<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________
Commission file number: 811-854
IIC Industries, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-567594
(STATE OF OTHER JURISDICTION OF (IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
420 Lexington Avenue; New York, N.Y. 10170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 297-6132
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,693,472 shares of common
stock outstanding at April 30, 1998.
<PAGE>
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets
at March 31, 1998
and December 31, 1997 3
Consolidated Statements of Operations and
Comprehensive Loss for the Three Months
Ended March 31, 1998 and March 31, 1997 5
Consolidated Statement of Cash Flows
for the Three Months Ended March 31,
1998 and March 31, 1997 6
Notes to Consolidated Financial
Statements 7
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, December 31,
ASSETS 1998 1997
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $22,631 $22,781
Accounts receivable, net 37,378 37,487
Inventories (Note C) 37,309 44,859
Other current assets 6,877 10,484
----- --------
Total current assets 104,195 115,611
RESTRICTED CASH 291 211
PROPERTY AND EQUIPMENT, NET 29,630 29,585
INVESTMENTS IN AND ADVANCES TO AFFILIATES 26,828 28,361
OTHER ASSETS 2,528 2,274
----- ---------
$163,472 $176,042
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
----------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $23,910 $22,301
Bank loans 17,512 23,490
Current maturities of long-term debt 1,607 1,661
Accrued expenses and other payables 8,910 13,405
Advances from customers 3,145 3,932
----- ---------
Total current liabilities 55,084 64,789
LONG-TERM DEBT, less current portion 2,103 1,508
DUE TO AFFILIATES 1,413 1,692
OTHER LIABILITIES AND DEFERRED
CREDITS 5,304 5,759
MINORITY INTEREST IN SUBSIDIARIES 14,644 15,149
------ --------
78,548 88,897
CONTINGENCIES (Note D)
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value per share;
authorized 7,200,000 shares; issued
6,343,224 shares 1,586 1,586
Additional paid-in capital 22,941 22,941
Retained earnings 96,575 97,426
Foreign translation adjustment (33,453) (32,083)
Less treasury stock - at cost (649,752 shares) (2,725) (2,725)
------- --------
84,924 87,145
------ --------
$163,472 $176,042
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $56,729 $60,441
Cost of sales 46,113 48,354
------ ------
Gross profit 10,616 12,087
Selling, general and administrative expenses 10,416 11,321
------ ------
Operating income 200 766
------ ------
Other income (expenses)
Interest income 523 540
Equity in (loss) earnings of affiliates (153) (516)
Foreign currency loss (Note B) (252) (87)
Gain on sale of noncurrent assets, net 116 1,501
Interest expense (949) (1,709)
Other, net 76 291
---- ------
(Loss) Income before income taxes and
minority interest (439) 786
Income taxes (414) (751)
----- ------
(Loss) Income before minority interest (853) 35
Minority Interest 2 262
---- -----
NET /LOSS/ (851) 297
Other comprehensive /loss/
Foreign currency translation adjustments (1,370) (2,275)
------- -------
COMPREHENSIVE /LOSS/ INCOME $(2,221) $(1,978)
======== =======
Basic net loss per common share $(0.14) $0.05
======== ======
Basic average number of common shares outstanding 5,693,472 5,693,472
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash provided by operating activities $6,599 $4,803
------ ------
Cash flows from investing activities
Purchase of property and equipment (1,491) (900)
Purchase of investments (79)
Proceeds on disposal of property and equipment 201 113
Proceeds on disposal of investments 3 3
Restricted cash (80) 4,339
---- -----
Net cash (used in) provided by investing activities (1,367) 3,476
------- -----
Cash flows from financing activities
Issuance of long-term debt 637 30
Net payments of short-term bank loans (5,974) (6,232)
------- -------
Net cash used in financing activities (5,337) (6,202)
Effect of exchange rate on cash (45) (333)
------- -------
Net (decrease) increase in cash and cash equivalents
during the period (150) 1,744
Cash and cash equivalents at beginning of period 22,781 17,211
------ ------
Cash and cash equivalents at end of period $22,631 $18,955
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest $891 $1,361
Income taxes 242 828
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The consolidated financial statements included herein which have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, include the
accounts of IIC Industries, Inc. and all material majority-owned
subsidiaries (collectively the "Company"). All material intercompany
transactions and balances have been eliminated. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the consolidated financial statements
contain all adjustments which are those of a normal recurring accrual
nature and disclosures necessary to present fairly the financial position
of the Company as of March 31, 1998 and December 31, 1997 and the results
of operations and cash flows for the three months ended March 31, 1998 and
March 31, 1997.
