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, 2002 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
organization) Identification No.)
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 448-1400
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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 3, 2002: 5,103,280.
COMPX INTERNATIONAL INC.
INDEX
Page
number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 2001
and March 31, 2002 3-4
Consolidated Statements of Income -
Three months ended March 31, 2001 and 2002 5
Consolidated Statements of Comprehensive Income -
Three months ended March 31, 2001 and 2002 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 2001 and 2002 7-8
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 2002 9
Notes to Consolidated Financial Statements 10-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 16-19
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 20
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, March 31,
2001 2002
------ -------
Current assets:
Cash and cash equivalents ........................ $ 33,309 $ 32,643
Accounts receivable, net ......................... 23,422 24,490
Income taxes receivable from affiliates .......... 351 351
Other receivable from affiliate .................. -- 48
Refundable income taxes .......................... 2,032 2,165
Inventories ...................................... 30,902 29,108
Prepaid expenses and other ....................... 2,902 2,777
Deferred income taxes ............................ 1,944 1,885
-------- --------
Total current assets ......................... 94,862 93,467
-------- --------
Other assets:
Goodwill ......................................... 38,882 38,687
Other intangible assets .......................... 2,440 2,458
Deferred income taxes ............................ 3,132 3,036
Prepaid rent ..................................... 1,079 1,066
Other ............................................ 577 395
-------- --------
Total other assets ........................... 46,110 45,642
-------- --------
Property and equipment:
Land ............................................. 4,368 4,332
Buildings ........................................ 26,182 26,284
Equipment ........................................ 92,683 96,245
Construction in progress ......................... 4,618 4,363
-------- --------
127,851 131,224
Less accumulated depreciation .................... 42,815 45,916
-------- --------
Net property and equipment ................... 85,036 85,308
-------- --------
$226,008 $224,417
======== ========
See accompanying notes to consolidated financial statements.
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31,
2001 2002
-------- ---------
Current liabilities:
Current maturities of long-term debt ........... $ 56 $ 49,044
Accounts payable and accrued liabilities ....... 23,168 22,206
Payable to affiliate ........................... 15 120
Deferred income taxes .......................... 291 290
Income taxes ................................... 1,000 900
--------- ---------
Total current liabilities .................. 24,530 72,560
--------- ---------
Noncurrent liabilities:
Long-term debt ................................. 49,000 --
Deferred income taxes .......................... 7,573 8,429
Accrued pension costs .......................... 660 --
Deferred gain on sale/leaseback ................ 1,221 1,159
--------- ---------
Total noncurrent liabilities ............... 58,454 9,588
--------- ---------
Stockholders' equity:
Preferred stock ................................ -- --
Class A common stock ........................... 62 62
Class B common stock ........................... 100 100
Additional paid-in capital ..................... 119,224 119,224
Retained earnings .............................. 50,966 50,409
Accumulated other comprehensive income
- currency translation ........................ (16,013) (16,211)
Treasury stock ................................. (11,315) (11,315)
--------- ---------
Total stockholders' equity ................. 143,024 142,269
--------- ---------
$ 226,008 $ 224,417
========= =========
Commitments and contingencies (Note 1)
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2001 and 2002
(In thousands, except per share data)
2001 2002
---- ----
Net sales .............................................. $ 59,583 $ 48,569
Cost of sales .......................................... 45,711 38,862
-------- --------
13,872 9,707
Selling, general and administrative .................... 7,067 7,187
-------- --------
Operating income ................................... 6,805 2,520
Other general corporate income, net .................... (239) (311)
Interest expense ....................................... 804 683
-------- --------
Income before income taxes ......................... 6,240 2,148
Provision for income taxes ............................. 2,515 817
-------- --------
Net income ......................................... $ 3,725 $ 1,331
======== ========
