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, 2003
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
- ----------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 448-1400
--------------------
Securities registered pursuant to Section 12(b) of the Act:
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.
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 30, 2003 approximated $26.1
million.
As of January 30, 2004, 5,124,780 shares of Class A common stock were
outstanding.
Documents incorporated by reference
-----------------------------------
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 ergonomic computer support
systems. In 2003, precision ball bearing slides, security products and ergonomic
computer support systems accounted for approximately 45%, 37% and 14% 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
approximately 69% of the Company's outstanding common stock at December 31,
2003. At December 31, 2003, Contran Corporation held, directly or through
subsidiaries, approximately 90% of Valhi's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee. Mr. Simmons 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.
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, 2003 and copies of the Company's Quarterly Reports on Form 10-Q for
2003 and 2004 and any Current Reports on Form 8-K for 2003 and 2004, 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 The ability to implement headcount reductions in a cost effective manner
within the constraints of non-U.S. governmental regulations, and the timing
and amount of any cost savings,
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 or future 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
Historically, approximately three-fourths 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 57% 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 2003, 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 2001, 2002 and 2003 are as
follows:
Years ended December 31
-----------------------------------------------
2001 2002 2003
---- ---- ----
($ in thousands)
Precision ball bearing slides $ 91,822 $ 84,446 $ 92,816
Security products 74,071 73,358 76,155
Ergonomic computer support systems 36,383 29,945 28,102
Other products 9,146 8,352 10,470
-------- -------- --------
$211,422 $196,101 $207,543
======== ======== ========
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, STOCK LOCKS, KeSet 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, automated teller machines, 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, the adjustable patented Ball Lock which reduces the risk of
heavily-filled drawers, such as auto mechanic tool boxes, from opening while in
movement, and the Butterfly Take Apart System, which is designed to easily
disengage drawers from cabinets. 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.
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 its 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 and accessories. Unlike similar
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), 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 manufactures, markets, and/or distributes a complete line
of window furnishings hardware in European markets in addition to other
furniture products.
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
2001, 2002 and 2003, sales to the Company's ten largest customers accounted for
approximately 36%, 30% and 38% of sales, respectively. In 2001, 2002 and 2003,
sales to the Company's largest customer were less than 10% of the Company's
total sales. In 2001, 2002 and 2003, eight of the Company's top ten customers
were located in the United States.
Manufacturing and Operations
At December 31, 2003, CompX operated eight manufacturing facilities: five
in North America (two in Illinois and one in each of Canada, South Carolina and
Michigan), one in the Netherlands and two in Taiwan. Precision ball bearing
slides 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. Ergonomic products are manufactured in
the facility located in Canada. 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 and zinc 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 and 2003. 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,
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 2003 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, 2003, the Company employed approximately 1,700
employees, including 655 in the United States, 570 in Canada, 300 in the
Netherlands and 175 in Taiwan. Approximately 77% of the Company's employees in
Canada are represented by a labor union covered by a collective bargaining
agreement which provides for annual wage increases from 1% to 2.5% over the life
of the contract. Wage increases for these Canadian employees historically have
also been in line with overall inflation indices. The collective bargaining
agreement 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
1,000 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/ergonomic
products
Trillium CW Kitchener, Ontario 110,000 N/A
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:
- ------------------
Thomas Regout TR Maastricht,
the Netherlands 270,000 Slides
Dynaslide CW Taipei, Taiwan 25,000 Slides
Dynaslide CW Taipei, Taiwan 11,000 Product distribution/
Warehouse
Distribution Center CSP Rancho Cucamonga, CA 12,000 Product distribution
CW - CompX Waterloo business segment
TR - Thomas Regout business segment
CSP - CompX Security Products business segment
The Manitou, Thomas 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. The Trillum facility is held for sale.
A sale/leaseback transaction was executed on the Netherlands facility with
the municipality of Maastricht in December 2001. See Note 10 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, 2003.
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 January 30, 2004, 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 2002 and 2003 and dividends paid per share during such periods. On
January 30, 2004 the closing price per share of CompX Class A common stock was
$7.53.
