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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 September 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 October 28, 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 September 30, 2021 (unaudited)

  - 3 -

 

 

  

 

Condensed Consolidated Statements of Income (unaudited) – Three and nine months ended September 30, 2020 and 2021

  - 4 -

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – Three and nine months ended September 30, 2020 and 2021

  - 5 -

 

 

  

 

Condensed Consolidated Statements of Cash Flows (unaudited) – Nine months ended September 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,

 

 

September 30,

 

 

2020

 

 

2021

 

ASSETS

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

70,637

 

 

$

75,959

 

Accounts receivable, net

 

10,731

 

 

 

15,106

 

Inventories, net

 

18,337

 

 

 

23,536

 

Prepaid expenses and other

 

1,541

 

 

 

3,056

 

Total current assets

 

101,246

 

 

 

117,657

 

Other assets:

 

 

 

 

 

 

 

Note receivable from affiliate

 

29,500

 

 

 

21,800

 

Goodwill

 

23,742

 

 

 

23,742

 

Other noncurrent

 

607

 

 

 

598

 

Total other assets

 

53,849

 

 

 

46,140

 

Property and equipment:

 

 

 

 

 

 

 

Land

 

4,940

 

 

 

5,070

 

Buildings

 

23,146

 

 

 

23,161

 

Equipment

 

68,227

 

 

 

69,974

 

Construction in progress

 

1,010

 

 

 

1,240

 

 

 

97,323

 

 

 

99,445

 

Less accumulated depreciation

 

68,373

 

 

 

70,902

 

Net property and equipment

 

28,950

 

 

 

28,543

 

Total assets

$

184,045

 

 

$

192,340

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

12,198

 

 

$

14,294

 

Income taxes payable to affiliate

 

952

 

 

 

1,391

 

Total current liabilities

 

13,150

 

 

 

15,685

 

Noncurrent liabilities -

 

 

 

 

 

 

 

Deferred income taxes

 

3,239

 

 

 

3,665

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock

 

—

 

 

 

—

 

Class A common stock

 

124

 

 

 

124

 

Additional paid-in capital

 

55,987

 

 

 

55,336

 

Retained earnings

 

111,545

 

 

 

117,530

 

Total stockholders' equity

 

167,656

 

 

 

172,990

 

Total liabilities and stockholders’ equity

$

184,045

 

 

$

192,340

 

 

 

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

 

 

Nine months ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

(unaudited)

 

Net sales

$

28,426

 

 

$

34,556

 

 

$

84,537

 

 

$

106,733

 

Cost of sales

 

21,098

 

 

 

23,634

 

 

 

59,412

 

 

 

73,470

 

Gross margin

 

7,328

 

 

 

10,922

 

 

 

25,125

 

 

 

33,263

 

Selling, general and administrative expense

 

5,246

 

 

 

5,791

 

 

 

15,654

 

 

 

16,557

 

Operating income

 

2,082

 

 

 

5,131

 

 

 

9,471

 

 

 

16,706

 

Interest income

 

360

 

 

 

289

 

 

 

1,337

 

 

 

945

 

Income before income taxes

 

2,442

 

 

 

5,420

 

 

 

10,808

 

 

 

17,651

 

Provision for income taxes

 

610

 

 

 

1,288

 

 

 

2,640

 

 

 

4,214

 

Net income

$

1,832

 

 

$

4,132

 

 

$

8,168

 

 

$

13,437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income per common share

$

0.15

 

 

$

0.33

 

 

$

0.66

 

 

$

1.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares outstanding

 

12,451

 

 

 

12,406

 

 

 

12,447

 

 

 

12,417

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

- 4 -

 

COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

 

Three months ended September 30, 2020 and 2021 (unaudited)

 

 

Class A

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

common

 

 

paid-in

 

 

Retained

 

 

Treasury

 

 

stockholders'

 

 

stock

 

 

capital

 

 

earnings

 

 

stock

 

 

equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

$

124

 

 

$

55,987

 

 

$

110,049

 

 

$

—

 

 

$

166,160

 

Net income

 

—

 

 

 

—

 

 

 

1,832

 

 

 

—

 

 

 

1,832

 

Cash dividends ($0.10 per share)

 

—

 

 

 

—

 

 

 

(1,245

)

 

 

—

 

 

 

(1,245

)

Balance at September 30, 2020

$

124

 

 

$

55,987

 

