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 SEPTEMBER 30, 1998 COMMISSION FILE NUMBER 1-13905
COMPX INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 57-0981653
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Old Mill Road, Mauldin, South Carolina 29662
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (864) 297-6655
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
NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING ON OCTOBER 30, 1998:
6,144,880.
COMPX INTERNATIONAL INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements.
Consolidated Balance Sheets - December 31, 1997
and September 30, 1998 3-4
Consolidated Statements of Income -
Three months and nine months ended
September 30, 1997 and 1998 5
Consolidated Statements of Comprehensive Income -
Nine months ended September 30, 1997 and 1998 6
Consolidated Statement of Stockholders' Equity -
Nine months ended September 30, 1998 7
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1998 8-9
Notes to Consolidated Financial Statements 10-14
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations. 15-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 18
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, SEPTEMBER 30,
1997 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $19,187 $ 50,508
Accounts receivable 14,573 19,448
Receivable from affiliate - 705
Inventories 11,073 15,896
Prepaid expenses and other 161 1,309
Deferred income taxes 438 643
Total current assets 45,432 88,509
Other assets:
Intangible assets 66 23,220
Deferred income taxes 133 -
Other - 422
Total other assets 199 23,642
Property and equipment:
Land 383 871
Buildings 8,194 10,717
Equipment 24,343 32,452
Construction in progress 707 5,304
33,627 49,344
Less accumulated depreciation 15,464 17,380
Net property and equipment 18,163 31,964
$63,794 $144,115
</TABLE>
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31, SEPTEMBER 30,
(DEFICIT) 1997 1998
<S> <C> <C>
Current liabilities:
Demand note payable to affiliate $50,000 $ -
Current maturities of long-term debt 113 688
Accounts payable and accrued liabilities 11,427 15,810
Payable to affiliates 331 40
Income taxes 2,559 1,243
Total current liabilities 64,430 17,781
Noncurrent liabilities:
Long-term debt 262 950
Deferred income taxes 115 1,497
Other 150 -
Total noncurrent liabilities 527 2,447
Minority interest - 14
Stockholders' equity (deficit):
Preferred stock - -
Class A common stock - 61
Class B common stock 100 100
Additional paid-in capital 4,412 118,027
Retained earnings (deficit) (4,596) 7,826
Currency translation adjustment (1,079) (2,141)
Total stockholders' equity (deficit) (1,163) 123,873
$63,794 $144,115
</TABLE>
Commitments and contingencies (Note 1)
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net sales $27,040 $38,698 $80,296 $110,513
Costs and expenses:
Cost of sales 17,819 26,048 52,903 73,996
Selling, general and 2,293 3,940 7,266 14,365
administrative
Other expense (income), net 152 (602) 386 (1,172)
Interest 9 135 27 956
20,273 29,521 61,582 88,145
Income before income taxes
and minority interest 6,767 9,177 19,714 22,368
Provision for income taxes 2,663 3,259 7,726 8,278
Income before minority
interest 4,104 5,918 11,988 14,090
Minority interest - (54) - (132)
Net income $ 4,104 $ 5,972 $11,988 $ 14,222
Basic and diluted earnings per
common share $ .41 $ .37 $ 1.20 $ .97
Shares used in the calculation o
earnings per common share:
Basic earnings per common shar 10,000 16,145 10,000 14,688
Dilutive impact of outstanding
stock options - 7 - 32
Diluted earnings per common
share 10,000 16,152 10,000 14,720
</TABLE>
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
<S>
<C> <C>
Net income $11,988 $14,222
Other comprehensive income -
Currency translation adjustment:
Pre-tax amount (215) (1,590)
Less income tax benefit (75) (528)
Total other comprehensive income (140) (1,062)
Comprehensive income $11,848 $13,160
</TABLE>
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
COMMON STOCK
CAPITAL (DEFICIT)
CLASS A CLASS B
<S> <C> <C> <C>
Balance at December 31, 1997 $ - $100 $ 4,412 $(4,596)
Net income - - - 14,222
Other comprehensive income - - - -
Issuance of common stock:
Initial public offering 60 - 110,318 -
Management shares 1 - 3,297 -
Dividends paid - - - (1,800)
Balance at September 30, 1998 $61 $100 $118,027 $ 7,826
</TABLE>
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
CURRENCY TOTAL
TRANSLATION STOCKHOLDERS'
ADJUSTMENT EQUITY (DEFICIT)
<S> <C> <C>
Balance at December 31, 1997 $(1,079) $ (1,163)
Net income - 14,222
Other comprehensive income (1,062) (1,062)
Issuance of common stock:
Initial public offering - 110,378
Management shares - 3,298