Basic and diluted earnings per common share ............ $ .24 $ .09
======== ========
Cash dividends per share ............................... $ 0.125 $ 0.125
======== ========
Shares used in the calculation of per share amounts:
Basic earnings per common share ...................... 15,255 15,103
Dilutive impact of outstanding stock options ......... 1 14
-------- --------
Diluted earnings per common share .................... 15,256 15,117
======== ========
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31, 2001 and 2002
(In thousands)
2001 2002
---- ----
Net income ........................................... $ 3,725 $ 1,331
Other comprehensive loss -
currency translation adjustment, net of tax ........ (3,503) (198)
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Comprehensive income ........................... $ 222 $ 1,133
======= =======
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2001 and 2002
(In thousands)
2001 2002
---- ----
Cash flows from operating activities:
Net income ............................................. $ 3,725 $ 1,331
Depreciation and amortization .......................... 3,596 3,080
Deferred income taxes .................................. 334 1,010
Other, net ............................................. 103 (258)
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7,758 5,163
Change in assets and liabilities:
Accounts receivable .................................. (833) (1,377)
Inventories .......................................... (803) 1,794
Accounts payable and accrued liabilities ............. (5,409) (963)
Accounts with affiliates ............................. 174 57
Income taxes ......................................... 1,153 (233)
Other, net ........................................... (80) 73
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Net cash provided by operating activities .......... 1,960 4,514
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Cash flows from investing activities -
capital expenditures .................................... (3,766) (3,699)
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Cash flows from financing activities:
Indebtedness:
Additions ........................................... 7,000 --
Principal payments .................................. (2,268) (13)
Dividends .............................................. (1,890) (1,888)
Common stock reacquired ................................ (2,442) --
------- -------
Net cash provided (used) by financing activities ... 400 (1,901)
------- -------
Net decrease in cash and cash equivalents ................ $(1,406) $(1,086)
======= =======
See accompanying notes to consolidated financial statements.
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended March 31, 2001 and 2002
(In thousands)
2001 2002
---- ----
Cash and cash equivalents:
Net change from operating, investing
and financing activities ................... $(1,406) $ (1,086)
Currency translation ........................ 296 420
------- --------
(1,110) (666)
Balance at beginning of period .............. 9,820 33,309
------- --------
Balance at end of period .................... $ 8,710 $ 32,643
======= ========
Supplemental disclosures:
Cash paid for:
Interest .................................. $ 963 $ 581
Income taxes .............................. 1,054 173
See accompanying notes to consolidated financial statements.
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 2002
(In thousands)
Accumulated
other
comprehensive
Additional income (loss)- Total
Common Stock paid-in Retained currency Treasury stockholders'
Class A Class B capital earnings translation stock equity
------- ------- ------- -------- --------- --------- --------
Balance at December 31, 2001 $62 $100 $119,224 $ 50,966 $(16,013) $(11,315) $ 143,024
Net income .................. -- -- -- 1,331 -- -- 1,331
Other comprehensive loss, net -- -- -- -- (198) -- (198)
Cash dividends .............. -- -- -- (1,888) -- -- (1,888)
--- ---- -------- -------- -------- -------- ---------
Balance at March 31, 2002 ... $62 $100 $119,224 $ 50,409 $(16,211) $(11,315) $ 142,269
=== ==== ======== ======== ======== ======== =========
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, 2001 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 2002 and the consolidated statements of
income, comprehensive income, stockholders' equity and cash flows for the
interim periods ended March 31, 2001 and 2002 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 accounting principles generally accepted in the United States of America
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, 2001 (the "2001 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 2001 Annual
Report.
The Company is 69% owned by Valhi, Inc. (NYSE: VHI) and Valhi's
wholly-owned subsidiary Valcor, Inc. Contran Corporation holds, directly or
through subsidiaries, approximately 94% of Valhi's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee. 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.