NOTE B - FOREIGN CURRENCY TRANSLATION
Investor Rt ("Investor"), a majority-owned subsidiary, uses the local
currency, the Hungarian forint, as its functional currency and translates
all assets and liabilities at year-end exchange rates, all income and
expense accounts at average rates and records adjustments resulting from
the translation in a separate component of shareholders' equity.
The Israel Tractors and Equipment Company Limited ("Israel Tractor"), a
wholly-owned subsidiary, uses the US dollar as the functional currency,
since the dollar is the currency in which most of the significant business
of Israel Tractor is conducted, or to which it is linked. Balton C.P.
Limited ("Balton"), a majority-owned subsidiary, uses the US dollar as the
functional currency for some of its operations, since the subsidiaries in
Nigeria, Ghana and Zambia operate in hyperinflationary economies. These
subsidiaries translate monetary assets and liabilities at historical
rates. Income and expense accounts are translated at the rate of exchange
prevailing at the date of transaction, except that depreciation is
translated at historical rates. Adjustments resulting from the translation
of these entities are included in results of operations. The remaining
Balton subsidiairies, which operate in Ghana, Tanzania, Uganda, Kenya and
the Cote D'Invoire, use the local currencies, as their functional currency
and translate all assets and liabilities at year-end exchange rates, all
income and expense accounts at average rates and record adjustments
resulting from the translation in a separate component of shareholders'
equity
Transactions arising in a foreign currency are translated into the
functional currency at the rate of exchange effective at the date of the
transaction and gains or losses are included in results of operations.
-7-
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE C - INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 5,595 $ 5,826
Work-in-progress 511 519
Finished goods 31,203 38,514
------ ------
$37,309 $44,859
======= =======
</TABLE>
NOTE D - CONTINGENCIES
The Company has given a guarantee to the bankers of Balton amounting to
$2.1 million. The guarantee is in respect of various outstanding letters
of credit given by the bankers of certain of Balton's creditors. The
Company has also agreed to indemnify a co-guarantor for any losses
accumulating to $510,000.
Balton has given guarantees to third parties in the amount of approximately
$2,325,000.
Investor and certain subsidiaries are potentially liable with respect to
certain guarantees of debt and other financial instruments of other
related and nonrelated companies to the extent of approximately $13
million.
NOTE E - INVESTMENT IN AFFILIATE
At March 31, 1998, the Company's effective ownership percentage of
Danubius, Rt. ("Danubius"), a publicly traded company, was approximately
30% at a cumulative cost of approximately $25 million. Danubius owns a
number of hotels in Hungary and specializes in spa facilities.
-8-
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE E (CONTINUED)
Accordingly, the Company accounted for this investment under the equity
method at March 31, 1998. Under this method, the investment is carried at
cost plus the Company's share of earnings or losses less distributions.
Since the Company's share of the underlying net assets of Danubius
exceeded the cost at the various purchase dates, the excess of the fair
value of the net assets acquired over the cost is amortized over a period
of forty years.
The following is summarized financial information of Danubius (in
thousands), which was prepared in accordance with international accounting
standards. There were no significant differences between international
accounting standards and generally accepted accounting standards in the
United States:
<TABLE>
<CAPTION>
MARCH 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Current assets $21,853 $21,388
Noncurrent assets 148,446 148,421
Current liabilities 11,917 11,478
Noncurrent liabilities 48,392 25,491
Stockholders' equity 109,990 132,840
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED Three Months ended
MARCH 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Sales $17,897 $17,920
Operating (loss) income (528) (2,342)
Net (loss) income (650) (1,897)
</TABLE>
-9-
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F- COMPREHENSIVE LOSS
In 1997, the Financial Accounting Standards Board issued Statement No.
130 "Reporting Comprehensive Income" ("SFAS 130"), which is required to be
adopted for fiscal years beginning after December 15, 1997. This statement
establishes new rules for the reporting and display of comprehensive income and
its components. The adoption of this Statement had no impact on the Company's
net income or shareholders' equity. SFAS 130 requires foreign currency
translation adjustments to be included in other comprehensive income.
-10-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is presently operated as a holding company with subsidiaries
in three principal operating geographic areas: (1) Investor RT, a Hungarian
holding company ("Investor" or "Investor Group"), which through its
subsidiaries, engages in a variety of commercial activities in Hungary; (2) The
Israel Tractors and Equipment Company Limited ("Israel Tractor"), an Israeli
corporation, which distributes tractors and related heavy machinery in Israel
and (3) Balton C.P. Limited, an English holding company with African
subsidiaries ("Balton CP") engaged in trading activities in several African
countries.
