<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-2612
_____________________________
LUFKIN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of incorporation or organization)
75-0404410
(I.R.S. Employer Identification Number)
601 SOUTH RAGUET, LUFKIN, TEXAS
(Address of principal executive offices)
75904
(Zip Code)
(936) 634-2211
(Registrant's telephone number, including area code)
_________________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period as the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
---
There were 6,262,001 shares of Common Stock, $1.00 par value per share,
outstanding as of September 30, 2000, not including 630,380 shares classified as
Treasury Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
September 30, December 31,
2000 1999
------------- ------------
ASSETS (Unaudited)
Current assets:
Cash $ 3,279 $ 1,065
Invested funds 584 584
Receivables, net 36,514 34,526
Income taxes receivable 364 2,564
Inventories 36,894 32,761
Deferred income tax assets 1,228 1,228
-------- --------
Total current assets 78,863 72,728
-------- --------
Property, plant and equipment, at cost 255,430 254,827
Less accumulated depreciation 169,624 164,868
-------- --------
85,806 89,959
-------- --------
Prepaid pension costs 41,534 37,105
Invested funds 5,281 5,281
Goodwill, net 8,856 8,951
Other assets, net 7,257 7,342
-------- --------
Total assets $227,597 $221,366
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 12,269 $ 5,200
Current portion of long-term notes payable 1,717 2,750
Accounts payable 9,911 9,895
Accrued payroll and benefits 5,085 4,731
Accrued warranty expenses 1,479 1,493
Taxes payable 4,400 3,189
Accrued commissions and other 4,854 4,685
-------- --------
Total current liabilities 39,715 31,943
-------- --------
Deferred income tax liabilities 16,793 16,795
Postretirement benefits liability 11,564 11,116
Long-term notes payable, net of current portion 7,340 9,103
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value per share;
60,000,000 shares authorized;
6,892,381 shares issued 6,892 6,892
Capital in excess of par 18,066 18,066
Retained earnings 142,645 141,491
Treasury stock, 630,380 and 571,880
shares, respectively, at cost (13,061) (12,019)
Accumulated other comprehensive income:
Cumulative translation adjustment (2,357) (2,021)
-------- --------
Total shareholders' equity 152,185 152,409
-------- --------
Total liabilities and shareholders' equity $227,597 $221,366
======== ========
See accompanying notes to consolidated financial statements.
1
<PAGE>
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(In thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 64,641 $ 64,952 $ 187,416 $ 180,493
Cost of sales 53,067 56,402 155,405 157,644
---------- ---------- ---------- ----------
Gross profit 11,574 8,550 32,011 22,849
Selling, general and administrative
expenses 7,598 7,485 24,027 25,550
---------- ---------- ---------- ----------
Operating income (loss) 3,976 1,065 7,984 (2,701)
Interest and other income (expense), net (230) (158) (331) (634)
---------- ---------- ---------- ----------
Earnings (loss) before income tax
provision (benefit) 3,746 907 7,653 (3,335)
Income tax provision (benefit) 1,483 336 3,088 (1,234)
---------- ---------- ---------- ----------
Net earnings (loss) 2,263 571 4,565 (2,101)
Change in foreign currency translation
adjustment (190) 188 (336) (25)
---------- ---------- ---------- ----------
Total comprehensive income (loss) $ 2,073 $ 759 $ 4,229 $ (2,126)
========== ========== ========== ==========
Earnings (loss) per share:
Basic $ 0.36 $ 0.09 $ 0.73 $ (0.33)
========== ========== ========== ==========
Diluted $ 0.36 $ 0.09 $ 0.72 $ (0.33)
========== ========== ========== ==========
Dividends per share $ 0.18 $ 0.18 $ 0.54 $ 0.54
========== ========== ========== ==========
Weighted average number of shares
outstanding:
Basic 6,273,431 6,249,115 6,287,426 6,384,574
Diluted 6,333,347 6,252,490 6,316,173 6,384,574
</TABLE>
See accompanying notes to consolidated financial statements.LUFKIN INDUSTRIES,
2
<PAGE>
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 4,565 $(2,101)
Adjustments to reconcile net earnings (loss)
