10-Q 1 file001.txt QUARTERLY REPORT 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, 2001 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 November 19, 2001. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets Page at September 30, 2001 ---- and December 31, 2000 3 Consolidated Statements of Income and Comprehensive Income for the Nine Months Ended September 30, 2001 and September 30, 2000 5 Consolidated Statements of Income and Comprehensive Income for the Three Months 6 Ended September 30, 2001 and September 30,2000 Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2001 and September 30, 2000 7 Notes to Consolidated Financial Statements 8 2 IIC Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollar amounts in thousands, except share data)

~~SIX~~SEPTEMBER ~~MONTHS~~30, ~~ENDED~~DECEMBER ~~JUNE 30~~31, ASSETS 2001 2000 ----------- ---------~~----------~~ ~~2001~~CURRENT ~~2000~~ASSETS ~~----~~Cash ~~----~~and ~~Net~~ cash ~~(used~~equivalents ~~in) provided by operating activities~~ $(39,~~876)~~051 $29,~~083~~486 ~~--------~~Accounts ~~------~~receivable, ~~Cash~~net ~~flows~~53,009 ~~from~~45,477 ~~investing activities Purchase of subs~~Inventories, net ~~of cash acquired 242 Purchase of property and equipment~~ (~~3,881)~~Note ~~(820~~C) ~~Purchase of investments (2~~44,~~785)~~409 (431,~~654)~~744 ~~Advances~~Other ~~from~~current ~~affiliates~~assets ~~0 (1~~12,~~651)~~222 ~~Proceeds on disposal of property and equipment 1~~8,~~034~~475 ~~648 Proceeds on disposal of investments 635 2,240~~ --- ----- ~~Net cash (used in) provided by investing activities (4,755) (4,237)~~ ----- ---~~----~~ ~~Cash~~Total ~~flows~~current ~~from~~assets ~~financing~~118,691 ~~activities Issuance of long-term debt 9~~95,~~611~~182 ~~Principal~~DUE ~~payments~~FROM ofAFFILIATE ~~long term debt (~~1,~~269)~~535 ~~(63)~~3,300 ~~Net~~PROPERTY ~~receipts~~AND ~~(payments) of short-term bank loans 2~~EQUIPMENT,~~269~~ ~~(1,260)~~NET ~~----- ------- Net cash provided by (used in) financing activities 10~~29,~~611~~036 (123,~~323)~~555 ~~Effect~~INVESTMENTS ~~of exchange rate on cash (113) (111) ----- ----- Net increase (decrease) in cash and cash 1~~64,~~867~~733 (357,~~588)~~421 ~~during~~OTHER ~~the~~ASSETS ~~period Cash and cash equivalents at beginning of period $9~~5,~~486~~993 92,~~563~~281 ----- --- -------- ~~Cash and cash equivalents at end of period~~ $11219,~~353~~988 $5181,~~975~~739 ======== ====== ~~Supplemental disclosure of cash flow information: Cash paid during the period for Interest $1,401 $1,187 Income taxes 199 354~~==

The accompanying notes are an integral part of these statements. -3- IIC Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (CONTINUED) (UNAUDITED) (dollar amounts in thousands, except share data)

