# ** **

# **SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

 

**FORM10-Q**

 

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                       |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                      |
|       |       | **For  quarter ended September 30, 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              ** |

 

**CommissionFile Number 1-7256**

 

**INTERNATIONALALUMINUM CORPORATION**

(Exactname of Registrant as specified in its charter)

 

 

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

 

 

**767Monterey Pass RoadMonterey Park, California 91754(323) 264-1670**(Principal executive office and telephone number, including area code)

 

 

 

 

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 filing requirementsfor 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 ý  No o

 

Indicate by check mark whether the registrant is a shell company ( asdefined in Rule 12b-2 of the Exchange Act).  Yes o  No ý

 

At November 1, 2005 there were 4,287,545 shares of Common Stockoutstanding.

 

Page 1 of 19 Pages

 

 

 

**INTERNATIONAL ALUMINUMCORPORATIONAND SUBSIDIARIES**

** **

**INDEX**

 

 
|                                                                                                                         |                                                              | **Page** |
|------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|----------|
|                                                                                                                         |                                                              |     |
| PART I.    Financial Information                                                                         |                                                              |
|                                                                                                                         |                                                              |     |
| Item  1.    Financial Statements.                                                                        |                                                              |
|                                                                                                                         |                                                              |     |
|                                                                                                                         | Condensed Consolidated Balance Sheets—                       |     |
|                                                                                                                         | September 30, 2005 and June 30, 2005 (unaudited)                  | 3        |
|                                                                                                                         |                                                              |     |
|                                                                                                                         | Condensed Consolidated Statements of Income—                 |     |
|                                                                                                                         | three months ended September 30, 2005 and 2004  (unaudited)       | 4        |
|                                                                                                                         |                                                              |     |
|                                                                                                                         | Condensed Consolidated Statements of Cash Flows—             |     |
|                                                                                                                         | three months ended September 30, 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. | 9                                                                 |
|                                                                                                                         |                                                              |
| Item  3.    Quantitative and Qualitative Disclosures About  Market Risk.                                 | 12                                                                |
|                                                                                                                         |                                                              |
| Item  4.    Controls and Procedures.                                                                     | 13                                                                |
|                                                                                                                         |                                                              |
| PART II.    Other Information                                                                            |                                                              |     |
|                                                                                                                         |                                                              |     |
| Item  6.    Exhibits.                                                                                    | 14                                                                |
|                                                                                                                         |                                                              |     |
| Signatures                                                                                                                   |                                                              | 15       |
|                                                                                                                              |                                                                   |          |  |

 

 

 

 

 

 

 

2

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**PART I—FINANCIALINFORMATION**

** **

**Unaudited**

**Item 1.    FinancialStatements.**

** **

**InternationalAluminum Corporation**

**andSubsidiaries**

** **

**CondensedConsolidated Balance Sheets**

 

