<PAGE>
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, 2000 Commission file number 1-7633
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 Over The Counter 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, 2000, 5,854,618 shares of the Registrant's Common Stock were
outstanding. Of these shares, 1,677,218 shares were held by persons who may be
deemed to be affiliates. The aggregate market value (based on the average bid
and ask price of these shares on the Over The Counter Exchange of $2.06 a share)
of the 4,177,400 shares held by non-affiliates of the registrant was $8,605,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
HI-SHEAR INDUSTRIES INC.("the Company"), a Delaware corporation organized
in 1976, was engaged primarily in the manufacture and sale of high technology
Aerospace Fastening Systems products through its wholly-owned subsidiary,
Hi-Shear Corporation ("HSC") until February 26, 1996.
During the fiscal year ended May 31, 1991, the Company adopted a plan to
discontinue the operations of Hi-Shear's Space and Defense segment, comprised of
Hi-Shear Technology Corp. ("HSTC") and Defense Systems Corporation ("DSC"). The
operation of DSC was terminated in March 1991 and in June 1993, the Company
completed the sale of HSTC to a group led by the management of the subsidiary.
On February 26, 1996, the Company completed the sale of Hi-Shear
Corporation and its subsidiaries which included Hi-Shear Automotive Corp.,
Hi-Shear Holdings Limited, and Hi-Shear Fasteners Europe Limited, to GFI
Industries S.A. (GFI") of Belfort, France for $46 million. With the completion
of this sale the Company disposed of its last remaining operating assets and
effectively ceased operations.
(b) Narrative Description of Business
With the sale of its last remaining manufacturing operation on February
26, 1996, the Company no longer conducts an operating business. As outlined in
the Company's "Notice Of Annual Meeting of Stockholders" dated January 8, 1996,
the Company currently anticipates that upon final resolution of its claims
against the U.S. Navy, it will complete the distribution of its assets to
stockholders and seek stockholder approval to dissolve the Company.
The Company currently has four full-time employees.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in an office building at
North Hills, New York, where 2,475 square feet of space are leased at a current
annual rental of approximately $66,000 under a lease which expires October 31,
2002.
HSI Properties, Inc., a wholly-owned subsidiary of the Company, owned 16
acres of land in Saugus, California, with incidental structures (2,700 sq. ft.)
which it had leased to a former subsidiary, Hi-Shear Technology Corp., for
$101,238 per year. The lease expired May 31, 1999. On June 4, 1999 this land was
purchased by Hi-Shear Technology Corp. in accordance with the lease terms. See
SALE OF LAND in the notes to consolidated financial statements.
1
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ITEM 3. LEGAL PROCEEDINGS
In 1991, the U.S. Navy terminated for default two contracts held by a
discontinued subsidiary of the Company and sought reimbursement of progress
payments totaling $11.2 million made against these contracts. The Company
appealed the default terminations and on May 31, 1995 its appeal was sustained.
This decision effectively released the Company from any obligation to repay
progress payments received under the contracts. On January 31, 1996, the Company
filed damage claims against the U.S. Navy totaling $62.9 million. The government
audited these claims but was unwilling to negotiate a settlement of these claims
with the Company. As a result, on February 11, 1997, the Company filed an appeal
before the Armed Services Board of Contract Appeals requesting an adjudication
of this dispute. The Board conducted hearings on this appeal during August and
September 1998. Each side subsequently filed post hearing briefs and rebuttal
briefs in February and March 1999. On March 17, 2000, the Board issued a
decision awarding the Company claim damages totaling $18,410,000 plus interest.
On July 17, 2000, the Company was notified that the Justice Department had filed
an appeal regarding this damage award. See COMMITMENTS AND CONTINGENCIES in the
notes to consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock had, until August 1, 1996, been traded on the
New York Stock Exchange ("NYSE") under the symbol "HSI." On August 1, 1996, the
Company made an initial liquidating distribution of approximately $23.4 million
($4.00 per share). Prior to that the Company had not paid a dividend on common
stock since August 1990. Concurrent with this distribution, the NYSE suspended
trading in the Company's common stock and made application to delist the issue.
