<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 0-2612
LUFKIN INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-0404410
- --------------------------------- --------------------------
(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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1 Per Share
------------------------------------
(Title of Class)
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 12 months (or for such shorter period that 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
--- ---
Indicate by "X" if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be contained, to the best of
the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Company's voting stock held by non-affiliates
as of January 31, 1996 is $107,892,910.
6,776,273 shares of the Company's Common Stock were outstanding on December 31,
1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the sections entitled "Financial Review", "Letter to the
Shareholders", "Management's Discussion and Analysis", "Product Line
Information" and the consolidated financial statements of the Company's Annual
Report to Shareholders for the year ended December 31, 1995, are incorporated by
reference in Parts I, II and IV, hereof and are included as Exhibit 13.
The sections entitled "Voting Securities", "Directors and Nominees for Director"
and "Executive Compensation" of the Company's definitive Proxy Statement for its
annual meeting of shareholders on May 15, 1996, are incorporated by reference in
Part III hereof and are included as Exhibit 99.
<PAGE>
Part I
Item 1. Business
The Company was incorporated under the laws of Texas on March 4, 1902 and
since that date, has maintained its principal office and manufacturing
facilities in Lufkin, Texas. The Company designs, manufactures, sells, and
services various types of oil field pumping units, power transmission products,
foundry castings and trailers. Lufkin manufactures four basic types of pumping
units: an air-balanced unit; a beam-balanced unit; a crank-balanced unit; and a
Mark II Unitorque unit. The basic differences between the four types relate to
the counterbalancing system. The depth of a well and the desired fluid
production determine the type of counterbalancing configuration that is
required. There are numerous sizes and combinations of Lufkin oil field pumping
units within the four basic types. 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 for use in marine propulsion applications. The Company
produces numerous sizes and combinations of gears. The Company's foundry
castings are primarily customer designed components manufactured by Lufkin for
use in customer products. Lufkin also produces various sizes and styles of
trailers, including vans, platforms, and dumps.
The Company manufactures most of the component parts used in its Machinery
Division products and purchases the raw materials and outside manufactured parts
from a variety of suppliers on an order basis. The Trailer Division generally
assembles various component parts manufactured by others. The inventory
consists primarily of raw materials and component parts which are generally
assembled into finished products to fill specific customer orders. These
finished products are sold primarily by the Company's own employees.
Oil field pumping units are the Company's primary products sold for export.
These sales, other than to Canada, are made principally through foreign sales
representatives, licensees and distributors. During 1995, foreign sales
accounted for approximately 16 percent of the Company's total net sales.
The Company's domestic and international markets are highly competitive with
price, quality and speed of delivery being important factors. While the Company
believes that it is one of the larger manufacturers of sucker rod pumping units
in the United States, manufacturers of other types of units (submersibles and
hydraulics) have a significant share of the total pumping unit market. The
Company does not believe it has a large market share in the power transmission,
castings or trailer markets.
The Company employed approximately 1,980 people at December 31, 1995,
including approximately 1,420 that were paid on an hourly basis. The Company
has an open shop contract, which runs to October 6, 1996, with three AFL-CIO
labor unions. The Company considers its employee relations to be satisfactory.
Additional information required by Item 1 is included in the sections
entitled "Management's Discussion and Analysis", "Letter to the Shareholders",
and "Product Line Information" of the Annual Report, portions of which sections
are incorporated herein by reference and included as part of Exhibit 13.
Item 2. Properties
The Company's major manufacturing facilities are located in and near Lufkin,
are owned in fee and include approximately 150 acres and a foundry, machine
shop, structural shops, assembly shops and warehouses. The Company also has a
plant in Nisku, Canada which produces structural parts for pumping units. These
parts are then assembled with parts shipped from Lufkin and are delivered to the
Company's Canadian customers.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Shareholders
None
<PAGE>
Item 4A. Executive Officers of the Registrant
The following information is submitted with respect to the executive officers
of the Company as of March 1, 1996:
<TABLE>
<CAPTION>
Officer
Name Position with Company Age Since
- ------------------------- --------------------- ---- -------
<S> <C> <C> <C>
D. V. Smith Chairman, President &
Chief Executive Officer 53 1993
J. W. Barber Vice President 63 1994
J. H. Finney, Jr. Vice President 63 1992
J. F. Glick Vice President 43 1994
J. R. Partridge Vice President 60 1986
M. A. Penn Vice President 55 1983
E. G. Pittman Vice President 62 1976
S. H. Semlinger Vice President 42 1992
C. J. Haley, Jr. Secretary-Treasurer 53 1973
</TABLE>
There is no significant family relationship either by blood or by marriage
among the officers of the Company.
All of the executive officers of the Company, with the exception of Mr.
Smith, Mr. Barber and Mr. Glick have been employed by the Company for more than
five years in the same or similar positions. Mr. Smith was first employed by
the Company in January 1993 to serve as President and Chief Executive Officer.
For the five year period prior to his employment with the Company, Mr. Smith was
employed and served as Vice President of Manufacturing of Cooper Industries
(1989-93) and as Vice President of Oil Tool Division of Cameron Iron Works
(1982-89). Both companies are based in Houston, Texas. Mr. Barber was first
employed by the Company in July 1990 to serve as sales manager for trailer
products. Mr. Barber was previously employed by Fruehauf Trailers as Vice
President of Welded Products in Detroit, Michigan. Mr. Glick was first employed
by the Company in September 1994 to serve as Vice President and General Manager
of the Power Transmission Division. Prior to joining the Company, Mr. Glick
served as Director of Manufacturing, U.K. and Ireland, with Cooper Oil Tools and
as Plant Manager of Cooper Oil Tools in Leeds, England. The executive officers
of the Company serve at the pleasure of the Board of Directors of the Company.
The term of office for all officers expires at the next annual meeting of the
Board of Directors of the Company.
Part II
Item 5. Market for the Registrant's Common Stock
and Related Shareholder Matters
The information required by Item 5 is included in the section entitled
"Financial Review" of the Annual Report, which section is incorporated herein by
reference and included as part of Exhibit 13.
Item 6. Selected Financial Data
FIVE YEAR SUMMARY OF SELECTED
CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(In millions, except per share data) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $248.9 $217.3 $202.2 $178.6 $247.1
Earnings (loss) from operations 8.9 (1.2)* 2.5 (27.3)** 6.9
Earnings (loss) per share 1.31 (.18)* .38 (4.01)** 1.01
Total assets 186.3 176.8 182.5 176.3 220.6
Cash dividends per share .60 .60 .60 1.35 1.60
</TABLE>
*Includes pretax charges of $11.2 million for special inventory writedowns.
**Includes a $24.3 million restructuring charge. The Company adopted SFAS No.
109 effective January 1, 1992, but this change had no effect on the Company's
financial statements. In addition, the Company adopted SFAS No. 106 effective
January 1, 1992. The cumulative effect of the change in accounting for post-
retirement benefits including the applicable income tax benefit was a charge to
income of $7.5 million or $1.11 per share.
<PAGE>
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The information required by Item 7 is included in the section entitled
"Management's Discussion and Analysis" of the Company's Annual Report, portions
of which section are incorporated herein by reference and included as part of
Exhibit 13.
Item 8. Financial Statements and Supplementary Data
The information required by Item 8 is included in the consolidated financial
statements and related notes and the "Report of Independent Public Accountants"
of the Company's Annual Report, which consolidated financial statements and
related notes and report of independent public accountants are incorporated
herein by reference and included as part of Exhibit 13.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of
the Registrant
The information required by Item 10 relating to the directors of the Company
is included in the section entitled "Directors and Nominees for Director" on
pages 2 through 5 of the definitive Proxy Statement for the annual meeting of
Company shareholders on May 15, 1996 ("Proxy Statement"), which section is
incorporated herein by reference and included as part of Exhibit 99. The
information relating to the executive officers of the Company is provided in
Item 4A of Part I of this Annual Report.
Item 11. Executive Compensation
The information required by Item 11 is included in the section entitled
"Executive Compensation" on pages 6 through 9 of the Proxy Statement, which
section is incorporated herein by reference and included as part of Exhibit 99.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
The information required by Item 12 is included in the sections entitled
"Voting Securities" and "Election of Directors" on pages 1 through 5 of the
Company's Proxy Statement, which sections are incorporated herein by reference
and included as part of Exhibit 99.
Item 13. Certain Relationships and Related Transactions
None
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a) Documents filed as part of the report
1. Consolidated Financial Statements (incorporated by
reference to the Annual Report)
Report of Independent Public Accountants
Consolidated Balance Sheet
Consolidated Statement of Earnings
Consolidated Statement of Stockholders'
Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
2. Financial statement schedules
Schedules Omitted--All schedules for which
provision is made in the applicable regulations of
the Securities and Exchange Commission have been
omitted because they are not applicable or not re-
quired or the required information is included in
the consolidated financial statements or notes thereto.
