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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2013

Commission file number 1-13905

 

 

COMPX INTERNATIONAL INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware		57-0981653
(State or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)
5430 LBJ Freeway, Suite 1700, Three Lincoln Centre, Dallas, Texas		75240-2697
(Address of principal executive offices)		(Zip Code)

(972) 448-1400

Registrant’s telephone number, including area code

 

 

Indicate by checkmark:

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 (or for such a shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		x		Smaller reporting company		¨

Whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x.

Number of shares of common stock outstanding on May 2, 2013:

 

Class A:			2,392,107
Class B:			10,000,000

 

 

 

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COMPX INTERNATIONAL INC.

Index

 

				Page
Part I.		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets – December 31, 2012 and March 31, 2013 (unaudited)			3
		Condensed Consolidated Statements of Income - Three months ended March 31, 2012 and 2013 (unaudited)			5
		Condensed Consolidated Statements of Comprehensive Income - Three months ended March 31, 2012 and 2013 (unaudited)			6
		Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2012 and 2013 (unaudited)			7
		Condensed Consolidated Statement of Stockholders’ Equity Three months ended March 31, 2013 (unaudited)			8
		Notes to Condensed Consolidated Financial Statements (unaudited)			9
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3.		Quantitative and Qualitative Disclosure About Market Risk			20
Item 4.		Controls and Procedures			20
Part II.		OTHER INFORMATION
Item 1A.		Risk Factors			22
Item 6.		Exhibits			22
Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

 

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COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

		December 31, 2012				March 31, 2013
						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	63,777			$	50,064
Accounts receivable, net			8,480				9,528
Inventories, net			11,223				11,890
Deferred income taxes			2,691				2,691
Prepaid expenses and other			4,424				2,445
Total current assets			90,595				76,618
Other assets:
Goodwill			23,742				23,742
Other noncurrent			2,119				514
Total other assets			25,861				24,256
Property and equipment:
Land			4,928				4,928
Buildings			20,521				20,521
Equipment			58,603				56,213
Construction in progress			1,442				1,686
			85,494				83,348
Less accumulated depreciation			51,767				49,975
Net property and equipment			33,727				33,373
Total assets		$	150,183			$	134,247

 

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COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

 

		December 31, 2012				March 31, 2013
						(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of note payable to affiliate		$	1,000			$	1,000
Accounts payable and accrued liabilities			11,061				7,929
Income taxes payable to affiliate			12,197				406
Other			203				4
Total current liabilities			24,461				9,339
Noncurrent liabilities:
Long-term debt			17,480				17,230
Deferred income taxes			6,182				6,272
Total noncurrent liabilities			23,662				23,502
Stockholders’ equity:
Preferred stock			—				—
Class A common stock			24				24
Class B common stock			100				100
Additional paid-in capital			55,203				55,203
Retained earnings			46,733				46,079
Total stockholders’ equity			102,060				101,406
Total liabilities and stockholders’ equity		$	150,183			$	134,247

Commitments and contingencies (Note 1)

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

 

		Three months ended March 31,
		2012				2013
		(unaudited)
Net sales		$	20,428			$	21,453
Cost of goods sold			14,416				15,433
Gross profit			6,012				6,020
Selling, general and administrative expense			4,429				4,586
Operating income			1,583				1,434
Other non-operating income, net			—				16
Interest expense			(121	)			(59	)
Income from continuing operations before income taxes			1,462				1,391
Provision for income taxes			599				496
Income from continuing operations			863				895
Income from discontinued operations, net of tax			660				—
Net income		$	1,523			$	895
Basic and diluted income per common share:
Continuing operations		$	.07			$	.07
Discontinued operations			.05				—
Net income		$	.12			$	.07
Cash dividends per share		$	.125			$	.125
Shares used in the calculation of basic and diluted income per share			12,386				12,392

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

		Three months ended March 31,
		2012				2013
		(unaudited)
Net income		$	1,523			$	895
Other comprehensive income, net of tax:
Currency translation adjustment			571				—
Impact from cash flow hedges, net			294				—
Total other comprehensive income, net			865				—
Comprehensive income		$	2,388			$	895