The following table sets forth the high and low prices per share of the
Company's Common Stock, as derived from trades executed on the Over-The-Counter
Exchange.
2
<PAGE>
<TABLE>
<CAPTION>
PER COMMON SHARE
MARKET PRICE
----------------
HIGH LOW
<S> <C> <C>
Quarter Ended
August 1999......................... $2.58 $2.53
November 1999....................... 2.56 2.25
February 2000....................... 2.38 2.25
May 2000............................ 2.56 2.13
Fiscal Year Ended May 31, 2000 $2.58 $2.13
===== =====
Quarter Ended
August 1998......................... $3.00 $2.63
November 1998....................... 2.88 2.44
February 1999....................... 2.63 2.44
May 1999............................ 2.63 2.50
Fiscal Year Ended May 31, 1999 $3.00 $2.44
===== =====
</TABLE>
As of August 18, 2000 there were approximately 700 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, 2000. 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.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF
OPERATIONS DATA:
Revenues from operations(A) $ - $ - $ - $ - $46,400
=======
Net income (loss)(A) $ (170) $(1,224) $ (1,161) $(1,283) $ 1,106
======= ======= ======== ======== =======
Weighted Average Shares
Outstanding 5,855 5,855 5,855 5,855 5,855
======= ======= ======== ======== =======
Per Common Share Data:
Net income (loss) $ (.03) $ (.21) $ (.20) $ (.22) $ .19
======= ======= ======== ======== =======
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
AS OF MAY 31,
------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Current assets $ 122 $ 100 $ 2,308 $ 5,105 $31,103
Current liabilities 444 343 382 640 1,131
Working capital (deficit) (322) (243) 1,926 4,465 29,972
Total assets 4,804 4,873 6,136 7,555 32,748
Stockholders' equity 4,360 4,530 5,754 6,915 31,617
</TABLE>
(A) Includes revenues and income (loss) from operations of HSC through February
26, 1996 at which date HSC was sold. For the year ended May 31, 1996, net income
(loss) includes a gain on the sale of HSC in the amount of $1.8 million. With
the completion of this sale, the Company disposed of its last remaining
operating assets and effectively ceased operations.
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
On February 26, 1996, the Company sold its last remaining operating entity,
Hi-Shear Corporation and its subsidiaries and effectively ceased operations. The
Company had previously disposed of its business activities dealing with space
and defense in June 1993 and had since that time been reporting their operating
activities as discontinued operations. The results of operations of the Company
include the operating activities of Hi-Shear Corporation and subsidiaries
through February 26, 1996.
RESULTS OF OPERATIONS
The Company had no operating activities subsequent to the sale of Hi-Shear
Corporation during fiscal 1996. The $1.2 million of general and administrative
costs incurred in both fiscal 2000 and 1999 consists primarily of the ongoing
costs necessary to pursue the settlement of the Company's dispute with the U.S.
Navy.
The gain on sale land recorded during the current fiscal year was the result of
the sale of real estate owned by the Company.
The interest income reported in fiscal 2000, 1999 and 1998 was due to interest
earned on the investment of the proceeds retained from the sale of land and the
sale of Hi-Shear Corporation.
The Company did not record a provision or benefit for federal income taxes due
to it's tax loss carryforward position.
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. With the sale of Hi-Shear Corporation the
Company no longer had operating businesses and announced its intention to
liquidate and distribute the proceeds from the sale of Hi-Shear Corporation as
well as any settlement received from the resolution of the Company's long
standing dispute with the U.S. Navy. In this regard, the Company made an initial
liquidating distribution to shareholders of approximately $23.4 million ($4.00
per share) on August 1, 1996. On June 4, 1999, the Company received $1.1 million
as proceeds from the sale of real estate which was previously leased to a former
subsidiary. This amount, in addition to $300,000 in borrowing obtained from a
5
<PAGE>
corporate officer have been used to provide working capital for the Company.
At May 31, 2000 the Company had $70,000 in cash and cash equivalents. See
SALE OF LAND and ADVANCES FROM OFFICER in the notes to consolidated financial
statements.
