SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

 

ý

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

 

For quarterly period ended March 31, 2005

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                    TO

 

Commission File Number 1-7256

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2, 2005, there were 4,267,730 shares of common stock outstanding.

 

INTERNATIONAL ALUMINUM CORPORATION

AND SUBSIDIARIES

 

INDEX

 

 

			Page
PART I. Financial Information
	Item 1. Financial Statements.
		Condensed Consolidated Balance Sheets - March 31, 2005 and June 30, 2004 (unaudited)	3
		Condensed Consolidated Statements of Income - three and nine month periods ended March 31, 2005 and 2004 (unaudited)	4
		Condensed Consolidated Statements of Cash Flows nine month periods ended March 31, 2005 and 2004 (unaudited)	5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		10
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.		13
	Item 4. Controls and Procedures.		13
PART II. Other Information
	Item 6. Exhibits.		15
Signatures			16

 

2

 

PART I — FINANCIAL INFORMATION

Unaudited

Item 1.  Financial Statements.

 

International Aluminum Corporation

and Subsidiaries

 

Condensed Consolidated Balance Sheets

 

 

		March 31, 2005			June 30, 2004
Assets
Current assets:
Cash and cash equivalents		$	10,207,000		$	15,964,000
Accounts receivable, net		42,309,000			39,030,000
Inventories		44,771,000			32,286,000
Prepaid expenses and deposits		2,022,000			1,864,000
Deferred income taxes		2,767,000			2,767,000
Total current assets		102,076,000			91,911,000
Property, plant and equipment, at cost		123,376,000			121,828,000
Accumulated depreciation		(77,057,000		)	(73,227,000		)
Net property, plant and equipment		46,319,000			48,601,000
Other assets:
Goodwill		651,000			609,000
Other		1,311,000			761,000
Total other assets		1,962,000			1,370,000
		$	150,357,000		$	141,882,000
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	12,832,000		$	10,858,000
Accrued liabilities		13,567,000			11,903,000
Advances payable to banks		—			202,000
Income taxes payable		—			1,088,000
Total current liabilities		26,399,000			24,051,000
Deferred income taxes		6,625,000			6,625,000
Total liabilities		33,024,000			30,676,000
Shareholders’ equity		117,333,000			111,206,000
		$	150,357,000		$	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						Nine Months Ended
		March 31,						March 31,
		2005			2004			2005			2004
Net sales		$	62,088,000		$	50,064,000		$	184,574,000		$	153,718,000
Cost of sales		48,194,000			40,591,000			143,014,000			122,673,000
Gross profit		13,894,000			9,473,000			41,560,000			31,045,000
Selling, gen. and admin. expenses		9,499,000			8,067,000			27,680,000			24,490,000
Income from operations		4,395,000			1,406,000			13,880,000			6,555,000
Interest (income), net		(16,000		)	(9,000		)	(56,000		)	(24,000		)
Income from continuing operations before income taxes		4,411,000			1,415,000			13,936,000			6,579,000
Provision for income taxes		1,680,000			560,000			5,380,000			2,624,000
Income from continuing operations		2,731,000			855,000			8,556,000			3,955,000
Income from discontinued operations		—			—			—			129,000
Net income		$	2,731,000		$	855,000		$	8,556,000		$	4,084,000
Basic and diluted EPS:
Continuing operations		$	.64		$	.20		$	2.01		$	.93
Discontinued operations		—			—			—			.03
Total		$	.64		$	.20		$	2.01		$	.96
Shares used to compute EPS:
Basic		4,252,403			4,244,794			4,247,838			4,244,794
Diluted		4,261,485			4,251,235			4,254,968			4,246,941
Cash dividends per share		$	.30		$	.30		$	.90		$	.90

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

4

Unaudited

 

 

 

International Aluminum Corporation

and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows

 

 

