<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, 2000
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: 0-27860
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)
171 Madison Avenue; New York, N.Y. 10016
- ---------------------------------------- -------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 889-7201
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, 2000.
<PAGE>
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets Page
at March 31, 2000 ----
and December 31, 1999 3
Consolidated Statements of Operations and Comprehensive Loss
for the Three Months Ended
March 31, 2000 and March 31, 1999 5
Consolidated Statement of Cash Flows
for the Three Months Ended
March 31, 2000 and March 31, 1999 6
Notes to Consolidated Financial
Statements 7
2
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollar amounts in thousands, except share data)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 6,310 $ 9,563
Accounts receivable, net 36,323 38,524
Inventories, net (Note C) 31,941 32,554
Other current assets 13,279 9,688
-------- --------
Total current assets 87,853 90,329
DUE FROM AFFILIATE 3,150 3,150
PROPERTY AND EQUIPMENT, NET 25,255 26,135
INVESTMENTS 47,441 46,809
OTHER ASSETS 3,110 6,741
-------- --------
$166,809 $173,164
======== ========
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)
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------- ---------
CURRENT LIABILITIES
Accounts payable $ 23,681 $ 21,564
Bank loans 14,145 19,018
Current maturities of long-term debt 2,853 3,005
Accrued expenses and other payables 9,443 11,597
Due to related parties 915 1,947
Advances from customers 3,875 2,609
--------- ---------
Total current liabilities 54,912 59,740
LONG-TERM DEBT, less current portion 1,117 1,197
DUE TO AFFILIATES 1,970 2,046
OTHER LIABILITIES AND DEFERRED
CREDITS 6,321 6,434
MINORITY INTERESTS 13,994 14,851
--------- ---------
78,314 84,268
CONTINGENCIES (Note D)
STOCKHOLDERS' EQUITY
Common stock, $0.25 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 108,262 106,816
Accumulated other comprehensive loss (41,569) (39,722)
Less treasury stock - at cost (649,752 shares) (2,725) (2,725)
--------- ---------
88,495 88,896
--------- ---------
$ 166,809 $ 173,164
========= =========
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)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
Net sales $ 37,071 $ 39,922
Cost of sales 27,654 28,130
----------- -----------
Gross profit 9,417 11,792
Selling, general and administrative expenses 9,435 10,458
----------- -----------
Operating (loss) income (18) 1,334
----------- -----------
Other income (expenses)
Interest income 432 290
Equity in (loss) earnings of affiliates (663) (710)
Foreign currency loss (Note B) (780) (882)
Gain on sale of noncurrent assets, net 2,076 71
Interest expense (582) (487)
Other, net 822 118
----------- -----------
Income (loss) before income taxes and
minority interest 1,287 (266)
Income taxes 3 (190)
----------- -----------
Income (loss) before minority interests 1,290 (456)
Minority interests 156 (265)
----------- -----------
NET INCOME (LOSS) $ 1,446 $ (721)
Other comprehensive income:
Foreign currency translation adjustments (1,847) (2,119)
----------- -----------
COMPREHENSIVE (LOSS) $ (401) $ (2,840)
=========== ===========
Basic net income (loss) per common share $ 0.25 $ (0.13)
=========== ===========
Basic average number of common shares outstanding 5,693,472 5,693,472
=========== ===========
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,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 3,188 $ (1,437)
-------- --------
Cash flows from investing activities
Purchase of property and equipment (640) (590)
Purchase of investments (3,645) (26)
Advances from affiliates 339
Proceeds on disposal of property and equipment 104 1,123
Proceeds on disposal of investments 2,732
--------
Restricted cash (67)
--------
Net cash (used in) provided by investing activities (1,110) 440
-------- --------
Cash flows from financing activities
Issuance of long-term debt 278
Principal payments of long term debt (21) (100)
Net (payments) receipts of short-term bank loans (5,120) 2,051
-------- --------
Net cash (used in) provided by financing activities (5,141) 2,229
Effect of exchange rate on cash (190) (114)
-------- --------
Net (decrease) increase in cash and cash equivalents
during the period (3,253) $ 1,118
Cash and cash equivalents at beginning of period 9,563 10,957
-------- --------
Cash and cash equivalents at end of period $ 6,310 $ 12,075
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest $ 763 $ 477
Income taxes 65 396
</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, 2000 and December 31, 1999 and the results of
operations and cash flows for the three months ended March 31, 2000 and
March 31, 1999.
