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, 2003 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
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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Number of shares of common stock outstanding on May 2, 2003:
Class A: 5,115,780
Class B: 10,000,000
COMPX INTERNATIONAL INC.
INDEX
Page
number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 2002
and March 31, 2003 3-4
Consolidated Statements of Income -
Three months ended March 31, 2002 and 2003 5
Consolidated Statements of Comprehensive Income -
Three months ended March 31, 2002 and 2003 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 2002 and 2003 7
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 2003 8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-17
Item 4. Controls and Procedures. 18
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 19
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, March 31,
2002 2003
------------ ---------
Current assets:
Cash and cash equivalents ........................ $ 12,407 $ 11,132
Accounts receivable, net ......................... 22,924 25,500
Income taxes receivable from affiliates .......... 352 331
Other receivable from affiliate .................. -- 273
Refundable income taxes .......................... 1,378 1,222
Inventories ...................................... 28,876 28,225
Prepaid expenses and other ....................... 3,422 4,190
Deferred income taxes ............................ 1,983 1,940
-------- --------
Total current assets ......................... 71,342 72,813
-------- --------
Other assets:
Goodwill ......................................... 40,729 41,125
Other intangible assets .......................... 2,183 2,122
Prepaid rent ..................................... 426 220
Other ............................................ 233 440
-------- --------
Total other assets ........................... 43,571 43,907
-------- --------
Property and equipment:
Land ............................................. 4,344 4,637
Buildings ........................................ 29,452 30,032
Equipment ........................................ 102,347 107,009
Construction in progress ......................... 3,548 3,971
-------- --------
139,691 145,649
Less accumulated depreciation .................... 54,512 59,872
-------- --------
Net property and equipment ................... 85,179 85,777
-------- --------
$200,092 $202,497
======== ========
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31,
2002 2003
------------ ---------
Current liabilities:
Current maturities of long-term debt ........... $ 6 $ --
Accounts payable and accrued liabilities ....... 21,318 20,493
Deferred income taxes .......................... 408 --
Income taxes ................................... 419 792
--------- ---------
Total current liabilities .................. 22,151 21,285
--------- ---------
Noncurrent liabilities:
Long-term debt ................................. 31,000 32,000
Deferred income taxes .......................... 4,469 4,634
Deferred gain on sale/leaseback ................ 493 221
--------- ---------
Total noncurrent liabilities ............... 35,962 36,855
--------- ---------
Stockholders' equity:
Preferred stock ................................ -- --
Class A common stock ........................... 62 62
Class B common stock ........................... 100 100
Additional paid-in capital ..................... 119,387 119,387
Retained earnings .............................. 44,049 42,718
Accumulated other comprehensive income
- currency translation ........................ (10,304) (6,595)
Treasury stock ................................. (11,315) (11,315)
--------- ---------
Total stockholders' equity ................. 141,979 144,357
--------- ---------
$ 200,092 $ 202,497
========= =========
Commitments and contingencies (Note 1)
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2002 and 2003
(In thousands, except per share data)
2002 2003
---- ----
Net sales ............................................ $ 48,569 $51,020
Cost of goods sold ................................... 38,862 42,197
-------- -------
Gross margin ..................................... 9,707 8,823
Selling, general and administrative expense .......... 7,187 6,994
-------- -------
Operating income ................................. 2,520 1,829
Other general corporate (income) expense, net ........ (311) 491
Interest expense ..................................... 683 341
-------- -------
Income before income taxes ....................... 2,148 997
Provision for income taxes ........................... 817 439
-------- -------
Net income ....................................... $ 1,331 $ 558
======== =======
Basic and diluted earnings per common share .......... $ .09 $ .04
======== =======
Cash dividends per share ............................. $ 0.125 $ 0.125
======== =======
Shares used in the calculation of earnings
per share amounts:
Basic earnings per share ........................... 15,103 15,116
Dilutive impact of outstanding stock options ....... 14 --
-------- -------
Diluted earnings per share ......................... 15,117 15,116
======== =======
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31, 2002 and 2003
(In thousands)
2002 2003
---- ----
Net income ........................................... $ 1,331 $ 558
Other comprehensive income (loss) -
currency translation adjustment, net of tax ........ (198) 3,709
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Comprehensive income ........................... $ 1,133 $4,267
======= ======
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2002 and 2003
(In thousands)
2002 2003
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Cash flows from operating activities:
Net income ......................................... $ 1,331 $ 558