Substantially all of the Company's revenues are derived from foreign
operations. As such, its income is significantly affected by fluctuations in
currency exchange rates and by currency controls. Most of the countries where
the Company operates such as Hungary and several African countries do not have
freely convertible currencies and their currencies have been subject to
devaluations in recent years. In particular, during 1997, the income from the
Company's Hungarian and African subsidiaries was significantly reduced by
losses arising from foreign exchange transactions due to significant currency
devaluations against the U.S. dollar. The Hungarian currency which is not
freely convertible and which floats against a basket of two currencies (the
U.S. Dollar and the European Currency Unit) underwent devaluations against the
U.S. Dollar at the rate of 24% during 1997. Since the beginning of 1998, the
Hungarian currency has been further devalued by approximately 3% against the
U.S. Dollar. Since the functional currency for Investor is the Hungarian
Forint, these devaluations have resulted in certain currency translation
adjustments directly impacting stockholders' equity. See Notes A(8) and N of
Notes to Registrant's Consolidated Financial Statements on Form 10-K for the
year ended December 31, 1997.
The Company may be subject to tax in some or all of the foreign countries
in which it has operations. However, foreign taxes imposed on the Company's
income may qualify as a foreign income tax and therefore be eligible for credit
against the Company's United States income tax liability subject to certain
limitations set out in the Internal Revenue Code of 1986, as amended (or
alternatively, for deduction against income in determining such liability). The
limitations set out in the Code include, among others, computation rules under
which foreign tax credits allowable with respect to specific classes of income
cannot exceed the United States federal income taxes otherwise payable with
respect to each class of income. Foreign income taxes exceeding the credit
limitation for the year of payment or accrual can be carried back for two
taxable years and forward for five taxable years, in order to reduce United
States federal income taxes, subject to the credit limitations applicable in
each of such years. Other restrictions on the foreign tax credit include a
prohibition on the use of the credit to reduce liability for the United States
corporate alternative minimum taxes by more than 90%.
11
<PAGE>
The Company has three primary areas of operation with respect to its
subsidiaries:
(a) Investor and its subsidiaries in Hungary
(b) Israel Tractor in Israel
(c) Balton CP and its subsidiaries in Nigeria, Ghana, Zambia,
Tanzania, Kenya, Uganda and the Cote D'Ivoire.
The Company has five principal business segments:
(a) vehicle sales and service
(b) export/import and processing/storage of agricultural products
(c) the distribution of tractors and other heavy equipment
(d) the sale of agricultural, communications and electrical equipment
(e) other industries including retail and wholesale consumer products
and Hungarian corporate.
RESULTS OF OPERATIONS
The table below sets forth for fiscal quarters ended March 31,
1998 and 1997 certain information with respect to the results of operations of
the Company and its principal subsidiaries.
<TABLE>
<CAPTION>
Three Months Ended Net Sales Gross Profit Income (Loss) Net Income (Loss)
March 31, 1998 --------- ------------ before Income -----------------
- -------------- Taxes and
Minority Interests
------------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
(In thousands) (In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
IIC Industries -- -- -- -- (74) (16.9) (108) (12.7)
Inc.
(parent company)
Israel Tractors & $14,467 25.5 $3,811 35.9 (207) (47.2) (401) (47.1)
Equipment Co.
(Israel)
Balton CP Group 11,857 20.9 3,787 35.7 33 7 76.8 99 11.6
(Africa)
Investor RT 30,405 53.6 3,018 28.4 (495) (112.7) (441) (51.8)
Group (Hungary) ------ ---- ----- ---- ----- --------- ----- ------
$56,729 100.0 $10,616 100.0 $(439) 100.0 $(851) 100.0
======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Net Sales Gross Profit Income (Loss) Net Income (Loss)
March 31, 1997 --------- ------------ before Income -----------------
- -------------- Taxes and
Minority Interests
------------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
(In thousands) (In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
IIC Industries -- -- -- -- $17 2.2 $15 4.7
Inc.
(parent company)
Israel Tractors & $20,761 34.3 $5,251 43.4 864 109.9 502 169.5
Equipment Co.
(Israel)
Balton CP Group 11,775 19.5 3,601 29.8 908 115.5 299 101.0
(Africa)
Investor RT 27,905 46.2 3,235 26.8 (1,003) (127.6) (519) (175.2)
------ ---- ----- ---- ------- --------- ----- ------
Group (Hungary)
$60,441 100.0 $12,087 100.0 $786 100.0 $297 100.0
======= ===== ======= ===== ==== ===== ==== =====
</TABLE>
12
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
Net Sales. Net Sales on a consolidated basis for the fiscal quarter ended
March 31, 1998 decreased by approximately $3,712,000 as compared to the
comparable period in 1997. The decrease is primarily due to reduced demand of
products in Israel Tractor.
