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, 1997.
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-2612
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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
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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
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There were 6,562,848 shares of Common Stock, $1.00 par value per share,
outstanding as of September 30, 1997, not including 229,533 shares classified as
Treasury Stock.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Thousands of dollars)
ASSETS 9-30-97 12-31-96
------ --------- ---------
(Unaudited)
CURRENT ASSETS:
Cash $ 150 $ 655
Temporary investments 15,967 30,211
Receivables, net 45,486 33,472
Inventories 29,230 21,563
Deferred income tax assets 2,132 2,132
--------- ---------
Total current assets 92,965 88,033
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost 251,243 243,014
Less - Accumulated depreciation (176,865) (177,021)
--------- ---------
74,378 65,993
--------- ---------
PREPAID PENSION COSTS 27,058 24,469
OTHER ASSETS 14,893 7,430
--------- ---------
$ 209,294 $ 185,925
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 11,997 $ 7,035
Payroll and benefits 5,656 5,050
Accrued warranty expenses 1,476 1,329
Current portion of long term debt 175 -
Taxes payable 7,605 3,072
Other accrued liabilities 2,552 2,162
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Total current liabilities 29,461 18,648
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DEFERRED INCOME TAX LIABILITIES 10,478 10,478
POST RETIREMENT BENEFITS LIABILITY 12,269 12,192
LONG TERM NOTES PAYABLE 5,675 -
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 15,334 15,367
Retained earnings 134,811 128,150
Treasury stock, 229,533 shares
and 233,998 shares, at cost (4,762) (4,754)
Cumulative translation adjustment (764) (948)
-------- --------
Total shareholders' equity 151,411 144,607
-------- --------
$ 209,294 $ 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 Nine Months
Ended September 30 Ended September 30
--------------------- --------------------
(Unaudited) (Unaudited)
1997 1996 1997 1996
--------- -------- --------- ---------
NET SALES $78,840 $55,063 $207,621 $166,573
COSTS OF SALES 65,080 46,196 173,665 139,065
------- ------- -------- --------
Gross profit 13,760 8,867 33,956 27,508
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,989 5,638 19,979 16,897
------- ------- -------- --------
Operating income 6,771 3,229 13,977 10,611
OTHER INCOME, NET 317 628 1,408 1,624
------- ------- -------- --------
Earnings before income taxes 7,088 3,857 15,385 12,235
PROVISION FOR INCOME TAXES 2,481 1,350 5,385 4,366
------- ------- -------- --------
Net earnings $ 4,607 $ 2,507 $ 10,000 $ 7,869
======= ======= ======== ========
EARNINGS PER SHARE $ 0.69 $ 0.38 $ 1.50 $ 1.17
======= ======= ======== ========
DIVIDENDS PER SHARE $ 0.17 $ 0.15 $ 0.51 $ 0.45
======= ======= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,668,972 6,654,252 6,650,513 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, 1997 AND 1996
(Thousands of dollars)
For the Nine Months
Ended September 30
----------------------
(Unaudited)
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 10,000 $ 7,869
Adjustments to reconcile net earnings
to net cash provided (used)by operating
activities:
Depreciation and amortization 5,480 5,127
Pension income (2,589) (2,554)
Post retirement benefits 78 69
(Gain)loss on sales of property,
plant and equipment 156 (181)
Changes in:
Receivables (12,014) 6,428
Inventories (7,667) 1,445
Accounts payable 4,962 (3,340)
Accrued liabilities 5,851 1,931
-------- --------
Net cash provided by operating activities 4,257 16,794
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (15,345) (9,995)
Proceeds from disposition of property,
plant and equipment 1,363 409
Decrease in intangibles 1,591 (1,130)
Acquisition of oil field service companies (3,594) -
-------- --------
Net cash used by investing
activities (15,985) (10,716)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds/payments of short term debt 175 -
Dividends paid (3,339) (3,023)
Proceeds from exercise of stock options 398 2
Purchase of treasury stock (439) (4,276)
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Net cash used by financing activities (3,205) (7,297)
Effect of translation on cash and temporary
investments 184 226
-------- --------
Net decrease in cash and
temporary investments (14,749) (993)
Cash and temporary investments, at
beginning of period 30,866 33,317
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Cash and temporary investments, at
end of period $ 16,117 $ 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, 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 nine months ended September 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:
9-30-97 12-31-96
-------- ---------
(Thousands of dollars)
Raw materials and purchased
parts $ 17,285 $ 11,099
Work in process 6,326 4,566
Finished goods 5,619 5,898
-------- ---------
$ 29,230 $ 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 Nine Months Ended
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September 30 September 30
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1997 1996 1997 1996
------ ------ ----- ------
APB 15
Earnings per share .69 .38 1.50 1.17
SFAS 128
Basic EPS .70 .38 1.53 1.18
Diluted EPS .69 .38 1.50 1.17
(4) In July 1997, the Company acquired all of the assets and assumed all
liabilities of two oil field service companies through two separate stock
purchase agreements. The Company paid $3,593,751 in cash, net of cash acquired,
issued $7,050,000 of debt obligations in conjunction with both of these
acquisitions (collectively, the Purchased Companies). Both acquisitions were
accounted for under the purchase method of accounting. The accompanying balance
sheet as of September 30, 1997 includes estimated allocations of the respective
purchase prices and are subject to later adjustment. The estimated allocations
include goodwill of $6,456,000 which is being amortized over 40 years. Set
forth below are unaudited pro forma combined revenue and income data reflecting
the pro forma effect of these acquisitions on the Company's results of
operations for the three months and nine months ended September 30, 1997. The
unaudited data presented below consists of the income statement data as
presented in these condensed consolidated financial statements plus the income
statement data of the Purchased Companies as if the acquisitions were effective
on the first day of the period being reported.