~~Six~~SEPTEMBER ~~Months~~30, ~~Ended~~DECEMBER ~~Net~~31, ~~Sales~~LIABILITIES ~~Gross~~AND ~~Profit~~STOCKHOLDERS' ~~Income~~EQUITY ~~(loss)~~2001 ~~Net~~2000 ~~Income (Loss)~~ --------~~----------~~ --------- ~~------------~~CURRENT ~~before~~LIABILITIES ~~Income~~Accounts payable $30,060 $25,367 Bank loans 29,897 15,661 Current maturities of long-~~----------------~~term ~~June~~debt 301,078 ~~2001~~608 ~~Taxes~~Accrued expenses and ~~Minority~~other payables 19,545 12,357 Due to related parties 809 2,618 Advances from customers 4,670 2,706 --------~~------~~ ~~Interests~~ -------- Total current liabilities 86,059 59,317 LONG-TERM ~~Amount~~DEBT, %less ~~Amount~~current %portion ~~Amount~~6,670 %5,348 ~~Amount~~DUE %TO ~~------~~AFFILIATES ~~---~~0 ~~------~~825 ~~---~~OTHER LIABILITIES AND DEFERRED CREDITS 7,157 7,699 MINORITY INTERESTS 22,553 14,247 ------ --- ------ --- ~~(In~~122,439 ~~thousands)~~87,436 ~~(In~~CONTINGENCIES ~~thousands)~~ (InNote ~~thousands~~D) ~~(In~~STOCKHOLDERS' ~~thousands)~~EQUITY ~~IIC~~Common ~~Industries~~stock, ~~Inc~~$0.25 --par --value --per --share; ~~$(774)~~Authorized ~~(127.10) $(425) (75.~~7),200,000 ~~(parent~~shares; ~~company)~~issued ~~Israel~~6,343,224 ~~Tractors~~shares &1,586 ~~$38~~1,~~008~~586 ~~40.8~~Additional ~~$9,252~~paid-in ~~42.8~~capital ~~(887)~~22,941 ~~(145.6)~~22,941 ~~(737)~~Retained ~~(131.4)~~earnings ~~Equipment~~118,924 ~~Co.~~115,128 ~~(Israel)~~Accumulated ~~Balton~~other CPcomprehensive ~~Group~~loss (~~Africa~~43,177) 28(42,~~964~~627) ~~31.0~~Less ~~7,591~~treasury ~~35.1~~stock ~~207~~- ~~34.0~~at ~~187~~cost ~~33.3 Investor RT Group 26~~(649,~~282~~752 ~~28.2~~shares) ~~4,779 22.1~~ (2,~~063~~725) ~~338.7 1,536 273.8~~ (~~Hungary~~2,725) ------ ---- ----- ----- 97,549 94,303 ----- ----- ----- ----- $93219,~~254~~988 ~~100.0~~ $21181,~~622~~739 ~~100.0 $609 100.0 $561 100.0~~ ======= =~~====~~ ====== ==~~=== ======== ===== ===== =====~~

The accompanying notes are an integral part of these statements. -4- IIC Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (dollar amounts in thousands, except share data)

~~Six~~NINE ~~Months~~MONTHS ~~Ended~~ENDED ~~Net~~SEPTEMBER ~~Sales~~30, ~~Gross Profit Income (loss) Net Income (Loss)~~ ------------------ --------- ---- 2001 2000 -------- ~~before Income~~ --- ------------- ~~June~~Net 30sales $ 145,636 ~~2000~~$ ~~Taxes~~132,837 ~~and~~Cost ~~Minority~~of sales 111,252 101,818 -----------~~----~~ ~~Interests~~ -----------~~-------~~ ~~Amount~~Gross %profit ~~Amount~~34,384 %31,019 ~~Amount~~Selling, %general ~~Amount~~and %administrative expenses 36,220 29,781 ------ ----- ------ ----- Operating (loss) income (1,836) 1,238 ------ ----- ------ ----- ~~(In~~Other ~~thousands)~~income (~~In thousands~~expenses) ~~(In~~Interest ~~thousands~~income 882 962 Equity in earnings of affiliates 4,747 4,522 Foreign currency gain/ (loss) (InNote ~~thousands~~B) ~~IIC~~814 ~~Industries~~(2,302) ~~Inc.~~Gain --on --sale --of --noncurrent $2assets,~~142~~ ~~52.3~~net $625 2,~~101~~557 ~~51.4~~Interest expense (~~parent~~2,263) ~~company~~(1,768) ~~Israel~~Rental ~~Tractors~~Income ~~& $31~~1,~~496~~519 ~~37.5 $7~~1,~~459~~766 ~~38.0~~Other 1(expense)/income,~~135~~ ~~27.7~~net (107) 1,~~000~~369 ~~24.5~~----------- ~~Equipment~~----------- ~~Co.~~Income ~~(Israel)~~before ~~Balton~~income CPtaxes ~~Group~~and ~~(Africa)~~minority 27interest 4,~~317~~381 ~~32.5~~ 8,~~131~~344 ~~41.5~~Income ~~(236)~~taxes (~~5.8~~557) (~~109~~317) ~~(2.7)~~Income ~~Investor~~before RTminority ~~Group~~interests 253,~~142~~824 ~~30.0 4~~8,~~025~~027 ~~20.5~~Minority ~~1,056~~interests ~~25.8~~(28) ~~1,096 26.8~~ (~~Hungary~~43) ------ ----- ----- ------ NET INCOME $ 3,796 $ 7,984 Other comprehensive loss: Foreign currency translation adjustments (550) (4,593) ----- -------- ----- ------ COMPREHENSIVE INCOME $83 3,~~955~~246 ~~100.0~~ $19 3,~~615~~391 ~~100.0~~=========== =========== Basic and diluted net income per common share $~~4,097~~ ~~100.~~0.67 $~~4,088~~ ~~100~~1.040 ======= ===== ====== ===== Basic average number of common shares outstanding 5,693,472 5,693,472 ====== ===== ====== =====