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") and ,
Balton C.P. Limited ("Balton"), a wholly-owned and a majority-owned
subsidiary, respectively, use the US dollar as the functional currency,
since the dollar is the currency in which most of the significant business
of Israel Tractor and Balton is conducted, or to which it is linked. These
subsidiaries translate monetary assets and liabilities at year-end exchange
rates and nonmonetary 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.
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:
MARCH 31, December 31,
2000 1999
------- -----
Raw materials $ 4,881 $ 4,950
Work-in-progress 457 517
Finished goods 26,603 27,087
------- -------
$31,941 $32,554
======= =======
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
$735,000.
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 $2 million.
NOTE E - INVESTMENT IN AFFILIATE
At March 31, 2000, the Company's effective ownership percentage of
Danubius, Rt. ("Danubius"), a publicly traded company, was approximately
40% at a cumulative cost of approximately $44 million. Danubius owns a
number of hotels in Hungary and the Czech Republic, which specialize in spa
facilities. During April 2000, the Company purchased another 1.4% of
Danubius shares for approximately $2.5 million.
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, 2000. 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. (See the Investor section of Management's Discussion and
Analysis) There were no significant differences between international
accounting standards and generally accepted accounting standards in the
United States:
MARCH 31, MARCH 31,
2000 1999
-------- --------
Current assets $ 24,597 $ 37,864
Noncurrent assets 127,609 135,077
Current liabilities 15,505 28,771
Noncurrent liabilities 27,150 32,297
Stockholders' equity 109,551 111,873
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Sales $16,897 $18,489
Operating (loss) income (578) 71
Net (loss) income (546) (2,048)
9
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F- GAIN ON SALE OF INVESTMENTS
During March 2000, the Company sold an equity interest in an Israeli oil &
gas exploration venture, which resulted in a gain of approximately $2.1
million
NOTE G- NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for
hedging activities and, as amended by SFAS No. 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS No. 133 will have a significant
impact on the Company's results of operations.
10
<PAGE>
ITEM 2. 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.
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) 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 corporate.
11
<PAGE>
RESULTS OF OPERATIONS
The table below sets forth for fiscal quarters ended March 31, 2000 and
1999, certain information with respect to the results of operations of the
Company and its principal subsidiaries.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000 NET SALES GROSS PROFIT
- ----------------------------------- -------------------------- --------------------------
AMOUNT % AMOUNT %
---------------- --------- ---------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
IIC Industries Inc.
(parent company) ................. -- -- -- --
Israel Tractors & Equipment Co.
(Israel) ......................... $13,133 35.4 $3,500 37.2
Balton CP Group (Africa) .......... 11,959 32.3 3,890 41.3
Investor RT Group
(Hungary) ........................ 11,979 32.3 2,027 21.5
------- ----- ------ -----
$37,071 100.0 $9,417 100.0
======= ===== ====== =====
<CAPTION>
INCOME (LOSS) BEFORE
THREE MONTHS ENDED INCOME TAXES AND
MARCH 31, 2000 MINORITY INTERESTS NET INCOME (LOSS)
- ----------------------------------- --------------------------- --------------------------
AMOUNT % AMOUNT %
---------------- ---------- --------------- ----------
(IN THOUSANDS) (IN THOUSANDS
<S> <C> <C> <C> <C>
IIC Industries Inc.
(parent company) ................. $1,862 144.7 $1,850 127.9
Israel Tractors & Equipment Co.
