# **SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

 

 

**FORM10-Q**

 

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|------------|-------------------------------------------------------------------------------------|

 

**For quarterly period ended March 31,2005**

 

**OR**

 
| **o** | ** ** | **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 1-7256**

 

 

 

| **INTERNATIONAL  ALUMINUM CORPORATION**                 |
|---------------------------------------------------------|
| (Exact  name 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**                  |
| (Principal  executive office)        |

 

 

----

 

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 of the Securities Exchange Act of 1934during the preceding 12 months and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý   No o

 

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

 

At May 2, 2005, there were 4,267,730 shares of common stockoutstanding.

 

----

 

INTERNATIONAL ALUMINUMCORPORATION

AND SUBSIDIARIES

 

INDEX

 

 
| ** **                     | **Page**                                                                                                                          |
|--------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                                              |
|                           |                                                                                                                              |
| PART I. Financial  Information |                                                                                                                              |
|                           |                                                                                                                              |   |
|                           | Item 1. Financial  Statements.                                                                                                    |   |
|                           |                                                                                                                              |   |
|                           | Condensed  Consolidated Balance Sheets - March  31, 2005 and June 30, 2004 (unaudited)                                       | 3 |
|                           |                                                                                                                              |   |
|                           | Condensed Consolidated  Statements of Income - three  and nine month periods ended March  31, 2005 and 2004 (unaudited) | 4 |
|                           |                                                                                                                              |   |
|                           | Condensed Consolidated  Statements of Cash Flows nine month periods ended March 31, 2005 and 2004 (unaudited)                | 5 |
|                           |                                                                                                                              |   |
|                           | Notes to Condensed Consolidated  Financial Statements (unaudited)                                                                 |  6 |
|                           |                                                                                                                              |   |
|                           | Item 2. Management’s  Discussion and Analysis of Financial  Condition and Results of Operations.                        | 10 |
|                           |                                                                                                                              |   |
|                           | Item 3. Quantitative and  Qualitative Disclosures About Market  Risk.                                                        | 13 |
|                           |                                                                                                                              |   |
|                           | Item 4. Controls and  Procedures.                                                                                                 | 13 |
|                           |                                                                                                                              |   |
| PART II. Other  Information    |                                                                                                                              |
|                           |                                                                                                                              |   |
|                           | Item 6. Exhibits.                                                                                                                 | 15 |
|                           |                                                                                                                              |   |
| Signatures                     | 16                                                                                                                                |
|                                |                                                                                                                                   |  |  |

 

2

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PART I — FINANCIAL INFORMATION

Unaudited

Item 1. Financial Statements.

 

InternationalAluminum Corporation

and Subsidiaries

 

Condensed Consolidated BalanceSheets

 

 
| ** **                                | ** ** | **March 31, 2005** | ** **  | **June 30, 2004** | ** ** |
|-------------------------------------------|------------|-------------------------|-------------|-------------------|------------|
| Assets                                    | ** ** | ** **              | ** **  | ** **        | ** ** |
|                                      |       |                    |        |              |       |
| Current assets:                           |       |                    |        |              |       |
| Cash and cash equivalents                 |       | $                       | 10,207,000  |              | $          | 15,964,000 |   |
| Accounts receivable, net                  |       | 42,309,000              |        | 39,030,000        |       |
| Inventories                               |       | 44,771,000              |        | 32,286,000        |       |
| Prepaid expenses and deposits             |       | 2,022,000               |        | 1,864,000         |       |
| Deferred income taxes                     |       | 2,767,000               |        | 2,767,000         |       |
|                                      |       |                    |        |              |       |
| Total current assets                      |       | 102,076,000             |        | 91,911,000        |       |
|                                      |       |                    |        |              |       |
| Property, plant and equipment, at cost    |       | 123,376,000             |        | 121,828,000       |       |
| Accumulated depreciation                  |       | (77,057,000             | )           | (73,227,000       | )          |
|                                      |       |                    |        |              |       |
| Net property, plant and equipment         |       | 46,319,000              |        | 48,601,000        |       |
|                                      |       |                    |        |              |       |
| Other assets:                             |       |                    |        |              |       |
| Goodwill                                  |       | 651,000                 |        | 609,000           |       |
| Other                                     |       | 1,311,000               |        | 761,000           |       |
|                                      |       |                    |        |              |       |
| Total other assets                        |       | 1,962,000               |        | 1,370,000         |       |
|                                      |       |                    |        |              |       |
|                                      |       | $                       | 150,357,000 |              | $          | 141,882,000 |   |
|                                      |       |                    |        |              |       |
| Liabilities and Shareholders’ Equity |       |                    |        |              |       |
|                                      |       |                    |        |              |       |
| Current liabilities:                      |       |                    |        |              |       |
| Accounts payable                          |       | $                       | 12,832,000  |              | $          | 10,858,000 |   |
| Accrued liabilities                       |       | 13,567,000              |        | 11,903,000        |       |
| Advances payable to banks                 |       | —                  |        | 202,000           |       |
| Income taxes payable                      |       | —                  |        | 1,088,000         |       |
|                                      |       |                    |        |              |       |
| Total current liabilities                 |       | 26,399,000              |        | 24,051,000        |       |
|                                      |       |                    |        |              |       |
| Deferred income taxes                     |       | 6,625,000               |        | 6,625,000         |       |
|                                      |       |                    |        |              |       |
| Total liabilities                         |       | 33,024,000              |        | 30,676,000        |       |
|                                      |       |                    |        |              |       |
| Shareholders’ equity                 |       | 117,333,000             |        | 111,206,000       |       |
|                                      |       |                    |        |              |       |
|                                      |       | $                       | 150,357,000 |              | $          | 141,882,000 |   |

