<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, 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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 13-567594
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(STATE OF OTHER JURISDICTION OF (IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
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171 Madison Avenue; New York, N.Y. 10016
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (Zip Code)
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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 October 31, 2000.
<PAGE>
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Page
Consolidated Balance Sheets ----
at September 30, 2000
and December 31, 1999 3
Consolidated Statements of Income and Comprehensive Income
for the Nine Months Ended
September 30, 2000 and September 30, 1999 5
Consolidated Statements of Income and Comprehensive Income
for the Three Months Ended
September 30, 2000 and September 30, 1999 6
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 2000 and September 30, 1999 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,
ASSETS 2000 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $6,529 $9,563
Accounts receivable, net 45,159 38,524
Inventories, net (Note C) 33,635 32,554
Other current assets 10,535 9,688
------ ------
Total current assets 95,858 90,329
DUE FROM AFFILIATE 3,150 3,150
PROPERTY AND EQUIPMENT, NET 23,731 26,135
INVESTMENTS (Note E) 52,819 46,809
OTHER ASSETS 4,410 6,741
------ ------
$179,968 $173,164
======== ========
</TABLE>
The notes are an integral part of these consolidated financial 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,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY ------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 25,307 $ 21,564
Bank loans 18,462 19,018
Current maturities of long-term debt 566 3,005
Accrued expenses and other payables 9,792 11,597
Due to related parties 4,122 1,947
Advances from customers 4,766 2,609
------ ------
Total current liabilities 63,015 59,740
LONG-TERM DEBT, less current portion 3,020 1,197
DUE TO AFFILIATES 2,204 2,046
OTHER LIABILITIES AND DEFERRED
CREDITS 5,987 6,434
MINORITY INTERESTS 13,455 14,851
------ ------
87,681 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 114,800 106,816
Accumulated other comprehensive loss (44,315) (39,722)
Less treasury stock - at cost (649,752 shares) (2,725) (2,725)
------- --------
92,287 88,896
------- --------
$ 179,968 $173,164
======== =======
</TABLE>
The notes are an integral part of these consolidated financial statements.
4
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $132,837 $131,952
Cost of sales 101,818 95,973
------- -------
Gross profit 31,019 35,979
Selling, general and administrative expenses 29,781 32,888
------- -------
Operating income 1,238 3,091
------- -------
Other income (expenses)
Interest income 962 988
Equity in earnings of affiliates 4,522 4,313
Foreign currency loss (Note B) (2,302) (2,642)
Gain (loss) on sale of noncurrent assets, net (Note F) 2,557 (45)
Interest expense (1,768) (1,195)
Rental income 1,766 2,086
Other, net 1,369 (1,206)
------- --------
Income before income taxes and
Minority interest 8,344 5,390
Income taxes (317) (965)
------- --------
Income before minority interest 8,027 4,425
Minority Interests (43) (195)
-------- --------
NET INCOME $7,984 $4,230
Other comprehensive loss:
Foreign currency translation adjustments (4,593) (3,979)
-------- --------
COMPREHENSIVE INCOME $3,391 $251
======== ========
Basic net income per common share $1.40 $0.74
===== =====
Average number of common shares outstanding 5,693,472 5,693,472
========= =========
</TABLE>
The notes are an integral part of these consolidated financial statements.
5
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $48,882 $40,922
Cost of sales 37,478 29,785
------ ------
Gross profit 11,404 11,137
Selling, general and administrative expenses 10,308 11,176
------ ------
Operating income (loss) 1,096 (39)
------ ------
Other income (expenses)
Interest income 383 423
Equity in earnings of affiliates 2,811 2,970
Foreign currency loss (Note B) (868) (1,272)
Gain (loss) on sale of noncurrent assets, net 376 (359)
Interest expense (740) (379)
Rental income 524 680
Other, net 665 (520)
------ ------
Income before income taxes and
Minority interest 4,247 1,504
Income taxes (54) (356)
----- ------
Income before minority interest 4,193 1,148
Minority Interests (297) 758
------ ------
NET INCOME $3,896 $1,906
Other comprehensive loss:
Foreign currency translation adjustments (2,438) (929)
------ ------
COMPREHENSIVE INCOME $1,458 $977
====== ======
Basic net income per common share $0.68 $0.33
----- -----
Average number of common shares outstanding 5,693,472 5,693,472
========= =========
</TABLE>
The notes are an integral part of these consolidated financial statements.
