal year there were no operating  
results from discontinued operations. The operating results of discontinued     
operations for fiscal year 1994 and 1993 are as follows:                        

                                                        [Enlarge/Download Table]

                                                                           YEARS ENDED MAY   
                                                                                 31,         
                                                                          ------------------ 
                                                                           1994       1993   
                                                                          -------    ------- 
                                                                            (000 OMITTED)    
                                                                                             
Revenues................................................................. $ --       $15,042 
                                                                          -------    ------- 
                                                                          -------    ------- 
Loss before income taxes................................................. $ --       $(1,137)
Provision for income taxes...............................................   --             2 
                                                                          -------    ------- 
Loss from operations.....................................................   --        (1,139)
Loss on disposal of discontinued operations, net of income taxes.........  (2,616)    (6,173)
                                                                          -------    ------- 
Loss from discontinued operations........................................ $(2,616)   $(7,312)
                                                                          -------    ------- 
                                                                          -------    ------- 

LOAN AGREEMENTS                                                                 

    During May 1994 the Company replaced its expiring bank credit agreement with
a revolving line of credit which provides for borrowings tied to a percentage of
eligible accounts receivable and inventory (as defined in the loan security     
agreement) with a maximum borrowing capacity of $15 million. At May 31, 1995,   
the Company's borrowing capacity under this agreement was approximately $12.6   
million. The line, which bears interest at a rate of prime plus two percent, has
an initial term of three years with a two year renewal option. Borrowings under 
this agreement are collateralized by substantially all of the assets of a       
subsidiary, Hi-Shear Corporation. The facility includes an equipment term loan  
of $5.6 million which is being amortized over a period of five years. During the
term of this agreement, the Company is not permitted to incur additional        
cumulative operating losses in excess of $3.0 million. At May 31, 1995, the     
Company had $10,992,000 outstanding at 11% under this facility. The weighted    
average interest rate during the year was 10.40%.                               

  In addition, a U.K. subsidiary has available term loan facilities totaling
approximately $2.4 million. The loans bear interest at various rates up to 2%   
above the bank posted rate and are substantially guaranteed by the Company. At  
May 31, 1995, there was $715,000 outstanding under these facilities.            

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

INVENTORIES                                                                     

Inventories consist of:                                                         

                                                        [Enlarge/Download Table]

                                                                        MAY 31,      
                                                                   ------------------
                                                                    1995       1994  
                                                                   -------    -------
                                                                     (000 OMITTED)   
                                                                                     
Raw materials..................................................... $ 4,074    $ 3,616
Work in process...................................................   6,504      7,530
Finished goods....................................................  12,243     12,271
                                                                   -------    -------
                                                                   $22,821    $23,417
                                                                   -------    -------
                                                                   -------    -------

 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:   

                                                        [Enlarge/Download Table]

                                                                 YEARS ENDED MAY 31,  
                                                                 -------------------- 
                                                                 1995    1994    1993 
                                                                 ----    ----    ---- 
                                                                    (000 OMITTED)     
                                                                                      
Current:                                                                              
  Domestic                                                                            
    Federal..................................................... $ 24    $ 17    $--  
    State and local.............................................   27      28      13 
  Foreign.......................................................  187     132     316 
                                                                 ----    ----    ---- 
                                                                  238     177     329 
                                                                 ----    ----    ---- 
Deferred:                                                                             
  Domestic                                                                            
    Federal.....................................................  --      (17)    --  
    State and local.............................................  --       (6)    --  
  Foreign.......................................................  (27)      6     (91)
                                                                 ----    ----    ---- 
                                                                  (27)    (17)    (91)
                                                                 ----    ----    ---- 
Total income tax provision...................................... $211    $160    $238 
                                                                 ----    ----    ---- 
                                                                 ----    ----    ---- 

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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,
                                                     -----------------------
                                                      1995     1994     1993
                                                     -----    -----    -----
                                                     (000 OMITTED)
Tax provision at federal income tax                                             
 statutory rate....................................   $(113)   $(957)   $(240)
Increase (decrease) in taxes resulting from:                                    
 Permanent differences.............................     (11)    (115)     (75)
 Foreign tax rate differences......................      39        8      (37)
Alternative minimum tax...........................      24     --       --  
Unrecognized tax benefit..........................     236    1,210      581
State and local taxes on income, net of federal                             
  tax benefit.....................................      18       14        9
Other.............................................      18     --       --  
                                                     -----    -----    -----
Income tax provision per consolidated statements of                             
operations..........................................   $ 211    $ 160    $ 238  
                                                     -----    -----    -----
                                                     -----    -----    -----

