# **SECURITIES ANDEXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

 

**ý****                                ****QUARTERLY****REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For quarterly period ended December 31, 2004**

 

**OR**

 

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**FOR THE TRANSITION PERIOD FROM                         TO**

 

**CommissionFile Number 1-7256**

 

**INTERNATIONAL ALUMINUM CORPORATION**

(Exactname of Registrant as specified in its charter)

 
| **California**            | ** ** | **95-2385235**                        |
|---------------------------|------------|---------------------------------------|
| (State  of incorporation) |       | (I.R.S.  Employer Identification No.) |

 

**767 Monterey Pass Road**

**Monterey Park, California 91754**

**(323) 264-1670**

(Principalexecutive office)

 

Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 of the SecuritiesExchange Act of 1934 during the preceding 12 months and (2) has been subject tosuch filing requirements for the past 90 days. Yes ý  No  o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes   o  No   ý

 

At February 3, 2005 there were 4,247,294shares of common stock outstanding.

 

 

----

 

 

INTERNATIONALALUMINUM CORPORATION

ANDSUBSIDIARIES

 

INDEX

 
| ** **                     | ** **                                                                                                                     | ** ** | **Page**   |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **                     | ** **                                                                                                                     | ** ** | ** ** |
| PART I. Financial  Information |                                                                                                                           |       |
|                           |                                                                                                                           |       |       |
|                           | Item 1. Financial  Statements.                                                                                                 |       |       |
|                           |                                                                                                                           |       |       |
|                           | Condensed  Consolidated Balance Sheets - December 31, 2004 and June 30, 2004 (unaudited)                                       |       | 3          |
|                           |                                                                                                                           |       |       |
|                           | Condensed  Consolidated Statements of Income - three and six month periods ended  December 31, 2004 and 2003  (unaudited) |       | 4          |
|                           |                                                                                                                           |       |       |
|                           | Condensed  Consolidated Statements of Cash Flows - three and six month periods ended  December 31, 2004 and 2003 (unaudited)   |       | 5          |
|                           |                                                                                                                           |       |       |
|                           | Notes  to Condensed Consolidated Financial Statements (unaudited)                                                              |       | 6          |
|                           |                                                                                                                           |       |       |
|                           | Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations.                          |       | 9          |
|                           |                                                                                                                           |       |       |
|                           | Item  3. Quantitative and Qualitative Disclosures About Market Risk.                                                           |       | 12         |
|                           |                                                                                                                           |       |       |
|                           | Item 4. Controls and  Procedures.                                                                                              |       | 12         |
|                           |                                                                                                                           |       |       |
| PART II. Other Information     |                                                                                                                           |       |
|                           |                                                                                                                           |       |       |
|                           | Item  6. Exhibits.                                                                                                             |       | 13         |
|                           |                                                                                                                           |       |       |
| Signatures                     |                                                                                                                           | 14         |
|                                |                                                                                                                                |            |            |  |

 

2

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PARTI – FINANCIAL INFORMATION

 

Unaudited

 

Item 1.  Financial Statements.

 

InternationalAluminum Corporation

andSubsidiaries

 

