UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-2612
-----------------------------
LUFKIN INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0404410
----- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
601 SOUTH RAGUET, LUFKIN, TEXAS 75904
------------------------------- -----
(Address of principal executive offices) (Zip Code)
(936) 634-2211
--------------
(Registrant's telephone number, including area code)
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period as the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 6,409,657 shares of Common Stock, $1.00 par value per share,
outstanding as of April 19, 2002, not including 482,724 shares classified as
Treasury Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 31, December 31,
2002 2001
-------- ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 15,022 $ 18,087
Invested funds 5,863 5,863
Receivables, net 31,569 35,956
Income taxes receivable 674 673
Inventories 35,493 34,824
Deferred income tax assets 2,180 2,179
-------- --------
Total current assets 90,801 97,582
-------- --------
Property, plant and equipment, at cost 252,089 250,924
Less accumulated depreciation 172,215 169,628
-------- --------
79,874 81,296
-------- --------
Prepaid pension costs 50,687 49,437
Goodwill, net 10,011 10,045
Other assets, net 8,575 7,709
-------- --------
Total assets $239,948 $246,069
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ - $ -
Current portion of long-term notes payable 6,216 6,598
Accounts payable 9,935 10,680
Accrued payroll and benefits 4,732 6,636
Accrued warranty expenses 2,311 2,275
Taxes payable 3,417 4,487
Accrued commissions and other 5,421 6,373
-------- --------
Total current liabilities 32,032 37,049
-------- --------
Deferred income tax liabilities 26,609 26,658
Postretirement benefits liability 11,024 11,024
Long-term notes payable, net of current portion 261 339
Shareholders' equity:
Common stock, $1.00 par value per share;
60,000,000 shares authorized;
6,892,381 shares issued 6,892 6,892
Capital in excess of par 18,194 18,200
Retained earnings 158,010 158,973
Treasury stock, 498,748 and 502,348
shares, respectively, at cost (10,277) (10,350)
Accumulated other comprehensive income:
Cumulative translation adjustment (2,797) (2,716)
-------- --------
Total shareholders' equity 170,022 170,999
-------- --------
Total liabilities and shareholders' equity $239,948 $246,069
======== ========
See accompanying notes to consolidated financial statements.
1
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(In thousands of dollars, except share and per share data)
Three Months Ended
March 31,
2002 2001
---------- ----------
(Unaudited)
Net sales $ 51,007 $ 63,459
Cost of sales 42,804 48,733
---------- ----------
Gross profit 8,203 14,726
Selling, general and administrative
expenses 7,960 9,042
---------- ----------
Operating income 243 5,684
Interest and other income (expense), net 67 (747)
---------- ----------
Earnings before income tax provision 310 4,937
Income tax provision 122 1,881
---------- ----------
Net earnings 188 3,056
Change in foreign currency translation
adjustment (81) (423)
---------- ----------
Total comprehensive income $ 107 $ 2,633
========== ==========
Earnings per share:
Basic $ 0.03 $ 0.49
========== ==========
Diluted $ 0.03 $ 0.49
========== ==========
Dividends per share $ 0.18 $ 0.18
========== ==========
Weighted average number of shares
outstanding:
Basic 6,395,727 6,213,623
Diluted 6,533,842 6,281,637
See accompanying notes to consolidated financial statements.
2
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Three Months Ended
March 31,
2002 2001
------- -------
(Unaudited)
Cash flows from operating activities:
Net earnings $ 188 $ 3,056
Adjustments to reconcile net earnings
to cash provided by operating activities:
Depreciation and amortization 2,806 2,826
Pension income (1,250) (1,375)
Postretirement benefits - -
(Gain) loss on disposition of
property, plant and equipment (19) 554
Increase in other assets (896) (284)
Changes in:
Trade receivables 4,308 699
Income taxes receivable - 1,239
Inventories (721) (5,955)
Accounts payable (617) (1,940)
Accrued liabilities (3,864) 528
------- -------
Net cash used by operating activities (65) (652)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (1,485) (1,651)
Proceeds from disposition of
property, plant and equipment 35 69
------- -------
Net cash used in investing activities (1,450) (1,582)
------- -------
Cash flows from financing activities:
Net proceeds from short-term debt - 3,510
Payments on long-term debt (424) (443)
Dividends paid (1,151) (1,075)
Proceeds from exercise of stock options 55 5
Purchases of treasury stock - -
------- -------
Net cash provided by (used in)
financing activities (1,520) 1,997
------- -------
Effect of translation on cash and
cash equivalents (30) (74)
------- -------
Net decrease in cash and cash equivalents (3,065) (311)
Cash and cash equivalents at beginning
of period 18,087 2,003
------- -------
Cash and cash equivalents at end
of period $15,022 $ 1,692
======= =======
See accompanying notes to consolidated financial statements.
