☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

As of ~~October 24, 2019,~~April 30, 2020, the registrant had 12,443,057 shares of Class A common stock, $.01 par value per share, outstanding.

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
ASSETS			(unaudited)				(unaudited)
Current assets:
Cash and cash equivalents	$	45,414	$	50,224	$	63,255	$	64,046
Accounts receivable, net		12,140		13,433		11,870		15,232
Inventories, net		17,102		18,826		18,348		18,962
Prepaid expenses and other		1,629		1,680		1,624		1,414
Total current assets		76,285		84,163		95,097		99,654
Other assets:
Note receivable from affiliate		34,000		36,700		28,100		25,500
Goodwill		23,742		23,742		23,742		23,742
Other noncurrent		590		590		590		590
Total other assets		58,332		61,032		52,432		49,832
Property and equipment:
Land		4,940		4,940		4,940		4,940
Buildings		22,835		22,856		23,047		23,047
Equipment		67,073		67,221		67,718		68,443
Construction in progress		603		963		1,002		463
		95,451		95,980		96,707		96,893
Less accumulated depreciation		63,639		64,765		65,692		66,531
Net property and equipment		31,812		31,215		31,015		30,362
Total assets	$	166,429	$	176,410	$	178,544	$	179,848

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	12,504	$	12,314	$	12,078	$	9,007
Income taxes payable to affiliates		1,165		818		984		2,239
Total current liabilities		13,669		13,132		13,062		11,246
Noncurrent liabilities -
Deferred income taxes		3,198		3,443		3,287		3,380
Stockholders' equity:
Preferred stock		—		—		—		—
Class A common stock		124		124		124		124
Additional paid-in capital		55,751		55,869		55,869		55,869
Retained earnings		93,687		103,842		106,202		109,229
Total stockholders' equity		149,562		159,835		162,195		165,222
Total liabilities and stockholders’ equity	$	166,429	$	176,410	$	178,544	$	179,848

	Three months ended				Nine months ended				Three months ended
	September 30,				September 30,				March 31,
	2018		2019		2018		2019		2019		2020
	(unaudited)				(unaudited)				(unaudited)
Net sales	$	30,029	$	29,703	$	90,827	$	94,610	$	31,176	$	32,311
Cost of sales		20,435		20,227		60,494		64,571		21,552		21,880
Gross margin		9,594		9,476		30,333		30,039		9,624		10,431
Selling, general and administrative expense		5,074		5,210		15,454		15,860		5,334		5,411
Operating income		4,520		4,266		14,879		14,179		4,290		5,020
Interest income		697		848		1,908		2,512		837		607
Income before taxes		5,217		5,114		16,787		16,691		5,127		5,627
Provision for income taxes		1,286		1,227		4,132		3,923		1,141		1,356
Net income	$	3,931	$	3,887	$	12,655	$	12,768	$	3,986	$	4,271

Basic and diluted net income per common share	$	0.32	$	0.31	$	1.02	$	1.03	$	0.32	$	0.34

Basic and diluted weighted average shares outstanding		12,436		12,443		12,431		12,439		12,436		12,443

For the three and nine months ended September 30, 2018

Additional

Total

Common stock

paid-in

Retained

stockholders'

Class A

Class B

capital

earnings

equity

Balance at December 31, 2017
$
24

$
100

$
55,612

$
80,849

$
136,585

Net income

—

—

—

3,726

3,726

Cash dividends ($0.05 per share)

—

—

—

(621
)

(621
)
Balance at March 31, 2018

24

100

55,612

83,954

139,690

Net income

—

—

—

4,997

4,997

Issuance of common stock

—

—

139

—

139

Cash dividends ($0.05 per share)

—

—

—

(622
)

(622
)
Balance at June 30, 2018

24

100

55,751

88,329

144,204

Net income

—

—

—

3,931

3,931

Share conversion

100

(100
)

—

—

—

Cash dividends ($0.05 per share)

—

—

—

(621
)

(621
)
Balance at September 30, 2018
$
124

$
—

$
55,751

$
91,639

$
147,514

For the three and nine months ended September 30, 2019

Class A

Additional

Total

common

paid-in

Retained

stockholders'

stock

capital

earnings

equity

Balance at December 31, 2018
$
124

$
55,751

$
93,687

$
149,562

Net income

—

—

3,986

3,986

Cash dividends ($0.07 per share)

—

—

(870
)

(870
)

Balance at March 31, 2019

124

55,751

96,803

152,678

Net income

—

—

4,895

4,895

Issuance of common stock

—

118

—

118

Cash dividends ($0.07 per share)

—

—

(872
)

(872
)

Balance at June 30, 2019

124

55,869

100,826

156,819

Net income

—

—

3,887

3,887

Cash dividends ($0.07 per share)

—

—

(871
)

(871
)

Balance at September 30, 2019
$
124

$
55,869

$
103,842

$
159,835

	For the three months ended March 31, 2019
	Class A		Additional					Total
	common		paid-in		Retained			stockholders'
	stock		capital		earnings			equity
Balance at December 31, 2018	$	124	$	55,751	$	93,687		$	149,562
Net income		—		—		3,986			3,986
Cash dividends ($0.07 per share)		—		—		(870	)		(870	)
Balance at March 31, 2019	$	124	$	55,751	$	96,803		$	152,678

	Nine months ended						Three months ended
	September 30,						March 31,
	2018			2019			2019			2020
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	12,655		$	12,768		$	3,986		$	4,271
Depreciation and amortization		2,588			2,738			901			950
Deferred income taxes		181			245			144			93
Other, net		316			428			153			62
Change in assets and liabilities:
Accounts receivable, net		(2,910	)		(1,308	)		(3,221	)		(3,362	)
Inventories, net		(1,935	)		(1,888	)		(1,475	)		(673	)
Accounts payable and accrued liabilities		1,211			(130	)		(3,216	)		(3,011	)
Accounts with affiliates		718			(432	)		541			1,389
Prepaids and other, net		(29	)		34			151			76
Net cash provided by operating activities		12,795			12,455
Net cash used in operating activities								(2,036	)		(205	)
Cash flows from investing activities:
Capital expenditures		(2,042	)		(2,453	)		(439	)		(360	)
Proceeds from sale of fixed assets, net		-			121
Note receivable from affiliate:
Collections		44,200			25,400			11,400			18,228
Advances		(39,000	)		(28,100	)		(17,400	)		(15,628	)
Net cash provided by (used in) investing activities		3,158			(5,032	)		(6,439	)		2,240
Cash flows from financing activities -
Dividends paid		(1,865	)		(2,613	)		(870	)		(1,244	)
Cash and cash equivalents - net change from:
Operating, investing and financing activities		14,088			4,810			(9,345	)		791
Balance at beginning of period		29,655			45,414			45,414			63,255
Balance at end of period	$	43,743		$	50,224		$	36,069		$	64,046
Supplemental disclosures -
Cash paid for income taxes	$	3,233		$	4,020		$	993		$	-

Organization. We (NYSE American: CIX) ~~are~~were 86% owned by NL Industries, Inc. (NYSE: NL) at ~~September 30, 2019.~~March 31, 2020. We manufacture and sell component products (security products and recreational marine components). At ~~September 30, 2019,~~March 31, 2020, Valhi, Inc. (NYSE: VHI) ~~owns~~owned 83% of NL’s outstanding common stock and a wholly-owned subsidiary of Contran Corporation ~~owns~~owned 92% of Valhi’s outstanding common stock. At ~~September 30, 2019,~~March 31, 2020, a majority of Contran’s outstanding voting stock iswas held directly by Lisa K. Simmons and Serena Simmons Connelly and various family trusts established for the benefit of Ms. Simmons and Ms. Connelly and their children and for which Ms. Simmons or Ms. Connelly, as applicable, ~~serves~~served as ~~trustee.~~trustee (collectively, the “Other Trusts”). In addition, each of Ms. Simmons and Ms. Connelly ~~serves~~served as co-chair of the Contran board of directors. The remainder of Contran’s outstanding voting stock is held by another trust (the “Family Trust”), which was established for the benefit of Ms. Simmons and Ms. Connelly and their children and for which a third-party financial institution serves as trustee. Consequently, at ~~September 30, 2019,~~March 31, 2020, Ms. Simmons, Ms. Connelly and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi, NL and us.

Following the death of Ms. Connelly on April 22, 2020, Ms. Simmons and the Family Trust continue to directly hold their shares of Contran voting stock. Under the terms of the Contran Corporation Amended and Restated Stockholders Agreement dated September 9, 2019 (the “Contran Stockholders Agreement”), and with respect to the shares of Contran voting stock held directly by Ms. Connelly at the time of her death (the “Connelly Direct Shares”), the independent executor of the estate of Ms. Connelly (prior to the completion of the probate of such estate) and the legatee of the Connelly Direct Shares (following completion of the probate of such estate) is required to vote the Connelly Direct Shares in the same manner as Ms. Simmons. Also under the terms of the Contran Stockholders Agreement, and with respect to the shares of Contran voting stock held by the Other Trusts for which Ms. Connelly previously served as trustee and for which her successor trustee is someone other than Ms. Simmons (the “Connelly Indirect Shares”), such successor trustee is also required to vote the Connelly Indirect Shares in the same manner as Ms. Simmons. Such voting rights of Ms. Simmons with respect to the Connelly Direct Shares and the Connelly Indirect Shares last through April 22, 2030 and are personal to Ms. Simmons. Consequently, at April 22, 2020, Ms. Simmons and the Family Trust may be deemed to control Contran, and therefore may be deemed to indirectly control the wholly-owned subsidiary of Contran, Valhi, NL and us.

Basis of presentation. Consolidated in this Quarterly Report are the results of CompX International Inc. and its subsidiaries. The unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report have been prepared on the same basis as the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 that we filed with the Securities and Exchange Commission (“SEC”) on February ~~27, 2019~~26, 2020 (the ~~“2018~~“2019 Annual Report”). In our opinion, we have made all necessary adjustments (which include only normal recurring adjustments) in order to state fairly, in all material respects, our consolidated financial position, results of operations and cash flows as of the dates and for the periods presented. We have condensed the Consolidated Balance Sheet at December 31, ~~2018~~2019 contained in this Quarterly Report as compared to our audited Consolidated Financial Statements at that date, and we have omitted certain information and footnote disclosures (including those related to the Consolidated Balance Sheet at December 31, ~~2018)~~2019) normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our results of operations for the interim ~~periods~~period ended ~~September 30, 2019~~March 31, 2020 may not be indicative of our operating results for the full year. The Condensed Consolidated Financial Statements contained in this Quarterly Report should be read in conjunction with our ~~2018~~2019 Consolidated Financial Statements contained in our ~~2018~~2019 Annual Report.

Our operations are reported on a 52 or 53-week year. For presentation purposes, annual and quarterly information in the Condensed Consolidated Financial Statements and accompanying notes are presented as ended ~~September 30, 2018,~~March 31, 2019, December 31, ~~2018~~2019 and ~~September 30, 2019.~~March 31, 2020. The actual dates of our annual and quarterly periods are ~~September 30, 2018,~~March 31, 2019, December ~~30, 2018~~29, 2019 and ~~September~~March 29, ~~2019,~~2020, respectively. Unless otherwise indicated, references in this report to “we”, “us” or “our” refer to CompX International Inc. and its subsidiaries, taken as a whole.

	Three months ended						Nine months ended						Three months ended
	September 30,						September 30,						March 31,
	2018			2019			2018			2019			2019			2020
	(In thousands)						(In thousands)						(In thousands)
Net sales:
Security Products	$	24,541		$	23,405		$	75,845		$	75,036		$	24,704		$	25,469
Marine Components		5,488			6,298			14,982			19,574			6,472			6,842
Total net sales	$	30,029		$	29,703		$	90,827		$	94,610		$	31,176		$	32,311

Operating income (loss):
Security Products	$	5,335		$	4,866		$	17,761		$	15,990		$	5,076		$	5,713
Marine Components		812			1,042			2,335			3,223			901			1,082
Corporate operating expenses		(1,627	)		(1,642	)		(5,217	)		(5,034	)		(1,687	)		(1,775	)
Total operating income		4,520			4,266			14,879			14,179			4,290			5,020
Interest income		697			848			1,908			2,512			837			607
Income before taxes	$	5,217		$	5,114		$	16,787		$	16,691		$	5,127		$	5,627

~~Under the 2017 Tax Act enacted into law on December 22, 2017, beginning in 2018, domestic corporations who are U.S. exporters with no foreign operations may be eligible~~We qualify for ~~a deduction under~~ the foreign derived intangible income ~~provisions.~~deduction. We ~~qualify for this deduction and~~ recognized a current cash tax benefit of ~~$170,000~~$28,000 in the first ~~nine months~~quarter of 2020 and $119,000 in the first quarter of 2019 ($98,000 of ~~such~~our 2019 current cash tax benefit is related to 2018).

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, modifications to the limitation of business interest for 2019 and 2020 and technical corrections to tax depreciation methods for qualified improvement property. We have evaluated the relevant provisions of the CARES Act and determined the impact is not material to our tax provision.

The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure:

Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value.

From time to time, we may have loans and advances outstanding between us and various related parties pursuant to term and demand notes. We generally enter into these loans and advances for cash management purposes. When we loan funds to related parties, we are generally able to earn a higher rate of return on the loan than we would earn if we invested the funds in other instruments, and when we borrow from related parties, we are generally able to pay a lower rate of interest than we would pay if we had incurred third-party indebtedness. While certain of these loans to affiliates may be of a lesser credit quality than cash equivalent instruments otherwise available to us, we believe we have considered the credit risks in the terms of the applicable loans. In this regard, we have an unsecured revolving demand promissory note with Valhi whereby we agreed to loan Valhi up to $40 million. Our

loan to Valhi, as amended, bears interest at prime plus 1.00%, ~~(6.0% at September 30, 2019)~~ payable quarterly, with all principal due on demand, but in any event no earlier than December 31, ~~2020.~~2021. Loans made to Valhi at any time under the agreement are at our discretion. At ~~September 30, 2019,~~March 31, 2020, the outstanding principal balance receivable from Valhi under the promissory note was ~~$36.7~~$25.5 million. Interest income (including unused commitment fees) on our loan to Valhi was ~~$0.5~~$0.6 million and ~~$0.6 million for each of the three month periods ended September 30, 2018 and 2019, respectively, and $1.6 million and $1.9~~$0.4 million for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2019,~~2020, respectively. On ~~September 30, 2019 (one day~~March 31, 2020 (two days after our fiscal quarterly period, but on the last day of the fiscal period for Valhi), we loaned ~~$3.3~~$5.0 million to Valhi, increasing the outstanding principal balance receivable from Valhi under the promissory note to ~~$40.0~~$30.5 million.

We made a cash payment of $0.9 million to NL in lieu of state tax one day after our fiscal quarterly period, but one day prior to the end of the fiscal quarterly period for NL.

~~On January 1,~~In December 2019, ~~we adopted~~the Financial Accounting Standards Board issued ASU ~~2016-02,~~2019-12, ~~Leases (Topic 842)~~Simplifying the Accounting for Income Taxes, which ~~was~~changes the accounting for certain income tax transactions and reduces complexity in accounting for income taxes in certain areas. The ASU introduces new guidance including providing a ~~comprehensive rewriting of the lease accounting guidance which aimed~~policy election for an entity to ~~increase comparability~~not allocate consolidated current and ~~transparency with regard to lease transactions. The primary change for leases currently classified as operating leases is the balance sheet recognition~~deferred tax expense when a member of a ~~lease asset~~consolidated tax return is not subject to income tax in its separate financial statements and is a disregarded entity by the taxing authority; and providing guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The ASU also changes existing guidance in a number of areas, including: the method of making an intraperiod allocation of total income tax expense if there is a loss in continuing operations and gains outside of continuing operations; accounting for tax law changes and year-to-date losses in interim periods; and determining how to apply the ~~right~~income tax guidance to ~~use~~franchise taxes that are partially based on income. We adopted this ASU in the ~~underlying asset~~first quarter of 2020 and ~~a lease liability for the lessee’s obligation to make payments. Due to our minimal utilization of lease financing,~~ the adoption of this standard did not have a material effect on our condensed consolidated financial statements.

Following the spread of the COVID-19 virus beyond China in late January 2020, various national, state and local governments began to implement a number of increasingly restrictive measures to contain the spread of the virus, including travel restrictions, gathering limitations, event cancellations, border closures and stay-at-home orders, resulting in sharp contractions of vast areas of the global economy beginning in March 2020. While measured efforts are underway to resume commercial activities in most global markets, the impacts of COVID-19, including the efforts to mitigate its spread, are expected to continue to challenge workers, businesses and governments for the foreseeable future. Although the COVID-19 pandemic had limited impact on our operations during the first quarter of 2020, we believe U.S. and worldwide gross domestic product will be significantly impacted for an indeterminate period, including the demand for our products and those of our customers. Consequently, we expect to report lower sales and earnings than would otherwise have been expected for the remainder of 2020. The extent of the impact will depend on numerous factors, including future developments, and therefore is uncertain and cannot be predicted.

We are a leading manufacturer of engineered components utilized in a variety of applications and industries. Through our Security Products segment we manufacture mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation, postal, office and institutional furniture, cabinetry, tool storage and healthcare applications. We also manufacture stainless steel exhaust systems, gauges, throttle controls, wake enhancement systems and trim tabs for the recreational marine and other industries through our Marine Components segment.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements in this Quarterly Report that are not historical facts are forward-looking in nature and represent management’s beliefs and assumptions based on currently available information. In some cases, you can identify forward-looking statements by the use of words such as “believes,” “intends,” “may,” “should,” “could,” “anticipates,” “expects” or comparable terminology, or by discussions of strategies or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Such statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. The factors that could cause actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the SEC and include, but are not limited to, the following:

Should one or more of these risks materialize or if the consequences worsen, or if the underlying assumptions prove incorrect, actual results could differ materially from those currently forecasted or expected. We disclaim any intention or obligation to update or revise any forward-looking statement whether as a result of changes in information, future events or otherwise.

~~Operating~~We reported operating income of ~~$4.3~~$5.0 million in the ~~third~~first quarter of ~~2019 declined slightly from $4.5~~2020 compared to $4.3 million in the same period of ~~2018. Operating income for the first nine months of 2019 declined to $14.2 million compared to $14.9 million for the comparable period in 2018.~~2019. The ~~decrease~~increase in operating income ~~in both periods of~~from 2019 ~~compared~~ to ~~the same periods in 2018 is~~2020 primarily ~~due to lower~~resulted from higher Security Products sales volumes to existing government security customers and ~~increased labor rates and associated payroll costs at our Security Products segment, partially offset by the effect of~~to a lesser extent higher ~~sales volumes at our~~ Marine Components ~~segment.~~ sales to the towboat and center console boat markets.

We sell a large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on our ability to quantify the impact of changes in individual product sales quantities and selling prices on our net sales, cost of ~~sales~~goods sold and gross ~~margin.~~profit. In addition, small variations in period-to-period net sales, cost of ~~sales~~goods sold and gross ~~margin~~profit can result from changes in the relative mix of our products sold.

	Three months ended										Three months ended
	September 30,										March 31,
	2018		%			2019		%			2019		%			2020		%
	(Dollars in thousands)										(Dollars in thousands)
Net sales	$	30,029		100.0	%	$	29,703		100.0	%	$	31,176		100.0	%	$	32,311		100.0	%
Cost of sales		20,435		68.1	%		20,227		68.1	%		21,552		69.1			21,880		67.7
Gross margin		9,594		31.9	%		9,476		31.9	%		9,624		30.9			10,431		32.3
Operating costs and expenses		5,074		16.8	%		5,210		17.5	%		5,334		17.1			5,411		16.8
Operating income	$	4,520		15.1	%	$	4,266		14.4	%	$	4,290		13.8	%	$	5,020		15.5	%

	Nine months ended
	September 30,
	2018		%			2019		%
	(Dollars in thousands)

Net sales	$	90,827		100.0	%	$	94,610		100.0	%
Cost of sales		60,494		66.6	%		64,571		68.2	%
Gross margin		30,333		33.4	%		30,039		31.8	%
Operating costs and expenses		15,454		17.0	%		15,860		16.8	%
Operating income	$	14,879		16.4	%	$	14,179		15.0	%

Net sales. Net sales ~~decreased $0.3~~increased $1.1 million in the ~~third~~first quarter of ~~2019~~2020 compared to the same period in ~~2018 as~~2019 primarily due to higher Security Products sales and to a lesser extent higher Marine Components sales to the towboat market were more than offset by lower Security Products sales across a variety of markets. Net sales increased $3.8 million in the first nine months of 2019 compared to the same period in 2018 due to strong sales growth at Marine Components partially offset by lower Security Products sales predominantly in the third quarter.sales. Relative changes in selling prices did not have a material impact on net sales comparisons.

Cost of sales and gross margin. As a percentage of net sales, cost of sales and gross margin for the third quarter of 2019 were comparable to the same period in 2018 as the improvement in the Marine Components gross margin percentage in the third quarter of 2019 compared to the third quarter 2018 offset the decline in relative contribution of Security Products which generally has higher gross margin percentages than Marine Components. Cost of sales as a percentage of ~~net~~ sales ~~increased~~decreased 1.4% in the first ~~nine months~~quarter of ~~2019~~2020 compared to the same period in ~~2018.~~2019 due to the favorable effects of customer and product mix, partially offset by increased medical costs for both Security Products and Marine Components. As a result, gross margin as a percentage of sales ~~decreased~~increased over the same period. ~~The decrease in gross~~Gross margin ~~percentage is the result of the decline in Security Products gross margin percentage~~dollars increased due to higher sales for ~~the first nine months of 2019 as compared to the same period in 2018.~~both business segments.

Operating costs and expenses. Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as gains and losses on plant, property and equipment. Operating costs and expenses for ~~the third~~first quarter ~~and first nine months~~ of ~~2019 increased compared~~2020 were comparable to the same period in ~~2018 largely due to increased administration costs at Marine Components.~~2019.

Operating income. As a percentage of net sales, operating income for the ~~third~~first quarter ~~and first nine months~~ of ~~2019 decreased~~2020 increased compared to the same ~~periods~~period of ~~2018~~2019 and was primarily impacted by the factors impacting cost of sales, gross margin and operating costs discussed above.

Provision for income taxes. A tabular reconciliation of our actual tax provision to the U.S. federal statutory income tax rate is included in Note 6 to the Condensed Consolidated Financial Statements. Our operations are wholly within the U.S. and therefore our effective income tax rate is primarily reflective of the U.S. federal statutory rate and applicable state taxes.

Three months ended

Nine months ended

September 30,

September 30,

2018

2019

%
Change

2018

2019

%
Change

(Dollars in thousands)

(Dollars in thousands)

Net sales:

Security Products
$
24,541

$
23,405

-5
%

$
75,845

$
75,036

-1
%
Marine Components

5,488

6,298

15
%

14,982

19,574

31
%
Total net sales
$
30,029

$
29,703

-1
%

$
90,827

$
94,610

4
%
Gross margin:

Security Products
$
8,113

$
7,668

-5
%

$
26,082

$
24,566

-6
%
Marine Components

1,481

1,808

22
%

4,251

5,473

29
%
Total gross margin
$
9,594

$
9,476

-1
%

$
30,333

$
30,039

-1
%
Operating income:

Security Products
$
5,335

$
4,866

-9
%

$
17,761

$
15,990

-10
%
Marine Components

812

1,042

28
%

2,335

3,223

38
%
Corporate operating expenses

(1,627
)

(1,642
)

-1
%

(5,217
)

(5,034
)

4
%
Total operating income
$
4,520

$
4,266

-6
%

$
14,879

$
14,179

-5
%
Gross margin:

Security Products

33.1
%

32.8
%

34.4
%

32.7
%

Marine Components

27.0
%

28.7
%

28.4
%

28.0
%

Total gross margin

31.9
%

31.9
%

33.4
%

31.8
%

Operating income:

Security Products

21.7
%

20.8
%

23.4
%

21.3
%

Marine Components

14.8
%

16.5
%

15.6
%

16.5
%

Total operating income

15.1
%

14.4
%

16.4
%

15.0
%

	Three months ended
	March 31,
	2019			2020			% Change
	(Dollars in thousands)

Security Products:
Net sales	$	24,704		$	25,469			3	%
Cost of sales		16,733			16,911			1
Gross margin		7,971			8,558			7
Operating costs and expenses		2,895			2,845			-2
Operating income	$	5,076		$	5,713			13


Gross margin		32.3	%		33.6	%
Operating income margin		20.5			22.4

Security Products. Security Products net sales ~~decreased 5%~~increased 3% in the ~~third~~first quarter of ~~2019~~2020 compared to the same period in 2018 due to lower sales across a variety of markets including a $0.5 million decrease in each of the transportation and government security markets. Security Products net sales for the first nine months of 2019 was comparable to the same period last year. Gross margin and operating income as a percentage of net sales for the third quarter and for the first nine months of 2019 declined as compared to the same periods last year primarily due to increased labor rates and associated payroll costs resulting from regional pressure on wages for certain skilled labor positions as well as reduced leverage of fixed costs on decreased production volumes.

~~Marine Components. Marine Components net sales increased 15% and 31% in the third quarter and first nine months of 2019, respectively, as compared to the same periods~~ last year. The increase in sales is primarily due to ~~increased~~higher sales to ~~the towboat market, primarily wake enhancement systems~~existing government security customers, partially offset by lower sales to transportation and ~~surf pipes to an original equipment boat manufacturer. As a percentage of net sales, gross~~distribution customers. Gross margin and operating income as a percentage of sales increased in ~~the third quarter of 2019~~2020 compared to the same period in ~~2018~~2019 due to ~~improved fixed cost leverage facilitated~~favorable customer and product mix on higher sales, partially offset by ~~higher production volumes. Gross margin percentage for~~increased medical costs.

Marine Components. Marine Components net sales increased 6% in the first ~~nine months~~quarter of ~~2019 is comparable~~2020 compared to the same period last year ~~as improved cost leverage on higher production volumes was~~primarily due to increased sales to the towboat and center console boat markets, partially offset by ~~less~~lower sales to distribution customers. Gross margin and operating income as a percentage of sales increased in the first quarter of 2020 compared to the same period last year due to a favorable customer and product mix ~~predominantly in the first half of the year. Operating income as a percentage of net~~on higher sales, ~~increased in the third quarter and first nine months of 2019 compared to the same periods in the prior year due to improved fixed cost leverage facilitated by higher production volumes somewhat~~partially offset ~~in both periods~~ by increased ~~administrative costs to support higher sustained sales volumes.~~medical costs.

Outlook. ~~As reflected~~We experienced minimal disruptions to our supply chain or customer base from COVID-19 during the first quarter of 2020. First quarter sales reflect continued strong demand for our products, including high-security applications for our existing government customers as well as our marine products. We have been identified as an essential business in the ~~operating results,~~states where we operate, and are considered critical in supplying components to many essential and mandatory markets. Beginning in late March 2020, we began receiving requests from certain customers of both our Security Products ~~segment encountered generally weakening economic conditions among its customers~~ and ~~markets during the latter half of the third quarter. As expected, the rate of sales growth for~~ Marine Components ~~began~~segments to ~~moderate~~delay or postpone shipments, in some cases because our customers’ production facilities have temporarily closed. We operate three facilities, each of which specializes in certain manufacturing processes and is therefore dependent upon the ~~third quarter relative~~other facilities to some extent to manufacture finished goods. With the ~~same period in 2018, the quarter in which~~onset of COVID-19, within each facility we ~~significantly~~ increased sanitizing, mandated social distancing and implemented other health and safety protocols. In late April 2020, we temporarily closed our deliveries of wake enhancement systems. Nevertheless, absent further economic slowdown, we believe full year sales will exceed 2018. Operating income and operating margin for the Security Products segment decreased for the first nine monthsfacility that is located outside of

~~2019 relative to prior year~~Chicago, Illinois, which has been considered a COVID-19 “hotspot,” due to ~~higher labor rates~~an increase of COVID-19 cases in the community. During the closure we completed a deep clean and ~~associated payroll costs,~~sanitization within the ~~effect~~facility, and we successfully reopened the plant and resumed production after a one week pause. We believe the temporary closure of our Illinois facility will have minimal negative impact on our ability to manufacture and ship during the second quarter, in part due to the anticipated decline in demand during the same period.

The advance of the COVID-19 pandemic and the global efforts to mitigate its spread have already resulted in sharp contractions of vast areas of the global economy and are expected to continue to challenge workers, businesses and governments for the foreseeable future. Government actions in various regions to gradually permit the resumption of limited commercial activities following various regional shutdowns are currently in progress, but it is believed that the success and timing of these actions will depend in part on deployment of effective tools to fight COVID-19, including increased testing, enhanced monitoring, data analysis and effective treatments, before economic growth returns to pre-pandemic levels, particularly in service related sectors of the economy. Even as these measures are implemented and become effective, they will not directly address the business and employment losses already experienced. As a result, we expect U.S. and worldwide gross domestic product to be significantly impacted for an indeterminate period.

Based on current conditions, we expect to report reduced revenue and operating income during the second quarter of 2020 compared to the first quarter of 2020, but the severity of the decline will depend on customer demand for our products, including the timing and extent to which our customers restart their operations, on our customers’ perception as to when consumer demand for their products will return and on any future disruptions in our operations or our suppliers’ operations, all of which are difficult to predict. Our operations teams meet daily to ensure we ~~were not able to offset through higher selling prices. Although~~are maintaining a safe working environment for all of our employees, minimizing operational disruptions and managing inventory levels. It is possible we may temporarily close one or more of our facilities again for the health and safety of our employees before the COVID-19 crisis is over. We have ~~experienced minimal direct impact from recently enacted tariffs,~~significant cash balances of approximately $64.0 million at March 31, 2020, and we believe ~~that tariffs and related global trade concerns may be impacting our significant original equipment manufacturer customers. We will continue~~we are well positioned to monitor economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and discretionary spending as well as consistent execution of our lean manufacturing and cost improvement initiatives. Additionally, we continue to seek opportunities to gain market share in markets we currently serve, to expand into new markets and to develop new product features in order to mitigatenavigate the ~~impact of changes in demand as well as broaden our sales base.~~

Operating activities. Trends in cash flows from operating activities, excluding changes in assets and liabilities, have generally been similar to the trends in operating earnings. Changes in assets and liabilities result primarily from the timing of production, sales and purchases. Changes in assets and liabilities generally tend to even out over time. However, period-to-period relative changes in assets and liabilities can significantly affect the comparability of cash flows from operating activities.

~~Net~~We generally report a net use of cash ~~provided~~from operating activities in the first three months of each year due to seasonal changes in the level of our working capital. Our net cash used by operating activities for the first ~~nine~~three months of ~~2019~~2020 decreased by ~~$0.3~~$1.8 million as compared to the first ~~nine~~three months of ~~2018.~~2019. The decrease in net cash used is primarily due to the net effects of:

Relative changes in working capital can have a significant effect on cash flows from operating activities. As shown below, the change in our average days sales outstanding from December 31, ~~2018~~2019 to ~~September 30, 2019~~March 31, 2020 varied by segment, primarily as a result of relative changes in the timing of collections. For comparative purposes, we have provided December 31, ~~2017~~2018 and ~~September 30, 2018~~March 31, 2019 numbers below.

