Unaudited
International Aluminum Corporation
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 the Company’s financial position as of December 31, 2006 and June 30, 2006, and the results of operations for the three and six months ended December 31, 2006 and 2005, and the cash flows for the six months ended December 31, 2006 and 2005. The results of operations for the six months ended December 31, 2006 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 December 31, 2006 and 2005 was $3,037,000 and $3,547,000, respectively. Comprehensive income for the six months ended December 31, 2006 and 2005 was $9,579,000 and $7,724,000, respectively. Other comprehensive income includes foreign currency translation adjustments recorded directly in shareholders’ equity.
Balance Sheet Components | | Dec. 31, 2006 | | June 30, 2006 | |
| | | | | |
Inventories, lower of FIFO cost or market | | | | | |
Raw materials | | $ | 41,529,000 | | $ | 39,531,000 | |
Work in process | | 1,414,000 | | 898,000 | |
Finished goods | | 6,186,000 | | 6,488,000 | |
| | $ | 49,129,000 | | $ | 46,917,000 | |
Shareholders’ Equity | | | | | |
Common stock | | $ | 4,829,000 | | $ | 4,826,000 | |
Paid-in capital | | 5,728,000 | | 5,639,000 | |
Retained earnings | | 127,615,000 | | 120,060,000 | |
Accumulated other comprehensive income | | 2,572,000 | | 3,132,000 | |
| | $ | 140,744,000 | | $ | 133,657,000 | |
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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 shares and potential common shares outstanding, determined as follows:
| | Three Months Ended December 31, | |
| | 2006 | | 2005 | |
Numerator: | | | | | |
Net Income | | $ | 3,621,000 | | $ | 3,578,000 | |
| | | | | |
Denominator: | | | | | |
Weighted-average shares outstanding used to compute basic EPS | | 4,306,104 | | 4,295,631 | |
| | | | | |
Incremental shares issuable upon the exercise of stock options | | 1,308 | | 1,696 | |
| | | | | |
Shares used to compute diluted EPS | | 4,307,412 | | 4,297,327 | |
| | | | | |
Basic and Diluted net earnings per share | | $ | .84 | | $ | .83 | |
| | Six Months Ended December 31, | |
| | 2006 | | 2005 | |
Numerator: | | | | | |
Net Income | | $ | 10,139,000 | | $ | 7,165,000 | |
| | | | | |
Denominator: | | | | | |
Weighted-average shares outstanding used to compute basic EPS | | 4,305,775 | | 4,285,074 | |
| | | | | |
Incremental shares issuable upon the exercise of stock options | | 1,303 | | 3,288 | |
| | | | | |
Shares used to compute diluted EPS | | 4,307,078 | | 4,288,362 | |
| | | | | |
Basic and Diluted net earnings per share | | $ | 2.35 | | $ | 1.67 | |
Incremental shares issuable upon the assumed exercise of outstanding stock options are computed using the average market price during the related period.
Income Taxes
The effective tax rate for the six months ended December 31, 2006 was 38.2% compared to 33.9% in the comparable period of the prior year. The increase was attributable to a combination of factors. The current year was impacted by a new margin tax resulting from recent enactment of Texas state tax legislation. The legislation repealed the franchise tax previously based on capital or earned surplus and imposes a tax calculated on taxable margin and is now accounted for as an income tax under SFAS 109. The prior year period benefited from a decrease of Federal income tax reserves resulting from settlement of an IRS Appeals case.
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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 Extrusion. Eliminations include all significant inter-company 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 is presented in thousands of dollars.
