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cix-10q_20210630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2021

☐

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 1-13905

COMPX INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)

Delaware		57-0981653
(State or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)
5430 LBJ Freeway, Suite 1700, Three Lincoln Centre, Dallas, Texas		75240-2620
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (972) 448-1400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Class A common stock

CIX

NYSE American

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of July 29, 2021, the registrant had 12,405,657 shares of Class A common stock, $.01 par value per share, outstanding.

COMPX INTERNATIONAL INC.

Index

Part I.	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets – December 31, 2020 and June 30, 2021 (unaudited)	- 3 -
	Condensed Consolidated Statements of Income (unaudited) – Three and six months ended June 30, 2020 and 2021	- 4 -
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – Three and six months ended June 30, 2020 and 2021	- 5 -
	Condensed Consolidated Statements of Cash Flows (unaudited) – Six months ended June 30, 2020 and 2021	- 6 -
	Notes to Condensed Consolidated Financial Statements (unaudited)	- 7 -
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	- 11 -
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	- 16 -
Item 4.	Controls and Procedures	- 16 -
Part II.	OTHER INFORMATION
Item 1A.	Risk Factors	- 18 -
Item 6.	Exhibits	- 18 -
Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

- 2 -

COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31,		June 30,
	2020		2021
ASSETS			(unaudited)
Current assets:
Cash and cash equivalents	$	70,637	$	70,374
Accounts receivable, net		10,731		16,642
Inventories, net		18,337		19,948
Prepaid expenses and other		1,541		1,886
Total current assets		101,246		108,850
Other assets:
Note receivable from affiliate		29,500		26,000
Goodwill		23,742		23,742
Other noncurrent		607		598
Total other assets		53,849		50,340
Property and equipment:
Land		4,940		4,940
Buildings		23,146		23,146
Equipment		68,227		69,317
Construction in progress		1,010		1,246
		97,323		98,649
Less accumulated depreciation		68,373		69,940
Net property and equipment		28,950		28,709
Total assets	$	184,045	$	187,899

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	12,198	$	11,874
Income taxes payable to affiliate		952		980
Total current liabilities		13,150		12,854
Noncurrent liabilities -
Deferred income taxes		3,239		3,706
Stockholders' equity:
Preferred stock		—		—
Class A common stock		124		124
Additional paid-in capital		55,987		55,336
Retained earnings		111,545		115,879
Total stockholders' equity		167,656		171,339
Total liabilities and stockholders’ equity	$	184,045	$	187,899

Commitments and contingencies (Note 1)

See accompanying Notes to Condensed Consolidated Financial Statements.

- 3 -

COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	Three months ended				Six months ended
	June 30,				June 30,
	2020		2021		2020		2021
	(unaudited)
Net sales	$	23,800	$	36,253	$	56,111	$	72,177
Cost of sales		16,434		24,947		38,314		49,836
Gross margin		7,366		11,306		17,797		22,341
Selling, general and administrative expense		4,997		5,548		10,408		10,766
Operating income		2,369		5,758		7,389		11,575
Interest income		370		318		977		656
Income before income taxes		2,739		6,076		8,366		12,231
Provision for income taxes		674		1,456		2,030		2,926
Net income	$	2,065	$	4,620	$	6,336	$	9,305

Basic and diluted net income per common share	$	0.17	$	0.37	$	0.51	$	0.75

Basic and diluted weighted average shares outstanding		12,446		12,403		12,445		12,423

See accompanying Notes to Condensed Consolidated Financial Statements.

- 4 -

COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

	Three months ended June 30, 2020 and 2021 (unaudited)
	Class A		Additional									Total
	common		paid-in			Retained			Treasury			stockholders'
	stock		capital			earnings			stock			equity

Balance at March 31, 2020	$	124	$	55,869		$	109,229		$	—		$	165,222
Net income		—		—			2,065			—			2,065
Issuance of common stock		—		118			—			—			118
Cash dividends ($0.10 per share)		—					(1,245	)		—			(1,245	)
Balance at June 30, 2020	$	124	$	55,987		$	110,049		$	—		$	166,160

Balance at March 31, 2021	$	124	$	55,232		$	113,740		$	—		$	169,096
Net income		—		—			4,620			—			4,620
Issuance of common stock		—		104			—			—			104
Cash dividends ($0.20 per share)		—		—			(2,481	)					(2,481	)
Balance at June 30, 2021	$	124	$	55,336		$	115,879		$	—		$	171,339

	Six months ended June 30, 2020 and 2021 (unaudited)
	Class A		Additional									Total
	common		paid-in			Retained			Treasury			stockholders'
	stock		capital			earnings			stock			equity

Balance at December 31, 2019	$	124	$	55,869		$	106,202		$	—		$	162,195
Net income		—		—			6,336			—			6,336
Issuance of common stock		—		118			—			—			118
Cash dividends ($0.20 per share)		—		—			(2,489	)		—			(2,489	)
Balance at June 30, 2020	$	124	$	55,987		$	110,049		$	—		$	166,160

Balance at December 31, 2020	$	124	$	55,987		$	111,545		$	—		$	167,656
Net income		—		—			9,305			—			9,305
Issuance of common stock		—		104			—			—			104
Cash dividends ($0.40 per share)		—		—			(4,971	)		—			(4,971	)
Treasury stock:													—
Acquired		—		—			—			(755	)		(755	)
Retired		—		(755	)		—			755			—
Balance at June 30, 2021	$	124	$	55,336		$	115,879		$	-		$	171,339

See accompanying Notes to Condensed Consolidated Financial Statements.

