WASHINGTON, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2004
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 1-7256
INTERNATIONAL ALUMINUM CORPORATION
(Exact name of Registrant as specified in its charter)
|
California |
95-2385235 |
|
(State of incorporation) |
(I.R.S. Employer Identification No.) |
767 Monterey Pass Road
Monterey Park, California 91754
(323) 264-1670
(Principal executive office)
Indicate by check mark whether the Registrant (1) has filed all 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 November 3, 2004 there were 4,244,794 shares of Common Stock outstanding.
INTERNATIONAL ALUMINUM CORPORATION
AND SUBSIDIARIES
INDEX
2
PART I — FINANCIAL INFORMATION
Unaudited
International Aluminum Corporation
and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
|
Sept. 30, 2004 |
|
June 30, 2004 |
|
|||||
|
Assets |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|||||
|
Current assets: |
|
|
|
|
|
|||||
|
Cash and cash equivalents |
|
$ |
16,019,000 |
|
$ |
15,964,000 |
|
|||
|
Accounts receivable, net |
|
39,937,000 |
|
39,030,000 |
|
|||||
|
Inventories |
|
34,672,000 |
|
32,286,000 |
|
|||||
|
Prepaid expenses and deposits |
|
2,057,000 |
|
1,864,000 |
|
|||||
|
Deferred income taxes |
|
2,767,000 |
|
2,767,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Total current assets |
|
95,452,000 |
|
91,911,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Property, plant and equipment, at cost |
|
122,706,000 |
|
121,828,000 |
|
|||||
|
Accumulated depreciation |
|
(74,800,000 |
) |
(73,227,000 |
) |
|||||
|
|
|
|
|
|
|
|||||
|
Net property, plant and equipment |
|
47,906,000 |
|
48,601,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Other assets: |
|
|
|
|
|
|||||
|
Goodwill |
|
632,000 |
|
609,000 |
|
|||||
|
Other |
|
976,000 |
|
761,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Total other assets |
|
1,608,000 |
|
1,370,000 |
|
|||||
|
|
|
$ |
144,966,000 |
|
$ |
141,882,000 |
|
|||
|
|
|
|
|
|
|
|||||
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|||||
|
Current liabilities: |
|
|
|
|
|
|||||
|
Accounts payable |
|
$ |
11,503,000 |
|
$ |
10,858,000 |
|
|||
|
Accrued liabilities |
|
11,285,000 |
|
11,903,000 |
|
|||||
|
Advances payable to banks |
|
— |
|
202,000 |
|
|||||
|
Income taxes payable |
|
2,025,000 |
|
1,088,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Total current liabilities |
|
24,813,000 |
|
24,051,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Deferred income taxes |
|
6,625,000 |
|
6,625,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Total liabilities |
|
31,438,000 |
|
30,676,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
Shareholders’ equity |
|
113,528,000 |
|
111,206,000 |
|
|||||
|
|
|
|
|
|
|
|||||
|
|
|
$ |
144,966,000 |
|
$ |
141,882,000 |
|
|||
See accompanying notes to condensed consolidated financial statements.
3
Unaudited
International Aluminum Corporation
and Subsidiaries
Condensed Consolidated Statements of Income
|
|
|
Three Months Ended |
|
|||||
|
|
|
2004 |
|
2003 |
|
|||
|
Net sales |
|
$ |
60,727,000 |
|
$ |
52,956,000 |
|
|
|
Cost of sales |
|
46,763,000 |
|
42,398,000 |
|
|||
|
Gross profit |
|
13,964,000 |
|
10,558,000 |
|
|||
|
Selling, general and administrative expenses |
|
8,986,000 |
|
7,955,000 |
|
|||
|
Income from operations |
|
4,978,000 |
|
2,603,000 |
|
|||
|
Interest (income) expense, net |
|
(6,000 |
) |
4,000 |
|
|||
|
Income from continuing operations before income taxes |
|
4,984,000 |
|
2,599,000 |
|
|||
|
Provision for income taxes |
|
1,950,000 |
|
1,061,000 |
|
|||
|
Income from continuing operations |
|
3,034,000 |
|
1,538,000 |
|
|||
|
Income from discontinued operations |
|
— |
|
41,000 |
|
|||
|
Net income |
|
$ |
3,034,000 |
|
$ |
1,579,000 |
|
|
|
|
|
|
|
|
|
|||
|
Earnings per share — Basic and Diluted: |
|
|
|
|
|
|||
|
Continuing operations |
|
$ |
.71 |
|
$ |
.36 |
|
|
|
Discontinued operations |
|
— |
|
.01 |
|
|||
|
Total |
|
$ |
.71 |
|
$ |
.37 |
|
|
|
|
|
|
|
|
|
|||
|
Shares used to compute EPS: |
|
|
|
|
|
|||
|
Basic |
|
4,244,794 |
|
4,244,794 |
|
|||
|
Diluted |
|
4,247,953 |
|
4,244,794 |
|
|||
|
|
|
|
|
|
|
|||
|
Cash dividends per share |
|
$ |
.30 |
|
$ |
.30 |
|
|
See accompanying notes to condensed consolidated financial statements.