 
| ** **                                       | ** ** | **Sept. 30, 2005** | ** **  | **June 30, 2005** | ** ** |
|--------------------------------------------------|------------|------------------------------|-------------|-------------------|------------|
| **Assets**                                       |       |                         |        |              |       |
|                                             |       |                         |        |              |       |
| Current assets:                                  |       |                         |        |              |       |
| Cash and cash equivalents                        |       | $                            | 19,233,000  |              | $          | 12,437,000 |   |
| Accounts receivable, net                         |       | 42,606,000                   |        | 43,543,000        |       |
| Inventories                                      |       | 39,349,000                   |        | 41,270,000        |       |
| Prepaid expenses and deposits                    |       | 3,049,000                    |        | 2,055,000         |       |
| Deferred income taxes                            |       | 3,310,000                    |        | 3,310,000         |       |
|                                             |       |                         |        |              |       |
| Total current assets                             |       | 107,547,000                  |        | 102,615,000       |       |
|                                             |       |                         |        |              |       |
| Property, plant and  equipment, at cost          |       | 126,352,000                  |        | 125,081,000       |       |
| Accumulated depreciation                         |       | (79,436,000                  | )           | (78,179,000       | )          |
|                                             |       |                         |        |              |       |
| Net property, plant and equipment                |       | 46,916,000                   |        | 46,902,000        |       |
|                                             |       |                         |        |              |       |
| Other assets:                                    |       |                         |        |              |       |
| Goodwill                                         |       | 669,000                      |        | 645,000           |       |
| Other                                            |       | 1,645,000                    |        | 1,469,000         |       |
|                                             |       |                         |        |              |       |
| Total other assets                               |       | 2,314,000                    |        | 2,114,000         |       |
|                                             |       |                         |        |              |       |
| Total Assets                                     |       | $                            | 156,777,000 |              | $          | 151,631,000 |   |
|                                             |       |                         |        |              |       |
| **Liabilities and Shareholders’  Equity**   |       |                         |        |              |       |
|                                             |       |                         |        |              |       |
| Current liabilities:                             |       |                         |        |              |       |
| Accounts payable                                 |       | $                            | 12,553,000  |              | $          | 9,958,000 |   |
| Accrued liabilities                              |       | 11,987,000                   |        | 13,531,000        |       |
| Income taxes payable                             |       | 2,433,000                    |        | 1,572,000         |       |
|                                             |       |                         |        |              |       |
| Total current liabilities                        |       | 26,973,000                   |        | 25,061,000        |       |
|                                             |       |                         |        |              |       |
| Deferred income taxes                            |       | 6,067,000                    |        | 6,067,000         |       |
|                                             |       |                         |        |              |       |
| Total liabilities                                |       | 33,040,000                   |        | 31,128,000        |       |
|                                             |       |                         |        |              |       |
| Shareholders’ equity                        |       | 123,737,000                  |        | 120,503,000       |       |
|                                             |       |                         |        |              |       |
| Total Liabilities and  Shareholders’ Equity |       | $                            | 156,777,000 |              | $          | 151,631,000 |   |
|                                                  |            |                              |             |                   |            |  |  |  |  |

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

3

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** **

**InternationalAluminum Corporationand Subsidiaries**

** **

** **

** **

**CondensedConsolidated Statements of Income**

 

 
| ** **                                    | ** ** | **Three Months Ended  September 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------|------------|
| ** **                                    | ** ** | ** **                            |
|                                          |       | **2005**                              | ** ** | **2004** |   |
|                                          |       |                                  |       |   |   |
| Net sales                                     |       | $                                     | 68,257,000 |   | $ | 60,727,000 |   |
| Cost of sales                                 |       | 52,942,000                            |       | 46,763,000 |   |
| Gross profit                                  |       | 15,315,000                            |       | 13,964,000 |   |
| Selling, general and  administrative expenses |       | 9,599,000                             |       | 8,986,000 |   |
| Income from operations                        |       | 5,716,000                             |       | 4,978,000 |   |
| Interest (income) expense,  net               |       | (51,000                               | )          | (6,000 | ) |
| Income before income taxes                    |       | 5,767,000                             |       | 4,984,000 |   |
| Provision for income taxes                    |       | 2,180,000                             |       | 1,950,000 |   |
| Net income                                    |       | $                                     | 3,587,000  |   | $ | 3,034,000 |   |
|                                          |       |                                  |       |   |   |
| Earnings per share—Basic  and Diluted:   |       | $                                     | .84        |   | $ | .71 |   |
|                                          |       |                                  |       |   |   |
| Shares used to compute  EPS:                  |       |                                  |       |   |   |
| Basic                                         |       | 4,274,355                             |       | 4,244,794 |   |
| Diluted                                       |       | 4,279,234                             |       | 4,247,953 |   |
|                                          |       |                                  |       |   |   |
| Cash dividends per share                      |       | $                                     | .30        |   | $ | .30 |   |

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

4

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**InternationalAluminum Corporationand Subsidiaries**

** **

**CondensedConsolidated Statements of Cash Flows**

 

