Compx International Inc 10-Q for FY2021 Q1
Compx International Inc (CIX)
About this 10-Q
Compx International Inc filed this 10-Q on May 4, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $35.92M
- up 11.2% from $32.31M a year earlier
- Net income
- $4.69M
- up 9.7% from net income of $4.27M a year earlier
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number
(Exact name of Registrant as specified in its charter)
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 29, 2021, the registrant had
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COMPX INTERNATIONAL INC.
Index
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Part I. |
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FINANCIAL INFORMATION |
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Item 1. |
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Financial Statements |
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Condensed Consolidated Balance Sheets – December 31, 2020 and March 31, 2021 (unaudited) |
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Condensed Consolidated Statements of Income (unaudited) – Three months ended March 31, 2020 and 2021 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Part II. |
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Item 1A. |
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Item 2. |
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Item 6. |
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Items 3, 4 and 5 of Part II are omitted because there is no information to report. |
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COMPX INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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December 31, |
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March 31, |
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2020 |
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2021 |
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ASSETS |
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(unaudited) |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other |
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Total current assets |
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Other assets: |
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Note receivable from affiliate |
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Goodwill |
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Other noncurrent |
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Total other assets |
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Property and equipment: |
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Land |
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Buildings |
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Equipment |
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Construction in progress |
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Less accumulated depreciation |
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Net property and equipment |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
$ |
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$ |
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Income taxes payable to affiliate |
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Total current liabilities |
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Noncurrent liabilities - |
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Deferred income taxes |
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Stockholders' equity: |
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Preferred stock |
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Class A common stock |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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Commitments contingencies ()
See accompanying Notes to Condensed Consolidated Financial Statements.
- 3 -
COMPX INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
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Three months ended |
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March 31, |
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2020 |
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2021 |
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(unaudited) |
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Net sales |
$ |
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$ |
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Cost of sales |
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Gross margin |
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Selling, general and administrative expense |
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Operating income |
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Interest income |
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Income before income taxes |
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Provision for income taxes |
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Net income |
$ |
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$ |
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Basic and diluted net income per common share |
$ |
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$ |
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Basic and diluted weighted average shares outstanding |
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See accompanying Notes to Condensed Consolidated Financial Statements.
- 4 -
COMPX INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(unaudited)
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Three months ended March 31, 2020 and 2021 (unaudited) |
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Class A |
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Additional |
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Total |
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common |
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paid-in |
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Retained |
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Treasury |
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stockholders' |
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stock |
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capital |
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earnings |
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stock |
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equity |
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Balance at December 31, 2019 |
$ |
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$ |
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$ |
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$ |
— |
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$ |
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Net income |
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— |
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— |
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— |
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Cash dividends ($ |
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— |
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— |
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( |
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— |
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( |
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Balance at March 31, 2020 |
$ |
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$ |
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$ |
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$ |
— |
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$ |
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Balance at December 31, 2020 |
$ |
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$ |
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$ |
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$ |
— |
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$ |
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Net income |
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— |
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— |
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— |
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Cash dividends ($ |
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— |
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— |
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( |
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— |
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( |
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Treasury stock: |
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Acquired |
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— |
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— |
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— |
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( |
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( |
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Retired |
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— |
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( |
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— |
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— |
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Balance at March 31, 2021 |
$ |
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$ |
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$ |
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$ |
— |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
- 5 -
COMPX INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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Three months ended |
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March 31, |
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2020 |
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2021 |
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(unaudited) |
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Cash flows from operating activities: |
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Net income |
$ |
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$ |
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Depreciation and amortization |
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Deferred income taxes |
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Other, net |
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Change in assets and liabilities: |
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Accounts receivable, net |
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( |
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( |
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Inventories, net |
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( |
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Accounts payable and accrued liabilities |
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( |
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( |
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Accounts with affiliates |
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Prepaids and other, net |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Note receivable from affiliate: |
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Collections |
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Advances |
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( |
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( |
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Net cash provided by (used in) investing activities |
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( |
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Cash flows from financing activities: |
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Dividends paid |
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( |
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( |
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Treasury stock acquired |
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— |
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( |
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Net cash used in financing activities |
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( |
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( |
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Cash and cash equivalents - net change from: |
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Operating, investing and financing activities |
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( |
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Balance at beginning of period |
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Balance at end of period |
$ |
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$ |
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Supplemental disclosures - |
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Cash paid for income taxes |
$ |
- |
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$ |
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See accompanying Notes to Condensed Consolidated Financial Statements.
- 6 -
COMPX INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(unaudited)
Note 1 – Organization and basis of presentation:
Organization. We (NYSE American: CIX) were approximately
Basis of presentation. Consolidated in this Quarterly Report are the results of CompX International Inc. and its subsidiaries. The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 that we filed with the Securities and Exchange Commission (“SEC”) on March 3, 2021 (the “2020 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, 2020 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, 2020) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim period ended March 31, 2021 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our 2020 Consolidated Financial Statements contained in our 2020 Annual Report.
Our operations are reported on a 52 or 53-week year. For presentation purposes, annual and quarterly information in the Condensed Consolidated Financial Statements and accompanying notes are presented as ended March 31, 2020, December 31, 2020 and March 31, 2021. The actual dates of our annual and quarterly periods are March 29, 2020, January 3, 2021 and April 4, 2021, respectively. Unless otherwise indicated, references in this report to “we”, “us” or “our” refer to CompX International Inc. and its subsidiaries, taken as a whole.
- 7 -
Note 2 – Business segment information:
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Three months ended |
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March 31, |
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2020 |
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2021 |
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(In thousands) |
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Net sales: |
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Security Products |
$ |
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$ |
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Marine Components |
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Total net sales |
$ |
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$ |
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Operating income (loss): |
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Security Products |
$ |
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$ |
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Marine Components |
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Corporate operating expenses |
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( |
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( |
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Total operating income |
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Interest income |
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Income before income taxes |
$ |
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$ |
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Intersegment sales are not material.
Note 3 – Accounts receivable, net:
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December 31, |
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March 31, |
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2020 |
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2021 |
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(In thousands) |
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Accounts receivable, net: |
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Security Products |
$ |
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$ |
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Marine Components |
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Allowance for doubtful accounts |
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( |
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( |
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Total accounts receivable, net |
$ |
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$ |
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Note 4 – Inventories, net:
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December 31, |
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March 31, |
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2020 |
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2021 |
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(In thousands) |
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Raw materials: |
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Security Products |
$ |
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$ |
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Marine Components |
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Total raw materials |
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Work-in-process: |
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Security Products |
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Marine Components |
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Total work-in-process |
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Finished goods: |
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Security Products |
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Marine Components |
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Total finished goods |
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Total inventories, net |
$ |
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$ |
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- 8 -
Note 5 – Accounts payable and accrued liabilities:
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December 31, |
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March 31, |
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2020 |
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2021 |
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(In thousands) |
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Accounts payable: |
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Security Products |
$ |
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$ |
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Marine Components |
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Accrued liabilities: |
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Employee benefits |
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Taxes other than on income |
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Customer tooling |
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Professional services |
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- |
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Other |
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Total accounts payable and accrued liabilities |
$ |
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$ |
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Note 6 – Provision for income taxes:
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Three months ended |
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March 31, |
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2020 |
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2021 |
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(In thousands) |
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Expected tax expense, at the U.S. federal statutory income tax rate of |
$ |
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$ |
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State income taxes |
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FDII benefit |
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( |
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( |
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Other, net |
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— |
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Total income tax expense |
$ |
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$ |
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Note 7 – Stockholders’ equity:
Our board of directors has previously authorized the repurchase of our Class A common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. We may repurchase our common stock from time to time as market conditions permit. The stock repurchase program does not include specific price targets or timetables and may be suspended at any time. Depending on market conditions, we may terminate the program prior to its completion. We will use cash on hand to acquire the shares. Repurchased shares will be added to our treasury and cancelled.
During the first quarter of 2021, we purchased
Note 8 – Financial instruments:
The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:
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December 31, |
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March 31, |
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2020 |
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2021 |
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Carrying |
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Fair |
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Carrying |
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Fair |
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amount |
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value |
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amount |
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value |
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(In thousands) |
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Cash and cash equivalents |
$ |
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$ |
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$ |
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$ |
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Accounts receivable, net |
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|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value.
- 9 -
Note 9 – Related party transactions:
From time to time, we may have loans and advances outstanding between us and various related parties pursuant to term and demand notes. We generally enter into these loans and advances for cash management purposes. When we loan funds to related parties, we are generally able to earn a higher rate of return on the loan than we would earn if we invested the funds in other instruments, and when we borrow from related parties, we are generally able to pay a lower rate of interest than we would pay if we had incurred third-party indebtedness. While certain of these loans to affiliates may be of a lesser credit quality than cash equivalent instruments otherwise available to us, we believe we have considered the credit risks in the terms of the applicable loans. In this regard, we have an unsecured revolving demand promissory note with Valhi whereby we agreed to loan Valhi up to $
- 10 -
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Business Overview
We are a leading manufacturer of engineered components utilized in a variety of applications and industries. Through our Security Products segment we manufacture mechanical and electrical cabinet locks and other locking mechanisms used in recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications. We also manufacture stainless steel exhaust systems, gauges, throttle controls, wake enhancement systems, trim tabs and related hardware and accessories for the recreational marine and other industries through our Marine Components segment.
General
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. In some cases, you can identify forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expects” or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. The factors that could cause actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the SEC and include, but are not limited to, the following:
|
|
● |
Future demand for our products, |
|
|
● |
Changes in our raw material and other operating costs (such as zinc, brass, aluminum, steel and energy costs) and our ability to pass those costs on to our customers or offset them with reductions in other operating costs, |
|
|
● |
Price and product competition from low-cost manufacturing sources (such as China), |
|
|
● |
The impact of pricing and production decisions, |
|
|
● |
Customer and competitor strategies including substitute products, |
|
|
● |
Uncertainties associated with the development of new products and product features, |
|
|
● |
Future litigation, |
|
|
● |
Our ability to protect or defend our intellectual property rights, |
|
|
● |
Potential difficulties in integrating future acquisitions, |
|
|
● |
Decisions to sell operating assets other than in the ordinary course of business, |
|
|
● |
Environmental matters (such as those requiring emission and discharge standards for existing and new facilities), |
|
|
● |
The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform, |
|
|
● |
The impact of current or future government regulations (including employee healthcare benefit related regulations), |
|
|
● |
General global economic and political conditions that disrupt or introduce instability into our supply chain, impact our customers’ level of demand or our customers’ perception regarding demand or impair our ability to operate our facilities (including changes in the level of gross domestic product in various regions of the world, natural disasters, terrorist acts, global conflicts and public health crises such as COVID-19), |
|
|
● |
Operating interruptions (including, but not limited to labor disputes, hazardous chemical leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, cyber-attacks and public health crises such as COVID-19); and |
|
|
● |
Possible disruption of our business or increases in the cost of doing business resulting from terrorist activities or global conflicts. |
Should one or more of these risks materialize or if the consequences worsen, or if the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.
- 11 -
Operating Income Overview
In the first quarter of 2021 operating income increased to $5.8 million compared to $5.0 million in the first quarter of 2020, before our sales volumes and operations had been significantly affected by the COVID-19 pandemic. The increase in operating income in the first quarter of 2021 compared to 2020 primarily resulted from higher Marine Components sales to the towboat market. We sustained the greatest negative operating impact from COVID-19 in the second quarter of 2020 to both of our business segments. Beginning in the third quarter of 2020 and continuing through the first quarter of 2021, Marine Components experienced a significant recovery in sales, while Security Products sales generally improved sequentially, though not to pre-pandemic levels.
We sell a large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on our ability to quantify the impact of changes in individual product sales quantities and selling prices on our net sales, cost of goods sold and gross profit. In addition, small variations in period-to-period net sales, cost of goods sold and gross profit can result from changes in the relative mix of our products sold.
Results of Operations
|
|
Three months ended |
|
|||||||||||||
|
|
March 31, |
|
|||||||||||||
|
|
2020 |
|
|
% |
|
|
2021 |
|
|
% |
|
||||
|
|
(Dollars in thousands) |
|
|||||||||||||
|
Net sales |
$ |
32,311 |
|
|
|
100.0 |
% |
|
$ |
35,924 |
|
|
|
100.0 |
% |
|
Cost of sales |
|
21,880 |
|
|
|
67.7 |
|
|
|
24,889 |
|
|
|
69.3 |
|
|
Gross margin |
|
10,431 |
|
|
|
32.3 |
|
|
|
11,035 |
|
|
|
30.7 |
|
|
Operating costs and expenses |
|
5,411 |
|
|
|
16.8 |
|
|
|
5,218 |
|
|
|
14.5 |
|
|
Operating income |
$ |
5,020 |
|
|
|
15.5 |
% |
|
$ |
5,817 |
|
|
|
16.2 |
% |
Net sales. Net sales increased $3.6 million in the first quarter of 2021 compared to the same period in 2020 primarily due to higher Marine Component sales and to a lesser extent higher Security Products sales. Relative changes in selling prices did not have a material impact on net sales comparisons.
Cost of sales and gross margin. Cost of sales as a percentage of sales increased 1.6% in the first quarter of 2021 compared to the same period in 2020. As a result, gross margin as a percentage of sales decreased over the same period. Gross margin percentage decreased in the first quarter of 2021 compared to the same period in 2020 due to the decline in the Security Products gross margin percentage partially offset by a slight increase in the Marine Components gross margin percentage. See segment discussion below.
Operating costs and expenses. Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as gains and losses on property and equipment. Operating costs and expenses for the first quarter of 2021 were lower than the same period in 2020 primarily due to lower employer paid medical costs as well as lower travel related expenses. Operating costs and expenses as a percentage of net sales decreased in 2021 due to lower costs and higher sales.
Operating income. As a percentage of net sales, operating income for the first quarter of 2021 increased compared to the same period of 2020 and was primarily impacted by the factors impacting cost of goods sold, gross margin and operating costs. See segment discussion below.
Provision for income taxes. A tabular reconciliation of our actual tax provision to the U.S. federal statutory income tax rate is included in Note 6 to the Condensed Consolidated Financial Statements. Our operations are wholly within the U.S. and therefore our effective income tax rate is primarily reflective of the U.S. federal statutory rate and applicable state taxes.
- 12 -
Segment Results
The key performance indicator for our segments is operating income.
|
|
Three months ended |
|
|
|
|
|
|||||
|
|
March 31, |
|
|
|
|
|
|||||
|
|
2020 |
|
|
2021 |
|
|
% Change |
|
|||
|
|
(Dollars in thousands) |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Products: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
25,469 |
|
|
$ |
25,885 |
|
|
|
2 |
% |
|
Cost of sales |
|
16,911 |
|
|
|
17,652 |
|
|
|
4 |
|
|
Gross margin |
|
8,558 |
|
|
|
8,233 |
|
|
|
(4 |
) |
|
Operating costs and expenses |
|
2,845 |
|
|
|
2,743 |
|
|
|
(4 |
) |
|
Operating income |
$ |
5,713 |
|
|
$ |
5,490 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
33.6 |
% |
|
|
31.8 |
% |
|
|
|
|
|
Operating income margin |
|
22.4 |
|
|
|
21.2 |
|
|
|
|
|
Security Products. Security Products net sales increased 2% in the first quarter of 2021 compared to the same period last year. This increase in sales is primarily due to $0.7 million of higher sales to the transportation market and $0.5 million of higher sales to the government security market, partially offset by lower sales to markets that continue to be slower to recover from the effects of the COVID-19 pandemic, including $0.4 million of lower sales to distribution customers and $0.3 million of lower sales to the office furniture market. Gross margin and operating income margin for the first quarter of 2021 declined as compared to 2020 primarily due to higher cost inventory produced during the fourth quarter of 2020 and sold in the first quarter of 2021. Security Products inventory produced during the fourth quarter of 2020 had a higher carrying value compared to the same period in 2019 due to higher cost per unit of production as a result of lower production volumes during the fourth quarter of 2020. This negatively impacted our gross margin and operating income margin as this higher cost inventory was sold during the first quarter of 2021. Additionally, gross margin and operating income margin were favorably impacted by lower employer paid medical costs of $0.7 million during the first quarter of 2021 compared to 2020.
|
|
Three months ended |
|
|
|
|
|
|||||
|
|
March 31, |
|
|
|
|
|
|||||
|
|
2020 |
|
|
2021 |
|
|
% Change |
|
|||
|
|
(Dollars in thousands) |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine Components: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
6,842 |
|
|
$ |
10,039 |
|
|
|
47 |
% |
|
Cost of sales |
|
4,969 |
|
|
|
7,237 |
|
|
|
46 |
|
|
Gross margin |
|
1,873 |
|
|
|
2,802 |
|
|
|
50 |
|
|
Operating costs and expenses |
|
791 |
|
|
|
859 |
|
|
|
9 |
|
|
Operating income |
$ |
1,082 |
|
|
$ |
1,943 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
27.4 |
% |
|
|
27.9 |
% |
|
|
|
|
|
Operating income margin |
|
15.8 |
|
|
|
19.4 |
|
|
|
|
|
Marine Components. Marine Components net sales increased 47% in the first quarter of 2021 compared to the same period last year primarily due to increased sales of $2.7 million to the towboat market, primarily wake enhancements systems and surf pipes to original equipment boat manufacturers. Marine Components continues to benefit from an overall increase in demand in the recreational marine market which began in late spring 2020. Gross margin and operating income as a percentage of sales increased in the first quarter of 2021 compared to the same period last year due to a favorable customer and product mix and increased coverage of fixed costs on higher sales as well as decreased employer paid medical costs.
- 13 -
Outlook. We first began to feel the effects of the COVID-19 pandemic in late March 2020 when we began receiving requests from certain customers of both our Security Products and Marine Components segments to postpone shipments, in some cases because our customers’ production facilities were temporarily closed. The second quarter of 2020 sustained the greatest impact from COVID-19, but its effects continued to be felt through most of the remainder of the year. In the second half of 2020, our sales began to recover from the historically low levels we experienced during the second quarter of 2020, with sales steadily improving for the remainder of the year and through the first quarter of 2021. In the first quarter of 2021, our manufacturing operations maintained normal production rates in-line with improved demand, although our Security Products segment still has some markets which continue to be slower to recover, particularly distributors and office furniture. Our supply chains remain intact although we have been moderately impacted by recent global and domestic supply chain disruptions. Thus far our operations team has been able to manage through these disruptions with minimal impact on our operations. Most of the markets we serve continue to recover, and we communicate closely with all our customers to monitor order levels. Marine Component segment sales outpaced prior year as demand for recreational boats increased as people sought socially distanced, outdoor activities. We expect this trend to continue during the remainder of 2021.
Considerable effort continues at all our locations to manage COVID-19 conditions including enhanced health and safety protocols and cleaning and disinfecting efforts. Throughout the course of the COVID-19 pandemic, we have focused our efforts on maintaining efficient operations while closely managing our expenses. The advance of the COVID-19 pandemic and the global efforts to mitigate its spread are expected to continue to challenge workers, businesses and governments during 2021. The success and timing of mitigating actions depends in part on continued deployment of effective tools to fight COVID-19, including effective treatments and vaccine distribution, before economies are likely to return to normal. In this regard, as part of our health and safety procedures, we are encouraging our employees to receive a COVID-19 vaccine and have offered paid time off to hourly employees to facilitate participation.
Based on current conditions, we expect to report increased revenue and operating income in 2021 compared to 2020, despite some markets of the Security Products Segment that have not fully recovered to pre-pandemic levels. As a result, we expect to continue to experience higher fixed costs per unit of production during 2021 which will continue to challenge gross margins in the segment. The impact of COVID-19 on 2021 will depend on customer demand for our products, including the timing and extent to which our customers’ operations may be impacted, on our customers’ perception as to consumer demand for their products and on any future disruptions in our operations or our suppliers’ operations, all of which are difficult to predict. As noted above, there are global supply chain disruptions and certain of our customers have experienced temporary pauses in their operations as a result of these disruptions. Thus far these pauses have not had a material negative effect on our sales. Our operations teams meet frequently to ensure we are taking appropriate actions to maintain a safe working environment for all our employees, minimize material or supply related operational disruptions, manage inventory levels and improve operating margins. We are constantly evaluating our staffing levels and we believe our current staffing levels are aligned with our sales and production forecasts.
- 14 -
Liquidity and Capital Resources
Consolidated cash flows –
Operating activities. Trends in cash flows from operating activities, excluding changes in assets and liabilities, have generally been similar to the trends in operating earnings. Changes in assets and liabilities result primarily from the timing of production, sales and purchases. Changes in assets and liabilities generally tend to even out over time. However, period-to-period relative changes in assets and liabilities can significantly affect the comparability of cash flows from operating activities.
We generally report a net use of cash from operating activities in the first three months of each year due to seasonal changes in the level of our working capital. Our net cash used by operating activities for the first three months of 2021 increased by $2.2 million as compared to the first three months of 2020. The increase in net cash used is primarily due to the net effects of:
|
|
• |
A $0.8 million increase in operating income in 2021, |
|
|
• |
A $0.3 million decrease in interest received in 2021 due to lower average interest rates and to a lesser extent a lower average affiliate receivable balance, |
|
|
• |
A $0.4 million increase in cash paid for taxes in 2021 due to the relative timing of payments; and |
|
|
• |
A higher amount of net cash used by relative changes in our inventories, receivables, prepaids, payables and non-tax related accruals of approximately $2.2 million in 2021. |
Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, the change in our average days sales outstanding from December 31, 2020 to March 31, 2021 varied by segment, primarily as a result of relative changes in the timing of collections but is consistent with prior year. For comparative purposes, we have provided December 31, 2019 and March 31, 2020 numbers below.
|
Days Sales Outstanding: |
|
December 31, 2019 |
|
March 31, 2020 |
|
December 31, 2020 |
|
March 31, 2021 |
|
Security Products |
|
38 Days |
|
46 Days |
|
35 Days |
|
46 Days |
|
Marine Components |
|
27 Days |
|
33 Days |
|
24 Days |
|
33 Days |
|
Consolidated CompX |
|
36 Days |
|
43 Days |
|
33 Days |
|
43 Days |
Our total average number of days in inventory decreased from December 31, 2020 to March 31, 2021, particularly for Marine Components. The average number of days in inventory for Marine Components decreased primarily as a result of rapid sales growth in the first quarter of 2021. For comparative purposes, we have provided December 31, 2019 and March 31, 2020 numbers below.
|
Days in Inventory: |
|
December 31, 2019 |
|
March 31, 2020 |
|
December 31, 2020 |
|
March 31, 2021 |
|
Security Products |
|
76 Days |
|
78 Days |
|
75 Days |
|
72 Days |
|
Marine Components |
|
100 Days |
|
82 Days |
|
75 Days |
|
54 Days |
|
Consolidated CompX |
|
81 Days |
|
79 Days |
|
75 Days |
|
66 Days |
Investing activities. Our capital expenditures were $0.6 million and $0.4 million in the first three months of 2021 and 2020, respectively. During the first three months of 2021, Valhi repaid a net $0.3 million under the promissory note ($11.6 million of gross borrowings and $11.9 million of gross repayments). During the first three months of 2020, Valhi repaid a net $2.6 million under the promissory note ($15.6 million of gross borrowings and $18.2 million of gross repayments). See Note 9 to the Condensed Consolidated Financial Statements.
Financing activities. In March 2021, our board of directors increased our regular quarterly dividend from $.10 per share to $.20 per share beginning in the first quarter of 2021. The declaration and payment of future dividends and the amount thereof, if any, is discretionary and is dependent upon our results of operations, financial condition, cash requirements for our businesses, contractual requirements and restrictions and other factors deemed relevant by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which we might pay.
In addition, during the first three months of 2021, we acquired 50,000 shares of our Class A common stock in a market transaction for $0.8 million.
- 15 -
Future cash requirements –
Liquidity. Our primary source of liquidity on an ongoing basis is our cash flow from operating activities, which is generally used to (i) fund capital expenditures, (ii) repay short-term or long-term indebtedness incurred primarily for capital expenditures, investment activities or reducing our outstanding stock, (iii) provide for the payment of dividends (if declared), and (iv) lend to affiliates. From time-to-time, we will incur indebtedness, primarily to fund capital expenditures or business combinations.
Periodically, we evaluate liquidity requirements, alternative uses of capital, capital needs and available resources in view of, among other things, our capital expenditure requirements, dividend policy and estimated future operating cash flows. As a result of this process, we have in the past and may in the future seek to raise additional capital, refinance or restructure indebtedness, issue additional securities, modify our dividend policy or take a combination of such steps to manage our liquidity and capital resources. In the normal course of business, we may review opportunities for acquisitions, joint ventures or other business combinations in the component products industry. In the event of any such transaction, we may consider using available cash, issuing additional equity securities or increasing our indebtedness or that of our subsidiaries.
We believe that cash generated from operations together with cash on hand, as well as our ability to obtain external financing, will be sufficient to meet our liquidity needs for working capital, capital expenditures, debt service, dividends (if declared) and any amounts we might loan from time to time under the terms of our revolving loan to Valhi discussed in Note 9 to our Condensed Consolidated Financial Statements (which loans would be solely at our discretion) for both the next 12 months and five years. To the extent that our actual operating results or other developments differ from our expectations, our liquidity could be adversely affected.
All of our $64.7 million aggregate cash and cash equivalents at March 31, 2021 were held in the U.S.
Capital expenditures. Firm purchase commitments for capital projects in process at March 31, 2021 totaled $0.5 million. Our 2021 capital investments are primarily expenditures to meet our expected customer demand, improve efficiency and properly maintain our facilities and technology infrastructure.
Stock repurchase program. During the first quarter of 2021, we purchased 50,000 shares of our Class A common stock in a market transaction. At March 31, 2021, we have 627,547 shares available for repurchase under a stock repurchase program authorized by our board of directors. See Note 7 to our Condensed Consolidated Financial Statements.
Commitments and contingencies. There have been no material changes in our contractual obligations since we filed our 2020 Annual Report and we refer you to that report for a complete description of these commitments.
Off-balance sheet financing arrangements –
We do not have any off-balance sheet financing agreements.
Recent accounting pronouncements –
None.
Critical accounting policies –
There have been no changes in the first three months of 2021 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report.
|
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
We are exposed to market risk from changes in interest rates and raw material prices. There have been no material changes in these market risks since we filed our 2020 Annual Report, and we refer you to Part I, Item 7A – “Quantitative and Qualitative Disclosure About Market Risk” in our 2020 Annual Report. See also Note 8 to the Condensed Consolidated Financial Statements.
|
ITEM 4. |
CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Act”), is
- 16 -
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Our management with the participation of Scott C. James, our President and Chief Executive Officer, and Amy Allbach Samford, our Vice President and Chief Financial Officer, has evaluated the design and operating effectiveness of our disclosure controls and procedures as of March 31, 2021. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of such evaluation.
Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting which, as defined in Exchange Act Rule 13a-15(f), means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
|
|
• |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, |
|
|
• |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and |
|
|
• |
Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of our assets that could have a material effect on our Condensed Consolidated Financial Statements. |
Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 17 -
Part II. OTHER INFORMATION
|
ITEM 1A. |
Risk Factors. |
Reference is made to the 2020 Annual Report for a discussion of risk factors related to our businesses. There have been no material changes to such risk factors during the three months ended March 31, 2021.
|
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
The following table discloses certain information regarding the shares of our common stock we purchased during the first quarter of 2021 (we made no purchases in January and February 2021). All of these purchases were made under the repurchase program in open market transactions. See Note 7 to our Condensed Consolidated Financial Statements.
|
Period |
|
Total number of shares purchased (1) |
|
Average price paid per share |
|
Total number of shares purchased as part of the publicity announced plan |
|
Maximum number of shares that may yet be purchased under the publicly announced plan |
|
March 2021 |
|
50,000 |
|
$15.06 |
|
50,000 |
|
627,547 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Our board of directors previously authorized repurchases of shares of our Class A common stock in open market transactions, including block purchases, or in privately-negotiated transactions at unspecified prices and over an unspecified period of time. |
|
ITEM 6. |
Exhibits. |
|
Item No. |
|
Exhibit Index |
|
|
|
|
|
31.1 |
|
|
|
31.2 |
|
|
|
32.1 |
|
|
|
101.INS
|
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema |
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase |
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase |
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase |
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase |
|
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
- 18 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
COMPX INTERNATIONAL INC. |
||
|
|
|
(Registrant) |
||
|
|
|
|
||
|
Date: May 4, 2021 |
|
By: |
|
/s/ Amy Allbach Samford |
|
|
|
|
|
Amy Allbach Samford |
|
|
|
|
|
Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
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By: |
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/s/ Amy E. Ruf |
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Amy E. Ruf |
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Vice President and Controller |
- 19 -