The accompanying notes are an integral part of these statements -5- IIC Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (dollar amounts in thousands, except share data)

~~Three~~THREE ~~Months~~MONTHS ~~Ended~~ENDED ~~Net~~SEPTEMBER ~~Sales~~30 ~~Gross Profit Income (loss) Net Income (Loss)~~ ------------------ --------- ---- 2001 2000 -------- ~~before Income~~ --- ------------- ~~June~~Net 30Sales $ 52,382 ~~2001~~$ ~~Taxes~~48,882 ~~and~~Cost ~~Minority~~of sales 39,620 37,478 ----------- --- ~~Interests~~ --------- ~~Amount~~Gross %profit ~~Amount~~12,762 %11,404 ~~Amount~~Selling,general %and ~~Amount~~administrative %expenses ~~------~~13,393 ~~---~~10,308 ------ --- --~~----~~ --- ------ --- ~~(In~~Operating ~~thousands)~~loss/income (~~In thousands~~631) ~~(In~~1,096 ~~thousands)~~Other income(~~In thousands~~expenses) ~~IIC~~Interest ~~Industries~~income ~~Inc.~~309 --383 --Equity --in --earnings $of affiliates 4,012 2,811 Foreign currency gain/(6loss) (~~0.2~~Note B) ~~$365~~466 ~~10.8~~ (~~parent~~868) ~~company~~(Loss) ~~Israel~~on ~~Tractors~~sale &of ~~$24,206~~noncurrent ~~44.2 $6~~assets,~~357~~ ~~49.3~~net ~~213~~(4) ~~7.6~~376 ~~477~~Interest ~~14.1~~expense ~~Equipment~~(847) ~~Co.~~ (~~Israel~~740) ~~Balton~~Rental CPIncome ~~Group~~518 524 Other (~~Africa~~expense) 16/income,~~848~~ ~~30.8~~net ~~4,000~~(51) ~~31.0~~665 ~~128~~Income ~~4.6~~before 98income ~~2.9~~taxes ~~Investor~~and RTminority ~~Group~~interests 133,~~653~~772 ~~25.0 2~~4,~~530~~247 ~~19.7~~Income ~~2,450~~taxes ~~88.0~~(545) ~~2,439 72.2~~ (~~Hungary~~54) ------ ----- ----- ------ Income before minority interest 3,227 4,193 Minority interests 8 (297) ----- ------ ----- ------ NET INCOME $54 3,~~707~~235 ~~100.0~~ $12 3,~~887~~896 ~~100.0~~Other $comprehensive loss Foreign currency translation adjustments (973) (2,~~785~~438) ~~100.0~~----------- ----------- COMPREHENSIVE INCOME $3 2,~~379~~262 ~~100.0~~$ 1,458 =========== ===== ====== Basic and diluted net income per common share $ 0.57 $ 0.68 =========== =========== Basic average number of common shares outstanding 5,693,472 5,693,472 ===== ====== ===========

-6- IIC Industries, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollar amounts in thousands)