 
| ** **                                        | ** ** | **Three Months Ended**

**September  30,** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                        | ** ** | ** **                                      |
|                                              |       | **2005**                                        | ** ** | **2004** |   |
|                                              |       |                                            |       |   |   |
| Cash flows from operating  activities:            |       |                                            |       |   |   |
| Net income                                        |       | $                                               | 3,587,000  |   | $ | 3,034,000 |   |
| Adjustments for noncash transactions:             |       |                                            |       |   |   |
| Depreciation and amortization                     |       | 1,463,000                                       |       | 1,594,000 |   |
| Changes in assets and liabilities:                |       |                                            |       |   |   |
| Accounts receivable                               |       | 1,129,000                                       |       | (725,000 | ) |
| Inventories                                       |       | 2,033,000                                       |       | (2,274,000 | ) |
| Prepaid expenses and other                        |       | (1,161,000                                      | )          | (398,000 | ) |
| Accounts payable                                  |       | 2,410,000                                       |       | 485,000 |   |
| Accrued liabilities                               |       | (1,556,000                                      | )          | (630,000 | ) |
| Income taxes payable                              |       | 921,000                                         |       | 984,000 |   |
|                                              |       |                                            |       |   |   |
| Net cash provided by operating activities         |       | 8,826,000                                       |       | 2,070,000 |   |
|                                              |       |                                            |       |   |   |
| Cash flows from investing  activities:            |       |                                            |       |   |   |
| Capital expenditures                              |       | (1,162,000                                      | )          | (593,000 | ) |
| Proceeds from sales of capital assets             |       | 23,000                                          |       | 42,000 |   |
|                                              |       |                                            |       |   |   |
| Net cash used in investing activities             |       | (1,139,000                                      | )          | (551,000 | ) |
|                                              |       |                                            |       |   |   |
| Cash flows from financing  activities:            |       |                                            |       |   |   |
| Dividends paid to shareholders                    |       | (1,284,000                                      | )          | (1,273,000 | ) |
| Exercise of stock options                         |       | 341,000                                         |       | — |   |
| Net repayments under lines of credit              |       | —                                          |       | (213,000 | ) |
|                                              |       |                                            |       |   |   |
| Net cash used in financing activities             |       | (943,000                                        | )          | (1,486,000 | ) |
|                                              |       |                                            |       |   |   |
| Effect of exchange rate  changes                  |       | 52,000                                          |       | 22,000 |   |
|                                              |       |                                            |       |   |   |
| Net change in cash and  cash equivalents          |       | 6,796,000                                       |       | 55,000 |   |
|                                              |       |                                            |       |   |   |
| Cash and cash equivalents  at beginning of period |       | 12,437,000                                      |       | 15,964,000 |   |
|                                              |       |                                            |       |   |   |
| Cash and cash equivalents  at end of period       |       | $                                               | 19,233,000 |   | $ | 16,019,000 |   |

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

5

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**InternationalAluminum Corporationand Subsidiaries**

** **

**Notes ToCondensed Consolidated Financial Statements**

 

Basis of Presentation

 

In the opinion of management, the accompanyingunaudited consolidated financial statements contain all adjustments (whichconsist solely of normal recurring adjustments unless otherwise disclosed)necessary for fair statement, in all material respects, of its financialposition as of September 30, 2005 and June 30, 2005, and the results ofoperations and the cash flows for the three-month periods ended September 30,2005 and 2004.  The results of operationsfor the three-month period ended September 30, 2005 are not necessarilyindicative of the results to be expected for the full year.

 

The financial statements included herein have beenprepared by the Company pursuant to the rules and regulations of the Securitiesand Exchange Commission.  Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles, in theUnited States of America, have been condensed or omitted pursuant to such rulesand regulations, although the Company believes that the disclosures areadequate to make the information presented not misleading in any materialrespect.  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 othercomprehensive income, for the quarters ended September 30, 2005 and 2004 was$4,177,000 and $3,595,000, respectively. Other comprehensive income includes foreign currency translationadjustments recorded directly in shareholders’ equity.

 

 
| **Balance Sheet Components**               | ** ** | **Sept. 30, 2005** | ** **  | **June 30, 2005** | ** ** |
|--------------------------------------------|------------|--------------------|-------------|-------------------|------------|
|                                       |       |               |        |              |       |
| Inventories, lower of FIFO  Cost or Market |       |               |        |              |       |
| Raw materials                              |       | $                  | 32,723,000  |              | $          | 34,720,000 |   |
| Work in process                            |       | 1,380,000          |        | 1,333,000         |       |
| Finished goods                             |       | 5,246,000          |        | 5,217,000         |       |
|                                       |       | $                  | 39,349,000  |              | $          | 41,270,000 |   |
|                                       |       |               |        |              |       |
| Shareholders’ Equity                  |       |               |        |              |       |
| Common stock                               |       | $                  | 4,805,000   |              | $          | 4,791,000 |   |
| Paid-in capital                            |       | 5,016,000          |        | 4,689,000         |       |
| Retained earnings                          |       | 111,278,000        |        | 108,975,000       |       |
| Accumulated other comprehensive income     |       | 2,638,000          |        | 2,048,000         |       |
|                                       |       | $                  | 123,737,000 |              | $          | 120,503,000 |   |
|                                            |            |                    |             |                   |            |  |  |  |  |