CondensedConsolidated Balance Sheets

 
| ** **                                | ** ** | **Dec. 31, 2004** | ** **  | **June 30, 2004** | ** ** |
|-------------------------------------------|------------|-----------------------------|-------------|-------------------|------------|
| Assets                                    |       |                        |        |              |       |
|                                      |       |                        |        |              |       |
| Current assets:                           |       |                        |        |              |       |
| Cash and cash equivalents                 |       | $                           | 7,976,000   |              | $          | 15,964,000 |   |
| Accounts receivable, net                  |       | 42,210,000                  |        | 39,030,000        |       |
| Inventories                               |       | 39,174,000                  |        | 32,286,000        |       |
| Prepaid expenses and deposits             |       | 3,178,000                   |        | 1,864,000         |       |
| Deferred income taxes                     |       | 2,767,000                   |        | 2,767,000         |       |
|                                      |       |                        |        |              |       |
| Total current assets                      |       | 95,305,000                  |        | 91,911,000        |       |
|                                      |       |                        |        |              |       |
| Property, plant and equipment, at cost    |       | 122,846,000                 |        | 121,828,000       |       |
| Accumulated depreciation                  |       | (75,773,000                 | )           | (73,227,000       | )          |
|                                      |       |                        |        |              |       |
| Net property, plant and equipment         |       | 47,073,000                  |        | 48,601,000        |       |
|                                      |       |                        |        |              |       |
| Other assets:                             |       |                        |        |              |       |
| Goodwill                                  |       | 654,000                     |        | 609,000           |       |
| Other                                     |       | 1,343,000                   |        | 761,000           |       |
|                                      |       |                        |        |              |       |
| Total other assets                        |       | 1,997,000                   |        | 1,370,000         |       |
|                                      |       |                        |        |              |       |
|                                      |       | $                           | 144,375,000 |              | $          | 141,882,000 |   |
|                                      |       |                        |        |              |       |
| Liabilities and Shareholders’ Equity |       |                        |        |              |       |
|                                      |       |                        |        |              |       |
| Current liabilities:                      |       |                        |        |              |       |
| Accounts payable                          |       | $                           | 10,752,000  |              | $          | 10,858,000 |   |
| Accrued liabilities                       |       | 11,436,000                  |        | 11,903,000        |       |
| Advances payable to banks                 |       | —                      |        | 202,000           |       |
| Income taxes payable                      |       | —                      |        | 1,088,000         |       |
|                                      |       |                        |        |              |       |
| Total current liabilities                 |       | 22,188,000                  |        | 24,051,000        |       |
|                                      |       |                        |        |              |       |
| Deferred income taxes                     |       | 6,625,000                   |        | 6,625,000         |       |
|                                      |       |                        |        |              |       |
| Total liabilities                         |       | 28,813,000                  |        | 30,676,000        |       |
|                                      |       |                        |        |              |       |
| Shareholders’ equity                 |       | 115,562,000                 |        | 111,206,000       |       |
|                                      |       |                        |        |              |       |
|                                      |       | $                           | 144,375,000 |              | $          | 141,882,000 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

3

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Unaudited

 

InternationalAluminum Corporation

andSubsidiaries

 

CondensedConsolidated Statements of Income

 
| ** **                                             | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                             | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Net sales                                              |       | $                                    | 61,759,000 |                               | $          | 50,698,000 |   | $ | 122,486,000 |   | $ | 103,654,000 |   |
| Cost of sales                                          |       | 48,057,000                           |       | 39,684,000                         |       | 94,820,000 |   | 82,082,000 |   |
| Gross profit                                           |       | 13,702,000                           |       | 11,014,000                         |       | 27,666,000 |   | 21,572,000 |   |
| Selling, gen. and admin. expenses                      |       | 9,195,000                            |       | 8,468,000                          |       | 18,181,000 |   | 16,423,000 |   |
| Income from operations                                 |       | 4,507,000                            |       | 2,546,000                          |       | 9,485,000 |   | 5,149,000 |   |
| Interest (income) expense, net                         |       | (34,000                              | )          | (19,000                            | )          | (40,000 | ) | (15,000 | ) |
| Income from continuing operations before  income taxes |       | 4,541,000                            |       | 2,565,000                          |       | 9,525,000 |   | 5,164,000 |   |
| Provision for income taxes                             |       | 1,750,000                            |       | 1,003,000                          |       | 3,700,000 |   | 2,064,000 |   |
| Income from continuing operations                      |       | 2,791,000                            |       | 1,562,000                          |       | 5,825,000 |   | 3,100,000 |   |
| Income from discontinued operations                    |       | —                               |       | 88,000                             |       | — |   | 129,000 |   |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Net income                                             |       | $                                    | 2,791,000  |                               | $          | 1,650,000 |   | $ | 5,825,000 |   | $ | 3,229,000 |   |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Basic and diluted EPS:                                 |       |                                 |       |                               |       |   |   |   |   |
| Continuing operations                                  |       | $                                    | .66        |                               | $          | .37 |   | $ | 1.37 |   | $ | .73 |   |
| Discontinued operations                                |       | —                               |       | .02                                |       | — |   | .03 |   |
| Total                                                  |       | $                                    | .66        |                               | $          | .39 |   | $ | 1.37 |   | $ | .76 |   |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Shares used to compute EPS:                            |       |                                 |       |                               |       |   |   |   |   |
| Basic                                                  |       | 4,244,794                            |       | 4,244,794                          |       | 4,244,794 |   | 4,244,794 |   |
| Diluted                                                |       | 4,253,944                            |       | 4,244,794                          |       | 4,250,948 |   | 4,244,794 |   |
|                                                   |       |                                 |       |                               |       |   |   |   |   |
| Cash dividends per share                               |       | $                                    | .30        |                               | $          | .30 |   | $ | .60 |   | $ | .60 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