Note 2 - Business segment information:
The Company defines its operations in terms of three operating segments -
CompX Security Products, CompX Waterloo and CompX Europe. The CompX Security
Products segment, with manufacturing facilities in South Carolina and Illinois,
manufactures locking mechanisms and other security products for sales to the
office furniture, banking, vending, computer and other industries. The CompX
Waterloo segment, with facilities in Canada, Michigan and Taiwan, and the CompX
Europe segment, with facilities in the Netherlands, both manufacture a complete
line of precision ball bearing slides for use in office furniture,
computer-related equipment, tool storage cabinets and other applications, and
manufacture or distribute ergonomic computer support systems for office
furniture. Because of the similar economic characteristics between the CompX
Waterloo and CompX Europe segments and due to the identical products, customer
types, production processes and distribution methods shared by these two
segments, they have been aggregated into a single reportable segment for segment
reporting purposes.
Three months ended
March 31,
2001 2002
---- ----
(In thousands)
Net sales:
CompX Waterloo/CompX Europe .................. $ 39,057 $ 30,388
CompX Security Products ...................... 20,526 18,181
-------- --------
Total net sales ............................ $ 59,583 $ 48,569
======== ========
Operating income:
CompX Waterloo/CompX Europe .................. $ 4,234 $ 411
CompX Security Products ...................... 2,571 2,109
-------- --------
Total operating income ..................... 6,805 2,520
Interest expense ............................... (804) (683)
Other general corporate income, net ............ 239 311
-------- --------
Income before income taxes ................... $ 6,240 $ 2,148
======== ========
Note 3 - Inventories:
December 31, March 31,
2001 2002
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(In thousands)
Raw materials ............................ $ 9,677 $ 8,787
Work in process .......................... 12,619 12,416
Finished products ........................ 8,494 7,849
Supplies ................................. 112 56
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$30,902 $29,108
======= =======
Note 4 - Goodwill and other intangible assets:
Goodwill. Changes in the carrying amount of goodwill is presented in the
table below.
Operating segment
CompX Waterloo/ CompX Security
CompX Europe Products Total
(In millions)
Balance at December 31, 2001 ................ $15.2 $23.7 $38.9
Goodwill acquired during
the period ................................. -- -- --
Changes in foreign exchange rates ........... (.2) -- (.2)
----- ----- -----
Balance at March 31, 2002 ................... $15.0 $23.7 $38.7
===== ===== =====
Upon adoption of SFAS No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002 (See Note 10), the goodwill related to the CompX
Security Products segment and the CompX Waterloo/CompX Europe segment was
assigned to reporting units (as defined in SFAS No. 142) consisting of the
reportable operating segments to which the goodwill relates.
Other intangible assets. Other intangible assets consisting of the
estimated fair value of certain patents acquired, are stated net of accumulated
amortization of $1.1 million at March 31, 2002 (December 31, 2001 - $1.0
million). Such intangible assets have been, and will continue to be after
adoption of SFAS No. 142 effective January 1, 2002, amortized by the
straight-line method over the lives of the patents (approximately 11 years
remaining at March 31, 2002) with no assumed residual value at the end of the
life of the patents. Amortization expense of intangible assets was approximately
$60,000 in each of the first three months of 2001 and 2002, and is expected to
be approximately $250,000 in each of calendar years 2002 through 2006.
Note 5 - Accounts payable and accrued liabilities:
December 31, March 31,
2001 2002
------ ------
(In thousands)
Accounts payable $ 9,459 $ 9,655
Accrued liabilities:
Employee benefits .............................. 6,619 6,685
Insurance ...................................... 361 427
Royalties ...................................... 223 157
Restructuring .................................. 2,278 1,733
Deferred gain on sale/leaseback ................ 479 503
Other .......................................... 3,749 3,046
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$23,168 $22,206
======= =======
In 2001, a charge of $2.7 million was recorded related to a consolidation
and rationalization of CompX's European operations. This restructuring effort
included headcount reductions of about 35 employees at the Company's Maastricht,
the Netherlands facility, substantially all of which had been implemented by
December 31, 2001. Through March 31, 2002, approximately $1.0 million of the
total charge has been paid. Of the remainder, $1.2 million is expected to be
paid in the last nine months of 2002 and $500,000 in 2003.