 

 

6

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Earnings Per Share

 

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

 
| ** **                                                     | ** ** | **Three Months Ended September 30,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                     | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Numerator:                                                     |       |                                 |       |   |   |
| Net Income                                                     |       | $                                    | 3,587,000  |   | $ | 3,034,000 |   |
|                                                           |       |                                 |       |   |   |
| Denominator:                                                   |       |                                 |       |   |   |
| Weighted-average shares outstanding used to compute basic EPS  |       | 4,274,355                            |       | 4,244,794 |   |
|                                                           |       |                                 |       |   |   |
| Incremental shares issuable upon the exercise of stock options |       | 4,879                                |       | 3,159 |   |
|                                                           |       |                                 |       |   |   |
| Shares used to compute  diluted EPS                            |       | 4,279,234                            |       | 4,247,953 |   |
|                                                           |       |                                 |       |   |   |
| Basic and Diluted net  earnings per share                      |       | $                                    | .84        |   | $ | .71 |   |

 

Incremental shares issuable upon the assumed exerciseof outstanding stock options are computed using the average market price ofcommon stock during the related period. The incremental shares for the three months ending September 30, 2004exclude 21,000 stock option shares because their inclusion would beanti-dilutive, since the option price was greater than the Company’s averagecommon stock price for the period.

 

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.  The options have an exercise price equal tothe market price of the stock on the date of grant, a term of ten years andbecome exercisable in equal installments over a five-year period from the dateof grant so long as the employees remain in the continuous employ of theCompany.  The Company applies AccountingPrinciples Board (APB) Opinion No. 25, “Accounting for Stock Issued toEmployees”, and related Interpretations in accounting for stock options grantedunder the 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—Transitionand Disclosure”, which amends SFAS No. 123, “Accounting for Stock-BasedCompensation”.  SFAS No. 148’stransition guidance and provisions for disclosures are effective for fiscalyears ending after December 15, 2002. The Company did not adopt fair value accounting for employee stockoptions under SFAS No. 123 and SFAS No. 148.  Since all outstanding stock awards are fixedstock options with no intrinsic value at the date of grant and were fullyvested before the income statement periods presented, there would have been nochange in reported net income and earnings per share had compensation cost beendetermined based on the fair value at the grant dates asprescribed by SFAS 123.

 

 

 

7

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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. Eliminations include all significant intercompanytransactions and accounts. 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 and total assets by operating segment, reconciling to theCompany’s totals.  All data presented inthousands of dollars.

 
| **Net Sales:**     | ** ** | **Three Months Ended  September 30,** | ** ** |
|--------------------|------------|---------------------------------------|------------|
| ** **         | ** ** | ** **                            |
|               |       | **2005**                              | ** ** | **2004** |   |
|               |       |                                  |       |   |   |
| Commercial         |       | $                                     | 31,186     |   | $ | 30,209 |   |
| Residential        |       | 22,681                                |       | 18,564 |   |
| Aluminum Extrusion |       | 29,850                                |       | 27,042 |   |
| Total Segments     |       | 83,717                                |       | 75,815 |   |
| Eliminations       |       | (15,460                               | )          | (15,088 | ) |
| Total              |       | $                                     | 68,257     |   | $ | 60,727 |   |

 

 
| **Operating Income:** | ** ** | **Three Months Ended  September 30,** | ** ** |
|-----------------------|------------|---------------------------------------|------------|
| ** **            | ** ** | ** **                            |
|                  |       | **2005**                              | ** ** | **2004** |   |
|                  |       |                                  |       |   |   |
| Commercial            |       | $                                     | 3,920      |   | $ | 3,627 |   |
| Residential           |       | 4,524                                 |       | 3,102 |   |
| Aluminum Extrusion    |       | (318                                  | )          | 330 |   |
| Total Segments        |       | 8,126                                 |       | 7,059 |   |
| Eliminations          |       | (16                                   | )          | 135 |   |
| Corporate             |       | (2,394                                | )          | (2,216 | ) |
| Total                 |       | $                                     | 5,716      |   | $ | 4,978 |   |