4

----

 

Unaudited

 

InternationalAluminum Corporation

andSubsidiaries

 

CondensedConsolidated Statements of Cash Flows

 
| ** **                                           | ** ** | **Six Months Ended  December  31,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                           | ** ** | **2004**                                 | ** ** | **2003** | ** ** |
|                                                 |       |                                     |       |   |   |
| Cash flows from operating activities:                |       |                                     |       |   |   |
| Net income                                           |       | $                                        | 5,825,000  |   | $ | 3,229,000 |   |
| Adjustments for noncash transactions:                |       |                                     |       |   |   |
| Depreciation and amortization                        |       | 3,177,000                                |       | 3,331,000 |   |
| Changes in assets and liabilities:                   |       |                                     |       |   |   |
| Accounts receivable                                  |       | (2,834,000                               | )          | 761,000 |   |
| Inventories                                          |       | (6,674,000                               | )          | (2,656,000 | ) |
| Prepaid expenses and other                           |       | (1,878,000                               | )          | (1,034,000 | ) |
| Accounts payable                                     |       | (413,000                                 | )          | 1,371,000 |   |
| Accrued liabilities                                  |       | (490,000                                 | )          | 689,000 |   |
| Income taxes payable                                 |       | (997,000                                 | )          | (272,000 | ) |
|                                                 |       |                                     |       |   |   |
| Net cash (used in) provided by operating  activities |       | (4,284,000                               | )          | 5,419,000 |   |
|                                                 |       |                                     |       |   |   |
| Cash flows from investing activities:                |       |                                     |       |   |   |
| Capital expenditures                                 |       | (1,071,000                               | )          | (2,388,000 | ) |
| Proceeds from sales of capital assets                |       | 95,000                                   |       | 126,000 |   |
|                                                 |       |                                     |       |   |   |
| Net cash used in investing activities                |       | (976,000                                 | )          | (2,262,000 | ) |
|                                                 |       |                                     |       |   |   |
| Cash flows from financing activities:                |       |                                     |       |   |   |
| Dividends paid to shareholders                       |       | (2,547,000                               | )          | (2,547,000 | ) |
| Net repayments under lines of credit                 |       | (224,000                                 | )          | (204,000 | ) |
|                                                 |       |                                     |       |   |   |
| Net cash used in financing activities                |       | (2,771,000                               | )          | (2,751,000 | ) |
|                                                 |       |                                     |       |   |   |
| Effect of exchange rate changes                      |       | 43,000                                   |       | 19,000 |   |
|                                                 |       |                                     |       |   |   |
| Net change in cash and cash equivalents              |       | (7,988,000                               | )          | 425,000 |   |
|                                                 |       |                                     |       |   |   |
| Cash and cash equivalents at beginning of  period    |       | 15,964,000                               |       | 12,570,000 |   |
|                                                 |       |                                     |       |   |   |
| Cash and cash equivalents at end of period           |       | $                                        | 7,976,000  |   | $ | 12,995,000 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

5

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Unaudited

 

InternationalAluminum Corporation

andSubsidiaries

 

NotesTo Condensed Consolidated Financial Statements

 

Basis of Presentation

 

In the opinion of management, the accompanying unaudited consolidatedfinancial statements contain all adjustments (which consist solely of normalrecurring adjustments unless otherwise disclosed) necessary to present fairly,in all material respects, its financial position as of December 31, 2004 andJune 30, 2004, and the results of operations and the cash flows for thesix-month periods ended December 31, 2004 and 2003.  The results of operations for the six-monthperiod ended December 31, 2004 are not necessarily indicative of the results tobe expected for the full year.