to cash provided by operating activities:
Depreciation and amortization 8,466 7,888
Deferred income tax benefit - (24)
Pension income (4,428) (4,012)
Postretirement benefits 448 328
(Gain) loss on disposition of
property, plant and equipment (159) 338
Changes in:
Trade receivables (2,001) 2,194
Income taxes receivable 2,198 810
Inventories (4,566) 5,879
Accounts payable 205 (2,806)
Accrued liabilities 1,854 659
------- -------
Net cash provided by operating activities 6,582 9,153
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (4,598) (5,847)
Proceeds from disposition of
property, plant and equipment 431 70
Acquisitions, net of cash received - (101)
Decrease in invested funds - 210
Increase in other assets (474) (58)
------- -------
Net cash used in investing activities (4,641) (5,726)
------- -------
Cash flows from financing activities:
Net proceeds from short-term debt 7,071 3,800
Payments on long-term debt (2,264) (1,649)
Dividends paid (3,410) (3,508)
Proceeds from exercise of stock options 25 8
Purchases of treasury stock (1,067) (3,021)
------- -------
Net cash provided by (used in)
financing activities 355 (4,370)
------- -------
Effect of translation on cash and
cash equivalents (82) (25)
------- -------
Net increase (decrease) in cash and cash equivalents 2,214 (968)
Cash and cash equivalents at beginning
of period 1,065 1,617
------- -------
Cash and cash equivalents at end
of period $ 3,279 $ 649
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Lufkin Industries, Inc. and its consolidated subsidiaries (the
"Company") and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information in the notes to
the consolidated financial statements normally included in financial
statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to these rules and
regulations. In the opinion of management, all adjustments, consisting of
normal recurring accruals unless specified, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows have been included. For further information, refer to the
consolidated financial statements and related footnotes included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
The results of operations for the three and nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for
the full fiscal year. Certain prior period amounts have been reclassified to
conform to the current presentation.
2. Inventories
Consolidated inventories consist of the following:
September 30, December 31,
2000 1999
------------- ------------
(In thousands of dollars)
Finished goods $ 3,392 $ 3,193
Work in process 10,522 8,285
Raw materials 22,980 21,283
------- -------
$36,894 $32,761
======= =======
3. Earnings Per Share
The Company reports earnings per share ("EPS") in accordance with the
provisions of SFAS No. 128, "Earnings per Share". Basic EPS is computed by
dividing net earnings (loss) by the weighted average number of shares
outstanding during the period. Diluted EPS is computed considering the
potentially dilutive effect of outstanding stock options. A reconciliation
of the numerator and denominators of the basic and diluted per share
computations follows ( in thousands, except share and per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net earnings (loss) $ 2,263 $ 571 $ 4,565 $ (2,101)
Denominator:
Weighted average shares (Basic) 6,273,431 6,249,115 6,287,426 6,384,574
Effect of outstanding options 59,916 3,375 28,747 -
---------- ---------- ---------- ----------
Weighted average shares including
assumed conversions (Diluted) 6,333,347 6,252,490 6,316,173 6,384,574
========== ========== ========== ==========
Basic earnings (loss) per share $ 0.36 $ 0.09 $ 0.73 $ (0.33)
========== ========== ========== ==========
Diluted earnings (loss) per share $ 0.36 $ 0.09 $ 0.72 $ (0.33)
========== ========== ========== ==========
</TABLE>
4
<PAGE>
3. Earnings Per Share (Continued)
Options to purchase a total of 525,289 and 710,616 shares of the Company's
common outstanding at September 30, 2000 and 1999, respectively, were
excluded from the calculation of earnings per share because their effect on
diluted earnings per share for the respective periods was antidilutive.
