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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1997MARCH 6, 1998
REGISTRATION NO. 333-_______333-42643
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------------
COMPX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 57-0981653
(State or other 3499 57-0981653
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
jurisdiction (Primary Standard Identification Number)
of incorporation or Industrial organization) Classification Code Number) Identification Number)
200 OLD MILL ROAD
MAULDIN, SOUTH CAROLINA 29662
(864) 297-6655
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DAVID A. BOWERSJOSEPH S. COMPOFELICE
CHIEF EXECUTIVE OFFICER
COMPX INTERNATIONAL INC.
200 OLD MILL ROAD
MAULDIN, SOUTH CAROLINA 29662
(864) 297-6655
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------------
Copies to:
EDWARD J. HARDIN, ESQ. JOHN W. WHITE, ESQ.
ROGERS & HARDIN CRAVATH, SWAINE & MOORE
2700 INTERNATIONAL TOWER WORLDWIDE PLAZA
229 PEACHTREE STREET, N.E. 825 EIGHTH AVENUE
ATLANTA, GEORGIA 30303 NEW YORK, NEW YORK 10019
(404) 522-4700 (212) 474-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement. [ ]
---------------
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Aggregate Amount of
of Offering Price (1) Registration Fee (2)
Securities to be
Registered
Shares of Class A Common Stock,
$.01 par $100,000,000 $29,500
valuevalue................ 5,980,000 shares $20.00 $119,600,000 $35,282
=================================================================================================================
(1) Estimated in accordance with Rule 457(o) under the Securities Act of 1933,
assuming exercise of the Underwriters over-allotment option.
(2) Registration fee calculated on the basis of $295 per $1,000,000 or fraction
thereof of the proposed maximum offering price. ------------$31,890 has been paid in
previous filings.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Red Herring Language
[The following text appears along the left margin of the following page]
Information contained herein is subject to completion or amendment.================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
P R O S P E C T U S
[ ]REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 6, 1998
PROSPECTUS
5,200,000 SHARES
COMPX INTERNATIONAL INC.
CLASS A COMMON STOCK
------------------
All of the shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), being offered hereby (the "Offering") are being sold by
CompX International Inc. ("CompX" or the "Company"). A portion of the net
proceeds to the Company from the Offering will be used to fully repay certain
bank indebtedness expected to bewhich was incurred to satisfy a $50 million note payable to
Valcor, Inc., the Company's sole stockholder prior to the Offering. See "Use of
Proceeds".Proceeds."
Each share of Class A Common Stock entitles its holder to one vote, and
each share of Class B Common Stock, par value $.01 per share (the "Class B
Common Stock" and together with the Class A Common Stock, the "Common Stock"),
of the Company entitles its holder to one vote on all matters except the
election of directors on which each share of Class B Common Stock is entitled to
ten votes. All the shares of Class B Common Stock are owned by Valcor, Inc.
Immediately after consummation of the Offering (assuming no exercise of the
over-allotment option granted to the Underwriters), Valcor will beneficially own
shares of Common Stock having approximately [ ]%65% of the combined voting power
([ ]%(95% for election of directors) of the outstanding shares of Common Stock.
Prior to the Offering, there has not been a public market for the Class A
Common Stock of the Company. It is currently estimated that theThe initial public offering price will be between $[ ] and $[ ] per sharefor the Shares of
Class A Common Stock.Stock included in the Offering has been determined by
negotiations between the Company and the Representatives. See "Underwriting" for
information relating to the factors considered in determining theinitialthe initial public
offering price. The Company intends to apply to
have the Class A Common Stock has been approved for listing on the
New York Stock Exchange (the "NYSE") under the symbol "[ ]"."CIX."
SEE "RISK FACTORS" BEGINNING ON PAGE 137 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
=======================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
Underwriting
Price Discounts Proceeds
to and to
Commissions Company (2)
Public (1)
Per Share....................... $ $ $Share $20.00 $1.40 $18.60
- -----------------------------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $ $104,000,000 $7,280,000 $96,720,000
=======================================================================================================================
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $500,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to [ ]780,000 additional shares of Class A Common solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $
, $$119,600,000, $8,372,000 and $ ,$111,228,000, respectively.
------------------
The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Class A Common Stock offered hereby will be available for delivery on
or about _______,March 11, 1998, at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
------------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY SECURITIES INC.LLC
WHEAT FIRST BUTCHER SINGER
JANUARY [ ],UNION
March 6, 1998
................................................................. 3
[FROSTED 7 1/2' X 9' PHOTOGRAPH OF AN OFFICE ENVIRONMENT USED
AS A BACKDROP FOR INSETS OF PHOTOGRAPHS OF THE VARIOUS COMPX
PRODUCTS USED IN THE OFFICE ENVIRONMENT.]
National Cabinet Lock(R), STOCK LOCKS(R), Waterloo Furniture Components
Limited(R), KeSet(R), Fort Lock Corp.(R), Fortronics(R) and Leverlock(R) are
registered trademarks of CompX International Inc.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
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[TWO PAGE FOLD OUT GRAPHIC ON INSIDE FRONT COVER WITH A BACKGROUND COLLAGE OF
ILLUSTRATIONS OF VARIOUS END-USER PRODUCTS AND INSET PHOTOGRAPHS OF THE COMPX
PRODUCT USED IN SUCH END-USER PRODUCTS.]
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context requires otherwise, the terms "Company" and
"CompX""CompX(TM)" refer to CompX International Inc. and its subsidiaries. Unless
otherwise indicated or the context otherwise requires, all share and per-share
data in this Prospectus and all other information relating to the Offering (i)
assume no exercise of the Underwriters' over-allotment option; (ii) givesgive effect
to the amendment to the Company's certificate of incorporation to change the
Company's authorized capital stock to Class A Common Stock and Class B Common
Stock and preferred stock, par value $.01 per share (the "Preferred Stock"),
to
be effected prior to the consummation of the Offering;on February 4, 1998; and (iii) givesgive effect to the reclassification of
each outstanding share of the Company's currentpreviously outstanding common stock, par
value $1 per share, into 10,20010,000 shares of its newly created Class B Common Stock
which iswas also to be effected prior to consummation of the Offering.on February 4, 1998. The Company's operations are
comprised of a 52 or 53 week fiscal year. The year
ended December 31, 1992 consisted of a 53 week year, while eachEach of the years ended December 31,
1993 through 19961997 consisted of a 52 week year.
The nine
months ended September 30, 1996 and 1997 each consisted of 39 weeks periods.
The comparability of results of operations may be affected by differing lengths
of the respective periods.
THE COMPANY
CompXCompX(TM) is a leading manufacturer of ergonomic computer support systems,
precision ball bearing drawer slides and medium-security mechanical locks for
office furniture and a variety of other applications. The Company's products are
principally designed for use in medium- to high-end applications, where product
design, quality and durability are critical to the Company's customers.
CompXCompX(TM) believes that, in the North American market, it is among the largest
producers of ergonomic computer support systems for office furniture
manufacturers, among the largest producers of precision ball bearing drawer
slides and among the largest producers of medium-security cabinet locks. In
the
first nine months of 1997, CompXCompX(TM) generated net sales of $80.3$108.7 million, a 24%22% increase from the corresponding prior-year period.1996.
During the first nine months
of 1997, ergonomic computer support systems, precision ball bearing drawer
slides and medium-security mechanical locks accounted for approximately 33%34%, 39%
and 27%26% of net sales, respectively.
OFFICE FURNITURE INDUSTRY DYNAMICS
Approximately 75% of the Company's products are sold to the office
furniture manufacturing industry while the remainder (principally mechanical
locks) are sold for use in other products, such as vending equipment, postal
boxes, electromechanical enclosures and other non-office furniture and
equipment. The U.S. office furniture market generated wholesale sales of
approximately $10.0$11 billion in 1996,1997, according to estimates by the Business and
Institutional Furniture Manufacturer's Association ("BIFMA"). The dollar value
of U.S. office furniture industry shipments has increased in 23 of the past 25
years and, according to BIFMA, estimates, hasis currently estimated to have grown at a
compound annual rate of approximately 7.2%8.4% over the threefour year period ended
December 31, 1996.1997. BIFMA currently estimates that office furniture sales over
the next threetwo years will grow at a compound annual rate of approximately 8.7%7%. The
rate of growth in this industry ultimately will be affected by certain
macroeconomic conditions such as service industry employment levels, corporate
cash flow and non-
residentialnon-residential construction levels. CompXCompX(TM) management believes
that sales of its ergonomic computer support systems are experiencing
substantially higher rates of growth than the office furniture industry as a
whole.
The Company believes that fundamental shifts in technology, health
considerations and work processes in the office workplace provide new growth
opportunities in the office furniture industry. Increased use of technology has
caused businesses to redesign their workspaces with greater emphasis on the
space efficient integration of computers and other office technologies into the
office workplace as well as the protection of computing equipment from damage
and theft. Additionally, increased regulatory sensitivity to ergonomic concerns
and heightened focus on the risks of repetitive stress injury have also
influenced redesign of the office workplace. In 1996, California became the
first state to adopt legislation relating to ergonomics in the workplace. Such
legislation should have a direct effect on the demand for ergonomically designed
office furniture products, which allow workers to adjust and re-arrange the
orientation of office equipment and
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supplies for greater comfort and productivity. Businesses increasingly are
seeking changes in work processes to achieve more efficient workspace
utilization, resulting in the creation of new office furniture designs that
embrace office sharing concepts such as office "hoteling" and open office
designs. The Company's products target manufacturers of new furniture designed
to address these industry dynamics as well as customers that specialize in
retrofitting existing office furniture.
COMPETITIVE STRENGTHS
CompXCompX(TM) believes that it is well positioned to realize continued growth
in market share in its existing markets and to build on its strengths to expand
into related product lines and markets.
INDUSTRY BRAND RECOGNITION AND MANAGEMENT EXPERIENCE.Industry brand recognition and management experience. The Company's
business traces its roots to 1903 when it began manufacturing cabinet locks. The
Company is a supplier to major original equipment manufacturers ("OEMs") and
believes its brand names are well recognized in the industry. CompXCompX(TM)
currently markets its drawer slides and ergonomic computer support systems under
the Waterloo Furniture Components Limited(R) name and markets its
medium-security locks under the National Cabinet Lock(R) name. The top seven
executive management personnel have over 100 years of combined industry
experience.
EMPHASIS ON CUSTOMER COLLABORATION. CompXEmphasis on customer collaboration. CompX(TM) has been a leader in
collaborating with customers to develop innovative customized solutions to their
unique needs for product design, application, performance and cost. An important
ingredient to this approach is the Company's full-time engineering staff of 25
and approximately $3 million in annual expenditures for product design,
development and engineering. Management believes that the Company's
responsiveness and commitment to work with customers has been critical to its
success to date.
EFFICIENT MANUFACTURING BASE. CompXEfficient manufacturing base. CompX(TM) has established highly automated
manufacturing systems and uses statistical process control techniques to achieve
its demanding quality standards. The Company designs and custom modifies certain
of the high-volume equipment it uses to improve the manufacturing and assembly
of its products, and has invested substantial capital in manufacturing
automation and vertical integration. The Company believes that these initiatives
reduce the Company's costs and improve product quality, productivity and
delivery response time.
INTEGRATED INFORMATION SYSTEMS.Integrated information systems. The Company regularly invests in its
information systems to reduce inventories, improve the efficiency of its
manufacturing processes and reduce customer order fulfillment times. With
recently installed systems upgrades both in Canada and the United States,
CompXCompX(TM) has fully integrated all stages of manufacturing process information
and order fulfillment. These investments have allowed the Company to continually
reduce order fulfillment times and increase the use of just-in-time supplier
relationships.
BREADTH OF PRODUCT LINE. CompXBreadth of product line. CompX(TM) has a broad product line in its core
product areas, which allows the Company to serve an increasing proportion of its
customers' requirements. This provides several benefits to the Company,
including the simplified logistics and reduced cost of shipping higher volumes
of product to its customers, closer working relationships with its key customers
and increased cross-selling opportunities.
GROWTH STRATEGY
The Company focuses on certain niche segments of the middle to high end of
the office furniture market. To achieve its targeted growth rates, CompXCompX(TM)
intends to pursue several growth initiatives:
CONTINUE TO CREATE INNOVATIVE PRODUCTS.Continue to create innovative products. The Company intends to continue its
focus on engineering and customer collaboration to develop and sell customized
versions of its core product line and to develop new versions of existing
product lines to meet the changing requirements of office furniture
manufacturers. The Company will attempt to increase its share of the total OEM
market for components such as electronic locking systems, a service workplace
safety-oriented "Cushion-Close""Cushion-Close(TM)" drawer slide and a locking laptop computer
drawer. CompXCompX(TM) will also consider expanding its product line to include other
furniture components with similar attributes such as one or more of the
components used in the rapidly growing seating industry.
EXTEND INTO NON-FURNITURE APPLICATIONS.2
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Extend into non-furniture applications. The Company's precision ball
bearing drawer slide products increasingly are designed for and used in
applications other than traditional office furniture. For example, the Company
has designed and currently sells precision ball bearing drawer slides to
facilitate the movement of component parts in imaging machines, for professional
tool storage cabinets and other uses. CompXCompX(TM) will continue to explore
alternative applications for its products based on core product design and
manufacturing strengths.
CONTINUE TO MAKE STRATEGIC ACQUISITIONS.Continue to make strategic acquisitions. In addition to internal growth,
the Company intends to grow through selective acquisitions. The markets in which
the Company competes have a large number of relatively small regional
manufacturers and consequently offer potential consolidation opportunities. The
Company seeks acquisitions that complement its existing products,
manufacturing/design skills or customer base. The Company historically has been
able to benefit from acquisitions through economies of scale in purchasing,
manufacturing, marketing and distribution and through the application of the
Company's manufacturing and management skills.
On March 3, 1998, the Company completed the purchase of all of the
outstanding stock of Fort Lock Corporation, the net assets of Fortronics, Inc.,
an affiliate of Fort Lock Corporation by common ownership (collectively the
"Fort Lock Group") and Fort Lock Group's manufacturing facility. The Company has signedFort Lock
Group is a lettervertically integrated manufacturer of intent concerning the possible acquisitionhighly engineered mechanical
locks for a diverse customer base of a company in a related
industry, subject to satisfactory completion of due diligence, negotiation of a
definitive agreementoriginal equipment manufacturers and
appropriate board of directors approval by both
companies. No definitive agreement has been reached to date and discussions are
continuing.
PROMOTE ALTERNATIVE DISTRIBUTION PROGRAMS.locksmith distributors. See "Recent Developments."
Promote alternative distribution programs. While office furniture OEMs are
expected to remain the Company's primary customers, CompXCompX(TM) also intends to
explore new distribution arrangements for the Company's products. The Company's
innovative STOCK LOCKS(R) distribution program, for example, offers a broad
range of products that generally ship within 48 hours of order placement to
customers that purchase the Company's locks in small quantities. Currently,
approximately 30% of the Company's lock sales are made through this program. In
1992, the Company began to implement similar alternative distribution programs
for its ergonomic computer support systems and precision ball bearing drawer
slides to allow the Company to reach an expanded range of customers of these
products on an economically attractive basis. Since their addition to the
Company's distributor product line in 1992, sales of these products to the
distributor market have increased and now represent approximately 10% of
combined ergonomic computer support systems and precision ball bearing drawer
slide net sales.
EXPAND INTO INTERNATIONAL MARKETS.sales to the United States.
Expand into international markets. While CompXCompX(TM) has historically focused
on marketing its products in North America, the Company has a small but growing
presence in international markets. The Company believes that there is
significant potential demand for its quality, precision products in overseas
markets, and intends to increase its international presence, particularly in
Asia, Europe and Latin America, via expanded distributor relationships and,
potentially, joint venture arrangements.
SECURITY OWNERSHIP
The Company is a wholly ownedwholly-owned subsidiary of Valcor, a wholly ownedwholly-owned
subsidiary of Valhi, Inc., a publicly traded company. Contran Corporation holds,owns,
directly orand through subsidiaries (Valhi Group, Inc.; National City Lines, Inc.;
NOA, Inc.; Dixie Rice Agricultural Corporation, Inc.; Dixie Holding Company and
Southwest Louisiana Land Company, Inc.), approximately 93% of Valhi'sthe outstanding
common stock.stock of Valhi. Substantially all of Contran's outstanding voting stock is held
by trusts established for the benefit of thecertain children and grandchildren of
Harold C. Simmons, of which Mr. Simmons is the sole trustee. Mr. Simmons, the
Chairman of the Board and Chief Executive Officer of each of Contran, Valhi and Valcor,the foregoing
companies, may be deemed to control each of such companies and the Company. See
"Security Ownership in the Company and its Affiliates."
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RECENT DEVELOPMENTS
On December 12, 1997, the Company paid a $50 million dividend to Valcor in
the form of a demand note payable (the "Valcor Note"). The Note iswas unsecured
and bearsbore interest at a fixed rate of 6% per annum.
Prior to the completion of the Offering,On February 26, 1998, the Company plans to enterentered into a new $50$100 million revolving
bank credit facility (the "Revolving Senior Credit Facility"). The Revolving
Senior Credit Facility is expected to be aan unsecured five-year revolving facility collateralized by substantially all of the Company's assets.facility. Borrowings
are expected to be available for the Company's general corporate purposes, including potential
acquisitions. There can be no assurance that any
such new Revolving Senior Credit Facility will be obtained. Prior to completion
of the Offering,On February 26, 1998, the Company intends to utilizeutilized borrowings under the
Revolving Senior Credit Facility to fully repay the Valcor Note. Such borrowings
under the Revolving Senior Credit Facility are expected to be repaid with
approximately $75 million of the net proceeds of the Offering.
On March 3, 1998, the Company completed the acquisition of the Fort Lock
Group and its manufacturing facility for an aggregate purchase price of
approximately $32.9 million (the "Fort Lock Acquisition"). The Fort Lock Group,
a vertically integrated manufacturer of highly engineered mechanical locks for a
diverse customer base of original equipment manufacturers and locksmith
distributors, is headquartered in River Grove, Illinois. The Fort Lock Group has
over 40 years experience supplying cam locks, switch locks and special purpose
locks to a wide variety of industries which include personal computing,
automotive products, security devices, office furniture, lockers, safes and coin
operated devices. Fortronics, Inc. designs, manufactures and distributes
electronic locking systems to customers throughout the United States. Similar to
CompX(TM), the Fort Lock Group emphasizes customized engineering capabilities
that permit collaboration with customers to develop innovative products designed
to specifically address unique end product application requirements. The Company
believes that the acquisition of the Fort Lock Group will enhance the Company's
product offerings and provide synergies through the combined technical resources
of both Companies. For its most recent fiscal year ended June 28, 1997, the Fort
Lock Group reported net sales of approximately $26.8 million and net income of
approximately $2.4 million. See historical consolidated combined financial
statements of the Fort Lock Group presented elsewhere in this Prospectus.
The aggregate purchase price is subject to possible reduction pending the
completion of a post closing audit and the outcome of certain contingencies for
which the Company has been indemnified by the sellers. Funding of the Fort Lock
Acquisition was provided by available cash on hand and borrowings under the
Revolving Senior Credit Facility, which borrowings are expected to be repaid
with a portion of the net proceeds of the Offering.
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THE OFFERING
Class A Common Stock offeredClass A Common Stock
offered.................. 5,200,000 shares
Common Stock to be
outstanding after the
Offering:(a)
Class A Common Stock ...... shares
Class B Common Stock ...... shares
Total................... shares
Use of Proceeds.............. A portion of the net proceeds
of the Offering will be used to
repay borrowings expected to be
incurred under the Revolving
Senior Credit Facility. The
remainder will be available
for the Company's general
corporate purposes, including
potential acquisitions.
Voting Rights................. The Class A Common Stock and
Class B Common Stock vote as a
single class on all matters,
except as otherwise required by
law, with each share of Common
Stock entitling its holder to
one vote on all matters except
the election of directors where
each share of Class B Common
Stock entitles its holder to
ten votes. All of the shares
of Class B Common Stock are
owned by Valcor. Immediately
after completion of the
Offering, Valcor will
beneficially own shares of
Common Stock having
approximately __% of the
combined voting power ( % for
director elections) of the
outstanding shares of Common
Stock (approximately __%, and
%, respectively, if the
Underwriters' over-allotment
option is exercised in full).
Economic Interest ........... The shares of Class B Common
Stock will represent
approximately __% of the
economic interest in the
Company (approximately __% if
the Underwriters' over-
allotment option is exercised
in full).
Proposed NYSE Symbol......... [ ]
(a)
ExcludesClass A Common Stock..... 5,364,880 shares
Class B Common Stock..... 10,000,000 shares
Total.................. 15,364,880 shares
Use of Proceeds............ Approximately $75 million of the net proceeds of
the Offering will be used to repay borrowings
incurred under the Revolving Senior Credit Facility
to repay the Valcor Note and to consummate the Fort
Lock Acquisition. The remainder will be available
for the Company's general purposes.
Voting Rights.............. The Class A Common Stock and Class B Common Stock
vote as a single class on all matters, except as
otherwise required by law, with each share of
Common Stock entitling its holder to one vote on
all matters except the election of directors where
each share of Class B Common Stock entitles its
holder to ten votes. All of the shares of Class B
Common Stock are owned by Valcor. Immediately after
completion of the Offering, Valcor will
beneficially own shares of Common Stock having
approximately [ ]65% of the combined voting power (95%
for director elections) of the outstanding shares
of Common Stock (approximately 62%, and 94%,
respectively, if the Underwriters' over-allotment
option is exercised in full).
Economic Interest.......... The shares of Class B Common Stock will represent
approximately 65% of the economic interest in the
Company (approximately 62% if the Underwriters'
over-allotment option is exercised in full).
NYSE Symbol................ CIX
- ---------------
(a) Includes an aggregate of 164,880 shares of Class A Common Stock to be issued
to certain executives and directors of the Company upon completion of the
Offering (the Management Shares, as defined herein) and excludes
approximately [ ]1.3 million additional shares reserved for issuance under the
Incentive Plan (as defined herein)., including 440,000 shares of Class A
Common Stock issuable upon the exercise of stock options which will be
granted upon completion of the Offering to certain employees and directors
of the Company and Valhi at an exercise price equal to the initial public
offering price. See "Management --- Incentive Compensation Plan."
RISK FACTORS
See "Risk Factors" beginning on page 137 for a discussion of certain factors
that should be considered by prospective purchasers of the Class A Common Stock.
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SUMMARY FINANCIAL INFORMATION
The summary historical financial data as of December 31, 19921993 through 1996
and September 30, 1997
and for each of the years in the four-yearfive-year period ended December 31, 1996, and for the nine months ended September 30, 1997 have
been derived from audited Consolidated Financial Statements of the Company. The
summary historical financial data as of and for all other periods presented have
been derived from the unaudited Consolidated Financial Statements of the Company
and, in the opinion of management, include all adjustments, consisting of normal
adjustments necessary for a fair presentation of the data presented. The
results of interim periods are not necessarily indicative of results for the
full year or for future periods. The
following summary financial and other information should be read in conjunction
with "Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" andOperations," the Historical
Consolidated Financial Statements and the Unaudited Pro Forma Condensed
Consolidated Balance SheetFinancial Statements of the Company appearing elsewhere in this
Prospectus.
The Company's operations are comprised of a 52 or 53 week fiscal year. The
year ended December 31, 1992 consisted of a 53 week year, while eachEach
of the years ended December 31, 1993 through 19961997 consisted of a 52 week year.
The
nine months ended September 30, 1996 and 1997 each consisted of 39 weeks
periods.
Nine months ended
September 30,
Years ended DecemberYEARS ENDED DECEMBER 31,
1992-------------------------------------- PRO FORMA(b)
1993 1994 1995 1996 1996 1997 1997
----- ----- ----- ----- ------ ------------
($ in millions, except per share data)IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net sales $54.0sales.......................................... $64.4 $70.0 $80.2 $88.7 $64.7 $80.3$108.7 $137.9
Operating income $10.7 $17.5 $20.9 $19.9 $22.1 $14.8 $20.1income................................... 17.5 20.9 19.9 22.1 28.3 28.2
Income before $10.7 $17.5 $20.7 $19.9 $22.1 $14.7 $19.7
income taxestaxes......................... 17.5 20.7 19.9 22.1 27.7 27.7
Income taxes 4.0taxes....................................... 8.0 8.8 7.8 9.1 6.0 7.711.0 11.5
Minority interest in losses........................ -- -- -- -- -- .1
----- ----- ----- ----- ------ ------
Net income $ 6.7income................................ $ 9.5 $11.9 $12.1 $13.0 $ 8.7 $12.016.7 $ 16.3
===== ===== ===== ===== ====== ======
Net income per common share........................ $ .66 $ .93 $1.17 $1.19 $1.28 $ .86 $1.17
common share (a)1.11
======
OTHER DATA
Operating income 20%margin............................ 27% 30% 25% 25% 23% 25%
margin
EBITDA (b) $12.526% 20%
Cash flows from:
Operating activities............................. $12.4 $ 9.7 $12.8 $10.4 $ 23.0
Investing activities............................. (2.6) (3.1) (7.9) (2.0) (5.5)
Financing activities............................. (4.6) (4.4) (6.3) (6.3) (5.9)
----- ----- ----- ----- ------
Total..................................... $ 5.2 $ 2.2 $(1.4) $ 2.1 $ 11.6
===== ===== ===== ===== ======
EBITDA(a).......................................... $19.2 $22.5 $22.1 $24.6 $16.9 $22.1$ 31.2 $ 33.1
Depreciation and 1.7amortization...................... 1.6 1.7 2.2 2.5 2.1 2.3
amortization2.8 4.9
Capital 1.0expenditures(c)............................ 2.7 3.4 2.0 2.3 2.1 4.1
expenditures5.5
Dividends on 4.1common shares(d)...................... 4.4 4.6 6.0 6.2 4.5 4.5
common shares6.1
September 30,1997
As
Adjusted
Actual
(c)DECEMBER 31, 1997
------------------------
ACTUAL PRO FORMA(b)
------ ------------
(IN MILLIONS)
BALANCE SHEET DATA
Cash and other current assetsassets............................... $45.4 $ 40.5 $68.765.2
Total assets 58.5 86.7assets................................................ 63.8 115.9
Current liabilities 10.2 10.2liabilities......................................... 64.4 17.3
Long-term debt, including .4 .4
current maturitiesmaturities................ 50.4 .8
Stockholders' equity 46.6 74.8(deficit).............................. (1.2) 96.3
- ---------------
(a) Based upon 10,200,000 shares of Class B Common Stock outstanding for each
period presented.
(b) EBITDA as presented represents operating income plus depreciation and
amortization. EBITDA is presented because the Company believes it is a
widely accepted financial indicator of a company's ability to incur and
service debt.debt, although the Company's calculation of EBITDA may differ from
and therefore not be comparable to other companies' presentation of EBITDA.
However, EBITDA should not be considered by an investor as an alternative to
(i) operating income or net income as an indicator of a company's operating
performance or (ii) cash flows from operating activities as a measure of a
company's liquidity. (c)Trends in EBITDA are generally consistent with trends
in the formCompany's operating income. Pro forma EBITDA and depreciation and
amortization for 1997 is presented to assist investors in an analysis of the
Valcor Note,Fort Lock Acquisition.
(b) Gives pro forma effect to (i) the Fort Lock Acquisition, (ii) repayment of
the Valcor Note fromutilizing borrowings pursuant tounder the Revolving Senior Credit
Facility, (iii) issuance of the Management Shares and (iii)(iv) the Offering with assumed net proceeds to the Company of $78.2 million, and
the application of suchthe net proceeds.proceeds therefrom. See "Use of Proceeds," "Capitalization,"
"Recent Developments" and the Unaudited Pro"Pro Forma Condensed
Consolidated Balance Sheet.Financial Statements."
(c) Assuming the Fort Lock Acquisition occurred January 1, 1997, capital
expenditures on a pro forma basis are $7.8 million in 1997.
(d) The Company does not intend initially to declare and pay regular quarterly
cash dividends following completion of the Offering. See "Dividend Policy."
In addition, the Company's ability to pay future dividends is expected to be
restricted by certain covenants contained in the Revolving Senior Credit
Facility.
6
11
RISK FACTORS
Before making an investment decision, prospective purchasers of the Class A
Common Stock offered hereby should consider carefully the following information,
together with the other information set forth in this Prospectus.
HIGHLY COMPETITIVE INDUSTRY.Highly Competitive Industry. Each of the markets served by the Company is
highly competitive, with a number of competitors offering similar products. The
Company focuses its efforts on the middle- and high-end segment of the market,
where product design, quality and durability are the primary competitive
factors. Certain competitors have innovative proprietary products with strong
acceptance in the marketplace. Future development of product designs that
compete with the Company's proprietary products could give them a competitive
advantage over the Company. The Company also faces significant price competition
from its competitors and may encounter competition from new market entrants. In
addition, certain of the Company's customers have significantly greater
resources than the Company and there can be no assurance that these customers
will not explore vertical integration opportunities to manufacture components
that are currently purchased from the Company. There can be no assurance that
the Company will be able to compete successfully in its markets in the future.
See "Business--Competition."Business -- Competition."
RISK OF CUSTOMER CONSOLIDATION.Risk of Customer Consolidation. The office furniture industry is very
competitive and this environment has recently led to certain consolidation
opportunities. Any such consolidation could result in the combination of one of
the Company's customers with a customer of a competitor of the Company. Such a
consolidation could result in changes in product purchasing or sourcing
decisions or price erosion due to purchasing economies of scale and could result
in the loss of all or a portion of current sales volumes to a customer, which
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance in such circumstances that any
such lost sales that might occur as a result of industry consolidation could be
replaced with sales to new customers.
ECONOMIC FACTORS AFFECTING THE COMPANY'S BUSINESS.Economic Factors Affecting the Company's Business. The future growth, if
any, of the office furniture industry will be affected by a variety of
macroeconomic factors, such as service industry employment levels, corporate
cash flows and non-residential commercial construction, as well as industry
factors such as corporate reengineering and restructuring, technology demands,
ergonomic, health and safety concerns and corporate relocations. There can be no
assurance that current or future economic or industry trends will not materially
adversely affect the business of the Company. See "Business--Industry"Business -- Industry
Overview."
RISKS ASSOCIATED WITH ACHIEVING AND MANAGING GROWTH.Risks Associated with Achieving and Managing Growth. Historically the
Company's ability to provide value-added custom engineered products that address
requirements of technology and space utilization has been a key element of the
Company's success. The introduction of new products by the Company requires the
coordination of the design, manufacturing and marketing of such products with
office furniture OEMs. The ability to implement such coordination may be
affected by factors beyond the Company's control. While the Company will
continue to emphasize the introduction of innovative new products that target
customer-specific opportunities, there can be no assurance that any new products
introduced by the Company will achieve the same degree of success as that
achieved by the Company's existing products.
Introduction of new products typically requires the Company to increase
production volume on a timely basis while maintaining product quality.
Manufacturers often encounter difficulties in increasing production volumes,
including delays, quality control problems and shortages of qualified personnel.
As it attempts to introduce new products in the future, there can be no
assurance that the Company will be able to increase production volume without
encountering these or other problems, which might, individually or in the
aggregate, have a material adverse effect on the Company's financial condition
or results of operations.
The Company also intends to pursue a growth strategy through acquisitions
and internal development. The Company's ability to successfully grow through
acquisitions will depend on many factors, including, among others, the Company's
ability to identify suitable growth opportunities and to successfully integrate
acquired businesses. There can be no assurance that the Company will anticipate
all of the changing demands that expanding operations will impose on its
management and management information systems. Any failure
7
12
by the Company to adapt its systems and procedures to those changing demands
could have a material adverse effect on the Company's results of operations and
financial condition.
RELIANCE ON KEY PERSONNEL.Reliance on Key Personnel. The Company believes that the breadth of
industry experience of key management individuals is integral to the Company's
success in understanding and serving its customers' needs. The top seven
executive management personnel have over 100 years of combined industry
experience. The loss of one or more of these key personnel could, among other
things, have an adverse effect upon the ability of the Company to develop and
market new products and to maintain customer relationships.
RELIANCE ON PATENTS AND OTHER INTELLECTUAL PROPERTY.Reliance on Patents and Other Intellectual Property. The Company owns a
number of United States and foreign patents, trademarks and service marks in
order to protect certain of its innovations and designs. In addition, the
Company is a licensee of certain technology and possesses certain unpatented
proprietary know-how and manufacturing techniques that are important to
maintaining consistent quality. There can be no assurance that any patents,
trademarks or service marks issued or licensed to the Company will not be
challenged, invalidated, canceled, narrowed or circumvented, or that the rights
granted thereunder will provide significant proprietary protection or
competitive advantages to the Company.
The Company continually focuses its efforts on product innovation and
design improvements that enhance existing products and stimulate development of
new products. The Company's approach to custom engineered solutions may subject
the Company to claims of patent infringement by competitors. There can be no
assurance that any future successful assertion of patent infringement claims
will not result in material legal, royalty or other costs to the Company.
RISK OF ENVIRONMENTAL LIABILITIES.Risk of Environmental Liabilities. The operations of the Company are
subject to extensive and changing federal, state, local and foreign
environmental laws and regulations, including those relating to the use,
storage, handling, generation, transportation, treatment, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances, materials and wastes. The nature of the Company's operations exposes
the Company to the risk of liabilities, claims and pollution control
requirements for a wide variety of environmental matters, including on-site and
off-site releases and emissions of hazardous substances, materials and wastes.
There can be no assurance that environmental matters will not have a material
adverse effect on the Company's business, results of operations or financial
condition. See "Business --- Environmental Matters."
EXCHANGE RATE FLUCTUATION.Exchange Rate Fluctuation. The Company has significant operations in
Canada. During 1996 and the first nine months of 1997, about three-fourths of the Company's total net sales were
generated by its Canadian operations, of which about 60% are denominated in U.S.
dollars with the remainder denominated in various foreign currencies,
principally the Canadian dollar. Substantially all of the operating expenses
related to the Company's Canadian operations are incurred in Canadian dollars.
As a result, fluctuations in the value of the U.S. dollar relative to the
Canadian dollar can impact the Company's reported operating results. There can
be no assurance that any future exchange rate fluctuations would not materially
adversely impact the Company's future operating results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results may fluctuate due to factors such as the timing of new product
announcements and introductions by the Company, its major customers or its
competitors, delays in new product introductions by the Company, market
acceptance of new or enhanced versions of the Company's products, changes in the
product or customer mix of sales, changes in the level of operating expenses,
competitive pricing pressures, the gain or loss of significant customers,
increased research and development and sales and marketing expenses associated
with new product introductions, and general economic conditions. All the above
factors are difficult for the Company to forecast, and these or other factors
can materially adversely affect the Company's business, financial condition and
results of operations for one quarter or a series of quarters.
CONTROL BY PRINCIPAL STOCKHOLDER; ANTI-TAKEOVER EFFECTS.Control by Principal Stockholder; Anti-takeover Effects. The holders of
Common Stock are entitled to one vote per share on all matters except the
election of directors, on which the holders of Class B Common Stock are entitled
to ten votes per share. Holders of Class A Common Stock are generally entitled
to vote with holders of the Class B Common Stock as one class on all matters as
to which the stockholders of the Company are entitled to vote. Immediately after
consummation of the Offering, Valcor, an indirect subsidiary of
8
13
Contran, will own all the outstanding 10,200,00010,000,000 shares of Class B Common Stock,
which will represent approximately __% of the outstanding shares of Common Stock and will
have approximately __%65% of the combined voting power ( %(95% for the
election of directors) of the outstanding shares of Common Stock (approximately
__%, %62% and __%94%, respectively, if the over-allotment option is exercised in full).
Transfer of the shares of Class B Common Stock owned by any member of the
Contran Corporation Control Group (as hereafter defined), except for transfers
between members of the Contran Corporation Control Group or transfers made in
connection with a Tax-Free Spin-Off (as hereinafter defined) will result in the
automatic conversion of such shares of Class B Common Stock into shares of Class
A Common Stock. See "Description of Capital Stock -- Common Stock."