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

		Three months ended March 31,
		2012				2013
		(unaudited)
Cash flows from operating activities:
Net income		$	1,523			$	895
Depreciation and amortization			1,434				835
Deferred income taxes			381				90
Other, net			70				68
Change in assets and liabilities:
Accounts receivable, net			(1,079	)			(1,047	)
Inventories, net			(9	)			(734	)
Accounts payable and accrued liabilities			(3,633	)			(3,100	)
Accounts with affiliates			45				(11,791	)
Income taxes			(1,264	)			(2	)
Other, net			(330	)			146
Net cash used in operating activities			(2,862	)			(14,640	)
Cash flows from investing activities -
Capital expenditures			(600	)			(663	)
Cash collected on note receivable			—				1,828
Proceeds from sale of asset held for sale			—				1,559
Proceeds from sale of fixed assets			—				2
Net cash provided by (used in) investing activities			(600	)			2,726
Cash flows from financing activities:
Dividends paid			(1,548	)			(1,549	)
Repayment of long-term debt			(1,000	)			(250	)
Other, net			(27	)			—
Net cash used in financing activities			(2,575	)			(1,799	)
Cash and cash equivalents – net change from:
Operating, investing and financing activities			(6,037	)			(13,713	)
Currency translation			111				—
Cash and cash equivalents at beginning of period			10,081				63,777
Cash and cash equivalents at end of period		$	4,155			$	50,064
Supplemental disclosures – cash paid for:
Interest		$	55			$	95
Income taxes paid, net			2,067				12,199
Non-cash investing and financing activity –
Accrual for capital expenditures, net		$	311			$	(233	)

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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COMPX INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Three months ended March 31, 2013

(In thousands)

(unaudited)

 

										Additional								Total
		Common Stock								paid-in				Retained				stockholders’
		Class A				Class B				capital				earnings				equity
Balance at December 31, 2012		$	24			$	100			$	55,203			$	46,733			$	102,060
Net income			—				—				—				895				895
Cash dividends			—				—				—				(1,549	)			(1,549	)
Balance at March 31, 2013		$	24			$	100			$	55,203			$	46,079			$	101,406

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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COMPX INTERNATIONAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2013

(unaudited)

Note 1 – Organization and basis of presentation:

Organization. We (NYSE MKT: CIX) are 87% owned by NL Industries, Inc. (NYSE: NL) at March 31, 2013. We manufacture and sell component products (security products and recreational marine components). At March 31, 2013, (i) Valhi, Inc. (NYSE: VHI) held approximately 83% of NL’s outstanding common stock and (ii) Contran Corporation (“Contran”) and its subsidiaries held an aggregate of approximately 93% of Valhi’s outstanding common stock. Substantially all of Contran’s outstanding voting stock is held by trusts established for the benefit of certain children and grandchildren of Harold C. Simmons (of which Mr. Simmons is sole trustee), or is held directly by Mr. Simmons or other persons or companies related to Mr. Simmons. Consequently, Mr. Simmons may be deemed to control each of the companies and us.

Basis of presentation. Consolidated in this Quarterly Report are the results of CompX International Inc. and its subsidiaries. The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 that we filed with the Securities and Exchange Commission (“SEC”) on March 6, 2013 (the “2012 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, 2012 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, 2012) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim period ended March 31, 2013 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our 2012 Consolidated Financial Statements contained in our 2012 Annual Report.

Unless otherwise indicated, references in this report to “we”, “us” or “our” refer to CompX International Inc. and its subsidiaries, taken as a whole.

 

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Note 2 – Discontinued operations:

On December 28, 2012, we completed the sale of our Furniture Components segment to a competitor of that segment. Selected financial data for the operations of the disposed Furniture Components segment is presented below:

 

		Three months ended March 31, 2012
Net sales		$	15,103
Operating income		$	1,326
Other income, net			4
Interest expense			(41	)
Income before income taxes			1,289
Income tax expense			(629	)
Net income		$	660

In accordance with generally accepted accounting principles, the assets and liabilities relating to the Furniture Components segment were eliminated from the 2012 Consolidated Balance Sheet at the date of sale. We have reclassified our March 31, 2012 Consolidated Statements of Income to reflect the disposed operations as discontinued operations. We have not reclassified our March 31, 2012 Consolidated Statements of Cash Flows to reflect discontinued operations.

