<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 June 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)
Delaware 13-567594
----------------------------------------- -------------------------------
(STATE OF OTHER JURISDICTION OF (IRS IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
171 Madison Avenue; New York, N.Y. 10016
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 889-7201
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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 July 31, 2000.
FINANCIAL INFORMATION
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets
at June 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations and
Comprehensive Income
for the Six Months Ended
June 30, 2000 and June 30, 1999 5
Consolidated Statements of Operations and
Comprehensive Income
for the Three Months Ended
June 30, 2000 and June 30, 1999 6
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 2000 and June 30, 1999 7
Notes to Consolidated Financial
Statements 8
2
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollar amounts in thousands, except share data)
JUNE 30, December 31,
ASSETS 2000 1999
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $5,975 $9,563
Accounts receivable, net 36,188 38,524
Inventories, net (Note C) 32,915 32,554
Other current assets 11,024 9,688
------ -----
Total current assets 86,102 90,329
DUE FROM AFFILIATE 3,150 3,150
PROPERTY AND EQUIPMENT, NET 24,729 26,135
INVESTMENTS (Note E) 52,172 46,809
OTHER ASSETS 4,274 6,741
----- -----
$170,427 $173,164
======== ========
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)
JUNE 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------- ------------
CURRENT LIABILITIES
Accounts payable $21,020 $21,564
Bank loans 17,463 19,018
Current maturities of long-term debt 2,570 3,005
Accrued expenses and other payables 11,273 11,597
Due to related parties 1,066 1,947
Advances from customers 2,707 2,609
----- ---------
Total current liabilities 56,099 59,740
LONG-TERM DEBT, less current portion 1,064 1,197
DUE TO AFFILIATES 2,101 2,046
OTHER LIABILITIES AND DEFERRED
CREDITS 6,470 6,434
MINORITY INTERESTS 13,864 14,851
------ --------
79,598 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 110,904 106,816
Accumulated other comprehensive loss (41,877) (39,722)
Less treasury stock - at cost (649,752 shares) (2,725) (2,725)
------- --------
90,829 88,896
------ --------
$170,427 $173,164
======== ========
The notes are an integral part of these consolidated financial statements.
-4-
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(dollar amounts in thousands, except share data)
SIX MONTHS ENDED JUNE 30,
2000 1999
---- ----
Net sales $83,955 $91,030
Cost of sales 64,340 66,188
------ ------
Gross profit 19,615 24,842
Selling, general and administrative expenses 19,473 21,712
------ ------
Operating income 142 3,130
--- -----
Other income (expenses)
Interest income 579 565
Equity in earnings of affiliates 1,711 1,343
Foreign currency loss (Note B) (1,434) (1,370)
Gain on sale of noncurrent assets, net (Note F) 2,181 314
Interest expense (1,028) (816)
Other, net 1,946 720
----- ---
Income before income taxes and
Minority interest 4,097 3,886
Income taxes (263) (609)
----- -----
Income before minority interest 3,834 3,277
Minority Interests 254 (953)
--- -----
NET INCOME $4,088 $2,324
Other comprehensive loss:
Foreign currency translation adjustments (2,155) (3,050)
------ -----
COMPREHENSIVE INCOME (LOSS) $1,933 $(726)
====== =====
Basic net income per common share $0.72 $0.41
===== =====
Basic average number of common shares outstanding 5,693,472 5,693,472
========= =========
The notes are an integral part of these consolidated financial statements.