On May 31, 1995 the Company learned that its appeal of the default terminations
filed by the Navy with regard to the two contracts being held by a subsidiary,
Defense Systems Corporation had been sustained and converted to termination for
the convenience of the government. On January 31, 1996 the Company filed damage
claims against the U.S. Navy totaling $62.9 million. The government has audited
these claims but has not expressed a willingness to negotiate a settlement of
these claims with the Company. As a result, on February 11, 1997, the Company
filed an appeal before the Armed Services Board of Contract Appeals requesting
an adjudication of this dispute. The Board conducted hearings on this appeal
during August and September 1998. Each side subsequently filed post hearing
briefs and rebuttal briefs in February and March 1999. On March 17, 2000 the
Board issued its decision awarding the Company claim damages totaling
$18,410,000. On July 17, 2000 the Company received notification that the Justice
Department had filed an appeal covering both the May 30, 1995 (entitlement) and
March 17, 2000 (Quantum) decisions of the Armed Services Board of Contract
Appeals. As a result of the above, the amount or timing of the ultimate recovery
cannot be predicted at this time.
The Company's cash requirements include ongoing costs relating to pursuing the
settlement of the Company's dispute with the U.S. Navy and normal recurring
general and administrative expenses. The Company is taking additional measures
to reduce expenses and anticipates that existing cash and cash equivalents and
advances from officers 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.
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.
6
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
PAGE
Report of Independent Accountants..................... 8
Consolidated Balance Sheets........................... 9
Consolidated Statements of Operations................. 10
Consolidated Statements of Stockholders' Equity....... 11
Consolidated Statements of Cash Flows................. 12
Notes to Consolidated Financial Statements............ 13
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Hi-Shear Industries Inc.
North Hills, New York
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Hi-Shear Industries Inc. and its subsidiaries at May 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 2000 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in the Commitments and Contingencies note to Consolidated
Financial Statements, the Company is involved in a dispute with the U.S. Navy
regarding the termination of certain contracts. The Company has filed damage
claims totaling $62.9 million against the Navy with respect to these contracts,
however, a settlement has not been reached and the claims are being contested by
the Navy. Therefore, the amount or timing of the recovery cannot be predicted at
this time and no recognition of income related to this claim has been made in
the consolidated financial statements.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Summary of Significant
Accounting Policies Note to Consolidated Financial Statements, on February 26,
1996, the Company sold its last operating asset and effectively ceased
operations. Since that date the Company has suffered recurring losses and cash
flow deficit from operations that raise substantial doubt about its ability to
continue as a going concern. The Company is presently in the process of
liquidation, and management's plans in regard to this matter are further
discussed in the Summary of Significant Accounting Policies Note to Consolidated
Financial Statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
July 20, 2000
8
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
----------------------
2000 1999
----------------------
(000 Omitted)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $70 $33
Other 52 67
----------------------
Total current assets 122 100
Property and equipment, at cost:
Land - 80
Equipment and fixtures 175 175
----------------------
175 255
Less, accumulated depreciation and amortization (147) (130)
----------------------
28 125
Other assets 4,654 4,648
----------------------
Total assets $4,804 $4,873
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances from officer $300 $ -
Accrued income taxes 18 30
Other accrued expenses 126 313
----------------------
Total current liabilities 444 343
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 11,153 11,153
Accumulated deficit (4,703) (4,533)
Less treasury stock, at cost (285,138 shares) (2,704) (2,704)
----------------------
4,360 4,530
----------------------
Total liabilities and stockholders' equity $4,804 $4,873
======================
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended May 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
(000 Omitted except
per share data)
<S> <C> <C> <C>
General and administrative expenses $1,206 $1,240 $1,322
Gain on sale of land (1,037) -- --
Interest income (18) (48) (181)
Interest expense 6 1 --
------------ ------------ ------------
Loss before income taxes (157) (1,193) (1,141)
Provision for income taxes 13 31 20
------------ ------------ ------------
Net loss ($170) ($1,224) ($1,161)
============ ============ ============
