SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000 Commission file number 1-13905
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COMPX INTERNATIONAL INC.
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(Exact name of Registrant as specified in its charter)
Delaware 57-0981653
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(State or other jurisdiction of (IRS Employer incorporation or
organization) Identification No.)
16825 Northchase Drive, Suite 1200, Houston. Texas 77060
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 423-3377
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) 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
Number of shares of Class A common stock outstanding on May 5, 2000: 6,149,380.
COMPX INTERNATIONAL INC.
INDEX
Page
number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1999
and March 31, 2000 3-4
Consolidated Statements of Income -
Three months ended March 31, 1999 and 2000 5
Consolidated Statements of Comprehensive Income -
Three months ended March 31, 1999 and 2000 6
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 2000 7
Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 2000 8-9
Notes to Consolidated Financial Statements 10-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-15
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 16
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31 March 31,
1999 2000
---- ----
Current assets:
Cash and cash equivalents ........................ $ 12,169 $ 13,717
Accounts receivable .............................. 29,053 30,997
Income taxes receivable from affiliates .......... 22 --
Refundable income taxes .......................... 462 352
Inventories ...................................... 27,659 34,374
Prepaid expenses and other ....................... 1,858 1,794
Deferred income taxes ............................ 1,258 893
-------- --------
Total current assets ......................... 72,481 82,127
-------- --------
Other assets:
Goodwill ......................................... 41,697 43,474
Other intangible assets .......................... 2,787 2,697
Deferred income taxes ............................ 2,499 1,885
Other ............................................ 203 579
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Total other assets ........................... 47,186 48,635
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Property and equipment:
Land ............................................. 3,549 3,480
Buildings ........................................ 27,898 27,432
Equipment ........................................ 70,242 71,884
Construction in progress ......................... 6,710 8,048
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108,399 110,844
Less accumulated depreciation .................... 25,154 26,656
-------- --------
Net property and equipment ................... 83,245 84,188
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$202,912 $214,950
======== ========
See accompanying notes to consolidated financial statements.
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31,
1999 2000
---- ----
Current liabilities:
Current maturities of long-term debt ........... $ 1,367 $ 1,161
Accounts payable and accrued liabilities ....... 25,389 23,679
Income taxes payable to affiliates ............. -- 116
Income taxes ................................... 91 476
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Total current liabilities .................. 26,847 25,432
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Noncurrent liabilities:
Long-term debt ................................. 20,900 32,043
Deferred income taxes .......................... 3,223 3,102
Accrued pension costs .......................... 1,209 1,222
Other .......................................... 1,274 1,212
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Total noncurrent liabilities ............... 26,606 37,579
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Minority interest ................................ 103 --
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Stockholders' equity:
Preferred stock ................................ -- --
Class A common stock ........................... 61 61
Class B common stock ........................... 100 100
Additional paid-in capital ..................... 118,067 118,103
Retained earnings .............................. 37,415 41,964
Accumulated other comprehensive income
- currency translation ........................ (6,287) (8,289)
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Total stockholders' equity ................. 149,356 151,939
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$ 202,912 $ 214,950
========= =========
Commitments and contingencies (Note 1)
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1999 and 2000
(In thousands)
1999 2000
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Net sales .............................................. $ 55,204 $ 66,067
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Costs and expenses:
Cost of sales ........................................ 39,071 48,523
Selling, general and administrative .................. 6,534 6,818
Other income, net .................................... (125) (227)
Interest expense ..................................... 394 533
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45,874 55,647
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Income before income taxes and minority interest ... 9,330 10,420
Provision for income taxes ............................. 3,451 3,855
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Income before minority interest .................... 5,879 6,565
Minority interest ...................................... (42) (3)
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Net income ......................................... $ 5,921 $ 6,568
======== ========
Basic and diluted earnings per common share ............ $ .37 $ .41