6
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER30,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 2,184 $(1,839)
------ ------
Cash flows from investing activities
Purchase of property and equipment (1,576) (2,006)
Purchase of investments (5,558) (1,973
Proceeds on disposal of property and equipment 829 655
Advances from (to) affiliates 158 (379)
Proceeds on disposal of investments 2,242 1,261
------
Restricted cash 367
------
Net cash (used in) investing activities (3,905) (2,075)
------ ------
Cash flows from financing activities
Acquisition of treasury shares by subsidiary (1,140)
Issuance of long-term debt 2,104 563
Principal payments of long term debt (2,679) (331)
Net (payments) receipts of short-term bank loans (561) 4,527
------ ------
Net cash (used by) provided by financing activities (1,136) 3,619
Effect of exchange rate on cash (177) (138)
------ ------
Net (decrease) increase in cash and cash equivalents
during the period (3,034) (433)
Cash and cash equivalents at beginning of period 9,563 10,957
------ ------
Cash and cash equivalents at end of period $6,529 $10,524
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest $1,466 $1,051
Income taxes 456 1,121
</TABLE>
The notes are an integral part of these consolidated financial statements.
7
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited Consolidated Financial Statements were prepared
in accordance with the instructions for Form 10-Q and, therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments which are, in the opinion of management,
of a normal recurring nature and are necessary for a fair presentation of the
interim financial statements, have been included. The results of operations for
the periods ended September 30, 2000 and September 30, 1999 are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
other interim period.
The accompanying unaudited Consolidated Financial Statements include the
accounts of IIC Industries and its majority-owned subsidiaries (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
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 period-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 period-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.
8
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE C - INVENTORIES, NET
Inventories, net are as follows:
SEPTEMBER 30, December 31,
2000 1999
------- -----
Raw materials $ 4,577 $ 4,950
Work-in-progress 757 517
Finished goods 28,301 27,087
------ ------
$33,635 $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.
Balton has given guarantees to third parties in the amount $1.6 million.
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 $1.8 million.
NOTE E - INVESTMENTS
At September 30, 2000 and September 30, 1999, the Company's effective
ownership percentage of Danubius, Rt. ("Danubius"), a publicly traded company,
was approximately 41% and 37% at a cumulative cost of approximately $44 million
and $37 million, respectively. Danubius owns a number of hotels in Hungary and
the Czech Republic, which specialize in spa facilities. The Company's share of
Danubius' net assets and was $50.5 million in September 2000 and $47.3 million
in September 1999.
9
<PAGE>
IIC Industries, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE E (CONTINUED)
The Company accounted for these investments under the equity method. Under
this method, the investments are carried at cost plus the Company's share
of earnings or losses less distributions.
The following is unaudited summarized financial information of Danubius (in
thousands), presented in accordance with International Accounting
Standards. There were no significant differences between international
accounting standards and generally accepted accounting principles in the
United States, as they relate to Danubius:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Current assets $24,977 $41,411
Noncurrent assets 144,378 134,426
Current liabilities 20,076 16,193
Noncurrent liabilities 43,562 31,855
Stockholders' equity 105,717 127,789
NINE MONTHS ENDED Nine Months ended
SEPTEMBER 30, 2000 September 30, 1999
------------------ ------------------
Sales $82,316 $81,489
Operating income 16,578 15,362
Net income 12,200 13,297
</TABLE>
10
<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.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB101), providing the staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. For companies such as IIC
Industries, Inc., with fiscal years that begin between December 16, 1999 and
March 15, 2000, portions of SAB 101 become effective for the fourth quarter of
2000. The company believes that adopting these portions of SAB 101 will not have
a material effect on the company's financial position or overall trends in
results of operations.
11
<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, warehousing, retail and wholesale
consumer products and Hungarian corporate.
12
<PAGE>
RESULTS OF OPERATIONS
The table below sets forth for the nine months ended September 30, 2000 and
1999 certain information with respect to the results of operations of the
Company and its principal subsidiaries.