 

 

See accompanying notes to condensed consolidated financial statements.

 

3

----

 

Unaudited

 

 

 

InternationalAluminum Corporation

and Subsidiaries

 

 

Condensed Consolidated Statements of Income

 

 
| ** **                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                            | ** ** | **March 31,**          | ** ** | **March 31,**         | ** ** |
| ** **                                            | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                  |       |                   |       |                  |       |   |   |   |   |
| Net sales                                             |       | $                      | 62,088,000 |                  | $          | 50,064,000 |   | $ | 184,574,000 |   | $ | 153,718,000 |   |
| Cost of sales                                         |       | 48,194,000             |       | 40,591,000            |       | 143,014,000 |   | 122,673,000 |   |
| Gross profit                                          |       | 13,894,000             |       | 9,473,000             |       | 41,560,000 |   | 31,045,000 |   |
| Selling, gen. and admin. expenses                     |       | 9,499,000              |       | 8,067,000             |       | 27,680,000 |   | 24,490,000 |   |
| Income from operations                                |       | 4,395,000              |       | 1,406,000             |       | 13,880,000 |   | 6,555,000 |   |
| Interest (income), net                                |       | (16,000                | )          | (9,000                | )          | (56,000 | ) | (24,000 | ) |
| Income from continuing operations before income taxes |       | 4,411,000              |       | 1,415,000             |       | 13,936,000 |   | 6,579,000 |   |
| Provision for income taxes                            |       | 1,680,000              |       | 560,000               |       | 5,380,000 |   | 2,624,000 |   |
| Income from continuing operations                     |       | 2,731,000              |       | 855,000               |       | 8,556,000 |   | 3,955,000 |   |
| Income from discontinued operations                   |       | —                 |       | —                |       | — |   | 129,000 |   |
|                                                  |       |                   |       |                  |       |   |   |   |   |
| Net income                                            |       | $                      | 2,731,000  |                  | $          | 855,000 |   | $ | 8,556,000 |   | $ | 4,084,000 |   |
|                                                  |       |                   |       |                  |       |   |   |   |   |
|                                                  |       |                   |       |                  |       |   |   |   |   |
| Basic and diluted EPS:                                |       |                   |       |                  |       |   |   |   |   |
| Continuing operations                                 |       | $                      | .64        |                  | $          | .20 |   | $ | 2.01 |   | $ | .93 |   |
| Discontinued operations                               |       | —                 |       | —                |       | — |   | .03 |   |
| Total                                                 |       | $                      | .64        |                  | $          | .20 |   | $ | 2.01 |   | $ | .96 |   |
|                                                  |       |                   |       |                  |       |   |   |   |   |
| Shares used to compute EPS:                           |       |                   |       |                  |       |   |   |   |   |
| Basic                                                 |       | 4,252,403              |       | 4,244,794             |       | 4,247,838 |   | 4,244,794 |   |
| Diluted                                               |       | 4,261,485              |       | 4,251,235             |       | 4,254,968 |   | 4,246,941 |   |
|                                                  |       |                   |       |                  |       |   |   |   |   |
| Cash dividends per share                              |       | $                      | .30        |                  | $          | .30 |   | $ | .90 |   | $ | .90 |   |

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4

----

Unaudited

 

 

 