Note 6 - Indebtedness:
December 31, March 31,
2001 2002
------ -------
(In thousands)
Revolving bank credit facility, due February 2003 ...... $49,000 $49,000
Capital lease obligations and other .................... 56 44
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49,056 49,044
Less current maturities ................................ 56 49,044
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$49,000 $ --
======= =======
Note 7 - Other general corporate income, net:
Three months ended
March 31,
2001 2002
---- ----
(In thousands)
Interest income ...................................... $ 153 $ 184
Foreign currency transactions, net ................... 109 (290)
Defined benefit pension plan settlement gain ......... -- 677
Other, net ........................................... (23) (260)
----- -----
$ 239 $ 311
===== =====
As of January 1, 2001, the Company ceased providing future benefits under a
defined benefit pension plan covering substantially all full-time employees of
Thomas Regout International B.V. This action reduced certain pension benefit
obligations and resulted in a curtailment gain in the fourth quarter of 2001.
Certain other remaining obligations related to the terminated plan were fully
settled during the first quarter of 2002, resulting in a settlement gain of
approximately $677,000.
Note 8 - Provision for income taxes:
Three months ended
March 31,
2001 2002
---- ----
(In thousands)
Expected tax expense ................................. $ 2,184 $ 752
Non-U.S. tax rates ................................... (97) (87)
No tax benefit for amortization of goodwill .......... 174 --
Other, net ........................................... 254 152
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$ 2,515 $ 817
======= =====
Note 9 - Accounting principles newly adopted in 2002:
Goodwill. The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets, effective January 1,
2002. Under SFAS No. 142, goodwill is no longer amortized on a periodic basis.
Goodwill is subject to an impairment test to be performed at least on an annual
basis, and impairment reviews may result in future periodic write-downs charged
to earnings. Under the transition provisions of SFAS No. 142, all goodwill
existing as of June 30, 2001 ceased to be periodically amortized as of January
1, 2002, and all goodwill arising in a purchase business combination completed
on or after July 1, 2001 was not periodically amortized from the date of such
combination.
As discussed in Note 4, the Company has assigned its goodwill to two
reporting units (as that term is defined in SFAS No. 142). Under SFAS No. 142,
such goodwill will be deemed to not be impaired if the estimated fair value of
the CompX Security Products and CompX Waterloo/CompX Europe reporting units
exceeds the respective net carrying value of such reporting units, including the
allocated goodwill. If the fair value of the reporting unit is less than
carrying value, then a goodwill impairment loss would be recognized equal to the
excess, if any, of the net carrying value of the reporting unit goodwill over
its implied fair value (up to a maximum impairment equal to the carrying value
of the goodwill). The implied fair value of reporting unit goodwill would be the
amount equal to the excess of the estimated fair value of the reporting unit
over the amount that would be allocated to the tangible and intangible net
assets of the reporting unit (including unrecognized intangible assets) as if
such reporting unit had been acquired in a purchase business combination
accounted for in accordance with GAAP as of the date of the impairment testing.
In determining the estimated fair value of the reporting units, the Company
will use discounted cash flows valuation techniques.
The Company has completed its initial, transitional goodwill impairment
analysis under SFAS No. 142 as of January 1, 2002, and no goodwill impairments
were deemed to exist. In accordance with the requirements of SFAS No. 142, the
Company will review goodwill of the reporting units for impairment during the
third quarter of each year starting in 2002. Goodwill will also be reviewed for
impairment at other times during each year when events or changes in
circumstances indicate that an impairment might be present.
As shown in the following table, the Company would have reported net income
of $4.2 million, or $.28 per share, for the three months ended March 31, 2001 if
the goodwill amortization included in the Company's reported net income had not
been recognized.
