SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

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 reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements 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 February 2, 2004 there were 4,244,794 shares of Common Stock outstanding.

 

 

INTERNATIONAL ALUMINUM CORPORATION

AND SUBSIDIARIES

 

INDEX

 

PART I.  Financial Information
	Item 1.	Financial Statements.
		Consolidated Balance Sheets - December 31, 2003 and June 30, 2003
		Consolidated Statements of Income - three and six month periods ended December 31, 2003 and 2002
		Consolidated Statements of Cash Flows - six months ended December 31, 2003 and 2002
		Notes to Consolidated Financial Statements
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.
	Item 4.	Controls and Procedures.
PART II. Other Information
	Item 4.	Submission of Matters to a Vote of Security Holders.
	Item 6.	Exhibits and Reports on Form 8-K.
Signatures

 

2

 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

International Aluminum Corporation
and Subsidiaries

 

Consolidated Balance Sheets

 

		Dec. 31, 2003 (Unaudited)			June 30, 2003
Assets
Current assets:
Cash and cash equivalents		$	12,995,000		$	12,570,000
Accounts receivable, net		33,665,000			34,336,000
Inventories		31,281,000			28,551,000
Prepaid expenses and deposits		3,496,000			2,583,000
Future income tax benefits		2,239,000			2,239,000
Total current assets		83,676,000			80,279,000
Property, plant and equipment, at cost		121,617,000			120,829,000
Accumulated depreciation		(70,614,000		)	(68,999,000		)
Net property, plant and equipment		51,003,000			51,830,000
Other assets:
Costs in excess of net assets of purchased businesses		621,000			605,000
Other		656,000			529,000
Total other assets		1,277,000			1,134,000
		$	135,956,000		$	133,243,000
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	8,851,000		$	7,407,000
Accrued liabilities		9,749,000			9,054,000
Advances payable to banks		409,000			590,000
Income taxes payable		—			299,000
Total current liabilities		19,009,000			17,350,000
Deferred income taxes		6,357,000			6,357,000
Total liabilities		25,366,000			23,707,000
Shareholders’ equity		110,590,000			109,536,000
		$	135,956,000		$	133,243,000

 

See accompanying notes to consolidated financial statements.

 

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Unaudited

 

International Aluminum Corporation
and Subsidiaries

 

Consolidated Statements of Income

 

		Three Months Ended December 31,						Six Months Ended December 31,
		2003			2002			2003			2002
Net sales		$	50,698,000		$	45,784,000		$	103,654,000		$	94,928,000
Cost of sales		39,684,000			38,678,000			82,082,000			78,216,000
Gross profit		11,014,000			7,106,000			21,572,000			16,712,000
Selling, gen. and admin. expenses		8,468,000			5,756,000			16,423,000			13,916,000
Income from operations		2,546,000			1,350,000			5,149,000			2,796,000
Interest (income) expense, net		(19,000		)	4,000			(15,000		)	3,000
Income from continuing operations before income taxes		2,565,000			1,346,000			5,164,000			2,793,000
Provision for income taxes		1,003,000			507,000			2,064,000			1,042,000
Income from continuing operations		1,562,000			839,000			3,100,000			1,751,000
Income (loss) from discontinued operations		88,000			(177,000		)	129,000			(390,000		)
Net income		$	1,650,000		$	662,000		$	3,229,000		$	1,361,000
Basic and diluted EPS:
Continuing operations		$	.37		$	.20		$	.73		$	.41
Discontinued operations		.02			(.04		)	.03			(.09		)
Total		$	.39		$	.16		$	.76		$	.32
Shares used to compute EPS:
Basic and Diluted		4,244,794			4,244,794			4,244,794			4,244,794
Cash dividends per share		$	.30		$	.30		$	.60		$	.60

 

See accompanying notes to consolidated financial statements.

 

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Unaudited

 

International Aluminum Corporation
and Subsidiaries

 

Consolidated Statements of Cash Flows

 

		Six Months Ended December 31,
		2003			2002
Cash flows from operating activities:
Net income		$	3,229,000		$	1,361,000
Adjustments for noncash transactions:
Depreciation and amortization		3,331,000			3,527,000
Gain on discontinued operations		—			(110,000		)
Changes in assets and liabilities:
Receivables		761,000			1,134,000
Inventories		(2,656,000		)	666,000
Prepaid expenses and deposits		(1,034,000		)	(339,000		)
Accounts payable		1,371,000			1,251,000
Accrued liabilities		689,000			201,000
Income taxes payable		(272,000		)	(83,000		)
Net cash provided by operating activities		5,419,000			7,608,000
Cash flows from investing activities:
Capital expenditures		(2,388,000		)	(1,582,000		)
Proceeds from sales of capital assets		126,000			2,710,000
Net cash provided by (used in) investing activities		(2,262,000		)	1,128,000
Cash flows from financing activities:
Dividends paid to shareholders		(2,547,000		)	(2,547,000		)
Net borrowing under lines of credit		(204,000		)	(156,000		)
Net cash used in financing activities		(2,751,000		)	(2,703,000		)
Effect of exchange rate changes		19,000			(15,000		)
Net change in cash and cash equivalents		425,000			6,018,000
Cash and cash equivalents at beginning of period		12,570,000			3,495,000
Cash and cash equivalents at end of period		$	12,995,000		$	9,513,000

 

See accompanying notes to consolidated financial statements.