International AluminumCorporation

and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

 

 
| ** **                                          | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **March  31,**   | ** ** |
| ** **                                          | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                                |       |                  |       |   |   |
| Cash flows from operating activities:               |       |                  |       |   |   |
| Net income                                          |       | $                     | 8,556,000  |   | $ | 4,084,000 |   |
| Adjustments for noncash transactions:               |       |                  |       |   |   |
| Depreciation and amortization                       |       | 4,730,000             |       | 4,930,000 |   |
| Changes in assets and liabilities:                  |       |                  |       |   |   |
| Accounts receivable                                 |       | (2,952,000            | )          | 270,000 |   |
| Inventories                                         |       | (12,285,000           | )          | (3,372,000 | ) |
| Prepaid expenses and other                          |       | (693,000              | )          | (86,000 | ) |
| Accounts payable                                    |       | 1,686,000             |       | 1,731,000 |   |
| Accrued liabilities                                 |       | 1,642,000             |       | 2,182,000 |   |
| Income taxes payable                                |       | (1,003,000            | )          | (280,000 | ) |
|                                                |       |                  |       |   |   |
| Net cash (used in) provided by operating activities |       | (319,000              | )          | 9,459,000 |   |
|                                                |       |                  |       |   |   |
| Cash flows from investing activities:               |       |                  |       |   |   |
| Capital expenditures                                |       | (1,970,000            | )          | (3,031,000 | ) |
| Proceeds from sales of capital assets               |       | 153,000               |       | 180,000 |   |
|                                                |       |                  |       |   |   |
| Net cash used in investing activities               |       | (1,817,000            | )          | (2,851,000 | ) |
|                                                |       |                  |       |   |   |
| Cash flows from financing activities:               |       |                  |       |   |   |
| Dividends paid to shareholders                      |       | (3,826,000            | )          | (3,820,000 | ) |
| Exercise of stock options                           |       | 388,000               |       | — |   |
| Net repayments under lines of credit                |       | (223,000              | )          | (126,000 | ) |
|                                                |       |                  |       |   |   |
| Net cash used in financing activities               |       | (3,661,000            | )          | (3,946,000 | ) |
|                                                |       |                  |       |   |   |
| Effect of exchange rate changes                     |       | 40,000                |       | 13,000 |   |
|                                                |       |                  |       |   |   |
| Net change in cash and cash equivalents             |       | (5,757,000            | )          | 2,675,000 |   |
|                                                |       |                  |       |   |   |
| Cash and cash equivalents at beginning of period    |       | 15,964,000            |       | 12,570,000 |   |
|                                                |       |                  |       |   |   |
| Cash and cash equivalents at end of period          |       | $                     | 10,207,000 |   | $ | 15,245,000 |   |

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5

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Unaudited

 

 

 

InternationalAluminum Corporation

and Subsidiaries

 

Notes To Condensed Consolidated FinancialStatements

 

 

 

Basis of Presentation

 

    In the opinion of management,the accompanying unaudited consolidated financial statements contain alladjustments (which consist solely of normal recurring adjustments unlessotherwise disclosed) necessary for fair statement, in all material respects, ofits financial position as of March 31, 2005 and June 30, 2004, and theresults of operations and the cash flows for the nine-month periods ended March31, 2005 and 2004.  The results of operationsfor the nine-month period ended March 31, 2005 are not necessarily indicativeof the results to be expected for the full year.

 

    The financial statementsincluded herein have been prepared by the Company pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles, in the United States of America, have beencondensed or omitted pursuant to such rules and regulations, although theCompany believes that the disclosures are adequate to make the informationpresented not misleading in any material respect. 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, definedas net income and other comprehensive income, for the quarters ended March 31,2005 and 2004 was $2,662,000 and $744,000, respectively.  Comprehensive income for the nine monthsended March 31, 2005 and 2004 was $9,565,000 and $4,344,000, respectively.  Other comprehensive income includes foreigncurrency translation adjustments recorded directly in shareholders’ equity.

 

 
| **Balance Sheet Components**              | ** ** | **March 31, 2005** | ** **  | **June 30, 2004** | ** ** |
|-------------------------------------------|------------|--------------------|-------------|-------------------|------------|
|                                      |       |               |        |              |       |
| Inventories, lower of FIFO Cost or Market |       |               |        |              |       |
| Raw materials                             |       | $                  | 38,379,000  |              | $          | 26,790,000 |   |
| Work in process                           |       | 102,000            |        | 553,000           |       |
| Finished goods                            |       | 6,290,000          |        | 4,943,000         |       |
|                                      |       | $                  | 44,771,000  |              | $          | 32,286,000 |   |
|                                      |       |               |        |              |       |
| Shareholders’ Equity                 |       |               |        |              |       |
| Common stock                              |       | $                  | 4,783,000   |              | $          | 4,765,000 |   |
| Paid-in capital                           |       | 4,493,000          |        | 4,123,000         |       |
| Retained earnings                         |       | 105,870,000        |        | 101,140,000       |       |
| Accumulated other comprehensive income    |       | 2,187,000          |        | 1,178,000         |       |
|                                      |       | $                  | 117,333,000 |              | $          | 111,206,000 |   |

