SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 2004
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)
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 May 3, 2004 there were 4,244,794 shares of Common Stock outstanding.
INTERNATIONAL ALUMINUM CORPORATION
AND SUBSIDIARIES
INDEX
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
International Aluminum Corporation
and Subsidiaries
|
|
|
Mar. 31, 2004 |
|
June 30, 2003 |
|
||
|
(Unaudited) |
|
|
|||||
|
Assets |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
15,245,000 |
|
$ |
12,570,000 |
|
|
Accounts receivable, net |
|
34,129,000 |
|
34,336,000 |
|
||
|
Inventories |
|
31,975,000 |
|
28,551,000 |
|
||
|
Prepaid expenses and deposits |
|
2,483,000 |
|
2,583,000 |
|
||
|
Future income tax benefits |
|
2,239,000 |
|
2,239,000 |
|
||
|
|
|
|
|
|
|
||
|
Total current assets |
|
86,071,000 |
|
80,279,000 |
|
||
|
|
|
|
|
|
|
||
|
Property, plant and equipment, at cost |
|
121,700,000 |
|
120,829,000 |
|
||
|
Accumulated depreciation |
|
(71,814,000 |
) |
(68,999,000 |
) |
||
|
|
|
|
|
|
|
||
|
Net property, plant and equipment |
|
49,886,000 |
|
51,830,000 |
|
||
|
|
|
|
|
|
|
||
|
Other assets: |
|
|
|
|
|
||
|
Costs in excess of net assets of purchased businesses |
|
616,000 |
|
605,000 |
|
||
|
Other |
|
718,000 |
|
529,000 |
|
||
|
|
|
|
|
|
|
||
|
Total other assets |
|
1,334,000 |
|
1,134,000 |
|
||
|
|
|
|
|
|
|
||
|
|
|
$ |
137,291,000 |
|
$ |
133,243,000 |
|
|
|
|
|
|
|
|
||
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
9,189,000 |
|
$ |
7,407,000 |
|
|
Accrued liabilities |
|
11,205,000 |
|
9,054,000 |
|
||
|
Advances payable to banks |
|
480,000 |
|
590,000 |
|
||
|
Income taxes payable |
|
— |
|
299,000 |
|
||
|
|
|
|
|
|
|
||
|
Total current liabilities |
|
20,874,000 |
|
17,350,000 |
|
||
|
|
|
|
|
|
|
||
|
Deferred income taxes |
|
6,357,000 |
|
6,357,000 |
|
||
|
|
|
|
|
|
|
||
|
Total liabilities |
|
27,231,000 |
|
23,707,000 |
|
||
|
|
|
|
|
|
|
||
|
Shareholders’ equity |
|
110,060,000 |
|
109,536,000 |
|
||
|
|
|
|
|
|
|
||
|
|
|
$ |
137,291,000 |
|
$ |
133,243,000 |
|
See accompanying notes to consolidated financial statements.
3
Unaudited
International Aluminum Corporation
and Subsidiaries
Consolidated Statements of Income
|
|
|
Three
Months Ended |
|
Nine
Months Ended |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net sales |
|
$ |
50,064,000 |
|
$ |
47,648,000 |
|
$ |
153,718,000 |
|
$ |
142,576,000 |
|
|
Cost of sales |
|
40,591,000 |
|
38,545,000 |
|
122,673,000 |
|
116,761,000 |
|
||||
|
Gross profit |
|
9,473,000 |
|
9,103,000 |
|
31,045,000 |
|
25,815,000 |
|
||||
|
Selling, gen. and admin. expenses |
|
8,067,000 |
|
7,296,000 |
|
24,490,000 |
|
21,212,000 |
|
||||
|
Income from operations |
|
1,406,000 |
|
1,807,000 |
|
6,555,000 |
|
4,603,000 |
|
||||
|
Interest (income) expense, net |
|
(9,000 |
) |
6,000 |
|
(24,000 |
) |
9,000 |
|
||||
|
Income from continuing operations before income taxes |
|
1,415,000 |
|
1,801,000 |
|
6,579,000 |
|
4,594,000 |
|
||||
|
Provision for income taxes |
|
560,000 |
|
672,000 |
|
2,624,000 |
|
1,714,000 |
|
||||
|
Income from continuing operations |
|
855,000 |
|
1,129,000 |
|
3,955,000 |
|
2,880,000 |
|
||||
|
Income (loss) from discontinued operations |
|
— |
|
(222,000 |
) |
129,000 |
|
(612,000 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income |
|
$ |
855,000 |
|
$ |
907,000 |
|
$ |
4,084,000 |
|
$ |
2,268,000 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic and diluted EPS: |
|
|
|
|
|
|
|
|
|
||||
|
Continuing operations |
|
$ |
.20 |
|
$ |
.27 |
|
$ |
.93 |
|
$ |
.68 |
|
|
Discontinued operations |
|
— |
|
(.06 |
) |
.03 |
|
(.15 |
) |
||||
|
Total |
|
$ |
.20 |
|
$ |
.21 |
|
$ |
.96 |
|
$ |
.53 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Shares used to compute EPS: |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
4,244,794 |
|
4,244,794 |
|
4,244,794 |
|
4,244,794 |
|
||||
|
Diluted |
|
4,251,235 |
|
4,244,794 |
|
4,246,941 |
|
4,244,794 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Cash dividends per share |
|
$ |
.30 |
|
$ |
.30 |
|
$ |
.90 |
|
$ |
.90 |
|
See accompanying notes to consolidated financial statements.
