# **SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13OF THE SECURITIES EXCHANGE ACT OF 1934**

 
| **For quarter ended September 30, 2003** |   | **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 No.) |
|                                                                                                     |   |                  |
| **767 Monterey Pass Road  Monterey Park, California 91754  (323) 264-1670**(Principal executive  office) |

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 of the Securities Exchange Act of 1934 during thepreceding 12 months and (2) has been subject to such filing requirements forthe past 90 days.  Yes ý  No o

 

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

 

AtNovember 3, 2003 there were 4,244,794 shares of Common Stock outstanding.

 

 

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INTERNATIONAL ALUMINUM CORPORATIONAND SUBSIDIARIES

 

INDEX

 
| PART I.  Financial Information |
|-------------------------------------|
|                                |   |
|                                | Consolidated Balance  Sheets -  September 30, 2003 and June 30, 2003 |
|                                |   |
|                                | Consolidated  Statements of Income -  three months ended September 30, 2003 and 2002 |
|                                |   |
|                                | Consolidated  Statements of Cash Flows -  three months ended September 30, 2003 and 2002 |
|                                |   |
|                                | Notes to  Consolidated Financial Statements |
|                                |   |
|                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                |   |
|                                | Signatures |
|                                |   |
|                                | 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 pursuant to 18 U.S.C. Section 1350 as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|                                |   |   |
|                                | 32.2 | Certification  of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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PART I

 

INTERNATIONAL ALUMINUM CORPORATIONAND SUBSIDIARIES

 

CONSOLIDATEDBALANCE SHEETS

 
|                                                   |   | **Unaudited**                |        | **Audited**                 |   |
|--------------------------------------------------------|--------|------------------------------|-------------|-----------------------------|--------|
|                                                   |   | **Sept. 30, 2003** |        | **June 30, 2003** |   |
| Assets                                                 |   |                         |        |                        |   |
|                                                   |   |                         |        |                        |   |
| Current assets:                                        |   |                         |        |                        |   |
| Cash and cash equivalents                              |   | $                            | 18,097,000  |                        | $      | 12,570,000 |   |
| Accounts receivable, net                               |   | 33,285,000                   |        | 34,336,000                  |   |
| Inventories                                            |   | 30,317,000                   |        | 28,551,000                  |   |
| Prepaid expenses and deposits                          |   | 2,722,000                    |        | 2,583,000                   |   |
| Future income tax benefits                             |   | 2,239,000                    |        | 2,239,000                   |   |
|                                                   |   |                         |        |                        |   |
| Total current assets                                   |   | 86,660,000                   |        | 80,279,000                  |   |
|                                                   |   |                         |        |                        |   |
| Property, plant and equipment, at cost                 |   | 120,593,000                  |        | 120,829,000                 |   |
| Accumulated depreciation                               |   | (69,930,000                  | )           | (68,999,000                 | )      |
|                                                   |   |                         |        |                        |   |
| Net property, plant and equipment                      |   | 50,663,000                   |        | 51,830,000                  |   |
|                                                   |   |                         |        |                        |   |
| Other assets:                                          |   |                         |        |                        |   |
| Costs in excess of net assets of purchased  businesses |   | 604,000                      |        | 605,000                     |   |
| Other                                                  |   | 574,000                      |        | 529,000                     |   |
|                                                   |   |                         |        |                        |   |
| Total other assets                                     |   | 1,178,000                    |        | 1,134,000                   |   |
|                                                   |   |                         |        |                        |   |
|                                                   |   | $                            | 138,501,000 |                        | $      | 133,243,000 |   |
|                                                   |   |                         |        |                        |   |
| Liabilities and Shareholders’ Equity              |   |                         |        |                        |   |
|                                                   |   |                         |        |                        |   |
| Current liabilities:                                   |   |                         |        |                        |   |
| Accounts payable                                       |   | $                            | 11,248,000  |                        | $      | 7,407,000 |   |
| Accrued liabilities                                    |   | 9,767,000                    |        | 9,054,000                   |   |
| Advances payable to banks                              |   | 263,000                      |        | 590,000                     |   |
| Income taxes payable                                   |   | 1,043,000                    |        | 299,000                     |   |
|                                                   |   |                         |        |                        |   |
| Total current liabilities                              |   | 22,321,000                   |        | 17,350,000                  |   |
|                                                   |   |                         |        |                        |   |
| Deferred income taxes                                  |   | 6,357,000                    |        | 6,357,000                   |   |
|                                                   |   |                         |        |                        |   |
| Total liabilities                                      |   | 28,678,000                   |        | 23,707,000                  |   |
|                                                   |   |                         |        |                        |   |
| Shareholders’ equity                              |   | 109,823,000                  |        | 109,536,000                 |   |
|                                                   |   |                         |        |                        |   |
|                                                   |   | $                            | 138,501,000 |                        | $      | 133,243,000 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