 

6

----

 

Unaudited

 

 

Earnings Per Share

 

   Basic earnings per share is computed by dividing net income by theweighted-average number of shares of common stock outstanding during thisperiod.  Diluted earnings per share iscomputed by dividing net income by the weighted-average common shares andpotentially dilutive common equivalent shares outstanding, determined as follows:

 
| ** **                                                     | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                     | ** ** | **March 31,**          | ** ** | **March 31,**         | ** ** |
| ** **                                                     | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted-average shares outstanding used to compute basic EPS  |       | 4,252,403              |       | 4,244,794             |       | 4,247,838 |   | 4,244,794 |   |
| Incremental shares issuable upon the exercise of stock options |       | 9,082                  |       | 6,441                 |       | 7,130 |   | 2,147 |   |
|                                                           |       |                   |       |                  |       |   |   |   |   |
| Shares used to compute diluted EPS                             |       | 4,261,485              |       | 4,251,235             |       | 4,254,968 |   | 4,246,941 |   |

 

   Incremental shares issuable upon the assumed exercise of outstandingstock options are computed using the average market price of common stockduring the period. The incremental shares for the third quarter of 2004 andnine months of 2005 and 2004 exclude 13,500, 11,500 and 76,500 stock optionshares, respectively, because their inclusion would be anti-dilutive, since theoption price was greater than the Company’s average common stock price forthese periods.

 

 

 

Stock Based Compensation

 

   The Company granted stock options for the purchase of common stock tocertain executive and managerial employees under the Company’s 2001 StockOption Plan.  The options have anexercise price equal to the market price of the stock on the date of grant, aterm of ten years and become exercisable in equal installments over a five-yearperiod from the date of grant so long as the employees remain in the continuousemploy of the company.  The Companyapplies Accounting Principles Board (APB) Opinion No. 25, “Accounting for StockIssued to Employees”, and related Interpretations in accounting for stockoptions granted under the plan.  Under APBNo. 25, compensation cost, if any, is recognized over the respectivevesting period based on the difference, if any, on the date of grant, betweenthe fair value of 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 adoptfair value accounting for employee stock options under SFAS No. 123 andSFAS No. 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

----

 

Unaudited

 

 

Segment Information

 

   The Company’s operations are organized and managed by product type.  The Company currently operates in threesegments of the building products industry: Commercial Products, Residential Products and Aluminum Extrusions.Eliminations include all significant intercompany transactions and accounts.The Company evaluates performance based on operating income or loss before anyallocation 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** | ** ** | **Nine Months Ended** | ** ** |
|--------------------|------------|------------------------|------------|-----------------------|------------|
| ** **         | ** ** | **March 31,**          | ** ** | **March 31,**         | ** ** |
| **Net Sales:**     | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
|               |       |                   |       |                  |       |   |   |   |   |
| Commercial         |       | $                      | 31,390     |                  | $          | 23,817 |   | $ | 93,251 |   | $ | 71,984 |   |
| Residential        |       | 17,290                 |       | 15,403                |       | 53,657 |   | 47,561 |   |
| Aluminum Extrusion |       | 28,992                 |       | 22,259                |       | 85,809 |   | 70,524 |   |
| Total Segments     |       | 77,672                 |       | 61,479                |       | 232,717 |   | 190,069 |   |
| Eliminations       |       | (15,584                | )          | (11,415               | )          | (48,143 | ) | (36,351 | ) |
| Total              |       | $                      | 62,088     |                  | $          | 50,064 |   | $ | 184,574 |   | $ | 153,718 |   |

 

 

 
| ** **            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------|------------|------------------------|------------|-----------------------|------------|
| ** **            | ** ** | **March 31,**          | ** ** | **March 31,**         | ** ** |
| **Operating Income:** | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                  |       |                   |       |                  |       |   |   |   |   |
| Commercial            |       | $                      | 3,573      |                  | $          | 1,231 |   | $ | 10,777 |   | $ | 4,775 |   |
| Residential           |       | 2,874                  |       | 2,336                 |       | 9,001 |   | 7,998 |   |
| Aluminum Extrusion    |       | 361                    |       | (290                  | )          | 1,212 |   | 471 |   |
| Total Segments        |       | 6,808                  |       | 3,277                 |       | 20,990 |   | 13,244 |   |
| Eliminations          |       | (161                   | )          | 308                   |       | (41 | ) | (46 | ) |
| Corporate             |       | (2,252                 | )          | (2,179                | )          | (7,069 | ) | (6,643 | ) |
| Total                 |       | $                      | 4,395      |                  | $          | 1,406 |   | $ | 13,880 |   | $ | 6,555 |   |
|                  |       |                   |       |                  |       |   |   |   |   |
| ** **            | ** ** | **Mar. 31,**           | ** ** | **June 30,**          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total  Assets:**    | ** ** | **2005**               | ** ** | **2004**              | ** ** | ** ** | ** ** | ** ** | ** ** |
|                  |       |                   |       |                  |       |   |   |   |   |
| Commercial            |       | $                      | 67,734     |                  | $          | 60,922 |   |   |   |   |   |
| Residential           |       | 24,762                 |       | 27,105                |       |   |   |   |   |
| Aluminum Extrusion    |       | 44,299                 |       | 38,130                |       |   |   |   |   |
| Total Segments        |       | 136,795                |       | 126,157               |       |   |   |   |   |
| Corporate             |       | 13,562                 |       | 15,725                |       |   |   |   |   |
| Total                 |       | $                      | 150,357    |                  | $          | 141,882 |   |   |   |   |   |

