SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
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For quarter ended December 31, 2002 |
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Commission File Number 1-7256 |
INTERNATIONAL ALUMINUM CORPORATION
(Exact name of Registrant as specified in its charter)
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California |
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95-2385235 |
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(State of incorporation) |
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(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
At February 3, 2003 there were 4,244,794 shares of Common Stock outstanding.
INTERNATIONAL ALUMINUM CORPORATION
AND SUBSIDIARIES
INDEX
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Consolidated Balance Sheets — December 31, 2002 and June 30, 2002 |
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Consolidated Statements of Income — three and six month periods ended December 31, 2002 and 2001 |
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Consolidated Statements of Cash Flows — six months ended December 31, 2002 and 2001 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4(c). Submission of Matters to a Vote of Security Holders |
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Exhibit |
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99. |
Certifications 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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2
INTERNATIONAL ALUMINUM CORPORATION
AND SUBSIDIARIES
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Unaudited |
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Audited |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
9,513,000 |
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$ |
3,495,000 |
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Accounts receivable, net |
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30,606,000 |
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31,811,000 |
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Inventories |
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31,976,000 |
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33,401,000 |
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Prepaid expenses and deposits |
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3,931,000 |
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3,665,000 |
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Future income tax benefits |
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1,661,000 |
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1,675,000 |
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Total current assets |
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77,687,000 |
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74,047,000 |
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Property, plant and equipment, at cost |
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119,072,000 |
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122,759,000 |
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Accumulated depreciation |
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(65,851,000 |
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(65,466,000 |
) |
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Net property, plant and equipment |
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53,221,000 |
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57,293,000 |
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Other assets: |
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Costs in excess of net assets of purchased businesses |
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1,016,000 |
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1,030,000 |
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Other |
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423,000 |
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354,000 |
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Total other assets |
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1,439,000 |
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1,384,000 |
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$ |
132,347,000 |
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$ |
132,724,000 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
7,778,000 |
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$ |
6,575,000 |
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Accrued liabilities |
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8,496,000 |
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8,295,000 |
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Advances payable to banks |
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840,000 |
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1,034,000 |
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Income taxes payable |
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— |
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86,000 |
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Total current liabilities |
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17,114,000 |
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15,990,000 |
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Deferred income taxes |
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5,929,000 |
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5,929,000 |
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Total liabilities |
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23,043,000 |
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21,919,000 |
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Shareholders’ equity |
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109,304,000 |
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110,805,000 |
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$ |
132,347,000 |
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$ |
132,724,000 |
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See accompanying notes to consolidated financial statements.
3
Unaudited
INTERNATIONAL ALUMINUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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Three
Months Ended |
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Six Months
Ended |
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2002 |
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2001 |
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2002 |
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2001 |
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Net sales |
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$ |
46,229,000 |
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$ |
47,302,000 |
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$ |
95,957,000 |
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$ |
100,566,000 |
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Cost of sales |
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39,486,000 |
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39,748,000 |
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79,852,000 |
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83,339,000 |
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Gross profit |
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6,743,000 |
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7,554,000 |
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16,105,000 |
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17,227,000 |
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Selling, gen. and admin. expenses |
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5,853,000 |
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8,649,000 |
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14,107,000 |
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16,599,000 |
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Income (loss) from operations |
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890,000 |
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(1,095,000 |
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1,998,000 |
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628,000 |
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Interest (income) expense, net |
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4,000 |
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8,000 |
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3,000 |
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(13,000 |
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Income (loss) from continuing operations before income taxes |
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886,000 |
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(1,103,000 |
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1,995,000 |
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641,000 |
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Provision for income taxes |
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334,000 |
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(381,000 |
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744,000 |
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255,000 |
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Income (loss) from continuing operations |
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552,000 |
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(722,000 |
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1,251,000 |
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386,000 |
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Income (loss) from discontinued operations |
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110,000 |
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(889,000 |
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110,000 |
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(1,065,000 |
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Cumulative effect of accounting change |
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— |
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— |
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— |
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(7,935,000 |
) |
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Net income (loss) |
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$ |
662,000 |
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$ |
(1,611,000 |
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$ |
1,361,000 |
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$ |
(8,614,000 |
) |
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Basic and diluted EPS: |
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Continuing operations |
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$ |
.13 |
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$ |
(.17 |
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$ |
.29 |
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$ |
.09 |
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Discontinued operations |
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.03 |
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(.21 |
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.03 |
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(.25 |
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Cumulative effect of accounting change |
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— |
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— |
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— |
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(1.87 |
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Total |
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$ |
.16 |
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$ |
(.38 |
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$ |
.32 |
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$ |
(2.03 |
) |
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Shares used to compute EPS: |
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Basic and Diluted |
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4,244,794 |
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4,244,794 |
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4,244,794 |
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4,244,794 |
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Cash dividends per share |
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$ |
.30 |
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$ |
.30 |
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$ |
.60 |
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$ |
.60 |
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See accompanying notes to consolidated financial statements.
