<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM I0-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1999
Commission file number 1-7633
Hi-Shear Industries Inc.
------------------------
(Exact name of registrant as specified in its charter)
A Delaware Corporation I.R.S Employer Identification
No. 11-2406878
3333 New Hyde Park Road, North Hills, New York 11042
Registrant's telephone number, including area code: (516) 627-8600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
5,854,618 Common Shares were outstanding as of October 12, 1999.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
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INDEX
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Page
Number
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of
August 31, 1999 and May 31, 1999 1
Consolidated Statements of Operations
for the three months ended
August 31, 1999 and 1998 2
Consolidated Statements of Cash Flows
for the three months ended
August 31, 1999 and 1998 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 7
Part I Other Information: 7
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 Omitted)
--------------------------------------
August 31, May 31,
1999 1999
------------------ ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $669 $33
Other 100 67
------------------ ---------------
Total current assets 769 100
Property and equipment, at cost 175 255
Less: Accumulated depreciation (134) (130)
------------------ ---------------
Net property and equipment 41 125
Other assets 4,730 4,648
------------------ ---------------
$5,540 $4,873
================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued income taxes $16 $30
Other accrued expenses 297 313
------------------ ---------------
Total current liabilities 313 343
Stockholders' equity:
Common stock 614 614
Paid-in capital 11,153 11,153
Accumulated deficit (3,836) (4,533)
Less treasury stock (2,704) (2,704)
------------------ ---------------
Total stockholders' equity 5,227 4,530
------------------ ---------------
$5,540 $4,873
================== ===============
</TABLE>
See notes to consolidated financial statements.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
(000's omitted except
per share data)
----------------------------
Three Months Ended
----------------------------
August 31,
1999 1998
----------------------------
<S> <C> <C>
General and administrative expense $344 $331
Gain on sale of land (1,037) -
Interest income (9) (25)
----------------------------
Income (Loss) Before Income Taxes 702 (306)
Provision for income taxes 5 -
----------------------------
Net Income (Loss) $697 ($306)
============================
Basic and diluted earnings per common share:
Net Income (Loss) $0.12 ($0.05)
============================
Weighted average common shares outstanding 5,855 5,855
============================
</TABLE>
See notes to consolidated financial statements.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
(000 Omitted)
----------------------------
Three Months Ended
August 31,
1999 1998
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $697 ($306)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization 4 5
Decrease in accrued income taxes (14) (3)
Gain on sale of land (1,037) - -
Decrease in other accrued expenses (16) (13)
Increase in other assets (115) (380)
----------------------------
Net cash used for operating activities (481) (697)
----------------------------
Cash flows from investing activities:
Proceeds from sale of land 1,117 - -
Capital expenditures - - (18)
----------------------------
Net cash provided by (used for) investing activities 1,117 (18)
----------------------------
Net increase (decrease) in cash and cash equivalents 636 (715)
Cash and cash equivalents - beginning of period 33 2,254
----------------------------
Cash and cash equivalents - end of period $669 $1,539
============================
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying consolidated financial statements of Hi-Shear Industries
Inc. and its subsidiaries (The Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. The interim
financial statements presented herein have not been audited by independent
public accountants, but include all material adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial condition, results of operations and cash
flows for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year. The consolidated
balance sheet data presented herein for May 31, 1999 was derived from the
Company's audited consolidated financial statements for the fiscal year then
ended. The preparation of financial statements in accordance with generally
accepted accounting principles requires the Company's management to make certain
estimates and assumptions for the reporting periods covered by the financial
statements. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses. Actual amounts could differ from
these estimates. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended May 31, 1999.
With the sale of Hi-Shear Corporation and Subsidiaries ("HSC") on February
26, 1996, the Company no longer conducts an operating business. The Company
currently anticipates that upon final resolution of its claims against the U.S.
Navy, it will complete the distribution of its assets to stockholders and seek
stockholder approval to dissolve the Company. Until that time, management's
plans to continue as a going concern include reducing expenses and obtaining
banks or stockholders' loans, if required.
Note B - Contingencies
On January 31, 1996, the Company filed damage claims against the U.S. Navy
totaling $62.9 million arising from the termination of two contracts held by a
subsidiary, Defense Systems Corporation. The government audited these claims but
did not express a willingness to negotiate a settlement of these claims with the
Company. As a result, on February 11, 1997, the Company filed an appeal before
the Armed Services Board of Contract Appeals requesting an adjudication of this
dispute. At a hearing which concluded September 17, 1998, the Board heard
evidence regarding this matter and will now consider the facts brought out at
the hearing as well as briefs filed by both sides in February and March 1999 in
determining the amount of claim damages to be awarded to the Company. As a
result of the above, the amount or timing of the recovery cannot be predicted at
this time. The Company had previously written off additional costs associated
with this matter due to uncertainty of the outcome, however, since the rendering
of the favorable decision in May 1995 by the Armed Services Board of Contract
Appeals, the Company
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<PAGE>
began capitalizing additional costs incurred, primarily claims preparation and
legal costs, as claims receivable. At August 31, 1999 and May 31, 1999 claims
receivable of $4.5 million and $4.4 million, respectively, are included as other
long term assets on the balance sheet, as management believes such amounts are
reasonable and collectable. In addition, the Company has netted deferred legal
cost, subject to negotiations, against other assets for both periods of
approximately $1.8 million which will be settled upon final resolution of the
claim with the U.S. Navy. Since the amount of recovery of these claims cannot
presently be determined, no recognition from any settlement proposal, other than
the claim receivable noted above, has been reflected in the accompanying
financial statements.