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Unaudited

 

INTERNATIONAL ALUMINUM CORPORATIONAND SUBSIDIARIES

 

CONSOLIDATEDSTATEMENTS OF INCOME

 
|                                                   |   | **Three  Months Ended  September 30,** |       |
|--------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                   |   | **2003**                                    |       | **2002** |   |
|                                                   |   |                                        |       |   |   |
| Net sales                                              |   | $                                           | 52,956,000 |   | $ | 49,144,000 |   |
| Cost of sales                                          |   | 42,398,000                                  |       | 39,538,000 |   |
| Gross profit                                           |   | 10,558,000                                  |       | 9,606,000 |   |
| Selling, general and administrative expenses           |   | 7,955,000                                   |       | 8,160,000 |   |
| Income from operations                                 |   | 2,603,000                                   |       | 1,446,000 |   |
| Interest (income) expense, net                         |   | 4,000                                       |       | (1,000 | ) |
| Income from continuing operations before income  taxes |   | 2,599,000                                   |       | 1,447,000 |   |
| Provision for income taxes                             |   | 1,061,000                                   |       | 535,000 |   |
| Income from continuing operations                      |   | 1,538,000                                   |       | 912,000 |   |
| Income (loss) from discontinued operations             |   | 41,000                                      |       | (213,000 | ) |
| Net income                                             |   | $                                           | 1,579,000  |   | $ | 699,000 |   |
|                                                   |   |                                        |       |   |   |
| Earnings per share - Basic and Diluted:                |   |                                        |       |   |   |
| Continuing operations                                  |   | $                                           | .36        |   | $ | .21 |   |
| Discontinued operations                                |   | .01                                         |       | (.05 | ) |
| Total                                                  |   | $                                           | .37        |   | $ | .16 |   |
|                                                   |   |                                        |       |   |   |
| Shares used to compute EPS:                            |   |                                        |       |   |   |
| Basic and Diluted                                      |   | 4,244,794                                   |       | 4,244,794 |   |
|                                                   |   |                                        |       |   |   |
| Cash dividends per share                               |   | $                                           | .30        |   | $ | .30 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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Unaudited

 

