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 June 30, 2001 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 July 27, 2001:
5,103,280.
COMPX INTERNATIONAL INC.
INDEX
Page
number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 2000
and June 30, 2001 3-4
Consolidated Statements of Income -
Three months and six months ended
June 30, 2000 and 2001 5
Consolidated Statements of Comprehensive Income -
Three months and six months ended
June 30, 2000 and 2001 6
Consolidated Statements of Cash Flows -
Six months ended June 30, 2000 and 2001 7-8
Consolidated Statement of Stockholders' Equity -
Six months ended June 30, 2001 9
Notes to Consolidated Financial Statements 10-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 14-16
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K. 17
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, June 30,
2000 2001
---- ----
Current assets:
Cash and cash equivalents ........................ $ 9,820 $ 13,811
Accounts receivable .............................. 30,833 28,894
Income taxes receivable from affiliates .......... 305 243
Refundable income taxes .......................... 2,165 1,939
Inventories ...................................... 36,246 35,910
Deferred income taxes ............................ 1,209 1,131
Prepaid expenses and other ....................... 2,408 1,839
-------- --------
Total current assets ......................... 82,986 83,767
-------- --------
Other assets:
Goodwill ......................................... 42,213 39,672
Other intangible assets .......................... 2,646 2,563
Deferred income taxes ............................ 1,813 1,930
Other ............................................ 868 685
-------- --------
Total other assets ........................... 47,540 44,850
-------- --------
Property and equipment:
Land ............................................. 5,709 5,516
Buildings ........................................ 34,500 33,173
Equipment ........................................ 78,357 83,942
Construction in progress ......................... 9,787 10,648
-------- --------
128,353 133,279
Less accumulated depreciation .................... 33,394 39,176
-------- --------
Net property and equipment ................... 94,959 94,103
-------- --------
$225,485 $222,720
======== ========
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30,
2000 2001
---- ----
Current liabilities:
Current maturities of long-term debt ........... $ 1,638 $ 100
Accounts payable and accrued liabilities ....... 26,487 18,851
Deferred income taxes .......................... 103 31
Income taxes ................................... 648 236
--------- ---------
Total current liabilities .................. 28,876 19,218
--------- ---------
Noncurrent liabilities:
Long-term debt ................................. 39,000 49,000
Deferred income taxes .......................... 4,852 5,173
Accrued pension costs .......................... 1,168 1,068
Other .......................................... 626 867
--------- ---------
Total noncurrent liabilities ............... 45,646 56,108
--------- ---------
Stockholders' equity:
Preferred stock ................................ -- --
Class A common stock ........................... 62 62
Class B common stock ........................... 100 100
Additional paid-in capital ..................... 119,194 119,224
Retained earnings .............................. 51,395 54,002
Accumulated other comprehensive income
- currency translation ........................ (11,123) (14,679)
Treasury stock ................................. (8,665) (11,315)
--------- ---------
Total stockholders' equity ................. 150,963 147,394
--------- ---------
$ 225,485 $ 222,720
========= =========
Commitments and contingencies (Note 1)
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2000 2001 2000 2001
---- ---- ---- ----
Net sales .......................................... $ 65,136 $ 53,371 $ 131,203 $ 112,954
-------- -------- --------- ---------
Costs and expenses:
Cost of sales ..................................... 46,616 41,095 95,139 86,806
Selling, general and administrative ............... 7,014 6,932 13,832 13,999
Other income, net ................................. (62) 20 (289) (219)
Interest expense .................................. 538 868 1,071 1,672
-------- -------- --------- ---------
54,106 48,915 109,753 102,258
-------- -------- --------- ---------
Income before income taxes
and minority interest ........................ 11,030 4,456 21,450 10,696
Provision for income taxes ......................... 3,972 1,796 7,827 4,311
-------- -------- --------- ---------
Income before minority interest ................ 7,058 2,660 13,623 6,385
Minority interest .................................. -- -- (3) --
-------- -------- --------- ---------
Net income ..................................... $ 7,058 $ 2,660 $ 13,626 $ 6,385
======== ======== ========= =========
Basic and diluted earnings
per common share .................................. $ .44 $ .18 $ .84 $ .42
======== ======== ========= =========
Cash dividends per share ........................... $ .125 $ .125 $ .25 $ .25
======== ======== ========= =========
Shares used in the calculation of per share amounts:
Basic common shares ............................. 16,151 15,114 16,149 15,185
Dilutive impact of outstanding
Stock options .................................. 31 9 20 5
-------- -------- --------- ---------
Diluted common shares ........................... 16,182 15,123 16,169 15,190