All of Valcor's common stock is owned by Valhi. Approximately 93% of
Valhi's common stock is beneficially owned, directly or indirectly, by Contran.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain of Mr. Harold Simmons' children and
grandchildren. As sole trustee of these trusts, Mr. Harold Simmons has the power
to vote and direct the disposition of the shares of Contran stock held by the
trusts even though Mr. Harold Simmons disclaims beneficial ownership thereof. As
trustee, Mr. Harold Simmons has the power to elect the majority of the directors
of Contran and effectively control the Board of Directors of the Company and all
stockholders' decisions of the Company, and in general, determine (without the
consent of the Company's other stockholders) the outcome of any corporate
transaction or other matter submitted to the stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets. In addition, Mr. Harold Simmons has the power to prevent
or cause a change in control of the Company. See "Description of Capital Stock,"
"Security Ownership in the Company and its Affiliates," and "Certain
Relationships and Related Transactions."
In addition, the Company's Certificate of Incorporation currently
authorizes the issuance of 1,000 shares of Preferred Stock. The Board of
Directors has the power to issue any or all of these additional shares without
stockholder approval, and such shares can be issued with such rights,
preferences and limitations as may be determined by the Board. The rights of the
holders of Class A Common Stock will be subject to, and may be adversely
affected by, the rights of any holders of Preferred Stock that may be issued in
the future. The Company presently has no commitments or contracts to issue any
shares of Preferred Stock. Authorized and unissued Preferred Stock could delay,
discourage, hinder or preclude an unsolicited acquisition of the Company, could
make it less likely that stockholders receive a premium for their shares as a
result of any such attempt and could adversely affect the market price of and
the voting and other rights of the holders of outstanding shares of Common
Stock.
ABSENCE OF DIVIDENDS.Absence of Dividends. The Company does not anticipate paying any cash
dividends on the Class A or Class B Common Stock in the foreseeable future. See
"Dividend Policy."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS. It is
anticipated thatRestrictions Imposed by Terms of the Company's Indebtedness. The terms of
the Revolving Senior Credit Facility will impose operating and financial restrictions
on the Company. As a result, the ability of the Company to respond to changing
business and economic conditions and to secure additional financing, if needed,
may be significantly restricted, and the Company may be prevented from engaging
in transactions that might further its growth strategy or otherwise be
considered beneficial to the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations --- Liquidity and Capital
Resources."
EFFECT OF NO PRIOR PUBLIC TRADING MARKET.Effect of No Prior Public Trading Market. Prior to the Offering, there has
been no public trading market for the Class A Common Stock. The public offering
price for the Class A Common Stock will behas been determined by negotiations between
the Company and the Underwriters based upon several factors and willdoes not
necessarily bear any relationship to the Company's assets, book value, results
of operations or net worth or any other generally accepted criteria of value,
and should not be considered as indicative of the actual value of the Company.
Therefore, the market price of the Class A Common Stock may fall below the
public offering price of the Class A Common Stock at any time following the
Offering. See "Underwriting."
In addition, althoughAlthough the Company intends to file a listing application for
inclusion of theCompany's Class A Common Stock has been approved for tradinglisting
on the NYSE, there can be no assurance that such application will be granted or that an active trading market will
develop. To the extent an active trading market does develop, factors such as
quarterly variations in the Company's financial results, public announcements by
the
9
14
Company or others, general market conditions or certain regulatory
pronouncements may cause the market price of the Class A Common Stock to
fluctuate substantially.
EFFECT OF SALES OF SUBSTANTIAL AMOUNTS OF COMMON STOCK.Effect of Sales of Substantial Amounts of Common Stock. Immediately after
consummation of the Offerings, Valcor will beneficially own all the outstanding
10,200,00010,000,000 shares of Class B Common Stock, which will represent approximately
__%65% of the combined voting power ( %(95% for election of directors) of the
outstanding shares of Common Stock (approximately __%62% and %,94%, respectively, if
the Underwriters' over-allotment option is exercised in full). Subject to
applicable law and the terms of the Class B Common Stock, Valcor could sell all
or some of the shares of Class B Common Stock owned by it from time to time for
any reason. The Company cannot predict the effect, if any, that future sales of
outstanding Common Stock or the availability of Common Stock for sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market following the Offering,
or the perception that such sales could occur, could adversely affect prevailing
market prices of the Class A Common Stock.
Each of the Company, Valcor, and executive officers and directors thereof
has agreed that, for a period of 180 days following the date of this Prospectus,
it will not issue or sell any shares of Class A Common Stock or securities
convertible into or exercisable for such stock, held by it now or in the future
without the prior written consent of the Underwriters. See "Shares Eligible for
Future Sale" and "Security Ownership in the Company and its Affiliates."
FORWARD-LOOKING STATEMENTS.Forward-looking Statements. This Prospectus includes forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995 (the "Reform Act")),. The "safe-harbor" protections of the Reform Act
are not available to initial public offerings, including this Offering. These
forward looking statements include, but are not limited to, statements
regarding, among other items, (i) the Company's anticipated growth strategies,
(ii) the Company's intention to introduce new products, (iii) anticipated trends
in the Company's businesses, including trends in the market for office furniture
and corporate concerns for worker health and safety, (iv) future expenditures
for capital projects and (v) the Company's ability to continue to control costs
and maintain quality. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of many factors,
including, but not limited to, the factors described in "Prospectus Summary,"
"Risk Factors" and "Business" including, among other things, (i) changes in the
competitive marketplace, including the introduction of new products or pricing
changes by the Company's competitors, and (ii) changes in market trends for
office furniture, including changes in service industry employment. Other
factors that materially affect actual results include, among others, the
following: general economic and business conditions; industry capacity; changes
in customer preferences; demographic changes; competition; changes in methods of
marketing and in technology; changes in political, social and economic
conditions; regulatory factors and various other factors beyond the Company's
control. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire.
The "safe-harbor" protectionsRecent Acquisition. On March 3, 1998, the Company completed the acquisition
of the Reform Act are not
available to initial public offerings, including this Offering.
DILUTION INCURRED BY INVESTORS.Fort Lock Group and its manufacturing facility. See "Recent
Developments". There can be no assurance that the operations of Fort Lock Group
can be successfully integrated into the Company's current business.
Dilution Incurred by Investors. The per share price to the public of the
Class A Common Stock is substantially higher than the net tangible book value
per share of the Common Stock at September 30,December 31, 1997. Accordingly, at such date,
investors purchasing the Class A Common Stock offered hereby would have incurred
immediate, substantial dilution in the amount of $_____$13.73 per share, assuming a
public offering priceafter giving
pro forma effect to issuance of $__ per share and after givingthe Management Shares. Giving additional pro
forma effect to the dividendFort Lock Acquisition results in additional dilution to
investors purchasing the formClass A Common Stock offered hereby of the Valcor Note. See "Dilution."$1.42 per share.
10
15
USE OF PROCEEDS
The net proceeds to the Company from the Offering (based on an assumed
offering price of $__ per share) will be approximately
$78.2$96.2 million. SuchThe Company will utilize approximately $75 million of the net
proceeds to repay the outstanding balance under the Revolving Senior Credit
Facility. Of the $75 million outstanding balance under the Revolving Senior
Credit Facility, approximately $50 million was borrowed to repay the Valcor Note
which was paid as a dividend to Valcor in December of 1997. The balance of the
outstanding amount under the Revolving Senior Credit Facility was used to
complete the Fort Lock Acquisition. The Revolving Senior Credit Facility is an
unsecured five year revolving facility bearing interest at LIBOR plus 30 to
102.5 basis points, depending upon certain financial covenant ratios.
The remaining net proceeds of the Offering, together with the borrowing
availability under the Revolving Senior Credit Facility, will be available for
the Company's general corporate purposes.
Approximately $50 millionNationsBank, N.A., an affiliate of such net proceeds are expected to be used to fully
repay borrowingsNationsBanc Montgomery Securities LLC,
and First Union National Bank, an affiliate of Wheat First Securities, Inc.,
will receive repayment of amounts outstanding under the Revolving Senior Credit
Facility which
were incurred to satisfyfrom the Valcor Note. The remaining net proceeds of the Offering together with any borrowing availability under the Revolving Senior
Credit Facility, will enhance the Company's financial flexibility to pursue
potential acquisitions, strategic joint ventures and internal growth
opportunitiesthat are, in the office furniture component and cabinet lock industries.
The Company has signed a letteraggregate, more
than 10% of intent concerning the possible acquisitionnet proceeds of
a company in a related industry, subject to satisfactory completion of due
diligence, negotiation of a definitive agreement and appropriate board of
directors approval by both companies. No definitive agreement has been reached
to date and discussions are continuing. The Company is actively exploring
expansion opportunities through acquisitions, strategic joint ventures and
expansion of existing facilities. See "Business -- Strategy."
The Valcor Note is an unsecured demand note that bears interest at a fixed
rate of 6% per annum. The Valcor Note was paid as a dividend to Valcor, the
Company's sole stockholder, prior to the Offering. The Revolving Senior Credit
Facility is expected to be a five-year revolving facility collateralized by
substantially all of the Company's assets and is expected to bear interest at
LIBOR plus 20 to 62.5 basis points, depending upon certain financial ratios.See "Underwriting."
DIVIDEND POLICY
As a subsidiary of Valcor, the Company has historically been managed with a
focus on generating cash flow to pay dividends to Valcor. After the Offering,
the Company intends to seek to maximize stockholder value through growth. As a
result, following the Offering, the Company does not intend initially to declare
and pay regular quarterly cash dividends but intends, instead, to utilize
available cash to fund additional acquisition and expansion opportunities.
Determinations to pay cash dividends in the future will be made at the
discretion of the Board of Directors, and any payment of dividends in the future
will depend upon the Company's results of operations, earnings, capital
requirements and contractual restrictions and upon other factors deemed relevant
by the Company's Board of Directors. The Company's ability to pay future
dividends is expected to be restricted by certain covenants contained in the Revolving Senior
Credit Facility. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Description of Capital Stock" and the Historical Consolidated
Financial Statements included in this Prospectus.
The Company paid dividends to Valcor aggregating $4.1 million in 1992, $4.4 million in 1993, $4.6
million in 1994, $6.0 million in 1995, $6.2 million in 1996, and $4.5$6.1 million in
the nine months ended September 30, 1997.1997 and $1.8 million in February 1998. In addition, on December 12, 1997, the
Company paid a $50 million dividend to Valcor in the form of the Valcor Note.
The Company intends to useutilized borrowings under the Revolving Senior Credit Facility to
repay the Valcor Note. A portionApproximately $75 million of the proceeds of the Offering
are expected towill be used to repay outstanding borrowings under the Revolving Senior Credit
Facility. See "Use of Proceeds."
11
16
CAPITALIZATION
The following table sets forth as of September 30,December 31, 1997 (i) the historical
consolidated capitalization of the Company and (ii) as adjusted to reflect (w) the
reclassification of the 1,000 shares of the Company's common stock, $1 par
value, into 10,200,000 shares of the Company's Class B Common Stock, $.01 par
value and (x) the payment of a $50 million dividend to Valcor in the form of the
Valcor Note, and (iii) as further adjusted to reflect (y)
repayment of the Valcor Note from borrowings under the Revolving Senior Credit
Facility, and (z)(x) issuance of the Management Shares, (y) the Offering with assumed net
proceeds to the Company of $78.2$96.2 million and the application of such net
proceeds.proceeds and (z) the Fort Lock Acquisition. See "Use of Proceeds" and "Recent
Developments."Pro Forma
Condensed Consolidated Financial Statements."
As As further
adjusted adjusted
ActualAS
ACTUAL ADJUSTED
------ --------
($ in millions, except per
share amounts)IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
Long-term debt:
Revolving Senior Credit FacilityFacility(a)....................... $ --- $ - $ -
(a)--
Demand note payable to Valcor -Valcor............................. 50.0 -
Canadian revolving credit agreemen - - -
(b)
Capital lease obligations--
Other..................................................... .4 .4 $ .4.8
----- -----
Total long-term debt, including current
.4maturities....................................... 50.4 .4
maturities.8
Less current maturities .1maturities................................... 50.1 .1.2
----- -----
Total long-term debtdebt.............................. .3 .3 .3.6
----- -----
Stockholders' equity:equity (deficit):
Preferred stock, $.01 par value; 1,000 - - -
shares authorized,
none issued
Common stock, $1 par value; 1,000
shares - - -
authorized, issued and outstandingissued............................................ -- --
Class A Common Stock, $.01 par value
[ ]value; 20,000,000 shares
authorized; [ ]5,364,880 shares
- - issued and
outstanding, _______ as
further adjusted (c)outstanding(b)......................................... -- .1
Class B Common Stock, $.01 par value
10,200,000value; 10,000,000 shares
authorized, issueissued and outstanding, as further -outstanding..................... .1 adjusted.1
Additional paid in capital 4.5capital................................ 4.4 103.8
Retained earnings 42.3 (7.7) (7.7)(deficit)............................... (4.6) (6.6)
Currency translation adjustment (.2) (.2) (.2)adjustment........................... (1.1) (1.1)
----- -----
Total stockholders' equity 46.6 (3.4)(deficit).............. (1.2) 96.3
----- -----
Total capitalization $46.9 $(3.1)capitalization.............................. $ (.9) $96.9
===== =====
- ---------------
(a) Prior to the Offering,On February 26, 1998, the Company expects to enterentered into a new $50$100 million Revolving
Senior Credit Facility. See "Recent Developments." As further
adjusted, the Company
would have $50$100 million of borrowing availability under this facility.
(b) formula-based borrowings of up to $5 million. The Company intends to
terminate this facility when it enters into the Revolving Senior Credit
Facility.
(c) Excludes approximately [ ] shares of Class A Common Stock to be issued to
certain executives and directors upon completion of the Offering and
approximately [ ] additional1.3 million shares reserved for issuance under the
Incentive Plan (as defined herein), including [ ]440,000 shares of Class A
Common Stock subject toissuable upon the exercise of stock options which maywill be
granted toupon the Company's
management concurrent withcompletion of the Offering to certain employees and
directors of the Company and Valhi at an exercise price equal to the initial
public offering price of the Class A Common Stock.Stock, and includes the
Management Shares. See "Management -- Incentive Compensation Plan."
12
17
DILUTION
Dilution is the amount by which the initial public offering price per share
paid by the purchasers of shares of Class A Common Stock in the Offering exceeds
the net tangible book value per share of Common Stock after the Offering. The
net tangible book value per share of Common Stock is determined by subtracting
the book value of total liabilities and intangible assets (consisting of
deferred costs) of the Company from the total book value of the total assets of
the Company and dividing the difference by the number of shares of Common Stock
outstanding on the date as of which such book value is determined.
The adjusted net tangible book value of the Company at September 30,December 31, 1997
after giving effect to the payment of a $50 million dividend to Valcor in the
form of the Valcor Note,
was a deficit of approximately $3.5$1.2 million, or $.34$(.12) per share of Common
Stock. After giving effect to (y) the sale of shares of Class A Common Stock by
the Company in the Offering at an assumed offering price of $__
per share and the application of the estimated net proceeds
therefrom and (z) issuance of the Management Shares, the net tangible book value
of the Company as of September 30,December 31, 1997 would have been $____$96.3 million, or $____$6.27
per share. This represents an immediate increase in net adjusted tangible book
value of $____$6.39 per share to the holder of Class B Common Stock and an immediate
dilution in net tangible book value of $_____$13.73 per share to purchasers of Class A
Common Stock in the Offering, as illustrated in the following table:
Assumed public offering price per share ............... $_____
Adjusted net tangible book value per share at
September 30, 1997 ..... $(.34)
Increase per share attributable to new investors
Pro forma net tangible book value per share after the Offering
Net tangible book value dilution per share to new investors $
Assumed public offering price per share............................ $20.00
Adjusted net tangible book value per share at December 31,
1997...................................................... $(.12)
Increase per share attributable to new investors............ 6.39
-----
Pro forma net tangible book value per share........................ 6.27
------
Net tangible book value dilution per share to new investors........ $13.73
======
If the over-allotment option is exercised in full, the pro forma net
tangible book value per share of Class A Common Stock after giving effect to the
Offeringtransaction described above would be $____$6.86 per share, the increase in the net
tangible book value per share would be $____$6.98 and the dilution to persons who
purchase shares of Class A Common Stock in the Offering would be $_____$13.14 per
share.
In addition, after giving pro forma effect to the Fort Lock Acquisition,
the net tangible book value per share (at an assumed
offering price of $__Class A Common Stock, the increase in
the net tangible book value per share)share as a result of this Offering to holders of
Class B Common Stock and the dilution per share to purchasers of Class A Common
Stock in the Offering would be $4.85, $4.97 and $15.15, respectively ($5.51,
$5.63 and $14.49, respectively, if the over-allotment option is exercised in
full).
SELECTED13
18
COMPX INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATASTATEMENTS
The historical selectedaccompanying unaudited pro forma condensed consolidated financial
datastatements set forth the Company's pro forma condensed consolidated balance
sheet as of December 31, 1992 through 1996
and September 30, 1997, and the pro forma condensed consolidated
statement of income for each of the years in the four-year periodyear ended December 31, 1996 and for1997. These pro forma
financial statements are presented to illustrate the nine months ended September 30, 1997, have been
derived from auditedeffect of certain
adjustments to the Company's Historical Consolidated Financial Statements
included in this Prospectus and reflect (i) repayment of a $50 million demand
note payable to Valcor utilizing borrowings under the Revolving Senior Credit
Facility, (ii) the Offering and repayment of the Company. The
historical selected financial dataRevolving Senior Credit
Facility (iii) issuance of the Management Shares and (iv) the Fort Lock
Acquisition, as if such transactions had occurred on December 31, 1997 for
all other periods presented have been
derived frompurposes of the unaudited pro forma condensed consolidated balance sheet and on
January 1, 1997 for purposes of the unaudited pro forma condensed consolidated
income statements. The Fort Lock Acquisition will be accounted for by the
purchase method of accounting and consolidated in the Company's historical
financial statements effective the date of the Company and, in the
opinion of management, include all adjustments consisting of normal adjustments
necessary for a fair presentation of the data presented.consummation.
The results for
interim periods are not necessarily indicative of results for the full year or
for future periods. The following selectedaccompanying unaudited pro forma condensed consolidated financial
and other datastatements should be read in conjunction with "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations"the Company's and the Historical
Consolidated Financial StatementsFort Lock
Group's historical consolidated financial statements and notes thereto included
elsewhere in the Prospectus. The pro forma condensed consolidated financial
statements are presented for information purposes only and do not purport to be
indicative of actual results had the transactions reflected therein occurred at
the dates indicated, nor do they purport to represent results of future
operations of the Company included in this Prospectus.
The Company's operations are comprised of a 52 or 53 week fiscal year. The
year ended DecemberCompany.
14
19
COMPX INTERNATIONAL INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1992 consisted of a 53 week year, while each of the
years ended December 31, 1993 through 1996 consisted of a 52 week year. The
nine months ended September 30, 1996 and 1997
each consisted of 39 weeks
periods.(UNAUDITED)
(IN MILLIONS)
ASSETS
Nine months
ended
1992 1993 1994 1995 1996 1996 1997
($ in millions, except per share data)PRO FORMA ADJUSTMENTS
-------------------------------------------
SENIOR CREDIT
FACILITY,
HISTORICAL STOCK OFFERING AND FORT LOCK
----------------- MANAGEMENT SHARES ACQUISITION
FORT LOCK -------------------- --------------------
COMPX GROUP NOTE 1 ADJUSTMENTS NOTE 1 ADJUSTMENTS PRO FORMA
----- --------- ------ ----------- ------ ----------- ---------
INCOME STATEMENT
DATA
Net sales $54.0 $64.4 $70.0 $80.2 $88.7 $64.7 $80.3
OperatingCurrent assets:
Cash and cash equivalents..... $19.2 $ .1 (b) $ 46.2 (d) $(30.7)
(e) (2.4) $ 32.4
Accounts receivable........... 14.6 2.3 -- -- 16.9
Inventories................... 11.1 4.0 -- -- 15.1
Deferred income $10.7 $17.5 $20.9 $19.9 $22.1 $14.8 $20.1taxes......... .4 .2 -- -- .6
Other current assets.......... .1 .1 -- -- .2
----- ----- ------ ------ ------
Total current
assets.............. 45.4 6.7 46.2 (33.1) 65.2
Goodwill........................ -- -- -- (f) 21.8 21.8
Other assets.................... .2 .2 -- -- .4
Property and equipment, net..... 18.2 5.4 -- (e) 2.4
(f) 2.5 28.5
----- ----- ------ ------ ------
$63.8 $12.3 $ 46.2 $ (6.4) $115.9
===== ===== ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand note payable to
Valcor..................... $50.0 $ -- (a) $(50.0) $ -- $ --
Notes payable and current
maturities of long-term
debt....................... .1 1.5 -- (f) (1.4) .2
Accounts payable and accrued
liabilities................ 11.7 4.1 (c) (1.3) -- 14.5
Income before 10.7 17.5 20.7 19.9 22.1 14.7 19.7taxes.................. 2.6 -- -- -- 2.6
----- ----- ------ ------ ------
64.4 5.6 (51.3) (1.4) 17.3
----- ----- ------ ------ ------
Noncurrent liabilities:
Long-term debt................ .3 1.4 (a) 50.0
(b) (50.0) (f) (1.1) .6
Deferred income taxes
Income taxes 4.0 8.0 8.8 7.8 9.1 6.0 7.7
Net incometaxes......... .1 .2 (f) 1.0 1.3
Other......................... .2 -- -- -- .2
----- ----- ------ ------ ------
.6 1.6 -- (.1) 2.1
----- ----- ------ ------ ------
Minority interest............... -- .2 -- -- .2
----- ----- ------ ------ ------
Stockholders' equity
(deficit)..................... (1.2) 4.9 (b) 96.2
(c) 1.3 (f) (4.9) 96.3
----- ----- ------ ------ ------
$63.8 $12.3 $ 6.746.2 $ 9.5 $11.9 $12.1 $13.1 $ 8.7 $12.0
Net income per $ .66 .93 $1.17 $1.19 $1.28 $ .86 $1.17
common share (a)
OTHER DATA
Operating income 20% 27% 30% 25% 25% 23% 25%
margin
EBITDA (b) $12.5 $19.2 $22.5 $22.1 $24.6 $16.9 $22.1
Depreciation(6.4) $115.9
===== ===== ====== ====== ======
15
20
COMPX INTERNATIONAL INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
NOTE 1 -- PRO FORMA ADJUSTMENTS:
Pro forma adjustments described below reflect (i) repayment of a $50
million demand note payable to Valcor utilizing borrowings under the Revolving
Senior Credit Facility, (ii) the Offering and repayment of the Revolving Senior
Credit Facility, (iii) issuance of the Management Shares and (iv) the Fort Lock
Acquisition, as if such transactions had occurred on December 31, 1997. These
transactions are more fully described elsewhere in this Prospectus.
Senior Credit Facility and 1.7 1.6 1.7 2.2 2.5 2.1 2.3
amortization
Capital 1.0 2.7 3.4 2.0 2.3 2.1 4.1
expenditures
Dividends on Commo 4.1 4.4 4.6 6.0 6.2 4.5 4.5 Stock Offering:
(a) Repayment of the demand note payable to Valcor from borrowings pursuant to
the Revolving Senior Credit Facility.
BALANCE SHEET DATA
(AT PERIOD ENDAMOUNT
-------------
(IN MILLIONS)
(b) Proceeds of the Offering:
Issuance of 5,200,000 Class A Common Stock at the
Offering price of $20.00 per share.................... $104.0
Less underwriting discount............................. (7.3)
Less estimated expenses of the Offering................ (.5)
------
96.2
Repayment of borrowings under the Revolving Senior
Credit Facility....................................... (50.0)
------
Net cash.......................................... $ 46.2
======
Issuance of the Management Shares:
(c) Issuance of an aggregate of 164,880 shares of Class A Common Stock to
certain officers of the Company at an aggregate value of $3.3 million (based
on the Offering price of $20.00 per share), less a $1.3 million current tax
benefit at an effective federal and state tax rate of 39%.
The Fort Lock Acquisition:
(d) The Company (i) acquires 100% of the outstanding stock of Fort Lock
Corporation for $30 million cash and acquires the net assets of Fortronics,
Inc., an affiliate of Fort Lock Corporation by common ownership, for $.5
million cash (collectively the "Fort Lock Group") and (ii) incurs $200,000
in acquisition related costs.
(e) The Company purchases Fort Lock Corporation's manufacturing building owned
by a shareholder of Fort Lock Corporation for $2.4 million cash. The
acquisition of the Fort Lock Group and the purchase of such building is
referred to as the "Fort Lock Acquisition."
16
21
COMPX INTERNATIONAL INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(f) Allocate Fort Lock Group purchase price as follows.
AMOUNT
-------------
(IN MILLIONS)
Purchase price to be allocated:
Cash paid to acquire the Fort Lock Group............. $30.5
Transaction costs.................................... .2
-----
30.7
Historical Fort Lock Group common equity............... 4.9
-----
$25.8
=====
Purchase price allocation:
Adjust the carrying value of the acquired property,
plant and equipment to estimated fair value......... $ 2.5
Deferred income tax consequences of the above
adjustment, at effective federal and state tax rate
of 39%.............................................. (1.0)
Elimination of indebtedness not assumed.............. 2.5
Goodwill............................................. 21.8
-----
$25.8
=====
Approximately $2.5 million of the Fort Lock Group bank indebtedness and the
Fort Lock Group loans from its shareholders was repaid by the sellers out
of the purchase price and will not become obligations of CompX(TM).
17
22
COMPX INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
--------------- PRO FORMA
FORT ADJUSTMENTS
LOCK ---------------- PRO FORMA
COMPX GROUP NOTE 1 AMOUNT CONSOLIDATED
------ ----- ------ ------ ------------
CashTotal revenues............................... $109.5 $29.2 $ -- $ 138.7
------ ----- ----- -------
Costs and otherexpenses:
Cost of goods sold......................... 70.6 20.3 (a) .3 91.2
Selling, general and administrative........ 11.0 4.3 (b) 1.1
(g) 3.3 19.7
Interest................................... .2 .3 (c) (.2)
(e) (.2) .1
------ ----- ----- -------
81.8 24.9 4.3 111.0
------ ----- ----- -------
Income before income taxes......... 27.7 4.3 (4.3) 27.7
Provision for income taxes................... 11.0 1.7 (d) --
(f) .1
(h) (1.3) 11.5
Minority interest in net loss................ -- .1 -- .1
------ ----- ----- -------
Net income................................... $ 13.7 $20.6 $25.9 $27.7 $32.2 $40.5
current assets
Total assets 23.5 31.3 37.8 44.4 48.5 58.5
Current 6.6 9.5 8.9 9.6 8.1 10.2
liabilities
Long-term debt,
including .1 .2 .1 .1 .2 .4
current
maturities
Stockholders' 14.5 19.4 26.2 32.6 39.2 46.6
equity16.7 $ 2.7 $(3.1) $ 16.3
====== ===== ===== =======
Basic and diluted net income per common
share...................................... $ 1.11
=======
Weighted average common shares outstanding... 14,646
=======
Other data:
Operating income........................... $ 28.3 $ 28.2
EBITDA..................................... 31.2 33.1
18
23
COMPX INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
NOTE 1 -- BASIS OF PRESENTATION:
The Unaudited Pro Forma Condensed Consolidated Statement of Income for the
year ended December 31, 1997 has been prepared to reflect (i) repayment of a $50
million demand note payable to Valcor utilizing borrowings under the Revolving
Senior Credit Facility, (ii) the Offering and repayment of the Revolving Senior
Credit Facility, (iii) issuance of the Management Shares and (iv) the Fort Lock
Acquisition, as if such transactions had occurred on January 1, 1997. These
transactions are more fully described elsewhere in this Prospectus.
Amounts reflected for the year-ended December 31, 1997 for the Fort Lock
Group are derived from the amounts reflected in the fiscal year end audited
financial statements of the Fort Lock Group for the fiscal year ended June 28,
1997 and the unaudited financial statements for the 26 week periods ended
December 1996 and 1997 presented elsewhere in this Prospectus.
Adjustments relating to the Fort Lock Acquisition:
(a) BasedIncrease in depreciation expense resulting from amortization of purchase
accounting basis differences over average remaining life of 10 years.
(b) Amortization of goodwill related to the acquisition of the Fort Lock Group
by the straight-line method over 20 years.
(c) Eliminate interest expense associated with the Fort Lock Group bank
indebtedness not assumed by the Company.
(d) Income tax expense of pro forma adjustment (a) and (c), at assumed federal
and state tax rate of 39%.
Adjustments relating to repayment of the $50 million note payable to Valcor:
(e) Eliminate interest expense associated with the Valcor Note.
(f) Income tax expense of pro forma adjustment (e) at assumed federal and state
tax rate of 39%.
Adjustments relating to the issuance of the Management Shares:
(g) Issuance of an aggregate of 164,880 Management Shares at an aggregate value
of $3.3 million.
(h) Income tax benefit of pro forma adjustment (g) at assumed federal and state
tax rate of 39%.
The historical statement of income for the Fort Lock Group includes rental
expense pursuant to a lease of the manufacturing building currently owned by a
shareholder of Fort Lock Corporation. No pro forma adjustment is required to
reflect the Company's purchase of such building as depreciation expense with
respect to the building would approximate the historical lease expense. No pro
forma adjustment is required to reflect interest expense under the Revolving
Senior Credit Facility because borrowings under such facility will be repaid
using a portion of the net proceeds from the Offering.
The shares used in the calculation of pro forma basic and diluted earnings
per share uses the Offering price to the public of $20.00 per share and is based
upon 10,200,000(i) 10,000,000 shares of the Company's Class B Common Stock outstanding,
for each
period presented. See Note 12(ii) 4,481,000 shares of Class A Common Stock to be issued in the Historical Consolidated Financial
Statements included in this Prospectus.
(b)Offering, the
net proceeds of which, along with available cash on hand, are sufficient to fund
repayment of the Revolving Senior Credit Facility and to consummate the Fort
Lock Group Acquisition, and (iii) issuance of 164,880 Management Shares.
19
24
COMPX INTERNATIONAL INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME -- (CONTINUED)
NOTE 2 -- OTHER DATA:
EBITDA as presented represents operating income plus depreciation and
amortization. EBITDA is presented because the Company believes it is a widely
accepted financial indicator of a company's ability to incur and service debt.
However,debt,
although the Company's calculation of EBITDA may differ from and therefore not
be comparable to other companies' presentation of EBITDA. EBITDA should not be
considered by an investor as an alternative to (i) operating income or net
income as an indicator of a company's operating performance or (ii) cash flows
from operating activities as a measure of a company's liquidity. Trends in
EBITDA are generally consistent with trends in the Company's operating income.
Pro forma EBITDA and depreciation and amortization for 1997 are presented to
assist investors in an analysis of the Fort Lock Acquisition.
20
25
SELECTED FINANCIAL DATA
The historical selected financial data as of December 31, 1993 through
1997, and for each of the years in the five-year period ended December 31, 1997,
have been derived from audited Consolidated Financial Statements of the Company.
The following selected financial and other data should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Historical Consolidated Financial
Statements of the Company included in this Prospectus.
The Company's operations are comprised of a 52 or 53 week fiscal year. Each
of the years ended December 31, 1993 through 1997 consisted of a 52 week year.
YEARS ENDED DECEMBER 31,
-------------------------------------- PRO FORMA
1993 1994 1995 1996 1997 1997(B)
----- ----- ----- ----- ------ ---------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net sales..................................... $64.4 $70.0 $80.2 $88.7 $108.7 $137.9
Operating income.............................. 17.5 20.9 19.9 22.1 28.3 28.2
Income before income taxes.................... 17.5 20.7 19.9 22.1 27.7 27.7
Income taxes.................................. 8.0 8.8 7.8 9.1 11.0 11.5
Minority interest in losses................... -- -- -- -- -- .1
----- ----- ----- ----- ------ ------
Net income.......................... $ 9.5 $11.9 $12.1 $13.0 $ 16.7 $ 16.3
===== ===== ===== ===== ====== ======
Net income per common share................... $ 1.11
======
OTHER DATA
Operating income margin....................... 27% 30% 25% 25% 26% 20%
Cash flows from:
Operating activities........................ $12.4 $ 9.7 $12.8 $10.4 $ 23.0
Investing activities........................ (2.6) (3.1) (7.9) (2.0) (5.5)
Financing activities........................ (4.6) (4.4) (6.3) (6.3) (5.9)
----- ----- ----- ----- ------
Total............................... $ 5.2 $ 2.2 $(1.4) $ 2.1 $ 11.6
===== ===== ===== ===== ======
EBITDA (a).................................... $19.2 $22.5 $22.1 $24.6 $ 31.2 $ 33.1
Depreciation and amortization................. 1.6 1.7 2.2 2.5 2.8 4.9
Capital expenditures (c)...................... 2.7 3.4 2.0 2.3 5.5
Dividends on Common Stock (d)................. 4.4 4.6 6.0 6.2 6.1
BALANCE SHEET DATA (AT PERIOD END)
Cash and other current assets................. $20.6 $25.9 $27.7 $32.2 $ 45.4 $ 65.2
Total assets.................................. 31.3 37.8 44.4 48.5 63.8 115.9
Current liabilities........................... 9.5 8.9 9.6 8.1 64.4 17.3
Long-term debt, including current
maturities.................................. .2 .1 .1 .2 50.4 .8
Stockholders' equity (deficit)................ 19.4 26.2 32.6 39.2 (1.2) 96.3
- ---------------
(a) EBITDA as presented represents operating income plus depreciation and
amortization. EBITDA is presented because the Company believes it is a
widely accepted financial indicator of a company's ability to incur and
service debt, although the Company's calculation of EBITDA may differ
from and therefore not be comparable to other companies' presentation of
EBITDA. EBITDA should not be considered by an investor as an alternative
to (i) operating income or net income as an indicator of a company's
operating performance or (ii) cash flows from operating activities as a
measure of a company's liquidity. Trends in EBITDA are generally
consistent with trends in the Company's operating income. Pro forma
EBITDA and depreciation and amortization for 1997 are presented to assist
investors in an analysis of the Fort Lock Acquisition.
(b) Gives pro forma effect to (i) the Fort Lock Acquisition, (ii) repayment
of the Valcor Note utilizing borrowings under the Revolving Senior Credit
Facility, (iii) issuance of the Management Shares and (iv) the Offering
and the application of the net proceeds therefrom. See "Pro Forma
Condensed Consolidated Financial Statements."
(c) Assuming the Fort Lock Acquisition occurred January 1, 1997, capital
expenditures on a pro forma basis are $7.8 million in 1997.
(d) The Company does not intend initially to declare and pay regular
quarterly cash dividends following completion of the Offering. See
"Dividend Policy". In addition, the Company's ability to pay future
dividends is expected to be restricted by certain covenants contained in
the Revolving Senior Credit Facility.
21
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Historical Consolidated Financial Statements of the Company and the notes
thereto appearing elsewhere in this Prospectus. Certain statements in the
following discussion are forward-looking statements or discussion of trends
which by their nature involve substantial risks and uncertainties that could
significantly affect expected results. Actual future results and trends may
differ materially from those described below depending on a variety of factors,
including those detailed under the caption "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
The Company sells ergonomic computer support systems and precision ball
bearing drawer slides which are manufactured in two facilities located in
Kitchener, Ontario and medium-security mechanical locks which are manufactured
in a facility in Mauldin, South Carolina. The Company is a wholly-owned
subsidiary of Valcor, a wholly-owned subsidiary of Valhi. In 1993, Valhi formed
National Cabinet Lock, Inc. and contributed the assets of its Cabinet Lock
Division and the stock of Waterloo Furniture Components Limited. In 1996,
National Cabinet Lock, Inc. changed its name to CompX International Inc.
Approximately 75% of the Company's products are sold to the office
furniture manufacturing industry while the remainder (principally mechanical
locks) isare sold for use in other products, such as vending equipment, postal
boxes, electromechanical enclosures and other furniture and equipment. According
to estimates by BIFMA, the dollar value of U.S. office furniture industry shipments has grown
in 23 of the past 25 years and hasis currently estimated to have grown at a
compound annual rate of approximately 7.2%8.4% over the threefour year period ended
December 31, 1996.1997. Over the same period the Company's total net sales increased
at a compound annual rate of approximately 11.3%14%, and net sales in the nine month
period ended September 30, 1997 were 24%22%
higher than those in the corresponding
period incompared to 1996. Management believes that the market for the Company's
ergonomic computer support systems is experiencing substantially higher rates of
growth than the office furniture industry as a whole. In the nine months ended
September 30, 1997, ergonomic
computer support systems represented 33%34% of total net sales compared to 27%26% in the year ended December 31,
1994.