4. Legal Proceedings
A class action complaint was filed in the United States District Court for
the Eastern District of Texas on March 7, 1997 by an employee and a former
employee which alleged race discrimination in employment. Certification
hearings were conducted in Beaumont, Texas in February of 1998 and in Lufkin,
Texas in August of 1998. The District Court in April of 1999 issued a
decision that certified a class for this case which includes all persons of a
certain minority employed by the Company from March 6, 1994 to the present.
The Company appealed this class certification decision by the District Court
to the 5th Circuit United States Courts of Appeals in New Orleans, Louisiana.
This appeal was denied on June 23, 1999.
The Company is defending this action vigorously. Furthermore, the Company
believes that the facts and the law in this action support its position and
is confident that it will prevail if this case is tried on the merits.
The Company is often subject to routine litigation arising in the normal
course of its business. While the outcome of these proceedings cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the Company's financial position or results of
operations.
5. Segment Data
The Company operates with four business segments - Oil Field, Power
Transmission, Foundry and Trailer. In keeping with the Company's strategic
objective of vertical integration, the Company's Foundry segment also
provides its Oil Field and Power Transmission segments with commercial
castings. The Company's corporate group provides administrative services to
the four business segments. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies in
the footnotes to the consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
Corporate expenses and assets are allocated to the operating segments based
primarily upon third party revenues. Following is a summary of key segment
and product group information (in thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
-------------------------------------
Power
Oil Field Transmission Foundry Trailer Corporate Total
---------- ------------ ------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross sales $ 25,660 $ 16,917 $ 9,947 $ 17,574 $ - $ 70,098
Intercompany sales (331) (1,273) (3,853) - - (5,457)
--------- --------- --------- ---------- --------- ---------
Net sales $ 25,329 $ 15,644 $ 6,094 $ 17,574 $ - $ 64,641
========= ========= ========= ========== ========= =========
Operating income
(loss) $ 3,002 $ 832 $ 534 $ (392) $ - $ 3,976
Other income (expense) (39) 16 (3) (7) (197) (230)
--------- --------- --------- ---------- --------- ---------
Income (loss) before
tax provision (benefit) $ 2,963 $ 848 $ 531 $ (399) $ (197) $ 3,746
========= ========= ========= ========== ========= =========
</TABLE>
5
<PAGE>
5. Segment Data (continued)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
-------------------------------------
Power
Oil Field Transmission Foundry Trailer Corporate Total
---------- ------------ ------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross sales $ 13,601 $ 17,041 $ 5,555 $ 29,550 $ - $ 65,747
Intercompany sales (781) (14) - - - (795)
--------- --------- ---------- ---------- ---------- ---------
Net sales $ 12,820 $ 17,027 $ 5,555 $ 29,550 $ - $ 64,952
========= ========= ========== ========== ========== =========
Operating income
(loss) $ (1,054) $ (232) $ (252) $ 2,603 $ - $ 1,065
Other income (expense) (130) (8) (4) (1) (15) (158)
--------- --------- ---------- ---------- ---------- ---------
Income (loss) before
tax provision (benefit) $ (1,184) $ (240) $ (256) $ 2,602 $ (15) $ 907
========= ========= ========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
------------------------------------
Power
Oil Field Transmission Foundry Trailer Corporate Total
---------- ------------ ------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross sales $ 62,602 $ 48,159 $ 25,814 $ 62,880 $ - $ 199,455
Intercompany sale (594) (2,370) (9,075) - - (12,039)
--------- --------- ---------- ---------- ---------- ---------
Net sales $ 62,008 $ 45,789 $ 16,739 $ 62,880 $ - $ 187,416
========= ========= ========== ========== ========== =========