(Israel) ......................... 169 13.1 211 14.6
Balton CP Group (Africa) .......... (355) (27.6) (179) (12.4)
Investor RT Group
(Hungary) ........................ (389) (30.2) (436) (30.1)
------ ------ ------ ------
$1,287 100.0 $1,446 100.0
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 NET SALES GROSS PROFIT
- ----------------------------------- -------------------------- --------------------------
AMOUNT % AMOUNT %
---------------- --------- ---------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
IIC Industries Inc.
(parent company) ................. -- -- -- --
Israel Tractors & Equipment Co.
(Israel) ......................... $14,703 36.8 $ 3,900 33.1
Balton CP Group (Africa) .......... 13,294 33.3 4,219 35.8
Investor RT Group
(Hungary) ........................ 11,925 29.9 3,673 31.1
------- ----- ------- -----
$39,922 100.0 $11,792 100.0
======= ===== ======= =====
<CAPTION>
INCOME (LOSS) BEFORE
THREE MONTHS ENDED INCOME TAXES AND
MARCH 31, 1999 MINORITY INTERESTS NET INCOME (LOSS)
- ----------------------------------- --------------------------- --------------------------
AMOUNT % AMOUNT %
---------------- ---------- --------------- ----------
(IN THOUSANDS) (IN THOUSANDS
<S> <C> <C> <C> <C>
IIC Industries Inc.
(parent company) ................. $ (44) (16.5) $ (145) ( 20.1)
Israel Tractors & Equipment Co.
(Israel) ......................... 345 129.7 195 27.0
Balton CP Group (Africa) .......... 324 121.8 165 22.9
Investor RT Group
(Hungary) ........................ (891) (335.0) (936) (129.8)
------ ------- ------ -------
$ (266) 100.0 $ (721) 100.0
====== ======= ====== =======
</TABLE>
12
<PAGE>
Net Sales. Net Sales on a consolidated basis for the three months ended
March 31, 2000 decreased by approximately $2.9 million as compared to the
comparable period in 1999. The decrease is primarily due to a reduction in
demand for the products of Israel Tractor and Balton CP.
Gross Profit. Gross Profit on a consolidated basis for the three months
ended March 31, 2000 decreased by approximately $2.4 million or approximately
20%, to approximately $9.4 million, or approximately 25% of Net Sales, from
approximately $11.8 million, or approximately 29.5% of Net Sales, in the
corresponding period in 1999. This decrease was mainly attributable to the
reduction in Sales and the de-consolidation of certain Investor subsidiaries.
Operating income. Operating income on a consolidated basis for the three
months ended March 31, 2000 decreased by approximately $1.34 million, to an
operating loss of $18,000, from approximately $1.33 million, or approximately
3.3% of Net Sales for the corresponding period in 1999. This decrease was
principally due to the reduction in Gross Profit.
Interest income. Interest income decreased for the three months ended March
31, 2000 increased by $142,000, or approximately 49%, to $432,000.
Interest expense. Interest expense in the three months ended March 31,
2000, increased by $95,000, or approximately 19.5%, to approximately $582,000.
Income before Income Taxes and Minority Interests. Income before Income
Taxes and Minority Interests in the first three months ended March 31, 2000 was
approximately $1,287,000, compared to a Loss before Income Taxes and Minority
Interest in the first three months of 1999 of approximately $266,000.
Minority Interests. The value of the Minority Interests for the first three
months ended March 31, 2000 decreased by $421,000 as compared to the first three
months of 1999.
Net Income. Net Income for the first three months ended March 31, 2000 was
approximately $1,446,000, compared to a Net Loss in the first three months of
1999 of approximately $721,000.