======== ======== ========= =========
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three months ended Six months ended
June 30, June 30,
2000 2001 2000 2001
---- ---- ---- ----
Net income ....................... $ 7,058 $ 2,660 $ 13,626 $ 6,385
Other comprehensive income -
Currency translation adjustment,
net of tax ..................... (1,395) (53) (3,397) (3,556)
------- ------- -------- -------
Comprehensive income ....... $ 5,663 $ 2,607 $ 10,229 $ 2,829
======= ======= ======== =======
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2000 and 2001
(In thousands)
2000 2001
---- ----
Cash flows from operating activities:
Net income .................................. $ 13,626 $ 6,385
Depreciation and amortization ............... 6,264 7,314
Deferred income taxes ....................... 209 581
Other, net .................................. (282) 190
-------- --------
19,817 14,470
Change in assets and liabilities:
Accounts receivable ....................... (2,393) 1,265
Inventories ............................... (4,504) (469)
Accounts payable and accrued liabilities .. 1,111 (6,480)
Accounts with affiliates .................. 41 62
Income taxes .............................. 3 (449)
Other, net ................................ (205) 532
-------- --------
Net cash provided by operating activities 13,870 8,931
-------- --------
Cash flows from investing activities:
Capital expenditures ........................ (10,189) (6,966)
Purchase of business unit ................... (9,475) --
Other, net .................................. 309 --
-------- --------
Net cash used by investing activities ... (19,355) (6,966)
-------- --------
Cash flows from financing activities:
Indebtedness:
Additions ................................ 12,081 14,919
Principal payments ....................... (1,728) (6,485)
Dividends ................................... (4,038) (3,778)
Common stock reacquired ..................... -- (2,650)
Issuance of common stock .................... 36 --
-------- --------
Net cash provided by financing activities 6,351 2,006
-------- --------
Net increase in cash and cash equivalents ..... $ 866 $ 3,971
======== ========
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six months ended June 30, 2000 and 2001
(In thousands)
2000 2001
---- ----
Cash and cash equivalents:
Net change from operating, investing
and financing activities ..................... $ 866 $ 3,971
Currency translation .......................... (251) 20
-------- -------
615 3,991
Balance at beginning of period ................ 12,169 9,820
-------- -------
Balance at end of period ...................... $ 12,784 $13,811
======== =======
Supplemental disclosures:
Cash paid for:
Interest .................................... $ 973 $ 1,949
Income taxes ................................ 7,386 3,983
Business unit acquired - net assets consolidated:
Goodwill and other intangible assets ........ $ 2,539 $ --
Other non-cash assets ....................... 8,458 --
Liabilities ................................. (1,522) --
-------- -------
Cash paid ................................... $ 9,475 $ --
======== =======
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended June 30, 2001
(In thousands)
Accumulated
other
comprehensive
Additional income - Total
Common Stock paid-in Retained currency Treasury stockholders'
Class A Class B capital earnings translation stock equity
------- ------- --------- -------- ----------- --------- --------
Balance at December 31, 2000 $62 $100 $119,194 $51,395 $(11,123) $ (8,665) $150,963
Net income - - - 6,385 - - 6,385
Other comprehensive income, net - - - - (3,556) - (3,556)
Issuance of common stock - - 30 - - - 30
Cash dividends - - - (3,778) - - (3,778)
Common stock reacquired - - - - - (2,650) (2,650)
--- ---- -------- ------- ------- -------- --------
Balance at June 30, 2001 $62 $100 $119,224 $54,002 $(14,679) $(11,315) $147,394
=== ==== ======== ======= ======== ======== ========
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, 2000 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at June 30, 2001 and the consolidated statements of
income, comprehensive income, stockholders' equity and cash flows for the
interim periods ended June 30, 2000 and 2001 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, 2000 (the "2000 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 2000 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 93% 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.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, effective January 1, 2001. Under SFAS No. 133, all derivatives are
recognized as either assets or liabilities and measured at fair value. The
accounting for changes in fair value of derivatives depends upon the intended
use of the derivative, and such changes are recognized either in net income or
other comprehensive income. As permitted by the transition requirements of SFAS
No. 133, as amended, the Company has exempted from the scope of SFAS No. 133 all
host contracts containing embedded derivatives which were issued or acquired
prior to January 1, 1999. Other than certain currency forward contracts, the
Company was not a party to any significant derivative or hedging instrument
covered by SFAS No. 133 during the first six months of 2001. The accounting for
such currency forward contracts under SFAS No. 133 is not materially different
from the accounting for such contracts under prior accounting rules, and
therefore the impact to the Company of adopting SFAS No. 133 was not material.