Operating income
(loss) $ 5,858 $ (225) $ 789 $ 1,562 $ - $ 7,984
Other income (expense) (36) (21) (3) 104 (375) (331)
--------- --------- ---------- ---------- ---------- ---------
Income (loss) before
tax provision (benefit) $ 5,822 $ (246) $ 786 $ 1,666 $ (375) $ 7,653
========= ========= ========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
------------------------------------
Power
Oil Field Transmission Foundry Trailer Corporate Total
---------- ------------ ------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Gross sales $ 33,325 $ 53,461 $ 18,415 $ 79,404 $ - $ 184,605
Intercompany sales (2,276) (66) (1,770) - - (4,112)
--------- --------- ---------- ---------- ---------- ---------
Net sales $ 31,049 $ 53,395 $ 16,645 $ 79,404 $ - $ 180,493
========= ========= ========== ========== ========== =========
Operating income
(loss) $ (4,679) $(1,524) $ (1,526) $ 5,028 $ - $ (2,701)
Other income (expense) (579) (51) (4) 14 (14) (634)
--------- --------- ---------- ---------- ---------- ---------
Income (loss) before
tax provision (benefit) $ (5,258) $(1,575) $ (1,530) $ 5,042 $ (14) $ (3,335)
========= ========= ========== ========== ========== =========
</TABLE>
6
<PAGE>
6. Recently Issued Accounting Pronouncements
The Emerging Issues Task Force of the Financial Accounting Standards Board
("FASB") reached a consensus on September 21, 2000, regarding Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs." This guidance requires
companies to report shipping and handling charges to customers as revenues
and related expenses as part of cost of goods sold or selling and general
administration expenses. The Company is required to implement this guidance
beginning in the fourth quarter of 2000 and restate prior periods to conform
to this presentation. The Company does not expect implementation of this
guidance to have a material adverse effect on its financial position or
results of operations.
In June, 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133." FASB Statement No. 138
addresses a number of issues causing implementation difficulties for entities
that apply FASB Statement No. 133. FASB Statement No. 138 amends the
accounting and reporting requirements of FASB Statement No. 133 for certain
derivative instruments and for certain hedging activities. This statement is
effective for the Company's quarter ending March 31, 2001. The Company does
not expect implementation of this statement to have a material adverse effect
on its financial position or results of operations.
7
<PAGE>
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
The Company designs, manufactures, sells and services various types of oil field
pumping units, power transmission products, foundry castings and highway
trailers. The Company's oil field division manufactures numerous sizes and
configurations of oil field pumping units. The Company's power transmission
products (speed increasers and reducers) are designed, manufactured and sold
primarily for use in industrial applications such as petrochemical, refining,
rubber, plastics and steel and also for use in marine propulsion applications.
The Company's foundry castings are primarily customer-designed components
manufactured by the Company for use in customer products. The Company also
produces various types and styles of highway trailers, including vans, platforms
and dumps. In keeping with the Company's strategic objective of vertical
integration, the Company's foundry segment also provides its oil field and power
transmission segments with commercial castings.
Results of Operations
Three Months Ended September 30, 2000, Compared to Three Months Ended September
30, 1999:
Net revenues for the three months ended September 30, 2000, decreased slightly
to $64,641,000 from $64,952,000 for the three months ended September 30, 1999,
as a substantial improvement in oil field sales was offset by continuing
weakness in the trailer market.
The Company reported net earnings of $2,263,000 or $0.36 per share (diluted) for
the three months ended September 30, 2000 compared to earnings of $571,000 or
$0.09 per share (diluted) for the prior year quarter.