Dividends
High Low paid
-------- ------- ---------
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
Year ended December 31, 2003
First Quarter $ 8.38 $ 5.93 $.125
Second Quarter 6.39 4.95 -
Third Quarter 6.90 5.11 -
Fourth Quarter 7.10 5.80 -
The Company suspended its regular quarterly dividend during the second
quarter of 2003. The declaration and payment of future dividends and the amount
thereof, if any, will be dependent upon the Company's results of operations,
financial condition, cash requirements for its businesses, contractual
requirements and restrictions and other factors deemed relevant by the Board of
Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's operations are comprised of a 52 or 53-week fiscal year. Each
of the years 1999 through 2003 consisted of a 52-week year. 2004 will be a
53-week year.
Years ended December 31,
-----------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
($ in millions, except per share data)
Income Statement Data
Net sales $225.9 $253.3 $211.4 $196.1 $207.5
Operating income $ 40.0 $ 37.3 $ 12.5 $ 6.2 $ 4.1
Income before income taxes and
minority interest $ 39.2 $ 35.5 $ 12.9 $ 3.4 $ 2.3
Income taxes 14.1 13.4 5.8 2.8 1.0
Minority interest in losses (.1) - - - -
------ ------ ------ ------ ----
Net income $ 25.2 $ 22.1 $ 7.1 $ .6 $ 1.3
====== ====== ====== ====== ======
Net income per basic and
diluted share $ 1.56 $ 1.37 $ .47 $ .04 $ .08
Cash dividends per share $ .125 $ .50 $ .50 $ .50 $ .125
Weighted average common shares
outstanding 16.1 16.1 15.1 15.1 15.1
Balance Sheet Data
(at year end):
Cash and other current assets $ 72.5 $ 83.0 $ 94.9 $ 71.3 $ 80.2
Total assets 200.4 223.7 222.9 200.1 209.5
Current liabilities 26.8 28.9 24.5 22.2 24.5
Long-term debt, including
current maturities 22.3 40.6 49.1 31.0 26.0
Stockholders' equity 149.4 151.0 143.0 142.0 154.4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Executive Summary
The Company reported net income of $1.3 million, or $.08 per diluted share,
in 2003 compared to net income of $.6 million, or $.04 per diluted share, in
2002 and $7.1 million, or $.47 per diluted share, in 2001. As more fully
described below, the Company's diluted earnings per share increased from 2002 to
2003 due primarily to the net effects of (i) lower operating income in 2003,
(ii) lower interest expense in 2003 and (iii) a lower effective income tax rate
in 2003. The Company's diluted earnings per share decreased from 2001 to 2002
due primarily to the net effects of (i) lower operating income in 2002, (ii) a
gain on the sale of a plant facility in 2001, (iii) lower interest expense in
2002 and (iv) a higher effective income tax rate in 2002.
Fluctuations in currency exchange rates as compared to the prior year
positively impacted sales by $8.9 million but negatively impacted cost of goods
sold by $10.9 million and operating profit by $3.8 million. The impact on net
sales is primarily due to the weakening U.S. dollar in relation to the euro and
Canadian dollar. The impact on operating income is primarily from the Company's
Canadian operations, where the majority of net sales are denominated in U.S.
dollars while the majority of expenses are denominated in Canadian dollars.
Fluctuations in foreign currency exchange rates did not significantly affect the
Company's results in 2002 as compared to 2001.
CompX is continuing its focus on opportunities to improve its cost
structure.
o In the fourth quarter of 2002, the Company retooled its Byron Center,
Michigan precision slide facility to improve the efficiency of
manufacturing several product lines. The Company began to realize the
favorable benefit of this retooling in its operating results in the
first quarter of 2003, and expects the improvement will continue
during 2004 resulting from higher volumes and improved manufacturing
efficiency.
o In the first half of 2003, the Company consolidated its two Canadian
plants into a single facility. The Company began to realize the
favorable benefit of this consolidation and resulting reduced cost
structure in its operating results in the fourth quarter of 2003.
o During the third quarter of 2003, CompX initiated a restructuring of
its Regout subsidiary in Europe and incurred a $3.3 million charge.
The Company expects to begin realizing the favorable benefits from
restructuring actions in its operating results by the second quarter
of 2004.
Cash provided by operating activities improved to $24.4 million in 2003
from $16.9 million in 2002. Working capital management was a significant
contributor to the improvement in cash flow. Specifically, the Company continues
to implement lean manufacturing initiatives which have reduced days in inventory
from 63 at the beginning of 2003 to 52 at the end of the year, resulting in a
positive cash flow from inventory of $5.1 million. This along with other
measures have enabled the Company to pay down $5 million of debt in 2003 and an
additional $12 million in January 2004.