3. Exhibits
(3) Articles of Incorporation, as amended, and Bylaws, as amended, were
included as exhibit 3 to Form 10-K of the registrant for the year
ended December 31, 1990, which exhibits are incorporated herein by
reference.
(10.1) Shareholder Rights Agreement, dated as of May 4, 1987, was included
as exhibit (1) to Form 8-A of the registrant dated May 13, 1987,
which agreement is incorporated herein by reference.
(10.2)* Company's 1990 Stock Option Plan was included as Exhibit 28.1 to the
Company's registration statement on Form S-8 dated September 24,
1990 (File No. 33-36976), which plan is incorporated herein by
reference.
(13) Portions of the Annual Report to Shareholders for the year ended
December 31, 1995 are included as an exhibit to this report for the
information of the Securities and Exchange Commission.
(22) Schedule listing subsidiaries of the registrant
(24) Consent of Independent Public Accountants
(27) Financial Data Schedule
(99) Portions of the definitive proxy statement of Lufkin Industries,
Inc., for the annual meeting of shareholders on May 15, 1996 are
included as an exhibit to this report for the information of the
Securities and Exchange Commission.
*Compensatory plan.
(b) Reports on Form 8-K filed during the fourth quarter of 1995
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Lufkin Industries, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 21, 1996.
LUFKIN INDUSTRIES, INC.
BY /s/ C. James Haley, Jr.
------------------------------------------------
C. James Haley, Jr., Secretary-Treasurer
Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on February 21, 1996, below by the following persons on
behalf of Lufkin Industries, Inc. and in the capacities indicated.
By /s/ D. V. Smith
------------------------------------------------
D. V. Smith, President and Chief Executive
Officer
By /s/ S. W. Henderson, III
------------------------------------------------
S. W. Henderson, III, Director
By /s/ L. R. Jalenak, Jr.
------------------------------------------------
L. R. Jalenak, Jr., Director
By /s/ H. H. King
------------------------------------------------
H. H. King, Director
By /s/ M. E. Kurth, Jr.
------------------------------------------------
M. E. Kurth, Jr., Director
By /s/ W. T. Little
------------------------------------------------
W. T. Little, Director
By /s/ B. H. O'Neal
------------------------------------------------
B. H. O'Neal, Director
By /s/ F. B. Stevenson
------------------------------------------------
F. B. Stevenson, Director
By /s/ H. J. Trout,Jr.
------------------------------------------------
H. J. Trout, Jr., Director
By /s/ W. W. Trout, Jr.
------------------------------------------------
W. W. Trout, Jr., Director
By /s/ T. E. Wiener
------------------------------------------------
T. E. Wiener, Director
<PAGE>
EXHIBIT 13. PORTIONS OF LUFKIN INDUSTRIES, INC. ANNUAL REPORT TO SHAREHOLDERS
LUFKIN INDUSTRIES, INC.
LETTER TO SHAREHOLDERS
To Our Shareholders:
For the year ended December 31, 1995, Lufkin Industries, Inc.
continued to increase its competitive position while achieving positive results.
Net sales were $248.9 million for 1995, a 14.6% increase over the $217.3 million
reported for the year ended December 31, 1994.
Net income for 1995 was $8.9 million, or $1.31 per share, compared
with a net loss of $1.2 million, or ($0.18) per share, for the same period a
year ago. The net loss for the year ended December 31, 1994, included $11.2
million of pre-tax charges for special inventory write-downs taken during the
second and third quarters of 1994. Without these special inventory provisions
and their related LIFO benefits, Lufkin would have reported net earnings of $5.3
million, or $.78 per share, for 1994.
Sales of our power transmission, oil field, foundry castings, and
trailer product lines all showed increases in 1995 compared with 1994. Sales of
power transmission products increased 9% to $60.1 million compared with $55.3
million in 1994. Power transmission product sales benefitted from stronger
industrial markets, particularly outside the U.S. Foundry castings sales were
$31.8 million, up 5% from a year ago. Lufkin continued to expand its market
share in engineered castings and maintain its strong presence in the forklift
counterweight market. Oil field products sales rose by 13% in 1995 to $46.4
million from $40.9 million in 1994. Over the last two years we have focused on
reducing operating costs through consolidating operations into our Lufkin,
Texas, facility. The more efficient operations and our strong international
presence have provided the Company with greater flexibility to meet the needs of
our customers worldwide.
Trailer products sales in 1995 were $110.5 million, an increase of 26%
compared with $87.8 million in 1994. While 1995 was a record year for our
Trailer Division, we observed some softening of the U.S. economy throughout the
second half of 1995 and a decline in trailer orders. Lufkin reacted to these
changing market conditions by enacting steps late in the year to adjust the
workforce to the anticipated 1996 market conditions. The workforce reductions
returned the division to the 1994 production and employment levels, which by
historical standards represented a very good year for the division. We remain
committed to a strong Trailer Division, and we will continue to make capital
improvements, carry on an aggressive sales effort, and promote the division's
new "plate" trailer, which made its debut on December 10, 1995.
Economic and market conditions also contributed to a slowdown in new
orders for trailer products which impacted our backlog. These conditions
reduced our backlog for trailers at year end to $40.2 million from $75.6 million
a year ago. The backlog for power transmission products was $36.0 million
compared with $21.1 million at December 31, 1994, for oil field equipment it was
$8.1 million compared with $8.5 million last year, and was $15.8 million for
foundry castings compared with $4.2 million, at December 31, 1994. At December
31, 1995, our total backlog was $100.1 million compared with $109.4 million at
December 31, 1994.
Lufkin ended fiscal 1995 with a very strong balance sheet. At
December 31, 1995, the Company had total assets of $186.3 million and its
working capital was $74.9 million. Shareholders' equity at year end was over
$142.5 million, and the book value was $21.04 per share. Lufkin had no
outstanding debt at year end.
Our primary goal for 1995 was to improve financial performance by
building on our present operations. We believe we were successful in achieving
this goal.
For 1996 we will continue to leverage the improvements in our
operations. We will support this general goal with activities that include:
<PAGE>
. Increasing capital expenditures where appropriate returns can be
realized
. Increasing our support for aftermarkets through the expansion and
realignment of our distribution system
. Seeking acquisition opportunities that are complementary to our
present businesses
. Continuing to enhance and standardize existing products while
developing new products for specific markets
. Continuing to reduce costs through quality improvement, operational
consolidation and by timely response to changing markets
Our reputation for industry-leading quality in all our products is the
base for our plans to enter additional global markets. Our strong financial
position provides us with the means to pursue expansion, improvement and
acquisition. We feel that we are positioned for further improvement in our
financial results.
Sincerely,
/s/ Douglas V. Smith
Douglas V. Smith
President and Chief Executive Officer
2
<PAGE>
LUFKIN INDUSTRIES, INC.
POWER TRANSMISSION
As a leading manufacturer of power transmission equipment, Lufkin's products are
used in a variety of industrial applications worldwide. The Company's
precision-made gears range in weights from 300 pounds to 250 tons, in power
levels from 20 to 85,000 horsepower and in size up to 16 feet in diameter.
Lufkin's power transmission products are primarily parallel shaft, enclosed gear
drives and cover all performance requirements.
In 1995, Lufkin continued to focus on expanding the markets for our
power transmission products. The Company participated in several new markets
both domestically and abroad. Lufkin products are gaining market share
internationally as our reputation for quality and superior performance
characteristics becomes better known. Lufkin's ability to provide global
support for customers with high value-added products--both with new equipment as
well as in the aftermarket--is a key factor in expanding Lufkin's markets for
power transmission equipment.
During 1995 demand for Lufkin gears was very strong. Gears for power
generation equipment showed increased demand, particularly in China and
Southeast Asia, as demand for electric power in these markets continues to grow.
In the petro-chemical processing industry, Lufkin's gears continue to experience
increased use as this industry benefits from lower cost of feed stock supply.
In the cement and mining industries, demand for Lufkin's low-speed units grew as
a result of the increased level of activity associated with general economic
growth.
Demand for gears in 1995 was also strong in the steel and rubber
industries. As production of automobiles and industrial products increased in
the U.S. and Europe, the demand for Lufkin's products has also increased. The
sugar refining industry continues to expand its use of Lufkin's gears as it
modernizes operations to meet the demand for sugar in the developing countries
of the world.
Our operational initiatives aimed at enhancing quality and reducing
costs have yielded positive results. The Company maintains a strong commitment
to ongoing investments in technology, training, and manpower utilization. These
factors and our diversified applications experience should allow Lufkin to
continue its role as an industry leader.
OIL FIELD
Over 580,000 oil wells were in operation worldwide at year-end.
Approximately 96% of these wells require some form of artificial lift, and many
need the type of beam-pumping unit Lufkin manufactures. Nevertheless, the
domestic market for pumping units showed little growth in 1995 and remains at
the lowest point of the past 50 years. We observe that drilling rig counts are
down and large oil companies are focused on cost containment.
