SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2004 Commission file number 1-13905
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COMPX INTERNATIONAL INC.
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(Exact name of Registrant as specified in its charter)
Delaware 57-0981653
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(State or other jurisdiction of (IRS Employer
organization) Identification No.)
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 448-1400
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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Number of shares of common stock outstanding on April 15, 2004:
Class A: 5,124,780
Class B: 10,000,000
COMPX INTERNATIONAL INC.
INDEX
Page
number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 2003
and March 31, 2004 3-4
Consolidated Statements of Income -
Three months ended March 31, 2003 and 2004 5
Consolidated Statements of Comprehensive Income -
Three months ended March 31, 2003 and 2004 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 2003 and 2004 7
Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 2004 8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-17
Item 4. Controls and Procedures. 17-18
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 19
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COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS December 31, March 31,
2003 2004
------------ -----------
Current assets:
Cash and cash equivalents $ 21,726 $ 12,365
Accounts receivable, net 25,737 27,387
Income taxes receivable from affiliates 306 256
Refundable income taxes 2,376 1,389
Inventories 26,317 24,271
Prepaid expenses and other 1,840 1,955
Deferred income taxes 1,920 1,841
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Total current assets 80,222 69,464
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Other assets:
Goodwill 43,325 42,934
Other intangible assets 1,945 1,883
Deferred income taxes 351 65
Other 422 480
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Total other assets 46,043 45,362
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Property and equipment:
Land 4,746 4,796
Buildings 28,605 28,492
Equipment 121,142 120,174
Construction in progress 636 637
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155,129 154,099
Less accumulated depreciation 71,940 74,558
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Net property and equipment 83,189 79,541
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$209,454 $194,367
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COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31,
2003 2004
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Current liabilities:
Accounts payable and accrued liabilities $ 24,019 $ 21,388
Current portion of long-term debt - 37
Deferred income taxes 505 489
Income taxes - 14
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Total current liabilities 24,524 21,928
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Noncurrent liabilities:
Long-term debt 26,000 14,110
Deferred income taxes 4,550 3,828
Other non-current liabilities 21 21
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Total noncurrent liabilities 30,571 17,959
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Stockholders' equity:
Preferred stock - -
Class A common stock 62 62
Class B common stock 100 100
Additional paid-in capital 119,437 119,437
Retained earnings 43,433 44,993
Accumulated other comprehensive income
- currency translation 2,642 1,203
Treasury stock (11,315) (11,315)
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Total stockholders' equity 154,359 154,480
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$209,454 $194,367
======== ========
Commitments and contingencies (Note 1)
See accompanying notes to consolidated financial statements.
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COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2003 and 2004
(In thousands, except per share data)
2003 2004
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Net sales $51,020 $53,130
Cost of goods sold 42,197 42,988
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Gross margin 8,823 10,142
Selling, general and administrative expense 6,994 7,413
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Operating income 1,829 2,729
Other general corporate (income) expense, net 491 (217)
Interest expense 341 209
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Income before income taxes 997 2,737
Provision for income taxes 439 1,177
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Net income $ 558 $ 1,560
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Basic and diluted earnings per common share $ .04 $ .10
======= =======
Cash dividends per share $ 0.125 $ -
======= =======
Shares used in the calculation of basic and diluted earnings per share
15,116 15,125
======= =======
See accompanying notes to consolidated financial statements.
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COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended March 31, 2003 and 2004
(In thousands)
2003 2004
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Net income $ 558 $1,560
Other comprehensive income (loss) -
currency translation adjustment, net of tax 3,709 (1,439)
------ ------
Comprehensive income $4,267 $ 121
====== ======
See accompanying notes to consolidated financial statements.