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 uncollectible 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.
Under applicable GAAP (SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets), property and equipment
is not assessed for impairment unless certain impairment indicators,
as defined, are present. During 2003, impairment indicators were
present only with respect to the Company's Thomas Regout B.V.
operations. The Company completed an impairment review of such net
property and equipment and related net assets as of September 30,
2003. Such analysis indicated no impairment was present as the
estimated future undiscounted cash flows associated with such segment
exceeded the carrying value of such segment's net assets. Significant
judgment is required in estimating such undiscounted cash flows. Such
estimated cash flows are inherently uncertain, and there can be no
assurance that such operations will achieve the future cash flows
reflected in its projections.
Based on the Company's latest annual impairment review of
goodwill of the reporting units during the third quarter of 2003, no
goodwill impairments were deemed to exist. Based on this review, the
estimated fair value of the CompX Security Products segment exceeded
the net carrying value by 110%, CompX Waterloo by 133%, and Thomas
Regout by 14%. See Notes 1 and 4 to the Consolidated Financial
Statements. The estimated fair value of these three reporting units
are determined based on discounted cash flow projections. Significant
judgment is required in estimating such cash flows. Such estimated
cash flows are inherently uncertain, and there can be no assurance
that such operations will achieve the future cash flows reflected in
its projections. In addition to its internal cash flow projections,
the Company used a third-party valuation specialist in reviewing the
net assets of its Thomas Regout B.V. operations, including goodwill
and net property and equipment, for impairment.
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
The Company's operating segments are defined as components of its
operations about which separate financial information is available that is
regularly evaluated by the chief operating decision maker in determining how to
allocate resources and in assessing performance. The Company has three operating
segments - CompX Security Products, CompX Waterloo and Thomas Regout. The CompX
Security Products segment, with manufacturing facilities in South Carolina and
Illinois, manufactures locking mechanisms and other security products for sale
to the office furniture, banking, vending, computer and other industries. The
CompX Waterloo segment, with facilities in Canada, Michigan and Taiwan, and the
Thomas Regout segment, with facilities in the Netherlands, both manufacture and
distribute a complete line of precision ball bearing slides for use in office
furniture, computer-related equipment, tool storage cabinets and other
applications. Additionally, the CompX Waterloo segment manufactures and
distributes ergonomic computer support systems for office furniture.
Historically, the Company has aggregated the CompX Waterloo and Thomas Regout
operating segments into a single reportable segment because of similar economic
characteristics, products, customer types, production processes, and
distribution methods. Due to the continued weakness in the European office
furniture market and the divergence in operating income between the two
segments, the Company has determined that these two segments no longer have
similar economic characteristics, and accordingly the Company no longer
aggregates the CompX Waterloo and Thomas Regout operating segments. Aggregated
segment amounts reported for CompX Waterloo/Thomas Regout in previous periods
have been reclassified to conform to the current presentation. Intersegment
sales are intercompany shipments from Thomas Regout to CompX Waterloo.
Net sales and operating income
Years ended December 31, % Change
-------------------------- ------------------------
2001 2002 2003 2001 - 2002 2002 - 2003
---- ---- ---- ----------- -----------
(In millions)
Net sales:
CompX Waterloo $105.1 $ 93.1 $ 97.5 -11% 5%
CompX Security Products 74.1 73.4 76.2 -1% 4%
Thomas Regout 33.3 31.2 35.3 -6% 13%
Intersegment sales (1.1) (1.6) (1.5) 45% -6%
------ ------ ------
Total net sales $211.4 $196.1 $207.5 -7% 6%
====== ====== ======
Operating income (loss):
CompX Waterloo $ 8.6 $ (1.2) $ .4 -114% n.m.
CompX Security Products 7.3 8.1 9.7 10% 21%
Thomas Regout (3.4) (0.7) (6.0) 80% n.m.
------ ------ ------
Total operating
income $ 12.5 $ 6.2 $ 4.1 -50% -34%
====== ====== ======
Operating income (loss)
margin:
CompX Waterloo 8% -1% 0%
CompX Security Products 10% 11% 13%
Thomas Regout -10% -2% -17%
Total operating income
margin 6% 3% 2%
n.m. - not meaningful
Year ended December 31, 2003 compared to year ended December 31, 2002
Currency. CompX has substantial operations and assets located outside the
United States (in Canada, the Netherlands and Taiwan). A portion of CompX's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S. dollar, principally the Canadian dollar, the euro and the New
Taiwan dollar. In addition, a portion of CompX's sales generated from its
non-U.S. operations (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 and Thomas Regout segments, and do not
materially affect the CompX Security Products segment. During 2003, currency
exchange rate fluctuations of the Canadian dollar and the euro positively
impacted the Company's sales comparisons with 2002 (principally with respect to
slide products), and negatively impacted the Company's operating income
comparisons.