  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, 1995 and 1994 were as follows:

                                                         MAY 31,
                                                          ----------------
                                                          1995      1994
                                                          ------    ------
                                                         (000 OMITTED)
Liabilities                                                                     
Undistributed earnings from Domestic International Sales                    
Corporation...............................................   $ --      $  880   
Property, plant and equipment...........................      426       482 
                                                          ------    ------
 Total deferred tax liabilities........................      426     1,362
                                                          ------    ------
Assets                                                                          
Bad debt reserves.......................................      132       132 
Pension benefits........................................      392       335 
Accrued vacation pay....................................      374       356 
Federal net operating loss carryforwards................    6,239     6,224 
State net operating loss caryforwards...................      376       823 
Foreign tax credit carryforwards........................       76        96 
Capital loss carryforwards..............................      320       146 
Alternative minimum tax credit carryforwards............      178       154 
Charitable contribution carryforwards...................      116       100 
Other...................................................      211       135 
                                                          ------    ------
 Total deferred tax assets.............................    8,414     8,501
                                                          ------    ------
Valuation allowance.....................................    7,988     7,139 
                                                          ------    ------
 Net deferred taxes....................................   $    0    $    0
                                                          ------    ------
                                                          ------    ------

As of May 31, 1995, the Company had a federal net operating loss        
carryforward of $18,400,000 which expires between 2006 and 2009, state net      
operating loss carryforward of $5,900,000 expiring                              

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

PROVISION FOR INCOME TAXES--(CONTINUED)                                         
between 1996 and 2000, foreign tax credit carryforward of $76,000 expiring      
between 1996 and 1998 and alternative minimum tax credit carryforward of        
$178,000 with no expiration.                                                    

PENSION AND INCENTIVE COMPENSATION PLANS                                        

    The Company maintains a defined benefit pension plan and deferred investment
profit sharing plan covering substantially all of its eligible domestic         
employees. The Company also has contractual arrangements with certain key       
employees which provide for supplemental retirement benefits. The Company's     
policy is to fund pension costs annually based on accrued amounts and to        
amortize past service pension costs over a thirty-year period.                  

Effective February 28, 1991, and in conjunction with an increase of the 
Company's matching contribution to the Deferred Investment Profit Sharing Plan  
(under section 401(k) of the Internal Revenue Code), accrued benefits under the 
Company's defined benefit pension plan were frozen and active participants      
became fully vested. The Plan's trustee continues to maintain and invest plan   
assets and will administer benefit payments.                                    

  Net periodic pension cost for fiscal years 1995, 1994 and 1993 consists of
the following:                                                                  

                                                        [Enlarge/Download Table]

                                                            FISCAL YEARS ENDED MAY 31,                  
                                          --------------------------------------------------------------
                                                 1995                  1994                  1993       
                                          ------------------    ------------------    ------------------
                                          FUNDED    UNFUNDED    FUNDED    UNFUNDED    FUNDED    UNFUNDED
                                          ------    --------    ------    --------    ------    --------
                                                                  (000 OMITTED)                         
                                                                                                        
Service cost for benefits earned during                                                                 
  the year............................... $ --        $107      $ --        $171      $ --        $135  
Interest cost on projected benefit                                                                      
obligation...............................    522       185         520       152         513       154  
Actual return on plan assets.............   (166)     --          (185)     --          (227)     --    
Asset gain (loss)........................   (321)       38        (317)        6        (282)       10  
Net amortization.........................     95        72         (10)       72         (11)       78  
                                          ------    --------    ------    --------    ------    --------
Net periodic pension cost................ $  130      $402      $    8      $401      $   (7)     $377  
                                          ------    --------    ------    --------    ------    --------
                                          ------    --------    ------    --------    ------    --------

  The following table sets forth the funded status of the Company's domestic
pension plans:                                                                  

                                                        [Enlarge/Download Table]

                                                               AS OF THE FISCAL YEAR ENDED         
                                                        ------------------------------------------ 
                                                           MAY 31, 1995           MAY 31, 1994     
                                                        -------------------    ------------------- 
                                                        FUNDED     UNFUNDED    FUNDED     UNFUNDED 
                                                        -------    --------    -------    -------- 
                                                                      (000 OMITTED)                
                                                                                                   