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COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2003 and 2004
(In thousands)
2003 2004
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Cash flows from operating activities:
Net income $ 558 $ 1,560
Depreciation and amortization 3,424 3,746
Deferred income taxes (357) (562)
Other, net 56 102
Change in assets and liabilities:
Accounts receivable (1,885) (1,964)
Inventories 1,409 1,782
Accounts payable and accrued liabilities (1,457) (2,266)
Accounts with affiliates (252) 50
Income taxes 607 1,038
Other, net (582) (122)
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Net cash provided by operating activities 1,521 3,364
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Cash flows from investing activities:
Capital expenditures (2,036) (609)
Other, net 56 10
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Net cash used by investing activities (1,980) (599)
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Cash flows from financing activities:
Indebtedness:
Additions 1,000 252
Principal payments (6) (12,064)
Dividends (1,889) -
Other (417) (28)
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Net cash used by financing activities (1,312) (11,840)
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Cash and cash equivalents - net change from:
Operating, investing and financing activities (1,771) (9,075)
Currency translation 496 (286)
Cash and cash equivalents at beginning of period 12,407 21,726
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Cash and cash equivalents at end of period $11,132 $ 12,365
======= ========
Supplemental disclosures:
Cash paid for:
Interest $ 494 $ 252
Income taxes 175 521
See accompanying notes to consolidated financial statements.
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COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31, 2004
(In thousands)
Accumulated
other
comprehensive
Common Stock Additional income (loss)- Total
--------------- paid-in Retained currency Treasury stockholders'
Class A Class B capital earnings translation stock equity
------- ------- --------- -------- ----------- --------- --------
Balance at December 31, 2003 $62 $100 $119,437 $43,433 $ 2,642 $(11,315) $154,359
Net income - - - 1,560 - - 1,560
Other comprehensive income, net - - - - (1,439) - (1,439)
---- ---- -------- ------- -------- -------- --------
Balance at March 31, 2004 $62 $100 $119,437 $44,993 $ 1,203 $(11,315) $154,480
=== ==== ======== ======= ======== ======== ========
See accompanying notes to consolidated financial statements.
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COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation:
The consolidated balance sheet of CompX International Inc. and Subsidiaries
(collectively, the "Company") at December 31, 2003 has been condensed from the
Company's audited consolidated financial statements at that date. The
consolidated balance sheet at March 31, 2004 and the consolidated statements of
income, comprehensive income, stockholders' equity and cash flows for the
interim periods ended March 31, 2003 and 2004 have been prepared by the Company,
without audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the consolidated
financial position, results of operations and cash flows have been made. The
results of operations for the interim periods are not necessarily indicative of
the operating results for a full year or of future operations. Certain
information normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP") has been condensed or omitted. The accompanying consolidated financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 2003 (the "2003 Annual Report").
Basic earnings per share of common stock is based upon the weighted average
number of common shares actually outstanding during each period. The impact of
all outstanding stock options on diluted earnings per share was antidilutive.
Commitments and contingencies are discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the 2003 Annual
Report.
At March 31, 2004, Valhi, Inc. (NYSE: VHI) and Valhi's wholly-owned
subsidiary Valcor, Inc. owned an aggregate of 69% of the Company's outstanding
common stock, and a wholly owned subsidiary of Titanium Metals Corporation, a
less than majority affiliate of Valhi, owned an additional 8% of the Company's
outstanding common stock. At March 31, 2004, Contran Corporation holds, directly
or through subsidiaries, approximately 90% of Valhi's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee, or is held by Mr. Simmons or
persons or other entities related to Mr. Simmons. Mr. Simmons, the Chairman of
the Board of each of Contran, Valhi and Valcor, may be deemed to control such
companies and the Company.
Stock options. As disclosed in the 2003 Annual Report, the Company accounts
for stock-based employee compensation related to stock options using the
intrinsic value method in accordance with Accounting Principles Board Opinion
("APBO") No. 25, Accounting for Stock Issued to Employees, and its various
interpretations. Under APBO No. 25, no compensation cost is generally recognized
for fixed stock options in which the exercise price is greater than or equal to
the market price on the grant date. Compensation cost recognized by the Company
related to stock options in accordance with APBO No. 25 was not significant
during the first three months of 2003 or 2004.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation to stock-based employee
compensation related to stock options for all options granted on or after
January 1, 1995.