The following table summarizes the Company's net revenues and gross profit by
operating segment (in thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended %
September 30, Increase Increase
----------------------
2000 1999 (Decrease) (Decrease)
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net Revenues
------------------
Oil Field $25,329 $ 12,820 $ 12,509 97.6
Power Transmission 15,644 17,027 (1,383) (8.1)
Foundry Castings 6,094 5,555 539 9.7
Trailers 17,574 29,550 (11,976) (40.5)
------- ---------- --------
Total $64,641 $ 64,952 $ (311) (0.5)
======= ========== ========
Gross Profit
--------------
Oil Field $ 5,365 $ 1,261 $ 4,104 325.5
Power Transmission 4,179 3,168 1,011 31.9
Foundry Castings 1,044 288 756 262.5
Trailers 986 3,833 (2,847) (74.3)
------- ---------- --------
Total $11,574 $ 8,550 $ 3,024 35.4
======= ========== ========
</TABLE>
Oil Field revenues increased 97.6% to $25,329,000 from $12,820,000 in the third
quarter of 1999. Pumping unit sales volume and oil field service activity both
increased significantly over the prior year quarter as oil producers continue
programs to enhance production from existing fields in response to the upturn in
oil prices. The strengthening oil field market is also reflected in the
Company's Oil Field
8
<PAGE>
backlog which increased to $18,200,000 at September 30, 2000, from $3,030,000
for the same period last year and from $15,300,000 at June 30, 2000.
Gross profit for the Oil Field Division increased to $5,365,000 for the three
months ended September 30, 2000 compared to $1,261,000 for the prior year
quarter due primarily to the increase in sales volumes and service activity
noted above. Gross margin for the comparable periods improved to 21.2% in 2000
compared to 9.8% in 1999 due primarily to greater leverage achieved off of the
Company's fixed costs.
Revenues for the Company's Power Transmission segment decreased to $15,644,000
for the third quarter of 2000 compared to $17,027,000 for the 1999 third quarter
as continuing uncertain economic conditions in many of the Company's domestic
and international industrial markets have resulted in reduced capital spending.
The Company's Power Transmission backlog at September 30, 2000 declined to
$22,600,000 from $26,756,000 at September 30, 1999 and $27,200,000 at June 30,
2000.
Power Transmission gross profit and gross margin increased to $4,179,000 and
26.7%, respectively, for the three months ended September 30, 2000 compared to
$3,168,000 and 18.6%, respectively, for the comparable prior year quarter. This
improvement is due primarily to increased absorption of fixed overhead costs
resulting from volume increases attributable to gear reducers supplied to the
Company's Oil Field Division.
Foundry castings revenues for the 2000 third quarter totaled $6,094,000 compared
to $5,555,000 for the same period last year due primarily to the increases in
oil field activity discussed above. Foundry backlog at September 30, 2000
declined to $7,400,000 from $8,713,000 at September 30, 1999, but has shown
improvement over the $6,400,000 backlog at June 30, 2000.
Foundry gross profit and gross margin increased to $1,044,000 and 17.1%,
respectively, for the third quarter of 2000 compared to $288,000 and 5.2%,
respectively, for the 1999 third quarter. The improvements in gross profit and
gross margin are due primarily to increased absorption of fixed overhead costs
resulting from volume increases attributable to castings supplied to the
Company's Oil Field Division.
Trailer revenues for the third quarter of 2000 decreased to $17,574,000 from
$29,550,000 for the three months ended September 30, 1999 as higher fuel costs
continue to adversely affect demand for new trailers. Backlog for the trailer
segment totaled $6,800,000 at September 30, 2000, compared to $34,750,000 at
September 30, 1999 and $20,500,000 at June 30, 2000.
Trailer gross profit decreased to $986,000 for the three months ended September
30, 2000 from $3,833,000 for the comparable prior year quarter due to the
revenue decline noted above. Gross margin for the 2000 third quarter reflects
this decrease in revenues, declining to 5.6% from 13.0% for the third quarter of
1999 due primarily to the negative impact of the volume declines on labor and
overhead absorption.
Selling, general and administrative ("SG&A") expenses for the third quarter of
2000 remained essentially at 1999 levels, increasing slightly to $7,598,000 from
$7,485,000 for the same period in 1999.
Interest and other expense for the three months ended September 30, 2000 totaled
$230,000 compared to $158,000 for the prior year quarter due primarily to an
increase in interest expense resulting from higher short-term debt balances.