Gross Profit. Gross Profit on a consolidated basis for the fiscal quarter
ended March 31, 1998 decreased by approximately $1.5 million or approximately
12.2%, to approximately $10.6 million, or approximately 19% of Net Sales, from
approximately $12.1 million, or approximately 20% of Net Sales, in the
corresponding period in 1997. This decrease was mainly attributable to decreased
sales in Israel Tractor.
Operating income. Operating income on a consolidated basis for the first
fiscal quarter of 1998 decreased by approximately $566,000, or approximately
74%, to $200,000, or approximately 0.3% of net sales, from approximately
$766,000 million, or approximately 1.3% of Net Sales for the corresponding
period in 1997. This decrease was principally due to the reasons stated in the
Gross Profit section.
Interest income. Interest income decreased for the quarter by $17,000, or
approximately 3.1%, to $523,000.
Interest expense. Interest expense in the quarter decreased by $760,000,
or approximately 44%, to approximately $949,000 due to reduction in bank loans.
(Loss) Income before Income Taxes and Minority Interest. (Loss) before
Income Taxes and Minority Interest in the first fiscal quarter of 1998 was
approximately $439,000, compared to Income before Income Taxes and Minority
Interest in the first fiscal quarter of 1997 of approximately $786,000.
Minority Interests. Minority Interests in the quarter decreased by
$260,000 as a result of losses in the Investor group.
Net (Loss) Income. Net (Loss) for the first fiscal quarter of 1998 was
approximately $851,000, compared to Net Income in the first fiscal quarter of
1997 of approximately $297,000.
13
<PAGE>
The table below sets forth for the three months ended March 31, 1998 and
1997 certain information with respect to the results of operations of the
Company and its five principal business segments.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
Income (Loss) before Income (Loss) before
Income Taxes and Income Taxes and
Net Sales Minority Interest Net Sales Minority Interest
--------- -------------------- --------- --------------------
Amount % Amount % Amount % Amount %
(In (In (In (In
thousands) thousands) thousands) thousands)
- ------------------------- ----------- -------- -------------- ------- ---------- ---- ------- ---------- --- ------- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vehicle sales and $ 2,828 5.0 $ 39 8.9 $ 2,179 3.6 $(31) (3.9)
distribution (Investor)
Export and import of 27,208 47.9 (221) (50.3) 25,413 42.1 (2,014) (256.3)
agricultural products
(Investor)
Other Industries 369 0.7 (387) (88.2) 313 0.5 1,059 134.7
(Investor)
Tractors and heavy 14,467 25.5 (207) (47.2) 20,761 34.3 864 110.0
equipment
(Israel Tractor)
Agricultural, 11,857 20.9 337 76.8 11,775 19.5 908 115.5
communications and
electrical equipment
(Balton CP)
-------- ----- ------- ---- ------- ----- ------ -----
$56,729 100.0 $ 439 (100.0) $60,441 100.0 $786 100.0
========= ===== ====== ======= ======= ===== ====== =====
</TABLE>
INVESTOR
The operations of three of the Company's segments are conducted in Hungary
through Investor. Investor's business is significantly affected by general
conditions in Hungary. General economic difficulties have contributed to a
recession in Hungary, which has had a negative effect on Investor's business.
With such conditions, despite management's actions in reducing overhead costs
and closing unprofitable operations, Investor has shown a loss for the quarter.
Vehicle Sales and Service Segment
o Net Sales for the three months ended March 31, 1998 increased by
approximately $649,000, or approximately 29.8%, as compared to the
corresponding period in 1997.
o There was Income before Minority Interests and Income Taxes for the
three months ended March 31, 1998 of $39,000 as compared to a loss of
$31,000 in the corresponding period in 1997.
The increase in Net Sales and in Income before Income Taxes and Minority
Interests was primarily due to increased marketing activity resulting in more
vehicles being sold, while maintaining the margin.
14
<PAGE>
Export/Import and Processing/Storage of Agricultural Products Segment
o Net Sales for the three months ended March 31, 1998 increased by
approximately $1,795,000, or 7.1%, as compared to the corresponding
period in 1997. The increase in Net Sales was primarily due to
increased export sales of wheat and maize.
o The Loss before Income Taxes and Minority Interest for the three
months ended March 31, 1998 decreased by approximately $1.8 million to
a net loss of $221,000. This decrease was primarily due to an increase
in margin from milling activities and a lower cost base as a result of
rationization.