13
<PAGE>
The table below sets forth for the three months ended March 31, 2000 and
1999, 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, 2000 Three Months Ended March 31, 1999
Income (Loss) before Income (Loss) before
Income Taxes and Income Taxes and
Net Sales Minority Net Sales Minority Interest
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
distribution (Investor) $2,991 8.0 $75 5.8 $3,304 8.3 $107 40.2
Processing/storage of 7,991 21.6 (219) (17.0) 6,783 17.0 280 105.3
Other Industries including 997 2.7 1,617 125.7 1,838 4.6 (1.322) (497.0)
corporate
Tractors and heavy equipment 13,133 35.4 169 13.1 14,703 36.8 345 129.7
(Israel Tractor)
Agricultural, communications 11,959 32.3 (355) (27.6) 13,294 33.3 324 121.8
and electrical equipment
(Balton CP)
$37,071 100.0 $1,287 100.0 $39,922 100.0 $(266) (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.
Vehicle Sales and Distribution Segment
o Net Sales for the three months ended March 31, 2000 decreased by
approximately $313,000, or approximately 9.5%, as compared to the
corresponding period in 1999.
o There was Income before Minority Interests and Income Taxes for the
three months ended March 31, 2000 of $75,000 as compared to income of
$107,000 in the corresponding period in 1999.
The decrease in Net Sales and in Income before Income Taxes and Minority
Interests was primarily due to the devaluation of the Hungarian forint.
Processing/Storage of Agricultural Products Segment
o Net Sales for the three months ended March 31, 2000 increased by
approximately $1.2 million or 18%, as compared to the corresponding
period in 1999. The increase in Net Sales was primarily due to an
increase in demand of the Company's products.
14
<PAGE>
o The Loss before Income Taxes and Minority Interest for three months
ended March 31, 2000 , was $219,000 compared to Income before Income
Taxes and Minority Interest of $280,000 for the corresponding period in
1999. This decrease in income was primarily due to lower margins.
Other Industries
o Net Sales for the three months ended March 31, 2000 decreased by
approximately $841,000 as compared to the corresponding period in 1999.
o The Income before Income Taxes and Minority Interest was approximately
$1,617,000 for the three months ended March 31, 2000 compared to a loss
of approximately $1,322,000 for the three months ended March 31, 1999.
The increase in income arose primarily due to gain on sale of equity
shares of an oil & gas venture in March 2000, and the reduction of the
loss in 2000 from the equity investment in Danubius. The higher loss in
1999 from the Danubius equity investment was due to a non-recurring
additional depreciation charge of approximately $1.83 million resulting
from the writing off of all assets with a book value of less than $130.
ISRAEL TRACTOR: TRACTORS AND HEAVY EQUIPMENT SEGMENT
o Net Sales for the three months ended March 31, 2000 decreased by $1.6
million,or approximately 11% as compared to the corresponding period in
1999. This decrease was due to a decrease in demand for the Company's
products.
o The Income before Income Taxes and Minority Interest for the three
months ended March 31, 2000 was $169,000 as compared to $345,000 for
the corresponding period in 1999 as a result of the reduction in Sales.
BALTON CP: AGRICULTURAL, COMMUNICATIONS AND ELECTRICAL EQUIPMENT
SEGMENT
o Net Sales for the three months ended March 31, 2000 decreased by
approximately $1.33 million or approximately 10%, as compared to the
corresponding period in 1999. This decrease was due to a reduction in
demand of the Company's products.
o Income before Income Taxes and Minority Interests for the three months
ended March 31, 2000 decreased by approximately $700,000, as compared
to the corresponding period in 1999, as a result of the reduction in
Sales.
15
<PAGE>
INCOME TAXES
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%.
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 2000. At
March 31, 2000, IIC Industries Inc., (the "Parent Company"), and its
wholly-owned Israel Tractor subsidiary, had working capital of $21.6 million,
including cash and cash equivalents of $4.5 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, 2000, Israel Tractor, Investor and Balton had outstanding
short-term indebtedness of approximately $4.5 million, $4.7 million and $5.0
million, respectively.
At March 31, 2000, Israel Tractor, Investor and Balton had unused lines of
short-term credit of $1.7 million, $5.8 million and $11.7 million, respectively.