Note 2 - Business segment information:
The Company operates in one business segment - the manufacture and sale of
hardware components for office furniture and other markets. The Company's
products consist of ergonomic computer systems, precision ball bearing slides
and security products.
Three months ended Six months ended
June 30, June 30,
2000 2001 2000 2001
---- ---- ---- ----
(In thousands)
Net sales .................... $ 65,136 $ 53,371 $ 131,203 $ 112,954
======== ======== ========= =========
Operating income ............. $ 11,506 $ 5,344 $ 22,232 $ 12,149
Interest expense ............. (538) (868) (1,071) (1,672)
Other, net ................... 62 (20) 289 219
-------- -------- --------- ---------
Income before income taxes ... $ 11,030 $ 4,456 $ 21,450 $ 10,696
======== ======== ========= =========
Note 3 - Inventories:
December 31, June 30,
2000 2001
---- ----
(In thousands)
Raw materials ............................ $11,866 $13,209
Work in process .......................... 11,454 12,004
Finished products ........................ 12,811 10,582
Supplies ................................. 115 115
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$36,246 $35,910
======= =======
Note 4 - Accounts payable and accrued liabilities:
December 31, June 30,
2000 2001
---- ----
(In thousands)
Accounts payable ........................... $12,560 $ 8,593
Accrued liabilities:
Employee benefits ........................ 7,898 5,965
Insurance ................................ 311 140
Royalties ................................ 470 215
Other .................................... 5,248 3,938
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$26,487 $18,851
======= =======
Note 5 - Indebtedness:
December 31, June 30,
2000 2001
---- ----
(In thousands)
Revolving bank credit facility ................... $39,000 $49,000
Capital lease obligations and other .............. 1,638 100
------- -------
40,638 49,100
Less current maturities .......................... 1,638 100
------- -------
$39,000 $49,000
======= =======
Note 6 - Other income:
Three months ended Six months ended
June 30, June 30,
------------------ --------------
2000 2001 2000 2001
---- ---- ---- ----
(In thousands)
Interest income ........................ $ 157 $ 134 $ 285 $ 287
Foreign currency transactions, net ..... (131) (197) (47) (88)
Other, net ............................. 36 43 51 20
----- ----- ----- -----
$ 62 $ (20) $ 289 $ 219
===== ===== ===== =====
Note 7 - Provision for income taxes:
Three months ended Six months ended
June 30, June 30,
------------------ --------------
2000 2001 2000 2001
---- ---- ---- ----
(In thousands)
Expected tax expense ............... $ 3,861 $ 1,560 $ 7,508 $ 3,744
Non-U.S. tax rates ................. 22 (77) 84 (174)
No tax benefit for amortization of
goodwill .......................... 155 172 311 346
Other, net ......................... (66) 141 (76) 395
------- ------- ------- -------
$ 3,972 $ 1,796 $ 7,827 $ 4,311
======= ======= ======= =======
Note 8 - 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
contracts are marked-to-market with any resulting gain or loss recognized in
income currently. These contracts are not accounted for as hedging instruments
under SFAS No. 133. At December 31, 2000, the Company held contracts to manage
such exchange rate risk to exchange an aggregate of U.S. $9.1 million for an
equivalent amount of Canadian dollars at an exchange rate of Cdn. $1.482 per
U.S. dollar. Such contracts matured through March 2001. At June 30, 2001, the
Company did not hold any such contracts.