 

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Unaudited

 

International Aluminum Corporation

and Subsidiaries

 

Notes To Consolidated Financial Statements

 

Basis of Presentation

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which consist solely of normal recurring adjustments unless otherwise disclosed) necessary to present fairly, in all material respects, its financial position as of December 31, 2003 and June 30, 2003, and the results of operations for the three and six month periods ended December 31, 2003 and 2002 and the cash flows for the six month periods ended December 31, 2003 and 2002.  The results of operations for the three and six month periods ended December 31, 2003 and 2002 are not necessarily indicative of the results to be expected for the full year.

 

The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.  It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K.

 

 

Comprehensive Income

 

Comprehensive income, defined as net income and other comprehensive income, for the second quarters ended December 31, 2003 and 2002 was  $2,039,000 and $669,000, respectively.  Comprehensive income for the six months ended December 31, 2003 and 2002 was $3,600,000 and $1,045,000, respectively. Other comprehensive income includes foreign currency translation adjustments recorded directly in shareholders’ equity.

 

Balance Sheet Components		Dec. 31, 2003			June 30, 2003
Inventories, lower of FIFO Cost or Market
Raw materials		$	25,765,000		$	23,374,000
Work in process		764,000			430,000
Finished goods		4,752,000			4,747,000
		$	31,281,000		$	28,551,000
Shareholders’ Equity
Common stock		$	4,765,000		$	4,765,000
Paid-in capital		4,123,000			4,123,000
Retained earnings		100,258,000			99,576,000
Accumulated other comprehensive income		1,444,000			1,072,000
		$	110,590,000		$	109,536,000

 

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Segment Information

 

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

 

Net Sales:		Three Months Ended December 31,						Six Months Ended December 31,
		2003			2002			2003			2002
Commercial		$	24,347		$	24,301		$	48,167		$	49,872
Residential		16,088			12,464			32,158			25,425
Aluminum Extrusion		23,372			21,327			48,265			42,441
Total Segments		63,807			58,092			128,590			117,738
Eliminations		(13,109		)	(12,308		)	(24,936		)	(22,810		)
Total		$	50,698		$	45,784		$	103,654		$	94,928

 

Operating Income (Loss):		Three Months Ended December 31,						Six Months Ended December 31,
		2003			2002			2003			2002
Commercial		$	1,957		$	1,203		$	3,544		$	3,636
Residential		2,789			2,062			5,662			3,224
Aluminum Extrusion		(96		)	496			761			375
Total Segments		4,650			3,761			9,967			7,235
Eliminations		137			(559		)	(354		)	(619		)
Corporate		(2,241		)	(1,852		)	(4,464		)	(3,820		)
Total		$	2,546		$	1,350		$	5,149		$	2,796

 

Total Assets:		Dec. 31, 2003			June 30, 2003
Commercial		$	60,035		$	59,397
Residential		25,591			25,135
Aluminum Extrusion		36,108			36,016
Total Segments		121,734			120,548
Corporate		14,222			12,695
Total		$	135,956		$	133,243

 

7

 

Discontinued Operations

 

During the fourth quarter of fiscal year 2003, the Company announced the closure 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, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company wrote-down the net assets of International Window-Colorado to their estimated net realizable value and reported International Window-Colorado’s results as discontinued operations.  Due primarily to favorable results experienced in selling a portion of International Window-Colorado’s equipment and inventory and collection of accounts receivable balances, the Company recognized a net gain in fiscal year 2004 which has also been classified as discontinued operations.  The Company does not anticipate any further activity with respect to International Window-Colorado in the future.

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Results of Operations

 

Net sales increased by $4,914,000 or 10.7% for the quarter ended December 31, 2003 and by $8,726,000 or 9.2% for the six months then ended when compared with the respective prior year periods.  Sales of the Residential Products Group increased by $3,556,000 or 28.6% for the quarter and $6,658,000 or 26.3% for the six months compared to the same periods last year.  Low interest rates continue to stimulate new home construction and home improvement spending.  In addition, sales at our South Gate, California facility continue to improve due to increased customer confidence in product quality and customer service that had suffered during the prolonged strike in fiscal 2002.  New product development and new marketing and advertising programs have also contributed to the increase.  Sales of the Aluminum Extrusion Group increased by $1,397,000 or 15.1% for the quarter and $3,895,000 or 19.4% for the six months compared to the same periods last year.  Net tonnage shipped increased by 9.1% for the quarter and 16.2% year to date when compared to the same periods last year.  Although continuing to experience strong pressure on pricing, the Extrusion Group is benefiting from expanded geographic market penetration, particularly the area served by our Texas facility.  Partially offsetting these increases are decreases by the Commercial Products Group.  While sales for the current quarter were only slightly lower than the same period last year, sales for the current six-month period decreased $1,827,000 or 3.7% when compared to last year.  Although some geographic market areas experienced gains during the current quarter, the year to date decrease is reflective of the continuing soft commercial construction market coupled with increased competitive conditions.  Partially offsetting this decrease were increases from sales of newly developed product lines.