The Company does not expect net sales from its existing medium-security
cabinet lock business to achieve growth rates comparable to its ergonomic
computer support systems and precision ball bearing drawer slides. The Company
intends to pursue potential acquisition opportunities to provide future growth
in its medium-security cabinet lock business. TheOn March 3, 1998, the Company
has signed a letter
of intent concerningcompleted the possible acquisition of a company in a related
industry, subject to satisfactory completion of due diligence, negotiation of a
definitive agreement and appropriate board of directors approval by both
companies. No definitive agreement has been reached to date and discussions are
continuing.Fort Lock Acquisition. See "Recent Developments."
The Company's products are sold primarily to OEMs in the United States and
Canada. The ten largest customers accounted for approximately one-third of sales
during each of the past three years with at least five of such customers in each
year located in the United States.
In August 1995, the Company acquired the assets of a Canadian competitor.
The acquired operations contributed approximately $3 million in sales in 1995,
$6 million in 1996 and $5$6 million in the nine months ended September 30, 1997. Through the elimination of
unprofitable product lines and the integration of manufacturing operations, the
operating contribution from these operations improved from a slight loss in 1995
to operating margins in 1997 consistent with the Company's existing ergonomic
computer support systems and precision ball bearing drawer slide products,
contributing to the majority of the improvement in operating margins for the nine month period ended September 30, 1997
compared to the corresponding period in 1996.
A portion of the Company's sales are made pursuant to a government
contract. In the first quarter of 1995, the Company completed shipments of
medium-security locks pursuant to a 1992 government contract. This contract was
not renewed until the end of 1996 due to excess supply and contributed to a 5%$.9
million decline in lock sales of medium-security cabinet locks in 1996 compared to
1995. The Company signed a new $650,000 contract for medium-security locks with
the same government agency in December 1996, under which all shipments were made
in the first nine months of 1997.
The Company's profitability depends on its ability to utilize its
production capacity effectively, which is affected by, among other things, the
demand for its products, and its ability to control its manufacturing costs,
primarily comprised of raw materials such as zinc, copper, coiled steel and
plastic resins and of labor costs. Raw material costs represent approximately
45% of the Company's total cost of sales. Beginning in
22
27
August 1997, the Company's steel prices have increased approximately 4% per
pound, resulting in an overall increase in the Company's steel raw material cost
of approximately 2% in 1997 compared to 1996. The Company occasionally enters
into raw material arrangements to mitigate the short-term impact of future
increases in raw material costs. While these arrangements do not commit the
Company to a minimum volume of purchases, they generally provide for stated unit
prices based upon achievement of specified volume purchase levels. This allows
the Company to stabilize raw material purchase prices provided the specified
minimum monthly purchase quantities are met. The Company currently anticipates
entering into such arrangements for zinc, coiled steel and plastic resins for
1998 and does not anticipate significant changes in the cost of these materials
from their current levels. Materials purchased on the spot market are sometimes
subject to unanticipated and sudden price increases. Due to the competitive
nature of the markets served by the Company's products, it is often difficult to
recover such increases in raw material costs through increased product selling
prices and consequently overall operating margins can be affected by such raw
material cost pressures.
Labor costs represent approximately 14% of the Company's total cost of
sales. The Company's U.S. employees are not represented by bargaining units and
wage increases historically have been in line with overall inflation indices.
Approximately two-thirds of the Company's Canadian employees are covered by a
three year collective bargaining agreement that expires in January 2000 and
provides for annual wage increases of 2 - 3%2-3%. Wage increases for these employees
historically have been in line with overall inflation indices.
Selling, general and administrative costs have been consistent as a
percentage of net sales and consist primarily of salaries, commissions and
advertising directly related to product sales.
The Company obtains certain management, financial and administrative
services on a fee basis from Valhi pursuant to an Intercorporate Services
Agreement. The Company believes such arrangements have been cost beneficial
compared to the cost of dedicated staff or consulting arrangements to otherwise
provide such services. Fees pursuant to these agreements were $224,000 in 1994,
$284,000 in 1995, and
$300,000 in 1996, and $225,000 and $195,000 for the nine
months ended September 30, 1996 and 1997, respectively.$260,000 in 1997. The Company intends to continue to
receive similar services from Valhi on a fee basis following the Offering.
Certain employees of the Company have been granted options to purchase
Valhi common stock under the terms of Valhi's stock option plans. The Company
pays Valhi the aggregate difference between the option price and the market
value of Valhi's common stock on the exercise date of such options. For
financial reporting purposes, the Company accounts for the related expense
(credit) ($101,000) in 1994,of $(12,000) in 1995, and $9,000 in 1996 and ($31,000) and
$386,000$472,000 for the nine months ended September 30, 1996 and 1997 respectively) in a manner
similar to accounting for stock appreciation rights. To the extent employees of
the Company continue to have options outstanding to purchase Valhi shares,
future changes in the market price of Valhi shares will result in additional
expense or credits to the Company's operating results. At December 31, 1997,
employees of the Company held options to purchase 204,000 Valhi shares at prices
ranging from $4.76 to $14.66 per share (185,000 shares at prices lower than the
December 31, 1997 quoted market price of $9.44 per share).
Upon completion of the Offering, five of the Company's officers and
directors will be awarded an aggregate of 164,880 shares of Class A Common Stock
under the Incentive Plan (as defined herein) for their services in connection
with the Offering. The Company will value all of such Class A shares awarded at
the Price to Public, and the aggregate value of the Class A shares awarded will
be approximately $3.3 million. The Company will recognize a charge, at the time
of the completion of the Offering, equal to the aggregate value of the Class A
shares awarded.
About three-fourths of the Company's net sales are generated by its
Canadian operations. About 60% of these Canadian-produced sales are denominated
in U.S. dollars while substantially all of the related costs are incurred in
Canadian dollars. Consequently, relative changes in the U.S. dollar/Canadian
dollar exchange rate affect operating results. Since U.S. dollar/Canadian dollar
exchange rates have not fluctuated significantly since 1993, the impact on
operating income of fluctuations in the value of the U.S. dollar relative to the
Canadian dollar since 1993 has not been material.
The Company is included in the consolidated U.S. federal income tax return
of Contran, and a tax sharing agreement provides for allocation of tax
liabilities and benefits to the Company, in general, as though it filed a
separate U.S. federal income tax return. The principal reasons for the
difference between the U.S.
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28
federal statutory income tax rate and the Company's effective income tax rates
are explained in Note 8 to the Company's Historical Consolidated Financial
Statements included in this Prospectus. Upon completion of the Offering, the
Company will no longer be included in the consolidated U.S. federal income tax
return of Contran.
RESULTS OF OPERATIONS
The table set forth below summarizes the Company's operating expenses as a
percentage of net sales:
Nine months ended
Years ended December September 30,YEARS ENDED DECEMBER 31,
1994-------------------------
1995 1996 1996 1997
----- ----- -----
Net sales 100% 100%sales................................................... 100% 100% 100%
Cost of sales 60sales............................................... 65 65 67 65
--- --- ---
Gross profit 40profit................................................ 35 35 33 35
Selling, general and administrative......................... 10 10 10 10 10
administrative9
--- --- ---
Operating income 30% 25% 25% 23% 25%income............................................ 25 25 26
=== === ===
PeriodYear ended September 30,December 31, 1997 compared to periodyear ended September 30,December 31, 1996
Net Sales. Net sales increased $15.6$20.0 million, or 24%22%, to $80.3$108.7 million for
the nine monthsyear ended September 30,December 31, 1997 from $64.7$88.7 million for the nine monthsyear ended September 30,December
31, 1996. The increase was primarily due to increased volume in ergonomic
computer support systems, precision ball bearing drawer slides and
medium-security cabinet locks. Combined net sales from the Company's ergonomic
computer support systems and precision ball bearing drawer slide products
increased $12.1$15.8 million, or 26%25%, based on higher unit volumes and relatively
stable prices. Medium-security cabinet lock sales increased $3.3$3.6 million, or 18%15%
based primarily on higher unit volumes and to a lesser degree on certain price
increases instituted at the beginning of 1997.
Operating income. Operating income increased $5.3$6.2 million, or 36%28%, to $20.1$28.3
million for the nine monthsyear ended September 30,December 31, 1997 from $14.8$22.1 million for the nine monthsyear
ended September 30,December 31, 1996, due primarily to increases in sales volumes. Operating
income margin improvement in the 1997 period was primarily influenced by relative changes in product mix, including the elimination of
certain unprofitable or low-margin product lines acquired in 1995 and increased
sales of higher margin ergonomic computer support systems and precision ball
bearing drawer slides. These improvements were partially offset by higher raw
material prices, primarily steel. Beginning in August 1997 steel prices have
increased approximately 4% per pound, resulting in an overall increase in raw
material cost of approximately 2% in 1997 compared to 1996.
On March 3, 1998, the Company completed the Fort Lock Acquisition. On a pro
forma basis, assuming that both the completion of the Fort Lock Acquisition and
the issuance of the Management Shares had occurred on January 1, 1997, the
Company's net sales in 1997 would have been $137.9 million and operating income
in 1997 would have been $28.2 million. See "Recent Developments" and Pro Forma
Condensed Consolidated Financial Statements presented elsewhere in this
Prospectus.
Year ended December 31, 1996 compared to year ended December 31, 1995
Net sales. Net sales increased $8.5 million, or 11%, to $88.7 million for
the year ended December 31, 1996 from $80.2 million for the year ended December
31, 1995. The increase was primarily due to increased volumes in ergonomic
computer support systems and precision ball bearing drawer slides. Combined net
sales from the Company's ergonomic computer support systems and precision ball
bearing drawer slide products increased $8.8 million, or 16%, based on higher
unit volumes and relatively stable prices. Medium-security cabinet lock sales
decreased $.9 million, or 4%, as an increase in sales of the Company's
proprietary KeSet(R) locks was more than offset by lower sales volumes from thea
government contract that was completed in early 1995.
Operating income. Operating income increased $2.2 million, or 11%, to $22.1
million for the year ended December 31, 1996 from $19.9 million for the year
ended December 31, 1995, due primarily to increases in
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29
sales volumes in ergonomic computer support systems and precision ball bearing
drawer slides. Operating income margins for the Company's cabinet lock sales
improved slightly in 1996 primarily due to cost savings and efficiencies from
the consolidation of certain Canadian lock operations acquired in 1992. The
improvement in operating income margins for cabinet locks was offset by slight
declines in operating income margins of ergonomic computer support systems and
precision ball bearing drawer slides due in part to the adverse effect of
certain unprofitable or low-
marginlow-margin product lines acquired in August 1995.
Year ended December 31, 1995 compared2000 Issue
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, ended December 31, 1994
Net sales. Net sales increased $10.2 million, or 15%, to $80.2 million forcertain computer programs that
have date sensitive software may recognize a date using "00" as the year ended December 31, 1995 from $70.0 million for1900
rather than the year ended December
31, 1994.2000 (the "Year 2000 Issue"). This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in normal business activities.
The increase was primarily dueCompany's recently installed information systems upgrades for both its
U.S. and Canadian facilities contained, among many other features, software
compatibility with the Year 2000 Issue. The Company does not currently
anticipate spending significant additional funds to increased volumes in ergonomic
computer supportaddress software
compatibility with the Year 2000 Issue with respect to its own internal systems.
The Company intends to initiate formal communications with its significant
suppliers and large customers to determine the extent to which the Company may
be vulnerable to those third parties' failure to eliminate their own Year 2000
Issue. There can be no assurance that the systems and precision ball bearing drawer slides. Combined net
sales fromof other companies on which
the Company's ergonomic computer support systems and precision ball
bearing drawer slide products increased $11.7 million,rely will be timely converted, or 28%, as higher sales
volumes in both ergonomic and slide products were partially offsetthat a failure to
convert by declines
in average pricesanother company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
Because the Company has not completed the evaluation of drawer slides dueits Year 2000 Issue with
respect to increased purchase quantity discounts
offeredsuch third parties, it is not able to high volume customers. Medium-security lock sales decreased $2.4
million, or 9%, duequantify the costs that the
Company may incur with respect to lower sales volumes resulting from a government contract
that was completed in early 1995.
Operating income. Operating income decreased $1.0 million, or 5%,the Year 2000 Issue of such third parties.
Impact of accounting standards not yet adopted
See Note 2 to $19.9
million for the year ended December 31, 1995 from $20.9 million for the year
ended December 31, 1994, as increased sales volumes of ergonomic computer
support systems and precision ball bearing drawer slides were more than offset
by declines in average selling prices for precision ball bearing drawer slides,
which accounted for approximately a 1 percentage point decline in operating
income margins in 1995. Approximately a 1 percentage point decline in operating
income margins in 1995 results from manufacturing inefficiencies due to lower
capacity utilization of cabinet lock manufacturing facilities and to a lesser
extent higher raw material costs, primarily zinc. The remaining 3 percentage
point decline in operating income margins in 1995 results from the effect of the
business acquisition discussed above.Company's Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities, for 1994, 1995, and 1996 and the
nine months ended September 30, 1996 and 1997, are
generally similar to the trends in the Company's earnings. Cash flow provided by
operating activities totaled $9.0$12.8 million, $10.5 million and $15.3$23.0 million for
the nine months periodsyears ended September 30,December 31, 1995, 1996 and 1997, respectively, compared to net
income of $8.7$12.1 million, $13.0 million, and $12.0 million, respectively. Cash flow provided by operating
activities totaled $9.7 million, $12.8 million, and $10.5 million for the years
ended December 31, 1994, 1995 and 1996, respectively, compared to net income of
$11.9 million, $12.1 million, and $13.0$16.7 million, respectively.
Depreciation and amortization increased $.5 million in 1995 and $.3 million in 1996 in part due to higher
depreciation associated with the August 1995 business acquisition discussed
above.above and increased in 1997 due to higher levels of capital expenditures
discussed below.
Changes in assets and liabilities result primarily from the timing of
production, sales and purchases. Such changes in assets and liabilities
generally tend to even out over time and result in trends in cash flows from
operating activities generally reflecting earnings trends.
Cash used by changes
in assets and liabilities in 1994 increased in part as a result of increased
working capital required by the rapid increase in demand for the Company's
ergonomic computer support systems.
Investing activities. Net cash used by investing activities totaled $1.9$8.0
million, $2.0 million and $4.1 million for the nine months ended September 30, 1996 and 1997,
respectively, and totaled $3.1 million, $8.0 million and $2.0$5.5 million for the years ended December 31, 1994, 1995,
1996 and 1996,1997, respectively. Capital expenditures in the past three years
emphasized manufacturing equipment which utilizes new technologies and increases
automation of the manufacturing process to provide for increased productivity
and efficiency. The Company's recently installed
information systems upgrades for both its U.S. and Canadian facilities also
address software compatibility with year 2000. The Company does not currently
anticipate spending significant additional funds to address software
compatibility with the year 2000. The increase in capital expenditures in the
nine months ended September 30, 1997 relates primarily
to the additions of a third plating line and office building additions at the
Company's Kitchener facility. Net cash used by investing activities in 1995
includes $6.0 million related to the business acquisition discussed above.
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30
Capital expenditures for 1997 and 1998 are estimated at approximately $5$8 million,
and $7(approximately $10 million respectively,including Fort Lock) the majority of which relate to
projects that emphasize improved production efficiency and increase production
capacity. At September 30, 1997, the estimated cost to complete capital projects in
process approximated $3 million. Firm purchase commitments for capital projects not commenced at
September 30,December 31, 1997 were not material.
Financing activities. Net cash used by financing activities totaled $4.5
million and $4.3 million for the nine months ended September 30, 1996 and 1997,
respectively, and totaled $4.4$6.3
million, $6.3 million and $6.3$5.9 million for the years ended December 31, 1994, 1995,
1996 and 1996,1997, respectively. The Company paid dividends to its parent company
aggregating $4.6 million in 1994, $6.0 million in 1995, $6.2 million in 1996 and $4.5$6.1 million in the nine months ended
September 30, 1997.
Other
At September 30,December 31, 1997, approximately 69%70% of the Company's consolidated cash
and equivalents were heldinvested in A1 or P1-grade commercial paper issued by
various third parties having a single Canadian financial institution.maturity of three months or less.
On December 12, 1997, the Company paid a $50 million dividend to Valcor in
the form of the Valcor Note. The Valcor Note iswas unsecured and bearsbore interest at
a fixed rate of 6%.
TheOn February 26, 1998, the Company plans to enterentered into a new $50$100 million Revolving
Senior Credit Facility and use the proceedsutilized borrowings thereunder to repay the Valcor
Note. The Revolving Senior Credit Facility is expected to be aan unsecured five-year revolving
facility collateralized
by substantially all of the Company's assets.facility. Borrowings are expected to be available for the Company's general corporate purposes,
including potential acquisitions. The Revolving Senior Credit Facility is expected to containcontains
provisions which, among other things, would require the maintenance of minimum
levels of net worth, require the maintenance of certain financial ratios, limit
dividends and additional indebtedness and contain other provisions and
restrictive covenants customary in lending transactions of this type. The
Company expects to terminate its Canadian bank credit agreement when it enters
into the Revolving Senior Credit Facility. Prior to the Offering,On
February 26, 1998, the Company expects to repayrepaid the Valcor Note with borrowings under the
Revolving Senior Credit Facility.
On March 3, 1998, the Company completed the Fort Lock Acquisition for an
aggregate purchase price of approximately $32.9 million (the "Fort Lock
Acquisition"). See "Recent Developments". The aggregate purchase price is
subject to possible reduction pending completion of a post closing audit and the
outcome of certain contingencies for which the Company has been indemnified.
Funding of the Fort Lock Acquisition was provided by available cash on hand and
borrowings under the Revolving Senior Credit Facility, which borrowings will be
repaid with a portion of the net proceeds of the Offering.
The net proceeds to the Company from the Offering (based on an assumed
offering price of $__ per share) will be approximately
$78.2$96.2 million. SuchApproximately $75 million of such net proceeds will be available for the Company's general corporate
purposes. A portion of such net proceeds are expectedutilized
to be used to repay the borrowings under the Revolving Senior Credit Facility. The remaining net
proceeds of the Offering, together with borrowing availability under the
Revolving Senior Credit Facility, will enhance the Company's financial
flexibility to pursue potential acquisitions, strategic joint ventures and
internal growth opportunities. The Company intends to evaluate acquisition
opportunities in the office furniture component and cabinet lock industries
during the next two to three years. Although the Company has no specific plan
or arrangement in place, it is actively exploring expansion opportunities
through acquisitions, strategic joint ventures and expansion of existing
facilities. See "Business -- Acquisition Strategy."
Management believes that the net proceeds to the Company from the Offering,
after repayment of borrowings under the Revolving Senior Credit Facility,
together with cash generated from operations and borrowing availability under
the Revolving Senior Credit Facility, will be sufficient to meet the Company's
liquidity needs for working capital, capital expenditures and debt service. See
also "Dividend Policy."
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BUSINESS
GENERAL
CompXCompX(TM) is a leading manufacturer of ergonomic computer support systems,
precision ball bearing drawer slides and medium-security mechanical locks for
office furniture and a variety of other applications. The Company's products are
principally designed for use in medium- to high-end applications, where product
design, quality and durability are critical to the Company's customers.
CompXCompX(TM) believes that, in the North American market, it is among the largest
producers of ergonomic computer support systems for office furniture
manufacturers, among the largest producers of precision ball bearing drawer
slides and among the largest producers of medium-security cabinet locks. In
the
first nine months of 1997, CompXCompX(TM) generated net sales of $80.3$108.7 million, a 24%22% increase from the
corresponding prior-year period. During the first nine months
ofIn 1997, ergonomic computer support systems,
precision ball bearing drawer slides and medium-security mechanical locks
accounted for approximately 33%34%, 39% and 27%26% of net sales, respectively.
OFFICE FURNITURE INDUSTRY DYNAMICS
Approximately 75% of the Company's products are sold to the office
furniture manufacturing industry while the remainder (principally mechanical
locks) are sold for use in other products, such as vending equipment, postal
boxes, electromechanical enclosures and other non-office furniture and
equipment. The U.S. office furniture market generated wholesale sales of
approximately $10.0 billion in 1996, according to estimates by the BIFMA. The dollar
value of U.S. office furniture industry shipments has increased in 23 of the
past 25 years and, according to BIFMA, estimates, hasis estimated to have grown at a compound
annual rate of approximately 7.2%8.4% over the threefour year period ended December 31,
1996.1997. BIFMA currently estimates that office furniture sales over the next threetwo
years will grow at a compound annual rate of approximately 8.7%7%. The rate of
growth in this industry ultimately will be affected by certain macroeconomic
conditions such as service industry employment levels, corporate cash flow and
non-residential construction levels. CompXCompX(TM) management believes that the
sales of its ergonomic computer support systems are experiencing substantially
higher rates of growth than the office furniture industry as a whole.
The Company believes that fundamental shifts in technology, health
considerations and work processes in the office workplace provide new growth
opportunities in the office furniture industry. Increased use of technology has
caused businesses to redesign their workspaces with greater emphasis on the
space efficient integration of computers and other office technologies into the
office workplace as well as the protection of computing equipment from damage
and theft. Additionally, increased regulatory sensitivity to ergonomic concerns
and heightened focus on the risks of repetitive stress injury have also
influenced redesign of the office workplace. In 1996, California became the
first state to adopt legislation relating to ergonomics in the workplace. Such
legislation should have a direct effect on the demand for ergonomically designed
office furniture products, which allow workers to adjust and re-arrange the
orientation of office equipment and supplies for greater comfort and
productivity. Businesses increasingly are seeking changes in work processes to
achieve more efficient workspace utilization, resulting in the creation of new
office furniture designs that embrace office sharing concepts such as office
"hoteling" and open office designs. The Company's products target manufacturers
of new furniture designed to address these industry dynamics as well as
customers that specialize in retrofitting existing office furniture.
The Company manufactures locks for a wide variety of enclosures, excluding
vehicles and homes. In addition to locks used by furniture manufacturers, the
Company's locks are used for postal boxes, vending equipment and parking meters.
These products are sold to markets which include institutional cabinets for
school and laboratory construction, household furniture and appliances,
industrial tool boxes, vending equipment, electromechanical imaging equipment,
locking electrical enclosures, banking equipment and mail boxes. The Company
also distributes approximately 30% of its lock sales through its innovative
Stock LockSTOCK LOCKS(R) programs which distribute locks to locksmith and small
manufacturer markets.
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COMPETITIVE STRENGTHS
CompXCompX(TM) believes that it is well positioned to realize continued growth
in market share in its existing markets and to build on its strengths to expand
into related product lines and markets.
Industry brand recognition and management experience. The Company's
business traces its roots to 1903 when it began manufacturing cabinet locks. The
Company is a supplier to major OEMs and believes its brand names are well
recognized in the industry. CompXCompX(TM) currently markets its drawer slides and
ergonomic computer support systems under the Waterloo Furniture Components
Limited(R) name and markets its medium-security locks under the National Cabinet
Lock(R) name. The top seven executive management personnel have over 100 years
of combined industry experience.
Emphasis on customer collaboration. CompXCompX(TM) has been a leader in
collaborating with customers to develop innovative customized solutions to their
unique needs for product design, application, performance and cost. An important
ingredient to this approach is the Company's full-time engineering staff of 25
individuals and approximately $3 million in annual expenditures for product
design, development and engineering. Management believes that the Company's
responsiveness and commitment to work with customers has been critical to its
success to date.
Efficient manufacturing base. CompXCompX(TM) has established highly automated
manufacturing systems and uses statistical process control techniques to achieve
its demanding quality standards. The Company designs and custom modifies certain
of the high-volume equipment it uses to improve the manufacturing and assembly
of its products, and has invested substantial capital in manufacturing
automation and vertical integration. The Company believes that these initiatives
reduce the Company's costs and improve product quality, productivity and
delivery response time.
Integrated information systems. The Company regularly invests in its
information systems to reduce inventories, improve the efficiency of its
manufacturing processes and reduce customer order fulfillment times. With
recently installed systems upgrades both in Canada and the United States,
CompXCompX(TM) has fully integrated all stages of manufacturing process information
and order fulfillment. These investments have allowed the Company to continually
reduce order fulfillment times and increase the use of just-in-time supplier
relationships.
Breadth of product line. CompXCompX(TM) has a broad product line in its core
product areas, which allows the Company to serve an increasing proportion of its
customers' requirements. This provides several benefits to the Company,
including the simplified logistics and reduced cost of shipping higher volumes
of product to its customers, closer working relationships with its key customers
and increased cross-selling opportunities.
GROWTH STRATEGY
The Company focuses on certain niche segments of the middle to high end of
the office furniture market. To achieve its targeted growth rates, CompXCompX(TM)
intends to pursue several growth initiatives:
Continue to create innovative products. The Company intends to continue its
focus on engineering and customer collaboration to develop and sell customized
versions of its core product line and to develop new versions of existing
product lines to meet the changing requirements of office furniture
manufacturers. The Company will attempt to increase its share of the total OEM
market for components such as electronic locking systems, a service workplace
safety-oriented "Cushion-Close""Cushion-Close(TM)" drawer slide and a locking laptop computer
drawer. CompXCompX(TM) will also consider expanding its product line to include other
furniture components with similar attributes such as one or more of the
components used in the rapidly growing seating industry.
Extend into non-furniture applications. The Company's precision ball
bearing drawer slide products increasingly are designed for and used in
applications other than traditional office furniture. For example, the Company
has designed and currently sells precision ball bearing drawer slides to
facilitate the movement of component parts in imaging machines, for professional
tool storage cabinets and other uses. CompXCompX(TM) will continue to explore
alternative applications for its products based on core product design and
manufacturing strengths.
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33
Continue to make strategic acquisitions. In addition to internal growth,
the Company intends to grow through selective acquisitions. The markets in which
the Company competes have a large number of relatively small regional
manufacturers and consequently offer potential consolidation opportunities. The
Company seeks acquisitions that complement its existing products,
manufacturing/design skills or customer base. The Company historically has been
able to benefit from acquisitions through economies of scale in purchasing,
manufacturing, marketing and distribution and through the application of the
Company's manufacturing and management skills. On March 3, 1998, the Company
completed the Fort Lock Acquisition. The Company has signedFort Lock Group is a lettervertically
integrated manufacturer of intent concerning the possible acquisitionhighly engineered mechanical locks for a diverse
customer base of a company in a related
industry, subject to satisfactory completion of due diligence, negotiation of a
definitive agreementoriginal equipment manufacturers and appropriate board of directors approval by both
companies. No definitive agreement has been reached to date and discussions are
continuing.locksmith distributors.
See "Recent Developments."
Promote alternative distribution programs. While office furniture OEMs are
expected to remain the Company's primary customers, CompXCompX(TM) also intends to
explore new distribution arrangements for the Company's products. The Company's
innovative STOCK LOCKS(R) distribution program, for example, offers a broad
range of products that generally ship within 48 hours of order placement to
customers that purchase the Company's locks in small quantities. Currently,
approximately 30% of the Company's lock sales are made through this program. In
1992, the Company began to implement similar alternative distribution programs
for its ergonomic computer support systems and precision ball bearing drawer
slides to allow the Company to reach an expanded range of customers of these
products on an economically attractive basis. Since their addition to the
Company's distributor product line in 1992, sales of these products to the
distributor market have increased and now represent approximately 10% of
combined ergonomic computer support systems and precision ball bearing drawer
slide net sales.sales to the United States.
Expand into international markets. While CompXCompX(TM) has historically focused
on marketing its products in North America, the Company has a small but growing
presence in international markets. The Company believes that there is
significant demand for its quality, precision products in overseas markets, and
intends to increase its international presence, particularly in Asia, Europe and
Latin America, via expanded distributor relationships and, potentially, joint
venture arrangements.
The Company was incorporated in Delaware in 1993. Its principal corporate
offices are located at 200 Old Mill Road, Mauldin, South Carolina 29662 and its
telephone number is (864) 297-6655.
PRODUCTS
CompXCompX(TM) manufactures and sells components in three major product lines:
ergonomic computer support systems, precision ball bearing drawer slides and
medium-security cabinet locks. The Company's ergonomic computer support systems
and precision ball bearing drawer slides are sold under the Waterloo Furniture
Components Limited(R) name and the Company's medium-security cabinet locks are
sold under the National Cabinet Lock(R) name. The Company believes that its
brand names are well recognized in the industry.
Ergonomic computer support systems. CompXCompX(TM) is a leading manufacturer and
innovator in ergonomic computer support systems for office furniture. Unlike
products targeting the residential market, which is more price sensitive with
less emphasis on quality, the CompXCompX(TM) line consists of more highly engineered
products designed to provide ergonomic benefits for business and sophisticated
retail users.
The Company's ergonomic computer support systems include adjustable
computer keyboard support arms. These devices are designed to attach to office
desks in workplace environments where there exists a need to permit computer
users to adjust their computer keyboard to various heights and positions to
alleviate possible strains and stress which may result from repetitive
activities, such as typing. These products also maximize usable workspace and
permit the storage of the keyboard underneath the desk. CompXCompX(TM) introduced its
first ergonomic keyboard arm in 1983 and the Leverlock(R) adjustment mechanism
in 1989, which is designed to make the adjustment of the keyboard arm easier for
all (including impaired) users.
Adjustable computer table mechanisms address the need for flexibility and
adjustability in work surfaces. The Company's adjustable table mechanisms
provide adjustable workspace heights that permit users to stand or sit and that
can be easily adjusted for different user needs.
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34
The prevalence of computers in the workplace has also created a need for
safe and convenient storage solutions for the central processor unit ("CPU")
case. In 1997, the Company introduced a CPU storage device that can be mounted
under a work surface or on the side of desk panels to store the CPU case off the
floor to minimize the adverse effects of dust and moisture or damage from
accidental impact. The unit operates on a slide mechanism that also pivots to
provide ease of access to peripheral connections while allowing convenient,
unobtrusive storage.
CompXCompX(TM) also offers a number of complementary accessories to its main
products. These include ergonomic wrist rest aids, mouse pad supports and
computer monitor support arms, such as the Monitor Master for the adjustment of
heavy monitors to reduce eye strain.
Precision ball bearing drawer slides. CompXCompX(TM) manufactures a complete
line of precision ball bearing drawer slides for use in moving containers and
drawers both in office furniture as well as other applications. Precision ball
bearing drawer slides are manufactured to stringent industry standards and are
designed in conjunction with office furniture OEMs to meet the needs of end
users with respect to weight support capabilities and ease of movement.
In addition to its basic product line, an increasing proportion of the
Company's sales is based on patented innovations. In 1994, CompXCompX(TM) introduced
the ButterflyButterfly(TM) Take Apart System, which is designed to easily disengage
drawers from filing cabinets. The following year, the Company began selling its
Integrated Slide Lock ("ISL"ISL(TM)"), with which a file cabinet manufacturer can
reduce the possibility of multiple drawers being opened by the user at the same
time, significantly reducing the risk of injury from a falling cabinet. The
Company's patented concept affords the cabinet OEMs cost savings advantages in
production, since the ISLISL(TM) is designed as an integral part of the drawer
slide, compared to custom fabricated add-on solutions previously utilized by
most manufacturers.
In recent years, applications other than office furniture have represented
a rapidly growing source of demand for the Company's precision ball bearing
drawer slides. Recently, new opportunities in heavy-duty applications such as
tool storage cabinets and electromechanical applications have created new market
opportunities. As a result of the design efforts focused on these markets,
CompXCompX(TM) created the Ball LockLock(TM) to prevent heavily filled drawers, such as
auto mechanic tool boxes, from opening while cabinets are moved during routine
use in the field. The Company's products are used extensively in professional
toolboxes and, increasingly, in electromechanical imaging equipment to
facilitate the movement of machine components in the document reproduction
process.
Cabinet locks. The Company believes that it is among the largest North
American manufacturers of medium-security cabinet locks. The Company
manufactures lock mechanisms that generally fall into three categories: disc
tumbler locks, pin tumbler locks and KeSet(R) high security locks. The Fort Lock
Acquisition expands the Company's offering of lock-mechanisms to include tubular
locks and locks for motorcycles.
Disc tumbler locks, also called wafer tumbler or plate tumbler, derive
their keying from a series of flat tumblers with a hole in the middle through
which the key passes to open the lock. This type of lock is normally limited to
two levels of keying, a passkey and one master key. A disc tumbler lock is the
least secure of the medium-security cabinet locks manufactured by the Company
and also represents the lowest cost to produce, resulting in lower selling
prices to customers.
Pin tumbler locks are keyed with a series of small pins manufactured on
automatic screw machines. A stack of four or five pins is required for each cut
in a key. Due to the increased number of parts, this type of lock is more costly
to manufacture than disc tumbler locks, but is also more secure and offers
increased variety in keying with more than one level of master keying.
The Company's patented high security KeSet(R) security system, introduced
in 1980, is another version of a pin tumbler lock. However, parts are
manufactured with hardened steel components to prevent forced entry. A
significant feature of the product line is the ability to change the keying on a
single lock 64 times without removing the lock from its enclosure. This product
is used primarily to protect money in applications such as soft drink vending
machines, gaming machines and parking meters.
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The Company's industrial sales are primarily to manufacturers of cabinet
enclosures, from office furniture to electrical circuit panels to vending
machines. CompX,CompX(TM), like most cabinet lock companies, has a standardized
product line suitable for many customers. However, a substantial portion of the
Company's volume involves specialized adaptations to individual manufacturer's
enclosure specifications.
Each of the industries served with cabinet locks has a distribution segment
for replacement needs or for supply to small shops whose volume is not
substantial enough to buy direct from a lock manufacturer. CompXCompX(TM) has met
this need in part with its industry-unique STOCK LOCKS(R) inventory program.
Partially as a result of this program, the Company believes it holds the largest
cabinet lock market share in both locksmith and hardware component distribution.
The Company's STOCK LOCKS(R) distribution program represents 30% of its
cabinet lock sales. This program is comprised of over 900 stock keeping units
(also referred to as SKUs) of standardized locking products. This program plans,
manufactures and packages locks to inventory with a variety of keying and
finishes for shipment to customers generally within 48 hours of receipt of the
customer order.
Sales under this program are made both to a North American distribution
network as well as to large OEMs when special needs require either smaller
quantities or non-special products other than their normal volume requirements.
The distribution network supplies the Company's products both to after-market
replacement markets and to smaller cabinet shop manufacturers who do not
purchase direct from the Company due to their smaller size.
The established distributor network for STOCK LOCKS(R) has been used to
develop a standardized product line in other segments of the Company's products.
Currently both ergonomic computer support systems and, to a limited extent,
precision ball bearing drawer slides, are enjoying growing marketing success
through these and new ergonomic distribution channels.
PRODUCT DESIGN AND DEVELOPMENT
CompXCompX(TM) believes its ability to provide customized engineering to respond
to specific customer application requirements provides it a competitive
advantage, especially in middle- to high-end applications. A dedicated and
knowledgeable engineering and marketing staff continually collaborates with the
Company's customers to identify and solve production and marketing issues. The
Company's commitment to precision design and engineering to specific customer
tolerances is a key element to its ability to serve effectively the niche
markets for its products. CompXCompX(TM) has 25 full time engineers on staff and
expends approximately $3 million annually for product engineering, design and
development to enhance and expand product capabilities.
Customer product development needs and changing market characteristics are
the key drivers influencing the Company's product development efforts. Once a
customer has identified a concept, development engineers design solutions to
address the application requirements. Normally, several generations are
evaluated on the Company's CAD system. During this process, CompXCompX(TM) engineers
regularly communicate with the targeted customer to ensure that the design meets
the customer's specific needs. If the product is being developed as a general
line product, the basic design work is accomplished through consultation between
the Company's engineering, marketing and manufacturing departments as well as
from market intelligence derived from target customers.
In order to ensure that the product design is workable, a prototype sample
is produced for use during an initial market evaluation of the product's
functionality. The Company's engineers may make modifications of the initial
design at this stage to ensure proper aesthetics or functional capabilities.
Once the component design is finalized, the Company's engineers design and
produce tools to
manufacture the components. Depending on the type of tools, production time can
be as little as a few weeks to as much as six months.
As one of the initial developers of ergonomic computer support systems in
the mid 1980s, CompXCompX(TM) has on numerous occasions introduced new and unique
products which have led the industry. Examples include the initial introduction
of the Model 4100 keyboard arm in 1983, the Leverlock(R), which simplifies the
adjustment of the keyboard arm, the Monitor Master, which facilitates the
adjustment of heavy monitors so as
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to reduce eye strain, and various types of accessories such as mouse trays and
pads of a unique and proprietary nature. In 1997, the Company introduced a CPU
storage device that can be mounted off the floor either under a work surface or
on the side of desk panels to minimize dust contamination or damage from
accidental impact. The Company is currently working on several new generations
of ergonomic products such as a new version of easily adjustable keyboard arms,
including aesthetic improvements. In response to the increased use of laptop
computers, a new product is in the design process to address ease of use and
security for these computers.