-5-
<PAGE>
IIC Industries, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollar amounts in thousands, except share data)
THREE MONTHS ENDED JUNE 30,
2000 1999
---- ----
Net sales $46,884 $51,108
Cost of sales 36,686 38,058
------ ------
Gross profit 10,198 13,050
Selling, general and administrative expenses 10,038 11,254
------ ------
Operating income 160 1,796
--- -----
Other income (expenses)
Interest income 147 275
Equity in earnings of affiliates 2,374 2,053
Foreign currency loss (Note B) (654) (488)
Gain on sale of noncurrent assets, net 105 243
Interest expense (446) (329)
Other, net 1,124 602
----- ---
Income before income taxes and
Minority interest 2,810 4,152
Income taxes (266) (419)
----- -----
Income before minority interest 2,544 3,733
Minority Interests 98 (688)
-- -----
NET INCOME $2,642 $3,045
Other comprehensive loss:
Foreign currency translation adjustments (308) (931)
COMPREHENSIVE INCOME $2,334 $2,114
====== ======
Basic net income per common share $0.46 $0.53
----- -----
Basic average number of common shares outstanding 5,693,472 5,693,472
========= =========
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>
SIX MONTHS ENDED JUNE 30,
2000 1999
------ ------
<S> <C> <C>
Net cash provided by operating activities $2,083 $2,220
Cash flows from investing activities
Purchase of property and equipment (820) (1,807)
Purchase of investments (4,654) (879)
Proceeds on disposal of property and equipment 648 2,152
Loans made (1,651)
Proceeds on disposal of investments 2,240 40
-----
Restricted cash 325
---
Net cash (used in) investing activities (4,237) (169)
------- -----
Cash flows from financing activities
Payments to acquire subsidiary shares, net of cash acquired (134)
Issuance of long-term debt 290
Principal payments of long term debt (63) (290)
Net (payments) receipts of short-term bank loans (1,260) 1,266
------- -----
Net cash (used in) provided by financing activities (1,323) 1,132
Effect of exchange rate on cash (111) (217)
----- -----
Net (decrease) increase in cash and cash equivalents
during the period (3,588) 2,966
Cash and cash equivalents at beginning of period 9,563 10,957
------ ------
Cash and cash equivalents at end of period $5,975 $13,923
====== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest $1,187 $821
Income taxes 354 1,078
</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 June 30, 2000 and June 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:
JUNE 30, December 31,
2000 1999
------- -----
Raw materials $2,519 $ 4,950
Work-in-progress 640 517
Finished goods 29,756 27,087
------ ------
$32,915 $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 of approximately
$1,600,000.
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 - INVESTMENTS
At June 30, 2000, the Company's effective ownership percentage of Danubius,
Rt. ("Danubius"), a publicly traded company, was approximately 41% at a
cumulative cost of approximately $47 million. 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 $49,152 in
June 2000 and $40,941 in June 1999. The Company's share of net assets of
the remaining investments are $3,020 in June 2000, and $5,868 in June 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 standards in the
United States, as they relate to Danubius:
JUNE 30, 2000 June 30, 1999
------------- -------------
Current assets $24,913 $32,437
Noncurrent assets 154,011 132,834
Current liabilities 22,317 18,057
Noncurrent liabilities 42,399 31,449
Stockholders' equity 114,208 115,765
SIX MONTHS ENDED Six Months ended
JUNE 30, 2000 June 30, 1999
------------- -------------
Sales $47,404 $48,554
Operating income 5,865 5,063
Net income 5,515 4,262
Company's share of equity in earnings 1,950 1,543
-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 (SAB 101), 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, retail and wholesale consumer products
and corporate.
-12-
<PAGE>
RESULTS OF OPERATIONS
The table below sets forth for fiscal quarters ended June 30, 2000
and 1999 certain information with respect to the results of operations of the
Company and its principal subsidiaries.
