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, 2001
Commission file number 1-13905
COMPX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0981653
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 233-1700
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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 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 (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
As of March 1, 2002, 5,103,280 shares of Class A common stock were outstanding.
The aggregate market value of the 4.7 million shares of voting stock held by
nonaffiliates of Valhi, Inc. as of such date approximated $62.0 million.
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 ergonomic
computer support systems, precision ball bearing slides and security products
for use in office furniture, computer-related applications and a variety of
other products. The Company's products are principally designed for use in
medium to high-end applications, where product design, quality and durability
are critical to the Company's customers. The Company believes that it is among
the world's largest producers of ergonomic computer support systems, precision
ball bearing slides and security products consisting of cabinet locks and other
locking mechanisms. In 2001, precision ball bearing slides, security products
and ergonomic computer support systems accounted for approximately 44%, 35% and
17% of net sales, respectively. The remaining sales were generated from sales of
other products.
Valhi, Inc. and Valhi's wholly-owned subsidiary Valcor, Inc. owned 69% of
the Company's outstanding common stock at December 31, 2001. Contran Corporation
holds, directly or through subsidiaries, approximately 94% 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 and Chief Executive Officer 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. 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. In 1999,
CompX acquired two more slide producers and in January 2000 acquired another
security products producer. See Note 2 to the Consolidated Financial Statements.
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 - "Quantative 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," "expected" or
comparable terminology, or by discussions of strategies or trends. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it cannot give any assurances that these expectations
will prove to be correct. Such statements by their nature involve substantial
risks and uncertainties that could significantly impact expected results, and
actual future results could differ materially from those described in such
forward-looking statements. Among the factors that could cause actual future
results to differ materially are the risks and uncertainties discussed in this
Annual Report and those described from time to time in the Company's other
filings with the Securities and Exchange Commission. While it is not possible to
identify all factors, the Company continues to face many risks and uncertainties
including, but not limited to, future supply and demand for the Company's
products, changes in costs of raw materials and other operating costs (such as
energy costs), general global economic and political conditions, demand for
office furniture, service industry employment levels, the possibility of labor
disruptions, competitive products and prices, substitute products, customer and
competitor strategies, the introduction of trade barriers, the impact of pricing
and production decisions, fluctuations in the value of the U.S. dollar relative
to other currencies (such as the euro, Canadian dollar and New Taiwan dollar),
potential difficulties in integrating completed acquisitions, uncertainties
associated with new product development, environmental matters (such as those
requiring emission and discharge standards for existing and new facilities),
government regulations and possible changes therein, possible future litigation
and other risks and uncertainties. Should one or more of these risks materialize
(or the consequences of such a development worsen), or should the underlying
assumptions prove incorrect, actual results could differ materially from those
forecasted or expected. The Company disclaims any intention or obligation to
update publicly or revise such statements whether as a result of new
information, future events or otherwise.
Industry Overview
During the mid 1990's and prior to 1998, approximately 75% of the Company's
products were sold to the office furniture manufacturing industry. As a result
of strategic acquisitions in the security products industry in 1998 and 2000 and
in the precision ball bearing slide industry in 1999, the Company has expanded
its product offering and reduced its percentage of sales to the office furniture
market. Currently, approximately 59% 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
and equipment. 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
applications 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. The Company's precision ball bearing slides and ergonomic computer
support systems are sold under the Waterloo Furniture Components, Thomas Regout
and Dynaslide brand names and the Company's security products are sold under the
National Cabinet Lock, Fort Lock, Timberline Lock, Chicago Lock and TuBAR brand
names. The Company believes that its brand names are well recognized in the
industry.
Precision ball bearing slides. CompX manufactures a complete line of
precision ball bearing slides for use in office furniture, computer related
equipment, tool storage cabinets, imaging equipment, file cabinets, desk drawers
and other applications. These products include CompX's Integrated Slide Lock in
which a file cabinet manufacturer can reduce the possibility of multiple drawers
being opened at the same time, and the adjustable Ball Lock which reduces the
risk of heavily-filled drawers, such as auto mechanic tool boxes, from opening
while in movement. Precision ball bearing slides are manufactured to stringent
industry standards and are designed in conjunction with original equipment
manufacturers ("OEMs") to meet the needs of end users with respect to weight
support capabilities, ease of movement and durability.
In addition to CompX's basic precision ball bearing slide product lines,
sales based on patented innovations such as the Butterfly Take Apart System, the
Integrated Slide Lock and the Ball Lock have accounted for an increasing
proportion of the Company's sales. These applications have expanded the
Company's product offerings within the office furniture industry as well as
adding products for heavy-duty tool storage cabinets, electromechanical imaging
equipment and computer server network cabinets.
Security products. The Company believes that it is a North American market
leader in the manufacture and sale of cabinet locks and other locking
mechanisms. CompX provides security products to various industries including
institutional furniture, banking, industrial equipment and vehicles, vending and
computer. CompX's security products are sold under the National Cabinet Lock,
Fort Lock, Timberline Lock, Chicago Lock and TuBAR brand names. 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 for motorcycles, 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.
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 and factory centers network as well as to
large OEMs through the Company's STOCK LOCKS distribution program.
Ergonomic computer support systems. CompX is a leading manufacturer and
innovator in ergonomic computer support systems. Unlike products targeting the
residential market, which are more price sensitive with less emphasis on the
overall value of products and service, the CompX line consists of more highly
engineered products designed to provide ergonomic benefits for business and
other sophisticated users.
Ergonomic computer support systems include adjustable computer keyboard
support arms, designed to attach to desks in the workplace and home office
environments to alleviate possible strains and stress and maximize usable
workspace, adjustable computer table mechanisms which provide variable workspace
heights, CPU storage devices which minimize adverse effects of dust and moisture
and a number of complementary accessories, including ergonomic wrist rest aids,
mouse pad supports and computer monitor support arms. These products include
CompX's Leverlock ergonomic keyboard arm, which is designed to make the
adjustment of the keyboard arm easier for all (including physically-challenged)
users. In addition, the Company offers its engineering and design capabilities
for the design and manufacture of products on a proprietary basis for key
customers.
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.
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
1999, 2000 and 2001, sales to the Company's ten largest customers accounted for
approximately 33%, 35% and 36% of sales, respectively. In 1999, 2000 and 2001,
sales to the Company's largest customer were less than 10% of the Company's
total sales. In 1999 and 2000, nine of the Company's top ten customers were
located in the United States. In 2001, eight of the Company's top ten customers
were located in the United States.
Manufacturing and Operations
At December 31, 2001, CompX operated six manufacturing facilities in North
America (two in each of Illinois and Canada and one in each of South Carolina
and Michigan), one facility in the Netherlands and two facilities in Taiwan.
Precision ball bearing slides or ergonomic products are manufactured in the
facilities located in Canada, the Netherlands, Michigan and Taiwan. Security
products are manufactured in the facilities located in South Carolina and
Illinois. The Company owns all of these facilities except for one of the Taiwan
facilities and the Netherlands facility, which are leased. See also Item 2 -
"Properties". CompX also leases a distribution center in California. CompX
believes that all of its facilities are well maintained and satisfactory for
their intended purposes.
Raw Materials
Coiled steel is the major raw material used in the manufacture of precision
ball bearing slides and ergonomic computer support systems. Plastic resins for
injection molded plastics are also an integral material for ergonomic computer
support systems. Purchased components, including zinc castings, are the
principal raw materials used in the manufacture of security products. These raw
materials are purchased from several suppliers and are readily available from
numerous sources.
The Company occasionally enters into raw material arrangements to mitigate
the short-term impact of future increases in raw material costs. While these
arrangements do not commit the Company to a minimum volume of purchases, they
generally provide for stated unit prices based upon achievement of specified
volume purchase levels. This allows the Company to stabilize raw material
purchase prices, provided the specified minimum monthly purchase quantities are
met. Materials purchased outside of these arrangements 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 can be affected by such raw material
cost pressures.
Competition
The markets CompX participates in 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 with two
large manufacturers and a number of smaller domestic and foreign manufacturers
that compete primarily on the basis of product quality and price. 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 with one major producer and a number of smaller domestic and
foreign manufacturers that compete primarily on the basis of product quality,
features and price. Although the Company believes that it has been able to
compete successfully in its markets to date, there can be no assurance that it
will be able to continue to do so 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 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 2001 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" and 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 with
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, 2001, the Company employed approximately 2,000
employees, including 790 in the United States, 710 in Canada, 340 in the
Netherlands and 160 in Taiwan. Approximately 79% of the Company's employees in
Canada are represented by a labor union. The Company's collective bargaining
agreement with such union expires in 2003. 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 and general product types produced
for each of the Company's facilities.
Size
(square
Facility Name Location feet) Products Produced
Owned Facilities:
- ----------------
Manitou Kitchener, Ontario 206,000 Slides
Trillium Kitchener, Ontario 110,000 Ergonomic products
Byron Center Byron Center, MI 143,000 Slides
National Cabinet
Lock Mauldin, SC 198,000 Security products
Fort Lock River Grove, IL 100,000 Security products
Timberline Lake Bluff, IL 16,000 Security products
Dynaslide Taipei, Taiwan 43,000 Slides
Leased Facilities:
- -----------------
Thomas Regout Maastricht,
the Netherlands 270,000 Slides
Dynaslide Taipei, Taiwan 25,000 Slides
Distribution Center Rancho Cucamonga, CA 12,000 Product distribution
The Manitou, Trillium, Thomas Regout, National Cabinet Lock and Fort Lock
facilities are ISO-9001 registered. The Dynaslide owned facility is ISO-9002
registered. ISO-9001 registration of the Byron Center facility is anticipated in
2002. The Company believes that all its facilities are well maintained and
satisfactory for their intended purposes.
A sale/leaseback transaction was executed on the Netherlands facility with
the municipality of Maastricht in December 2001. See Note 11 to the Consolidated
Financial Statements and see also Item 7 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ITEM 3. LEGAL PROCEEDINGS
The Company is involved, from time to time, in various environmental,
contractual, product liability, patent (or intellectual property) and other
claims and disputes incidental to its business. Currently no material
environmental or other material litigation is pending or, to the knowledge of
the Company, threatened. The Company currently believes that the disposition of
all claims and disputes, individually or in the aggregate, should not have a
material adverse effect on the Company's consolidated financial condition,
results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 2001.
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 March 1, 2002, there were approximately 28
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 2000 and 2001, according to the New York Stock Exchange Composite Tape, and
dividends paid per share during such periods. On March 1, 2002 the closing price
per share of CompX Class A common stock according to the NYSE Composite Tape was
$13.10.
Dividends
High Low paid
Year ended December 31, 2000
First Quarter .......................... $ 19.88 $ 17.88 $ .125
Second Quarter ......................... 23.44 17.81 .125
Third Quarter .......................... 23.19 19.31 .125
Fourth Quarter ......................... 20.93 8.94 .125
Year ended December 31, 2001
First Quarter .......................... $ 11.65 $ 9.18 $ .125
Second Quarter ......................... 13.00 10.77 .125
Third Quarter .......................... 13.40 10.45 .125
Fourth Quarter ......................... 12.97 8.95 .125
The declaration and payment of future dividends and the amount thereof will
be dependent upon the Company's results of operations, financial condition, cash
requirements for its businesses, contractual requirements and restrictions and
other factors deemed relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's operations are comprised of a 52 or 53-week fiscal year.
Excluding 1998, each of the years 1997 through 2001 consisted of a 52-week year.
1998 was a 53-week year.