As a result, Lufkin has focused its efforts on further developing its
international markets. We believe the markets with potential are in South
America where privatization of state-owned oil industries is taking place; in
Canada, where there have been government incentives to drill for natural gas and
oil; and in forming alliances with oil companies to assist developing countries
establish their oil production industries. In our view, the outlook for growth
in the international markets remains promising.
Much of Lufkin's increase in revenue during 1995 came from the sale of
pre-owned pumping units and increases in the aftermarket segments. The
Company's well-established position in the major oil producing areas of the
world continues to enable the Company to maintain its presence in all major
markets. Our ongoing design and manufacturing improvements have enabled Lufkin
to remain cost competitive.
The Company's pumping units are extremely adaptable to meet customers'
various production demands, and our local manufacturing in five plants of our
international markets provides Lufkin with the ability to meet specific country
content requirements. Our ability to deliver quality products, the availability
of on-site installation with necessary technical support, and our capability to
respond to customers' needs in a timely fashion provides Lufkin with a distinct
competitive advantage.
The worldwide supply and demand factors for oil are being brought into
closer alignment, as there is less surplus of oil and demand continues to grow.
As a major supplier of pumping units worldwide, Lufkin is ready to meet the
needs as the oil market improves.
TRAILERS
Lufkin's Trailer Division had a very strong year in 1995 with sales
and production at record levels. These results were on top of the strong
performance reported in 1994. Historically, the market for trailers has been
cyclical and is sensitive to not only general economic conditions, but to those
specific factors that are
3
<PAGE>
characteristic of the transportation industry. In 1995, Lufkin began to
position itself for the anticipated down turn in the market by bringing its
workforce in line with anticipated demand levels for 1996. These actions have
strengthened the division's overall competitive position.
As a diversified manufacturer, Lufkin produces many different sizes
and styles of vans, platforms, and high capacity, light-weight dump trailers.
The Company's trailers are known for their quality construction, reliability,
innovation of design, and competitive price, all of which are important to
Lufkin's diverse customer base.
During 1995, Lufkin introduced a new trailer product, our Lufkin plate
trailer. The plate trailer has enhanced our line of freight vans, and increased
production is scheduled for 1996. The combination of an aluminum and steel
platform trailer which we introduced in 1994 continued to be well received and
to gain market acceptance.
The outlook for Lufkin trailers in 1996 is anticipated to be a good
year by historical standards although down from our 1995 record levels. New
manufacturing capacity established during recent years will enable Lufkin to
meet our customers' needs. We believe the long term trends will be impacted by
companies choosing to outsource their transportation needs, more trailers being
used as warehouses for short-term storage, and a general aging of trailer fleets
as many trailers are operating well beyond their normal replacement cycles.
These conditions all bode well for the Trailer Division's future.
FOUNDRY CASTINGS
Lufkin's foundry operations experienced strong demand for commercial
castings during 1995. Growth in sales of foundry castings resulted from the
strength of the domestic economy coupled with some industry capacity
limitations. Our foundry operated at near capacity levels during the past year
and set a new cupola tonnage record of over 67,000 charged tons.
Lufkin's casting capabilities include low to medium volume ductile and
gray iron castings which are used as components for numerous original equipment
manufacturers (OEM). In our foundry, over 300 tons of iron is poured each
production day for castings ranging in size from 100 pounds to over 30,000
pounds.
The Company's sales and marketing efforts are directed to manage a
diversified customer base which is mainly focused on heavy equipment
manufacturing. These customers include such industrial sectors as construction
equipment, material handling equipment, machine tools, valve and water works,
pump and compressor, as well as heavy truck producers. Lufkin's castings can
become critical components in such diverse areas as municipal water systems,
U.S. Naval surface ships or submarines, gas-powered turbines, or large
horizontal CNC machining centers.
During the coming year, Lufkin's efforts will continue to focus on
adding more technically demanding engineered castings, which will provide more
value-added opportunities. These additional efforts will be achieved while also
maintaining the Foundry's position as an important supplier to Lufkin's Power
Transmission and Oil Field product groups.
4
<PAGE>
LUFKIN INDUSTRIES, INC.
FINANCIAL REVIEW
Lufkin Industries, Inc. and Subsidiaries
COMMON STOCK INFORMATION
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
Stock Price Stock Price
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Quarter High Low Dividend High Low Dividend
- --------------------------------------------------------------
First $18.50 $16.63 $.15 $19.50 $16.50 $.15
Second 20.00 18.00 .15 20.00 17.63 .15
Third 23.50 18.50 .15 20.75 18.00 .15
Fourth 23.50 18.50 .15 18.75 15.50 .15
</TABLE>
The Company's common stock is traded on The Nasdaq Stock Market (National
Market) under the symbol LUFK and as of February 29, 1996, there were
approximately 840 record holders of its common stock.
The Company has paid cash dividends for 56 consecutive years. Total dividend
payments were $4,071,000 and $4,075,000 in 1995 and 1994, respectively.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
In millions, except First Second Third Fourth
per share data Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales $59.0 $58.6 $62.9 $68.4
Gross margin 6.7 8.4 8.3 8.8
Net earnings 1.6 2.4 2.1 2.8
Earnings per share .24 .36 .31 .40
1994
Net sales $49.1 $53.9 $55.9 $58.4
Gross margin 5.7 4.9 (a) (3.7) (a)(b) 9.2 (b)
Net earnings (loss) .4 .5 (a) (5.1) (a)(b) 3.0 (b)
Earnings (loss) per share .06 .07(a) (.75)(a)(b) .44(b)
</TABLE>
(a) Gross margins in the second and third quarters of 1994 were reduced by
special inventory provisions of $1.0 million and $12.7 million,
respectively. The net after tax effect of these special write-downs was
$.7 million or $.10 per share in the second quarter and $8.4 million or
$1.23 per share in the third quarter.
(b) Includes LIFO benefits of $2.5 million and $2.9 million in the third and
fourth quarters, respectively. The net after tax effect of these LIFO
benefits was $1.7 million or $.25 per share in the third quarter and $1.9
million or $.28 per share in the fourth quarter.
________________________________________________________________________________
ADDITIONAL FINANCIAL INFORMATION
Shareholders may obtain additional information for the year ended
December 31, 1995, from the Company's Form 10-K Report filed with the Securities
and Exchange Commission. A copy of such report may be obtained without charge
by written request to the Secretary, Lufkin Industries, Inc., P.O. Box 849,
Lufkin, Texas 75902-0849.
5
<PAGE>
LUFKIN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Lufkin Industries, Inc. and Subsidiaries
RESULTS OF OPERATIONS
Net sales for 1995 were $248.9 million compared to $217.3 million and $202.2
million for 1994 and 1993, respectively. The Company reported net operating
income of $10.5 million for 1995. In 1994 and 1993, the Company had an
operating loss of $3.1 million and operating income of $1.7 million,
respectively. For 1995, the Company reported net income of $8.9 million,
compared to a net loss of $1.2 million and net income of $2.5 million for 1994
and 1993, respectively. The 1994 results included an $11.2 million pre-tax
charge for special inventory write-downs.
During 1995, the Company experienced revenue growth in all of its product
groups. The annual percentage increase (decrease) in revenues for the Company's
product groups for the three years ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Annual increase (decrease) in revenues
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil field pumping units 13% (30)% 6%
Power transmission products 9 16 9
Foundry castings 5 25 21
Trailers 26 37 24
- --------------------------------------------------------------------------------
Total company 15% 7% 13%
- --------------------------------------------------------------------------------
</TABLE>
The sales mix of the Company's products for the three years ended December 31,
1995 was as follows:
<TABLE>
<CAPTION>
Percent of total sales
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil field pumping units 19% 19% 29%
Power transmission products 24 25 23
Foundry castings 13 14 12
Trailers 44 41 32
Other - 1 4
- --------------------------------------------------------------------------------
Total company 100% 100% 100%
- --------------------------------------------------------------------------------
</TABLE>
The Company experienced a 13% increase in its 1995 oil field revenues
compared to 1994. Oil field revenues in 1995 were $46.4 million compared to
$40.9 million and $58.6 million in 1994 and 1993, respectively. During 1995,
the Company booked new orders of $47.3 million compared to $42.9 million in
1994. At December 31, 1995, the backlog for oil field products was $8.1 million
compared to $8.5 million at the end of 1994.
Power transmission sales for 1995 increased 9% to $60.1 million.
Sales for 1994 and 1993 were $55.3 million and $47.6 million, respectively.
Power transmission bookings for 1995 were $75.5 million and the year end backlog
was $36.0 million, compared to 1994 bookings of $54.0 million and a year end
backlog of $21.1 million. The strong performance in power transmission bookings
and revenues reflects the realization of expanded international sales efforts
and continued growth of the Company's gear repair operations.