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Three months ended
March 31,
2003 2004
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(In thousands)
Net income, as reported $ 558 $1,560
Deduct: Total stock-based employee compensation expense
related to stock options determined under fair value
based method for all awards, net of related tax effects (219) (136)
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Pro forma net income $ 339 $1,424
======= ======
Earnings per share - basic and diluted:
As reported $ .04 $ .10
======= ======
Pro forma $ .02 $ .09
======= ======
Note 2 - Business segment information:
Three months ended
March 31,
2003 2004
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(In thousands)
Net sales:
CompX Waterloo $23,771 $24,732
CompX Security Products 18,429 18,764
Thomas Regout 9,093 9,859
Intersegment sales (273) (225)
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Total net sales $51,020 $53,130
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Operating income (loss):
CompX Waterloo $ 452 $ 348
CompX Security Products 2,231 2,349
Thomas Regout (854) 32
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Total operating income 1,829 2,729
Interest expense (341) (209)
Other general corporate income (expense), net (491) 217
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Income before income taxes $ 997 $ 2,737
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Note 3 - Inventories:
December 31, March 31,
2003 2004
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(In thousands)
Raw materials $ 6,170 $ 6,144
Work in process 10,852 10,558
Finished products 9,166 7,426
Supplies 129 143
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$26,317 $24,271
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Note 4 - Accounts payable and accrued liabilities:
December 31, March 31,
2003 2004
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(In thousands)
Accounts payable $ 8,597 $ 8,751
Accrued liabilities:
Employee benefits 7,660 6,397
Insurance 374 335
Royalties 243 92
Restructuring 3,223 1,683
Sales rebates 805 687
Deferred gain on sale/leaseback 485 234
Other 2,632 3,209
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$24,019 $21,388
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In 2003, the Company recorded a $3.3 million charge related to
restructuring its Thomas Regout operations. The charge represents severance to
be paid to approximately 100 terminated employees. In the first quarter of 2004,
the Company paid $1.5 million in severance benefits. Substantially all of the
remaining severance is expected to be paid during the second quarter of 2004.
Note 5 - Indebtedness:
December 31, March 31,
2003 2004
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(In thousands)
Revolving bank credit facility $26,000 $14,000
Capital lease obligations 147
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26,000 14,147
Less current portion - 37
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$26,000 $14,110
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Note 6 - Other general corporate income (expense), net:
Three months ended
March 31,
2003 2004
---- ----
(In thousands)
Interest income $ 50 $ 41
Currency exchange transactions, net (595) 143
Other, net 54 33
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$(491) $ 217
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Note 7 - Provision for income taxes:
Three months ended
March 31,
2003 2004
---- ----
(In thousands)
Expected tax expense $ 349 $ 958
Non-U.S. tax rates (67) (31)
Incremental U.S. tax on earnings of foreign
subsidiaries 217 189
State income taxes 26 27
Other, net (86) 34
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$ 439 $1,177
====== ======
Note 8 -Currency forward exchange contracts:
Certain of the Company's sales generated by its non-U.S. operations are
denominated in U.S. dollars. The Company periodically uses currency forward
contracts to manage a portion of currency exchange rate market risk associated
with receivables, or similar exchange rate risk associated with future sales,
denominated in a currency other than the holder's functional currency. At each
balance sheet date, any such outstanding currency forward contract is
marked-to-market with any resulting gain or loss recognized in income currently.
