Prepared by MERRILL CORPORATION

EX-13 3 a2059320zex-13.htm EXHIBIT 13 Prepared by MERRILL CORPORATION
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Exhibit 13

INTERNATIONAL ALUMINUM CORPORATION
		2001 Annual Report

COMPANY PROFILE

INTERNATIONAL ALUMINUM CORPORATION is an integrated building products manufacturer of diversified lines of quality aluminum, vinyl, and wood products. The Company is headquartered in Monterey Park, California and has approximately 1,750 employees. Operations are conducted through fourteen North American subsidiaries. The Company's primary internet website is located at www.intlalum.com.

PRODUCTS BY SEGMENT

COMMERCIAL—Curtain walls, window walls, slope glazed systems, storefront framing, entrance doors and frames, interior officefronts, office partitions and interior doors and frames for the commercial building and tenant improvement markets. Product information is available at www.usalum.com.

RESIDENTIAL—Expansive lines of windows and patio doors manufactured from vinyl, aluminum or wood, in addition to aluminum tub and shower enclosures and wardrobe mirror doors, for the residential building and remodeling markets. Product information is available at www.intlwindow.com.

ALUMINUM EXTRUSION—Mill finish, anodized, painted and fabricated aluminum extrusions. Product information is available at www.intlextrusion.com.

CONTENTS

		Page
Financial Highlights		1
Letter to Shareholders		2
Selected Financial Data		4
Management's Discussion and Analysis of Financial Condition and Results of Operations		5
Quarterly Financial Data		8
Report of Independent Accountants		9
Consolidated Financial Statements		10
Notes to Consolidated Financial Statements		14
Corporate Information		20
Subsidiaries by Segment		21

FINANCIAL HIGHLIGHTS

Fiscal Years Ended June 30, 2001, 2000 and 1999

		2001		2000		1999
Operating Results:
	Net sales	$	212,895,000	$	220,175,000	$	234,301,000
	Income from operations		7,198,000		2,349,000		16,263,000
	Net income		4,634,000		1,579,000		10,339,000
Financial Data:
	Net cash provided by operating activities	$	23,151,000	$	1,861,000	$	8,715,000
	Capital expenditures including acquisitions		7,749,000		10,253,000		16,359,000
	Working capital		66,097,000		63,586,000		69,030,000
	Long-term debt		0		0		0
	Shareholders' equity		123,755,000		124,326,000		128,701,000
Per Share Data:
	Net income—Diluted	$	1.09	$	.37	$	2.41
	Dividends declared		1.20		1.20		1.20
	Book value at yearend		29.15		29.29		29.99
	Market price at yearend		21.15		17.25		27.56

TO OUR SHAREHOLDERS:

On a 3.3% decline in revenues, net income from continuing operations increased nearly threefold. While net margins are not yet at acceptable levels, we are encouraged by the progress made during fiscal 2001. Net income from continuing operations increased to $4,634,000 or $1.09 per share, up 269% from $1,254,000 or $.29 per share in fiscal 2000. Other significant financial results for fiscal 2001 include:

•: Short-term debt dropped to $165,000, down $9.3 million from $9.5 at the prior year-end.
•: Through re-institution of stringent cost and expenditure controls, Selling, General and Administrative expenses were reduced $4.9 million on a $7.3 million decline in net sales.
•: Working capital increased to $66.1 million compared to $63.6 million at the previous yearend, largely due to continuing emphasis on inventory reductions.
•: While continuing to move forward with plant modernization projects, capital expenditures were $7.75 million, down from $9 million in fiscal 2000 and $15 million in fiscal 1999.

Residential Products

Our Residential Products Group faced many unexpected challenges during fiscal 2001. We entered the year on an up note and with a quite optimistic outlook. Unexpectedly, Home Base, our largest customer and with whom we had shared a successful relationship for many years, announced the closure of all its stores. The closure of this home improvement chain, to which we supplied product to approximately 80 stores and which accounted for close to 10% of our residential products net sales in fiscal 2000, adversely affected all our residential operations. However, through expanded marketing efforts, nearly all this volume had been replaced by yearend. Most of our demand in the California market is derived from the retrofit-remodeling market. This segment of the market seems to have suffered most from the slowdown in the economy and the accompanying drop in consumer confidence. During the year, we intentionally shrank the size of the market area of our wood window and door subsidiary. We found it not to be cost effective to continue to ship these products into Northern California and Arizona. Not only were delivery and transport costs excessive but the after-sale service area grew beyond a manageable size. The decline in wood products sales accounted for essentially 100% of the residential products revenue decline. With our highly resourceful management team, we are committed to maintaining excellent service to our customers.