~~Three~~NINE ~~Months~~MONTHS ~~Ended~~ENDED ~~Net~~SEPTEMBER ~~Sales~~30, ~~Gross Profit Income (loss) Net Income (Loss)~~ ------------------ --------- ----~~--------~~ ~~before~~2001 ~~Income~~2000 ------- --------- ~~June~~Net ~~30,~~cash ~~2000~~provided ~~Taxes~~by ~~and~~operating ~~Minority~~activities $ 574 $ 2,184 ------- -------- ~~Interests~~Cash flows from investing activities Acquisition, net of cash acquired (147) -- Purchase of property and equipment (4,971) (1,576) Purchase of investments (2,033) (5,558) Advances from affiliates 0 158 Proceeds on disposal of property and equipment 1,265 829 Proceeds on disposal of investments 629 2,242 ------- --------- ~~Amount~~Net %cash ~~Amount~~(used %in) ~~Amount~~investing %activities ~~Amount~~(5,257) %(3,905) ------ --- ------ --- ~~------~~Cash ~~---~~flows ~~------~~from financing activities Issuance of long---term ~~(In~~debt ~~thousands)~~1,904 ~~(In~~2,104 ~~thousands)~~Principal ~~(In~~payments ~~thousands~~of long term debt (801) (In2,679) ~~thousands~~Net receipts (payments) ~~IIC~~of ~~Industries~~short-term ~~Inc.~~bank loans 3,160 (561) -- -- --- ------- $Net ~~280~~cash ~~10.0~~provided $by ~~251 9.5~~ (~~parent~~used ~~company~~in) ~~Israel~~financing ~~Tractors~~activities ~~& $18~~4,~~363~~263 ~~39.2 $3~~(1,~~959~~136) ~~38.8~~Effect ~~966~~of ~~34.4~~exchange ~~789~~rate ~~29.9~~on ~~Equipment~~cash ~~Co.~~(15) (~~Israel~~177) ~~Balton~~------- CP------- ~~Group~~Net (~~Africa~~decrease) ~~15,358~~in ~~32.8~~cash 4and cash (435) (3,~~241~~034) ~~41.6~~during ~~119~~the ~~4.2~~period 70Cash ~~2.6~~and ~~Investor~~cash RTequivalents ~~Group~~at ~~13,163~~beginning ~~28.0~~of ~~1,998~~period ~~19.6~~$ 19,~~445~~486 ~~51.4 1~~9,~~532~~563 ~~58.0 (Hungary)~~ ------ -~~---~~ ----- --~~---~~ ~~-----~~Cash ~~-----~~and ~~-----~~cash ~~-----~~equivalents ~~$46,884~~at ~~100.0~~end ~~$10,198~~of ~~100.0~~period $2 9,~~810~~051 ~~100.0~~ $2 6,~~642~~529 ~~100.0~~ ======= ===== ==~~====~~ ~~=====~~Supplemental ~~======~~disclosure ~~=====~~of ~~======~~cash ~~=====~~flow information: Cash paid during the period for Interest $ 2,176 $ 1,466 Income taxes 843 456