Years ended December 31,
--------------------------------
1997 1998 1999 2000 2001
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($ in millions, except per share data)
Income Statement Data
Net sales ...................... $ 108.7 $ 152.1 $ 225.9 $ 253.3 $ 211.4
Operating income ............... $ 27.5 $ 30.4 $ 40.0 $ 37.3 $ 12.5
Income before income taxes and
minority interest ............ $ 27.7 $ 32.5 $ 39.2 $ 35.5 $ 12.9
Income taxes ................... 11.0 12.0 14.1 13.4 5.8
Minority interest in losses .... -- (.2) (.1) -- --
-------- -------- -------- -------- --------
Net income ................... $ 16.7 $ 20.7 $ 25.2 $ 22.1 $ 7.1
======== ======== ======== ======== ========
Cash dividends (1) ............. $ 6.1 $ 1.8 $ 2.0 $ 8.1 $ 7.6
Basic earnings per share data:
Net income ................... $ 1.67 $ 1.37 $ 1.56 $ 1.37 $ .47
Cash dividends ............... $ .61 $ .18 $ .125 $ .50 $ .50
Weighted average common shares
outstanding ................... 10.0 15.1 16.1 16.1 15.1
Balance Sheet Data
(at year end):
Cash and other current assets $ 45.4 $ 86.5 $ 72.5 $ 83.0 $ 94.9
Total assets ................. 63.8 152.4 202.9 225.5 226.0
Current liabilities .......... 64.4 20.3 26.8 28.9 24.5
Long-term debt, including
current maturities .......... 50.4 1.7 22.3 40.6 49.1
Stockholders' equity (deficit) (1.2) 130.0 149.4 151.0 143.0
(1) In addition to the amounts shown above, in December 1997 the Company
paid a $50 million dividend to Valcor in the form of a demand note payable. The
note was repaid in February 1998 using borrowings under the Company's Revolving
Senior Credit Facility.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company reported net income of $7.1 million, or $.47 per diluted share
for the year ended December 31, 2001, a decrease of 68% compared to net income
of $22.1 million or $1.37 per diluted share for the year ended December 31,
2000. The Company's net income in 1999 was $25.2 million, or $1.56 per diluted
share.
The continued weak economic conditions in the manufacturing sector in North
America and Europe had a significant impact on CompX's results in 2001. In
response to these conditions, CompX reduced manufacturing fixed costs and other
costs starting in the first quarter of 2001 and restructured its European
operations in the fourth quarter of 2001. The cost reductions and restructuring
efforts are designed to minimize the adverse effects of lower sales and more
favorably position CompX to meet demand when the economy recovers. In 2001,
CompX also entered into a sale/leaseback transaction for its over 100 year old
facility in the Netherlands which will provide the opportunity to move into more
modern facilities. Looking forward, CompX has stepped up efforts to increase
sales outside of the office furniture industry and to seek ways to further
reduce costs, including expanding its foreign sourcing of certain component
products.
Prior to the fourth quarter of 2001, the Company operated in one reportable
segment - the manufacture and sale of mechanically-engineered components for
office furniture and other markets. During the fourth quarter of 2001, the
Company implemented certain operational and other changes at all of its
facilities, revising the Company's organizational structure and causing the
composition of the reportable segments to change. The Company now defines its
operations in terms of three operating segments - CompX Security Products, CompX
Waterloo and CompX Europe. The CompX Security Products segment, with
manufacturing facilities in South Carolina and Illinois, manufactures locking
mechanisms and other security products for sales to the office furniture,
banking, vending, computer and other industries. The CompX Waterloo segment,
with facilities in Canada, Michigan and Taiwan, and the CompX Europe segment,
with facilities in the Netherlands, both manufacture a complete line of
precision ball bearing slides for use in office furniture, computer-related
equipment, tool storage cabinets and other applications. Both of these segments
also either manufacture and/or distribute ergonomic computer support systems.
Because of the similar economic characteristics between the CompX Waterloo and
CompX Europe segments and due to the identical products, customer types,
production processes and distribution methods shared by these two segments, they
have been aggregated into a single reportable segment for segment reporting
purposes. Prior period segment information has been reclassified to reflect the
new operating segments.
As discussed in Note 14 to the Consolidated Financial Statements, beginning
in 2002 the Company will no longer recognize periodic amortization of goodwill
in its results of operations. The Company would have reported net income of
approximately $9.4 million in 2001, or about $2.3 million higher than what was
actually reported, if the goodwill amortization included in the Company's
reported net income had not been recognized. Of such $2.3 million difference,
approximately $1.4 million and $.9 million relate to the Company's CompX
Security Products and CompX Waterloo/CompX Europe segments, respectively.
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-term 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:
o Allowance for uncollectable accounts receivable. The Company maintains
allowances for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. The Company
takes into consideration the current financial condition of the
customers, the age of outstanding balances and the current economic
environment when assessing the adequacy of the allowances. If the
financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments,
increased allowances may be required.
o Inventory reserves. The Company provides reserves for estimated
obsolescence or unmarketable inventory equal to the difference between
the cost of inventory and the estimated net realizable value using
assumptions about future demand for its products and market
conditions. The Company also considers the age and the quantity of
inventory on hand in estimating the reserve. If actual market
conditions are less favorable than those projected by management,
increased inventory reserves may be required.
o Net book value of long-term 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.
o Deferred income tax assets. The Company records a valuation allowance
to reduce its deferred income tax assets to the amount that is
believed to be realizable under the "more-likely-than-not" recognition
criteria. The Company has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the need for
a valuation allowance. It is possible that in the future the Company
may change its estimate of the amount of the deferred income tax
assets that would "more-likely-than-not" be realized. This would
result in an adjustment to the deferred income tax asset valuation
allowance that would either increase or decrease, as applicable,
reported net income in the period the change in estimate is made.
Results of Operations
Net sales and operating income
Years ended December 31, % Change
------------------------- ----------------
1999 2000 2001 1999 - 2000 2000 - 2001
---- ---- ---- ----------- -----------
(In millions)
Net sales:
CompX Waterloo/CompX
Europe segment ............. $151.0 $168.3 $137.3 +11% -18%
CompX Security
Products segment ........... 74.9 85.0 74.1 +13% -13%
------ ------ ------
Total net sales ........... $225.9 $253.3 $211.4 +12% -17%
====== ====== ======
Operating income:
CompX Waterloo/CompX
Europe segment ............. $ 26.8 $ 24.8 $ 5.2 -7% -79%
CompX Security
Products segment ........... 13.2 12.5 7.3 -5% -41%
------ ------ ------
Total operating
Income ................... $ 40.0 $ 37.3 $ 12.5 -7% -67%
====== ====== ======
Operating income margin:
CompX Waterloo/CompX
Europe segment ............. 18% 15% 4%
CompX Security
Products segment ........... 18% 15% 10%
Year ended December 31, 2001 compared to year ended December 31, 2000
Net sales decreased $41.9 million, or 17%, in 2001 compared to 2000 due to
decreased demand for the Company's products resulting from the continued weak
economic conditions in the manufacturing sector in North America and Europe, and
to a lesser extent, the negative effects of fluctuations in currency exchange
rates. Net sales of slide products in 2001 decreased 26% as compared to 2000,
while net sales of security products and ergonomic products each decreased 13%
during the same period. Net sales of the CompX Security Products segment
decreased 13% and net sales of the CompX Waterloo/CompX Europe segment decreased
18% in 2001.
Operating income for 2001 decreased $24.8 million, or 67% compared to 2000
and operating income margins decreased to 6% in 2001 compared to 15% for 2000.
Reductions in manufacturing, fixed overhead and related overhead costs, which
began in the first quarter of 2001, partially offset the effects of the decline
in net sales in 2001. However, despite these cost reductions, operating margins
in 2001 were adversely impacted by the decline in volume levels and the related
impact on manufacturing efficiencies, the effects of unfavorable changes in the
sales mix and general pricing pressures. Operating income at the CompX
Waterloo/CompX Europe segment decreased 79% in 2001 compared to 2000, while
operating income at the CompX Security Products segment decreased 41% for the
same period. A pre-tax $2.7 million restructuring charge in the fourth quarter
of 2001 and a proportionately larger impact of unfavorable changes in the sales
mix contributed to the more substantial operating income decline at the CompX
Waterloo/CompX Europe segment as compared to the CompX Security Products
segment.
The fourth quarter 2001 restructuring charge included headcount reductions
of about 35 employees at CompX's Maastricht, the Netherlands facility,
substantially all of which had been implemented by December 31, 2001. Of the
$2.7 million charge, approximately $.4 million has been paid in 2001, with $1.8
million expected to be paid in the first two quarters of 2002 and $.5 million
expected to be paid in 2003. In addition, approximately $3.0 million in pre-tax
charges were recorded in the fourth quarter of 2001. This charge is
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 charge, approximately $.9 million
related to the CompX Waterloo/CompX Europe segment with the remaining $2.1
million related to the CompX Security Products segment.
Year ended December 31, 2000 compared to year ended December 31, 1999
Net sales increased $27.4 million, or 12%, in 2000 compared to 1999 due to
the effect of acquisitions. Sales of security products in 2000 increased 13%
compared to 1999, and sales of slide products increased 18%. During 2000, sales
of CompX's ergonomic products decreased 5% compared to 1999. Net sales of the
CompX Security Products segment increased 13% while net sales of the CompX
Waterloo/CompX Europe segment increased 11% in 2000. Excluding the effect of
acquisitions, net sales in 2000 were essentially flat compared to 1999, with
sales of slide products up 8% and sales of ergonomic products and security
products down 5% and 7%, respectively. Excluding the effects of acquisitions,
net sales of the CompX Waterloo/CompX Europe segment increased 3% and net sales
at the CompX Security Product segment decreased 7% in 2000 as compared to 1999.
Sales of the CompX Waterloo/CompX Europe segment were negatively impacted in the
second half of 2000 by softening demand in the office furniture industry in
North America and loss of market share due to competition from imports. However,
strong sales of slide products in the first part of 2000, offset the softening
office furniture industry demand, resulting in the overall increase in sales of
this segment. The lower CompX security products segment sales were due to
weakness in the computer and related products industry and increased competition
from low-cost imports.
Operating income for 2000 decreased $2.7 million, or 7% compared to 1999.
Excluding the results of acquisitions, operating income decreased 11% from the
prior year. Operating income of the CompX Security Products segment decreased 5%
in 2000 as compared to 1999 (decreased 4% excluding the results of acquisitions)
and declined 7% at the CompX Waterloo/CompX Europe segment (decreased 14%
excluding the results of acquisitions) during the same period. Along with the
softening demand from the office furniture industry, operating income was also
impacted by a change in the product mix, with a lower percentage of sales being
generated by certain higher-margin products in 2000 compared to 1999, as well as
incremental costs incurred in moving the operations of the Chicago Lock plant to
the Company's Mauldin, South Carolina plant, higher costs associated with the
expansion of the Company's Byron Center, Michigan plant and higher
administrative expenses.
General
The Company expanded its offerings in the precision ball bearing slide and
ergonomic products markets in 1999 through its acquisitions of Thomas Regout for
approximately $53 million and Dynaslide for approximately $12 million. In
January 2000, the Company acquired substantially all of the operating assets of
Chicago Lock Company for approximately $9 million, further expanding its
security products capacity. These acquisitions were financed through a
combination of cash on hand and increased borrowings under the Company's
Revolving Senior Credit Facility.
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 raw materials such as zinc, copper, coiled steel and
plastic resins and of labor costs. Raw material costs represent approximately
38% of the Company's total cost of sales. In 1999 through 2001, steel prices did
not change significantly compared to the respective prior years. 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 provided the specified minimum monthly purchase quantities are
met. The Company entered into such arrangements for zinc, coiled steel and
plastic resins in 2001 and does not anticipate significant changes in the cost
of these materials from their current levels. 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 and consequently overall operating margins may
be affected by such raw material cost pressures.
At December 31, 2001, none of the Company's employees in the U.S., the
Netherlands or Taiwan were represented by bargaining units, and wage increases
for such employees historically have been in line with overall inflation
indices. Approximately 79% of the Company's Canadian employees are covered by a
three year collective bargaining agreement that expires in 2003 and provides for
annual wage increases of approximately 3.5%. Wage increases for these Canadian
employees historically have also been in line with overall inflation indices.
Selling, general and administrative costs consist primarily of salaries,
commissions and advertising expenses directly related to product sales and in
1999 through 2001 have been consistent as a percentage of net sales.
CompX has substantial operations and assets located outside the United
States (principally in Canada, the Netherlands and Taiwan). A portion of CompX's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S. dollar, principally the Canadian dollar, the Dutch guilder, the
euro and the New Taiwan dollar. In addition, a portion of CompX's sales
generated from its non-U.S. operations (principally in Canada) are denominated
in the U.S. dollar. Most raw materials, labor and other production costs for
such non-U.S. operations are denominated primarily in local currencies.