These contracts are not accounted for as hedging instruments under GAAP. At
December 31, 2003, the Company held a series of contracts to manage such
exchange rate risk to exchange an aggregate of U.S. $4.2 million for Canadian
dollars at exchange rates of Cdn. $1.30 to Cdn. $1.33 per U.S. dollar. Such
contracts matured through February 2004. The exchange rate was Cdn. $1.31 per
U.S. dollar at December 31, 2003. At March 31, 2004, the Company held a series
of contracts to manage such exchange rate risk to exchange an aggregate of U.S.
$3.0 million for Canadian dollars at exchange rates of Cdn. $1.33 to Cdn. $1.34
per U.S. dollar. Such contracts matured through May 2004. The exchange rate was
Cdn. $1.33 per U.S. dollar at March 31, 2004.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Overview
The Company reported net income of $1.6 million in the first quarter of
2004 compared to net income of $.6 million for the first quarter of 2003.
Fluctuations in currency exchange rates as compared to the prior year positively
impacted net sales by $2.5 million; however, the impact on net income was
insignificant. The overall improvement in net income is primarily the result of
the favorable impact of cost reduction initiatives undertaken in 2002 and 2003.
Results of Operations
Three months ended
March 31,
------------------------- %
2003 2004 Change
---- ---- ------
(In millions)
Net sales:
CompX Waterloo $23,771 $24,732 +4%
CompX Security Products 18,429 18,764 +2%
Thomas Regout 9,093 9,859 +8%
Intersegment sales (273) (225) -18%
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Total net sales $51,020 $53,130 +4%
======= =======
Operating income (loss):
CompX Waterloo $ 452 $ 348 -23%
CompX Security Products 2,231 2,349 +5%
Thomas Regout (854) 32 n.m.
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Total operating income $ 1,829 $ 2,729 +49%
======= =======
n.m. = not meaningful
Sales for the respective product lines in the first quarter of 2003 and
2004 are as follows:
Three months ended
March 31,
------------------- %
2003 2004 Change
---- ---- ------
(In thousands)
Precision ball-bearing slides $23,169 $24,781 7%
Security products 18,429 18,764 2%
Ergonomic computer support systems 6,788 6,562 -3%
Other products 2,634 3,023 15%
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$51,020 $53,130 4%
======= =======
Currency. CompX has substantial operations and assets located outside the
United States (in Canada, the Netherlands and Taiwan). A portion of CompX's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S. dollar, principally the Canadian dollar, the euro and the New
Taiwan dollar. In addition, a portion of CompX's sales generated from its
non-U.S. operations (principally in Canada) are denominated in the U.S. dollar.
Most raw materials, labor and other production costs for such non-U.S.
operations are denominated primarily in local currencies. Consequently, the
translated U.S. dollar values of CompX's foreign sales and operating results are
subject to currency exchange rate fluctuations which may favorably or
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unfavorably impact reported earnings and may affect comparability of
period-to-period operating results. The effects of fluctuations in currency
exchange rates affect the CompX Waterloo and Thomas Regout segments, and do not
materially affect the CompX Security Products segment. During the first quarter
of 2004, currency exchange rate fluctuations positively impacted the sales
comparisons with 2003; however, the fluctuations did not have a significant
impact on the Company's net income comparisons. Currency exchange rate
fluctuations of the Canadian dollar positively impacted sales of the Waterloo
segment by $1.1 million and currency exchange rate fluctuations of the euro
positively impacted sales of the Thomas Regout segment by $1.4 million.
Net sales. Net sales increased $2.1 million, or 4%, to $53.1 million in the
first quarter of 2004 from $51.0 million in the first quarter of 2003 due
primarily to the net effect of fluctuations in currency exchange rates (as
discussed above), increased sales volumes at CompX Security Products, price
increases on certain slide products and lower sales volumes of slide products at
Thomas Regout.