During the first three months of 2000, Israel Tractor, Investor, and Balton
made capital expenditures of $185,000; $372,000 and $83,000 respectively, for
the purchase of equipment and vehicles and improvements to property. Such
expenditures were made from internally generated funds. At March 31, 2000, the
Company had no significant capital commitments.
16
<PAGE>
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 1999 and during the first three months
of 2000, and therefore did not significantly affect operations in that country.
Furthermore, there was a revaluation of the Israeli shekel against the U.S.
Dollar in the first three months of 2000 of 3.6%.
Significant rates of inflation persisted in the African countries where
Balton CP operates, triggering significant devaluations of local currencies.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities and, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not expect that
the adoption of SFAS No. 133 will have a significant impact on the Company's
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURE ABOUT FOREIGN CURRENCY RISK
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 1999 and the three months ended March 31,
2000, 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 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 15% during 1999. Since the beginning of 2000, the Hungarian currency
has been further devalued by approximately 15% against the U.S. Dollar. Since
the functional currency for Investor is the Forint, these devaluations have
resulted in certain currency translation adjustments directly impacting
stockholders' equity. Furthermore, certain of the African countries such as
Zambia and Uganda operate in hyper-inflationary economies.
17
<PAGE>
Derivative financial instruments are utilized by the Company to reduce foreign
exchange risk and price risk relating to its heavy equipment distribution and
agricultural commodity business. The Company does not hold or issue derivative
financial instruments for trading purposes.
Israel Tractor enters into foreign currency forward contracts and call option
contracts to reduce the impact of fluctuations of certain currencies against the
U.S. dollar. Gains and losses resulting from such transactions are reflected in
the results of operations. These contracts reduce exposure to currency movements
resulting primarily from nondollar-denominated trade receivables and the Israeli
tax effects of dollar-denominated trade purchases.
At March 31, 2000, Israel Tractor had foreign currency forward contracts, with
notional values of $3 million, to purchase and sell Israeli shekels. All of the
contracts mature in the next six months.
Current pricing models were used to estimate the fair values of foreign currency
forward contracts, and call options. The counterparties to these contracts are
creditworthy multinational commercial banks or other financial institutions,
which are recognized market makers.
DISCLOSURE ABOUT INTEREST RATE RISK
The Company is subject to market risk from exposure to changes in
interest rates based on its financing, investing, and cash management
activities. The Company utilizes a balanced mix of debt maturities along with
both fixed-rate and variable-rate debt to manage its exposures to changes in
interest rates. The Company does not expect changes in interest rates to have a
material effect on income or cash flows in 2000, although there can be no
assurances that interest rates will not significantly change.
18
<PAGE>
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On October 28, 1999, the Company filed an 8-K regarding the change in
the Company's Certifying Accountant.
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
19
<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 19, 2000
IIC INDUSTRIES, INC.
By: /s/ Fortunee F. Cohen
-------------------------------------
Fortunee F. Cohen, Secretary
By: /s/ Michael M. Wreschner
-------------------------
Michael M. Wreschner, Director,
Assistant Secretary and assisting
on financial matters.
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 6,310
<SECURITIES> 0
<RECEIVABLES> 36,323
<ALLOWANCES> 2,712
<INVENTORY> 31,941
<CURRENT-ASSETS> 87,853
<PP&E> 25,255
<DEPRECIATION> 17,533
<TOTAL-ASSETS> 166,809
<CURRENT-LIABILITIES> 54,912
<BONDS> 0
0
0
<COMMON> 1,586
<OTHER-SE> 86,909
<TOTAL-LIABILITY-AND-EQUITY> 166,809
<SALES> 37,071
<TOTAL-REVENUES> 37,071
<CGS> 27,654
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,435
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 582
<INCOME-PRETAX> 1,443
<INCOME-TAX> 3
<INCOME-CONTINUING> 1,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,446
<EPS-BASIC> 0.25
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