During the 1990's, CompXCompX(TM) emerged as one of the more innovative
companies in the design and manufacture of precision ball bearing drawer slides.
The Company has designed and currently sells precision ball bearing drawer
slides to facilitate the movement of component parts in imaging machines, for
professional tool storage cabinets and other uses. Examples of other innovative
products include the patented ISLISL(TM) and the patented Ball Lock.Lock(TM).
Development continues on a new "Cushion Close"Close(TM)" drawer slide to aid in the
safe operation of overhead storage bin doors, and introduction of this new
product is expected in mid-1998.
In 1980, the Company introduced the patented KeSet(R) Security System which
has since gained acceptance as a cost effective product in the vending industry
where protection of money collection is paramount. While many of the product
development efforts in the cabinet lock industry are adaptations of existing
products in the pin tumbler or disc tumbler product line, products introduced in
the past few years include the pin tumbler "Advantage Plus"Plus(TM) System" allowing
easy removal of the cylinder for re-keying in the field without removing the
lock from the original installation. A new patented Snap-in locking system for
institutional furniture allows either pin tumbler or disc tumbler keying to be
determined after installation, which reduces customer inventories and allows
improved delivery speed of their products. In late 1997, the Company commenced
customer field testing of an electronic locking system and the product is
experiencing good operating results in its original test site.
SALES, MARKETING AND DISTRIBUTION
CompXCompX(TM) sells components to OEMs and to distributors through a
specialized sales force. The majority of the Company's sales is to OEMs, while
the balance represents standardized products sold through distribution channels.
Sales to large OEM customers are made through the efforts of factory-based
sales and marketing professionals and engineers working in concert with salaried
field salespeople and independent manufacturer's representatives. Manufacturers'
representatives are selected based on special skills in certain markets or with
current or potential customers. Cabinet locks are sold by a separate network of
Company-employed salespeople and manufacturers' representatives as well as
factory-based national account managers.
A significant portion of the Company's cabinet lock sales and a growing
portion of ergonomic computer support systems and precision ball bearing drawer
slides sales are made through hardware component distributors. The Company also
has a significant market share of cabinet lock sales to the locksmith
distribution channel. CompXCompX(TM) supports its distributor sales with a line of
standardized products used by the largest segments of the marketplace. These
products are packaged and merchandised for easy availability and handling by
distributors and the end user. Based on the Company's successful STOCK LOCKS(R)
inventory program, similar programs have been implemented for distributor sales
of ergonomic computer support systems and to some extent precision ball bearing
drawer slides. Since their addition to the Company's distributor product line in
1992, sales of these products to the distributor market have grown to represent
approximately 10% of combined ergonomic computer support systems and precision
ball bearing drawer slide net sales.sales to the United States.
To afford a competitive advantage to the Company as well as to customers,
ergonomic computer support system and precision ball bearing drawer slides are
delivered primarily by means of a Company-owned tractor/trailer fleet. This
satellite-monitored fleet improves the timely and economic delivery of products
to customers. Another important economic advantage to the Company's customers of
an in-house trucking fleet is that it allows the shipment of many products in
returnable metal baskets (in lieu of corrugated paper cartons), which avoids
both the environmental and economic burden of disposal.
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The Company does not believe it is dependent upon one or a few customers,
the loss of which would have a material adverse effect on its component products
operations. The ten largest customers accounted for about one-third of component
products sales in each of the past three years, with the largest customer less
than 10% in each year. In 1996, five of the ten largest customers were located
in the United States with four located in Canada. Of such customers, all were
primarily purchasers of slides and ergonomic computer support system components.
ACQUISITION STRATEGY
In addition to pursuing internal growth opportunities, the Company intends
to grow through acquisitions. The markets in which the Company competes have a
large number of relatively small regional manufacturers and consequently offer
potential consolidation opportunities. The Company seeks acquisitions that
complement its existing product lines, provide access to new market segments or
expand the offering of proprietary products. The Company believes that it has
been able to achieve synergies from acquisitions through economies of scale in
purchasing, manufacturing, marketing and distribution and through the
application of the Company's manufacturing and management skills.
Since 1990, the Company has utilized cash flow from operations to complete
two acquisitions. In 1992 the Company acquired in a bankruptcy liquidation the
assets of a Canadian manufacturer of precision ball bearing drawer slides and
cabinet locks for $2$1.2 million. At the time of acquisition the operations had
sales of approximately $3.2$2.5 million and operated at break-even operating profit.
In 1995 the Company acquired the assets of another Canadian manufacturer of
precision ball bearing drawer slides and ergonomic products for $6 million. At
the time of acquisition the operations had sales of approximately $5.6 million
and operated at a slight operating loss. As a result of integrating these
operations into the Company's operations and eliminating unprofitable product
lines, the Company believes these operations currently contribute approximately
$8 million in net sales and $2 million in operating income annually.
TheOn March 3, 1998, the Company has signed a lettercompleted the Fort Lock Acquisition for an
aggregate purchase price of intent concerning the possible
acquisitionapproximately $32.9 million. See "Recent
Developments" and "Management's Discussions and Analysis of a company in a related industry, subject to satisfactory
completionFinancial Condition
and Results of due diligence, negotiation of a definitive agreementOperations -- Liquidity and appropriate board of directors approval by both companies. No definitive
agreement has been reached to date and discussions are continuing.Capital Resources."
MANUFACTURING AND OPERATIONS
CompXCompX(TM) operates three manufacturing facilities which it owns and leases
one facility as a distribution center. The following table sets forth the
location, size and general product types produced for each of these facilities.
PRODUCTS
PRODUCED
FACILITY NAME LOCATION SIZE
(square
feet)
Manitou Kitchener, 208,200 Ergonomic
Ontario products,
slides
Trillium Kitchener, 116,000 Ergonomic
Ontario products,
slides
Mauldin
FACILITY NAME LOCATION SIZE PRODUCTS PRODUCED
------------- -------- ---- -----------------
(SQUARE FEET)
Manitou.......................... Kitchener, Ontario 208,200 Ergonomic products, slides
Trillium......................... Kitchener, Ontario 116,000 Ergonomic products, slides
Mauldin.......................... Mauldin, SC 159,200 Locks
Distribution Center.............. Chino, CA 6,000 Product Distribution
Chino, CA 6,000 Product
Center Distribution
The Manitou and Mauldin facilities are ISO-9001 registered. ISO-9001
registration of the Trillium facility is anticipated in 1998. The Company
believes that all its facilities are well maintained and satisfactory for their
intended purposes.
The Company's facilities currently operate approximately two shifts per
day, five to six days per week.
CompXCompX(TM) has focused on its operating cost structure and timely capital
investment in equipment and processes. This investment has allowed the Company
to reduce lead times to its customers and to implement "just-in-time" production
methods to improve inventory turns. For example, the Company has reduced the
lead time for STOCK LOCKS(R) shipments from two weeks to 48 hours through
investments that focus on enhancing automation and managedmanagement information
systems. With the recently installed information systems upgrades, CompXCompX(TM) has
fully integrated all stages of manufacturing process information.
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Continued investment in automation should allow the Company to remain price
competitive in the marketplace and should also ensure consistent quality of the
products being produced. As speed of delivery continues to gain importance with
all OEM customers, automation provides production speed and the flexibility to
quickly react to sudden changes in customer demand.
RAW MATERIALS
Coiled steel is the major raw material used in the manufacture of precision
ball bearing drawer slides and ergonomic computer support systems. Plastic
resins for injection molded plastics are also an integral material for ergonomic
computer support systems. Purchased components, including zinc castings, are the
principal raw materials used in the manufacture of medium-security cabinet
locks. These raw materials are purchased from several suppliers and readily
available from numerous sources.
The Company occasionally enters into raw material arrangements to mitigate
the short-term impact of future increases in raw material costs. While these
arrangements do not commit the Company to a minimum volume of purchases, they
generally provide for stated unit prices based upon achievement of specified
volume purchase levels. This allows the Company to stabilize raw material
purchase prices provided the specified minimum monthly purchase quantities are
met. The Company currently anticipates entering into such arrangements for zinc,
coiled steel and plastic resins for 1998 and does not anticipate significant
changes in cost of these materials from their current levels. Materials
purchased on the spot market are sometimes subject to unanticipated and sudden
price increases. Due to the competitive nature of the markets served by the
Company's products, it is often difficult to recover such increases in raw
material costs through increased product selling prices and consequently overall
operating margins can be affected by such raw material cost pressures.
COMPETITION
The office furniture market is highly competitive. Suppliers to office
furniture OEMs compete on the basis of (i) product design, including ergonomic
and aesthetic factors, (ii) product quality and durability, (iii) price
(primarily in the middle and budget segments), (iv) on-time delivery and (v)
service and technical support. The Company focuses its efforts on the middle-
and high-end segments of the market, where product design, quality and
durability are placed at a premium.
The cabinet lock market is also highly competitive. This market is highly
fragmented with a number of small- to medium-sized manufacturers that supply the
market. Cabinet lock manufacturers compete on the basis of (i) product design,
(ii) custom engineering capability, (iii) price and (iv) order fulfillment lead
times.
The Company believes it derives a significant competitive advantage as a
result of its focus on (i) a collaborative approach to product design and
engineering, (ii) increased manufacturing and assembly automation and (iii)
implementation of distribution programs that reduce order fulfillment times.
The Company competes in its ergonomic computer support systems with a small
number of manufacturers that compete primarily on the basis of product quality
and features. The Company competes in the precision ball bearing drawer slide
market with one large manufacturer and a number of smaller manufacturers that
compete primarily on the basis of product quality and price. The Company's
medium-security cabinet locks compete with a variety of relatively small
competitors, which makes significant price increases difficult.
Certain of the Company's competitors may have greater financial, marketing,
manufacturing and technical resources than those of the Company. Although the
Company believes that it has been able to compete successfully in its markets to
date, there can be no assurance that it will be able to continue to do so in the
future. See "Risk Factors--Competition.Factors -- Highly Competitive Industry."
PATENTS AND TRADEMARKS
CompXCompX(TM) holds a number of patents relating to its component products
operations, none of which by itself is considered significant, and owns a number
of trademarks, including National Cabinet Lock(R), STOCK
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LOCKS(R) and Fort Lock Corp.(R), Fortronics(R) and Waterloo Furniture Components
Limited(R), which the Company believes are well recognized in the component
products industry.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the use, storage, handling, generation,
transportation, treatment, emission, discharge, disposal and remediation of, and
exposure to, hazardous and non-hazardous substances, materials and wastes
("Environmental Laws"). The Company's operations also are subject to federal,
state, local and foreign laws and regulations relating to worker health and
safety. The Company believes that it is in substantial compliance with all such
laws and regulations. The costs of maintaining compliance with such laws and
regulations has not significantly impacted the Company to date, and the Company
has no significant planned costs or expenses relating to such matters. There can
be no assurance, however, that compliance with future Environmental Laws or with
future laws and regulations governing worker health and safety will not require
the Company to incur significant additional expenditures, or that such
additional costs would not have a material adverse effect on the Company's
business, results of operations, or financial condition.
EMPLOYEES
As of September 30,December 31, 1997, the Company employed approximately 950 employees,
including 270 in the United States and 680 in Canada. Approximately 80% of the
Company's employees in Canada are represented by the United Steel Workers of
America labor union. The Company's collective bargaining agreement with such
union expires in January 2000. The Company believes that its labor relations are
satisfactory.
LEGAL PROCEEDINGS
The Company is involved, from time to time, in various environmental,
contractual, product liability and other claims and disputes incidental to its
business. Currently no environmental or other material litigation is pending or,
to the knowledge of the Company, threatened. The Company currently believes that
the disposition of all claims and disputes, individually or in the aggregate,
should not have a material adverse effect on the Company's consolidated
financial condition, results of operations or liquidity.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
Set forth below is certain information (ages as of December 1, 1997)March 3, 1998) relating
to the current directors, executive officers and key personnel of the Company.
NAME AGE OSITION(S)
Glenn R. Simmons..... 69 Chairman of the Board
David A. Bowers...... 60 President, Chief Executive
Officer and
Director
Robert W. Singer..... 61 Director
Edward J. Hardin..... 54 Director
Paul M. Bass, Jr..... 62 Director
Joseph S. 48 Executive Vice President, Chief
Compofelice.......... Financial Officer and Director
Ronald J. Simmons.... 59 Vice President; President,
Waterloo
Furniture Components Limited
Neil M. Poag......... 57 Vice President-Finance, Waterloo
Furniture Components Limited
Robert J. Ward....... 45 Vice President-Manufacturing,
Waterloo
Furniture Components Limited
David A. Carter...... 43 Vice President-Sales & Marketing,
Waterloo Furniture Components
Limited
Scott C. James....... 32 Vice President-Sales & Marketing,
National Cabinet Lock
Emory E. Hodges...... 35 Vice President-Operations,
National
Cabinet Lock
J. Mark 46 General Counsel
Hollingsworth........
Bobby D. O'Brien..... 40 Vice President and Treasurer
William J. Lindquist 40 Vice President and Tax Director
....................
Steven L. Watson.....
NAME AGE POSITION(S)
---- --- -----------
Joseph S. Compofelice...... 48 Chief Executive Officer and Chairman of the Board
David A. Bowers............ 60 President and Director
Glenn R. Simmons........... 70 Director
Robert W. Singer........... 61 Director
Edward J. Hardin........... 55 Director
Paul M. Bass, Jr........... 62 Director
Ronald J. Simmons.......... 59 Vice President; President, Waterloo Furniture Components
Limited
Neil W. Poag............... 57 Vice President -- Finance, Waterloo Furniture Components
Limited
Robert J. Ward............. 45 Vice President -- Manufacturing, Waterloo Furniture
Components Limited
David A. Carter............ 43 Vice President -- Sales & Marketing, Waterloo Furniture
Components Limited
Scott C. James............. 32 Vice President -- Sales & Marketing, National Cabinet Lock
Emory E. Hodges............ 35 Vice President -- Operations, National Cabinet Lock
J. Mark Hollingsworth...... 46 General Counsel
Bobby D. O'Brien........... 40 Vice President and Treasurer
William J. Lindquist....... 40 Vice President and Tax Director
Steven L. Watson........... 47 Vice President and Secretary
GLENN R. SIMMONS
JOSEPH S. COMPOFELICE has served as Chief Executive Officer and Chairman of
the Board since the Company's
formation in 1993. Mr. Simmons is also a memberFebruary 13, 1998 and prior to that as Executive Vice President
and director of the Company's Management
Development and Compensation committee.Company since December 1997. Mr. SimmonsCompofelice has also served
as Executive Vice President of Valhi since 1994, a director of Valhi or certain of Valhi's predecessors since 1980. Mr. Simmons has been Vice
Chairman of the Board of Valhi and Contran, a diversified holding company, since
prior to 1992. Mr. Simmons' positions also include: director of Valhi's
majority owned subsidiary, NL Industries,
Inc. ("NL"), aValhi's majority-owned titanium dioxide pigments subsidiary since
1995 and, specialty chemicals company; Vice Chairman of the Board andexcept for a period during 1996, a director of Valcor; ChairmanTitanium Metals
Corporation ("TIMET"), Tremont Corporation's 30% owned principal operating
affiliate, since 1994. Tremont, a less than majority-owned affiliate of the Board and a director of Contran's less-than-majority-
owned affiliate, Keystone Consolidated Industries, Inc. ("Keystone"), a steel
fabricated wire products, industrial wire and carbon steel rod company; and a
director of Contran's less-than-majority-owned affiliate, Tremont Corporation,Contran,
is a holding company engaged in the titanium metals and chemicals industries
("Tremont").industries.
Until February 1998, Mr. SimmonsCompofelice had also served as Vice President and Chief
Financial Officer of NL and Tremont since 1994, and since 1996 as Vice President
and Chief Financial Officer of TIMET. From prior to 1993 to 1994, Mr.
Compofelice was the Vice President and Chief Financial Officer of Baroid
Corporation, a company engaged in the petroleum services industry that Dresser
Industries, Inc. acquired in 1994. Mr. Compofelice has beenserved as an executive
officer or director of various companies related to Valhi and Contran since
1969. Mr. Simmons is the brother of Harold
C. Simmons.1988.
DAVID A. BOWERS has served as President Chief Executive Officer and a director of the Company since
the Company's formation in 1993.1993 and as Chief Executive Officer until
February 1998. Mr. Bowers has been employed by the Company and its predecessors
since 1960 in various sales, marketing and executive positions, having been
named President of the Company's cabinet lock and related segments in 1979. Mr.
Bowers is a trustee and Chairman of the Board of Monmouth College, Monmouth,
Illinois.
GLENN R. SIMMONS has served as Chairman of the Board since the Company's
formation in 1993 until February 1998 and as director since February 1998. Mr.
Simmons is also a member of the Company's Management Development and
Compensation Committee. Mr. Simmons has served as a director of Valhi or certain
of Valhi's predecessors since 1980. Mr. Simmons has been Vice Chairman of the
Board of Valhi and Contran, a diversified holding company, since prior to 1993.
Mr. Simmons' positions also include: director of NL; Vice Chairman of the Board
and a director of Valcor; Chairman of the Board and a director of Contran's
less-than-majority-owned affiliate, Keystone Consolidated Industries, Inc.
("Keystone"), a steel fabricated wire products, industrial wire and carbon steel
rod company; and a director of Tremont. Mr. Simmons has
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41
been an executive officer or director of various companies related to Contran
since 1969. Mr. Simmons is the brother of Harold C. Simmons.
ROBERT W. SINGER has served as a director of the Company since the
Company's formation in 1993. Mr. Singer has served as Vice President of Valhi
and Contran since prior to 1992.1993. Mr. Singer has also served as President and
Chief Operating Officer of Keystone since prior to 19921993 to February 1997 and as
Chief Executive Officer of Keystone since February 1997. Mr. Singer has served
as an executive officer or director of various companies related to Valhi and
Contran since 1982.
EDWARD J. HARDIN has served as a director of the Company since December
1997 and is chairman of the Company's audit committeeAudit Committee and a member of the
Company's Management Development and Compensation committee.Committee. Mr. Hardin has been
a partner of the law firm of Rogers & Hardin LLP since its formation in 1976.
Mr. Hardin is a director of Westrup, Inc. (seed processing machinery) and also
serves as Chairman of the Board of the Harvard Center for the Study of World
Religions.
PAUL M. BASS, JR. has been a director of the Company since December 1997
and is a member of the audit committeeAudit Committee and chairman of the Company's Management
Development and Compensation committee.Committee. Mr. Bass also serves as a director of
Keystone. Mr. Bass's principal occupation for the past five years has been to
serve as Vice Chairman of First Southwest Company, a privately owned investment
banking firm. Mr. Bass is also Chairman of Richman Gordman Half Price Stores,
Inc., Chairman of MorAmerica Private Equities Company, a director and chairman
of the audit committeeAudit Committee of California Federal Bank, a director and member of the
executive committee of Source Services, Inc. and a director of Jayhawk
Acceptance Corp. Mr. Bass is currently serving as a member of the executive
committee of Zale Lipshy University Hospital and as Chairman of the Board of
Trustees of Southwestern Medical Foundation.
JOSEPH S. COMPOFELICE has served as Executive Vice President of the Company
since December 1997. Mr. Compofelice has also served as Executive Vice
President of Valhi since 1994, Vice President and Chief Financial Officer of NL
and Tremont since 1994, a director of NL since 1995, and since 1996 Vice
President and Chief Financial Officer of Titanium Metals Corporation ("TIMET"),
Tremont's 30% owned principal operating affiliate and, except for a period
during 1996, a director of TIMET since 1994. From prior to 1992 to 1994, Mr.
Compofelice was the Vice President and Chief Financial Officer of Baroid
Corporation, a company engaged in the petroleum services industry that Dresser
Industries, Inc. acquired in 1994. Mr. Compofelice has served as an executive
officer or director of various companies related to Valhi and Contran since
1988.
RONALD J. SIMMONS has served as a Vice President of the Company since
December 1997 and has also served as President of the Company's wholly owned
subsidiary, Waterloo Furniture Components Limited, since prior to 1992.1993. Before
joining the Company, he held senior positions with Canadian General Electric,
The Molsons Companies, and Emco, Limited, a division of Masco Limited. Mr.
Simmons also serves on the boards of Schneider Corporation, a Canadian food
processor, and ACS Limited, a manufacturer of components for OEM and aftermarket
off road vehicles.
NEIL M.W. POAG has served as Vice President-FinancePresident -- Finance of Waterloo Furniture
Components Limited since 1995. Mr. Poag has also served as Vice
President-ControllerPresident -- Controller of Waterloo Furniture Components Limited from 1985 to
1995 and as Controller of Waterloo Furniture Components Limited from 1980 to
1985.
ROBERT J. WARD has served as Vice President-ManufacturingPresident -- Manufacturing of Waterloo
Furniture Components Limited since 1996. Mr. Ward has also served as Manager,
Engineering of Waterloo Furniture Components Limited from 1989 to 1996. From the
time he joined Waterloo Furniture Components Limited in 1986 as the Plant
Engineer to 1989, Mr. Ward has served in various other managerial positions with
Waterloo Furniture Components Limited.
DAVID A. CARTER has served as Vice President-SalesPresident -- Sales & Marketing of
Waterloo Furniture Components Limited since 1995. From 1991 to 1995 Mr. Carter
served as Director of Marketing for Waterloo Furniture Components Limited.
Immediately prior to Mr. Carter's joining the Company, he was the Vice President
of Marketing for Delta Faucet (Canada) Limited and prior to that he was the
Director of Marketing for Emco Limited, a Canadian division of Masco Limited.
SCOTT C. JAMES has served as Vice President-SalesPresident -- Sales & Marketing, National
Cabinet Lock division, of the Company since 1994. Mr. James has also served as
National Accounts Manager of the National Cabinet Lock division from the time he
joined the Company in 1992 to 1994. Prior to joining the Company, Mr. James was
a Branch Sales Manager of Global Life and Accident Insurance Company.
EMORY E. HODGES has served as Vice President-Operations,President -- Operations, National
Cabinet Lock division, of the Company since he joined the Company in 1994. Mr.
Hodges was an Engineering Supervisor forjoined Michelin Americas Research and Development Corporation in 1984 and
was an Engineering Supervisor from 19841989 to the time he joined the Company in
1994.
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J. MARK HOLLINGSWORTH has served as General Counsel of the Company since
June 1996 and Senior or Legal Counsel to the Company since its formation. Mr.
Hollingsworth has also served as General Counsel of Valhi and Contran since
1996. From prior to 19921993 to 1996, Mr. Hollingsworth served as Senior or Legal
Counsel for Valhi and Contran. Mr. Hollingsworth has served as legal counsel of
various companies related to Valhi and Contran since 1983.
BOBBY D. O'BRIEN has served as Vice President and Treasurer of the Company
since June 1997. Mr. O'Brien has also served as Vice President of Valhi and
Contran since October 1996 and Treasurer of Valhi since May 1997 and Contran
since June 1997. Since 1993, Mr. O'Brien has served as Treasurer, and Vice
President-FinancePresident -- Finance or Vice President of Medite Corporation, a wholly owned
subsidiary of Valcor that operated Valhi's former buildings products business.
From 1988 to 1994, Mr. O'Brien served as Assistant Controller of Valhi and
Contran. Mr. O'Brien has served in financial and accounting positions with
various companies related to Valhi and Contran since 1988.
WILLIAM J. LINDQUIST has served as Vice President and Tax Director of the
Company since 1994. Mr. Lindquist has also served as Vice President and Tax
Director of Valhi and Contran since prior to 1992.1993. Mr. Lindquist has served as
an executive officer or director of various companies related to Valhi and
Contran since 1980.
STEVEN L. WATSON has served as Vice President and Secretary of the Company
since its formation. Mr. Watson has also served as Vice President and Secretary
of Valhi and Contran since prior to 1992.1993. Mr. Watson has served as an executive
officer or director of various companies related to Valhi and Contran since
1980.
Each of the above-named directors of CompXCompX(TM) serves until the next annual
meeting of the stockholders of the Company or until their respective earlier
removal or resignation. Each of the above-named officers of CompXCompX(TM) serves at
the pleasure of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an audit committee (the "Audit
Committee") and a management developmentManagement Development and compensation committeeCompensation Committee (the "MD&C
Committee"). The Company does not have a nominating committee.
The Audit Committee is comprised of Mr. Bass and Mr. Hardin, who serves as
chairman. The principal responsibilities of the Audit Committee are to review
the selection of the Company's independent auditors and to make its
recommendation with respect to such selection to the Board of Directors; to
review with the independent auditors the scope and results of the annual
auditing engagement, the procedures for internal auditing, the system of
internal accounting controls and internal audit results; and to direct and
supervise special audit inquiries. The Audit Committee will convene when deemed
appropriate or necessary by its members.
The MD&C Committee is comprised of Mr. Hardin, Mr. Bass, who serves as
chairman, and Mr. Glenn R. Simmons, who serves as chairman.Simmons. The principal responsibilities of the MD&C
Committee are to review and approve certain matters involving executive
compensation, including making recommendations to the Board of Directors
regarding compensation matters involving the Chief Executive Officer; to review
and approve grants of stock options and other awards under the Incentive Plan;
and to review and administer such other compensation matters as the Board of
Directors may direct from time to time. The MD&C Committee will convene when
deemed appropriate or necessary by its members.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company will receive
an annual retainer of $12,000, payable in quarterly installments, plus a fee of
$750 per day for attendance at meetings and at a daily rate for other services
rendered on behalf of the Board of Directors or committees thereof. In addition,
directors who are members of the Audit Committee or the MD&C Committee will
receive an annual retainer of $1,000, paid quarterly in installments, for each
committee on which they serve. Directors are reimbursed for
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43
reasonable expenses incurred in attending meetings and in the performance of
other services rendered on behalf of the Board of Directors or its committees.
Directors are also eligible for awards under the Incentive Plan.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The Summary Compensation Table below provides
certain summary information concerning annual and long-term compensation paid or
accrued by the Company to or on behalf of the Company's then Chief Executive
Officer and its onethe four other executive officer who earned over $100,000most highly compensated individuals in salary and bonus
in 19961997 for
services rendered to the Company (the "named executive officers").
SUMMARY COMPENSATION TABLE (a)
ANNUAL ALL OTHER
COMPENSATION
NAME AND PRINCIPAL YEAR SALARY BONUS
POSITION
David A. Bowers.......... 1996 $140,036 $90,000 $ 29,997
President and
Chief Executive
Officer
Ronald J. Simmons........ 1996 114,706 55,147 4,705
Vice President;
President-WaterlooTABLE(A)
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(B)
--------------------------- ---- -------- -------- ---------------
David A. Bowers................................ 1997 $147,000 $125,000 $20,500
President and Chief Executive Officer
Ronald J. Simmons.............................. 1997 117,753 86,667 4,638
Vice President; President -- Waterloo
Furniture Components Limited
Emory E. Hodges................................ 1997 80,028 27,113 13,667
Vice President -- Operations -- National
Cabinet Lock
Scott C. James................................. 1997 83,200 36,508 16,164
Vice President -- Sales and
Marketing -- National Cabinet Lock
Neil W. Poag................................... 1997 65,428 37,752 3,611
Vice President -- Finance -- Waterloo
Furniture Components Limited
- -------------------------------------
(a) Columns required by the rules and regulations of the Securities and Exchange
Commission (the "Commission") that contain no entries have been omitted.
(b) These amounts represent contributions the Company made to certain of the
Company's defined contribution plans.
The Company, Valhi, Contran and certain related corporations have entered
into certain intercorporate services agreements between each other
(collectively, the "ISAs"). Pursuant to each ISA, the parties to the ISA agreed
to render certain services to the other in exchange for agreed upon fees and
reimbursements of costs, including executive officer services rendered to one
party by employees of the other. The fees paid pursuant to the ISAs are
generally based upon the estimated percentage of time individual employees,
including executive officers, devote to certain matters on behalf of the
recipient of the services. See also "Certain Relationships and Related
Transactions."
Messrs. Glenn Simmons, Singer, Compofelice, Hollingsworth, O'Brien, Lindquist and Watson
render and Mr. Compofelice has rendered services to the Company under the ISAs
and receive and has received, respectively, their compensation from affiliateaffiliated
companies that employ them. No employer of an executive officer of the Company
who rendered services in 19961997 to the Company under the ISAs received fees in
excess of $100,000 from the Company attributable to such officer's services.
It has been Valhi's policy to award certain key employees of the Company
shares of restricted Valhi common stock or grant options to purchase Valhi
common stock under the terms of Valhi's stock option plans. After the Offering,
Valhi does not intend to continue this policy.
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44
The following table provides information with respect to the named
executive officers concerning the exercise of Valhi options during 1997 and the
value of unexercised options to acquire Valhi common stock held as of December
31, 1996. During 1996, no1997. No Valhi stock was awarded nor were options to purchase Valhi stock
granted to the named executive officer
exercised any options. No SARs have been granted under any incentive plan.officers during 1997.
AGGREGATED OPTION EXERCISES IN 1997 AND DECEMBER 31, 19961997 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS AT AT
DECEMBER 31,1996 (#) DECEMBER 31, 1996 (a) (b)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
David A. Bowers 77,000 43,000 $58,980 $ 8,370
Ronald J. 16,000 14,000 11,175 980
Simmons
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXPIRED IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS/SARS AT
ON DECEMBER 31, 1997 (#) DECEMBER 31, 1997(A)(B)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
David A. Bowers........... 38,000 $113,550 43,000 29,000 $102,048 $66,578
Ronald J. Simmons......... -- -- 20,000 10,000 51,383 20,715
Emory E. Hodges........... -- -- 4,000 6,000 5,750 8,625
Scott C. James............ 7,000 17,748 -- 8,000 -- 14,670
Neil W. Poag.............. -- -- 5,000 5,000 13,998 10,358
- -------------------------------------
(a) The aggregate amount represents the difference between the exercise price of
the individual stock options and Valhi's $6.375$9.4375 per share closing price as
of December 31, 19961997 as reported on the NYSE composite tape.
(b) Pursuant to an agreement between the Company and Valhi, Valhi receives the
full market value on the date of exercise of any Valhi common stock issued
to such person pursuant to the exercise of stock options granted to such
person. The employee pays Valhi the exercise price and the Company pays
Valhi the difference between the market value and the exercise price.
On February 13, 1998 Mr. Compofelice was appointed by the Company's Board
of Directors as Chairman of the Board and Chief Executive Officer. In connection
with such appointments, Mr. Compofelice will be awarded 100,000 shares of Class
A Common Stock under the Incentive Plan subject to successful completion of the
Offering. Mr. Compofelice also will be granted, upon consummation of the
Offering, a non-qualified stock option under the Incentive Plan to purchase
100,000 shares of Class A Common Stock at an exercise price equal to the price
to the public of the Class A Common Stock in the Offering. Mr. Compofelice's
annual compensation will consist of a base salary of $500,000 and an annual
bonus, based upon achievement of certain board-approved objectives, ranging from
50 percent to 150 percent of Mr. Compofelice's base salary.
In connection with the above appointments, the Company's Board of Directors
approved the form of an executive severance agreement (the "Severance
Agreement") with Mr. Compofelice that provides that Mr. Compofelice's employment
with the Company may be terminated at any time by action of the Company's Board
of Directors. The Severance Agreement also provides that the following payments
shall be made to Mr. Compofelice in the event Mr. Compofelice's employment with
the Company is terminated by the Company without cause (as defined in the
Severance Agreement) or Mr. Compofelice terminates his employment with the
Company for good reason (as defined in the Severance Agreement): (i) the greater
of two times the aggregate of Mr. Compofelice's annual base salary plus target
bonus (which shall not be less than the amount of his annual salary) or two
times Mr. Compofelice's annual base salary plus actual bonus for the two years
prior to termination; (ii) accrued salary and bonus through the date of
termination; (iii) an amount in cash or the Company's Class A Common Stock equal
to the fair market value of outstanding Company stock options granted to Mr.
Compofelice in excess of the exercise price and unvested Company restricted
stock awarded to Mr. Compofelice; (iv) an amount equal to unvested Company
contributions together with an amount equal to the Company's matching
contributions to Mr. Compofelice's account under the Company's Savings Plan (as
defined) for a period of two years; (v) an amount equal to the vested and
unvested portions of Mr. Compofelice's account under the Supplemental Retirement
Plans (as defined), if any; and (vi) certain other benefits. The Severance
Agreement is automatically extended for a one-year term commencing each January
1, unless the Company and Mr. Compofelice agree otherwise in writing.
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45
INCENTIVE COMPENSATION PLAN
Prior to completion ofThe Company has adopted the Offering, the Company intends to adopt the CompXCompX(TM) International Inc. 1997 Long-Term
Incentive Compensation Plan (the "Incentive Plan").) The purpose of the Incentive Plan is to
advance the interests of the Company and its stockholders by providing
incentives to certain eligible persons who contribute significantly to the
strategic and long-term performance objectives and growth of the Company.Company and its
parent and subsidiary corporations. The Incentive Plan provides for awards or
grants of stock options, stock appreciation rights, performance grants and other
awards deemed by the MD&C Committeeadministrator of the Incentive Plan to be consistent with
the purposes of the Incentive Plan (collectively, "Awards"). Under the Incentive
Plan, key individuals employed by, or performing services for, the Company or
its parent or subsidiary corporations are eligible to receive Awards. A person
who is eligible to receive an Award may be a nonemployee director or some other
person who is not employed by the Company. The MD&C Committee is the
initial committee toBoard of Directors will initially
administer the Incentive Plan. The MD&C Committeeadministrator of the Incentive Plan
determines the eligible persons to whom it grants Awards and the type, size and
terms of such Awards. The Company has reserved for issuance a maximum of
[ ]1,500,000 shares of Class A Common Stock for Awards under the Incentive Plan,
subject to certain adjustments. A stock option awarded under the Incentive Plan
may be an incentive stock option or non-qualified stock option and the term of
such stock option cannot exceed ten years. Awards may be granted in conjunction
with other Awards. In addition, uponConcurrent with the Offering, the Company granted options to
certain employees and directors of the Company and Valhi to purchase an
aggregate of 440,000 shares of the Company's Class A Common Stock (including an
option to purchase 100,000 shares granted to Mr. Compofelice) at an exercise
price equal to the initial public offering price.
Upon completion of the Offering, five of the Company's Officersofficers and
Directorsdirectors will be awarded an aggregate of 164,880 shares of Class A Common Stock
under the Incentive Plan for their services in connection with an optionthe Offering,
including 100,000 shares to receive one-half ofbe awarded to Mr. Compofelice. The Company will
value all such Class A shares awarded (the "Management Shares") at the public
offering price, and the aggregate value of such Class A shares in cashwill be
approximately $3.3 million. The Company will recognize a charge, at the time of
the completion of the Offering, equal to satisfy
individual income taxes related thereto (the "Management Shares").the aggregate value of the Class A
shares awarded.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996,1997, the Board of Directors did not have a compensation committee
and David A. Bowers, Glenn R. Simmons and Robert W. Singer comprised the entire
Board of Directors of the Company when the Board of Directors deliberated on
executive officer compensation. Messrs. Glenn Simmons, Bowers and Singer were
the Company's Chairman of the Board, President and Chief Executive Officer and
Vice President, respectively. During 1996,1997, Mr. Glenn Simmons and Mr. Singer also
served as executive officers of Valhi, Keystone and Contran and Mr. Glenn
Simmons served as a director of Valhi, Keystone and Contran.
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46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships with Related Parties. As set forth under the caption
"Security Ownership in the Company and its Affiliates," Mr. Harold C. Simmons,
through Valcor, Valhi and Contran, may be deemed to control the Company. Mr.
Glenn R. Simmons, Chairman of the Boarda director of the Company, is the brother of Mr. Harold C.
Simmons. Mr. Glenn R. Simmons and Mr. Singer are also directors of the Company's
parent company, Valcor, and of certain affiliates of the Company and Valcor. See
"Management --- Directors, Executive Officers and Key Personnel." Corporations
that may be deemed to be controlled by or affiliated with Mr. Harold C. Simmons,
including the Company, 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. The
Company continuously considers, reviews and evaluates, and understands 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 the Company might be a party to one or more such transactions in
the future.