Note 9 - Accounting principles not yet adopted:
The Company will adopt Statement of Financial Accounting Standards ("SFAS")
No. 141, Business Combinations, for all business combinations initiated on or
after July 1, 2001, and all purchase business combinations completed on or after
July 1, 2001. Under SFAS No. 141, all business combinations initiated on or
after July 1, 2001 will be accounted for by the purchase method, and the
pooling-of-interests method will be prohibited.
The Company will adopt SFAS No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002. Under SFAS No. 142, goodwill will not be amortized on
a periodic basis, but instead will be subject to an impairment test to be
performed at least annually. Under the transition provisions of SFAS No. 142,
goodwill existing as of June 30, 2001 will cease to be periodically amortized as
of January 1, 2002, but any goodwill arising in a purchase business combination
completed on or after July 1, 2001 would not be periodically amortized from the
date of such combination. The Company would have reported net income of $7.4
million, or $.49 per diluted share, in the first six months of 2001 if the
goodwill amortization included in the Company's net income, as reported, had not
been recognized.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Overview
The Company reported net income of $2.7 million in the second quarter of
2001, a decrease of 62% from net income of $7.1 million for the second quarter
of 2000. The Company reported net income of $6.4 million in the first six months
of 2001, a 53% decrease from net income of $13.6 million in the first six months
of 2000.
Results of Operations
Net sales. Net sales decreased $11.8 million, or 18%, to $53.4 million in
the second quarter of 2001 from $65.1 million in the second quarter of 2000. For
the first six months of 2001, net sales of $113.0 million decreased 14% when
compared to net sales of $131.2 million for the first six months of 2000. The
decrease is principally due to decreased demand for the Company's 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 29% and 21% for the three
and six month periods ended June 30, 2001 compared to the same periods in 2000,
with sales of security products decreasing 15% and 12% for the same comparable
periods. For the three and six month periods ending June 30, 2001, sales of
ergonomic products increased 6% and 3% over the corresponding periods of the
prior year due primarily to increased European sales.
Operating income. Operating income in the second quarter of 2001 was $5.3
million compared to $11.5 million for the second quarter of 2000, decreasing 54%
from the second quarter of 2000. As a percentage of net sales, operating income
was 10% for the second quarter of 2001 compared to 18% for the second quarter of
2000. For the first six months of 2001, operating income was 11% of net sales
compared to 17% of net sales for the first six months of 2000. For the first six
months of 2001, operating income decreased $10.1 million, or 45% to $12.1
million. Reductions in manufacturing fixed costs beginning in the first quarter
of 2001, partially offset the effect of the decline in net sales. Despite these
cost reductions, operating income margins for the second quarter and first six
months of 2001 as compared to the second quarter and first six months of 2000
were adversely impacted by the decline in volume levels and the related impact
on manufacturing efficiencies, the effects of changes in the sales mix and, to a
lesser extent, pricing pressures from foreign-based manufacturers.
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 Dutch guilder, the
euro and the New Taiwan dollar. In addition, approximately 60% of CompX's net
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 second quarter and first six
months of 2001, 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 periods of the prior year (principally with
respect to slide products), decreasing net sales by 2% in each of the second
quarter and first six months of 2001. Currency exchange rate fluctuations with
respect to the Canadian dollar, the euro and other currencies did not materially
impact operating income comparisons in 2001 as compared to the corresponding
periods of the prior year.
Outlook. The current weak economic cycle is expected to continue and will
resultantly have a negative impact on the Company's sales. Therefore, the
Company continues implementing various cost control initiatives, including
ongoing company-wide headcount rationalization efforts and operational cost
improvements. These cost reduction measures are designed to minimize the adverse
effect of lower sales and more favorably position the Company when the economy
recovers. Nevertheless, the Company remains concerned regarding the duration and
severity of the weak economic cycle and its overall impact on the Company's
business.
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 $19.8 million and $14.5
million in the first six months of 2000 and 2001, respectively, compared to net
income of $13.6 million and $6.4 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 $19.4
million and $7.0 million in the first six months of 2000 and 2001, respectively.