======== ========
Cash dividends per share ............................... $ -- $ 0.125
======== ========
Shares used in the calculation of per share amounts:
Basic earnings per common share ...................... 16,145 16,148
Dilutive impact of outstanding stock options ......... 1 8
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Diluted earnings per common share .................... 16,146 16,156
======== ========
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31, 1999 and 2000
(In thousands)
1999 2000
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Net income ........................................... $ 5,921 $ 6,568
Other comprehensive income -
currency translation adjustment, net of tax ........ (2,566) (2,002)
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Comprehensive income ........................... $ 3,355 $ 4,566
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COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 2000
(In thousands)
Accumulated
other
comprehensive
Additional income - Total
Common Stock paid-in Retain currency stockholders'
Class A Class B capital earnings translation equity
------- ------- ---------- --------- ------------- ---------
Balance at December 31, 1999 .. $ 61 $ 100 $ 118,067 $ 37,415 $ (6,287) $ 149,356
Net income .................... -- -- -- 6,568 -- 6,568
Other comprehensive income, net -- -- -- -- (2,002) (2,002)
Cash dividends ................ -- -- -- (2,019) -- (2,019)
Issuance of common stock ...... -- -- 36 -- -- 36
--------- --------- --------- --------- --------- ---------
Balance at March 31, 2000 ..... $ 61 $ 100 $ 118,103 $ 41,964 $ (8,289) $ 151,939
========= ========= ========= ========= ========= =========
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1999 and 2000
(In thousands)
1999 2000
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Cash flows from operating activities:
Net income ....................................... $ 5,921 $ 6,568
Depreciation and amortization .................... 2,348 3,235
Deferred income taxes ............................ 25 326
Other, net ....................................... 49 (354)
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8,343 9,775
Change in assets and liabilities:
Accounts receivable ............................ (1,255) (635)
Inventories .................................... (355) (2,692)
Accounts payable and accrued liabilities ....... (5,247) (1,547)
Accounts with affiliates ....................... 40 (33)
Income taxes ................................... (411) 606
Other, net ..................................... (366) (237)
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Net cash provided by operating activities .... 749 5,237
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Cash flows from investing activities:
Capital expenditures ............................. (5,543) (4,322)
Purchase of business units ....................... (52,110) (9,409)
Other, net ....................................... 40 263
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Net cash used by investing activities ........ (57,613) (13,468)
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Cash flows from financing activities:
Indebtedness:
Additions ..................................... 20,000 12,062
Principal payments ............................ (192) (375)
Dividends ........................................ -- (2,019)
Issuance of common stock ......................... -- 36
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Net cash provided by financing activities .... 19,808 9,704
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Net increase (decrease) in cash and cash equivalents $(37,056) $ 1,473
======== ========
See accompanying notes to consolidated financial statements.
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended March 31, 1999 and 2000
(In thousands)
1999 2000
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Cash and cash equivalents:
Net change from operating, investing
and financing activities ...................... $(37,056) $ 1,473
Business units acquired ........................ 4,157 250
Currency translation ........................... 75 (175)
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(32,824) 1,548
Balance at beginning of period ................. 47,363 12,169
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Balance at end of period ....................... $ 14,539 $ 13,717
======== ========
Supplemental disclosures:
Cash paid for:
Interest ..................................... $ 158 $ 453
Income taxes ................................. 3,715 2,915
Business units acquired - net assets consolidated:
Cash and cash equivalents .................... $ 4,157 $ 250
Goodwill and other intangible assets ......... 14,826 2,514
Other non-cash assets ........................ 52,799 8,429
Liabilities .................................. (19,672) (1,784)
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Cash paid .................................... $ 52,110 $ 9,409
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COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation:
The consolidated balance sheet of CompX International Inc. and
Subsidiaries (collectively, the "Company") at December 31, 1999 has been
condensed from the Company's audited consolidated financial statements at that
date. The consolidated balance sheet at March 31, 2000 and the consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for the interim periods ended March 31, 1999 and 2000 have been prepared by the
Company, without audit. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operations and cash flows have been
made. The results of operations for the interim periods are not necessarily
indicative of the operating results for a full year or of future operations.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "1999 Annual Report").