The accompanying notes are an integral part of these statements. -7- 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 September 30, 2001 and December 31, 2000 and the results of operations and cash flows for the nine months ended September 30, 2001 and September 30, 2000, and the three months ended September 30,2001 and 2000. NOTE B - FOREIGN CURRENCY TRANSLATION Investor Rt ("Investor"), a majority-owned subsidiary, and The Israel Tractors and Equipment Company Limited (Israel Tractor), use the local currency, the Hungarian Forint and the New Israeli Shekel, respectively, as their functional currencies and translate 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 US dollar is the functional currency of Balton C.P. Limited, a majority owned Subsidiary. The subsidiary translates monetary assets and liabilities at year end rates and non monetary assets and liabilities at historical exchange rates. All income and expense accounts are translated at the rate of exchange prevailing at the date of transaction, except revenues and expenses related to non monetary items which are translated at historical rates. The translation adjustments are recorded in the Statement of Operations. Prior to April 2001, the functional currency of Israel Tractor was the US dollar. This change in the functional currency resulted from Israel Tractor's acquisition of Zoko in April 2001. 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- IIC Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE C - INVENTORIES Inventories are as follows: SEPTEMBER 30, DECEMBER 31, 2001 2000 ------- ----- Raw materials $6,477 $5,326 Work-in-progress 2,194 1,887 Finished goods 35,738 24,531 ------ ------ $44,409 $31,744 ======= ======= NOTE D - CONTINGENCIES The Company has guaranteed letters of credit of $2.1 million for Balton C.P. Ltd. Investor and certain other subsidiaries are contingently liable for the repayment of $1.7 million in debt extended to related and non-related entities. NOTE E - INVESTMENT IN AFFILIATE At September 30, 2001, the Company's effective ownership percentage of Danubius, Rt. ("Danubius"), a publicly traded company, was approximately 49.35% at a cumulative cost of approximately $49 million. Danubius owns a number of hotels in Hungary and the Czech Republic, which specialize in spa facilities. -9- IIC Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE E (CONTINUED) Accordingly, the Company accounted for this investment under the equity method at September 30, 2001. Under this method, the investment is carried at cost plus the Company's share of earnings or losses less distributions. Since the Company's share of the underlying net assets of Danubius exceeded the cost at the various purchase dates, the excess of the fair value of the net assets acquired over the cost is amortized over a period of forty years. The following is summarized financial information of Danubius (in thousands), which was prepared in accordance with international accounting standards. There were no significant differences between international accounting standards and generally accepted accounting standards in the United States: SEPTEMBER 30, 2001 SEPTEMBER 30 2000 ------------------ ----------------- Current assets $30,411 $24,977 Noncurrent assets 180,369 144,378 Current liabilities 21,943 20,076 Noncurrent liabilities 58,376 43,562 Stockholders' equity 130,461 105,717 NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 2001 SEPTEMBER 30 2000 ----------------- ----------------- Sales $87,428 $82,316 Operating income 17,834 16,578 Net income 12,798 12,200 Company's share of equity in earnings 5,827 4,790 The above equity in earnings to 30 September 2001 was adjusted in the Statement of Operations to include a one time charge of $1,223,000, first reflected in the accounts to 30th June 2001, that related to the correction of prior years negative goodwill/ goodwill amortizations. The quarterly accounts and other information of Danubius are publicly registered with the Budapest Stock Exchange. The tragic events of September 11th have brought into even sharper focus the tough and competitive market in which Danubius is now operating. As a result a reorganization is in progress which is expected to give a one time charge to the Company's share of equity in earnings of approximately $1 million in the fourth quarter. -10- IIC Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE F- NEW ACCOUNTING PRONOUNCEMENT In July 2001, Statement of Financial Accounting Standards No. 141,"Business Combinations" ("Statement 141") was issued. Statement 141 eliminates the pooling of interests method of accounting for business combinations initiated after June 30, 2001 and requires all business combinations initiated after this date to be accounted for using the purchase method. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. The Company is required to adopt the provisions of Statement 141 immediately. In July 2001, Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("Statement 142") was issued. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortised, but instead tested for impairment at least annually in accordance with the provision of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortised over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived assets to be Disposed of." The Company is required to implement Statement 142 on January 1, 2002. Statement 142 established certain transition provisions which will require, amongst other things, the Company perform an assessment of whether there is an indication that goodwill and equity- method goodwill is impaired as of the date of adoption. To accomplish this the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of operations. The Company is required to implement Statement 142 on January 1, 2002. The Company is evaluating the impact Statement 141 may have on its future consolidated financial statements. In June 2001, Statement of Financial Accounting Standards No. 143 "Accounting for Asset Retirement Obligations" ("Statement 143") was issued.Statement 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company is required to adopt the provisions of Statement 143 on January 1 2003. The Company is evaluating the impact, if any, Statement 143 may have on its future consolidated financial statements. In August 2001, Statement of Financial Accounting Standards No. 144 " Accounting for the Impairment or Disposal of Long-Lived Assets ("Statement 144") was issued. Statement 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and of the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of the business. Statement 144 addresses the financial accounting and reporting for (1) long-lived assets to be held and used, (2) long-lived assets to be disposed of other than by sale and (3) long-lived assets to be disposed by sale. The Company is required to adopt the provisions of Statement 14 on January 1, 2002. The Company is evaluating the impact, if any, Statement 144 may have on its future consolidated financial statements. -11- 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 through its 70% subsidiary Zoko, distributes tractors and related heavy machinery as well as manufacturing and distributing filters, mainly 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 and its subsidiaries 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 and the manufacture and distribution of filters (d) the sale of agricultural, communications and electrical equipment (e) other industries and corporate. 12 RESULTS OF OPERATIONS The table below sets forth for nine and three months ended September 30, 2001 and 2000, certain information with respect to the results of operations of the Company and its principal subsidiaries.