 

$

110,636

 

 

$

—

 

 

$

166,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2021

$

124

 

 

$

55,336

 

 

$

115,879

 

 

$

—

 

 

$

171,339

 

Net income

 

—

 

 

 

—

 

 

 

4,132

 

 

 

—

 

 

 

4,132

 

Cash dividends ($0.20 per share)

 

—

 

 

 

—

 

 

 

(2,481

)

 

 

—

 

 

 

(2,481

)

Balance at September 30, 2021

$

124

 

 

$

55,336

 

 

$

117,530

 

 

$

—

 

 

$

172,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 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

 

—

 

 

 

—

 

 

 

8,168

 

 

 

—

 

 

 

8,168

 

Issuance of common stock

 

—

 

 

 

118

 

 

 

—

 

 

 

—

 

 

 

118

 

Cash dividends ($0.30 per share)

 

—

 

 

 

—

 

 

 

(3,734

)

 

 

—

 

 

 

(3,734

)

Balance at September 30, 2020

$

124

 

 

$

55,987

 

 

$

110,636

 

 

$

—

 

 

$

166,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

$

124

 

 

$

55,987

 

 

$

111,545

 

 

$

—

 

 

$

167,656

 

Net income

 

—

 

 

 

—

 

 

 

13,437

 

 

 

—

 

 

 

13,437

 

Issuance of common stock

 

—

 

 

 

104

 

 

 

—

 

 

 

—

 

 

 

104

 

Cash dividends ($0.60 per share)

 

—

 

 

 

—

 

 

 

(7,452

)

 

 

—

 

 

 

(7,452

)

Treasury stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Acquired

 

—

 

 

 

—

 

 

 

—

 

 

 

(755

)

 

 

(755

)

  Retired

 

—

 

 

 

(755

)

 

 

—

 

 

 

755

 

 

 

—

 

Balance at September 30, 2021

$

124

 

 

$

55,336

 

 

$

117,530

 

 

$

—

 

 

$

172,990

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

- 5 -

COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

Nine months ended

 

 

September 30,

 

 

2020

 

 

2021

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

8,168

 

 

$

13,437

 

Depreciation and amortization

 

2,872

 

 

 

2,861

 

Deferred income taxes

 

199

 

 

 

426

 

Other, net

 

256

 

 

 

323

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

(423

)

 

 

(4,374

)

Inventories, net

 

(937

)

 

 

(5,417

)

Accounts payable and accrued liabilities

 

(934

)

 

 

1,908

 

Accounts with affiliates

 

239

 

 

 

523

 

Prepaids and other, net

 

(195

)

 

 

(1,592

)

Net cash provided by operating activities

 

9,245

 

 

 

8,095

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(1,291

)

 

 

(2,266

)

Note receivable from affiliate:

 

 

 

 

 

 

 

Collections

 

22,828

 

 

 

33,100

 

Advances

 

(25,228

)

 

 

(25,400

)

Net cash provided by (used in) investing activities

 

(3,691

)

 

 

5,434

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Dividends paid

 

(3,734

)

 

 

(7,452

)

Treasury stock acquired

 

—

 

 

 

(755

)

Net cash used in financing activities

 

(3,734

)

 

 

(8,207

)

Cash and cash equivalents - net change from:

 

 

 

 

 

 

 

Operating, investing and financing activities

 

1,820

 

 

 

5,322

 

Balance at beginning of period

 

63,255

 

 

 

70,637

 

Balance at end of period

$

65,075

 

 

$

75,959

 

Supplemental disclosures -

 

 

 

 

 

 

 

Cash paid for income taxes

$

2,767

 

 

$

3,361

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

- 6 -

 

COMPX INTERNATIONAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 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 September 30, 2021. We manufacture and sell component products (security products and recreational marine components). At September 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 September 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 September 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 September 30, 2020, December 31, 2020 and September 30, 2021. The actual dates of our annual and quarterly periods are September 27, 2020, January 3, 2021 and October 3, 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

 

 

Nine months ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

(In thousands)

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Security Products

$

21,209

 

 

$

25,829

 

 

$

65,251

 

 

$

79,301

 

Marine Components

 

7,217

 

 

 

8,727

 

 

 

19,286

 

 

 

27,432

 

Total net sales

$

28,426

 

 

$

34,556

 

 

$

84,537

 

 

$

106,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Security Products

$

2,797

 