4
Unaudited
INTERNATIONAL ALUMINUM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months
Ended |
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2002 |
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2001 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
1,361,000 |
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$ |
(8,614,000 |
) |
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Adjustments for noncash transactions: |
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Depreciation and amortization |
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3,527,000 |
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3,575,000 |
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Change in deferred income taxes |
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— |
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24,000 |
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Gain on sale of fixed assets |
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— |
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(631,000 |
) |
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Gain on discontinued operations |
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(110,000 |
) |
— |
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Cumulative effect of accounting change |
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— |
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7,935,000 |
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Changes in assets and liabilities: |
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Receivables |
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1,134,000 |
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327,000 |
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Inventories |
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666,000 |
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404,000 |
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Prepaid expenses and deposits |
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(339,000 |
) |
(423,000 |
) |
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Accounts payable |
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1,251,000 |
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(686,000 |
) |
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Accrued liabilities |
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201,000 |
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828,000 |
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Income taxes payable |
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(83,000 |
) |
(516,000 |
) |
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Net cash provided by operating activities |
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7,608,000 |
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2,223,000 |
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Cash flows from investing activities: |
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Capital expenditures |
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(1,582,000 |
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(6,674,000 |
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Proceeds from sales of capital assets |
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2,710,000 |
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1,726,000 |
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Net cash provided by (used in) investing activities |
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1,128,000 |
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(4,948,000 |
) |
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Cash flows from financing activities: |
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Dividends paid to shareholders |
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(2,547,000 |
) |
(2,547,000 |
) |
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Net borrowing under lines of credit |
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(156,000 |
) |
697,000 |
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Net cash used in financing activities |
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(2,703,000 |
) |
(1,850,000 |
) |
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Effect of exchange rate changes |
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(15,000 |
) |
(7,000 |
) |
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Net change in cash and cash equivalents |
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6,018,000 |
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(4,582,000 |
) |
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Cash and cash equivalents at beginning of period |
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3,495,000 |
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5,915,000 |
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Cash and cash equivalents at end of period |
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$ |
9,513,000 |
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$ |
1,333,000 |
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See accompanying notes to consolidated financial statements.
5
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, 2002 and June 30, 2002, and the results of operations for the three and six month periods ended December 31, 2002 and 2001 and the cash flows for the six month periods ended December 31, 2002 and 2001. The results of operations for the three and six month periods ended December 31, 2002 and 2001 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, 2002 and 2001 was $669,000 and $(1,674,000), respectively. Comprehensive income for the six months ended December 31, 2002 and 2001 was $1,045,000 and $(8,883,000), respectively. Other comprehensive income includes foreign currency translation adjustments recorded directly in shareholders’ equity.
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Balance Sheet Components |
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Dec. 31, 2002 |
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June 30, 2002 |
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Inventories, lower of FIFO Cost or Market |
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Raw materials |
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$ |
27,663,000 |
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$ |
28,576,000 |
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Work in process |
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334,000 |
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560,000 |
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Finished goods |
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3,979,000 |
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4,265,000 |
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$ |
31,976,000 |
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$ |
33,401,000 |
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Shareholders’ Equity |
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Common stock |
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$ |
4,765,000 |
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$ |
4,765,000 |
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Paid-in capital |
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4,123,000 |
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4,123,000 |
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Retained earnings |
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100,755,000 |
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101,941,000 |
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Accumulated other comprehensive income |
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(339,000 |
) |
(24,000 |
) |
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$ |
109,304,000 |
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$ |
110,805,000 |
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6
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.