Sales of foundry castings increased 5% in 1995 to $31.8 million from
$30.2 million in 1994. Foundry castings sales were $24.2 million in 1993. New
order bookings totaled $34.0 million in 1995 compared to $30.3 million in 1994.
The Company's foundry castings backlog at year end was $15.8 million compared to
$4.2 million in 1994. During 1995, the Company continued to expand on its
program to improve its product mix towards higher margin custom engineered
castings as well as maintain its strong position in the forklift counterweight
market.
Trailer product sales of $110.5 million were up 26% over 1994 sales
primarily due to the increase in sales volume. Trailer sales were $87.8 million
and $64.2 million for 1994 and 1993, respectively. The Company booked new
orders totaling $79.0 million in 1995 compared to $112.4 million in 1994. At
December 31, 1995 the trailer backlog was $40.2 million compared to $75.6
million at December 31, 1994. Due to the cyclical natrue of the trailer
business, backlogs at December 31, 1995 decreased from backlog levels at
December 31, 1994. Because of these cyclical market factors, management
believes that trailer sales will likely decrease in the year ending December 31,
1996 as compared to 1995.
Gross profit margins before special inventory write-downs have
remained steady at 13% for the years ended December 31, 1995, 1994 and 1993.
The 1995 sales mix reflected an increase in trailer sales, which tend to be a
lower margin product, as compared to 1994 and 1993. Gross margins, as a percent
of revenues, did not follow this movement due primarily to improvements in power
transmission margins and product mix and the continued emphasis of the Company's
cost awareness and cost reduction programs.
6
<PAGE>
LUFKIN INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Lufkin Industries, Inc. and Subsidiaries
RESULTS OF OPERATIONS (CONTINUED)
The Company's Selling, General and Administrative (S.G. & A.) expenses
were $22.2 million in 1995 compared to $20.7 million and $24.7 million in 1994
and 1993, respectively. The increase in 1995 S. G. & A. expenses reflected
primarily the expansion of the Company's selling efforts and market presence in
key markets in western Europe and Singapore. In addition, foundry castings
selling expenses increased with efforts to change the product mix from high
volume/lower margin counterweights to higher margin custom engineered castings.
Net operating income for 1995 was $10.5 million compared to a loss of
$3.1 million for 1994 and net operating income of $1.7 million for 1993. The
Trailer Division's net operating income as a percentage of sales was 7% for both
1995 and 1994, up from 3% for 1993. This change reflects the increase in
trailer sales volumes as well as the Company's emphasis on cost containment,
particularly in the area of fixed costs. The Machinery Division's net operating
income as a percentage of sales before special inventory write-downs was 2% for
1995 compared to 1% in 1994 and less than 1% in 1993. The increase in net
operating income as a percentage of sales for 1995 compared to 1994 was due
primarily to increased sales volumes and improved product mix, partially offset
by increases in S. G. & A. expenses.
Other income decreased to $.5 million in 1995 from $1.6 million in
1994. Other income for 1994 reflected a $1.4 million gain on the sale of the
Company's Churchill manufacturing facility and related equipment in Chanute,
Kansas. In 1993, other income was $.3 million. The Company's investment income
for 1995 increased to $3.1 million from $1.3 million in 1994 and $2.6 million in
1993. The 1995 increase was due primarily to favorable investment market
conditions resulting in increased interest income and capital gains earned on
investments.
For 1995, net income was reduced by approximately $1.0 million ($.15
per share) as a result of using the LIFO method as compared to using the FIFO
method of accounting for certain inventories. During 1994, LIFO inventories
were reduced and these reductions resulted in a liquidation of LIFO inventory
quantities carried at lower costs prevailing in prior years. The impact of
these LIFO inventory liquidations reduced the net loss in 1994 by approximately
$3.6 million ($.53 per share). In 1993, net income was increased by
approximately $.5 million ($.07 per share) as a result of using the LIFO method.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had working capital of $74.9 million
compared to $70.8 million in 1994 and $71.6 million in 1993. The Company
generated $7.4 million net cash from operating activities in 1995. The net cash
provided from operating activities in 1994 and 1993 was $20.7 million and $21.1
million, respectively.
Accounts receivable rose 28% to $36.2 million at the end of 1995 compared to
$28.3 million at the end of 1994. The increase in receivables was due primarily
to strong sales volumes experienced in the latter half of the fourth quarter of
1995. Depreciation expense declined to $7.1 million in 1995 from $7.9 million
in 1994 and $9.9 million in 1993. The decrease in depreciation expense is due
primarily to the Company's 1994 sales of its Machinery Division's Churchill
manufacturing facility in Chanute, Kansas and its Industrial Supplies unit, as
well as the result of assets becoming fully depreciated. Dividends of $.60 per
share (totaling $4.1 million) were paid in 1995, 1994 and 1993. The Company
believes that existing working capital will be sufficient to satisfy its 1996
requirements. In recent years, capital expenditures have been financed with
internally generated funds, and the Company plans to finance future improvements
of its facilities in this manner. No significant commitments were outstanding
at December 31, 1995.
7
<PAGE>
LUFKIN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
Lufkin Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31, 1995 and 1994
(Thousands of dollars)
ASSETS 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 277 $ 207
Temporary investments 33,040 36,716
Receivables, net 36,204 28,262
Inventories 24,737 21,919
Deferred income tax assets 3,853 4,522
- ---------------------------------------------------------------------------
Total current assets 98,111 91,626
Property, plant and equipment:
Land and improvements 8,784 8,801
Buildings 52,555 52,076
Machinery and equipment 172,437 167,387
- ---------------------------------------------------------------------------
Total property, plant and equipment 233,776 228,264
Less accumulated depreciation (172,953) (167,558)
- ---------------------------------------------------------------------------
Total property, plant and equipment, net 60,823 60,706
Prepaid pension costs 20,936 17,784
Other assets 6,426 6,658
- ---------------------------------------------------------------------------
Total $ 186,296 $ 176,774
- ---------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 11,430 $ 10,661
Accrued liabilities:
Payroll and benefits 5,084 4,574
Accrued warranty expenses 2,032 2,265
Taxes payable 2,849 2,158
Commissions and other 1,774 1,137
- ---------------------------------------------------------------------------
Total current liabilities 23,169 20,795
Deferred income tax liabilities 8,500 6,172
Post retirement benefits liability 12,035 11,843
Shareholders' equity:
Common stock, par $1 per share; 20,000,000 shares
authorized; 6,792,381 shares issued 6,792 6,792
Capital in excess of par 15,367 15,372
Retained earnings 121,692 116,845
Treasury Stock, 16,108 shares, at cost (311) -
Cumulative translation adjustment (948) (1,045)
- ---------------------------------------------------------------------------
Total shareholders' equity 142,592 137,964
- ---------------------------------------------------------------------------
Total $ 186,296 $ 176,774
- ---------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
8
<PAGE>
LUFKIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF EARNINGS
Lufkin Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31, 1995, 1994 and 1993
(Thousands of dollars, except per share data)
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $248,909 $217,273 $202,225
- --------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 216,733 189,999 176,099
Selling, general and
administrative expenses 22,171 20,725 24,737
Special inventory provisions - 11,224 -
Other income, net (481) (1,610) (347)
- --------------------------------------------------------------------------------
Total costs and expenses 238,423 220,338 200,489
- --------------------------------------------------------------------------------
Operating income (loss) 10,486 (3,065) 1,736
Investment income 3,118 1,266 2,558
- --------------------------------------------------------------------------------
Earnings (loss) before income taxes 13,604 (1,799) 4,294
Income taxes (benefits) 4,686 (592) 1,745
- --------------------------------------------------------------------------------
Net earnings (loss) $ 8,918 $ (1,207) $ 2,549
- --------------------------------------------------------------------------------
Net earnings (loss) per share $1.31 $(.18) $.38
- --------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
9
<PAGE>
LUFKIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Lufkin Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31, 1995, 1994, and 1993
(Thousands of dollars, except share and per share data)
Common Stock Capital Cumulative
------------------------ In Excess Retained Treasury Translation
Shares Amount Of Par Earnings Stock Adjustments
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 6,792,381 $6,792 $15,372 $123,653 $ - $ (736)
Net earnings 2,549
Cash dividends,
$.60 per share (4,075)
Foreign currency translation
adjustment (64)
- ---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 6,792,381 6,792 15,372 122,127 (800)
Net loss (1,207)
Cash dividends,
$.60 per share (4,075)
Foreign currency translation
adjustment (245)
- ---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 6,792,381 6,792 15,372 116,845 (1,045)
Net earnings 8,918
Cash dividends,
$.60 per share (4,071)
Foreign currency translation
adjustment 97
Purchases of Treasury Stock
(20,108 shares) (384)
Exercise of Stock Options
(4,000 shares) (5) 73
- ---------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 6,792,381 $6,792 $15,367 $121,692 $ (311) $(948)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
10
<PAGE>
LUFKIN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Lufkin Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31, 1995, 1994 and 1993
(Thousands of dollars)
1995 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net earnings (loss) $ 8,918 $(1,207) $ 2,549
Adjustments to reconcile earnings (loss) to net
cash provided by operating activities:
Depreciation 7,050 7,895 9,890
Deferred income tax provision 2,997 28 1,622
Pension income (3,151) (3,628) (3,275)
Post retirement benefits 192 216 255
(Gain) or loss on sales of property,
plant and equipment (247) (1,299) 72
Changes in assets and liabilities:
Receivables (7,942) 9,341 3,821
Inventories (2,818) 11,239 921
Accounts payable 769 796 4,324
Accrued liabilities 1,605 (2,677) 884
- ----------------------------------------------------------------------------------
Net cash provided by operating activities 7,373 20,704 21,063
Cash flows from investing activities:
Additions to property, plant and equipment (7,646) (5,238) (5,885)
Proceeds from disposition of property,
plant and equipment 725 5,356 411
(Increase) decrease in other assets 232 66 (2,663)
- ----------------------------------------------------------------------------------
Net cash provided (used) by investing activities (6,689) 184 (8,137)
Cash flows from financing activities:
Dividends paid (4,071) (4,075) (4,075)
Proceeds from exercise of stock options 68 - -
Purchase of 20,108 shares of treasury stock (384) - -
- ----------------------------------------------------------------------------------
Net cash used by financing activities (4,387) (4,075) (4,075)
Effect of translation on cash and
temporary investments 97 (245) (64)
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash and
temporary investments (3,606) 16,568 8,787
Cash and temporary investments,
at beginning of year 36,923 20,355 11,568
- ----------------------------------------------------------------------------------
Cash and temporary investments,
at end of year $33,317 $36,923 $20,355
- ----------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
11
<PAGE>
LUFKIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lufkin Industries, Inc. and Subsidiaries
(1) SUMMARY OF MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Lufkin Industries, Inc. and Subsidiaries (the Company) after
elimination of all significant intercompany accounts and transactions.