3
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Lufkin Industries, Inc. and its consolidated subsidiaries (the
"Company") and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information in the notes to the
consolidated financial statements normally included in financial statements
prepared in accordance with generally accepted accounting principles has been
condensed or omitted pursuant to these rules and regulations. In the opinion of
management, all adjustments, consisting of normal recurring accruals unless
specified, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows have been included. For further
information, including a summary of major accounting policies, refer to the
consolidated financial statements and related footnotes included in the
Company's annual report on Form 10-K for the year ended December 31, 2001. The
results of operations for the three months ended March 31, 2002, are not
necessarily indicative of the results that may be expected for the full fiscal
year. Certain prior period amounts have been reclassified to conform to the
current presentation.
2. INVENTORIES
Consolidated inventories consist of the following:
March 31, December 31,
2002 2001
--------- -----------
(In thousands of dollars)
Finished goods $ 2,758 $ 2,485
Work in process 3,989 4,036
Raw materials 28,746 28,303
------- -------
$35,493 $34,824
======= =======
3. EARNINGS PER SHARE
Basic EPS is computed by dividing net earnings (loss) by the weighted average
number of shares outstanding during the period. Diluted EPS is computed
considering the potentially dilutive effect of outstanding stock options. A
reconciliation of the numerator and denominators of the basic and diluted per
share computations follows ( in thousands, except share and per share data):
Three Months Ended
March 31,
2002 2001
---------- ----------
Numerator:
Net earnings $ 188 $ 3,056
Denominator:
Weighted average shares (Basic) 6,395,727 6,213,623
Effect of outstanding options 138,115 68,014
---------- ----------
Weighted average shares including
assumed conversions (Diluted) 6,533,842 6,281,637
========== ==========
Basic earnings per share $ 0.03 $ 0.49
========== ==========
Diluted earnings per share $ 0.03 $ 0.49
========== ==========
4
3. EARNINGS PER SHARE (CONTINUED)
Options to purchase a total of 204,382 and 472,174 shares of the Company's
common stock at March 31, 2002 and 2001, respectively, were excluded from
the calculation of earnings per share because their effect on diluted earnings
per share for the respective periods was antidilutive.
4. LEGAL PROCEEDINGS
A class action complaint was filed in the United States District Court for the
Eastern District of Texas on March 7, 1997, by an employee and a former employee
whom alleged race discrimination in employment. Certification hearings were
conducted in Beaumont, Texas in February of 1998 and in Lufkin, Texas in August
of 1998. The District Court in April of 1999 issued a decision that certified a
class for this case which includes all persons of a certain minority employed by
the Company from March 6, 1994, to the present. The Company appealed this class
certification decision by the District Court to the 5th Circuit United States
Courts of Appeals in New Orleans, Louisiana. This appeal was denied on June 23,
1999.
The Company is defending this action vigorously. Furthermore, the Company
believes that the facts and the law in this action support its position and that
it will prevail if this case is tried on its merits.
The Company is often subject to routine litigation arising in the normal course
of its business. While the outcome of these proceedings cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the Company's consolidated financial position or results of
operations.