Commercial Products

While net sales for this product segment increased only 2% for the year, net income increased 52%. Sales of our engineered products, typically exterior glazing systems for buildings 3 to 20 stories tall, had been stagnant for two years. The loss of key personnel and the delivery problems experienced in fiscal 2000 seriously hampered this portion of our business. With many of our experienced personnel back on board and with excellent service from our extrusion facilities, we anticipate rekindled growth in engineered products. We currently have Engineered Products teams in place at both our California and Texas facilities. Upon completion, Engineered Products will be added at the new Ontario, Canada facility. With regards to the Ontario facility, after several attempts at locating a suitable land site, we have acquired a parcel in Guelph (a suburb of Toronto), Ontario and construction of a 70,000 sq. foot facility is now underway, with completion anticipated in late calendar 2001. The facility, with full fabrication capability and a horizontal paint line, will service the greater Toronto area as well as the upper Midwest and Northeastern U.S. market.

We continue to press our engineering staff to keep us at the forefront of new product development. Testing of a new curtainwall system has been completed and product literature is being added to all our catalogs. Originally designed for the Canadian market, this system has sparked considerable interest in

the U.S. market and will thus be offered throughout North America. We will soon be offering impact products for the Gulf Coast states and are in the early design stages on a unitized curtainwall system.

Extruded Products

The West Coast energy crisis, including a significant upward spike in natural gas prices, and the general slowdown in the nationwide economy did not bode well for our extrusion operations in fiscal 2001. Net tonnage shipped, including shipments to related companies, declined 9% from fiscal 2000 and were down 25% from fiscal 1999. We intend to increase our market share by offering a quality product with on time delivery at a competitive price. This has been our focus in fiscal 2001 and will remain so in fiscal 2002.

As was commented on last year at this time, we cannot let the mistakes of the past impede us in undertaking modernization projects necessary to keep us competitive in the future. During the year, without restricting our ability to meet customer demands, we successfully completed the overhaul of one of the five extrusion presses at our Alhambra facility. Currently scheduled are the reconditioning of two additional presses in fiscal 2002, one to be completed in late fall and the other in early calendar 2002. To meet ever tightening environmental standards and with rapidly escalating energy costs, during fiscal 2001 we successfully completed a major rework of our Alhambra remelt casthouse. We are now positioned to cast higher quality billet at reduced energy cost while at the same time meeting stringent emission standards.

Our management teams have demonstrated their ability to weather adverse market conditions. We intend to concentrate on the execution of our core competencies while remaining steadfast in our goal of improving shareholder value.

Cornelius C. Vanderstar
Chairman Of The Board
Chief Executive Officer

David C. Treinen
President
Chief Operating Officer

August 31, 2001

SELECTED FINANCIAL DATA

Year Ended June 30			2001		2000		1999		1998		1997
Sales by segment
	Commercial		$	114,436,000	$	112,522,000	$	124,839,000	$	112,179,000	$	104,919,000
	Residential			58,374,000		60,967,000		53,045,000		49,546,000		54,767,000
	Aluminum Extrusion			40,085,000		46,686,000		56,417,000		51,021,000		52,443,000

		Total net sales	$	212,895,000	$	220,175,000	$	234,301,000	$	212,746,000	$	212,129,000

Earnings
	Gross profit		$	40,287,000	$	40,300,000	$	53,900,000	$	50,915,000	$	44,780,000
	Continuing operations			4,634,000		1,254,000		10,422,000		11,459,000		5,791,000
	Net income			4,634,000		1,579,000		10,339,000		12,122,000		5,938,000
	Per share:
	Continuing operations—Diluted		$	1.09	$	.29	$	2.43	$	2.66	$	1.36
	Net income-Diluted			1.09		.37		2.41		2.82		1.39
	Dividends declared			1.20		1.20		1.20		1.15		1.00
Financial Data at Yearend
	Working capital		$	66,097,000	$	63,586,000	$	69,030,000	$	72,170,000	$	65,820,000
	Total assets			148,070,000		154,585,000		153,693,000		147,298,000		145,041,000
	Long-term debt			0		0		0		0		0
	Shareholders' equity			123,755,000		124,326,000		128,701,000		123,449,000		118,240,000

Prior year amounts for Sales and Gross Profit reflect reclassification of shipping and handling fees and costs as required by the adoption of EITF 00-10. See Current and Pending Accounting Changes on page 6 for more information.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Significant Changes in Results of Operations

2001 vs. 2000

Net sales for fiscal 2001 decreased by $7,280,000 or 3.3% from net sales of fiscal 2000. Included is a $6,601,000 or 14.1% decrease by the Aluminum Extrusion Group, which continues its marketing efforts to regain customer confidence, which had been eroded as a result of last year's severe operational problems. Also included is a $2,593,000 or 4.3% decrease in sales of residential products resulting from management's decision to shrink the marketing area of our wood products subsidiary. This reduction in market area was undertaken to improve on-time delivery and bring the after-sale service area to a manageable size. Also a factor was the closure of the Home Base stores, a large chain of big box stores, to which we provided product to approximately 80 stores in their Western region. Through increased marketing efforts most of this volume had been replaced by yearend. Partially offsetting the decreases is a $1,914,000 or 1.7% increase in commercial products largely reflecting the full year contribution of our Ontario, Canada facility purchased in March 2000.