Three months ended
March 31,
2001 2002
---- ----
(In millions, except
per share amounts)
Net income as reported ............................... $ 3.7 $ 1.3
Adjustment - goodwill amortization ................... .5 --
----- -----
Adjusted net income .................................. $ 4.2 $ 1.3
===== =====
Diluted net income per share as reported ............. $ .24 $ .09
Adjustment - goodwill amortization ................... .04 --
----- -----
Adjusted diluted net income per share ................ $ .28 $ .09
===== =====
Impairment of long-lived assets. The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, effective
January 1, 2002. SFAS No. 144 retains the fundamental provisions of existing
GAAP with respect to the recognition and measurement of long-lived asset
impairment contained in SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Lived-Lived Assets to be Disposed Of. However, SFAS
No. 144 provides new guidance intended to address certain implementation issues
associated with SFAS No. 121, including expanded guidance with respect to
appropriate cash flows to be used to determine whether recognition of any
long-lived asset impairment is required, and if required how to measure the
amount of the impairment. SFAS No. 144 also requires that any net assets to be
disposed of by sale are to be reported at the lower of carrying value or fair
value less cost to sell, and expands the reporting of discontinued operations to
include any component of an entity with operations and cash flows that can be
clearly distinguished from the rest of the entity. Adoption of SFAS No. 144 did
not have a significant effect on the Company as of January 1, 2002.
Note 10 - Accounting principles not yet adopted:
The Company will adopt SFAS No. 143, Accounting for Asset Retirement
Obligations, no later than January 1, 2003. Under SFAS No. 143, the fair value
of a liability for an asset retirement obligation covered under the scope of
SFAS No. 143 would be recognized in the period in which the liability is
incurred, with an offsetting increase in the carrying amount of the related
long-lived asset. Over time, the liability would be accreted to its present
value, and the capitalized cost would be depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity would either settle
the obligation for its recorded amount or incur a gain or loss upon settlement.
The Company is still studying this standard to determine, among other things,
whether it has any asset retirement obligations which are covered under the
scope of SFAS No. 143, and the effect, if any, to the Company of adopting SFAS
No. 143 has not yet been determined.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Overview
The Company reported net income of $1.3 million in the first quarter of
2002, a decrease of 64% from net income of $3.7 million for the first quarter of
2001.
As discussed in Note 9 to the Consolidated Financial Statements, beginning
in 2002 the Company no longer recognizes periodic amortization of goodwill in
its results of operations. The Company would have reported net income of
approximately $4.2 million in the first quarter of 2001, or about $500,000
higher, if goodwill amortization included in the Company's reported net income
had not been recognized. Of such $500,000 difference, approximately $200,000
relates to amortization of goodwill attributable to the Company's CompX
Waterloo/CompX Europe segment and $300,000 relates to the Company's CompX
Security Products segment.
Results of Operations
Three months ended
March 31,
----------------- %
2001 2002 Change
---- ---- ------
(In millions)
Net sales:
CompX Waterloo/CompX Europe ........... $39,057 $30,388 -22%
CompX Security Products ............... 20,526 18,181 -11%
------- ----
Total net sales ..................... $59,583 $48,569 -18%
======= ====
Operating income:
CompX Waterloo/CompX Europe ........... $ 4,234 $ 411 -90%
CompX Security Products ............... 2,571 2,109 -18%
------- ----
Total operating income .............. $ 6,805 $ 2,520 -63%
======= ====
Net sales. Net sales decreased $11.0 million, or 18%, to $48.6 million in
the first quarter of 2002 from $59.6 million in the first quarter of 2001. The
decrease is principally due to decreased demand for the Company's office
furniture products resulting from continued weak economic conditions in the
manufacturing sector in North America and Europe, and the negative effects of
fluctuations in currency exchange rates. Net sales of slide products decreased
27% in the first quarter of 2002 compared to the first quarter of 2001, and net
sales of ergonomic and security products decreased 23% and 11%, respectively for
the same comparable periods.