Although no specific procedures are in place that govern the treatment of
transactions among the Company and Contran, Valhi or other affiliated companies,
the Board of Directors of each of such publicly held companies except for
Contran, includes one or
more members who are not officers or directors of any entity that may be deemed
to be related to the Company. Additionally, under applicable law, in the absence
of stockholder ratification or approval by directors who may be deemed
disinterested, transactions involving contracts among companies under common
control must be fair to all companies involved. Furthermore, directors and
officers owe fiduciary duties of good faith and fair dealing to all stockholders
of the companies for which they serve.
The Company understands that Valhi and related entities may consider
acquiring or disposing of shares of Class A Common Stock through open-market or
privately negotiated transactions depending upon future developments including,
but not limited to, the availability and alternative uses of funds, the
performance of the Class A Common Stock in the market, an assessment of the
business of and prospects for the Company, financial and stock market conditions
and other factors. The Company does not presently intend, and understands that
Valhi does not presently intend, to engage in any transaction or series of
transactions that would result in the Class A Common Stock becoming eligible for
termination of registration under the Securities Exchange Act of 1934, as
amended, or ceasing to be traded on a national securities exchange.
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties. In the Company's opinion,
the terms all of such transactions to which the Company has been a party in the
past are not materially different from those that would have been entered into
with unrelated parties.
Loans and Advances. From time to time the Company makes advances to and
borrows from Valcor, Valhi and other related parties pursuant to term and demand
loans. Such loans and advances are made principally for cash management
purposes. During 1994, the net borrowings of the Company from Valcor were
$250,000, which was repaid in 1995. During 1996 and 1997, the Company neither
borrowed money from nor loaned money to any related party, except with respect
to the Valcor Note. Interest expense with respect to the Valcor Note was
$164,000 in 1997. See "Recent Developments."
Contractual Arrangements. The ISA between the Company and Valhi (the "Valhi
ISA") provides that Valhi will render or provide certain management, financial,
and administrative services to the Company on a fee basis. Such fees are based
upon estimates of time devoted to the affairs of the Company by individual Valhi
employees and the salaries of such persons. The Company paid fees to Valhi for
services rendered under the Valhi ISA of $224,000, $284,000, $300,000 and $300,000$260,000 in
1994, 1995, and 1996, respectively and
$225,000 and $195,000 for the nine months ended September 30, 1996 and 1997, respectively. The Valhi ISA is an annual agreement and may
be extended on a quarter-to-quarter basis, subject to termination by advance
notice by either party and amendment by mutual agreement. Net charges from
related parties for services provided in
42
47
the ordinary course of business, principally "pass-through" insurance charges
for insuring and other risks, aggregated $160,000 in 1994, $152,000 in 1995, and $149,000 in 1996, respectively and
$139,000$208,000 in 1997. These fees and $175,000 for the nine months ended September
30, 1996charges are principally pass-through in nature
and, 1997, respectively. Such charges, in the Company's opinion, are cost beneficial to the Company since it receives the advantage of lower
insurance rates available to Contranreasonable and its affiliates.not materially different from
those that would have been incurred with unrelated parties.
Certain employees of the Company have been awarded shares of restricted
Valhi common stock or granted options to purchase Valhi common stock under the
terms of Valhi's stock option plans. The Company will reimburse Valhi for the
cost of shares of restricted Valhi common stock awarded to employees of the
Company as of the time the restrictions on such shares lapse, based on the
market value of Valhi common stock on such date. With respect to options to
acquire Valhi common stock granted to employees of the Company, the Company will
reimburse Valhi for the difference between the option exercise price and the
market price of Valhi common stock at the time of exercise. As of September 30,December 31,
1997, employees of the Company held options to acquire 216,000204,000 shares of Valhi
common stock at exercise prices ranging from $4.76 per share to $14.66 per
share. All shares of restricted stock previously granted had vested at December
31, 1996. The Company has recorded an expense (credit) of ($77,000) in 1994,
($6,000) in 1995, and
$12,000 in 1996 and ($28,000) and $386,000 for the nine
months ended September 30, 1996 and$472,000 in 1997 respectively in connection with the grant of Valhi
restricted stock and stock options. To the extent employees of the Company
continue to have options outstanding to purchase Valhi common stock, future
changes in the market price of Valhi common stock will result in additional
expense or credits to the Company's operating results.
The Company, Valcor and Valhi are members of Contran's consolidated United
States federal income tax group (the "Contran Tax Group"). The policy for
intercompany allocation of federal income taxes provides that subsidiaries
included in the Contran Tax Group complete the provisionprovide for federal income taxes on a separate
company basis. Subsidiaries of Valcor makesmake payments to, or receive payments
from, Valcor in the amount they would have paid to or received from the Internal
Revenue Service had they not been members of the Contran Tax Group. The separate
company provisions and payments are computed using the tax elections made by
Contran. The Company and Valcor have entered into a tax sharing agreement (the
"Tax Sharing Agreement") that provides for the allocation of tax liabilities and
tax payments as described above. For all periods presented, the Company is a
member of the Contran Tax Group. The Company is jointly and severally liable for
the federal income tax of Contran and the other companies included in the
Contran Tax Group for all periods in which the Company is included in the
Contran Tax Group. Valcor hasand Valhi have agreed, however, to indemnify the
Company for any liability for income taxes of the Contran Tax Group in excess of
the Company's tax liability computed in accordance with the Tax Sharing
Agreement. Upon consummation of the Offering, the Company will become a separate
United States taxpayer and will no longer be a member of the Contran Tax Group.
Certain Litigation. In November 1991, a purported derivative complaint was
filed in the Court of Chancery of the State of Delaware, New Castle County (Alan
Russell Kahn v. Tremont Corporation, et al., No. 12339) in connection with
Tremont's agreement to purchase 7.8 million NL common shares from Valhi. In
addition to Tremont and Valhi, the complaint names as defendants the members of
Tremont's board of directors at the time, which included Mr. Glenn R. Simmons.
The complaint alleges, among other things, that Tremont's purchase of the NL
shares constitutes a waste of Tremont's assets and that Tremont's board of
directors breached its fiduciary duty to Tremont's public stockholders and
seeks, among other things, to rescind Tremont's consummation of the purchase of
the NL shares and award damages to Tremont for injuries allegedly suffered as a
result of the defendants' wrongful conduct. In March 1996, the trial court ruled
in favor of the defendants, and concluded that Tremont's purchase did not
constitute an overreaching of Tremont by its controlling stockholder (Valhi),
that Tremont's purchase price for the NL shares was fair and that in all other
respects the transaction was fair to Tremont. In June 1996, the plaintiffs filed
an appeal with the Delaware Supreme Court. A hearing before a three-judge panel
of the Delaware Supreme Court was held in December 1996, and an en banc hearing
before the full Supreme Court was held in February 1997. In June 1997, the
Delaware Supreme Court en banc reversed the trial court ruling and remanded the
matter to the lower court for further proceedings. The Supreme Court held, in
part, that the trial court had erred in placing the burden of proof on the
plaintiffs and remanded the matter so that the trial court could determine
whether the defendants had demonstrated the entire fairness of the transaction.
In October 1997, oral arguments upon remand were heard. Theheard and since then the judge
has requested additional testimony, which is currently expectedtestimony. On
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48
February 4, 1998 Valhi reached an agreement in principal to be presentedsettle this matter.
Under a stipulation of settlement dated March 5, 1998 relating to Kahn, Valhi
has agreed to transfer to Tremont 1.2 million shares of NL common stock, subject
to adjustment depending on the average sales price of such shares during a
fifteen trading day period ending five trading days prior to the closing, up to
a maximum of 1.4 million shares and down to a minimum of 1 million shares. Valhi
has the option, in January
1998.lieu of transferring such shares, to transfer cash or cash
equivalents equal to the product of such average sales price and the number of
shares that would otherwise have been transferred to Tremont. The Company
understands that Valhi Tremonthas not yet decided whether it will transfer shares or
cash pursuant to the terms of this stipulation of settlement. The stipulation of
settlement is subject to the approval of the court in which the case is pending
and the other defendants
believe thatexpiration of any appellate proceedings. If so approved, the actiontransfer of
shares or cash is without merit and that each intendsexpected to defendoccur in the action vigorously.second or third quarter of 1998.
In September 1996, a complaint was filed in the Superior Court of New
Jersey, Bergen County, Chancery Division (Frank D. Seinfeld v. Harold C.
Simmons, et al., No. C-336-96) against Valhi, NL and certain current and former
members of NL's board of directors including Mr. Glenn R. Simmons. The
complaint, a derivative action on behalf of NL, alleges, among other things,
that NL's August 1991 "Dutch auction" tender offer was an unfair and wasteful
expenditure of NL's funds. The complaint seeks, among other things, to rescind
NL's purchase of approximately 10.9 million shares of NL's common stock from
Valhi pursuant to the Dutch auction, and the plaintiff has stated that the
damages sought are $149 million. Valhi and the other defendants have answered
the complaint and have denied all allegations of wrongdoing. DiscoveryOn February 4, 1998
Valhi reached an agreement in principal to settle this matter. Under a
stipulation of settlement dated February 26, 1998 relating to Seinfeld, Valhi
has agreed to transfer to NL 750,000 shares of NL common stock, subject to
adjustment depending on the average sales price of such shares during a fifteen
trading day period ending five trading days prior to the closing, up to a
maximum of 825,000 million shares and down to a minimum of 675,000 shares. Valhi
has the option, in lieu of transferring such shares, to transfer cash or cash
equivalents equal to the product of such average sales price and the number of
shares that would otherwise have been completed, and a pretrial conference is scheduled for December 1997.transferred to NL. The Company understands
that Valhi and eachhas not yet decided whether it will transfer shares or cash pursuant
to the terms of this stipulation of settlement. The stipulation of settlement is
subject to the approval of the other defendants believe thatcourt in which the complaintcase is without meritpending and that each intendsthe
expiration of any appellate proceedings. If so approved, the transfer of shares
or cash is expected to defendoccur in the action
vigorously.second or third quarter of 1998.
The Company is not a party to any of the litigation matters described
above.
SECURITY OWNERSHIP IN THE COMPANY AND ITS AFFILIATES
Prior to the Offering, no shares of the Company's Class A Common Stock were
outstanding and all of the shares of the Company's Class B Common Stock were
held by Valcor, a wholly-owned subsidiary of Valhi.
As set forth below, Contran holds, directly or through subsidiaries,
approximately 93% of the outstanding Valhi common stock. Harold C. Simmons,
Chairman of the Board, President and Chief Executive Officer of Valcor, Valhi
and Contran, may be deemed to control each of such companies.
Immediately after completion of the Offering, the only shares of Class A
Common Stock that will be outstanding are those shares that will be issued in
the Offering (including any shares issued if the Underwriters' over-allotment
option is exercised), and approximately [ ]164,880 Management Shares. After
completion of the Offering, all of the Company's shares of Class B Common Stock
will continue to be held by Valcor. Such shares of Class B Common Stock will
represent approximately %65% of the combined voting power ( %(95% for election of
directors) of all shares of the Company's Common Stock outstanding ( %(62% and %,94%,
respectively, if the Underwriters' over-allotment option is exercised in full),
and will represent approximately % of the economic interest in the Company
(approximately % if the Underwriters' over-allotment option is exercised in
full).
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49
The following table sets forth as of December 1, 1997,March 4, 1998, the beneficial
ownership, as defined by the regulations of the Commission, of Valhi common
stock by (i) each person or group of persons known to the Company to
beneficially own more than 5% of the outstanding shares of Valhi common stock,
(ii) each director of the Company, (iii) each named executive officer of the
Company, and (iv) all executive officers and directors of the Company as a
group. Except as set forth below, no securities of the Company's parent
companies or subsidiary companies are beneficially owned by any director or
named executive officer of the Company. All information is taken from or based
upon ownership filings made by such persons with the Commission or upon
information provided by such persons to the Company.
VALHI COMMON STOCK
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF OF
BENEFICIAL CLASS
OWNERSHIP (A)
Contran Corporation and
subsidiaries:
Contran Corporation (b)......... 8,624,558 (c) 7.5%
National City Lines, Inc. (b)... 11,491,009 (c) 10.0%
Valhi Group, Inc. (b)........... 85,644,496 (c) 74.7%
Paul M. Bass, Jr.................. __,___ (d) *
David A. Bowers................... __,___ (d) *
Joseph S. Compofelice............. 30,000 (d) *
Edward J. Hardin.................. __,___ (d) *
Glenn R. Simmons.................. __,___ (d) *
Ronald J. Simmons................. __,___ (d) *
Robert W. Singer.................. __,___ (d) *
All directors and executive
officers _,___,___ (d) _._%
as a group (__ persons) ........
VALHI COMMON STOCK
---------------------------------------
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(A) CLASS(B)
------------------------ ---------------------- ----------
Contran Corporation and subsidiaries:
Contran Corporation(c)................................... 8,884,458(d)(e) 7.8%
National City Lines, Inc.(c)............................. 11,491,009(d) 10.0%
Valhi Group, Inc.(c)..................................... 85,644,496(d) 74.8%
Paul M. Bass, Jr........................................... 7,000 *
David A. Bowers............................................ 41,000(f) *
Joseph S. Compofelice...................................... 40,000(f)(g) *
Edward J. Hardin........................................... -- *
Glenn R. Simmons........................................... 425,533(f)(h) *
Robert W. Singer........................................... 34,015(i) *
Ronald J. Simmons.......................................... 22,000(f) *
Emory E. Hodges............................................ 4,000(f) *
Scott C. James............................................. 1,000(f) *
Neil W. Poag............................................... 16,500(f) *
All directors and executive officers as a group (16
persons)................................................. 1,160,396(f) 1.0%
- -----------------------------------
* Less than 1%.
(a) All beneficial ownership is sole and direct unless otherwise noted.
(b) The above table is based on 114,496,014 shares of Valhi common stock
outstanding as of March 4, 1998. For purposes of calculating the
outstanding shares of Valhi common stock as of March 4, 1998, 1,186,200
shares of Valhi common stock held by NL, a majority owned subsidiary of
Valhi, and 1,000,000 shares of Valhi common stock held by Valmont Insurance
Company, a wholly owned subsidiary of Valhi, are excluded from the amount
of Valhi common stock outstanding. Pursuant to Delaware corporate law,
Valhi treats these excluded shares as treasury stock for voting purposes.
(c) The business address of Valhi Group, Inc. ("VGI"), National City Lines,
Inc. ("National") and Contran is Three Lincoln Centre, 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240-2697.
(c)(d) National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding") are
the direct holders of approximately 73.3%, 11.4% and 15.3%, respectively,
of the outstanding common stock of VGI. Together, National, NOA and Dixie
Holding may be deemed to control VGI. Contran and NOA are the direct
holders of approximately 85.7% and 14.3%, respectively, of the outstanding
common stock of National and together may be deemed to control National.
Contran and Southwest Louisiana Land Company, Inc. ("Southwest") are the
direct holders of approximately 49.9% and 50.1%, respectively, of the
outstanding common stock of NOA and together may be deemed to control NOA.
Dixie Rice Agricultural Corporation, Inc. ("Dixie Rice") is the direct
holder of 100% of the outstanding common stock of Dixie Holding and may be
deemed to control Dixie Holding. Contran is the direct holder of
approximately 88.7%88.8% and 54.3% of the outstanding common stock of Southwest
and Dixie Rice, respectively, and may be deemed to control Southwest and
Dixie Rice.
Mr. Harold C. Simmons is Chairman of the Board, President and Chief
Executive Officer of Valhi, VGI, National, NOA, Dixie Holding and Contran.
Mr. Simmons is also Chairman of the Board and Chief Executive Officer of
Dixie Rice and Southwest.
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Substantially all of Contran's outstanding voting stock is held by two
trusts
the Harold C. Simmons Family Trust No. 1 dated January 1, 1964 and
the Harold C. Simmons Family Trust No. 2 dated January 1, 1964 (together,(collectively, the "Trusts"), established for the benefit of certain of Mr.
Simmons,Harold C. Simmons' children and grandchildren, of which Mr. Simmons is the
sole trustee. As the sole trustee of each of the Trusts, Mr. Simmons has
the power to vote and direct the disposition of the shares of Contran stock
held directly by each of the Trusts. Mr. Simmons, however, disclaims
beneficial ownership of any shares of Contran
stock.such shares.
The Combined Master Retirement Trust (the "CMRT") directly holds
approximately 0.1% of the outstanding shares of Valhi common stock. The
CMRT is a trust formed by the Company to permit the collective investment
by trusts that maintain the assets of certain employee benefit plans
adopted by the Company and related companies. Mr. Simmons is the sole
trustee of the CMRT and the sole member of the trust investment committee
for the CMRT. Mr. Simmons is a participant in one or more of the employee
benefit plans that invest through the CMRT. Mr. Simmons, however, disclaims
beneficial ownership of any shares held by the CMRT, except to the extent
of his vested beneficial interest therein.
Mr. Simmons' spouse directly owns 77,000 shares of Valhi common stock, with
respect to all of which Mr. Simmons disclaims beneficial ownership. Mr.
Simmons also directly owns 3,383 shares of Valhi common stock.
By virtue of the holding of the offices, the stock ownership and his
service as trustee, all as described above, (a) Mr. Harold C. Simmons may
be deemed to control such entities and (b) Mr. Simmons and certain of such
entities may be deemed to possess indirect beneficial ownership of shares
directly held by certain of such other entities. However, Mr. Simmons
disclaims such beneficial ownership of the shares beneficially owned,
directly or indirectly, by any of such entities.
The Company understands that NL and Valmont Insurance Company ("Valmont")
directly hold 1,186,200 shares and 1,000,000 shares of Valhi common stock,
respectively. Valhi is the direct holder of approximately 57.3%58.3% of the
outstanding common stock of NL. Valhi is also the direct holder of 100% of
the outstanding common stock of Valmont. The Company further understands
that, pursuant to Delaware law, Valhi treats the shares of Valhi common
stock that Valmont and NL hold directly as treasury stock for voting
purposes. For the purposes of this prospectus, the shares of Valhi common
stock that Valmont and NL hold directly are not deemed outstanding.
Although the Company iswas not a party to the action, the Company iswas aware
that a lawsuit captioned In re: The Harold C. Simmons Family Trust No. 1
and Family Trust No. 2 U/A January 1, 1964 (No. 96-306-P) iswas pending in the Probate Court Number One of Dallas County, Texas.
Pleadings filed in the action containcontained allegations by two of Mr. Harold C.
Simmons' four daughters who arewere among the beneficiaries of the Trusts)Harold C.
Simmons Family Trust No. 1 dated January 1, 1964 ("Family Trust No. 1") and
the Harold C. Simmons Family Trust No. 2 dated January 1, 1964 ("Family
Trust No. 2" and collectively with Family Trust No. 1, the "Family Trusts")
that Mr. Simmons hashad breached his fiduciary duties as trustee of the Family
Trusts. The breaches of fiduciary duty claimed include,included, among others,
allegedly unfair self dealing, allegedly improper charitable contributions
and alleged violations of the federal election laws. Pleadings by Mr.
Simmons in the action assert that all actions taken by him as trustee were
specifically permitted by the terms of the Family Trusts and greatly
benefited the Family Trusts and the beneficiaries. The relief sought by the
plaintiffs includesincluded the removal of Mr. Simmons as trustee of the Family
Trusts. Mr. Simmons' other two daughters
have filed pleadings in the action
opposing the relief sought by the plaintiffs. The first trial of this matter
ended in a mistrial. UnlessOn February 10, 1998 the court approved a settlement
agreement executed by the parties to this matter is resolved through mediation or otherwise, a new trial is
expected to beginwhereby Mr. Harold C.
Simmons remained trustee of the Family Trusts and all claims of the
plaintiffs were settled in March,exchange for certain consideration paid by
Family Trust No. 2. Closing of the settlement occurred on February 11,
1998.
Mr. Simmons has advised(e) The shares of Valhi common stock shown as owned by Contran include 189,400
shares (0.2% of the Company that
the action has no merit; that he denies all allegations of wrongdoing madeoutstanding Valhi common stock) directly held by the
plaintiffs;Contran Deferred Compensation Trust No. 2 (the "CDCT No. 2"). Boston Safe
Deposit and Trust Company serves as trustee of the CDCT No. 2 (the
"Trustee"). Contran established the CDCT No. 2 as an irrevocable "rabbi
trust" to assist Contran in meeting certain deferred compensation
obligations that he intendsit owes to continueHarold C. Simmons. If the CDCT No. 2 assets are
insufficient to defendsatisfy such obligations, Contran must satisfy the action
vigorously.
(d)balance
of such obligations. Pursuant to the terms of the CDCT No. 2, Contran (i)
retains the power to vote the shares
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held by the CDCT No. 2, (ii) retains dispositive power over such shares and
(iii) may be deemed the indirect beneficial owner of such shares. Mr.
Harold C. Simmons disclaims beneficial ownership of any shares of Valhi
common stock directly held by the CDCT No. 2, except to the extent of his
interests as a beneficiary of the CDCT No. 2.
(f) The shares of Valhi common stock shown as beneficially owned by David A
Bowers, Glenn R.
Simmons, David A. Bowers, Joseph S. Compofelice, Ronald J. Simmons, Emory
E. Hodges, Scott C. James, Neil W. Poag and all executive officers and
directors as a group include 43,000, 332,500, 20,000380,000, 29,000, 30,000, 22,000, 4,000, 1,000,
6,000 and ___,____1,020,000 shares, respectively, that such person or group has the
right to acquire upon the exercise within 60 days subsequent to December 1, 1997March 4,
1998 of stock options granted pursuant to the Valhi, Inc. 1987 Stock
Option --- Stock Appreciation Rights Plan.Plan, as amended.
(g) The shares of Valhi common stock shown as beneficially owned by Joseph S.
Compofelice include 10,000 shares held by Mr. Compofelice and his wife as
joint tenants.
(h) The shares of Valhi common stock shown as beneficially owned by Glenn R.
Simmons include 3,000 shares held by Mr. Simmons' wife, 800 shares held in
a retirement account for Mr. Simmons' wife, with respect to all of which
Mr. Simmons disclaims beneficial ownership.
(i) The shares of Valhi common stock shown as beneficially owned by Robert W.
Singer include 10,000 shares held in a retirement account for his benefit
and 5,000 shares held in the individual retirement account of Mr. Singer's
wife with respect to all of which Mr. Singer disclaims beneficial
ownership.
CERTAIN INDEBTEDNESS
On February 26, 1998, the Company entered into the Revolving Senior Credit
Facility. The Revolving Senior Credit Facility is an unsecured five-year
revolving facility. Borrowings are available for the Company's general corporate
purposes, including potential acquisitions. The following is a summary of the
material provisions of the Revolving Senior Credit Facility.
The Revolving Senior Credit Facility matures in 2003. Borrowings of up to
$100 million are available under the Revolving Senior Credit Facility subject to
limitation with respect to compliance with certain coverage ratios and covenants
as discussed below. The Revolving Senior Credit Facility has no required
principal amortization payments prior to maturity absent any uncured event of
default, Asset Disposition (as defined) or incurrence of Indebtedness (as
defined). Amounts drawn under the Revolving Senior Credit Facility will bear
interest, at the Company's option, at either (i) a base rate equal to the higher
of (x) the agent bank's prime rate and (y) the federal funds rate plus one-half
of one percent ( 1/2%) or (ii) the Eurodollar Rate plus an Applicable Margin (as
defined). The Applicable Margin will be a rate between .30% and 1.025% that will
fluctuate based on the Company's Ratio of Consolidated Debt (as defined) to
Consolidated EBITDA (as defined) for the most recent prior four quarter period.
The Revolving Senior Credit Facility contains certain covenants and
restrictions customary in lending transactions of this type. These covenants
include requirements that the Company maintain specified levels of Consolidated
Net Worth (as defined), generally limit the payment of dividends to 50% of
Consolidated Net Income of the Company (as defined), and require the Company to
maintain a ratio of Consolidated Debt (as defined) to Consolidated EBITDA (as
defined) for the most recently completed four quarters not to exceed 3.00 to 1.0
and maintain a ratio of Consolidated EBITDA (as defined) for the most recently
completed four quarters to Consolidated Interest Expense (as defined) of not
less than 4.25 to 1.0.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following discussion of the capital stock of the Company assumes that
the Restated Certificate of Incorporation of the Company, which will become
effective before the Offering commences, is in effect.
Upon the effective date of the Offering, the authorized capital stock of the Company will consistconsists of __,000,00030,000,000 shares
of Common Stock, par value $.0l$.01 per share, of which __,000,00020,000,000 shares have been
designated as Class A Common Stock and 10,200,00010,000,000 shares have been designated as
Class B Common Stock, and 1,000 shares of preferred stock, par value $.0l$.01 per
share (the "Preferred Stock"). Effective upon completion of the Offering,
______5,364,880 shares of Class A Common Stock will be issued and outstanding
(________(6,144,880 if the Underwriters, over-
allotmentUnderwriters' over-allotment option is exercised in full),
10,200,000including 164,880 Management Shares, 10,000,000 shares of Class B Common Stock
will be issued and outstanding, and no shares of Preferred Stock will be issued
and outstanding. In addition, ___________approximately 1.3 million shares of Class A Common
Stock will be reserved for issuance pursuant to the Incentive Plan and
10,200,00010,000,000 shares of Class A Common Stock will be reserved for issuance upon
conversion of the Class B Common Stock. The following summary does not purport
to be complete and is subject to the detailed provisions of, and qualified in
its entirety by reference to, the Company's Restated Certificate of
Incorporation and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part, and to the applicable
provisions of the Delaware General Corporation Law of the State of Delaware
("DGCL").
COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for voting rights with respect to the election of
directors and certain conversion rights and transfer restrictions in respect of
the shares of the Class B Common Stock. The number of authorized shares of any
class or classes of capital stock of the Company may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the voting power of the Common Stock of the
Company entitled to vote generally in the election of directors irrespective of
the provisions of Section 242(b)(2) of the DGCL or any corresponding provisions
hereinafter enacted.
Voting Rights. The holders of Class A Common Stock are entitled to one vote
per share. Holders of Class B Common Stock are entitled to one vote per share in
all matters except the election of directors where such holders are entitled to
ten votes per share. Holders of all classes of Common Stock entitled to vote
will vote together as a single class on all matters presented to the
stockholders for their vote or approval except as otherwise required by
applicable law. Immediately after the Offering, the shares of Class B Common
Stock will represent approximately [ ]%65% of the combined voting power ( %(95% for
election of directors) of all classes of voting stock of the Company
(approximately [ ]%62% and [ ]%94%, respectively, if the Underwriters' over-
allotmentover-allotment
option is exercised in full).
The Common Stock does not have cumulative voting rights, which means that
holders of the shares of Common Stock with a majority of the votes to be cast
for the election of directors can elect all directors then being elected. Since
the purchasers of the shares of Class A Common Stock offered hereby will acquire
shares entitling them to less than a majority of such votes, such stockholders
will be unable to elect a director without the affirmative vote of Valcor.
Dividends. Each share of Class A Common Stock and Class B Common Stock has
an equal and ratable right to receive dividends to be paid from the Company's
assets legally available therefor when, as and if declared by the Board of
Directors. Delaware law generally requires that dividends be paid only out of
the Company's surplus or current net profits in accordance with the DGCL. The
Company may not make any dividend or distribution to any holder of any class of
Common Stock unless simultaneously with such dividend or distribution the
Company makes the same dividend or distribution with respect to each outstanding
share of Common Stock regardless of class. Whenever a dividend or distribution,
including distributions pursuant to stock splits or divisions of the Common
Stock, is payable in shares of Common Stock, the number of shares of Common
Stock payable per share of of Common Stock shall be equal in number.
The Company does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
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Conversion and Transfer. Class A Common Stock has no conversion rights.
Prior to a "Tax-Free Spin-Off" (as defined below), shares of Class B Common
Stock may be freely transferred (i) between members of the Contran Corporation
Control Group (as defined below) or (ii) outside the Contran Corporation Control
Group (as defined below) in a transaction that is not a "Tax-Free Spin-Off" (as
defined below). However, shares of Class B Common Stock transferred to a person
who is not a member of the Contran Corporation Control Group (as defined below)
in a transaction that is not a "Tax-Free Spin-Off" (as defined below) shall
automatically convert into shares of Class A Common Stock as of the date of such
transfer. Transfers of Class B Common Stock between members of the Contran
Corporation Control Group (as defined below) shall have no effect other than to
change the beneficial ownership of such Class B Common Stock. For purposes
hereof, a member of the Contran Corporation Control Group shall be Contran
Corporation, a Delaware corporation, and any entity included in the affiliated
group as defined in Section 1504sec.1504 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), of which Contran Corporation or its successor is
the common parent. For purposes hereof, "Tax-Free Spin-Off" shall mean any
transfer effected in connection with a distribution of Class B Common Stock as a
spin-off, split-up or split-off to stockholders of a member of the Contran
Corporation Control Group intended to be on a tax-free basis under sec.368 of
the Code.
Following a Tax-Free Spin-Off, shares of Class B Common Stock shall be
transferred as Class B Common Stock, subject to applicable laws; provided,
however, that shares of Class B Common Stock shall automatically convert into
shares of Class A Common Stock on the fifth anniversary of the Tax-Free Spin-
Off, unless prior to such Tax-Free Spin-Off, the distributing member of the
Contran Corporation Control Group, or its successor, as the case may be,
delivers to the Company an opinion of counsel reasonably satisfactory to the
Company to the effect that such conversion could adversely affect the ability of
the distributing member, or its successor, as the case may be, to obtain a
favorable ruling from the Internal Revenue Service that the transfer would be a
Tax-Free Spin-Off. If such an opinion is received, approval of such conversion
shall be submitted to a vote of the holders of the Common Stock as soon as
practicable after the fifth anniversary of the Tax-Free Spin-Off, unless the
distributing member or its successor, as the case may be, delivers to the
Company an opinion of counsel reasonably satisfactory to the Company prior to
such anniversary that such vote could adversely affect the status of the
Tax-
FreeTax-Free Spin-Off, including the ability to obtain a favorable ruling from the
Internal Revenue Service; if such opinion is so delivered, such vote shall not
be held. Approval of such conversion will require the affirmative vote of the
holders of a majority of the shares of both Class A Common Stock and Class B
Common Stock present and voting, voting together as a single class, with each
share entitled to one vote for such purpose. No assurance can be given that any
such conversion would be consummated.
Prior to a Tax-Free Spin-Off, all shares of Class B Common Stock shall
automatically convert into shares of Class A Common Stock if the aggregate
number of outstanding shares of Class B Common Stock becomes less than 50% of
the aggregate number of outstanding shares of Common Stock.
Reclassification and Merger. In the event of a reclassification or other
similar transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a holder of Class B Common Stock will be
entitled to receive upon conversion the amount of such other security that the
holder would have received if the conversion occurred immediately prior to the
record date of such reclassification or other similar transaction. No
adjustments in respect of dividends will be made upon the conversion of any
share of Class B Common Stock except if a share is converted subsequent to the
record date for the payment of a dividend or other distribution on shares of
Class B Common Stock but prior to such payment, then the registered holder of
such share at the close of business on such record date will be entitled to
receive the dividend or other distribution payable on such date regardless of
the conversion thereof or the Company's default in payment of the dividend due
on such date.
In the event the Company enters into any consolidation, merger, combination
or other transaction in which shares of Common Stock are exchanged for or
changed into other stock or securities, cash or any other property, then, and in
such event, the shares of each class of Common Stock will be exchanged for or
changed into either (l) the same amount of stock, securities, cash or any other
property, as the case may be, into which or for which each share of any other
class of Common Stock is exchanged for or changed into, provided such shares so
exchanged for or changed into may differ to the extent and only to the extent
that the Class A
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Common Stock and the Class B Common Stock differ as provided in the Company's
Restated Certificate of Incorporation or (2) if holders of each class of Common
Stock are to receive different distributions of stock, securities, cash or any
other property, an amount of stock, securities, cash or property per share
having a value, as determined by an independent investment banking firm of
national reputation selected by the Board of Directors, equal to the value per
share into which or for which each share of any other class of Common Stock is
exchanged or changed.
Liquidation. In the event of the dissolution, liquidation or winding up of
the Company, the holders of Class A Common Stock and Class B Common Stock are
entitled to share equally and ratably in the assets available for distribution
after payments are made to the Company's creditors and to the holders of any
Preferred Stock of the Company that may be outstanding at the time.
Other. The holders of shares of Common Stock have no preemptive,
subscription or redemption rights and are not liable for further call or
assessment. All of the outstanding shares of Common Stock are, and the shares of
Class A Common Stock offered hereby will be, fully paid and nonassessable.
Prior to the date of this Prospectus, there has been no established public
trading market for the Common Stock. It is expected that theThe Class A Common Stock will
behas been approved
for listing on the NYSE under the symbol "[ ]."CIX."
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of authorized Preferred Stock
into series and to fix and determine the designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion or
exchange privileges. As of the date of this Prospectus, no shares of Preferred
Stock have been issued and the Board of Directors of the Company had not
authorized any series of Preferred Stock and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL provides, in general, that a stockholder acquiring
more than 15% of the outstanding voting stock of a corporation subject to the
statute (an "Interested Stockholder") but less than 85% of such stock may not
engage in certain Business Combinations (as defined in Section 203) with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
the Business Combination is approved by the corporation's board of directors and
authorized by a vote of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder. The provisions of Section
203 ("Section 203") of the DGCL do not apply to the Company. Such provisions, if
they were to apply to the Company, would restrict the Company's ability to enter
into business combinations with certain stockholders of the Company and would
render an unsolicited takeover attempt of the Company more difficult.
Any action required to be taken at any annual or special meeting of the
Company's stockholders may be taken without a meeting, without prior notice and
without a vote, upon the written consent of the minimum number of stockholders
necessary to authorize such action.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock purchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these
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provisions is to eliminate the rights of the Company and its stockholders
(through stockholders, derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from grossly negligent behavior), except in the
situations described above. These provisions do not limit the liability of
directors under federal securities laws and do not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care.
TRANSFER AGENT AND REGISTRAR
[to come]Harris Trust and Savings Bank will act as the transfer agent and registrar
for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
__________5,364,880 shares of Class A Common Stock (_______(6,144,880 shares if the Underwriters'
over-allotment option is exercised in full) without taking into account any
options restricted stock orwhich may be granted, and 164,880 Management Shares granted to officers
and employeesdirectors of the Company. All _________of the shares of Class A Common Stock (___________
shares if the Underwriters' over-allotment option is exercised in full) sold
hereby will be freely tradable without restriction or further registration under
the Securities Act of 1933 (the "Securities Act") by persons other than
"affiliates" of the Company (defined in Rule 144 under the Securities Act as a
person who directly or indirectly through the use of one or more intermediaries
controls, is controlled by, or is under common control with, the Company). The
10,200,00010,000,000 shares of Class B Common Stock held by Valcor will be deemed
restricted securities within the meaning of Rule 144. Shares of Class A Common
Stock acquired or to be acquired by officers and employees of the Company
pursuant to the exercise of options or restricted stock grants will be, upon the
filing of a Registration Statement on Form S-8 registering such shares, freely
tradable without restriction or further registration under the Securities Act by
persons other than "affiliates." Sales of restricted securities and shares of
Class A Common Stock held by "affiliates" are subject to certain volume, timing
and manner of sale restrictions pursuant to Rule 144. Any sales of substantial
amounts of these shares in the public market might adversely affect prevailing
market prices for the shares of Class A Common Stock.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year, including
"affiliates" of the Company, would be entitled to sell within any three-month
period that number of shares that does not exceed the greater of (i) 1% of the
number of shares of Class A Common Stock then outstanding or (ii) the average
weekly trading volume of the Class A Common Stock during the four calendar weeks
preceding such sale. Sales pursuant to Rule 144 are subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least two years, would be entitled to sell such shares under
Rule 144(k) without regard to many of the requirements described above. The
Company is unable to estimate the number of restricted shares or shares held by
affiliates that will be sold under Rule 144 since this will depend in part on
the market price for the Class A Common Stock, the personal circumstances of the
holders of the shares and other factors.