Gross profit increased to 18.9% of sales in 2001 as compared to 18.3% in 2000. Contributing to the increase are reduced costs at our extrusion operations reflecting the continuing recovery from the prior year's severe operational problems. As a group they achieved an 18% increase in shipments per man-hour in spite of an 8.7% decrease in total pounds shipped during the year. Somewhat offsetting these savings were higher production costs incurred by our Residential Group.

Selling, general and administrative expenses decreased by $4,862,000 or 12.8% from the prior year. The decreased expenses are primarily attributable to lower employment costs directly related to the aforementioned decrease in sales coupled with the prior year containing nonrecurring costs associated with realigning operating group management teams.

The decrease in net interest expense relates to increased funds available for investment during the year. Prior year net interest expense reflected credit line utilization, repaid during the September 2000 quarter, to fund heavy capital expenditures and increases in raw material inventories.

2000 vs. 1999

Net sales for fiscal 2000 decreased by $14,126,000 or 6.0% from net sales of fiscal 1999. Included is a $12,317,000 or 9.9% decrease in sales of commercial products primarily resulting from an inadequate supply of raw materials from our aluminum extrusion operations. Also included is a $9,731,000 or 17.2% decrease by the Aluminum Extrusion Group primarily resulting from lower production due to extended downtime during equipment upgrades and the problems encountered in the implementation of continuous flow manufacturing. Partially offsetting these is a $7,922,000 or 15.0% increase in residential products sales reflecting the strong market for these products.

Gross profit decreased to 18.3% of sales in 2000 as compared to 23.0% in 1999. The decrease is primarily attributable to higher material, labor and overhead expenses incurred in our extrusion operations resulting from downtime and inefficiencies associated with retraining personnel for the aforementioned conversion to continuous flow manufacturing.

Selling, general and administrative expenses increased by $314,000 or 0.1% from the prior year. Decreased continuing expenses to support the lower sales volume were offset by additional compensation, recruiting, relocation and severance costs associated with realigning operating group management teams.

The swing from net interest income in the prior year to net interest expense in the current year relates to the depletion of funds available for investment due primarily to heavy capital expenditures and increases in raw material inventories.

The gain on disposition of discontinued operations relates to the sale of most of the operating assets of the glass segment. Information related to this sale is included in Note 9.

Liquidity and Capital Resources

Working capital at June 30, 2001 was $66,097,000 compared to $63,586,000 at June 30, 2000 and $69,030,000 at June 30, 1999. The ratio of current assets to current liabilities was 4.4 at the end of 2001 compared to 3.5 at the end of 2000 and 4.4 at the end of 1999. The Company continues to be in excellent position to meet its short-term operating and discretionary cash requirements. Funds in excess of current operating requirements are invested in short-term interest-bearing instruments.

Capital expenditures for property, plant and equipment of approximately $7,749,000 in 2001, $9,031,000 in 2000 and $15,059,000 in 1999 were financed through internal cash flow, cash reserves and utilization of the lines of credit. Cash flows for fiscal 2001 include proceeds of $3,060,000 for sale of an excess facility. Additional cash flows include the fiscal year 2000 expenditure of $1,222,000 for an acquisition and the receipt of $3,921,000 from the sale of operating assets of the glass segment (see Note 9) and the fiscal year 1999 expenditure of $1,300,000 for an acquisition. The Company projects net capital expenditures of $13,000,000 for fiscal 2002. These expenditures are for expansion of production capacity as well as normal recurring capitalized replacement items. The Company anticipates financing these expenditures through internal cash flow, cash reserves and the utilization of its line of credit.

The Company had $20,000,000 in available credit at the end of 2001 under a short-term borrowing arrangement with a domestic bank.

The Company's financial condition remains strong. The Company believes that its cash, other liquid assets, operating cash flows and borrowing capacity, taken together, provide more than adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses.

Current and Pending Accounting Changes

The Emerging Issues Task Force (EITF) issued Number 00-10 (EITF 00-10) "Accounting for Shipping and Handling Fees and Costs", which the Company was required to adopt this year. In preparing the financial statements for the current year, the Company has applied the provisions of EITF 00-10 for all periods presented. Under the new requirements, shipping and handling charges incurred by the Company, which previously were included in Selling, General and Administrative expenses, are included in Costs of Sales. Shipping charges billed to customers, which previously were included as an offset to the Selling, General and Administrative expenses, are included in Net Sales.