Weighted average Common shares
outstanding 5,855 5,855 5,855
------------ ------------ ------------
Basic net loss per share ($0.03) ($0.21) ($0.20)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended May 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Treasury Stock
---------------------- Retained -----------------------
Paid-in earnings
Shares Amount captial (deficit) Shares Amount
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1997 6,140 $614 $11,153 ($2,148) (285) ($2,704)
Net Loss (1,161)
--------------------------------------------------------------------
Balance, May 31, 1998 6,140 614 11,153 (3,309) (285) (2,704)
Net Loss - - - (1,224) - -
--------------------------------------------------------------------
Balance, May 31, 1999 6,140 614 11,153 (4,533) (285) (2,704)
Net Loss - - - (170) - -
--------------------------------------------------------------------
Balance, May 31, 2000 6,140 $614 $11,153 ($4,703) (285) ($2,704)
====================================================================
</TABLE>
See notes to consolidated financial statements
11
<PAGE>
HI-SHEAR INDUSTRIES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------------
2000 1999 1998
-------------- -------------- ---------------
(000 Omitted)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($170) ($1,224) ($1,161)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 17 20 19
Decrease (increase) in other assets 9 (958) (1,269)
Increase (decrease) in accrued income taxes (12) 5 (15)
Gain on sale of land (1,037) - -
Decrease in other accrued expenses (187) (44) (243)
-------------- -------------- ---------------
Net cash used for operating activities (1,380) (2,201) (2,669)
-------------- -------------- ---------------
Cash flows from investing activities:
Proceeds from sale of land 1,117 - -
Capital expenditures - (20) (29)
-------------- -------------- ---------------
Net cash provided by (used for) investing activities 1,117 (20) (29)
-------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from advances from officer 300 - -
-------------- -------------- ---------------
Net cash provided by financing activities 300 - -
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents 37 (2,221) (2,698)
Cash and cash equivalents - beginning of year 33 2,254 4,952
-------------- -------------- ---------------
Cash and cash equivalents - end of year $70 $33 $2,254
============== ============== ===============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $6 $1 $53
Income taxes 25 26 37
</TABLE>
See notes to consolidated financial statements
12
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements of Hi-Shear Industries Inc. and
Subsidiaries (the "Company") are summarized below:
Basis of Presentation. With the sale of Hi-Shear Corporation, 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 bank or officers' loans, as
required.
Principles of Consolidation. The consolidated financial statements include
the accounts of Hi-Shear Industries Inc. and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Cash and Equivalents. The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. The
cash balances on deposit are held principally at one financial institution and
at times, have exceeded insurable amounts. The Company believes it mitigates its
risks by investing in or through a major financial institution. Cash and cash
equivalents are reflected in the accompanying consolidated balance sheet at
amounts considered by management to reasonably approximate fair value.
Property and Equipment. Land, equipment and fixtures are carried at cost.
For financial reporting purposes, depreciation expense is provided on a straight
line basis, using estimated useful lives of 3 to 10 years for equipment and
fixtures. Accelerated methods have been used for tax purposes where permitted.
Upon disposition, the cost and related accumulated depreciation are removed from
the accounts and the resulting gain or loss is reflected in earnings for the
period.
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. The Company utilizes Statement of
Financial Standards No. 109 "Accounting for Income Taxes" which
13
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
requires recognition of deferred tax assets and liabilities for temporary
differences and net operating loss (NOL) and tax credit carryforwards. Under
this statement, deferred income taxes are established based on enacted tax rates
expected to be in effect when temporary differences are scheduled to reverse and
NOL and tax credit carryforwards are expected to be utilized. A valuation
allowance is provided when it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
Earnings Per Share. Basic net income (loss) per share is computed by
dividing the net income (loss) attributable to common shareholders by the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) 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 years ended May 31, 2000,
1999 and 1998.
Recent Accounting Standards. In June 1998, the FASB issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The provisions of the statement are effective the first
quarter of 2001, as amended by SFAS No. 137 in June 1999. The Company does not
believe that the new standard will have a material impact on the Company's
financial statements.