Each of theThe Company and Valcor, and each of their respective executive officers and directors
hashave agreed with the Underwriters not to issue or sell any shares of
Common Stock, or shares convertible or exchangeable or exercisable for Common
Stock,that, for a period of 180 days from the date of this Prospectus.Prospectus,
they will not, without the prior written consent of Smith Barney Inc., offer,
sell, contract to sell, or otherwise dispose of, any shares of Common Stock of
the Company or any securities convertible into, or exercisable or exchangeable
for, Common Stock of the Company. Thereafter, Valcor will be able to sell any
shares of Common Stock it owns in reliance upon Rule 144, subject to the resale,
volume and other limitations described above. Under certain circumstances shares
of Class B Common Stock may be automatically converted into shares of Class A
Common Stock. It is possible that Valcor or another member of the Contran
Corporation Control Group may cause the Company to register any such converted
shares of Class A Common Stock that may be owned by Valcor or another member of
the Contran Corporation Control Group to permit a further distribution of such
shares of Class A Common Stock by Valcor.
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Prior to the Offering, there has been no public market for the Class A
Common Stock. Trading of the Class A Common Stock is expected to commence
following the completion of the Offering. There can be no assurance that an
active trading market will develop or continue after the completion of the
Offering or that the market price of the Class A Common Stock will not decline
below the initial public offering price. No prediction can be made as to the
effect, if any, that future sales of shares of Class A Common Stock, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Class A Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Class A Common Stock or the ability of
the Company to raise capital through a public offering of its equity securities.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
A general discussion of certain United States federal income and estate tax
consequences of the ownership and disposition of Common Stock applicable to
Non-
U.S.Non-U.S. Holders (as defined) of Common Stock is set forth below. In general, a
"Non U.S. Holder" is a person other than: (i) a citizen or resident (as defined
for United States federal income or estate tax purposes, as the case may be) of
the United States; (ii) a corporation organized in or under the laws of the
United States or a political subdivision thereof; or (iii) an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source. The discussion is based on current law and is provided
for general information only. The discussion does not address aspects of United
States federal taxation other than income and estates taxation and does not
address all aspects of federal income and estate taxation. The discussion does
not consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder and does not address all aspects of United States federal income
tax law that may be relevant to Non-U.S. Holders that may be subject to special
treatment under such law (for example, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers). ACCORDINGLY,
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. CURRENT AND POSSIBLE FUTURE
INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF CLASS A COMMON
STOCK.
DIVIDENDS
In general, the gross amount of dividends paid to a Non-U.S. Holder will be
subject to United States withholding tax at a 30% rate (or any lower rate
prescribed by an applicable tax treaty) unless the dividends are (i) effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States and a Form 4224 is filed with the withholding agent or (ii) if a
tax treaty applies, are attributable to a United States permanent establishment
of the Non-U.S. Holder. If neithereither exception applies, the dividend will be taxed
at ordinary U.S. federal income tax rates. A Non-U.S. Holder may be required to
satisfy certain certification requirements in order to claim the benefit of an
applicable treaty rate or otherwise claim a reduction of, or exemption from, the
withholding obligation pursuant to the above described rules. In the case of a
Non-U.S. Holder that is a corporation, effectively connected income may also be
subject to the branch profits tax (which is generally imposed on a foreign
corporation at a rate of 30% of the deemed repatriation from the United States
of "effectively connected earnings and profits") except to the extent that an
applicable tax treaty provides otherwise.
The Company may pay dividends to Common Stock holders in the form of
additional Common Stock. In general, dividends of common stock paid pro rata to
holders of common stock are not taxable distributions. Holders who receive such
stock dividends must allocate the basis of the stock with respect to which the
distribution is made between such stock and the newly distributed stock in
proportion to the fair market values of each on the distribution date. In
certain circumstances stock dividends could be taxable distributions. However,
the Company does not currently expect to pay any stock dividends that would be
deemed taxable distributions.
52
57
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of his Common Stock unless:
(i) the Company has been, is, or becomes a "U.S. real property holding
corporation" for federal income tax purposes and certain other requirements are
met; (ii) the gain is effectively connected with a trade or business carried on
by the Non-U.S. Holder within the United States; or (iii) the Common Stock is
disposed of by an individual Non-U.S. Holder, who holds the Common Stock as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition, and the gains are considered derived from
sources within the United States. The Company believes that it has not been, is
not currently and, based upon its current business plans, is not likely to
become a U.S. real property holding corporation. A Non-U.S. Holder also may be
subject to tax pursuant to the provisions of United States tax law applicable to
certain United States expatriates. Non-U.S. Holders should consult applicable
treaties, which may exempt from United States taxation gains realized upon the
disposition of Common Stock in certain cases.
ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be includible in the individual's gross estate for United
States federal estate tax purposes, unless an applicable treaty provides
otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS
On October 14, 1997, the IRS issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations generally will be effective with respect to
payments made after December 31, 1998.
Except as provided below, this section describes rules applicable to
payments made on or before December 31, 1998. Backup withholding (which
generally is a withholding tax imposed at the rate of 31% on certain payments to
persons that fail to furnish the information required under the United States
information reporting and backup withholding rules) generally will not apply to
(i) dividends paid to Non-U.S. Holders that are subject to the 30% withholding
discussed above (or that are not so subject because a tax treaty applies that
reduces or eliminates such 30% withholding) or (ii) dividends paid on the Common
Stock to a Non-U.S. Holder at an address outside the United States. The Company
will be required to report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such holder,
regardless of whether any tax was actually withheld. This information may also
be made available to the tax authorities in the Non-U.S. Holder's country of
residence.
In the case of a Non-U.S. Holder that sells Common Stock to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the IRS, unless the holder certifies its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption. In the
case of a Non-U.S. Holder that sells Common Stock to or through the foreign
office of a United States broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the IRS
(but not backup withhold) unless the broker has documentary evidence in its
files that the seller is a Non-U.S. Holder or certain other conditions are met,
or the holder otherwise establishes an exemption. A non-U.S.Non-U.S. Holder will
generally not be subject to information reporting or backup withholding if such
Non-U.S. Holder sells the Common Stock to or through a foreign office of a
Non-
UnitedNon-United States broker.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes the
required information to the IRS. In addition, certain penalties may be imposed
by the IRS on a holder who is required to supply information but does not do so
in the proper manner.
The Final Regulations eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of that
country. In addition, the Final Regulations impose certain
53
58
certification and documentation requirements on Non-U.S. Holders claiming the
benefit of a reduced withholding rate with respect to dividends under a tax
treaty.
Prospective purchasers of the Class A Common Stock are urged to consult
their own tax advisors as to the effect, if any, of the Final Regulations on
their purchase, ownership and disposition of the Class A Common Stock.
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter, the
number of shares of Class A Common Stock set forth opposite the name of such
Underwriter.
UNDERWRITER
Smith Barney Inc............................... [ ]
NationsBanc Montgomery Securities, Inc......... [ ]
Wheat, First Securities, Inc................... [ ]
TOTAL.......................................... [ ]
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Smith Barney Inc. .......................................... 2,128,500
NationsBanc Montgomery Securities LLC....................... 1,161,000
Wheat First Securities, Inc. ............................... 580,500
Bear, Stearns & Co. Inc. ................................... 85,000
BT Alex. Brown Incorporated................................. 85,000
A.G. Edwards & Sons, Inc. .................................. 85,000
Goldman, Sachs & Co. ....................................... 85,000
Lehman Brothers Inc. ....................................... 85,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 85,000
Morgan Stanley & Co. Incorporated........................... 85,000
Prudential Securities Incorporated.......................... 85,000
Robert W. Baird & Co. Incorporated.......................... 65,000
Burnham Securities Inc. .................................... 65,000
First Southwest Company..................................... 65,000
Interstate/Johnson Lane Corporation......................... 65,000
C.L. King & Associates, Inc. ............................... 65,000
Legg Mason Wood Walker, Incorporated........................ 65,000
McDonald & Company Securities, Inc. ........................ 65,000
Raymond James & Associates, Inc. ........................... 65,000
Scott & Stringfellow, Inc................................... 65,000
Tucker Anthony Incorporated................................. 65,000
---------
Total............................................. 5,200,000
---------
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class A Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., NationsBanc Montgomery
Securities Inc.LLC and Wheat First Union, a division of Wheat First Securities,
Inc., are acting as the Representatives, propose to offer part of the shares
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part of the shares to certain dealers at a price which
represents a concession not in excess of $0.[ ]$0.84 per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.[ ]$0.10 per share to certain other dealers. After the
initial offering of the shares to the public, the public offering price and such
concessions may be changed by the Representatives. The Representatives of the
Underwriters have advised the Company that the Underwriters do not intend to
confirm any Sharesshares to any accounts over which they exercise discretionary
authority.
54
59
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to [ ]780,000
additional shares of Class A Common Stock at the price to public set forth on
the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the Offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company, and Valcor, and each of their respectivethe Company's officers and directors have agreed
that, for a period of 180 days from the date of this Prospectus, they will not,
without the prior written consent of Smith Barney Inc., offer, sell, contract to
sell, or otherwise dispose of, any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, Common Stock of
the Company.
At the request of the Company, the Underwriters have reserved up to 140,000
shares of Class A Common Stock for sale at the public offering price to
directors, officers and employees of the Company. The number of shares of Class
A Common Stock available for sale to the general public will be reduced to the
extent such persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters on the same basis as all other
shares offered hereby.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Class A Common Stock) than the total
amount shown on the list of Underwriters and participations which appears above)
and may effect transactions which stabilize, maintain or otherwise affect the
market price of the Class A Common Stock at levels above those which might
otherwise prevail in the open market. Such transactions may include placing bids
for the Class A Common Stock or effecting purchases of the Class A Common Stock
for the purpose of pegging, fixing or maintaining the price of the Class A
Common Stock or for the purpose of reducing a syndicate short position created
in connection with the Offering. A syndicate short position may be covered by
exercise of the option described above in lieu of or in addition to open market
purchases. In addition, the contractual arrangements among the Underwriters
include a provisionsprovision whereby if the Representatives purchase Class A Common Stock
in the open market for the account of the underwriting syndicate and the
securities purchased can be traced to a particular Underwriter or member of the
selling group, the underwriting syndicate may require the Underwriter or selling
group member in question to purchase the Common Stock in question at the cost
price to the syndicate or may recover from (or decline to pay to) the
Underwriter or selling group member in question the selling concession
applicable to the securities in question. The Underwriters are not required to
engage in any of these activities and any such activities, if commenced, may be
discontinued at any time.
Prior to this Offering, there has not been any public market for the Class
A Common Stock of the Company. Consequently, the initial public offering price
for the Shares of Class A Common Stock included in this Offering has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining such price were the history of and
prospects for the Company's business and the industry in which it competes, an
assessment of the Company's management and the present state of the Company's
development, the past and present revenues and earnings, the current state of
the economy in the United States and the current level of economic activity in
the industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.
Under Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), if more than 10% of the net proceeds of a
public offering of equity securities are to be paid to members of the NASD that
are participating in the offering, or affiliated or associated persons, the
price of the equity securities distributed to the public must be no higher than
that recommended by a "qualified independent underwriter," as defined in Rule
2720 of the Conduct Rules of the NASD. Because NationsBank, N.A., an affiliate
of NationsBanc Montgomery Securities LLC, and First Union National Bank, an
affiliate of Wheat First Securities, Inc., are lenders under the Revolving
Senior Credit Facility and will receive
55
60
repayment of amounts outstanding under the Revolving Senior Credit Facility from
the net proceeds of the Offering that are, in the aggregate, more than 10% of
the net proceeds of the Offering, Smith Barney Inc., another Underwriter of the
Offering (the "Independent Underwriter"), will act as a qualified independent
underwriter in connection with the Offering. The Independent Underwriter, in its
role as qualified independent underwriter, has performed due diligence
investigations and reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
The Independent Underwriter will not receive any additional fees for serving as
a qualified independent underwriter in connection with the Offering. The price
of the shares of Class A Common Stock sold to the public will be no higher than
that recommended by the Independent Underwriter.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the shares offered hereby will be
passed upon for the Company by Rogers & Hardin LLP, Atlanta, Georgia, of which
Mr. Hardin, a director of the Company, is a partner. The Underwriters have been
represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996 and
September 30, 1997, and the
related consolidated statements of income, cash flows and stockholder's equity
for each of the three years in the period ended December 31, 1996 and for the nine months ended September 30, 1997 included in
this Prospectus and elsewhere in the Registration Statement, have been included
herein in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated combined balance sheet of the Fort Lock Group as of June
29, 1996 and June 28, 1997, and the related consolidated combined statements of
income, cash flows and stockholders' equity for the fiscal years ended June 24,
1995, June 29, 1996 and June 28, 1997, included in the Prospectus, have been
included herein in reliance upon the report of Altschuler, Melvoin and Glasser
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act (together with all amendments and exhibits thereto,
the "Registration Statement"), with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits filed as part thereof. For further information with
respect to the Company and the shares of Class A Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete
and are qualified in their entirety by reference to each such contract,
agreement or other document which is filed as an exhibit to the Registration
Statement. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Regional
offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a
worldwide web site that contains reports, proxy statements and other information
regarding registrants, including the Company, that file electronically with the
Commission, at http://www.sec.gov.
56
61
INDEX TO CONSOLIDATEDHISTORICAL FINANCIAL STATEMENTS
PAGE
NUMBER
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET:
Pro Forma Condensed Consolidated Balance Sheet -
September 30, 1997................................. FA-2
Notes to Pro Forma Condensed Consolidated
Balance Sheet........................................ FA-3
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS:
PAGE
NUMBER
------
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF COMPX
INTERNATIONAL INC.:
Report of Independent Accountants......................... FA-1
Consolidated Balance Sheets -- December 31, 1996 and
1997................................................... FA-2
Consolidated Statements of Income -- Years ended December
31, 1995, 1996 and 1997................................ FA-3
Consolidated Statements of Cash Flows -- Years ended
December 31, 1995, 1996 and 1997....................... FA-4
Consolidated Statements of Stockholder's Equity -- Years
ended December 31, 1995, 1996 and 1997................. FA-5
Notes to Consolidated Financial Statements................ FA-6
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE FORT
LOCK GROUP:
Independent Auditors' Report.............................. FB-1
Consolidated Combined Balance Sheets -- June 29, 1996 and
June 28, 1997; December 27, 1997 (unaudited)........... FB-2
Consolidated Combined Statements of Income -- Fiscal years
ended June 24, 1995, June 29, 1996 and June 28, 1997;
26 weeks ended December 28, 1996 and December 27, 1997
(unaudited)............................................ FB-3
Consolidated Combined Statements of Changes in
Stockholders' Equity -- Fiscal years ended June 24,
1995, June 29, 1996 and June 28, 1997; 26 weeks ended
December 27, 1997 (unaudited).......................... FB-4
Consolidated Combined Statement of Cash Flows -- Fiscal
years ended June 24, 1995, June 29, 1996 and June 28,
1997; 26 weeks ended December 28, 1996 and December 27,
1997 (unaudited)....................................... FB-5
Notes to the Consolidated Combined Financial Statements... FB-6
F-1
62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Independent Accountants...................... FB-1
Consolidated Balance Sheets -Directors of CompX International Inc.:
We have audited the accompanying consolidated balance sheets of CompX
International Inc. as of December 31, 19951996 and 1996;
September 30, 1997, ......................... FB-2
Consolidated Statementsand the related
consolidated statements of Income -
Yearsincome, cash flows and stockholder's equity (deficit)
for each of the three years in the period ended December 31, 1994, 19951997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and 1996;
nine months ended September 30,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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CompX International Inc. as of December 31, 1996 (unaudited);
nine months ended September 30, 1997................. FB-4
Consolidated Statementsand 1997, and the consolidated
results of Stockholder's Equity -
Yearstheir operations and their cash flows for each of the three years in
the period ended December 31, 1994, 1995 and 1996;
nine months ended September 30, 1997.............. FB-5
Consolidated Statements of Cash Flows -
Years ended December 31, 1994, 1995 and 1996;
nine months ended September 30, 1996 (unaudited);
nine months ended September 30, 1997................. FB-6
Notes1997, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 23, 1998, except
for Note 12 as to Consolidated Financial Statements............. FB-7which
the date is March 5, 1998
FA-1
63
COMPX INTERNATIONAL INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma condensed consolidated balance sheet as of
September 30,SHEETS
DECEMBER 31, 1996 AND 1997
is based on the Company's Historical Consolidated Financial
Statements included in this Prospectus, adjusted to give pro forma effect to (i)
payment of a $50 million dividend to Valcor by distribution of a $50 million
demand note payable to Valcor, (ii) repayment of the demand note payable to
Valcor from borrowings under the Revolving Senior Credit Facility and (iii) the
Offering and application of the net proceeds therefrom, under the assumptions
set forth in the respective notes. The unaudited pro forma condensed
consolidated balance sheet does not purport to represent what the Company's
consolidated financial position would actually have been at such date had such
transactions in fact occurred on such date nor does such statement purport to be
indicative of the Company's consolidated financial position at any date in the
future.
COMPX INTERNATIONAL INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
(In millions)(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Pro forma Pro forma Pro forma
adjustments adjustmentsadjustmentsPro forma,
ASSETS Historical (a) Pro (b) (c) as
forma adjusted1996 1997
------- -------
Current assets:
Cash and cash $15.3 $ - $15.3 $ - $ 28.2 $43.5
equivalents
Other current assets 25.2 - 25.2 - - 25.2
40.5 - 40.5 - 28.2 68.7
Other assets .1 - .1 - - .1
Property and equipment, 17.9 - 17.9 - - 17.9
net
$58.5 $ - $58.5 $ - $ 28.2 $86.7
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Demand note payable t $ - $ 50.0 $50.0 $(50.0) $ - $ -
Valcor
Other current 10.2 - 10.2 - - 10.2
liabilities
10.2 50.0 60.2 (50.0) - 10.2
Long-term debt .4 - .4 50.0 (50.0) .4
Other noncurrent 1.3 - 1.3 - - 1.3
liabilities
Stockholders' equity 46.6 (50.0) (3.4) - 78.2 74.8
$58.5 $ - $58.5 $ - $ 28.2 $86.7
COMPX INTERNATIONAL INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
Note 1 - Pro forma adjustments:
Pro forma adjustments described below reflect (i) payment of a $50 million
dividend to Valcor by distribution of a $50 million demand note payable to
Valcor, (ii) repayment of such demand note from borrowings under the Revolving
Senior Credit Facility and (iii) the Offering and application of the net
proceeds therefrom, as described in the table below, as if such transactions had
occurred on September 30, 1997.
(a) Payment of a $50 million dividend to Valcor by
distribution of a $50 million demand note payable to
Valcor.
(b) Repayment of the demand note payable to Valcor from
borrowings pursuant to the Revolving Senior Credit
Facility.
Amount
(In millions)
(c) Proceeds of the Offering:
Issuance of the Class A Common Stock $ 84.6
Less underwriting discount (5.9)
Less estimated expenses of the (.5)
Offering
78.2
Repayment of borrowings under the
Revolving (50.0)
Senior Credit Facility
Net cash $ 28.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of CompX International Inc.:
We have audited the accompanying consolidated balance sheets of CompX
International Inc. (formerly National Cabinet Lock, Inc.)
as of December 31, 1995 and 1996 and September 30, 1997, and the related
consolidated statements of income, cash flows and
stockholder's equity for each of the three years in the period ended December
31, 1996 and for the nine months ended September 30,
1997. 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 in accordance with generally accepted auditing
standards. 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. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the
consolidated financial position of CompX International Inc. as of December 31,
1995 and 1996 and September 30, 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 and
for the nine months ended September 30, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
December 17, 1997
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, September
30,
ASSETS 1995 1996 1997
Current assets:
Cash and cash equivalents $ 6,548equivalents................................. $ 8,550 $15,331$19,187
Accounts receivable, less allowance for doubtful accounts
of $138, $167 10,748and $311....................................... 11,658 13,950
and
$31414,573
Receivable from affiliates 320affiliates................................ 384 290
Inventories 9,217--
Inventories............................................... 10,879 10,29311,073
Prepaid expenses 241expenses.......................................... 394 332161
Deferred income taxes 592taxes..................................... 343 343438
------- -------
Total current assets 27,666assets.............................. 32,208 40,53945,432
------- -------
Other assets 139assets:
Deferred income taxes..................................... -- 133
Other..................................................... 83 7366
------- -------
83 199
------- -------
Property and equipment:
Land 396Land...................................................... 394 392
Buildings 8,372383
Buildings................................................. 8,364 8,319
Equipment 19,2898,194
Equipment................................................. 20,668 23,35824,343
Construction in progress 291progress.................................. 88 1,329
28,348707
------- -------
29,514 33,39833,627
Less accumulated depreciation 11,745depreciation............................. 13,355 15,55415,464
------- -------
Net property and equipment 16,603equipment........................ 16,159 17,844
$44,40818,163
------- -------
$48,450 $58,456
COMPX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except share data)
December 31, September
30,$63,794
======= =======
LIABILITIES AND STOCKHOLDER'S 1995 1996 1997
EQUITY (DEFICIT)
Current liabilities:
Demand note payable to Valcor............................. $ -- $50,000
Current maturities of long-term deb $ 39 $debt...................... 88 $ 125113
Accounts payable and accrued 8,218liabilities.................. 6,896 8,994
liabilities
Payable11,427
Other payable to affiliates -affiliates............................... 5 -331
Income taxes 1,302taxes.............................................. 1,066 1,0992,559
------- -------
Total current liabilities 9,559liabilities......................... 8,055 10,21864,430
------- -------
Noncurrent liabilities:
Long-term debt 59debt............................................ 74 290262
Deferred income taxes 2,005taxes..................................... 1,068 1,261
Other 173115
Other..................................................... 11 112150
------- -------
Total noncurrent liabilities 2,237liabilities...................... 1,153 1,663527
------- -------
Stockholder's equity:equity (deficit):
Preferred stock, $1 par value; 1,00
shares - - -
authorized, none issued
Common stock, $1$.01 par value; 1,000 shares 1 1 1authorized,
none issued............................................ -- --
Class A common stock, $.01 par value; 20,000,000 shares
authorized,
none issued............................................ -- --
Class B common stock, $.01 par value; 10,000,000 shares
authorized, issued and outstandingoutstanding..................... 100 100
Additional paid-in capital 4,511 4,511 4,511capital................................ 4,412 4,412
Retained earnings 28,070(deficit)............................... 34,852 42,324(4,596)
Currency translation adjustment 30adjustment........................... (122) (261)(1,079)
------- -------
Total stockholder's equity 32,612(deficit).............. 39,242 46,575
$44,408(1,163)
------- -------
$48,450 $58,456
$63,794
======= =======
Commitments and contingencies (Note 10)
See accompanying notes to consolidated financial statements.
FA-2
64
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended Nine months ended
December 31, September 30,
1994 1995 1996 1996 1997
(unaudited)------- ------- --------
Revenues:
Net sales $70,029sales................................................. $80,238 $88,744 $64,693 $80,296$108,652
Other income 793income.............................................. 499 759 538 607
70,822872
------- ------- --------
80,737 89,503 65,231 80,903109,524
------- ------- --------
Costs and expenses:
Cost of sales 42,651sales............................................. 52,400 58,295 43,461 52,90370,638
Selling, general an
administrative 7,401and administrative....................... 8,465 9,106 6,961 8,259
Interest 1811,018
Interest.................................................. 13 18 73 27
50,070199
------- ------- --------
60,878 67,419 50,495 61,18981,855
------- ------- --------
Income before income taxes 20,752taxes........................ 19,859 22,084 14,736 19,71427,669
Provision for income taxes
8,833taxes.................................. 7,758 9,055 6,012 7,72611,019
------- ------- --------
Net income $11,919income........................................ $12,101 $13,029 $ 8,724 $11,98816,650
======= ======= ========
Unaudited pro forma per share data:
Net income................................................ $ 16,650
Pro forma adjustment -- reduction in net income for
employee stock grants.................................. (2,012)
--------
Pro forma net income...................................... $ 14,638
========
Basic and diluted pro forma net income per common shareshare... $ 1.17 $ 1.19 $ 1.28 $ .86 $ 1.171.14
========
Common shares 10,200 10,200 10,200 10,200 10,200
outstandingoutstanding................................. 12,868
========
See accompanying notes to consolidated financial statements.
FA-3
65
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
1995 1996 1997
------- ------- -------
Cash flows from operating activities:
Net income................................................ $12,101 $13,029 $16,650
Depreciation and amortization............................. 2,193 2,483 2,811
Deferred income taxes..................................... (475) (625) (651)
Other, net................................................ 109 206 338
Change in assets and liabilities:
Accounts receivable.................................... (1,608) (1,093) (3,117)
Inventories............................................ (162) (1,662) (194)
Accounts payable and accrued liabilities............... 807 (1,277) 4,531
Accounts with affiliates............................... (292) (59) 710
Income taxes........................................... 111 (221) 1,502
Other, net............................................. 65 (306) 372
------- ------- -------
Net cash provided by operating activities......... 12,849 10,475 22,952
------- ------- -------
Cash flows from investing activities:
Capital expenditures...................................... (2,013) (2,287) (5,536)
Purchase of business unit................................. (5,982) -- --
Other, net................................................ 25 263 15
------- ------- -------
Net cash used by investing activities............. (7,970) (2,024) (5,521)
------- ------- -------
Cash flows from financing activities:
Long-term debt:
Additions.............................................. -- -- 369
Principal payments..................................... (42) (74) (156)
Repayment of loans from affiliates........................ (250) -- --
Dividends................................................. (6,000) (6,247) (6,098)
------- ------- -------
Net cash used by financing activities............. (6,292) (6,321) (5,885)
------- ------- -------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities.......... (1,413) 2,130 11,546
Currency translation................................... 373 (128) (909)
Balance at beginning of year.............................. 7,588 6,548 8,550
------- ------- -------
Balance at end of year.................................... $ 6,548 $ 8,550 $19,187
======= ======= =======
Supplemental disclosures:
Cash paid for:
Interest............................................... $ 13 $ 18 $ 35
Income taxes........................................... 8,407 9,974 9,617
Dividend in the form of a demand note payable............. $ -- $ -- $50,000
See accompanying notes to consolidated financial statements.
FA-4
66
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY Years ended December(DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995, and 1996 and
Nine months ended September 30,AND 1997
(In thousands)(IN THOUSANDS)
Additional
Common paid-in Retained
stock capital earningsTOTAL
CLASS B ADDITIONAL RETAINED CURRENCY STOCKHOLDER'S
COMMON PAID-IN EARNINGS TRANSLATION EQUITY
STOCK CAPITAL (DEFICIT) ADJUSTMENT (DEFICIT)
------- ---------- --------- ----------- -------------
Balance at December 31, 1993 $11994............. $100 $4,412 $ 4,511 $14,63021,969 $ (294) $ 26,187
Net income - - 11,919
Dividends - - (4,580)income............................. -- -- 12,101 -- 12,101
Cash dividends......................... -- -- (6,000) -- (6,000)
Adjustments, net - - -net....................... -- -- -- 324 324
---- ------ -------- ------- --------
Balance at December 31, 1994 1 4,511 21,9691995............. 100 4,412 28,070 30 32,612
Net income - - 12,101
Dividends - - (6,000)income............................. -- -- 13,029 -- 13,029
Cash dividends......................... -- -- (6,247) -- (6,247)
Adjustments, net - - -net....................... -- -- -- (152) (152)
---- ------ -------- ------- --------
Balance at December 31, 1995 1 4,511 28,0701996............. 100 4,412 34,852 (122) 39,242
Net income - - 13,029
Dividends - - (6,247)income............................. -- -- 16,650 -- 16,650
Dividends:
Cash................................ -- -- (6,098) -- (6,098)
Noncash............................. -- -- (50,000) -- (50,000)
Adjustments, net - - -net....................... -- -- -- (957) (957)
---- ------ -------- ------- --------
Balance at December 31, 1996 1 4,511 34,852
Net income - - 11,988
Dividends - - (4,516)
Adjustments, net - - -
Balance at September 30, 1997 $1 $4,511 $42,3241997............. $100 $4,412 $ (4,596) $(1,079) $ (1,163)
==== ====== ======== ======= ========
Currency Total
translationstockholder'
adjustment s
equity
Balance at December 31, 1993 $ 235 $19,377
Net income - 11,919
Dividends - (4,580)
Adjustments, net (529) (529)
Balance at December 31, 1994 (294) 26,187
Net income - 12,101
Dividends - (6,000)
Adjustments, net 324 324
Balance at December 31, 1995 30 32,612
Net income - 13,029
Dividends - (6,247)
Adjustments, net (152) (152)
Balance at December 31, 1996 (122) 39,242
Net income - 11,988
Dividends - (4,516)
Adjustments, net (139) (139)
Balance at September 30, 1997 $(261) $46,575
COMPX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months ended
Year ended December 31, September 30,
1994 1995 1996 1996 1997
(unaudited)
Cash flows from operating
activities:
Net income $11,919 $12,101 $13,029 $ 8,724 $11,988
Depreciation and amortizatio 1,746 2,193 2,483 2,128 2,310
Deferred income taxes 477 (475) (625) 138 295
Other, net (13) 109 206 228 170
Change in assets and
liabilities:
Accounts receivable (1,206) (1,608) (1,093) (1,404) (2,479)
Inventories (2,143) (162) (1,662) (275) 586
Accounts payable and
accrued 898 807 (1,277) (528) 2,098
liabilities
Accounts with affiliates (570) (292) (59) 110 89
Income taxes (1,221) 111 (221) 113 42
Other, net (162) 65 (306) (220) 163
Net cash provided by
operating
9,725 12,849 10,475 9,014 15,262
activities
Cash flows from investing
activities:
Capital expenditures (3,405) (2,013) (2,287) (2,134) (4,084)
Purchase of business unit - (5,982) -
Other, net 295 25 263 188 -
Net cash used by
investing
(3,110) (7,970) (2,024) (1,946) (4,084)
activities
Cash flows from financing
activities:
Indebtedness, net (39) (42) (74) (35) 253
Loans from affiliates:
Loans 900 - - - -
Repayments (650) (250) - - -
Dividends (4,580) (6,000) (6,247) (4,500) (4,516)
Net cash used by
financing
(4,369) (6,292) (6,321) (4,535) (4,263)
activities
Cash and cash equivalents:
Net increase (decrease) from
Operating, investing and
financing 2,246 (1,413) 2,130 2,533 6,915
activities
Currency translation (420) 373 (128) (28) (134)
Balance at beginning of 5,762 7,588 6,548 6,548 8,550
period
Balance at end of period $ 7,588 $ 6,548 $ 8,550 $ 9,053 $15,331
Supplemental disclosures - cas
paid
for:
Interest $ 18 $ 13 $ 18 $ 7 $ 27
Income taxes 9,749 8,407 9,974 5,664 7,295
See accompanying notes to consolidated financial statements.
FA-5
67
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NoteNOTE 1 - Organization and basis of presentation:-- ORGANIZATION:
CompX International Inc., formerly National Cabinet Lock, Inc. (collectively
the "Company"), is a wholly-owned subsidiary of Valcor, Inc.,
which is a wholly-
ownedwholly-owned subsidiary of Valhi, Inc. (NYSE: VHI). The Company is a
North American manufacturer of component products (principally ergonomic
computer support systems, precision ball bearing drawer slides and cabinet
locks) for furniture and other markets.
Contran Corporation holds, directly or through subsidiaries, approximately
93% of Valhi's outstanding common stock. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of
thecertain children and grandchildren of Harold C. Simmons, of which Mr. Simmons is
sole trustee. Mr. Simmons, the Chairman of the Board of each of Contran, Valhi
and Valcor, may be deemed to control each of such companies and the Company.
Information included in the consolidated financial statements for the
interim period ended September 30, 1996 is unaudited. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information for the interim periods have been
made. The results of operations for the interim periods are not necessarily
indicative of the operating results for a full year or of future operations.
NoteNOTE 2 - Summary of significant accounting policies:-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation. The accompanying consolidated financial
statements include the accounts of CompX International Inc. and its wholly-owned
Canadian subsidiary, Waterloo Furniture Components Limited.Limited (collectively the
"Company"). All material intercompany accounts and balances have been
eliminated.
Fiscal year. The Company's operations are comprised of a 52 or 53 week53-week
fiscal year. The years ended December 31, 1994, 1995, 1996 and 19961997 each consisted of
52 weeks, and the 1996 and 1997 nine-month interim periods each consisted of 39 weeks.
Management estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amount of revenues and expenses
during the reporting period. Ultimate actual results may, in some instances,
differ from previously estimated amounts.
Foreign currency transactions. Assets and liabilities of the Company's
Canadian subsidiary are translated at year-end rates of exchange and revenues
and expenses are translated at average exchange rates prevailing during the
year. Resulting translation adjustments, net of related deferred income tax
effects, are accumulated in the currency translation adjustment component of
stockholder's equity. Foreign currency transaction gains and losses are
recognized in income currently. AggregateThe net foreign currency transaction gains,gain,
included in other income, was $476,000 in 1994, $23,000 in 1995, and $136,000 in 1996 and $100,000 and $125,000 for the nine months ended September 30, 1996 and
1997, respectively.$303,000 in
1997.
Cash and cash equivalents. Cash equivalents consist principally of bank
time deposits and government and commercial notes and bills with original maturities of
three months or less.
Net sales. Sales are recorded when products are shipped.
Inventories and cost of sales. Inventories are stated at the lower of cost
or market. Inventories are based on average cost or the first-in, first-out
method.
Property, equipment and depreciation. Property and equipment, including
purchased computer software for internal use, are stated at cost. Maintenance,
repairs and minor renewals are expensed; major improvements are capitalized.
Depreciation is computed primarily on the straight-line method over the
estimated useful lives of 15 to 40 years for buildings and three to 10 years for
machinery and equipment.
Income taxes. CompX International, Valcor and Valhi are members of
Contran's consolidated United States federal income tax group (the "Contran Tax
Group"). The policy for intercompany allocation of federal income taxes provides
that subsidiaries included in the Contran Tax Group compute the provision for
federal income taxes on a separate company basis. Subsidiaries of Valcor make
payments to, or receive payments from, Valcor in the amount they would have paid
to or received from the Internal Revenue Service
FA-6
68
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
had they not been members of the Contran Tax Group. The separate company
provisions and payments are computed using the tax elections made by Contran. See Note 10.
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 the
Company's investment in the Canadian subsidiary which is not a member of the
Contran Tax Group.
New accounting principles not yet adopted. The Company will adopt Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income, in the first quarter of 1998. Upon adoption of SFAS No. 130, the Company
will present a new Statement of Comprehensive Income which will report all
changes in the Company's stockholder's equity other than transactions with its
stockholders. Comprehensive income pursuant to SFAS No. 130 would include the
Company's consolidated net income, as reported in the Consolidated Statement of
Income, plus the net change in the foreign currency translation component of
stockholder's equity.
The Company will adopt SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, no later than the fourth quarter of 1998.
SFAS No. 131 will supersede the business segment disclosure requirements
currently in effect under SFAS No. 14. SFAS No. 131, among other things,
establishes standards regarding the information a company is required to
disclose about its operating segments. SFAS No. 131 also provides guidance
regarding what constitutes a reportable operating segment. The Company expects
to have one operating segment pursuant to SFAS No. 131, the same one segment
currently in effect under SFAS No. 14. Accordingly, segment disclosures pursuant
to SFAS No. 131 are not expected to be materially different from the current
disclosures pursuant to SFAS No. 14.
Other. Advertising costs, expensed as incurred, were $346,000 in 1994,
$432,000 in 1995, and
$410,000 in 1996 and $311,000 and $335,000 for the nine
months ended September 30, 1996 and 1997, respectively.$555,000 in 1997. Research and development costs, expensed
as incurred, were $412,000 in 1994,
$391,000 in 1995, and $460,000 in 1996 and $424,000 and $339,000 for the nine
months ended September 30, 1996 and 1997, respectively.$468,000 in 1997.
Accounting and funding policies for retirement plans are described in Note 7.