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141 (SFAS 141) "Business Combinations" and Statement No. 142 (SFAS 142) "Goodwill and Other Intangible Assets". SFAS 141 requires that all future business combinations be accounted for under the purchase method. Management believes that SFAS 141 will not have a material effect on the Company's consolidated financial position or results of operations. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The Company will adopt SFAS 142 effective July 1, 2001. Management estimates that this adoption will contribute approximately $570,000 to consolidated pre-tax earnings in fiscal 2002.

Forward-Looking Information

This annual 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.

QUARTERLY FINANCIAL DATA (UNAUDITED)

For the years ended June 30, 2001 and 2000

	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
2001
Net sales	$	54,897,000	$	53,594,000		$	50,221,000		$	54,183,000
Gross profit		10,302,000		10,682,000			8,067,000			11,236,000
Net income		1,533,000		1,733,000			(216,000	)		1,584,000
Earnings per share—Basic and Diluted		.36		.41			(.05	)		.37
Dividends declared		.30		.30			.30			.30
Stock price—High		18.44		21.19			19.94			22.48
Stock price—Low		16.69		14.81			18.00			17.99
2000
Net sales	$	59,991,000	$	52,328,000		$	51,987,000		$	55,869,000
Gross profit		13,567,000		8,381,000			7,486,000			10,866,000
Net income		1,972,000		(348,000	)		(1,224,000	)		1,179,000
Earnings per share—Basic and Diluted		.46		(.08	)		(.29	)		.28
Dividends declared		.30		.30			.30			.30
Stock price—High		27.88		27.56			23.56			17.50
Stock price—Low		27.38		23.38			15.00			14.00

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of International Aluminum Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and shareholders' equity present fairly, in all material respects, the financial position of International Aluminum Corporation and its subsidiaries at June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Los Angeles, California
August 21, 2001

CONSOLIDATED STATEMENTS OF INCOME

For the years ended June 30, 2001, 2000 and 1999

			2001			2000			1999
Net sales			$	212,895,000		$	220,175,000		$	234,301,000
Cost of sales				172,608,000			179,875,000			180,401,000

	Gross profit			40,287,000			40,300,000			53,900,000
Selling, general and administrative expenses				33,089,000			37,951,000			37,637,000

	Income from operations			7,198,000			2,349,000			16,263,000
Interest income				71,000			3,000			379,000
Interest expense				(155,000	)		(428,000	)		(130,000	)

	Income from continuing operations before income taxes			7,114,000			1,924,000			16,512,000
Provision for income taxes				2,480,000			670,000			6,090,000

	Income from continuing operations			4,634,000			1,254,000			10,422,000
Loss from discontinued operations				—			(52,000	)		(83,000	)
Gain on disposition of discontinued operations				—			377,000			—

Net income			$	4,634,000		$	1,579,000		$	10,339,000

Earnings per share—Basic and Diluted:
	Continuing operations		$	1.09		$	.29		$	2.43
	Discontinued operations			—			.08			(.02	)

		Total	$	1.09		$	.37		$	2.41

See accompanying notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

June 30, 2001 and 2000

			2001			2000
Assets
Current assets:
	Cash and cash equivalents		$	5,915,000		$	1,678,000
	Accounts receivable, less reserve of $775,000 in 2001 and $730,000 in 2000			37,711,000			39,971,000
	Inventories			37,731,000			43,384,000
	Prepaid expenses and deposits			2,597,000			3,114,000
	Future income tax benefits			1,406,000			1,113,000

		Total current assets		85,360,000			89,260,000

Property, plant and equipment, at cost				114,693,000			111,149,000
Accumulated depreciation				(61,145,000	)		(55,455,000	)

		Net property, plant and equipment		53,548,000			55,694,000

Other assets:
	Costs in excess of net assets of purchased businesses			8,966,000			9,533,000
	Other			196,000			98,000

		Total other assets		9,162,000			9,631,000

			$	148,070,000		$	154,585,000

Liabilities and Shareholders' Equity
Current liabilities:
	Accounts payable		$	9,235,000		$	6,503,000
	Accrued liabilities			9,347,000			9,452,000
	Advances payable to banks			165,000			9,470,000
	Income taxes payable			516,000			249,000

		Total current liabilities		19,263,000			25,674,000

Deferred income taxes				5,052,000			4,585,000

		Total liabilities		24,315,000			30,259,000

Commitments (Note 5)
Shareholders' equity:
	Common stock			4,765,000			4,765,000
	Paid-in capital			4,123,000			4,123,000
	Retained earnings			115,018,000			115,478,000
	Accumulated other comprehensive income			(151,000	)		(40,000	)