Dividends paid - (1,800)
Balance at September 30, 1998 $(2,141) $123,873
</TABLE>
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $11,988 $ 14,222
Depreciation, depletion and amortization 2,310 3,618
Deferred income taxes 295 (408)
Noncash stock award of Management Shares - 3,298
Other, net 170 (142)
14,763 20,588
Change in assets and liabilities:
Accounts receivable (2,479) (2,598)
Inventories 586 (516)
Accounts payable and accrued liabilities 2,098 409
Accounts with affiliates 89 (996)
Income taxes 42 (1,807)
Other, net 163 (1,023)
Net cash provided by operating activities 15,262 14,057
Cash flows from investing activities:
Capital expenditures (4,084) (7,611)
Fort Lock Acquisition - (33,372)
Other, net - 297
Net cash used by investing activities (4,084) (40,686)
Cash flows from financing activities:
Repayment of demand note to Valcor - (50,000)
Borrowing of other indebtedness, net 253 395
Deferred financing costs paid - (220)
Dividends (4,516) (1,800)
Issuance of common stock - 110,378
Net cash provided (used) by financing
activities
(4,263) 58,753
Net increase in cash and cash equivalents $ 6,915 $ 32,124
</TABLE>
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Cash and cash equivalents:
Net changes from operating, investing
and financing activities $ 6,915 $32,124
Currency translation (134) (803)
6,781 31,321
Balance at beginning of period 8,550 19,187
Balance at end of period $15,331 $50,508
Supplemental disclosures:
Cash paid for:
Interest $ 27 $ 1,096
Income taxes 7,295 11,337
Net assets consolidated - Fort Lock Acquisition:
Cash and cash equivalents $ - $ -
Goodwill and other intangibles - 23,399
Other non-cash assets - 17,782
Liabilities - (7,809)
Cash paid $ - $33,372
</TABLE>
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The consolidated balance sheet at December 31, 1997 has been condensed from
the Company's audited consolidated financial statements at that date. The
consolidated balance sheet at September 30, 1998 and the consolidated statements
of income, comprehensive income, cash flows and stockholders' equity (deficit)
for the interim periods ended September 30, 1997 and 1998 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 generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements for the year
ended December 31, 1997 included in the Pre-effective Amendment No. 2 to Form S-
1 of the Company filed with the Securities and Exchange Commission on March 6,
1998.
NOTE 2 - BUSINESS SEGMENT INFORMATION:
The Company is a manufacturer of ergonomic computer support systems,
precision ball bearing slides and cabinet locks for furniture and other markets.
The Company is 64%-owned by Valhi, Inc. (NYSE: VHI) and its wholly-owned
subsidiary Valcor, Inc.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales $27,040 $38,698 $80,296 $110,513
Operating income $ 6,928 $ 8,710 $20,127 $ 22,152
General corporate items, net (152) 602 (386) 1,172
Interest expense (9) (135) (27) (956)
Income before income taxe $ 6,767 $ 9,177 $19,714 $ 22,368
</TABLE>
NOTE 3 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Raw materials $ 2,057 $ 5,102
Work in process 5,193 6,335
Finished products 3,775 4,405
Supplies 48 54
$11,073 $15,896
</TABLE>
NOTE 4 - INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Intangible assets:
Goodwill $ - $20,236
Other 66 2,984
$ 66 $23,220
</TABLE>
Goodwill, representing the excess of the purchase price over the estimated
fair value of underlying net assets acquired in the Fort Lock Acquisition, is
being amortized by the straight-line method over 20 years. Other intangible
assets consist primarily of the estimated fair value of certain patents acquired
in the Fort Lock Acquisition and are being amortized by the straight-line method
over the average remaining lives of 15 years.
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Accounts payable $ 5,497 $ 7,783
Accrued liabilities:
Employee benefits 3,490 4,404
Insurance 633 676
Royalties 447 416
Taxes other than income taxes 175 404
Other 1,185 2,127
$11,427 $15,810
</TABLE>
NOTE 6 - PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
(IN THOUSANDS)
<S> <C> <C>
Expected tax expense $6,900 $7,829
Incremental tax on non-U.S. earnings 605 222
State income taxes and other, net 221 227
$7,726 $8,278
</TABLE>
NOTE 7 - LONG-TERM DEBT AND LOANS FROM VALCOR:
On December 12, 1997, the Company paid a $50 million dividend to Valcor in
the form of a $50 million demand note payable (the "Valcor Note"). The Valcor
Note was unsecured and bore interest at a fixed rate of 6%. Interest expense
related to the Valcor Note was $460,000 in 1998. The Valcor Note was repaid on
February 26, 1998 as discussed below.
On February 26, 1998, the Company entered into a new $100 million revolving
credit facility (the "Revolving Senior Credit Facility"). The Revolving Senior
Credit Facility is an unsecured five-year revolving facility. Borrowings are
available for the Company's general corporate purposes, including potential
acquisitions. On February 26, 1998, the Company utilized borrowings under the
Revolving Senior Credit Facility to repay fully the Valcor Note. Borrowings
under the Revolving Senior Credit Facility (nil outstanding at September 30,
1998) were repaid with a portion of the net proceeds of the Company's initial
public offering discussed in Note 9.
The Revolving Senior Credit Facility matures in 2003. Borrowings of up to
$100 million are available under the Revolving Senior Credit Facility subject to
limitation with respect to compliance with certain coverage ratios and
covenants. At September 30, 1998, $100 million was available for borrowing
under this facility. The Revolving Senior Credit Facility has no required
principal amortization payments prior to maturity absent noncompliance with
certain covenants and conditions of the agreement. Amounts drawn under the
Revolving Senior Credit Facility will bear interest at the Eurodollar Rate plus
between 17.5 and 90.0 basis points depending on certain coverage ratios for the
most recent four quarter period. The Revolving Senior Credit Facility contains
certain covenants and restrictions customary in lending transactions of this
type, including restrictions on the payment of dividends and requirements to
maintain specified levels of Consolidated Net Worth (as defined).
NOTE 8 - ACQUISITION:
On March 3, 1998, the Company completed the acquisition of the Fort Lock
Corporation for an aggregate purchase price of approximately $33 million (the
"Fort Lock Acquisition"). Fort Lock, a vertically integrated manufacturer of
highly engineered mechanical locks for a diverse customer base of original
equipment manufacturers and locksmith distributors, is headquartered in River
Grove, Illinois. Funding for the Fort Lock Acquisition was provided by cash on
hand and $25 million of borrowings under the Revolving Senior Credit Facility
discussed above.
The Company accounted for the Fort Lock Acquisition by the purchase method
of accounting and, accordingly, Fort Lock's results of operations and cash flows
are included in the Company's consolidated financial statements subsequent to
the Fort Lock Acquisition. The purchase price has been allocated to the
individual assets acquired and liabilities assumed of Fort Lock based upon
preliminary estimated fair values. The actual allocation of the purchase price
may be different from the preliminary allocation due to adjustments in the
purchase price and refinements in estimates of the fair values of the net assets
acquired.
Assuming the Fort Lock Acquisition occurred as of January 1, 1997, the
Company's pro forma net sales would have been $102.0 million and $115.1 million,
net income would have been $13.2 million and $14.8 million and diluted earnings
per common share would have been $.81 and $.91 on weighted average diluted
shares of 16.2 million for the nine months ended September 30, 1997 and 1998,
respectively. The pro forma financial information is not necessarily indicative
of actual results had the transactions occurred at the beginning of these
periods, nor do they purport to represent results of future operations of the
combined companies.
NOTE 9 - CAPITALIZATION:
Recapitalization. In February 1998, the Company amended and restated its
certificate of incorporation. The authorized capital stock of the Company now
consists of shares of Class A Common Stock (20,000,000 shares authorized) and
Class B Common Stock (10,000,000 shares authorized), each par value $.01 per
share, and 1,000 shares of preferred stock, par value $.01 per share. Upon the
effectiveness of the amendment and restatement of the certificate of
incorporation, the 1,000 shares of the Company's common stock, $1 par value,
previously outstanding and all held by Valcor, Inc. were reclassified into
10,000,000 shares of the Company's Class B Common Stock. The accompanying
consolidated financial statements have been retroactively restated to reflect
this recapitalization.
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. Holders of Class B Common Stock are
entitled to one vote per share in all matters except for election of directors
where such holders are 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.
Public offering. In March 1998, the Company completed an initial public
offering of 5,980,000 shares of the Company's Class A Common Stock at an
offering price to the public of $20.00 per share. The net proceeds to the
Company were approximately $110.4 million. A majority of the net proceeds to
the Company from the offering were used to repay borrowings under the Revolving
Senior Credit Facility discussed above.
Stock award grants. In March 1998, the Company granted 164,880 shares of
Class A Common Stock to certain key individuals of the Company (the "Management
Shares") for their services in connection with the public offering. The Company
valued such Class A shares awarded at the public offering price, and the
aggregate value of the Class A shares awarded was approximately $3.3 million.
The Company recognized a charge, at the time of the completion of the public
offering, equal to the aggregate value of the Class A shares awarded.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company reported net income of $6.0 million in the third quarter of
1998 compared to $4.1 million in the third quarter of 1997. The Company
reported net income of $14.2 million for the first nine months of 1998 compared
to net income of $12.0 million for the first nine months of 1997. Operating
results in the first quarter of 1998 include a nonrecurring charge of $3.3
million ($2.3 million after tax) related to shares of the Company's Class A
common stock awarded to key individuals in connection with the Company's initial
public offering completed in March 1998. Net sales increased 43% from $27.0
million in the third quarter of 1997 to $38.7 million in the third quarter of
1998, and increased 38% from $80.3 million in the first nine months of 1997 to
$110.5 million in the first nine months of 1998. Sales volumes benefited from
continued strong demand for slide and ergonomic products and the Fort Lock
Acquisition.
On March 3, 1998, the Company completed the Fort Lock Acquisition for an
aggregate purchase price of approximately $33 million. Funding of the Fort Lock
Acquisition was provided by available cash on hand and borrowings under the
Revolving Senior Credit Facility, which borrowings were repaid with a portion of
the net proceeds of the Company's initial public offering.
Assuming the Fort Lock Acquisition occurred January 1, 1997, the Company's
pro forma net sales would have been $102.0 million and $115.1 million for the
nine months ended September 30, 1997 and 1998, respectively, and pro forma
operating income would have been $22.5 million and $22.6 million, respectively
($25.9 million in the 1998 period excluding the stock award charge). The pro
forma financial information is not necessarily indicative of actual results had
the transactions occurred at the beginning of the periods, nor do they purport
to represent results of future operations of the merged companies.
The statements in this Quarterly Report on Form 10-Q relating to matters
that are not historical facts, including, but not limited to, statements found
in this "Management's Discussion and Analysis of Financial Condition and Results
of Operations", are forward-looking statements that involve a number of risks
and uncertainties. The actual future results of the events described in such
forward-looking statements could differ materially from those expressed in such
forward-looking statements, and the Company disclaims any intention or
obligation to update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise. Factors that could cause
actual future results to differ materially from those expressed in such forward-
looking statements include, but are not limited to, future supply and demand for
the Company's products (including cyclicality thereof), general economic
conditions, competitive products and substitute products, customer and
competitor strategies, the impact of pricing and production decisions, potential
difficulties in integrating acquisitions, environmental matters, government
regulations and possible changes therein, and other risks and uncertainties as
discussed in this Quarterly Report and the Company's consolidated financial
statements for the year ended December 31, 1997 included in the pre-effective
amendment No. 2 to Form S-1 of the Company filed with the Securities and
Exchange Commission on March 6, 1998.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, % SEPTEMBER 30, %
1997 1998 CHANGE 1997 1998 CHANGE
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales $27,040 $38,698 +43% $80,296 $110,513 +38%
Operating income 6,776 8,710 +29% 20,127 22,152 +10%
</TABLE>
Net sales. Net sales increased $11.7 million for the three months and $30.2
million for the nine months, or 43% and 38%, respectively, primarily due to
increased volumes in all product lines and the inclusion of the results of the
Fort Lock Acquisition beginning March 3, 1998. Combined net sales from the
Company's ergonomic computer support systems and precision ball bearing slide
products increased $2.0 million for the three months and $10.5 million for the
nine months, or 10% and 18% respectively, based on higher unit volumes and
relatively stable prices. Locking system sales increased $9.1 million for the
three months and $19.7 million for the nine months, or 133% and 93%
respectively, primarily due to sales attributable to Fort Lock Acquisition.
Operating income. Operating income increased $1.9 million for the three
months and $5.3 million for the nine months (excluding the $3.3 million stock
award charge discussed above), or 29% and 26%, respectively, due primarily to
the increased volumes in all product lines. Fluctuations in the value of the
U.S. dollar relative to the Canadian dollar accounted for approximately 20% of
the increase in operating income in each of the 1998 periods.
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 are
generally similar to the trends in the Company's earnings. Cash flow provided
by operating activities, excluding changes in assets and liabilities and non-
cash stock award charges totaled $14.8 million and $17.3 for the nine months
ended September 30, 1997 and September 30, 1998, respectively, compared to net
income of $12.0 million and $14.2 million.
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 $4.1
million and $40.7 million for the nine months ended September 30, 1997 and
September 30, 1998, respectively. The majority of the increase in the 1998
period relates to the Fort Lock Acquisition as discussed above. The increase in
capital expenditures in 1998 relates primarily to expansion of manufacturing
facilities at the Company's facilities in Canada and at Fort Lock.
Capital expenditures in 1998 are estimated at approximately $14 million, the
majority of which relate to projects that emphasize improved production
efficiency and increased production capacity. Firm purchase commitments for
capital projects in process at September 30, 1998 were approximately $5 million.
Financing activities. Net cash provided (used) by financing activities
totaled ($4.3) million, and $58.8 million for the nine months ended September
30, 1997 and 1998, respectively. Net cash provided in 1998 includes $110.4
million of net proceeds from the recently completed initial public offering and
the repayment of the $50 million Valcor Note. The Company paid dividends to its
parent company aggregating $4.5 million in 1997, and $1.8 million in 1998 prior
to completion of the Company's initial public offering.
YEAR 2000 ISSUE
CompX. CompX has recently installed information systems upgrades for both
its U.S. and Canadian facilities which contained, among many other features,
software compatibility with the Year 2000 Issue. CompX does not currently
anticipate spending significant additional funds to address software
compatibility with the Year 2000 Issue with respect to its own internal systems.
As part of its Year 2000 compliance plan, CompX is seeking confirmation
from its major software and hardware vendors and primary suppliers to confirm
that they are developing and implementing plans to become, or that they have
become, Year 2000 compliant. Confirmations received by CompX to-date indicate
that they generally are in the process of becoming Year 2000 compliant by
December 31, 1999. The major software vendors used by CompX have already
delivered Year 2000 compliant software. CompX plans to seek confirmation from
its major customers to ensure they are Year 2000 compliant or are developing and
implementing plans to become Year 2000 compliant.
CompX is developing a contingency plan to deal with potential Year 2000
Issues related to business interruption that may occur on January 1, 2000 or
thereafter. CompX's plan is expected to be completed in the second quarter of
1999.
Although CompX expects its systems to be Year 2000 compliant before
December 31, 1999, it cannot predict the outcome or success of the Year 2000
compliance programs of its vendors, suppliers, and customers. CompX also cannot
predict whether its major software vendors, who continue to test for Year 2000
compliance, will find additional problems that would result in unplanned
upgrades of their applications after December 31, 1999. As a result of these
uncertainties, CompX cannot predict the impact on its financial condition or
results of operation resulting from noncompliant Year 2000 systems that CompX
directly or indirectly relies upon. Should CompX's Year 2000 compliance plan
not be successful or be delayed beyond January 2000, the consequences to CompX
could be far-reaching and material, including an inability to produce products
at its manufacturing facilities, which could lead to an indeterminate amount of
lost revenue. Other potential negative consequences could include impeded
communications or power supplies, or slower transaction processing and financial
reporting.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial Data Selected for the nine-month period ended
September 30, 1998.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended September 30, 1998.
July 7, 1998 - Reported Items 5 and 7.
July 15, 1998 - Reported Items 5 and 7.
July 17, 1998 - Reported Items 5 and 7.
September 24, 1998 - Reported Items 5 and 7.
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 November 10, 1998 By /s/ Joseph S. Compofelice
Joseph S. Compofelice
Chairman of the Board and
Chief Executive Officer
(Principal Financial Officer)
Date November 10, 1998 By /s/ Bobby D. O'Brien
Bobby D. O'Brien
Vice President and Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COMPX INTERNATIONAL INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STAEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 50,508
<SECURITIES> 0
<RECEIVABLES> 19,824
<ALLOWANCES> 376
<INVENTORY> 15,896
<CURRENT-ASSETS> 88,509
<PP&E> 49,344
<DEPRECIATION> 17,380
<TOTAL-ASSETS> 144,115
<CURRENT-LIABILITIES> 17,781
<BONDS> 950
0
0
<COMMON> 161
<OTHER-SE> 123,712
<TOTAL-LIABILITY-AND-EQUITY> 144,115
<SALES> 110,513
<TOTAL-REVENUES> 110,513
<CGS> 73,996
<TOTAL-COSTS> 73,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 140
<INTEREST-EXPENSE> 956
<INCOME-PRETAX> 22,368
<INCOME-TAX> 8,278
<INCOME-CONTINUING> 14,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,222
<EPS-PRIMARY> .97
<EPS-DILUTED> 0
</TABLE>
