cix10ka12312008.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Amendment
No. 1)
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 – For the fiscal year ended December 31, 2008
Commission
file number 1-13905
COMPX
INTERNATIONAL INC.
|
(Exact
name of Registrant as specified in its
charter)
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|
|
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Delaware
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57-0981653
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(State
or other jurisdiction of
incorporation
or organization)
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(IRS
Employer
Identification
No.)
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|
|
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5430
LBJ Freeway, Suite 1700,
Three
Lincoln Centre, Dallas, Texas
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75240-2697
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(Address
of principal executive offices)
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(Zip
Code)
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|
|
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Registrant’s
telephone number, including area code
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(972)
448-1400
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name
of each exchange
on which registered
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Class
A common stock
($.01
par value per share)
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the
Act: None.
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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.
£
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
The
aggregate market value of the 1.4 million shares of voting stock held by
nonaffiliates of CompX International Inc. as of June 30, 2008 (the last business
day of the Registrant’s most recently completed second fiscal quarter)
approximated $8.3 million.
As of
February 23, 2009, 2,361,307 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.
Explanatory
Note Regarding Amendment No. 1
We are filing this Amendment No. 1 on
Form 10-K/A ("Form 10-K/A") to amend our Annual Report on Form 10-K for the year
ended December 31, 2008, as filed with the Securities and Exchange Commission
("SEC") on February 26, 2009 ("Original Form 10-K"). This amendment
is being filed solely to (i) amend the certifications by our Principal Executive
Officer and Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 to correct the omission of the phrase “and internal
control over financial reporting (as defined in Exchange Rules 13a-15(f) and
15d-15(f)” in the introductory portion of paragraph 4 of the certifications, and
(ii) to remove the inappropriate inclusion of the word “we” immediately before
the word “have” in the same paragraph. This amendment includes new
certifications by our Principal Executive Officer and Principal Financial
Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002,
filed as Exhibits 31.1, 31.2 and 32.1 hereto. Each
certification was true and correct as of the date of the filing of the Original
Form 10-K.
Pursuant
to interpretation 246.14 in the Regulation S-K section of the SEC’s “Compliance
& Disclosure Interpretations,” we are also filing full Item 9A disclosures
and the Company’s consolidated financial statements as part of this Form 10-K/A
(collectively “Other Information”). Such Other Information was
complete and correct as of the date of the filing of the Original Form
10-K.
Except as
described above, we have not modified or updated other disclosures contained in
the Original Form 10-K, including without limitation the Other
Information. Accordingly, this Form 10-K/A, with the exception of the
foregoing, does not reflect events occurring after the date of filing of the
Original Form 10-K, or modify or update those disclosures affected by subsequent
events. Consequently, all other information not affected by the
corrections described above is unchanged and reflects the disclosures and other
information made at the date of the filing of the Original Form 10-K and should
be read in conjunction with our filings with the SEC subsequent to the filing of
the Original Form 10-K, including amendments to those filings, if
any.
ITEM
9A.
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CONTROLS
AND PROCEDURES
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Evaluation of Disclosure Controls and
Procedures. We maintain a system of disclosure controls and
procedures. The term "disclosure controls and procedures," as defined
by regulations of the Securities and Exchange Commission (the "SEC"), means
controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit to the SEC under
the Securities Exchange Act of 1934, as amended (the "Act"), is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit to the SEC
under the Act is accumulated and communicated to our management, including its
principal executive officer and its principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions to be
made regarding required disclosure. Each of David A. Bowers, the
Company's Vice Chairman of the Board, President and Chief Executive Officer, and
Darryl R. Halbert, the Company's Vice President, Chief Financial Officer and
Controller, have evaluated our disclosure controls and procedures as of December
31, 2008. Based upon their evaluation, these executive officers have
concluded that our disclosure controls and procedures are effective as of the
date of such evaluation.
Scope of Management Report on
Internal Control Over Financial Reporting. We also maintain a
system of internal control over financial reporting. The term
“internal control over financial reporting,” as defined by regulations of the
SEC, means a process designed by, or under the supervision of, 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 accounting principles generally accepted in the
United States of America (“GAAP”), 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
unauthorized acquisition, use or disposition of our assets that could have
a material effect on our consolidated financial
statements.
|
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, 2008. 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, 2009.
Management’s Report on Internal
Control Over Financial Reporting. Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our
evaluation of the effectiveness of our internal control over financial reporting
is based upon the framework established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (commonly referred to as the “COSO” framework). Based on our
evaluation under that framework, our management has concluded that our internal
control over financial reporting was effective as of December 31,
2008. This annual report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report. See “Scope of Management’s Report on Internal
Control Over Financial Reporting” above.
Changes in Internal Control Over
Financial Reporting. There has been no change to our system of
internal control over financial reporting during the quarter ended December 31,
2008 that has materially affected, or is reasonably likely to materially affect,
our system of internal control over financial reporting.
Certifications. Our
chief executive officer is required to annually file a certification with the
New York Stock Exchange (“NYSE”), certifying our compliance with the corporate
governance listing standards of the NYSE. During 2008, our chief
executive officer filed such annual certification with the NYSE, indicating we
were in compliance with such listed standards. Our chief executive
officer and chief financial officer are also required to, among other things,
quarterly file a certification with the SEC regarding the quality of our public
disclosures, as required by Section 302 of the Sarbanes-Oxley Act of
2002. We have filed the certifications for the quarter ended December
31, 2008 as exhibits 31.1 and 31.2 to this Annual Report on Form
10-K/A.
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 on Form
10-K/A.
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
|
|
3.1
|
Restated
Certificate of Incorporation of Registrant - incorporated by reference to
Exhibit 3.1 of the Registrant's Registration Statement on Form S-1 (File
No. 333-42643).
|
Item
No. Exhibit Item
(continued)
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|
3.2
|
Amended
and Restated Bylaws of Registrant, adopted by the Board of Directors
October 24, 2007 – incorporated by reference to Exhibit 3.1 of the
Registrant’s Current Report on Form 8-K filed October 30, 2007 (File No
1-13905).
|
|
|
10.1
|
Share
Purchase Agreement with Subordinated Loan schedule between the Registrant
and Anchor Holding B.V. dated January 24, 2005 - incorporated by reference
to Exhibit 10.1 of the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2004. All related schedules and annexes
will be provided to the SEC upon request.
|
|
|
10.2
|
Intercorporate
Services Agreement between the Registrant and Contran Corporation
effective as of January 1, 2004 – incorporated by reference to Exhibit
10.2 of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003.
|
|
|
10.3*
|
CompX
International Inc. 1997 Long-Term Incentive Plan – incorporated by
reference to Exhibit 10.2 of the Registrant's Registration Statement on
Form S-1 (File No. 333-42643).
|
|
|
10.4
|
Tax
Sharing Agreement between the Registrant, NL Industries, Inc. and Contran
Corporation dated as of October 5, 2004 - incorporated by reference to
Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2004.
|
|
|
10.5
|
Stock
Purchase Agreement dated October 16, 2007 between the Registrant and TIMET
Finance Management Company – incorporated by reference to Exhibit 10.1 of
the registrants Current Report on Form 8-K filed on October 22, 2007 (File
No. 1-13905).
|
|
|
10.6
|
Agreement
and Plan of Merger dated as of October 16, 2007 among Registrant, CompX
Group, Inc. and CompX KDL LLC - incorporated by reference to Exhibit 10.2
of the registrant’s Current Report on Form 8-K filed on October 22, 2007
(File No. 1-13905).
|
|
|
10.7
|
Form
of Subordination Agreement among the Registrant, TIMET Finance Management
Company, CompX Security Products Inc., CompX Precision Slides Inc., CompX
Marine Inc., Custom Marine Inc., Livorsi Marine Inc., Wachovia Bank,
National Association as administrative agent for itself, Compass Bank and
Comerica Bank – incorporated by reference to Exhibit 10.4 of the
Registrant’s Current Report on Form 8-K filed on October 22, 2007 (File
No. 1-13905).
|
|
|
10.8
|
Subordinated
Term Loan Promissory Note dated October 26, 2007 executed by the
Registrant and payable to the order of TIMET Finance Management Company –
incorporated by reference to Exhibit 10.4 of the Registrant’s Current
Report on Form 8-K filed on October 30, 2007 (File No.
1-13905).
|
|
|
10.9
|
Agreement
Regarding Shared Insurance between the Registrant, Contran Corporation,
Keystone Consolidated Industries, Inc., Kronos Worldwide, Inc., NL
Industries, Inc., Titanium Metals Corporation, and Valhi, Inc. dated
October 30, 2003 – incorporated by reference to Exhibit 10.12 of the
Registrant’s Annual Report on Form 10-K for the year ended December 31,
2003.
|
|
|
10.10
|
$50,000,000
Credit Agreement between the Registrant and Wachovia Bank, National
Association, as Agent and various lending institutions dated December 23,
2005 – incorporated by reference to Exhibit 10.12 of the Registrant’s
Annual Report on Form 10-K for the year ended December 31,
2006 Certain exhibits, annexes and similar attachments to this
Exhibit 10.12 have not been filed; upon request, the Registrant will
furnish supplementally to the SEC a copy of any omitted exhibit, annex, or
attachment.
|
Item
No. Exhibit Item
(continued)
|
|
10.11
|
First
Amendment to Credit Agreement dated as of October 16, 2007 among CompX
International Inc., CompX Security Products Inc., CompX Precision Slides
Inc., CompX Marine Inc., Custom Marine Inc., Livorsi Marine Inc., Wachovia
Bank, National Association for itself and as administrative agent for
Compass Bank and Comerica Bank - incorporated by reference to Exhibit 10.3
of the Registrant’s Current Report on Form 8-K filed on October 22, 2007
(File No. 1-13905).
|
|
|
10.12
|
Second
Amendment to Credit Agreement dated as of January 15, 2009 among CompX
International Inc., CompX Security Products Inc., CompX Precision Slides
Inc., CompX Marine Inc., Custom Marine Inc., Livorsi Marine Inc., Wachovia
Bank, National Association for itself and as administrative agent for
Compass Bank and Comerica Bank - incorporated by reference to Exhibit 10.1
of the Registrant’s Current Report on Form 8-K filed on January 21, 2009
(File No. 1-13905).
|
|
|
21.1**
|
Subsidiaries
of the Registrant.
|
|
|
23.1***
|
Consent
of PricewaterhouseCoopers LLP.
|
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31.1***
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Certification
|
|
|
31.2***
|
Certification
|
|
|
32.1***
|
Certification
|
|
|
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|
|
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* Management
contract, compensatory plan or agreement.
** Previously
filed
*** Filed
herewith
|
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
2,
2010 By: /s/Darryl R.
Halbert
Vice
President, Chief Financial
Officer and
Controller
(Principal
Financial and Accounting Officer)
Annual
Report on Form 10-K/A
Items
8 and 15(a)
Index
of Financial Statements
Financial
Statements
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets - December 31, 2007 and 2008
|
F-3
|
|
|
Consolidated
Statements of Operations -
|
|
Years
ended December 31, 2006, 2007 and 2008
|
F-5
|
|
|
Consolidated
Statements of Comprehensive Income (Loss) -
|
|
Years
ended December 31, 2006, 2007 and 2008
|
F-6
|
|
|
Consolidated
Statements of Cash Flows -
|
|
Years
ended December 31, 2006, 2007 and 2008
|
F-7
|
|
|
Consolidated
Statements of Stockholders' Equity -
|
|
Years
ended December 31, 2006, 2007 and 2008
|
F-9
|
|
|
Notes
to Consolidated Financial Statements
|
F-10
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 2008, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008 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
Dallas,
Texas
February
25, 2009
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data)
|
|
December 31,
|
|
ASSETS
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
18,399 |
|
|
$ |
14,411 |
|
Accounts
receivable, less allowance for doubtful
accounts of $682 and $711
|
|
|
20,447 |
|
|
|
16,837 |
|
Receivables
from affiliates
|
|
|
223 |
|
|
|
1,472 |
|
Refundable
income taxes
|
|
|
68 |
|
|
|
83 |
|
Inventories
|
|
|
24,277 |
|
|
|
22,661 |
|
Prepaid
expenses and other current assets
|
|
|
1,324 |
|
|
|
1,300 |
|
Deferred
income taxes
|
|
|
2,123 |
|
|
|
1,841 |
|
Current
portion of note and interest receivable
|
|
|
1,306 |
|
|
|
943 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
68,167 |
|
|
|
59,548 |
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
40,784 |
|
|
|
30,827 |
|
Other
intangible assets
|
|
|
2,569 |
|
|
|
1,991 |
|
Note
receivable
|
|
|
261 |
|
|
|
- |
|
Assets
held for sale
|
|
|
3,117 |
|
|
|
3,517 |
|
Other
|
|
|
666 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
47,397 |
|
|
|
36,425 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
11,612 |
|
|
|
11,858 |
|
Buildings
|
|
|
38,990 |
|
|
|
36,642 |
|
Equipment
|
|
|
124,238 |
|
|
|
110,915 |
|
Construction
in progress
|
|
|
2,659 |
|
|
|
4,406 |
|
|
|
|
177,499 |
|
|
|
163,821 |
|
Less
accumulated depreciation
|
|
|
105,348 |
|
|
|
96,392 |
|
|
|
|
|
|
|
|
|
|
Net
property and equipment
|
|
|
72,151 |
|
|
|
67,429 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
187,715 |
|
|
$ |
163,402 |
|
|
|
|
|
|
|
|
|
|
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (CONTINUED)
(In
thousands, except share data)
|
|
December 31,
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current
maturities of note payable to affiliate
|
|
$ |
250 |
|
|
$ |
1,000 |
|
Accounts
payable and accrued liabilities
|
|
|
17,652 |
|
|
|
14,256 |
|
Interest
payable to affiliate
|
|
|
559 |
|
|
|
528 |
|
Income
taxes payable to affiliates and other
|
|
|
282 |
|
|
|
20 |
|
Income
taxes
|
|
|
170 |
|
|
|
1,167 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
18,913 |
|
|
|
16,971 |
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
|
Note
payable to affiliate
|
|
|
49,730 |
|
|
|
41,980 |
|
Deferred
income taxes and other
|
|
|
14,969 |
|
|
|
13,174 |
|
|
|
|
|
|
|
|
|
|
Total
noncurrent liabilities
|
|
|
64,699 |
|
|
|
55,154 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 1,000 shares authorized,
none issued
|
|
|
- |
|
|
|
- |
|
Class
A common stock, $.01 par value;
20,000,000
shares authorized; 2,478,760 and
2,361,307
shares issued and outstanding
|
|
|
25 |
|
|
|
24 |
|
Class
B common stock, $.01 par value;
10,000,000
shares authorized, issued and outstanding
|
|
|
100 |
|
|
|
100 |
|
Additional
paid-in capital
|
|
|
55,824 |
|
|
|
54,873 |
|
Retained
earnings
|
|
|
37,080 |
|
|
|
27,798 |
|
Accumulated
other comprehensive income
|
|
|
11,074 |
|
|
|
8,482 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
104,103 |
|
|
|
91,277 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
187,715 |
|
|
$ |
163,402 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 12)
See
accompanying Notes to Consolidated Financial
Statements.
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
190,123 |
|
|
$ |
177,683 |
|
|
$ |
165,502 |
|
Cost
of goods sold
|
|
|
143,649 |
|
|
|
132,455 |
|
|
|
125,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
46,474 |
|
|
|
45,228 |
|
|
|
40,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
26,060 |
|
|
|
25,846 |
|
|
|
24,818 |
|
Goodwill
impairment
|
|
|
- |
|
|
|
- |
|
|
|
9,881 |
|
Facility
consolidation expense
|
|
|
- |
|
|
|
2,665 |
|
|
|
- |
|
Other
operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
transaction gains (losses), net
|
|
|
145 |
|
|
|
(1,086 |
) |
|
|
679 |
|
Disposition
of property and equipment
|
|
|
(258 |
) |
|
|
(75 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
20,301 |
|
|
|
15,556 |
|
|
|
6,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
non-operating income, net
|
|
|
1,270 |
|
|
|
1,133 |
|
|
|
240 |
|
Interest
expense
|
|
|
(219 |
) |
|
|
(760 |
) |
|
|
(2,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
21,352 |
|
|
|
15,929 |
|
|
|
4,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
9,696 |
|
|
|
6,949 |
|
|
|
7,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
11,656 |
|
|
$ |
8,980 |
|
|
$ |
(3,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per common
share
|
|
$ |
.76 |
|
|
$ |
.61 |
|
|
$ |
(.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$ |
.50 |
|
|
$ |
.50 |
|
|
$ |
.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in the calculation of earnings per
share amounts for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
15,244 |
|
|
|
14,764 |
|
|
|
12,386 |
|
Dilutive
impact of stock options
|
|
|
13 |
|
|
|
8 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
shares
|
|
|
15,257 |
|
|
|
14,772 |
|
|
|
12,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial
Statements.
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In
thousands)
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
11,656 |
|
|
$ |
8,980 |
|
|
$ |
(3,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
(883 |
) |
|
|
2,996 |
|
|
|
(2,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
from cash flow hedges, net
|
|
|
(110 |
) |
|
|
- |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive income (loss), net
|
|
|
(993 |
) |
|
|
2,996 |
|
|
|
(2,592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$ |
10,663 |
|
|
$ |
11,976 |
|
|
$ |
(5,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial
Statements.
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
11,656 |
|
|
$ |
8,980 |
|
|
$ |
(3,101 |
) |
Depreciation
and amortization
|
|
|
11,797 |
|
|
|
11,010 |
|
|
|
9,231 |
|
Goodwill
impairment
|
|
|
- |
|
|
|
- |
|
|
|
9,881 |
|
Deferred
income taxes
|
|
|
1,536 |
|
|
|
(6,549 |
) |
|
|
(45 |
) |
Other,
net
|
|
|
1,375 |
|
|
|
1,079 |
|
|
|
522 |
|
Change
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,035 |
|
|
|
633 |
|
|
|
2,441 |
|
Inventories
|
|
|
2,258 |
|
|
|
(1,813 |
) |
|
|
389 |
|
Accounts
payable and accrued liabilities
|
|
|
(2,891 |
) |
|
|
(619 |
) |
|
|
(2,810 |
) |
Accounts
with affiliates
|
|
|
(274 |
) |
|
|
182 |
|
|
|
(1,531 |
) |
Income
taxes
|
|
|
890 |
|
|
|
(715 |
) |
|
|
1,047 |
|
Other,
net
|
|
|
63 |
|
|
|
(296 |
) |
|
|
(307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
27,445 |
|
|
|
11,892 |
|
|
|
15,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(12,044 |
) |
|
|
(13,820 |
) |
|
|
(6,791 |
) |
Acquisition,
net of cash acquired
|
|
|
(9,832 |
) |
|
|
- |
|
|
|
- |
|
Proceeds
from disposal of assets held for sale
|
|
|
- |
|
|
|
- |
|
|
|
250 |
|
Proceeds
from sale of fixed assets
|
|
|
1,316 |
|
|
|
73 |
|
|
|
127 |
|
Cash
collected on note receivable
|
|
|
1,306 |
|
|
|
1,306 |
|
|
|
1,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(19,254 |
) |
|
|
(12,441 |
) |
|
|
(5,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments on long-term debt
|
|
|
(1,563 |
) |
|
|
- |
|
|
|
- |
|
Repayment
of loan from affiliate
|
|
|
- |
|
|
|
(2,600 |
) |
|
|
(7,000 |
) |
Issuance
of common stock
|
|
|
347 |
|
|
|
1,395 |
|
|
|
- |
|
Dividends
paid
|
|
|
(7,623 |
) |
|
|
(7,294 |
) |
|
|
(6,181 |
) |
Tax
benefit from exercise of stock options
|
|
|
111 |
|
|
|
73 |
|
|
|
- |
|
Treasury
stock acquired
|
|
|
- |
|
|
|
(3,309 |
) |
|
|
(1,006 |
) |
Other,
net
|
|
|
(110 |
) |
|
|
- |
|
|
|
(56 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by financing activities
|
|
|
(8,838 |
) |
|
|
(11,735 |
) |
|
|
(14,243 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease
|
|
$ |
(647 |
) |
|
$ |
(12,284 |
) |
|
$ |
(3,634 |
) |
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
(In
thousands)
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Net
decrease from -
|
|
|
|
|
|
|
|
|
|
Operating,
investing and financing activities
|
|
$ |
(647 |
) |
|
$ |
(12,284 |
) |
|
$ |
(3,634 |
) |
Effect
of exchange rate on cash
|
|
|
(257 |
) |
|
|
995 |
|
|
|
(354 |
) |
Balance
at beginning of year
|
|
|
30,592 |
|
|
|
29,688 |
|
|
|
18,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of year
|
|
$ |
29,688 |
|
|
$ |
18,399 |
|
|
$ |
14,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
139 |
|
|
$ |
109 |
|
|
$ |
2,278 |
|
Income
taxes
|
|
|
7,418 |
|
|
|
14,365 |
|
|
|
8,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to affiliate issued for repurchase
of common stock
|
|
$ |
- |
|
|
$ |
52,580 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
for capital expenditures
|
|
$ |
- |
|
|
$ |
665 |
|
|
$ |
511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial
Statements.
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
Years
ended December 31, 2006, 2007 and 2008
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other
comprehensive income
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Additional
paid-in
|
|
|
Retained
|
|
|
Currency
|
|
|
Hedging
|
|
|
Treasury
|
|
|
Total
stockholders'
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Capital
|
|
|
earnings
|
|
|
translation
|
|
|
derivatives
|
|
|
stock
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
$ |
52 |
|
|
$ |
100 |
|
|
$ |
109,556 |
|
|
$ |
31,320 |
|
|
$ |
8,961 |
|
|
$ |
110 |
|
|
$ |
- |
|
|
$ |
150,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,656 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,656 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(883 |
) |
|
|
(110 |
) |
|
|
- |
|
|
|
(993 |
) |
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,623 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,623 |
) |
Issuance
of common stock and other, net
|
|
|
1 |
|
|
|
- |
|
|
|
550 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
53 |
|
|
|
100 |
|
|
|
110,106 |
|
|
|
35,353 |
|
|
|
8,078 |
|
|
|
- |
|
|
|
- |
|
|
|
153,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,980 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,980 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,996 |
|
|
|
- |
|
|
|
- |
|
|
|
2,996 |
|
Change
in accounting principle-
FIN
No. 48
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
41 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
41 |
|
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,294 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,294 |
) |
Issuance
of common stock and other, net
|
|
|
- |
|
|
|
- |
|
|
|
1,579 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,579 |
|
Treasury
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(55,889 |
) |
|
|
(55,889 |
) |
Retired
|
|
|
(28 |
) |
|
|
- |
|
|
|
(55,861 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
55,889 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
25 |
|
|
|
100 |
|
|
|
55,824 |
|
|
|
37,080 |
|
|
|
11,074 |
|
|
|
- |
|
|
|
- |
|
|
|
104,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,101 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,101 |
) |
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,718 |
) |
|
|
126 |
|
|
|
- |
|
|
|
(2,592 |
) |
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,181 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,181 |
) |
Issuance
of common stock and other, net
|
|
|
- |
|
|
|
- |
|
|
|
54 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
54 |
|
Treasury
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,006 |
) |
|
|
(1,006 |
) |
Retired
|
|
|
(1 |
) |
|
|
- |
|
|
|
(1,005 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,006 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$ |
24 |
|
|
$ |
100 |
|
|
$ |
54,873 |
|
|
$ |
27,798 |
|
|
$ |
8,356 |
|
|
$ |
126 |
|
|
$ |
- |
|
|
$ |
91,277 |
|
See
accompanying Notes to Consolidated Financial
Statements.
COMPX
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008
Note
1 - Summary of significant accounting policies:
Organization. We
(NYSE: CIX) are 87% owned by NL Industries, Inc. (NYSE: NL) at December 31,
2008. We manufacture and sell component products (security products,
precision ball bearing slides, ergonomic computer support systems and
performance marine components). At December 31, 2008, (i) Valhi, Inc.
holds approximately 83% of NL’s outstanding common stock and (ii) subsidiaries
of Contran Corporation hold approximately 94% of Valhi’s outstanding common
stock. Substantially all of Contran's outstanding voting stock is
held by trusts established for the benefit of certain children and grandchildren
of Harold C. Simmons (of which Mr. Simmons is sole trustee), or is held by Mr.
Simmons or persons or other entities related to Mr.
Simmons. Consequently, Mr. Simmons may be deemed to control each of
these companies and us.
Unless
otherwise indicated, references in this report to “we,” “us,” or “our” refer to
CompX International Inc. and its subsidiaries, taken as a whole.
Management
estimates. In preparing our financial statements in conformity
with accounting principles generally accepted in the United States of America
(“GAAP”) we are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at each balance sheet date and the reported amounts of our
revenues and expenses during each reporting period. Actual results
may differ significantly from previously-estimated amounts under different
assumptions or conditions.
Principles of
consolidation. Our consolidated
financial statements include the accounts of CompX International Inc. and our
majority-owned subsidiaries. We eliminate all material intercompany
accounts and balances. We have no involvement with any variable
interest entity covered by the scope of FASB Interpretation No. 46R, Consolidation of Variable Interest
Entities.
Fiscal
year. Our
fiscal year end is always the Sunday closest to December 31, and our operations
are reported on a 52 or 53-week fiscal year. Each of the years ended
December 31, 2006, 2007 and 2008 consisted of 52 weeks.
Translation of
foreign currencies. We translate the
assets and liabilities of our subsidiaries whose functional currency is other
than the U.S. dollar at year-end rates of exchange, while we translate their
revenues and expenses at average exchange rates prevailing during the
year. We accumulate the resulting translation adjustments in
stockholders' equity as part of accumulated other comprehensive income, net of
related deferred income taxes. We recognize currency transaction
gains and losses in income.
Cash and cash
equivalents. We classify as
cash and cash equivalents bank time deposits and government and commercial notes
and bills with original maturities of three months or less.
Net
sales. We record sales
when products are shipped and title and other risks and rewards of ownership
have passed to the customer. Amounts charged to customers for
shipping and handling are not material. Sales are stated net of
price, early payment and distributor discounts and volume rebates. We
report any tax assessed by a governmental authority that we collect from our
customers that is both imposed on and concurrent with our revenue producing
activities (such as sales, use, value added and excise taxes) on a net basis
(meaning we do not recognize these taxes either in our revenues or in our costs
and expenses.)
Accounts
receivable. We provide an allowance
for doubtful accounts for known and estimated potential losses rising from our
sales to customers based on a periodic review of these accounts.
Inventories and
cost of sales. We state inventories at the lower
of cost or market, net of allowance for obsolete and slow-moving
inventories. We generally base inventory costs on average cost that
approximates the first-in, first-out method. We allocate fixed
manufacturing overheads based on normal production capacity and recognize
abnormal manufacturing costs as period costs. Our cost of sales
includes costs for materials, packing and finishing, utilities, salary and
benefits, maintenance and depreciation.
Selling, general
and administrative expenses; advertising costs. Selling, general and
administrative expenses include costs related to marketing, sales, distribution,
research and development and administrative functions such as accounting,
treasury and finance, and includes costs for salaries and benefits, travel and
entertainment, promotional materials and professional fees. We
expense advertising and research development costs as
incurred. Advertising costs were approximately $872,000 in 2006,
$804,000 in 2007, and $840,000 in 2008.
Goodwill and
other intangible assets; amortization expense. Goodwill
represents the excess of cost over fair value of individual net assets acquired
in business combinations. Goodwill is not subject to periodic
amortization. We amortize other intangible assets, consisting
principally of certain acquired patents and tradenames, using the straight line
method over their estimated lives (approximately 3 to 8 years remaining at
December 31, 2008). We assess goodwill and other intangible assets
for impairment in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 142, Goodwill and
Other Intangible Assets. See Note 4.
Property and
equipment; depreciation expense. We state property and
equipment, including purchased computer software for internal use, at
cost. We compute depreciation of property and equipment for financial
reporting purposes principally by the straight-line method over the estimated
useful lives of 15 to 40 years for buildings and 3 to 20 years for equipment and
software. We use accelerated depreciation methods for income tax
purposes, as permitted. Depreciation expense was $11.4 million in
2006, $10.4 million in 2007, and $8.6 million in 2008. Upon sale or
retirement of an asset, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in income
currently. Expenditures for maintenance, repairs and minor renewals
are expensed; expenditures for major improvements are capitalized.
We
evaluate assets for impairment when events or changes in circumstances indicate
that assets may be impaired to determine if an impairment
exists. Such events or changes in circumstances include, among other
things, (i) significant current and prior periods or current and projected
periods with operating losses, (ii) a significant decrease in the market value
of an asset or (iii) a significant change in the extent or manner in which an
asset is used. We consider all relevant factors. We
perform the impairment evaluation by comparing the estimated future undiscounted
cash flows (exclusive of interest expense) associated with the asset to the
asset's net carrying value to determine if a write-down to market value or
discounted cash flow value is required. We assess impairment of
property and equipment in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. See Note 9.
Employee benefit
plans. We maintain various defined contribution plans in which
we make contributions based on matching or other formulas. Defined
contribution plan expense approximated $2.2 million in 2006, $2.5 million in
2007 and $2.1 million in 2008.
Self-insurance. We are partially
self-insured for workers' compensation and certain employee health benefits and
self-insured for most environmental issues. We purchase coverage in
order to limit our exposure to any significant levels of workers' compensation
or employee health benefit claims. We accrue self-insured losses
based upon estimates of the aggregate liability for uninsured claims incurred
using certain actuarial assumptions followed in the insurance industry and our
own historical claims experience.
Derivatives and
hedging activities. Certain of our sales generated by our
non-U.S. operations are denominated in U.S. dollars. We periodically
use currency forward contracts to manage a portion of currency exchange rate
market risk associated with receivables, or similar exchange rate risk
associated with future sales, denominated in a currency other than the holder's
functional currency. We have not entered into these contracts for
trading or speculative purposes in the past, nor do we anticipate entering into
such contracts for trading or speculative purposes in the
future. Most of our currency forward contracts meet the criteria for
hedge accounting under GAAP and are designated as cash flow
hedges. For these currency forward contracts, gains and losses
representing the effective portion of our hedges are deferred as a component of
accumulated other comprehensive income, and are subsequently recognized in
earnings at the time the hedged item affects earnings. Occasionally,
we enter into currency forward contracts which do not meet the criteria for
hedge accounting. For these contracts, we mark-to-market
the estimated fair value of the contracts at each balance sheet date based on
quoted market prices for the forward contracts, with any resulting gain or loss
recognized in income currently as part of net currency
transactions. The quoted market prices for the forward contracts are
a Level 1 input as defined by Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair Value
Measurements. See Note 13. To manage such currency
exchange rate risk, at December 31, 2008, we held a series of contracts to
exchange an aggregate of U.S. $7.5 million for an equivalent value of Canadian
dollars at exchange rates ranging from Cdn. $1.25 to $1.26 per U.S.
dollar. These contracts qualified for hedge accounting and mature
through June 2009. The exchange rate was $1.22 per U.S. dollar at
December 31, 2008. The estimated fair value of the contracts was not
material at December 31, 2008. We had no currency forward contracts
outstanding at December 31, 2007.
Income
taxes. We are a member
of the Contran Tax Group. We have been and currently are a part of
the consolidated tax returns filed by Contran in certain United States state
jurisdictions. As a member of the Contran Tax Group, we are jointly
and severally liable for the federal income tax liability of Contran and the
other companies included in the Contran Tax Group for all periods in which we
are included in the Contran Tax Group. See Note 12.
As a
member of the Contran Tax Group, we are a party to a tax sharing agreement which
provides that we compute our provision for U.S. income taxes on a
separate-company basis. Pursuant to the tax sharing agreement, we make payments
to or receive payments from NL in amounts we would have paid to or received from
the U.S. Internal Revenue Service or the applicable state tax authority had we
not been a member of the Contran Tax Group. The separate company provisions and
payments are computed using the tax elections made by Contran. Under
certain circumstances, such tax regulations could require Contran to treat items
differently than we would on a stand alone basis, and in such instances GAAP
requires us to conform to Contran’s tax election. We made net cash
payments for taxes of $5.6 million in 2006, $9.5 million in 2007, and $5.2
million in 2008 to NL Industries, Inc.
Deferred
income tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the income tax and financial
reporting carrying amounts of assets and liabilities, including undistributed
earnings of foreign subsidiaries which are not permanently reinvested. Earnings
of foreign subsidiaries subject to permanent reinvestment plans aggregated $5.6
million, $5.7 million, and $5.6 million at December 31, 2006, 2007 and 2008,
respectively. Determination of the amount of unrecognized deferred tax liability
on such permanent reinvestment plans was not practicable. We
periodically evaluate our deferred tax assets in the various taxing
jurisdictions in which we operate and adjust any related valuation allowance
based on the estimate of the amount of such deferred tax assets which we believe
do not meet the more-likely-than-not recognition criteria.
Prior to
2007, we provided a reserve for uncertain income tax positions when we believed
it was probable a tax position would not prevail with the applicable tax
authority and the amount of the lost benefit associated with such tax position
was reasonably estimable. Beginning in 2007, we record a reserve for
uncertain tax positions in accordance with FIN No. 48, Accounting for Uncertain Tax
Positions, for each tax position where we believe it is
more-likely-than-not our position will not prevail with the applicable tax
authorities. See Note 13.
Earnings per
share. Basic earnings
per share of common stock is computed using the weighted average number of
common shares actually outstanding during each period. Diluted
earnings per share of common stock includes the impact of outstanding dilutive
stock options. The weighted average number of outstanding stock
options excluded from the calculation of diluted earnings per share because
their impact would have been antidilutive aggregated approximately 397,000 in
2006, 368,000 in 2007 and 172,000 in 2008.
Fair value of
financial instruments. The carrying amounts of
accounts receivable and accounts payable approximates fair value due to their
short-term nature. We adopted SFAS No. 157, Fair Value Measurements,
which establishes a framework for measuring fair value on January 1,
2008. The statement requites fair value measurements to be classified
and disclosed in one of the following three categories:
·
|
Level 1 – Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or
liabilities;
|
·
|
Level 2 – Quoted prices
in markets that are not active, or inputs which are observable, either
directly or indirectly, for substantially the full term of the assets or
liability; and
|
·
|
Level 3 – Prices or
valuation techniques that require inputs that are both significant to the
fair value measurement and
unobservable.
|
These
estimated fair value amounts have been determined using available market
information or other appropriate valuation methodologies. The
carrying amount of our indebtedness approximates fair value due to the stated
variable interest rate approximating a market rate. The fair value of
our indebtedness is a Level 2 input. See Note 13.
Note
2 - Business and geographic segments:
Our
operating segments are defined as components of our operations about which
separate financial information is available that is regularly evaluated by our
chief operating decision maker in determining how to allocate resources and in
assessing performance. Our chief operating decision maker is Mr.
David A. Bowers, our president and chief executive officer. We have
three operating segments – Security Products, Furniture Components and Marine
Components. The Security Products segment, with a facility in South
Carolina and a facility shared with Marine Components in Illinois, manufactures
locking mechanisms and other security products for sale to the office furniture,
transportation, postal, banking, vending and other industries. The
Furniture Components segment, with facilities in Canada, Michigan and Taiwan,
manufactures and distributes a complete line of precision ball bearing slides
and ergonomic computer support systems for use in office furniture,
computer-related equipment, tool storage cabinets, appliances and other
applications. Our Marine Components segment with a facility in
Wisconsin and a facility shared with Security Products in Illinois manufactures
and distributes marine instruments, hardware and accessories for performance
boats.
In April
2006, we completed a marine component product business acquisition for aggregate
cash consideration of $9.8 million, net of cash acquired. The
purchase price was allocated among tangible and intangible net assets acquired
based upon an estimate of the fair value of such net assets.
The chief
operating decision maker evaluates segment performance based on segment
operating income, which is defined as income before income taxes, and interest
expense, exclusive of certain general corporate income and expense items
(primarily interest income) and certain non-recurring items (such as gains or
losses on the disposition of business units and other long-lived assets outside
the ordinary course of business). The accounting policies of the
reportable operating segments are the same as those described in Note
1. Capital expenditures include additions to property and equipment,
but exclude amounts attributable to business combinations.
Segment
assets are comprised of all assets attributable to the reportable
segments. Corporate assets are not attributable to the operating
segments and consist primarily of cash, cash equivalents and notes receivable
and, at December 31, 2007 and 2008, assets held for sale. See Note
9. For geographic information, net sales are attributable to the
place of manufacture (point of origin) and the location of the customer (point
of destination); property and equipment are attributable to their physical
location. At December 31, 2007 and 2008, the net assets of non-U.S.
subsidiaries included in consolidated net assets approximated $40.5 million and
$32.8 million, respectively.
|
|
Years ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
Security
Products
|
|
$ |
81,684 |
|
|
$ |
80,085 |
|
|
$ |
77,094 |
|
Furniture
Components
|
|
|
92,983 |
|
|
|
81,331 |
|
|
|
76,405 |
|
Marine
Components
|
|
|
15,456 |
|
|
|
16,267 |
|
|
|
12,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
190,123 |
|
|
$ |
177,683 |
|
|
$ |
165,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Products
|
|
$ |
14,620 |
|
|
$ |
12,218 |
* |
|
$ |
12,715 |
|
Furniture
Components
|
|
|
10,036 |
|
|
|
8,001 |
|
|
|
9,205 |
|
Marine
Components
|
|
|
822 |
|
|
|
799 |
|
|
|
(10,456 |
)** |
Corporate
operating expenses
|
|
|
(5,177 |
) |
|
|
(5,462 |
) |
|
|
(5,278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating income
|
|
|
20,301 |
|
|
|
15,556 |
|
|
|
6,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
non-operating income, net
|
|
|
1,270 |
|
|
|
1,133 |
|
|
|
240 |
|
Interest
expense
|
|
|
(219 |
) |
|
|
(760 |
) |
|
|
(2,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income
taxes
|
|
$ |
21,352 |
|
|
$ |
15,929 |
|
|
$ |
4,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Products
|
|
$ |
4,309 |
|
|
$ |
4,574 |
|
|
$ |
3,557 |
|
Furniture
Components
|
|
|
6,798 |
|
|
|
5,457 |
|
|
|
4,583 |
|
Marine
Components
|
|
|
666 |
|
|
|
958 |
|
|
|
1,080 |
|
Corporate
Depreciation
|
|
|
24 |
|
|
|
21 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
11,797 |
|
|
$ |
11,010 |
|
|
$ |
9,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Products
|
|
$ |
5,335 |
|
|
$ |
12,240 |
|
|
$ |
4,348 |
|
Furniture
Components
|
|
|
1,504 |
|
|
|
1,349 |
|
|
|
1,823 |
|
Marine
Components
|
|
|
5,205 |
|
|
|
896 |
|
|
|
1,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
12,044 |
|
|
$ |
14,485 |
|
|
$ |
7,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Products
|
|
$ |
23,742 |
|
|
$ |
23,742 |
|
|
$ |
23,742 |
|
Furniture
Components
|
|
|
7,135 |
|
|
|
7,160 |
|
|
|
7,085 |
|
Marine
Components
|
|
|
9,882 |
|
|
|
9,882 |
|
|
|
- |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
40,759 |
|
|
$ |
40,784 |
|
|
$ |
30,827 |
|
* Includes
$2.7 million of costs related to the consolidation of three of our northern
Illinois facilities into one facility. See Note 9.
** We
recorded a $9.9 million goodwill impairment charge for Marine Components in
2008. This represents all of the goodwill we had previously
recognized for this reporting unit. See Note 4.
|
|
Years ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
Point
of origin:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
127,620 |
|
|
$ |
118,460 |
|
|
$ |
115,470 |
|
Canada
|
|
|
52,395 |
|
|
|
52,684 |
|
|
|
46,519 |
|
Taiwan
|
|
|
15,910 |
|
|
|
11,714 |
|
|
|
8,268 |
|
Eliminations
|
|
|
(5,802 |
) |
|
|
(5,175 |
) |
|
|
(4,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
190,123 |
|
|
$ |
177,683 |
|
|
$ |
165,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point
of destination:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
153,942 |
|
|
$ |
147,716 |
|
|
$ |
134,247 |
|
Canada
|
|
|
19,985 |
|
|
|
19,251 |
|
|
|
16,920 |
|
Other
|
|
|
16,196 |
|
|
|
10,716 |
|
|
|
14,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
190,123 |
|
|
$ |
177,683 |
|
|
$ |
165,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006 |
|
|
|
2007 |
|
|
|
2008 |
|
|
|
(In
thousands)
|
|
Total
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Products
|
|
$ |
74,887 |
|
|
$ |
80,051 |
|
|
$ |
77,681 |
|
Furniture
Components
|
|
|
77,781 |
|
|
|
67,184 |
|
|
|
59,148 |
|
Marine
Components
|
|
|
26,607 |
|
|
|
26,436 |
|
|
|
14,953 |
|
Corporate
and eliminations
|
|
|
12,751 |
|
|
|
14,044 |
|
|
|
11,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
192,026 |
|
|
$ |
187,715 |
|
|
$ |
163,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
47,865 |
|
|
$ |
50,876 |
|
|
$ |
51,327 |
|
Canada
|
|
|
14,144 |
|
|
|
13,912 |
|
|
|
8,987 |
|
Taiwan
|
|
|
7,679 |
|
|
|
7,363 |
|
|
|
7,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
69,688 |
|
|
$ |
72,151 |
|
|
$ |
67,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
3 - Inventories:
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
6,341 |
|
|
$ |
7,552 |
|
Work
in process
|
|
|
9,783 |
|
|
|
8,225 |
|
Finished
products
|
|
|
8,153 |
|
|
|
6,884 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
24,277 |
|
|
$ |
22,661 |
|
Note
4 – Goodwill and other intangible assets:
We have
assigned goodwill to each of our reporting units (as that term
is defined in SFAS No. 142) which correspond to our operating
segments. In accordance with SFAS No. 142 we test for goodwill
impairment at the reporting unit level. In accordance with the
requirements of SFAS No. 142, we review goodwill for each of our three reporting
units for impairment during the third quarter of each year or when circumstances
arise that indicate an impairment might be present. In determining
the estimated fair value of the reporting units, we use appropriate valuation
techniques, such as discounted cash flows. Such discounted cash flows
are a Level 3 input as defined by SFAS No. 157. If the fair value of
an evaluated asset is less than its book value, the asset is written down to
fair value.
During
the third quarter of 2008, we recorded a goodwill impairment charge of $9.9
million for our Marine Components reporting unit, which represented all of the
goodwill we had previously recognized for this reporting unit. We
used a discounted cash flow methodology in determining the estimated fair value
of our Marine Components reporting unit. The factors that led us to
conclude goodwill associated with our Marine Components reporting unit was fully
impaired include the continued decline in consumer spending in the marine market
as well as the overall negative economic outlook, both of which resulted in
near-term and longer-term reduced revenue, profit and cash flow forecasts for
the Marine Components unit. While we continue to believe in the long
term potential of the Marine Components reporting unit, due to the extraordinary
economic downturn in the marine industry we are not currently able to foresee
when the industry and our business will recover. In response to the
present economic conditions, we have taken steps to reduce operating costs
without inhibiting our ability to take advantage of opportunities to expand our
market share. When we performed this analysis in the third quarter,
we also reviewed the goodwill associated with our Security Products and
Furniture Components reporting units and concluded there was no impairment of
goodwill for those reporting units. Due to the continued weakening of
the economy, we re-evaluated the goodwill associated with our Furniture
Components reporting unit again in the fourth quarter of 2008 and concluded no
additional impairments were present. Our 2006 and 2007 annual
impairment reviews of goodwill indicated no impairments.
Changes
in the carrying amount of goodwill related to our operations during the past
three years are presented in the table below. Goodwill was generated
principally from acquisitions of certain business units during 1998, 1999, 2000,
and Marine Components acquisitions in August 2005 and April 2006.
|
|
Security
Products
|
|
|
Furniture
Components
|
|
|
Marine
Components
|
|
|
Total
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
$ |
23.7 |
|
|
$ |
6.6 |
|
|
$ |
5.4 |
|
|
$ |
35.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
acquired during the year
|
|
|
- |
|
|
|
0.4 |
|
|
|
4.5 |
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in currency exchange rates
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
23.7 |
|
|
|
7.1 |
|
|
|
9.9 |
|
|
|
40.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in currency exchange rates
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
23.7 |
|
|
|
7.2 |
|
|
|
9.9 |
|
|
|
40.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
impairment
|
|
|
- |
|
|
|
- |
|
|
|
(9.9 |
) |
|
|
(9.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in currency exchange rates
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$ |
23.7 |
|
|
$ |
7.1 |
|
|
$ |
- |
|
|
$ |
30.8 |
|
\Other
intangible assets are stated net of accumulated amortization of $3.1 million at
December 31, 2007 and $2.0 million at December 31, 2008.
Amortization
of intangible assets was $441,000 in 2006, $604,000 in 2007, and $591,000 in
2008, respectively. Estimated aggregate intangible asset amortization
expense for the next five years is as follows:
Years ending December 31,
|
|
Amount
|
|
|
|
(In
thousands)
|
|
|
|
|
|
2009
|
|
$ |
600 |
|
2010
|
|
|
600 |
|
2011
|
|
|
400 |
|
2012
|
|
|
300 |
|
2013
|
|
|
100 |
|
|
|
|
|
|
Total
|
|
$ |
2,000 |
|
Note
5 - Accounts payable and accrued liabilities:
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
7,139 |
|
|
$ |
4,985 |
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
|
Employee
benefits
|
|
|
7,196 |
|
|
|
6,571 |
|
Customer
tooling
|
|
|
736 |
|
|
|
787 |
|
Taxes
other than on income
|
|
|
572 |
|
|
|
447 |
|
Insurance
|
|
|
502 |
|
|
|
458 |
|
Professional
|
|
|
252 |
|
|
|
222 |
|
Reserve
for uncertain tax positions
|
|
|
237 |
|
|
|
- |
|
Other
|
|
|
1,018 |
|
|
|
786 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
17,652 |
|
|
$ |
14,256 |
|
Note
6 - Credit facility:
At
December 31, 2008, we had a $50 million revolving bank credit facility that
matured in January 2009. At December 31, 2008, we had no outstanding
draws against the credit facility and the full amount of the facility was
available for borrowing. In January 2009, we amended the terms of the
credit facility to extend the maturity date to January 15, 2012 and to reduce
the size of the facility from $50.0 million to $37.5 million. The
amended credit facility bears interest, at our option, at either the prime rate
plus a margin or LIBOR plus a margin. The credit facility is
collateralized by 65% of the ownership interests in our first-tier non-U.S.
subsidiaries. The facility contains certain covenants and
restrictions customary in lending transactions of this type, which among other
things, restricts our ability and that of our subsidiaries to incur debt, incur
liens, pay dividends or merge or consolidate with, or transfer all or
substantially all assets to, another entity. The facility also
requires maintenance of specified levels of net worth (as
defined). In the event of a change of control, as defined, the
lenders would have the right to accelerate the maturity of the
facility.
The
credit facility permits us to pay dividends and/or repurchase common stock in an
amount equal to the sum of (i) a dividend of $.125 per share in any calendar
quarter, not to exceed $8.0 million in any calendar year, plus (ii) $20.0
million plus 50% of aggregate net income over the term of the credit
facility. In addition to the permitted $.125 per share amount to
repurchase our common stock and/or to pay dividends, at December 31, 2008, $20.4
million was available for dividends and/or repurchases of our common stock under
the terms of the facility.
Note
7 - Income taxes:
The
components of pre-tax income, the provision for income taxes attributable to
continuing operations, the difference between the provision for income taxes and
the amount that would be expected using the U.S. federal statutory income tax
rate of 35%, and the comprehensive provision for income taxes are presented
below.
|
|
Years ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Components
of pre-tax income:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
14,022 |
|
|
$ |
8,647 |
|
|
$ |
(5,253 |
) |
Non-U.S.
|
|
|
7,330 |
|
|
|
7,282 |
|
|
|
9,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
21,352 |
|
|
$ |
15,929 |
|
|
$ |
4,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Currently
payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
federal and state
|
|
$ |
5,651 |
|
|
$ |
9,902 |
|
|
$ |
3,570 |
|
Foreign
|
|
|
2,509 |
|
|
|
3,596 |
|
|
|
3,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,160 |
|
|
|
13,498 |
|
|
|
7,210 |
|
Deferred
income taxes (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
federal and state
|
|
|
2,074 |
|
|
|
(6,503 |
) |
|
|
117 |
|
Foreign
|
|
|
(538 |
) |
|
|
(46 |
) |
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,536 |
|
|
|
(6,549 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
9,696 |
|
|
$ |
6,949 |
|
|
$ |
7,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
tax expense, at the U.S. federal statutory income tax rate of
35%
|
|
$ |
7,473 |
|
|
$ |
5,575 |
|
|
$ |
1,422 |
|
Non-U.S.
tax rates
|
|
|
(298 |
) |
|
|
(237 |
) |
|
|
(328 |
) |
Incremental
U.S. tax on earnings of foreign subsidiaries
|
|
|
2,138 |
|
|
|
1,384 |
|
|
|
2,777 |
|
State
income taxes and other, net
|
|
|
535 |
|
|
|
404 |
|
|
|
255 |
|
No
income tax benefit on goodwill impairment
|
|
|
- |
|
|
|
- |
|
|
|
3,459 |
|
Canadian
tax rate change
|
|
|
(142 |
) |
|
|
152 |
|
|
|
(4 |
) |
Tax
credits
|
|
|
(432 |
) |
|
|
(329 |
) |
|
|
(195 |
) |
Tax
contingency reserve adjustments, net
|
|
|
422 |
|
|
|
- |
|
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
9,696 |
|
|
$ |
6,949 |
|
|
$ |
7,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
provision for income taxes allocable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
$ |
9,696 |
|
|
$ |
6,949 |
|
|
$ |
7,165 |
|
Other
comprehensive income – currency translation
|
|
|
1,210 |
|
|
|
1,580 |
|
|
|
1,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
10,906 |
|
|
$ |
8,529 |
|
|
$ |
8,644 |
|
The
goodwill impairment charge is not deductible for income tax purposes, and
therefore we did not recognize an income tax benefit related to the
charge.
The
components of net deferred tax assets (liabilities) are summarized
below.
|
|
December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Tax
effect of temporary differences related to:
|
|
|
|
|
|
|
Inventories
|
|
$ |
1,049 |
|
|
$ |
850 |
|
Tax
on unremitted earnings of non-U.S. subsidiaries
|
|
|
(8,265 |
) |
|
|
(5,615 |
) |
Property
and equipment
|
|
|
(4,669 |
) |
|
|
(5,442 |
) |
Accrued
liabilities and other deductible differences
|
|
|
1,113 |
|
|
|
987 |
|
Tax
loss and credit carryforwards
|
|
|
4,191 |
|
|
|
4,112 |
|
Other
taxable differences
|
|
|
(2,364 |
) |
|
|
(2,291 |
) |
Valuation
allowance
|
|
|
(3,901 |
) |
|
|
(3,901 |
) |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(12,846 |
) |
|
$ |
(11,300 |
) |
|
|
|
|
|
|
|
|
|
Net
current deferred tax assets
|
|
|
2,123 |
|
|
|
1,821 |
|
Net
noncurrent deferred tax liabilities
|
|
|
(14,969 |
) |
|
|
(13,121 |
) |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(12,846 |
) |
|
$ |
(11,300 |
) |
|
|
|
|
|
|
|
|
|
At
December 31, 2008, we had, for U.S. federal income tax purposes, net operating
loss carryforwards of approximately $400,000 which expire in 2009 through
2017. Utilization of such net operating loss carryforwards is limited
to approximately $400,000 per tax year, and we utilized such $400,000 amount of
the carryforwards in each of 2006, 2007, and 2008. We believe it is
more-likely-than-not that the carryforwards will be utilized to reduce future
income tax liabilities, and accordingly we have not provided a deferred income
tax asset valuation allowance to offset the benefit of the
carryforwards.
We
generated a $3.9 million federal income tax benefit associated with a U.S.
capital loss realized in 2005. We determined based on the weight of
the available evidence that realization of the benefit of the capital loss did
not and continues not to meet the more-likely-than-not recognition
criteria. Therefore, we have also recognized a deferred income tax
asset valuation allowance to fully offset the deferred tax asset related to the
capital loss carryforward. The capital loss carryforward discussed
above expires in 2010.
Note
8 – Stockholders’ equity:
|
|
Shares of common stock
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
Issued
|
|
|
Treasury
|
|
|
Outstanding
|
|
|
Issued
and
outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
5,234,280 |
|
|
|
- |
|
|
|
5,234,280 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
32,700 |
|
|
|
- |
|
|
|
32,700 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
5,266,980 |
|
|
|
- |
|
|
|
5,266,980 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
374,000 |
|
|
|
- |
|
|
|
374,000 |
|
|
|
10,000,000 |
|
Reacquired
|
|
|
- |
|
|
|
(483,600 |
) |
|
|
(483,600 |
) |
|
|
- |
|
Retirement
|
|
|
(3,070,420 |
) |
|
|
483,600 |
|
|
|
(2,586,820 |
) |
|
|
(10,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
affiliate repurchase
|
|
|
(2,696,420 |
) |
|
|
- |
|
|
|
(2,696,420 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
87,300 |
|
|
|
- |
|
|
|
87,300 |
|
|
|
- |
|
Reacquired
|
|
|
- |
|
|
|
(179,100 |
) |
|
|
(179,100 |
) |
|
|
- |
|
Retirement
|
|
|
(179,100 |
) |
|
|
179,100 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other
|
|
|
(91,800 |
) |
|
|
- |
|
|
|
(91,800 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
2,478,760 |
|
|
|
- |
|
|
|
2,478,760 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
9,000 |
|
|
|
- |
|
|
|
9,000 |
|
|
|
- |
|
Reacquired
|
|
|
- |
|
|
|
(126,453 |
) |
|
|
(126,453 |
) |
|
|
- |
|
Retirement
|
|
|
(126,453 |
) |
|
|
126,453 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
2,361,307 |
|
|
|
- |
|
|
|
2,361,307 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A and Class B common
stock. The shares of Class A common stock and Class B common
stock are identical in all respects, except for certain voting rights and
certain conversion rights in respect of the shares of the Class B common
stock. Holders of Class A common stock are entitled to one vote per
share. NL Industries, Inc. (“NL”), which holds all of the outstanding
shares of Class B common stock, is entitled to one vote per share in all matters
except for election of directors, for which NL is entitled to ten votes per
share. Holders of all classes of common stock entitled to vote will
vote together as a single class on all matters presented to the stockholders for
their vote or approval, except as otherwise required by applicable
law. Each share of Class A common stock and Class B common stock have
an equal and ratable right to receive dividends to be paid from our assets when,
and if declared by the board of directors. In the event of the
dissolution, liquidation or winding up of our operations, the holders of Class A
common stock and Class B common stock will be entitled to share equally and
ratably in the assets available for distribution after payments are made to our
creditors and to the holders of any of our preferred stock that may be
outstanding at the time. Shares of the Class A common stock have no
conversion rights. Under certain conditions, shares of Class B common
stock will convert, on a share-for-share basis, into shares of Class A common
stock.
Share repurchases and
cancellations. In August 2007, our board of directors
authorized the repurchase of up to 500,000 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. This authorization was in addition to the 467,000 shares of
Class A common stock that remained available at the close of business on August
9, 2007 for repurchase under prior authorizations of our board of
directors. 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
2007 and 2008, we purchased approximately 179,100 and 126,453 shares of our
Class A common stock in market transactions for an aggregate of $3.3 million and
$1.0 million in cash, respectively. We cancelled these treasury
shares and allocated their cost to common stock at par value and additional
paid-in capital. At December 31, 2008, approximately 678,000 shares
were available for purchase under these repurchase authorizations.
In
October 2007, our board of directors authorized the repurchase or cancellation
of a net 2.7 million shares of our Class A common stock held directly and
indirectly by TIMET. We purchased or cancelled these shares for
$19.50 per share, or aggregate consideration of $52.6 million, which we paid in
the form of a promissory note. The price per share was determined
based on our open market repurchases of our Class A common stock around the time
the repurchase or cancellation of these shares was approved. The
authorization for the repurchase or cancellation of these Class A shares from
TIMET was in addition to the share repurchase authorizations discussed
above. See Note 11. We allocated the cost of these
repurchases and/or cancellations to common stock at par value and additional
paid-in capital.
Incentive compensation
plan. The CompX International Inc. 1997 Long-Term Incentive
Plan provides for the award or grant of stock options, stock appreciation
rights, performance grants and other awards to employees and other individuals
who provide services to us. Up to 1.5 million shares of Class A
Common Stock may be issued pursuant to the plan. Employee stock
options are granted at prices not less than the market price of our stock on the
date of grant, vest over five years and expire ten years from the date of
grant. The following table sets forth changes in outstanding options
during the past three years.
|
|
Shares
|
|
|
Exercise
price
per
share
|
|
|
Amount
payable
upon
exercise
|
|
|
Weighted
average
exercise
price
|
|
|
|
(In
000’s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005
|
|
|
470 |
|
|
$ |
10.00 – 20.00 |
|
|
$ |
8,637 |
|
|
$ |
18.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(27 |
) |
|
|
13.00 |
|
|
|
(347 |
) |
|
|
13.00 |
|
Canceled
|
|
|
(6 |
) |
|
|
20.00 |
|
|
|
(120 |
) |
|
|
20.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
437 |
|
|
$ |
10.00 – 20.00 |
|
|
$ |
8,170 |
|
|
$ |
18.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(81 |
) |
|
|
10.00
– 20.00 |
|
|
|
(1,394 |
) |
|
|
17.21 |
|
Canceled
|
|
|
(7 |
) |
|
|
17.94 - 20.00 |
|
|
|
(133 |
) |
|
|
19.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
349 |
|
|
$ |
12.15 – 20.00 |
|
|
$ |
6,643 |
|
|
$ |
19.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(215 |
) |
|
|
20.00 |
|
|
|
(4,300 |
) |
|
|
20.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
134 |
|
|
$ |
12.15 – 19.25 |
|
|
$ |
2,343 |
|
|
$ |
17.49 |
|
Outstanding
options at December 31, 2008 represent approximately 1% of our total outstanding
shares of common stock at that date and expire at various dates through 2012
with a weighted-average remaining term of approximately 1 year. Our
market price per share at December 31, 2008 was $5.28. Of the 134,000
outstanding options, which were fully vested at December 31, 2008, all 134,000
options were exercisable at prices higher than the December 31, 2008 market
price per share. At December 31, 2008, an aggregate of 878,820 shares
were available for future grants. Shares issued under the incentive
stock plan are generally newly-issued shares. The intrinsic value of
our options exercised aggregate approximately $123,900 in 2006 and $241,400 in
2007 and the related income tax benefit from the exercises was $44,000 in 2006
and $77,000 in 2007. No stock options were exercised in
2008.
Note
9 – Facility consolidation
Prior to
2007, we had three facilities in northern Illinois, two Security Products
facilities (located in Lake Bluff, Illinois and River Grove, Illinois) and one
Marine Components facility (located in Grayslake, Illinois). In order
to create opportunities to reduce operating costs and improve operating
efficiencies, we determined that it would be more effective to consolidate these
three operations into one location. In 2006, we acquired land
adjacent to the Marine Components facility for approximately $1.8 million in
order to expand the facility, and during 2007 we incurred approximately $9.6
million of capital expenditures in connection with the expansion.
In
addition to the capital expenditures, during 2007, we incurred approximately
$2.7 million in expenses relating to the facility consolidation including
physical move costs, equipment installation, redundant labor and recruiting fees
and write downs for fixed assets no longer in use, all of which are included in
facility consolidation expense in the accompanying Consolidated Statement of
Income. The majority of these costs were incurred during the fourth
quarter of 2007.
The fixed
asset write downs amounted to $765,000 of which $600,000 related to the
classification of the River Grove facility as an “asset held for sale” in
November 2007 as it was no longer being utilized and met all of the criteria
under GAAP to be classified as an “asset held for sale.” In
classifying the facility and related assets (primarily land, building, and
building improvements) as held for sale, we concluded that the carrying amount
of the assets exceeded the estimated fair value less costs to sell such
assets. In determining the estimated fair value of such assets, we
considered recent sales prices for other property near the facility, Level 2
inputs as defined by SFAS No. 157. Accordingly, we recognized
$600,000 to write-down the assets to their estimated net realizable value of
approximately $3.1 million at December 31, 2007. We expect to dispose
of the River Grove facility during 2009. 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.
Note
10 – Other non-operating income, net:
|
|
Years ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
1,278 |
|
|
$ |
1,324 |
|
|
$ |
389 |
|
Other
income (expense), net
|
|
|
(8 |
) |
|
|
(191 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,270 |
|
|
$ |
1,133 |
|
|
$ |
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
11 - Related party transactions:
We may be
deemed to be controlled by Harold C. Simmons. See Note
1. Corporations that may be deemed to be controlled by or affiliated
with Mr. Simmons sometimes engage in (a) intercorporate transactions such as
guarantees, management and expense sharing arrangements, shared fee
arrangements, joint ventures, partnerships, loans, options, advances of funds on
open account, and sales, leases and exchanges of assets, including securities
issued by both related and unrelated parties and (b) common investment and
acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions which resulted in the acquisition by one related
party of a publicly-held minority equity interest in another related
party. We continuously consider, review and evaluate, and understand
that Contran and related entities consider, review and evaluate such
transactions. Depending upon the business, tax and other objectives
then relevant, it is possible that we might be a party to one or more such
transactions in the future.
In 2007,
we purchased and/or cancelled a net 2.7 million shares of our Class A common
stock from TIMET. A subsidiary of Contran and persons and other
entities related to Mr. Simmons own an aggregate of approximately 52% of TIMET’s
outstanding common stock at December 31, 2007. We purchased and/or
cancelled these shares for $19.50 per share, or aggregate consideration of $52.6
million, which we paid in the form of a promissory note. The price
per share was determined based on our open market repurchases of our Class A
common stock around the time the repurchase from TIMET was
approved. The promissory note bears interest at LIBOR plus 1% (5.05%
at December 31, 2008) and provides for quarterly principal repayments of
$250,000 commencing in September 2008, with the balance due at maturity in
September 2014. The promissory note is subordinated to our U.S.
revolving bank credit agreement. See Note 6. We may make
prepayments on the promissory note payable to TIMET at any time, in any amount,
without penalty. During 2007 and 2008, we prepaid approximately $2.6
million and $7.0 million, respectively, of the promissory note. At
December 31, 2007 and 2008, approximately $50.0 million and $43.0 million,
respectively, was outstanding under the promissory note, of which $250,000 and
$1.0 million, respectively, was classified as a current liability. The scheduled
repayments of the promissory note are shown in the table below.
Years ending December 31,
|
|
Amount
|
|
|
|
(In
thousands)
|
|
|
|
|
|
2009
|
|
$ |
1,000 |
|
2010
|
|
|
1,000 |
|
2011
|
|
|
1,000 |
|
2012
|
|
|
1,000 |
|
2013
|
|
|
1,000 |
|
2014
|
|
|
37,980 |
|
|
|
|
|
|
Total
|
|
$ |
42,980 |
|
Under the
terms of various Intercorporate Service Agreements (“ISAs”) with Contran,
employees of Contran perform certain management, tax planning, financial, legal
and administrative services for us on a fee basis. Such fees are
based upon estimates of time devoted to our affairs by individual Contran
employees and the compensation of such persons. Because of the large
number of companies affiliated with Contran, we believe we benefit from cost
savings and economies of scale gained by not having certain management,
financial and administrative staffs duplicated at each entity, thus allowing
certain individuals to provide services to multiple companies but only be
compensated by one entity. Fees pursuant to these agreements
aggregated $2.7 million in 2006, $2.9 million in 2007 and $3.1 million in
2008.
Tall
Pines Insurance Company and EWI RE, Inc. provide for or broker certain insurance
policies for Contran and certain of its subsidiaries and affiliates, including
us. Tall Pines and EWI are subsidiaries of
Valhi. Consistent with insurance industry practices, Tall Pines and
EWI receive commissions from the insurance and reinsurance underwriters and/or
assess fees for the policies that they provide or broker. The
aggregate premiums paid to Tall Pines and EWI were approximately $1.2 million in
2006, $1.1 million in 2007 and $1.2 million in 2008. These amounts
principally included payments for insurance, but also included commissions paid
to Tall Pines and EWI. Tall Pines purchases reinsurance for
substantially all of the risks it underwrites. We expect that these
relationships with Tall Pines and EWI will continue in 2009.
Contran
and certain of its subsidiaries and affiliates, including us, purchase certain
of their insurance policies as a group, with the costs of the jointly-owned
policies being apportioned among the participating companies. With
respect to certain of these policies, it is possible that unusually large losses
incurred by one or more insureds during a given policy period could leave the
other participating companies without adequate coverage under that policy for
the balance of the policy period. As a result, Contran and certain of
its subsidiaries and affiliates, including us, have entered into a loss sharing
agreement under which any uninsured loss is shared by those entities who have
submitted claims under the relevant policy. We believe the benefits
in the form of reduced premiums and broader coverage associated with the group
coverage for such policies justifies the risk associated with the potential for
any uninsured loss.
Note
12 - Commitments and contingencies:
Legal
proceedings. We are involved, from time to time, in various
contractual, product liability, patent (or intellectual property), employment
and other claims and disputes incidental to our business. On February
10, 2009, a complaint was filed with the U.S. International Trade Commission
(“ITC”) by Humanscale Corporation requesting that the ITC commence an
investigation pursuant to Section 337 of the Tariff Act of 1930 to determine
allegations concerning the unlawful importation of certain adjustable keyboard
related products into the U.S. by our Canadian subsidiary. The
products are alleged to infringe certain claims under a U.S. patent held by
Humanscale. The complaint seeks as relief the barring of future
imports of the products into the U.S. until the expiration of the related patent
in March 2011. Additionally, on February 13, 2009, a complaint for patent
infringement was filed in the United States District Court, Eastern District of
Virginia, by Humanscale against us and our Canadian subsidiary. We
have not been served in this matter as of the filing of our annual report on
Form 10-K, however, we deny the allegations of infringement noted in this
complaint. We intend to deny the infringement before the ITC and seek
to dismiss the complaint. We currently believe that the disposition
of all claims and disputes, individually or in the aggregate, if any, should not
have a material adverse effect on our consolidated financial condition, results
of operations or liquidity.
Environmental matters and
litigation. Our operations are governed by various federal,
state, local and foreign environmental laws and regulations. Our
policy is to comply with environmental laws and regulations at all of our plants
and to continually strive to improve environmental performance in association
with applicable industry initiatives. We believe that our operations
are in substantial compliance with applicable requirements of environmental
laws. From time to time, we may be subject to environmental
regulatory enforcement under various statutes, resolution of which typically
involves the establishment of compliance programs.
Income taxes. From
time to time, we undergo examinations of our income tax returns, and tax
authorities have or may propose tax deficiencies. We believe that we
have adequately provided accruals for additional income taxes and related
interest expense which may ultimately result from such examinations and we
believe that the ultimate disposition of all such examinations should not have a
material adverse effect on our consolidated financial position, results of
operations or liquidity.
We have
agreed to a policy with Contran providing for the allocation of tax liabilities
and tax payments as described in Note 1. Under applicable law, we, as
well as every other member of the Contran Tax Group, are each jointly and
severally liable for the aggregate federal income tax liability of Contran and
the other companies included in the Contran Tax Group for all periods in which
we are included in the Contran Tax Group. NL has agreed, however, to
indemnify us for any liability for income taxes of the Contran Tax Group in
excess of our tax liability previously computed and paid by us in accordance
with the tax allocation policy.
Concentration of credit
risk. Our products are sold primarily in North America to
original equipment manufacturers. The ten largest customers accounted
for approximately 38% of sales in 2006, 31% in 2007 and 35% in
2008. No customer accounted for sales of 10% or more in 2006, 2007,
or 2008.
Rent
expense, principally for buildings, was $787,000 in 2006, $429,000 in 2007 and
$461,000 in 2008. At December 31, 2008, future minimum rentals under
noncancellable operating leases are shown below.
Years ending December 31,
|
|
Amount
|
|
|
|
(In
thousands)
|
|
|
|
|
|
2009
|
|
$ |
400 |
|
2010
|
|
|
156 |
|
2011
|
|
|
145 |
|
2012
|
|
|
16 |
|
|
|
|
|
|
Total
|
|
$ |
717 |
|
Note
13 – Recent accounting pronouncements:
Fair Value Measurements – In September 2006, the
FASB issued SFAS No. 157, Fair
Value Measurements, which became effective for us on January 1,
2008. SFAS No. 157 generally provides a consistent, single fair value
definition and measurement techniques for GAAP pronouncements. SFAS
No. 157 also establishes a fair value hierarchy for different measurement
techniques based on the objective nature of the inputs in various valuation
methods. In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No.
157 which will delay the provisions of SFAS No. 157 for one year for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). All of our fair value measurements are in
compliance with SFAS No. 157, on a prospective basis, beginning in the first
quarter of 2008, except for nonfinancial assets and liabilities, which we will
be required to be in compliance with SFAS No. 157 prospectively beginning in the
first quarter of 2009. In addition, we have expanded our disclosures
regarding the valuation methods and level of inputs we utilize, except for
nonfinancial assets and liabilities, which will require disclosure in the first
quarter of 2009. The adoption of this standard did not have a
material effect on our Consolidated Financial Statements.
Fair Value Option – In the
first quarter of 2007 the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS 159 permits companies to
choose, at specified election dates, to measure eligible items at fair value,
with unrealized gains and losses included in the determination of net
income. The decision to elect the fair value option is generally applied
on an instrument-by-instrument basis, is irrevocable unless a new election date
occurs, and is applied to the entire instrument and not to only specified risks
or cash flows or a portion of the instrument. Items eligible for the fair
value option include recognized financial assets and liabilities, other than an
investment in a consolidated subsidiary, defined benefit pension plans, OPEB
plans, leases and financial instruments classified in equity. An
investment accounted for by the equity method is an eligible item. The
specified election dates include the date the company first recognizes the
eligible item, the date the company enters into an eligible commitment, the date
an investment first becomes eligible to be accounted for by the equity method
and the date SFAS No. 159 first becomes effective for the
company. SFAS No. 159 became effective for us on January 1,
2008. We did not elect to measure any eligible items at fair value in
accordance with this new standard either at the date we adopted the new standard
or subsequently during the first nine months of 2008; therefore the adoption of
this standard did not have a material effect on our Consolidated Financial
Statements.
Business Combinations –
Also in December
2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which
applies to us prospectively for business combinations that close in 2009 and
beyond. The statement expands the definition of a business
combination to include more transactions including some asset purchases and
requires an acquirer to recognize assets acquired, liabilities assumed and any
noncontrolling interest in the acquiree at the acquisition date at fair value as
of that date with limited exceptions. The statement also requires
that acquisition costs be expensed as incurred and restructuring costs that are
not a liability of the acquiree at the date of the acquisition be recognized in
accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. Due to the unpredictable nature
of business combinations and the prospective application of this statement we
are unable to predict the impact of the statement on our Consolidated Financial
Statements.
Derivative Disclosures – In
March 2008 the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement No.
133. SFAS No. 161 changes the disclosure requirements for
derivative instruments and hedging activities to provide enhanced disclosures
about how and why we use derivative instruments, how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and how derivative
instruments and related hedged items affect our financial position and
performance and cash flows. This statement will become effective for us in
the first quarter of 2009. We periodically use currency forward contracts
to manage a portion of our foreign currency exchange rate market risk associated
with trade receivables or future sales. The contracts we have outstanding
at December 31, 2008 are accounted for under hedge accounting. See
Note 1. Because our prior disclosures regarding these forward contracts
have substantially met all of the applicable disclosure requirements of the new
standard, we do not believe the enhanced disclosure requirements of this new
standard will have a significant effect on our Consolidated Financial
Statements.
Uncertain tax positions -
In the
second quarter of 2006 the FASB issued FIN No. 48, Accounting for Uncertain Tax
Positions, which we adopted on January 1, 2007. FIN 48
clarifies when and how much of a benefit we can recognize in our consolidated
financial statements for certain positions taken in our income tax returns under
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes,
and enhances the disclosure requirements for our income tax policies and
reserves. Among other things, FIN 48 prohibits us from recognizing
the benefits of a tax position unless we believe it is more-likely-than-not our
position will prevail with the applicable tax authorities and limits the amount
of the benefit to the largest amount for which we believe the likelihood of
realization is greater than 50%. FIN 48 also requires companies to
accrue penalties and interest on the difference between tax positions taken on
their tax returns and the amount of benefit recognized for financial reporting
purposes under the new standard. We are required to classify any
future reserves for uncertain tax positions in a separate current or noncurrent
liability, depending on the nature of the tax position. Our adoption
of FIN 48 did not have a material impact on our consolidated financial position
or results of operations. Upon adopting FIN 48 on January 1, 2007, we
recognized a $41,000 increase to retained earnings.
We accrue
interest and penalties on our uncertain tax positions as a component of our
provision for income taxes. The amount of interest and penalties we
accrued at December 31, 2007 was $45,000 and nil at December 31,
2008.
The
following table shows the changes in the amount of our uncertain tax positions
(exclusive of the effect of interest and penalties) during 2007 and
2008:
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In
thousands)
|
|
Unrecognized
tax benefits:
|
|
|
|
|
|
|
Amount
at adoption of FIN 48 (or beginning of
the year)
|
|
$ |
(585 |
) |
|
$ |
(192 |
) |
Tax
positions take in prior periods:
|
|
|
|
|
|
|
|
|
Gross
increases
|
|
|
- |
|
|
|
- |
|
Gross
decreases
|
|
|
6 |
|
|
|
- |
|
Tax
positions taken in current period:
|
|
|
|
|
|
|
|
|
Gross
increases
|
|
|
- |
|
|
|
- |
|
Gross
decreases
|
|
|
- |
|
|
|
- |
|
Settlements
with taxing authorities – cash paid
|
|
|
301 |
|
|
|
- |
|
Lapse
of applicable statute of limitations
|
|
|
86 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
Amount
at end of the year
|
|
$ |
(192 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Pursuant
to the expiration of certain statue of limitations, we released the balance of
the FIN 48 liability in the third quarter of 2008.
We file
income tax returns in various U.S. federal, state and local jurisdictions.
We also file income tax returns in various foreign jurisdictions, principally in
Canada and Taiwan. Our domestic income tax returns prior to 2005 are
generally considered closed to examination by applicable tax authorities.
Our foreign income tax returns are generally considered closed to examination
for years prior to 2003 for Taiwan, and 2004 for Canada.
Note
14 – Quarterly results of operations (unaudited):
|
|
Quarter ended
|
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
|
(In
millions, except per share amounts)
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
43.6 |
|
|
$ |
45.2 |
|
|
$ |
46.4 |
|
|
$ |
42.5 |
|
Gross
profit
|
|
|
12.1 |
|
|
|
11.9 |
|
|
|
11.9 |
|
|
|
9.3 |
|
Operating
income
|
|
|
5.4 |
|
|
|
4.6 |
|
|
|
4.3 |
(a) |
|
|
1.2 |
(a) |
Net
income
|
|
|
3.0 |
|
|
|
2.6 |
|
|
|
2.8 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share
|
|
$ |
.20 |
|
|
$ |
.17 |
|
|
$ |
.18 |
|
|
$ |
.04 |
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
40.5 |
|
|
$ |
43.7 |
|
|
$ |
43.9 |
|
|
$ |
37.4 |
|
Gross
profit
|
|
|
9.9 |
|
|
|
11.0 |
|
|
|
11.2 |
|
|
|
8.1 |
|
Operating
income (loss)
|
|
|
3.5 |
|
|
|
4.5 |
|
|
|
(4.9 |
)(b) |
|
|
3.1 |
|
Net
income (loss)
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
(7.5 |
)(b) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per
share
|
|
$ |
.13 |
|
|
$ |
.17 |
|
|
$ |
(.61 |
) |
|
$ |
.06 |
|
The sum
of the quarterly per share amounts may not equal the annual per share amounts
due to relative changes in the weighted-average number of shares used in the per
share computations.
(a) Quarterly operating
income for the quarters ended September 30, 2007 and December 31, 2007 was
impacted by $808,000 and $1.9 million, respectively, of costs related to the
consolidation of three of our northern Illinois facilities into one new facility
including a $600,000 charge to write-down a vacated facility to its estimated
net realizable value. See Note 9.
(b) We
recorded a goodwill impairment charge of $9.9 million for our Marine Components
reporting unit in the third quarter of 2008. See Note
4.