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Net Sales: |
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Three
Months Ended |
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Six Months
Ended |
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2002 |
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2001 |
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2002 |
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2001 |
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Commercial |
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$ |
24,301 |
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$ |
28,361 |
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$ |
49,872 |
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$ |
57,997 |
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Residential |
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12,909 |
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11,569 |
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26,454 |
|
25,177 |
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Aluminum Extrusion |
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21,327 |
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21,034 |
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42,441 |
|
46,739 |
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Total Segments |
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58,537 |
|
60,964 |
|
118,767 |
|
129,913 |
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Eliminations |
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(12,308 |
) |
(13,662 |
) |
(22,810 |
) |
(29,347 |
) |
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Total |
|
$ |
46,229 |
|
$ |
47,302 |
|
$ |
95,957 |
|
$ |
100,566 |
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Operating Income (Loss): |
|
Three Months Ended |
|
Six Months Ended |
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|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
||||
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Commercial |
|
$ |
1,203 |
|
$ |
2,856 |
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$ |
3,636 |
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$ |
5,347 |
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Residential |
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1,602 |
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(755 |
) |
2,426 |
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(626 |
) |
||||
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Aluminum Extrusion |
|
496 |
|
(719 |
) |
375 |
|
(376 |
) |
||||
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Total Segments |
|
3,301 |
|
1,382 |
|
6,437 |
|
4,345 |
|
||||
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Eliminations |
|
(559 |
) |
(22 |
) |
(619 |
) |
134 |
|
||||
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Corporate |
|
(1,852 |
) |
(2,455 |
) |
(3,820 |
) |
(3,851 |
)* |
||||
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Total |
|
$ |
890 |
|
$ |
(1,095 |
) |
$ |
1,998 |
|
$ |
628 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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Total Assets: |
|
Dec. 31, |
|
June 30, |
|
|
|
|
|
||||
|
Commercial |
|
$ |
61,943 |
|
$ |
63,537 |
|
|
|
|
|
||
|
Residential |
|
24,657 |
|
28,776 |
|
|
|
|
|
||||
|
Aluminum Extrusion |
|
33,615 |
|
34,915 |
|
|
|
|
|
||||
|
Total Segments |
|
120,215 |
|
127,228 |
|
|
|
|
|
||||
|
Corporate |
|
12,132 |
|
5,496 |
|
|
|
|
|
||||
|
Total |
|
$ |
132,347 |
|
$ |
132,724 |
|
|
|
|
|
||
*Net of $631 gain on sale of former operating facility
7
Unaudited
During the second quarter of fiscal year 2002, the Company announced the closure of Maestro Products, its wood 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 Maestro to their estimated net realizable value and reported Maestro’s results as discontinued operations. Due primarily to favorable results experienced in selling Maestro’s facilities, the Company recognized a net gain in fiscal year 2003 which has also been classified as discontinued operations. The Company does not anticipate any further activity with respect to Maestro in the future.
The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” effective July 1, 2001, which required that existing goodwill be reviewed for impairment using a revised methodology. The Company completed the transitional impairment test and determined that a $7,935,000 non-cash transition charge was required to reduce goodwill. The transition charge is reflected as a cumulative effect of an accounting change effective July 1, 2001 and the previously reported results for the quarter ended September 30, 2001 were retroactively adjusted.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Significant Changes in Results of Operations
Net sales decreased by $1,073,000 or 2.3% for the quarter ended December 31, 2002 and by $4,609,000 or 4.6% for the six months then ended when compared with the respective prior year periods. Sales of the Commercial Products Group declined by $4,163,000 or 14.7% for the quarter and $8,338,000 or 14.4% for the six months compared to the same periods last year, reflective of the continued soft commercial construction market coupled with increased competitive conditions. Partially offsetting these decreases are increases by the Aluminum Extrusion Group of $1,555,000 or 20.2% for the quarter and $2,120,000 or 11.8% for the six months compared to the same periods last year. Although net tonnage shipped, particularly in the area served by our Texas facility, increased by 27.3% for the quarter and 19.1% year to date when compared to the same periods last year, there is continued pressure on pricing. Sales of Residential Products increased by $1,535,000 or 13.5% for the quarter and $1,609,000 or 6.5% for the six months compared to the same periods last year. These increases reflect continued success in replacing sales lost due to last year’s trade union strike at our South Gate, California facility as well as volume formerly contributed by large home improvement centers. During the prior year the Residential subsidiaries discontinued being the stocking supplier for these stores which we had supplied on a regional basis. Last year sales to large home improvement centers amounted to 15.6% and 13.3% of sales for the quarter and six month periods compared to only 2.3% and 2.5% for the respective current year periods. While encouraged by the overall performance of the Residential Products Group during the first half of fiscal year 2003, the Company’s Colorado facility was unable to generate sufficient sales to operate profitably. Management continues to pursue new strategies in order to increase revenues at this location.