Net sales were positively impacted while operating income was negatively
impacted by currency exchange rates in the following amounts by segment as
compared to the currency exchange rates in effect during 2002:
CompX
CompX Security Thomas
Waterloo Products Regout Total
-------- -------- ------ -----
Impact on net sales $ 3,275 $ - $5,600 $ 8,875
Impact on operating income (3,057) - (754) (3,811)
Net Sales. Net sales increased $11.4 million, or 6%, in 2003 compared to
2002 principally due to the strengthening of the euro and Canadian dollar in
relation to the U.S. dollar, combined with a strong fourth quarter for Security
Products. In addition to the favorable impact of changes in foreign currency
exchange rates, net sales increased in 2003 as compared to 2002 due to higher
sales volumes of security products, and precision slide products in North
America partially offset by lower sales volumes of ergonomic products and lower
sales volumes of precision slide products in Europe.
Net sales of slide products in 2003 increased 10% as compared to 2002,
while net sales of security products increased 4% and net sales of ergonomic
products decreased 6% during the same period. The percentage changes in slide
and ergonomic products includes the impact resulting from changes in foreign
currency exchange rates. Sales of security products are generally denominated in
U.S. dollars.
Costs of Goods Sold. The Company's cost of goods sold increased 6% in 2003
compared to 2002 in line with the increase in net sales during the same period.
Cost of goods sold as a percent of net sales was even with 2002 as cost
improvement initiatives, such as improving facility efficiency, offset expenses
of approximately $900,000 to consolidate the two Kitchener, Ontario plants into
a single facility during 2003, the negative impact of the aforementioned changes
in currency exchange rates and increases in the cost of steel, the primary raw
material for the Company's products.
Selling, general and administrative expense. Selling, general and
administrative expenses consists primarily of salaries, commissions and
advertising expenses directly related to product sales. As a percentage of net
sales, selling, general and administrative expense declined slightly from 14% of
net sales in 2002 to 13% in 2003.
2003 Restructuring Charge. Due to continued operating losses at the
Company's Thomas Regout subsidiary in Europe resulting from the continued
downturn in the European office furniture market, the Company commenced a
strategic analysis of the Thomas Regout segment during the third quarter of
2003. As part of the ongoing analysis of these operations, the Company
determined that it should significantly reduce headcount in the operations in
order to be competitive. Prior to the end of September, the Company finalized
and communicated to the employees a restructuring plan detailing the cost to
terminate approximately 100 employees, and accordingly the Company has
recognized a $3.3 million restructuring charge related to the headcount
reduction. The $3.3 million represents severance to be paid to the terminated
employees, which is expected to be paid through the end of the second quarter of
2004. The Company expects the restructuring to result in annual cost savings of
approximately $3.5 million to $4 million which is expected to begin to
positively impact financial results in the second quarter of 2004.
2002 Charges. 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. 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 segment
with the remaining $.6 million relating to the CompX Security Products segment.
Operating Income. Operating income for 2003 decreased $2.1 million, or 34%
compared to 2002 and operating margins decreased to 2% in 2003 compared to 3%
for 2002. Continued reductions in manufacturing, fixed overhead and other
overhead costs combined with the impact of the fourth quarter 2002 charge
partially offset the effects of the changes in currency exchange rates, changes
in product mix, the cost of the European restructuring, and increases in certain
raw material costs (primarily steel).
Year ended December 31, 2002 compared to year ended December 31, 2001
Currency. The effect of changes in currency exchange rates from 2001 to
2002 was not material to sales or operating income of the Company or any of its
segments.
Net Sales. 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.
Cost of Goods Sold. 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 segment was most
significantly impacted by the steel cost increases, while the effects on the
CompX Security Products segment were minimal.
Selling, general and administrative expense. 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 13% in 2001 and 14% in
2002.
2001 Charges. In the fourth quarter of 2001, the Company incurred a $2.7
million charge for headcount reductions of about 35 employees in CompX's
European operations 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 $2.1 million related to the CompX Security
Products segment, $750,000 related to the CompX Waterloo segment, and $150,000
related to the Thomas Regout segment.