4
International Aluminum Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
Nine
Months Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net income |
|
$ |
4,084,000 |
|
$ |
2,268,000 |
|
|
Adjustments for noncash transactions: |
|
|
|
|
|
||
|
Depreciation and amortization |
|
4,930,000 |
|
5,266,000 |
|
||
|
Gain on discontinued operations |
|
— |
|
(110,000 |
) |
||
|
Changes in assets and liabilities: |
|
|
|
|
|
||
|
Receivables |
|
270,000 |
|
(2,545,000 |
) |
||
|
Inventories |
|
(3,372,000 |
) |
426,000 |
|
||
|
Prepaid expenses and deposits |
|
(86,000 |
) |
292,000 |
|
||
|
Accounts payable |
|
1,731,000 |
|
1,562,000 |
|
||
|
Accrued liabilities |
|
2,182,000 |
|
739,000 |
|
||
|
Income taxes payable |
|
(280,000 |
) |
(89,000 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash provided by operating activities |
|
9,459,000 |
|
7,809,000 |
|
||
|
|
|
|
|
|
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Capital expenditures |
|
(3,031,000 |
) |
(2,505,000 |
) |
||
|
Proceeds from sales of capital assets |
|
180,000 |
|
2,786,000 |
|
||
|
|
|
|
|
|
|
||
|
Net cash provided by (used in) investing activities |
|
(2,851,000 |
) |
281,000 |
|
||
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Dividends paid to shareholders |
|
(3,820,000 |
) |
(3,820,000 |
) |
||
|
Net borrowing under lines of credit |
|
(126,000 |
) |
(472,000 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash used in financing activities |
|
(3,946,000 |
) |
(4,292,000 |
) |
||
|
|
|
|
|
|
|
||
|
Effect of exchange rate changes |
|
13,000 |
|
13,000 |
|
||
|
|
|
|
|
|
|
||
|
Net change in cash and cash equivalents |
|
2,675,000 |
|
3,811,000 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at beginning of period |
|
12,570,000 |
|
3,495,000 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at end of period |
|
$ |
15,245,000 |
|
$ |
7,306,000 |
|
See accompanying notes to consolidated financial statements.
5
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 March 31, 2004 and June 30, 2003, and the results of operations for the three and nine month periods ended March 31, 2004 and 2003 and the cash flows for the nine month periods ended March 31, 2004 and 2003. The results of operations for the three and nine month periods ended March 31, 2004 and 2003 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, in the United States of America, 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 third quarters ended March 31, 2004 and 2003 was $744,000 and $1,504,000, respectively. Comprehensive income for the nine months ended March 31, 2004 and 2003 was $4,344,000 and $2,549,000, respectively. Other comprehensive income includes foreign currency translation adjustments recorded directly in shareholders’ equity.
|
Balance Sheet Components |
|
|
Mar. 31, 2004 |
|
June 30, 2003 |
|
||
|
|
|
|
|
|
|
|||
|
Inventories, lower of FIFO Cost or Market |
|
|
|
|
|
|||
|
Raw materials |
|
$ |
26,664,000 |
|
$ |
23,374,000 |
|
|
|
Work in process |
|
817,000 |
|
430,000 |
|
|||
|
Finished goods |
|
4,494,000 |
|
4,747,000 |
|
|||
|
|
|
$ |
31,975,000 |
|
$ |
28,551,000 |
|
|
|
|
|
|
|
|
|
|||
|
Shareholders’ Equity |
|
|
|
|
|
|||
|
Common stock |
|
$ |
4,765,000 |
|
$ |
4,765,000 |
|
|
|
Paid-in capital |
|
4,123,000 |
|
4,123,000 |
|
|||
|
Retained earnings |
|
99,840,000 |
|
99,576,000 |
|
|||
|
Accumulated other comprehensive income |
|
1,332,000 |
|
1,072,000 |
|
|||
|
|
|
$ |
110,060,000 |
|
$ |
109,536,000 |
|
|
6
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 |
|
Nine
Months Ended |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Commercial |
|
$ |
23,817 |
|
$ |
24,487 |
|
$ |
71,984 |
|
$ |
74,359 |
|
|
|
Residential |
|
15,403 |
|
13,370 |
|
47,561 |
|
38,795 |
|
|||||
|
Aluminum Extrusion |
|
22,259 |
|
19,632 |
|
70,524 |
|
62,073 |
|
|||||
|
Total Segments |
|
61,479 |
|
57,489 |
|
190,069 |
|
175,227 |
|
|||||
|
Eliminations |
|
(11,415 |
) |
(9,841 |
) |
(36,351 |
) |
(32,651 |
) |
|||||
|
Total |
|
$ |
50,064 |
|
$ |
47,648 |
|
$ |
153,718 |
|
$ |
142,576 |
|
|
|
Operating Income (Loss): |
|
|
Three
Months Ended |
|
Nine
Months Ended |
|
||||||||
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Commercial |
|
$ |
1,231 |
|
$ |
1,675 |
|
$ |
4,775 |
|
$ |
5,311 |
|
|
|
Residential |
|
2,336 |
|
2,133 |
|
7,998 |
|
5,357 |
|
|||||
|
Aluminum Extrusion |
|
(290 |
) |
(317 |
) |
471 |
|
58 |
|
|||||
|
Total Segments |
|
3,277 |
|
3,491 |
|
13,244 |
|
10,726 |
|
|||||
|
Eliminations |
|
308 |
|
284 |
|
(46 |
) |
(335 |
) |
|||||
|
Corporate |
|
(2,179 |
) |
(1,968 |
) |
(6,643 |
) |
(5,788 |
) |
|||||
|
Total |
|
$ |
1,406 |
|
$ |
1,807 |
|
$ |
6,555 |
|
$ |
4,603 |
|
|
|
Total Assets: |
|
|
Mar. 31, |
|
June 30, |
|
||
|
|
|
|
|
|
|
|||
|
Commercial |
|
$ |
59,704 |
|
$ |
59,397 |
|
|
|
Residential |
|
25,704 |
|
25,135 |
|
|||
|
Aluminum Extrusion |
|
35,669 |
|
36,016 |
|
|||
|
Total Segments |
|
121,077 |
|
120,548 |
|
|||
|
Corporate |
|
16,214 |
|
12,695 |
|
|||
|
Total |
|
$ |
137,291 |
|
$ |
133,243 |
|
|
7