9
<PAGE>
Nine Months Ended September 30, 2000, Compared to Nine Months Ended September
30, 1999:
Net revenues for the nine months ended September 30, 2000, increased 3.8% or
$6,923,000 to $187,416,000 from $180,493,000 for the nine months ended September
30, 1999. This increase in revenues is due primarily to a substantial increase
in oil field activity, offset in part by continuing weakness in the trailer
market.
The Company reported net earnings of $4,565,000 or $0.72 per share (diluted) for
the nine months ended September 30, 2000 compared to a net loss of $2,101,000 or
$0.33 per share (diluted) for the comparable prior year period. The net loss for
the nine months ended September 30, 1999 includes non-recurring charges totaling
approximately $1,395,000, after taxes, or $0.21 per share, related to the
relocation of facilities, staffing level reductions and legal and warranty
expenses in the first quarter of 1999.
The following table summarizes the Company's net revenues and gross profit by
operating segment (in thousands of dollars):
<TABLE>
<CAPTION>
Nine Months Ended %
September 30, Increase Increase
-----------------
2000 1999 (Decrease) (Decrease)
------ ------- ---------- ----------
<S> <C> <C> <C> <C>
Net Revenues
------------
Oil Field $ 62,008 $ 31,049 $ 30,959 99.7
Power Transmission 45,789 53,395 (7,606) (14.2)
Foundry Castings 16,739 16,645 94 0.6
Trailers 62,880 79,404 (16,524) (20.8)
--------- -------- --------
Total $ 187,416 $180,493 $ 6,923 3.8
========= ======== ========
Gross Profit
------------
Oil Field $ 13,311 $ 3,096 $ 10,215 329.9
Power Transmission 10,675 10,467 208 2.0
Foundry Castings 2,373 271 2,102 775.6
Trailers 5,652 9,015 (3,363) (37.3)
--------- -------- --------
Total $ 32,011 $ 22,849 $ 9,162 40.1
========= ======== ========
</TABLE>
Oil Field revenues for the nine months ended September 30, 2000 increased 99.7%
to $62,008,000 from $31,049,000 in the nine months ended September 30, 1999.
Increases in production activity among oil producers have resulted in
significant increases in both new pumping unit sales and oil field service
activity. Oil Field backlog reflects this increase in activity, increasing to
$18,200,000 at September 30, 2000 from $3,030,000 for the same period last year
and from $4,000,000 at December 31, 1999.
Gross profit for the Oil Field Division increased to $13,311,000 for the nine
months ended September 30, 2000 compared to $3,096,000 for the comparable prior
year period due primarily to the increase in volumes noted above. Gross margin
for the comparable periods improved to 21.5% in 2000 compared to 10.0% in 1999
due primarily to increased leverage on the Company's fixed costs.
10
<PAGE>
Revenues for the Company's Power Transmission segment decreased to $45,789,000
for the nine months ended September 30, 2000 compared to $53,395,000 for the
comparable 1999 period as uncertain economic conditions experienced in 1999 in
many of the Company's domestic and international industrial markets have
continued to exist in 2000. The Company's Power Transmission backlog at
September 30, 2000 declined to $22,600,000 from $26,756,000 at September 30,
1999, but has shown improvement over the December 31, 1999 backlog of
$21,400,000.
Power Transmission gross profit and gross margin, however, increased to
$10,675,000 and 23.3%, respectively, for the nine months ended September 30,
2000 from $10,467,000 and 19.6%, respectively, for the comparable period in
1999. This improvement was due primarily to non-recurring warranty expenses
totaling approximately $440,000 recorded in the first quarter of 1999, along
with the effect of inter-segment volume increases on the absorption of fixed
overhead costs.
Foundry castings revenues for the nine months ended September 30, 2000 totaled
$16,739,000 compared to $16,645,000 for the same period last year as increases
in oil field activity offset continuing pricing pressure from foreign
competition in the counterweight markets. Foundry backlog at September 30, 2000
declined to $7,400,000 from $8,713,000 at September 30, 1999, but has improved
from $6,000,000 at December 31, 1999.
