<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 September 30, 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 October 31, 1998.
<PAGE>
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets
at September 30, 1998
and December 31, 1997 3
Consolidated Statements of Income
for the Nine Months Ended
September 30, 1998 and September 30, 1997 5
Consolidated Statements of Income
for the Three Months Ended
September 30, 1998 and September 30, 1997 6
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1998 and September 30, 1997 7
Notes to Consolidated Financial
Statements 8
</TABLE>
-2-
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $9,522 $22,781
Accounts receivable, net 37,957 37,487
Inventories (Note C) 36,892 44,859
Other current assets 5,588 10,484
--------- ----------
Total current assets 89,959 115,611
RESTRICTED CASH 211
PROPERTY AND EQUIPMENT, NET 35,121 29,585
INVESTMENTS IN AND ADVANCES TO AFFILIATES 41,166 28,361
OTHER ASSETS 4,253 2,274
--------- ----------
$170,499 $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>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $26,587 $ 22,301
Bank loans 13,243 23,490
Current maturities of long-term debt 15 1,661
Accrued expenses and other payables 12,288 13,405
Advances from customers 3,884 3,932
---------- ---------
Total current liabilities 56,017 64,789
LONG-TERM DEBT, less current portion 3,267 1,508
DUE TO AFFILIATES 1,429 1,692
OTHER LIABILITIES AND DEFERRED CREDITS 5,325 5,759
MINORITY INTEREST IN SUBSIDIARIES 14,748 15,149
---------- ---------
80,786 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 102,259 97,426
Foreign translation adjustment (34,348) (32,083)
Less treasury stock - at cost (649,752 shares) (2,725) (2,725)
---------- ---------
89,713 87,145
---------- ---------
$170,499 $176,042
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $154,814 $178,582
Cost of sales 120,489 141,872
-------- --------
Gross profit 34,325 36,710
Selling, general and administrative expenses 31,507 32,635
-------- --------
Operating income 2,818 4,075
-------- --------
Other income (expenses)
Interest income 1,165 1,639
Equity in earnings of affiliates 4,964 3,950
Foreign currency loss (Note B) (600) (1,938)
Gain on sale of noncurrent assets, net 245 1,907
Interest expense (2,136) (3,590)
Other, net 566 727
-------- --------
Income before income taxes and
minority interest 7,022 6,770
Income taxes (1,941) (753)
-------- --------
Income before minority interest 5,081 6,017
Minority Interest (248) 110
-------- --------
NET INCOME $ 4,833 $ 6,127
Other comprehensive loss:
Foreign currency translation adjustments (2,265) (4,853)
-------- --------
COMPREHENSIVE INCOME $ 2,568 $ 1,274
======== ========
Basic net income per common share $ 0.45 $ 0.22
======== ========
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 INCOME
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $ 42,311 $ 58,161
Cost of sales 31,338 46,059
-------- --------
Gross profit 10,973 12,102
Selling, general and administrative expenses 10,011 10,369
-------- --------
Operating income 962 1,733
-------- --------
Other income (expenses)
Interest income 186 598
Equity in earnings of affiliates 3,312 2,069
Foreign currency (loss) (Note B) (310) (542)
Gain on sale of noncurrent assets, net 319 80
Interest expense (376) (1,117)
Other, net 118 293
-------- --------
Income before income taxes and
minority interest 4,211 3,114
Income taxes 453 439
-------- --------
Income before minority interest 3,758 3,553
Minority Interest (182) (60)
-------- --------
NET INCOME $ 3,576 $ 3,493
Other comprehensive income:
Foreign currency translation adjustments 47 (1,117)
-------- --------
COMPREHENSIVE INCOME $ 3,623 $ 2,376
======== ========
Basic net income per common share $ 0.64 $ 0.42
======== ========
Basic average number of common shares outstanding 5,693,472 5,693,472
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
Net cash provided by operating activities $3,639 $ 4,002
-------- --------
Cash flows from investing activities
Purchase of subsidiary shares, net of cash acquired (1,738) (325)
Purchase of property and equipment (3,502) (3,413)
Purchase of investments (13,041) (2,159)
Advances to affiliates (2,000)
Purchase of other assets (2) (26)
Proceeds on disposal of property and equipment 1,367 1,987
Proceeds on disposal of investments 108 203
Restricted cash 211 7,029
-------- --------
Net cash (used in) provided by investing activities (18,597) 3,296
-------- --------
Cash flows from financing activities
Issuance of long-term debt 844 1,096
Payments on long-term debt (211)
Net receipts (payments) of short-term bank loans 1,242 (6,424)
-------- --------
Net cash provided by (used in) financing activities 1,875 (5,328)
Effect of exchange rate on cash (176) (640)
-------- --------
Net (decrease) increase in cash and cash equivalents
during the period (13,259) 1,330
Cash and cash equivalents at beginning of period 22,781 17,211
-------- --------
Cash and cash equivalents at end of period 9,522 $18,541
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest $1,824 $3,417
Income taxes 1,743 2,614
</TABLE>
The accompanying notes are an integral part of these statements.