Actuarial present value of:                                                                        
  Vested benefit obligation............................ $ 6,877    $ 2,336     $ 7,035    $ 2,287  
  Accumulated benefit obligation.......................   6,877      2,549       7,050      2,515  
  Projected benefit obligation.........................   6,877      2,549       7,050      2,515  
Plan assets at fair value, primarily mutual funds......   5,489      --          5,605      --     
Projected benefit obligation in excess of plan                                                     
assets................................................. $(1,388)   $(2,549 )   $(1,445)   $(2,515 )
Unrecognized net (asset) obligation....................    (138)       503        (149)       544  
Unrecognized net loss..................................   1,932        681       1,942        767  
                                                        -------    --------    -------    -------- 
Pension asset (liability).............................. $   406    $(1,365 )   $   348    $(1,204 )
                                                        -------    --------    -------    -------- 
                                                        -------    --------    -------    -------- 

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

PENSION AND INCENTIVE COMPENSATION PLANS--(CONTINUED)                           
    The weighted average discount rate was 8.00% for 1995 and 7.65% for 1994 for
all plans. The expected long-term rate of return on funded plan assets was 9%   
for both periods. 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 and $3,135,000 at May
31, 1995 and 1994 respectively. These amounts are included in "Other accrued    
liabilities" on the Company's balance sheet. This liability is offset by an     
intangible asset of $484,000 and $544,000 resulting in a cumulative reduction to
retained earnings of $2,494,000 and $2,591,000 as of May 31, 1995 and 1994      
respectively.                                                                   

    Contributions to the Company's Deferred Investment Profit Sharing Plan under
Section 401(k) of the Internal Revenue Code were $444,000, $399,000 and $765,000
for the years ended May 31, 1995, 1994 and 1993, respectively.                  

  The Company has a discretionary incentive compensation plan which provides
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     
$62,000, $75,000 and $-0- for the years ended May 31, 1995, 1994 and 1993,      
respectively.                                                                   

Pension coverage for employees of the Company's foreign subsidary is    
provided through a separate plan. Obligations under this plan are provided for  
by depositing funds with a trustee. The 1995, 1994 and 1993 pension cost for the
plan was $197,000, $190,000 and $323,000, respectively. In 1995 and 1994,       
amounts of approximately $470,000 and $424,000, respectively, represented the   
excess of the accumulated pension cost over the payment of contributions to the 
pension fund and is included in "Other accrued liabilities" on the Company's    
balance sheet.                                                                  

CAPITAL STOCK                                                                   

Common stock outstanding at May 31, 1995 does not include 284,222 shares
reserved under the Company's stock option incentive plan. Options granted to    
date under the plan are generally exercisable on a cumulative basis over a four 
year period beginning one year from date of grant at a rate of 25% of the       
original grant each year. All options are granted by the Compensation Committee 
of the Board of Directors at not less than market value of the common shares at 
date of grant. Upon exercise, the amounts received are credited to the capital  
accounts.                                                                       

 Transactions involving outstanding options of the Company are as follows:

                                                       1995       1994
                                                        -------    -------
Outstanding at beginning of year........................    50,000    100,000   
Options cancelled or expired............................   (50,000)   (50,000)  
                                                        -------    -------
Outstanding at end of year..............................         0     50,000   
                                                        -------    -------
                                                        -------    -------
Options exercisable at end of year......................         0     50,000   
                                                        -------    -------
                                                        -------    -------

  The shares under option at May 31, 1994 were at option prices ranging from
$15.00 to $16.63 per share. At May 31, 1995, there were 284,222 shares reserved 
for future grants.                                                              

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

OPERATING SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK                  

The Company currently operates primarily in one industry segment, the   
manufacture and sale of precision fastening systems and components. The Company 
services its worldwide customer base from two manufacturing facilities located  
in Torrance California and Rugby England.                                       

    Sales and transfers between geographic areas are generally priced to recover
cost plus an appropriate mark-up for profit. Sales and transfers from domestic  
to foreign locations amounted to $1,566,000, $579,000 and $396,000 for fiscal   
1995, 1994 and 1993, 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 1995, 1994 and 1993, approximately 17%, 15% and 13% 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:

                                                        [Enlarge/Download Table]

                                                                 1995       1994       1993   
                                                                -------    -------    ------- 
                                                                   (DOLLARS IN THOUSANDS)     
                                                                                              