Operating Income. 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
and the impact of the fourth quarter 2002 charge previously discussed. 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.
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 48%
of the Company's total cost of sales. During 2002 and 2003, worldwide steel
prices increased 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 enters into
such arrangements for zinc, coiled steel and plastic resins and anticipates
further significant changes in the cost of these materials, primarily coiled
steel, 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.
Other general corporate income (expense), net
As summarized in Note 11 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. 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 7 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 $.6 million in 2003 compared to 2002 due
primarily to lower average levels of borrowing on CompX's revolving bank credit
facility, partially offset by higher interest rates. Interest expense declined
$1.0 million in 2002 compared to 2001 due to lower average interest rates and
lower levels of outstanding indebtedness. Interest expense in 2004 is expected
to be lower compared to 2003 due to the reduction in the outstanding
indebtedness.
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
8 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 10 to the Consolidated Financial
Statements.
Related party transactions
CompX is a party to certain transactions with related parties. See Note 12
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, during
2004. While the Business and Institutional Furniture Manufacturer's Association
(BIFMA) International has predicted a 6% growth in furniture shipments for 2004,
the total volume of shipments is expected to be 33% below the highest annual
volume set in 2000. If the prediction is correct, 2004 would be the first year
of office furniture industry growth since 2000. However, competitive pricing
pressures are expected to continue to be a challenge as foreign manufacturing,
particularly in China, gains market share. The Company expects steel prices to
continue to rise in 2004 as much as 20% to 30%, or more. 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. The Company
currently expects to realize annual cost savings of $3.5 to $4 million as the
result of the current Thomas Regout headcount reduction. However, the Company
continues with its ongoing strategic analysis of the operations, and additional
actions could be taken in the future that could result in charges for asset
impairment, including goodwill, and other costs in future periods. These
actions, along with other activities to eliminate 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
Summary.
The Company's primary source of liquidity on an ongoing basis is its cash
flow from operating activities, which is generally used to (i) fund capital
expenditures, (ii) repay short-term indebtedness incurred primarily for working
capital purposes and (iii) provide for the payment of dividends (if declared).
From time-to-time, the Company will incur indebtedness, primarily for short-term
working capital needs or to fund capital expenditures. From time-to-time, the
Company may also sell assets outside the ordinary course of business, the
proceeds of which are generally used to repay indebtedness (including
indebtedness which may have been collateralized by the assets sold) or to fund
capital expenditures.
At December 31, 2003, the Company's indebtedness aggregated $26 million,
all of which matures in January 2006. In January 2004, the Company repaid $12
million of such indebtedness, using available funds on hand. Because the
maturity date of the indebtedness isn't until 2006, the Company does not expect
it will be required to use any of its cash flow from operating activities
generated during 2004 to repay indebtedness, although it may chose to do so.
Cash provided by operating activities improved to $24.4 million in 2003
from $16.9 million in 2002. Working capital management was a significant
contributor to the improvement in cash flow. Specifically, the Company continues
to implement lean manufacturing initiatives which have reduced days in inventory
from 63 at the beginning of 2003 to 52 at the end of the year, resulting in a
positive cash flow from inventory of $5.1 million. This along with other
measures have enabled the Company to pay down $5 million of debt in 2003 and an
additional $12 million in January 2004.
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities, for 2001, 2002 and 2003 have
generally been similar to the trend in the Company's earnings. Depreciation and
amortization expense increased in 2003 compared to 2002 due to an increased
amount of assets put into service over the past year and a half relating to
specific customer volume combined with the impact of changes in currency
exchange rates but decreased in 2002 compared to 2001 due primarily to the
cessation of amortization of goodwill. See Notes 1 and 4.
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. In 2001, accounts receivable, inventory, and accounts
payable all declined as a result of the decline in sales volume. In 2002, the
declines in accounts receivable and accounts payable are again the result of the
lower sales volumes, but the inventory decrease is relatively more significant
as the Company began to realize some of the benefit of its lean manufacturing
initiatives. For 2003, the increase in sales volumes resulted in higher accounts
receivable and accounts payable balances while the Company continued to actively
reduce inventory levels.