 

The financial statements included herein have been prepared by theCompany pursuant to the rules and regulations of the Securities and ExchangeCommission.  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles, in the United Statesof America, have been condensed or omitted pursuant to such rules andregulations, although the Company believes that the disclosures are adequate tomake the information presented not misleading. These financial statementsshould be read in conjunction with the financial statements and the notesthereto included in the Company’s latest annual report on Form 10-K.

 

Comprehensive Income

 

Comprehensive income, defined as net income and other comprehensiveincome, for the quarters ended December 31, 2004 and 2003 were $3,308,000 and$2,039,000, respectively.  Comprehensiveincome for the six months ended December 31, 2004 and 2003 were $6,904,000 and$3,600,000, respectively.  Othercomprehensive income includes foreign currency translation adjustments recordeddirectly in shareholders’ equity.

 
| **Balance  Sheet Components**             | ** ** | **Dec. 31, 2004** | ** **  | **June 30, 2004** | ** ** |
|-------------------------------------------|------------|-------------------|-------------|-------------------|------------|
|                                      |       |              |        |              |       |
| Inventories, lower of FIFO Cost or Market |       |              |        |              |       |
| Raw materials                             |       | $                 | 32,664,000  |              | $          | 26,790,000 |   |
| Work in process                           |       | 744,000           |        | 553,000           |       |
| Finished goods                            |       | 5,766,000         |        | 4,943,000         |       |
|                                      |       | $                 | 39,174,000  |              | $          | 32,286,000 |   |
|                                      |       |              |        |              |       |
| Shareholders’ Equity                 |       |              |        |              |       |
| Common stock                              |       | $                 | 4,765,000   |              | $          | 4,765,000 |   |
| Paid-in capital                           |       | 4,123,000         |        | 4,123,000         |       |
| Retained earnings                         |       | 104,418,000       |        | 101,140,000       |       |
| Accumulated other comprehensive income    |       | 2,256,000         |        | 1,178,000         |       |
|                                      |       | $                 | 115,562,000 |              | $          | 111,206,000 |   |

 

6

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Unaudited

Earnings PerShare

 

 

 

Basic earnings per share is computed by dividingnet income by the weighted-average number of shares of common stockoutstanding.  Diluted earnings per shareis computed by dividing net income by the weighted-average common andpotentially dilutive common equivalent shares outstanding determined asfollows:

 
| ** **                                                      | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                      | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
| Weighted-average shares outstanding used to  compute basic EPS  |       | 4,244,794                            |       | 4,244,794                          |       | 4,244,794 |   | 4,244,794 |   |
| Incremental shares issuable upon the  exercise of stock options |       | 9,150                                |       | —                             |       | 6,154 |   | — |   |
| Shares used to compute diluted EPS                              |       | 4,253,944                            |       | 4,244,794                          |       | 4,250,948 |   | 4,244,794 |   |

 

Incremental shares issuable upon the assumedexercise of outstanding stock options are computed using the average marketprice during the related period. Excluded from diluted earnings per share forthe second quarter of 2004 and 2003 and six months of 2004 and 2003, are13,500, 108,000, 17,250 and 108,000, respectively, stock options because theirinclusion would be anti-dilutive, since the option price was greater than theCompany’s average common stock price for these periods.