8
Unaudited
Cost of sales as a percentage of net sales was 85.4% for the quarter ended December 31, 2002 as opposed to 84.0% for the same period last year and for the six-month period was 83.2% compared to 82.9% for the same period last year. These increases are mainly due to increased labor and overhead cost percentages in the Commercial Products Group resulting from normal production costs being spread over significantly diminished sales coupled with increased costs associated with the start up of two new horizontal paint lines. In addition, margins were impacted by a more competitive price structure as well as higher than expected material costs for some major products incurred at our U. S. Aluminum-Texas facility during the current quarter. Although showing signs of improvement in the current quarter, the Aluminum Extrusion Group incurred higher labor cost percentages for the current year to date period when compared with the same period last year as the result of decreased unit sales prices. Partially offsetting these increases were decreased material, labor and overhead costs in the Residential Products Group for the current quarter and the six-month period compared to the prior year. This is reflective of their continued recovery from prior year’s strike related inefficiencies.
Selling, general and administrative expenses decreased by $2,796,000 or 32.3% from the prior year quarter and by $2,492,000 or 15.0% for the six-month period. Excluding a $631,000 gain on the sale of a former operating facility which was recognized during the first quarter last year, this six-month comparison would have shown a net decrease of $3,299,000 or 19.1%. A large portion of the decrease in selling, general and administrative expenses was due to the Company recording income relating to recoveries on retrospective workers’ compensation policies totaling $1,134,000 and $716,000 for the three and six month periods ended December 31, 2002, respectively, compared to an expense of $78,000 and $421,000 being recorded in the comparable periods during fiscal year 2002. The Company anticipates receiving refunds of previously expensed premiums due to changes in actual and projected claim activity. The decrease also reflects reduced employment and advertising costs in the current year as well as the prior year containing some additional costs for strike related security and legal services.
The effective tax rate for the six months ended December 31, 2002 was 37.3% whereas the comparable period of the prior year was 39.9%, primarily due to the impact of state income taxes.
Working capital at December 31, 2002 stood at $60,573,000, an increase of $2,516,000 from June 30, 2002. The ratio of current assets to current liabilities is currently 4.5 as compared to 4.6 as of the beginning of the year.
The Company’s projected net capital expenditures for fiscal 2003 and related financing remain unchanged from those described in the June 30, 2002 Annual Report. The Company’s domestic line of credit remains unchanged from that described in the June 30, 2002 Annual Report to Shareholders.
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Recent Accounting Pronouncements
In January 2003, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. As the Company has elected not to change to the fair value based method of accounting for stock-based employee compensation, the adoption of SFAS No. 148 will not have an impact upon our financial condition or results of operations.
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.
Controls and Procedures
Within 90 days prior to the filing date of this report, a review was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that review, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the completion of their review.
INTERNATIONAL ALUMINUM CORPORATION
AND SUBSIDIARIES
Item 4(c). Submission of Matters to a Vote of Security Holders
On October 31, 2002, the Company held its 2002 Annual Shareholders Meeting. Shareholders voted proxies representing 4,013,953 shares, which was 94.6% of the 4,244,794 shares outstanding on the record date. The proposed slate of directors was elected with 3,953,586 shares and the selected independent accountants were ratified with 3,981,152 shares.
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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 thereunto duly authorized.
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International Aluminum Corporation |
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(Registrant) |
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Date: |
February 13, 2003 |
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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: |
February 13, 2003 |
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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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I, Cornelius C. Vanderstar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International Aluminum Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date: February 12, 2003 |
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CORNELIUS C. VANDERSTAR |
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Cornelius C. Vanderstar |
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Chairman of the Board and |
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Chief Executive Officer |
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CERTIFICATION
I, Mitchell K. Fogelman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International Aluminum Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date: February 12, 2003 |
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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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and Chief Financial Officer |
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