10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For quarter ended December 31, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from               to

Commission File Number 1-7256

INTERNATIONAL ALUMINUM CORPORATION

(Exact name of Registrant as specified in its charter)

California	95-2385235
(State of incorporation)	(I.R.S. Employer Identification No.)

767 Monterey Pass Road

Monterey Park, California 91754

(323) 264-1670

(Principal executive office and telephone number, including area code)

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  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

(Check one):

Large accelerated filer  o Accelerated filer  x Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No  x

At February 2, 2007 there were 4,308,119 shares of Common Stock outstanding.

INTERNATIONAL ALUMINUM CORPORATION

INDEX

			Page
PART I.      Financial Information
Item 1.		Financial Statements.
Condensed Consolidated Balance Sheets - December 31, 2006 and June 30, 2006 (unaudited)			3
Condensed Consolidated Statements of Income - three months and six months ended  December 31, 2006 and 2005 (unaudited)			4
Condensed Consolidated Statements of Cash Flows - six months ended December 31, 2006 and 2005 (unaudited)			5
Notes to Condensed Consolidated Financial Statements (unaudited)			6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		16
Item 4.	Controls and Procedures.		16
PART II.      Other Information
Item 1.	Legal Proceedings.		17
Item 6.	Exhibits.		17
Signatures			18

2

PART I – FINANCIAL INFORMATION

Unaudited

Item 1.     Financial Statements.

International Aluminum Corporation

Condensed Consolidated Balance Sheets

	Dec. 31, 2006			June 30, 2006
Assets
Current assets:
Cash and cash equivalents	$	16,616,000		$	20,446,000
Accounts receivable, net	51,868,000			49,825,000
Inventories	49,129,000			46,917,000
Prepaid expenses and deposits	4,559,000			1,856,000
Deferred income taxes	3,104,000			3,104,000
Total current assets	125,276,000			122,148,000
Property, plant and equipment, at cost	129,975,000			129,639,000
Accumulated depreciation	(83,411,000		)	(81,846,000		)
Net property, plant and equipment	46,564,000			47,793,000
Other assets:
Goodwill	668,000			689,000
Other	2,999,000			2,318,000
Total other assets	3,667,000			3,007,000
Total Assets	$	175,507,000		$	172,948,000
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	13,047,000		$	16,619,000
Accrued liabilities	16,189,000			15,282,000
Income taxes payable	—			1,863,000
Total current liabilities	29,236,000			33,764,000
Deferred income taxes	5,527,000			5,527,000
Total liabilities	34,763,000			39,291,000
Shareholders’ equity	140,744,000			133,657,000
Total Liabilities and Shareholders’ Equity	$	175,507,000		$	172,948,000

See accompanying notes to condensed consolidated financial statements.

3

Unaudited

International Aluminum Corporation

Condensed Consolidated Statements of Income

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
Net sales	$	76,124,000		$	65,730,000		$	156,746,000		$	133,987,000
Cost of sales	58,134,000			51,057,000			117,424,000			103,999,000
Gross profit	17,990,000			14,673,000			39,322,000			29,988,000
Selling, general and  administrative expenses	12,254,000			9,679,000			23,163,000			19,278,000
Income from operations	5,736,000			4,994,000			16,159,000			10,710,000
Interest (income) expense, net	(115,000		)	(84,000		)	(240,000		)	(135,000		)
Income before income taxes	5,851,000			5,078,000			16,399,000			10,845,000
Provision for income taxes	2,230,000			1,500,000			6,260,000			3,680,000
Net income	$	3,621,000		$	3,578,000		$	10,139,000		$	7,165,000
Basic and diluted EPS:
Continuing operations	$	.84		$	.83		$	2.35		$	1.67
Shares used to compute EPS:
Basic	4,306,104			4,295,631			4,305,775			4,285,074
Diluted	4,307,412			4,297,327			4,307,078			4,288,362
Cash dividends per share	$	.30		$	.30		$	.60		$	.60

See accompanying notes to condensed consolidated financial statements.

4

Unaudited

International Aluminum Corporation

Condensed Consolidated Statements of Cash Flows

	Six Months Ended
	December  31,
	2006			2005
Cash flows from operating activities:
Net income	$	10,139,000		$	7,165,000
Adjustments for noncash transactions:
Depreciation and amortization	2,846,000			2,937,000
Changes in assets and liabilities:
Receivables	(2,275,000		)	1,122,000
Inventories	(2,335,000		)	314,000
Prepaid expenses and other	(3,389,000		)	(1,843,000		)
Accounts payable	(3,384,000		)	2,488,000
Accrued liabilities	923,000			(327,000		)
Income taxes payable	(1,917,000		)	(1,515,000		)
Net cash provided by operating activities	608,000			10,341,000
Cash flows from investing activities:
Capital expenditures	(1,954,000		)	(4,102,000		)
Proceeds from sales of capital assets	49,000			102,000
Net cash used in investing activities	(1,905,000		)	(4,000,000		)
Cash flows from financing activities:
Dividends paid to shareholders	(2,584,000		)	(2,575,000		)
Exercise of stock options	92,000			984,000
Net cash used in financing activities	(2,492,000		)	(1,591,000		)
Effect of exchange rate changes	(41,000		)	49,000
Net change in cash and cash equivalents	(3,830,000		)	4,799,000
Cash and cash equivalents at beginning of period	20,446,000			12,437,000
Cash and cash equivalents at end of period	$	16,616,000		$	17,236,000

See accompanying notes to condensed consolidated financial statements.