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
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(Thousands of dollars)
Revenues $78,840 $214,098
Net earnings 4,607 10,578
Earnings per share $ 0.70 $ 1.59
(5) The Company issued long term debt in partial payment for the purchase of
one of the oil field service companies. Three separate notes were issued
totaling $5,850,000. Principal and interest at 6.650% are due and payable
quarterly beginning October 21, 1997 with the last payment due July 21,2002.
Short term portion $ 175,000
Long term portion 5,675,000
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Total $5,850,000
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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, 1997, the Company had working capital of $63,504,000 as
compared to $69,385,000 at December 31, 1996, a decrease of $5,881,000. The
decrease in working capital is due primarily to an increase in short term
payables. Inventories increased by approximately $7,667,000 to $29,230,000 at
September 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 nine months ended September 30, 1997
increased 43% and 25%, respectively over the same periods ended September 30,
1996. Sales by product group for the three months and nine months ended
September 30, 1997 and 1996 were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 % September 30 %
------------------- Increase ------------------- Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
--------- -------- --------- ------- --------- ----------
(In thousands) (In thousands)
Oil field pumping
units $23,624 $11,713 102% $ 57,866 $ 36,225 60%
Power transmission
products 18,593 18,756 (1%) 51,941 54,426 (5%)
Foundry castings 9,098 7,772 17% 25,938 23,741 9%
Trailers 27,525 16,822 64% 71,876 52,180 38%
------- ------- --- ------- ------- --
$78,840 $55,063 43% $207,621 $166,572 25%
======= ======= == ======= ======= ==
For the third quarter and first nine months of 1997, oil field pumping
unit sales were up 102% and 60%, respectively, compared to the same periods of
1996. During the third quarter of 1997, Lufkin completed the acquisition of two
oil field service companies located in West Texas and New Mexico. The effective
date of these two acquisitions was June 30, 1997 and added $3,092,000 to 1997's
third quarter and year to date sales. Increased domestic sales volumes and
continued active international markets in Canada and South America accounted for
the remaining strong Oil Field sales results. Power Transmission sales were
essentially flat to slightly down for the third quarter and first nine months of
1997 as compared to the same periods of 1996. This reflects a switch in product
mix towards longer lead time products as reflected in the increases in Power
Transmission inventories and sales backlog at the nine months ended September
30, 1997. Trailer sales were up 64% and 38% for the third quarter and first
nine months of 1997, respectively, compared to the same periods in 1996.
Trailer sales volumes increased as a result of stronger trailer market demands.
Gross profits as a percentage of sales were 17% for the third quarter of
1997 as compared to 16% for the same period of 1996. For the nine months ended
September 30, 1997, the gross profits as a percentage of sales were 16% as
compared to 17% for the first nine months of 1996. The improvement in the third
quarter gross profits were the result of stronger Oil Field service revenues and
Foundry operating margins. The slight decline in the comparative nine month
gross profits reflects the change in Power Transmission product mix to larger
slow speed units.
Selling, General and Administrative (S. G. & A.) expenses for the three
months ended September 30, 1997, as a percentage of revenues, declined from
10.2% in 1996 to 8.9% in 1997. For the nine months ended September 30, 1997, S.
G. & A expense, as a percentage of revenues, declined from 10.2% to 9.6%.
Actual spending increased by $1,352,000 for the third quarter of 1997 as
compared to the third quarter of 1996. For the nine months ended September 30,
1997, as compared to the same period of 1996, S. G. & A spending increased by
$3,083,000. The increases in both time frames reflected the added S. G. & A
expenses associated with the purchase of the two oil field service companies as
highlighted above and the continued efforts of the Company to expand its
presence in new markets world wide.
Other income decreased to $1,408,000 for the first nine months of 1997 as
compared to $1,624,000 for the same period of 1996, down $216,000 or 13%. There
were no gains on the disposal of fixed assets in 1997 as compared to the same
period of 1996.
The Company recorded income tax expenses at a flat 35% rate for both the
three months and nine months ended September 30, 1997 as compared to 35% and 36%
respectively for the same period of 1996.
Net earnings for the three and nine months ended September 30, 1997 were
$4,607,000 and $10,000,000 respectively, compared to $2,507,000 and $7,869,000
for the same periods in 1996, up 84% and up 27% respectively.
At September 30, 1997 the backlog was $108,625,000 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.
Backlog by product group at September 30, 1997 and December 31, 1996 was
as follows:
September 30 December 31 %
1997 1996 Change
------------ --------------- --------
(In thousands)
Oil field pumping units $12,582 $12,142 4%
Power transmission products 35,328 30,131 17%
Foundry castings 16,976 17,357 (2%)
Trailers 43,739 40,061 9%
------- ------- --
$108,625 $ 99,691 9%
(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.
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Date 11/13/97 /s/ C. James Haley, Jr.
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C. James Haley, Jr.
Secretary-Treasurer
(Principal financial officer
and officer authorized to
sign on behalf of the
registrant)