Investing activities in the first six months of 2000 included $9.5 million used
to acquire substantially all of the operating assets of Chicago Lock Company. No
such business acquisitions occurred in the first six months of 2001.
The capital expenditures for 2001 relate primarily to capacity expansion
and 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 2001 are
estimated at approximately $13 million the majority of which relate to projects
that emphasize improved production efficiency. Firm purchase commitments for
capital projects not commenced at June 30, 2001 were not material.
Financing activities. Net cash provided by financing activities totaled
$6.4 million and $2.0 million in the first six months of 2000 and 2001,
respectively. The Company paid its regular quarterly dividend of $1.9 million or
$.125 per share, in each of the first and second quarters of 2001. The Company
also used $2.7 million to reacquire approximately 260,000 shares of its Class A
common stock. Borrowings under the Company's unsecured revolving bank credit
facility were increased by a net amount of $10.0 million. The Company repaid its
short-term bank borrowing denominated in New Taiwan dollars during the first
quarter of 2001 and borrowed and repaid an additional $900,000 of New Taiwan
dollar short-term bank borrowings in the second quarter of 2001.
In July 2001, the Company's board of directors authorized the repurchase of
up to 500,000 shares of its common stock in open market or privately-negotiated
transactions at unspecified prices and over an unspecified period of time.
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 June 30, 2001), 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.
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, 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 and Canadian 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 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 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on May 10, 2001. Paul
M. Bass, Jr., David A. Bowers, Edward J. Hardin, Ann Mannix, Glenn R. Simmons
and Steven L. Watson were elected as directors, each receiving votes "For" their
election from over 99% of the approximately 105.1 million votes eligible to be
voted at the Annual Meeting.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Intercorporate Services Agreement between the Registrant
and Contran Corporation effective as of January 1, 2001.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended June 30, 2001.
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 July 31, 2001 By /s/ Stuart M. Bitting
------------------ ---------------------------
Stuart M. Bitting
Vice President and
Chief Financial Officer
INTERCORPORATE SERVICES AGREEMENT
This INTERCORPORATE SERVICES AGREEMENT (the "Agreement"), effective as of
January 1, 2001, by and between CONTRAN CORPORATION, a Delaware corporation
("Contran"), and COMPX INTERNATIONAL INC., a Delaware corporation ("Recipient"),
amends and supersedes that certain Intercorporate Services Agreement effective
as of January 1, 2000 between VALHI, INC., a Delaware corporation, and the
Recipient.
Recitals
A. Employees and agents of Contran and affiliates of Contran perform
management, financial and administrative functions for Recipient without direct
compensation from Recipient.
B. Recipient does not separately maintain the full internal capability to
perform all necessary management, financial and administrative functions that
Recipient requires.
C. The cost of maintaining the additional personnel by Recipient necessary
to perform the functions provided for by this Agreement would exceed the fee set
forth in Section 3 of this Agreement and that the terms of this Agreement are no
less favorable to Recipient than could otherwise be obtained from a third party
for comparable services.
D. Recipient desires to continue receiving the management, financial and
administrative services presently provided by Contran and affiliates of Contran
and Contran is willing to continue to provide such services under the terms of
this Agreement.
Agreement
For and in consideration of the mutual premises, representations and
covenants herein contained, the parties hereto mutually agree as follows:
Section 1. Services to be Provided. Contran agrees to make available to
Recipient the following services (the "Services") to be rendered by the internal
staff of Contran and affiliates of Contran:
(a) Consultation in the development and implementation of Recipient's
corporate business strategies, plans and objectives;
(b) Consultation in management and conduct of corporate affairs and
corporate governance consistent with the charter and bylaws of Recipient;
(c) Consultation in maintenance of financial records and controls,
including preparation and review of periodic financial statements and
reports to be filed with public and regulatory entities and those required
to be prepared for financial institutions or pursuant to indentures and
credit agreements;
(d) Consultation in cash management and in arranging financing
necessary to implement the business plans of Recipient;
(e) Consultation in tax management and administration, including,
without limitation, preparation and filing of tax returns, tax reporting,
examinations by government authorities and tax planning;
(f) Consultation with respect to employee benefit plans and incentive
compensation arrangements;
(g) Certain administration and management services with respect to
Recipient's insurance and risk management needs, including:
(i) management of claims (including insured and self-insured
workers compensation and liability claims);
(ii) budgeting and related activities;
(iii) coordination of property loss control program; and
(iv) administration of Recipient's insurance program, excluding
all employee benefit and welfare related programs; and
(h) Such other services as may be requested by Recipient or deemed
necessary and proper from time to time.