Investing activities. Net cash used by investing activities totaled $2.7
million, $12.7 million, and $8.2 million for the years ended December 31, 2001,
2002 and 2003, respectively. 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. Capital expenditures in 2001 through 2003 relate
primarily to general equipment upgrades, modernization, and capacity increases
relating to specific customer volume.
Pursuant to the sale/leaseback of the Company's plant facility in
Maastricht, the Netherlands, CompX sold the manufacturing facility 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 between 36
and 48 months depending on when the alternative location has cleared all
regulatory hurdles. See Note 10 to the Consolidated Financial Statements.
Pursuant to the agreement, CompX is also obligated to acquire up to 10 acres
from the municipality for approximately $2.5 million within the next four years.
Acquisition at this property is subject to the municipality meeting certain
conditions which have not yet been met.
Capital expenditures for 2004 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, 2003 approximated $.6 million.
Financing activities. Net cash used by financing activities totaled $1.8
million, $25.5 million, and $7.3 million in 2001, 2002 and 2003, respectively.
Total cash dividends paid in each of 2001 and 2002 were $7.6 million ($.50 per
share) and in 2003 was $1.9 million ($.125 per share). The Company suspended its
regular quarterly dividend in the second quarter of 2003. The Company borrowed a
net $8.4 million under its revolving bank credit facility in 2001, and repaid a
net $18.1 million and $5.0 million under such facility during 2002 and 2003,
respectively. In addition, in January 2004 the Company further reduced the
outstanding balance under the revolving bank credit facility by $12 million.
The Company's $47.5 million secured revolving bank credit facility 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 Revolving Bank 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 6 to the
Consolidated Financial Statements. Other than certain operating leases discussed
in Note 13 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 Credit Agreement, together with cash on hand, will be
sufficient to meet the Company's liquidity needs for working capital, capital
expenditures and debt service. 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.
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,
2003.
Payments due by period
-----------------------------------
Less than 1 - 3 4 - 5
Total 1 year years years
--------- ---------- ----- -----
(In thousands)
Long-term debt $26,000 $ - $26,000 $ -
Capital lease obligations and other - - - -
Operating leases 2,072 851 1,049 172
Purchase obligations 11,763 11,435 328 -
Fixed asset acquisitions 3,070 570 - 2,500
------- ------- ------- -------
Total contractual cash obligations $42,905 $12,856 $27,377 $ 2,672
======= ======= ======= =======
The purchase obligations consist of all open purchase orders and
contractual obligations, primarily commitments to purchase raw materials. Fixed
asset acquisitions include firm purchase commitments for capital projects and
the obligation to purchase up to 10 acres from the municipality of Maastricht
within the next four years.
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, 2002 and 2003. 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, 2002 and 2003, substantially all of the Company's
outstanding indebtedness were variable rate borrowings. Such borrowings at
December 31, 2003 related principally to $26 million ($31 million at December
31, 2002) in borrowings under the Company's secured Revolving Bank Credit
Agreement. The outstanding balances at December 31, 2002 and 2003 (which
approximate fair value) had a weighted-average interest rate of 2.5% and 3.2%,
respectively. Amounts outstanding under the credit facility are due in January
2006. The remaining indebtedness outstanding at December 31, 2002 and 2003 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, 2003 CompX held a series of
short-term forward exchange contracts maturing through February 2004 to exchange
an aggregate of $4.2 million for an equivalent amount of Canadian dollars at
exchange rates of Cdn. $1.30 to Cdn. 1.33 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, 2003 is not material. At December 31, 2003, the actual
exchange rate was Cdn. $1.31 per U.S. dollar. 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.
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 Schedule" (page
F-1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures. The
term "disclosure controls and procedures," as defined by regulations of the
Securities and Exchange Commission (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, or persons
performing similar functions, 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 December
31, 2003. 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 over financial
reporting. The term "internal control over financial reporting," as defined by
regulations of the SEC, means a process designed by, or under the supervision
of, the Company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the Company's board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America ("GAAP"), and
includes those policies and procedures that:
o Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the Company.
o Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with GAAP, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and
directors of the Company, and
o Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the Company's consolidated
financial statements.
There has been no change to the Company's system of internal controls over
financial reporting during the quarter ended December 31, 2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
system of internal controls over financial reporting.
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 12 to the Consolidated Financial
Statements.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference to the
CompX Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements and Schedule
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
Reports on Form 8-K for the quarter ended December 31, 2003:
October 30, 2003 - Reported items 9 and 12.