7
<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 recurring nature and
disclosures necessary to present fairly the financial position of the
Company as of September 30, 1998 and December 31, 1997 and the results of
operations and cash flows for the nine months ended September 30, 1998 and
September 30, 1997.
NOTE B - FOREIGN CURRENCY EXCHANGE
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 balance sheet 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, 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 subsidiaries, 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.
8
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
NOTE C - INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $3,957 $ 5,826
Work-in-progress 887 519
Finished goods 32,048 38,514
------------ ------------
$36,892 $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. Balton
has agreed to indemnify a co-guarantor for any losses accumulating to
$735,000.
Balton has given guarantees to third parties in the amount of
approximately $1,590,000.
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 $7.4
million.
NOTE E - INVESTMENT IN AFFILIATE
At September 30, 1998, the Company's effective ownership percentage of
Danubius, Rt. ("Danubius"), a publicly traded company, was approximately
37% at a cumulative cost of approximately $38 million. Danubius owns a
number of hotels in Hungary and specializes in spa facilities. At
September 30, 1998, the quoted market value of the Company's effective
investment was approximately $40,500,000.
9
<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 September 30, 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>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Current assets $45,215 $38,045
Noncurrent assets 144,344 153,136
Current liabilities 16,126 19,241
Noncurrent liabilities 50,356 52,953
Stockholders' equity 123,077 118,987
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Sales $86,534 $84,469
Operating income 22,594 17,492
Net income 15,246 14,523
</TABLE>
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 6% 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 Ivory Coast.
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 operations.
RESULTS OF OPERATIONS
The table below sets forth for the nine months ended September
30, 1998 and 1997 certain information with respect to the results of operations
of the Company and its principal subsidiaries.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NET SALES GROSSF PROFIT INCOME (LOSS) BEFORE NET INCOME (LOSS)
- ----------------- ------------------ -------------------- INCOME TAXES AND -----------------------
SEPTEMBER 30, 1998 MINORITY INTERESTS
- ------------------ --------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ --- ------ ---
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IIC Industries Inc. -- -- -- -- $(117) (1.7) $(144) (3.0)
(parent company)
Israel Tractors & $41,254 26.6 $11,571 33.8 42 0.6 (525) (10.8)
Equipment Co. (Israel)
Balton CP Group 49,934 32.3 13,541 39.4 2,480 35.3 827 17.1
(Africa)
Investor RT Group 63,626 41.1 9,213 26.8 4,617 65.8 4,675 96.7
(Hungary) ------ ---- ----- ---- ----- ----- ----- ----
$154,814 100.0 $34,325 100.0 $7,022 100.0 $4,833 100.0
======== ===== ======= ===== ======= ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NET SALES GROSSF PROFIT INCOME (LOSS) BEFORE NET INCOME (LOSS)
- ----------------- ------------------ -------------------- INCOME TAXES AND -----------------------
SEPTEMBER 30, 1997 MINORITY INTERESTS
- ------------------ --------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ --- ------ ---
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IIC Industries Inc. -- -- -- -- $56 0.8 $24 0.4
(parent company)
Israel Tractors & $52,011 29.1 $14,391 39.2 1,676 24.8 1,271 20.7
Equipment Co. (Israel)
Balton CP Group (Africa) 36,552 20.5 11,333 30.9 1,955 28.9 768 12.5
Investor RT Group 90,019 50.4 10,986 29.9 3,083 45.5 4,064 66.4
(Hungary) ------ ---- ------ ---- ----- ----- ----- ----
$178,582 100.0 $36,710 100.0 $6,770 100.0 $6,127 100.0
======== ===== ======= ===== ======= ===== ====== =====
</TABLE>
12
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
- ----------------------------------
Net Sales. Net Sales on a consolidated basis for the nine months ended
September 30, 1998 decreased by approximately $23.8 million or approximately
13.3%, as compared to the comparable period in 1997. This decrease was mainly
attributable to a reduction in demand for Israel Tractor's products and the
rationalization of Investor's agricultural commodity trading activities.