Depreciation and amortization ...................... 3,080 3,424
Deferred income taxes .............................. 1,010 (357)
Other, net ......................................... (258) 56
-------- --------
5,163 3,681
Change in assets and liabilities:
Accounts receivable .............................. (1,377) (1,885)
Inventories ...................................... 1,794 1,409
Accounts payable and accrued liabilities ......... (963) (1,457)
Accounts with affiliates ......................... 57 (252)
Income taxes ..................................... (233) 607
Other, net ....................................... 73 (582)
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Net cash provided by operating activities ...... 4,514 1,521
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Cash flows from investing activities:
Capital expenditures ............................... (3,699) (2,036)
Other, net ......................................... -- 56
-------- --------
Net cash used by investing activities .......... (3,699) (1,980)
-------- --------
Cash flows from financing activities:
Indebtedness:
Additions ....................................... -- 1,000
Principal payments .............................. (13) (6)
Deferred financing costs paid ................... -- (417)
Dividends .......................................... (1,888) (1,889)
-------- --------
Net cash used by financing activities .......... (1,901) (1,312)
-------- --------
Cash and cash equivalents - net change from:
Operating, investing and financing activities ...... (1,086) (1,771)
Currency translation ............................... 420 496
Cash and cash equivalents at beginning of period ..... 33,309 12,407
-------- --------
Cash and cash equivalents at end of period ........... $ 32,643 $ 11,132
======== ========
Supplemental disclosures:
Cash paid for:
Interest ......................................... $ 581 $ 494
Income taxes ..................................... 173 175
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 2003
(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, 2002 .. $62 $100 $119,387 $ 44,049 $(10,304) $(11,315) $ 141,979
Net income .................... -- -- -- 558 -- -- 558
Other comprehensive income, net -- -- -- -- 3,709 -- 3,709
Cash dividends ................ -- -- -- (1,889) -- -- (1,889)
--- ---- -------- -------- -------- -------- ---------
Balance at March 31, 2003 ..... $62 $100 $119,387 $ 42,718 $ (6,595) $(11,315) $ 144,357
=== ==== ======== ======== ======== ======== =========
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, 2002 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 2003 and the consolidated statements of
income, comprehensive income, stockholders' equity and cash flows for the
interim periods ended March 31, 2002 and 2003 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, 2002 (the "2002 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 2002 Annual
Report.
The Company is 69% owned by Valhi, Inc. (NYSE: VHI) and Valhi's
wholly-owned subsidiary Valcor, Inc. At March 31, 2003, Contran Corporation
holds, directly or through subsidiaries, approximately 90% 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 of each of Contran, Valhi and Valcor, may be
deemed to control such companies and the Company.
Stock options. As disclosed in the 2002 Annual Report, the Company accounts
for stock-based employee compensation related to stock options using the
intrinsic value method in accordance with Accounting Principles Board Opinion
("APBO") No. 25, Accounting for Stock Issued to Employees, and its various
interpretations. Under APBO No. 25, no compensation cost is generally recognized
for fixed stock options in which the exercise price is greater than or equal to
the market price on the grant date. Compensation cost recognized by the Company
related to stock options in accordance with APBO No. 25 was not significant
during the first three months of 2002 or 2003.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation to stock-based employee
compensation related to stock options for all options granted on or after
January 1, 1995.
Three months ended
March 31,
2002 2003
---- ----
(In thousands)
Net income, as reported ............................. $ 1,331 $ 558
Deduct: Total stock-based employee
compensation expense related to stock options
determined under fair value based method for all
awards, net of related tax effects.................. (391) (219)
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Pro forma net income ................................ $ 940 $ 339
======= =====
Earnings per share - basic and diluted:
As reported ....................................... $ .09 $ .04
======= =====
Pro forma ......................................... $ .06 $ .02
======= =====
Note 2 - Business segment information:
The Company's operating segments are defined as components of its
operations about which separate financial information is available that is
regularly evaluated by the chief operating decision maker in determining how to
allocate resources and in assessing performance. The Company has three operating
segments - CompX Security Products, CompX Waterloo and CompX Regout. The CompX
Security Products segment, with manufacturing facilities in South Carolina and
Illinois, manufactures locking mechanisms and other security products for sale
to the office furniture, banking, vending, computer and other industries. The
CompX Waterloo segment, with facilities in Canada, Michigan and Taiwan, and the
CompX Regout segment, with facilities in the Netherlands, both manufacture
and/or distribute a complete line of precision ball bearing slides for use in
office furniture, computer-related equipment, tool storage cabinets and other
applications and ergonomic computer support systems for office furniture.