USE OF ESTIMATES: The preparation of the financial statements in conformity
with generally accepted accounting principles requires the use of certain
estimates by management in determining the Company's assets, liabilities,
revenue and expenses.
TRANSLATION OF FOREIGN CURRENCIES. Assets and liabilities of foreign
operations are translated into U. S. dollars at the exchange rate in effect at
the end of each accounting period and income statement accounts are translated
at the average exchange rates prevailing during the period.
TEMPORARY INVESTMENTS: The Company's temporary investments consisting of
highly liquid government and corporate debt securities have been classified as
trading securities which are carried at market value. All realized and
unrealized gains and losses are recognized currently in investment income.
RECEIVABLES: The following is a summary of the Company's receivable balances:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994
- --------------------------------------------------------
<S> <C> <C>
Accounts receivable $34,645 $25,024
Notes receivable 2,159 3,838
- --------------------------------------------------------
36,804 28,862
Allowance for doubtful accounts (600) (600)
- --------------------------------------------------------
Net receivables $36,204 $28,262
- --------------------------------------------------------
</TABLE>
INVENTORIES: The Company reports its inventories by using the last-in, first-
out (LIFO) and the first-in, first-out (FIFO) methods less reserves necessary to
report inventories at the lower of cost or estimated market. Inventory costs
include material, labor and factory overhead.
PROPERTY, PLANT AND EQUIPMENT: The Company records investments in these
assets at cost. Improvements are capitalized, while repair and maintenance
costs are charged to operations as incurred. Gains or losses realized on the
sale or retirement of these assets are reflected in income. Depreciation for
financial reporting purposes is provided on a straight-line method based upon
the estimated useful lives of the assets. Accelerated depreciation methods are
used for tax purposes. Expenditures for maintenance and repairs were
$10,902,000 in 1995, $8,924,000 in 1994 and $8,240,000 in 1993.
EARNINGS PER SHARE: Earnings per share amounts are based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period. The weighted average number of shares used to
compute earnings per share was 6,823,776 shares, 6,792,381 shares and 6,801,131
shares for 1995, 1994 and 1993, respectively.
OTHER: Certain prior year amounts have been reclassified to conform with the
current year presentation.
12
<PAGE>
LUFKIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lufkin Industries, Inc. and Subsidiaries
(2) INCOME TAXES
The Company follows Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets or
liabilities are recorded based on the difference between the financial statement
and income tax bases of assets and liabilities using enacted tax rates. The net
deferred income tax liability is comprised of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets
Gross assets $ 5,300 $ 4,648
Gross liabilities (1,447) (126)
- ------------------------------------------------------------------
Total, net 3,853 4,522
- ------------------------------------------------------------------
Noncurrent deferred income tax liabilities
Gross assets 6,715 6,851
Gross liabilities (15,215) (13,023)
- ------------------------------------------------------------------
Total, net (8,500) (6,172)
- ------------------------------------------------------------------
Net deferred income tax liabilities $ (4,647) $ (1,650)
- ------------------------------------------------------------------
</TABLE>
The tax effects of significant temporary differences representing deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Inventory $ 1,732 $ 3,092
Prepaid pension costs (7,336) (6,055)
Accrued warranty expenses 711 770
Post retirement benefits 4,212 4,027
Capital loss and tax credit carry forwards 2,509 2,077
Depreciation (7,053) (6,588)
Other, net 578 1,027
- ----------------------------------------------------------------
Net deferred income tax liabilities $(4,647) $(1,650)
- ----------------------------------------------------------------
</TABLE>
The income tax provision (benefit) for 1995, 1994, and 1993 consisted of the
following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------
Current $1,689 $(620) $ 123
Deferred 2,997 28 1,622
- ------------------------------------------------
Total $4,686 $(592) $1,745
- ------------------------------------------------
</TABLE>
A reconciliation of the income tax provision (benefit) as computed at the
statutory U. S. income tax rate and the income tax provision (benefit) presented
in the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Tax provision (benefit) computed at statutory rate $4,693 $(612) $1,460
Tax effect of:
Expenses for which no benefit was realized 271 - 300
Tax-exempt interest and dividend
income exclusion (170) (72) (52)
Other, net (108) 92 37
- ------------------------------------------------------------------------------
Actual provision (benefit) $4,686 $(592) $1,745
- ------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
LUFKIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lufkin Industries, Inc. and Subsidiaries
Cash payments for income taxes were $2,292,000, $235,000, and $801,000 for
1995, 1994 and 1993, respectively.
For income tax reporting purposes at December 31, 1995, the Company has
capital loss carry forwards of approximately $579,000 which expire in 1997 and
alternative minimum tax carry forwards of $2,307,000 which can be carried
forward indefinitely.
(3) INVENTORIES
Inventories used in determining cost of sales were as follows:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994
- ------------------------------------------
<S> <C> <C>
Finished goods $ 6,845 $ 7,995
Work in process 6,050 4,911
Raw materials 11,842 9,013
- ------------------------------------------
Total $24,737 $21,919
- ------------------------------------------
</TABLE>
Inventories accounted for on a LIFO basis were $19,258,000 and $15,514,000 and
on a FIFO basis were $5,479,000 and $6,405,000 at December 31, 1995 and 1994,
respectively. Had the FIFO method been used in determining all inventory
values, inventories would have been $18,194,000 and $16,581,000 higher at
December 31, 1995 and 1994, respectively.
For 1995, net income was reduced by approximately $1,048,000 ($.15 per
share) as a result of using the LIFO method as compared to using the first-in,
first-out method of accounting for certain inventories. During 1994, LIFO
inventories were reduced and these reductions resulted in a liquidation of LIFO
inventory quantities carried at lower costs prevailing in prior years. The
impact of these LIFO inventory liquidations reduced the net loss in 1994 by
approximately $3,600,000 ($.53 per share). In 1993, net income was increased by
approximately $450,000 ($.07 per share) as a result of using the LIFO method.
(4) EMPLOYEE STOCK OPTION PLAN
The Company's 1990 Stock Option Plan provides for the granting of options to
key employees to purchase an aggregate of not more than 900,000 shares of the
Company's stock at fair market value on the date of grant. One fourth of
granted options generally become exercisable after one year and each year
thereafter. The options may not be exercised after ten years from the date of
grant. Outstanding options may be cancelled and reissued under terms specified
in the plan.
The following table summarizes activity under the Company's stock option plans:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 355,465 260,715 172,715
Granted (per share)
1993 ($15.31 to $21.375) - 122,000
1994 ($15.875 to $18.625) 94,750 -
1995 ($19.00 to $20.00) 97,500 - -
Exercised (per share)
1995 ($15.31 to $17.50) (4,000)
Forfeited (per share)
1993 ($17.50 to $30.00) - - (34,000)
1995 ($30.00) (1,000) - -
- --------------------------------------------------------------------------
Options outstanding, end of year 447,965 355,465 260,715
- --------------------------------------------------------------------------
</TABLE>
At December 31, 1995, there were 227,403 options exercisable at prices ranging
from $15.31 to $30.00 per share.