 

 
| **Total Assets:**  | ** ** | **Sept. 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|--------------------|------------|---------------------|------------|--------------------|------------|
| ** **         | ** ** | ** **          | ** ** |
|               |       |                |       |               |       |
| Commercial         |       | $                   | 66,828     |               | $          | 66,353 |   |
| Residential        |       | 33,093              |       | 32,076             |       |
| Aluminum Extrusion |       | 37,448              |       | 42,010             |       |
| Total Segments     |       | 137,369             |       | 140,439            |       |
| Corporate          |       | 19,408              |       | 11,192             |       |
| Total              |       | $                   | 156,777    |               | $          | 151,631 |   |

 

 

 

8

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Recent Accounting Pronouncements

 

In November 2004, the Financial Accounting StandardsBoard (FASB) issued SFAS No. 151, “Inventory Costs” (SFAS 151), which clarifiesthe accounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material.  SFAS 151 iseffective for inventory costs incurred beginning July 1, 2005.  Upon adoption on July 1, 2005 SFAS 151 didnot have a material impact on our financial statements.

 

In December 2004, the FASB issued SFAS No. 123R(revised 2004), “Share-Based Payment”, which replaced SFAS No. 123 andsuperseded APB Opinion No. 25. SFAS No. 123R requires all share-based paymentsto employees, including grants of employee stock options, to be recognized inthe financial statements based on their fair values in the first interim orannual period beginning after June 15, 2005. The pro forma disclosures previously permitted under SFAS No. 123 willno longer be an alternative to financial statement recognition.  The adoption of SFAS 123R had no impact onour financial statements, as all outstanding options were fully vested prior tothe periods presented.

 

In March 2005, the FASB issued FinancialInterpretation No. 47 (FIN 47), “Accounting for Conditional Asset RetirementObligations”.  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 on July 1, 2005 FIN 47 did not have a material impact onour financial statements.

 

 

 

**Item 2.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

 

Results of Operations

 

General Overview

 

Net sales for the first quarter ended September 30,2005 increased by $7,530,000, or 12.4%, from the comparable quarter of theprior year.  Cost of sales as apercentage of net sales was 77.6% for the quarter ended September 30, 2005, aslight increase from the 77.0% recorded for the same period last year.  Selling, general and administrative expensesincreased by $613,000 from the prior year, but decreased as a percentage of netsales to 14.1% compared to 14.8% 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 theseresults by each segment is discussed below.

 

 

 

9

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Commercial Products

 

Sales of the CommercialProducts Group increased $1,099,000, or 3.7%, for the quarter ended September30, 2005 compared to the same period last year. Whereas the prior year’s quarter benefited from sales of several largeprojects, the current year increase in sales is mainly attributable to greatergeographic market penetration coupled with increased sales prices.

 

Cost of sales as a percentageof sales was 75.4% for the current quarter versus 76.4% for the same periodlast year.  Although experiencing higheraluminum costs, this group was able to maintain material cost percentagescompared to the same period last year and achieved slightly lower labor andoverhead costs, and cost percentages, due to cost-containment efforts coupledwith increased sales prices.

 

Selling, general andadministrative expenses increased $238,000 for the current quarter and as apercentage of sales increased to 12.0% for the current quarter compared to11.6% for the same period last year.  Theincreased expenses principally relate to $220,000 of additional employment andsales representation costs.

 

 

Residential Products

 

Sales of the ResidentialProducts Group increased $4,115,000, or 22.3%, for the quarter ended September 30,2005 compared to the same period last year. New home construction, resales of existing homes and home improvementspending in the areas served by this group continue to stimulate customerdemand.  New product development andaggressive promotional programs have also contributed to the increase.

 

Cost of sales as a percentageof sales was relatively unchanged at 69.6% for the current quarter versus 70.1%for the same period last year.  Labor andoverhead efficiencies from the higher volume were partially offset by higherlabor costs incurred for overtime and temporary help in order to meet on-timedelivery commitments.