Operating income. Operating income in the first quarter of 2002 was $2.5
million compared to $6.8 million for the first quarter of 2001, decreasing 63%
over the first quarter of 2001. As a percentage of net sales, operating income
was 5% for the first quarter of 2002 compared to 11% for the first quarter of
2001. Despite the positive effects of continued cost reductions and no
amortization of goodwill in 2002, operating income for the first quarter of 2002
as compared to the first quarter of 2001 was adversely impacted by the
continuing decline in volume levels and the related impact on manufacturing
efficiencies together with the effects of changes in the sales mix (particularly
at the CompX Waterloo/CompX Europe segment). Operating income at the CompX
Waterloo/CompX Europe segment decreased 90% in the first three months of 2002
compared to the first quarter of 2001, while operating income at the CompX
Security Products segment decreased 18% for the same period. If goodwill
amortization included in CompX's reported operating income had not been
recognized during the first three months of 2001, total operating income would
have decreased 66% in the first three months of 2002 compared to the first three
months of 2001. Similarly, operating income at the CompX Security Products
segment would have decreased 28% and operating income at the CompX
Waterloo/CompX Europe segment would have decreased 91% for the same comparable
period. Note 9 to the Consolidated Financial Statements more fully discusses the
transitional impact of the adoption of SFAS No. 142 as of January 1, 2002.
CompX has substantial operations and assets located outside the United
States (principally in Canada, the Netherlands and Taiwan). A portion of CompX's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S. dollar, principally the Canadian dollar, the euro and the New
Taiwan dollar. In addition, approximately 60% of CompX's sales generated from
its Canadian operations are denominated in the U.S. dollar. Most raw materials,
labor and other production costs for such non-U.S. operations are denominated
primarily in local currencies. Consequently, the translated U.S. dollar value of
CompX's foreign sales and operating results are subject to currency exchange
rate fluctuations which may favorably or unfavorably impact reported earnings
and may affect comparability of period-to-period operating results. During the
first quarter of 2002, currency exchange rate fluctuations of the Canadian
dollar, the New Taiwan dollar and the euro negatively impacted the Company's
sales comparisons with the corresponding period of the prior year (principally
with respect to slide products). Excluding the effect of currency, the Company's
sales decreased 17% in the first quarter of 2002 compared to the corresponding
period in 2001 and the sales of the Company's CompX Waterloo/CompX Europe
segment decreased 19% for the same period. Currency exchange rate fluctuations
with respect to the Canadian dollar positively affected CompX's operating income
comparisons with the corresponding period of the prior year whereas exchange
rate fluctuations in the euro, New Taiwan dollar and other currencies did not
materially impact these operating income comparisons. Excluding the effect of
currency, operating income decreased 67% in the first quarter of 2002 compared
to 2001 and operating income for the CompX Waterloo/CompX Europe segment
decreased 97%.
Outlook. The current weak economic cycle is expected to continue and will
resultantly have a negative impact on CompX's results for the remainder of 2002.
Given the uncertainty of the overall economic conditions and that a significant
portion of CompX's revenue is derived from the office furniture industry which
tends to lag in its recovery behind the rest of the economy, CompX continues to
balance its focus on opportunities outside of the office furniture industry.
Focus on cost improvement initiatives and prudent balance sheet management also
continues in order to minimize the impact of lower sales to the office furniture
industry and to favorably position the Company to meet demand when the economy
recovers.
General Corporate and other items
Other general corporate income, net. The components of other general
corporate income, net are summarized in Note 7 to the Consolidated Financial
Statements, and primarily include interest income, foreign currency transaction
gains and losses and a settlement gain relating to CompX's terminated defined
benefit pension plan. See Note 7 to the Consolidated Financial Statements.
Interest income increased in the first quarter of 2002 as compared to the
corresponding period in 2001 primarily due to a higher level of funds available
for investment. Also included in other general corporate income, net are other
gains and losses on disposals of property and equipment and other assets.
Interest expense. Interest expense declined in the first quarter of 2002
compared to the first quarter of 2001 due primarily to lower average interest
rates on CompX's Revolving Senior Credit Facility. Assuming interest rates do
not increase significantly from year-end 2001 levels, interest expense in the
remainder of 2002 is expected to continue to be lower compared to the same
periods in 2001 due to anticipated debt reduction in 2002 using available cash
on hand.
