FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
------------------
OR
( ) 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 75-040-4410
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 South Raguet, Lufkin, Texas 75901
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 409-634-2211
--------------
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the re-
gistrant 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 6,574,183 shares of Common Stock, $1.00 par value per share
outstanding as of September 30, 1996, not including 218,198 shares classified
as Treasury Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
--------------------------------------------------------------------
(Thousands of dollars)
ASSETS 12-31-95 9-30-96
------ --------- -----------
(Unaudited)
CURRENT ASSETS:
Cash $ 277 $ 66
Temporary investments 33,040 32,258
Receivables, net 36,204 29,776
Inventories 24,737 23,292
Deferred income taxes 3,853 3,853
--------- ---------
Total current assets 98,111 89,245
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost 233,776 241,621
Less - Accumulated depreciation (172,953) (176,158)
--------- ---------
60,823 65,463
--------- ---------
PREPAID PENSION COSTS 20,936 23,490
OTHER ASSETS 6,426 7,556
--------- ---------
$ 186,296 $ 185,754
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 11,430 $ 8,090
Accrued payroll and benefits 5,084 5,716
Accrued warranty expenses 2,032 1,853
Accrued property and other taxes 2,849 4,338
Other accrued liabilities 1,774 1,763
--------- --------
Total current liabilities 23,169 21,760
--------- --------
DEFERRED INCOME TAXES 8,500 8,500
POST RETIREMENT BENEFITS 12,035 12,104
SHAREHOLDERS' EQUITY:
Common stock, $1 par value per share;
20,000,000 shares authorized;
6,792,381 shares issued 6,792 6,792
Capital in excess of par 15,367 15,367
Retained earnings 121,692 126,538
Treasury stock, 16,108 shares at 12/31/95
and 218,198 shares at 9/30/96 at cost (311) (4,585)
Cumulative translation adjustment (948) (722)
--------- --------
Total shareholders' equity 142,592 143,390
--------- --------
$ 186,296 $ 185,754
========= ========
See accompanying notes to consolidated financial statements.
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(Thousands of dollars, except per share data)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------- ---------------------
(Unaudited) (Unaudited)
1995 1996 1995 1996
----- ----- ----- -----
NET SALES $62,936 $55,063 $180,549 $166,573
COSTS OF SALES 54,656 46,196 157,124 139,065
------- ------- -------- --------
Gross profit 8,280 8,867 23,425 27,508
SELLING, GENERAL AND ADMINISTRATION
EXPENSES 5,591 5,638 16,450 16,897
------- ------- -------- --------
Operating income 2,689 3,229 6,975 10,611
OTHER INCOME, NET 623 628 2,462 1,624
------- ------- -------- --------
Earnings before income taxes 3,312 3,857 9,437 12,235
PROVISION FOR INCOME TAXES 1,201 1,350 3,273 4,366
------- ------- -------- --------
Net earnings $ 2,111 $ 2,507 $ 6,164 $ 7,869
======= ======= ======== ========
EARNINGS PER SHARE $ .31 $ .38 $ .90 $1.17
======= ======= ======== ========
DIVIDENDS PER SHARE $ .15 $ .15 $ .45 $ .45
======= ======= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,829,821 6,654,252 6,817,476 6,735,327
See accompanying notes to consolidated financial statements.
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
-----------------------------------------------------
(Thousands of dollars)
For the Nine Months
Ended September 30
---------------------
(Unaudited)
1995 1996
--------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 6,164 $ 7,869
Adjustments to reconcile earnings
to net cash provided by operating
activities:
Depreciation 5,220 5,127
Pension income (2,390) (2,554)
Post retirement benefits 139 69
Gain on sales of property, plant and
equipment (96) (181)
Deferred income tax provision 2,564 -
Net changes in operating
assets and liabilities (5,579) 6,464
------- --------
Net cash provided by operating activities 6,022 16,794
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (5,404) (9,995)
Proceeds from disposition of property, plant
and equipment 530 409
(Increase) decrease in other assets 545 (1,130)
------- --------
Net cash used by investing
activities (4,329) (10,716)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (3,054) (3,023)
Proceeds from exercise of stock options 68 2
Purchase of treasury stock (241) (4,276)
------- --------
Net cash used by financing activities (3,227) (7,297)
Effect of translation on cash and temporary
investments (5) 226
------- --------
Net decrease in cash and temporary
investments (1,539) (993)
Cash and temporary investments, at
beginning of period 36,923 33,317
------- --------
Cash and temporary investments, at
end of period $35,384 $ 32,324
======= ========
See accompanying notes to consolidated financial statements.
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(1) In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows of Lufkin Industries, Inc. and
Subsidiaries (the "Company") for all periods presented. The consolidated
balance sheet as of December 31, 1995, was derived from the audited
consolidated balance sheet included in the Company's 1995 annual report on Form
10-K. The results of operations for the nine months ended September 30, 1996,
are not necessarily indicative of the results that may be expected for the full
fiscal year.
These statements have been prepared in accordance with the
requirements for interim financial statements contained in Regulation S-X,
which do not require all the information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Therefore, these
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1995.