Basic earnings per share of common stock is based upon the weighted
average number of common shares actually outstanding during each period. Diluted
earnings per share of common stock includes the impact of outstanding dilutive
stock options.
Commitments and contingencies are discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the 1999
Annual Report.
The Company is 64% owned by Valhi, Inc. (NYSE: VHI) and Valhi's
wholly-owned subsidiary Valcor, Inc. Contran Corporation holds, directly or
through subsidiaries, approximately 93% of Valhi's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held either by trusts
established for the benefit of certain children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee, or by Mr. Simmons directly. Mr.
Simmons, the Chairman of the Board and Chief Executive Officer of each of
Contran, Valhi and Valcor, may be deemed to control such companies and the
Company.
The Company will adopt Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, no later than the first quarter of 2001. Under SFAS No. 133, all
derivatives will be recognized as either assets or liabilities and measured at
fair value. The accounting for changes in fair value of derivatives will depend
upon the intended use of the derivative. The impact on the Company of adopting
SFAS No. 133, if any, has not yet been determined, but will be dependent upon
the extent to which the Company is a party to derivative contracts or hedging
activities covered by SFAS No. 133 at the time of adoption, including
derivatives embedded in non-derivative host contracts. As permitted by the
transition requirements of SFAS No. 133, as amended, the Company will exempt
from the scope of SFAS No. 133 all host contracts containing embedded
derivatives which were issued or acquired prior to January 1, 1999.
Note 2 - Business segment information:
The Company operates in one business segment - the manufacture and sale
of ergonomic and slide products (ergonomic computer support systems and
precision ball bearing slides) and security products for furniture and other
markets.
Three months ended
March 31,
1999 2000
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(In thousands)
Net sales .................................... $ 55,204 $ 66,067
======== ========
Operating income ............................. $ 9,599 $ 10,726
Interest expense ............................. (394) (533)
General corporate income, net ................ 125 227
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Income before income taxes ............... $ 9,330 $ 10,420
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Note 3 - Inventories:
December 31, March 31,
1999 2000
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(In thousands)
Raw materials ............................ $ 9,038 $14,005
Work in process .......................... 8,669 8,993
Finished products ........................ 9,898 11,323
Supplies ................................. 54 53
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$27,659 $34,374
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Note 4 - Accounts payable and accrued liabilities:
December 31, March 31,
1999 2000
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(In thousands)
Accounts payable ........................... $ 9,850 $10,831
Accrued liabilities:
Employee benefits ........................ 7,746 8,715
Insurance ................................ 707 647
Royalties ................................ 504 260
Other .................................... 6,582 3,226
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$25,389 $23,679
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Note 5 - Indebtedness:
December 31, March 31,
1999 2000
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(In thousands)
Revolving bank credit facility ................... $20,000 $32,000
Capital lease obligations and other .............. 2,267 1,204
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22,267 33,204
Less current maturities .......................... 1,367 1,161
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$20,900 $32,043
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Note 6 - Other income:
Three months ended
March 31,
1999 2000
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(In thousands)
Interest income ................................... $ 245 $ 128
Foreign currency transactions, net ................ (193) 84
Other, net ........................................ 73 15
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$ 125 $ 227
===== =====
Note 7 - Provision for income taxes:
Three months ended
March 31,
1999 2000
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(In thousands)
Expected tax expense ............................... $ 3,266 $ 3,647
Non - U.S. tax rates ............................... 58 62
No tax benefit for amortization of goodwill ........ 147 156
Other, net ......................................... (20) (10)
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$ 3,451 $ 3,855
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Note 8 - Acquisition:
In January 2000, the Company acquired substantially all of the
operating assets of Chicago Lock Company for approximately $9.4 million in cash.