(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. CompX will also furnish,
without charge, a copy of its Code of Business Conduct and Ethics, as
adopted by the Board of Directors on February 24, 2004, upon request.
Such requests should be directed to the attention of CompX's Corporate
Secretary at CompX's corporate offices located at 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240.
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 - incorporated by reference to
Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 2002.
10.1 Intercorporate Services Agreement between the Registrant and
Contran Corporation effective as of January 1, 2003 -
incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003.
10.2 Intercorporate Services Agreement between the Registrant and
Contran Corporation effective as of January 1, 2004.
10.3* 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).
10.4* 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.
10.5 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).
Item No. Exhibit Item
-------- ------------
10.6 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).
10.7 $47,500,000 Credit Agreement between the Registrant, Wachovia
Bank, National Association, as Agent and various lending
institutions dated January 22, 2003 - incorporated by reference
to Exhibit 10.9 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2002.
10.8 First Amendment to Credit Agreement between Registrant, Wachovia
Bank, and National Association, as Agent and various lending
institutions dated October 20, 2003 - incorporated by reference
to Exhibit 10.1 at the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2003.
10.9 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.
10.10* Agreement and General Release between the Registrant and Brent A.
Hagenbuch, effective May 22, 2002 - incorporated by reference to
Exhibit 10.12 of the Registrant's Annual Form 10-K for the year
ended December 31, 2002.
10.11* Agreement and General Release between the Registrant and Stuart
M. Bitting, effective July 31, 2002 - incorporated by reference
to Exhibit 10.12 of the Registrant's Annual Form 10-K for the
year ended December 31, 2002.
10.12 Agreement Regarding Shared Insurance between the Registrant,
Contran Corporation, Keystone Consolidated Industries, Inc.,
Kronos Worldwide, Inc., NL Industries, Inc., Titanium Metals
Corp., and Valhi, Inc. dated October 30, 2003.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
31.1 Certification
31.2 Certification
32.1 Certification
32.2 Certification
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-K within 180 days after December 31, 2003.
* 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 3, 2004
- -----------------------------
Glenn R. Simmons
/s/ David A. Bowers Vice Chairman of the Board, March 3, 2004
- ----------------------------- President and Chief Executive
David A. Bowers Officer (Principal Executive
Officer)
/s/ Darryl R. Halbert Vice President, March 3, 2004
- ----------------------------- Chief Financial Officer
Darryl R. Halbert and Controller
(Principal Financial and
Accounting Officer)
/s/ Paul M. Bass, Jr. Director March 3, 2004
- -----------------------------
Paul M. Bass, Jr.
/s/ Keith R. Coogan Director March 3, 2004
- -----------------------------
Keith R. Coogan
/s/ Edward J. Hardin Director March 3, 2004
- -----------------------------
Edward J. Hardin
/s/ Ann Manix Director March 3, 2004
- -----------------------------
Ann Manix
/s/ Steven L. Watson Director March 3, 2004
- -----------------------------
Steven L. Watson
Annual Report on Form 10-K
Items 8, 14(a) and 14(d)
Index of Financial Statements and Schedule
Financial Statements Page No.
--------
Report of Independent Auditors F-2
Consolidated Balance Sheets - December 31, 2002 and 2003 F-3
Consolidated Statements of Income -
Years ended December 31, 2001, 2002 and 2003 F-5
Consolidated Statements of Comprehensive Income -
Years ended December 31, 2001, 2002 and 2003 F-6
Consolidated Statements of Cash Flows -
Years ended December 31, 2001, 2002 and 2003 F-7
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 2001, 2002 and 2003 F-9
Notes to Consolidated Financial Statements F-10
Financial Statement Schedule
Report of Independent Auditors S-1
Schedule II - Valuation and Qualifying Accounts S-2
Schedules I, III and IV are omitted because they are not applicable.