5. SEGMENT DATA
The Company operates with three business segments - Oil Field, Power
Transmission and Trailer. As of December 31, 2001, the Foundry segment was
combined with the Oil Field segment. Prior period data has been adjusted to
reflect this change. The Company's Corporate group provides administrative
services to the three business segments. Corporate expenses and certain assets
are allocated to the operating segments based primarily upon third party
revenues. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in the footnotes to
the consolidated financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 2001. Following is a summary of key
segment information (in thousands of dollars):
Three Months Ended March 31, 2002
---------------------------------
Power
Oil Field Transmission Trailer Corporate Total
--------- ------------ -------- --------- --------
Gross sales $28,369 $14,369 $9,265 $ - $52,003
Inter-segment sales (236) (760) - - (996)
------- ------- ------ ---- -------
Net sales $28,133 $13,609 $9,265 $ - $51,007
======= ======= ====== ==== =======
Operating income (loss) $ 1,853 $ (639) $ (971) $ - $ 243
Other income (expense) (54) (47) 3 165 67
------- ------- ------ ---- -------
Earnings (loss) before
tax provision $ 1,799 $ (686) $ (968) $165 $ 310
======= ======= ====== ==== =======
5
5. SEGMENT DATA (CONTINUED)
Three Months Ended March 31, 2001
---------------------------------
Power
Oil Field Transmission Trailer Corporate Total
--------- ------------ -------- --------- --------
Gross sales $43,904 $18,118 $ 7,007 $ - $69,029
-
Inter-segment sales (1,582) (3,893) (95) - (5,570)
------- ------- ------- ----- -------
Net sales $42,322 $14,225 $ 6,912 $ - $63,459
======= ======= ======= ===== =======
Operating income (loss) $ 7,033 $ 530 $(1,879) $ - $ 5,684
Other income (expense) (370) (67) (301) (9) (747)
------- ------- ------- ----- -------
Earnings (loss) before
tax provision $ 6,663 $ 463 $(2,180) $ (9) $ 4,937
======= ======= ======= ===== =======
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations." This Statement eliminates the use of the pooling method
of accounting and requires the use of purchase accounting for all business
combinations initiated after June 30, 2001. Statement No. 141 also requires the
recognition of certain acquired intangible assets separate from goodwill.
In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
"Goodwill and Other Intangible Assets." Statement No. 142 addresses how goodwill
and other intangible assets should be accounted for after they have been
initially recognized in the financial statements. The Company is in the process
of adopting this Statement. As of January 1, 2002, the Company no longer
amortizes goodwill. The Company's goodwill is subject to an annual impairment
test, using a two-step process. If impairment losses are required to be
recognized upon the initial application of this statement, they would be
accounted for as a cumulative effect of a change in accounting principle. The
Company has not yet completed the impairment tests prescribed by the Statement,
but the Company does not believe the adoption of Statement No. 142 will have a
significant impact on the Company's consolidated financial position or results
of operations.
In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations." This standard requires asset
retirement costs to be capitalized as part of the cost of the related tangible
long-lived asset and subsequently allocated to expense using a systematic and
rational method over the useful life of the asset. The Statement is effective
for fiscal years beginning after June 15, 2002. The transition adjustment
resulting from the adoption of this Statement will be reported as a cumulative
effect of a change in accounting principle. At this time, the Company does not
believe the adoption of Statement No. 143 will have a significant impact on the
Company's consolidated financial position or results of operations.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This
Statement supersedes Statement No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" and replaces the
provisions of APB Opinion No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business" that deal with the disposal
of a business segment. Statement No. 144 establishes a single accounting model
for the treatment of long-lived assets in both continuing and discontinued
operations and resolves implementation issues of Statement No. 121. Statement
No. 144 requires that all long-lived assets be measured at the lower of carrying
amounts or fair value. Discontinued operations will include components of any
entity to be eliminated from continuing operations that is distinguishable from
the rest of the Company and will no longer be measured at net
6
realizable value or include amounts for operating losses that have not yet
occurred. The Statement is effective for financial statements issued for fiscal
years beginning after December 15, 2001. The Company adopted this statement in
the first quarter of 2002 and it did not have a significant impact on the
Company's consolidated financial position or results of operations.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company designs, manufactures, sells and services various types of oil field
pumping units, power transmission products and highway trailers. The Company's
Oil Field Division manufactures and services numerous sizes and configurations
of oil field pumping units as well as related automation equipment. The
Company's power transmission products (speed increasers and reducers) are
designed, manufactured and sold primarily for use in industrial applications
such as petrochemical, refining, rubber, plastics and steel and also for use in
marine propulsion applications. The Company also produces and services various
types and styles of highway trailers, including vans, platforms and dumps.
The Company changed its segment reporting methodology in 2001 to consolidate the
Foundry segment into the Oil Field segment. All prior period data has been
adjusted to reflect this change. This segment consolidation occurred for several
reasons: a management restructuring reflecting this change had taken place,
lower domestic spending by customers and increased foreign imports decreased the
demand for domestic iron castings, and transfers to the oil field product line
became a significant percentage of the output of Foundry, causing the activity
level of oil field products to more directly impact the financial performance of
Foundry. However, the Company will continue to aggressively pursue external
casting opportunities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002, COMPARED TO THREE MONTHS ENDED MARCH 31,
2001:
Net revenues for the three months ended March 31, 2002, decreased to $51,007,000
from $63,459,000 for the three months ended March 31, 2001, as Oil Field sales
decreased due to lower drilling activity from lower energy prices.
