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 June 30, 1997.
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.
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(Exact name of registrant as specified in its charter)
Texas 75-040-4410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 South Raguet, Lufkin, Texas 75901
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(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 6,543,535 shares of Common Stock, $1.00 par value per share,
outstanding as of June 30, 1997, not including 248,846 shares classified as
Treasury Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--JUNE 30, 1997 AND DECEMBER 31, 1996
(Thousands of dollars)
ASSETS 6-30-97 12-31-96
------ ------- --------
(Unaudited)
CURRENT ASSETS:
Cash $ 1,866 $ 655
Temporary investments 15,484 30,211
Receivables, net 35,930 33,472
Inventories 30,355 21,563
Deferred income tax assets 2,132 2,132
--------- ---------
Total current assets 85,767 88,033
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost 249,120 243,014
Less - Accumulated depreciation (178,883) (177,021)
--------- ---------
70,237 65,993
--------- ---------
PREPAID PENSION COSTS 26,426 24,469
OTHER ASSETS 7,568 7,430
--------- ---------
$ 189,998 $ 185,925
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,979 $ 7,035
Payrolls and benefits 4,804 5,050
Accrued warranty expenses 1,369 1,329
Taxes payable 3,407 3,072
Other accrued liabilities 2,230 2,162
-------- --------
Total current liabilities 19,789 18,648
-------- --------
DEFERRED INCOME TAX LIABILITIES 10,478 10,478
POST RETIREMENT BENEFITS LIABILITY 12,249 12,192
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 15,359 15,367
Retained earnings 131,319 128,150
Treasury stock, 248,846 shares
and 233,998 shares, at cost (5,128) (4,754)
Cumulative translation adjustment (860) (948)
-------- ---------
Total shareholders' equity 147,482 144,607
-------- ---------
$189,998 $ 185,925
======== =========
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 Six Months
Ended June 30 Ended June 30
-------------------- -------------------
(Unaudited) (Unaudited)
1997 1996 1997 1996
---- ---- --- ----
NET SALES $68,740 $55,580 $128,781 $111,510
COSTS OF SALES 56,642 45,715 108,585 92,869
------- ------- -------- --------
Gross profit 12,098 9,865 20,196 18,641
SELLING, GENERAL AND ADMINISTRATION
EXPENSES 6,637 5,687 12,990 11,259
------- ------- -------- --------
Operating income 5,461 4,178 7,206 7,382
OTHER INCOME, NET 507 452 1,091 995
------- ------- -------- --------
Earnings before income taxes 5,968 4,630 8,297 8,377
PROVISION FOR INCOME TAXES 2,089 1,704 2,904 3,016
------- ------- -------- --------
Net earnings $ 3,879 $ 2,926 $ 5,393 $ 5,361
======= ======= ======== ========
EARNINGS PER SHARE $ .59 $ .43 $ .81 $ .79
======= ======= ======== ========
DIVIDENDS PER SHARE $ .17 $ .15 $ .34 $ .30
======= ======= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,614,390 6,746,645 6,619,608 6,775,218
See accompanying notes to consolidated financial statements.
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Thousands of dollars)
For the Six Months
Ended June 30
----------------------------------
(Unaudited)
1997 1996
---- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,393 $ 5,361
Adjustments to reconcile net earnings
to net cash provided (used)by operating
activities:
Depreciation 3,582 3,405
Pension income (1,957) (1,576)
Post retirement benefits 57 44
(Gain)loss on sales of property,
plant and equipment 14 (103)
Changes in:
Receivables (2,458) 8,480
Inventories (8,792) (997)
Accounts payable 944 (277)
Accrued liabilities 197 11
-------- -------
Net cash provided (used)by operating activities (3,020) 14,348
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (7,902) (6,380)
Proceeds from disposition of property,
plant and equipment 61 232
Increase in other assets (138) (1,545)
-------- -------
Net cash used by investing activities (7,979) (7,693)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (2,223) (2,031)
Proceeds from exercise of stock options 46 2
Purchase of treasury stock (428) (2,558)
-------- -------
Net cash used by financing activities (2,605) (4,587)
Effect of translation on cash and temporary
investments 88 201
-------- -------
Net increase (decrease) in cash and
temporary investments (13,516) 2,269
Cash and temporary investments, at
beginning of period 30,866 33,317
-------- -------
Cash and temporary investments, at
end of period $ 17,350 $35,586
======== =======
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, 1996, was derived from the audited
consolidated balance sheet included in the Company's 1996 annual report on Form
10-K. The results of operations for the six months ended June 30, 1997, 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, 1996.
(2) Consolidated inventories consist of the following:
6-30-97 12-31-96
--------- ---------
(Thousands of dollars)
Raw materials and purchased
parts $ 18,172 $11,099
Work in process 6,364 4,566
Finished goods 5,819 5,898
--------- -------
$ 30,355 $21,563
========= =======
(3) In February, 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 revises the
methodology to be used in computing earnings per share (EPS) such that the
computations required for primary and fully diluted EPS are to be replaced with
"basic" and "diluted" EPS. Basic EPS is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted EPS is computed in the same manner as fully diluted EPS, except that,
among other changes, the average share price for the period is used in all
cases when applying the treasury stock method to potentially dilutive
outstanding options.