Gross Profit. Gross Profit on a consolidated basis for the nine months
ended September 30, 1998 decreased by approximately $2.4 million or
approximately 6.5%, to approximately $34.3 million, or approximately 22.2% of
Net Sales, from approximately $36.7 million, or approximately 20.6% of Net
Sales, in the corresponding period in 1997. This decrease was mainly
attributable to the reasons stated in the Net Sales section.
Operating income. Operating income on a consolidated basis for the nine
months ended September 30, 1998 decreased by approximately $1.3 million, or
approximately 31%, to approximately $2.8 million, or approximately 1.8% of net
sales, from approximately $4.1 million, or approximately 2.3% of Net Sales for
the corresponding period in 1997. This decrease was principally due to the
reasons stated in the Gross Profits section.
Interest income. Interest income decreased for the nine months ended
September 30, 1998 by approximately $474,000, or approximately 29%, from the
corresponding period in 1997, to approximately $1 million due to the investment
of its cash for additional shares in Danubius Hotel & Spa Rt. (the "Hotel
Company" or the "Danubius").
Interest expense. Interest expense for the nine months ended decreased by
approximately $1.5 million or approximately 41% from the corresponding period
in 1997, to approximately $2.1 million due to an decrease in bank loans.
Income before Income Taxes and Minority Interest. Income before Income
Taxes and Minority Interest for the first nine months ended increased by
approximately $250,000, or approximately 3.7 %, to approximately $7 million in
the first nine months (representing approximately 4.5 % of Net Sales for that
period) from approximately $6.8 million for the corresponding period in 1997
(representing 3.8 % of Net Sales for that period).
Minority Interests. Minority Interests for the nine months ended
increased by approximately $360,000, from the corresponding period in 1997,
as a result of higher income.
Net Income. Net Income for the nine months ended September 30, 1998
decreased by approximately $1.3 million (or approximately 21%) to approximately
$4.8 million (representing approximately 3.1 % of Net Sales for that period)
from approximately $6.1 million for the corresponding period in 1997
(representing approximately 3.4% of Net Sales for that period).
13
<PAGE>
The table below sets forth for the nine months ended September 30, 1998
and 1997 certain information with respect to the results of operations of the
Company and its five principal business segments.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 1997
INCOME BEFORE INCOME BEFORE
INCOME TAXES AND INCOME TAXES AND
NET SALES MINORITY INTEREST NET SALES MINORITY INTEREST
------------------- -------------------- ---------------------- -----------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vehicle sales and $10,057 6.5 $200 2.8 $8,368 4.7 $49 0.7
distribution (Investor)
Export and import of 52,238 33.8 (321) (4.6) 80,535 45.1 (2,146) (31.7)
agricultural products
(Investor)
Other Industries 1,331 0.8 4,621 65.9 1,116 0.6 5,236 77.3
(Investor)
Tractors and heavy 41,254 26.6 42 0.6 52,011 29.1 1,676 24.8
equipment
(Israel Tractor)
Agricultural, 49,934 32.3 2,480 35.3 36,552 20.5 1,955 28.9
communications and
electrical equipment
(Balton CP)
-------- ----- ------ ----- -------- ----- ------ -----
$154,814 100.0 $7,022 100.0 $178,582 100.0 $6,770 100.0
======== ===== ====== ===== ======== ===== ====== =====
</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.
Despite such conditions, because of management's actions in reducing overhead
costs and closing unprofitable operations, Investor has remained profitable for
the first nine months of 1998.
Vehicle Sales and Service Segment
---------------------------------
o Net Sales for the nine months ended September 30, 1998 increased by
approximately $1.7 million, or approximately 20.2%, as compared to the
corresponding period in 1997.
o There was a Profit before Minority Interests and Income Taxes for the
nine months ended September 30, 1998 of $200,000 as compared to a
profit of $49,000 in the corresponding period in 1997.
