<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 2000
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Commission file number 1-7633
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Hi-Shear Industries Inc.
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(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
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5,854,618 Common Shares were outstanding as of April 10, 2000.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
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INDEX
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<CAPTION>
Page
Number
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of
February 29, 2000 and May 31, 1999 1
Consolidated Statements of Operations
for the three and nine months ended
February 29, 2000 and February 28, 1999 2
Consolidated Statements of Cash Flows
for the nine months ended February 29,
2000 and February 28, 1999 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 II. Other Information: 7
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000 Omitted)
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February 29, May 31,
2000 1999
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(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 61 $ 33
Other 48 67
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Total current assets 109 100
Property and equipment, at cost 175 255
Less: Accumulated depreciation (142) (130)
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Net property and equipment 33 125
Other assets 4,799 4,648
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$ 4,941 $ 4,873
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued income taxes $ 25 $ 30
Other accrued expenses 283 313
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Total current liabilities 308 343
Stockholders' equity:
Common stock 614 614
Paid-in capital 11,153 11,153
Accumulated deficit (4,430) (4,533)
Less treasury stock (2,704) (2,704)
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Total stockholders' equity 4,633 4,530
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$ 4,941 $ 4,873
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</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 Omitted except per share data)
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Three Months Ended Nine Months Ended
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Feb. 29 Feb. 28 Feb. 29 Feb. 28
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
General and administrative expense $ 324 $ 343 $ 936 $ 973
Gain on sale of land -- -- (1,037) --
Interest income (2) (7) (17) (45)
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Income (Loss) Before Income Taxes (322) (336) 118 (928)
Provision for income taxes 5 -- 15 --
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Net Income (Loss) ($ 327) ($ 336) $ 103 ($ 928)
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Basic and diluted earnings per common share:
Net Income (Loss) ($ 0.06) ($ 0.06) $ 0.02 ($ 0.16)
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Weighted average common shares outstanding 5,855 5,855 5,855 5,855
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</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)
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Nine Months Ended
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Feb. 29 Feb. 28
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 103 ($ 928)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization 12 14
Decrease in accrued income taxes (5) (14)
Gain on sale of land (1,037) --
Decrease in other accrued expenses (30) (35)
Increase in other assets (132) (864)
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Net cash used for operating activities (1,089) (1,827)
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Cash flows from investing activities:
Proceeds from sale of land 1,117 --
Capital expenditures -- (18)
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Net cash provided by (used for) investing activities 1,117 (18)
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Net increase (decrease) in cash and cash equivalents 28 (1,845)
Cash and cash equivalents - beginning of period 33 2,254
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Cash and cash equivalents - end of period $ 61 $ 409
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</TABLE>
See notes to consolidated financial statements.
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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 bank or stockholders' loans, as necessary.
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 began capitalizing additional costs
incurred, primarily claims preparation and legal costs, as claims
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receivable. At February 29, 2000 and May 31, 1999 claims receivable of $4.6
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 of diluted EPS. 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 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 and nine
month periods ended February 29, 2000 and February 28, 1999.
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 sales price was $1,124,864. Proceeds from the sale are being
used as working capital by the Company.
Note E - Subsequent Events
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 + 1.5%.
Mr. Wingate is making these funds available to the Company at essentially the
same rate of interest.
On March 17, 2000, the Company received notification that it had
received a decision in
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its appeals before the Armed Services Board of Contract Appeals. The decision
awarded the Company $18,410,414 plus interest. Both parties now have 120 days
within which to appeal this decision.
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 nine month periods ended February 29, 2000 and
February 28, 1999, corporate overhead totaled $936,000 and $973,000,
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
nine 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 February 29, 2000 the Company had
$61,000 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. In this regard, the Company has
obtained financing (See Note E to the Consolidated Financial Statements) to
allow it to pursue a settlement with the U.S. Navy and final liquidation of the
Company. With regard to the decision notification from the Armed Services Board
of Contract Appeals (See Note E to the Consolidated Financial Statements),
management and its legal counsel cannot currently estimate when this situation
will ultimately be resolved. 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.
Forward Looking Statements
The statements in this Management's Discussion and Analysis which are
not historical
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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
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULT UPON SENIOR SECURITIES
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
On March 20, 2000, The Company announced that it had
received a decision in a series of long standing appeals before
the Armed Services Board of Contract Appeals.
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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
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David A. Wingate, Chairman,
President & Chief Executive
By: s/s Victor J. Galgano
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Victor J. Galgano, Vice President
& Chief Financial Officer
Date: April 10, 2000
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<PAGE>
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<NAME> HI-SHEAR INDUSTRIES INC.
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