The Company reported net earnings of $188,000 or $0.03 per share (diluted) for
the three months ended March 31, 2002, compared to earnings of $3,056,000 or
$0.49 per share (diluted) for the quarter ended March 31, 2001.
The following table summarizes the Company's net revenues and gross profit by
operating segment (in thousands of dollars):
Three Months Ended
March 31, %
------------------- Increase Increase
2002 2001 (Decrease) (Decrease)
--------- ------- ---------- ----------
Net Revenues
- ---------------------
Oil Field $28,133 $42,322 $(14,189) (33.5)
Power Transmission 13,609 14,225 (616) (4.3)
Trailer 9,265 6,912 2,353 34.0
------- ------- --------
Total $51,007 $63,459 $(12,452) (19.6)
======= ======= ========
7
Gross Profit
- -------------------------
Oil Field $5,063 $11,092 $(6,029) (54.4)
Power Transmission 2,824 4,180 (1,356) (32.4)
Trailer 316 (546) 862 157.9
------- ------- --------
Total $8,203 $14,726 $(6,523) (44.3)
======= ======= ========
Oil Field revenues decreased 33.5% to $28,133,000 in the first quarter of 2002
from $42,322,000 in the first quarter of 2001 as the decrease in oil field
drilling activity from lower energy prices that began in the second half of 2001
continued into the first quarter of this year. While the Company's Oil Field
backlog increased to $22,000,000 as of March 31, 2002, from $19,400,000 at
December 31, 2001, backlog was down from $30,300,000 for the same period last
year.
Gross profit for the Oil Field Division decreased to $5,063,000 for the three
months ended March 31, 2002, or 54.4%, compared to $11,092,000 for the prior
year quarter. Gross margin for the comparable periods declined to 18.0% in 2002
compared to 26.2% in 2001 due to fixed overhead costs not declining at the same
rate as revenue.
Direct selling, general and administrative expenses for Oil Field decreased to
$1.8 million, or 33.3%, for the quarter ended March 31, 2002, from $2.7 million
for the quarter ended March 31, 2001. This decrease was due primarily to reduced
legal expenses associated with ongoing and routine litigation.
Revenues for the Company's Power Transmission segment decreased to $13,609,000
for the first quarter of 2002 compared to $14,225,000 for the 2001 first quarter
due to lower volumes in repair and service activity for the power generation and
energy markets. The Company's Power Transmission backlog at March 31, 2002,
increased to $33,900,000 from $26,700,000 at March 31, 2001, and $31,500,000 at
December 31, 2001. This increase was due to higher activity in the refinery,
petrochemical, offshore oil and gas and marine markets.
Power Transmission gross profit and gross margin decreased to $2,824,000 and
20.8%, respectively, for the three months ended March 31, 2002, compared to
$4,180,000 and 29.4%, respectively, for the comparable prior year quarter. This
decline was due to the reduction of gear reducers produced for the Oil Field
Division, which had been providing increased absorption of fixed overhead costs,
and fixed costs in repair and service not declining at the same rate as revenue.
Direct selling, general and administrative expenses for Power Transmission
decreased to $2.4 million, or 7.7%, for the quarter ended March 31, 2002, from
$2.6 million for the quarter ended March 31, 2001. This decrease was due to
lower personnel-related expenses, third-party commissions and advertising.
Trailer revenues for the first quarter of 2002 increased to $9,265,000 from
$6,912,000 for the three months ended March 31, 2001, due to some improvement in
the freight market. However, the market remained very depressed due to a
combination of lower shipping volumes, higher fuel costs, higher personnel costs
and higher insurance rates. Backlog for the Trailer segment totaled $11,400,000
at March 31, 2002, compared to $13,500,000 at December 31, 2001, and $11,600,000
at March 31, 2001.
Trailer gross profit improved to $316,000 for the three months ended March 31,
2002, from a loss of $546,000 for the comparable prior year quarter and gross
margin for the 2002 first quarter increased to 3.4% from a negative 7.9% for the
first quarter of 2001. This improvement was due to higher manufacturing volumes
absorbing more fixed overhead costs and the sale of previously reserved stock
trailers.
Direct selling, general and administrative expenses for Trailer decreased to
$0.4 million, or 20.0%, for the quarter ended March 31, 2002, from $0.5 million
for the quarter ended March 31, 2001. This decrease was due to lower personnel-
related expenses.