Other Industries
o Net Sales for the quarter ended March 31, 1998 increased by
approximately $56,000, or approximately 17.9%, as compared to the
corresponding period in 1997.
o The Loss before Income Taxes and Minority Interest was approximately
$313,000 for the three months ended March 31, 1998, compared to income
of approximately $1,059,000 for the three months ended March 31, 1997.
The decrease arose primarily due to the sale of land and investments
in 1997.
ISRAEL TRACTOR: TRACTORS AND HEAVY EQUIPMENT SEGMENT
o Net Sales for the three months ended March 31, 1998 decreased by $6.3
million, or approximately 30.3% as compared to the corresponding
period in 1997. This decrease was due to a reduction in demand for the
Company's products.
o The Loss before Income Taxes and Minority Interest for the three
months ended March 31, 1998 was $207,000 as compared to Income before
Income Taxes and Minority Interest of $864,000 for the corresponding
period in 1997 as a result of lower trading activity.
BALTON CP: AGRICULTURAL, COMMUNICATIONS AND ELECTRICAL EQUIPMENT
SEGMENT
o Net Sales for the three months ended March 31, 1998 increased by
approximately $82,000, or approximately 0.6%, as compared to the
corresponding period in 1997. This was due to increased demand for the
Company's products.
o Income before Income Taxes and Minority Interests for the three months
ended March 31, 1997 decreased by approximately $571,000, or
approximately 63% as compared to the corresponding period in 1997.
This decrease was due to an increase in operating expenses.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through funds generated internally
and through cash and cash equivalents available at the beginning of 1998. At
March 31, 1998, IIC Industries Inc. (the "Parent Company"), and its
wholly-owned Israel Tractor subsidiary, had working capital of $40.1 million,
including cash and cash equivalents of $19 million. Cash of subsidiaries that
are not wholly-owned (including the Investor Group and the Balton CP Group) is
generally not available for use by the Parent Company or other subsidiaries
(except to the extent paid to the Parent Company as reimbursement for general
overhead paid by the Parent Company or as management fees) other than in the
form of dividends, if and when declared. Dividends to the Parent Company from
its Israel Tractor subsidiary are subject to a withholding tax of 15% to 25%.
The Parent Company does not expect to receive cash dividends or other
distributions in the foreseeable future from any of its subsidiaries.
At March 31, 1998, Investor and Balton Tractor had outstanding short-term
indebtedness of approximately $12.2 million and $5.3 million, respectively.
At March 31, 1998, Investor , Israel Tractor, and Balton had unused lines
of short-term credit of $7.9 million, $3.6 million and $4.5 million,
respectively.
During the first quarter of 1998, Investor, Israel Tractor, and Balton
made capital expenditures of $595,000; $137,000 and $759,000, respectively, for
the purchase of equipment and vehicles and improvements to property. Such
expenditures were made from internally generated funds. At March 31, 1998, the
Company had no significant capital commitments.
INFLATION
Inflation has been a persistent aspect of the Hungarian economy in recent
years, although the annual rate of inflation has been predictable and has
therefore been taken into account by the government and private businesses.
Inflation has contributed to the devaluation of the Hungarian currency and has
therefore had an effect on Investor's financial condition.
Inflation in Israel was moderate in 1997 and during the first quarter of
1998, and therefore did not significantly affect operations in that country.
Furthermore, the devaluation of the Israeli shekel against the U.S. Dollar for
the first three months of 1998 was an annual rate of 6%.
Significant rates of inflation persisted in the African countries where
Balton CP operates, triggering significant devaluations of local currencies.
YEAR 2000 COMPLIANCE
The Company has evaluated the impact of the Year 2000 issue on the
business and does not expect to incur significant costs with year 2000
compliance. The Company believes that all software and hardware requirements to
enable it to cope with year 2000 issue have been or being currently
implemented. However, there can be no assurance that unanticipated costs may
not arise in implementing these requirements.
16
<PAGE>
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the period covered by this
report.
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
17
<PAGE>
SIGNATURES
In accordance with 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.
Date: May 20, 1998
IIC INDUSTRIES, INC.
By: /s/ Fortunee F. Cohen
----------------------------
Fortunee F. Cohen, Secretary
<PAGE>
SIGNATURES
In accordance with 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.
Date: ________________, 1998
IIC INDUSTRIES, INC.
By:_____________________________
Fortunee F. Cohen, Secretary
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