 

Selling, general andadministrative expenses decreased $70,000 for the current quarter and as apercentage of sales decreased to 10.5% for the current quarter compared to13.1% for the same period last year. This decrease reflects decreased costs of $276,000 in the currentquarter for retrospective workers’ compensation and general liability insurancepolicies. Partially offsetting this decrease was an increase of $199,000 foradditional employment costs related to the increase in sales and achievement ofincentive compensation targets.

 

 

Aluminum Extrusion

 

Sales of the AluminumExtrusion Group increased $2,316,000, or 18.9%, for the quarter ended September30, 2005 compared to the same period last year. During the current quarter the group benefited from an increase in salesprices, along with a 13.1% increase in net tonnage shipped, particularly in thearea served by our Texas facility, whose 37.8% increase was partially offset bya decrease at our California facility.

 

Cost of sales as apercentage of sales for the Group was 97.4% for the current quarter compared to95.8% for the same period last year.  Acombination of factors contributed to these results.  Cost of sales as a

 

 

10

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percentage of sales at our Californiafacility increased during the current quarter compared to the same period lastyear.  Material cost was relativelyunchanged from the prior year period, as we were able to increase sales pricesin the area served by this facility commensurate with the increased cost ofaluminum.  Higher-than-expected labor andoverhead costs, notably overtime, temporary help and maintenance, caused laborand overhead cost percentages to increase compared to the same period lastyear.  Cost of sales as a percentage ofsales at our Texas facility also increased during the current quarter comparedto the same period last year.  Due to thehighly competitive marketplace, sales prices were increased directly in linewith the increased cost of aluminum, resulting in increased material costpercentages.  Partially offsetting thisincrease were decreased labor and overhead cost percentages due to the increasedsales prices and production efficiencies gained from their higher total tonnageoutput, including intercompany customers.

 

Selling, general andadministrative expenses increased $267,000 for the current quarter and as apercentage of sales increased to 3.6% for the current quarter compared to 3.0%for the same period last year.  Thisincrease reflects $132,000 for additional employment costs and $130,000 forretrospective workers’ compensation and general liability insurance policies.

 

 

Corporate

 

General and administrativeexpenses increased $178,000 for the quarter ended September 30, 2005 comparedto the same period last year, although as a percentage of consolidated netsales was virtually unchanged at 3.5% for the current quarter compared to 3.6%last year. The increase reflects charges of $135,000 for consulting servicesrelated to complying with the internal control provisions of the Sarbanes-Oxleylegislation.

 

The increase in net interestincome compared to the prior year’s quarter resulted from increased fundsavailable for investment combined with higher rates of return.

 

The effective tax rate for the three monthsended September 30, 2005 was 37.8% as compared to 39.1% in the comparableperiod of the prior year.  The decreaseis primarily attributable to the Domestic Manufacturers Deduction available asa result of the enactment of recent Federal tax legislation.

 

 

#### Liquidityand Capital Resources

 

Working capital at September 30, 2005 stood at$80,574,000, an increase of $3,020,000 from June 30, 2005.  The ratio of current assets to currentliabilities was 4.0, which was relatively unchanged from the beginning of theyear.

 

The Company’s projected net capital expenditures forfiscal 2006 and related financing remain unchanged from those described in theJune 30, 2005 Annual Report to Shareholders. The Company’s lines of credit also remain unchanged from those describedin the June 30, 2005 Annual Report to Shareholders.

 

 

 

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Recent Accounting Pronouncements

 

In November 2004, the Financial Accounting StandardsBoard (FASB) issued SFAS No. 151, “Inventory Costs” (SFAS 151), which clarifiesthe accounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material.  SFAS 151 iseffective for inventory costs incurred beginning July 1, 2005.  Upon adoption on July 1, 2005 SFAS 151 didnot have a material impact on our financial statements.

 

In December 2004, the FASB issued SFAS No. 123R(revised 2004), “Share-Based Payment”, which replaced SFAS No. 123 andsuperseded APB Opinion No. 25. SFAS No. 123R requires all share-based paymentsto employees, including grants of employee stock options, to be recognized inthe financial statements based on their fair values in the first interim orannual period beginning after June 15, 2005. The pro forma disclosures previously permitted under SFAS No. 123 willno longer be an alternative to financial statement recognition.  The adoption of SFAS 123R had no impact onour financial statements, as all outstanding options were fully vested prior tothe periods presented.

