# Compx International Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Compx International Inc](/companies/cix.md) (CIK 1049606)
- Form: 10-Q
- Filed: 2023-11-01
- Accepted by EDGAR: Nov 1, 2023, 16:25 ET
- Period: 2023-09-30
- Accession: 0001558370-23-017240
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1049606/000155837023017240/cix-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1049606/000155837023017240/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $40.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $118.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $27.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $82.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $12.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $35.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $6.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $17.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $6.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $18.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $1.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $5.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $5.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $15.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.47 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.29 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.47 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.29 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 12,314,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 12,310,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $11.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $564.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $9.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $17.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $120.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $183.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $16.4m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2023-09-30 | $165.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,814 characters.

### Business Overview

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

### General

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

- Future demand for our products,
- Changes in our raw material and other operating costs (such as zinc, brass, aluminum, steel and energy costs) and our ability to pass those costs on to our customers or offset them with reductions in other operating costs,
- Price and product competition from low-cost manufacturing sources (such as China),
- The impact of pricing and production decisions,
- Customer and competitor strategies including substitute products,
- Uncertainties associated with the development of new products and product features,
- Future litigation,
- Our ability to protect or defend our intellectual property rights,
- Potential difficulties in integrating future acquisitions,
- Decisions to sell operating assets other than in the ordinary course of business,
- Environmental matters (such as those requiring emission and discharge standards for existing and new facilities),
- The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters, including future tax reform,
- Government laws and regulations and possible changes therein, including new environmental health and safety or other regulations,
- General global economic and political conditions that disrupt or introduce instability into our supply chain, impact our customers’ level of demand or our customers’ perception regarding demand or impair our ability to operate our facilities (including changes in the level of gross domestic product in various regions of the world, natural disasters, terrorist acts, global conflicts and public health crises such as COVID-19),
- Operating interruptions (including, but not limited to, labor disputes, hazardous chemical leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, cyber-attacks and public health crises such as COVID-19); and
- Possible disruption of our business or increases in the cost of doing business resulting from terrorist activities or global conflicts.

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

### Operating Income Overview

In the third quarter of 2023 operating income increased to $6.6 million compared to $5.9 million in the third quarter of 2022. The increase in operating income in the third quarter of 2023 compared to 2022 is due to higher Security Products sales and improved gross margin percentages at both segments, partially offset by lower Marine Components sales. Operating income for the first nine months of 2023 was $18.0 million compared to $20.0 million in the first nine months of 2022. The decrease in operating income in the first nine months of 2023 compared to 2022 is primarily due to lower Marine Components sales and, to a lesser extent, lower Security Products sales somewhat offset by an improvement in Marine Components gross margin percentage.

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

### Results of Operations

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three months ended September 30, 2022 | ​ ​ ​ ​% ​ | ​ ​ 2023 | ​ ​ ​ ​% ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Net sales | ​ | $42,864 | 100.0% | **$40,355** | **100.0%** |
| Cost of sales | ​ | 30,928 | 72.2 **​** | **27,736** | **68.7** **​** |
| Gross margin | ​ | 11,936 | 27.8 **​** | **12,619** | **31.3** **​** |
| Operating costs and expenses | ​ | 6,016 | 14.0 **​** | **6,074** | **15.1** **​** |
| Operating income | ​ | $5,920 | 13.8% | **$6,545** | **16.2%** |

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, |
| --- | --- | ---: |
| **​** |  | **2022%** **2023%** **​** |
| **​** | **​** | **(Dollars in thousands)** |
| Net sales | ​ | $126,589 100.0% **$118,122** **100.0%** |
| Cost of sales | ​ | 88,944 70.3 **​** **82,526** **69.9** **​** |
| Gross margin | ​ | 37,645 29.7 **​** **35,596** **30.1** **​** |
| Operating costs and expenses | ​ | 17,674 13.9 **​** **17,644** **14.9** **​** |
| Operating income | ​ | $19,971 15.8% **$17,952** **15.2%** |

*Net sales*. Net sales decreased $2.6 million and $8.5 million in the third quarter and in the first nine months of 2023, respectively, compared to the same periods in 2022 due to lower Marine Components sales primarily to the towboat market, partially offset by higher Security Products sales in the third quarter of 2023. See segment discussion below.

