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CompX International 10-K 2008 Documents found in this filing:
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 – For the fiscal year ended December 31, 2007
Commission
file number 1-13905
Indicate
by check mark:
If the
Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes £ No
S
If the
Registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes £ No
S
Whether
the Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes S No
£
If
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
S
Whether
the registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer (as defined in Rule 12b-2 of the Act). Large
accelerated filer £ Accelerated
filer £ Non-accelerated
filer S Smaller
reporting company £
Whether
the Registrant is a shell Company (as defined in Rule 12b-2 of the Exchange
Act). Yes £ No
S
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The
aggregate market value of the 1.8 million shares of voting stock held by
nonaffiliates of CompX International Inc. as of June 30, 2007 (the last business
day of the Registrant’s most recently completed second fiscal quarter)
approximated $32.5 million.
As of
February 25 2008, 2,435,160 shares of Class A common stock were
outstanding. Documents incorporated by
reference
The
information required by Part III is incorporated by reference from the
Registrant's definitive proxy statement to be filed with the Commission pursuant
to Regulation 14A not later than 120 days after the end of the fiscal year
covered by this report.
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PART
I
ITEM
1. BUSINESS>
General
CompX
International Inc. (NYSE:CIX), incorporated in Delaware in 1993, is a leading
manufacturer of security products, precision ball bearing slides, and ergonomic
computer support systems used in the office furniture, transportation, postal,
tool storage, appliance and a variety of other industries. We are
also a leading manufacturer of stainless steel exhaust systems, gauges, and
throttle controls for the performance marine industry. Our products are
principally designed for use in medium to high-end product applications, where
design, quality and durability are critical to our customers.
At
December 31, 2007, (i) NL Industries, Inc. (NYSE: NL) owned 86% of our
outstanding common stock; (ii) Valhi, Inc. (NYSE: VHI) holds approximately 83%
of NL’s outstanding common stock; and (iii) a subsidiary of Contran Corporation
holds approximately 93% of Valhi's outstanding common stock. Substantially all
of Contran's outstanding voting stock is held by trusts established for the
benefit of certain children and grandchildren of Harold C. Simmons, (for which
Mr. Simmons is sole trustee) or is held by Mr. Simmons or persons or other
entities related to Mr. Simmons. Consequently, Mr. Simmons may be
deemed to control each company and us.
Our
corporate offices are located at Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240. Our telephone number is (972)
448-1400. We maintain a website at www.compx.com.
Unless
otherwise indicated, references in this report to “we”, “us”, or “our” refer to
CompX International Inc. and its subsidiaries taken as a whole.
Forward
Looking Statements
This
Annual Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements in this Annual
Report on Form 10-K that are not historical in nature are forward-looking in
nature about our future, and are not statements of historical fact. Such
statements are found in this report, including, but not limited to, statements
found in Item 1 – "Business," Item 1A – “Risk Factors,” Item 3 - "Legal
Proceedings," Item 7 - "Management’s Discussion and Analysis of Financial
Condition and Results of Operations" and Item 7A - "Quantitative and Qualitative
Disclosures About Market Risk." These statements are forward-looking statements
that represent our beliefs and assumptions based on currently available
information. In some cases you can identify these 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 the expectations reflected in forward-looking statements are reasonable,
we do not know if these expectations will be correct. Forward-looking
statements by their nature involve substantial risks and uncertainties that
could significantly impact expected results. Actual future results
could differ materially from those predicted. Among the factors that
could cause actual future results to differ materially from those described
herein are the risks and uncertainties discussed in this Annual Report and those
described from time to time in our other filings with the SEC including, but not
limited to, the following:
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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.
Industry
Overview
We
manufacture components that are sold to a variety of industries including office
furniture, recreational transportation (including performance boats), mailboxes,
tool boxes, appliances, banking equipment, vending equipment and computers and
related equipment. Approximately 32% of our total sales are to the
office furniture manufacturing industry, which decreased from 36% in 2006 and
43% in 2005. The decrease in the percentage of sales to the office
furniture industry is partially the result of our strategy to diversify our
sales in order to strengthen our customer base. We believe that our
emphasis on new product development and sales of our products to additional
markets has resulted in our potential for higher rates of earnings growth and
diversification of risk. See also Item 6 – "Selected Financial Data"
and Item 7 – "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Business
Segments
We
currently have three operating business segments – Security Products, Furniture
Components, and Marine Components. For additional information
regarding our segments, see “Part II – Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and Note 2 to our
Consolidated Financial Statements.
Manufacturing,
Operations, and Products
Security Products. Our Security
Products segment, with a manufacturing facility in South Carolina and a facility
in Illinois shared with Marine Components, manufactures locking mechanisms and
other security products for sale to the postal, transportation, office
furniture, banking, vending, and other industries. We believe we are
a North American market leader in the manufacture and sale of cabinet locks and
other locking mechanisms. Our security products are used in a variety
of applications including ignition systems, mailboxes, vending and gaming
machines, parking meters, electrical circuit panels, storage compartments,
office furniture and medical cabinet security. These products
include:
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A
substantial portion of our Security Products’ sales consist of products with
specialized adaptations to individual manufacturer’s specifications, some of
which are listed above. We also have a standardized product line
suitable for many customers which is offered through a North American
distribution network with our STOCK LOCKS distribution
program to lock distributors and for smaller original equipment manufacturers
(“OEMs”).
Furniture
Components. Our Furniture Components segment, with
manufacturing facilities in Canada, Michigan and Taiwan, manufactures a complete
line of precision ball bearing slides and ergonomic computer support systems for
use in applications such as computer related equipment, tool storage cabinets,
imaging equipment, file cabinets, desk drawers, automated teller machines,
appliances and other applications. These products
include:
Marine Components. Our Marine
Components segment, with a manufacturing facility in Wisconsin and a facility in
Illinois shared with Security Products, manufactures and distributes marine
instruments, hardware and accessories for performance boats. Our
specialty marine component products are high performance components designed to
operate within precise tolerances in the highly corrosive marine
environment. These products include:
Our
business segments operated six manufacturing facilities at December 31, 2007
including one facility in Grayslake, Illinois that houses operations relating to
Security Products and Marine Components. For additional information,
see also “Item 2 – Properties”, including information regarding leased and
distribution-only facilities.
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Raw
Materials
Our
primary raw materials are:
These raw
materials are purchased from several suppliers and are readily available from
numerous sources.
We
occasionally enter into raw material arrangements to mitigate the short-term
impact of future increases in raw material costs. While these
arrangements do not necessarily commit us to a minimum volume of purchases, they
generally provide for stated unit prices based upon achievement of specified
purchase volumes. We utilize purchase arrangements to stabilize our
raw material prices provided we meet the specified minimum monthly purchase
quantities. Raw materials purchased outside of these arrangements are sometimes
subject to unanticipated and sudden price increases. Due to the competitive
nature of the markets served by our products, it is often difficult to recover
all increases in raw material costs through increased product selling prices or
raw material surcharges. Consequently, overall operating margins can
be affected by raw material cost pressures. Steel and zinc prices are
cyclical, reflecting overall economic trends and specific developments in
consuming industries and are currently at historically high levels.
Patents
and Trademarks
We hold a
number of patents relating to our component products, certain of which are
believed to be important to us and our continuing business
activity. Patents generally have a term of 20 years, and our patents
have remaining terms ranging from less than one year to 15 years at December 31,
2007. Our major trademarks and brand names include:
We sell
components directly to large OEM customers through our factory-based sales and
marketing professionals and engineers working in concert with field salespeople
and independent manufacturers' representatives. We select manufacturers'
representatives based on special skills in certain markets or relationships with
current or potential customers.
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A
significant portion of our sales are also made through
distributors. We have a significant market share of cabinet lock
sales as a result of the locksmith distribution channel. We support
our distributor sales with a line of standardized products used by the largest
segments of the marketplace. These products are packaged and merchandised for
easy availability and handling by distributors and end users. Due to
our success with the STOCK
LOCKS inventory program within the Security Products segment, similar
programs have been implemented for distributor sales of ergonomic computer
support systems within the Furniture Components segment.
In 2007,
our ten largest customers accounted for approximately 31% of our total sales;
however, no one customer accounted for sales of 10% or more in
2007. Of the 31%, 13% was related to Security Products and 18% was
related to Furniture Components. Overall, our customer base is
diverse and the loss of any single customer would not have a material adverse
effect on our operations.
Competition
The
markets in which we participate are highly competitive. We compete
primarily on the basis of product design, including ergonomic and aesthetic
factors, product quality and durability, price, on-time delivery, service and
technical support. We focus our efforts on the middle and high-end
segments of the market, where product design, quality, durability and service
are valued by the customer.
Our
Marine Components segment competes with small domestic manufacturers and is
minimally affected by foreign competitors. Our Security Products and
Furniture Components segments compete against a number of domestic and foreign
manufacturers. Suppliers, particularly Asian based furniture
component suppliers, have put intense price pressure on our
products. In some cases, we have lost sales to these lower cost
manufacturers. We have responded by
We have
substantial operations and assets located outside the United States, principally
Furniture Component operations in Canada and Taiwan. The majority of
our 2007 non-U.S. sales are to customers located in Canada. These
operations are subject to, among other things, currency exchange rate
fluctuations. Our results of operations have in the past been both
favorably and unfavorably affected by fluctuations in currency exchange
rates. Political and economic uncertainties in certain of the
countries in which we operate may expose us to risk of loss. We do
not believe that there is currently any likelihood of material loss through
political or economic instability, seizure, nationalization or similar
event. We cannot predict, however, whether events of this type in the
future could have a material effect on our operations. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 7A – "Quantitative and Qualitative Disclosures About Market
Risk" and Note 1 to the Consolidated Financial Statements.
Regulatory
and Environmental Matters
Our
operations are subject to federal, state, local and foreign laws and regulations
relating to the use, storage, handling, generation, transportation, treatment,
emission, discharge, disposal, remediation of and exposure to hazardous and
non-hazardous substances, materials and wastes ("Environmental
Laws"). Our operations also are subject to federal, state, local and
foreign laws and regulations relating to worker health and safety. We
believe that we are in substantial compliance with all such laws and
regulations. To date, the costs of maintaining compliance with such
laws and regulations have not significantly impacted our results. We
currently do not anticipate any significant costs or expenses relating to such
matters; however, it is possible future laws and regulations may require us to
incur significant additional expenditures.
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Employees
As of
December 31, 2007, we employed the following number of people:
(1)
Approximately 75% of our Canadian employees are represented by a labor
union covered by a collective bargaining agreement that expires in January 2009
which provides for annual wage increases from 1% to 2.5% over the term of the
contract. We believe our labor relations are good at all of our
facilities.
Available
Information
Our
fiscal year ends December 31. We furnish our stockholders with annual
reports containing audited financial statements. In addition, we file
annual, quarterly and current reports, proxy and information statements and
other information with the SEC. We also make our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments thereto, available free of charge through our website at www.compx.com as soon
as reasonably practical after they have been filed with the SEC. We
also provide to anyone, without charge, copies of such documents upon written
request. Requests should be directed to the attention of the
Corporate Secretary at our address on the cover page of this Form
10-K.
Additional
information, including our Audit Committee Charter, our Code of Business Conduct
and Ethics and our Corporate Governance Guidelines, can also be found on our
website. Information contained on our website is not a part of this
Annual Report.
The
general public may read and copy any materials we file with the SEC at the SEC’s
Public Reference Room at 100 F. Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. We are an electronic
filer. The SEC maintains an Internet website at www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC, including
us.
Item
1A. RISK
FACTORS
Listed
below are certain risk factors associated with us and our
businesses. In addition to the potential effect of these risk factors
discussed below, any risk factor which could result in reduced earnings or
operating losses, or reduced liquidity, could in turn adversely affect our
ability to service our liabilities or pay dividends on our common stock or
adversely affect the quoted market prices for our securities.
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Many of
the markets we serve are highly competitive, with a number of competitors
offering similar products. We focus our efforts on the middle and
high-end segment of the market where we feel that we can compete due to the
importance of product design, quality and durability to the
customer. However, our ability to effectively compete is impacted by
a number of factors. The occurrence of any of these factors could
result in reduced earnings or operating losses.
Sales of
our products to the office furniture manufacturing industry accounted for
approximately 32%, 36% and 43% for 2007, 2006 and 2005,
respectively. The future growth, if any, of the office furniture
industry will be affected by a variety of macroeconomic factors, such as service
industry employment levels, corporate cash flows and non-residential commercial
construction, as well as industry factors such as corporate reengineering and
restructuring, technology demands, ergonomic, health and safety concerns and
corporate relocations. There can be no assurance that current or future economic
or industry trends will not materially and adversely affect our
business.
Our
failure to enter into new markets with our current businesses would result in
the continued significant impact of fluctuations in demand within the office
furniture manufacturing industry on our operating results.
In an
effort to reduce our dependence on the office furniture market for certain
products and to increase our participation in other markets, we have been
devoting resources to identifying new customers and developing new applications
for those products in markets outside of the office furniture industry, such as
home appliances and tool boxes. Developing these new applications for
our products involves substantial risk and uncertainties due to our limited
experience with customers and applications in these markets as well as facing
competitors who are already established in these markets. We may not
be successful in developing new customers or applications for our products
outside of the office furniture industry. Significant time may be
required to develop new applications and uncertainty exists as to the extent to
which we will face competition in this regard.
Historically,
our ability to provide value-added custom engineered products that address
requirements of technology and space utilization has been a key element of our
success. The introduction of new products and features requires the
coordination of the design, manufacturing and marketing of the new products with
current and potential customers. The ability to coordinate these
activities with current and potential customers may be affected by factors
beyond our control. While we will continue to emphasize the
introduction of innovative new products that target customer-specific
opportunities, there can be no assurance that any new products we introduce will
achieve the same degree of success that we have achieved with our existing
products. Introduction of new products typically requires us to
increase production volume on a timely basis while maintaining product
quality. Manufacturers often encounter difficulties in increasing
production volumes, including delays, quality control problems and shortages of
qualified personnel or raw materials. As we attempt to introduce new
products in the future, there can be no assurance that we will be able to
increase production volume without encountering these or other problems, which
might negatively impact our financial condition or results of
operations.
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Recent
and future acquisitions could subject us to a number of operational
risks.
A key
component of our strategy is to grow and diversify our business through
acquisitions. Our ability to successfully execute this component of
our strategy entails a number of risks, including:
Higher
costs of our raw materials may decrease our liquidity.
Certain
of the raw materials used in our products are commodities that are subject to
significant fluctuations in price in response to world-wide supply and
demand. Coiled steel is the major raw material used in the
manufacture of precision ball bearing slides and ergonomic computer support
systems. Plastic resins for injection molded plastics are also an
integral material for ergonomic computer support systems. Zinc is a
principal raw material used in the manufacture of security
products. Stainless steel tubing is the major raw material used in
the manufacture of marine exhaust systems. These raw materials are
purchased from several suppliers and are generally readily available from
numerous sources. We occasionally enter into raw material supply
arrangements to mitigate the short-term impact of future increases in raw
material costs. Materials purchased outside of these arrangements are
sometimes subject to unanticipated and sudden price increases. Should
our vendors not be able to meet their contractual obligations or should we be
otherwise unable to obtain necessary raw materials, we may incur higher costs
for raw materials or may be required to reduce production levels, either of
which may decrease our liquidity as we may be unable to offset the higher costs
with increased selling prices for our products.
ITEM
1B.
UNRESOLVED STAFF
COMMENTS>
None.
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ITEM
2. PROPERTIES
Our
principal executive offices are located in approximately 1,000 square feet
of leased space at 5430 LBJ Freeway, Dallas,
Texas 75240. The following table sets forth the location,
size, business operating segment and general product types produced for each of
our operating facilities.
FC –
Furniture Components business segment
SP –
Security Products business segment
MC –
Marine Components business segment
(1)
ISO-9001 registered facilities
(2)
ISO-9002 registered facilities
We
believe all of our facilities are well maintained and satisfactory for their
intended purposes. During 2007, we built a larger facility at the
site of our Marine Components subsidiary, Livorsi Marine, in Grayslake,
Illinois. We moved two of our Security Products operations to the new
facility during the third and fourth quarters of 2007. One of the
vacated properties was sold in 2006 and the other is currently held for
sale.
ITEM
3. LEGAL
PROCEEDINGS
We are
involved, from time to time, in various environmental, contractual, product
liability, patent (or intellectual property) and other claims and disputes
incidental to our business. Currently no material environmental or
other material litigation is pending or, to our knowledge,
threatened. We currently believe that the disposition of all claims
and disputes, individually or in the aggregate, should not have a material
adverse effect on our consolidated financial condition, results of operations or
liquidity.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART
II
ITEM
5. MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common
Stock and Dividends.> Our Class A common stock is listed and traded
on the New York Stock Exchange (symbol: CIX). As of February 25, 2008,
there were approximately 18 holders of record of CompX Class A common
stock. The following table
sets forth the high and low closing sales prices per share for our Class A
common stock for the periods indicated, according to Bloomberg, and dividends
paid during each period. On February 25, 2008, the closing price per share
of our Class A common stock according to Bloomberg was
$10.08.
We paid
regular quarterly dividends of $.125 per share during 2006 and
2007. In February of 2008, our board of directors declared a first
quarter 2008 dividend of $.125 per share, to be paid on March 21, 2008 to CompX
shareholders of record as of March 11, 2008. However, 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 this regard, our
revolving bank credit facility places certain restrictions on the payment of
dividends. We are limited to (i) a $.125 per share quarterly dividend, not to
exceed $8.0 million in any calendar year, plus (ii) $20.0 million plus 50% of
net income since September 30, 2005 over the term of the credit
facility.
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The
following table discloses certain information regarding the shares of our common
stock we purchased during the fourth quarter of 2007 (there were no purchases
during December 2007). All of these purchases were made under the
repurchase program in open market transactions, except for the net 2.7 million
shares we repurchased and/or cancelled in a related party transaction as
discussed in Note 12 to the Consolidated Financial Statements.
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ITEM
6.
SELECTED
FINANCIAL DATA>
The
following selected financial data should be read in conjunction with our
Consolidated Financial Statements and Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Our
operations are comprised of a 52 or 53-week fiscal year. 2004 was a
53-week year, all other years shown are 52-week years.
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ITEM
7.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS>
Business
Overview
We are a
leading manufacturer of security products, precision ball bearing slides, and
ergonomic computer support systems used in the office furniture, transportation,
postal, tool storage, home appliance and a variety of other
industries. We are also a leading manufacturer of stainless steel
exhaust systems, gauges and throttle controls for the performance boat
industry.
Operating
Income Overview
We
reported operating income of $15.6 million in 2007 compared to operating income
of $20.3 million in 2006 and $19.1 million in 2005. We improved our
product mix in 2007 as compared to 2006 through our emphasis on selling higher
margin products and improving our operating efficiency through our continued
focus on reducing costs. However, these improvements were more than
offset by the unfavorable effects of costs related to the consolidation of three
of our northern Illinois facilities into one newly completed facility, the
unfavorable effect of relative changes in foreign currency exchange rates, lower
sales to the office furniture industry due to competition from lower priced
Asian manufacturers and lower order rates from many of our customers due to
unfavorable economic conditions, all of which resulted in a net
decrease in operating income from 2006 to 2007. We also experienced
higher raw material costs in 2006 and 2007, although the unfavorable impact on
gross margin was largely mitigated through the implementation of sales price
increases on most products that were affected. Our operating income
increased from 2005 to 2006 primarily due to a more favorable product mix, the
impact of two marine acquisitions, and our on-going focus on reducing costs
partially offset by the negative impact of changes in currency exchange
rates.
Fluctuations
in foreign currency exchange rates positively impacted sales in 2007 as compared
to 2006 by $900,000, and negatively impacted operating income by $2.4
million. Fluctuations in foreign currency exchange rates positively
impacted sales in 2006 as compared to 2005 by $1.1 million, and negatively
impacted operating income by $1.1 million. The impact on net sales is
primarily due to the strengthening Canadian dollar in relation to the U.S.
dollar. The net impact on operating income primarily results from our
Canadian operations, due to the relative increase in costs as a result of the
stronger Canadian dollar.
Critical
Accounting Policies and Estimates
We have
based the accompanying "Management's Discussion and Analysis of Financial
Condition and Results of Operations" upon our Consolidated Financial Statements.
We prepared our Consolidated Financial Statements in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). In
preparing our Consolidated Financial Statements, we are required to make
estimates and judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amount of revenues and expenses
during the reported period. On an on-going basis, we evaluate our
estimates, including those related to inventory reserves, the recoverability of
long-lived assets (including goodwill and other intangible assets) and the
realization of deferred income tax assets. We base our estimates on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the reported amounts of assets, liabilities, revenues and
expenses. Our actual future results might differ from
previously-estimated amounts under different assumptions or
conditions.
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We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our Consolidated Financial
Statements and are applicable to all of our operating segments:
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Results
of Operations - 2006 Compared to 2007 and 2005 Compared to 2006
Net Sales. Net
sales decreased in 2007 as compared to 2006 principally due to lower sales of
certain products to the office furniture market where Asian competitors have
established selling prices at a level below which we consider would return a
minimal margin as well as lower order rates from many of our customers due to
unfavorable economic conditions, offset in part by the effect of sales price
increases for certain products to mitigate the effect of higher raw material
costs.
Net sales
increased in 2006 as compared to 2005 principally due to new sales volumes
generated from the August 2005 and April 2006 acquisitions of two Marine
Components businesses, which increased sales by $11.3 million in
2006. Other factors contributing to the increase in sales include
sales volume increases in Security Products resulting from improved demand and
the favorable effects of currency exchange rates on Furniture Components sales;
offset in part by sales volume decreases for certain Furniture Components
products due to competition from lower priced Asian manufacturers.
Costs of Goods Sold and Gross
Margin. Cost of goods sold as a percentage of net sales
decreased from 2006 to 2007, and gross margin percentage increased from the
prior year. During 2007, we experienced the favorable effects of an
improved product mix and improvements in our operating efficiency through cost
reductions partially offset by the unfavorable effect of relative changes in
foreign currency exchange rates, lower sales to the office furniture industry
due to competition from lower priced Asian manufacturers and lower order rates
from many of our customers due to unfavorable economic conditions.
Cost of
goods sold decreased as a percentage of net sales in 2006 compared to 2005, and
as a result gross margin increased over the same period. The
resulting improvement in gross margin was primarily due to an improved product
mix, with a decline in lower-margin Furniture Components sales and an increase
in sales of higher margin Security and Marine Components products, as well as a
continued focus on reducing costs, offset in part by higher raw material costs
and the unfavorable effect of changes in currency exchange rates.
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Operating Costs and Expenses.
Operating costs and expenses consists primarily of salaries, commissions and
advertising expenses directly related to product sales, as well as, gains and
losses on plant, property and equipment and currency gains and
losses. As a percentage of net sales, operating costs and expenses
increased from 2006 to 2007 primarily as a result of lower sales volumes, the
increase in foreign exchange transaction losses due to the strengthening of the
Canadian dollar in relation to the U.S. dollar (a loss increase over 2006 of
$1.2 million) as well as costs related to the consolidation of three of our
northern Illinois facilities into one newly completed facility of approximately
$2.7 million. These costs include abnormal manufacturing costs such as physical
move costs, equipment installation, redundant labor and recruiting fees, and an
impairment charge of $765,000 for fixed assets no longer in
use. Approximately $600,000 of the impairment charge relates to the
write-down of our vacated River Grove facility to its estimated net realizable
value. See Note 9 to the Consolidated Financial
Statements.
Operating
costs and expenses as a percentage of net sales were comparable from 2005 to
2006.
Operating
Income. Operating income for 2007 decreased $4.7 million, or
23% compared to 2006 and operating margins decreased to 9% in 2007 compared to
11% for 2006. As compared to 2006, in 2007 we improved our product
mix through our emphasis on selling higher margin products and continued our
focus on improving our operating efficiency by reducing
costs. However, these improvements were more than offset by the
unfavorable effects of the $2.7 million in costs noted above related to the
consolidation of three of our northern Illinois facilities into one newly
completed facility, a $2.4 million unfavorable effect of relative changes in
foreign currency exchange rates (including the $1.2 million related to foreign
exchange transaction losses noted above), lower sales to the office furniture
industry due to competition from lower priced Asian manufacturers and lower
order rates from many of our customers due to unfavorable economic conditions
resulting in a net decrease in operating income from 2006 to 2007.
Operating
income for 2006 increased $1.2 million, or 6% compared to 2005 and operating
margins increased to 11% in 2006 compared to 10% for 2005. Our
operating income increased from 2005 to 2006 primarily due to a more favorable
product mix, the impact of two marine acquisitions, and our on-going focus on
reducing costs partially offset by the negative impact of changes in currency
exchange rates and higher raw material costs.
Currency. Our
Furniture Components segment has substantial operations and assets located
outside the United States (in Canada and Taiwan). The majority of
sales generated from our non-U.S. operations are denominated in the U.S. dollar
with the remainder denominated in other currencies, principally the Canadian
dollar and the New Taiwan dollar. Most raw materials, labor and other
production costs for our non-U.S. operations are denominated primarily in local
currencies. Consequently, the translated U.S. dollar values of our
non-U.S. sales and operating results are subject to currency exchange rate
fluctuations which may favorably or unfavorably impact reported earnings and may
affect comparability of period-to-period operating results.
Our
Furniture Components segment’s net sales were positively impacted while their
operating income was negatively impacted by currency exchange rates in the
following amounts as compared to the currency exchange rates in effect during
the prior year.
The
positive impact on sales relates to sales denominated in non-U.S. dollar
currencies translating into higher U.S. dollar sales due to a strengthening of
the local currency in relation to the U.S. dollar. The negative
impact on operating income results from the U.S. dollar denominated sales of
non-U.S. operations converted into lower local currency amounts due to the
weakening of the U.S. dollar. This negatively impacts margin as it
results in less local currency generated from sales to cover the costs of
non-U.S. operations which are denominated in the local currency.
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General
Our
profitability primarily depends on our ability to utilize our production
capacity effectively, which is affected by, among other things, the demand for
our products and our ability to control our manufacturing costs, primarily
comprised of labor costs and raw materials such as zinc, copper, coiled steel,
stainless steel and plastic resins. Raw material costs represent approximately
49% of our total cost of sales. During 2005, 2006 and 2007, worldwide
raw material costs increased significantly. We occasionally enter
into raw material supply arrangements to mitigate the short-term impact of
future increases in raw material costs. While these arrangements do
not necessarily commit us to a minimum volume of purchases, they generally
provide for stated unit prices based upon achievement of specified volume
purchase levels. This allows us to stabilize raw material purchase prices to a
certain extent, provided the specified minimum monthly purchase quantities are
met. We enter into such arrangements for zinc, coiled steel and plastic
resins. We anticipate further significant changes in the cost of
these materials, from their current levels for the next year. Materials purchased on
the spot market are sometimes subject to unanticipated and sudden price
increases. Due to the competitive nature of the markets served by our
products, it is often difficult to recover increases in raw material costs
through increased product selling prices or raw material
surcharges. Consequently, overall operating margins may be affected
by raw material cost pressures.
Other
non-operating income (expense), net
As
summarized in Note 11 to the Consolidated Financial Statements, “other
non-operating income (expense), net” primarily includes interest income and was
comparable from 2007 to 2006. Other non-operating income increased in
2006 compared to 2005 primarily due to higher interest rates on invested cash
balances resulting in increased interest income.
Interest expense
Interest
expense increased approximately $550,000 in 2007 compared to 2006 as a result of
financing the October 2007 repurchase and/or cancellation of a net 2.7 million
shares of our Class A common stock from an affiliate with a promissory note. We
expect interest expense will be higher in 2008 as compared to 2007 due to the
issuance of the promissory note. See Notes 9 and 13 to the Consolidated
Financial Statements. Interest expense was comparable from 2006 to
2005.
Provision
for income taxes
As a
member of the Contran Tax Group, we compute our provision for income taxes on a
separate company basis, using the tax elections made by Contran. One
such election is whether to claim a deduction or a tax credit against U.S.
taxable income with respect to foreign income taxes paid. Consistent with
elections of the Contran Tax Group, in 2005, 2006 and 2007 we did not claim a
credit with respect to foreign income taxes paid but instead we claimed a tax
deduction. This resulted in an increase in our effective income tax
rate.
Under
GAAP, we are required to recognize a deferred income tax liability with respect
to the incremental U.S. income taxes (federal and state) and foreign withholding
taxes that we would incur when the undistributed earnings of our non-U.S.
subsidiaries are subsequently repatriated, unless we determine that those
undistributed earnings are permanently reinvested for the foreseeable future.
Prior to the third quarter of 2005, we had not recognized a deferred tax
liability related to such incremental income taxes on the undistributed earnings
of certain of our non-U.S. operations, as those earnings were deemed to be
permanently reinvested. GAAP requires us to reassess the permanent reinvestment
conclusion on an ongoing basis to determine if our intentions have
changed. As of September 30, 2005, and based primarily upon changes
in our strategic plans for certain of our non-U.S. operations, we determined
that the undistributed earnings of those subsidiaries could no longer be
considered to be permanently reinvested except for the pre-2005 earnings in
Taiwan. Accordingly, and in accordance with GAAP, in 2005 we
recognized an aggregate $9.0 million provision for deferred income taxes on the
aggregate undistributed earnings of these non-U.S. subsidiaries.
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Our
effective income tax rate in 2005, excluding the $9.0 million provision
discussed above, decreased from 49% to 45% in 2006 primarily due to the
geographic mix of our pre-tax earnings and a $142,000 income tax benefit
recorded in 2006 related to the effect of the reduction in the Canadian federal
income tax rate and the elimination of the federal surtax on our previously
recorded net deferred income tax liability. Our effective income tax
rate was comparable at 45% and 44% in 2006 and 2007, respectively. We
currently expect our effective income tax rate for 2008 will approximate our
effective income tax rate for 2007.
Segment
Results
The key
performance indicator for our segments is the level of their operating income
(see discussion below). For additional information regarding our
segments refer to Note 2 to the Consolidated Financial Statements.
Net sales
and operating income
Security
Products. Security Products net sales decreased 2% to $80.1
million in 2007 compared to $81.7 million in 2006. Gross margin
percentage was comparable year over year. Operating income margin
percentage decreased in 2007 compared to 2006, which resulted in a 16% decrease
in operating income. The margin percentage decrease was primarily due
to $2.7 million in costs incurred relating to the consolidation of two of our
northern Illinois Security Products facilities into a new facility shared with a
Marine Components operation and lower sales volumes resulting from lower order
rates from many of our customers due to unfavorable economic
conditions.
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Security
Products net sales increased 7% to $81.7 million in 2006 compared to $76.7
million in 2005. Gross margin percentage and operating income margin
percentage in 2006 also improved over 2005 resulting in an 11% increase in
operating income from the combined sales growth and margin
improvement. The margin percentage increases were the result of a
more favorable product mix and the leveraging of the fixed cost structure over
higher net sales.
Furniture
Components. Furniture Components net sales decreased 13% to
$81.3 million in 2007 from $93.0 million in 2006, primarily due
to lower sales volumes to the office furniture industry where, for certain
products Asian competitors have established selling prices at a level below
which we consider would return a minimal margin and the effect of lower order
rates from many of our customers due to unfavorable economic
conditions. Gross margin percentage increased slightly in 2007
compared to 2006 due to an improved product mix from the replacement of high
volume, low margin products sales lost to Asian competitors with lower volume,
higher margin sales and a reduction of operating costs, lower depreciation
expense and improvements in operational efficiencies through workforce
reductions and process improvements.
Furniture
Components net sales decreased 12% to $93.0 million in 2006 from $105.5
million in
2005. However, operating income margin declined only $900,000 due to
reductions in operating costs and improvements in operational efficiencies
through workforce reductions and process improvements, and an improved product
mix from the replacement of high volume, low margin products sales lost to Asian
competitors with lower volume, higher margin sales.
Marine
Components. Marine Components net sales increased in 2007 from
2006 and in 2006 from 2005 due to the impact of acquisitions. We
acquired an initial Marine Components company in August 2005 with an additional
acquisition occurring in April 2006. Operating income increased in
2006 from 2005 as the result of the acquisitions and was comparable from 2006 to
2007.
Outlook
Demand is
slowing across most product segments as customers react to the condition of the
overall economy. Asian sourced competitive pricing pressures are
expected to continue to be a challenge for us as Asian manufacturers,
particularly those located in China, gain share in certain
markets. We believe the impact of this environment will be mitigated
through our on-going initiatives to expand both new products and new market
opportunities. Our strategy in responding to the competitive pricing
pressure has included reducing production costs through product reengineering,
improving manufacturing processes through lean manufacturing techniques and
moving production to lower-cost facilities, including our own Asian-based
manufacturing facilities. In addition, we continue to develop sources
for lower cost components for certain product lines to strengthen our ability to
meet competitive pricing when practical. We also emphasize and focus
on opportunities where we can provide value-added customer support services that
Asian-based manufacturers are generally unable to provide. As a
result of pursuing this strategy, we will forego certain segment sales in favor
of developing new products and new market opportunities where we believe the
combination of our cost control initiatives and value-added approach will
produce better results for our shareholders. We also expect raw
material cost volatility to continue during 2008, which we may not be able to
fully recover through price increases or surcharges due to the competitive
nature of the markets we serve.
Liquidity
and Capital Resources
Summary.
Our
primary source of liquidity on an on-going basis is our cash flow from operating
activities, which is generally used to (i) fund capital expenditures, (ii) repay
short-term or long-term indebtedness incurred primarily for working capital or
capital expenditure purposes and (iii) provide for the payment of dividends (if
declared). From time-to-time, we will incur indebtedness, primarily
for short-term working capital needs, or to fund capital expenditures or
business combinations. In addition, from time-to-time, we may also
sell assets outside the ordinary course of business, the proceeds of which are
generally used to repay indebtedness (including indebtedness which may have been
collateralized by the assets sold) or to fund capital expenditures or business
combinations.
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Consolidated
cash flows.
Operating
activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities, for 2005, 2006 and 2007 have
generally been similar to the trends in our earnings. Depreciation and
amortization expense decreased in 2007 compared to 2006 due to the timing of
capital expenditures placed into service during 2007 versus
2006. Depreciation and amortization expense increased in 2006
compared to 2005 as the result of increased capital expenditures and the timing
of assets and intangibles acquired through acquisitions. See Notes 1
and 4 to the Consolidated Financial Statements.
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. However, year-to-year relative changes in
assets and liabilities can significantly affect the comparability of cash flows
from operating activities. The decrease in cash provided by operating
activities in 2007 compared to 2006 is primarily the result of:
The
increase in our cash provided by operating activities in 2006 as compared to
2005 is primarily the result of:
Our
average days’-sales-outstanding (“DSO”) at December 31, 2007 was 44 days
compared to 41 days at December 31, 2006. The increase is primarily
due to the timing of collections on the higher accounts receivable balance as of
December 31, 2007. For comparative purposes, our average DSO was
relatively flat at 41 days for December 31, 2006 and 40 days at December 31,
2005. Our average number of days-in-inventory (“DII”) was 66 days at
December 31, 2007 and 57 days at December 31, 2006. The increase in
DII is primarily due to the higher cost of commodity raw materials during 2007.
For comparative purposes our average DII was 57 days at December 31, 2006 and 59
days at December 31, 2005. The decrease is primarily due to
reductions in raw materials during 2006 as we utilized the higher than normal
balance in ending inventory at the end of 2005 that was acquired during 2005 as
part of our efforts to mitigate the impact of volatility in raw material
prices.
Investing activities. Net
cash used by investing activities totaled $3.7 million, $19.3 million, and $12.4
million for the years ended December 31, 2005, 2006 and 2007,
respectively. Capital expenditures in the past three years have
primarily emphasized improving our manufacturing facilities and investing in
manufacturing equipment which utilizes new technologies and increases automation
of the manufacturing process to provide for increased productivity and
efficiency. During 2007, we constructed a new facility and
consolidated three of our northern Illinois facilities into one facility at a
cost of approximately $9.6 million. The consolidation of three
previously separate operations into one facility is expected to create
opportunities to reduce operating costs and improve operating
efficiencies. As a part of the facility consolidation project, the
Lake Bluff, Illinois facility was sold in 2006 for approximately $1.3 million
which approximated book value and was leased-back until we vacated the facility
in October 2007. The River Grove, Illinois facility is no longer
being utilized and met the “asset held for sale” criteria in November of
2007. We expect to dispose of the River Grove facility during
2008. See Note 9 to the Consolidated Financial
Statements.
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During
2006, we built a new facility for one of our Marine Components subsidiaries at a
cost of $4.1 million. The new facility is expected to provide the
subsidiary with sufficient capacity to take advantage of sales growth
opportunities.
In April
2006, we completed the acquisition of a marine component products business for
$9.8 million, net of cash acquired. In August 2005, we completed the
acquisition of our initial marine component product business for $7.3 million,
net of cash acquired. See Note 2 to the Consolidated Financial
Statements.
On
January 24, 2005, we completed the disposition of all of the net assets of our
European Thomas Regout operations to members of Thomas Regout management for net
proceeds of approximately $22.3 million. The proceeds consisted of
cash (net of costs to sell) of approximately $18.1 million and a subordinated
note for approximately $4.2 million. The subordinated note requires
annual payments over a period of four years. In April of 2006 and
2007, we collected the first and second payments of $1.3 million,
respectively. Historically, the Thomas Regout European operations did
not contribute significantly to net cash flows from operations. See
Note 10 to the Consolidated Financial Statements.
Capital
expenditures for 2008 are estimated at approximately $12.6
million. Capital expenditure projects in 2007 emphasized improved
production efficiency including replacement of equipment that is being retired
and the facility consolidation discussed above.
Financing activities. Net
cash used by financing activities totaled $7.2 million, $8.8 million, and $11.7
million in 2005, 2006 and 2007, respectively. Cash dividends paid
totaled $7.3 million ($.50 per share) in 2007 and $7.6 million in each of 2006
and 2005 ($.50 per share). Dividends paid decreased in 2007 as a
result of the repurchase and/or cancellation of a net 2.7 million shares of our
Class A common stock held by TIMET, an affiliate. We purchased these
shares for $19.50 per share, or aggregate consideration of $52.6 million, which
we paid in the form of a consolidated promissory note. At December
31, 2007, we had prepaid approximately $2.6 million toward the promissory
note. See Notes 9 and 13 to the Consolidated Financial
Statements.
In
addition to the TIMET repurchase and cancellation of shares discussed above, we
also repurchased approximately 179,100 shares of our Class A common stock in
market transactions for an aggregate of $3.3 million. See Note 8 to
the Consolidated Financial Statements.
In 2006
we prepaid $1.6 million of indebtedness we assumed in our August 2005 marine
components acquisition.
Our $50
million secured revolving bank credit facility is collateralized by 65% of the
ownership interests in our first-tier non-United States
subsidiaries. Provisions contained in our Revolving Bank Credit
Agreement could result in the acceleration of outstanding indebtedness prior to
its stated maturity for reasons other than defaults from failing to comply with
typical financial covenants. For example, our 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. At December 31, 2007 we had no balances outstanding under
the facility and the full $50 million was available for borrowing. See Note 6 to
the Consolidated Financial Statements.
Off balance sheet financing
arrangements. Other than certain operating leases discussed in
Note 13 to the Consolidated Financial Statements, neither we nor any of our
subsidiaries or affiliates are parties to any off-balance sheet financing
arrangements.
Other
We
believe that cash generated from operations and borrowing availability under our
Credit Agreement, together with cash on hand, will be sufficient to meet our
liquidity needs for working capital, capital expenditures, debt service and
dividends (if declared). To the extent that our actual operating
results or other developments differ from our expectations, our liquidity could
be adversely affected.
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We
periodically evaluate our 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, repurchase shares of our common
stock, 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.
Contractual
obligations. As more fully described in the notes to the
Consolidated Financial Statements, we are a party to various debt, lease and
other agreements which contractually and unconditionally commit the Company to
pay certain amounts in the future. See Notes 6 and 14 to the
Consolidated Financial Statements. The following table summarizes
such contractual commitments as of December 31, 2007 by the type and date of
payment.
The
timing and amount shown for our commitments related to long-term debt, operating
leases and fixed asset acquisitions are based upon the contractual payment
amount and the contractual payment date for such commitments. The
timing and amount shown for purchase obligations, which consist of all open
purchase orders and contractual obligations (primarily commitments to purchase
raw materials) is also based on the contractual payment amount and the
contractual payment date for such commitments. The amount shown for
income taxes is the consolidated amount of income taxes payable at December 31,
2007, which is assumed to be paid during 2008. Fixed asset
acquisitions include firm purchase commitments for capital
projects. We currently estimate that our unrecognized tax benefits
will decrease by approximately $180,000 during the next twelve months due to the
expiration of certain tax statues or the resolution of certain examinations and
filing procedures related to one or more of our subsidiaries.
Commitments and
contingencies. See Note 13 to the Consolidated Financial
Statements.
Recent accounting
pronouncements. See Note 14 to the Consolidated Financial
Statements.
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. We are
exposed to market risk from changes in currency exchange rates and interest
rates. We periodically use currency forward contracts to manage a
portion of currency exchange rate risk associated with receivables, or similar
exchange rate risk associated with future sales, denominated in a currency other
than the holder's functional currency. Otherwise, we do not generally
enter into forward or option contracts to manage market risks, nor do we enter
into any contract or other type of derivative instrument for trading or
speculative purposes. Other than the contracts discussed below, we
were not a party to any material forward or derivative option contract related
to currency exchange rates or interest rates at December 31, 2006 and
2007. See Note 1 to the Consolidated Financial
Statements.
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Interest rates. We
are exposed to market risk from changes in interest rates, primarily related to
indebtedness.
At
December 31, 2006 and 2007, we had no amounts outstanding under our secured
Revolving Bank Credit Agreement. In conjunction with the repurchase
and/or cancellation of a net 2.7 million shares of our class A common stock,
during the fourth quarter of 2007, we issued a promissory note for $52.6
million. See Note 12 to the Consolidated Financial
Statements. At December 31, 2007, there was $50.0 million outstanding
on the promissory note which bears interest at LIBOR plus 1%, and the fair value
of such indebtedness approximates its carrying value. The interest
rate is reset quarterly based on the three month LIBOR.
Currency exchange
rates. We are exposed to market risk arising from changes in
currency exchange rates as a result of manufacturing and selling our products
outside the United States (principally Canada and Taiwan). A portion
of our sales generated from our non-U.S. operations are denominated in
currencies other than the U.S. dollar, principally the Canadian dollar and the
New Taiwan dollar. In addition, a portion of our sales generated from
our non-U.S. operations are denominated in the U.S. dollar. Most raw
materials, labor and other production costs for these non-U.S. operations are
denominated primarily in local currencies. Consequently, the
translated U.S. dollar value of our non-U.S. sales and operating results are
subject to currency exchange rate fluctuations which may favorably or
unfavorably impact reported earnings and may affect comparability of
period-to-period operating results.
As
already mentioned certain of our sales generated by our Canadian operations are
denominated in U.S. dollars. To manage a portion of the related
currency exchange rate market risk associated with receivables or future sales,
we periodically enter into short-term forward currency exchange
contracts. At each balance sheet date, any outstanding forward
currency contracts are marked-to-market with any resulting gain or loss
recognized in income currently unless the contract is designated as a hedge upon
which the mark-to-market adjustment is recorded in other comprehensive
income. We had no forward currency contracts outstanding at December
31, 2006 or 2007.
Other. The above
discussion includes forward-looking statements of market risk which assumes
hypothetical changes in market prices. Actual future market
conditions will likely differ materially from such
assumptions. Accordingly, such forward-looking statements should not
be considered to be our projections of future events, gains or
losses. Such forward-looking statements are subject to certain risks
and uncertainties some of which are listed in “Business-General.”
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The information called for by this Item is contained in a
separate section of this Annual Report. See "Index of Financial
Statements" (page F-1).
ITEM 9.
CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A. CONTROLS
AND PROCEDURES
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Section
404 of the Sarbanes-Oxley Act of 2002, requires us to include a management
report on internal control over financial reporting in the Annual Report on Form
10-K for the year ended December 31, 2007. Our independent registered
public accounting firm will also be required to annually attest to the
effectiveness of our internal control over financial reporting, but under the
rules of the SEC this attestation is not required until our Annual Report on
Form 10-K for the year ended December 31, 2008. In addition, the SEC has
proposed a rule that, if adopted, would not require our independent registered
public accounting firm to issue its attestation until our Annual Report on Form
10-K for the year ended December 31, 2009.
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ITEM
9B. OTHER
INFORMATION
Not
applicable.
- 28
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PART
III
The
information required by this Item is incorporated by reference to our definitive
Proxy Statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of the fiscal year covered by
this report ("Proxy Statement").
ITEM
11.
EXECUTIVE
COMPENSATION>
The
information required by this Item is incorporated by reference to our Proxy
Statement.
The
information required by this Item is incorporated by reference to our Proxy
Statement.
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The
information required by this Item is incorporated by reference to our Proxy
Statement. See also Note 12 to the Consolidated Financial
Statements.
ITEM
14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
The
information required by this Item is incorporated by reference to our Proxy
Statement.
PART
IV
ITEM
15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
(a)
and (c) Financial
Statements
The
consolidated financial statements listed on the accompanying Index of Financial
Statements (see page F-1) are filed as part of this Annual Report.
All
financial statement schedules have been omitted either because they are not
applicable or required, or the information that would be required to be included
is disclosed in the notes to the consolidated financial statements.
(b) Exhibits
We have
retained a signed original of any of these exhibits that contain signatures, and
we will provide such exhibits to the Commission or its
staff. Included as exhibits are the items listed in the Exhibit
Index. We, upon request, will furnish a copy of any of the exhibits
listed below upon payment of $4.00 per exhibit to cover our costs of furnishing
the exhibits. Instruments defining the rights of holders of long-term
debt issues which do not exceed 10% of consolidated total assets will be
furnished to the Commission upon request. We, upon request, will also
furnish, without charge, a copy of our Code of Business Conduct and Ethics, as
adopted by the board of directors on February 24, 2004, upon
request. Such requests should be directed to the attention of our
Corporate Secretary at our corporate offices located at 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240.
Item
No. Exhibit
Item
- 29
-
Item
No. Exhibit Item
(continued)
- 30
-
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SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
COMPX
INTERNATIONAL INC.
Date: February
26,
2008 By: /s/ David A.
Bowers_________________
David A. Bowers
Vice Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons in the capacities and on the dates
indicated.
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Annual
Report on Form 10-K
Items
8 and 15(a)
Index
of Financial Statements
All
financial statement schedules have been omitted either because they are not
applicable or required, or the information that would be required to be included
is disclosed in the notes to the consolidated financial statements.
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of CompX International Inc.:
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of CompX
International Inc. and its Subsidiaries at December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PricewaterhouseCoopers
LLP
February
26, 2008
F-2
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data)
F-3
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (CONTINUED)
(In
thousands, except share data)
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