INTERNATIONAL ALUMINUM CORPORATIONAND SUBSIDIARIES

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

 
|                                                 |   | **Three  Months Ended  September 30,** |       |
|------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                 |   | **2003**                                    |       | **2002** |   |
|                                                 |   |                                        |       |   |   |
| Cash flows from operating activities:                |   |                                        |       |   |   |
| Net income                                           |   | $                                           | 1,579,000  |   | $ | 699,000 |   |
| Adjustments for noncash transactions:                |   |                                        |       |   |   |
| Depreciation and amortization                        |   | 1,654,000                                   |       | 1,735,000 |   |
| Changes in assets and liabilities:                   |   |                                        |       |   |   |
| Receivables                                          |   | 1,047,000                                   |       | (1,222,000 | ) |
| Inventories                                          |   | (1,769,000                                  | )          | 915,000 |   |
| Prepaid expenses and deposits                        |   | (184,000                                    | )          | 135,000 |   |
| Accounts payable                                     |   | 3,844,000                                   |       | 1,350,000 |   |
| Accrued liabilities                                  |   | 713,000                                     |       | 267,000 |   |
| Income taxes payable                                 |   | 743,000                                     |       | 273,000 |   |
|                                                 |   |                                        |       |   |   |
| Net cash provided by operating activities            |   | 7,627,000                                   |       | 4,152,000 |   |
|                                                 |   |                                        |       |   |   |
| Cash flows from investing activities:                |   |                                        |       |   |   |
| Capital expenditures                                 |   | (585,000                                    | )          | (391,000 | ) |
| Proceeds from sales of capital assets                |   | 85,000                                      |       | 2,497,000 |   |
|                                                 |   |                                        |       |   |   |
| Net cash provided by (used in) investing  activities |   | (500,000                                    | )          | 2,106,000 |   |
|                                                 |   |                                        |       |   |   |
| Cash flows from financing activities:                |   |                                        |       |   |   |
| Dividends paid to shareholders                       |   | (1,273,000                                  | )          | (1,273,000 | ) |
| Net borrowing under lines of credit                  |   | (326,000                                    | )          | (333,000 | ) |
|                                                 |   |                                        |       |   |   |
| Net cash used in financing activities                |   | (1,599,000                                  | )          | (1,606,000 | ) |
|                                                 |   |                                        |       |   |   |
| Effect of exchange rate changes                      |   | (1,000                                      | )          | (15,000 | ) |
|                                                 |   |                                        |       |   |   |
| Net change in cash and cash equivalents              |   | 5,527,000                                   |       | 4,637,000 |   |
|                                                 |   |                                        |       |   |   |
| Cash and cash equivalents at beginning of period     |   | 12,570,000                                  |       | 3,495,000 |   |
|                                                 |   |                                        |       |   |   |
| Cash and cash equivalents at end of period           |   | $                                           | 18,097,000 |   | $ | 8,132,000 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

5

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Unaudited

 

INTERNATIONAL ALUMINUM CORPORATIONAND SUBSIDIARIES

 

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

 

Basisof Presentation

 

Inthe opinion of management, the accompanying unaudited consolidated financialstatements contain all adjustments (which consist solely of normal recurringadjustments unless otherwise disclosed) necessary to present fairly, in allmaterial respects, its financial position as of September 30, 2003 andJune 30, 2003, and the results of operations and cash flows for the threemonth periods ended September 30, 2003 and 2002.  The results of operations for the three month periods endedSeptember 30, 2003 and 2002 are not necessarily indicative of the resultsto be expected for the full year.

 

Thefinancial statements included herein have been prepared by the Company pursuantto the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations, although the Company believes that the disclosures areadequate to make the information presented not misleading.  It is suggested that these financialstatements be read in conjunction with the financial statements and the notesthereto included in the Company’s latest annual report on Form 10-K.

 

ComprehensiveIncome

 

Comprehensiveincome, defined as net income and other comprehensive income, for the firstquarter ended September 30, 2003 and 2002 was $1,561,000 and $376,000,respectively.  Other comprehensiveincome includes foreign currency translation adjustments recorded directly inshareholders’ equity.