*Cost of sales and gross margin.* Cost of sales as a percentage of sales decreased 3.5% and .4% in the third quarter and for the first nine months of 2023, respectively, compared to the same periods in 2022. As a result, gross margin as a percentage of sales increased over the same periods. Gross margin percentage increased in the third quarter and for the first nine months of 2023 compared to the same periods in 2022 primarily due to higher gross margin percentages at both Security Products and Marine Components for the third quarter of 2023. Higher gross margin percentage at Marine

Components in the first quarter of 2023 also favorably impacted the nine-month comparative period. See segment discussion below.

*Operating costs and expenses.* Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as any gains and losses on property and equipment. Operating costs and expenses for the third quarter and for the first nine months of 2023 were comparable to the same periods in 2022. Operating costs and expenses as a percentage of net sales increased for the third quarter and the first nine months of 2023 due to decreased coverage of operating costs and expenses as a result of lower sales.

*Operating income.* As a percentage of net sales, operating income comparisons for the third quarter and first nine months compared to the same periods of 2022 were primarily impacted by the factors impacting sales, cost of sales, gross margin and operating costs. See segment discussion below.

*Interest income.* Interest income increased $.5 million and $1.9 million in the third quarter and for the first nine months of 2023, respectively, compared to the same periods in 2022 primarily due to higher average interest rates and increased investment balances, somewhat offset by lower average balances on the revolving promissory note receivable from Valhi. See Notes 3 and 10 to our Condensed Consolidated Financial Statements.

*Provision for income taxes.* A tabular reconciliation of our actual tax provision to the U.S. federal statutory income tax rate is included in Note 7 to the Condensed Consolidated Financial Statements. Our operations are wholly within the U.S. and therefore our effective income tax rate is primarily reflective of the U.S. federal statutory rate and applicable state taxes.

### Segment Results

The key performance indicator for our segments is operating income.

*(Dollars in thousands)*

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Security Products: | ​ ​ ​ ​ | ​ ​ ​ Three months ended September 30, 2022 ​ | ​ ​ ​ ​ ​% 2023 ​ ​ | ​ ​ ​ ​ Change ​ ​ | ​ ​ ​ Nine months ended September 30, 2022 ​ | ​ ​ ​ ​ ​% 2023 ​ ​ | ​ ​ Change ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | ​ | $28,493 **​** | **$31,376** | 10% | $86,911 **​** | **$84,390** | (3)% |
| Cost of sales | ​ | 20,241 **​** | **21,347** | 5 ​ | 59,629 **​** | **58,475** | (2) ​ |
| Gross margin | ​ | 8,252 **​** | **10,029** | 22 ​ | 27,282 **​** | **25,915** | (5) ​ |
| Operating costs and expenses | ​ | 3,348 **​** | **3,533** | 6 ​ | 9,637 **​** | **9,906** | 3 ​ |
| Operating income | ​ | $4,904 **​** | **$6,496** | 32 ​ | $17,645 **​** | **$16,009** | (9) ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ |
| Gross margin | ​ | 29.0% | **32.0%** | ​ ​ | 31.4% | **30.7%** | ​ |
| Operating income margin | ​ | 17.2 **​** | **20.7** | ​ ​ | 20.3 ​ | **19.0** | ​ |

*Security Products*. Security Products net sales increased 10% in the third quarter of 2023 compared to the same period in 2022. Relative to prior year, third quarter sales were $3.9 million higher to the government security market, partially offset by $.6 million lower sales to the office furniture market and $.4 million lower sales to the gas station security market. Security Products net sales decreased 3% in the first nine months of 2023 compared to the same period in 2022. Relative to prior year, sales for the first nine months were $1.4 million lower to the office furniture market, $1.1 million lower to the government security market, $.5 million lower to the gas station security market and $.4 million lower to the healthcare market, partially offset by $1.2 million higher sales to distributors.