8
Corporate administrative expenses, which are allocated to the segments primarily
based on third-party revenues, increased to $3.4 million, or 3.0%, for the
quarter ended March 31, 2002, from $3.3 million for the quarter ended March 31,
2001, due to higher overhead expenses and non-recurring expenses related to the
Company's 100th anniversary, partially offset by lower personnel-related
expenses.
Interest and other income/expense for the three months ended March 31, 2002,
totaled $67,000 of income compared to an expense of $747,000 for the prior year
quarter due primarily to the non-recurrence of $554,000 of expense in the first
quarter of 2001 related to fixed asset physical counts, the elimination of
short-term debt early in the third quarter of 2001 and increased income from
invested cash in the first quarter of 2002.
Pension income, which is reported as a reduction of cost of sales, decreased to
$1.3 million, or 7.1%, for the quarter ended March 31, 2002, from $1.4 million
for the quarter ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flows from operations and third-
party borrowings to finance its operations, including acquisitions, dividend
payments and stock repurchases.
The Company's cash balance totaled $15.0 million at March 31, 2002, compared to
$18.1 million at December 31, 2001. For the three months ended March 31, 2002,
net cash used by operating activities was $0.1 million, cash used in investing
activities totaled $1.5 million and cash used in financing activities amounted
to $1.5 million. Significant components of cash used by operating activities
include net earnings adjusted for non-cash expenses of $1.7 million and a net
increase in working capital of $1.8 million. Cash used in investing activities
included capital expenditures totaling $1.5 million, primarily for additions and
replacements of production equipment, operating vehicles and environmental
compliance in the Oil Field segment. Capital expenditures for 2002 are projected
to be at or somewhat above the level seen in 2001. Significant components of
cash used in financing activities included payments on long-term debt of
$0.4 million, proceeds from stock option exercises of $0.1 million and dividend
payments of $1.2 million or $0.18 per share.
Total debt balances at March 31, 2002, including current maturities of long-term
debt, consisted of $6.5 million of notes payable to various banks and
individuals. As of March 31, 2002, the Company had no outstanding debt
associated with its discretionary short-term demand facilities or with the Bank
Facility discussed below. Total debt decreased by $0.4 million during the first
quarter of 2002 compared to $6.9 million at December 31, 2001, due to principal
payments on long-term notes payable totaling $0.4 million. Approximately 78% of
the outstanding debt at March 31, 2002, will be repaid in July 2002.
The Company has an agreement with a domestic bank (the "Bank Facility") for an
unsecured revolving line of credit that provides for up to $20.0 million of
borrowings outstanding at any one time expiring September 1, 2002, along with an
additional $5.0 million demand facility. Borrowings under the Bank Facility bear
interest, at the Company's option, at either (i) the prime rate or (ii) the
London Interbank Offered Rate ("LIBOR") plus an applicable margin, depending on
certain ratios as defined in the agreement. As of March 31, 2002, no amounts
were outstanding of the $25.0 million of the revolving line of credit under the
terms of the Bank Facility.
The Company has two additional short-term demand lines. One demand line (the
"LIBOR Demand Line") is an unsecured revolving line of credit with a domestic
bank that provides up to $5.0 million of borrowings at any one time and expires
on September 22, 2002. Borrowings under the LIBOR Demand Line bear interest at
LIBOR plus 1%. The second demand line (the "Floating Demand Line") is an
unsecured revolving line of credit with a domestic bank that provides up to
$5.0 million of borrowings at any one time. The Floating Demand Line expires on
December 30, 2002, and is renewable annually. Borrowings under the Floating
Demand Line bear interest at a floating rate agreed to by the Company
9
and the bank. As of March 31, 2002, no amounts were outstanding of the revolving
line of credit under the terms of the LIBOR Demand Line or the Floating Demand
Line.
The Company currently has a stock repurchase plan under which the Company is
authorized to spend up to $17.1 million for purchases of its common stock.
Pursuant to this plan, the Company has purchased a total of 826,870 shares of
its common stock at an aggregate purchase price of $16.9 million. No shares were
purchased during the quarter ended March 31, 2002. Purchased shares are added to
treasury stock and are available for general corporate purposes including the
funding of the Company's stock option plans. As of March 31, 2002, the Company
held 498,748 shares of treasury stock at an aggregate cost of approximately
$10.3 million. Authorizations of approximately $0.2 million remained at
March 31, 2002.