Foundry gross profit and gross margin increased to $2,373,000 and 14.2%,
respectively, for the first nine months of 2000 from $271,000 and 1.6%,
respectively, for the comparable 1999 period due primarily to the inter-segment
volume increases noted above in the discussion of third quarter results.
Trailer revenues for the nine months ended September 30, 2000 decreased to
$62,880,000 from $79,404,000 for the nine months ended September 30, 1999 due to
the continuing adverse effect of higher fuel prices on the demand for new
trailers. Backlog for the trailer segment totaled $6,800,000 at September 30,
2000, compared to $34,750,000 at September 30, 1999 and $42,200,000 at December
31, 1999.
Trailer gross profit and gross margin decreased to $5,652,000 and 9.0%,
respectively, for the nine months ended September 30, 2000 from $9,015,000 and
11.4%, respectively, for the comparable prior year period due to the volume
declines noted above.
Selling, general and administrative ("SG&A") expenses for the nine months ended
September 30, 2000 decreased to $24,027,000 from $25,550,000 for the same period
in 1999. SG&A expenses for the 1999 period include $1,434,000 of non-recurring
severance, relocation and legal expenses occurring in the first quarter of 1999.
Excluding the effect of these non-recurring expenses, SG&A expenses decreased to
12.8% of consolidated net revenues compared to 13.4% for the prior year period,
due primarily to the Company's ability to leverage its SG&A expenses over a
larger revenue base.
Interest and other expense for the nine months ended September 30, 2000 totaled
$331,000 compared to $634,000 for the prior year period. This improvement was
due primarily to a non-recurring charge of $228,000 recorded in the first
quarter of 1999 related to the consolidation and relocation of the Company's
primary Oil Field manufacturing facilities to the Company's Lufkin, Texas Buck
Creek facility, offset in part by an increase in interest expense.
11
<PAGE>
Liquidity and Capital Resources
The Company has historically relied on cash flows from operations and third-
party borrowings to finance its operations, including acquisitions, dividend
payments and stock purchases.
The Company's cash balance totaled $3.3 million at September 30, 2000, compared
to $1.1 million at December 31, 1999. For the nine months ended September 30,
2000, net cash flows provided by operating activities were $6.6 million, cash
used in investing activities totaled $4.6 million and cash provided by financing
activities amounted to $0.4 million. Significant components of cash provided by
operating activities include net earnings adjusted for non-cash expenses, offset
in part by a $2.3 million net increase in working capital items. Cash used in
investing activities included capital expenditures totaling approximately $4.6
million for, among other things, ongoing additions and modifications to certain
of the Company's production facilities along with purchases and replacements of
production equipment and operating vehicles. Significant components of cash
provided by financing activities include (i) a net increase of approximately
$7.1 million in short-term debt; (ii) payments on long-term debt totaling $2.3
million; and (iii) dividend payments totaling approximately $3.4 million or
$0.54 per share.
Total debt balances at September 30, 2000, including current maturities of long-
term debt, include $4.0 million outstanding under the Company's discretionary
short-term demand facility, a total of $8.0 million outstanding under the Bank
Facility discussed below and $9.3 million of notes payable to various banks and
individuals. Total debt increased to $21.3 million at September 30, 2000,
compared to $17.1 million at December 31, 1999. This increase was attributable
to net short-term demand borrowings totaling approximately $7.1 million, offset
in part by principal payments on long-term notes payable totaling $2.3 million
during the first nine months of 2000.
The Company completed an agreement in the first quarter of 2000 with a domestic
bank (the "Bank Facility") for a revolving line of credit that provides for up
to $20.0 million of borrowings outstanding at any one time expiring September 2,
2002, along with an additional $5.0 million demand facility. Borrowings under
the Bank Facility bear interest, at the Company's option, at either (i) the
prime rate or (ii) the London Interbank Offered Rate plus an applicable margin,
depending on certain ratios as defined in the agreement. The weighted average
interest rate on amounts outstanding under the Bank Facility was 7.6% at
September 30, 2000. As of September 30, 2000, $17.0 million of the revolving
line of credit was available for borrowings under the terms of the Bank
Facility.