| | Three Months Ended | | Six Months Ended | |
| | December 31, | | December 31, | |
Net Sales: | | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | |
Commercial | | $ | 42,776 | | $ | 32,726 | | $ | 85,134 | | $ | 63,912 | |
Residential | | 17,902 | | 21,457 | | 38,738 | | 44,138 | |
Aluminum Extrusion | | 34,676 | | 28,727 | | 71,787 | | 58,577 | |
Total Segments | | 95,354 | | 82,910 | | 195,659 | | 166,627 | |
Eliminations | | (19,230 | ) | (17,180 | ) | (38,913 | ) | (32,640 | ) |
Total | | $ | 76,124 | | $ | 65,730 | | $ | 156,746 | | $ | 133,987 | |
| | Three Months Ended | | Six Months Ended | |
| | December 31, | | December 31, | |
Operating Income: | | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | |
Commercial | | $ | 5,903 | | $ | 3,807 | | $ | 13,447 | | $ | 7,727 | |
Residential | | 1,099 | | 3,731 | | 4,737 | | 8,255 | |
Aluminum Extrusion | | 705 | | (391 | ) | 2,225 | | (709 | ) |
Total Segments | | 7,707 | | 7,147 | | 20,409 | | 15,273 | |
Eliminations | | 704 | | 199 | | 1,058 | | 183 | |
Corporate | | (2,675 | ) | (2,352 | ) | (5,308 | ) | (4,746 | ) |
Total | | $ | 5,736 | | $ | 4,994 | | $ | 16,159 | | $ | 10,710 | |
Total Assets: | | Dec. 31,
2006 | | June 30,
2006 | | | | | |
| | | | | | | | | |
Commercial | | $ | 84,497 | | $ | 78,464 | | | | | |
Residential | | 32,297 | | 34,320 | | | | | |
Aluminum Extrusion | | 42,176 | | 40,143 | | | | | |
Total Segments | | 158,970 | | 152,927 | | | | | |
Corporate | | 16,537 | | 20,021 | | | | | |
Total | | $ | 175,507 | | $ | 172,948 | | | | | |
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Legal Proceedings
Klotzer, et al. v. International Windows In Time, Inc.
International Aluminum Corporation and certain of its subsidiaries are defendants in the above-referenced lawsuit (Case no. FCS021196) filed in December 2002 in the Superior Court for Solano County, California. The plaintiffs in the lawsuit are the owners of seven homes in which the Company’s Series 6200 windows are installed. The same lawyers who represent them in this action have also brought similar class actions against other manufacturers of aluminum windows in California.
In their Third Amended Complaint filed in August 2005, the plaintiffs assert various causes of action, including strict product liability, breach of warranty, and violation of the California Consumer Legal Remedies Act. The plaintiffs also purport to represent a statewide class of persons who own buildings in California that contain the Company’s Series 6200 horizontal sliding, vertical hung, or fixed aluminum windows manufactured during the period 1993 to the present. In November 2005, the Court certified the plaintiff class.
According to plaintiffs, the essence of their claims is that the Series 6200 windows leak at the lower corners. Plaintiffs contend that these leaks are caused by the design and manufacture of the lower corners and voids and gaps in the sealant used in the window corners; and that the leaking windows have damaged parts of the homes in which they were installed. Plaintiffs also claim that the windows do not perform as warranted and do not perform in compliance with American Architectural Manufacturer’s Association, or AAMA, standards. The Company denies all of these allegations.
There are approximately 80,000 owners of the Series 6200 windows in the class. The named plaintiffs seek actual and punitive damages, as well as injunctive and restitutionary relief on their claims, including the cost to remove and replace all of the Series 6200 windows in the class. The Company denies any liability.
The Company’s insurers have accepted the defense of this lawsuit under reservation of rights. The scope of the Company’s insurance coverage may depend upon the ultimate disposition of the plaintiffs’ claims.
The Company believes the plaintiffs’ claims are without merit, and it intends to vigorously defend this lawsuit. The lawsuit is in the discovery phase, and the Company cannot predict its outcome or the extent to which insurance would be available to cover any eventual judgment or settlement in the lawsuit.
Other Matters
The Company has reserved $1,000,000 for the expected cost to settle an employment related lawsuit.
The Company is regularly involved in a number of lawsuits and proceedings arising in the ordinary course of its business and operations. The Company does not expect these matters, individually or in the aggregate, to have a material adverse effect on the Company’s financial condition or results of operations.
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Recent Accounting Pronouncements
In June 2006, the FASB issued Financial Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. This Interpretation also provides guidance on de-recognition, classification, interest, penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this Interpretation will be a two-step process. The first step will determine if it is more likely than not that a tax position will be sustained upon examination and should therefore be recognized. The second step will measure a tax position that meets the more likely than not recognition threshold to determine the amount of benefit to recognize in the financial statements. This Interpretation is effective for fiscal years beginning after December 15, 2006. Upon adoption in fiscal 2008 we do not anticipate that FIN 48 will have a material impact on our financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157(SFAS No. 157), “Fair Value Measurements”. SFAS No. 157 establishes a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157, but at present does not expect that it will have a material effect on the Company’s results of operations or financial condition.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108(SAB No. 108), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” that requires public companies to utilize a “dual-approach” to assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. SAB No. 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if the “dual approach” had always been used or (ii) recording the cumulative effect of initially applying the “dual approach” as adjustments to the carrying values of assets and liabilities as of July 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Use of the “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. Adoption of SAB No. 108 will not have a material effect on the Company’s results of operations or financial condition.