This Agreement does not apply to, and the Services provided for herein do not
include, any services that Glenn R. Simmons or Steven L. Watson may provide to
Recipient in their roles as members of Recipient's board of directors or any
other activity related to such board of directors.
Section 2. Miscellaneous Services. It is the intent of the parties hereto
that Contran provide only the Services requested by Recipient in connection with
routine management, financial and administrative functions related to the
ongoing operations of Recipient and not with respect to special projects,
including corporate investments, acquisitions and divestitures. The parties
hereto contemplate that the Services rendered in connection with the conduct of
Recipient's business will be on a scale compared to that existing on the
effective date of this Agreement, adjusted for internal corporate growth or
contraction, but not for major corporate acquisitions or divestitures, and that
adjustments may be required to the terms of this Agreement in the event of such
major corporate acquisitions, divestitures or special projects. Recipient will
continue to bear all other costs required for outside services including, but
not limited to, the outside services of attorneys, auditors, trustees,
consultants, transfer agents and registrars, and it is expressly understood that
Contran assumes no liability for any expenses or services other than those
stated in Section 1. In addition to the fee paid to Contran by Recipient for the
Services provided pursuant to this Agreement, Recipient will pay to Contran the
amount of out-of-pocket costs incurred by Contran in rendering such Services.
Section 3. Fee for Services. Recipient agrees to pay to Contran $302,000
quarterly, commencing as of January 1, 2001, pursuant to this Agreement.
Section 4. Original Term. Subject to the provisions of Section 5 hereof,
the original term of this Agreement shall be from January 1, 2001 to December
31, 2001.
Section 5. Extensions. This Agreement shall be extended on a
quarter-to-quarter basis after the expiration of its original term unless
written notification is given by Contran or Recipient thirty (30) days in
advance of the first day of each successive quarter or unless it is superseded
by a subsequent written agreement of the parties hereto.
Section 6. Limitation of Liability. In providing its Services hereunder,
Contran shall have a duty to act, and to cause its agents to act, in a
reasonably prudent manner, but neither Contran nor any officer, director,
employee or agent of Contran or its affiliates shall be liable to Recipient for
any error of judgment or mistake of law or for any loss incurred by Recipient in
connection with the matter to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Contran.
Section 7. Indemnification of Contran by Recipient. Recipient shall
indemnify and hold harmless Contran, its affiliates and their respective
officers, directors and employees from and against any and all losses,
liabilities, claims, damages, costs and expenses (including attorneys' fees and
other expenses of litigation) to which Contran or any such person may become
subject arising out of the Services provided by Contran to Recipient hereunder,
provided that such indemnity shall not protect any person against any liability
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on the part of such person.
Section 8. Further Assurances. Each of the parties will make, execute,
acknowledge and deliver such other instruments and documents, and take all such
other actions, as the other party may reasonably request and as may reasonably
be required in order to effectuate the purposes of this Agreement and to carry
out the terms hereof.
Section 9. Notices. All communications hereunder shall be in writing and
shall be addressed, if intended for Contran, to Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240, Attention: President, or such other
address as it shall have furnished to Recipient in writing, and if intended for
Recipient, to Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240, Attention: President, or such other address as it shall have furnished to
Contran in writing.
Section 10. Amendment and Modification. Neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated other than by agreement
in writing signed by the parties hereto.
Section 11. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of Contran and Recipient and their respective
successors and assigns, except that neither party may assign its rights under
this Agreement without the prior written consent of the other party.
Section 12. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the state of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
CONTRAN CORPORATION
By:
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Steven L. Watson, President
COMPX INTERNATIONAL INC.
By:
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Brent A. Hagenbuch, President