Consequently, the translated U.S. dollar value of CompX's foreign sales and
operating results are subject to currency exchange rate fluctuations which may
favorably or unfavorably impact reported earnings and may affect comparability
of period-to--period operating results. During 2001, weakness primarily in the
euro and Canadian dollar negatively impacted the Company's sales comparisons
with 2000 (principally with respect to slide products). Operating income
comparisons for this period, however, were not materially impacted by the
effects of currency. Excluding the effect of currency, the Company's sales
decreased 15% in 2001 compared to 2000 and sales of the CompX Waterloo/CompX
Europe segment decreased 16% for the same period. In 2000, excluding the effects
of currency and acquisitions, the Company's sales increased 2% compared to 1999,
and operating income decreased 9%. Sales of the CompX Waterloo/CompX Europe
segment increased 7% and operating income decreased 12%, exclusive of the
effects of currency and acquisitions. The effects of currency fluctuations do
not materially affect the CompX Security Products segment.
Interest expense
Interest expense increased $.6 million in 2001 compared to 2000 due
primarily to higher average levels of outstanding indebtedness on CompX's
Revolving Senior Credit Facility. Likewise, interest expense increased $.7
million in 2000 compared to 1999 due to increased borrowings partially offset by
lower rates. Assuming interest rates do not increase significantly from year-end
2001 levels, interest expense in 2002 is expected to be somewhat lower compared
to 2001 due to anticipated debt reduction in 2002 using available cash on hand.
Provision for income taxes
The principal reasons for the difference between CompX's effective income
tax rates and the U.S. federal statutory income tax rates are explained in Note
9 to the Consolidated Financial Statements. Income tax rates vary by
jurisdiction (county and/or state), and relative changes in the geographic mix
of CompX's pre-tax earnings can result in fluctuations in the effective income
tax rate.
As discussed in Note 14 to the Consolidated Financial Statements, effective
January 1, 2002, the Company will no longer recognize 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 will result in a
reduction in the Company's overall effective income tax rate in 2002 as compared
to 2001.
Other
As summarized in Note 11 to the Consolidated Financial Statements, "other
general corporate income, net" primarily includes interest income and net
foreign currency transaction gains and losses. Interest income increased in 2001
compared to 2000 due primarily to a higher level of funds available for
investment. Conversely, 2000 interest income decreased when compared to 1999 due
to lower levels of available funds for investment. In 2001, a curtailment gain
of approximately $.1 million was included in other general corporate income,
net. This curtailment gain, more fully described in Note 8 to the Consolidated
Financial Statements, relates to the cessation of benefits provided under
CompX's defined benefit plan which covered substantially all full-time employees
of Thomas Regout 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. CompX expects to report a $.6 million settlement gain in 2002.
Also reflected in the 2001 results of operations is a $2.2 million gain on the
sale/leaseback of the Company's facility in the Netherlands, which is discussed
more fully below and in Note 11 to the Consolidated Financial Statements.
Related party transactions
CompX is a party to certain transactions with related parties. See Note 12
to the Consolidated Financial Statements.
Outlook
The Company expects the weak economic conditions experienced in 2001 to
continue to have significant impact on its results for 2002. Although some
recent economic data shows positive signs, it is still too early to determine
the pace and extent of a recovery that might occur in 2002. Additionally, a
significant portion of CompX's revenue is derived from the office furniture
industry and the office furniture industry tends to lag in its recovery behind
the rest of the economy. Given the uncertainty of the economic conditions, the
Company continues to balance its focus on opportunities outside of the office
furniture industry as well as continuing to drive operational efficiency through
cost improvement initiatives and prudent balance sheet management. These
measures are designed to minimize the adverse effect of lower furniture industry
sales and more favorably position the Company to meet demand when the economy
recovers. Additionally, the periodic amortization of goodwill will no longer
impact operating results beginning in 2002.
Liquidity and Capital Resources
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities and non-cash stock award charges,
for 1999, 2000 and 2001, are generally similar to the trends in the Company's
earnings. Cash provided by operating activities totaled, $28.4 million, $28.4
million and $27.7 million for the years ended December 31, 1999, 2000 and 2001
respectively, compared to net income of $25.2 million, $22.1 million and $7.1
million, respectively. Depreciation and amortization increased during each of
the past three years in part due to the acquisitions discussed above and
additional expenditures on facilities expansion discussed below.
Changes in assets and liabilities result primarily from the timing of
production, sales and purchases. Such changes in assets and liabilities
generally tend to even out over time and result in trends in cash flows from
operating activities generally reflecting earnings trends.
Investing activities. Net cash used by investing activities totaled $84.6
million, $32.4 million and $2.7 million for the years ended December 31, 1999,
2000 and 2001, respectively. Cash used by investing activities in 1999 includes
$65.0 million in cash for the Thomas Regout and Dynaslide acquisitions and
approximately $9.3 million in 2000 for the Chicago Lock acquisition. In 2001,
$10.0 million in cash was provided from the sale/leaseback of the Company's
plant facility in the Netherlands. Other cash flows from investing activities in
each of the past three years related principally to capital expenditures.
Capital expenditures in the past three years emphasized manufacturing equipment
which utilizes new technologies and increases automation of the manufacturing
process to provide for increased productivity and efficiency. Capital
expenditures in 1999 relates primarily to the additions of a fourth plating line
at the Company's Kitchener facility, facility expansions in Kitchener, the
acquisition of an adjoining manufacturing building at Fort Lock and the addition
of automation equipment at all facilities. The capital expenditures in 2000 and
2001 relate primarily to the completion of the facility expansions mentioned
above and additional facility expansions at the Company's Byron Center and
Mauldin facilities.
Pursuant to the sale/leaseback of the Company's plant facility in
Maastricht, the Netherlands, CompX sold the manufacturing facility with a net
carrying value of $8.2 million for $10.0 million cash consideration in December
2001, and CompX simultaneously entered into a leaseback of the facility with a
nominal monthly rental for approximately 30 months. CompX has the option to
extend the leaseback period for up to an additional two years with monthly
rentals of $40,000 to $100,000. CompX may terminate the leaseback at any time
without penalty. In addition to the cash received up front, CompX included an
estimate of the fair market value of the monthly rental during the
nominal-rental leaseback period as part of the sale proceeds. A portion of the
gain from the sale of the facility after transaction costs, equal to the present
value of the monthly rentals over the expected leaseback period (including the
fair market value of the monthly rental during the nominal-rental leaseback
period), has been deferred and will be amortized into income over the expected
leaseback period. CompX will recognize rental expense over the leaseback period,
including amortization of the prepaid rent consisting of the estimated fair
market value of the monthly rental during the nominal-rental leaseback period.
Pursuant to the agreement, CompX is also obligated to acquire approximately 10
acres from the municipality of Maastricht for approximately $1.8 million within
the next one to three years.
Capital expenditures for 2002 are estimated at approximately $11 million,
the majority of which relate to projects that emphasize improved production
efficiency and shifting production capacity to lower cost facilities. Firm
purchase commitments for capital projects in process at December 31, 2001
approximated $2.5 million.
Financing activities. Net cash provided by (used in) financing activities
totaled $17.0 million, $2.1 million and ($1.8) million for the years ended
December 31, 1999, 2000 and 2001, respectively. The Company paid its first
regular quarterly dividend since the initial public offering of $0.125 per share
in December 1999. Total cash dividends paid in 1999, 2000 and 2001 were $2.0
million, $8.1 million and $7.6 million, respectively.
The Company's board of directors has authorized the Company to purchase up
to approximately 1.5 million shares of its common stock in open market or
privately-negotiated transactions at unspecified prices and over an unspecified
period of time. As of December 31, 2001, the Company had purchased approximately
1,104,000 shares for an aggregate of $11.3 million pursuant to such
authorization ($8.7 million for 844,300 shares in 2000 and $2.6 million for
259,600 shares in 2001).
At December 31, 2001, the Company had $51 million of borrowing availability
under its Revolving Senior Credit Facility, which expires in February 2003.
Provisions contained in CompX's 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 CompX's credit agreement could result in the acceleration
of all or a portion of the indebtedness following a sale of assets outside of
the ordinary course of business. See Note 7 to the Consolidated Financial
Statements. Other than certain operating leases discussed in Note 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 Revolving Senior Credit Facility, together with cash on
hand, will be sufficient to meet the Company's liquidity needs for working
capital, capital expenditures, debt service and dividends. To the extent that
actual 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 in light of its capital resources
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,
2001.
Payments due by period
--------------------------
Less than 1 - 3 4 - 5
Total 1 year years years
(In thousands)
Long-term debt ............................. $49,000 $ -- $49,000 $--
Capital lease obligations .................. 56 56 -- --
Operating leases ........................... 2,796 990 1,432 374
Unconditional purchase obligations ......... 2,500 2,500 -- --
Other long-term obligation - Maastricht
real estate acquisition obligation ........ 1,800 -- 1,800 --
------- ------ ------- ----
Total contractual cash obligations ......... $56,152 $3,546 $52,232 $374
======= ====== ======= ====
In addition, the Company is a party to certain other agreements that
contractually and unconditionally commit the Company to pay certain amounts in
the future. While the Company believes it is probable that amounts will be spent
in the future under such contracts, the amount and/or the timing of such future
payments will vary depending on certain provisions of the applicable contract.
Agreements to which the Company is a party that fall into this category, more
fully described in Note 13 to the Consolidated Financial Statements, are CompX's
patent license agreements under which it pays royalties based on the volume of
certain products manufactured in Canada and sold in the United States.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. The Company is exposed to market risk from changes in foreign
currency exchange rates and interest rates. The Company periodically uses
currency forward contracts to manage a portion of foreign exchange rate risk
associated with receivables, or similar exchange rate risk associated with
future sales, denominated in a currency other than the holder's functional
currency. Otherwise, the Company does not generally enter into forward or option
contracts to manage such market risks, nor does the Company enter into any such
contract or other type of derivative instrument for trading or speculative
purposes. Other than the contracts discussed below, the Company was not a party
to any forward or derivative option contract related to foreign exchange rates
or interest rates at December 31, 2000 and 2001. 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, 2000 and 2001, substantially all of the Company's
outstanding indebtedness were variable rate borrowings. Such borrowings at
December 31, 2001 related principally to $49 million ($39 million at December
31, 2000) in borrowings under the Revolving Senior Credit Facility. The
outstanding balances at December 31, 2000 and 2001 (which approximate fair
value) had a weighted-average interest rate of 6.7% and 4.2%, respectively.
Amounts outstanding under this credit facility are due in 2003. The remaining
indebtedness outstanding at December 31, 2000 and 2001 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, 2000 CompX had entered into a
series of short-term forward exchange contracts maturing through March 2001 to
exchange an aggregate of $9.1 million for an equivalent amount of Canadian
dollars at an exchange rate of Cdn $1.48 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, 2000 is not material. No foreign exchange contracts
were outstanding at December 31, 2001.
Other. Beginning January 1, 1999, eleven of the fifteen members of the
European Union ("EU"), including the Netherlands, adopted a new European
currency unit (the "euro") as their common legal currency. Following the
introduction of the euro, the participating countries' national currencies
remained legal tender as denominations of the euro from January 1, 1999 through
January 1, 2002, and the exchange rates between the euro and such national
currency units are fixed.
During 2001, the functional currencies of the Company's Thomas Regout
operations in Maastricht, the Netherlands, completed the conversion to the euro
from its national currency. The euro conversion did not materially impact the
Company's operations.
The above discussion includes forward-looking statements of market risk
which assume hypothetical changes in market prices. Actual future market
conditions will likely differ materially from such assumptions. Accordingly,
such forward-looking statements should not be considered to be projections by
the Company of future events or losses. Such forward-looking statements are
subject to certain risks and uncertainties some of which are listed in
"Business-General."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" (page
F-1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
CompX's definitive Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this report (the "CompX Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
CompX Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
CompX Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
CompX Proxy Statement. See Note 12 to the Consolidated Financial Statements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements and Schedules
The Registrant
The consolidated financial statements and schedules listed
on the accompanying Index of Financial Statements and
Schedules (see page F-1) are filed as part of this Annual
Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended
December 31, 2001.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit
Index. CompX will furnish a copy of any of the exhibits
listed below upon payment of $4.00 per exhibit to cover the
costs to CompX of furnishing the exhibits. Instruments
defining the rights of holders of long-term debt issues
which do not exceed 10% of consolidated total assets will be
furnished to the Commission upon request.