The Company will adopt SFAS No. 128 effective December 15, 1997, and will
restate EPS for all periods presented. Below is a comparison of currently
reported earnings per share to pro forma earnings per share under SFAS No. 128:
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
-------- -------- ------- ------
APB 15
Earnings per share .59 .43 .81 .79
SFAS 128
Basic EPS .59 .44 .82 .80
Diluted EPS .59 .43 .81 .79
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 June 30, 1997, the Company had working capital of $65,978,000 as
compared to $69,385,000 at December 31, 1996, a decrease of $3,407,000.
Inventories increased by approximately $8,792,000 to $30,355,000 at June 30,
1997 from $21,563,000 at December 31, 1996. The increase in inventory levels is
primarily related to increased sales volumes and backlog levels. The Company
believes that its existing working capital plus its arranged borrowing capacity
should be sufficient to satisfy its liquidity requirements over the next twelve
months.
(2) Changes in Results of Operations
Net sales for the three months and the six months ended June 30, 1997
increased 24% and 15%, respectively over the same periods ended June 30, 1996.
Sales by product group for the three months and six months ended June 30, 1997
and 1996 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 % June 30 %
------------------ Increase ------------------ Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
-------- -------- ----------- -------- -------- -----------
(In thousands) (In thousands)
Oil field pumping
units $18,652 $11,688 60% $ 34,242 $ 24,512 40%
Power transmission
products 17,704 20,002 (11%) 33,348 35,670 (7%)
Foundry castings 8,409 7,821 8% 16,840 15,970 5%
Trailers 23,975 16,069 49% 44,351 35,358 25%
------- ------- --- -------- -------- --
$68,740 $55,580 24% $128,781 $111,510 15%
======= ======= === ======== ======== ==
For the second quarter and first six months of 1997, oil field pumping
unit sales were up 60% and 40%, respectively, compared to the same periods of
1996. These increases reflected increased domestic sales volumes and more
active markets in Canada and South America. Trailer sales were up 49% and 25%
for the second quarter and first six months of 1997, respectively, compared to
the same periods in 1996. Trailer sales volumes increased as a result of
stronger trailer market demands.
Gross profit as a percentage of sales was 18% for the second quarter
in 1997 and 1996. For the first six months of 1997, gross profit as a
percentage of sales was 16% compared to 17% for the same period in 1996. The
decrease in gross margin reflects the mix effect of increased lower margin
trailer sales for the first six months of 1997, partially offset by increased
volumes of higher margin oil field pumping unit sales.
Selling, General and Administrative (S.G.&A.) expenses increased
$950,000 for the three months ended June 30, 1997 and $1,731,000 for the six
months ended June 30, 1997 over the same period in 1996. The increase in
S.G.&A. expenses resulted primarily from increased selling expenses associated
with the Company's efforts to expand its presence in new markets world wide.
Other income increased to $1,091,000 for the first six months of 1997
from $995,000 for the first six months of 1996.
The Company recorded income tax expenses of $2,904,000 for the first
six months of 1997 compared to $3,016,000 for the same period in 1996,
reflecting an essentially flat effective tax rate.
Net earnings for the three months and six months ended June 30, 1997
were $3,879,000 and $5,393,000, respectively, compared to $2,926,000 and
$5,361,000 for the same periods in 1996.
At June 30, 1997, the backlog was $106,180,000 compared to $99,691,000
at December 31, 1996. Backlogs for oil field pumping units and trailers
increased as a result of stronger market demands. The backlog for power
transmission products increased by 24% over the year end 1996 backlog due to
increased order bookings during the first six months of 1997.
Backlog by product group at June 30, 1997 and December 31, 1996 was as
follows:
June 30 December 31 %
1997 1996 Change
-------- --------------- -------
(In thousands)
Oil field pumping units $14,969 $12,142 23
Power transmission products 37,310 30,131 24
Foundry castings 12,431 17,357 (28)
Trailers 41,470 40,061 4
------- -------
$106,180 $99,691 7
======== =======
(3) Forward-looking Statements and Assumptions
This Quarterly Report may contain or incorporate by reference certain
forward-looking statements, including by way of illustration and not of
limitation, statements relating to liquidity, revenues, expenses, margins and
contract rates and terms. The Company strongly encourages readers to note that
some or all of the assumptions, upon which such forward-looking statements are
based, are beyond the Company's ability to control or estimate precisely, and
may in some cases be subject to rapid and material changes.
PART II - OTHER INFORMATION
Item 6, Exhibits and Reports Form 8-K
(A) Exhibits
27-Financial Data Schedule
(B) Reports of 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 August 7, 1997 /s/ C. James Haley, Jr.
-----------------------------------
C. James Haley, Jr.
Secretary-Treasurer
(Principal financial officer
and officer authorized to
sign on behalf of the
registrant)