4
Unaudited
International Aluminum Corporation
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
|
|
Three Months Ended |
|
||||
|
|
|
|
|||||
|
|
|
2004 |
|
2003 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net income |
|
$ |
3,034,000 |
|
$ |
1,579,000 |
|
|
Adjustments for noncash transactions: |
|
|
|
|
|
||
|
Depreciation and amortization |
|
1,594,000 |
|
1,654,000 |
|
||
|
Changes in assets and liabilities: |
|
|
|
|
|
||
|
Accounts receivable |
|
(725,000 |
) |
1,047,000 |
|
||
|
Inventories |
|
(2,274,000 |
) |
(1,769,000 |
) |
||
|
Prepaid expenses and other |
|
(398,000 |
) |
(184,000 |
) |
||
|
Accounts payable |
|
485,000 |
|
3,844,000 |
|
||
|
Accrued liabilities |
|
(630,000 |
) |
713,000 |
|
||
|
Income taxes payable |
|
984,000 |
|
743,000 |
|
||
|
|
|
|
|
|
|
||
|
Net cash provided by operating activities |
|
2,070,000 |
|
7,627,000 |
|
||
|
|
|
|
|
|
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Capital expenditures |
|
(593,000 |
) |
(585,000 |
) |
||
|
Proceeds from sales of capital assets |
|
42,000 |
|
85,000 |
|
||
|
|
|
|
|
|
|
||
|
Net cash used in investing activities |
|
(551,000 |
) |
(500,000 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Dividends paid to shareholders |
|
(1,273,000 |
) |
(1,273,000 |
) |
||
|
Net repayments under lines of credit |
|
(213,000 |
) |
(326,000 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash used in financing activities |
|
(1,486,000 |
) |
(1,599,000 |
) |
||
|
|
|
|
|
|
|
||
|
Effect of exchange rate changes |
|
22,000 |
|
(1,000 |
) |
||
|
|
|
|
|
|
|
||
|
Net change in cash and cash equivalents |
|
55,000 |
|
5,527,000 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at beginning of period |
|
15,964,000 |
|
12,570,000 |
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents at end of period |
|
$ |
16,019,000 |
|
$ |
18,097,000 |
|
See accompanying notes to condensed consolidated financial statements.
5
Unaudited
International Aluminum Corporation
and Subsidiaries
Notes To Condensed 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 September 30, 2004 and June 30, 2004, and the results of operations and the cash flows for the three-month periods ended September 30, 2004 and 2003. The results of operations for the three-month period ended September 30, 2004 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. These financial statements should 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 quarters ended September 30, 2004 and 2003 were $3,595,000 and $1,561,000, respectively. Other comprehensive income includes foreign currency translation adjustments recorded directly in shareholders’ equity.