F-1
REPORT OF INDEPENDENT AUDITORS
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, 2002 and 2003, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2003, 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 1 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 23, 2004
F-2
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2003
(In thousands, except share data)
ASSETS 2002 2003
---- ----
Current assets:
Cash and cash equivalents $ 12,407 $ 21,726
Accounts receivable, less allowance for
doubtful accounts of $812 and $1,075 22,924 25,737
Income taxes receivable from affiliates 352 306
Refundable income taxes 1,378 2,376
Inventories 28,876 26,317
Prepaid expenses and other current assets 3,422 1,840
Deferred income taxes 1,983 1,920
-------- --------
Total current assets 71,342 80,222
-------- --------
Other assets:
Goodwill 40,729 43,325
Other intangible assets 2,183 1,945
Prepaid rent 426 -
Deferred income taxes - 351
Other 233 422
-------- --------
Total other assets 43,571 46,043
-------- --------
Property and equipment:
Land 4,344 4,746
Buildings 29,452 28,605
Equipment 102,347 121,142
Construction in progress 3,548 636
-------- --------
139,691 155,129
Less accumulated depreciation 54,512 71,940
-------- --------
Net property and equipment 85,179 83,189
-------- --------
$200,092 $209,454
======== ========
F-3
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 2002 and 2003
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2003
---- ----
Current liabilities:
Current maturities of long-term debt $ 6 $ -
Accounts payable and accrued liabilities 21,318 24,019
Income taxes 419 -
Deferred income taxes 408 505
-------- --------
Total current liabilities 22,151 24,524
-------- --------
Noncurrent liabilities:
Long-term debt 31,000 26,000
Deferred income taxes 4,469 4,550
Deferred gain on sale/leaseback 493 21
-------- --------
Total noncurrent liabilities 35,962 30,571
-------- --------
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; 6,219,680 and
6,228,680 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 119,387 119,437
Retained earnings 44,049 43,433
Accumulated other comprehensive income -
currency translation (10,304) 2,642
Treasury stock, at cost - 1,103,900 shares (11,315) (11,315)
-------- --------
Total stockholders' equity 141,979 154,359
-------- --------
$200,092 $209,454
======== ========
Commitments and contingencies (Notes 1, 10 and 13)
See accompanying notes to consolidated financial statements.
F-4
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2001, 2002 and 2003
(In thousands, except per share data)
2001 2002 2003
---- ---- ----
Net sales $211,422 $196,101 $207,543
Cost of goods sold 167,884 163,181 172,843
-------- -------- --------
Gross margin 43,538 32,920 34,700
Selling, general and administrative expense 28,310 26,713 27,288
Restructuring charge 2,742 - 3,303
-------- -------- --------
Operating income 12,486 6,207 4,109
Gain on sale of plant facility 2,246 - -
Other general corporate income (expense), net 1,009 (910) (532)
Interest expense (2,859) (1,888) (1,301)
-------- -------- --------
Income before income taxes 12,882 3,409 2,276
Provision for income taxes 5,758 2,771 1,003
-------- -------- --------
Net income $ 7,124 $ 638 $ 1,273
======== ======== ========
Basic and diluted earnings per common share $ .47 $ .04 $ .08
======== ======== ========
Cash dividends per share $ .50 $ .50 $ .125
======== ======== ========
Shares used in the calculation of earnings per share amounts for:
Basic earnings per share 15,144 15,110 15,121
Dilutive impact of stock options 6 8 -
-------- -------- -----
Diluted earnings per share 15,150 15,118 15,121
======== ======== ========
See accompanying notes to consolidated financial statements.
F-5
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2001, 2002 and 2003
(In thousands)
2001 2002 2003
---- ---- ----
Net income $ 7,124 $ 638 $ 1,273
------- ------- -------
Other comprehensive income - currency translation adjustment:
Pre-tax amount (5,097) 5,643 13,080
Less income taxes (benefit) (207) (66) 134
------- ------- -------
Total other comprehensive income (4,890) 5,709 12,946
------- ------- -------
Comprehensive income $ 2,234 $ 6,347 $14,219
======= ======= =======
See accompanying notes to consolidated financial statements.
F-6
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2002 and 2003
(In thousands)
2001 2002 2003
---- ---- ----
Cash flows from operating activities:
Net income $ 7,124 $ 638 $ 1,273
Depreciation and amortization 14,769 13,004 14,780
Deferred income taxes 1,355 (750) (444)
Gain on sale of plant facility (2,246) - -
Other, net 465 604 1,068
Change in assets and liabilities:
Accounts receivable 6,112 1,301 (721)
Inventories 4,075 3,052 5,103
Accounts payable and accrued liabilities (3,983) (2,798) 874
Accounts with affiliates (38) (16) 46
Income taxes 202 1,561 668
Other, net (172) 342 1,798
-------- -------- --------
Net cash provided by operating activities 27,663 16,938 24,445
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (13,283) (12,703) (8,908)
Proceeds from sale of plant facility 10,000 - -
Other, net