<TABLE>
<CAPTION>
Income (Loss) Before
Income Taxes and
Nine Months Ended Net Sales Gross Profit Minority Interests Net Income (Loss)
----------------- ------------------- ------------------ -------------------- ------------------
September 30, 2000 Amount % Amount % Amount % Amount %
------------------ ------ - ------ - ------ - ------ -
(In thousands) (In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IIC Industries Inc. -- -- -- -- $1,316 15.8 $1,263 15.8
(parent company)
Israel Tractors & $47,244 35.6 11,453 36.9 1,864 22.3 1,749 21.9
Equipment Co. (Israel)
Balton CP Group (Africa) 46,630 35.1 13,230 42.7 408 4.9 206 2.6
Investor RT Group (Hungary) 38,963 29.3 6,336 20.4 4,756 57.0 4,766 59.7
------ ---- ------ ---- ----- ---- ----- ----
$132,837 100.0 $31,019 100.0 $8,344 100.0 $7,984 100.0
======== ===== ====== ==== ====== ===== ===== =====
Income (Loss) Before
Income Taxes and
Nine Months Ended Net Sales Gross Profit Minority Interests Net Income (Loss)
------------------ ------------------- ------------------- ------------------------ ------------------
September 30, 1999 Amount % Amount % Amount % Amount %
------------------ ------ - ------ - ------ - ------ -
(In thousands) (In thousands) (In thousands) (In thousands)
IIC Industries Inc. -- -- -- -- $(411) (7.6) $(465) (11.0)
(parent company)
Israel Tractors & $39,325 29.8 $11,256 31.3 1,707 31.7 922 21.8
Equipment Co. (Israel)
Balton CP Group (Africa) 50,237 38.1 14,445 40.1 644 11.9 328 7.8
Investor RT Group (Hungary) 42,390 32.1 10,278 28.6 3,450 64.0 3,445 81.4
------ ---- ------ ---- ----- ---- ----- ----
$131,952 100.0 $35,979 100.0 $5,390 100.0 $4,230 100.0
======== ===== ====== ===== ====== ===== ===== =====
</TABLE>
13
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
Net Sales. Net Sales on a consolidated basis for the nine months ended
September 30, 2000 increased by approximately $900,000 as compared to the
comparable period in 1999. The increase is principally due to an increase in
demand for the products of Israel Tractor, which is partially offset by a
reduction in demand at Balton CP, the deconsolidation of certain subsidiaries in
Investor and the devaluation of the Hungarian forint.
Gross Profit. Gross Profits on a consolidated basis for the nine months
ended September 30, 2000 decreased by approximately $5 million or approximately
13.8%, to approximately $31 million, or approximately 23% of Net Sales, from
approximately $36 million, or approximately 27% of Net Sales, in the
corresponding period in 1999. The decrease was mainly attributable to the
deconsolidation of certain Investor subsidiaries and the devaluation of the
Hungarian forint.
Operating income. Operating income on a consolidated basis for the nine
months ended September 30, 2000 decreased by approximately $1.85 million, to
$1.24 million, or approximately 0.9 % of net sales, from approximately $3.1
million, or approximately 2.3% of Net Sales for the corresponding period in
1999. This decrease was principally due to the reduction in Gross Profit,
partially offset by the reduction of operating expenses in the Investor group.
Interest income. Interest income decreased for the nine months ended
September 30, 2000 by $26,000.
Interest expense. Interest expense in the first nine months ended September
30, 2000 increased by $573,000 , or approximately 48 %, to approximately $1.77
million due to the increase in borrowings.
Income before Income Taxes and Minority Interests. Income before Income
Taxes and Minority Interests in the first nine months ended September 30, 2000
was approximately $8.34 million, compared to Income before Income Taxes and
Minority Interest in the first nine months of 1999 of approximately $5.39
million. The increase in Income was primarily due to the gain on sale of equity
shares of an oil and gas venture. The increase was partially offset by the
reduction in operating income from 1999 to 2000.
14
<PAGE>
The table below sets forth for the nine months ended September 30, 2000 and
1999 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, 2000 Nine Months Ended September 30, 1999
Income (Loss) before Income (Loss) before
Income Taxes and Income Taxes and
Net Sales Minority Interest Net Sales Minority Interest
---------- ------------------- --------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount % Amount % Amount % Amount %
(In thousands) (In thousands) (In thousands) (In thousands)
Vehicle sales and distribution $9,149 6.9 $211 2.5 $10,513 8.0 $284 5.3
(Investor)
Processing/storage of agricultural 26,724 20.1 297 3.6 22,969 17.4 178 3.3
products (Investor)
Other Industries 3,090 2.3 5,564 66.7 8,908 6.7 2,577 47.8
Tractors and heavy equipment 47,244 35.6 1,864 22.3 39,325 29.8 1,707 31.7
(Israel Tractor)
Agricultural, communications and
electrical equipment (Balton CP) 46,630 35.1 408 4.9 50,237 38.1 644 11.9
-------- ----- ------- ----- -------- ----- ------- -----
$132,837 100.0 $8,344 100.0 $131,952 100.0 $5,390 100.0
======== ===== ======= ====== ========= ====== ======= ======
</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 nine months ended September 30, 2000 decreased by
approximately $1,364,000, or approximately 13%, as compared to the
corresponding period in 1999.
o There was Income before Minority Interests and Income Taxes for the nine
months ended September 30, 2000 of $211,000 as compared to $284,000 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 and competitive market conditions.