SALE OF SUBSIDIARY
On February 26, 1996, pursuant to approval received at the Annual Meeting of
Shareholders on February 23, 1996, the Company sold its aerospace fastener
subsidiary Hi-Shear Corporation and its subsidiaries to GFI Industries S.A. of
Belfort, France for $46 million in cash. The sale was treated as a sale of stock
for accounting purposes. As a result, the Company recognized a gain of
approximately $1.8 million in its statement of operations. The sales price was
subject to adjustment based upon a review of the closing balance sheet of
Hi-Shear Corporation and verification by GFI of the net asset value as required
under the terms of the sale. The Company and GFI were unable to reach an
agreement on the net asset value with GFI requesting downward adjustments to the
sales price totaling $6.4 million. The disagreement was submitted to arbitration
as required under the Stock Purchase Agreement. After reviewing material
submitted by both parties, the arbitrator decided in favor of the Company and
essentially
14
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
finalized the purchase price at $46 million. Additionally, under the terms of
the agreement for the sale of HSC, the Company was restricted from distributing
to its stockholders, by means of dividend or otherwise, at least $3.0 million of
the purchase price through March 31, 1997. Subsequent to that date, the Company
may distribute any remaining funds not utilized for operations.
PROVISION FOR INCOME TAXES
The components of the income tax provision are summarized as follows:
<TABLE>
<CAPTION>
Years ended May 31,
-------------------------
2000 1999 1998
-------------------------
(000 Omitted)
<S> <C> <C> <C>
Current:
Domestic:
State and local........... $ 13 $ 31 $ 20
Total income tax provision........ $ 13 $ 31 $ 20
======= ======= =======
The components included in determining the provision for income taxes are
shown below:
</TABLE>
<TABLE>
<CAPTION>
Years ended May 31,
-------------------------
2000 1999 1998
-------------------------
(000 Omitted)
<S> <C> <C> <C>
Tax provision at federal income tax
statutory rate..................... $ (53) $ (406) $(388)
Increase in taxes resulting from:
Unrecognized tax benefit 53 406 388
State and local taxes on income,
net of federal tax benefit..... 12 17 16
Other............................ 1 14 4
------ ------ ------
Income tax provision per consolidated
statements of operations.......... $ 13 $ 31 $ 20
====== ====== ======
</TABLE>
15
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
May 31,
---------------
2000 1999
---------------
(000 Omitted)
<S> <C> <C>
Assets
Federal net operating loss carryforwards $ 5,318 $ 5,174
State net operating loss caryforwards 456 683
Alternative minimum tax credit carryforwards 273 273
Other 50 142
-------- -------
Total deferred tax assets 6,097 6,272
-------- -------
Valuation allowance (6,097) (6,272)
-------- -------
Net deferred taxes $ - $ -
======== =======
</TABLE>
As of May 31, 2000, the Company had a federal net operating loss
carryforward of approximately $15,640,000 which expires between 2006 and 2020,
state net operating loss carryforwards of approximately $7,680,000 expiring
between 2001 and 2020 and alternative minimum tax credit carryforward of
$273,000 with no expiration.
ADVANCES FROM OFFICER OF THE COMPANY
On March 1, 2000, David A. Wingate, Chairman, President and Chief
Executive of Hi-Shear Industries Inc. entered into an agreement with a bank to
obtain a $500,000 unsecured line of credit at an interest rate of prime plus
1.5%. Mr. Wingate is making these funds available to the Company at essentially
the same rate of interest. At May 31, 2000 the Company had been advanced
$300,000 against this line.
PENSION AND INCENTIVE COMPENSATION PLANS
The Company maintains a 401(k) Profit Sharing Plan for all employees. Company
contributions to this Plan were $9,000, $11,000 and $9,000 for the years ended
May 31, 2000, 1999 and 1998, respectively.
16
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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) dated June 4, 1993, HSTC exercised its option to
purchase the property it was leasing in Saugus California. The sales price was
$1,000,000 plus escalations totaling $124,864 which resulted in a gain on sale
of land of approximately $ 1,037,000. The total proceeds of $1,124,864 have been
used as working capital by the Company.