~~Six~~Nine Months Ended ~~June~~Net ~~30,~~Sales ~~2001~~Gross ~~Six~~Profit ~~Months Ended June 30, 2000~~ Income (~~Loss~~loss) ~~before~~Net Income (Loss) ~~before Income Taxes and Income Taxes and Net Sales Minority Interest Net Sales Minority Interest~~ --------- -------- --------- --------- --- before Income ---------------- ~~Amount~~September %30, ~~Amount~~2001 %Taxes ~~Amount~~and %Minority ~~Amount % (In thousands) (In thousands) (In thousands) (In thousands)~~ -------------- Interests --------- Amount % Amount % Amount % Amount % ------ --- ------ --- ------ --- ------ --- (In thousands) (In thousands) (In thousands) (In thousands) IIC Industries Inc. -- -- -- --~~----------------------------------------------------------~~ ~~Vehicle sales and~~ $~~6,470~~148 73.~~0 $ 167 27.~~4 $~~6,332~~188 74.~~5 $160 3.~~9 ~~distribution~~ (~~Investor~~parent company) ~~Processing/storage~~Israel ofTractors 19& $61,~~702~~507 2142.12 ~~544~~$15,364 8944.37 ~~16,683~~(49) 19(1.92) (~~160~~103) (32.97) ~~agricultural~~Equipment ~~products~~Co. (~~Investor~~Israel) ~~Other~~Balton ~~Industries~~CP ~~including~~Group ~~110~~(Africa) ~~0.1~~45,911 ~~578 94~~31.96 212,~~127~~734 237.50 31,~~198~~223 7827.19 ~~corporate~~828 ~~Tractors~~21.8 ~~and~~Investor ~~heavy~~RT ~~equipment~~Group 38,~~008~~218 4026.82 ~~(887) (145.~~6~~) 31~~,~~496~~286 3718.63 13,~~135~~059 2769.79 ~~(Israel Tractor) Agricultural~~2,883 ~~communications 28,964 31~~76.0 ~~207 34.0 27,317 32.5~~ (~~236~~Hungary) ~~(5.8) and electrical equipment~~ -------- ----- ------- ----- ------ ----- ------ ------ ~~(Balton CP)~~ $93145,~~254~~636 100.0 $~~609~~34,384 100.0 $834,~~955~~381 100.0 $43,~~097~~796 100.0 ======== ===== ======= ===== ======= ===== ====== =====

~~Three~~Nine Months Ended ~~June~~Net ~~30,~~Sales ~~2001~~Gross ~~Three~~Profit ~~Months Ended June 30, 2000~~ Income (~~Loss~~loss) ~~before~~Net Income (Loss) ~~before Income Taxes and Income Taxes and Net Sales Minority Interest Net Sales Minority Interest~~ --------- --------- --------- --------- --- before Income ---------------- ~~Amount~~September %30, ~~Amount~~2000 %Taxes ~~Amount~~and %Minority ~~Amount % (In thousands) (In thousands) (In thousands) (In thousands)~~ --------------- Interests ------------------ Amount % Amount % Amount % Amount % ------ --- ------ --- ------ --- ------ ---~~--------------------------------------------------------~~ ~~Vehicle~~(In ~~sales~~thousands) ~~and~~(In ~~$3,618~~thousands) ~~6.6~~(In $thousands) ~~107~~(In ~~4.0~~thousands) ~~$3,341~~IIC ~~7.1~~Industries ~~$85 3~~Inc.0 ~~distribution~~-- ~~(Investor)~~-- ~~Processing/storage~~-- of-- 9$1,~~970~~316 1815.28 ~~(158)~~$1,263 (515.7) 8~~,692~~ ~~18.5 59 2.1 agricultural products~~ (~~Investor~~parent company) ~~Other~~Israel ~~Industries~~Tractors ~~including~~& 65$47,244 035.26 2$11,~~495~~453 8936.69 1,~~130~~864 222.43 1,~~581~~749 5621.39 ~~corporate~~Equipment ~~Tractors~~Co. ~~and~~(Israel) ~~heavy~~Balton ~~equipment~~CP ~~24,206~~Group ~~44.2~~(Africa) ~~213~~46,630 735.61 1813,~~363~~230 3942.27 ~~966~~408 ~~34.~~4.9 ~~(Israel~~206 ~~Tractor)~~2.6 ~~Agricultural,~~Investor ~~communications~~RT 16Group 38,~~848~~963 3029.83 ~~128~~6,336 420.54 154,~~358~~756 3257.80 ~~119~~ 4,766 59.27 ~~and~~(Hungary) ~~electrical equipment~~ -------- ----- ------- ----- ------ ----- ------ ----- ~~(Balton CP)~~ $54132,~~707~~837 100.0 $231,~~785~~019 100.0 $468,~~884~~344 100.0 $27,~~810~~984 100.0 ======== ===== ======= ===== ====== ===== ====== =====

13 CONSOLIDATED RESULTS OF OPERATIONS The table below sets forth for the nine and three months ended September 30, 2001 and 2000, certain information with respect to the results of operations of the Company and its five principal business segments.