Item No. Exhibit Item
3.1 Restated Certificate of Incorporation of Registrant -
incorporated by reference to Exhibit 3.1 of the Registrant's
Registration Statement on Form S-1 (File No. 333-42643).
3.2 Bylaws of Registrant - incorporated by reference to Exhibit
3.2 of the Registrant's Registration Statement on Form S-1
(File No. 333-42643).
10.1 Intercorporate Services Agreement between the Registrant and
Contran Corporation effective as of January 1, 2001 -
incorporated by reference to Exhibit 10.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.
10.2* CompX International Inc. 1997 Long-Term Incentive Plan -
incorporated by reference to Exhibit 10.2 of the
Registrant's Registration Statement on Form S-1 (File No.
333-42643).
10.3* CompX International Inc. Variable Compensation Plan
effective as of January 1, 1999 - incorporated by reference
to Exhibit 10.4 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
10.4 Agreement between Haworth, Inc. and Waterloo Furniture
Components, Ltd. and Waterloo Furniture Components, Inc.
effective October 1, 1992 - incorporated by reference to
Exhibit 10.3 of the Registrant's Registration Statement on
Form S-1 (File No. 333-42643).
10.5 Tax Sharing Agreement among the Registrant, Valcor, Inc. and
Valhi, Inc. dated as of January 2, 1998 - incorporated by
reference to Exhibit 10.4 of the Registrant's Registration
Statement on Form S-1 (File No. 333-42643).
Item No. Exhibit Item
10.6 $100,000,000 Credit Agreement between the Registrant,
Bankers Trust Company, as Agent and various lending
institutions dated February 26, 1998 - incorporated by
reference to Exhibit 10.5 of the Registrant's Registration
Statement on Form S-1 (File No. 333-42643).
10.7 Amendment No. 1 to Credit Agreement between Registrant,
Bankers Trust Company, as Agent and various lending
institutions, dated December 15, 1999 - incorporated by
reference to Exhibit 10.8 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1999.
10.8 Amendment No. 2 to Credit Agreement between Registrant,
Bankers Trust Company, as Agent and various lending
institutions, dated December 2001.
10.9 Offer and Acquisition Agreement dated December 18, 1998
between CompX International Inc. and Thomas Regout Holding
N.V. - incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K dated January 29,
1999.
10.10* Release agreement between the Registrant and Joseph S.
Compofelice, effective as of November 6, 2000.
10.11* Employment agreement between Registrant and Wouter J.
Dammers, effective August 30, 1999 - incorporated by
reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001.
10.12 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).
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Annual Report of the CompX Contributory Retirement Plan
(Form 11-K) to be filed under Form 10-K/A to this Annual
Report on Form 10-K within 180 days after December 31, 2001.
*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/ Brent A. Hagenbuch
-----------------------------------------------
Brent A. Hagenbuch
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 21, 2002
- -----------------------------
Glenn R. Simmons
/s/ Brent A. Hagenbuch President and March 21, 2002
- ----------------------------- Chief Executive Officer
Brent A. Hagenbuch (Principal Executive
Officer)
/s/ David A. Bowers Vice Chairman of the Board March 21, 2002
- ----------------------------- and Chief Operating Officer
David A. Bowers
/s/ Stuart M. Bitting Vice President and March 21, 2002
- ----------------------------- Chief Financial Officer
Stuart M. Bitting (Principal Financial Officer)
/s/ Darryl R. Halbert Vice President and March 21, 2002
- ----------------------------- Controller (Principal
Darryl R. Halbert Accounting Officer)
/s/ Edward J. Hardin Director March 21, 2002
- -----------------------------
Edward J. Hardin
/s/ Paul M. Bass, Jr. Director March 21, 2002
- -----------------------------
Paul M. Bass, Jr.
/s/ Ann Manix Director March 21, 2002
- -----------------------------
Ann Manix
/s/ Steven L. Watson Director March 21, 2002
- -----------------------------
Steven L. Watson
Annual Report on Form 10-K
Items 8, 14(a) and 14(d)
Index of Financial Statements and Schedules
Financial Statements Page
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 2000 and 2001 F-3
Consolidated Statements of Income -
Years ended December 31, 1999, 2000 and 2001 F-5
Consolidated Statements of Comprehensive Income -
Years ended December 31, 1999, 2000 and 2001 F-6
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 2000 and 2001 F-7
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1999, 2000 and 2001 F-9
Notes to Consolidated Financial Statements F-10
Financial Statement Schedule
Report of Independent Accountants S-1
Schedule II - Valuation and qualifying accounts S-2
Schedules I, III and IV are omitted because they are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of CompX International Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, comprehensive income, cash flows and
stockholders' equity present fairly, in all material respects, the consolidated
financial position of CompX International Inc. and Subsidiaries as of December
31, 2000 and 2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, 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.
PricewaterhouseCoopers LLP
Dallas, Texas
March 1, 2002
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 2001
(In thousands, except share data)
ASSETS 2000 2001
---- ----
Current assets:
Cash and cash equivalents ........................ $ 9,820 $ 33,309
Accounts receivable, less allowance for
doubtful accounts of $487 and $841 .............. 30,833 23,422
Income taxes receivable from affiliates .......... 305 351
Refundable income taxes .......................... 2,165 2,032
Inventories ...................................... 36,246 30,902
Prepaid expenses and other current assets ........ 2,408 2,902
Deferred income taxes ............................ 1,209 1,944
-------- --------
Total current assets ......................... 82,986 94,862
-------- --------
Other assets:
Goodwill ......................................... 42,213 38,882
Other intangible assets .......................... 2,646 2,440
Deferred income taxes ............................ 1,813 3,132
Prepaid rent ..................................... -- 1,079
Other ............................................ 868 577
-------- --------
Total other assets ........................... 47,540 46,110
-------- --------
Property and equipment:
Land ............................................. 5,709 4,368
Buildings ........................................ 34,500 26,182
Equipment ........................................ 78,357 92,683
Construction in progress ......................... 9,787 4,618
-------- --------
128,353 127,851
Less accumulated depreciation .................... 33,394 42,815
-------- --------
Net property and equipment ................... 94,959 85,036
-------- --------
$225,485 $226,008
See accompanying notes to consolidated financial statements.
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 2000 and 2001
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2001
---- ----
Current liabilities:
Current maturities of long-term debt ................. $ 1,638 $ 56
Accounts payable and accrued liabilities ............. 26,487 23,168
Payable to affiliate ................................. -- 15
Income taxes ......................................... 648 1,000
Deferred income taxes ................................ 103 291
--------- ---------
Total current liabilities ........................ 28,876 24,530
--------- ---------
Noncurrent liabilities:
Long-term debt ....................................... 39,000 49,000
Deferred income taxes ................................ 4,852 7,573
Accrued pension costs ................................ 1,168 660
Deferred gain on sale/leaseback ...................... -- 1,221
Other ................................................ 626 --
--------- ---------
Total noncurrent liabilities ..................... 45,646 58,454
--------- ---------
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; 6,204,680 and 6,207,180
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 ........................... 119,194 119,224
Retained earnings .................................... 51,395 50,966
Accumulated other comprehensive income -
currency translation ................................ (11,123) (16,013)
Treasury stock, at cost - 844,300 and 1,103,900 shares (8,665) (11,315)
--------- ---------
Total stockholders' equity ....................... 150,963 143,024
--------- ---------
$ 225,485 $ 226,008
Commitments and contingencies (Notes 1, 11 and 13)
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999, 2000 and 2001
(In thousands, except per share data)
1999 2000 2001
---- ---- ----
Net sales ................................................... $ 225,888 $ 253,294 $ 211,422
Cost of sales ............................................... 160,628 187,299 167,884
--------- --------- ---------
65,260 65,995 43,538
Selling, general and administrative expense ................. 25,220 28,693 28,310
Restructuring charge ........................................ -- -- 2,742
--------- --------- ---------
Operating income ...................................... 40,040 37,302 12,486
Gain on sale of plant facility .............................. -- -- 2,246
Other general corporate income, net ......................... 676 443 1,009
Interest expense ............................................ (1,554) (2,302) (2,859)
--------- --------- ---------
Income before income taxes and
minority interest .................................... 39,162 35,443 12,882
Provision for income taxes .................................. 14,102 13,390 5,758
Minority interest in losses ................................. (103) (3) --
--------- --------- ---------
Net income ............................................ $ 25,163 $ 22,056 $ 7,124
========= ========= =========
Basic and diluted earnings per common share ................. $ 1.56 $ 1.37 $ .47
========= ========= =========
Cash dividends per share .................................... $ .125 $ .50 $ .50
========= ========= =========
Shares used in the calculation of earnings per share amounts:
Basic earnings per share .................................. 16,146 16,115 15,144
Dilutive impact of stock options .......................... 3 32 6
--------- --------- ---------
Diluted earnings per share ................................ 16,149 16,147 15,150
========= ========= =========
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 1999, 2000 and 2001
(In thousands)
1999 2000 2001
---- ---- ----
Net income ............................... $ 25,163 $ 22,056 $ 7,124
-------- -------- -------
Other comprehensive income -
currency translation adjustment:
Pre-tax amount ....................... (3,875) (5,159) (5,097)
Less income tax benefit .............. -- (323) (207)
-------- -------- -------
Total other comprehensive income ..... (3,875) (4,836) (4,890)
-------- -------- -------
Comprehensive income ............... $ 21,288 $ 17,220 $ 2,234
======== ======== =======
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 2000 and 2001
(In thousands)
1999 2000 2001
---- ---- ----
Cash flows from operating activities:
Net income .................................. $ 25,163 $ 22,056 $ 7,124
Depreciation and amortization ............... 9,406 12,416 14,769
Deferred income taxes ....................... 1,423 2,310 1,355
Gain on sale of plant facility .............. -- -- (2,246)
Minority interest ........................... (103) (3) --
Other, net .................................. (243) (73) 465
Change in assets and liabilities:
Accounts receivable ....................... (3,186) (826) 6,112
Inventories ............................... (1,992) (7,421) 4,075
Accounts payable and accrued liabilities .. (2,470) 2,746 (3,983)
Accounts with affiliates .................. 532 (284) (38)
Income taxes .............................. (1,579) (1,033) 202
Other, net ................................ 1,471 (1,458) (172)
-------- -------- --------
Net cash provided by operating activities 28,422 28,430 27,663
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ........................ (19,703) (23,128) (13,283)
Proceeds from sale of plant facility ........ -- -- 10,000
Purchase of business units .................. (64,975) (9,346) --
Other, net .................................. 54 111 605
-------- -------- --------
Net cash used by investing activities ... (84,624) (32,363) (2,678)
-------- -------- --------
Cash flows from financing activities:
Long-term debt:
Borrowings ................................ 20,000 20,274 14,919
Principal payments ........................ (1,009) (2,454) (6,511)
Issuance of common stock .................... -- 1,027 --
Dividends paid .............................. (2,018) (8,076) (7,553)
Common stock reacquired ..................... -- (8,665) (2,650)
Other ....................................... -- 13 --
-------- -------- --------
Net cash provided (used) by financing
activities ............................. 16,973 2,119 (1,795)
-------- -------- --------
Net increase (decrease) ....................... $(39,229) $ (1,814) $ 23,190
======== ======== ========
See accompanying notes to consolidated financial statements.