		Nine Months Ended
		March  31,
		2005			2004
Cash flows from operating activities:
Net income		$	8,556,000		$	4,084,000
Adjustments for noncash transactions:
Depreciation and amortization		4,730,000			4,930,000
Changes in assets and liabilities:
Accounts receivable		(2,952,000		)	270,000
Inventories		(12,285,000		)	(3,372,000		)
Prepaid expenses and other		(693,000		)	(86,000		)
Accounts payable		1,686,000			1,731,000
Accrued liabilities		1,642,000			2,182,000
Income taxes payable		(1,003,000		)	(280,000		)
Net cash (used in) provided by operating activities		(319,000		)	9,459,000
Cash flows from investing activities:
Capital expenditures		(1,970,000		)	(3,031,000		)
Proceeds from sales of capital assets		153,000			180,000
Net cash used in investing activities		(1,817,000		)	(2,851,000		)
Cash flows from financing activities:
Dividends paid to shareholders		(3,826,000		)	(3,820,000		)
Exercise of stock options		388,000			—
Net repayments under lines of credit		(223,000		)	(126,000		)
Net cash used in financing activities		(3,661,000		)	(3,946,000		)
Effect of exchange rate changes		40,000			13,000
Net change in cash and cash equivalents		(5,757,000		)	2,675,000
Cash and cash equivalents at beginning of period		15,964,000			12,570,000
Cash and cash equivalents at end of period		$	10,207,000		$	15,245,000

 

 

 

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 for fair statement, in all material respects, of its financial position as of March 31, 2005 and June 30, 2004, and the results of operations and the cash flows for the nine-month periods ended March 31, 2005 and 2004.  The results of operations for the nine-month period ended March 31, 2005 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 in any material respect. 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 March 31, 2005 and 2004 was $2,662,000 and $744,000, respectively.  Comprehensive income for the nine months ended March 31, 2005 and 2004 was $9,565,000 and $4,344,000, respectively.  Other comprehensive income includes foreign currency translation adjustments recorded directly in shareholders’ equity.

 

 

Balance Sheet Components		March 31, 2005			June 30, 2004
Inventories, lower of FIFO Cost or Market
Raw materials		$	38,379,000		$	26,790,000
Work in process		102,000			553,000
Finished goods		6,290,000			4,943,000
		$	44,771,000		$	32,286,000
Shareholders’ Equity
Common stock		$	4,783,000		$	4,765,000
Paid-in capital		4,493,000			4,123,000
Retained earnings		105,870,000			101,140,000
Accumulated other comprehensive income		2,187,000			1,178,000
		$	117,333,000		$	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 during this period.  Diluted earnings per share is computed by dividing net income by the weighted-average common shares and potentially dilutive common equivalent shares outstanding, determined as follows:

 

		Three Months Ended				Nine Months Ended
		March 31,				March 31,
		2005		2004		2005		2004
Weighted-average shares outstanding used to compute basic EPS		4,252,403		4,244,794		4,247,838		4,244,794
Incremental shares issuable upon the exercise of stock options		9,082		6,441		7,130		2,147
Shares used to compute diluted EPS		4,261,485		4,251,235		4,254,968		4,246,941

 

    Incremental shares issuable upon the assumed exercise of outstanding stock options are computed using the average market price of common stock during the period. The incremental shares for the third quarter of 2004 and nine months of 2005 and 2004 exclude 13,500, 11,500 and 76,500 stock option shares, respectively, because their inclusion would be anti-dilutive, since the option price was greater than the Company’s average common stock price for these periods.

 

 

 

Stock Based Compensation

 

    The Company granted stock options for the purchase of common stock to certain executive and managerial employees under the Company’s 2001 Stock Option Plan.  The options have an exercise price equal to the market price of the stock on the date of grant, a term of ten years and become exercisable in equal installments over a five-year period from the date of grant so long as the employees remain in the continuous employ of the company.  The Company applies Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations in accounting for stock options granted under 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.  Since all outstanding stock awards are fixed stock options with no intrinsic value at the date of grant and were fully vested before the income statement periods presented, there would have been no 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 Company’s operations are organized and managed by product type.  The Company currently operates in three segments of the building products industry:  Commercial Products, Residential Products and Aluminum Extrusions. Eliminations include all significant intercompany transactions and accounts. The Company evaluates performance based on operating income or loss before any allocation of corporate overhead, interest or taxes.

 

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

 

 

		Three Months Ended						Nine Months Ended
		March 31,						March 31,
Net Sales:		2005			2004			2005			2004
Commercial		$	31,390		$	23,817		$	93,251		$	71,984
Residential		17,290			15,403			53,657			47,561
Aluminum Extrusion		28,992			22,259			85,809			70,524
Total Segments		77,672			61,479			232,717			190,069
Eliminations		(15,584		)	(11,415		)	(48,143		)	(36,351		)
Total		$	62,088		$	50,064		$	184,574		$	153,718

 

 

 