		Total shareholders' equity		123,755,000			124,326,000

			$	148,070,000		$	154,585,000

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30, 2001, 2000 and 1999

			2001			2000			1999
Cash flows from operating activities:
	Net income		$	4,634,000		$	1,579,000		$	10,339,000
	Adjustments for noncash transactions:
		Depreciation and amortization		7,507,000			7,156,000			6,503,000
		Change in deferred income taxes		174,000			559,000			68,000
		Gain on disposition of businesses		—			(587,000	)		—
		Gain on sale of fixed assets		(390,000	)		—			—
	Changes in assets and liabilities:
		Receivables		2,260,000			(2,051,000	)		(4,315,000	)
		Inventories		5,653,000			(2,679,000	)		(2,943,000	)
		Prepaid expenses and other		419,000			1,519,000			(1,540,000	)
		Accounts payable		2,732,000			(1,244,000	)		(312,000	)
		Accrued liabilities		(105,000	)		(2,547,000	)		1,452,000
		Income taxes payable		267,000			156,000			(537,000	)

		Net cash provided by operating activities		23,151,000			1,861,000			8,715,000

Cash flows from investing activities:
	Capital expenditures			(7,749,000	)		(9,031,000	)		(15,059,000	)
	Proceeds from sales of capital assets			3,234,000			381,000			707,000
	Acquisition of businesses			—			(1,222,000	)		(1,300,000	)
	Disposition of businesses			—			3,921,000			—

		Net cash used in investing activities		(4,515,000	)		(5,951,000	)		(15,652,000	)

Cash flows from financing activities:
	Dividends paid to shareholders			(5,094,000	)		(5,122,000	)		(5,151,000	)
	Net borrowings under lines of credit			(9,305,000	)		9,396,000			—
	Common stock repurchased			—			(775,000	)		—
	Proceeds from exercises of stock options			—			—			37,000

		Net cash provided by (used in) financing activities		(14,399,000	)		3,499,000			(5,114,000	)

Net change in cash and cash equivalents				4,237,000			(591,000	)		(12,051,000	)
Cash and cash equivalents at beginning of year				1,678,000			2,269,000			14,320,000

Cash and cash equivalents at end of year			$	5,915,000		$	1,678,000		$	2,269,000

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the years ended June 30, 2001, 2000 and 1999

			Common Stock									Accumulated Other Comprehensive Income
			Common Stock				Paid-in Capital		Retained Earnings
			Shares		Amount		Paid-in Capital		Retained Earnings						Total
Balance, June 30, 1998			4,290,494		$	4,764,000	$	4,087,000	$	114,608,000		$	(10,000	)	$	123,449,000
	Net income									10,339,000						10,339,000
	Translation adjustment												27,000			27,000

		Total comprehensive income														10,366,000
	Exercise of stock options		1,300			1,000		36,000								37,000
	Cash dividends									(5,151,000	)					(5,151,000	)

Balance, June 30, 1999			4,291,794			4,765,000		4,123,000		119,796,000			17,000			128,701,000
	Net income									1,579,000						1,579,000
	Translation adjustment												(57,000	)		(57,000	)

		Total comprehensive income														1,522,000
	Repurchase of stock		(47,000	)						(775,000	)					(775,000	)
	Cash dividends									(5,122,000	)					(5,122,000	)

Balance, June 30, 2000			4,244,794			4,765,000		4,123,000		115,478,000			(40,000	)		124,326,000
	Net income									4,634,000						4,634,000
	Translation adjustment												(111,000	)		(111,000	)

		Total comprehensive income														4,523,000
	Cash dividends									(5,094,000	)					(5,094,000	)

Balance, June 30, 2001			4,244,794		$	4,765,000	$	4,123,000	$	115,018,000		$	(151,000	)	$	123,755,000

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies and Procedures

Principles of Consolidation

The consolidated financial statements include the accounts of International Aluminum Corporation (the Company) and its domestic and foreign subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications of prior year information were made to conform to the current presentation.

Estimates and Assumptions

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and marketable securities with original maturities of three months or less.

Foreign Currency Translation

Assets and liabilities of the Company's foreign subsidiaries are translated into U.S. dollars at year-end exchange rates and revenues and expenses are translated at average rates prevailing during the year. Local currency is considered to be the functional currency. Translation adjustments are deferred into accumulated other comprehensive income, a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in results of operations as incurred.

Depreciation and Amortization

Depreciation and amortization are provided over the estimated useful lives of the assets or the remaining terms of the leases, whichever is shorter, using the straight-line method for financial reporting purposes and accelerated methods for tax purposes.