COMMITMENTS AND CONTINGENCIES
In March 1991, the Company terminated the operations of one of its
subsidiaries, Defense Systems Corporation in Reno, Nevada. As a result of
shutting down operations at this facility, two contracts with the U.S. Navy were
terminated for default. The Company appealed the default terminations and on May
31, 1995 its appeals from the default terminations was sustained by the Armed
Services Board of Contract Appeals. This decision released the Company from any
obligation to repay progress payments received under the contracts, and entitled
the Company to recover contract and additional costs expended in connection with
the contracts. On January 31, 1996, the Company filed damage claims against the
U.S. Navy totaling $62.9 million. 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. The Board conducted hearings on this appeal during August and September
1998. Each side subsequently filed post hearing briefs and rebuttal briefs in
February and March 1999. On March 17, 2000 the Board issued its decision
awarding the Company claim damages totaling $18,410,000. On July 17, 2000 the
Company received notification that the Justice Department had filed an appeal
covering both the May 30, 1995 (entitlement) and March 17, 2000 (quantum)
decisions of the Armed Services Board of Contract Appeals. 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 the uncertainty of the outcome, however, since the rendering of
the favorable decision on May 30, 1995, the Company began accruing additional
costs incurred, primarily claims preparation and legal, as claims receivable. At
May 31, 2000 claims receivable of $4.6 million are included as other long term
assets on the balance sheet, as management believes, in conjunction with outside
counsel, such amounts are reasonable and collectable. In addition, the Company
has netted deferred legal cost, subject to negotiations, against other assets of
approximately $1.8 million which will
17
<PAGE>
HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
be settled upon final resolution of the claim with the U.S. Navy. Since the
ultimate recovery of these claims cannot presently be determined, no recognition
from any settlement proposal, other than the claim receivable noted above, has
been reflected in the accompanying financial statements.
Subsequent to the completion of the trial against the U.S. Navy, certain
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 individuals providing for
the payment of bonuses totaling 8% of the claim proceeds recovered.
The Company is involved in various other actions arising in the normal
course of business with respect to contracts and employment claims. Management,
after taking into consideration legal counsel's evaluation of all contingent
matters believes that the disposition of these matters will not have a material
adverse effect on the Company's financial position, net income or cash flows.
In addition to related property taxes and insurance, the Company made net
rental payments of approximately, $66,000, $62,000 and $96,000, for the years
ended May 31, 2000, 1999 and 1998, respectively. At May 31, 2000 the Company's
commitment for future minimum lease payments under noncancellable operating
leases is $156,000, expiring in October, 2002.
18
<PAGE>
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, 2000 and May 31, 1999:
<TABLE>
<CAPTION>
For The Quarter Ended
--------------------------------------------------------------
Aug 31, Nov 30, Feb 29, May 31,
1999 1999 2000 2000
------------ ------------ ------------ ------------
(000 Omitted, except per share data)
<S> <C> <C> <C> <C>
General and administrative expenses ($334) ($268) ($324) ($280)
============ ============ ============ ============
Gain on sale of land $1,037 $0 $0 $0
============ ============ ============ ============
Net income (loss) $697 ($267) ($327) ($273)
============ ============ ============ ============
Net income (loss) per share $0.12 ($0.05) ($0.06) ($0.05)
============ ============ ============ ============
Aug 31, Nov 30, Feb 28, May 31,
1998 1998 1999 1999
------------ ------------ ------------ ------------
General and administrative expenses ($331) ($299) ($343) ($267)
============ ============ ============ ============
Net loss ($306) ($286) ($336) ($296)
============ ============ ============ ============
Net loss per share ($0.05) ($0.05) ($0.06) ($0.05)
============ ============ ============ ============
</TABLE>
19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
NAME Principal Occupation and Position
Harold L. Bernstein Lawyer. Secretary of the Company.
Victor J. Galgano Vice President and Chief Financial
Officer of the Company.
Philip M. Slonim Private investor.
David A. Wingate Chairman of the Board, Chief Executive
Officer and President of the Company.