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 2000 and 2001
(In thousands)
1999 2000 2001
---- ---- ----
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing
activities ..................... $(39,229) $ (1,814) $23,190
Business units acquired ......... 4,785 -- --
Currency translation ............ (750) (535) 299
Balance at beginning of year ...... 47,363 12,169 9,820
-------- -------- -------
Balance at end of year ............ $ 12,169 $ 9,820 $33,309
======== ======== =======
Supplemental disclosures:
Cash paid for:
Interest ........................ $ 1,253 $ 2,086 $ 3,238
Income taxes .................... 13,284 12,562 4,126
Net assets consolidated -
business units acquired:
Cash and cash equivalents ....... $ 4,785 $ -- $ --
Goodwill ........................ 22,700 4,837 --
Other intangible assets ......... -- 254 --
Other non-cash assets ........... 54,966 7,144 --
Liabilities ..................... (17,476) (2,889) --
-------- -------- -------
Cash paid ....................... $ 64,975 $ 9,346 $ --
======== ======== =======
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 2000 and 2001
(In thousands)
Accumulated other
comprehensive
Additional income - Total
Common stock paid-in Retained currency Treasury stockholders'
Class A Class B capital Earnings translation stock equity
---- ---- ------- -------- ----------- ----- ------
Balance at December 31, 1998 $61 $100 $118,027 $ 14,270 $ (2,412) $ -- $ 130,046
Net income ................. -- -- -- 25,163 -- -- 25,163
Other comprehensive income . -- -- -- -- (3,875) -- (3,875)
Cash dividends ............. -- -- -- (2,018) -- -- (2,018)
Issuance of common stock ... -- -- 40 -- -- -- 40
--- ---- -------- -------- -------- -------- ---------
Balance at December 31, 1999 61 100 118,067 37,415 (6,287) -- 149,356
Net income ................. -- -- -- 22,056 -- -- 22,056
Other comprehensive income . -- -- -- -- (4,836) -- (4,836)
Cash dividends ............. -- -- -- (8,076) -- -- (8,076)
Issuance of common stock ... 1 -- 1,072 -- -- -- 1,073
Common stock reacquired .... -- -- -- -- -- (8,665) (8,665)
Other ...................... -- -- 55 -- -- -- 55
--- ---- -------- -------- -------- -------- ---------
Balance at December 31, 2000 62 100 119,194 51,395 (11,123) (8,665) 150,963
Net income ................. -- -- -- 7,124 -- -- 7,124
Other comprehensive income . -- -- -- -- (4,890) -- (4,890)
Cash dividends ............. -- -- -- (7,553) -- -- (7,553)
Issuance of common stock ... -- -- 30 -- -- -- 30
Common stock reacquired .... -- -- -- -- -- (2,650) (2,650)
--- ---- -------- -------- -------- -------- ---------
Balance at December 31, 2001 $62 $100 $119,224 $ 50,966 $(16,013) $(11,315) $ 143,024
=== ==== ======== ======== ======== ======== =========
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies:
Organization. CompX International Inc. (NYSE: CIX) is 69% owned by Valhi,
Inc. (NYSE: VHI) and Valhi's wholly-owned subsidiary Valcor, Inc. at December
31, 2001. The Company manufactures and sells component products (precision ball
bearing slides, security products and ergonomic computer support systems).
Contran Corporation holds, directly or through subsidiaries, approximately 94%
of Valhi's outstanding common stock. Substantially all of Contran's outstanding
voting stock is held by trusts established for the benefit of certain children
and grandchildren of Harold C. Simmons, of which Mr. Simmons is sole trustee.
Mr. Simmons, the Chairman of the Board and Chief Executive officer of each of
Contran, Valhi and Valcor, may be deemed to control each of such companies and
the Company.
Management estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions 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 reporting period. Actual results may differ
from previously-estimated amounts under different assumptions or conditions.
Fair value of financial instruments. The carrying amounts of accounts
receivable and accounts payable approximates fair value due to their short-term
nature. The carrying amount of indebtedness approximates fair value due to the
stated interest rate approximating a market rate. These estimated fair value
amounts have been determined using available market information or other
appropriate valuation methodologies.
Principles of consolidation. The accompanying consolidated financial
statements include the accounts of CompX International Inc. and its
majority-owned subsidiaries. All material intercompany accounts and balances
have been eliminated. Certain prior year amounts have been reclassified to
conform to the current year presentation.
Fiscal year. The Company's operations are reported on a 52 or 53-week
fiscal year. The years ended December 31, 1999, 2000 and 2001 each consisted of
52 weeks.
Translation of foreign currencies. Assets and liabilities of subsidiaries
whose functional currency is other than the U.S. dollar are translated at
year-end rates of exchange and revenues and expenses are translated at average
exchange rates prevailing during the year. Resulting translation adjustments are
accumulated in stockholders' equity as part of accumulated other comprehensive
income, net of related deferred income taxes and minority interest. Currency
transaction gains and losses are recognized in income currently.
Cash and cash equivalents. Cash equivalents consist principally of bank
time deposits and government and commercial notes with original maturities of
three months or less.
Net sales. Sales are recorded when products are shipped and title and other
risks and rewards of ownership have passed to the customer. Shipping terms are
generally F.O.B. shipping point, although in some instances, shipping terms are
F.O.B. destination point. Amounts charged to customers for shipping and handling
are not material. The related costs incurred for shipping and handling are also
not material.
Accounts receivable. The Company provides an allowance for doubtful
accounts for known and potential losses rising from sales to customers based on
a periodic review of these accounts.
Inventories and cost of sales. Inventories are stated at the lower of cost
or market. Inventories are based on average cost or the first-in, first-out
method.
Goodwill and other intangible assets. Goodwill, representing the excess of
cost over fair value of individual net assets acquired in business combinations
accounted for by the purchase method, is stated net of accumulated amortization
of $5.1 million at December 31, 2000 and $7.3 million at December 31, 2001.
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 will no longer be subject to periodic amortization.
See Notes 5 and 14.
Other intangible assets, consisting of the estimated fair value of certain
patents acquired, have been and will continue to be upon adoption of SFAS No.
142 effective January 1, 2002, amortized by the straight-line method over the
lives of such patents (approximately 11.25 years remaining at December 31,
2001), with no assumed residual value at the end of the life of the patents.
Other intangible assets are stated net of accumulated amortization of $.8
million at December 31, 2000 and $1.0 million at December 31, 2001. Amortization
expense of intangible assets was $207,000 in 1999, $361,000 in 2000 and $229,000
in 2001, and is expected to be approximately $250,000 in each of 2002 through
2006.
Through December 31, 2001, when events or changes in circumstances
indicated that goodwill or other intangible assets may be impaired, an
evaluation was performed to determine if an impairment existed. Such events or
circumstances included, among other things, significant current and prior
periods or current and projected periods with operating losses related to the
applicable business unit. All relevant factors were considered in determining
whether an impairment existed. If an impairment was determined to exist,
goodwill and, if appropriate, the underlying long-lived assets associated with
the goodwill, were written down to reflect the estimated future discounted cash
flows expected to be generated by the underlying business. As of December 31,
2001, no such impairments were identified. Effective January 1, 2002, the
Company will assess impairment of goodwill and other intangible assets in
accordance with SFAS No. 142. See Notes 5 and 14.
Property, equipment and depreciation. Property and equipment, including
purchased computer software for internal use, are stated at cost. Expenditures
for maintenance, repairs and minor renewals are expensed; expenditures for major
improvements are capitalized. Depreciation for financial reporting purposes is
computed principally by the straight-line method over the estimated useful lives
of 15 to 40 years for buildings and three to 10 years for equipment and
software. Accelerated depreciation methods are used for income tax purposes, as
permitted. Upon sale or retirement of an asset, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is recognized in
income currently.
When events or changes in circumstances indicate that assets may be
impaired, an evaluation is performed to determine if an impairment exists. Such
events or changes in circumstances include, among other things, (i) significant
current and prior periods or current and projected periods with operating
losses, (ii) a significant decrease in the market value of an asset or (iii) a
significant change in the extent or manner in which an asset is used. All
relevant factors are considered. The test for impairment is performed by
comparing the estimated future undiscounted cash flows (exclusive of interest
expense) associated with the asset to the asset's net carrying value to
determine if a write-down to market value or discounted cash flow value is
required. Through December 31, 2001, if the asset being tested for impairment
was acquired in a business combination accounted for by the purchase method, any
goodwill which arose out of that business combination was also considered in the
impairment test if the goodwill related specifically to the acquired asset and
not to other aspects of the acquired business, such as the customer base or
product lines. Effective January 1, 2002, the Company will assess impairment of
goodwill in accordance with SFAS No. 142, and the Company will assess impairment
of other long-lived assets (such as property and equipment) in accordance with
SFAS No. 144. See Notes 5 and 14.
Derivatives and hedging activities. The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended,
effective January 1, 2001. Under SFAS No. 133, all derivatives are recognized as
either assets or liabilities and measured at fair value. The accounting for
changes in fair value of derivatives depends upon the intended use of the
derivative, and such changes are recognized either in net income or other
comprehensive income. As permitted by the transition requirements of SFAS No.
133, as amended, the Company has exempted from the scope of SFAS No. 133 all
host contracts containing embedded derivatives which were issued or acquired
prior to January 1, 1999. Other than certain currency forward contracts
discussed below, the Company was not a party to any significant derivative or
hedging instrument covered by SFAS No. 133 at January 1, 2001. The accounting
for such currency forward contracts under SFAS No. 133 is not materially
different from the accounting for such contracts under prior GAAP, and therefore
the impact to the Company of adopting SFAS No. 133 was not material.
Certain of the Company's sales generated by its non-U.S. operations are
denominated in U.S. dollars. The Company periodically uses currency forward
contracts to manage a very nominal portion of foreign exchange rate risk
associated with receivables denominated in a currency other than the holder's
functional currency or similar exchange rate risk associated with future sales.
The Company has not entered into these contracts for trading or speculative
purposes in the past, nor does the Company currently anticipate entering into
such contracts for trading or speculative purposes in the future. At each
balance sheet date, any such outstanding currency forward contract is
marked-to-market with any resulting gain or loss recognized in income currently
as part of net currency transactions. To manage such exchange rate risk, at
December 31, 2000 the Company held contracts maturing through March 2001 to
exchange an aggregate of U.S. $9.1 million for an equivalent amount of Canadian
dollars at an exchange rate of Cdn. $1.48 per U.S. dollar. At December 31, 2000,
the actual exchange rate was Cdn. $1.50 per U.S. dollar. No such contracts were
held at December 31, 2001.
The Company periodically uses interest rate swaps and other types of
contracts to manage interest rate risk with respect to financial assets or
liabilities. The Company has not entered into these contracts for trading or
speculative purposes in the past, nor does the Company currently anticipate
entering into such contracts for trading or speculative purposes in the future.
The Company was not a party to any such contract during 1999, 2000 and 2001.
Income taxes. The Company is a separate U.S. federal income taxpayer and is
not a member of Contran's consolidated United States federal income tax group.
The Company is however a part of consolidated tax returns filed by Contran in
certain U.S. state jurisdictions. For such consolidated state tax returns,
intercompany allocations of state tax provisions are computed on a separate
company basis. Payments are made to, or received from Contran in the amounts
that would have been paid to or received from the respective state tax authority
had CompX not been a part of the consolidated state tax return.
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including
undistributed earnings of foreign subsidiaries which are not deemed to be
permanently reinvested. The Company periodically evaluates its deferred tax
assets in the various taxing jurisdictions in which it operates and adjusts any
related valuation allowance based on the estimate of the amount of such deferred
tax assets which the Company believes does not meet the "more-likely-than-not"
recognition criteria. Earnings of foreign subsidiaries deemed to be permanently
reinvested aggregated $48 million at December 31, 2000 and $54 million at
December 31, 2001.
Earnings per share. Basic earnings per share of common stock is based upon
the weighted average number of common shares actually outstanding during each
period. Diluted earnings per share of common stock includes the impact of
outstanding dilutive stock options. The weighted average number of outstanding
stock options excluded from the calculation of diluted earnings per share
because their impact would have been antidilutive aggregated approximately
473,000 in 1999, 848,000 in 2000 and 746,000 in 2001.
Stock options. The Company accounts for stock-based employee compensation
in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and its various interpretations. Under APBO No. 25,
no compensation cost is generally recognized for fixed stock options in which
the exercise price is greater than or equal to the market price on the grant
date. Compensation cost recognized by the Company in accordance with APBO No. 25
has not been significant in any of the past three years.
Other. Advertising costs, expensed as incurred, were $1,030,000 in 1999,
$931,000 in 2000 and $1,026,000 in 2001. Research and development costs,
expensed as incurred, were $1,032,000 in 1999, $1,082,000 in 2000 and $510,000
in 2001.