The purchase price has been allocated to the individual assets acquired and
liabilities assumed based upon preliminary estimated fair values. The actual
allocation may be different from the preliminary allocation due to refinements
in the estimates of the fair values of the net assets acquired. CompX used
borrowings under its existing credit facility to pay the cash purchase price.
The pro forma effect of this acquisition is not material.
Note 9 - Foreign currency forward contracts:
Certain of the Company's sales generated by its non-U.S. operations are
denominated in U.S. dollars. The Company periodically uses currency forward
contracts to manage a portion of foreign exchange rate risk associated with
receivables denominated in a currency other than the holder's functional
currency. At each balance sheet date, any such outstanding currency forward
contract is marked-to-market with any resulting gain or loss recognized in
income currently. At March 31, 2000, the Company held contracts designated as a
hedge against such receivables to exchange an aggregate of U.S. $9.1 million for
an equivalent amount of Canadian dollars at exchange rates ranging between Cdn.
$1.460 and Cdn. $1.457. Such contracts mature through June 2000. Subsequent to
March 31, 2000, to manage exchange rate risk associated with future sales, the
Company entered into additional forward exchange contracts to exchange an
aggregate of $18.1 million for an equivalent amount of Canadian dollars at
exchange rates between Cdn. $1.4547 and Cdn. $1.4676. Such contracts mature
through December 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Overview
The Company reported net income of $6.6 million in the first quarter of
2000, an increase of 11% over net income of $5.9 million for the first quarter
of 1999. In January 2000, the company acquired substantially all the operating
assets of Chicago Lock Company. The purchase price of approximately $9.4 million
in cash includes substantially all of Chicago Lock's operating assets excluding
real estate.
Results of Operations
Net sales. Net sales increased $10.9 million, or 20%, to $66.1 million
in the first quarter of 2000 from $55.2 million in the first quarter of 1999.
The increase is principally due to increased demand for the Company's office
furniture products, market share gains in slide products and acquisitions.
Excluding the effect of acquisitions, net sales increased 7% over the first
quarter of 1999 with net sales of slides increasing 13%, ergonomics net sales
increasing 7%, and net sales of security products remaining essentially flat.
During the first quarter of 2000, weakness in the euro negatively impacted
certain of the Company's net sales (principally slide products) which are
denominated in euros. Excluding the effects of currency and acquisitions, net
sales increased 9% with net sales of slide products increasing 15% over the
first quarter of 1999.
Operating income. Operating income in the first quarter of 2000 was
$10.7 million compared to $9.6 million for the first quarter of 1999. Excluding
acquisitions and the negative effects of foreign currency fluctuations,
discussed above, operating income increased 16% over the first quarter of 1999.
The increase is due primarily to increased net sales. As a percentage of net
sales, overall operating income was 16% compared to 17% for the first quarter of
1999. The decline is due to lower margin security products sales generated by
the Company's newly acquired Chicago Lock subsidiary and due to a change in
product mix with increased sales of lower margin slide products.
Liquidity and Capital Resources
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities and non-cash stock award charges,
are generally similar to the trends in the Company's earnings. Such cash flows
totaled $8.3 million and $9.8 million in the first quarter of 1999 and 2000,
respectively, compared to net income of $5.9 million and $6.6 million,
respectively.
Changes in assets and liabilities result primarily from the timing of
production, sales and purchases. Such changes in assets and liabilities
generally tend to even out over time and result in trends in cash flows from
operating activities generally reflecting earnings trends.
Investing activities. Net cash used by investing activities totaled
$57.6 million and $13.5 million in the first quarter of 1999 and 2000,
respectively. Included in cash used by investing activities in the first
quarters of 1999 and 2000 is the $52.1 million and $9.4 million related to the
acquisitions of Thomas Regout and substantially all of the operating assets of
Chicago Lock Company, respectively.
The capital expenditures for 2000 relate primarily to capacity expansion
and tooling costs at the Company's facilities, equipment additions designed to
improve manufacturing efficiencies at the Company's security products facilities
and the development of electronic commerce capabilities. Capital expenditures
for 2000 are estimated at approximately $25 million, the majority of which
relate to projects that emphasize improved production efficiency and increased
production capacity and further development of electronic commerce capabilities.