 

Stock Based Compensation

 

The Company granted stock options for thepurchase of common stock to certain executive and managerial employees underthe Company’s 1991 Stock Option Plan, whose expired granting authority has beentransferred to the successor plan, the 2001 Stock Option Plan.  Options have an exercise price equal to themarket price of the stock on the date of grant, a term of ten years and becomeexercisable over a five-year period.  TheCompany applies Accounting Principles Board (APB) Opinion No. 25, “Accountingfor Stock Issued to Employees”, and related Interpretations in accounting forthe plan.  Under APB No. 25,compensation cost, if any, is recognized over the respective vesting periodbased on the difference, if any, on the date of grant, between the fair valueof the Company’s common stock and the exercise price.  All options issued have an exercise priceequal to the fair value on the date of grant. Accordingly, no compensation cost has been recognized for those stockoptions.  On December 31, 2002, theFASB issued SFAS No. 148, “Accounting for Stock-Based Compensation –Transition and Disclosure”, which amends SFAS No. 123, “Accounting forStock-Based Compensation”.  SFASNo. 148’s transition guidance and provisions for disclosures are effectivefor fiscal years ending after December 15, 2002.  The Company did not adopt fair valueaccounting for employee stock options under SFAS No. 123 and SFASNo. 148.  Since all outstandingstock awards are fixed stock options with no intrinsic value at the date ofgrant and were fully vested before the income statement periods presented,there would have been no change in reported net income and earnings per sharehad compensation cost been determined based on the fair value at the grantdates as prescribed by SFAS 123.

 

7

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Unaudited

Segment Information

 

The Company’s operations are organized andmanaged by product type.  The Companycurrently operates in three segments of the building products industry:  Commercial Products, Residential Products andAluminum Extrusions. The Company evaluates performance based on operatingincome or loss before any allocation of corporate overhead, interest or taxes.

 

The following presents the Company’s net sales, operating income andtotal assets by operating segment, reconciling to the Company’s totals.  All data presented in thousands of dollars.

 
| ** **         | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|--------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **         | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|               |       |                                 |       |                               |       |   |   |   |   |
| Net Sales:         |       |                                 |       |                               |       |   |   |   |   |
| Commercial         |       | $                                    | 31,652     |                               | $          | 24,347 |   | $ | 61,861 |   | $ | 48,167 |   |
| Residential        |       | 17,803                               |       | 16,088                             |       | 36,367 |   | 32,158 |   |
| Aluminum Extrusion |       | 29,775                               |       | 23,372                             |       | 56,817 |   | 48,265 |   |
| Total Segments     |       | 79,230                               |       | 63,807                             |       | 155,045 |   | 128,590 |   |
| Eliminations       |       | (17,471                              | )          | (13,109                            | )          | (32,559 | ) | (24,936 | ) |
| Total              |       | $                                    | 61,759     |                               | $          | 50,698 |   | $ | 122,486 |   | $ | 103,654 |   |

 
| ** **         | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|--------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **         | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|               |       |                                 |       |                               |       |   |   |   |   |
| Operating  Income: |       |                                 |       |                               |       |   |   |   |   |
| Commercial         |       | $                                    | 3,577      |                               | $          | 1,957 |   | $ | 7,204 |   | $ | 3,544 |   |
| Residential        |       | 3,025                                |       | 2,789                              |       | 6,127 |   | 5,662 |   |
| Aluminum Extrusion |       | 521                                  |       | (96                                | )          | 851 |   | 761 |   |
| Total Segments     |       | 7,123                                |       | 4,650                              |       | 14,182 |   | 9,967 |   |
| Eliminations       |       | (15                                  | )          | 137                                |       | 120 |   | (354 | ) |
| Corporate          |       | (2,601                               | )          | (2,241                             | )          | (4,817 | ) | (4,464 | ) |
| Total              |       | $                                    | 4,507      |                               | $          | 2,546 |   | $ | 9,485 |   | $ | 5,149 |   |
|               |       | ** **                           | ** ** | ** **                         |       |   |   |   |   |
|               |       | **Dec. 31,  2004**                   | ** ** | **June 30,  2004**                 |       |   |   |   |   |
|               |       |                                 |       |                               |       |   |   |   |   |
| Total  Assets:     |       |                                 |       |                               |       |   |   |   |   |
| Commercial         |       | $                                    | 67,236     |                               | $          | 60,922 |   |   |   |   |   |
| Residential        |       | 24,720                               |       | 27,105                             |       |   |   |   |   |
| Aluminum Extrusion |       | 40,655                               |       | 38,130                             |       |   |   |   |   |
| Total Segments     |       | 132,611                              |       | 126,157                            |       |   |   |   |   |
| Corporate          |       | 11,764                               |       | 15,725                             |       |   |   |   |   |
| Total              |       | $                                    | 144,375    |                               | $          | 141,882 |   |   |   |   |   |