Gross margin as a percentage of net sales increased for the third quarter of 2023 compared to the same period in 2022 primarily due to increased sales volumes and lower cost of sales percentage as a result of lower raw materials, shipping and overtime costs. Operating income as a percentage of net sales increased in the third quarter of 2023 compared to the same period in 2022 due to the factors impacting gross margin, partially offset by increased operating costs and expenses, including higher employee salaries and benefits of $.2 million. Gross margin as a percentage of net sales for the first nine months of 2023 decreased as compared to the same period in 2022 primarily due to effects of lower sales and decreased coverage of fixed costs as a result of lower sales, partially offset by the favorable increase in gross margin during the third quarter as discussed above. Operating income as a percentage of net sales decreased in the first nine months of 2023 compared to the same period in 2022 due to the factors impacting gross margin, as well as increased operating costs and expenses including higher employee salaries and benefits of $.2 million noted above.

*(Dollars in thousands)*

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ Marine Components: | ​ ​ ​ ​ | ​ ​ ​ Three months ended September 30, 2022 ​ | ​ ​ ​ ​ ​% 2023 ​ ​ | ​ ​ ​ ​ ​ Change ​ ​ | ​ ​ ​ Nine months ended September 30, 2022 ​ | ​ ​ ​ ​ ​% 2023 ​ ​ | ​ ​ Change ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | ​ | $14,371 **​** | **$8,979** | (38)% | $39,678 **​** | **$33,732** | (15)% |
| Cost of sales | ​ | 10,687 **​** | **6,389** | (40) ​ | 29,315 **​** | **24,051** | (18) ​ |
| Gross margin | ​ | 3,684 **​** | **2,590** | (30) ​ | 10,363 **​** | **9,681** | (7) ​ |
| Operating costs and expenses | ​ | 968 **​** | **897** | (7) ​ | 2,914 **​** | **2,728** | (6) ​ |
| Operating income | ​ | $2,716 **​** | **$1,693** | (38) ​ | $7,449 **​** | **$6,953** | (7) ​ |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ |
| Gross margin | ​ | 25.6% | **28.8%** | ​ ​ | 26.1% | **28.7%** | ​ |
| Operating income margin | ​ | 18.9 **​** | **18.9** | ​ **​** | 18.8 ​ | **20.6** | ​ |

*Marine Components*. Marine Components net sales decreased 38% in the third quarter of 2023 compared to the same period in 2022. Relative to prior year, third quarter sales were $4.8 million lower to the towboat market and $.5 million lower to the engine builder market, partially offset by $.4 million higher sales to the center console boat market. Marine Components net sales decreased 15% in the first nine months of 2023 compared to the same period in 2022. Relative to prior year, sales for the first nine months were $7.7 million lower to the towboat market and $.8 million lower to the engine builder market, partially offset by $1.4 million higher sales to the industrial market, $.6 million higher sales to marine dealers and distributors and $.4 million higher sales to the center console boat market.

Gross margin as a percentage of sales increased in the third quarter and for the first nine months of 2023 compared to the same period in 2022 primarily due to lower raw material costs (primarily stainless steel and aluminum), lower shipping rates and lower labor costs from reduced employee overtime due to lower sales, partially offset by decreased coverage of fixed costs as a result of lower sales. Higher gross margin in the first quarter of 2023 also favorably impacted the nine-month comparative period. Operating income as a percentage of net sales in the third quarter of 2023 was comparable to the same period in 2022. Operating income as a percentage of net sales increased in the first nine months of 2023 compared to the same period in 2022 due to the factors impacting gross margin as well as reduced operating costs and expenses, including lower employee related administrative expenses of $.2 million.

*Outlook.* During the third quarter, we benefited from increased sales to a customer in the government security market while demand in many of the other markets Security Products serves remained sluggish. At Marine Components, softening demand experienced in the first half of the year continued in the third quarter, primarily due to continued weakness in the towboat market. Labor markets have largely become favorable in each of the regions we operate, and material prices have either stabilized or, in the case of certain commodity raw materials, started to decline slightly. Our supply chains are stable and transportation and logistical delays are minimal, and the long lead times related to certain electronic and specialty components we previously experienced have begun to ease. We have adjusted our labor force and production rates at our facilities to reflect the stability of our raw material supplies and near-term demand levels.