In connection with the expansion of one of its domestic production facilities,
the Company has outstanding firm purchase commitments of $2.2 million at March
31, 2000. Firm purchase commitments for capital projects not commenced at March
31, 2000 were not material.
Financing activities. Net cash provided by financing activities totaled
$19.8 million and $9.7 million in the first quarter of 1999 and 2000,
respectively. The Company paid its regular quarterly dividend of $2.0 million,
or $.125 per share, in the first quarter of 2000. No dividends were paid during
the first quarter of 1999. Cash flows from financing activities in the first
quarter of 1999 includes $20.0 million of borrowings used to finance a portion
of the acquisition of Thomas Regout. Similarly, cash flows from financing
activities in the first quarter of 2000 includes $12 million of borrowings, $9
million of which were used to finance the acquisition of substantially all of
the assets of Chicago Lock Company.
Management believes that cash generated from operations and borrowing
availability under the Company's unsecured Revolving Senior Credit Facility ($68
million available for borrowing at March 31, 2000), together with cash on hand,
will be sufficient to meet the Company's liquidity needs for working capital,
capital expenditures, debt service and dividends.
The Company periodically evaluates its liquidity requirements,
alternative uses of capital, capital needs and available resources in view of,
among other things, its capital expenditure requirements in light of its capital
resources and estimated future operating cash flows. As a result of this
process, the Company may in the future seek to raise additional capital,
refinance or restructure indebtedness, issue additional securities, modify its
dividend policy or take a combination of such steps to manage its liquidity and
capital resources. In the normal course of business, the Company may review
opportunities for acquisitions, joint ventures or other business combinations in
the component products industry. In the event of any such transaction, the
Company may consider using available cash, issuing additional equity securities
or increasing the indebtedness of the Company or its subsidiaries.
The statements in this Quarterly Report on Form 10-Q relating to
matters that are not historical facts are forward-looking statements based on
management's beliefs and assumptions using currently available information.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurance that
these expectations will prove to be correct. Such statements by their nature
involve substantial risks and uncertainties that could significantly impact
expected results, and actual future results could differ materially from those
described in such forward-looking statements. Among the factors that could cause
actual future results to differ materially are the risks and uncertainties
discussed in this Quarterly Report and those described from time to time in the
Company's other filings with the Securities and Exchange Commission. While it is
not possible to identify all factors, the Company continues to face many risks
and uncertainties including, but not limited to, future supply and demand for
the Company's products, cost of raw materials, general global economic and
political conditions, demand for office furniture, service industry employment
levels, the possibility of labor disruptions, competitive products and prices,
substitute products, customer and competitor strategies, the introduction of
tariff or non-tariff trade barriers, the impact of pricing and production
decisions, potential difficulties in integrating completed acquisitions,
environmental matters (such as those requiring emission and discharge standards
for existing and new facilities), government regulations and possible changes
therein, possible future litigation and other risks and uncertainties. Should
one or more of these risks materialize (or the consequences of such a
development worsen), or should the underlying assumptions prove incorrect,
actual results could differ materially from those forecasted or expected. The
Company disclaims any intention or obligation to update or revise any
forward-looking statement whether as a result of new information, future events
or otherwise.
Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule for the three-month period ended
March 31, 2000.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 1999.
January 11, 2000 - Reported Items 5 and 7. January 18,
2000 - Reported Items 5 and 7. January 21, 2000 - Reported
Items 5 and 7. February 11, 2000 - Reported Items 5 and 7.
March 29, 2000 - Reported Items 5 and 7.
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.
COMPX INTERNATIONAL INC.
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(Registrant)
Date May 12, 2000 By /s/ John A. Miller
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John A. Miller
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date May 12, 2000 By /s/ Todd W. Strange
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Todd W. Strange
Vice President and Controller
(Principal Accounting Officer)