- 5 -

COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six months ended
	June 30,
	2020			2021
	(unaudited)
Cash flows from operating activities:
Net income	$	6,336		$	9,305
Depreciation and amortization		1,912			1,900
Deferred income taxes		60			467
Other, net		207			185
Change in assets and liabilities:
Accounts receivable, net		529			(5,910	)
Inventories, net		(3,555	)		(1,691	)
Accounts payable and accrued liabilities		(2,415	)		(393	)
Accounts with affiliates		1,674			112
Prepaids and other, net		197			(414	)
Net cash provided by operating activities		4,945			3,561
Cash flows from investing activities:
Capital expenditures		(861	)		(1,598	)
Note receivable from affiliate:
Collections		20,628			22,200
Advances		(23,028	)		(18,700	)
Net cash provided by (used in) investing activities		(3,261	)		1,902
Cash flows from financing activities:
Dividends paid		(2,489	)		(4,971	)
Treasury stock acquired		—			(755	)
Net cash used in financing activities		(2,489	)		(5,726	)
Cash and cash equivalents - net change from:
Operating, investing and financing activities		(805	)		(263	)
Balance at beginning of period		63,255			70,637
Balance at end of period	$	62,450		$	70,374
Supplemental disclosures -
Cash paid for income taxes	$	850		$	2,439

See accompanying Notes to Condensed Consolidated Financial Statements.

- 6 -

COMPX INTERNATIONAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

(unaudited)

Note 1 – Organization and basis of presentation:

Organization. We (NYSE American: CIX) were approximately 87% owned by NL Industries, Inc. (NYSE: NL) at June 30, 2021. We manufacture and sell component products (security products and recreational marine components). At June 30, 2021, Valhi, Inc. (NYSE: VHI) owned approximately 83% of NL’s outstanding common stock and a wholly-owned subsidiary of Contran Corporation owned approximately 92% of Valhi’s outstanding common stock. A majority of Contran's outstanding voting stock is held directly by Lisa K. Simmons and various family trusts established for the benefit of Ms. Simmons, Thomas C. Connelly (the husband of Ms. Simmons’ late sister) and their children and for which Ms. Simmons or Mr. Connelly, as applicable, serve as trustee (collectively, the “Other Trusts”). With respect to the Other Trusts for which Mr. Connelly serves as trustee, he is required to vote the shares of Contran voting stock held in such trusts in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons last through April 22, 2030 and are personal to Ms. Simmons. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and her late sister and their children and for which a third-party financial institution serves as trustee. Consequently, at June 30, 2021 Ms. Simmons and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi, NL and us.

Basis of presentation. Consolidated in this Quarterly Report are the results of CompX International Inc. and its subsidiaries. The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 that we filed with the Securities and Exchange Commission (“SEC”) on March 3, 2021 (the “2020 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, 2020 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, 2020) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim periods ended June 30, 2021 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our 2020 Consolidated Financial Statements contained in our 2020 Annual Report.

Our operations are reported on a 52 or 53-week year. For presentation purposes, annual and quarterly information in the Condensed Consolidated Financial Statements and accompanying notes are presented as ended June 30, 2020, December 31, 2020 and June 30, 2021. The actual dates of our annual and quarterly periods are June 28, 2020, January 3, 2021 and July 4, 2021, respectively. Unless otherwise indicated, references in this report to “we”, “us” or “our” refer to CompX International Inc. and its subsidiaries, taken as a whole.

- 7 -

Note 2 – Business segment information:

	Three months ended						Six months ended
	June 30,						June 30,
	2020			2021			2020			2021
	(In thousands)
Net sales:
Security Products	$	18,573		$	27,587		$	44,042		$	53,472
Marine Components		5,227			8,666			12,069			18,705
Total net sales	$	23,800		$	36,253		$	56,111		$	72,177

Operating income (loss):
Security Products	$	3,361		$	5,845		$	9,074		$	11,335
Marine Components		799			1,598			1,881			3,541
Corporate operating expenses		(1,791	)		(1,685	)		(3,566	)		(3,301	)
Total operating income		2,369			5,758			7,389			11,575
Interest income		370			318			977			656
Income before income taxes	$	2,739		$	6,076		$	8,366		$	12,231

Intersegment sales are not material.

Note 3 – Accounts receivable, net:

	December 31,			June 30,
	2020			2021
	(In thousands)
Accounts receivable, net:
Security Products	$	8,797		$	13,731
Marine Components		2,004			2,981
Allowance for doubtful accounts		(70	)		(70	)
Total accounts receivable, net	$	10,731		$	16,642

Note 4 – Inventories, net:

	December 31,		June 30,
	2020		2021
	(In thousands)
Raw materials:
Security Products	$	2,318	$	3,470
Marine Components		902		940
Total raw materials		3,220		4,410
Work-in-process:
Security Products		9,214		9,282
Marine Components		2,454		3,122
Total work-in-process		11,668		12,404
Finished goods:
Security Products		2,235		1,908
Marine Components		1,214		1,226
Total finished goods		3,449		3,134
Total inventories, net	$	18,337	$	19,948

- 8 -

Note 5 – Accounts payable and accrued liabilities:

	December 31,		June 30,
	2020		2021
	(In thousands)
Accounts payable:
Security Products	$	1,859	$	2,645
Marine Components		773		1,109
Accrued liabilities:
Employee benefits		8,431		6,806
Taxes other than on income		301		406
Customer tooling		393		266
Other		441		642
Total accounts payable and accrued liabilities	$	12,198	$	11,874

Note 6 – Provision for income taxes:

	Three months ended						Six months ended
	June 30,						June 30,
	2020			2021			2020			2021
	(In thousands)
Expected tax expense, at the U.S. federal statutory income tax rate of 21%	$	575		$	1,276		$	1,757		$	2,569
State income taxes		97			200			294			400
FDII benefit		(4	)		(17	)		(32	)		(40	)
Other, net		6			(3	)		11			(3