Cost of goods sold. The Company's cost of goods sold increased 2% in the
first quarter of 2004 compared to 2003 while net sales increased 4% during the
same period. The Company's gross margin percentage increased from 17% in the
2003 period to 19% in the 2004 period. This improvement resulted from the
favorable impact of the cost reduction efforts undertaken in 2002 and 2003,
including retooling of the Company's Byron Center, Michigan facility,
consolidation of two Canadian facilities into one facility and restructuring of
the Thomas Regout operations. Gross margin comparisons were also favorably
impacted by price increases on certain products at CompX Waterloo, relative
changes in product mix at CompX Security Products in the first quarter of 2004
as compared to the first quarter of 2003, and expenses of approximately $400,000
during the first quarter of 2003 associated with the consolidation of the two
Canadian facilities.
Selling, general, and administrative expense. As a percentage of net sales,
selling, general, and administrative expense was 14% of net sales in 2003 and
2004.
Operating income. Operating income in the first quarter of 2004 increased
to $2.7 million compared to $1.8 million for the first quarter of 2003. As a
percentage of net sales, operating income increased to 5% for the first quarter
of 2004 from 4% for the first quarter of 2003 due to the improvement in gross
margins discussed above.
Other general corporate income (expense), net. The components of other
general corporate income (expense), net are summarized in Note 6 to the
Consolidated Financial Statements, and primarily include interest income,
currency exchange transaction gains and losses, and gains and losses on
disposals of other assets. Net currency exchange transaction gains (losses)
improved approximately $738,000 from the first quarter of 2003 to the first
quarter of 2004 because the intra-quarter swings in currency exchange rates were
less volatile in 2004.
Interest expense. Interest expense declined in the first quarter of 2004
compared to the first quarter of 2003 due primarily to lower average levels of
outstanding debt.
Provision for income taxes. The principal reasons for the difference
between CompX's effective income tax rates and the U.S. federal statutory income
tax rates are explained in Note 7 to the Consolidated Financial Statements.
Income tax rates vary by jurisdiction (county and/or state), and relative
changes in the geographic mix of CompX's pre-tax earnings can result in
fluctuations in the effective income tax rate.
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Outlook. The Company expects that weak market conditions will continue in
the office furniture market, the primary end-market for the Company's products,
during 2004. Competitive pricing pressures are expected to continue to be a
challenge as foreign manufacturing, particularly in China, gains market share.
The Company has responded to the competitive pricing pressure in part by
reducing production cost through product reengineering or improvement in
manufacturing processes, moving production to lower-cost facilities and
providing value-added customer support services that foreign manufacturers are
generally unable to provide. However, in some cases the Company has determined
to forgo unprofitable sales in response to the competitive pricing pressures.
The Company will continue to focus on cost improvement initiatives, utilizing
lean manufacturing techniques and prudent balance sheet management in order to
minimize the impact of lower sales to the office furniture industry and to
develop value-added customer relationships with additional focus on sales of the
Company's higher-margin ergonomic computer support systems to improve operating
results. The Company currently expects to realize annual cost savings of $3.5
million to $4 million as the result of the current Thomas Regout headcount
reduction. However, the Company continues with its ongoing strategic analysis of
the Thomas Regout operations, and additional actions could be taken in the
future that could result in charges for asset impairment, including goodwill,
and other costs in future periods. These actions, along with other activities to
eliminate excess capacity, are designed to position the Company to more
effectively concentrate on both new product and new market opportunities to
improve Company profitability.
Liquidity and Capital Resources
Summary.
The Company's primary source of liquidity on an ongoing basis is its cash
flow from operating activities, which is generally used to (i) fund capital
expenditures, (ii) repay short-term indebtedness incurred primarily for working
capital purposes and (iii) provide for the payment of dividends (if declared).
From time-to-time, the Company will incur indebtedness, primarily for short-term
working capital needs or to fund capital expenditures. From time-to-time, the
Company may also sell assets outside the ordinary course of business, the
proceeds of which are generally used to repay indebtedness (including
indebtedness which may have been collateralized by the assets sold) or to fund
capital expenditures.