The excess of the purchase price over the underlying book value of the companies acquired is classified as "Costs in excess of net assets of purchased businesses". The related amount of $12,655,000 is being amortized using the straight-line method over periods of up to forty years. Accumulated amortization totaled $3,689,000 at June 30, 2001 and $3,122,000 at June 30, 2000.

Long-Lived Assets

Whenever events indicate that the carrying values of long-lived assets including any related goodwill may not be recoverable, the Company evaluates the carrying values of such assets using future undiscounted cash flows. Management believes that, as of June 30, 2001, the carrying values of such assets are appropriate.

Shipping and Handling Fees and Costs

During the fiscal year ended June 30, 2001 the Company adopted EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." Accordingly, shipping and handling charges incurred by the Company are included in Cost of Sales and shipping charges billed to customers are included in Net Sales. Prior year information was reclassified to conform to the current presentation.

Note 2. Balance Sheet Components

Inventories, at the Lower of FIFO Cost or Market	2001		2000
Raw materials	$	32,153,000	$	36,693,000
Work in process		1,332,000		2,054,000
Finished goods		4,246,000		4,637,000

	$	37,731,000	$	43,384,000

Property, Plant and Equipment, at Cost	2001		2000
Land	$	7,738,000	$	7,719,000
Buildings and improvements		29,149,000		31,473,000
Machinery and equipment		76,463,000		71,957,000
Construction in process		1,343,000		—

	$	114,693,000	$	111,149,000

Accrued Liabilities	2001		2000
Wages and compensated absences	$	4,246,000	$	3,567,000
Taxes, other than income taxes		1,678,000		1,506,000
Dividends		1,273,000		1,273,000
Other		2,150,000		3,106,000

	$	9,347,000	$	9,452,000

Note 3. Statement of Cash Flows

Cash payments for interest were $242,000 in 2001, $513,000 in 2000 and $132,000 in 1999. Cash payments for income taxes were $1,841,000 in 2001, $2,129,000 in 2000 and $6,701,000 in 1999.

Note 4. Short-Term Debt and Lines of Credit

The Company has a loan agreement with a domestic bank providing for a $20,000,000 unsecured short-term line of credit at 55 basis points below the prevailing prime interest rate (6.20 percent at June 30, 2001 and 8.95 percent at June 30, 2000). There was no amount outstanding under the agreement at June 30, 2001. There was $9,000,000 outstanding under the agreement at June 30, 2000.

Note 5. Commitments

The Company is committed under real property lease agreements expiring at various dates to 2004. Certain of the leases have renewal options for periods up to five years and others provide for rent revisions at various dates. Under the leases the Company is obligated to pay property taxes, insurance and maintenance. All facility leases are classified as operating leases.

Real property rental expense was $1,065,000 in 2001, $1,125,000 in 2000 and $1,178,000 in 1999. Real property rental commitments are $917,000 in 2002, $655,000 in 2003 and $380,000 in 2004.

Note 6. Capital Stock

The Company has 500,000 shares of preferred stock authorized, with a $10 par value, of which none is outstanding. There are 10,000,000 shares of common stock authorized, $1 par value, of which there were 4,244,794 shares outstanding at June 30, 2001 and 2000.

Note 7. Stock Options

The Company grants stock options for the purchase of common stock to certain executive and managerial employees under the Company's 1991 Stock Option Plan. Options have an exercise price equal to the market price of the stock on the date of grant, a term of ten years and generally become exercisable over a five-year period. The Company applies APB Opinion 25 and related Interpretations in accounting for the plan, accordingly, no compensation cost has been recognized for those stock options. There would have been no material change in reported net income and earnings per share had compensation cost been determined based on the fair value at the grant dates as prescribed by SFAS 123, "Accounting for Stock-Based Compensation". The transactions for shares under options for the three years ended June 30, 2001 were:

	Outstanding				Exercisable
	Number Of Shares		Weighted-Average Exercise Price		Number Of Shares	Weighted-Average Exercise Price
Outstanding, June 30, 1998	248,000		$	28.86	72,800	$	28.00
Exercised	(1,300	)		28.00
Forfeited	(31,500	)		28.85

Outstanding, June 30, 1999	215,200			28.87	105,720		28.35
Forfeited	(67,500	)		29.11

Outstanding, June 30, 2000	147,700			28.76	103,300		28.43
Forfeited	(27,200	)		29.64

Outstanding, June 30, 2001	120,500			28.56	111,100		28.36

Stock Option Summary at June 30, 2001:
$28.00-$31.56 (Life: 4.4-6.6 years)	120,500			28.56	111,100		28.36
Available for future grants	377,200

Note 8. Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common and potentially dilutive common equivalent shares outstanding determined as follows:

	2001	2000	1999
Weighted average shares outstanding used to compute basic EPS	4,244,794	4,277,332	4,291,479
Incremental shares issuable upon the exercise of stock options	—	—	4,186

Shares used to compute diluted EPS	4,244,794	4,277,332	4,295,665

Incremental shares issuable upon the assumed exercise of outstanding stock options are computed using the average market price during the related period.