Because of the similar economic characteristics between the CompX Waterloo and
CompX Regout 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,
2002 2003
---- ----
(In thousands)
Net sales:
CompX Waterloo/CompX Regout ...................... $ 30,388 $ 32,591
CompX Security Products .......................... 18,181 18,429
-------- --------
Total net sales ................................ $ 48,569 $ 51,020
======== ========
Operating income (loss):
CompX Waterloo/CompX Regout ...................... $ 411 $ (402)
CompX Security Products .......................... 2,109 2,231
-------- --------
Total operating income ......................... 2,520 1,829
Interest expense ................................... (683) (341)
Other general corporate income (expense), net ...... 311 (491)
-------- --------
Income before income taxes ....................... $ 2,148 $ 997
======== ========
Note 3 - Inventories:
December 31, March 31,
2002 2003
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(In thousands)
Raw materials ............................ $ 6,573 $ 6,235
Work in process .......................... 12,602 12,334
Finished products ........................ 9,532 9,499
Supplies ................................. 169 157
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$28,876 $28,225
======= =======
Note 4 - Accounts payable and accrued liabilities:
December 31, March 31,
2002 2003
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(In thousands)
Accounts payable ............................... $ 9,106 $ 8,504
Accrued liabilities:
Employee benefits ............................ 7,065 6,271
Insurance .................................... 478 427
Royalties .................................... 246 202
Restructuring ................................ 540 --
Deferred gain on sale/leaseback .............. 805 831
Other ........................................ 3,078 4,258
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$21,318 $20,493
======= =======
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. As adjusted for changes in currency exchange rates,
approximately $3.0 million was paid through March 31, 2003, which satisfied the
Company's obligations related to this restructuring.
Note 5 - Indebtedness:
December 31, March 31,
2002 2003
------------ ---------
(In thousands)
Revolving bank credit facility ................. $31,000 $32,000
Other .......................................... 6 --
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31,006 32,000
Less current maturities ........................ 6 --
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$31,000 $32,000
======= =======
Note 6 - Other general corporate income (expense), net:
Three months ended
March 31,
2002 2003
---- ----
(In thousands)
Interest income ...................................... $ 184 $ 50
Foreign currency transactions, net ................... (290) (595)
Defined benefit pension plan settlement gain ......... 677 --
Other, net ........................................... (260) 54
----- -----
$ 311 $(491)
===== =====
Note 7 - Provision for income taxes:
Three months ended
March 31,
2002 2003
---- ----
(In thousands)
Expected tax expense ................................. $ 752 $ 349
Non-U.S. tax rates ................................... (87) (67)
Incremental U.S. tax on earnings of foreign
subsidiaries ........................................ 48 217
State income taxes ................................... 17 26
Other, net ........................................... 87 (86)
----- -----
$ 817 $ 439
===== =====
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 market risk associated
with receivables, or similar exchange rate risk associated with future sales,
denominated in a currency other than the holder's functional currency. At each
balance sheet date, any such outstanding currency forward contract is
marked-to-market with any resulting gain or loss recognized in income currently.
These contracts are not accounted for as hedging instruments under SFAS No. 133.
At December 31, 2002, the Company held a series of contracts to manage such
exchange rate risk to exchange an aggregate of U.S. $2.5 million for an
equivalent amount of Canadian dollars at an exchange rate of Cdn. $1.57 per U.S.
dollar. Such contracts matured through January 2003. At March 31, 2003, the
Company did not hold any such contracts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Overview
The Company reported net income of $.6 million in the first quarter of
2003, a decrease of 58% from net income of $1.3 million for the first quarter of
2002.
CompX anticipates continuing its focus on opportunities to rationalize its
cost structure throughout 2003. As part of this initiative, CompX is
consolidating its two Kitchener, Ontario plants into a single facility and
expects substantial completion of this action during the second quarter of 2003.