We expect Security Products will continue to benefit from increased sales to the government security market for the remainder of the year. We are in close contact with our key customers and believe reduced order rates will continue through the end of the year in many of the other Security Products markets. Overall, we expect the improved gross margins experienced by Security Products during the third quarter will continue in the fourth quarter as raw material costs have stabilized and higher cost inventory has worked its way through cost of sales. We expect Marine Components net sales for the remainder of the year will continue to be challenged compared to 2022, particularly in the towboat market, as marine demand faces strong headwinds due to higher interest rates and broader market weakness. Several original equipment boat manufacturers, including certain of our customers, have publicly announced reductions to production schedules for the remainder of 2023. We have been able to somewhat offset the towboat market sales declines with increased sales to industrial customers, but we do not expect increases in sales to the industrial market will fully offset weakened towboat demand. Overall, we expect Marine Components gross margin as a percentage of net sales for the full year of 2023 to be slightly favorable to 2022 primarily as a result of lower raw material costs. Despite increased sales to the government security market and higher gross margin percentage at both segments, due to broader market reduced demand, we expect to report slightly lower consolidated sales and operating income in 2023 compared to 2022. On the strength of higher interest income, we expect net income for the full year 2023 to be comparable to prior year. We are focused on managing inventory levels to align with anticipated near-term demand. With raw materials and other components more readily available, we believe we will be able to achieve additional operating efficiencies during the remainder of the year although the extent and impact of such efficiencies is not yet known.

Our expectations for our operations and the markets we serve are based on a number of factors outside our control. As noted above, we have experienced some global and domestic supply chain challenges and any future impacts on our operations will depend on, among other things, any future disruption in our operations or our suppliers’ operations, the impact of economic conditions and geopolitical events on demand for our products or our customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.

### Liquidity and Capital Resources

### Consolidated cash flows –

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

Our net cash provided by operating activities for the first nine months of 2023 increased by $3.6 million as compared to the first nine months of 2022. The increase in net cash provided is primarily due to the net effects of:

- A $4.3 million decrease in the amount of net cash used by relative changes in our inventories, receivables, prepaids, payables and non-tax related accruals in 2023,
- A $2.0 million decrease in operating income in 2023,
- A $.8 million decrease in cash paid for taxes in 2023 due to lower earnings and the relative timing of payments, and
- A $.5 million increase in interest received in 2023 due to higher interest rates and increased investment balances, partially offset by lower average balances on our loan to an affiliate.

Changes in working capital can have a significant effect on cash flows from operating activities. As shown below, the change in our average days sales outstanding from December 31, 2022 to September 30, 2023 varied by segment primarily as a result of relative changes in the timing of sales and collections relative to the end of the quarter. For comparative purposes, we have provided December 31, 2021 and September 30, 2022 numbers below.

|  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| ​ | **​** | **December 31,** | **​** | **September 30,** | **​** | **December 31,** | **​** | **September 30,** |
| **Days Sales Outstanding:** |  | **2021** |  | **2022** |  | **2022** |  | **2023** |
| Security Products |  | 46 Days |  | 45 Days | ​ | 45 Days |  | 48 Days |
| Marine Components |  | 30 Days |  | 32 Days | ​ | 30 Days |  | 33 Days |
| Consolidated CompX |  | 42 Days |  | 41 Days | ​ | 41 Days |  | 45 Days |

Our average number of days in inventory increased from December 31, 2022 to September 30, 2023 primarily due to the increase at Marine Components due to lower sales and increased inventory balances as a result of prior orders of certain raw materials that had longer lead times that were delivered during the second and third quarters of 2023. Days in inventory for Security Products increased slightly due to the planned inventory build during the second quarter at Security Products to fulfill a purchase order that began shipping during the third quarter and is expected to continue shipping through the end of the year. Absent this order, Security Products inventory balances would have declined at the end of the third quarter in line with current demand. For comparative purposes, we have provided December 31, 2021 and September 30, 2022 numbers below.

|  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| ​ | **​** | **December 31,** | **​** | **September 30,** | **​** | **December 31,** | **​** | **September 30,** | **​** |
| **Days in Inventory:** |  | **2021** |  | **2022** |  | **2022** |  | **2023** | **​** |
| Security Products |  | 95 Days |  | 103 Days | ​ | 101 Days |  | 103 Days | ​ |
| Marine Components |  | 97 Days |  | 89 Days | ​ | 95 Days |  | 144 Days | ​ |
| Consolidated CompX |  | 96 Days |  | 98 Days | ​ | 99 Days |  | 112 Days | ​ |

\- 15 -

*Investing activities.* Our capital expenditures were $.6 million and $3.0 million in the first nine months of 2023 and 2022, respectively. During the first nine months of 2023, Valhi repaid a net $1.2 million under the promissory note ($20.7 million of gross borrowings and $21.9 million of gross repayments). During the first nine months of 2022, Valhi repaid a net $4.0 million under the promissory note ($17.1 million of gross borrowings and $21.1 million of gross repayments). See Note 10 to our Condensed Consolidated Financial Statements.