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, 2001 increased by approximately $1,127,000, or approximately 12.3% as compared to the corresponding period in 2000. o There was Income before Minority Interests and Income Taxes for the nine months ended September 30 2001 of $274,000 as compared to income of $211,000 in the corresponding period in 2000. The increase in Net Sales and in Income before Income Taxes and Minority Interests was primarily due to higher sales volume following increased promotion together with strict cost control. However, the market remains competitive with little overall growth, which must be gained at the expense of competition. Processing/Storage of Agricultural Products Segment o Net Sales for the nine months ended September 30, 2001 increased by approximately $1.1 million or 4%, as compared to the corresponding period in 2000. The increase in Net Sales was primarily 14 due to an increase in demand of the Company's products both on the domestic and export markets together with higher market prices. o The Loss before Income Taxes and Minority Interest for nine months ended September 30, 2001 , was $426,0000 compared to Income before Income Taxes and Minority Interest of $297,000 for the corresponding period in 2000. This loss was primarily due to decreasing margins while increasing turnover in an effort to maintain market share with competition keen to buy turnover to cover overheads. The market situation remains difficult with continued overproduction. Other Industries o Net Sales for the nine months ended September 30, 2001 decreased by approximately $2,949,000 as compared to the corresponding period in 2000. This decrease was primarily due to the sale of two subsidiaries in 2001. o The Profit before Income Taxes and Minority Interest was approximately $3,359,000 for the nine months ended September 30, 2001 compared to income of approximately $5,564,000 for the nine months ended September 30, 2000. The decrease in income arose primarily due to the inclusion in the first nine months of 2000 of a gain on a sale of equity shares in an oil and gas venture for approx $2.1 million. ISRAEL TRACTOR: TRACTORS, HEAVY EQUIPMENT SEGMENT AND FILTERS. o At 1 April Israel Tractor merged with Zoko, a manufacturer and distributor of filters which is quoted on the Tel Aviv Stock Exchange, obtaining 70% of the share capital. The results for the nine months to 30 September include six months operations with Zoko less the applicable minority interest.The results of Zoko are publicly registered with The Tel Aviv Stock Exchange. o Net Sales for the nine months ended September 30, 2001 increased by $14,263,000,or approximately 30% as compared to the corresponding period in 2000.Net sales applicable to Zoko was $14 million. o The Loss before Income Taxes and Minority Interest for the nine months ended September 30, 2001 was $49,000 as compared to income of $1,864,000 for the corresponding period in 2000. The political situation in Israel has remained extremely volatile throughout the period, leading to difficult business conditions. An operating loss was incurred in the first nine months of 2001, together with costs of reorganization and integrating the businesses. BALTON CP: AGRICULTURAL, COMMUNICATIONS AND ELECTRICAL EQUIPMENT SEGMENT o Net Sales for the nine months ended September 30, 2001 decreased by $719,000 or approximately 1.6%, as compared to the corresponding period in 2000. o Income before Income Taxes and Minority Interests for the nine months ended September 30, 2001 increased by approximately $815,000, as compared to the corresponding period in 2000, as a result of the sale in the first three months of 2000 of a joint venture which produced a loss of $355,000 together with the completion of profitable contracts in Nigeria and Zambia. 15 ANALYSIS OF OTHER INCOME AND EXPENSE Interest income. Interest income decreased for the nine months ended September 30, 2001 by $80,000, or approximately 8%, to $882,000. Interest expense. Interest expense in the nine months ended September 30, 2001, increased by $495,000, or approximately 28%, to approximately $2,263,000. This was due to the higher borrowings to finance increased working capital at Israel Tractor and the higher inventory at Agrimill- Agrimpex. Income before Income Taxes and Minority Interests. Income before Income Taxes and Minority Interests in the first nine months ended September 30, 2001 was approximately $4,381,000, compared to Income before Income Taxes and Minority Interest in the first nine months of 2000 of approximately $8,344,000. This reflected the difficult trading conditions at Israel Tractor in Israel, which showed a loss in the first nine months of 2001 of $49,000 as opposed to a profit in the first nine months of 2000 of $1,864,000, and the one time gain in 2000 on the oil and gas venture of $2,100,000. 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 had a net cash outflow in the nine months to 30th September 2001. This was financed through cash and cash equivalents available at the beginning of 2001, together with an increase in bank loans. At September 30, 2001, IIC Industries Inc., 16 (the "Parent Company"), and its wholly-owned Israel Tractor subsidiary, had working capital of $18.3 million, including cash and cash equivalents of $2.7 million. Cash of subsidiaries that are not wholly-owned (including the Investor Group and the Balton CP Group) is generally not available for use by the Parent Company or other subsidiaries (except to the extent paid to the Parent Company as reimbursement for general overhead paid by the Parent Company or as management fees) other than in the form of dividends, if and when declared. Dividends to the Parent Company from its Israel Tractor subsidiary are subject to a withholding tax of 15% to 25%. The Parent Company does not