Our total average number of days in inventory ~~increased~~is comparable from December 31, ~~2018~~2019 to September 30, 2019 due to increased inventory at Security Products primarily due to the timing of raw material purchases and an intentional raw material inventory build related to product lines in which certain components require long lead-times.March 31, 2020. The variability in days in inventory among our segments relates to the differences in the average length of time it takes to produce and sell end-products. ~~Generally, we expect Security Products inventory to turn faster than Marine Components.~~ For comparative purposes, we have provided December 31, ~~2017~~2018 and ~~September 30, 2018~~March 31, 2019 numbers below. Marine Components days in inventory was unusually low at March 31, 2019 as a result of rapid sales growth for Marine Components which increased average days sales while temporarily limiting opportunities to strategically restock.

Investing activities. Our capital expenditures were ~~$2.5~~$0.4 million in the first ~~nine~~three months of ~~2019 compared to $2.0 million in the first nine months of 2018.~~2020 and 2019. During the first ~~nine~~three months of 2020, Valhi repaid a net $2.6 million under the promissory note ($15.6 million of gross borrowings and $18.2 million of gross repayments). During the first three months of 2019, Valhi borrowed a net ~~$2.7~~$6.0 million under the promissory note ($~~28.1~~17.4 million of gross borrowings and ~~$25.4 million of gross repayments). During the first nine months of 2018, Valhi repaid a net $5.2 million under the promissory note ($39.0 million of gross borrowings and $44.2~~$11.4 million of gross repayments). See Note 8 to the Condensed Consolidated Financial Statements.

Financing activities. Financing activities consisted only of quarterly cash dividends. In February ~~2019,~~2020, our board of directors increased our regular quarterly dividend from ~~$.05~~$.07 per share to ~~$.07~~$.10 per share beginning in the first quarter of ~~2019.~~2020. The declaration and payment of future dividends and the amount thereof, if any, is discretionary and is dependent upon our results of operations, financial condition, cash requirements for our businesses, contractual requirements and restrictions and other factors deemed relevant

by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which we might pay.

Liquidity. Our primary source of liquidity on an ~~on-going~~ongoing basis is our cash flow from operating activities, which is generally used to (i) fund capital expenditures, (ii) repay short-term or long-term indebtedness incurred primarily for capital expenditures, investment activities or reducing our outstanding stock, (iii) provide for the payment of dividends (if declared), and (iv) lend to affiliates. From time-to-time, we will incur indebtedness, primarily to fund capital expenditures or business combinations.

Periodically, we evaluate liquidity requirements, alternative uses of capital, capital needs and available resources in view of, among other things, our capital expenditure requirements, dividend policy and estimated future operating cash flows. As a result of this process, we have in the past and may in the future seek to raise additional capital, refinance or restructure indebtedness, issue additional securities, modify our dividend policy or take a combination of such steps to manage our liquidity and capital resources. In the normal course of business, we may review opportunities for acquisitions, joint ventures or other business combinations in the component products industry. In the event of any such transaction, we may consider using available cash, issuing additional equity securities or increasing our indebtedness or that of our subsidiaries.

We believe that cash generated from operations together with cash on hand, as well as our ability to obtain external financing, will be sufficient to meet our liquidity needs for working capital, capital expenditures, debt service, dividends (if declared) and any amounts we might loan from time to time under the terms of our revolving loan to Valhi discussed in Note 8 to our Condensed Consolidated Financial Statements (which loans would be solely at our discretion) for both the next 12 months and five years. To the extent that our actual operating results or other developments differ from our expectations, our liquidity could be adversely affected.

All of our ~~$50.2~~$64.0 million aggregate cash and cash equivalents at ~~September 30, 2019~~March 31, 2020 were held in the U.S.

Capital Expenditures. Firm purchase commitments for capital projects in process at ~~September 30, 2019~~March 31, 2020 totaled ~~$0.6~~$0.5 million. Our ~~2019~~2020 capital investments are limited to those expenditures required to meet our expected customer demand and those required to properly maintain our facilities and technology infrastructure.

Commitments and Contingencies. There have been no material changes in our contractual obligations since we filed our ~~2018~~2019 Annual Report and we refer you to that report for a complete description of these commitments.

We do not have any off-balance sheet financing ~~agreements other than the operating leases discussed in our 2018 Annual Report.~~agreements.

There have been no changes in the first ~~nine~~three months of ~~2019~~2020 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our ~~2018~~2019 Annual Report.

We are exposed to market risk from changes in interest rates and raw material prices. There have been no material changes in these market risks since we filed our ~~2018~~2019 Annual Report, and we refer you to Part I, Item 7A – “Quantitative and Qualitative Disclosure About Market Risk” in our ~~2018~~2019 Annual Report. See also Note 7 to the Condensed Consolidated Financial Statements.

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and

procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Our management with the participation of Scott C. James, our President and Chief Executive Officer, and Amy A. Samford, our Vice President and Chief Financial Officer, has evaluated the design and operating effectiveness of our disclosure controls and procedures as of ~~September 30, 2019.~~March 31, 2020. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of such evaluation.

Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting which, as defined in Exchange Act Rule 13a-15(f), means a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

Changes in Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Reference is made to the ~~2018~~2019 Annual Report for a discussion of ~~the~~ risk factors related to our businesses. ~~There~~On March 11, 2020, the World Health Organization declared the coronavirus known as “COVID-19” a pandemic. We have ~~been no material changes~~approximately 550 employees and operate three facilities in ~~such risk factors~~the United States located in Illinois, Wisconsin and South Carolina. The facilities are geographically diverse, and certain areas of the U.S. are experiencing more significant viral outbreaks than other areas. We are designated an essential business in the states where we operate and are therefore permitted to fully operate during the ~~first nine months~~pandemic, but because the COVID-19 pandemic affected the health and safety of ~~2019.~~our employees, we temporarily closed our Illinois facility for one week beginning in late April. The rate of spread of COVID-19 in a geographic region can change rapidly, and it is possible we may have additional temporary closures at one or all of our facilities for the health and safety of our workforce if conditions warrant. In addition, the pandemic has caused the closure of some of our customers’ facilities, and it is possible that more customers will be similarly impacted. Furthermore, the economic effect of the pandemic has impacted the demand for our products. We are actively monitoring our suppliers, customers and facilities to rapidly respond to changing conditions. The extent of the impact of the coronavirus outbreak on our operational and financial performance will depend on future developments, including the severity, duration and spread of the outbreak and its overall impact to the industries and markets in which we operate, all of which are uncertain and cannot be predicted.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		57-0981653
(State or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)
5430 LBJ Freeway, Suite 1700, Three Lincoln Centre, Dallas, Texas		75240-2620
(Address of principal executive offices)		(Zip Code)

Part I.	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets – December 31, ~~2018~~2019 and ~~September 30, 2019~~March 31, 2020 (unaudited)	- 3 -
	Condensed Consolidated Statements of Income (unaudited) – Three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020	- 4 -
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) – Three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020	- 5 -
	Condensed Consolidated Statements of Cash Flows (unaudited) ~~– Nine~~- Three months ended ~~September 30, 2018~~March 31, 2019 and ~~2019~~2020	- 6 -
	Notes to Condensed Consolidated Financial Statements (unaudited)	- 7 -
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	- 11 -
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	- 1516 -
Item 4.	Controls and Procedures	- 1516 -
Part II.	OTHER INFORMATION
Item 1A.	Risk Factors	- 17 -
Item 6.	Exhibits	- 17 -
Items 2, 3, 4 and 5 of Part II are omitted because there is no information to report.

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
	(In thousands)				(In thousands)
Raw materials:
Security Products	$	2,001	$	2,505	$	2,134	$	2,397
Marine Components		660		808		807		707
Total raw materials		2,661		3,313		2,941		3,104
Work-in-process:
Security Products		9,018		9,258		9,138		9,549
Marine Components		2,112		2,694		2,633		2,688
Total work-in-process		11,130		11,952		11,771		12,237
Finished goods:
Security Products		2,363		2,603		2,582		2,526
Marine Components		948		958		1,054		1,095
Total finished goods		3,311		3,561		3,636		3,621
Total inventories, net	$	17,102	$	18,826	$	18,348	$	18,962

	December 31,		September 30,		December 31,		March 31,
	2018		2019		2019		2020
	(In thousands)				(In thousands)
Accounts payable:
Security Products	$	2,708	$	2,705	$	1,975	$	2,106
Marine Components		527		793		539		672
Accrued liabilities:
Employee benefits		8,068		7,084		8,331		4,552
Customer tooling		334		312		264		239
Taxes other than on income		328		667		350		578
Other		539		753		619		860
Total accounts payable and accrued liabilities	$	12,504	$	12,314	$	12,078	$	9,007

Days Sales Outstanding:	December 31, ~~2017~~2018	~~September 30, 2018~~March 31, 2019	December 31, ~~2018~~2019	~~September 30, 2019~~March 31, 2020
Security Products	3943 Days	48 Days	38 Days	46 Days
Marine Components	30 Days	34 Days	27 Days	33 Days
Consolidated CompX	40 Days	4345 Days	~~44 Days~~
~~Marine Components~~	3136 Days	~~42 Days~~	~~30 Days~~	~~32 Days~~
~~Consolidated CompX~~	~~38 Days~~	~~40 Days~~	~~40 Days~~	4143 Days

	For the three months ended March 31, 2020
	Class A		Additional					Total
	common		paid-in		Retained			stockholders'
	stock		capital		earnings			equity
Balance at December 31, 2019	$	124	$	55,869	$	106,202		$	162,195
Net income		—		—		4,271			4,271
Cash dividends ($0.10 per share)		—		—		(1,244	)		(1,244	)
Balance at March 31, 2020	$	124	$	55,869	$	109,229		$	165,222

Days in Inventory:	December 31, ~~2017~~2018	~~September 30, 2018~~March 31, 2019	December 31, ~~2018~~2019	~~September 30, 2019~~March 31, 2020
Security Products	~~76 Days~~	~~74 Days~~	77 Days	~~83 Days~~
~~Marine Components~~	~~96 Days~~	~~86 Days~~	~~91 Days~~	~~90 Days~~
~~Consolidated CompX~~	7981 Days	76 Days	78 Days
Marine Components	91 Days	68 Days	100 Days	82 Days
Consolidated CompX	80 Days	8578 Days	81 Days	79 Days

Item No.		Exhibit Index

31.1		Certification
31.2		Certification
32.1		Certification
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

	COMPX INTERNATIONAL INC.
	(Registrant)

Date: ~~October 30, 2019~~May 5, 2020	By:	/s/ Amy A. Samford
		Amy A. Samford
		Vice President and Chief Financial Officer


	By:	/s/ Amy E. Ruf
		Amy E. Ruf
		Vice President and Controller