Expenses relating to this consolidation were approximately $400,000 in the first
three months of 2003 and are included in cost of goods sold. The remaining
consolidation expenses, expected to be incurred in the second quarter of 2003,
should be less than such expenses incurred in the first quarter of 2003 and
consist primarily of the cost to move machinery and equipment. No significant
cost related to the disposal of fixed assets is currently expected. Benefits
associated with such consolidation are expected to begin to be realized in the
second half of 2003. Additional cost evaluations are under review which could
result in charges for asset impairment, including goodwill, and other costs in
future quarters.
Results of Operations
Three months ended
March 31,
------------------ %
2002 2003 Change
---- ---- ------
(In millions)
Net sales:
CompX Waterloo/CompX Regout ........... $30,388 $ 32,591 +7%
CompX Security Products ............... 18,181 18,429 +1%
------- --------
Total net sales ..................... $48,569 $ 51,020 +5%
======= ========
Operating income (loss):
CompX Waterloo/CompX Regout ........... $ 411 $ (402) -198%
CompX Security Products ............... 2,109 2,231 +6%
------- --------
Total operating income .............. $ 2,520 $ 1,829 -27%
======= ========
Sales for the respective product lines in the first quarter of 2002 and
2003 are as follows:
Three months ended
March 31,
---------------- %
2002 2003 Change
---- ---- ------
(In thousands)
Precision ball-bearing slides .............. $20,538 $23,169 +13%
Security products .......................... 18,181 18,429 +1%
Ergonomic computer support systems ......... 7,818 6,788 -13%
Other products ............................. 2,032 2,634 +30%
------- -------
$48,569 $51,020 +5%
======= =======
Net sales. Net sales increased $2.5 million, or 5%, to $51.0 million in the
first quarter of 2003 from $48.6 million in the first quarter of 2002. Favorable
fluctuations in currency exchange rates accounted for $1.7 million of the
increase. Excluding the effects of changes in currency exchange rates, the
increase is principally due to increases in sales volume and selling prices for
precision ball-bearing slide products partially offset by sales volume decreases
of ergonomic computer support systems.
Cost of goods sold. The Company's cost of goods sold increased 9% in the
first quarter of 2003 compared to 2002 while net sales increased 5% during the
same period. The Company's gross margin percentage decreased from 20% in 2002 to
17% in 2003. The disproportionate change in cost of goods sold and its effect on
gross margins was primarily due to lower revenues from sales of higher-margin
ergonomic products as well as the expenses incurred in the first quarter of 2003
related to consolidation of the Company's two Canadian facilities into one
facility, discussed above. Fluctuations in currency exchange rates also
negatively impacted cost of goods sold.
Operating income. Operating income in the first quarter of 2003 was $1.8
million compared to $2.5 million for the first quarter of 2002, decreasing 27%
from the first quarter of 2002. As a percentage of net sales, operating income
was 4% for the first quarter of 2003 compared to 5% for the first quarter of
2002. Despite the positive effects of continued cost reductions and certain
price increases, operating income in the first quarter of 2003 declined as
compared to the first quarter of 2002 due to the unfavorable effects of changes
in the sales mix (particularly at the CompX Waterloo/CompX Regout segment),
unfavorable relative changes in currency exchange rates and expenses associated
with the consolidation of the Company's Canadian facilities.
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, a portion of CompX's sales generated from its
non-U.S. 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 2003, currency exchange rate fluctuations of the Canadian
dollar and the euro positively impacted the Company's sales comparisons with the
corresponding period of the prior year (principally with respect to slide
products) and exchange rate fluctuations of the Canadian dollar, the New Taiwan
dollar and the euro negatively impacted the Company's operating income
comparisons for the corresponding periods.
The following table summarizes the effect of currency exchange rate
fluctuations for the three month periods ended March 31, 2002 and 2003:
Percentage change -
three months ended
March 31, 2002 vs. 2003
Including Excluding
effects of effects of
currency currency
fluctuations fluctuations
Net sales:
CompX Waterloo/CompX Regout .................. 7% 1%
CompX Security Products ...................... 1% 1%
Total net sales ............................ 5% 2%
Operating income:
CompX Waterloo/CompX Regout .................. (198%) (46%)
CompX Security Products ...................... 6% 6%
Total operating income ..................... (27%) (3%)
Outlook. The current weak economic cycle is expected to continue to
negatively impact CompX's results for the remainder of 2003. Given the
uncertainty of 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 emphasize
its focus on business opportunities outside of the office furniture industry.
Rationalization initiatives begun in 2002 and continuing through the first half
of 2003, along with prudent management of capital expenditures and working
capital, should strengthen the Company's financial position and favorably
position the Company in future quarters.
General Corporate and other items
Other general corporate income (expense), net. The components of other
general corporate income (expense), net are summarized in Note 6 to the
Consolidated Financial Statements, and primarily include interest income,
foreign currency transaction gains and losses, gains and losses on disposals of
other assets and a settlement gain relating to CompX's terminated defined
benefit pension plan in 2002. Interest income decreased in the first quarter of
2003 as compared to the corresponding period in 2002 primarily due to a lower
level of funds available for investment.
Interest expense. Interest expense declined in the first quarter of 2003
compared to the first quarter of 2002 due primarily to lower average levels of
outstanding indebtedness on CompX's Revolving Bank Credit Agreement offset, in
part, by higher interest rates on the Company's outstanding indebtedness.
Interest expense is expected to be similarly lower in the second quarter of
2003, as compared to the same period in 2002. For the second half of 2003,
interest expense is expected to be slightly higher than the same period in 2002
due to higher interest rates charged on the Company's new Revolving Bank Credit
Agreement entered into in January 2003.
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 7 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.
Liquidity and Capital Resources
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities have generally been similar to the
trends in the Company's earnings. Net cash provided by operating activities
excluding changes in assets and liabilities totaled $5.2 million and $3.7
million in the first quarter of 2002 and 2003, respectively, compared to net
income of $1.3 million and $.6 million, respectively.
Changes in assets and liabilities result primarily from the timing of
production, sales and purchases. Such changes in assets and liabilities
generally tend to even out over time and result in trends in cash flows from
operating activities generally reflecting earnings trends.
Investing activities. Net cash used by investing activities totaled $3.7
million and $2.0 million in the first quarter of 2002 and 2003, respectively.
The capital expenditures for 2003 relate primarily to equipment additions
designed to utilize new technologies thereby increasing automation and improving
manufacturing efficiencies at the Company's facilities. Capital expenditures for
2003 are estimated at approximately $11 million, the majority of which relate to
projects that emphasize improved production efficiency and the shifting of
production capacity to lower cost facilities. Firm purchase commitments for
capital projects not commenced at March 31, 2003 approximated $1.6 million.
Financing activities. Net cash used by financing activities totaled $1.9
million and $1.3 million in the first quarter of 2002 and 2003, respectively.
The Company paid its regular quarterly dividend of $1.9 million, or $.125 per
share, in the first quarter of 2003.
In January 2003, the Company replaced its expiring $100 million unsecured
Revolving Senior Credit Facility with a new $47.5 million secured Revolving Bank
Credit Agreement. Under this facility, $15.5 million was available for future
borrowing at March 31, 2003. The new credit agreement is collateralized by
substantially all of the Company's United States assets and at least 65% of the
ownership interests in the Company's first-tier non-United States subsidiaries.
Provisions contained in the Credit Agreement could result in the acceleration of
the indebtedness prior to its stated maturity for reasons other than defaults
from failing to comply with typical financial covenants. For example, the
Company's Credit Agreement allows the lender to accelerate the maturity of the
indebtedness upon a change of control (as defined) of the borrower. The terms of
the Credit Agreement could result in the acceleration of all or a portion of the
indebtedness following a sale of assets outside of the ordinary course of
business.
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, 2003, 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 2003.
Management believes that cash generated from operations and borrowing
availability under the Company's Revolving Bank Credit Agreement, together with
cash on hand, will be sufficient to meet the Company's liquidity needs for
working capital, capital expenditures, debt service and dividends. To the extent
that the Company's actual operating results or other developments differ from
the Company's expectations, CompX's liquidity could be adversely affected. In
this regard, during 2002 and the first quarter of 2003, the Company's quarterly
common stock dividend of $.125 per share exceeded the Company's earnings per
share. Depending upon the Company's future operations and requirements for cash,
it is possible the Company may decide to reduce or suspend its quarterly
dividend.
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, dividend policy 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.
Forward Looking Information
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," "expects" 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 the following:
o Future supply and demand for the Company's products,
o Changes in costs of raw materials and other operating costs (such as energy
costs),
o General global economic and political conditions,
o Demand for office furniture,
o Service industry employment levels,
o The possibility of labor disruptions,
o Competitive products and prices, including increased competition from
low-cost manufacturing sources (such as China),
o Substitute products,
o Customer and competitor strategies,
o The introduction of trade barriers,
o The impact of pricing and production decisions,
o Fluctuations in the value of the U.S. dollar relative to other currencies
(such as the euro, Canadian dollar and New Taiwan dollar),
o Potential difficulties in integrating completed acquisitions,
o Uncertainties associated with new product development,
o Environmental matters (such as those requiring emission and discharge
standards for existing and new facilities),
o The ultimate outcome of income tax audits,
o The impact of current or future government regulations,
o Possible future litigation and
o 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.
Non-GAAP Financial Measures
In an effort to provide investors with additional information regarding the
Company's results of operations as determined by accounting principles generally
accepted in the United States of America ("GAAP"), the Company has disclosed
certain non-GAAP information which the Company believes provides useful
information to investors:
o The Company discloses percentage changes in its sales and operating income
excluding the effects of foreign currency translation, so that such changes
can be analyzed without the impact of changes in foreign currency exchange
rates, thereby facilitating period-to-period comparisons.
ITEM 4. Controls and Procedures.
The Company maintains a system of disclosure controls and procedures. The
term "disclosure controls and procedures," as defined by regulations of the
Securities and Exchange Commission ("SEC"), means controls and other procedures
that are designed to ensure that information required to be disclosed in the
reports that the Company files or submits to the SEC under the Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits to the SEC under the Act is
accumulated and communicated to the Company's management, including its
principal executive officer and its principal financial officer, as appropriate
to allow timely decisions to be made regarding required disclosure. Each of
David A. Bowers, the Company's Vice Chairman of the Board, President and Chief
Executive Officer, and Darryl R. Halbert, the Company's Vice President, Chief
Financial Officer and Controller, have evaluated the Company's disclosure
controls and procedures as of a date within 90 days of the filing date of this
Form 10-Q. Based upon their evaluation, these executive officers have concluded
that the Company's disclosure controls and procedures are effective as of the
date of such evaluation.
The Company also maintains a system of internal controls. The term
"internal controls," as defined by the American Institute of Certified Public
Accountants' Codification of Statement on Auditing Standards, AU Section 319,
means controls and other procedures designed to provide reasonable assurance
regarding the achievement of objectives in the reliability of the Company's
financial reporting, the effectiveness and efficiency of the Company's
operations and the Company's compliance with applicable laws and regulations.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect such controls subsequent to the
date of their last evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 2003.
February 13, 2003 - Reported item 9.
February 27, 2003 - Reported item 9.
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 8, 2003 By /s/ Darryl R. Halbert
--------------- ---------------------------
Darryl R. Halbert
Vice President, Chief Financial Officer
and Controller
CERTIFICATION
I, David A. Bowers, the Vice Chairman of the Board, President and Chief
Executive Officer of CompX International Inc., certify that:
1) I have reviewed this quarterly report on Form 10-Q of CompX International
Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
/s/ David A. Bowers
- -----------------------------------------
David A. Bowers
Vice Chairman of the Board, President
and Chief Executive Officer
CERTIFICATION
I, Darryl R. Halbert, the Vice President, Chief Financial Officer and Controller
of CompX International Inc., certify that:
1) I have reviewed this quarterly report on Form 10-Q of CompX International
Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
/s/ Darryl R. Halbert
- ---------------------------------------
Darryl R. Halbert
Vice President, Chief Financial Officer
and Controller
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CompX International Inc. (the
Company) on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, David A.
Bowers, Vice Chairman of the Board, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ David A. Bowers
- -----------------------------------------------------------------
David A. Bowers
Vice Chairman of the Board, President and Chief Executive Officer
May 8, 2003
* A signed original of this written statement required by Section 906 has
been provided to CompX International Inc. and will be retained by CompX
International Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CompX International Inc. (the
Company) on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, Darryl R.
Halbert, Vice President, Chief Financial Officer and Controller of the Company,
certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Darryl R. Halbert
- ---------------------------------------
Darryl R. Halbert
Vice President, Chief Financial Officer
and Controller
May 8, 2003
* A signed original of this written statement required by Section 906 has
been provided to CompX International Inc. and will be retained by CompX
International Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.