Net Revenues to Unaffiliated Customers:                                                       
  United States................................................ $46,547    $46,162    $58,166 
  Foreign......................................................  12,092     10,303     13,353 
                                                                -------    -------    ------- 
                                                                $58,639    $56,465    $71,519 
                                                                -------    -------    ------- 
                                                                -------    -------    ------- 
Operating Profit:                                                                             
  United States................................................ $ 3,233    $   577    $ 1,839 
  Foreign......................................................     341        422        906 
                                                                -------    -------    ------- 
                                                                  3,574        999      2,745 
Corporate Expenses.............................................   2,616      2,874      2,468 
Interest, net..................................................   1,292        939        982 
                                                                -------    -------    ------- 
Loss before income taxes....................................... $  (334)   $(2,814)   $  (705)
                                                                -------    -------    ------- 
                                                                -------    -------    ------- 
Identifiable Assets                                                                           
  United States................................................ $37,146    $39,157    $41,334 
  Foreign......................................................   9,000      7,812      9,292 
  Corporate....................................................   3,368      2,146      3,007 
  Net assets held for sale.....................................   --         --         5,193 
                                                                -------    -------    ------- 
                                                                $49,514    $49,115    $58,826 
                                                                -------    -------    ------- 
                                                                -------    -------    ------- 

  Foreign operations are conducted primarily in Europe. Certain products are
manufactured in the United States and exported to foreign customers. Export     
sales from domestic operations were $8,300,000, $7,200,000 and $14,600,000 for  
the years ended May 31, 1995, 1994 and 1993, respectively.                      

   The Company sells aerospace and transportation fastening systems worldwide,
primarily to major aircraft and automotive manufacturers. Concentrations of     
credit risk are limited due to the large number of customers which comprise the 
Company's customer base. Credit is extended based upon an evaluation of each    
customer's financial condition, and generally, collateral is not required.      
Credit losses,                                                                  

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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 

OPERATING SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK--(CONTINUED)     
if any, have been provided for in the financial statements, and have been       
consistently within management's expectations.                                  

COMMITMENTS AND CONTINGENCIES                                                   

    The Company has entered into agreements with certain key employees providing
for cash payments upon change of control (as defined) of the Company; subject to
various terms and conditions, such payments are to be determined based upon the 
fair market value of the Company's Common stock upon the change of control.     

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 learned that its appeals from the default terminations had been        
sustained by the armed services Board of Contract Appeals. This decision        
releases the Company from any obligation to repay progress payments received    
under the contracts, and entitles the Company to recover contract and additional
costs expended in connection with the contracts. The Company has, in prior      
periods, written off such additional costs associated with this matter due to   
the uncertainty of the outcome. The Company is currently preparing a settlement 
proposal to recover these costs and certain profits as allowable. The Navy has  
120 days from May 31, 1995 in which to appeal this decision. If the Navy appeals
and the favorable ruling received on May 31, 1995 is overturned, the Company    
could face the potential liability of repayment of approximately $11.2 million  
in progress payments received on these contracts, plus interest.                

    Since it is unknown if the Navy will appeal, and the ultimate outcome of the
potential appeal cannot presently be determined, no provision for such potential
additional losses or recognition of recovery from any settlement proposal has   
been reflected in the accompanying financial statements.                        

The Company is involved in various other actions arising in the normal  
course of business with respect to contracts, employment claims and             
environmental regulation matters. Management, after taking into consideration   
legal counsel's evaluation of all contingent matters believes that the aggregate
amount of such liabilities, if any, will not have a material effect on the      
Company's financial position or results of operations.                          

   The Company's operations are conducted from leased facilities, all of which
are under operating leases which expire at various dates through 2004. The      
Company also has operating leases covering machinery and equipment which provide
for the Company to pay operating expenses.                                      

 In addition to related property taxes and insurance, the Company made net
rental payments of approximately, $1,278,000, $1,260,000, and $1,502,000, for   
the years ended May 31, 1995, 1994 and 1993, respectively. At May 31, 1995 the  
Company's commitment for future minimum lease payments under noncancellable     
operating leases is as follows:                                                 

1996...........................................................   $  990,000    
1997...........................................................      826,000    
1998...........................................................      390,000    
1999...........................................................      231,000    
2000...........................................................       10,000    
Thereafter.....................................................       28,000    
                                                              ----------
                                                              $2,475,000
                                                              ----------
                                                              ----------