 

8

----

 

Unaudited

## Discontinued Operations

 

   During the fourth quarter of fiscal year 2003, the Company announced theclosure of International Window-Colorado, a vinyl window and door subsidiary,which was a component of the Residential Products segment.  In accordance with SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets”, the Company wrote-downthe net assets of International Window-Colorado to their estimated netrealizable value and reported International Window-Colorado’s results asdiscontinued operations.  Due primarilyto favorable results experienced in selling a portion of InternationalWindow-Colorado’s equipment and inventory and collection of accounts receivablebalances, the Company recognized a net gain in fiscal year 2004 which was alsoclassified as discontinued operations. The Company does not anticipate any further activity with respect toInternational Window-Colorado in the future.

 

Recent Accounting Pronouncements

 

   In March 2005, the Financial Accounting Standards Board (“FASB”) issuedFinancial Interpretation No. 47, “Accounting for Conditional Asset RetirementObligations” (FIN 47).  FIN 47 is aninterpretation of FASB Statement No. 143, “Accounting for Asset RetirementObligations” and clarifies (i) that an entity is required to recognize aliability for the fair value of a conditional asset retirement obligation whenincurred if the liability’s fair value can be reasonably estimated and (ii)when an entity would have sufficient information to reasonably estimate thefair value of an asset retirement obligation. Upon adoption in fiscal year 2006 we do not anticipate that FIN 47 willhave a material impact on our financial statements.

 

    In December 2004, the FASBissued SFAS No. 123R (revised 2004), “Share-Based Payment”, which replaced SFASNo. 123 and superseded APB Opinion No. 25. SFAS No. 123R requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the financial statements based on their fair values in thefirst interim or annual period beginning after June 15, 2005.  The pro forma disclosures previouslypermitted under SFAS No. 123 will no longer be an alternative to financialstatement recognition.  As previouslydisclosed in the Stock Based Compensation note, we do not believe the adoptionof SFAS 123R will have an impact on our financial statements.

 

    The American Jobs Creation Actof 2004 (the “Act”) was signed into law on October 22, 2004.  The Act contains numerous changes to U.S. taxlaw, both temporary and permanent in nature, including a potential taxdeduction with respect to certain qualified domestic manufacturing activities,changes in the carryback and carryforward utilization periods for foreign taxcredits and a dividend received deduction with respect to accumulated incomeearned abroad. The new law could potentially have an impact on our effectivetax rate, future taxable income and cash and tax planning strategies, amongstother affects. In December 2004, the FASB issued Staff Position No. 109-1 (“FSP109-1”), Application of FASB Statement No. 109, Accounting for Income Taxes, tothe Tax Deduction on Qualified Production Activities Provided by the AmericanJobs Creation Act of 2004 and Staff Position No. 109-2 (“FSP 109-2”),Accounting and Disclosure Guidance for the Foreign Earnings RepatriationProvision within the American Jobs Creation Act of 2004. FSP 109-1 clarifiesthat the manufacturer’s tax deduction provided for under the AJCA should beaccounted for as a special deduction in accordance with SFAS No. 109 and not asa tax rate reduction.  FSP 109-2 providesaccounting and disclosure guidance for the repatriation of certain foreignearnings to a U.S. taxpayer as provided for in the AJCA.  We are currently in the process of evaluatingthe impact that the Act will have on our financial position and results ofoperations.

 

9

----

 

Unaudited

 

    In November 2004, the FASBissued SFAS No. 151, “Inventory Costs” (SFAS 151), which clarifies theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material.  SFAS 151will be effective for inventory costs incurred beginning July 1, 2005.  We do not believe the adoption of SFAS 151will have a material impact on our financial statements.

 

Item 2.  Management’s Discussion and Analysis ofFinancial Conditionand Results of Operations.