Note 9. Acquisitions and Divestitures

During the second quarter of the prior year, the Company sold most all of the operating assets of its Glass segment, excluding land and buildings, for $3,921,000. The land and buildings were leased to the buyer. The Glass segment is accounted for as a discontinued operation, and accordingly, amounts in the income statements and related notes for all periods shown have been restated to reflect discontinued operations accounting. Summarized results of the discontinued businesses are shown separately as

discontinued operations in the accompanying income statements. Operating results of the discontinued segment, in thousands of dollars, are as follows:

		2000			1999
Net sales		$	6,760		$	15,265
Loss before income taxes		$	(82	)	$	(133	)
Income tax benefit			(30	)		(50	)

Loss from discontinued operations			(52	)		(83	)
Gain on disposition of discontinued operations, net of $210 income tax expense			377			—

Net income (loss) from discontinued segment		$	325		$	(83	)

Earnings per share:
	Discontinued operations	$	(.01	)	$	(.02	)
	Gain on disposition of discontinued operations		.09			—

Also during the prior year, the Company formed a wholly owned subsidiary named United States Aluminum of Canada-Ontario, Ltd., which became a member of the Commercial Products Group. In March 2000, the new subsidiary completed the $1,222,000 cash purchase of selected assets and liabilities of a Toronto, Ontario commercial storefront and curtain wall company. The $502,000 excess of the purchase price over the estimated fair value of the net assets was allocated to goodwill and is being amortized on a straight-line basis over 5 years. Proforma information has not been presented, as it is not materially different from historical results.

During the second quarter of fiscal 1999, International Window-Colorado, Inc., a member of the Residential Products Group, completed the $1,300,000 cash purchase of selected assets and liabilities of a Denver, Colorado residential window and door company. The $574,000 excess of the purchase price over the estimated fair value of the net assets was allocated to goodwill and is being amortized on a straight-line basis over 15 years.

Note 10. Income Taxes

The components of income before United States and foreign income taxes are:

	2001		2000		1999
Domestic	$	6,495,000	$	1,768,000	$	15,958,000
Foreign		619,000		661,000		421,000

	$	7,114,000	$	2,429,000	$	16,379,000

The provision for income taxes is comprised of the following:

		2001			2000			1999
Current —
	Federal	$	1,857,000		$	197,000		$	5,338,000
	State		191,000			(157,000	)		634,000
	Foreign		258,000			251,000			—

			2,306,000			291,000			5,972,000

Deferred —
	Federal		200,000			524,000			63,000
	State		(2,000	)		35,000			5,000
	Foreign		(24,000	)		—			—

			174,000			559,000			68,000

		$	2,480,000		$	850,000		$	6,040,000

A reconciliation between the provisions for income taxes, computed by applying the Federal statutory rate to income before taxes, and the book provisions for income taxes follows:

		2001			2000			1999
Taxes on book income at statutory rate		$	2,419,000		$	826,000		$	5,733,000
Increases (decreases) resulting from:
	State income taxes, net of Federal income tax benefit		125,000			(81,000	)		415,000
	Nondeductible goodwill		22,000			143,000			189,000
	Federal tax credits		(94,000	)		(116,000	)		(142,000	)
	Other		8,000			78,000			(155,000	)

Provision for income taxes		$	2,480,000		$	850,000		$	6,040,000

Deferred income taxes result from temporary differences in the recognition of income and expenses for tax and financial statement purposes. The tax effects of the significant temporary differences that comprise the deferred tax assets and liabilities at yearend are as follows:

		2001		2000
Inventory		$	389,000	$	371,000
Accrued liabilities			855,000		730,000
Other			162,000		12,000

	Net deferred tax asset	$	1,406,000	$	1,113,000

Property, plant and equipment		$	4,866,000	$	4,390,000
Other			186,000		195,000

	Net deferred tax liability	$	5,052,000	$	4,585,000

No provision for U.S. taxes has been made for undistributed earnings of the foreign subsidiaries since it is expected that the major portion of such earnings will continue to be reinvested for an indefinite period.

Note 11. 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. See Note 9 for information regarding the prior year sale of the operating assets of the Glass Products segment. See the front cover for a description of the products of each segment and the back cover for a listing of the subsidiaries of each segment.

The Company uses a portion of its aluminum extrusion production in its Commercial and Residential segments. Transfers are made at market prices. Accounting policies for the segments are the same as those described in Note 1. The Company evaluates performance based on operating income or loss before any allocation of corporate overhead, interest or taxes.

The following is significant financial information by operating segment, reconciling to the Company's totals.