In September 2006, the FASB issued Staff Position (FSP) AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” FSP AUG AIR-1 addresses the accounting for planned major maintenance activities. Specifically, the FSP prohibits the practice of the accrue-in-advance method of accounting for planned major maintenance activities. FSP AUG AIR-1 is effective for fiscal years beginning after December 15, 2006. Upon adoption in fiscal 2008, the Company does not expect FSP AUG AIR-1 will have an impact on the Company’s results of operations or financial condition.
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Subsequent Event
On January 9, 2007, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with IAC Holding Co., a Delaware corporation (“Parent”), and IAL Acquisition Co., a California corporation and wholly owned subsidiary of Parent (“Merger Subsidiary”). Pursuant to the terms of the Merger Agreement, Merger Subsidiary will be merged with and into the Company, and as a result the Company will continue as the surviving corporation and will become a wholly owned subsidiary of Parent (the “Merger”). Parent is owned by an affiliate of Genstar Capital, LLC (“Genstar”).
Under the Merger Agreement, at the effective time of the Merger, each outstanding share of the Company’s common stock, other than shares owned by International Aluminum, Parent and Merger Subsidiary and by any shareholders who properly exercise appraisal rights under California law, will be cancelled and converted into the right to receive $53.00 in cash, without interest. Similarly, the holders of outstanding stock options of the Company will receive, in cash, for each option share an amount equal to the difference between $53.00 and the per share option exercise price.
Completion of the Merger is also subject to the affirmative vote of shareholders of the Company, antitrust regulatory approval, and other customary closing conditions. Completion of the Merger is expected to occur during the second calendar quarter of 2007, with the exact timing dependent upon a number of factors. Following completion, the Company’s stock will be de-listed from the New York Stock Exchange and will no longer trade publicly.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
General Overview
International Aluminum Corporation (“Company”) is an integrated manufacturer of quality aluminum and vinyl products for use in commercial and residential applications. Our marketing brands are recognized leaders in their respective markets. Operations are conducted throughout North America, with headquarters in Monterey Park, California. The Company is organized into three business segments, Commercial Products, Residential Products and Aluminum Extrusion. Our performance is dependent to a significant extent upon levels of new construction, repair and remodeling for commercial and residential applications in the geographic markets we serve, all of which are affected by such factors as interest rates, consumer confidence and economic outlook.
Net sales increased $10,394,000, or 15.8%, for the quarter ended December 31, 2006 and $22,759,000, or 17.0%, for the six months then ended compared to the same periods last year. Gross profit, as a percentage of net sales, increased to 23.6% for the current quarter, compared to 22.3% for the same period last year and for the six-month period increased to 25.1% compared to 22.4% for the same period last year. Selling, general and administrative expenses increased $2,575,000 for the current quarter and $3,885,000 for the year-to-date compared to the same periods last year, and as a percentage of net sales increased to 16.1% for the quarter and 14.8% year-to-date compared to 14.7% and 14.4%, respectively, for the comparable periods last year.
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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 companies 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 $10,068,000, or 30.9%, for the current quarter ended December 31, 2006 and $21,239,000, or 33.3%, for the six months then ended compared to the same periods last year. These gains reflect continuing robust commercial construction activity together with increased sales prices and expanded geographic market penetration.
Gross profit as a percentage of sales increased to 25.1% for the current quarter versus 23.1% for the same period last year and for the current six-month period increased to 26.9% compared to 23.8% for the same period last year. Despite experiencing increased aluminum costs during the current three and six-month periods, material cost percentages remained relatively unchanged compared to the same periods last year. This Group achieved decreased labor and overhead cost percentages compared to the same periods last year, reflecting cost containment efforts coupled with efficiencies as a result of the aforementioned sales increases. These decreases were achieved despite absorbing start-up costs related to two new regional service centers.