In conjunction with the sale of our Furniture Components segment, the buyer was not interested in retaining certain undeveloped land located in Taiwan owned by our Taiwanese Furniture Component subsidiary. We had no additional use for the undeveloped land in Taiwan and therefore expected the land to be sold to a third party with CompX receiving the net proceeds. Based on the legal form of how we completed the disposal transaction, our interest in such land was represented by a $3.0 million promissory note receivable at December 31, 2012, issued to us by our former Taiwanese subsidiary which retained legal ownership in the land to facilitate the future sale of the land to a third party. The proceeds from a future sale of the land were required to be used to settle the note receivable. During the first quarter of 2013, an agreement was entered into with a third party to sell the land for $3.0 million, $1.8 million of which was received during the first quarter with the remaining $1.2 million received in April 2013. Such note receivable is classified as part of prepaids and other current assets in our Consolidated Balance Sheet at December 31, 2012 and March 31, 2013.

 

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Note 3 – Business segment information:

 

		Three months ended March 31,
		2012				2013
		(In thousands)
Net sales:
Security Products		$	18,195			$	18,974
Marine Components			2,233				2,479
Total net sales		$	20,428			$	21,453
Operating income:
Security Products		$	3,471			$	3,193
Marine Components			(250	)			(110	)
Corporate operating expenses			(1,638	)			(1,649	)
Total operating income			1,583				1,434
Other non-operating income, net			—				16
Interest expense			(121	)			(59	)
Income from continuing operations before income taxes		$	1,462			$	1,391

Intersegment sales are not material.

Note 4 – Accounts receivable, net:

 

		December 31, 2012				March 31, 2013
		(In thousands)
Account receivable, net:
Security Products		$	7,952			$	8,871
Marine Components			744				873
Allowance for doubtful accounts			(216	)			(216	)
Total accounts receivable, net		$	8,480			$	9,528

 

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Note 5 – Inventories, net:

 

		December 31, 2012				March 31, 2013
		(In thousands)
Raw materials:
Security Products		$	2,310			$	2,608
Marine Components			943				1,070
Total raw materials			3,253				3,678
Work-in-process:
Security Products			5,458				5,592
Marine Components			444				462
Total work-in-process			5,902				6,054
Finished goods:
Security Products			1,578				1,598
Marine Components			490				560
Total finished goods			2,068				2,158
Total inventories, net		$	11,223			$	11,890

Note 6 – Other noncurrent assets:

 

		December 31, 2012				March 31, 2013
		(In thousands)
Assets held for sale		$	1,965			$	430
Other			154				84
Total other noncurrent assets		$	2,119			$	514

In the fourth quarter of 2012, we entered into an agreement to sell one of our facilities classified as an asset held for sale. The transaction closed during the first quarter of 2013. The net proceeds from the sale of $1.6 million approximated the carrying value of the assets as of the date of the sale.

Note 7 – Accounts payable and accrued liabilities:

 

		December 31, 2012				March 31, 2013
		(In thousands)
Accounts payable		$	2,797			$	2,779
Accrued liabilities:
Employee benefits			6,541				3,228
Taxes other than on income			439				483
Customer tooling			282				341
Insurance			305				257
Professional			189				221
Other			508				620
Total accounts payable and accrued liabilities		$	11,061			$	7,929

 

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Note 8 – Long-term debt:

 

		December 31, 2012				March 31, 2013
		(In thousands)
Note payable to Timet Finance Management Company		$	18,480			$	18,230
Less current maturities			1,000				1,000
Total long-term debt		$	17,480			$	17,230

The average interest rate on the promissory note payable as of and for the three-month period ended March 31, 2013 was 1.3%.

Note 9 – Provision for income taxes:

 

		Three months ended March 31,
		2012				2013
		(In thousands)
Expected tax expense, at the U.S. federal statutory income tax rate of 35%		$	512			$	487
State income taxes and other, net			87				9
Total income tax expense		$	599			$	496

Note 10 – Financial instruments:

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

 

		December 31,								March 31,
		2012								2013
		Carrying				Fair				Carrying				Fair
		amount				value				amount				value
		(In thousands)
Cash and cash equivalents		$	63,777			$	63,777			$	50,064			$	50,064
Accounts receivable, net			8,480				8,480				9,528				9,528
Accounts payable			2,797				2,797				2,779				2,779
Long-term debt – (including current maturities)			18,480				18,480				18,230				18,230

Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. The fair value of our variable-rate long-term debt is deemed to approximate book value and is a Level 2 input.