 

Results of Operations

 

General Overview

 

    Netsales increased $12,024,000 or 24.0% for the quarter ended March 31, 2005 and$30,856,000 or 20.1% for the nine months then ended when compared with therespective prior year periods.  Cost ofsales as a percentage of net sales was 77.6% for the quarter ended March 31,2005 versus 81.1% for the same period last year and for the nine-month periodwas 77.5% compared to 79.8% for the same period last year.  Selling, general and administrative expensesincreased $1,432,000 for the current quarter and $3,190,000 for the nine monthscompared to the same periods last year, although as a percentage of net salesdecreased to 15.3% for the quarter and 15.0% year to date compared to 16.1% and15.9% for the comparable periods last year.

 

    TheCompany includes product costs, inbound freight, purchasing, receiving,inspection, internal transfer, warehousing and other costs of the Company’sdistribution network in cost of goods sold, thereby reducing gross profit bythese amounts.  Cost of sales and grossprofit as a percent of sales for the Company may not be comparable to those ofother companies in our industry since other entities may record purchasing,warehousing and distribution costs as selling, general and administrativeexpense.

 

    Thecontribution to these results by each segment is discussed below.

 

Commercial Products

 

   Sales of the Commercial Products Group increased $7,601,000 or 32.2% forthe quarter and $21,540,000 or 30.2% for the nine months compared to the sameperiods last year.  These gains reflectincreased commercial construction activity together with increased sales pricesand expanded geographic market penetration. Cost of sales as a percentage of sales was 76.3% for the quarter endedMarch 31, 2005 versus 81.2% for the same period last year and for thenine-month period was 76.6% compared to 79.8% for the same period last year.Although it experienced higher aluminum costs, this group achieved decreasedmaterial, labor and overhead cost percentages during the quarter and ninemonths compared to the same periods last year mainly due to improved marginsgenerated as a result of the substantially higher sales volume coupled withincreased prices. Selling, general and administrative expenses increased $616,000for the current quarter and $1,231,000 for the year compared to the sameperiods last year, although as a percentage of sales decreased to 12.3% for thequarter and 11.8% year to date compared to 13.6% for each of the comparableperiods last year. These increased expenses reflect additional employment andsales representation costs of $565,000 for the quarter and $1,334,000 for theyear related to the increase in sales and achievement of incentive compensationtargets.  Partially offsetting the increasein expenses during the current year was $27,000 of income relating toretrospective workers’ compensation and general liability policies for thenine-month period compared to additional expense of $120,000 incurred in thecomparable period of the prior year.

 

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Unaudited

Residential Products

 

   Sales of the Residential Products Group increased $1,922,000 or 12.6%for the quarter and $6,149,000 or 13.0% for the nine months compared to thesame periods last year.  Consumer demandcontinues to stimulate new home construction, resales of existing homes andhome improvement spending in the areas served by this group.  New product development and more aggressivepromotional programs have also contributed to the increase.  Cost of sales as a percentage of sales was69.6% for the quarter ended March 31, 2005 versus 71.2% for the same periodlast year and for the nine-month period was 70.2% compared to 70.6% for thesame period last year. Year-to-date material, labor and overhead costpercentages remained virtually unchanged from the prior year period. Selling,general and administrative expenses increased $285,000 for the current quarterand $982,000 for the nine months compared to the same periods last year, and asa percentage of sales increased slightly to 13.8% for the quarter and 13.0%year-to-date compared to 13.6% and 12.6% for the comparable periods last year.These increases reflect increased costs of $247,000 for the current quarter and$578,000 year-to-date for current year general liability insurance, andretrospective workers’ compensation and general liability policies.  The current year to date also includes anincrease of $388,000 for employment and advertising costs.

 

Aluminum Extrusion

 

   Sales of the Aluminum Extrusion Group increased $2,501,000 or 22.3% forthe quarter and $3,167,000 or 9.0% for the nine months compared to the sameperiods last year.  During the currentquarter, the group benefited from an increase in selling prices along with a3.0% increase in net tonnage shipped. However, for the nine-month period,increased selling prices were offset by a 4.2% decrease in net tonnage shippedto outside customers, particularly in the area served by our Texas facility.  Cost of sales as a percentage of sales was95.3% for the quarter ended March 31, 2005 compared to 98.8% for the sameperiod last year and for the nine-month period was 95.5% versus 96.4% for thecomparable period last year.  Due to thehighly competitive marketplace, selling prices were increased directly in linewith the increased cost of aluminum, resulting in increased material costpercentages and decreased labor and overhead cost percentages for the currentthree and nine-month periods. Additionally, labor and overhead productionefficiencies gained from higher total tonnage output, including intercompanycustomers, decreased labor and overhead cost percentages for the sameperiods.  These gains more than offsetthe increased material cost percentages. Selling, general and administrative expenses increased $458,000 for thecurrent quarter and $551,000 for the year compared to the same periods lastyear, and as a percentage of sales increased to 3.5% for the quarter and 3.0%year to date compared to 2.5% and 2.9% for the comparable periods lastyear.  These increases reflect increasedcosts of $377,000 for the current quarter and $551,000 year to date forretrospective workers’ compensation policies.