(2) Consolidated inventories consist of the following:
12-31-95 9-30-96
--------- --------
(Thousands of dollars)
Raw materials and purchased
parts $ 11,842 $ 12,256
Work in process 6,050 6,543
Finished goods 6,845 4,493
--------- --------
$ 24,737 $ 23,292
========= ========
Item 2. Management's Discussion and Analysis
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) Changes in Financial Condition
At September 30, 1996, the Company had working capital of $67,485,000 as
compared to $74,942,000, at December 31, 1995, a decrease of $7,457,000.
(2) Changes in Results of Operations
Net sales for the three months and the nine months ended September 30, 1996
decreased 13% and 8%, respectively, over the same periods ended September 30,
1995. Sales by product group for the three months and nine months ended
September 30, 1995 and 1996 were as follows:
THREE MONTHS ENDED % NINE MONTHS ENDED %
September 30 Increase September 30 Increase
1995 1996 (Decrease) 1995 1996 (Decrease)
-------- -------- ----------- -------- -------- -----------
(In thousands) (In thousands)
Oil field pumping
units $12,189 $11,713 (4%) $ 33,504 $ 36,225 8%
Power transmission
products 15,702 18,756 19% 41,115 54,426 32%
Foundry castings 7,652 7,772 2% 23,962 23,742 (1%)
Trailers 27,393 16,822 (39%) 81,968 52,180 (36%)
------- ------- ---- -------- -------- ----
$62,936 $55,063 (13%) $180,549 $166,573 (8%)
======= ======= ==== ======== ======== ====
The Company's sales decrease was due primarily to decreased trailer
volumes brought about by weaker trailer market demands. Oil field pumping unit
sales decreased 4% for the third quarter of 1996 as compared to the same period
of 1995 due to decreased pumping unit volumes. However, oil field sales for the
nine months ended September 30, 1996 showed an increase of 8% compared to the
same period of 1995. The increase in oil field pumping unit sales for first
nine months of 1996 reflects increased activity in the Canadian market and the
shipment of goods into Argentina. Power transmission sales showed increases of
19% and 32%, respectively, for the third quarter and for the first nine months
of 1996 as compared to the same periods of 1995. Power transmission volume
increases were due primarily to increased market demands and to the increased
capacity brought about by the Company's capital expansion efforts.
The Company experienced improved gross profits and gross margins for the
three months and nine months ended September 30, 1996 as compared to the same
periods ending September 30, 1995. Both improvements reflect the favorable mix
effect of increased shipments of oil field and power transmission products which
produce higher margins than those of trailer products. Also contributing to
these improvements were benefits generated by the Company's continued emphasis
of cost reduction. During these same periods, the Company's trailer division
continued to produce profitable results while experiencing a significant
reduction in volumes.
Selling, General and Administrative Expenses (S. G. & A.) increased
$447,000 or 3% for the nine months ended September 30, 1996, from $16,450,000
for the same period in 1995. This increase primarily reflects the impact of
increased selling, engineering, and administrative expenditures for the
Company's power transmission products to expand its worldwide capabilities and
presence in new markets with new product offerings.
For the third quarter of 1996, operating income was $3.2 million compared
with $2.7 million in the third quarter a year ago. Operating income for the
third quarter compared with the third quarter a year ago was up for the
machinery division and down for the trailer division. However, operating income
for trailers showed an increase from the second quarter this year. The decline
in operating income in the third quarter of 1996 compared to the second quarter
of 1996 for the machinery division was significantly impacted by lost production
and related maintenance costs from temporary shutdowns in the foundry.
Other income for the first nine months of 1996 was $1,624,000. This
represents a decrease of $838,000 or 34% in other income over the same period in
1995 resulting from lower earnings on temporary investments.
The provision for income taxes increased $1,093,000 for the nine months
ended September 30, 1996 as compared to the same period in 1995. The increase
in the provision resulted from the increase in pretax income.
The Company reported net earnings in the first nine months of 1996 of
$7,869,000 compared to $6,164,000 in the first nine months of 1995. The
increase in net earnings resulted primarily from the increased volume of oil
field pumping unit and power transmission product sales and the Company's
continued effort to reduce expenses.
Backlog at September 30, 1996, decreased by approximately $23,464,000 or
23% below the prior year end backlog. The primary reason for the decline was the
downturn in orders for trailer products and the completion and shipment of
orders into Argentina. However, trailer backlogs have increased by
approximately $5,900,000 from June 30, 1996 due to the increase in trailer
orders.
Backlog by product group at December 31, 1995 and September 30, 1996 is
as follows:
December 31 Sept.30 %
1995 1996 Change
----------- -------- --------
(In thousands)
Oil field pumping units $ 8,103 $ 6,349 (22%)
Power transmission products 36,008 31,167 (13%)
Foundry castings 15,838 14,356 (9%)
Trailers 40,151 24,764 (38%)
------- ------- ----
$100,100 $76,636 (23%)
======= ======= ====
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27-Financial Data Schedule
(B) Reports on Form 8-K
None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUFKIN INDUSTRIES, INC.
--------------------------------
Date 11/12/96 /s/ C. James Haley, Jr.
--------------------- -------------------------------------
C. James Haley, Jr.
Secretary-Treasurer
(Principal financial officer
and officer authorized to
sign on behalf of the
registrant)