expect to receive cash dividends or other distributions in the foreseeable future from any of its subsidiaries. At September 30 2001, Israel Tractor, Investor and Balton had outstanding short-term indebtedness of approximately $16.3 million, $7.0 million and $6.6 million, respectively. At September 30, 2001, Israel Tractor, Investor and Balton had unused lines of short-term credit of $8.3 million, $5.6 million and $3.5 million, respectively. During the first nine months of 2001, Israel Tractor. Investor, and Balton made capital expenditures of $1,842,000 $2,427,000 and $702,000 respectively, for the purchase of equipment and vehicles and improvements to property. Such expenditures were made from internally generated funds. At September 30, 2001, the Company had no significant capital commitments. BANK LOANS During the period since 31 December 2000, bank loans increased to finance the increased working capital requirements of Zoko by approximaely $10 million and to finance the increased inventory at Agrimill-Agrimpex by approximately $3 million. 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 2000 and during the first nine months of 2001, and therefore did not significantly affect operations in that country. Revaluation of the Israeli shekel against the U.S. Dollar in the first nine months of 2001 was insignificant. Significant rates of inflation persisted in the African countries where Balton CP operates, triggering significant devaluations of local currencies. NEW ACCOUNTING PRONOUNCEMENT In July 2001, Statement of Financial Accounting Standards No. 141,"Business Combinations" ("Statement 141") was issued. Statement 141 eliminates the pooling of interests method of accounting for business combinations initiated after June 30, 2001 and requires all business combinations initiated after this date to be accounted for using the purchase method. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. The Company is required to adopt the provisions of Statement 141 immediately. In July 2001, Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("Statement 142") was issued. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortised, but instead tested for impairment at least annually in accordance with the provision of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortised over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived assets to be Disposed of." The Company is required to implement Statement 142 on January 1, 2002. Statement 142 established certain transition provisions which will require, amongst other things, the Company perform an assessment of whether there is an indication that goodwill and equity- method goodwill is impaired as of the date of adoption. To accomplish this the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of operations. The Company is required to implement Statement 142 on January 1, 2002. The Company is evaluating the impact Statement 141 may have on its future consolidated financial statements. In June 2001, Statement of Financial Accounting Standards No. 143 "Accounting for Asset Retirement Obligations" ("Statement 143") was issued.Statement 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company is required to adopt the provisions of Statement 143 on January 1 2003. The Company is evaluating the impact, if any, Statement 143 may have on its future consolidated financial statements. In August 2001, Statement of Financial Accounting Standards No. 144 " Accounting for the Impairment or Disposal of Long-Lived Assets ("Statement 144") was issued. Statement 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and of the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of the business. Statement 144 addresses the financial accounting and reporting for (1) long-lived assets to be held and used, (2) long-lived assets to be disposed of other than by sale and (3) long-lived assets to be disposed by sale. The Company is required to adopt the provisions of Statement 14 on January 1, 2002. The Company is evaluating the impact, if any, Statement 144 may have on its future consolidated financial statements. 17 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. Some of the countries where the Company operates such as several of the African countries do not have freely convertible currencies and their currencies have been subject to devaluations in recent years. The currency in Hungary has only recently become freely convertible. In particular, during 2000 and the nine months ended September 30,2001, 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 12% during 2000. Since the beginning of 2001, the Hungarian currency has remained relatively stable 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 from time to time 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, 2001, Israel Tractor had no foreign currency forward contracts to purchase and sell U.S.dollars. 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 2001, although there can be no assurances that interest rates will not significantly change. 18 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 Tender Offer On October 15 2001, updated by an amendment filed on November 13 2001, C.P.Holdings Ltd, a Company organized under the laws of the United Kingdom, made a tender offer to purchase the approx 20% of common stock in IIC Industries Inc which it did not already own at a price of $10.50 per piece. The tender offer expires 26 November 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None 19 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 19, 2001 IIC INDUSTRIES, INC. By: /s/ Fortunee F. Cohen ------------------------------ Fortunee F. Cohen, Secretary By: /s/ John E, Smith ------------------------- John E. Smith, Director, (Principal Financial Officer and Chief Accounting Officer).

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