(5) CAPITAL STOCK
In May 1987, the Board of Directors adopted a "Shareholder Rights Plan"
designed to protect against unsolicited attempts to acquire control of the
Company that the Board believes are not in the best interest of the
shareholders. The Plan provides for the possible issuance of a dividend of one
common stock purchase right for each outstanding share of common stock. Under
certain conditions, each right may be exercised to purchase one share of common
stock at an exercise price of $100, subject to adjustment. Under certain
circumstances, the rights entitle holders to purchase the common stock of the
Company or an acquiring company having a value of twice the exercise price of
the rights. The rights would become exercisable, or transferable apart from the
common stock, ten days after a person or group acquired 20% or more, or
announced or made a tender offer for 30% or more, of the outstanding common
stock. Under certain circumstances, all rights owned by an acquiring person
would be null and void. The rights expire on
14
<PAGE>
LUFKIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lufkin Industries, Inc. and Subsidiaries
(5) CAPITAL STOCK (CONTINUED)
May 31, 1996, and may be redeemed by the Company at any time prior to the
occurrence of certain events at $.05 per right.
The Company is authorized to issue 2.0 million shares of preferred stock, the
terms and conditions to be determined by the Board of Directors in creating any
particular series.
(6) RETIREMENT BENEFITS
The Company has noncontributory pension plans covering substantially all
employees. The benefits provided by these plans are measured by length of
service, compensation and other factors, and are currently funded by trusts
established under the plans. Funding of retirement costs for these plans
complies with the minimum funding requirements specified by the Employee
Retirement Income Security Act. Plan investment assets are invested primarily
in equity securities, United States government securities and cash equivalents.
The following tables provide the detail of the components of pension income
and expense, the funded status of the plans and amounts of prepaid pension cost
recognized as an asset in the Company's consolidated balance sheet, and major
assumptions used to determine these amounts.
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of pension income:
Service cost $ 1,780 $ 2,092 $ 2,269
Interest cost 5,698 5,334 5,334
Actual return on plan assets (27,424) 97 (7,178)
Net (amortization) and deferral 16,795 (11,151) (3,700)
- --------------------------------------------------------------------------------------
Net pension income $ (3,151) $ (3,628) $ (3,275)
- --------------------------------------------------------------------------------------
Plan assets at fair value $128,361 $105,902 $110,752
Actuarial present value of projected
benefit obligations:
Accumulated benefit obligations
Vested (72,644) (56,406) (58,120)
Nonvested (9,164) (5,358) (6,446)
Provision for future salary increases (7,703) (8,259) (11,569)
- --------------------------------------------------------------------------------------
Plan assets over projected benefit obligations 38,850 35,879 34,617
Unrecognized transition gain (11,756) (12,683) (13,609)
Other unrecognized gain (4,393) (3,161) (3,888)
Unrecognized prior service credits (1,765) (2,251) (2,964)
- --------------------------------------------------------------------------------------
Net prepaid pension costs $ 20,936 $ 17,784 $ 14,156
- --------------------------------------------------------------------------------------
Major assumptions at year end:
Discount rate 7.50% 8.25% 7.25%
Rate of assumed increase in compensation levels 5% 5% 5%
Expected long-term rate of return on plan assets 9% 9% 9%
- --------------------------------------------------------------------------------------
</TABLE>
The Company also has defined contribution retirement plans covering
substantially all of its employees. During the year, the Company makes
contributions of 75% of employee contributions up to a maximum of 6% of employee
earnings. All obligations of the Company are funded through December 31, 1995.
The Company's expense for these plans totaled $1,560,000, $1,444,000 and
$1,456,000 in 1995, 1994 and 1993, respectively.
The Company sponsors two defined benefit post retirement plans that cover both
salaried and hourly employees. One plan provides medical benefits, and the
other plan provides life insurance benefits. Both plans are contributory, with
retiree contributions adjusted periodically. Under SFAS No. 106 "Employers'
Accounting for Post-retirement Benefits Other than Pensions", the Company
accrues the estimated costs of the plans over the employee's service periods.
15
<PAGE>
LUFKIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lufkin Industries, Inc. and Subsidiaries
(6) RETIREMENT BENEFITS (CONTINUED)
The following table sets forth the plans' combined funded status reconciled
with the amount shown in the Company's balance sheet at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Accumulated post retirement benefit obligation:
Retirees $ 7,701 $ 9,208
Fully eligible active plan participants 951 883
Other active plan participants not yet eligible 2,133 1,932
- -------------------------------------------------------------------------
Total accumulated post retirement benefit obligation 10,785 12,023
Unrecognized net actuarial gain (loss) 1,250 (180)
- -------------------------------------------------------------------------
Accrued post retirement benefit cost $12,035 $11,843
- -------------------------------------------------------------------------
Net periodic cost of post retirement benefit:
Service cost $ 135 $ 168
Interest cost 923 882
- -------------------------------------------------------------------------
Net periodic post retirement benefit cost $ 1,058 $ 1,050
- -------------------------------------------------------------------------
</TABLE>
The Company's post retirement health care plan is unfunded and there are no
plan assets. For measurement purposes, the submitted claims medical trend was
assumed to be 11% in 1995, 10% in 1996, and 9.25% in 1997. Thereafter, the
Company's obligation is fixed at the amount of the Company's contribution for
1997. A one percentage point increase in each year's healthcare costs trend
rate would increase the accumulated post retirement benefit obligations as of
December 31, 1995 by approximately $166,000 and the aggregate of the service and
interest costs components of net periodic post retirement cost for the year
ended December 31, 1995 by $24,000. In determining the accumulated post
retirement obligation, weighted-average discount rates of 7.50% in 1995 and
8.25% in 1994 were used.
(7) BUSINESS SEGMENT INFORMATION
The Company manufactures, sells and services various types of oil field
pumping units, power transmission products, foundry castings and trailers.
Corporate expenses are allocated to industry segments primarily based upon
outside revenues. The following is a summary of key business segment and
product group information:
<TABLE>
<CAPTION>
(Thousands of dollars) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------
NET SALES:
Machinery Division
Oil field pumping units $ 46,449 $ 40,938 $ 58,579
Power transmission products 60,131 55,334 47,561
Foundry castings 31,792 30,165 24,169
Other - 3,051 7,761
Trailer Division 110,537 87,785 64,155
- ----------------------------------------------------------------
Total net sales $248,909 $217,273 $202,225
- ----------------------------------------------------------------
NET SALES BY GEOGRAPHIC REGION:
United States $208,989 $183,147 $165,446
Europe 3,362 2,916 7,262
Canada 10,870 8,273 7,520
Latin America 16,411 14,765 14,473
Other 9,277 8,172 7,524
- ----------------------------------------------------------------
Total net sales $248,909 $217,273 $202,225
- ----------------------------------------------------------------
</TABLE>
16
<PAGE>
EXHIBIT (22)
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name under which
Jurisdiction such subsidiary
Name of subsidiary of Incorporation does business
- ------------------------------------ ---------------- ----------------
<S> <C> <C>
Lufkin Industries Canada, Ltd. Province of Alberta, Same
Canada
P. T. Lufkin Indonesia Republic of Indonesia Same
Lufkin Industries FSC, Inc. Barbados Same
Lufkin Industries Europe, Bv. The Netherlands Same
</TABLE>
<PAGE>
EXHIBIT (24)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated February 20, 1996, incorporated by reference in
this Form 10-K, into the Lufkin Industries, Inc. previously filed Form S-8
Registration Statements File No. 33-36976 and File No. 33-62021.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
-----------------------
Houston, Texas
March 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 277
<SECURITIES> 33,040
<RECEIVABLES> 36,804
<ALLOWANCES> 600
<INVENTORY> 24,737
<CURRENT-ASSETS> 98,111
<PP&E> 233,776
<DEPRECIATION> 172,953
<TOTAL-ASSETS> 186,296
<CURRENT-LIABILITIES> 23,169
<BONDS> 0
0
0
<COMMON> 6,792
<OTHER-SE> 135,800
<TOTAL-LIABILITY-AND-EQUITY> 186,296
<SALES> 248,909
<TOTAL-REVENUES> 248,909
<CGS> 216,733
<TOTAL-COSTS> 238,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,604
<INCOME-TAX> 4,686
<INCOME-CONTINUING> 8,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,918
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
</TABLE>
<PAGE>
LUFKIN INDUSTRIES, INC.