Provision for income taxes. The principal reasons for the difference
between CompX's effective income tax rates and the U.S. federal statutory income
tax rates are explained in Note 8 to the Consolidated Financial Statements.
Income tax rates vary by jurisdiction (county and/or state), and relative
changes in the geographic mix of CompX's pre-tax earnings can result in
fluctuations in the effective income tax rate.
As discussed in Note 9 to the Consolidated Financial Statements, effective
January 1, 2002, the Company no longer recognizes periodic amortization of
goodwill. Under GAAP, generally there is no income tax benefit recognized for
financial reporting purposes attributable to goodwill amortization. Accordingly,
ceasing to periodically amortize goodwill beginning in 2002 resulted in a
reduction in the Company's overall effective income tax rate as compared to
2001.
Liquidity and Capital Resources
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities, are generally similar to the trends
in the Company's earnings. Such cash flows totaled $7.8 million and $5.2 million
in the first quarter of 2001 and 2002, respectively, compared to net income of
$3.7 million and $1.3 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 $3.8
million and $3.7 million in the first quarter of 2001 and 2002, respectively.
The capital expenditures for 2002 relate primarily to tooling costs at the
Company's facilities and equipment additions designed to improve manufacturing
efficiencies at the Company's security products and ergonomic and slide products
facilities. Capital expenditures for 2002 are estimated at approximately $10
million to $13 million, the majority of which relate to projects that emphasize
improved production efficiency and shifting production capacity to lower cost
facilities. Firm purchase commitments for capital projects not commenced at
March 31, 2002 approximated $1.2 million.
Financing activities. Net cash provided (used) by financing activities
totaled $400,000 and ($1.9) million in the first quarter of 2001 and 2002,
respectively. The Company paid its regular quarterly dividend of $1.9 million,
or $.125 per share, in the first quarter of 2002.
CompX's board of directors has authorized CompX to purchase up to 1.5
million shares of its common stock in open market or privately-negotiated
transactions over an unspecified period of time. Through March 31, 2002, the
Company had purchased 1.1 million shares pursuant to such authorization for an
aggregate of $11.3 million. None of such shares were purchased during 2002.
Management believes that cash generated from operations and borrowing
availability under the Company's unsecured revolving bank credit facility ($51
million available for borrowing at March 31, 2002), together with cash on hand,
will be sufficient to meet the Company's liquidity needs for working capital,
capital expenditures, debt service and dividends for the foreseeable future.
CompX expects to renew its existing revolving bank credit facility prior to its
expiration in February 2003. There can be no assurance however, that such
renewal will occur, or that the Company will be able to obtain comparable terms
under the new credit facility.
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 has in the past and may in the future seek to raise additional capital,
refinance or restructure indebtedness, issue additional securities, modify its
dividend policy, repurchase shares of its common stock 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,
divestitures, 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.
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
Quarterly Report on Form 10-Q relating to matters that are not historical facts
are forward-looking statements that represent management's beliefs and
assumptions based on currently available information. Forward-looking statements
can be identified by the use of words such as "believes," "intends," "may,"
"should," "anticipates," "expected" or comparable terminology, or by discussions
of strategies or trends. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it cannot give any
assurances 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, changes in
costs of raw materials and other operating costs (such as energy costs), 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 trade barriers, the impact of pricing and production
decisions, fluctuations in the value of the U.S. dollar relative to other
currencies (such as the euro, Canadian dollar and New Taiwan dollar), potential
difficulties in integrating completed acquisitions, uncertainties associated
with new product development, environmental matters (such as those requiring
emission and discharge standards for existing and new facilities), government
regulations and possible changes therein, possible future litigation, the
ability of the Company to renew or obtain credit facilities 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 publicly
or revise such statements 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
None
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 2002.
None
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.
-----------------------------
(Registrant)
Date May 9, 2002 By /s/ Stuart M. Bitting
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Stuart M. Bitting
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date May 9, 2002 By /s/ Darryl R. Halbert
--------------- ---------------------------
Darryl R. Halbert
Vice President and Controller
(Principal Accounting Officer)