 
| **Balance Sheet Components**              |   | **Sept. 30,  2003** |        | **June 30,  2003** |   |
|-------------------------------------------|--------|---------------------|-------------|-------------------------|--------|
|                                      |   |                |        |                    |   |
| Inventories, lower of FIFO Cost or Market |   |                |        |                    |   |
| Raw materials                             |   | $                   | 25,216,000  |                    | $      | 23,374,000 |   |
| Work in process                           |   | 596,000             |        | 430,000                 |   |
| Finished goods                            |   | 4,505,000           |        | 4,747,000               |   |
|                                      |   | $                   | 30,317,000  |                    | $      | 28,551,000 |   |
|                                      |   |                |        |                    |   |
| Shareholders’ Equity                 |   |                |        |                    |   |
| Common stock                              |   | $                   | 4,765,000   |                    | $      | 4,765,000 |   |
| Paid-in capital                           |   | 4,123,000           |        | 4,123,000               |   |
| Retained earnings                         |   | 99,882,000          |        | 99,576,000              |   |
| Accumulated other comprehensive income    |   | 1,053,000           |        | 1,072,000               |   |
|                                      |   | $                   | 109,823,000 |                    | $      | 109,536,000 |   |

 

6

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Unaudited

 

SegmentInformation

 

Thefollowing presents the Company’s net sales, operating income and total assetsby operating segment, reconciling to the Company’s totals.  All data presented in thousands of dollars.

 
|               |   | **Three  Months Ended  September 30,** |   |
|--------------------|--------|---------------------------------------------|--------|
| **Net Sales:**     |   | **2003**                                    |   | **2002** |   |
|               |   |                                        |   |   |   |
| Commercial         |   | $                                           | 23,820 |   | $ | 25,571 |   |
| Residential        |   | 16,070                                      |   | 12,961 |   |
| Aluminum Extrusion |   | 24,893                                      |   | 21,114 |   |
| Total Segments     |   | 64,783                                      |   | 59,646 |   |
| Eliminations       |   | (11,827                                     | )      | (10,502 | ) |
| Total              |   | $                                           | 52,956 |   | $ | 49,144 |   |

 
|                         |   | **Three  Months Ended  September 30,** |   |
|------------------------------|--------|---------------------------------------------|--------|
| **Operating Income (Loss):** |   | **2003**                                    |   | **2002** |   |
|                         |   |                                        |   |   |   |
| Commercial                   |   | $                                           | 1,587  |   | $ | 2,433 |   |
| Residential                  |   | 2,873                                       |   | 1,162 |   |
| Aluminum Extrusion           |   | 857                                         |   | (121 | ) |
| Total Segments               |   | 5,317                                       |   | 3,474 |   |
| Eliminations                 |   | (491                                        | )      | (60 | ) |
| Corporate                    |   | (2,223                                      | )      | (1,968 | ) |
| Total                        |   | $                                           | 2,603  |   | $ | 1,446 |   |

 
| **Total Assets:**  |   | **Sept. 30,  2003** |    | **June 30,  2003** |   |
|--------------------|--------|---------------------|---------|-------------------------|--------|
|               |   |                |    |                    |   |
| Commercial         |   | $                   | 58,238  |                    | $      | 59,397 |   |
| Residential        |   | 24,937              |    | 25,135                  |   |
| Aluminum Extrusion |   | 37,881              |    | 36,016                  |   |
| Total Segments     |   | 121,056             |    | 120,548                 |   |
| Corporate          |   | 17,445              |    | 12,695                  |   |
| Total              |   | $                   | 138,501 |                    | $      | 133,243 |   |

 

7

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Unaudited

 

## Discontinued Operations

 

During the fourth quarter of fiscal year 2003, the Company announcedthe closure of International Window-Colorado, a vinyl window and doorsubsidiary, 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, the Company recognized a net gain infiscal year 2004 which has also been classified as discontinued operations.

 

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

 

SignificantChanges in Results of Operations

 

Net sales for the first quarter ended September 30, 2003 increasedby $3,812,000 or 7.8% from the comparable quarter of the prior year. Sales ofthe Residential Products Group increased by $3,101,000 or 24.1%.  Low interest rates continue to stimulatedemand from the new construction and home improvement markets.  Sales of the Aluminum Extrusion Groupincreased by $2,498,000 or 23.0%.  Nettonnage shipped, particularly in the area served by our Texas facility,increased by 22.5% compared to the same period last year. Although continuingto experience strong pressure on pricing, the Extrusion Group is benefitingfrom expanded geographic market penetration, particularly the area served byour Texas facility.  Sales of CommercialProducts decreased by $1,787,000 or 7.0%. This decrease reflects the continuing soft commercial constructionmarket coupled with increased competitive conditions.