<TABLE>
<CAPTION>
Six Months Ended Net Sales Gross Profit Income (loss) before Net Income (Loss)
June 30, 2000 --------- ------------ Income Taxes and -----------------
------------- Minority Interests
------------------
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
(In thousands) (In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IIC Industries Inc. -- -- -- -- $2,142 52.3 $2,101 51.4
(parent company)
Israel Tractors & $31,496 37.5 $7,459 38.0 1,135 27.7 1,000 24.5
Equipment Co. (Israel)
Balton CP Group (Africa) 27,317 32.5 8,131 41.5 (236) (5.8) (109) (2.7)
Investor RT Group (Hungary) 25,142 30.0 4,025 20.5 1,056 25.8 1,096 26.8
------- ----- ------- ----- ------ ----- ------ -----
$83,955 100.0 $19,615 100.0 $4,097 100.0 $4,088 100.0
======= ===== ======= ===== ====== ===== ====== =====
<CAPTION>
Six Months Ended Net Sales Gross Profit Income (loss)before Net Income (Loss)
---------------- --------- ------------ Income Taxes and ------------------
June 30, 1999 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. -- -- -- -- $(6) (0.1) $27 1.2
(parent company)
Israel Tractors & $25,999 28.6 $7,314 29.4 721 18.5 481 20.7
Equipment Co. (Israel)
Balton CP Group (Africa) 36,289 39.9 10,327 41.6 1,749 45.0 744 32.0
Investor RT Group (Hungary) 28,742 31.5 7,201 29.0 1,422 36.6 1,072 46.1
------- ----- ------- ----- ------ ----- ------ -----
$91,030 100.0 $24,842 100.0 $3,886 100.0 $2,324 100.0
======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
13
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
Net Sales. Net Sales on a consolidated basis for the first half year ended
June 30, 2000 decreased by approximately $7 million as compared to the
comparable period in 1999 The decrease is primarily due to a reduction in demand
for the products of Balton CP.
Gross Profit. Gross Profit on a consolidated basis for the first half year
ended June 30, 2000 decreased by approximately $5.2 million or approximately
21%, to approximately $19.6 million, or approximately 23% of Net Sales, from
approximately $24.9 million, or approximately 27% of Net Sales, in the
corresponding period in 1999. This decrease was mainly attributable to the
reduction in Sales and the related Cost of Sales in those subsidiaries that
historically have had higher gross margins. In addition, the decrease was also
due to the partial sale of certain Investor subsidiaries, which are now
accounted for under the equity method.
Operating income. Operating income on a consolidated basis for the first
half year of 2000 decreased by approximately $3 million, to $142,000, or
approximately 0.2% of net sales, from approximately $3.1 million, or
approximately 3.4% 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 increased for the first half year of 2000
by $14,000, or approximately 2.5%, to $579,000.
Interest expense. Interest expense in the first half year of 2000 increased
by $212,000, or approximately 26%, to approximately $1,028,000 due to increased
borrowings.
Income before Income Taxes and Minority Interests. Income before Income
Taxes and Minority Interests in the first half year of 2000 was approximately
$4,097,000, compared to Income before Income Taxes and Minority Interest in the
first fiscal half of 1999 of approximately $3,886,000. The increase in Income
was primarily due to higher rental income in the Investor group, and 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.
Net Income. Net Income for the first fiscal half of 2000 was approximately
$4,088,000, compared to Net Income in the first fiscal half of 1999 of
approximately $2,324,000.
14
<PAGE>
The table below sets forth for the six months ended June 30, 2000 and 1999
certain information with respect to the results of operations of the Company and
its five principal business segments.
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Six Months Ended June 30, 1999
Income (Loss) before Income (Loss) before
Income Taxes and Income Taxes and
Net Sales Minority Interest Net Sales Minority Interest
----------- -------------------- ----------- --------------------
Amount % Amount % Amount % Amount %
(In thousands) (In thousands) (In thousands) (In thousands)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vehicle sales and distribution $6,332 7.5 $160 3.9 $6,926 7.6 $211 5.4
(Investor)
Processing/storage of 16,683 19.9 (160) (3.9) 14,762 16.1 359 9.2
agricultural
products (Investor)
Other Industries, including 2,127 2.5 3,198 78.1 7,054 7.8 846 21.9
corporate
Tractors and heavy equipment 31,496 37.6 1,135 27.7 25,999 28.6 721 18.5
(Israel Tractor)
Agricultural, communications 27,317 32.5 (236) (5.8) 36,289 39.9 1,749 45.0
and electrical equipment ------- ----- ------ ----- ------- ----- ------ -----
(Balton CP)
$83,955 100.0 $4,097 100.0 $91,030 100.0 $3,886 100.0
======= ===== ====== ===== ======= ===== ====== =====
</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 Service Segment
o Net Sales for the six months ended June 30, 2000 decreased by
approximately $594,000, or approximately 9%, as compared to the
corresponding period in 1999.
o There was Income before Minority Interests and Income Taxes for the
six months ended June 30, 2000 of $160,000 as compared to $211,000 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.