Note 2 - Business units acquired:
In January 1999, the Company acquired Thomas Regout Holding N.V. ("Thomas
Regout"), a precision ball bearing slide producer based in the Netherlands for a
cash purchase price of NLG 98 million ($53.2 million), using funds on hand and
$20 million of borrowings under the Company's revolving credit facility. In
November 1999, the Company acquired the business that produces the Dynaslide
line of precision ball bearing drawer slides in two manufacturing plants in
Taipei, Taiwan ("Dynaslide") for a cash purchase price of $11.8 million using
funds on hand. In January 2000, the Company acquired substantially all of the
operating assets of Chicago Lock Company for a cash purchase price of $9.4
million, using borrowings under the revolving credit facility.
The Company accounted for these acquisitions by the purchase method of
accounting and, accordingly, the results of operations and cash flows of the
businesses acquired are included in the Company's consolidated financial
statements subsequent to the respective dates of acquisition. The purchase price
for all of these acquisitions has been allocated to the individual assets
acquired and liabilities assumed based upon estimated fair values.
Note 3 - Business and geographic segments:
Prior to the fourth quarter of 2001, the Company operated in one reportable
segment - the manufacture and sale of mechanically-engineered components for
office furniture and other markets. During the fourth quarter of 2001, the
Company implemented certain operational and other changes at all of its plant
facilities, revising the Company's organizational structure and causing the
composition of the reportable segments to change. The Company now defines its
operations in terms of three operating segments - CompX Security Products, CompX
Waterloo and CompX Europe. The CompX Security Products segment, with
manufacturing facilities in South Carolina and Illinois, manufactures locking
mechanisms and other security products for sales to the office furniture,
banking, vending, computer and other industries. The CompX Waterloo segment,
with facilities in Canada, Michigan and Taiwan, and the CompX Europe segment,
with facilities in the Netherlands, both manufacture a complete line of
precision ball bearing slides for use in office furniture, computer-related
equipment, tool storage cabinets and other applications, and ergonomic computer
support systems for office furniture. Because of the similar economic
characteristics between the CompX Waterloo and CompX Europe segments and due to
the identical products, customer types, production processes and distribution
methods shared by these two segments, they have been aggregated into a single
reportable segment for segment reporting purposes. Prior period segment
information has been reclassified to reflect the new operating segments.
The chief operating decision maker evaluates segment performance based on
segment operating income, which is defined as income before income taxes,
minority interest and interest expense, exclusive of certain general corporate
income and expense items (including interest income and foreign exchange
transaction gains and losses) and special items. All corporate office operating
expenses are allocated to the two reportable segments based upon the segments'
net sales. The accounting policies of the reportable operating segments are the
same as those described in Note 1. Capital expenditures include additions to
property and equipment, but exclude amounts attributable to business
combinations accounted for by the purchase method. See Note 2.
Segment assets are comprised of all assets attributable to the reportable
segments. Corporate assets are not attributable to the operating segments and
consist primarily of cash and cash equivalents. For geographic information, net
sales are attributable to the place of manufacture (point of origin) and the
location of the customer (point of destination); property and equipment are
attributable to their physical location. At December 31, 2000 and 2001, the net
assets of non-U.S. subsidiaries included in consolidated net assets approximated
$92 million and $91 million, respectively.
Years ended December 31,
1999 2000 2001
---- ---- ----
(In thousands)
Net sales:
CompX Waterloo/CompX Europe .......... $150,947 $168,276 $137,351
CompX Security Products .............. 74,941 85,018 74,071
-------- -------- --------
Total net sales .................... $225,888 $253,294 $211,422
======== ======== ========
Years ended December 31,
1999 2000 2001
---- ---- ----
(In thousands)
Operating income:
CompX Waterloo/CompX Europe ........... $ 26,833 $ 24,822 $ 5,166
CompX Security Products ............... 13,207 12,480 7,320
--------- --------- ---------
Total operating income .............. 40,040 37,302 12,486
Interest expense ...................... (1,554) (2,302) (2,859)
Gain on sale of plant facility ........ -- -- 2,246
Other general corporate income, net ... 676 443 1,009
--------- --------- ---------
Income before income taxes and
minority interest .................. $ 39,162 $ 35,443 $ 12,882
========= ========= =========
Depreciation and amortization:
CompX Waterloo/CompX Europe ........... $ 5,526 $ 7,697 $ 9,136
CompX Security Products ............... 3,880 4,719 5,633
--------- --------- ---------
$ 9,406 $ 12,416 $ 14,769
========= ========= =========
Capital expenditures:
CompX Waterloo/CompX Europe ........... $ 14,179 $ 13,611 $ 6,831
CompX Security Products ............... 5,524 9,517 6,452
--------- --------- ---------
$ 19,703 $ 23,128 $ 13,283
========= ========= =========
Net sales:
Point of origin:
Canada .............................. $ 96,915 $ 99,088 $ 81,326
United States ....................... 89,036 106,294 88,302
The Netherlands ..................... 36,834 35,767 32,216
Taiwan .............................. 706 12,145 9,578
Other ............................... 2,397 -- --
--------- --------- ---------
$ 225,888 $ 253,294 $ 211,422
========= ========= =========
Point of destination:
United States ....................... $ 133,700 $ 159,658 $ 130,534
Canada .............................. 43,556 43,903 35,475
Europe .............................. 41,498 34,858 37,097
Other ............................... 7,134 14,875 8,316
--------- --------- ---------
$ 225,888 $ 253,294 $ 211,422
========= ========= =========
Total assets:
CompX Waterloo/CompX Europe ........... $ 129,458 $ 133,520 $ 131,634
CompX Security Products ............... 72,570 90,321 92,503
Corporate and eliminations ............ 884 1,644 1,871
--------- --------- ---------
$ 202,912 $ 225,485 $ 226,008
========= ========= =========
December 31,
1999 2000 2001
---- ---- ----
(In thousands)
Goodwill:
CompX Waterloo/CompX Europe ........... $19,962 $17,055 $15,139
CompX Security Products ............... 21,735 25,158 23,743
------- ------- -------
$41,697 $42,213 $38,882
======= ======= =======
Net property and equipment:
United States ......................... $34,235 $47,555 $48,863
Canada ................................ 25,217 24,410 23,420
The Netherlands ....................... 17,602 17,259 7,323
Other Europe .......................... 1,281 -- --
Taiwan ................................ 4,910 5,735 5,430
------- ------- -------
$83,245 $94,959 $85,036
======= ======= =======
Note 4 - Inventories:
December 31,
2000 2001
---- ----
(In thousands)
Raw materials ............................ $11,866 $ 9,677
Work in process .......................... 11,454 12,619
Finished products ........................ 12,811 8,494
Supplies ................................. 115 112
------- -------
$36,246 $30,902
Note 5 - Goodwill:
Changes in the carrying amount of goodwill during the past three years is
presented in the table below. Goodwill was generated principally from
acquisitions of certain business units during 1998, 1999 and 2000.
CompX
CompX Waterloo/ Security
CompX Europe Products Total
(In millions)
Balance at December 31, 1998 ............... $-- $22.3 $22.3
Goodwill acquired during the year .......... 22.8 .7 23.5
Changes in currency
exchange rates ............................ (2.2) -- (2.2)
Periodic amortization ...................... (.7) (1.2) (1.9)
----- ----- -----
Balance at December 31, 1999 ............... 19.9 21.8 41.7
Goodwill acquired/adjusted during
the year .................................. (.6) 4.7 4.1
Changes in currency
exchange rates ............................ (1.2) -- (1.2)
Periodic amortization ...................... (1.0) (1.4) (2.4)
----- ----- -----
Balance at December 31, 2000 ............... 17.1 25.1 42.2
Changes in currency
exchange rates ............................ (1.0) -- (1.0)
Periodic amortization ...................... (.9) (1.4) (2.3)
----- ----- -----
Balance at December 31, 2001 ............... $15.2 $23.7 $38.9
===== ===== =====
Upon adoption of SFAS No. 142 effective January 1, 2002 (see Note 14), the
goodwill related to the CompX Security Products segment will be assigned to
reporting units (as defined in SFAS No. 142) consisting of the reportable
operating segments to which the goodwill relates.
Note 6 - Accounts payable and accrued liabilities:
December 31,
2000 2001
---- ----
(In thousands)
Accounts payable ............................... $12,560 $ 9,459
Accrued liabilities:
Employee benefits ............................ 7,898 6,619
Insurance .................................... 311 361
Royalties .................................... 470 223
Restructuring ................................ -- 2,278
Deferred gain on sale/leaseback .............. -- 479
Other ........................................ 5,248 3,749
------- -------
$26,487 $23,168
In 2001, a charge of $2.7 million was recorded related to a consolidation
and rationalization of CompX's European operations. This restructuring effort
included headcount reductions of about 35 employees at the Company's Maastricht,
the Netherlands facility, substantially all of which had been implemented by
December 31, 2001. Through December 31, 2001, approximately $400,000 of the
total charge has been paid. Of the remainder, $1.8 million is expected to be
paid in 2002 and $500,000 in 2003.
Note 7 - Indebtedness:
December 31,
2000 2001
---- ----
(In thousands)
Revolving bank credit facility ................... $39,000 $49,000
Capital lease obligations and other .............. 1,638 56
------- -------
40,638 49,056
Less current portion ............................. 1,638 56
------- -------
$39,000 $49,000
The Company has a $100 million unsecured revolving bank credit facility
which bears interest at the Eurodollar Rate plus between 17.5 and 90.0 basis
points depending on certain coverage ratios (resulting in an interest rate of
4.2% at December 31, 2001) and is due no later than February 2003. Borrowings
are available for the Company's general corporate purposes, including
acquisitions. At December 31, 2001, $51 million was available for borrowing
under this facility. The facility contains certain covenants and restrictions
customary in lending transactions of this type, which, among other things,
restricts the ability of CompX and its subsidiaries to incur debt, incur liens,
pay dividends and requires maintenance of specified levels of net worth (as
defined). In the event of a change of control of CompX, as defined, the lenders
would have the right to accelerate the maturity of the facility. CompX would
also be required under certain conditions to use the net proceeds from the sale
of assets outside the ordinary course of business to reduce outstanding
borrowings under the facility, and such a transaction would also result in a
permanent reduction of the size of the facility. In December 2001, the credit
facility was amended to permit the sale/leaseback of the Company' land and
facility in the Netherlands without requiring the use of the net proceeds from
such transaction to reduce outstanding borrowings under the facility or to
result in a permanent reduction in the size of the facility. (See Note 11). At
December 31, 2001, $13.5 million is available for dividends under the terms of
the agreement.
Other indebtedness at December 31, 2000 includes approximately $1.2 million
in debt relating to a short-term bank borrowing. This borrowing, denominated in
New Taiwan dollars, bore interest at an interest rate of 6.8% and was fully
repaid in January 2001.
Capital lease obligations, stated net of imputed interest, are due in 2002.
Aggregate maturities of long-term debt at December 31, 2001 are shown in
the table below.
Years ending December 31, Amount
(In thousands)
2002 $ 56
2003 49,000
-------
$49,056
Note 8 - Employee benefit plans:
Defined contribution plans. The Company maintains various defined
contribution plans with Company contributions based on matching or other
formulas. Defined contribution plan expense approximated $1,472,000 in 1999,
$1,608,000 in 2000 and $1,720,000 in 2001.
Defined benefit plans. Through January 1, 2001, the Company maintained a
defined benefit pension plan covering substantially all full-time employees of
Thomas Regout B.V. Variances from actuarially assumed rates resulted in
increases or decreases in accumulated pension obligations, pension expense and
funding requirements. As of January 1, 2001, the Company ceased providing future
benefits under the plan, thus reducing certain pension benefit obligations. In
connection with this curtailment, the Company recognized a curtailment gain of
approximately $116,000 in 2001. See Note 11. 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.
The rates used in determining the actuarial present value of benefit
obligations are presented below:
December 31,
2000 2001
---- ----
Discount rate 4.0% 6.25%
Rate of increase in future
compensation levels 3.0% Not applicable
Long-term rate of return on assets 4.0% 4.0 %
The funded status of the Company's defined benefit pension plans, the
components of net periodic defined benefit pension cost and the rates used in
determining the actuarial present value of benefit obligations are presented in
the tables below.