|
Balance Sheet Components |
|
Sept. 30, 2004 |
|
June 30, 2004 |
|
||||
|
|
|
|
|
|
|
||||
|
Inventories, lower of FIFO Cost or Market |
|
|
|
|
|
||||
|
Raw materials |
|
$ |
28,826,000 |
|
$ |
26,790,000 |
|
||
|
Work in process |
|
395,000 |
|
553,000 |
|
||||
|
Finished goods |
|
5,451,000 |
|
4,943,000 |
|
||||
|
|
|
$ |
34,672,000 |
|
$ |
32,286,000 |
|
||
|
Shareholders’ Equity |
|
|
|
|
|
||||
|
Common stock |
|
$ |
4,765,000 |
|
$ |
4,765,000 |
|
||
|
Paid-in capital |
|
4,123,000 |
|
4,123,000 |
|
||||
|
Retained earnings |
|
102,901,000 |
|
101,140,000 |
|
||||
|
Accumulated other comprehensive income |
|
1,739,000 |
|
1,178,000 |
|
||||
|
|
|
$ |
113,528,000 |
|
$ |
111,206,000 |
|
||
6
Unaudited
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted-average common and potentially dilutive common equivalent shares outstanding determined as follows:
|
|
|
Three Months Ended |
|
|||
|
|
|
|
||||
|
|
|
2004 |
|
2003 |
|
|
|
Weighted-average shares outstanding used to compute basic EPS |
|
4,244,794 |
|
4,244,794 |
|
|
|
Incremental shares issuable upon the exercise of stock options |
|
3,159 |
|
— |
|
|
|
Shares used to compute diluted EPS |
|
4,247,953 |
|
4,244,794 |
|
|
Incremental shares issuable upon the assumed exercise of outstanding stock options are computed using the average market price during the related period.
Stock Based Compensation
The Company granted stock options for the purchase of common stock to certain executive and managerial employees under the Company’s 1991 Stock Option Plan, whose expired granting authority has been transferred to the successor plan, the 2001 Stock Option Plan. Options have an exercise price equal to the market price of the stock on the date of grant, a term of ten years and generally become exercisable over a five-year period. The Company applies Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations in accounting for the plan. Under APB No. 25, compensation cost, if any, is recognized over the respective vesting period based on the difference, if any, on the date of grant, between the fair value of the Company’s common stock and the exercise price. All options issued have an exercise price equal to the fair value on the date of grant. Accordingly, no compensation cost has been recognized for those stock options. On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, which amends SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 148’s transition guidance and provisions for disclosures are effective for fiscal years ending after December 15, 2002. The Company did not adopt fair value accounting for employee stock options under SFAS No. 123 and SFAS No. 148. There would have been no material change in reported net income and earnings per share had compensation cost been determined based on the fair value at the grant dates as prescribed by SFAS 123.
7
Unaudited
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 |
|
||||
|
|
|
|
|||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
|
||
|
Commercial |
|
$ |
30,209 |
|
$ |
23,820 |
|
|
Residential |
|
18,564 |
|
16,070 |
|
||
|
Aluminum Extrusion |
|
27,042 |
|
24,893 |
|
||
|
Total Segments |
|
75,815 |
|
64,783 |
|
||
|
Eliminations |
|
(15,088 |
) |
(11,827 |
) |
||
|
Total |
|
$ |
60,727 |
|
$ |
52,956 |
|
|
Operating Income: |
|
Three Months Ended |
|
||||
|
|
|
|
|||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
|
||
|
Commercial |
|
$ |
3,627 |
|
$ |
1,587 |
|
|
Residential |
|
3,102 |
|
2,873 |
|
||
|
Aluminum Extrusion |
|
330 |
|
857 |
|
||
|
Total Segments |
|
7,059 |
|
5,317 |
|
||
|
Eliminations |
|
135 |
|
(491 |
) |
||
|
Corporate |
|
(2,216 |
) |
(2,223 |
) |
||
|
Total |
|
$ |
4,978 |
|
$ |
2,603 |
|
|
Total Assets: |
|
Sept. 30, |
|
June 30, |
|
|||
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|||
|
Commercial |
|
$ |
64,294 |
|
$ |
60,922 |
|
|
|
Residential |
|
26,201 |
|
27,105 |
|
|||
|
Aluminum Extrusion |
|
37,972 |
|
38,130 |
|
|||
|
Total Segments |
|
128,467 |
|
126,157 |
|
|||
|
Corporate |
|
16,499 |
|
15,725 |
|
|||
|
Total |
|
$ |
144,966 |
|
$ |
141,882 |
|
|
8
Unaudited
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 was also 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 for the first quarter ended September 30, 2004 increased by $7,771,000 or 14.7% from the comparable quarter of the prior year. Sales of the Commercial Products Group increased by $6,376,000 or 27.0%. This gain reflects increased commercial construction activity together with increased sales prices and expanded geographic market penetration. Sales of the Residential Products Group increased by $2,502,000 or 15.7%. Low interest rates and prolonged consumer confidence continue to stimulate new home construction, resales of existing homes and home improvement spending. New product development and aggressive promotional programs have also contributed to the increase. Sales of the Aluminum Extrusion Group decreased by $1,107,000 or 8.3% when compared to last year. Increases in selling prices were more than offset by a 16.9% decrease in net tonnage shipped, particularly in the area served by our Texas facility. A combination of factors were responsible for these decreased shipments. Severe weather conditions in the Southeast and Gulf states regions impacted delivery efforts at our Texas facility, as many customers opted to either delay or cancel orders. Additionally, excessive production equipment downtime hampered our ability to produce and ship product. Reflecting the continued strong pressure on pricing, sales at our California facility decreased mainly as a result of some high volume customers switching to lower cost offshore suppliers. Efforts are being made to replace the lost volume with new business.