		Sales									Operating Income
(In thousands)		2001			2000			1999			2001			2000			1999
Commercial		$	114,822		$	112,587		$	124,903		$	11,616		$	8,618		$	13,171
Residential			58,991			61,398			53,266			3,215			3,977			2,803
Aluminum Extrusion			91,860			100,148			114,162			677			(3,583	)		8,016

	Total segments		265,673			274,133			292,331			15,508			9,012			23,990
Eliminations			(52,778	)		(53,958	)		(58,030	)		(184	)		893			1,188
Corporate			—			—			—			(8,126	)		(7,556	)		(8,915	)

	Total	$	212,895		$	220,175		$	234,301		$	7,198		$	2,349		$	16,263

	Capital Expenditures						Depreciation and Amortization
(In thousands)	2001		2000		1999		2001		2000		1999
Commercial	$	2,075	$	825	$	2,388	$	2,172	$	2,096	$	1,951
Residential		2,739		3,760		2,871		2,262		2,005		1,767
Aluminum Extrusion		2,585		4,188		6,370		2,323		2,241		1,811
Glass		—		—		2,542		—		—		326

Total segments		7,399		8,773		14,171		6,757		6,342		5,855
Corporate		350		258		888		750		814		648

Total	$	7,749	$	9,031	$	15,059	$	7,507	$	7,156	$	6,503

		Total Assets
(In thousands)		2001		2000
Commercial		$	66,994	$	66,937
Residential			32,405		32,510
Aluminum Extrusion			38,032		43,779

	Total segments		137,431		143,226
Corporate			10,639		11,359

	Total	$	148,070	$	154,585

CORPORATE INFORMATION

DIRECTORS		OFFICERS
Cornelius C. Vanderstar Chairman of the Board Chief Executive Officer		David C. Treinen President; Secretary Chief Operating Officer
David C. Treinen		Ronald L. Rudy Senior Vice President—Operations
David M. Antonini Partner in White, Nelson & Co. LLP		Mitchell K. Fogelman Senior Vice President—Finance
John P. Cunningham Retired President of International Aluminum Corporation		Stanley M. Kutch Vice President—Information Systems
Alexander L. Dean President of David Brooks Company		Susan L. Leone Vice President—Human Resources
Joel F. McIntyre Attorney At Law
Kenneth D. Peterson, Jr. Chief Executive Officer of Columbia Ventures Corporation
STOCK TRANSFER AGENT AND REGISTRAR		ELECTRONIC TRANSFER OF DIVIDENDS
Continental Stock Transfer & Trust Company 2 Broadway New York, NY 10004 (212) 509-4000 Internet at www.continentalstock.com		For information and forms, write to: Corporate Secretary International Aluminum Corporation P. O. Box 6 Monterey Park, CA 91754
STOCK EXCHANGE LISTINGS		ANNUAL SHAREHOLDERS MEETING
The Company's common stock (trading symbol: IAL) is listed on the New York Stock Exchange and the Pacific Exchange		2 p.m., Thursday, October 25, 2001 International Aluminum Corporation 767 Monterey Pass Road Monterey Park, CA 91754

SUBSIDIARIES BY SEGMENT

COMMERCIAL (Exterior Products)		RESIDENTIAL
Douglas R. Ellerbrock Executive Vice President Commercial Products Group		George L. Hall Executive Vice President Residential Products Group
United States Aluminum Corporation Vernon, California		International Window Corporation South Gate, California
United States Aluminum Corporation-Illinois Bedford Park, Illinois Boston, Massachusetts Detroit, Michigan		International Window-Northern California Hayward, California International Window-Arizona, Inc. Phoenix, Arizona
United States Aluminum Corporation-Texas Waxahachie, Texas Denver, Colorado St. Louis, Missouri Dallas, Texas Houston, Texas		Maestro Products, Inc. Moreno Valley, California International Window-Colorado, Inc. Denver, Colorado
United States Aluminum Corporation-Carolina Rock Hill, South Carolina Atlanta, Georgia Baltimore, Maryland
United States Aluminum of Canada-British Columbia, Ltd. Langley, British Columbia, Canada
United States Aluminum of Canada-Ontario, Ltd. Burlington, Ontario, Canada
		ALUMINUM EXTRUSION
COMMERCIAL (Interior Products)		Robert Dunn Executive Vice President Aluminum Extrusion Group
John C. Poe General Manager		International Extrusion Corporation Alhambra, California
Raco Interior Products, Inc. Houston, Texas Waxahachie, Texas		International Extrusion Corporation-Texas Waxahachie, Texas

International Aluminum Corporation 767 Monterey Pass Road Monterey Park, California 91754
Tel:		(323) 264-1670
Fax:		(323) 266-3838
Web:		www.intlalum.com

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REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS