SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 - For the fiscal year ended December 31, 2002
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 (IRS Employer
incorporation or 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) 233-1700
--------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Class A common stock New York Stock Exchange
($.01 par value per share)
Securities registered pursuant to Section 12(g) of the Act:
None.
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---
The aggregate market value of the 4.7 million shares of voting stock held by
nonaffiliates of CompX International Inc. as of June 28, 2002 approximated $62.7
million.
As of February 28, 2003, 5,115,780 shares of Class A common stock were
outstanding.
Documents incorporated by reference
Certain of the information required by Part III is incorporated by reference
from the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
PART I
ITEM 1. BUSINESS
General
CompX International Inc. (NYSE: CIX) is a leading manufacturer of precision
ball bearing slides, security products and ergonomic computer support systems
used in office furniture, computer-related applications and a variety of other
industries. The Company's products are principally designed for use in medium to
high-end product applications, where design, quality and durability are critical
to the Company's customers. The Company believes that it is among the world's
largest producers of precision ball bearing slides, security products consisting
of cabinet locks and other locking mechanisms and ergonmomic computer support
systems. In 2002, precision ball bearing slides, security products and ergonomic
computer support systems accounted for approximately 43%, 37% and 15% of net
sales, respectively. The remaining sales were generated from sales of other
products.
Valhi, Inc. and Valhi's wholly-owned subsidiary Valcor, Inc. owned 69% of
the Company's outstanding common stock at December 31, 2002. At December 31,
2002, Contran Corporation held, 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 is Chairman of the Board of each of Contran, Valhi and
Valcor and may be deemed to control each of such companies and CompX.
The Company was incorporated in Delaware in 1993 under the name National
Cabinet Lock, Inc. At that time, Valhi contributed the assets of its Cabinet
Lock Division and the stock of Waterloo Furniture Components Limited to the
Company. In 1996, the Company changed its name to CompX International Inc. In
1998, the Company issued approximately 6 million shares of its common stock in
an initial public offering and CompX acquired two additional security products
producers. CompX acquired two more slide producers in 1999 and another security
products producer in January 2000. See Note 2 to the Consolidated Financial
Statements.
The Company maintains a website on the internet with the address of
www.compxnet.com. Copies of this Annual Report on Form 10-K for the year ended
December 31, 2002 and copies of the Company's Quarterly Reports on Form 10-Q for
2002 and 2003 and any Current Reports on Form 8-K for 2002 and 2003, and any
amendments thereto, are or will be available free of charge as soon as
reasonably practical after they are filed with the Securities and Exchange
Commission ("SEC") at such website. The general public may also read and copy
any materials the Company files with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, NW, Washington, DC 20549, and may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
Company is an electronic filer, and the SEC maintains an internet website at
www.sec.gov that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
Annual Report on Form 10-K relating to matters that are not historical facts,
including, but not limited to, statements found in this Item 1 - "Business,"
Item 3 - "Legal Proceedings," Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Item 7A - "Quantitative and
Qualitative Disclosures About Market Risk," 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
Annual Report and those described from time to time in materials filed with the
Company's other filings with the SEC. 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.
Industry Overview
Prior to 1998, approximately 75% of the Company's products were sold to the
office furniture manufacturing industry. As a result of strategic acquisitions
in the security products industry in 1998 and 2000 and in the precision ball
bearing slide industry in 1999, the Company has expanded its product offering
and reduced its percentage of sales to the office furniture market. Currently,
approximately 62% of the Company's products are sold to the office furniture
manufacturing industry while the remainder are sold for use in other products,
such as vending equipment, electromechanical enclosures, transportation,
computers and related equipment, and other non-office furniture applications.
Beginning in 2001 and continuing throughout 2002, the office furniture industry
has experienced a contraction with consistently negative growth rates.
Consequently, CompX's sales growth has been negatively affected. See Item 6 -
"Selected Financial Data" and Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations." However, CompX's management
believes that its emphasis on new product development, sales of its ergonomic
computer support systems as well as slide and security products used in computer
and other non-office furniture markets result in the potential for higher rates
of growth and diversification of risk than the office furniture industry as a
whole.
Products
CompX manufactures and sells components in three major product lines:
precision ball bearing slides, security products and ergonomic computer support
systems.
Sales for the respective product lines in 2000, 2001 and 2002 are as
follows:
Years ended December 31
2000 2001 2002
---- ---- ----
($ in thousands)
Precision ball bearing slides ........... $119,046 $ 91,822 $ 84,446
Security products ....................... 85,218 74,071 73,358
Ergonomic computer support systems ...... 41,658 36,383 29,945
Other products .......................... 7,372 9,146 8,352
-------- -------- --------
$253,294 $211,422 $196,101
======== ======== ========
The Company's precision ball bearing slides and ergonomic computer support
systems are sold under the CompX Waterloo, Waterloo Furniture Components, Thomas
Regout and Dynaslide brand names and the Company's security products are sold
under the CompX Security Products, National Cabinet Lock, Fort Lock, Timberline
Lock, Chicago Lock and TuBAR brand names. The Company believes that its brand
names are well recognized in the industry.
Precision ball bearing slides. CompX manufactures a complete line of
precision ball bearing slides for use in office furniture, computer-related
equipment, tool storage cabinets, imaging equipment, file cabinets, desk drawers
and other applications. These products include CompX's patented Integrated Slide
Lock in which a file cabinet manufacturer can reduce the possibility of multiple
drawers being opened at the same time and the adjustable patented Ball Lock
which reduces the risk of heavily-filled drawers, such as auto mechanic tool
boxes, from opening while in movement. Precision ball bearing slides are
manufactured to stringent industry standards and are designed in conjunction
with original equipment manufacturers ("OEMs") to meet the needs of end users
with respect to weight support capabilities, ease of movement and durability.
In addition to CompX's basic precision ball bearing slide product lines,
sales based on patented innovations such as the Butterfly Take Apart System, the
Integrated Slide Lock and the Ball Lock have accounted for an increasing
proportion of the Company's sales. These applications have expanded the
Company's product offerings within the office furniture industry as well as
adding products for heavy-duty tool storage cabinets, electromechanical imaging
equipment and computer server network cabinets.
Security products. The Company believes that it is a North American market
leader in the manufacture and sale of cabinet locks and other locking
mechanisms. CompX provides security products to various industries including
institutional furniture, banking, industrial equipment, vehicles, vending and
computer. The Company's products can also be found in various applications
including ignition systems, office furniture, vending and gaming machines,
parking meters, electrical circuit panels, storage compartments, security
devices for laptop and desktop computers as well as mechanical and electronic
locks for the toolbox industry. Some of these products may include CompX's KeSet
high security system, which has the ability to change the keying on a single
lock 64 times without removing the lock from its enclosure and it's patented
high security Tubar locking system.
The Company manufactures disc tumbler locking mechanisms at all of its
security products facilities, which mechanisms provide moderate security and
generally represent the lowest cost lock to produce. CompX also manufactures pin
tumbler locking mechanisms, including its KeSet, ACE II and TuBAR brand locks,
which mechanisms are more costly to produce and are used in applications
requiring higher levels of security. A substantial portion of the Company's
sales consist of products with specialized adaptations to individual
manufacturers' specifications. CompX, however, also has a standardized product
line suitable for many customers. This standardized product line is offered
through a North American distribution network through the Company's STOCK LOCKS
distribution program as well as to factory centers and to large OEMs.
Ergonomic computer support systems. CompX is a leading manufacturer and
innovator in ergonomic computer support systems. Unlike products targeting the
residential market, which are more price sensitive with less emphasis on the
overall value of products and service, the CompX line consists of more highly
engineered products designed to provide ergonomic benefits for business and
other sophisticated users.
Ergonomic computer support systems include articulating computer keyboard
support arms (designed to attach to desks in the workplace and home office
environments to alleviate possible strains and stress and maximize usable
workspace), adjustable computer table mechanisms (which provide variable
workspace heights), CPU storage devices (which minimize adverse effects of dust
and moisture) and a number of complementary accessories, including ergonomic
wrist rest aids, mouse pad supports and computer monitor support arms. These
products include CompX's Leverlock, which is designed to make the adjustment of
an ergonomic keyboard arm easier. In addition, the Company offers its
engineering and design capabilities for the design and manufacture of products
on a proprietary basis for key customers.
Other. CompX also markets and distributes a complete line of window
furnishings hardware in addition to manufacturing sheet metal products such as
filing frames in European markets.
Sales, Marketing and Distribution
CompX sells components to OEMs and to distributors through a dedicated
sales force. The majority of the Company's sales are to OEMs, while the balance
represents standardized products sold through distribution channels.
Sales to large OEM customers are made through the efforts of factory-based
sales and marketing professionals and engineers working in concert with field
salespeople and independent manufacturers' representatives. Manufacturers'
representatives are selected based on special skills in certain markets or
relationships with current or potential customers.
A significant portion of the Company's sales are made through distributors.
The Company has a significant market share of cabinet lock sales to the
locksmith distribution channel. CompX supports its distributor sales with a line
of standardized products used by the largest segments of the marketplace. These
products are packaged and merchandised for easy availability and handling by
distributors and the end user. Based on the Company's successful STOCK LOCKS
inventory program, similar programs have been implemented for distributor sales
of ergonomic computer support systems and, to some extent, precision ball
bearing slides. The Company also operates a small tractor/trailer fleet
associated with its Canadian facilities to provide an industry-unique service
response to major customers.
The Company does not believe it is dependent upon one or a few customers,
the loss of which would have a material adverse effect on its operations. In
2000, 2001 and 2002, sales to the Company's ten largest customers accounted for
approximately 35%, 36% and 30% of sales, respectively. In 2000, 2001 and 2002,
sales to the Company's largest customer were less than 10% of the Company's
total sales. In 2000, nine of the Company's top ten customers were located in
the United States. In 2001 and 2002, eight of the Company's top ten customers
were located in the United States.
Manufacturing and Operations
At December 31, 2002, CompX operated nine manufacturing facilities: six in
North America (two in each of Illinois and Canada and one in each of South
Carolina and Michigan), one in the Netherlands and two in Taiwan. Precision ball
bearing slides or ergonomic products are manufactured in the facilities located
in Canada, the Netherlands, Michigan and Taiwan. Security products are
manufactured in the facilities located in South Carolina and Illinois. The
Company owns all of these facilities except for one of the Taiwan facilities and
the Netherlands facility, which are leased. See also Item 2 - "Properties."
CompX also leases a distribution center in California and a warehouse in Taiwan.
CompX believes that all of its facilities are well maintained and satisfactory
for their intended purposes.
Raw Materials
Coiled steel is the major raw material used in the manufacture of precision
ball bearing slides and ergonomic computer support systems. Plastic resins for
injection molded plastics are also an integral material for ergonomic computer
support systems. Purchased components, including zinc castings, are the
principal raw materials used in the manufacture of security products. These raw
materials are purchased from several suppliers and are readily available from
numerous sources.
The Company occasionally enters into raw material arrangements to mitigate
the short-term impact of future increases in raw material costs. While these
arrangements do not commit the Company to a minimum volume of purchases, they
generally provide for stated unit prices based upon achievement of specified
volume purchase levels. This allows the Company to stabilize raw material
purchase prices, provided that the specified minimum monthly purchase quantities
are met. Materials purchased outside of these arrangements are sometimes subject
to unanticipated and sudden price increases such as rapidly increasing worldwide
steel prices in 2002. Due to the competitive nature of the markets served by the
Company's products, it is often difficult to recover such increases in raw
material costs through increased product selling prices. Consequently, overall
operating margins can be affected by such raw material cost pressures.
Competition
The markets in which CompX participates are highly competitive. The Company
competes primarily on the basis of product design, including ergonomic and
aesthetic factors, product quality and durability, price, on-time delivery,
service and technical support. The Company focuses its efforts on the middle and
high-end segments of the market, where product design, quality, durability and
service are placed at a premium.
The Company competes in the precision ball bearing slide market primarily
on the basis of product quality and price with two large manufacturers and a
number of smaller domestic and foreign manufacturers. The Company's security
products compete with a variety of relatively small domestic and foreign
competitors. The Company competes in the ergonomic computer support systems
market primarily on the basis of product quality, features and price with one
major producer and a number of smaller domestic manufacturers and primarily on
the basis of price with a number of foreign manufacturers. Although the Company
believes that it has been able to compete successfully in its markets to date,
price competition from foreign-sourced product has intensified in the current
economic market and there can be no assurance that the Company will be able to
continue to successfully compete in all existing markets in the future.
Patents and Trademarks
The Company holds a number of patents relating to its component products,
certain of which are believed to be important to CompX and its continuing
business activity. CompX's major trademarks and brand names, including CompX
Security Products, CompX Waterloo, National Cabinet Lock, KeSet, Fort Lock,
Timberline Lock, Chicago Lock, ACE II, TuBAR, Thomas Regout, STOCK LOCKS,
ShipFast, Waterloo Furniture Components Limited and Dynaslide, are protected by
registration in the United States and elsewhere with respect to the products
CompX manufactures and sells. The Company believes such trademarks are well
recognized in the component products industry.
Foreign Operations
The Company has substantial operations and assets located outside the
United States, principally slide and/or ergonomic product operations in Canada,
the Netherlands and Taiwan. The majority of the Company's 2002 non-U.S. sales
are to customers located in Canada and Europe. Foreign operations are subject
to, among other things, currency exchange rate fluctuations. The Company's
results of operations have in the past been both favorably and unfavorably
affected by fluctuations in currency exchange rates. Political and economic
uncertainties in certain of the countries in which the Company operates may
expose the Company to risk of loss. The Company does not believe that there is
currently any likelihood of material loss through political or economic
instability, seizure, nationalization or similar event. The Company cannot
predict, however, whether events of this type in the future could have a
material effect on its operations. See Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Item 7A -
"Quantitative and Qualitative Disclosures About Market Risk" and Note 1 to the
Consolidated Financial Statements.
Environmental Matters
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the use, storage, handling, generation,
transportation, treatment, emission, discharge, disposal and remediation of and
exposure to hazardous and non-hazardous substances, materials and wastes
("Environmental Laws"). The Company's operations also are subject to federal,
state, local and foreign laws and regulations relating to worker health and
safety. The Company believes that it is in substantial compliance with all such
laws and regulations. The costs of maintaining compliance with such laws and
regulations have not significantly impacted the Company to date, and the Company
has no significant planned costs or expenses relating to such matters. There can
be no assurance, however, that compliance with future Environmental Laws or
future laws and regulations governing worker health and safety will not require
the Company to incur significant additional expenditures or that such additional
costs would not have a material adverse effect on the Company's business,
consolidated financial condition, results of operations or liquidity.
Employees
As of December 31, 2002, the Company employed approximately 1,850
employees, including 665 in the United States, 700 in Canada, 300 in the
Netherlands and 185 in Taiwan. Approximately 76% of the Company's employees in
Canada are represented by a labor union covered by a collective bargaining
agreement that expires in January 2006. The Company believes that its labor
relations are satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in approximately 700
square feet of leased space at 5430 LBJ Freeway, Dallas, Texas 75240. The
following table sets forth the location, size, business operating segment and
general product types produced for each of the Company's facilities.
Size
Business (square
Facility Name Segment Location feet) Products Produced
Owned Facilities:
- ----------------
Manitou CW Kitchener, Ontario 276,000 Slides
Trillium CW Kitchener, Ontario 110,000 Ergonomic products
Byron Center CW Byron Center, MI 143,000 Slides
National CSP Mauldin, SC 198,000 Security products
Fort CSP River Grove, IL 100,000 Security products
Timberline CSP Lake Bluff, IL 16,000 Security products
Dynaslide CW Taipei, Taiwan 48,000 Slides
Leased Facilities:
- -----------------
Regout CR Maastricht,
the Netherlands 270,000 Slides
Dynaslide CW Taipei, Taiwan 25,000 Slides
Dynaslide CW Taipei, Taiwan 11,000 Product distribution/
Warehouse
Distribution Center CW Rancho Cucamonga, CA 12,000 Product distribution
CW - CompX Waterloo business segment
CR - CompX Regout business segment
CSP - CompX Security Products business segment
The Manitou, Trillium, Regout, Byron Center, National and Fort facilities
are ISO-9001 registered. The Dynaslide-owned facility is ISO-9002 registered.
The Company believes that all its facilities are well maintained and
satisfactory for their intended purposes.
A sale/leaseback transaction was executed on the Netherlands facility with
the municipality of Maastricht in December 2001. See Note 11 to the Consolidated
Financial Statements and see also Item 7 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved, from time to time, in various environmental,
contractual, product liability, patent (or intellectual property) and other
claims and disputes incidental to its business. Currently no material
environmental or other material litigation is pending or, to the knowledge of
the Company, threatened. The Company currently believes that the disposition of
all claims and disputes, individually or in the aggregate, should not have a
material adverse effect on the Company's consolidated financial condition,
results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A common stock is listed and traded on the New York
Stock Exchange (symbol: CIX). As of February 28, 2003, there were approximately
26 holders of record of CompX Class A common stock. The following table sets
forth the high and low closing sales prices per share for CompX Class A common
stock for 2001 and 2002, according to the New York Stock Exchange Composite
Tape, and dividends paid per share during such periods. On February 28, 2003 the
closing price per share of CompX Class A common stock according to the NYSE
Composite Tape was $6.98.
Dividends
High Low paid
Year ended December 31, 2001
First Quarter .......................... $ 11.65 $ 9.18 $ .125
Second Quarter ......................... 13.00 10.77 .125
Third Quarter .......................... 13.40 10.45 .125
Fourth Quarter ......................... 12.97 8.95 .125
Year ended December 31, 2002
First Quarter .......................... $ 14.00 $ 11.00 $ .125
Second Quarter ......................... 14.40 11.72 .125
Third Quarter .......................... 14.00 8.78 .125
Fourth Quarter ......................... 9.55 7.61 .125
The declaration and payment of future dividends and the amount thereof, if
any, will be dependent upon the Company's results of operations, financial
condition, cash requirements for its businesses, contractual requirements and
restrictions and other factors deemed relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's operations are comprised of a 52 or 53-week fiscal year.
Excluding 1998, each of the years 1991 through 2002 consisted of a 52-week year.
1998 was a 53-week year.
Years ended December 31,
--------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
($ in millions, except per share data)
Income Statement Data
Net sales ..................... $ 152.1 $ 225.9 $ 253.3 $ 211.4 $ 196.1
Operating income .............. $ 30.4 $ 40.0 $ 37.3 $ 12.5 $ 6.2
Income before income taxes and
minority interest ........... $ 32.5 $ 39.2 $ 35.5 $ 12.9 $ 3.4
Income taxes .................. 12.0 14.1 13.4 5.8 2.8
Minority interest in losses ... (.2) (.1) -- -- --
-------- -------- -------- -------- --------
Net income .................. $ 20.7 $ 25.2 $ 22.1 $ 7.1 $ .6
======== ======== ======== ======== ========
Cash dividends ................ $ 1.8 $ 2.0 $ 8.1 $ 7.6 $ 7.6
Net income per basic and
diluted share ................ $ 1.37 $ 1.56 $ 1.37 $ .47 $ .04
Cash dividends per share ...... $ .18 $ .125 $ .50 $ .50 $ .50
Weighted average common shares
outstanding .................. 15.1 16.1 16.1 15.1 15.1
Balance Sheet Data
(at year end):
Cash and other current assets $ 86.5 $ 72.5 $ 83.0 $ 94.9 $ 71.3
Total assets ................ 152.4 200.4 223.7 222.9 200.1
Current liabilities ......... 20.3 26.8 28.9 24.5 22.2
Long-term debt, including
current maturities ......... 1.7 22.3 40.6 49.1 31.0
Stockholders' equity ........ 130.0 149.4 151.0 143.0 142.0
In 1998, the Company issued approximately 6 million shares of its common
stock in an initial public offering and CompX acquired two additional security
products producers. CompX acquired two more slide producers in 1999 and another
security products producer in January 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company reported net income of $.6 million, or $.04 per diluted share
for the year ended December 31, 2002, a decrease of 91% compared to net income
of $7.1 million or $.47 per diluted share for the year ended December 31, 2001.
The Company's net income in 2000 was $22.1 million, or $1.37 per diluted share.
The continued weak economic conditions in the manufacturing sector in North
America and Europe, coupled with the substantial rise in steel prices, had a
significant impact on CompX's results in 2002. Several cost control initiatives
were commenced during the year in response to the continuing soft market demand
in order to minimize the adverse effects of lower sales and favorably position
CompX to meet demand when the economy recovers. These initiatives were in
addition to actions taken during 2001 that included a restructuring of its
European operations in the fourth quarter of 2001. The most significant 2002
action was the retooling of its Byron Center, Michigan precision slide facility
in the fourth quarter of 2002 to rationalize several products within its
precision slide product family. The Byron Center retooling is expected to
achieve operating efficiencies that should begin to positively impact operating
results in the first quarter of 2003.
During 2003, CompX anticipates continuing its focus on opportunities to
rationalize its cost structure. As part of this initiative, CompX plans to
consolidate 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 are expected to primarily consist of the
cost to move machinery and equipment and are not anticipated to include a
significant cost for the disposal of fixed assets. Other facility and product
rationalization evaluations are also under review. These other evaluations could
result in additional charges for asset impairment, including goodwill, and other
costs in future quarters.
The Company defines its operations in terms of three operating segments:
CompX Security Products, CompX Waterloo and CompX Regout (formerly called CompX
Europe). 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 a complete line of precision ball bearing slides for use in office
furniture, computer-related equipment, tool storage cabinets and other
applications. Both of these segments also either manufacture and/or distribute
ergonomic computer support systems. 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. Prior period segment
information has been reclassified to reflect the current operating segments.
As discussed in Notes 1 and 15 to the Consolidated Financial Statements,
beginning in 2002 the Company no longer recognizes periodic amortization of
goodwill in its results of operations. The Company would have reported net
income of approximately $9.4 million in 2001, or about $2.3 million higher
($24.5 million, or about $2.4 million higher in 2000) than what was actually
reported, if the goodwill amortization included in the Company's reported net
income had not been recognized. Of such $2.3 million difference, approximately
$1.4 million and $.9 million relate to the Company's CompX Security Products and
CompX Waterloo/CompX Regout segments, respectively (approximately $1.4 million
and $1.0 million, respectively in 2000).
Critical Accounting Policies and Estimates
The accompanying "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are based upon the Company's consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the reported
period. On an on-going basis, the Company evaluates its estimates, including
those related to bad debts, inventory reserves, the recoverability of other
long-lived assets (including goodwill and other intangible assets) and the
realization of deferred income tax assets. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the reported amounts of assets, liabilities, revenues and
expenses. Actual results may differ from previously-estimated amounts under
different assumptions or conditions.
The Company believes the critical financial statement judgment risks of its
business are attributable to four primary areas:
o Will customer accounts receivable on the books be collected at full book
value?
o Will inventory on hand be sold with a sufficient mark up to cover the cost
to produce and ship the product?
o Will future cash flows of the Company be sufficient to recover the net book
value of long-lived assets?
o Will future taxable income be sufficient to utilize recorded deferred
income tax assets?
The Company believes the following critical accounting policies affect its
more significant judgments and estimates, as noted above, used in the
preparation of its consolidated financial statements and are applicable to all
of the Company's operating segments:
o Allowance for uncollectable accounts receivable. The Company maintains
allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. The Company takes
into consideration the current financial condition of the customers, the
age of outstanding balances and the current economic environment when
assessing the adequacy of the allowances. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, increased allowances may be required.
o Inventory reserves. The Company provides reserves for estimated
obsolescence or unmarketable inventory equal to the difference between the
cost of inventory and the estimated net realizable value using assumptions
about future demand for its products and market conditions. The Company
also considers the age and the quantity of inventory on hand in estimating
the reserve. If actual market conditions are less favorable than those
projected by management, increased inventory reserves may be required.
o Net book value of long-lived assets. The Company recognizes an impairment
charge associated with its long-lived assets, including property and
equipment, goodwill and other intangible assets, whenever it determines
that recovery of the long-lived asset is not probable. The determination is
made in accordance with applicable GAAP requirements associated with the
long-lived asset, and is based upon, among other things, estimates of the
amount of future net cash flows to be generated by the long-lived asset and
estimates of the current fair value of the asset. Adverse changes in
estimates of future net cash flows or estimates of fair value could result
in an inability to recover the carrying value of the long-lived asset,
thereby possibly requiring an impairment charge to be recognized in the
future. Based on the Company's latest annual impairment review of goodwill
of the reporting units during the third quarter of 2002, no goodwill
impairments were deemed to exist. Based on this review, the estimated fair
value of the CompX Waterloo/CompX Regout and CompX Security Products
reporting units exceeded the net carrying values by 23% and 37%,
respectively. See Notes 1 and 15 to the Consolidated Financial Statements.
o Deferred income tax assets. The Company records a valuation allowance to
reduce its deferred income tax assets to the amount that is believed to be
realizable under the "more-likely-than-not" recognition criteria. The
Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for a valuation
allowance. It is possible that in the future the Company may change its
estimate of the amount of the deferred income tax assets that would
"more-likely-than-not" be realized. This would result in an adjustment to
the deferred income tax asset valuation allowance that would either
increase or decrease, as applicable, reported net income in the period the
change in estimate is made.
Results of Operations
Net sales and operating income
Years ended December 31, % Change
-------------------------- ----------------
2000 2001 2002 2000 - 2001 2001 - 2002
---- ---- ---- ---- ----
(In millions)
Net sales:
CompX Waterloo/CompX
Regout segment ................ $168.3 $137.3 $122.7 -18% -11%
CompX Security
Products segment .............. 85.0 74.1 73.4 -13% -1%
------ ------ ------
Total net sales .............. $253.3 $211.4 $196.1 -17% -7%
====== ====== ======
Operating income (loss):
CompX Waterloo/CompX
Regout segment ................ $ 24.8 $ 5.2 $ (1.9) -79% -136%
CompX Security
Products segment .............. 12.5 7.3 8.1 -41% +10%
------ ------ ------
Total operating
income ...................... $ 37.3 $ 12.5 $ 6.2 -67% -50%
====== ====== ======
Operating income (loss) margin:
CompX Waterloo/CompX
Regout segment ................ 15% 4% (2%)
CompX Security
Products segment .............. 15% 10% 11%
Total operating income
margin ........................ 15% 6% 3%
Year ended December 31, 2002 compared to year ended December 31, 2001
Net sales decreased $15.3 million, or 7%, in 2002 compared to 2001
principally due to continued weak demand for the Company's component products
sold to the office furniture market resulting from continued weak economic
conditions in the manufacturing sector in North America and Europe. Net sales of
slide products in 2002 decreased 8% as compared to 2001, while net sales of
security products decreased 1% and net sales of ergonomic products decreased 18%
during the same period.
The Company's cost of goods sold decreased only 3% in 2002 compared to 2001
despite the 7% decrease in net sales during the same period. Therefore, the
Company's gross margin percentage decreased significantly from 21% in 2001 to
17% in 2002. The disproportionate change in cost of goods sold and its effect on
gross margins was primarily due to lower revenues from sales of slide and
ergonomic products and the resulting impact of spreading fixed factory costs
over lower volume. In addition, steel cost increases following the steel tariff
imposed by the United States government increased the Company's raw material
cost, most of which was not immediately recoverable through sales price
increases in 2002. Such steel cost increases resulted in additional 2002 raw
material costs to CompX of approximately $1.2 million compared to 2001 steel raw
material pricing. The CompX Waterloo/CompX Regout segment was most significantly
impacted by the steel cost increases, while the effects on the CompX Security
Products segment were minimal.
Operating income for 2002 decreased $6.3 million, or 50% compared to 2001
and operating margins decreased to 3% in 2002 compared to 6% for 2001. Continued
reductions in manufacturing, fixed overhead and other overhead costs partially
offset the effects of the decline in net sales in 2002. However, operating
margins in 2002 continued to be adversely impacted by the decline in volume
levels, unfavorable changes in the sales mix, increases in certain raw material
costs (primarily steel) and general competitive pricing pressures.
Through December 31, 2001, goodwill was amortized by the straight-line
method over not more than 20 years. Upon adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002, goodwill is no longer subject to periodic
amortization. The Company would have reported operating income of approximately
$14.7 million in 2001 if the goodwill amortization included in the Company's
reported operating income had not been recognized. Without goodwill
amortization, operating income for the CompX Waterloo/CompX Regout segment would
have been approximately $6.0 million in 2001 and operating income for the CompX
Security Products segment would have been approximately $8.7 million.
The Company recorded a pre-tax charge in the fourth quarter of 2002 of $1.6
million, the majority of which was non-cash in nature. The fourth quarter 2002
charge relates to a retooling of the Company's precision slide manufacturing
facility in Byron Center, Michigan and includes a $1.0 million loss on disposal
of equipment, reflected in other general corporate income (expense), net in the
consolidated statements of income. The remainder of the charge is reflected in
cost of goods sold. The cost savings and operating efficiencies resulting from
the retooling are expected to begin to benefit the financial results in the
first quarter of 2003. An additional fourth quarter pre-tax charge of
approximately $1.9 million was recorded to cost of goods sold to adjust for
various changes in estimates with respect to obsolete and slow-moving inventory,
inventory overhead absorption rates and other items. Approximately $1.3 million
of this charge related to the CompX Waterloo/CompX Regout segment with the
remaining $.6 million relating to the CompX Security Products segment. Pre-tax
charges of $5.7 million were also recorded in the fourth quarter of 2001, and
are discussed in connection with sales and operating income for 2000 compared to
2001, below.
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, a portion of CompX's sales
generated from its non-U.S. operations (principally in Canada) 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 values 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. The effects of fluctuations in currency
exchange rates affect the CompX Waterloo/CompX Regout segment, and do not
materially affect the CompX Security Products segment. During 2002, the effects
of currency fluctuations did not materially impact the Company or the CompX
Waterloo/CompX Regout segment.
Year ended December 31, 2001 compared to year ended December 31, 2000
Net sales decreased $41.9 million, or 17%, in 2001 compared to 2000 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
to a lesser extent, the negative effects of fluctuations in currency exchange
rates. Net sales of slide products in 2001 decreased 23% as compared to 2000,
while net sales of security products and ergonomic products each decreased 13%
during the same period.
Cost of goods sold decreased 10% in 2001 as compared to 2000 due to the
lower sales volume in 2001. As a percentage of sales, cost of sales increased
from 74% in 2000 to 79% in 2001 due primarily to the spreading of fixed
production costs over lower sales volumes. In addition, a $2.6 million pre-tax
charge related to various changes in estimate with respect to reserves for
obsolete and slow-moving inventory was recorded in the fourth quarter of 2001
and negatively impacted cost of goods sold.
Operating income for 2001 decreased $24.8 million, or 67% compared to 2000
and operating income margins decreased to 6% in 2001 compared to 15% for 2000.
Reductions in manufacturing, fixed overhead and related overhead costs, which
began in the first quarter of 2001, partially offset the effects of the decline
in net sales in 2001. However, despite these cost reductions, operating margins
in 2001 were adversely impacted by the decline in volume levels and the related
impact on manufacturing efficiencies, the effects of unfavorable changes in the
sales mix and general pricing pressures. Operating income at the CompX
Waterloo/CompX Regout segment decreased 79% in 2001 compared to 2000, while
operating income at the CompX Security Products segment decreased 41% for the
same period. A pre-tax $2.7 million restructuring charge in the fourth quarter
of 2001 and a proportionately larger impact resulting from unfavorable changes
in the sales mix contributed to the more substantial operating income decline at
the CompX Waterloo/CompX Regout segment as compared to the CompX Security
Products segment.
As discussed in Note 6 to the Consolidated Financial Statements, the fourth
quarter 2001 restructuring charge included headcount reductions of about 35
employees at CompX's Maastricht, the Netherlands facility, substantially all of
which had been implemented by December 31, 2001. Of the $2.7 million charge, as
adjusted for changes in currency exchange rates, approximately $.4 million was
paid in 2001, $2.0 million was paid in 2002 and $.6 million was paid in January
2003. In addition, approximately $3.0 million in pre-tax charges were recorded
in the fourth quarter of 2001. These charges are predominately comprised of $2.6
million related to various changes in estimates with respect to reserves for
obsolete and slow-moving inventory, approximately $.1 million related to
allowances for doubtful accounts, with the remainder related to other items. Of
the $3.0 million charges, approximately $.9 million related to the CompX
Waterloo/CompX Regout segment and the remaining $2.1 million related to the
CompX Security Products segment.
In 2001, excluding the effects of currency exchange rate fluctuations, the
Company's sales decreased 15% compared to 2000. Sales of the CompX
Waterloo/CompX Regout segment decreased 16%, exclusive of the effects of
currency and acquisitions. Operating income comparisons for this period,
however, were not materially impacted by the effects of currency. The effects of
currency fluctuations do not materially affect the CompX Security Products
segment.
General
The Company's profitability primarily depends on its ability to utilize its
production capacity effectively, which is affected by, among other things, the
demand for its products and its ability to control its manufacturing costs,
primarily comprised of labor costs and raw materials such as zinc, copper,
coiled steel and plastic resins. Raw material costs represent approximately 43%
of the Company's total cost of sales. During 2000 and 2001, steel prices did not
change significantly compared to the respective prior years. However, in 2002,
worldwide steel prices increased significantly following the steel tariff
imposed by the United States government. The Company occasionally enters into
raw material supply arrangements to mitigate the short-term impact of future
increases in raw material costs. While these arrangements do not commit the
Company to a minimum volume of purchases, they generally provide for stated unit
prices based upon achievement of specified volume purchase levels. This allows
the Company to stabilize raw material purchase prices to a certain extent,
provided the specified minimum monthly purchase quantities are met. The Company
entered into such arrangements for zinc, coiled steel and plastic resins in 2002
and does not anticipate further significant changes in the cost of these
materials from their current levels for the next year. Materials purchased on
the spot market are sometimes subject to unanticipated and sudden price
increases. Due to the competitive nature of the markets served by the Company's
products, it is often difficult to recover such increases in raw material costs
through increased product selling prices. Consequently, overall operating
margins may be affected by such raw material cost pressures.
At December 31, 2002, none of the Company's employees in the U.S., the
Netherlands or Taiwan were represented by bargaining units, and wage increases
for such employees historically have been in line with overall inflation
indices. Approximately 76% of the Company's Canadian employees are covered by a
three year collective bargaining agreement which provided for annual wage
increases of approximately 3.5%. Wage increases for these Canadian employees
historically have also been in line with overall inflation indices. The
collective bargaining agreement expired in January 2003 and has been replaced
with a new agreement which expires in January 2006. The new agreement retains
the general provisions of the old agreement and provides for annual wage
increases from 1% to 2.5% over the life of the contract.
In January 2000, the Company acquired substantially all of the operating
assets of Chicago Lock Company for approximately $9 million, further expanding
its security products line. This acquisition was financed through a combination
of cash on hand and increased borrowings under the Company's Revolving Senior
Credit Facility.
Selling, general and administrative expense consists primarily of salaries,
commissions and advertising expenses directly related to product sales. As a
percentage of net sales, selling, general and administrative expense was 11% in
2000, 13% in 2001 and 14% in 2002. Despite cost reduction programs implemented
in 2001, the decline in sales volumes outpaced the ability of the Company to
reduce its selling, general and administrative expense during 2001 and 2002. As
a result, the Company's selling, general and administrative expense as a
percentage of net sales increased since 2000.
Other general corporate income (expense), net
As summarized in Note 12 to the Consolidated Financial Statements, "other
general corporate income (expense), net" primarily includes interest income,
losses on disposal of property and equipment and net foreign currency
transaction gain and loss. In 2002, loss on disposal of property and equipment
included approximately $1.0 million related to the retooling of the Company's
precision slide manufacturing facility in Byron Center, Michigan. The remainder
of the pre-tax charge, $.6 million, is reflected in cost of goods sold and
related to the cost of moving and installing machinery and equipment as well as
the disposal of obsolete inventory. Interest income decreased in 2002 compared
to 2001 due primarily to lower interest rates earned on funds available for
investment combined with a lower level of funds available for investment.
Conversely, 2001 interest income increased when compared to 2000 due to higher
levels of available funds for investment. In 2001, a curtailment gain of
approximately $.1 million was included in other general corporate income, net.
This curtailment gain, more fully described in Note 8 to the Consolidated
Financial Statements, relates to the cessation of benefits provided under
CompX's defined benefit plan which covered substantially all full-time employees
of Thomas Regout International B.V. As of December 31, 2001, certain obligations
related to the terminated plan had not yet been fully settled and are reflected
in accrued pension costs. In 2002, such obligations were settled and the Company
reported a $.7 million settlement gain.
Interest expense
Interest expense declined $1.0 million in 2002 compared to 2001 due
primarily to lower average interest rates and lower levels of outstanding
indebtedness on CompX's Revolving Senior Credit Facility. In contrast, interest
expense increased $.6 million in 2001 compared to 2000 due to higher average
levels of outstanding indebtedness on CompX's Revolving Senior Credit Facility.
Interest expense in 2003 is expected to be somewhat higher compared to 2002 due
to slightly higher interest rates charged on the Company's new Revolving Bank
Credit Agreement, which is explained more fully below and in Note 7 to the
Consolidated Financial Statements.
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
9 to the Consolidated Financial Statements. Income tax rates vary by
jurisdiction (country 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. Net income in 2002 was negatively impacted by an increase in the
effective income tax rate primarily as a result of lower income levels and an
increased proportion of foreign-sourced dividend income taxed at a higher
effective tax rate.
As discussed in Note 1 to the Consolidated Financial Statements, effective
January 1, 2002, the Company no longer recognizes periodic amortization of
goodwill. Under GAAP, generally there is no income tax benefit recognized for
financial reporting purposes attributable to goodwill amortization. Accordingly,
ceasing to periodically amortize goodwill beginning in 2002 resulted in a
reduction in the Company's overall effective income tax rate in 2002 as compared
to 2001, partially offsetting the increased effective tax rate on
foreign-sourced income.
Other
Reflected in the 2001 results of operations is a $2.2 million gain on the
sale/leaseback of the Company's manufacturing facility in the Netherlands, which
is discussed more fully below and in Note 11 to the Consolidated Financial
Statements.
Related party transactions
CompX is a party to certain transactions with related parties. See Note 13
to the Consolidated Financial Statements.
Outlook
The Company expects that weak market conditions will continue in the office
furniture market, the primary end-market for the Company's products. As a
result, sales volumes are expected to remain depressed through at least 2003 and
competitive pricing pressures are expected to continue. The Company has
initiated price increases on certain of its products and will continue to focus
on cost improvement initiatives, utilizing lean manufacturing techniques and
prudent balance sheet management in order to minimize the impact of lower sales
to the office furniture industry and to develop value-added customer
relationships with additional focus on sales of the Company's higher-margin
ergonomic computer support systems to improve operating results. Among the
Company's cost control initiatives is a plan to consolidate its two Kitchener,
Ontario plants into one facility. Expenses related to this consolidation are
expected to primarily consist of the cost to move machinery and equipment and
are not anticipated to include a significant net cost for the disposal of fixed
assets. Substantial completion of the consolidation is expected by the end of
the second quarter of 2003. In addition, other facility rationalizations are
also under review and could result in additional charges for asset impairment,
including goodwill, and other costs in future quarters. These actions, along
with other activities to eliminate duplicate product lines and excess capacity,
are designed to position the Company to more effectively concentrate on both new
product and new customer opportunities to improve Company profitability.
Liquidity and Capital Resources
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities, for 2000, 2001 and 2002 have
generally been similar to the trend in the Company's earnings. Net cash provided
by operating activities, excluding changes in assets and liabilities, in 2000,
2001 and 2002 totaled $36.7 million, $21.5 million and $13.5 million,
respectively, compared to net income of $22.1 million, $7.1 million and $.6
million, respectively. Depreciation and amortization expense increased in 2001
as compared to 2000 in part due to the acquisitions discussed above and
additional expenditures on facilities improvements and enhancements discussed
below. Depreciation and amortization expense decreased in 2002 compared to 2001
due primarily to the cessation of amortization of goodwill. See Notes 1 and 15.
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. However, year-to-year relative changes in
assets and liabilities can significantly affect the comparability of cash flows
from operating activities. For example, relative changes in assets and
liabilities consumed approximately $8.3 million of cash in 2000. However, during
2001 and 2002, with CompX's specific focus on working capital management,
relative changes in assets and liabilities generated a net $6.2 million and $3.4
million, respectively, in cash. Therefore, despite the significant decline in
earnings in 2001 as compared to 2000, cash from operating activities in 2001
remained fairly consistent with 2000 primarily due to cash generated from
inventory and accounts receivable reduction initiatives undertaken during 2001.
The cash generated from these initiatives during 2001 was partially offset by a
use of cash related to relative changes in accounts payable and accrued
liabilities resulting from the overall decline in operating activity from 2000
to 2001. The inventory and accounts receivable reduction initiatives continued
during 2002, resulting in the generation of cash from relative changes in
inventory and accounts receivable, although the amount of cash generated from
such relative changes was less than the amount generated in 2001. However, this
positive cash generated was partially offset by the use of $1.7 million in cash
during 2002 relating to the restructuring reserve that was recorded in the
fourth quarter of 2001.
Investing activities. Net cash used by investing activities totaled $32.4
million, $2.7 million and $12.7 million for the years ended December 31, 2000,
2001 and 2002, respectively. Cash used by investing activities includes
approximately $9.3 million in 2000 for the Chicago Lock acquisition. In 2001,
$10.0 million in cash was provided from the sale/leaseback of the Company's
plant facility in the Netherlands. Other cash flows from investing activities in
each of the past three years related principally to capital expenditures.
Capital expenditures in the past three years emphasized manufacturing equipment
which utilizes new technologies and increases automation of the manufacturing
process to provide for increased productivity and efficiency. The capital
expenditures in 2000 relate primarily to the completion of facility expansions
at the Company's Kitchener facility, additional facility expansions at the
Company's Byron Center facility and general equipment upgrades and
modernization. Capital expenditures in 2001 and 2002 relate primarily to general
equipment upgrades and modernization.
Pursuant to the sale/leaseback of the Company's plant facility in
Maastricht, the Netherlands, CompX sold the manufacturing facility with a net
carrying value of $8.2 million for $10.0 million cash consideration in December
2001, and CompX simultaneously entered into a leaseback of the facility with a
nominal monthly rental for approximately 30 months. CompX has the option to
extend the leaseback period for up to an additional two years with monthly
rentals of $40,000 to $100,000. CompX may terminate the leaseback at any time
without penalty. In addition to the cash received up front, CompX included an
estimate of the fair market value of the monthly rental during the
nominal-rental leaseback period as part of the sale proceeds. A portion of the
gain from the sale of the facility after transaction costs, equal to the present
value of the monthly rentals over the expected leaseback period (including the
fair market value of the monthly rental during the nominal-rental leaseback
period), was deferred and is being amortized into income over the expected
leaseback period. CompX is recognizing rental expense over the leaseback period,
including amortization of the prepaid rent consisting of the estimated fair
market value of the monthly rental during the nominal-rental leaseback period.
Pursuant to the agreement, CompX is also obligated to acquire approximately 10
acres from the municipality of Maastricht for approximately $2.1 million within
the next two years.
Capital expenditures for 2003 are estimated at approximately $11 million,
the majority of which relate to projects that emphasize improved production
efficiency. Firm purchase commitments for capital projects in process at
December 31, 2002 approximated $1.4 million.
Financing activities. Net cash provided (used) by financing activities
totaled $2.1 million, $(1.8) million and $(25.5) million for the years ended
December 31, 2000, 2001 and 2002, respectively. Total cash dividends paid in
2000 were $8.1 million and in each of 2001 and 2002 were $7.6 million ($.50 per
share in each of 2000 through 2002). The Company used available cash on hand to
reduce its outstanding debt by $19 million in June 2002 and borrowed $1 million
on its unsecured Revolving Senior Credit Facility in the third quarter of 2002.
The Company's Board of Directors has authorized the Company to purchase up
to approximately 1.5 million shares of its common stock in open market or
privately-negotiated transactions at unspecified prices and over an unspecified
period of time. As of December 31, 2002, the Company had purchased approximately
1,104,000 shares for an aggregate of $11.3 million pursuant to such
authorization ($8.7 million for 844,300 shares in 2000, $2.6 million for 259,600
shares in 2001 and nil in 2002).
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. Had the facility been in place at December 31, 2002, $16.5
million would have been available for future borrowing. 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. See Note 7 to the Consolidated Financial
Statements. Other than certain operating leases discussed in Note 14 to the
Consolidated Financial Statements, neither CompX nor any of its subsidiaries or
affiliates are parties to any off-balance sheet financing arrangements.
Other
Management believes that cash generated from operations and borrowing
availability under the 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 the Company's quarterly common stock dividend of $.125 per
share exceeded the Company's earnings per share. To the extent that the
Company's future operating results continue to be insufficient to cover such
dividend, it is possible the Company might 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, repurchase shares of its
common stock, modify its dividend policy 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, 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.
Contractual obligations. As more fully described in the notes to the
Consolidated Financial Statements, the Company is obligated to make future
payments under certain debt and lease agreements, and is a party to other
commitments. The following table summarizes these obligations as of December 31,
2002.
Payments due by period
--------------------------
Less than 1 - 3 4 - 5
Total 1 year years years
(In thousands)
Long-term debt ........................... $31,000 $ -- $ -- $31,000
Capital lease obligations and other ...... 89 89 -- --
Operating leases ......................... 1,565 662 881 22
Unconditional purchase obligations ....... 1,355 1,355 -- --
Other long-term obligation - Maastricht
real estate acquisition obligation ...... 2,085 -- 2,085 --
------- ------ ------ -------
Total contractual cash obligations ....... $36,094 $2,106 $2,966 $31,022
======= ====== ====== =======
In addition, the Company is a party to certain other agreements that
contractually and unconditionally commit the Company to pay certain amounts in
the future. While the Company believes it is probable that amounts will be spent
in the future under such contracts, the amount and/or the timing of such future
payments will vary depending on certain provisions of the applicable contract.
Agreements to which the Company is a party that fall into this category, more
fully described in Note 14 to the Consolidated Financial Statements, are CompX's
patent license agreements under which it pays royalties based on the volume of
certain products manufactured in Canada and sold in the United States.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. The Company is exposed to market risk from changes in foreign
currency exchange rates and interest rates. The Company periodically uses
currency forward contracts to manage a portion of foreign exchange rate risk
associated with receivables, or similar exchange rate risk associated with
future sales, denominated in a currency other than the holder's functional
currency. Otherwise, the Company does not generally enter into forward or option
contracts to manage such market risks, nor does the Company enter into any such
contract or other type of derivative instrument for trading or speculative
purposes. Other than the contracts discussed below, the Company was not a party
to any forward or derivative option contract related to foreign exchange rates
or interest rates at December 31, 2001 and 2002. See Note 1 to the Consolidated
Financial Statements.
Interest rates. The Company is exposed to market risk from changes in
interest rates, primarily related to indebtedness.
At December 31, 2001 and 2002, substantially all of the Company's
outstanding indebtedness were variable rate borrowings. Such borrowings at
December 31, 2002 related principally to $31 million ($49 million at December
31, 2001) in borrowings under the Company's unsecured Revolving Senior Credit
Facility which was replaced by a $47.5 million secured Revolving Bank Credit
Agreement in January 2003. The outstanding balances at December 31, 2001 and
2002 (which approximate fair value) had a weighted-average interest rate of 4.2%
and 2.5%, respectively. Amounts outstanding under the new credit facility are
due in January 2006. The remaining indebtedness outstanding at December 31, 2001
and 2002 is not material.
Foreign currency exchange rates. The Company is exposed to market risk
arising from changes in foreign currency exchange rates as a result of
manufacturing and selling its products outside the United States (principally
Canada, Western Europe 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
(principally in Canada) 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.
Certain of CompX's sales generated by its Canadian operations are
denominated in U.S. dollars. To manage a portion of the foreign exchange rate
market risk associated with receivables, or similar exchange rate risk
associated with future sales, at December 31, 2002 CompX had entered into a
series of short-term forward exchange contracts maturing through January 2003 to
exchange an aggregate of $2.5 million for an equivalent amount of Canadian
dollars at an exchange rate of Cdn. $1.57 per U.S. dollar. At each balance sheet
date, outstanding currency forward contracts are marked-to-market with any
resulting gain or loss recognized in income currently. The difference between
the estimated fair value and the face value of all such outstanding forward
contracts at December 31, 2002 is not material. At December 31, 2002, the actual
exchange rate was Cdn. $1.57 per U.S. dollar. No foreign exchange contracts were
outstanding at December 31, 2001.
Other. The above discussion includes forward-looking statements of market
risk which assume hypothetical changes in market prices. Actual future market
conditions will likely differ materially from such assumptions. Accordingly,
such forward-looking statements should not be considered to be projections by
the Company of future events or losses. Such forward-looking statements are
subject to certain risks and uncertainties some of which are listed in
"Business-General."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" (page
F-1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
CompX's definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this report (the "CompX Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
CompX Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
CompX Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
CompX Proxy Statement. See also Note 13 to the Consolidated Financial
Statements.
ITEM 14. 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 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-K. 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 IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements and Schedules
The Registrant
The consolidated financial statements and schedules listed
on the accompanying Index of Financial Statements and
Schedules (see page F-1) are filed as part of this Annual
Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended
December 31, 2002.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit
Index. CompX will furnish a copy of any of the exhibits
listed below upon payment of $4.00 per exhibit to cover the
costs to CompX of furnishing the exhibits. Instruments
defining the rights of holders of long-term debt issues
which do not exceed 10% of consolidated total assets will be
furnished to the Commission upon request.
Item No. Exhibit Item
3.1 Restated Certificate of Incorporation of Registrant -
incorporated by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (File No. 333-42643).
3.2 Amended and Restated Bylaws of Registrant, adopted by the
Board of Directors August 31, 2002.
10.1 Intercorporate Services Agreement between the Registrant and
Contran Corporation effective as of January 1, 2002 -
incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002.
10.2* CompX International Inc. 1997 Long-Term Incentive Plan -
incorporated by reference to Exhibit 10.2 of the
Registrant's Registration Statement on Form S-1 (File No.
333-42643).
10.3* CompX International Inc. Variable Compensation Plan
effective as of January 1, 1999 - incorporated by reference
to Exhibit 10.4 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
10.4 Agreement between Haworth, Inc. and Waterloo Furniture
Components, Ltd. and Waterloo Furniture Components, Inc.
effective October 1, 1992 - incorporated by reference to
Exhibit 10.3 of the Registrant's Registration Statement on
Form S-1 (File No. 333-42643).
10.5 Tax Sharing Agreement among the Registrant, Valcor, Inc. and
Valhi, Inc. dated as of January 2, 1998 - incorporated by
reference to Exhibit 10.4 of the Registrant's Registration
Statement on Form S-1 (File No. 333-42643).
Item No. Exhibit Item
10.6 $100,000,000 Credit Agreement between the Registrant,
Bankers Trust Company, as Agent and various lending
institutions dated February 26, 1998 - incorporated by
reference to Exhibit 10.5 of the Registrant's Registration
Statement on Form S-1 (File No. 333-42643).
10.7 Amendment No. 1 to Credit Agreement between Registrant,
Bankers Trust Company, as Agent and various lending
institutions, dated December 15, 1999 - incorporated by
reference to Exhibit 10.8 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1999.
10.8 Amendment No. 2 to Credit Agreement between Registrant,
Bankers Trust Company, as Agent and various lending
institutions, dated December 2001 - incorporated by
reference to Exhibit 10.8 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2001.
10.9 $47,500,000 Credit Agreement between the Registrant,
Wachovia Bank, National Association, as Agent and various
lending institutions dated January 22, 2003.
10.10* Employment agreement between Registrant and Wouter J.
Dammers, effective August 30, 1999 - incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001.
10.11 Asset sale/leaseback agreement between Thomas Regout
International BV and the municipality of Maastricht, the
Netherlands dated December 21, 2001 (English translation
from Dutch language document) - incorporated by reference to
Exhibit 10.12 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001.
10.12* Agreement and General Release between the Registrant and
Brent A. Hagenbuch, effective May 22, 2002.
10.13* Agreement and General Release between the Registrant and
Stuart M. Bitting, effective July 31, 2002.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Annual Report of the CompX Contributory Retirement Plan
(Form 11-K) to be filed under Form 10-K to this Annual
Report on Form 10-K405 within 180 days after December 31,
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.
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Management contract, compensatory plan or agreement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ David A. Bowers
------------------------------------------------
David A. Bowers
Vice Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Glenn R. Simmons Chairman of the Board March 14, 2003
- -----------------------------
Glenn R. Simmons
/s/ David A. Bowers Vice Chairman of the Board, March 14, 2003
- ----------------------------- President and
David A. Bowers Chief Executive Officer
(Principal Executive Officer)
/s/ Darryl R. Halbert Vice President, March 14, 2003
- ----------------------------- Chief Financial Officer
Darryl R. Halbert and Controller
(Principal Financial and Accounting
Officer)
/s/ Paul M. Bass, Jr. Director March 14, 2003
- -----------------------------
Paul M. Bass, Jr.
/s/ Keith R. Coogan Director March 14, 2003
- -----------------------------
Keith R. Coogan
/s/ Edward J. Hardin Director March 14, 2003
- -----------------------------
Edward J. Hardin
/s/ Ann Manix Director March 14, 2003
- --------------------------------------
Ann Manix
/s/ Steven L. Watson Director March 14, 2003
- -----------------------------
Steven L. Watson
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 annual report on Form 10-K of CompX International
Inc.;
2) Based on my knowledge, this annual 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 annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 functions):
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
annual 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: March 14, 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 annual report on Form 10-K of CompX International
Inc.;
2) Based on my knowledge, this annual 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 annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 functions):
d) 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
e) 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
annual 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: March 14, 2003
/s/ Darryl R. Halbert
- ------------------------------------------------------
Darryl R. Halbert
Vice President, Chief Financial Officer and Controller
Annual Report on Form 10-K
Items 8, 14(a) and 14(d)
Index of Financial Statements and Schedules
Financial Statements Page
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 2001 and 2002 F-3
Consolidated Statements of Income -
Years ended December 31, 2000, 2001 and 2002 F-5
Consolidated Statements of Comprehensive Income -
Years ended December 31, 2000, 2001 and 2002 F-6
Consolidated Statements of Cash Flows -
Years ended December 31, 2000, 2001 and 2002 F-7
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 2000, 2001 and 2002 F-9
Notes to Consolidated Financial Statements F-10
Financial Statement Schedule
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
Schedules I, III and IV are omitted because they are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of CompX International Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, cash flows and
stockholders' equity present fairly, in all material respects, the consolidated
financial position of CompX International Inc. and Subsidiaries as of December
31, 2001 and 2002, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 15 to the consolidated financial statements, effective
January 1, 2002 the Company changed its method of accounting for goodwill and
other intangible assets.
PricewaterhouseCoopers LLP
Dallas, Texas
February 13, 2003
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2002
(In thousands, except share data)
ASSETS 2001 2002
---- ----
Current assets:
Cash and cash equivalents ........................ $ 33,309 $ 12,407
Accounts receivable, less allowance for
doubtful accounts of $841 and $812 .............. 23,422 22,924
Income taxes receivable from affiliates .......... 351 352
Refundable income taxes .......................... 2,032 1,378
Inventories ...................................... 30,902 28,876
Prepaid expenses and other current assets ........ 2,902 3,422
Deferred income taxes ............................ 1,944 1,983
-------- --------
Total current assets ......................... 94,862 71,342
-------- --------
Other assets:
Goodwill ......................................... 38,882 40,729
Other intangible assets .......................... 2,440 2,183
Prepaid rent ..................................... 1,079 426
Other ............................................ 577 233
-------- --------
Total other assets ........................... 42,978 43,571
-------- --------
Property and equipment:
Land ............................................. 4,368 4,344
Buildings ........................................ 29,092 29,452
Equipment ........................................ 89,773 102,347
Construction in progress ......................... 4,618 3,548
-------- --------
127,851 139,691
Less accumulated depreciation .................... 42,815 54,512
-------- --------
Net property and equipment ................... 85,036 85,179
-------- --------
$222,876 $200,092
======== ========
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 2001 and 2002
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2002
---- ----
Current liabilities:
Current maturities of long-term debt ................. $ 56 $ 6
Accounts payable and accrued liabilities ............. 23,168 21,318
Payable to affiliate ................................. 15 --
Income taxes ......................................... 1,000 419
Deferred income taxes ................................ 291 408
--------- ---------
Total current liabilities ........................ 24,530 22,151
--------- ---------
Noncurrent liabilities:
Long-term debt ....................................... 49,000 31,000
Deferred income taxes ................................ 4,441 4,469
Accrued pension costs ................................ 660 --
Deferred gain on sale/leaseback ...................... 1,221 493
--------- ---------
Total noncurrent liabilities ..................... 55,322 35,962
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000 shares
authorized, none issued ............................. -- --
Class A common stock, $.01 par value;
20,000,000 shares authorized; 6,207,180 and 6,219,680
shares issued ....................................... 62 62
Class B common stock, $.01 par value;
10,000,000 shares authorized, issued and outstanding 100 100
Additional paid-in capital ........................... 119,224 119,387
Retained earnings .................................... 50,966 44,049
Accumulated other comprehensive income -
currency translation ................................ (16,013) (10,304)
Treasury stock, at cost - 1,103,900 shares ........... (11,315) (11,315)
--------- ---------
Total stockholders' equity ....................... 143,024 141,979
--------- ---------
$ 222,876 $ 200,092
========= =========
Commitments and contingencies (Notes 1, 11 and 14)
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2000, 2001 and 2002
(In thousands, except per share data)
2000 2001 2002
---- ---- ----
Net sales ................................... $ 253,294 $ 211,422 $ 196,101
Cost of goods sold .......................... 187,299 167,884 163,181
--------- --------- ---------
Gross margin .......................... 65,995 43,538 32,920
Selling, general and administrative expense . 28,693 28,310 26,713
Restructuring charge ........................ -- 2,742 --
--------- --------- ---------
Operating income ...................... 37,302 12,486 6,207
Gain on sale of plant facility .............. -- 2,246 --
Other general corporate income (expense), net 443 1,009 (910)
Interest expense ............................ (2,302) (2,859) (1,888)
--------- --------- ---------
Income before income taxes and
minority interest .................... 35,443 12,882 3,409
Provision for income taxes .................. 13,390 5,758 2,771
Minority interest in losses ................. (3) -- --
--------- --------- ---------
Net income ............................ $ 22,056 $ 7,124 $ 638
========= ========= =========
Basic and diluted earnings per common share . $ 1.37 $ .47 $ .04
========= ========= =========
Cash dividends per share .................... $ .50 $ .50 $ .50
========= ========= =========
Shares used in the calculation of earnings
per share amounts for:
Basic earnings per share .................. 16,115 15,144 15,110
Dilutive impact of stock options .......... 32 6 8
--------- --------- ---------
Diluted earnings per share ................ 16,147 15,150 15,118
========= ========= =========
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2000, 2001 and 2002
(In thousands)
2000 2001 2002
---- ---- ----
Net income ................................ $ 22,056 $ 7,124 $ 638
-------- ------- -------
Other comprehensive income - currency
translation adjustment:
Pre-tax amount ........................ (5,159) (5,097) 5,643
Less income tax benefit ............... (323) (207) (66)
-------- ------- -------
Total other comprehensive income ...... (4,836) (4,890) 5,709
-------- ------- -------
Comprehensive income ................ $ 17,220 $ 2,234 $ 6,347
======== ======= =======
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000, 2001 and 2002
(In thousands)
2000 2001 2002
---- ---- ----
Cash flows from operating activities:
Net income .................................. $ 22,056 $ 7,124 $ 638
Depreciation and amortization ............... 12,416 14,769 13,004
Deferred income taxes ....................... 2,310 1,355 (750)
Gain on sale of plant facility .............. -- (2,246) --
Minority interest ........................... (3) -- --
Other, net .................................. (73) 465 604
Change in assets and liabilities:
Accounts receivable ....................... (826) 6,112 1,301
Inventories ............................... (7,421) 4,075 3,052
Accounts payable and accrued liabilities .. 2,746 (3,983) (2,798)
Accounts with affiliates .................. (284) (38) (16)
Income taxes .............................. (1,033) 202 1,561
Other, net ................................ (1,458) (172) 342
-------- -------- --------
Net cash provided by operating activities 28,430 27,663 16,938
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ........................ (23,128) (13,283) (12,703)
Proceeds from sale of plant facility ........ -- 10,000 --
Purchase of business units .................. (9,346) -- --
Other, net .................................. 111 605 32
-------- -------- --------
Net cash used by investing activities ... (32,363) (2,678) (12,671)
-------- -------- --------
Cash flows from financing activities:
Long-term debt:
Borrowings ................................ 20,274 14,919 1,000
Principal payments ........................ (2,454) (6,511) (19,050)
Issuance of common stock .................... 1,027 -- 120
Dividends paid .............................. (8,076) (7,553) (7,555)
Common stock reacquired ..................... (8,665) (2,650) --
Other ....................................... 13 -- --
-------- -------- --------
Net cash provided (used) by financing
activities ............................. 2,119 (1,795) (25,485)
-------- -------- --------
Net increase (decrease) ....................... $ (1,814) $ 23,190 $(21,218)
======== ======== ========
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 2000, 2001 and 2002