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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, 1995 and May 31, 1994:                                      

                                                        [Enlarge/Download Table]

                                                                FOR THE QUARTER ENDED           
                                                       ---------------------------------------- 
                                                       AUG 31,    NOV 30,    FEB 28,    MAY 31, 
                                                        1994       1994       1995       1995   
                                                       -------    -------    -------    ------- 
                                                         (000 OMITTED, EXCEPT PER SHARE DATA)   
                                                                                                
Revenues.............................................. $13,838    $14,303    $14,461    $16,037 
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 
Gross profit.......................................... $ 2,507    $ 3,056    $ 2,847    $ 3,374 
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 
Net earnings (loss)................................... $  (328)   $   (27)   $  (241)   $    51 
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 
Net earnings (loss) per share......................... $ (0.06)   $ --       $ (0.04)   $  0.01 
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 


                                                       AUG 31,    NOV 30,    FEB 28,    MAY 31, 
                                                        1993       1993       1994       1994   
                                                       -------    -------    -------    ------- 
                                                                                                
Revenues.............................................. $14,317    $14,178    $13,070    $14,900 
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 
Gross profit.......................................... $ 2,689    $ 2,119    $ 2,160    $ 2,518 
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 
Loss from continuing operations....................... $  (310)   $  (946)   $  (852)   $  (866)
Loss from discontinued operations.....................   --         --         --        (2,616)
                                                       -------    -------    -------    ------- 
Net loss.............................................. $  (310)   $  (946)   $  (852)   $(3,482)
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 
Loss per share from continuing operations............. $  (.05)   $  (.16)   $  (.15)   $  (.15)
Loss per share from discontinued operations...........   --         --         --          (.45)
                                                       -------    -------    -------    ------- 
Net loss per share.................................... $  (.05)   $  (.16)   $  (.15)   $  (.60)
                                                       -------    -------    -------    ------- 
                                                       -------    -------    -------    ------- 

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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                        

   Information concerning directors and executive officers is contained in the
proxy statement for the annual meeting of stockholders to be held in November   
1995 incorporated herein by reference.                                          

ITEM 11. EXECUTIVE COMPENSATION                                                 

   Information concerning directors and executive officers is contained in the
proxy statement for the annual meeting of stockholders to be held in November   
1995 incorporated herein by reference.                                          

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT         

  Information concerning security ownership of certain beneficial owners and
management is contained in the proxy statement for the annual meeting of        
stockholders to be held in November 1995, incorporated herein by reference.     

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 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.                       

(23) Consent of Independent Accountants                                 

  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.                                                                   

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                                                                     SCHEDULE II

HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES 
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 1995, 1994 AND 1993 

                                                        [Enlarge/Download Table]

                                                                      CHARGED                        
                                              BALANCE     CHARGED TO    TO                   BALANCE 
                                            BEGINNING OF  COSTS AND    OTHER                AT END OF
    DESCRIPTION                                PERIOD      EXPENSES   ACCOUNTS  DEDUCTIONS   PERIOD  
------------------------------------------  ------------  ----------  -------   ----------  ---------
                                                                                                     
1995:                                                                                                
  Valuation adjustment for deferred income                                                           
    tax assets............................     $7,139         $0      $   849       $0       $ 7,988 
                                               ------         --      -------       --       ------- 
                                               ------         --      -------       --       ------- 

1994:                                                                                                
  Valuation adjustment for deferred income                                                           
    tax assets............................     $    0         $0      $ 7,139       $0       $ 7,139 
                                               ------         --      -------       --       ------- 
                                               ------         --      -------       --       ------- 

1993:                                                                                                
  None                                                                                               

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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 24, 1995                                                                 

 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                                       

.................                     
Date                    

By  /s/ Philip M. Slonim                                                        
...................................                                       
Philip M. Slonim, Director                                      

.................                     
Date                    

By  /s/ Arthur M. Winston                                                       
...................................                                       
Arthur M. Winston, Director                                       

.................                     
Date                    

26

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		5/31/97		6					10-K
Filed on:		8/29/95
		8/24/95		27
		8/23/95		7
		8/18/95		1
		8/4/95		11
For Period End:		5/31/95		1		26
		5/31/94		4		26
		6/1/93		11		16
		5/31/93		4		26
		5/31/92		14
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