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 $2,416,000 or 5.1% for the quarter ended March 31, 2004 and by $11,142,000 or 7.8% for the nine months then ended when compared with the respective prior year periods. Sales of the Residential Products Group increased by $1,950,000 or 14.6% for the quarter and $8,607,000 or 22.3% for the nine months compared to the same periods last year. Low interest rates and increased consumer confidence continue to stimulate new home construction, resales of existing homes 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 $1,223,000 or 12.3% for the quarter and $5,119,000 or 17.0% for the nine months compared to the same periods last year. Net tonnage shipped increased by 8.3% for the quarter and 13.6% year to date when compared to the same periods last year. The Extrusion Group continues to benefit from expanded geographic market penetration, particularly the area served by our Texas facility. Still subject to a highly competitive market, the Group increased sales prices this quarter commensurate with the increased cost of aluminum. Partially offsetting these increases are decreases by the Commercial Products Group, wherein sales for the current quarter decreased by $757,000 or 3.1% and $2,584,000 or 3.5% for the nine months compared to the same periods 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. Increases from sales of newly developed product lines have somewhat offset the overall declines for this Group.
8
Cost of sales as a percentage of net sales was 81.1% for the quarter ended March 31, 2004 as opposed to 80.9% for the same period last year and for the nine-month period was 79.8% compared to 81.9% for the same period last year. Although cost of sales percentages for all Groups was relatively flat for the current three-month period compared to last year, all Groups achieved reductions, to varying degrees, in their cost percentages during the current nine-month period compared to last year. The Residential Products Group experienced decreased 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 unusually high material costs for some major projects at the U.S. Aluminum-Texas facility. Labor and overhead cost percentages were relatively unchanged, as cost containment efforts have offset the effect of spreading these costs over diminished sales in a highly competitive marketplace. While absorbing higher material costs compared to last year, the Aluminum Extrusion Group incurred decreased labor and overhead cost percentages due to production efficiencies resulting from the higher tonnage output.
Selling, general and administrative expenses as a percentage of net sales were 16.1% for the quarter ended March 31, 2004 as opposed to 15.3% for the same period last year and were 15.9% for the nine-month period compared to 14.9% for the same period last year. A portion of the increase during the year reflects increased employment, sales representation and promotional costs. During fiscal 2003, income relating to retrospective workers’ compensation policies totaled $183,000 and $900,000 for the three and nine-month periods, respectively, compared to income of $124,000 and additional expense of $10,000 for the comparable periods of the current year.
The effective tax rate for the nine months ended March 31, 2004 was 39.9% 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 March 31, 2004 stood at $65,197,000, an increase of $2,268,000 from June 30, 2003. The ratio of current assets to current liabilities is currently 4.1 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.
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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:
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Date of Report |
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Item Reported |
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February 12, 2004 |
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Press release issued announcing the Company’s second quarter fiscal year 2004 earnings results. |
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February 18, 2004 |
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Press release issued announcing the retention of The Seidler Companies Inc., Investment Bankers, as its financial advisors to assist in efforts to maximize shareholder value. |
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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.
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International Aluminum Corporation |
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(Registrant) |
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Date: |
May 12, 2004 |
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MITCHELL K. FOGELMAN |
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Mitchell K. Fogelman |
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Senior Vice President – Finance |
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(Principal Financial Officer) |
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Date: |
May 12, 2004 |
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MICHAEL J. NORRING |
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Michael J. Norring |
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Controller |
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(Principal Accounting Officer) |
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