NoteFA-7
69
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 - Geographic segments:-- GEOGRAPHIC SEGMENTS:
Nine months ended
September 30,
Years ended DecemberYEARS ENDED DECEMBER 31,
1994------------------------------
1995 1996 1996 1997
(unaudited)
(In thousands)------- ------- --------
(IN THOUSANDS)
Net sales:
Point of origin:
Canada........................................... $58,123 $65,758 $ 80,632
United States $23,901 $22,115 $22,986 $16,828 $21,320
Canada 46,128 58,123 65,758 47,865 58,976
$70,029States.................................... 22,115 22,986 28,020
------- ------- --------
$80,238 $88,744 $64,693 $80,296$108,652
======= ======= ========
Point of destinationdestination:
United States $50,859States.................................... $55,442 $58,155 $42,965 $52,518
Canada 17,158$ 70,354
Canada........................................... 22,788 27,763 19,735 24,706
Other 2,01233,974
Other............................................ 2,008 2,826 1,993 3,072
$70,0294,324
------- ------- --------
$80,238 $88,744 $64,693 $80,296$108,652
======= ======= ========
Operating income:
Canada.............................................. $13,425 $16,417 $ 20,533
United States $ 7,816 $States....................................... 6,441 $ 5,697 $ 4,444 $ 5,765
Canada 13,079 13,425 16,417 10,337 14,362
20,8957,807
------- ------- --------
19,866 22,114 14,781 20,12728,340
General corporate income (125)(expense), net............... 6 (12) 28 (386)
(expense), net(472)
Interest expense (18)expense...................................... (13) (18) (73) (27)(199)
------- ------- --------
Income before income taxes $20,752taxes.......................... $19,859 $22,084 $14,736 $19,714
December$ 27,699
======= ======= ========
DECEMBER 31,
September 30,
1995-------------------
1996 1997
(In thousands)------- -------
(IN THOUSANDS)
Identifiable assets:
Canada.................................................... $31,425 $35,061
United States $14,574 $17,025 $19,581
Canada 29,834 31,425 38,875
$44,408States............................................. 17,025 28,733
------- -------
$48,450 $58,456$63,794
======= =======
Capital expenditures exclude amounts attributable to business units
acquired in business combinations accounted for by the purchase method. In 1995,
the Company's Canadian subsidiary purchased certain assets of a competitor for
approximately $6 million cash.
At December 31, 1996,1997, the net assets of the Company's Canadian subsidiary
included in consolidated net assets approximated $25.4 million ($31.1 million at
September 30, 1997). Such net assets are restricted pursuant to the terms of
the subsidiary's bank credit agreement. See Note 6.
Note$24.3 million.
NOTE 4 - Inventories:-- INVENTORIES:
DecemberDECEMBER 31,
September
30,
1995-----------------
1996 1997
(In thousands)------- -------
(IN THOUSANDS)
Raw materials $1,927materials............................................... $ 2,556 $ 1,9822,057
Work in process 4,320process............................................. 4,974 4,9875,193
Finished products 2,921products........................................... 3,300 3,276
Supplies 493,775
Supplies.................................................... 49 48
$9,217------- -------
$10,879 $10,293$11,073
======= =======
NoteFA-8
70
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 - Accounts payable and accrued liabilities:-- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
DecemberDECEMBER 31,
September
30,
1995----------------
1996 1997
(In thousands)------ -------
(IN THOUSANDS)
Accounts payable $3,128payable............................................ $3,112 $3,848$ 5,497
Accrued liabilities:
Employee benefits 2,209benefits......................................... 2,265 2,855
Royalties 5383,490
Insurance................................................. 152 633
Royalties................................................. 476 433
Other 2,343 1,043 1,858
$8,218447
Other..................................................... 891 1,360
------ -------
$6,896 $8,994$11,427
====== =======
NoteNOTE 6 - Long-term debt:
The Company's Canadian subsidiary has a bank credit agreement which provides
for a Canadian $2.6 million (U.S. $1.9 million at September 30, 1997) term
facility due through 2003 and a Canadian $4 million (U.S. $2.9 million at
September 30, 1997) revolving facility due through March 1998. Borrowings may
be in U.S. or Canadian dollars, bear interest, at the Company's option, at the
prime rate or LIBOR plus .5% and are collateralized by substantially all of the
subsidiary's assets. The credit agreement requires the subsidiary to maintain
certain financial ratios, limits additional indebtedness and dividends and
contains-- INDEBTEDNESS:
At December 31, 1997 other provisions and covenants customary in lending transactions of
this type. At September 30, 1997, the full amount of this facility was
available for borrowing.
Other long-term debt consists of capital lease
obligations due through 2001. See Note 9 for a discussion of the Company's
demand note payable to Valcor.
NOTE 7 - Employee benefit plans:
Defined contribution plans.-- EMPLOYEE BENEFIT PLANS:
Substantially all employees are eligible to participate in
Company-sponsored contributory savings plans with partial matching Company
contributions. In addition, substantially all U.S. employees participate in a
Company-sponsored noncontributory defined contribution plan with Company
contributions based on a profit sharing formula. Company contributions to these
plans aggregated $840,000 in 1994, $838,000 in 1995, and $842,000 in 1996 and $593,000 and $810,000 for the nine months ended September
30, 1996 and 1997, respectively.
Note$1,051,000 in 1997.
FA-9
71
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 - Income taxes:-- INCOME TAXES:
Nine months ended
Years ended DecemberYEARS ENDED DECEMBER 31,
September 30,
1994-----------------------------
1995 1996 1996 1997
(unaudited
)
(In thousands)------- ------- -------
(IN THOUSANDS)
PretaxComponents of pre-tax income:
Canada............................................. $13,425 $16,417 $20,533
United States $ 7,673 $States...................................... 6,434 $ 5,667 $ 4,465 $ 5,352
Canada 13,079 13,425 16,417 10,271 14,362
$20,7527,136
------- ------- -------
$19,859 $22,084 $14,736 $19,714$27,669
======= ======= =======
Expected tax expense, at the United
StatesU.S. federal statutory
$7,263income tax rate of 35%............................. $ 6,951 $ 7,729 $ 5,158 $ 6,900
income9,684
Non-U.S. tax rate of 35%rates................................... 882 128 550
Incremental U.S. tax on earnings of 1,301Canadian
subsidiary......................................... 750 1,050 389 459
Canadian subsidiary631
Rate change adjustment of deferred taxes resulting
from - (978) - - -
U.S./Canadian tax treatytreaty...................... (978) -- --
State income taxes and other, 269 1,035 276 465 367
net
$ 8,833net.................... 153 148 154
------- ------- -------
$ 7,758 $ 9,055 $ 6,012 $ 7,726$11,019
======= ======= =======
Provision for income taxes:
Currently payable:
Federal $3,265U.S. federal.................................... $ 2,065 $ 1,676 $ 1,537 $ 1,879
State 3452,491
U.S. state...................................... 255 260 150 215
Canadian 4,746256
Canadian........................................ 5,913 7,744 4,187 5,337
8,3568,923
------- ------- -------
8,233 9,680 5,874 7,43111,670
------- ------- -------
Deferred taxes, principall 477taxes:
U.S............................................. (561) (872) (85)
Canadian........................................ 86 247 (566)
------- ------- -------
(475) (625) 138 295
U.S.
$ 8,833(651)
------- ------- -------
$ 7,758 $ 9,055 $ 6,012 $ 7,726$11,019
======= ======= =======
FA-10
72
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net deferred tax assets (liabilities) are summarized
below. Deferred income taxes charged (credited) to the foreign currency
translation component of stockholder's equity were not material in eachany of the
periods presented.past three years.
DecemberDECEMBER 31,
September
30,
1995----------------
1996 1997
(In thousands)------- -----
(IN THOUSANDS)
Tax effect of temporary differences relating to:
Inventories $ 155Inventories............................................... $ 172 $ 172198
Property and equipment (1,093)equipment.................................... (1,236) (1,231)(717)
Accrued liabilities and other deductible 547differences...... 233 233
differences447
Investment in Canadian subsidiary not a (1,022) 106 (92)
member of the
consolidated tax group
$(1,413)group................................. 106 627
Other taxable differences................................. -- (99)
------- -----
$ (725) $ (918)456
======= =====
Current deferred tax assets $ 592assets................................. $ 343 $ 343438
Noncurrent deferred tax liabilities (2,005)assets.............................. -- 133
Noncurrent deferred tax liabilities......................... (1,068) (1,261)
$(1,413)(115)
------- -----
$ (725) $ (918)456
======= =====
NoteNOTE 9 - Related party transactions:-- RELATED PARTY TRANSACTIONS:
The Company 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. The Company
continuously considers, reviews and evaluates, and understands 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
the Company might be a party to one or more such transactions in the future.
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.
Receivables from and payable to affiliates are summarized below.
DecemberDECEMBER 31,
September
30,
1995---------------
1996 1997
(In thousands)---- -------
(IN THOUSANDS)
Receivable from affiliates --- income $320taxes.................. $384 $290
taxes$ --
==== =======
Payable to affiliates - insurance
premiumsaffiliates:
Demand note payable to Valcor............................. $ -- $50,000
Income taxes and other
$ -other.................................... 5 331
---- -------
$ 5 $ -$50,331
==== =======
FA-11
73
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 12, 1997, the Company paid a $50 million dividend to Valcor in
the form of a $50 million demand note payable (the "Valcor Note"). The Valcor
Note is unsecured and bears interest at a fixed rate of 6%. Interest expense
related to the Valcor Note was $164,000 in 1997. See Note 12.
Under the terms of Intercorporate Service Agreements with Valhi, Valhi
performs certain management, financial and administrative services for the
Company on a fee basis. Such fees are based upon estimates of time devoted to
the affairs of the Company by individual Valhi employees and the salaries of
such persons. Fees pursuant to these agreements were $224,000 in
1994, $284,000 in 1995, and $300,000
in 1996 and $225,000 and $195,000 for the
nine months ended September 30, 1996 and 1997, respectively.$260,000 in 1997. Net charges from related parties for services
provided in the ordinary course of business, principally charges for insuring
property and other risks, aggregated $160,000
in 1994, $152,000 in 1995, and $149,000 in 1996 and
$139,000$208,000 in 1997. These fees and $175,000 forcharges are principally pass-through in nature
and, in the nine months ended September 30, 1996Company's opinion, are reasonable and 1997, respectively.not materially different from
those that would have been incurred on a stand-alone basis.
Certain employees of the Company have been awarded shares of restricted
Valhi common stock and/or granted options to purchase Valhi common stock under
the terms of Valhi's stock option plans. TheUpon exercise of the options, the
Company will pay Valhi the aggregate difference between the option price and the
market value of Valhi's common stock on the exercise date of such options. For
financial reporting purposes, the Company accounts for the related expense
(credit) ($101,000) in
1994,of $(12,000) in 1995, and $9,000 in 1996 and ($31,000) and $386,000 for the
nine months ended September 30, 1996 and$472,000 in 1997 respectively) in a manner
similar to accounting for stock appreciation rights. At September 30,December 31, 1997,
employees of the Company held options to purchase 216,000204,000 Valhi shares at prices
ranging from $4.76 to $14.66 per share (192,000(185,000 shares at prices lower than Valhi's
September 30,the
December 31, 1997 quoted market price of $9$9.44 per share).
Restricted stock is forfeitable unless certain periods of employment are
completed. The Company will pay Valhi the market value of the restricted shares
on the dates the restrictions expire, and accrue the related expense over the
restriction period. Expense related to restricted stock was $24,000 in 1994,
$6,000 in 1995 and
$3,000 in 1996, and $3,000 and nil for the nine months ended
September 30, 1996 and 1997, respectively.1996. All outstanding restricted stock vested in 1996.
NoteNOTE 10 - Commitments and contingencies:-- COMMITMENTS AND CONTINGENCIES:
Legal proceedings. The Company is involved in various routine legal
proceedings incidental to its normal business activities. The Company believes
none of such proceedings is material in relation to the Company's financial
position, results of operations or liquidity.
Income taxes. The Company is undergoing examinations of certain of its
income tax returns, and tax authorities have or may propose tax deficiencies.
The Company believes that it has adequately provided accruals for additional
income taxes and related interest expense which may ultimately result from such
examinations and believes that the ultimate disposition of all such examinations
should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
The Company and Valcor have entered into a tax sharing agreement (the "Tax
Sharing Agreement") which provides for the allocation of tax liabilities and tax
payments as described in Note 2. The Company is jointly and severally liable for
the federal income tax of Contran and the other companies included in the
Contran Tax Group for all periods in which the Company is included in Contran
Tax Group. Valcor and Valhi has agreed, however, to indemnify the Company for
any liability for income taxes of the Contran Tax Group in excess of the
Company's tax liability computed in accordance with the Tax Sharing Agreement.
Concentration of credit risk. The Company's products are sold primarily to
original equipment manufacturers in the U.S. and Canada. The ten largest
customers accounted for approximately one-third of sales during each of the past
three years with at least five of such customers in each year located in the
United States.
FA-12
74
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30,December 31, 1997, approximately 69%70% of the Company's cash and cash
equivalents was on deposit withinvested in A1 or P1-grade commercial paper issued by various
third parties having a single Canadian bank (December 31, 1996 -maturity of three months or less (1996 -- approximately
75% was on deposit with a single Canadian bank).
Other. Royalty expense was $632,000 in 1994, $622,000 in 1995, and $601,000 in 1996, and $565,000 and $702,000 for the nine months ended September 30, 1996
and 1997, respectively.$849,000
in 1997. Royalties relate principally to certain licensing
arrangements for certain Canadian-produced products sold
in the United States and are based upon volume.
Rent expense, principally for equipment, was $274,000 in 1994, $295,000 in 1995, and $387,000 in
1996 and $302,000 and $298,000 for the nine months ended
September 30, 1996 and$425,000 in 1997. At December 31, 1997, respectively. Futurefuture minimum rentals under
noncancellable operating leases are approximately $250,000 in 1997, $200,000$260,000 in 1998, $125,000$190,000 in
1999, $145,000 in 2000, $85,000 in 2001 and $50,000$15,000 in 2000.
Note2002.
NOTE 11 - Quarterly results of operations (unaudited)-- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarter ended
MarchQUARTER ENDED
---------------------------------------
MARCH 31 JuneJUNE 30 Sept.SEPT. 30 Dec.DEC. 31
(In millions, except per share data)-------- ------- -------- -------
(IN MILLIONS)
1995:
Net salessales....................................... $20.1 $19.2 $19.4 $21.5
Operating incomeincome................................ 5.5 5.1 4.5 4.8
Net incomeincome...................................... 3.2 3.0 2.7 3.2
Net income per common share $ .31 $ .30 $ .26 $ .32
1996:
Net salessales....................................... $21.2 $21.7 $21.8 $24.1
Operating incomeincome................................ 4.4 5.0 5.4 7.3
Net incomeincome...................................... 2.6 2.9 3.2 4.3
Net income per common share $ .25 $ .29 $ .32 $ .42
1997:
Net salessales....................................... $25.8 $27.4 $27.0 $28.4
Operating incomeincome................................ 6.3 6.9 6.9 8.2
Net incomeincome...................................... 3.7 4.2 4.1 Net income per common $ .36 $ .41 $ .40
share4.7
NoteNOTE 12 - Subsequent events:-- SUBSEQUENT EVENTS:
New credit facility. On December 12, 1997,February 26, 1998, the Company paid a $50 million dividend to Valcor in
the form of a $50 million demand note payable (the "Valcor Note"). The Valcor
Note is unsecured and bears interest at a fixed rate of 6%. Prior to completion
of a public offering of shares of Class A common stock discussed below, the
Company plans to enterentered into a new
$50$100 million revolving senior credit facility (the "Revolving Senior Credit
Facility"). The Revolving Senior Credit Facility is expected to be aan unsecured five-year
revolving facility collateralized by substantially
all of the Company's assets.facility. Borrowings are expected to be available for the Company's general corporate
purposes, including potential acquisitions. Prior to
completion of the offering,On February 26, 1998, the Company
intends to borrowutilized borrowings under the Revolving Senior Credit Facility to fully repay
the Valcor Note.
Prior to completion of the offering,Recapitalization. On February 4, 1998, the Company intends to amendamended and restaterestated
its certificate of incorporation. The amendment and restatement of the
Company's certificate of incorporation is expected to become effective
immediately prior to completion of the offering. The amendment contemplates the authorized capital stock of the Company
would consistnow consists of shares of Class A Common Stock (20,000,000 shares authorized)
and Class B Common Stock (10,000,000 shares authorized), each par value $.01 per
share, and 1,000 shares of preferred stock, par value $.01 per share. Upon the
effectiveness of the amendment and restatement of the certificate of
incorporation, the 1,000 shares of the Company's common stock, $1 par value,
currentlypreviously outstanding and all held by Valcor, are expected to bewere reclassified into 10,200,00010,000,000
shares of the Company's Class B Common Stock. The accompanying consolidated
financial statements have been retroactively restated to reflect this
recapitalization.
The shares of Class A Common Stock and Class B Common Stock will beare 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 will beare entitled to one vote per share. Holders of Class B Common Stock are
entitled to one vote per share andin all matters except for election of directors
where such holders of Class B
Common Stock will beare 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 will have an equal and ratable
FA-13
75
COMPX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
right to receive dividends to be paid from the Company's assets legally available therefor when, as and if
declared by the Board of Directors. In the event of the dissolution, liquidation
or winding up of the Company, the holders of Class A Common Stock and Class B
Common Stock will be entitled to share equally and ratably in the assets
available for distribution after payments are made to the Company's creditors
and to the holderholders of any preferred stock of the Company that may be outstanding
at the time. Shares of the Class A Common Stock will have no conversion rights.
Under certain conditions, shares of Class B Common Stock will convert, on a
share-for-share basis, into shares of Class A Common Stock.
Public offering. The Company's board of directorsCompany has authorized the Company to filefiled a
preliminary registration statement with the
Securities and Exchange Commission for an initial public offering of 5,200,000
shares of the Company's Class A Common Stock.
The net proceedsStock (5,980,000 shares if the
underwriters over-allotment option is exercised in full) at an offering price to
the Company from the offering would be available for the
Company's general corporate purposes.public of $20.00 per share. A portionmajority of the net proceeds to the Company
from the offering areis expected to be used to repay borrowings under the Revolving
Senior Credit Facility discussed above. There can be no assurance that any such
public offering will be completed.
Incentive compensation plan. The Company's board of directors has
authorized, subject to successful completion of the public offering described
above, the adoption of the CompX International Inc. 1997 Incentive Compensation
Plan (the "Incentive Plan"). The Incentive Plan will provide for the award or
grant of stock options, stock appreciation rights, performance grants and other
awards to employees and other individuals providing services to the Company. Up
to 1.5 million shares of Class A Common Stock may be issued pursuant to the
Incentive Plan. Stock options will be granted at prices not less than the market
price of the Company's stock on the date of grant, and will generally vest over
five years and expire ten years from the date of grant. In addition to the
164,880 shares outstandingof Class A Common Stock described below which were awarded
concurrent with the public offering, the Company has granted options to purchase
440,000 shares of the Company's Class A Common Stock pursuant to the Incentive
Plan to certain employees and directors of the Company and Valhi at an exercise
price equal to the public offering price. Other than the Management Shares and
stock options described herein, the Company currently has no plans to grant any
stock awards or stock options under the Incentive Plan, although it may do so in
the future.
The Company will account for stock-based employee compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and its various interpretations. Under APBO No. 25, no
compensation cost is generally recognized for fixed stock options in which the
exercise price is not less than the market price on the date of grant.
Stock award grants. The Company's board of directors has authorized,
subject to successful completion of the public offering described above, the
grant of 164,880 shares of Class A Common Stock to certain officers and
directors of the Company (the "Management Shares") for their services in
connection with the public offering. The Company will value all such Class A
shares awarded at the public offering price, and the aggregate value of the
Class A shares awarded will be approximately $3.3 million. The Company will
recognize a charge, at the time of the completion of the public offering, equal
to the aggregate value of the Class A shares awarded.
Acquisition. On March 3, 1998, the Company completed the purchase of a
lock competitor for a total purchase price of approximately $32.9 million cash.
Unaudited pro forma net income and net income per common share. The
unaudited pro forma net income in 1997 reflects the net-of-tax adjustment for
the award of the Management Shares described above. The unaudited pro forma data
uses the public offering price to the public of $20.00 per Class A share. Pro
forma common shares outstanding used in the calculation of pro forma earnings
per share for all periods
presented are based uponinclude (i) the 10,200,00010,000,000 shares of Class B Common Stock expected
to be outstanding
after the reclassificationrecapitalization discussed above, (ii) 164,880 shares of Class A
Common Stock to be awarded to officers and directors of the 1,000Company and (iii)
2,703,000 shares of Class A Common Stock to be issued in the Company's common stock, $1 par value discussed above.
The Company will retroactively adopt Statementpublic offering,
the net proceeds of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," effective December 31, 1997.
For the periods presented herein, basic earnings per share pursuant to SFAS No.
128which will be equivalentused to net income per common share presented herein, and
diluted earnings per share pursuantrepay $50 million of borrowings under
the Revolving Senior Credit Facility incurred to SFAS No. 128 will be equivalent to basic
earnings per share.
COMPX INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
Report of Independent Accountants S-2
Schedule I - Condensed Financial Information of Registrant S-3
Schedule II - Valuation and Qualifying Accounts S-8
Schedules III and IV are omitted because they are not applicable.repay the Valcor Note.
FA-14
76
INDEPENDENT AUDITORS' REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and BoardBoards of Directors
Fort Lock Corporation and Fortronics, Inc.
We have audited the accompanying consolidated combined balance sheets of
CompX International Inc.:
Our report onFort Lock Group as of June 29, 1996 and June 28, 1997, and the related
consolidated combined statements of income, changes in stockholders' equity and
cash flows for the fiscal years ended June 24, 1995, June 29, 1996 and June 28,
1997. These financial statements of CompX International
Inc. (formerly National Cabinet Lock, Inc.) as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996, is herein
included in this Registration Statement on Form S-1. These consolidated
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial
statement schedulesstatements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statement schedulesstatements referred to above when
considered in relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 7,consolidated combined financial position of Fort
Lock Group as of June 29, 1996 and June 28, 1997 COMPX INTERNATIONAL INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSEDand the results of its
operations and its cash flows for the fiscal years ended June 24, 1995, June 29,
1996 and June 28, 1997, in conformity with generally accepted accounting
principles.
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
September 26, 1997
FB-1
77
FORT LOCK GROUP
CONSOLIDATED COMBINED BALANCE SHEETS
December 31, 1995 and 1996
(In thousands)ASSETS
(Substantially all pledged -- Note 7)
ASSETS 1995JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ----------- ------------
(UNAUDITED)
Current assets:
Cash and cash equivalentsCash............................................... $ 1,85331,641 $ 2,09218,289 $ 129,240
Accounts receivable, 2,430 3,185
Receivable from affiliates 652 578trade (net of allowance for
doubtful accounts of $117,800, $105,121 and
$111,121 respectively).......................... 1,954,029 2,621,570 2,288,726
Inventories 3,830 5,405
Prepaid expenses 71 138(Notes 1 and 4)........................ 2,336,692 3,079,128 4,012,076
Deferred income taxes 581 343
Total(Note 8)..................... -- 183,000 183,000
Income taxes refundable............................ -- -- 150,453
Other current assets 9,417 11,741
Investment in Waterloo Furniture Components 22,482 25,441
Limitedassets............................... 347,798 132,522 40,154
---------- ----------- -----------
4,670,160 6,034,509 6,803,649
---------- ----------- -----------
Property and equipment 10,288 11,135
Less(at cost, net of accumulated
depreciation 4,799 5,657
Net property-- Notes 1 and equipment 5,489 5,478
$37,388 $42,660
COMPX INTERNATIONAL INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS (CONTINUED)
December 31, 1995 and 1996
(In thousands)
5)..................... 3,259,059 4,552,887 5,356,443
---------- ----------- -----------
Other assets......................................... 169,612 211,827 163,434
---------- ----------- -----------
$8,098,831 $10,799,223 $12,323,526
========== =========== ===========
LIABILITIES AND STOCKHOLDER'SSTOCKHOLDERS' EQUITY 1995 1996
Current liabilities:
Checks issued in excess of funds on deposit........ $ 311,707 $ 495,281 $ 879,045
Notes payable to bank (Note 6)..................... 1,605,000 10,000 1,025,000
Accounts payable................................... 1,724,300 2,371,635 2,285,656
Current maturitiesportion of long-term debt $ 39 $ 88
Accounts payable(Note 7)......... 309,195 439,816 479,410
Current portion of amounts due to related parties
(Notes 3 and accrued liabilities 3,046 2,776
Payable to affiliates 55 97)................................. 70,497 116,388 60,000
Income taxes - 74
Total current liabilities 3,140 2,947
Noncurrentpayable............................... 43,162 651,944 --
Accrued expenses (Note 9).......................... 587,953 839,348 878,003
---------- ----------- -----------
4,651,814 4,924,412 5,607,114
---------- ----------- -----------
Long-term liabilities:
Long-term debt 59 74debt..................................... 1,186,592 1,280,540 1,096,315
Due to related parties (Notes 3 and 7)............. 350,421 290,421 260,421
Deferred income taxes 1,559 388
Other 18 9
Total noncurrent liabilities 1,636 471
Stockholder's equity 32,612 39,242
$37,388 $42,660(Note 8)..................... -- 267,000 292,246
---------- ----------- -----------
1,537,013 1,837,961 1,648,982
---------- ----------- -----------
Minority interest in subsidiary (Note 1)............. 339,942 123,100 196,922
---------- ----------- -----------
Stockholders' equity:
Common stock of Fort Lock Corporation, $100 par
value; 100 shares authorized, issued and
outstanding..................................... 10,000 10,000 10,000
Common stock of Fortronics, Inc., no par value;
100,000 shares authorized; 1,000 shares issued
and outstanding................................. 1,000 1,000 1,000
Retained earnings.................................. 1,580,130 3,959,301 4,981,422
Foreign currency translation adjustment............ (21,068) (56,551) (121,914)
---------- ----------- -----------
1,570,062 3,913,750 4,870,508
---------- ----------- -----------
$8,098,831 $10,799,223 $12,323,526
========== =========== ===========
Commitments and contingencies (Note 10).
COMPX INTERNATIONAL INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSEDThe accompanying notes are an integral part of these statements.
FB-2
78
FORT LOCK GROUP
CONSOLIDATED COMBINED STATEMENTS OF INCOME
Years ended December 31, 1994, 1995 and 1996
(In thousands)
1994FISCAL YEARS ENDED 26 WEEKS ENDED
----------------------------------------- ----------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
Revenues:
Net sales $24,678 $22,611 $23,185
Other income 2,634 3,216 2,764
27,312 25,827 25,949
Costs and expenses:(Note 1)...... $16,288,314 $19,977,460 $26,755,378 $12,559,719 $15,037,338
Cost of sales 15,255 14,929 15,253
Selling, generalgoods sold (Note
1).................... 12,332,537 15,097,200 18,835,353 9,656,711 11,166,043
----------- ----------- ----------- ----------- -----------
Gross profit............ 3,955,777 4,880,260 7,920,025 2,903,008 3,871,295
----------- ----------- ----------- ----------- -----------
Operating expenses:
Engineering........... 847,422 1,040,429 971,489 519,537 569,183
Selling............... 1,328,388 1,564,568 1,551,471 758,180 702,216
General and
administrative 4,366 4,451 5,011administrative..... 1,240,161 1,589,290 1,770,134 865,173 903,369
----------- ----------- ----------- ----------- -----------
3,415,971 4,194,287 4,293,094 2,142,890 2,174,768
----------- ----------- ----------- ----------- -----------
Income from
operations............ 539,806 685,973 3,626,931 760,118 1,696,527
----------- ----------- ----------- ----------- -----------
Other (income) expense:
Interest 18 13 18
19,639 19,393 20,282expense...... 257,185 279,649 306,263 140,541 113,041
Other (net)........... (20,922) (17,525) (11) (24,652) 14,984
----------- ----------- ----------- ----------- -----------
236,263 262,124 306,252 115,889 128,025
----------- ----------- ----------- ----------- -----------
Income before income
taxes 7,673 6,434 5,667
Provision for income taxes 4,342 2,179 3,181
3,331 4,255 2,486
Equityand minority
interest.............. 303,543 423,849 3,320,679 644,229 1,568,502
Income tax provision
(Note 6).............. 76,000 154,000 1,132,000 144,338 642,849
----------- ----------- ----------- ----------- -----------
227,543 269,849 2,188,679 499,891 925,653
Minority interest in earningsnet
loss of Waterloo Furniture
Components Limited
8,588 7,846 10,543subsidiary.... -- 79,302 190,492 226,640 96,468
----------- ----------- ----------- ----------- -----------
Net income $11,919 $12,101 $13,029income.............. $ 227,543 $ 349,151 $ 2,379,171 $ 726,531 $ 1,022,121
=========== =========== =========== =========== ===========
COMPX INTERNATIONAL INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATIONThe accompanying notes are an integral part of these statements.
FB-3
79
FORT LOCK GROUP
CONSOLIDATED COMBINED STATEMENT OF REGISTRANT
CONDENSED STATEMENTSCHANGES IN STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED JUNE 24, 1995, JUNE 29, 1996, JUNE 28, 1997
AND
26 WEEKS ENDED DECEMBER 27, 1997 (UNAUDITED)
FOREIGN
FORT LOCK FORTRONICS, CURRENCY TOTAL
CORPORATION INC. TRANSLATION RETAINED STOCKHOLDERS'
COMMON STOCK COMMON STOCK ADJUSTMENT EARNINGS EQUITY
------------ ------------ ----------- ---------- -------------
Balance, June 26, 1994.......... $10,000 $1,000 $ -- $1,003,436 $1,014,436
Net income...................... -- -- -- 227,543 227,543
------- ------ --------- ---------- ----------
Balance, June 25, 1995.......... 10,000 1,000 -- 1,230,979 1,241,979
Foreign currency translation
adjustment.................... -- -- (21,068) -- (21,068)
Net income...................... -- -- -- 349,151 349,151
------- ------ --------- ---------- ----------
Balance, June 29, 1996.......... 10,000 1,000 (21,068) 1,580,130 1,570,062
Foreign currency translation
adjustment.................... -- -- (35,483) -- (35,483)
Net income...................... -- -- -- 2,379,171 2,379,171
------- ------ --------- ---------- ----------
Balance June 28, 1997........... 10,000 1,000 (56,551) 3,959,301 3,913,750
Unaudited:
Foreign currency translation
adjustment................. -- -- (65,363) -- (65,363)
Net income.................... -- -- -- 1,022,121 1,022,121
------- ------ --------- ---------- ----------
Balance, December 27, 1997...... $10,000 $1,000 $(121,914) $4,981,422 $4,870,508
======= ====== ========= ========== ==========
The accompanying notes are an integral part of these statements.
FB-4
80
FORT LOCK GROUP
CONSOLIDATED COMBINED STATEMENT OF CASH FLOWS
Years ended December 31, 1994, 1995 and 1996
(In thousands)
1994FISCAL YEARS ENDED 26 WEEKS ENDED
------------------------------------- ---------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 1996 1997 1996 1997
--------- ----------- ----------- ------------ ------------
(UNAUDITED)
Cash flows from operating activities:
Net income................................ $ 227,543 $ 349,151 $ 2,379,171 $ 726,531 $ 1,022,121
Adjustments to reconcile net income $11,919 $12,101 $13,029
Equity in earnings of Waterloo (8,588) (7,846) (10,543)
Dividends from Waterloo 1,400 4,200 6,683to net
cash provided by operating activities:
Depreciation and amortization 716 788 876
Deferred incomeamortization.......... 395,923 426,960 602,739 212,133 367,494
Minority interest in net loss of
subsidiary........................... -- (79,302) (190,492) (26,073) (96,468)
Other, net............................. -- 206,656 22,166 (30,151) (100,137)
(Increase) decrease in assets:
Accounts receivable, net............. (289,679) (367,769) (667,541) (232,662) 332,844
Inventories.......................... 292,033 (131,446) (742,436) (63,811) (932,948)
Income taxes 592 (561) (872)refundable.............. (9,636) 15,136 -- -- (150,453)
Other net 2 9 13
Changeassets......................... (5,898) (466,162) 173,061 127,984 140,761
Increase (decrease) in assets and liabilities, net (1,879) (64) (2,003)liabilities:
Checks issued in excess of funds on
deposit........................... 7,840 53,655 183,574 (132,540) 383,764
Accounts payable..................... 599,669 (1,633) 647,336 1,123,552 (85,979)
Accrued expenses..................... 24,885 91,787 251,395 264,853 38,655
Income taxes payable................. (76,377) 43,162 608,782 (30,662) (651,924)
--------- ----------- ----------- ----------- -----------
Net cash provided by operating
4,162 8,627 7,183
activitiesactivities............................. 1,166,303 140,195 3,267,755 1,939,154 267,730
--------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (957) (679) (627)
Other, net 9 6 43Purchases of property and equipment....... (724,601) (1,788,394) (1,896,567) (712,646) (1,111,050)
Proceeds from sale of equipment........... -- 10,000 -- -- --
Proceeds from sale of shares in
subsidiary............................. -- 30,061 -- -- --
Cash contributed by minority
shareholder............................ 205,800 201,820 -- -- 170,290
--------- ----------- ----------- ----------- -----------
Net cash used byin investing (948) (673) (584)
activitiesactivities..... (518,801) (1,546,513) (1,896,567) (712,646) (940,760)
--------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments onNet borrowings (repayments) from notes
payable to bank........................ (389,859) 123,333 (1,595,000) (876,000) 1,015,000
Repayments of shareholder and
related-party loans.................... (31,073) (63,395) (70,497) (77,215) (30,000)
Proceeds from long-term debt (39) (42) (74)
Loans from affiliates:
Loans 900 - -
Repayments (650) (250) -
Dividends (4,580) (6,000) (6,247)debt.............. 424,184 1,678,881 1,454,171 -- --
Repayment of long-term debt............... (122,937) (829,177) (1,173,214) (176,060) (201,019)
--------- ----------- ----------- ----------- -----------
Net cash usedprovided by (used in) financing
(4,369) (6,292) (6,321)
activities
Cash and cash equivalents:activities............................. (119,685) 909,642 (1,384,540) (1,129,275) 783,981
--------- ----------- ----------- ----------- -----------
Net increase (decrease) from:
Operating,in cash............. 527,817 (496,676) (13,352) 97,233 110,951
Cash, beginning of period................... 500 528,317 31,641 528,317 18,289
--------- ----------- ----------- ----------- -----------
Cash, end of period......................... $ 528,317 $ 31,641 $ 18,289 $ 625,550 $ 129,240
========= =========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest............................. $ 261,702 $ 279,165 $ 206,373 $ 127,876 $ 24,426
Income taxes......................... 160,013 90,000 355,000 55,000 130,000
Noncash investing and financing
(1,155) 1,662 278
activities
Currency translation - - (39)
Balance at beginningactivities:
Acquisition of year 1,346 191 1,853
Balance at end of year $ 191 $ 1,853 $ 2,092
Supplemental disclosures - cash paid for
Interest $ 18 $ 13 $ 18
Income taxes 4,001 3,030 4,028assets under notes
payable and capital leases........ 17,126 56,175 139,064 -- --
COMPX INTERNATIONAL INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANTThe accompanying notes are an integral part of these statements.
FB-5
81
FORT LOCK GROUP
NOTES TO CONDENSEDTHE CONSOLIDATED COMBINED FINANCIAL STATEMENTS
NoteNOTE 1 - Basis-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of presentation:consolidation and combination -- The Consolidated Financial Statementsconsolidated combined
financial statements include the consolidated financial statements of Fort Lock
Corporation and its subsidiaries and Fortronics, Inc. (collectively the
"Group"). The subsidiaries of Fort Lock Corporation (the "Corporation") include
the following: Fort Lock International, Ltd. (a Domestic International Sales
Corporation ("DISC")), Fort Lock (U.K.) Limited and Fort Securite S.A.
(57%-owned). The DISC has been inactive since January 1, 1985. All significant
intercompany accounts and transactions have been eliminated in consolidation and
combination. The 43% ownership of Fort Securite S.A. not owned by the
Corporation has been removed from income and equity and reflected as minority
interest.
Fortronics, Inc. is related to Fort Lock Corporation by means of common
ownership. The sole shareholder of Fortronics, Inc. contemplates transferring a
majority interest in Fortronics, Inc. to the Corporation in fiscal 1998.
Unaudited interim information -- Information included in the consolidated
combined financial statements for the interim periods ended in December 28, 1996
and December 27, 1997 is unaudited. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the information for the interim periods have been made. The
results of operations for the interim periods are not necessarily indicative of
the Companyoperating results for a full year or of future operations.
Fiscal year -- The Group's operations are incorporated herein
by reference.comprised of a 52 or 53 week
year. The Company's investmentfiscal years ended in Waterloo Furniture Components1995, 1996 and 1997 each consisted of 52 weeks,
and the interim periods ending in December 1996 and December 1997 each consisted
of 26-week periods.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
Inventories -- Inventories are valued at the lower of cost, as determined
under the first-in, first-out (FIFO) method, or market.
Net sales -- Sales are recorded when products are shipped.