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

We are a leading manufacturer of engineered components utilized in a variety of applications and industries. Through our Security Products segment we manufacture mechanical and electrical cabinet locks and other locking mechanisms used in recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications. We also manufacture stainless steel exhaust systems, gauges and throttle controls for the recreational marine industry through our Marine Components segment.

In December 2012, we completed the sale of our Furniture Components segment. See Note 2 to our Condensed Consolidated Financial Statements. Unless otherwise noted, the results of operations in management’s discussion and analysis is focused on our continuing operations.

We reported operating income of $1.4 million in the first quarter of 2013 compared to $1.6 million in the same period of 2012. Our operating income decreased slightly in 2012 primarily due to the net effects of:

 

•

The negative impact of higher medical expenses in 2013; and

 

•

The positive impact of higher sales in 2013, primarily from an increase in Security Products postal market customer order rates.

Our product offerings consist of a significantly large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on our ability to quantify the impact of changes in individual product sales quantities and selling prices on our net sales, cost of goods sold and gross profit. In addition, small variations in period-to-period net sales, cost of goods sold and gross profit can result from changes in the relative mix of our products sold.

Results of Operations

 

		Three months ended March 31,
		2012				%				2013				%
		(Dollars in thousands)
Net sales		$	20,428				100.0	%		$	21,453				100.0	%
Cost of goods sold			14,416				70.6				15,433				71.9
Gross profit			6,012				29.4				6,020				28.1
Operating costs and expenses			4,429				21.7				4,586				21.4
Operating income		$	1,583				7.7	%		$	1,434				6.7	%

Net sales. Net sales increased $1.0 million in the first quarter of 2013 compared to the same period of 2012 principally due to higher postal market demand within Security Products and an increase in Marine Components sales outside of the high performance boat market through gains in market share. Relative changes in selling prices did not have a material impact on net sales comparisons.

 

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Cost of goods sold and gross profit. Cost of goods sold as a percentage of sales increased by 1% in the first quarter of 2013 compared to the same period in 2012. As a result, gross profit and related margin decreased over the same period. The decrease in gross profit is primarily due to higher self-insured medical costs in 2013.

Operating costs and expenses. Operating costs and expenses consist primarily of sales and administrative related personnel costs, sales commissions and advertising expenses, as well as gains and losses on plant, property and equipment. As a percentage of net sales, operating costs and expenses for the first quarter of 2013 are comparable to the same period in 2012.

Operating income. As a percentage of net sales, operating income decreased by 1% in 2013 compared to 2012 and was primarily impacted by the factors impacting cost of goods sold and gross margin above.

Provision for income taxes. A tabular reconciliation between our effective income tax rates and the U.S. federal statutory income tax rate of 35% is included in Note 9 to the Condensed Consolidated Financial Statements. Our operations are wholly within the U.S. and therefore our effective income tax rate is primarily reflective of the U.S. federal statutory rate.

Segment Results

The key performance indicator for our segments is their operating income.

 

		Three months ended March 31,								%
		2012				2013				Change
		(In thousands)
Net sales:
Security Products		$	18,195			$	18,974				4	%
Marine Components			2,233				2,479				11	%
Total net sales		$	20,428			$	21,453				5	%
Gross profit:
Security Products		$	5,690			$	5,638				(1	%)
Marine Components			322				382				19	%
Total gross profit		$	6,012			$	6,020				—
Operating income:
Security Products		$	3,471			$	3,193				(8	%)
Marine Components			(250	)			(110	)			56	%
Corporate operating expenses			(1,638	)			(1,649	)			(1	%)
Total operating income		$	1,583			$	1,434				(9	%)

Security Products. Security Products net sales increased 4% in the first quarter of 2013 compared to the same period last year. The increase in sales is primarily due to an increase in sales to postal market customers in 2013 due to a general improvement in demand within that market. Gross margin decreased approximately 2 percentage points on net sales in the first quarter of 2013 compared to the same period in 2012 primarily due to higher self-insured medical expenses of $315,000 in 2013, $260,000 of which impacted cost

 

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of goods sold and $55,000 of which impacted selling and administration expenses. As a result, operating income as a percentage of net sales for the Security Products segment decreased 2 percentage points for the first quarter of 2013 compared to the first quarter of 2012.