 

Corporate

 

   General and administrative expenses increased $73,000 for the currentquarter and $426,000 for the nine months compared to the same periods lastyear, although as a percentage of consolidated net sales decreased to 3.6% forthe quarter and 3.8% year to date compared to 4.4% and 4.3% for the comparableperiods last year.  The quarterly andnine-month increases include charges of $310,000 and $520,000, respectively,for costs related to complying with the internal control requirements of theSarbanes-Oxley legislation.  Additionalcosts of $140,000 were incurred during the current nine-month period primarilyrelated to higher employment expense. Partially offsetting these costs was a one-time recovery of $265,000 forcurrent and prior year legal fees that was recorded in the current quarter asthe result of a settlement.

 

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Unaudited

#### IncomeTaxes

 

   The effective tax rate for the nine months ended March 31, 2005 was38.6% as compared to 39.9% in the comparable period of the prior year.

 

#### Liquidityand Capital Resources

 

   Working capital at March 31, 2005 stood at $75,677,000, an increase of$7,817,000 from June 30, 2004.  Theratio of current assets to current liabilities was 3.9 as compared to 3.8 atthe 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 Accounting Pronouncements

 

   In March 2005, the Financial Accounting Standards Board (“FASB”) issuedFinancial Interpretation No. 47, “Accounting for Conditional Asset RetirementObligations” (FIN 47).  FIN 47 is aninterpretation of FASB Statement No. 143, “Accounting for Asset RetirementObligations” and clarifies (i) that an entity is required to recognize aliability for the fair value of a conditional asset retirement obligation whenincurred if the liability’s fair value can be reasonably estimated and (ii)when an entity would have sufficient information to reasonably estimate thefair value of an asset retirement obligation. Upon adoption in fiscal year 2006 we do not anticipate that FIN 47 willhave a material impact on our financial statements.

 

    In December 2004, the FASBissued SFAS No. 123R (revised 2004), “Share-Based Payment”, which replaced SFASNo. 123 and superseded APB Opinion No. 25. SFAS No. 123R requires allshare-based payments to employees, including grants of employee stock options,to be recognized in the financial statements based on their fair values in thefirst interim or annual period beginning after June 15, 2005. The pro formadisclosures previously permitted under SFAS No. 123 will no longer be analternative to financial statement recognition. As previously disclosed in the Stock Based Compensation note, we do notbelieve the adoption of SFAS 123R will have an impact on our financialstatements.

 

    The American Jobs CreationAct of 2004 (the “Act”) was signed into law on October 22, 2004.  The Act contains numerous changes to U.S. taxlaw, both temporary and permanent in nature, including a potential tax deductionwith respect to certain qualified domestic manufacturing activities, changes inthe carryback and carryforward utilization periods for foreign tax credits anda dividend received deduction with respect to accumulated income earned abroad.The new law could potentially have an impact on our effective tax rate, futuretaxable income and cash and tax planning strategies, amongst other affects. InDecember 2004, the FASB issued Staff Position No. 109-1 (“FSP 109-1”),Application of FASB Statement No. 109, Accounting for Income Taxes, to the TaxDeduction on Qualified Production Activities Provided by the American JobsCreation Act of 2004 and Staff Position No. 109-2 (“FSP 109-2”), Accounting andDisclosure Guidance for the Foreign Earnings Repatriation Provision within theAmerican Jobs Creation Act of 2004. FSP 109-1 clarifies that the manufacturer’stax deduction provided for under the AJCA should be accounted for as a specialdeduction in accordance with SFAS No. 109 and not as a tax rate reduction.  FSP 109-2 provides accounting and disclosureguidance for the repatriation of certain foreign earnings to a U.S. taxpayer asprovided for in the AJCA.  We arecurrently in the process of evaluating the impact that the Act will have on ourfinancial position and results of operations.

 

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Unaudited

 

 

    In November 2004, the FASBissued SFAS No. 151, “Inventory Costs” (SFAS 151), which clarifies theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material.  SFAS 151will be effective for inventory costs incurred beginning July 1, 2005.  We do not believe the adoption of SFAS 151will have a material impact on our financial statements.

 

 

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, consumerconfidence, competition, currency exchange rates as they affect our Canadianoperations, environmental factors, unanticipated legal proceedings, andconditions in the commercial 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 new information,future events or otherwise.