Depreciation and amortization -- Provisions for depreciation and
amortization of property and equipment are computed under the straight-line
method for financial reporting purposes and under accelerated methods as
permitted under the Internal Revenue Code for tax reporting purposes. All such
assets are depreciated over periods within reasonable ranges of economic life.
Capital leases -- Leases required to be capitalized under criteria of
Financial Accounting Standards Board Statement No. 13 are recorded at the
present value of future rental payments (Note 7). Amortization of capital leases
is computed under the straight-line method over the terms of the related leases
for financial reporting purposes and under accelerated methods for tax reporting
purposes.
Income taxes -- See Note 8 for discussion of income taxes.
Research and development costs -- Research and development costs are
charged to operations as incurred. Such costs approximated $959,000 in fiscal
1995, $883,000 in fiscal 1996 and $839,000 in fiscal 1997, and were $437,000 and
$423,000 in the 1996 and 1997 interim periods, respectively.
Advertising costs -- Advertising costs are charged to operations as
incurred. Such costs approximated $146,000 in fiscal 1995, $239,000 in fiscal
1996 and $159,000 in fiscal 1997, and were $92,000 and $100,000 in the 1996 and
1997 interim periods, respectively.
FB-6
82
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Major customers -- Sales to one major customer amounted to approximately
23% of the Group's consolidated combined net sales for fiscal 1997. Sales to two
major customers amounted to 24% of the Group's consolidated combined sales in
fiscal 1996. Sales to two major customers amounted to approximately 18% of the
Group's consolidated net sales for fiscal 1995. No other single supplier
accounted for more than 10% of consolidated combined purchases in any period
presented.
Major supplier -- Purchases from one major supplier amounted to
approximately 12% of fiscal 1997 consolidated combined purchases. Purchases from
two major suppliers amounted to approximately 26% of fiscal 1996 consolidated
combined purchases. Purchases from one major supplier amounted to approximately
18% of fiscal 1995 consolidated combined purchases. No other single supplier
accounted for more than 10% of consolidated combined purchases in any period
presented.
Foreign currency translation -- The financial statements of Fort Lock
(U.K.) Limited and Fort Securite S.A. have been translated in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation". Currency transaction gains and losses are recognized in
income currently and for all periods presented were not material.
NOTE 2 -- NATURE OF ACTIVITIES
The Group operates in one business segment -- the design, manufacture and
distribution of a wide variety of locks. The Corporation is engaged in the
manufacture and distribution of cam, switch and special purpose locks to
customers located throughout the United States. Operations are conducted from a
manufacturing facility (leased from a related party -- Note 3) in River Grove,
Illinois. Fort Lock (U.K.) Limited distributes locks in the United Kingdom. Fort
Securite S.A. is a French company which was formed to manufacture, market and
sell locks in the European market. Operations commenced March 1996 and are
conducted from a manufacturing facility in France. Fortronics, Inc. is engaged
in the design, manufacture and distribution of electronic locking systems to
customers located throughout the United States.
Geographic segment data is presented herein by the equity method.
Note 2 - Inventories:below:
December 31,FISCAL YEARS ENDED 26 WEEKS ENDED
--------------------------------------- ---------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 1996 (In thousands)
Raw materials $ 171 $ 188
Work in process 2,878 4,209
Finished products 732 959
Supplies 49 49
$3,830 $5,405
COMPX INTERNATIONAL INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Additions
Balance at charged to Balance
beginning costs and at end
Description of year expenses Deductions Recoveries of year1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
Allowance for doubtfulNet sales:
Point of origin:
United States............ $16,151,869 $19,558,999 $25,454,688 $12,132,994 $14,161,934
France................... -- 248,923 1,147,489 332,683 839,335
United Kingdom........... 577,430 1,594,488 1,021,913 512,821 203,998
Eliminations............. (440,985) (1,424,950) (868,712) (418,779) (167,929)
----------- ----------- ----------- ----------- -----------
$16,288,314 $19,977,460 $26,755,378 $12,559,719 $15,037,338
=========== =========== =========== =========== ===========
Point of destination:
United States............ $14,879,780 $17,128,481 $23,868,850 $11,353,806 $13,685,960
Europe................... 1,408,534 2,848,979 2,886,528 1,205,913 1,351,378
----------- ----------- ----------- ----------- -----------
$16,288,314 $19,977,460 $26,755,378 $12,559,719 $15,037,338
=========== =========== =========== =========== ===========
Operating profit:
United States............ $ 480,681 $ 740,561 $ 4,019,130 $ 972,042 $ 1,866,238
France................... -- (67,401) (401,261) (251,727) (155,405)
United Kingdom........... 59,125 12,813 9,062 39,803 (14,306)
----------- ----------- ----------- ----------- -----------
$ 539,806 $ 685,973 $ 3,626,931 $ 760,118 $ 1,696,527
=========== =========== =========== =========== ===========
FB-7
83
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ----------- ------------
(UNAUDITED)
Identifiable assets:
United States........................................ $6,553,471 $ 8,972,178 $10,319,411
France............................................... 1,487,656 1,881,704 2,068,425
United Kingdom....................................... 245,575 234,376 159,635
Eliminations......................................... (187,871) (289,035) (223,945)
---------- ----------- -----------
$8,098,831 $10,799,223 $12,323,526
========== =========== ===========
NOTE 3 -- RELATED-PARTY TRANSACTIONS
The Corporation has entered into various loan agreements (Note 7) with
shareholders and certain members of their families. The interest expense on
these loans amounted to $52,000 in fiscal 1995, $49,000 in fiscal 1996 and
$48,000 in fiscal 1997, and was $24,000 and $21,000 in the 1996 and 1997 interim
periods, respectively.
The Corporation leases its manufacturing facilities (Note 10) from its
president, who is also a shareholder. Rent expense was $163,000 in each of
fiscal 1995 and 1996 and $168,820 in fiscal 1997, and was $84,000 and $94,000 in
the 1996 and 1997 interim periods, respectively.
The Corporation sold inventory to a former shareholder in the total amount
of approximately $50,000 during each of the past three fiscal years.
In fiscal 1995, lease payments of $11,378 were made to the Corporation's
president for a production machine.
NOTE 4 -- INVENTORIES
Inventories consisted of the following:
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
Raw materials, purchased parts and
subassemblies.................................. $1,773,418 $2,294,404 $3,127,977
Work in process.................................. 355,881 550,004 552,025
Finished goods................................... 207,393 234,720 332,074
---------- ---------- ----------
$2,336,692 $3,079,128 $4,012,076
========== ========== ==========
FB-8
84
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment stated at acquisition cost, consisted of the
following:
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
Operating assets:
Machinery and equipment........................ $3,629,040 $4,078,375 $3,278,918
Tools and dies................................. 1,340,745 2,099,974 1,042,611
Office furniture and equipment................. 266,268 280,367 135,526
Leasehold improvements......................... 874,223 1,117,132 942,699
Transportation equipment....................... 271,670 223,989 151,229
Data processing equipment...................... 529,266 538,556 287,776
Capital lease equipment........................ 204,204 326,268 326,268
---------- ---------- ----------
7,115,416 8,664,661 6,165,027
Less accumulated depreciation and amortization
(including capital lease amortization of
$144,722, $172,992 and $92,947,
respectively)............................... 3,856,357 4,416,766 2,173,981
---------- ---------- ----------
3,259,059 4,247,895 3,991,046
Construction in progress......................... -- 304,992 1,365,397
---------- ---------- ----------
$3,259,059 $4,552,887 $5,356,443
========== ========== ==========
Depreciation and amortization expense amounted to $395,923 in fiscal 1995,
$426,960 in fiscal 1996 and $602,739 in fiscal 1997, and $212,133 and $307,494
in the 1996 and 1997 interim periods, respectively.
NOTE 6 -- NOTES PAYABLE
Note payable to bank of $1,605,000 at June 29, 1996, $10,000 at June 28,
1997 and $1,025,000 at December 27, 1997 were owing to Harris Trust and Savings
Bank ("Harris") under revolving note agreements.
On October 11, 1995, the Corporation executed a Secured Credit Agreement
with Harris, which provides for a revolving line of credit. The revolving line
of credit commitment is secured by the Corporation's accounts receivable,
inventory and equipment.
Also on October 11, 1995, the Corporation executed a Term Credit Agreement
with Harris which provided for two term loans, the proceeds from which were used
to repay indebtedness to another bank. On December 31, 1996, the two term notes
were replaced with a single term note and additional borrowings totaling
$150,000 were made under the replacement term note. The term loan is secured by
the Corporation's accounts receivable, inventory and equipment and requires
monthly principal payments of $19,000 plus interest with final payment due
December 31, 2001.
FB-9
85
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The significant provisions of the Harris agreements are summarized below:
Maximum Borrowings:
Revolving line of credit.................................. $2,500,000
Term loan (original amount)............................... $ 996,000
Interest Rate:
Revolving line of credit.................................. Prime rate
Term loan................................................. Prime rate
Borrowing Base:
Eligible accounts - year ended:receivable.............................. 85%
Eligible inventories:
Percent................................................ 50%
Maximum amount (limited to 50% of outstanding
borrowings)........................................... $ 900,000
Personal guarantees of certain shareholders................. $ 600,000
The Harris agreement contains various financial, administrative and other
covenants customary in lending transactions of this type, including provisions
which limit additional indebtedness and require the maintenance of certain
financial ratios. At June 28, 1997 the Corporation was in violation of certain
covenants concerning limitations on the amount of capital expenditures and
limitations on additional permitted liens, indebtedness and advances to
subsidiaries and affiliates. The Company received waivers of these past
violations and subsequently amended the agreement to increase the amount of
permitted capital expenditures.
FB-10
86
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LONG-TERM DEBT
Long-term debt consisted of the following:
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
Financial and Credit Institutions:
Term loan under agreement dated December 31, $ 90 $ 18 $ (63) $43 $ 88
19941996, payable
to Harris (due December 31, 2001 -- See Note 6)......... $ 88 $142 $(158) $66 $138-- $ 901,000 $ 787,000
Term loans payable to Harris (repaid in full during fiscal
1997 -- See Note 6)..................................... 912,000 -- --
Equipment notes payable (secured by certain automotive
equipment; payable in monthly installments totaling
$2,893)................................................. 79,612 42,106 24,824
Capitalized lease obligation, in the original amount of
$39,076 payable to Hewlett-Packard (secured by certain
computer equipment and software; payable in monthly
installments of $889; final payment due June 2000)...... 33,143 26,391 22,673
Capitalized lease obligation in the original amount of
$83,510 payable to Leasetec Corporation (secured by
certain computer software; payable in monthly
installments of $3,857; final payment due January
1999)................................................... -- 67,465 47,193
Capitalized lease obligation in the original amount of
$38,554 payable to Ameritech (secured by certain
telephone equipment; payable in monthly installments of
$1,220, final payment due
November 1999).......................................... -- 31,769 25,708
Note payable under agreement dated March 29, 1996, payable
to SOFIREM (unsecured, payable in annual installments of
$13,624 for years 1999 and 2004 ($27,248 for interim
years), plus interest at 7% per annum, due June 30,
2004)................................................... 77,680 68,120 65,960
Note payable under agreement dated February 21, 1997
payable to SOFIREM (unsecured payable in quarterly
installments of $6,812 plus interest of 6% per annum,
due December 30, 2003).................................. -- 136,240 122,612
Note payable under agreement dated February 22, 1996,
payable to two French banks (maximum borrowings of
$510,900, secured by certain equipment, payable in
monthly installments of $3,983 inclusive of interest and
quarterly installments and quarterly installments of
$15,327 plus interest, interest at 6.25% per annum, due
December 10, 2001)...................................... 393,352 447,265 423,367
---------- ---------- ----------
1,495,787 1,720,356 1,519,337
Shareholders and other related parties:
Other subordinate long-term notes due to shareholders and
related parties (unsecured; due on demand or absent
demand, payable under various installment terms and
rates of interest -- see below and Note 3).............. 420,918 406,809 376,809
---------- ---------- ----------
1,916,705 2,127,165 1,896,146
Less current portion...................................... 379,692 556,204 539,410
---------- ---------- ----------
$1,537,013 $1,570,961 $1,356,736
========== ========== ==========
One shareholder has indicated that he will not demand payment of his
subordinated notes ($350,421 at June 29, 1996, $290,421 at June 28, 1997 and
$260,421 at December 27, 1997) within the next twelve months of each respective
balance sheet date. Accordingly, this liability is reflected as long-term in the
accompanying balance sheet.
FB-11
87
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt as of June 28, 1997 are as follows:
FISCAL YEAR AMOUNT
----------- ----------
1998........................................... $ 556,204
1999........................................... 707,573
2000........................................... 392,544
2001........................................... 363,937
2002........................................... 66,037
Thereafter..................................... 40,870
----------
$2,127,165
==========
NOTE 8 -- INCOME TAXES
In fiscal 1995, the difference between the effective income tax rate
reflected in the financial statements and the statutory federal income tax rate
of 34% is primarily due to alternative minimum taxes, utilization of credit
carryforwards and change in the valuation allowance. In fiscal 1996 and 1997 and
the 1996 and 1997 interim periods, the effective tax rate approximates the
statutory tax rate.
The provisions for income taxes relates principally to the Group's U.S.
operations and is as follows:
FISCAL YEARS ENDED 26 WEEKS ENDED
-------------------------------- ---------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 December 31, $138 $184 $(199) $44 $1671996 1997 1996 1997
-------- -------- ---------- ------------ ------------
(UNAUDITED)
Currently payable.................. $100,000 $ 98,000 $1,048,000 $ 102,338 $617,603
Deferred........................... (58,000) 110,000 778,000 389,000 25,246
Utilization of general business and
alternative minimum tax credit
carry forwards................... -- -- (360,000) (180,000) --
Change in valuation allowance...... 34,000 (54,000) (334,000) (167,000) --
-------- -------- ---------- --------- --------
Provision for income taxes......... $ 76,000 $154,000 $1,132,000 $ 144,338 $642,849
======== ======== ========== ========= ========
Deferred income taxes are provided for temporary differences, which are
differences between the tax basis of an asset or liability and the amounts
reported in the financial statements that will result in taxable or deductible
amounts in future years when the reported amount of the asset or liability is
recovered or settled. Gross deferred tax liabilities consist primarily of
accelerated depreciation methods utilized for tax reporting purposes. Gross
deferred assets consist of uniform capitalization rules with respect to
additional inventory costs, allowance for doubtful accounts, inventory valuation
allowances, vacation pay, and in fiscal 1996, general business and alternative
minimum tax credit carryforwards.
The Group's deferred tax liabilities are as follows:
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
Gross deferred tax assets........................ $543,000 $183,000 $ 183,000
Gross deferred tax liabilities................... 209,000 267,000 292,246
-------- -------- ---------
Net deferred tax asset (liability)............... 334,000 (84,000) (109,246)
Less valuation allowance......................... 334,000 -- --
-------- -------- ---------
Net deferred tax liability....................... $ -- $(84,000) $(109,246)
======== ======== =========
FB-12
88
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance at June 29, 1996 of $334,000 relates to certain
deferred tax assets for which realization requires substantial taxable income in
future years. At June 28, 1997, the Corporation has utilized all of its general
business and alternative minimum tax credit carryforwards.
NOTE 9 -- ACCRUED EXPENSES
Accrued expenses consisted of the following:
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
Accrued wages and vacation pay................... $338,996 $351,944 $314,877
Taxes, other than income......................... 35,341 48,429 98,624
Rent and real estate taxes....................... 89,444 93,400 90,702
Employee benefit plans (including amounts due to
a foreign government).......................... 77,860 217,047 205,882
Other............................................ 46,312 128,528 167,918
-------- -------- --------
$587,953 $839,348 $878,003
======== ======== ========
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Corporation leases from a related party (Note 3) its premises in River
Grove, Illinois under an operating lease (expiring on December 31, 2001), which
provides for a minimum annual rental of $168,820 plus payment of applicable real
estate taxes, utilities, insurance and maintenance.
In addition, the Group has entered into various leases for machinery and
equipment, some of which have been capitalized for financial reporting purposes.
Future minimum lease payments to be made under the capitalized and operating
leases as of June 28, 1997 are as follows:
CAPITAL OPERATING
FISCAL YEAR LEASES LEASE
----------- -------- ----------
1998...................................................... $ 71,585 $ 286,284
1999...................................................... 52,303 279,324
2000...................................................... 16,731 269,580
2001...................................................... -- 269,580
2002...................................................... -- 236,552
Thereafter................................................ -- 466,957
-------- ----------
Total minimum lease payments.............................. 140,619 $1,808,277
==========
Less amount representing imputed interest................. 14,994
--------
Present value of net minimum lease payments............... $125,625
========
Rent expense charged to operations amounted to $163,200 in fiscal 1995,
$187,000 in fiscal 1996 and $280,815 in fiscal 1997, and $86,000 and $96,000 in
the 1996 and 1997 interim periods, respectively.
The Corporation and its president/shareholder have entered into a stock
repurchase agreement which (i) requires the president/shareholder to give the
Corporation a right of first refusal on his Corporation shares, prior to their
transfer or sale, (ii) if the Corporation does not exercise such right, then the
other shareholders have a secondary right to purchase such shares, prior to such
transfer or sale, and (iii) if the president/shareholder should die, or if his
employment is terminated, the Corporation is required to purchase his shares at
their book value, as defined in the agreement.
FB-13
89
FORT LOCK GROUP
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- EMPLOYEE BENEFIT PLAN
The Corporation maintains the 401(k) Plan of the Fort Lock Corporation,
under the provisions of Section 401(k) of the Internal Revenue Code. The plan
provides for elective contributions by eligible participants plus matching
contributions from the Corporation at a rate of $0.25 for each $1.00 contributed
by the employee, to the extent of the first 5% of compensation.
Employer-matching contributions to the plan amounted to $25,263 in fiscal 1995,
$35,448 in fiscal 1996 and $39,410 in fiscal 1997, and $18,482 and $22,833 in
the 1996 and 1997 interim periods, respectively.
FB-14
90
[INSIDE BACK COVER CONTAINS TWO 4"X7" PHOTOGRAPHS: ONE PHOTOGRAPH OF THE
WATERLOO FURNITURE COMPONENTS LIMITED PLANT IN KITCHNER, ONTARIO AND ONE
PHOTOGRAPH OF THE NATIONAL CABINET LOCK PLANT IN MAULDIN, SOUTH CAROLINA.]
91
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Summary Financial Information . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership in the Company
and its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . .
Certain United States Tax Consequences
to Non-United States Holders . . . . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . .
PAGE
----
Prospectus Summary.................... 1
Risk Factors.......................... 7
Use of Proceeds....................... 11
Dividend Policy....................... 11
Capitalization........................ 12
Dilution.............................. 13
Unaudited Pro Forma Condensed
Consolidated Financial Statements... 14
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 27
Management............................ 36
Certain Relationships and Related
Transactions........................ 42
Security Ownership in the Company and
its Affiliates...................... 44
Certain Indebtedness.................. 47
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 51
Certain United States Tax Consequences
to Non-United States Holders........ 52
Underwriting.......................... 54
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 56
Index to Historical Financial
Statements.......................... F-1
Until February ,March 31, 1998 (25 days after the commencement of the offering), all
dealers effecting transactions in the Class A Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
[ ] Shares
CompX International Inc.
Class======================================================
======================================================
5,200,000 SHARES
COMPX INTERNATIONAL INC.
CLASS A Common Stock
[CompX Logotype]
P R O S P E C T U S
JANUARY ,COMMON STOCK
COMPX LOGO
------------
PROSPECTUS
MARCH 6, 1998
------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY
SECURITIES INC.LLC
WHEAT FIRST BUTCHER
SINGERUNION
======================================================
92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the expenses to be paid in connection with
the issuance and distribution of the securities being registered, other than
underwriting discounts and commissions, and all such expenses will be borne by
the Registrant. All amounts are estimates except for the Commission registration
fee, the National Association of Securities Dealers ("NASD") filing fee and the
NYSE listing fee.
Commission Registration Fee.....$ 29,500
NASD Fee..........................10,500
NYSE Listing Fee.......................*
Printing and mailing expenses..........*
Legal fees and expenses................*
Accounting fees and expenses...........*
Transfer Agent's fees and expenses.....*
Miscellaneous expenses.................*
Total......................$500,000
______________________
* To be supplied by amendment.
Commission Registration Fee................................. $ 35,282
NASD Fee.................................................... 12,460
NYSE Listing Fee............................................ 100,000
Printing and mailing expenses............................... 100,000
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 30,000
Transfer Agent's fees and expenses.......................... 10,000
Miscellaneous expenses...................................... 12,258
Total............................................. $500,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the DGCL permits a Delaware corporation to limit the
personal liability of its directors in accordance with the provisions set forth
therein. The Restated Certificate of Incorporation of the Registrant provides
that the personal liability of its directors shall be limited to the fullest
extent permitted by applicable law.
Section 145 of the DGCL contains provisions permitting Delaware
corporations to indemnify directors, officers, employees or agents against
expenses, including attorneys, fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person was or
is a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, provided that (i) such person acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the corporation's best
interest, and (ii) in the case of a criminal proceeding such person had no
reasonable cause to believe his or her conduct was unlawful. In the case of
actions or suits by or in the right of the corporation, no indemnification shall
be made in a case in which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall have determined upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses. Indemnification as described above shall only be
granted in a specific case upon a determination that indemnification is proper
in the circumstances because the indemnified person has met the applicable
standard of conduct. Such determination shall be made (a) by a majority vote of
the directors who are not parties to such proceeding, even though less than a
quorum, (b) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (c) by the stockholders of
the corporation. Notwithstanding the foregoing, to the extent that a director,
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections a,(a) or (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys,attorney
fees) actually and reasonably incurred by him in connection therewith. The
Restated Certificate of Incorporation and the Bylaws of the Registrant provide
for indemnification of its directors and officers to the fullest extent
permitted by applicable law.
II-1
93
The form of Underwriting Agreement attached hereto as Exhibit 1.1, which
provides for, among other things, the Registrant's sale to the Underwriters of
the securities being registered herein, will obligate the Underwriters to
indemnify the Registrant and Registrant's officers and directors against certain
liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed pursuant to Item 601 of Regulation S-
K.
Exhibit
No. Description
1.1* Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1* Form of Common Stock certificate.
5.1* Opinion and Consent of Rogers & Hardin LLP.
10.1S-K.
EXHIBIT
NO. DESCRIPTION
------- -----------
1.1 -- Form of Underwriting Agreement.
3.1** -- Restated Certificate of Incorporation of Registrant.
3.2** -- Bylaws of Registrant.
4.1 -- Form of Class A Common Stock certificate.
5.1 -- Opinion and Consent of Rogers & Hardin LLP.
10.1** -- Intercorporate Services Agreement between the Registrant
and Valhi, Inc. effective as of January 1, 1997.
10.2** -- CompX International Inc. 1997 Long-Term Incentive Plan.
10.3** -- Agreement between Haworth, Inc. and Waterloo Furniture
Components, Ltd. and Waterloo Furniture Components, Inc.
effective October 1, 1992.
10.4** -- Tax Sharing Agreement, among the Registrant, Valcor, Inc.
and Valhi, Inc., dated as of January 2, 1998.
10.5 -- $100,000,000 Credit Agreement between the Registrant,
Bankers Trust Company, as Agent and Various Lending
Institutions, dated as of February 26, 1998.
10.6** -- Demand Promissory Note of the Registrant in the amount of
$50 million payable to Valcor, Inc. dated December 12,
1997.
10.7** -- Stock Purchase Agreement between CompX International Inc.
and Shareholders of Fort Lock Corporation dated February
3, 1998.
21.1** -- Subsidiaries of the Registrant.
23.1 -- Consent of Rogers & Hardin LLP (included in Exhibit 5.1).
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3** -- Consent of Altschuler, Melvoin and Glasser L.L.P.
24.1** -- Powers of Attorney. See signature page to this
Registration Statement.
27.1** -- Financial Data Schedule for the year ended December 31,
1997.
10.2* CompX International Inc. 1997 Long-Term Incentive Plan.
10.3* Agreement between Haworth, Inc. and Waterloo Furniture
Components, Ltd. And Waterloo Furniture Components, Inc.
effective October 1, 1992.
10.4* Tax Sharing and Indemnification Agreement, between the
Registrant and Valhi, Inc. and dated as of _______, 1998.
10.5* [New Credit Agreement] between the Registrant
and__________________, dated as of ___________,1998.
10.6 Demand Promissory Note of the Registrant in the amount of $50
million payable to Valcor, Inc. dated December 12, 1997.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Rogers & Hardin LLP (included in Exhibit S.1).
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Powers of Attorney. See signature page to this Registration
Statement.
27.1 Financial Data Schedule for the year ended December 31, 1996.
27.2 Financial Data Schedule for the nine-month period ended September
30, 1997
II-2
94
(b) Financial Statement Schedules.
Page
Index of Financial Statement Schedules.........S-1
Report of Independent Accountant
on Financial Statement Schedules...............S-2
Schedule I - Condensed Financial
Information of Registrant......................S-3
Schedule II - Valuation and Qualifying
Accounts.....................................................S-8
PAGE
----
Index of Financial Statement Schedules...................... S-1
Report of Independent Accountant on Financial Statement
Schedules................................................. S-2
Schedule I -- Condensed Financial Information of
Registrant................................................ S-3
Schedule II -- Valuation and Qualifying Accounts............ S-7
Schedule III and IV are omitted because they are not
applicable.
*To be provided by amendment.
- ---------------
** Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-effective Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mauldin, State of South Carolina, on the 18th6th day of December , 1997.March, 1998.
COMPX INTERNATIONAL INC.
By:________________________________
David A. Bowers
President and *
----------------------------------
Joseph S. Compofelice
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 2 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
Each person whose signature appears below authorizes David A. Bowers,
SIGNATURE TITLE DATE
--------- ----- ----
* Chief Executive Officer March 6, 1998
- ----------------------------------------------------- and Chairman of the
Joseph S. Compofelice Board (Principal
Executive Officer and
Principal Financial
Officer)
* President and Director March 6, 1998
- -----------------------------------------------------
David A. Bowers
/s/ BOBBY D. O'BRIEN Vice President and March 6, 1998
- ----------------------------------------------------- Treasurer (Principal
Bobby D. O'Brien Accounting Officer)
* Director March 6, 1998
- -----------------------------------------------------
Glenn R. Simmons
* Director March 6, 1998
- -----------------------------------------------------
Robert W. Singer
* Director March 6, 1998
- -----------------------------------------------------
Edward J. Hardin
* Director March 6, 1998
- -----------------------------------------------------
Paul M. Bass
*By: /s/ BOBBY D. O'BRIEN
------------------------------------------------
Bobby D. O'Brien
Attorney-in-Fact
II-4
96
COMPX INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Report of Independent Accountants........................... S-2
Schedule I -- Condensed Financial Information of
Registrant................................................ S-3
Schedule II -- Valuation and Qualifying Accounts............ S-7
Schedules III and Bobby D. O'Brien,IV are omitted because they are not applicable.
S-1
97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of CompX International Inc.:
Our report on the consolidated financial statements of CompX International
Inc. as of December 31, 1996 and 1997, and for each of them,the three years in the
period ended December 31, 1997, is herein included in this Registration
Statement on Form S-1. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to file one or
more amendments (including post-effective amendments)express an
opinion on these consolidated financial statement schedules based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the Registration
Statement, withbasic financial statements taken as a whole,
present fairly, in all exhibits thereto, which amendments may make such changes as
any of such persons deems appropriate, and each person, individually and in each
capacity stated below, hereby appoints each of such persons as attorney-in-fact
and agent, with full power of resubstitution and substitution, to execute in his
name and on his behalf any such amendments tomaterial respects, the Registration Statement, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or causeinformation required to be
done by virtue hereof.
Signature Title Date
_______________ President and Chief December 18,included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 23, 1998
S-2
98
COMPX INTERNATIONAL INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
David A. Bowers Executive Officer and
Director (Principal
Executive Officer)
_______________ Executive Vice President December 18,(IN THOUSANDS)
ASSETS
1996 1997
------- -------
Current assets:
Cash and cash equivalents................................. $ 2,092 $13,973
Accounts receivable....................................... 3,185 3,173
Receivable from affiliates................................ 578 251
Inventories............................................... 5,405 5,395
Prepaid expenses.......................................... 138 25
Deferred income taxes..................................... 343 438
------- -------
Total current assets.............................. 11,741 23,255
------- -------
Other assets:
Investment in Waterloo Furniture Components Limited....... 25,441 24,317
Deferred income taxes..................................... -- 133
------- -------
25,441 24,450
------- -------
Property and equipment...................................... 11,135 12,196
Less accumulated depreciation............................... 5,657 6,600
------- -------
Net property and equipment........................ 5,478 5,596
------- -------
$42,660 $53,301
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Demand note payable to Valcor............................. $ -- $50,000
Current maturities of long-term debt...................... 88 113
Accounts payable and accrued liabilities.................. 2,776 3,661
Other payable to affiliates............................... 9 331
Income taxes.............................................. 74 3
------- -------
Total current liabilities......................... 2,947 54,108
------- -------
Noncurrent liabilities:
Long-term debt............................................ 74 262
Deferred income taxes..................................... 388 --
Other..................................................... 9 94
------- -------
Total noncurrent liabilities...................... 471 356
------- -------
Stockholder's equity (deficit).............................. 39,242 (1,163)
------- -------
$42,660 $53,301
======= =======
See accompanying notes to consolidated financial statements.
S-3
99
COMPX INTERNATIONAL INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Joseph S. Compofelice and Director (Principal(IN THOUSANDS)
1995 1996 1997
------- ------- -------
Revenues:
Net sales................................................. $22,611 $23,185 $28,020
Other income.............................................. 3,216 2,764 3,640
------- ------- -------
25,827 25,949 31,660
------- ------- -------
Costs and expenses:
Cost of sales............................................. 14,929 15,253 18,147
Selling, general and administrative....................... 4,451 5,011 6,178
Interest.................................................. 13 18 199
------- ------- -------
19,393 20,282 24,524
------- ------- -------
Income before income taxes........................ 6,434 5,667 7,136
Provision for income taxes.................................. 2,179 3,181 3,282
------- ------- -------
4,255 2,486 3,854
Equity in earnings of Waterloo Furniture Components
Limited................................................... 7,846 10,543 12,796
------- ------- -------
Net income........................................ $12,101 $13,029 $16,650
======= ======= =======
See accompanying notes to consolidated financial statements.
S-4
100
COMPX INTERNATIONAL INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
1995 1996 1997
------- -------- ---------------
Cash flows from operating activities:
Net income................................................ $12,101 $ 13,029 $ 16,650
Equity in earnings of Waterloo............................ (7,846) (10,543) (12,796)
Dividends from Waterloo................................... 4,200 6,683 12,400
Depreciation and amortization............................. 788 876 998
Deferred income taxes..................................... (561) (872) (85)
Other, net................................................ 9 13 23
Change in assets and liabilities, net..................... (64) (2,003) 1,652
------- -------- --------
Net cash provided by operating activities......... 8,627 7,183 18,842
------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (679) (627) (1,123)
Other, net................................................ 6 43 15
------- -------- --------
Net cash used by investing activities.................. (673) (584) (1,108)
------- -------- --------
Cash flows from financing activities:
Indebtedness, net......................................... (42) (74) 213
Loans from affiliates:
Loans.................................................. -- -- --
Repayments............................................. (250) -- --
Dividends................................................. (6,000) (6,247) (6,098)
------- -------- --------
Net cash used by financing activities............. (6,292) (6,321) (5,885)
------- -------- --------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities.......... 1,662 278 11,849
Currency translation................................... -- (39) 32
Balance at beginning of year.............................. 191 1,853 2,092
------- -------- --------
Balance at end of year.................................... $ 1,853 $ 2,092 $ 13,973
======= ======== ========
Supplemental disclosures:
Cash paid for:
Interest............................................... $ 13 $ 18 $ 35
Income taxes........................................... 3,030 4,028 2,887
Dividend in the form of a demand note payable............. $ -- $ -- $ 50,000
See accompanying notes to consolidated financial statements.
S-5
101
COMPX INTERNATIONAL INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION:
The Consolidated Financial Officer)
_______________ Vice President and December 18, 1997
Bobby D. O'Brien Treasurer (Principal
Accounting Officer)
_________________
Glenn R. Simmons ChairmanStatements of the Board December 18, 1997
_______________
Robert W. Singer Director December 18, 1997
_______________
Edward J. Hardin Director December 18, 1997
_______________
Paul M. Bass Director December 18,Company are incorporated
herein by reference. The Company's investment in Waterloo Furniture Components
Limited is presented herein by the equity method.
NOTE 2 -- INVENTORIES:
DECEMBER 31,
----------------
1996 1997
------ ------
(IN THOUSANDS)
Raw materials.............................................. $ 188 $ 232
Work in process............................................ 4,209 4,079
Finished products.......................................... 959 1,036
Supplies................................................... 49 48
------ ------
$5,405 $5,395
====== ======
S-6
102
COMPX INTERNATIONAL INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND RECOVERIES AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS AND OTHER OF YEAR
----------- ---------- ---------- ---------- ---------- -------
Allowance for doubtful accounts -- year
ended:
December 31, 1995........................ $ 88 $142 $(158) $66 $ 138
==== ==== ===== === =======
December 31, 1996........................ $138 $184 $(199) $44 $ 167
==== ==== ===== === =======
December 31, 1997........................ $167 $193 $ (58) $ 9 $ 311
==== ==== ===== === =======
S-7
103
EXHIBIT INDEX
Sequentially Numbered
Exhibit No. Description Page No.
1.1* Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of Registrant.
3.2* Bylaws of Registrant.
4.1* Form of Common Stock certificate.
5.1* Opinion and Consent of Rogers & Hardin LLP.
10.1
EXHIBIT
NO. DESCRIPTION
------- -----------
1.1 -- Form of Underwriting Agreement.
3.1** -- Restated Certificate of Incorporation of Registrant.
3.2** -- Bylaws of Registrant.
4.1 -- Form of Class A Common Stock certificate.
5.1 -- Opinion and Consent of Rogers & Hardin LLP.
10.1** -- Intercorporate Services Agreement between the Registrant
and Valhi, Inc. effective as of January 1, 1997.
10.2** -- CompX International Inc. 1997 Long-Term Incentive Plan.
10.3** -- Agreement between Haworth, Inc. and Waterloo Furniture
Components, Ltd. and Waterloo Furniture Components, Inc.
effective October 1, 1992.
10.4** -- Tax Sharing Agreement, among the Registrant, Valcor, Inc.
and Valhi, Inc., dated as of January 2, 1998.
10.5 -- $100,000,000 Credit Agreement between the Registrant,
Bankers Trust Company, as Agent and Various Lending
Institutions, dated as of February 26, 1998.
10.6** -- Demand Promissory Note of the Registrant in the amount of
$50 million payable to Valcor, Inc. dated December 12,
1997.
10.7** -- Stock Purchase Agreement between CompX International Inc.
and Shareholders of Fort Lock Corporation dated February
3, 1998
10.8** -- Severance Agreement between CompX International Inc. and
Mr. Compofelice dated as of February 13, 1998.
21.1** -- Subsidiaries of the Registrant.
23.1 -- Consent of Rogers & Hardin LLP (included in Exhibit 5.1).
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3** -- Consent of Altschuler, Melvoin and Glasser L.L.P.
24.1** -- Powers of Attorney. See signature page to this
Registration Statement.
27.1** -- Financial Data Schedule for the year ended December 31,
1997.
10.2* CompX International Inc. 1997 Long-Term Incentive Plan.
10.3* Agreement between Haworth, Inc. and Waterloo Furniture
Components, Ltd. and Waterloo Furniture Components, Inc.
effective October 1, 1992.
10.4* Tax Sharing and Indemnification Agreement, between the
Registrant and Valhi, Inc. dated as of ________, 1998.
10.5* [New Credit Agreement] between the Registrant
and__________________, dated as of ___________,1998.
10.6 Demand Promissory Note of the Registrant in the amount of $50
million payable to Valcor, Inc. dated December 12, 1997.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Rogers & Hardin LLP (included in Exhibit S.1).
23.2 Consent of Coopers & Lybrand L.L.P.
24.1 Powers of Attorney. See signature page to this Registration
Statement.
27.1 Financial Data Schedule for the year ended December 31, 1996.
27.2 Financial Data Schedule for the nine-month period ended September
30, 1997
* To be provided by amendment.
- ---------------
** Previously filed.