At March 31, 2004, substantially all of the Company's indebtedness
consisted of the $14 million outstanding under its revolving bank credit
facility that matures in January 2006. Because the maturity date of the
indebtedness isn't until 2006, the Company does not expect it will be required
to use any of its cash flow from operating activities generated during 2004 to
repay indebtedness, although it may choose to do so (as evidenced by the
Company's repayment of a net $12 million under the revolving bank credit
facility during the first quarter of 2004).
Consolidated cash flows.
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities have generally been similar to the
trends in the Company's earnings. 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.
However, period-to-period relative changes in assets and liabilities can
significantly affect the comparability of cash flows from operating activities.
Such changes in assets and liabilities resulted in a net use of cash of
approximately $2.2 million in the first quarter of 2003 compared to a net use of
cash of $1.5 million in the first quarter of 2004.
- 15 -
Investing activities. Net cash used by investing activities totaled $2.0
million and $.6 million in the first quarter of 2003 and 2004, respectively.
The capital expenditures for 2004 relate primarily to equipment additions
designed to utilize new technologies thereby increasing automation and improving
manufacturing efficiencies at the Company's facilities. Capital expenditures for
2004 are estimated at approximately $10 million, the majority of which relate to
projects that emphasize improved production efficiency and the shifting of
production capacity to lower cost facilities. Firm purchase commitments for
capital projects not commenced at March 31, 2004 approximated $1.0 million.
Financing activities. Net cash used by financing activities totaled $1.3
million and $11.8 million in the first quarter of 2003 and 2004, respectively.
The Company paid a quarterly dividend of $1.9 million, or $.125 per share, in
the first quarter of 2003, but the Company suspended its regular quarterly
dividend in the second quarter of 2003. During the first quarter of 2004, the
Company repaid a net $12 million under its revolving bank credit facility.
Provisions contained in the Company's revolving bank credit facility could
result in the acceleration of such indebtedness prior to its stated maturity for
reasons other than defaults from failing to comply with typical financial
covenants. For example, the credit agreement allows the lender to accelerate the
maturity of the indebtedness upon a change of control (as defined) of the
borrower. The terms of the credit agreement could result in the acceleration of
all or a portion of the indebtedness following a sale of assets outside of the
ordinary course of business. Other than certain operating leases discussed in
the 2003 Annual Report, neither CompX nor any of its subsidiaries or affiliates
are parties to any off-balance sheet financing arrangements.
Management believes that cash generated from operations and borrowing
availability under the Company's 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 the
Company's actual operating results or other developments differ from the
Company's expectations, CompX's liquidity could be adversely affected.
The Company periodically evaluates its liquidity requirements, alternative
uses of capital, capital needs and available resources in view of, among other
things, its capital expenditure requirements, dividend policy and estimated
future operating cash flows. As a result of this process, the Company has in the
past and may in the future seek to raise additional capital, refinance or
restructure indebtedness, issue additional securities, modify its dividend
policy, repurchase shares of its common stock or take a combination of such
steps to manage its liquidity and capital resources. In the normal course of
business, the Company may review opportunities for acquisitions, divestitures,
joint ventures or other business combinations in the component products
industry. In the event of any such transaction, the Company may consider using
available cash, issuing additional equity securities or increasing the
indebtedness of the Company or its subsidiaries.