		Three Months Ended						Nine Months Ended
		March 31,						March 31,
Operating Income:		2005			2004			2005			2004
Commercial		$	3,573		$	1,231		$	10,777		$	4,775
Residential		2,874			2,336			9,001			7,998
Aluminum Extrusion		361			(290		)	1,212			471
Total Segments		6,808			3,277			20,990			13,244
Eliminations		(161		)	308			(41		)	(46		)
Corporate		(2,252		)	(2,179		)	(7,069		)	(6,643		)
Total		$	4,395		$	1,406		$	13,880		$	6,555
		Mar. 31,			June 30,
Total Assets:		2005			2004
Commercial		$	67,734		$	60,922
Residential		24,762			27,105
Aluminum Extrusion		44,299			38,130
Total Segments		136,795			126,157
Corporate		13,562			15,725
Total		$	150,357		$	141,882

 

8

 

Unaudited

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 was also classified as discontinued operations.  The Company does not anticipate any further activity with respect to International Window-Colorado in the future.

 

Recent Accounting Pronouncements

 

    In March 2005, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47).  FIN 47 is an interpretation of FASB Statement No. 143, “Accounting for Asset Retirement Obligations” and clarifies (i) that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated and (ii) when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  Upon adoption in fiscal year 2006 we do not anticipate that FIN 47 will have a material impact on our financial statements.

 

    In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment”, which replaced SFAS No. 123 and superseded APB Opinion No. 25. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values in the first interim or annual period beginning after June 15, 2005.  The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition.  As previously disclosed in the Stock Based Compensation note, we do not believe the adoption of SFAS 123R will have an impact on our financial statements.

 

    The American Jobs Creation Act of 2004 (the “Act”) was signed into law on October 22, 2004.  The Act contains numerous changes to U.S. tax law, both temporary and permanent in nature, including a potential tax deduction with respect to certain qualified domestic manufacturing activities, changes in the carryback and carryforward utilization periods for foreign tax credits and a dividend received deduction with respect to accumulated income earned abroad. The new law could potentially have an impact on our effective tax rate, future taxable income and cash and tax planning strategies, amongst other affects. In December 2004, the FASB issued Staff Position No. 109-1 (“FSP 109-1”), Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 and Staff Position No. 109-2 (“FSP 109-2”), Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. FSP 109-1 clarifies that the manufacturer’s tax deduction provided for under the AJCA should be accounted for as a special deduction in accordance with SFAS No. 109 and not as a tax rate reduction.  FSP 109-2 provides accounting and disclosure guidance for the repatriation of certain foreign earnings to a U.S. taxpayer as provided for in the AJCA.  We are currently in the process of evaluating the impact that the Act will have on our financial position and results of operations.

 

9

 

Unaudited

 

    In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (SFAS 151), which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material.  SFAS 151 will be effective for inventory costs incurred beginning July 1, 2005.  We do not believe the adoption of SFAS 151 will have a material impact on our financial statements.

 

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

 

Results of Operations

 

General Overview

 

    Net sales increased $12,024,000 or 24.0% for the quarter ended March 31, 2005 and $30,856,000 or 20.1% for the nine months then ended when compared with the respective prior year periods.  Cost of sales as a percentage of net sales was 77.6% for the quarter ended March 31, 2005 versus 81.1% for the same period last year and for the nine-month period was 77.5% compared to 79.8% for the same period last year.  Selling, general and administrative expenses increased $1,432,000 for the current quarter and $3,190,000 for the nine months compared to the same periods last year, although as a percentage of net sales decreased to 15.3% for the quarter and 15.0% year to date compared to 16.1% and 15.9% for the comparable periods last year.

 

    The Company includes product costs, inbound freight, purchasing, receiving, inspection, internal transfer, warehousing and other costs of the Company’s distribution network in cost of goods sold, thereby reducing gross profit by these amounts.  Cost of sales and gross profit as a percent of sales for the Company may not be comparable to those of other companies in our industry since other entities may record purchasing, warehousing and distribution costs as selling, general and administrative expense.

 

    The contribution to these results by each segment is discussed below.

