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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 November 30, 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 January 8, 2001.
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HI-SHEAR INDUSTRIES INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C> <C> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of
November 30, 2000 and May 31, 2000 1
Consolidated Statements of Operations
for the three and six months ended
November 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
for the six months ended November 30,
2000 and 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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November 30, May 31,
2000 2000
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $133 $70
Other 39 52
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Total current assets 172 122
Property and equipment, at cost 175 175
Less: Accumulated depreciation (159) (147)
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Net property and equipment 16 28
Other assets 4,586 4,654
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$4,774 $4,804
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances from officer $500 $300
Accrued income taxes 36 18
Other accrued expenses 239 126
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Total current liabilities 775 444
Stockholders' equity:
Common stock 614 614
Paid-in capital 11,153 11,153
Accumulated deficit (5,064) (4,703)
Less treasury stock (2,704) (2,704)
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Total stockholders' equity 3,999 4,360
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$4,774 $4,804
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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 Six Months Ended
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November 30, November 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
General and administrative expense $117 $268 $329 $612
Gain on sale of land - - - (1,037)
Interest (income) expense 12 (6) 22 (15)
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Income (Loss) Before Income Taxes (129) (262) (351) 440
Provision for income taxes 5 5 10 10
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Net Income (Loss) ($134) ($267) ($361) $430
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Basic and diluted earnings per common share:
Net Income (Loss) ($0.02) ($0.05) ($0.06) $0.07
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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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Six Months Ended
November 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($361) $430
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization 12 8
Increase (decrease) in accrued income taxes 18 (13)
Gain on sale of land -- (1,037)
Increase (decrease) in other accrued expenses 113 (26)
Decrease (increase) in other assets 81 (149)
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Net cash used for operating activities (137) (787)
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Cash flows from investing activities:
Proceeds from sale of land -- 1,117
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Net cash provided by investing activities -- 1,117
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Cash flows from financing activities:
Proceeds from advances from officer 200 --
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Net cash provided by financing activities 200 --
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Net increase in cash and cash equivalents 63 330
Cash and cash equivalents - beginning of period 70 33
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Cash and cash equivalents - end of period $133 $363
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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, 2000 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, 2000.
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 officers' loans, as 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 on March 17, 2000 issued its
decision awarding the Company claim damages totaling $18,410,000 plus interest.
On July 17, 2000 the Company received notification that the Justice Department
had filed an appeal regarding this decision. This appeal was subsequently
withdrawn on November 19, 2000. Payment of the damage award is now subject to
the submission of required paperwork by both parties to the US Treasury. 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
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Services Board of Contract Appeals, the Company began capitalizing additional
costs incurred, primarily claims preparation and legal, as claims receivable. At
November 30, 2000 and May 31, 2000 claims receivable of $4.6 million 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 timing 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 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.
Note C - Net Income 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 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 six month periods ended November 30,
2000 and 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 were used as
working capital by the Company.
Note E - 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 + 1.5%.
Mr. Wingate is making these funds available to the Company at essentially the
same rate of interest. At November 30, 2000 the Company had been advanced the
full $500,000 against this line.
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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 six month periods ended November 30, 2000 and
1999, corporate overhead totaled $329,000 and $612,000 , 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 prior six month period the
Company recorded a gain on the sale of land held by the Company. The interest
expense reported during the current period relates to advances received from
corporate officer. The interest income reported during the prior period was due
to interest earned on the investment of the proceeds retained from the sale
land.
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 November 30, 2000 the Company had
$133,000 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 is taking measures to
further reduce expenses and anticipates that existing cash and cash equivalents
and additional advances from officers will be sufficient to satisfy the
Company's cash requirements through the time of settlement with the U.S. Navy,
which management estimates to be during the third quarter of the current fiscal
year 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.
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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 November 20, 2000, the Company announced that the
U.S. Navy had withdrawn its appeal of a decision issued March
17, 200, awarding the Company $18,410,414 plus interest.
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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/ David A. Wingate
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David A. Wingate, Chairman,
President & Chief Executive
By: /s/ Victor J. Galgano
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Victor J. Galgano, Vice President
& Chief Financial Officer
Date: January 10, 2001
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