 

8

 

Cost of sales as a percentage of net sales was 78.3% for the quarter ended December 31, 2003 as opposed to 84.5% for the same period last year and for the six-month period was 79.2% compared to 82.4% for the same period last year.  All Groups were successful, to varying degrees, in either reducing or maintaining their cost of sales percentages for the current three-month period compared to last year and all Groups achieved reductions in their cost percentages over the current six-month period compared to last year.  The Residential Products Group decreased their material, labor and overhead cost percentages compared to the prior year reflecting production efficiencies attained from additional automation and the substantially higher sales volume. The Commercial Products Group achieved somewhat lower cost percentages as compared to last year mainly due to the prior year having higher than expected material costs for some major projects incurred at our U.S. Aluminum-Texas facility.  Labor and overhead cost percentages are relatively unchanged, as cost containment efforts have offset the effect of spreading these costs over diminished sales in a highly competitive marketplace.  The Aluminum Extrusion Group, while absorbing higher material costs compared to last year, achieved decreased labor and overhead cost percentages due to production efficiencies gained from the higher tonnage output, in spite of higher utility and tooling costs incurred at our Texas facility.

 

Selling, general and administrative expenses as a percentage of net sales was 16.7% for the quarter ended December 31, 2003 as opposed to 12.6% for the same period last year and for the six-month period was 15.8% compared to 14.7% for the same period last year.  A portion of the increase during the year reflects increased employment, outside sales representation and promotional costs.  During the prior year, income relating to retrospective workers’ compensation policies totaling $1,134,000 and $716,000 was recorded for the three and six-month periods respectively, compared to additional expense of $137,000 and $134,000 being recorded in the comparable periods of the current year.

 

The effective tax rate for the six months ended December 31, 2003 was 40.0% whereas the comparable period of the prior year was 37.3%.  The lower prior year rate reflects benefits available for foreign losses.

 

Liquidity and Capital Resources

 

Working capital at December 31, 2003 stood at $64,667,000, an increase of $1,738,000 from June 30, 2003.  The ratio of current assets to current liabilities is currently 4.4 as compared to 4.6 as of the beginning of the year.

 

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

 

9

 

Recent Accounting Pronouncements

 

The Company will not be affected by any recent pronouncements.

 

Forward-Looking Information

 

This report contains forward-looking statements with respect to the financial condition, results of operations and business of the Company.  Such items are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such statements.  Readers are 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 to publicly update 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 may impact the Company’s earnings.  The Company’s foreign exchange exposure is related to activities associated with its Canadian subsidiaries.  The Company does not attempt to manage these risks by entering into forward exchange contracts.

 

Item 4.  Controls and Procedures.

 

As of the end of the period covered by this report, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”).  Based on this evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective in causing material company information to be recorded, processed, summarized and reported to our management on a timely basis to insure that the quality and timeliness of the Company’s public disclosures complies with its Securities and Exchange Commission disclosure obligations.

 

There have been no significant changes in our internal controls or in other factors that could significantly affect internal control subsequent to the evaluation.

 

10

 

PART II - OTHER INFORMATION

 

Item 4.            Submission of Matters to a Vote of Security Holders.

 

On October 30, 2003, the Company held its 2003 Annual Shareholders Meeting.  Shareholders voted proxies representing 4,055,666 shares, which was 95.5% of the 4,244,794 shares outstanding on the record date.  The proposed slate of directors was elected with 3,909,390 shares and the selected independent auditors were ratified with 4,013,072 shares.

 

Item 6.            Exhibits and Reports on Form 8-K.

 

(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 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

 

(b)           Reports on Form 8-K:

 

Date of Report		Item Reported
November 12, 2003		Press release issued announcing the Company’s first quarter fiscal year 2004 earnings results.

 

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SIGNATURES

 

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

 

				International Aluminum Corporation
				(Registrant)
Date:	February 11, 2004			/s/ MITCHELL K. FOGELMAN
				Mitchell K. Fogelman
				Senior Vice President - Finance
				(Principal Financial Officer)
Date:	February 11, 2004			/s/ MICHAEL J. NORRING
				Michael J. Norring
				Controller
				(Principal Accounting Officer)

 

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