Years ended December 31,
2000 2001
---- ----
(In thousands)
Change in projected benefit obligations
("PBO"):
PBO at beginning of the year ....................... $ 2,261 $ 2,301
Service cost ....................................... 131 --
Interest cost ...................................... 80 --
Actuarial gains .................................... -- (766)
Curtailment gain ................................... -- (116)
Change in foreign exchange rates ................... (171) (140)
------- -------
PBO at end of the year ......................... $ 2,301 $ 1,279
======= =======
Change in fair value of plan assets:
Fair value of plan assets at
beginning of the year ............................. $ 990 $ 1,055
Actual return on plan assets ....................... 35 61
Employer contributions ............................. 54 --
Participant contributions .......................... 51 --
Change in foreign exchange rates ................... (75) (97)
------- -------
Fair value of plan assets at end of year ....... $ 1,055 $ 1,019
======= =======
Funded status at year-end:
Plan assets less than PBO .......................... $ 1,246 $ 260
Unrecognized gains ................................. -- 640
------- -------
$ 1,246 $ 900
======= =======
Amounts recognized in the balance sheet -
accrued pension costs:
Current .......................................... $ 78 $ 240
Noncurrent ....................................... 1,168 660
------- -------
$ 1,246 $ 900
======= =======
Years ended December 31,
1999 2000 2001
---- ---- ----
(In thousands)
Net periodic pension cost (benefit):
Service cost benefits .................... $ 151 $ 131 $--
Interest cost on PBO ..................... 92 80 --
Expected return on plan assets ........... (41) (35) (61)
Unrecognized gains ....................... -- -- 19
----- ----- ----
$ 202 $ 176 $(42)
===== ===== ====
Note 9 - Income taxes:
The components of pre-tax income and the provision for income taxes, the
difference between the provision for income taxes and the amount that would be
expected using the U.S. federal statutory income tax rate of 35% and the
comprehensive provision for income taxes are presented below.
Years ended December 31,
1999 2000 2001
---- ---- ----
(In thousands)
Components of pre-tax income (loss):
United States ............................ $ 14,112 $ 7,746 $ (998)
Non-U.S .................................. 25,050 27,697 13,880
-------- -------- --------
$ 39,162 $ 35,443 $ 12,882
======== ======== ========
Provision for income taxes:
Currently payable (refundable):
U.S. federal and state ................. $ 4,493 $ 2,385 $ (844)
Foreign ................................ 8,186 8,695 5,247
-------- -------- --------
12,679 11,080 4,403
-------- -------- --------
Deferred income taxes (benefit):
U.S .................................... 38 1,034 1,941
Foreign ................................ 1,385 1,276 (586)
-------- -------- --------
1,423 2,310 1,355
-------- -------- --------
$ 14,102 $ 13,390 $ 5,758
======== ======== ========
Expected tax expense, at the U.S. federal
statutory income tax rate of 35% .......... $ 13,708 $ 12,405 $ 4,509
Non-U.S. tax rates ......................... 241 (90) (353)
Incremental U.S. tax on earnings of
foreign subsidiary ........................ -- 198 330
No tax benefit for goodwill amortization ... 625 610 693
State income taxes and other, net .......... (472) 267 579
-------- -------- --------
$ 14,102 $ 13,390 $ 5,758
======== ======== ========
Comprehensive provision for income taxes
(benefit) allocable to:
Pre-tax income ........................... $ 14,102 $ 13,390 $ 5,758
Other comprehensive income -
currency translation .................... -- (323) (207)
-------- -------- --------
$ 14,102 $ 13,067 $ 5,551
======== ======== ========
The components of net deferred tax assets (liabilities) are summarized
below.
December 31,
2000 2001
---- ----
(In thousands)
Tax effect of temporary differences related to:
Inventories ............................................ $ 283 $ 630
Property and equipment ................................. (7,505) (7,890)
Accrued liabilities and other deductible differences ... 2,674 2,987
Tax loss and credit carryforwards ...................... 3,890 4,831
Other taxable differences .............................. (1,275) (3,346)
Valuation allowance .................................... -- --
------- -------
$(1,933) $(2,788)
======= =======
Net current deferred tax assets .......................... $ 1,209 $ 1,944
Net current deferred tax liabilities ..................... (103) (291)
Net noncurrent deferred tax assets ....................... 1,813 3,132
Net noncurrent deferred tax liabilities .................. (4,852) (7,573)
------- -------
$(1,933) $(2,788)
======= =======
At December 31, 2000, the Company had $.7 million of foreign tax credit
carryforwards which expired unused during 2001.
At December 31, 2001, the Company has net operating loss ("NOL")
carryforwards, which expire in 2007 through 2018, of approximately $8.4 million
for U.S. federal income tax purposes. The NOL carryforwards arose from the
acquisition of Thomas Regout's U.S. subsidiary. These losses may only be used to
offset future taxable income of the acquired subsidiary and are not available to
offset taxable income of other subsidiaries. Utilization of such NOL
carryforwards is limited to approximately $400,000 annually. The Company
utilized NOL carryforwards of $300,000 in 1999 and none of such NOL
carryforwards in 2000 and 2001. At December 31, 2001, the Company also has the
equivalent of approximately $4.7 million of tax loss carryforwards in the
Netherlands with no expiration date. The Company believes that it is
more-likely-than-not that all such NOLs will be utilized to reduce future income
tax liabilities. Consequently, no valuation allowance has been recorded to
offset the deferred tax asset related to these NOLs.
Note 10 - Stockholders' equity:
Shares of common stock Class B
Class A Issued and
Issued Treasury Outstanding outstanding
Balance at December 31, 1998 6,144,880 -- 6,144,880 10,000,000
Issued ..................... 2,500 -- 2,500 --
--------- ---------- ---------- ----------
Balance at December 31, 1999 6,147,380 -- 6,147,380 10,000,000
Issued ..................... 57,300 -- 57,300 --
Reacquired ................. -- (844,300) (844,300) --
--------- ---------- ---------- ----------
Balance at December 31, 2000 6,204,680 (844,300) 5,360,380 10,000,000
Issued ..................... 2,500 -- 2,500 --
Reacquired ................. -- (259,600) (259,600) --
--------- ---------- ---------- ----------
Balance at December 31, 2001 6,207,180 (1,103,900) 5,103,280 10,000,000
========= ========== ========== ==========
Class A and Class B common stock. The shares of Class A Common Stock and
Class B Common Stock are identical in all respects, except for certain voting
rights and certain conversion rights in respect of the shares of the Class B
Common Stock. Holders of Class A Common Stock are entitled to one vote per
share. Valcor, which holds all of the outstanding shares of Class B Common
Stock, is entitled to one vote per share in all matters except for election of
directors, for which Valcor is entitled to ten votes per share. Holders of all
classes of common stock entitled to vote will vote together as a single class on
all matters presented to the stockholders for their vote or approval, except as
otherwise required by applicable law. Each share of Class A Common Stock and
Class B Common Stock have an equal and ratable right to receive dividends to be
paid from the Company's assets when, and if declared by the Board of Directors.
In the event of the dissolution, liquidation or winding up of the Company, the
holders of Class A Common Stock and Class B Common Stock will be entitled to
share equally and ratably in the assets available for distribution after
payments are made to the Company's creditors and to the holders of any preferred
stock of the Company that may be outstanding at the time. Shares of the Class A
Common Stock have no conversion rights. Under certain conditions, shares of
Class B Common Stock will convert, on a share-for-share basis, into shares of
Class A Common Stock.
Reacquired common stock. The Company's Board of Directors has authorized
the Company to purchase up to approximately 1.5 million shares of its common
stock in open market or privately-negotiated transactions at unspecified prices
and over an unspecified period of time. As of December 31, 2001, the Company had
purchased approximately 1,104,000 shares for an aggregate of $11.3 million
pursuant to such authorization.
Incentive compensation plan. The CompX International Inc. 1997 Long-Term
Incentive Plan provides for the award or grant of stock options, stock
appreciation rights, performance grants and other awards to employees and other
individuals providing services to the Company. Up to 1.5 million shares of Class
A Common Stock may be issued pursuant to the plan. Generally, employee stock
options are granted at prices not less than the market price of the Company's
stock on the date of grant, vest over five years and expire ten years from the
date of grant.
The following table sets forth changes in outstanding options during the
past three years.
Amount
Exercise payable
price per upon
Share share exercise
Outstanding at December 31, 1998 419 $20.00 $ 8,390
Granted 253 15.88 - 20.00 4,647
Canceled (14) 17.94 - 20.00 (253)
---- -------------- -------
Outstanding at December 31, 1999 658 15.88 - 20.00 12,784
Granted 292 12.50 - 19.63 5,360
Exercised (57) 17.94 - 20.00 (1,073)
Canceled (171) 15.88 - 20.00 (3,290)
---- -------------- -------
Outstanding at December 31, 2000 722 12.50 - 20.00 13,781
Granted 330 10.00 - 13.00 4,071
Canceled (196) 13.00 - 20.00 (3,691)
---- -------------- -------
Outstanding at December 31, 2001 856 $10.00 - 20.00 $14,161
==== ============== =======
Outstanding options at December 31, 2001 represent approximately 17% of the
Company's outstanding Class A common shares at that date and expire through 2011
with a weighted-average remaining term of 8 years. At December 31, 2001, options
to purchase 255,000 of the Company's shares were exercisable at prices ranging
from $10.00 to $20.00 per share, or an aggregate amount payable upon exercise of
$4.8 million, with a weighted average exercise price of $16.57 per share. These
exercisable options are exercisable through 2011. Substantially all of such
exercisable options are exercisable at prices higher than the Company's December
31, 2001 market price of $12.97 per share. At December 31, 2001, options to
purchase 161,000 shares are scheduled to become exercisable in 2002 and an
aggregate of 417,000 shares were available for future grants.
Other. The following pro forma information, required by SFAS No. 123,
"Accounting for Stock-Based Compensation," is based on an estimation of the fair
value of CompX options issued subsequent to January 1, 1998. The weighted
average fair values of CompX options granted during 1999, 2000 and 2001 were
$11.56, $7.86 and $4.53 per share, respectively. The fair values of such options
were calculated using the Black-Scholes stock option valuation model with the
following weighted-average assumptions: stock price volatility of 37% to 45%,
risk-free rates of return of 5.1% to 6.9%, dividend yields of nil to 5.0% and an
expected term of 10 years. The Black-Scholes model was not developed for use in
valuing employee stock options, but was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, it requires the use of subjective assumptions
including expectations of future dividends and stock price volatility. Such
assumptions are only used for making the required fair value estimate and should
not be considered as indicators of future dividend policy or stock price
appreciation. Because changes in the subjective assumptions can materially
affect the fair value estimate, and because employee stock options have
characteristics significantly different from those of traded options, the use of
the Black-Scholes option-pricing model may not provide a reliable estimate of
the fair value of employee stock options.
Had the Company elected to account for its stock-based employee
compensation for all awards granted subsequent to January 1, 1998 in accordance
with the fair value-based accounting method of SFAS No. 123, the Company's
reported net income would have decreased by $1.0 million, $1.3 million and $1.5
million in 1999, 2000 and 2001 respectively, or $.06, $.08 and $.10 per basic
share, respectively. For purposes of this pro forma disclosure, the estimated
fair value of options is amortized to expense over the options' vesting period.
Such pro forma impact on net income and basic earnings per share is not
necessarily indicative of future effects on net income or earnings per share.
Note 11 - Other general corporate income, net
Years ended December 31,
1999 2000 2001
---- ---- ----
(In thousands)
Net foreign currency transaction gain (loss) .... $(290) $ (117) $ 636
Interest income ................................. 862 569 574
Defined benefit plan curtailment gain ........... -- -- 116
Other income, net ............................... 104 (9) (317)
----- ------- -------
$ 676 $ 443 $ 1,009
===== ======= =======
Other income, net in 2001 includes a $2.2 million pre-tax gain related to
the sale/leaseback of CompX's manufacturing facility in the Netherlands.