 

8

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## Unaudited

DiscontinuedOperations

 

During the fourth quarter of fiscal year2003, the Company announced the closure of International Window-Colorado, avinyl window and door subsidiary, which was a component of the ResidentialProducts segment.  In accordance withSFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”,the Company wrote-down the net assets of International Window-Colorado to theirestimated net realizable value and reported International Window-Colorado’sresults as discontinued operations.  Dueprimarily to favorable results experienced in selling a portion ofInternational Window-Colorado’s equipment and inventory and collection of accountsreceivable balances, the Company recognized a net gain in fiscal year 2004which was also classified as discontinued operations.  The Company does not anticipate anyfurther activity with respect to International Window-Colorado in the future.

 

Item2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

 

Results of Operations

 

General Overview

 

Net sales increased $11,061,000 or 21.8% forthe quarter ended December 31, 2004 and $18,832,000 or 18.2% for the six monthsthen ended when compared with the respective prior year periods.  Cost of sales as a percentage of net saleswas 77.8% for the quarter ended December 31, 2004 versus 78.3% for the sameperiod last year and for the six-month period was 77.4% compared to 79.2% forthe same period last year.  Selling,general and administrative expenses increased $727,000 for the current quarterand $1,758,000 for the year compared to the same periods last year, although asa percentage of net sales decreased to 14.9% for the quarter and 14.8% year todate compared to 16.7% and 15.8% for the comparable periods last year.

 

The Company includes product costs, inboundfreight, purchasing, receiving, inspection, internal transfer, warehousing andother costs of the Company’s distribution network in cost of goods sold,thereby reducing gross profit by these amounts. Cost of sales and gross profit as a percent of sales for the Company maynot be comparable to those of other companies in our industry since otherentities may record purchasing, warehousing and distribution costs as selling,general and administrative expense.

 

The contribution to these results by eachsegment is discussed below.

 

Commercial Products

 

Net sales of the CommercialProducts Group increased $7,562,000 or 31.4% for the quarter and $13,938,000 or29.4% for the six months compared to the same periods last year.  These gains reflect increased commercialconstruction activity together with increased sales prices and expandedgeographic market penetration.  Cost ofsales as a percentage of sales was 77.2% for the quarter ended December 31,2004 versus 77.9% for the same period last year and for the six-month periodwas 76.8% compared to 79.1% for the same period last year. Although year todate material cost percentage remained relatively constant compared to theprior year six-month period, the current quarter was slightly higher reflectingthe absorption of increased aluminum costs. Decreased labor and overhead costpercentages were achieved during the current quarter and year to date periodscompared to the same periods last year due to volume efficiencies as a resultof the aforementioned sales increases. Selling, general and administrative expenses increased $225,000 for thecurrent quarter

 

9

----

 

Unaudited

 

and $615,000 for the yearcompared to the same periods last year, although as a percentage of salesdecreased to 11.5% for the quarter and 11.6% year to date compared to 14.0% and13.6% for the comparable periods last year. These increases reflect additional employment and sales representationcosts of $407,000 for the quarter and $752,000 for the year related to theincrease in sales and achievement of incentive compensation targets.  Partially offsetting these increases duringthe current year was income relating to retrospective workers’ compensation andgeneral liability policies totaling $126,000 and $94,000 recorded for the threeand six-month periods respectively, compared to additional expense of $136,000and $151,000 incurred in the comparable periods of the prior year.