 

In March 2005, the FASB issued FinancialInterpretation No. 47 (FIN 47), “Accounting for Conditional Asset RetirementObligations”.  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 on July 1, 2005 FIN 47 did not have a material impact onour financial statements.

 

 

Forward-Looking Information

 

This report containsforward-looking statements with respect to the financial condition, results ofoperations and business of the Company. Such items are subject to certain risks and uncertainties that couldcause actual results to differ materially from those set forth in suchstatements. The principal important risk factors and uncertainties include, butare not limited to, changes in general economic conditions, material prices,labor costs, interest rates, and other adverse changes in general economicconditions, consumer confidence, competition, currency exchange rates as theyaffect our Canadian operations, environmental factors, unanticipated legalproceedings, and conditions 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 newinformation, future events or otherwise.

 

 

 

**Item 3.    Quantitativeand Qualitative Disclosures About Market Risk.**

 

Fluctuating foreignexchange 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.

 

 

 

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**Item 4.    Controlsand Procedures.**

 

Evaluation of DisclosureControls and Procedures

Under SEC rules, the Company is required to maintain disclosurecontrols and procedures designed to ensure that information required by theCompany in the reports that it files or submits under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. As part of the Company’ssystem of disclosure controls and procedures, we have created a DisclosureCommittee, which consists of certain members of the Company’s seniormanagement. The Company’s disclosure controls and procedures are designed toensure that information required to be disclosed by the Company in the reportsthat it files or submits under the Securities and Exchange Act of 1934 isaccumulated and communicated to management, including the chief executiveofficer, chief financial officer and other members of the Disclosure Committee,as appropriate to allow timely decisions regarding required disclosure.

 

The Company has carried out an evaluation of the effectiveness of thedesign and operation of its disclosure controls and procedures as of the end ofthe period covered by this report. The Company’s management, including the Company’sDisclosure Committee and its chief executive officer and chief financialofficer, supervised and participated in the evaluation. Based on theevaluation, the chief executive officer and the chief financial officerconcluded that the Company’s disclosure controls and procedures were effectiveas of the end of the period covered by this report.

 

Changes in Internal ControlOver Financial Reporting

The Company’s evaluation of its internal control over financialreporting during the fiscal quarter to which this report relates identified nochange in the Company’s internal control over financial reporting that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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**PART II - OTHER INFORMATION**

 

 

 

**Item6.    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 Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|            |                 |   |
|            | 32.1                 | Certification of the Chief Executive Officer and  Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|            |                 |   |
|            |                 |   |
|   (b) | Reports on Form 8-K: |
|            |                 |   |

 
|   |   | **Date of Report** | ** ** | **Item Reported**                                                                                                                                           |
|--------|--------|--------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |               |       |                                                                                                                                                        |   |   |
|   |   | July 11, 2005      |       | Reporting on entering into a material definitive  agreement relating to compensation arrangements with the Chairman of the Board  of Directors.             |
|   |   |               |       |                                                                                                                                                        |   |   |
|   |   | August 18, 2005    |       | Press release issued announcing the Company’s  financial results for the fourth quarter and fiscal year ended June 30, 2005  and dividend declaration. |
|   |   |               |       |                                                                                                                                                        |   |   |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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**SIGNATURES**

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|   |             | International Aluminum  Corporation |
|--------|------------------|-------------------------------------|
|   |             | (Registrant)                        |
|   |             |                                |
|   |             |                                |
|   |             |                                |
|   |             |                                |
| Date:  | November 7, 2005 |                                | MITCHELL K. FOGELMAN |
|   |             | Mitchell K. Fogelman                |
|   |             | Senior Vice President—Finance  |
|   |             | (Principal Financial  Officer)      |
|   |             |                                |
|   |             |                                |
|   |             |                                |
|   |             |                                |
| Date:  | November 7, 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                                                                            |   | 17       |
|   |   |                                                                                                                                                                                |   |     |
| 31.2   |   | 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 and Chief Financial Officer pursuant to 18 U.S.C.  Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 |   | 19       |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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