Marine Components. Marine Components net sales increased 11% in the first quarter of 2013 as compared to the same period last year. The increase in sales is primarily due to gains in market share for products sold to the ski/wakeboard market and other non-high performance marine markets. Gross margin and operating loss percentage improved in the first quarter of 2013 compared to the first quarter of 2012 primarily due to increased leverage of fixed costs as a result of higher sales.

Outlook. Consistent with the current state of the North American economy, overall demand from our customers continues to be subject to instability. While we experienced a total increase in sales in the first quarter of 2013, this was the net result of sales growth in certain markets and flat or slightly down sales in other markets. As a result, it is uncertain to the extent that total sales will continue to grow for the remainder of 2013. While changes in market demand are not within our control, we are focused on the areas we can impact. Staffing levels are continuously evaluated in relation to sales order rates which may result in headcount adjustments, to the extent possible, to match staffing levels with demand. We expect our continuous lean manufacturing and cost improvement initiatives to positively impact our productivity and result in a more efficient infrastructure. Additionally, we continue to seek opportunities to gain market share in markets we currently serve, to expand into new markets and to develop new product features in order to broaden our sales base and mitigate the impact of changes in demand.

Volatility in the costs of commodity raw materials is ongoing. Our primary commodity raw materials are zinc, brass and stainless steel, which together represent approximately 10% of our total cost of goods sold. We generally seek to mitigate the impact of fluctuations in commodity raw material costs on our margins through improvements in production efficiencies or other operating cost reductions. In the event we are unable to offset commodity raw material cost increases with other cost reductions, it may be difficult to recover those cost increases through increased product selling prices or surcharges due to the competitive nature of the markets served by our products. Consequently, overall operating margins may be negatively affected by commodity raw material cost pressures.

Liquidity and Capital Resources

Consolidated cash flows -

Operating activities. Trends in cash flows from operating activities, excluding changes in assets and liabilities have generally been similar to the trends in operating earnings. Changes in assets and liabilities result primarily from the timing of production, sales and purchases. Changes in assets and liabilities generally tend to even out over time. However, period-to-period relative changes in assets and liabilities can significantly affect the comparability of cash flows from operating activities. The March 31, 2012 Consolidated Statement of Cash Flows has not been revised for discontinued operations. See Note 2 to the Condensed Consolidated Financial Statements.

 

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Our net cash used by operating activities for the first three months of 2013 increased by $11.8 million as compared to the first three months of 2012 primarily due to the net effects of:

 

•

The negative impact of higher net cash paid for taxes in 2013 of $10.1 million related to the payment of income taxes associated with the gain on sale of our disposed operations recognized in the fourth quarter of 2012 and the 2012 income of the disposed operations;

 

•

The negative impact of lower net cash provided by relative changes in our inventories, receivables, payables and non-tax related accruals attributable to our continuing operations of $1.3 million in 2013.

 

•

The negative impact of net cash provided by operating activities attributable to our discontinued operations in 2012 of $329,000, (exclusive of the impact of cash paid for income taxes in 2012 attributable to our discontinued operations, as discussed above).

We expect our year-to-date cash flows from operating activities will continue to result in a net use of cash in 2013 primarily due to the first quarter cash payment for income taxes we made of approximately $11.6 million related to the sale of our disposed operations. Under GAAP, cash paid for income taxes on the disposal of a business unit is reported as a reduction of cash flows from operating activities, while the pre-tax proceeds from disposal are reported as a component of cash flows from investing activities. In addition, operating cash flow comparisons in 2013 will continue to be negatively impacted by such disposal, since the operating cash flows of the disposed operations are included in our total cash flows from operating activities in 2012, through the December 2012 date of sale. See Note 2 to our Condensed Consolidated Financial Statements.

Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, our total average days sales outstanding was comparable from December 31, 2012 to March 31, 2013. Marine Components can experience greater variability in their average days sales outstanding due to their smaller size, however, their receivable balances are not significant. Overall, our March 31, 2013 days sales outstanding compared to December 31, 2012 is in line with our expectations. For comparative purposes, we have provided December 31, 2011 and March 31, 2012 numbers below.

 

Days Sales Outstanding:

December 31, 2011

March 31, 2012

December 31, 2012

March 31, 2013

Security Products

39 Days

40 Days

41 Days

42 Days

Marine Components

44 Days

39 Days

32 Days

30 Days

Consolidated CompX**

40 Days

40 Days

40 Days

40 Days

 

**	Excludes disposed operations. See Note 2 to the Condensed Consolidated Financial Statements.

As shown below, our total average number of days in inventory decreased from December 31, 2012 to March 31, 2013. The variability in days in inventory among our segments primarily relates to the differences in the complexity of the production processes and therefore the length of time it takes to produce end-products. Our overall March 31, 2013 days in inventory compared to December 31, 2012 is in line with our expectations. For comparative purposes, we have provided December 31, 2011 and March 31, 2012 numbers below.

 

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Days in Inventory:

December 31, 2011

March 31, 2012

December 31, 2012

March 31, 2013

Security Products

79 Days

71 Days

71 Days

67 Days

Marine Components

115 Days

93 Days

91 Days

91 Days

Consolidated CompX**

83 Days

74 Days

74 Days

70 Days

 

**	Excludes disposed operations. See Note 2 to the Condensed Consolidated Financial Statements.

Investing activities. Net cash provided by investing activities was $2.7 million in the first quarter of 2013 compared to net cash used of $600,000 in the first quarter of 2012. The significant items impacting the increase in net cash provided by investing activities in 2013 over net cash used in 2012 are as follows:

During 2013,

 

•

We collected $1.8 million in principal payments on a note receivable; and

 

•

We received $1.6 million in net proceeds on the sale of an asset held for sale.

See Notes 2 and 6 to the Condensed Consolidated Financial Statements, respectively.

Financing activities. Net cash used in financing activities was $1.8 million in the first quarter of 2013 compared to net cash used of $2.6 million in the first quarter of 2012. The change is primarily a result of $250,000 in principal repayments on long-term debt during the first quarter of 2013 compared to $1.0 million paid in the first quarter of 2012. See Note 8 to the Condensed Consolidated Financial Statements.

Future cash requirements -

Liquidity. Our primary source of liquidity on an on-going basis is our cash flow from operating activities, which is generally used to (i) fund capital expenditures, (ii) repay short-term or long-term indebtedness incurred primarily for capital expenditures, investment activities or reducing our outstanding stock and (iii) provide for the payment of dividends (if declared). From time-to-time, we will incur indebtedness, primarily to fund capital expenditures or business combinations. In addition, from time-to-time, we 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 or business combinations.

Periodically, we evaluate liquidity requirements, alternative uses of capital, capital needs and available resources in view of, among other things, our capital expenditure requirements, dividend policy and estimated future operating cash flows. As a result of this process, we have in the past and may in the future seek to raise additional capital, refinance or restructure indebtedness, issue additional securities, modify our dividend policy or take a combination of such steps to manage our liquidity and capital resources. In the normal course of business, we may review opportunities for acquisitions, joint ventures or other business combinations in the component products industry. In the event of any such transaction, we may consider using available cash, issuing additional equity securities or increasing our indebtedness or that of our subsidiaries.

 

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We believe that cash generated from operations together with cash on hand, as well as, our ability to obtain external financing, will be sufficient to meet our liquidity needs for working capital, capital expenditures, debt service and dividends (if declared) for both the next 12 months and five years. To the extent that our actual operating results or other developments differ from our expectations, our liquidity could be adversely affected.

Substantially all of the $50.1 million aggregate cash and cash equivalents at March 31, 2013 were held in the U.S.

Capital Expenditures. Firm purchase commitments for capital projects in process at March 31, 2013 totaled $410,000. Our 2013 capital investments are limited to those expenditures required to meet our expected customer demand and those required to properly maintain our facilities and technology infrastructure.