 

Commercial Products

 

    Sales of the Commercial Products Group increased $7,601,000 or 32.2% for the quarter and $21,540,000 or 30.2% for the nine months compared to the same periods last year.  These gains reflect increased commercial construction activity together with increased sales prices and expanded geographic market penetration.  Cost of sales as a percentage of sales was 76.3% for the quarter ended March 31, 2005 versus 81.2% for the same period last year and for the nine-month period was 76.6% compared to 79.8% for the same period last year. Although it experienced higher aluminum costs, this group achieved decreased material, labor and overhead cost percentages during the quarter and nine months compared to the same periods last year mainly due to improved margins generated as a result of the substantially higher sales volume coupled with increased prices. Selling, general and administrative expenses increased $616,000 for the current quarter and $1,231,000 for the year compared to the same periods last year, although as a percentage of sales decreased to 12.3% for the quarter and 11.8% year to date compared to 13.6% for each of the comparable periods last year. These increased expenses reflect additional employment and sales representation costs of $565,000 for the quarter and $1,334,000 for the year related to the increase in sales and achievement of incentive compensation targets.  Partially offsetting the increase in expenses during the current year was $27,000 of income relating to retrospective workers’ compensation and general liability policies for the nine-month period compared to additional expense of $120,000 incurred in the comparable period of the prior year.

 

10

 

Unaudited

Residential Products

 

    Sales of the Residential Products Group increased $1,922,000 or 12.6% for the quarter and $6,149,000 or 13.0% for the nine months compared to the same periods last year.  Consumer demand continues to stimulate new home construction, resales of existing homes and home improvement spending in the areas served by this group.  New product development and more aggressive promotional programs have also contributed to the increase.  Cost of sales as a percentage of sales was 69.6% for the quarter ended March 31, 2005 versus 71.2% for the same period last year and for the nine-month period was 70.2% compared to 70.6% for the same period last year. Year-to-date material, labor and overhead cost percentages remained virtually unchanged from the prior year period. Selling, general and administrative expenses increased $285,000 for the current quarter and $982,000 for the nine months compared to the same periods last year, and as a percentage of sales increased slightly to 13.8% for the quarter and 13.0% year-to-date compared to 13.6% and 12.6% for the comparable periods last year. These increases reflect increased costs of $247,000 for the current quarter and $578,000 year-to-date for current year general liability insurance, and retrospective workers’ compensation and general liability policies.  The current year to date also includes an increase of $388,000 for employment and advertising costs.

 

Aluminum Extrusion

 

    Sales of the Aluminum Extrusion Group increased $2,501,000 or 22.3% for the quarter and $3,167,000 or 9.0% for the nine months compared to the same periods last year.  During the current quarter, the group benefited from an increase in selling prices along with a 3.0% increase in net tonnage shipped. However, for the nine-month period, increased selling prices were offset by a 4.2% decrease in net tonnage shipped to outside customers, particularly in the area served by our Texas facility.  Cost of sales as a percentage of sales was 95.3% for the quarter ended March 31, 2005 compared to 98.8% for the same period last year and for the nine-month period was 95.5% versus 96.4% for the comparable period last year.  Due to the highly competitive marketplace, selling prices were increased directly in line with the increased cost of aluminum, resulting in increased material cost percentages and decreased labor and overhead cost percentages for the current three and nine-month periods. Additionally, labor and overhead production efficiencies gained from higher total tonnage output, including intercompany customers, decreased labor and overhead cost percentages for the same periods.  These gains more than offset the increased material cost percentages.  Selling, general and administrative expenses increased $458,000 for the current quarter and $551,000 for the year compared to the same periods last year, and as a percentage of sales increased to 3.5% for the quarter and 3.0% year to date compared to 2.5% and 2.9% for the comparable periods last year.  These increases reflect increased costs of $377,000 for the current quarter and $551,000 year to date for retrospective workers’ compensation policies.

 

Corporate

 

    General and administrative expenses increased $73,000 for the current quarter and $426,000 for the nine months compared to the same periods last year, although as a percentage of consolidated net sales decreased to 3.6% for the quarter and 3.8% year to date compared to 4.4% and 4.3% for the comparable periods last year.  The quarterly and nine-month increases include charges of $310,000 and $520,000, respectively, for costs related to complying with the internal control requirements of the Sarbanes-Oxley legislation.  Additional costs of $140,000 were incurred during the current nine-month period primarily related to higher employment expense.  Partially offsetting these costs was a one-time recovery of $265,000 for current and prior year legal fees that was recorded in the current quarter as the result of a settlement.

 

11

 

Unaudited

Income Taxes

 

    The effective tax rate for the nine months ended March 31, 2005 was 38.6% as compared to 39.9% in the comparable period of the prior year.

 

Liquidity and Capital Resources

 

    Working capital at March 31, 2005 stood at $75,677,000, an increase of $7,817,000 from June 30, 2004.  The ratio of current assets to current liabilities was 3.9 as compared to 3.8 at the beginning of the year.