 

Residential Products

 

Net sales of the ResidentialProducts Group increased $1,725,000 or 10.8% for the quarter and $4,228,000 or13.2% for the six months compared to the same periods last year.  Low interest rates and sustained consumerconfidence continue to stimulate new home construction, resales of existinghomes and home improvement spending.  Newproduct development and more aggressive promotional programs have alsocontributed to the increase.  Cost ofsales as a percentage of sales was 70.8% for the quarter ended December 31,2004 versus 70.0% for the same period last year and for the six-month periodwas 70.5% compared to 70.2% for the same period last year.  All components, material, labor and overhead,as a percentage of sales remained virtually unchanged from the respective prioryear periods, as slight increases in material and labor cost percentages weremostly offset by declines in overhead cost percentages. Selling, general andadministrative expenses remained relatively unchanged for the current quarterbut increased $696,000 for the year compared to the same periods last year,although as a percentage of sales decreased to 12.1% for the quarter comparedto 12.6% for the comparable quarter of the prior year but increased to 12.7%for the six-month period compared to 12.1% for the same period last year.  The year to date increase reflects increasedcosts of $575,000 for advertising, current year general liability insurance, andretrospective workers’ compensation and general liability policies.

 

Aluminum Extrusion

 

Net sales of the Aluminum Extrusion Group increased $1,774,000 or 16.6%for the quarter and $666,000 or 2.8% for the six months compared to the sameperiods last year.  During the currentquarter the group benefited from an increase in selling prices along with a4.4% increase in net tonnage shipped. However, for the six-month period,increased selling prices were offset by a 7.5% decrease in net tonnage shippedto outside customers, particularly in the area served by our Texasfacility.  Cost of sales as a percentageof sales was 95.6% for the quarter ended December 31, 2004 compared to 97.1%for the same period last year and for the six-month period was relatively constantat 95.7% versus 95.3% for the comparable period last year.  Due to the highly competitive marketplace,selling prices were increased directly in line with the increased cost ofaluminum, resulting in increased material cost percentages and decreased laborand overhead cost percentages for the current three and six-monthperiods.  Additionally, labor andoverhead production efficiencies gained from higher total tonnage output,including intercompany customers, decreased labor and overhead cost percentagesfor the same periods. For the current quarter these gains more than offsetincreased material cost percentages but for the six-month period only partiallyoffset the material cost percentage increase. Selling, general and administrative expenses were relatively unchangedfor the current quarter and six months compared to the same periods last year,although as a percentage of sales decreased to 2.7% for the quarter and 2.8%year to date compared to 3.3% and 3.1% for the comparable periods last year.

 

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Corporate

General and administrative expenses increased$360,000 for the current quarter and $353,000 for the six months compared tothe same periods last year, although as a percentage of consolidated net salesdecreased to 4.2% for the quarter and 3.9% year to date compared to 4.4% and4.3% for the comparable periods last year. The three and six-month increases include a $210,000 charge for initialcosts related to complying with the internal control sections of theSarbanes-Oxley legislation.  The otheradditional costs for the current three and six-month periods were primarilyincurred for employment, legal services, and retrospective workers’compensation policies.

 

#### IncomeTaxes

 

The effective tax rate for the six monthsended December 31, 2004 was 38.8% as compared to 40.0% in the comparable periodof the prior year.

 

#### Liquidityand Capital Resources

 

Working capital at December 31, 2004 stood at $73,117,000, an increaseof $5,257,000 from June 30, 2004. The ratio of current assets to current liabilities was 4.3 as comparedto 3.8 at the beginning of the year.

 

The Company projects net capital expenditures of $5,900,000 for fiscal2005 for expansion of production capacity, as well as normal recurringcapitalized replacement items.  TheCompany anticipates financing these expenditures through internal cash flow andcash reserves.  The Company’s lines ofcredit remain unchanged from those described in the June 30, 2004 Annual Reportto Shareholders.

 

Recent AccountingPronouncements

 

Current and pending accounting pronouncements are not expected to havea significant impact on the Company’s results of operations or financialposition.

 

Forward-Looking Information

 

This report contains forward-lookingstatements with respect to the financial condition, results of operations andbusiness of the Company.  Such items aresubject to certain risks and uncertainties that could cause actual results todiffer materially from those set forth in such statements. The principalimportant risk factors and uncertainties include, but are not limited to,changes in general economic conditions, material prices, labor costs, interestrates, and other adverse changes in general economic conditions, consumer confidence,competition, currency exchange rates as they affect our Canadian operations,environmental factors, unanticipated legal proceedings, and conditions in thecommercial and residential construction markets.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the datethe statements were made. The Company undertakes no obligation to publiclyupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise.