5

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

6

Unaudited

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding.  Diluted earnings per share is computed by dividing net income by the weighted-average common 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.

7

Unaudited

Segment Information

The Company’s operations are organized and managed by product type.  The Company currently operates in three segments of the building products industry:  Commercial Products, Residential Products and Aluminum 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

8

Unaudited

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.

9

Unaudited

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.

10

Unaudited

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.

11

Unaudited

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.

12

Unaudited

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.

13

Unaudited

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.

14

Unaudited

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.

15

Unaudited

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.

16

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

Klotzer, et al. v. International Windows In Time, Inc.

As described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2006, 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.  There were no material developments in this matter during the period covered by this quarterly report.

Other Matters

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.

Item 6.  Exhibits.

The following exhibits are filed as part of this report:

(a)Exhibits:

10.1	Amendment to Change of Control Agreement dated as of September 8, 2006, between International Aluminum Corporation and Ronald L.Rudy
10.2	Amendment to Change of Control Agreement dated as of September 8, 2006, between International Aluminum Corporation and William G.Gainer
10.3	Amendment to Change of Control Agreement dated as of September 8, 2006, between International Aluminum Corporation and Mitchell K.Fogelman
10.4	Amendment to Change of Control Agreement dated as of September 8, 2006, between International Aluminum Corporation and Michael J.Norring
10.5	Agreement and Plan of Merger dated as of January 9, 2007 among International Aluminum Corporation, IAC Holding Co. and IAL Acquisition Co., as previously filed on Form 8-K dated January 9,2007, is hereby incorporated by reference
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

17

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		International Aluminum Corporation
		(Registrant)
Date:	February 7, 2007	/S/MITCHELL K. FOGELMAN
		Mitchell K. Fogelman
		Senior Vice President — Finance
		(Principal Financial Officer)
Date:	February 7, 2007	/S/MICHAEL J. NORRING
		Michael J. Norring
		Controller
		(Principal Accounting Officer)

18

INDEX TO EXHIBITS

The following exhibits are filed as part of this report:

		Page
10.1	Amendment to Change of Control Agreement dated as of
	September 8, 2006, between International Aluminum
	Corporation and Ronald L. Rudy	20
10.2	Amendment to Change of Control Agreement dated as of
	September 8, 2006, between International Aluminum
	Corporation and William G. Gainer	21
10.3	Amendment to Change of Control Agreement dated as of
	September 8, 2006, between International Aluminum
	Corporation and Mitchell K. Fogelman	22
10.4	Amendment to Change of Control Agreement dated as of
	September 8, 2006, between International Aluminum
	Corporation and Michael J. Norring	23
31.1	Certification of the Chief Executive Officer pursuant
	to Section 302 of the Sarbanes-Oxley Act of 2002	24
31.2	Certification of the Chief Financial Officer pursuant
	to Section 302 of the Sarbanes-Oxley Act of 2002	25
32.1	Certification of the Chief Executive Officer and Chief
	Financial Officer pursuant to 18 U.S.C. Section 1350 as
	adopted pursuant to Section 906 of the Sarbanes-Oxley Act
	of 2002	26

19

EX-10.1

Exhibit 10.1

AMENDMENT TO CHANGE OF CONTROL AGREEMENT

Now, on this 13th day of November 2006, the Change of Control Agreement dated September 8, 2006, between International Aluminum Corporation, a California corporation, and Ronald L. Rudy is hereby amended as follows:

Section 3.4 entitled “Payment of Severance Payment; Release Agreement” is hereby amended to include as a new paragraph (c) thereof, the following:

(c)   The parties intend that any Severance Payment pursuant to this Agreement either shall not constitute “deferred compensation” or shall otherwise qualify for exemption from excise and other tax penalties applicable under Section 409A of the Internal Revenue Code.  If it is determined that a Severance Payment under this Agreement otherwise would be subject to excise or other tax penalty under said Section 409A the Company and the Executive shall amend the terms of this Agreement to the minimum extent necessary so that such Severance Payment will not be subject to excise or other tax penalty under said Section 409A.

IN WITNESS WHEREOF, the Company and the Executive have executed this amendment as of the date set forth above.