P.O. BOX 849
601 SOUTH RAGUET
LUFKIN, TEXAS 75902
PROXY STATEMENT
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The accompanying proxy is solicited by the Board of Directors of Lufkin
Industries, Inc. (the "Company") for use at the Annual Meeting of Shareholders
to be held on May 15, 1996, and any adjournments thereof. The annual meeting
will be held at 9:00 a.m. Lufkin Time, at the Lufkin Civic Center, 601 North
Second, Lufkin, Texas. When such proxy is properly executed and returned, the
shares it represents will be voted at the meeting in accordance with the
directions noted thereon; or if no direction is indicated, it will be voted in
favor of the proposals set forth in the notice attached hereto. Any shareholder
giving a proxy has the power to revoke it by oral or written notice to the
Secretary of the Company at any time before it is voted.
A shareholder entitled to vote for the election of directors can withhold
authority to vote for all nominees for directors or can withhold authority to
vote for certain nominees for directors. Abstentions from either the proposal
to elect directors, the proposal to approve the appointment of independent
certified public accountants or the proposal to approve the 1996 Nonemployee
Directors Stock Option Plan are treated as votes against the particular
proposal. Broker non-votes on any of such matters are treated as shares as to
which voting power has been withheld by the beneficial holders of those shares
and, therefore, as shares not entitled to vote on the proposal as to which
there is the broker non-vote.
The cost of solicitation of these proxies will be borne by the Company. In
addition to solicitation by mail, certain directors, officers, and regular
employees of the Company may solicit proxies by telephone and personal
interview.
The approximate date on which this Proxy Statement will first be sent to
shareholders is April 5, 1996.
- --------------------------------------------------------------------------------
VOTING SECURITIES
- --------------------------------------------------------------------------------
At the close of business on March 29, 1996, which is the record date for the
determination of shareholders of the Company entitled to receive notice of and
to vote at the annual meeting or any adjournments thereof, the Company had
outstanding 6,751,383 shares of common stock, $1.00 par value (the "Common
Stock"). Each share of Common Stock is entitled to one vote upon each of the
matters to be voted on at the meeting.
Quest Advisory Corp. is the beneficial owner of 427,272 shares of the
Company's Common Stock and Quest Management Company is the beneficial owner of
13,800 shares of the Company's Common Stock. Together these two related
entities own beneficially 6.5% of the Company's Common Stock.
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL 1. ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Board of Directors has nominated and urges you to vote FOR the election
of the four directors who have been nominated to serve a three-year term of
office in the 1999 class of directors. Proxies solicited hereby will be so
voted unless shareholders specify otherwise in their proxies. The affirmative
vote of the holders of a majority of the Common Stock present in person or by
proxy at the meeting and entitled to vote is required for approval of this
Proposal.
The Company's Fourth Restated Articles of Incorporation (the "Articles")
divide the Board of Directors, with respect to terms of office, into three
classes, designated as Class I, Class II and Class III. Each class of directors
is to be elected to serve a three-year term and is to consist of, as nearly as
possible, one-third of the members of the entire Board. In accordance with the
Company's Bylaws, the Company's Board of Directors is currently fixed at 11
members.
The term of office of each of the Class II Directors expires at the time of
the 1996 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. Jalenak, Mr. King, Mr. Smith and Mr.
Trout have been nominated to serve an additional three-year term as Class II
Directors. Each of the nominees has consented to be named in this Proxy
Statement and to serve as a director, if elected.
It is intended that the proxies solicited hereby will be voted FOR the
election of the nominees for director listed below, unless authority to do so
has been withheld. If, at the time of the 1996 Annual Meeting of Shareholders,
any of the nominees should be unable or decline to serve, the discretionary
authority provided in the proxy will be used to vote for a substitute or
substitutes designated by the Board of Directors. The Board of Directors has no
reason to believe that any substitute nominee or nominees will be required.
DIRECTORS AND NOMINEES FOR DIRECTOR
The nominees for Class II Directors, if elected, whose term of office as
directors will expire in 1999, and certain additional information with respect
to each of them, are as follows:
L. R. Jalenak, Jr., formerly Chairman of the Board of Cleo Inc., a Gibson
Greetings Company, is a director of Perrigo Company and Dyersburg Corp. He
also serves as an Independent Trustee for First Funds (a family of mutual
funds). Age 65. Mr. Jalenak has been a director since 1990 and also serves
on the Compensation Committee and Audit Committee.
Henry H. King, President of Henry H. King & Associates. Age 63. Mr. King
has been a director since 1990 and also serves on the Executive Committee
and the Compensation Committee.
Douglas V. Smith, President, Chief Executive Officer and Chairman of the
Board of the Company. Age 53. Mr. Smith was elected President and Chief
Executive Officer of the Company in January 1993 and Chairman of the Board
in May 1995. He was also elected as a director in January 1993. He
previously served as Vice President--Worldwide Manufacturing for Cooper Oil
Tool Division of Cooper Industries (Houston, Texas).
W. W. Trout, Jr., retired Vice President of the Company. Age 64. Mr.
Trout has been a director of the Company since 1968.
2
<PAGE>
The Class III Directors, whose present term of office as directors will
continue after the meeting and expire in 1997, and certain additional
information with respect to each of them, are as follows:
Simon W. Henderson, III, manager of his own investments. Age 62. Mr.
Henderson has been a director of the Company since 1971 and currently
serves as a member of the Compensation Committee, the Executive Committee
and the Nominating Committee.
Melvin E. Kurth, Jr., manager of his own investments. Age 65. Mr. Kurth
has been a director of the Company since 1968 and currently serves as a
member of the Audit Committee and the Nominating Committee.
W. T. Little, a management consultant. Age 62. Mr. Little has been a
self-employed management consultant for the last five years. He became a
director of the Company in 1968.
The Class I Directors, whose present term of office as directors will
continue after the meeting and expire in 1998, and certain additional
information with respect to each of them, are as follows:
Bob H. O'Neal, President, Chief Executive Officer and a Director of
Stewart & Stevenson Services, Inc. Age 61. Mr. O'Neal became a director in
1992 and currently serves on the Compensation Committee and the Nominating
Committee. In May 1995, an indictment was returned by a Federal Grand Jury
accusing Stewart & Stevenson Services, Inc., a former consultant and four
of its employees, including Mr. O'Neal, of one count of major fraud
against the United States, four counts of false statements and one count of
conspiracy to commit major fraud, make false statements and interfere with
the administration of a foreign military sale.
Frank B. Stevenson, formerly Chairman of the Board, President and Chief
Executive Officer of the Company. Age 68. He became a director of the
Company in 1983 and currently serves on the Audit Committee.
H. J. Trout, Jr., manager of his own investments since 1990. Age 51. Mr.
Trout has been a director of the Company since 1980 and serves as a member
of the Executive Committee and the Nominating Committee.
Thomas E. Wiener, attorney. Age 55. Mr. Wiener became a director of the
Company in 1987 and currently serves on the Audit Committee and the
Executive Committee.
Mr. W. W. Trout, Jr., is the first cousin of H. J. Trout, Jr.
3
<PAGE>
The following table reflects the beneficial ownership of the Company's Common
Stock as of December 31, 1995, with respect to (i) each person who is known by
the Company to own beneficially more than 5% of the outstanding shares of the
Company's Common Stock; (ii) the directors and nominees for director; (iii)
each executive officer named in the Summary Compensation Table; and (iv) the
Company's directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF SHARES OWNED PERCENT
BENEFICIAL OWNER BENEFICIALLY OF CLASS
---------------- ------------ --------
<S> <C> <C>
Quest Advisory Corp./1/
Quest Management Company/1/ ........................... 441,072 6.5
James W. Barber(2)..................................... 6,900 *
John F. Glick(2)....................................... 1,750 *
Simon W. Henderson, III................................ 86,033 1.3
L. R. Jalenak, Jr. .................................... 1,400 *
Henry H. King.......................................... 2,128 *
Melvin E. Kurth, Jr. .................................. 112,740 1.7
W. T. Little........................................... 101,916 1.5
Bob H. O'Neal.......................................... 500 *
Ernest G. Pittman(2)................................... 9,950 *
Scott H. Semlinger(2).................................. 13,270 *
Douglas V. Smith(2).................................... 56,000 *
Frank B. Stevenson..................................... 4,150 *
H. J. Trout, Jr. ...................................... 320,984 4.7
W. W. Trout, Jr. ...................................... 24,949 *
Thomas E. Wiener....................................... 69,836 1.0
Directors and officers as a group(2)................... 857,691 12.4
</TABLE>
- --------
* Indicates ownership of less than one percent of the outstanding shares of
Common Stock of the Company.
1. Pursuant to a Schedule 13G filed with the Company, Quest Advisory Corp. and
Quest Management Company may be deemed to be controlled by Charles M. Royce.
Quest Advisory Corp. has sole voting power and sole dispositive power with
respect to 427,272 shares and Quest Management Company has sole voting power
and sole dispositive power with respect to 13,800 shares.