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

    Fluctuating foreign exchange rates andcommodity pricing may impact our earnings. Our foreign exchange exposure is related to activities associated withour Canadian subsidiaries.  We do notattempt to manage these risks by entering into forward exchange contracts,forward commodity delivery agreements or otherwise.

 

 

 

Item 4. Controls and Procedures.

 

    Wemaintain disclosure controls and procedures (as defined in Exchange Act Rule13a-15(e)) that are designed to assure that information required to bedisclosed in our Exchange Act reports is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer (“CEO”),Chief Operating Officer (“COO”) and Chief Financial Officer (“CFO”), asappropriate, to allow timely decisions regarding required disclosures.

 

    In designing and evaluatingthe disclosure controls and procedures, we recognize that any controls andprocedures, no matter how well designed and operated, can provide reasonableassurance only of achieving the desired control objectives, and managementnecessarily is required to apply its judgment in weighting the costs andbenefits 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.

 

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Unaudited

 

    As required by Exchange ActRule 13a-15(b), as of the end of the period covered by this report we carriedout, under the supervision and with the participation of our CEO, COO and CFO,an evaluation of the effectiveness of the design and operation of ourdisclosure 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, weidentified no changes during the period covered by this report that,individually or in the aggregate, materially affected, or are reasonably likelyto materially affect, our internal controls over financial reporting.  We may make changes in ourinternal control processes from time to time in the future.

 

    Section 404 of theSarbanes-Oxley Act of 2002 and related SEC rules will require us to include aninternal control report with our 2005 Annual Report on Form 10-K for the fiscalyear ending June 30, 2005.  The internalcontrol report must assert, among other things, (i) management’sresponsibilities to establish and maintain adequate internal control overfinancial reporting and (ii) management’s assessment of the effectiveness ofthis internal control as of the end of the most recent fiscal year. Ourindependent registered public accounting firm will be required to audit, andreport on, these assertions. Our management has adopted a detailed project workplan to assess the adequacy of our internal controls, remediate any controlweaknesses that may be identified and validate through testing that controlsare functioning as documented.

 

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PART II - OTHER INFORMATION

 

 

 

Item 6. Exhibits.

 

(a)                                  Exhibits:

 

31.1                   Certification of the Chief Executive Officer pursuantto Section 302 of the Sarbanes-Oxley Actof 2002

 

31.2                   Certification of the Chief Operating Officer pursuantto Section 302 of the Sarbanes-Oxley Actof 2002

 

31.3                   Certification of the Chief Financial Officer pursuantto Section 302 of the Sarbanes-Oxley Actof 2002

 

32.1                   Certification of the Chief Executive Officer pursuantto 18 U.S.C. Section 1350 as adoptedpursuant to Section906 of the Sarbanes-Oxley Act of 2002

 

32.2                   Certification of the Chief Operating Officer pursuantto 18 U.S.C. Section 1350 as adoptedpursuant to Section906 of the Sarbanes-Oxley Act of 2002

 

32.3                   Certification of the Chief Financial Officer pursuantto 18 U.S.C. Section 1350 as adoptedpursuant to Section906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

 

 

 

 

    Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|   |         | International Aluminum  Corporation   |
|--------|--------------|---------------------------------------|
|   |         | (Registrant)                          |
|   |         |                                  |
|   |         |                                  |
|   |         |                                  |
| Date:  | May 11, 2005 | MITCHELL K. FOGELMAN                  |
|   |         | Mitchell K. Fogelman                  |
|   |         | Senior Vice President —  Finance |
|   |         | (Principal Financial  Officer)        |
|   |         |                                  |
| Date:  | May 11, 2005 | MICHAEL J. NORRING                    |
|   |         | Michael J. Norring                    |
|   |         | Controller                            |
|   |         | (Principal Accounting  Officer)       |

 

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INDEX TO EXHIBITS

 

 

 

| ** **  | ** **                                                                                                                                                       | **Page** |
|-------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|        |                                                                                                                                                             |     |
| 31.1   | Certification of the Chief Executive Officer  pursuant to Section  302 of the Sarbanes-Oxley Act of 2002                                                    | 18       |
|        |                                                                                                                                                             |     |
| 31.2        | Certification of the Chief Operating Officer  pursuant to Section  302 of the Sarbanes-Oxley Act of 2002                                                    | 19       |
|        |                                                                                                                                                             |     |
| 31.3        | Certification of the Chief Financial Officer  pursuant to Section  302 of the Sarbanes-Oxley Act of 2002                                                    | 20       |
|        |                                                                                                                                                             |     |
| 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 | 21       |
|        |                                                                                                                                                             |     |
| 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 | 22       |
|        |                                                                                                                                                             |     |
| 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 | 23       |

 

 

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