Forward Looking Information
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
Quarterly Report on Form 10-Q relating to matters that are not historical facts
are forward-looking statements that represent management's beliefs and
- 16 -
assumptions based on currently available information. Forward-looking statements
can be identified by the use of words such as "believes," "intends," "may,"
"should," "anticipates," "expects" or comparable terminology, or by discussions
of strategies or trends. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it cannot give any
assurances that these expectations will prove to be correct. Such statements by
their nature involve substantial risks and uncertainties that could
significantly impact expected results, and actual future results could differ
materially from those described in such forward-looking statements. Among the
factors that could cause actual future results to differ materially are the
risks and uncertainties discussed in this Quarterly Report and those described
from time to time in the Company's other filings with the Securities and
Exchange Commission. While it is not possible to identify all factors, the
Company continues to face many risks and uncertainties including, but not
limited to the following:
o Future supply and demand for the Company's products,
o Changes in costs of raw materials and other operating costs (such as
energy costs),
o General global economic and political conditions,
o Demand for office furniture,
o Service industry employment levels,
o The possibility of labor disruptions,
o The ability to implement headcount reductions in a cost effective
manner within the constraints of non-U.S. governmental regulations,
and the timing and amount of any cost savings,
o Competitive products and prices, including increased competition from
low-cost manufacturing sources (such as China),
o Substitute products,
o Customer and competitor strategies,
o The introduction of trade barriers,
o The impact of pricing and production decisions,
o Fluctuations in the value of the U.S. dollar relative to other
currencies (such as the euro, Canadian dollar and New Taiwan dollar),
o Potential difficulties in integrating completed or future
acquisitions,
o Uncertainties associated with new product development,
o Environmental matters (such as those requiring emission and discharge
standards for existing and new facilities),
o The ability of the Company to renew or refinance its revolving bank
credit facility,
o The ultimate outcome of income tax audits,
o The impact of current or future government regulations,
o Possible future litigation and
o Other risks and uncertainties.
Should one or more of these risks materialize (or the consequences of such a
development worsen) or should the underlying assumptions prove incorrect, actual
results could differ materially from those forecasted or expected. The Company
disclaims any intention or obligation to update publicly or revise such
statements whether as a result of new information, future events or otherwise.
ITEM 4. Controls and Procedures.
The Company maintains a system of disclosure controls and procedures. The
term "disclosure controls and procedures," as defined by regulations of the
Securities and Exchange Commission (the "SEC"), means controls and other
procedures that are designed to ensure that information required to be disclosed
in the reports that the Company files or submits to the SEC under the Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.
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Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits to the SEC under the Act is
accumulated and communicated to the Company's management, including its
principal executive officer and its principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions to be
made regarding required disclosure. Each of David A. Bowers, the Company's Vice
Chairman of the Board, President and Chief Executive Officer, and Darryl R.
Halbert, the Company's Vice President, Chief Financial Officer and Controller,
have evaluated the Company's disclosure controls and procedures as of March 31,
2004. Based upon their evaluation, these executive officers have concluded that
the Company's disclosure controls and procedures are effective as of the date of
such evaluation.
The Company also maintains a system of internal controls over financial
reporting. The term "internal control over financial reporting," as defined by
regulations of the SEC, means a process designed by, or under the supervision
of, the Company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the Company's board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America ("GAAP"), and
includes those policies and procedures that:
o Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the Company.
o Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with GAAP, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and
directors of the Company, and
o Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the Company's consolidated
financial statements.
There has been no change to the Company's system of internal controls over
financial reporting during the quarter ended March 31, 2004 that has materially
affected, or is reasonably likely to materially affect, the Company's system of
internal controls over financial reporting.
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Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
31.1 Certification
31.2 Certification
32.1 Certification
32.2 Certification
The Company has retained a signed original of any
of the above exhibits that contains signatures,
and the Company will provide such exhibit to the
Commission or its staff upon request. CompX will
also furnish, without charge, a copy of its Code
of Business Conduct and Ethics and its Audit
Committee Charter, each as approved by the Board
of Directors on February 24, 2004, upon request.
Such requests should be directed to the attention
of CompX's Corporate Secretary at CompX's
corporate offices located at 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 2004.
February 9, 2004 - Reported items 9 and 12.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPX INTERNATIONAL INC.
------------------------
(Registrant)
Date April 29, 2004 By /s/ Darryl R. Halbert
----------------- ---------------------------
Darryl R. Halbert
Vice President, Chief Financial Officer
and Controller
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