9
Unaudited
Cost of sales as a percentage of net sales was 77.0% for the quarter ended September 30, 2004 as compared to 80.1% for the same period last year. This decrease is attributable to several factors. The Commercial and Residential Products Groups achieved comparable or lower material, labor and overhead cost percentages as compared to last year mainly due to volume efficiencies as a result of the aforementioned sales increases. Partially offsetting these gains were increased cost percentages in the Aluminum Extrusion Group, most notably at our California facility. Due to the highly competitive marketplace, selling prices were increased directly in line with the increased cost of aluminum, resulting in increased material cost percentage and decreased labor and overhead cost percentages. The improvement in the labor and overhead cost percentages were offset somewhat by decreased production efficiencies resulting from the lower volume.
Selling, general and administrative expenses increased by $1,031,000 from the prior year, although as a percentage of net sales decreased to 14.8% as compared to 15.0% last year. A portion of the increase, $368,000, reflects additional employment, sales representation and promotional costs related to the increase in sales. In addition, expense relating to retrospective workers’ compensation and general liability policies totaled $424,000 compared to income of $3,000 for the same period last year. Included also in the prior year was a one-time energy rebate of $101,000 that served to partially offset overall expenses.
The swing from net interest expense in the prior year quarter to net interest income in the current quarter resulted primarily from increased funds available for investment as well as from lower utilization of our foreign lines of credit.
The effective tax rate for the three months ended September 30, 2004 was 39.1% as compared to 40.8% in the comparable period of the prior year.
Working capital at September 30, 2004 stood at $70,639,000, an increase of $2,779,000 from June 30, 2004. The ratio of current assets to current liabilities was 3.8, which was unchanged from the beginning of the year.
The Company’s projected net capital expenditures for fiscal 2005 and related financing remain unchanged from those described in the June 30, 2004 Annual Report to Shareholders. The Company’s lines of credit also remain unchanged from those described in the June 30, 2004 Annual Report to Shareholders.
Recent Accounting Pronouncements
Current and pending accounting pronouncements are not expected to have a significant impact on the Company’s results of operations or financial position.
10
Unaudited
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. The principal important risk factors and uncertainties include, but are not limited to, changes in general economic conditions, material prices, labor costs, interest rates, and other adverse changes in general economic conditions, consumer confidence, competition, currency exchange rates as they affect our Canadian operations, environmental factors, unanticipated legal proceedings, and conditions in the commercial and residential construction markets. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were 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, or otherwise.
Item 4. Controls and Procedures.
The Company maintains disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding the required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible 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 CEO, COO and CFO. Based on this evaluation, our management, including the CEO, COO 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.
11
(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 Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
31.3 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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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 |
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32.2 |
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Certification of the Chief Operating Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.3 |
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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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August 23, 2004 |
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Press release issued announcing the Company’s financial results for the fourth quarter and fiscal year ended June 30, 2004, dividend declaration and other comments. |
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12
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 thereunto duly authorized.
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International Aluminum Corporation |
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(Registrant) |
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Date: |
November 9, 2004 |
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/s/ 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: |
November 9, 2004 |
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/s/ MICHAEL J. NORRING |
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Michael J. Norring |
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Controller |
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(Principal Accounting Officer) |
13