The Company believes that its cash flows from operations and its available
borrowing capacity under its credit agreements will be sufficient to fund its
operations, including planned capital expenditures, dividend payments and stock
repurchases, through December 31, 2002.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations." This Statement eliminates the use of the pooling method
of accounting and requires the use of purchase accounting for all business
combinations initiated after June 30, 2001. Statement No. 141 also requires the
recognition of certain acquired intangible assets separate from goodwill.
In June 2001, the Financial Accounting Standards Board issued Statement No. 142,
"Goodwill and Other Intangible Assets." Statement No. 142 addresses how goodwill
and other intangible assets should be accounted for after they have been
initially recognized in the financial statements. The Company is in the process
of adopting this Statement. As of January 1, 2002, the Company no longer
amortizes goodwill. The Company's goodwill is subject to an annual impairment
test, using a two-step process. If impairment losses are required to be
recognized upon the initial application of this statement, they would be
accounted for as a cumulative effect of a change in accounting principle. The
Company has not yet completed the impairment tests prescribed by the Statement,
but the Company does not believe the adoption of Statement No. 142 will have a
significant impact on the Company's consolidated financial position or results
of operations.
In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations." This standard requires asset
retirement costs to be capitalized as part of the cost of the related tangible
long-lived asset and subsequently allocated to expense using a systematic and
rational method over the useful life of the asset. The Statement is effective
for fiscal years beginning after June 15, 2002. The transition adjustment
resulting from the adoption of this Statement will be reported as a cumulative
effect of a change in accounting principle. At this time, the Company does not
believe the adoption of Statement No. 143 will have a significant impact on the
Company's consolidated financial position or results of operations.
In August 2001, the Financial Accounting Standards Board issued Statement
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This
Statement supersedes Statement No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" and replaces the
provisions of APB Opinion No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business" that deal with the disposal
of a business segment. Statement No. 144 establishes a single accounting model
for the treatment of long-lived assets in both continuing and discontinued
operations and resolves implementation issues of Statement No. 121. Statement
No. 144 requires that all long-lived assets be measured at the lower of carrying
amounts or fair value. Discontinued operations will include components of any
entity to be eliminated from continuing operations that is distinguishable from
the rest of the Company and will no longer be measured at net realizable value
or include amounts for operating losses that have not yet occurred. The
Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The
10
Company adopted this statement in the first quarter of 2002 and it did not have
a significant impact on the Company's consolidated financial position or results
of operations.
FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report contains forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate", "believe", "estimate", "expect" and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to certain events and are subject to
certain assumptions, risks and uncertainties, many of which are outside the
control of the Company. These risks and uncertainties include, but are not
limited to, (i) oil prices, (ii) capital spending levels of oil producers,
(iii) availability and prices for raw materials and (iv) general industry and
economic conditions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements and
information.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes. The one
derivative financial instrument held, a note payable that is a hedge on the
Company's French operations, does not expose the Company to significant market
risk. The Company's financial instruments include cash, accounts receivable,
accounts payable, invested funds and debt obligations. The book value of
accounts receivable, short-term debt and accounts payable are considered to be
representative of their fair market value because of the short maturity of these
instruments. The Company believes the carrying values of its long-term debt
obligations approximate fair values because the interest rates on these
obligations are comparable to what the Company believes it could currently
obtain for debt with similar terms and maturities. The Company's accounts
receivable are not concentrated in one customer or industry and are not viewed
as an unusual credit risk.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A class action complaint was filed in the United States District Court for the
Eastern District of Texas on March 7, 1997, by an employee and a former employee
that alleged race discrimination in employment. Certification hearings were
conducted in Beaumont, Texas in February of 1998 and in Lufkin, Texas in August
of 1998. The District Court in April of 1999 issued a decision that certified a
class for this case which includes all persons of a certain minority employed by
the Company from March 6, 1994, to the present. The Company appealed this class
certification decision by the District Court to the 5th Circuit United States
Courts of Appeals in New Orleans, Louisiana. This appeal was denied on June 23,
1999.
The Company is defending this action vigorously. Furthermore, the Company
believes that the facts and the law in this action support its position and that
it will prevail if this case is tried on its merits.
The Company is often subject to routine litigation arising in the normal course
of its business. While the outcome of these proceedings cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
12
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Date: April 22, 2002
LUFKIN INDUSTRIES, INC.
By /s/ R. D. Leslie
----------------------------------
Vice President/Treasurer/
Chief Financial Officer
Principal Financial and
Accounting Officer
13