During the first nine months of 2023, we had gross purchases of U.S. treasury marketable securities aggregating $36.3 million and received gross proceeds totaling $24.0 million related to U.S. treasury bill maturities. See Note 3 to our Condensed Consolidated Financial Statements.

*Financing activities.* During the first nine months of 2023 and 2022, we paid aggregate quarterly dividends to CompX stockholders of $.75 per share. Additionally, in August 2022 our board of directors declared a special dividend on our Class A common stock of $1.75 per share ($21.5 million). The declaration and payment of future dividends and the amount thereof, if any, is discretionary and is dependent upon our results of operations, financial condition, cash requirements for our businesses, contractual requirements and restrictions and other factors deemed relevant by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which we might pay.

During the second quarter of 2022, we acquired 78,900 shares of our Class A common stock (8,900 shares from affiliates and 70,000 shares in a single market transaction) for an aggregate purchase price of $1.7 million. See Note 8 to our Condensed Consolidated Financial Statements.

### Future cash requirements –

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

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

We believe that cash generated from operations together with cash on hand, as well as our ability to obtain external financing, will be sufficient to meet our liquidity needs for working capital, capital expenditures, debt service, dividends (if declared) and any amounts we might loan from time to time under the terms of our revolving loan to Valhi discussed in Note 10 to our Condensed Consolidated Financial Statements (which loans would be solely at our discretion) for both the next 12 months and five years. To the extent that our actual operating results or other developments differ from our expectations, our liquidity could be adversely affected.

All of our $64.4 million aggregate cash, cash equivalents and marketable securities at September 30, 2023 were held in the U.S.

*Capital expenditures.* Firm purchase commitments for capital projects in process at September 30, 2023 totaled $.2 million. We expect our capital expenditures for 2023 will be approximately $2.0 million primarily to meet our existing customer demand and those required to properly maintain our facilities and technology infrastructure.

*Stock repurchase program.* At September 30, 2023, we have 523,647 shares available for repurchase under a stock repurchase program authorized by our board of directors. See Note 8 to our Condensed Consolidated Financial Statements.

*Commitments and contingencies.* There have been no material changes in our contractual obligations since we filed our 2022 Annual Report and we refer you to that report for a complete description of these commitments.

### Recent accounting pronouncements –

None.

### Critical accounting policies –

There have been no changes in the first nine months of 2023 with respect to our critical accounting policies presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report.

## Market risk

As filed, 375 characters.

We are exposed to market risk from changes in interest rates and raw material prices. There have been no material changes in these market risks since we filed our 2022 Annual Report, and we refer you to Part I, Item 7A – “Quantitative and Qualitative Disclosure About Market Risk” in our 2022 Annual Report. See also Note 9 to the Condensed Consolidated Financial Statements.

## Controls and procedures

As filed, 3,057 characters.

**Evaluation of Disclosure Controls and Procedures.** We maintain disclosure controls and procedures which, as defined in Exchange Act Rule 13a-15(e), means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit to the SEC under the Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Our management with the participation of Scott C. James, our President and Chief Executive Officer, and Amy A. Samford, our Executive Vice President and Chief Financial Officer, has evaluated the design and operating effectiveness of our disclosure controls and procedures as of September 30, 2023. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of the date of such evaluation.

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

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets,
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and
- Provide reasonable assurance regarding prevention or timely detection of an unauthorized acquisition, use or disposition of our assets that could have a material effect on our Condensed Consolidated Financial Statements.

**Changes in Internal Control Over Financial Reporting**. There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 1, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-017240. Last ingested by Listed: Oct 24, 2026, 15:03 ET. No prices; not investment advice.