Pursuant to the sale/leaseback, CompX sold the manufacturing facility with a net
carrying value of $8.2 million for $10.0 million cash consideration in December
2001, and CompX simultaneously entered into a leaseback of the facility with a
nominal monthly rental for approximately 30 months. CompX has the option to
extend the leaseback period for up to an additional two years with monthly
rentals of $40,000 to $100,000. CompX may terminate the leaseback at any time
without penalty. In addition to the cash received up front, CompX included an
estimate of the fair market value of the monthly rental during the
nominal-rental leaseback period as part of the sale proceeds. A portion of the
gain from the sale of the facility after transaction costs, equal to the present
value of the monthly rentals over the expected leaseback period (including the
fair market value of the monthly rental during the nominal-rental leaseback
period), has been deferred and will be amortized into income over the expected
leaseback period. CompX will recognize rental expense over the leaseback period,
including amortization of the prepaid rent consisting of the estimated fair
market value of the monthly rental during the nominal-rental leaseback period.
Pursuant to the agreement, CompX is also obligated to acquire approximately 10
acres from the municipality of Maastricht for approximately $1.8 million within
the next 1 to 3 years. Also include in other income, net in 2001 is a $2.7
million pre-tax restructuring charge related to CompX's European operations. See
Note 6.
Note 12 - Related party transactions:
The Company may be deemed to be controlled by Harold C. Simmons. See Note
1. Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, joint
ventures, partnerships, loans, options, advances of funds on open account, and
sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties, and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases, and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions which resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party. The Company
continuously considers, reviews and evaluates, and understands that Contran and
related entities consider, review and evaluate, such transactions. Depending
upon the business, tax and other objectives then relevant, it is possible that
the Company might be a party to one or more such transactions in the future.
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.
Under the terms of Intercorporate Service Agreements ("ISAs") with Contran,
Valhi and NL Industries, Inc. , a majority-owned subsidiary of Valhi, Contran,
Valhi and NL Industries, Inc. have performed certain management, tax planning,
financial and administrative services for the Company on a fee basis over the
past three years. Such fees are based upon estimates of time devoted to the
affairs of the Company by individual Contran, Valhi or NL Industries, Inc.
employees and the compensation of such persons. Because of the large number of
companies affiliated with Contran, the Company believes it benefits from cost
savings and economies of scale gained by not having certain management,
financial and administrative staffs duplicated at each entity, thus allowing
certain individuals to provide services to multiple companies but only be
compensated by one entity. These ISAs are reviewed and approved by the
applicable independent directors of the companies that are parties to the
agreement. In addition, certain occupancy and related office services are
provided based upon square footage occupied. Fees pursuant to these agreements
aggregated $433,000 in 1999, $689,000 in 2000 and $1,245,000 in 2001.
Certain of the Company's insurance coverages are arranged for and brokered
by EWI Re, Inc. Parties related to Contran own all of the outstanding common
stock of EWI. Through December 31, 2000, a son-in-law of Harold C. Simmons
managed the operations of EWI. Subsequent to December 31, 2000, such son-in-law
provides advisory services to EWI as requested by EWI. The Company generally
does not compensate EWI directly for insurance, but understands that consistent
with insurance industry practice, EWI receives a commission for its services
from the insurance underwriters.
The Company and other entities related to Contran participate in a combined
risk management program. Net charges from related parties related to this buying
program, principally charges for insuring property and other risks, aggregated
$431,000 in 1999, $563,000 in 2000 and $422,000 in 2001. These fees and charges
are principally pass-through in nature.
Note 13 - Commitments and contingencies:
Legal proceedings. The Company is involved, from time to time, in various
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.
Environmental matters and litigation. The Company's operations are governed
by various federal, state, local and foreign environmental laws and regulations.
The Company's policy is to comply with environmental laws and regulations at all
of its plants and to continually strive to improve environmental performance in
association with applicable industry initiatives. The Company believes that its
operations are in substantial compliance with applicable requirements of
environmental laws. From time to time, the Company may be subject to
environmental regulatory enforcement under various statutes, resolution of which
typically involves the establishment of compliance programs.
Income taxes. The Company is undergoing examinations of certain of its
income tax returns, and tax authorities have or may propose tax deficiencies.
The Company believes that it has adequately provided accruals for additional
income taxes and related interest expense which may ultimately result from such
examinations and believes that the ultimate disposition of all such examinations
should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
Concentration of credit risk. The Company's products are sold primarily in
North America and Europe to original equipment manufacturers. The ten largest
customers accounted for approximately 33%, 35% and 36% of sales in 1999, 2000
and 2001, respectively, with no single customer accounting for more than 10% of
sales.
Other. Royalty expense was $1,097,000 in 1999, $1,073,000 in 2000 and
$672,000 in 2001. Royalties relate principally to certain products manufactured
in Canada and sold in the United States under the terms of a third-party patent
license agreement.
Rent expense, principally for equipment, was $609,000 in 1999, $1,072,000
in 2000 and $1,861,000 in 2001. At December 31, 2001, future minimum rentals
under noncancellable operating leases are approximately $990,000 in 2002,
$730,000 in 2003, $385,000 in 2004, $317,000 in 2005, $242,000 in 2006 and
$132,000 thereafter.
Firm purchase commitments for capital projects in process at December 31,
2001 approximated $2.5 million.
Note 14 - Accounting principles not yet adopted:
Goodwill. The Company will adopt SFAS No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002. Under SFAS No. 142, goodwill, will
not be amortized on a periodic basis. Instead, goodwill will be subject to an
impairment test to be performed at least on an annual basis, and impairment
reviews may result in future periodic write-downs charged to earnings. The
Company would have reported net income of approximately $9.4 million, or $.62
per diluted share, in 2001 if the goodwill amortization included in the
Company's reported net income had not been recognized.
As discussed in Note 5, the Company has assigned its goodwill to two
reporting units. Under SFAS No. 142, such goodwill will be deemed to not be
impaired if the estimated fair value of the CompX Security Products and CompX
Waterloo/CompX Europe reporting units exceeds the respective net carrying value
of such reporting units, including the allocated goodwill. If the fair value of
the reporting unit is less than carrying value, then a goodwill impairment loss
would be recognized equal to the excess, if any, of the net carrying value of
the reporting unit goodwill over its implied fair value (up to a maximum
impairment equal to the carrying value of the goodwill). The implied fair value
of reporting unit goodwill would be the amount equal to the excess of the
estimated fair value of the reporting unit over the amount that would be
allocated to the tangible and intangible net assets of the reporting unit
(including unrecognized intangible assets) as if such reporting unit had been
acquired in a purchase business combination accounted for in accordance with
SFAS No. 141.
In determining the estimated fair value of the reporting units, the Company
will use discounted cash flows valuation techniques.
The Company has completed its initial, transitional goodwill impairment
analysis under SFAS No. 142 as of January 1, 2002, and no goodwill impairments
were deemed to exist. In accordance with the requirements of SFAS No. 142, the
Company will review goodwill of the reporting units for impairment during the
third quarter of each year starting in 2002. Goodwill will also be reviewed for
impairment at other times during each year when events or changes in
circumstances indicate that an impairment might be present.
Impairment of long-lived assets. The Company will adopt SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, effective
January 1, 2002. SFAS No. 144 retains the fundamental provisions of existing
GAAP with respect to the recognition and measurement of long-lived asset
impairment contained in SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Lived-Lived Assets to be Disposed Of. However, SFAS
No. 144 provides new guidance intended to address certain implementation issues
associated with SFAS No. 121, including expanded guidance with respect to
appropriate cash flows to be used to determine whether recognition of any
long-lived asset impairment is required, and if required how to measure the
amount of the impairment. SFAS No. 144 also requires that any net assets to be
disposed of by sale are to be reported at the lower of carrying value or fair
value less cost to sell, and expands the reporting of discontinued operations to
include any component of an entity with operations and cash flows that can be
clearly distinguished from the rest of the entity. Adoption of SFAS No. 144 will
not have a significant effect on the Company as of January 1, 2002.
Asset retirement obligations. The Company will adopt SFAS No. 143,
Accounting for Asset Retirement Obligations, no later than January 1, 2003.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation covered under the scope of SFAS No. 143 would be recognized in the
period in which the liability is incurred, with an offsetting increase in the
carrying amount of the related long-lived asset. Over time, the liability would
be accreted to its present value, and the capitalized cost would be depreciated
over the useful life of the related asset. Upon settlement of the liability, an
entity would either settle the obligation for its recorded amount or incur a
gain or loss upon settlement. The Company is still studying this standard to
determine, among other things, whether it has any asset retirement obligations
which are covered under the scope of SFAS No. 143, and the effect, if any, to
the Company of adopting SFAS No. 143 has not yet been determined.
Note 15 - Quarterly results of operations (unaudited):
Quarter ended
-------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In millions, except per share amounts)
2000:
Net sales ............................... $ 66.1 $ 65.1 $ 63.0 $ 59.0
Operating income ........................ 10.7 11.5 9.1 5.9
Net income .............................. 6.6 7.1 5.5 2.9
Basic and diluted earnings per share .... $ .41$ .44$ .34$ .18
2001:
Net sales ............................... $ 59.6 $ 53.4 $ 51.5 $ 47.0
Operating income (loss) ................. 6.8 5.3 4.1 (3.8)
Net income (loss) ....................... 3.7 2.7 2.1 (1.4)
Basic and diluted earnings (loss)
per share .............................. $ .24$ .18$ .14$ (.09)
The sum of the quarterly per share amounts may not equal the annual per
share amounts due to relative changes in the weighted average number of shares
used in the per share computations.
During the fourth quarter of 2001, the Company recorded the following
significant adjustments:
o A $2.7 million pre-tax restructuring charge related to CompX's European
operations. See Note 6.
o A $2.2 million pre-tax gain on the sale/leaseback of its manufacturing
facility located in Maastricht, the Netherlands. See Note 11.
o A $3.0 million pre-tax charge related to changes in estimates with respect
to reserves for obsolete and slow-moving inventory and other items.
Approximately $2.1 million of this charge related to the CompX Security
Products segment with the remaining $.9 million relating to the CompX
Waterloo/CompX Europe segment.
The aggregate effect of these fourth quarter 2001 adjustments was a pre-tax
charge of $3.5 million ($2.0 million, or $.13 per diluted share, net of income
taxes).
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors of CompX International Inc.:
Our audits of the consolidated financial statements referred to in our
report dated March 1, 2002, appearing on page F-2 of this 2001 Annual Report on
Form 10-K of CompX International Inc., also included an audit of the financial
statement schedule listed in the index on page F-1 of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
March 1, 2002
COMPX INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
Balance at charged to Balance
beginning costs and Net Currency at end
Description of year expenses Deductions translation Other(a) of year
------------------ ------- ---------- -------- -------- ----- -------
Year ended December 31, 1999:
Allowance for doubtful accounts ....... $ 310 $ 10 $ (101) $ 12 $ 494 $ 725
====== ======= ====== ====== ====== ======
Amortization of goodwill .............. $ 828 $ 1,902 $ -- $ -- $ -- $2,730
====== ======= ====== ====== ====== ======
Amortization of other intangible assets $ 216 $ 207 $ -- $ 3 $ -- $ 426
====== ======= ====== ====== ====== ======
Year ended December 31, 2000:
Allowance for doubtful accounts ....... $ 725 $ (123) $ (79) $ (36) $ -- $ 487
====== ======= ====== ====== ====== ======
Amortization of goodwill .............. $2,730 $ 2,390 $ -- $ (55) $ -- $5,065
====== ======= ====== ====== ====== ======
Amortization of other intangible assets $ 426 $ 361 $ -- $ (2) $ -- $ 785
====== ======= ====== ====== ====== ======
Year ended December 31, 2001:
Allowance for doubtful accounts ....... $ 487 $ 636 $ (296) $ 14 $ -- $ 841
====== ======= ====== ====== ====== ======
Amortization of goodwill .............. $5,065 $ 2,304 $ -- $ (75) $ -- $7,294
====== ======= ====== ====== ====== ======
Amortization of other intangible assets $ 785 $ 229 $ -- $ (4) $ -- $1,010
====== ======= ====== ====== ====== ======
(a) Business units acquired.
Note - certain prior year amounts have been reclassified to conform to the
current year presentation.