2. Includes shares subject to presently exercisable options.
Each director and nominee for director listed above possessed sole voting and
investment powers as to all the shares listed as being beneficially owned by
such person, except Melvin E. Kurth, Jr. who has a limited term interest in the
income of 26,712 of the listed shares which are held in trust for the benefit
of himself and his sons, W. T. Little who shares voting and investment powers
as to 48,000 of the listed shares, H. J. Trout, Jr. who has a remainder
interest as to 272,980 of the listed shares which are held in a trust for his
mother for which he is trustee and Thomas E. Wiener who shares voting and
dispositive powers as to 48,864 of the listed shares.
The Board of Directors has a standing Audit Committee. The Audit Committee is
currently comprised of Messrs. L. R. Jalenak, Jr., M. E. Kurth, Jr., F.B.
Stevenson and T. E. Wiener. The Audit Committee's functions include making
recommendations concerning the engagement of independent auditors, reviewing
with the independent auditors the plan and results of the auditing engagement,
reviewing the scope and results of the Company's procedures for internal
auditing, reviewing professional services provided by the
4
<PAGE>
independent auditors, reviewing the independence of the independent auditors,
considering the range of audit and nonaudit fees and reviewing the adequacy of
the Company's internal accounting controls.
The Board of Directors also has a standing Compensation Committee which is
currently comprised of Messrs. S. W. Henderson, III, L. R. Jalenak, Jr., H. H.
King and B. H. O'Neal. The functions performed by the Compensation Committee
include: reviewing executive salary and bonus structure; reviewing the
Company's stock option plan (and making grants thereunder); setting bonus
goals; and approving salary and bonus awards to key executives.
The Board of Directors also has a standing Nominating Committee which is
currently comprised of Messrs. M. E. Kurth, S. W. Henderson III, B. H. O'Neal
and H. J. Trout, Jr.
During 1995, the Audit Committee had two meetings; the Compensation Committee
had four meetings; the Executive Committee had one meeting and the Board of
Directors had four meetings. During 1995 each continuing member of the Board of
Directors attended 75% or more of the meetings of the Board of Directors and
the committees of which he was a member.
During 1995, the directors received $850 for each meeting of the Board of
Directors or committee meeting that they attended in addition to a quarterly
payment of $2,250.
Each director and officer of the Company filed on a timely basis all reports
required pursuant to Section 16 of the Securities Exchange Act of 1934, except
Messrs. James W. Barber, John F. Finney, Jr., John F. Glick, C. James Haley,
Jr., James R. Partridge, Michael A. Penn, Ernest G. Pittman, and Scott H.
Semlinger filed one late Form 4 with respect to the grant of employee stock
options.
5
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of Lufkin Industries,
Inc. (the "Committee") is pleased to present the 1995 report on executive
compensation. This Committee report documents the components of the Company's
executive officer compensation program and describes the basis on which the
compensation program determinations were made by the Committee with respect to
the executive officers of the Company, including the executive officers that
are named in the compensation tables. The Committee meets regularly and is
comprised entirely of nonemployee directors. The duty of the Committee is to
review compensation levels of members of management, as well as administer the
Company's various incentive plans including its annual bonus plan and its stock
option plan. The Committee reviews with the Board of Directors in detail all
aspects of compensation for all of the Company's senior officers.
The Committee has retained the services of a national compensation consulting
firm, to assist the Committee in connection with the performance of its various
duties. Such firm provides advice to the Committee with respect to how
compensation paid by the Company to its senior officers compares to
compensation paid by other companies. Members of the Committee also review
compensation surveys provided the by the consulting firm and others.
EXECUTIVE COMPENSATION PROGRAM PHILOSOPHY
The design of the Company's executive compensation program is based on three
fundamental principles. First, compensation must support the concept of pay for
performance, that is, compensation awards are directly related to the financial
results of the Company, to increasing shareholders value, and to individual
contributions and accomplishments. As a result, much of an executive officer's
compensation is "at risk" with annual bonus compensation, at target levels,
amounting to approximately 35% of total cash compensation.
The second principle of the program is that it should offer compensation
opportunities competitive with those provided by other comparable industrial
companies. It is essential that the Company be able to retain and reward its
executives who are critical to the long-term success of the Company's
diversified and complex businesses.
The final principle is that the compensation program must provide a direct
link between the long-term interests of the executives and the shareholders.
Through the use of stock-based incentives, the Committee focuses the attention
of executives on managing the Company from the perspective of an owner with an
equity stake.
COMPENSATION PLAN COMPONENTS
Base Salary. The Committee established base salary levels for the Company's
executive officers that are generally comparable to similar executive positions
in companies of similar size and complexity as the Company. The Company obtains
comparative salary information from published market surveys and from a
national compensation consulting firm. The comparative data is from industrial
companies of a comparable size in revenue. The Company's salaries are
moderately below the competitive market at the fiftieth percentile in these
comparisons. The Committee approves all salary changes for the Company's
officers and bases individual salary changes on a combination of factors such
as the performance of the executive, salary level relative to the competitive
market, the salary increase budget for the Company and the recommendation of
the Chief Executive Officer. In accordance with its review process, the
Committee approved base salary increases for those officers whose salary level
and individual performance warranted an adjustment. Base salary increases
approved for those officers in 1995 averaged 3.8%.
6
<PAGE>
Incentive Compensation. The Company's performance, or that of a division or
business unit, as the case may be, for purposes of compensation decisions is
measured under the annual bonus plan against goals established at the start of
the year by the Committee. In each instance, the goals consisted in most part
of making budgeted sales and expense levels, as well as subjective individual
performance goals. Such goals were generally met in 1995.
Chief Executive Officer Compensation. Mr. Smith's base salary for 1995 was
$255,000 and his annual bonus was $100,000. These amounts were determined by
the Compensation Committee as a part of a three year employment contract that
began on January 1, 1995 and will expire on December 31, 1998. Factors that
influenced the Committee's recommendation to amend the CEO contract were the
Company's improved operating results and the reorganizational plans that were
successfully implemented. The Committee believes that the contract is
competitive and that the employment contract is critical to attract and retain
the best qualified executives.
Stock Options. During 1995, the Committee also made stock option grants to
the CEO and to each of the senior officers of the Company. Each of those
officers received stock options which were based on his responsibilities and
relative position in the Company. In 1995, 37,700 shares of stock options were
granted to the Company's officers which compares to 33,000 shares granted to
officers in 1994. The Committee's policy is to make stock option grants
annually and for the purpose of tying a portion of the employees compensation
to the long-term performance of the Company's Common Stock. By making such
grants, the Committee feels that these grants help senior officers' interests
coincide with those of the shareholders.
No member of the Committee is a former or current officer or employee of the
Company or any of its subsidiaries. The following members of the Compensation
Committee have delivered the foregoing report.
H. H. King, Chairman
S. W. Henderson, III
L. R. Jalenak, Jr.
B. H. O'Neal
The foregoing report and the performance graph and related description
included in this proxy statement shall not be deemed to be filed with the
Securities and Exchange Commission except to the extent the Company
specifically incorporates such items by reference into a filing under the
Securities Act of 1933 or Securities Exchange Act of 1934.
7
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
common stock to the NASDAQ Market Value Index and to the Media General Oilfield
Services Index (which includes the Company) for the last five years. The graph
assumes that the value of the investment in the Company's common stock and each
index was $100 at December 31, 1990.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1990 1991 1992 1993 1994 1995
---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Lufkin Industries, Inc. .......... 100 105.50 83.71 77.92 84.03 106.04
NASDAQ Market Value Index......... 100 95.50 95.16 111.08 99.30 146.77
Media General Oilfield Services
Index............................ 100 128.38 129.64 155.50 163.26 211.77
</TABLE>
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer and the four most highly compensated executive officers of
the Company as to whom the total annual salary and bonus for the year ended
December 31, 1995, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------- ------------
STOCK
NAME AND PRINCIPAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS(1) (SHARES) COMPENSATION(2)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Douglas V. Smith........ 1995 $255,000 $100,000 15,000 $13,786
President and 1994 225,000 50,000 -- 12,590
Chief Executive Officer 1993 213,121 50,000 50,000 9,590
John F. Glick........... 1995 140,811 47,650 3,500 6,453
Vice President
James W. Barber......... 1995 118,545 54,000 3,500 7,481
Vice President 1994 95,153 45,000 4,000 5,404
Scott H. Semlinger...... 1995 124,008 31,255 3,500 6,381
Vice President 1994 113,136 17,000 4,000 5,926
1993 108,514 22,500 5,000 5,193
E.G. Pittman............ 1995 109,500 40,310 2,800 5,078
Vice President 1994 103,597 -- 4,000 5,725
1993 97,962 20,000 5,000 4,744
</TABLE>
- --------
(1) Annual bonus amounts are earned and accrued during the years indicated, and
paid in the first quarter of the following year.
(2) The All Other Compensation consists of the Company's contribution to the
Thrift Plan.
9