Selling, general and administrative expenses increased $1,072,000 for the current quarter and $1,920,000 for the year-to-date compared to the same periods last year, and as a percentage of sales were 11.3% for the quarter and 11.1% year to date, relatively unchanged compared to the same periods last year. The current three and six-month percentages would have been slightly lower if not for the absorption of start-up costs related to the aforementioned two new regional service centers. The current quarter includes increases of $585,000 and $187,000 for increased employment and sales representation costs, respectively, relating to the increased sales. Similarly, the current six-month period includes increases of $1,123,000 and $314,000 for increased employment and sales representation costs, respectively, relating to the increased sales. Additionally, during the current six-month period advertising costs increased $178,000.
Residential Products
Sales of the Residential Products Group decreased $3,554,000, or 16.6%, for the quarter ended December 31, 2006 and $5,464,000, or 12.4%, for the six months then ended compared to the same periods last year, as increased sales prices and new product development could not overcome the impact of a decline in new-home construction. The correction occurring in the residential housing market has caused sales for this Group to decline on a current basis; nonetheless sales currently remain at what is historically a relatively high level for our market areas.
Gross profit as a percentage of sales declined to 27.4% for the current quarter versus 29.4% for the same period last year and for the current six-month period was 28.3% compared to 29.9% for the same period last year. Material and labor cost percentages were relatively unchanged, compared to the respective prior year periods, while overhead cost percentages increased as normally recurring costs were spread over a reduced sales base.
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Selling, general and administrative expenses increased $1,231,000 for the current quarter and $1,269,000 for the current year compared to the same periods last year, and as a percentage of sales was 21.2% compared to 12.0% for the same quarter last year and for the current six-month period was 16.0% versus 11.2% last year. Contributing to the higher costs during the current quarter and year-to-date periods was $1,000,000 of expense relating to the expected cost to settle an employment related lawsuit. Additionally, higher legal costs of $529,000 for the current quarter and $582,000 for the current year-to-date periods were partially offset by decreases of $189,000 and $277,000, for the three and six-month periods respectively, in employment costs related to the decline in sales. The current six-month period also reflects an increase of $108,000 for marketing programs as well as recognizing the benefit from proceeds of $344,000 resulting from settlement of a glass industry class-action lawsuit.
Aluminum Extrusion
Sales to outside customers of the Aluminum Extrusion group increased $3,880,000, or 33.2%, for the quarter ended December 31, 2006 and $6,984,000, or 26.6%, for the six months then ended compared to the same periods last year. During the current quarter the Group posted a 7.4% increase in tonnage shipped and for the current year the increase was 1.2% as each facility contributed somewhat differing results. Sales at our California facility increased $2,363,000, or 36.4%, and $5,212,000, or 37.1%, for the three and six-month periods, respectively. Increased selling prices coupled with continued demand from existing and new customers, reflected by increases in tonnage shipped of 8.4% for the current quarter and 11.2% for the current year, fueled the gains at this facility. Sales at our Texas facility increased $1,517,000, or 29.2%, and $1,772,000, or 14.5%, for the current three and six-month periods, respectively. The current quarter’s gain was achieved by increased selling prices coupled with a 6.1% increase in tonnage shipped. Current quarter tonnage shipped rebounded from a poor first quarter, although year-to-date results still reflect a 10.3% decline in tonnage shipped. The current year sales gain was achieved as increased selling prices were able to overcome the decline in tonnage shipped. Loss of volume due to competitive price pressure, a switch to alternative or offshore suppliers and customer inventory reduction programs contributed to their tonnage decrease.
Gross profit, as a percentage of sales, for the Group, which is dependent on the total tonnage shipped including to internal customers, increased to 4.8% for the current quarter versus 2.1% for the same period last year and for the current six-month period increased to 6.2% compared to 2.3% for the same period last year, as both facilities improved upon their prior year results. 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. Through a combination of increased selling prices and cost containment efforts both facilities achieved reductions to labor and overhead cost percentages, which more than offset the increase to the material cost percentage.