International Aluminum Corporation

By:	/s/ Cornelius C. Vanderstar
	Cornelius C. Vanderstar
	Chairman of the Board
/s/ Ronald L. Rudy
Ronald L. Rudy

20

EX-10.2

Exhibit 10.2

AMENDMENT TO CHANGE OF CONTROL AGREEMENT

Now, on this 13th day of November 2006, the Change of Control Agreement dated September 8, 2006, between International Aluminum Corporation, a California corporation, and William G. Gainer is hereby amended as follows:

Section 3.4 entitled “Payment of Severance Payment; Release Agreement” is hereby amended to include as a new paragraph (c) thereof, the following:

(c)   The parties intend that any Severance Payment pursuant to this Agreement either shall not constitute “deferred compensation” or shall otherwise qualify for exemption from excise and other tax penalties applicable under Section 409A of the Internal Revenue Code.  If it is determined that a Severance Payment under this Agreement otherwise would be subject to excise or other tax penalty under said Section 409A the Company and the Executive shall amend the terms of this Agreement to the minimum extent necessary so that such Severance Payment will not be subject to excise or other tax penalty under said Section 409A.

IN WITNESS WHEREOF, the Company and the Executive have executed this amendment as of the date set forth above.

International Aluminum Corporation
By:	/s/ Ronald L. Rudy
Ronald L. Rudy
President and Chief Executive Officer
/s/ William G. Gainer
William G. Gainer

21

EX-10.3

Exhibit 10.3

AMENDMENT TO CHANGE OF CONTROL AGREEMENT

Now, on this 13th day of November 2006, the Change of Control Agreement dated September 8, 2006, between International Aluminum Corporation, a California corporation, and Mitchell K. Fogelman is hereby amended as follows:

Section 3.4 entitled “Payment of Severance Payment; Release Agreement” is hereby amended to include as a new paragraph (c) thereof, the following:

(c)   The parties intend that any Severance Payment pursuant to this Agreement either shall not constitute “deferred compensation” or shall otherwise qualify for exemption from excise and other tax penalties applicable under Section 409A of the Internal Revenue Code.  If it is determined that a Severance Payment under this Agreement otherwise would be subject to excise or other tax penalty under said Section 409A the Company and the Executive shall amend the terms of this Agreement to the minimum extent necessary so that such Severance Payment will not be subject to excise or other tax penalty under said Section 409A.

IN WITNESS WHEREOF, the Company and the Executive have executed this amendment as of the date set forth above.

International Aluminum Corporation
By:	/s/ Ronald L. Rudy
	Ronald L. Rudy
	President and Chief Executive Officer
/s/ Mitchell K. Fogelman
Mitchell K. Fogelman

22

EX-10.4

Exhibit 10.4

AMENDMENT TO CHANGE OF CONTROL AGREEMENT

Now, on this 13th day of November 2006, the Change of Control Agreement dated September 8, 2006, between International Aluminum Corporation, a California corporation, and Michael J. Norring is hereby amended as follows:

Section 3.4 entitled “Payment of Severance Payment; Release Agreement” is hereby amended to include as a new paragraph (c) thereof, the following:

(c)   The parties intend that any Severance Payment pursuant to this Agreement either shall not constitute “deferred compensation” or shall otherwise qualify for exemption from excise and other tax penalties applicable under Section 409A of the Internal Revenue Code.  If it is determined that a Severance Payment under this Agreement otherwise would be subject to excise or other tax penalty under said Section 409A the Company and the Executive shall amend the terms of this Agreement to the minimum extent necessary so that such Severance Payment will not be subject to excise or other tax penalty under said Section 409A.

IN WITNESS WHEREOF, the Company and the Executive have executed this amendment as of the date set forth above.

International Aluminum Corporation
By:	/s/ Ronald L. Rudy
	Ronald L. Rudy
	President and Chief Executive Officer
/s/ Michael J. Norring
Michael J. Norring

23

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald L. Rudy, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of International Aluminum Corporation;

2.Based on my knowledge, this 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 report;

3.Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  February 7, 2007	/S/RONALD L. RUDY
	Ronald L. Rudy
	President and
	Chief Executive Officer

24

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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 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 report;

3.Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 7, 2007	/S/MITCHELL K. FOGELMAN
	Mitchell K. Fogelman
	Senior Vice President — Finance
	and Chief Financial Officer

25

EX-32.1

Exhibit 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of International Aluminum Corporation (the “Company”) on Form 10-Q for the period ended December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), we the undersigned certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 7, 2007	/S/ RONALD L. RUDY
	Ronald L. Rudy
	President and
	Chief Executive Officer
Date: February 7, 2007	/S/MITCHELL K. FOGELMAN
	Mitchell K. Fogelman
	Senior Vice President — Finance
	and Chief Financial Officer

26