Subsequent to the completion of the trial against the U.S. Navy, certain
Company employees involved in preparing the case were promised a discretionary
bonus contingent upon the successful recovery of monetary claims. In this
regard, the Company has entered into agreements with two of these employees
providing tor the payment of bonuses totaling 8% of the claim proceeds
recovered.
Note C - Net Income Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS
No. 128 supersedes and simplified the previous computational guidelines under
APB Opinion No. 15, "Earnings Per Share." Among other changes, SFAS No. 128
eliminates the presentation of primary EPS and replaces it with basic EPS for
which common stock equivalents are not considered in the computation. It also
revises the computation ofBasic net income (loss) per share is computed by
dividing the net income (loss) attributable to common shareholders by the
weighted average number of common shares outstanding during the period. Diluted
net income per share is computed by dividing the net income (loss) attributable
to common shareholders by the weighted average number of common and common
equivalent shares outstanding during the period. The Company did not have any
common equivalent shares outstanding during the three month periods ended August
31, 1999 and 1998.
Note D - Sale of Land
On June 4, 1999, in accordance with the terms of a lease between HSI
Properties Inc., a wholly owned subsidiary of the Company, and Hi-Shear
Technology Corporation (HSTC) a former subsidiary, dated June 4, 1993, HSTC
exercised its option to purchase the property it was leasing in Saugus
California. The purchase price was $1,124,864. Proceeds from the sale are being
used as working capital by the Company.
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<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Results of Operations
On February 26, 1996, the Company sold its last remaining operating
entity, Hi-Shear Corporation and its subsidiaries and effectively ceased
operations. Since that time the Company has reduced corporate staff and expenses
to a minimum level. During the three month periods ended August 31, 1999 and
1998, corporate overhead totaled $344,000 and $331,000 , respectively, which
consist primarily of the ongoing costs necessary to pursue the settlement of the
Company's dispute with the U.S. Navy. During the current three month period the
Company recorded a gain on the sale of land held by the Company. The interest
income reported during the respective periods was due to interest earned on the
investment of the proceeds retained from the sale land and the sale of Hi-Shear
Corporation.
Liquidity and Capital Resources
On February 26, 1996, the Company completed the sale of Hi-Shear
Corporation to GFI Industries S.A. for a total purchase price of $46 million
generating net proceeds from the sale , after deducting transaction costs, of
$44.4 million. Of that amount, approximately $13 million was used to repay all
amounts outstanding under the Company's loan agreements and the remaining
balance was deposited in short term investment accounts. The Company has
previously announced its intention to liquidate and distribute the proceeds from
this sale as well as any settlement received from the resolution of the
Company's long standing dispute with the U.S. Navy. In this regard, the Company
made an initial liquidating distribution to shareholders of approximately $23.4
million ($4 per share) on August 1, 1996. At August 31, 1999 the Company had
$669,000 remaining in cash and cash equivalents.
The Company's cash requirements include ongoing costs relating to pursuing
the settlement of the Company's dispute with the U.S. Navy and normal recurring
general and administrative expenses. The Company anticipates that existing cash
and cash equivalents will be sufficient to satisfy the Company's cash
requirements through the time of settlement with the U.S. Navy and final
liquidation of the Company. Although management and its legal counsel cannot
currently estimate when these situations will be resolved, the Company has
retained what it considers sufficient funds to allow it to pursue equitable
settlements with regard to all open matters currently pending. However, should
this situation continue beyond a reasonable period of time, the Company believes
it has the ability to acquire additional capital if necessary through bank or
stockholder financing.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year thus causing
date-sensitive software to recognize a date using "00" as the year 1900 rather
than the year 2000. Since the Company no longer has operating activities,
Management believes that the Year 2000 Issue will not have a material impact on
the financial position, operations or cash flows of the Company.
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<PAGE>
Forward Looking Statements
The statements in this Management's Discussion and Analysis which are not
historical fact are forward looking statements that are made pursuant to the
Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
The statements are subject to risks and uncertainties, including, but not
limited to uncertainties surrounding the Company's dispute with the U.S. Navy
which could cause actual results to vary materially from those discussed herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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None
Item 2. Changes in Securities
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None
Item 3. Default Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HI-SHEAR INDUSTRIES INC.
By: s/s David A. Wingate
---------------------------------
David A. Wingate, Chairman,
President & Chief Executive
By: s/s Victor J. Galgano
---------------------------------
Victor J. Galgano, Vice President
& Chief Financial Officer
Date: October 12. 1999
----------------
-8-
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<NAME> HI-SHEAR INDUSTRIES INC.
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