15
<PAGE>
Processing/Storage of Agricultural Products Segment
o Net Sales for the nine months ended September 30, 2000 increased by
approximately $3.75 million or 16%, as compared to the corresponding
period in 1999. The increase in Net Sales was primarily due to an
increase in demand for the Company's products.
o The Income before Income Taxes and Minority Interest for the nine months
ended September 30, 2000 was $297,000 compared to Income before Income
Taxes and Minority Interest of $178,000 for the corresponding period in
1999. This increase in income was primarily due to the rationalization
of the agricultural commodity trading business.
Other Industries
o Net Sales for the nine months ended September 30, 2000 decreased by
approximately $5.8 million as compared to the corresponding period in
1999. This was due to the deconsolidation of certain subsidiaries.
o The Income before Income Taxes and Minority Interest was approximately
$5.56 million for the nine months ended September 30, 2000 compared to
income of approximately $2.58 million for the nine months ended
September 30, 1999. The increase in income arose primarily due to gain
on sale of equity shares of an oil & gas venture in March 2000.
ISRAEL TRACTOR: TRACTORS AND HEAVY EQUIPMENT SEGMENT
o Net Sales for the nine months ended September 30, 2000 increased by $7.9
million,or approximately 20% as compared to the corresponding period in
1999. This increase was due to an increase in demand for the Company's
products.
o The Income before Income Taxes and Minority Interest for the nine months
ended September 30, 2000 was $1.86 million as compared to $1.71 million
for the corresponding period in 1999 as a result of the equity in
earnings of Danubius partially offset by an increase in operational
costs.
BALTON CP: AGRICULTURAL, COMMUNICATIONS AND ELECTRICAL EQUIPMENT SEGMENT
o Net Sales for the nine months ended September 30, 2000 decreased by
approximately $3.6 million or approximately 7.2 %, as compared to the
corresponding period in 1999. This was due to decreased demand for the
Company's products as a result of unstable market conditions.
o Income before Income Taxes and Minority Interests for the nine months
ended September 30, 2000 decreased by approximately $236,000, as
compared to the corresponding period in 1999.
16
<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
September 30, 2000, IIC Industries Inc., (the "Parent Company"), and its
wholly-owned Israel Tractor subsidiary, had working capital of $19.1 million,
including cash and cash equivalents of $2.1 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 12.5%. 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, 2000, Israel Tractor, Investor and Balton had outstanding
short-term indebtedness of approximately $6.6 million, $5.3 million and $6.6
million, respectively.
At September 30, 2000, Israel Tractor, Investor and Balton had unused lines
of short-term credit of $2.4 million, $4.4 million, and $10.8 million,
respectively.
During the first nine months of 2000, Israel Tractor, Investor, and Balton
made capital expenditures of $392,000; $854,000 and $330,000 respectively, for
the purchase of equipment and vehicles and improvements to property. Such
expenditures were made from internally generated funds. At September 30, 2000,
the Company had no significant capital commitments.
17
<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 low in 1999 and during the first nine 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 nine months of 2000 of approximately 2.5%.
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.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB101), providing the staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. For companies such as IIC
Industries, Inc., with fiscal years that begin between December 16, 1999 and
March 15, 2000, portions of SAB 101 become effective for the fourth quarter of
2000. The company believes that adopting these portions of SAB 101 will not have
a material effect on the company's financial position or overall trends in
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 first nine months ended
September 30, 2000, the income from the Company's Hungarian, and
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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 the European Currency Unit,
underwent devaluations against the U.S. dollar at the rate of 15% during 1999.
For the first nine months of 2000, the Hungarian currency has been further
devalued by approximately 19% 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.
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 September 30, 2000, Israel Tractor had foreign currency forward contracts,
with notional values of $5 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 counter parties 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.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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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
No reports on Form 8-K were filed during the period covered by this
report.
EXHIBIT NO. DESCRIPTION
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27 Financial Data Schedule
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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 17, 2000
IIC INDUSTRIES, INC.
By: /s/ Fortunee F. Cohen
---------------------
Fortunee F. Cohen, Secretary
By: /s/ John Smith
--------------
John Smith, Director,
Assistant Secretary and assisting
on financial matters.