 

$

5,529

 

 

$

11,871

 

 

$

16,864

 

Marine Components

 

1,129

 

 

 

1,255

 

 

 

3,010

 

 

 

4,796

 

Corporate operating expenses

 

(1,844

)

 

 

(1,653

)

 

 

(5,410

)

 

 

(4,954

)

Total operating income

 

2,082

 

 

 

5,131

 

 

 

9,471

 

 

 

16,706

 

Interest income

 

360

 

 

 

289

 

 

 

1,337

 

 

 

945

 

Income before income taxes

$

2,442

 

 

$

5,420

 

 

$

10,808

 

 

$

17,651

 

 

Intersegment sales are not material.

Note 3 – Accounts receivable, net:

 

 

December 31,

 

 

September 30,

 

 

2020

 

 

2021

 

 

(In thousands)

 

Accounts receivable, net:

 

 

 

 

 

 

 

Security Products

$

8,797

 

 

$

12,018

 

Marine Components

 

2,004

 

 

 

3,158

 

Allowance for doubtful accounts

 

(70

)

 

 

(70

)

Total accounts receivable, net

$

10,731

 

 

$

15,106

 

 

Note 4 – Inventories, net:

 

 

December 31,

 

 

September 30,

 

 

2020

 

 

2021

 

 

(In thousands)

 

Raw materials:

 

 

 

 

 

 

 

Security Products

$

2,318

 

 

$

3,768

 

Marine Components

 

902

 

 

 

1,228

 

Total raw materials

 

3,220

 

 

 

4,996

 

Work-in-process:

 

 

 

 

 

 

 

Security Products

 

9,214

 

 

 

11,088

 

Marine Components

 

2,454

 

 

 

3,960

 

Total work-in-process

 

11,668

 

 

 

15,048

 

Finished goods:

 

 

 

 

 

 

 

Security Products

 

2,235

 

 

 

2,183

 

Marine Components

 

1,214

 

 

 

1,309

 

Total finished goods

 

3,449

 

 

 

3,492

 

Total inventories, net

$

18,337

 

 

$

23,536

 

 

- 8 -

 

Note 5 – Accounts payable and accrued liabilities:

 

 

December 31,

 

 

September 30,

 

 

2020

 

 

2021

 

 

(In thousands)

 

Accounts payable:

 

 

 

 

 

 

 

Security Products

$

1,859

 

 

$

3,136

 

Marine Components

 

773

 

 

 

1,366

 

Accrued liabilities:

 

 

 

 

 

 

 

Employee benefits

 

8,431

 

 

 

8,137

 

Taxes other than on income

 

301

 

 

 

588

 

Customer tooling

 

393

 

 

 

527

 

Other

 

441

 

 

 

540

 

Total accounts payable and accrued liabilities

$

12,198

 

 

$

14,294

 

 

Note 6 – Provision for income taxes:

 

 

Three months ended

 

 

Nine months ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

(In thousands)

 

Expected tax expense, at the U.S. federal statutory

   income tax rate of 21%

$

513

 

 

$

1,138

 

 

$

2,270

 

 

$

3,707

 

State income taxes

 

90

 

 

 

170

 

 

 

384

 

 

 

570

 

FDII benefit

 

(7

)

 

 

(33

)

 

 

(39

)

 

 

(73

)

Other, net

 

14

 

 

 

13

 

 

 

25

 

 

 

10

 

Total provision for income taxes

$

610

 

 

$

1,288

 

 

$

2,640

 

 

$

4,214

 

 

Note 7 – Stockholders’ equity:

Our board of directors has previously authorized the repurchase of our Class A common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. We may repurchase our common stock from time to time as market conditions permit. The stock repurchase program does not include specific price targets or timetables and may be suspended at any time. Depending on market conditions, we may terminate the program prior to its completion. We will use cash on hand to acquire the shares. Repurchased shares will be added to our treasury and cancelled.

 

During the first quarter of 2021, we purchased 50,000 shares of our Class A common stock in a market transaction for approximately $755,000. We cancelled these treasury shares and allocated their cost to common stock at par value and additional paid-in capital. At September 30, 2021, 627,547 shares were available for purchase under prior repurchase authorizations.

 

Note 8 – Financial instruments:

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:

 

 

December 31,

 

 

September 30,

 

 

2020

 

 

2021

 

 

Carrying

 

 

Fair

 

 

Carrying