Commitments and Contingencies. There have been no material changes in our contractual obligations since we filed our 2012 Annual Report, and we refer you to that report for a complete description of these commitments.

Off-balance sheet financing arrangements -

We do not have any off-balance sheet financing agreements other than the operating leases discussed in our 2012 Annual Report.

Recent accounting pronouncements -

Not applicable.

Critical accounting policies -

There have been no changes in the first quarter of 2013 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2012 Annual Report.

Forward-looking information -

As provided by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we caution that the statements in this Quarterly Report on Form 10-Q relating to matters that are not historical facts are forward-looking statements that represent our 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 we believe that the expectations reflected in such forward-looking statements are reasonable, we do not know if our expectations will prove to be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such forward-looking statements. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the Securities and Exchange Commission. While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to the following:

 

•

Future demand for our products,

 

•

Changes in our raw material and other operating costs (such as zinc, brass and energy costs) and our ability to pass those costs on to our customers or offset them with reductions in other operating costs,

 

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•

Price and product competition from low-cost manufacturing sources (such as China),

 

•

The impact of pricing and production decisions,

 

•

Customer and competitor strategies including substitute products,

 

•

Uncertainties associated with the development of new product features,

 

•

Potential difficulties in integrating future acquisitions,

 

•

The impact of current or future government regulations (including employee healthcare benefit related regulations),

 

•

Potential difficulties in implementing new manufacturing and accounting software systems,

 

•

Decisions to sell operating assets other than in the ordinary course of business,

 

•

Environmental matters (such as those requiring emission and discharge standards for existing and new facilities),

 

•

The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters,

 

•

Future litigation,

 

•

General global economic and political conditions that introduce instability into the U.S. economy (such as changes in the level of gross domestic product in various regions of the world),

 

•

Operating interruptions (including, but not limited to labor disputes, hazardous chemical leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime and transportation interruptions); and

 

•

Possible disruption of our business or increases in the cost of doing business resulting from terrorist activities or global conflicts.

Should one or more of these risks materialize or if the consequences worsen, or if the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.

 

ITEM 3.

QUANTITATIVE AND QUALITATITVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risk from changes in interest rates and raw material prices. There have been no material changes in these market risks since we filed our 2012 Annual Report, and we refer you to Part I, Item 7A – “Quantitative and Qualitative Disclosure About Market Risk” in our 2012 Annual Report. See also Note 10 to the Condensed Consolidated Financial Statements.

 

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. We maintain a system of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined by regulations of the SEC, means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit 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 we are required to disclose in the reports that we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our 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, our Vice Chairman of the Board, President and Chief Executive Officer, and

 

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Darryl R. Halbert, our Vice President, Chief Financial Officer and Controller, have evaluated the design and operating effectiveness of our disclosure controls and procedures as of March 31, 2013. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of such evaluation.

Internal Control Over Financial Reporting. We also maintain internal control 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, our principal executive and principal financial officers, or persons performing similar functions, and effected by our 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 GAAP, and includes those policies and procedures that:

 

•

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets,

 

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

 

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Condensed Consolidated Financial Statements.

Changes in Internal Control Over Financial Reporting. There has been no change to our internal control over financial reporting during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Part II.

OTHER INFORMATION

 

ITEM 1A.

Risk Factors.

Reference is made to the 2012 Annual Report for a discussion of the risk factors related to our businesses. There have been no material changes in such risk factors during the first three months of 2013.

 

ITEM 6.

Exhibits.

 

Item No.		Exhibit Index
31.1*		Certification
31.2*		Certification
32.1*		Certification
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

*	Filed herewith.

We have retained a signed original of any of the above exhibits that contains signatures, and we will provide such exhibit to the Commission or its staff upon request. We will also furnish, without charge, a copy of our Code of Business Conduct and Ethics, and Audit Committee Charter, each as adopted by our board of directors on February 22, 2012 and March 2, 2011 respectively, upon request. Such requests should be directed to the attention of our Corporate Secretary at our corporate offices located at 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				COMPX INTERNATIONAL INC.
						(Registrant)
Date: May 7, 2013				By:		/s/ Darryl R. Halbert
						Darryl R. Halbert Vice President, Chief Financial Officer and Controller

 

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