 

Cost of sales as a percentage of net sales was 80.1% for the quarterended September 30, 2003 as opposed to 80.5% for the comparable prior yearperiod. This marginal decrease is attributable to several somewhat offsettingfactors. The Residential Products Group decreased their material, labor andoverhead cost percentages compared to the prior year reflecting thesubstantially higher sales volume.  TheAluminum Extrusion Group also achieved decreased labor and overhead costpercentages due to production efficiencies gained from the higher tonnageoutput.  Partially offsetting thesegains were increased material, labor and overhead cost percentages in theCommercial Products Group resulting from normal production costs being spreadover significantly diminished sales in a highly competitive marketplace.

 

8

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Unaudited

 

Selling, general and administrative expenses decreased by $205,000 fromthe prior year.  The decrease is mainlyattributable to retrospective workers’ compensation policies, which providedincome of $3,000 in the September 2003 quarter, compared to expense of$463,000 in the same period last year. This swing results from anticipated refunds of previously expensedpremiums due to favorable changes in actual and projected claim activity.  The decrease is partially offset by higheremployment related costs.

 

Theeffective tax rate for the quarter ended September 30, 2003 was 40.8%whereas the comparable period of the prior year was 37.0%.  The lower prior year rate reflectsbenefits available for foreign losses.

 

Liquidityand Capital Resources

 

Workingcapital at September 30, 2003 stood at $64,339,000, an increase of$1,410,000 from June 30, 2003.  Theratio of current assets to current liabilities is currently 3.9 as compared to4.6 as of the beginning of the year.

 

The Company’s projected net capital expenditures for fiscal 2004 andrelated financing remain unchanged from those described in the June 30,2003 Annual Report.  The Company’sdomestic line of credit remains unchanged from that described in theJune 30, 2003 Annual Report to Shareholders.

 

Forward-LookingInformation

 

Thisreport contains forward-looking statements with respect to the financialcondition, results of operations and business of the Company.  Such items are subject to certain risks anduncertainties that could cause actual results to differ materially from thoseset forth in such statements.  Readersare cautioned not to place undue reliance on these forward-looking statements,which speak only as of the date the statement was made.  The Company undertakes no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.

 

Controlsand Procedures

 

Asof the end of the period covered by this report, we have evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures under the supervision and with the participation of our ChiefExecutive Officer (“CEO”) and our Chief Financial Officer (“CFO”).  Based on this evaluation, our management,including the CEO and CFO, concluded that our disclosure controls andprocedures were effective.  There havebeen no significant changes in our internal controls or in other factors thatcould significantly affect internal control subsequent to the evaluation.

 

9

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INTERNATIONAL ALUMINUM CORPORATIONAND SUBSIDIARIES

 

SIGNATURES

 

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   |                   | International Aluminum Corporation |                 |
|--------|------------------------|------------------------------------|----------------------|
|   |                   | (Registrant)                       |                 |
|   |                   |                               |                 |
|   |                   |                               |                 |
| Date:  | November 12, 2003 |                               | MITCHELL K. FOGELMAN |   |
|   |                   | Mitchell K. Fogelman               |                 |
|   |                   | Senior Vice President - Finance    |                 |
|   |                   | (Principal Financial Officer)      |                 |
|   |                   |                               |                 |
|   |                   |                               |                 |
| Date:  | November 12, 2003 |                               | MICHAEL J. NORRING   |   |
|   |                   | Michael J. Norring                 |                 |
|   |                   | Controller                         |                 |
|   |                   | (Principal Accounting Officer)     |                 |

 

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