Selling, general and administrative expenses decreased $50,000 to 2.7% of sales for the current quarter versus 3.5% for the same period last year. The current six-month period increased $134,000 compared to the same period last year, although as a percentage of sales declined to 3.1% compared to 3.5% for the same period last year. The current quarter decrease reflects a swing from $172,000 in expense in the prior year quarter to $12,000 of income in the current quarter relating to retrospective workers’ compensation policies. Partially offsetting this decrease are increases of $75,000 related to attainment of incentive compensation targets and $49,000 for sales representation costs. The current year-to-date increase reflects increases of $148,000 related to attainment of incentive compensation targets and $61,000 for sales representation costs, net of a decline of $89,000 for retrospective workers’ compensation policies.
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Corporate
General and administrative expenses increased $322,000 for the current quarter and $562,000 for the current year compared to the same periods last year, and as a percentage of consolidated net sales was 3.5% for the quarter and 3.4% year-to-date, virtually unchanged compared to the same periods last year. The increases resulted primarily from higher expenses for employment related costs and legal advisory fees.
The increase in net interest income compared to the prior year resulted from increased funds available for investment combined with higher rates of return.
The effective tax rate for the six months ended December 31, 2006 was 38.2% compared to 33.9% in the comparable period of the prior year. The increase was attributable to a combination of factors. The current year was impacted by a new margin tax resulting from recent enactment of Texas state tax legislation. The legislation repealed the franchise tax previously based on capital or earned surplus and imposes a tax calculated on taxable margin and is now accounted for as an income tax under SFAS 109. The prior year period benefited from a decrease of Federal income tax reserves resulting from settlement of an IRS Appeals case.
Liquidity and Capital Resources
Working capital at December 31, 2006 stood at $96,040,000, an increase of $7,656,000 from June 30, 2006. The ratio of current assets to current liabilities was 4.3 at December 31, 2006 compared to 3.6 at the beginning of the year.
The Company projects net capital expenditures of approximately $5,000,000 for fiscal 2007 for expansion of production capacity, as well as normal recurring capitalized replacement items. The Company’s lines of credit also remain unchanged from those described in the June 30, 2006 Annual Report to Shareholders.
Recent Accounting Pronouncements
In June 2006, the FASB issued Financial Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. This Interpretation also provides guidance on de-recognition, classification, interest, penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this Interpretation will be a two-step process. The first step will determine if it is more likely than not that a tax position will be sustained upon examination and should therefore be recognized. The second step will measure a tax position that meets the more likely than not recognition threshold to determine the amount of benefit to recognize in the financial statements. This Interpretation is effective for fiscal years beginning after December 15, 2006. Upon adoption in fiscal 2008 we do not anticipate that FIN 48 will have a material impact on our financial statements.
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In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157(SFAS No. 157), “Fair Value Measurements”. SFAS No. 157 establishes a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157, but at present does not expect that it will have a material effect on the Company’s results of operations or financial condition.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108(SAB No. 108), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” that requires public companies to utilize a “dual-approach” to assessing the quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. SAB No. 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. SAB 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements as if the “dual approach” had always been used or (ii) recording the cumulative effect of initially applying the “dual approach” as adjustments to the carrying values of assets and liabilities as of July 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings. Use of the “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. Adoption of SAB No. 108 will not have a material effect on the Company’s results of operations or financial condition.
In September 2006, the FASB issued Staff Position (FSP) AUG AIR-1, “Accounting for Planned Major Maintenance Activities.” FSP AUG AIR-1 addresses the accounting for planned major maintenance activities. Specifically, the FSP prohibits the practice of the accrue-in-advance method of accounting for planned major maintenance activities. FSP AUG AIR-1 is effective for fiscal years beginning after December 15, 2006. At present the Company does not expect FSP AUG AIR-1 will have an impact on its results of operations or financial condition.
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, aluminum and other material costs, 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 developments, 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.
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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.
Evaluation of Disclosure Controls and Procedures
Under Securities and Exchange Commission, or SEC, rules, the Company is required to maintain disclosure controls and procedures designed to ensure that information required in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As part of the Company’s system of disclosure controls and procedures, we have created a Disclosure Committee, which consists of certain members of the Company’s senior management. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including the chief executive officer, chief financial officer and other members of the Disclosure Committee, as appropriate to allow timely decisions regarding required disclosure.
The Company has carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. The Company’s management, including the Company’s Disclosure Committee, chief executive officer and chief financial officer, supervised and participated in the evaluation. Based on the evaluation, the chief executive officer and the chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
The Company’s evaluation of its internal control over financial reporting during the fiscal quarter to which this report relates identified no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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