 

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Unaudited

Item3.  Quantitative and QualitativeDisclosures About Market Risk.

 

Fluctuatingforeign exchange rates and commodity pricing may impact our earnings.  Our foreign exchange exposure is related toactivities associated with our Canadian subsidiaries.  We do not attempt to manage these risks byentering into forward exchange contracts, forward commodity delivery agreementsor otherwise.

 

Item 4.  Controls and Procedures.

 

We maintain disclosurecontrols and procedures (as defined in Exchange Act Rule 13a-15(e)) that aredesigned to assure that information required to be disclosed in our ExchangeAct reports is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission’s rules and forms,and that such information is accumulated and communicated to our management,including our Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”)and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisionsregarding required disclosures.

 

In designing andevaluating the disclosure controls and procedures, we recognize that anycontrols and procedures, no matter how well designed and operated, can providereasonable assurance only of achieving the desired control objectives, andmanagement necessarily is required to apply its judgment in weighting the costsand benefits of possible new or different controls and procedures.  Limitations are inherent in all controlsystems, so no evaluation of controls can provide absolute assurance that allcontrol issues and any fraud within the company have been detected.

 

As required byExchange Act Rule 13a-15(b), as of the end of the period covered by this reportwe carried out, under the supervision and with the participation of our CEO,COO and CFO, an evaluation of the effectiveness of the design and operation ofour disclosure controls and procedures. Based on this evaluation, our CEO, COO and CFO concluded that, subjectto the inherent limitations noted above, our disclosure controls and procedureswere effective to provide reasonable assurance that material Companyinformation is recorded, processed, summarized and reported to our managementon a timely basis to ensure the quality and timeliness of our publicdisclosures.

 

In our evaluation above, we identified no changes during the periodcovered by this report that, individually or in the aggregate, materiallyaffected, or are reasonably likely to materially affect, our internal controlsover financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 6.            Exhibits.

 

(a)                                  Exhibits:

 
| 31.1   | Certification of the Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                   |
| 31.2   | Certification of the Chief  Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |
|   |                                                                                                                                                   |
| 31.3   | Certification of the Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |
|   |                                                                                                                                                   |
| 32.1   | Certification of the Chief  Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                                                   |
| 32.2   | Certification of the Chief  Operating Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                                                   |
| 32.3   | Certification of the Chief  Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|   |               | International Aluminum  Corporation   |
|--------|--------------------|---------------------------------------|
|   |               | (Registrant)                          |
|   |               |                                  |
|   |               |                                  |
| Date:  | February  10, 2005 |                                  | MITCHELL  K. FOGELMAN |
|   |               | Mitchell  K. Fogelman                 |
|   |               | Senior  Vice President – Finance |
|   |               | (Principal  Financial Officer)        |
|   |               |                                  |
|   |               |                                  |
| Date:  | February  10, 2005 |                                  | MICHAEL  J. NORRING |
|   |               | Michael  J. Norring                   |
|   |               | Controller                            |
|   |               | (Principal  Accounting Officer)       |
|        |                    |                                       |  |  |

 

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INDEXTO EXHIBITS

 
| ** ** | ** ** | ** **                                                                                                                                             | ** ** | **Page** |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
|       |       |                                                                                                                                                   |       |     |
| 31.1       |       | Certification  of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                               |       | 16       |
|       |       |                                                                                                                                                   |       |     |
| 31.2       |       | Certification of the Chief  Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |       | 17       |
|       |       |                                                                                                                                                   |       |     |
| 31.3       |       | Certification of the Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |       | 18       |
|       |       |                                                                                                                                                   |       |     |
| 32.1       |       | Certification of the Chief  Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |       | 19       |
|       |       |                                                                                                                                                   |       |     |
| 32.2       |       | Certification of the Chief  Operating Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |       | 20       |
|       |       |                                                                                                                                                   |       |     |
| 32.3       |       | Certification of the Chief  Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |       | 21       |

 

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