The increase in Net Sales and Income before Income Taxes and Minority
Interests was primarily due to increased marketing activities
resulting in more vehicles being sold, while maintaining margins.
14
<PAGE>
Export/Import and Processing/Storage of Agricultural Products Segment
---------------------------------------------------------------------
o Net Sales for the nine months ended September 30, 1998 decreased by
approximately $28.3 million, or approximately 35.1%, as compared to
the corresponding period in 1997. The decrease in Net Sales was
primarily due to difficult market conditions and the rationalization
of activities, including, in particular, the sale of the agricultural
commodity trading business.
o Loss before Income Taxes and Minority Interest for the nine months
ended September 30, 1998 decreased by approximately $1.8 million, or
approximately 85% as compared to the corresponding period in 1997.
This decrease was mainly attributable to a lower cost base as a result
of rationalization, together with an increase in profitability from
milling activities.
Other Industries
----------------
o Net Sales for the nine months ended September 30, 1998 increased by
approximately $215,000, or approximately 19%, as compared to the
corresponding period in 1997 due to activity in the warehouse and
storage business.
o There was a Profit before Income Taxes and Minority Interest of
approximately $4.6 million for the nine months ended September 30,
1998, compared to a profit of approximately $5.2 million for the nine
months ended September 30, 1997. This decrease is as a result of
non-recurring income of $1.8 million in 1997.
ISRAEL TRACTOR: TRACTORS AND HEAVY EQUIPMENT SEGMENT
----------------------------------------------------
o Net Sales for the nine months ended September 30, 1998 decreased by
approximately $10.8 million or approximately 20.68% as compared to the
corresponding period in 1997, due to a reduction in demand for the
Company's products.
o Income before Income Taxes and Minority Interest for the nine months
ended September 30, 1998 decreased by approximately $1.6 million, or
approximately 97% as compared to 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 nine months ended September 30, 1998 increased by
approximately $13.4 million, or approximately 36.6%, 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 nine months
ended September 30, 1998 increased by approximately $525,000 million,
or approximately 26.9 % as compared to the corresponding period in
1997. This increase was due to an increase in operating activities.
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
September 30, 1998, IIC Industries Inc., the parent company (the "Parent
Company"), and its wholly-owned Israel Tractor subsidiary, had working capital
of $24.8 million, including cash and cash equivalents of $5.6 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 September 30, 1998, Investor, Israel Tractor and Balton had outstanding
short-term indebtedness of approximately $4.1 million, $3.3 million, and $5.8
million, respectively.
At September 30, 1998, Investor, Israel Tractor and Balton had unused
lines of short-term credit of $12.2 million, $3 million, and $5.2 million,
respectively.
During the first nine months of 1998, Investor, Israel Tractor, and Balton
made capital expenditures of $1,365,000; $56,000; and $2,081,000 ,
respectively, for the purchase of equipment and vehicles and improvements to
property. Such expenditures were made from internally generated funds. At
September 30, 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. The devaluation of the Israeli
shekel against the U.S. Dollar for the first nine months of 1998 was at an
annual rate of 11.5%, and subsequently, the devaluation has increased to 25%
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 will
not rise in implementing these requirements.
16
<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: November 13, 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: , 1997
------------
IIC INDUSTRIES, INC.
By:
----------------------------
Fortunee F. Cohen, Secretary
<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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 9,522
<SECURITIES> 0
<RECEIVABLES> 37,957
<ALLOWANCES> 2,982
<INVENTORY> 36,892
<CURRENT-ASSETS> 89,959
<PP&E> 35,121
<DEPRECIATION> 17,582
<TOTAL-ASSETS> 170,499
<CURRENT-LIABILITIES> 56,017
<BONDS> 0
0
0
<COMMON> 1,586
<OTHER-SE> 88,127
<TOTAL-LIABILITY-AND-EQUITY> 170,499
<SALES> 154,814
<TOTAL-REVENUES> 154,814
<CGS> 120,489
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 31,507
<LOSS-PROVISION> 110
<INTEREST-EXPENSE> 2,136
<INCOME-PRETAX> 7,022
<INCOME-TAX> 1,941
<INCOME-CONTINUING> 4,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,833
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