 

    The Company projects net capital expenditures of $5,900,000 for fiscal 2005 for expansion of production capacity, as well as normal recurring capitalized replacement items.  The Company anticipates financing these expenditures through internal cash flow and cash reserves.  The Company’s lines of credit remain unchanged from those described in the June 30, 2004 Annual Report to Shareholders.

 

Recent Accounting Pronouncements

 

    In March 2005, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47).  FIN 47 is an interpretation of FASB Statement No. 143, “Accounting for Asset Retirement Obligations” and clarifies (i) that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated and (ii) when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  Upon adoption in fiscal year 2006 we do not anticipate that FIN 47 will have a material impact on our financial statements.

 

    In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment”, which replaced SFAS No. 123 and superseded APB Opinion No. 25. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values in the first interim or annual period beginning after June 15, 2005. The pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial statement recognition.  As previously disclosed in the Stock Based Compensation note, we do not believe the adoption of SFAS 123R will have an impact on our financial statements.

 

    The American Jobs Creation Act of 2004 (the “Act”) was signed into law on October 22, 2004.  The Act contains numerous changes to U.S. tax law, both temporary and permanent in nature, including a potential tax deduction with respect to certain qualified domestic manufacturing activities, changes in the carryback and carryforward utilization periods for foreign tax credits and a dividend received deduction with respect to accumulated income earned abroad. The new law could potentially have an impact on our effective tax rate, future taxable income and cash and tax planning strategies, amongst other affects. In December 2004, the FASB issued Staff Position No. 109-1 (“FSP 109-1”), Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 and Staff Position No. 109-2 (“FSP 109-2”), Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. FSP 109-1 clarifies that the manufacturer’s tax deduction provided for under the AJCA should be accounted for as a special deduction in accordance with SFAS No. 109 and not as a tax rate reduction.  FSP 109-2 provides accounting and disclosure guidance for the repatriation of certain foreign earnings to a U.S. taxpayer as provided for in the AJCA.  We are currently in the process of evaluating the impact that the Act will have on our financial position and results of operations.

 

12

 

Unaudited

 

 

    In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (SFAS 151), which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material.  SFAS 151 will be effective for inventory costs incurred beginning July 1, 2005.  We do not believe the adoption of SFAS 151 will have a material impact on our financial statements.

 

 

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 and commodity pricing may impact our earnings.  Our foreign exchange exposure is related to activities associated with our Canadian subsidiaries.  We do not attempt to manage these risks by entering into forward exchange contracts, forward commodity delivery agreements or otherwise.

 

 

 

Item 4.  Controls and Procedures.

 

    We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our 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 our management, including our Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.

 

    In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and management necessarily is required to apply its judgment in weighting the costs and benefits of possible new or different controls and procedures.  Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud within the company have been detected.

 

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Unaudited

 

    As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report we carried out, under the supervision and with the participation of our CEO, COO and CFO, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, our CEO, COO and CFO concluded that, subject to the inherent limitations noted above, our disclosure controls and procedures were effective to provide reasonable assurance that material Company information is recorded, processed, summarized and reported to our management on a timely basis to ensure the quality and timeliness of our public disclosures.

 

    In our evaluation above, we identified no changes during the period covered by this report that, individually or in the aggregate, materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.  We may make changes in our internal control processes from time to time in the future.

 

    Section 404 of the Sarbanes-Oxley Act of 2002 and related SEC rules will require us to include an internal control report with our 2005 Annual Report on Form 10-K for the fiscal year ending June 30, 2005.  The internal control report must assert, among other things, (i) management’s responsibilities to establish and maintain adequate internal control over financial reporting and (ii) management’s assessment of the effectiveness of this internal control as of the end of the most recent fiscal year. Our independent registered public accounting firm will be required to audit, and report on, these assertions. Our management has adopted a detailed project work plan to assess the adequacy of our internal controls, remediate any control weaknesses that may be identified and validate through testing that controls are functioning as documented.

 

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PART II - OTHER INFORMATION

 

 

 

Item 6.  Exhibits.

 

(a)                                  Exhibits:

 

31.1                   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2                   Certification of the Chief 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

 

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 Operating Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.3                   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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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 thereunto duly authorized.

 

		International Aluminum Corporation
		(Registrant)
Date:	May 11, 2005	MITCHELL K. FOGELMAN
		Mitchell K. Fogelman
		Senior Vice President — Finance
		(Principal Financial Officer)
Date:	May 11, 2005	MICHAEL J. NORRING
		Michael J. Norring
		Controller
		(Principal Accounting Officer)

 

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INDEX TO EXHIBITS

 

 

 

 

 

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