Arthur M. Winston Investment Manager, Glickenhaus & Co.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation for services rendered
to the Company and its subsidiaries during the fiscal years 2000, 1999 and 1998,
paid to or accrued for those persons who were, at May 31, 2000, the Company's
Chief Executive and all of the other executive officers of the Company and
subsidiaries whose total annual salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
Salary Bonus
Name and Principal Position Year $ $
<S> <C> <C> <C>
David A. Wingate 2000 $325,000 $ 0
Chairman, President & Chief Executive 1999 325,000 0
1998 325,000 0
Robert A. Schell 2000 73,000 0
Vice President & Chief Operating 1999 175,000 0
Officer/Space and Defense 1998 175,000 50,000
Victor J. Galgano 2000 162,000 0
Vice President and Chief Financial 1999 162,000 0
Officer 1998 162,000 0
</TABLE>
20
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of August 18, 2000, certain information
concerning the persons known to management to be the beneficial owners of more
than 5% of the Company's common stock, and for all of the Company's officers and
directors as a group. Except as otherwise indicated, the persons listed have
sole voting and investment power with respect to shares beneficially owned by
them.
<TABLE>
<CAPTION>
Percent
of
Name and Address of Amount Common
Beneficial Owner Beneficially Owned Stock
<S> <C> <C>
GAMCO Investors, Inc. 1,354,690 (1)(2) 23.14%
One Corporate Center
Rye, NY 10580
David A. Wingate 1,181,494 (3) 20.18%
3333 New Hyde Park Road
North Hills, NY 11042
Corbyn Invesment Management 1,072,900 (4) 18.32%
2330 West Joppa Rd., Suite 108
Lutherville, MD 21093
Philip M. Slonim 446,067 (5) 7.62%
P.O. 27835
San Diego, CA 92128
All directors and officers as a
group 1,677,218 28.65%
--------- ------
</TABLE>
(1) Firm and related entities have investment discretion regarding this
aggregate number of shares, which are beneficially owned by many investment
clients.
(2) Share ownership is based upon information in Amendment No. 48 to Schedule
13D filed with the Securities and Exchange Commission.
(3) Include shares held by Mr. Wingate as the sole trustee of The Wingate Family
Trust of 1980 and shares held by Mr. Wingate's spouse as the sole trustee of a
revocable trust. Does not include 150,000 shares owned by The David A. &
Shoshanna Wingate Foundation Inc. of which Mr. Wingate is one of four directors.
(4) Share ownership is based upon information in Schedule 13G filed with the
Securities and Exchange Commission.
(5) Mr. Slonim and spouse hold these shares as trustees of a revocable trust.
21
<PAGE>
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
All schedules have been omitted because they are inapplicable, not
required, or the required information is included elsewhere in the financial
statements or notes thereto.
(a) (3) Exhibits
(3)(a) Certificate of Incorporation of the Company, restated to
include amendments adopted September 30, 1980, filed as an Exhibit to the
Company's Report on Form 10-K filed with the Commission on August 28, 1981 and
incorporated herein by reference.
(3)(b) By Laws of the Company, as amended March 27, 1986, filed as
an Exhibit to the Company's Report on Form 10-K filed with the Commission on
August 26, 1986 and incorporated herein by reference.
(10)(a) Contingent Compensation Agreement between the Company and
an executive signed as of December 26, 1985 (updated November 17, 1987), filed
as an Exhibit to the Company's Report on Form 10-K filed with the Commission on
August 26, 1986 and incorporated herein by reference.
(10)(b) Employment agreement dated October 16, 1989 between the
Company and an executive, filed as an Exhibit to the Company's Report on Form
10-K filed with the Commission on August 24, 1991 and incorporated herein by
reference.
(22) Subsidiaries of the Company, filed herewith.
All other required exhibits have been previously reported in the
Company's prior 10-K's.
ITEM 14 (b) REPORTS ON FORM 8-K
On March 20, 2000, the Company reported that it had received a decision
in a series of long standing appeals before the Armed Services Board of Contract
Appeals.
22
<PAGE>
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, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
By /s/ Harold L. Bernstein
--------------------------------
Harold L. Bernstein, Director
August 24, 2000
....................
Date
By /s/ Philip M. Slonim
--------------------------------
Philip M. Slonim, Director
August 24, 2000
.....................
Date
By /s/ Arthur M. Winston
--------------------------------
Arthur M. Winston, Director
August 24, 2000
.....................
Date
23