Processing/Storage of Agricultural Products Segment
o Net Sales for the six months ended June 30, 2000 increased by
approximately $1.9 million or 13%, 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.
15
<PAGE>
o The Loss before Income Taxes and Minority Interest for the six months
ended June 30, 2000 was $160,000 compared to Income before Income Taxes
and Minority Interest of $359,000 for the corresponding period in 1999.
This decrease in income was primarily due to lower margins.
Other Industries
o Net Sales for the first half ended June 30, 2000 decreased by
approximately $4.9 million as compared to the corresponding period in
1999.
o The Income before Income Taxes and Minority Interest was approximately
$3,198,000 for the six months ended June 30, 2000, compared to income
of approximately $846,000 for the six months ended June 30, 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 increase in earnings in
2000 from the equity investment in Danubius.
ISRAEL TRACTOR: TRACTORS AND HEAVY EQUIPMENT SEGMENT
o Net Sales for the six months ended June 30, 2000 increased by $5.5
million, or approximately 21% 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 six months
ended June 30, 2000 was $1,135,000 as compared to $721,000 for the
corresponding period in 1999 as a result of increase in demand for the
Company's products.
BALTON CP: AGRICULTURAL, COMMUNICATIONS AND ELECTRICAL EQUIPMENT
SEGMENT
o Net Sales for the six months ended June 30, 2000 decreased by
approximately $9 million or approximately 25%, as compared to the
corresponding period in 1999. This was due to decreased demand for the
Company's products due to unstable market conditions.
o Loss before Income Taxes and Minority Interests for the six months
ended June 30, 000 was approximately $236,000, as compared to Income
before Income Taxes and Minority Interests for the six months ended
June 30, 1999 of approximately $1.7 million.
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
June 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 $2.2 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 June 30, 2000, Israel Tractor, Investor and Balton had outstanding
short-term indebtedness of approximately $7.8 million, $2.9 million and $6.8
million, respectively.
At June 30, 2000, Israel Tractor, Investor and Balton had unused lines of
short-term credit of $1.2 million, $7 million and $14.6 million, respectively.
During the first half of 2000, Israel Tractor, and Investor made capital
expenditures of $226,000 and $593,000, respectively, for the purchase of
equipment and vehicles and improvements to property. Such expenditures were made
from internally generated funds.
At June 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 six 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 six months of 2000 of 2%.
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
(SAB 101), 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 six months ended June 30,
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 the European Currency Unit, underwent
devaluations against the U.S. dollar at the rate of 15% during 1999. For the
first half of 2000, the Hungarian currency has been further devalued by
approximately 11% 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.
18
<PAGE>
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 June 30, 2000, Israel Tractor had foreign currency forward contracts, with
notional values of $4 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.
19
<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
No reports on Form 8-K were filed during the period covered by this
report.
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
20
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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: August 15, 2000
IIC INDUSTRIES, INC.
By: /s/ Fortunee F. Cohen
----------------------------------
Fortunee F. Cohen, Secretary
By: /s/ Michael M. Wreschner
----------------------------------
Michael M. Wreschner, Director,
Principal Financial Officer and
Chief Accounting Officer
<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: ________________, 2000
IIC INDUSTRIES, INC.
By:
-------------------------------------
Fortunee F. Cohen, Secretary
By:
-------------------------------------
Michael M. Wreschner, Director,
Principal Financial Officer and
Chief Accounting Officer