The Company's short-term discretionary demand facility, as amended, provides for
up to $5.0 million of borrowings outstanding at any one time, at the bank's
discretion, and is unsecured. Borrowings under this facility bear interest at
the bank's borrowing rate plus an applicable margin. Interest rates on amounts
outstanding under this facility were 8.2% and 5.9% at September 30, 2000 and
December 31, 1999, respectively.
The Company has a stock purchase plan under which the Company is authorized to
spend up to $17.1 million for purchases of its common stock. Pursuant to this
plan, the Company has purchased a total of 776,556 shares of its common stock at
an aggregate purchase price of $16.0 million, including 60,000 shares at an
aggregate cost of approximately $1.1 million during the first nine months of
2000. Purchased shares are added to treasury stock and are available for general
corporate purposes including the funding of the Company's stock option plans. As
of September 30, 2000, the Company held 630,380 shares of treasury stock at an
aggregate cost of approximately $13.1 million. Authorizations of approximately
$1.1 million remained at September 30, 2000.
The Company believes that its cash flows from operations and its available
borrowing capacity under its credit agreements will be sufficient to fund its
operations, including planned capital expenditures, dividend payments and stock
purchases, through September 30, 2001.
12
<PAGE>
Recently Issued Accounting Pronouncements
The Emerging Issues Task Force of the Financial Accounting Standards Board
("FASB") reached a consensus on September 21, 2000, regarding Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs." This guidance requires
companies to report shipping and handling charges to customers as revenues and
related expenses as part of cost of goods sold or selling and general
administration expenses. The Company is required to implement this guidance
beginning in the fourth quarter of 2000 and restate prior periods to conform to
this presentation. The Company does not expect implementation of this guidance
to have a material adverse effect on its financial position or results of
operations.
In June, 2000, the FASB issued Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133." FASB Statement No. 138
addresses a number of issues causing implementation difficulties for entities
that apply FASB Statement No. 133. FASB Statement No. 138 amends the accounting
and reporting requirements of FASB Statement No. 133 for certain derivative
instruments and for certain hedging activities. This statement is effective for
the Company's quarter ending March 31, 2001. The Company does not expect
implementation of this statement to have a material adverse effect on its
financial position or results of operations.
Forward-Looking Statements and Assumptions
This Quarterly Report contains forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate", "believe", "estimate", "expect" and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to certain events and are subject to
certain assumptions, risks and uncertainties, many of which are outside the
control of the Company. These risks and uncertainties include, but are not
limited to, (i) oil prices, (ii) capital spending levels of oil producers, (iii)
availability and prices for raw materials and (iv) general industry and economic
conditions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements and information.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not utilize financial instruments for trading purposes and does
not hold any derivative financial instruments that could expose the Company to
significant market risk. The Company's financial instruments include cash,
accounts receivable, accounts payable and debt obligations. The book value of
accounts receivable, short-term debt and accounts payable are considered to be
representative of their fair market value because of the short maturity of these
instruments. The Company believes the carrying values of its long-term debt
obligations approximate fair values because the interest rates on these
obligations are comparable to what the Company believes it could currently
obtain for debt with similar terms and maturities. The Company's accounts
receivable are not concentrated in one customer or industry and are not viewed
as an unusual credit risk.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A class action complaint was filed in the United States District Court for the
Eastern District of Texas on March 7, 1997 by an employee and a former employee
that alleged race discrimination in employment. Certification hearings were
conducted in Beaumont, Texas in February of 1998 and in Lufkin, Texas in August
of 1998. The District Court in April of 1999 issued a decision that certified a
class for this case which includes all persons of a certain minority employed by
the Company from March 6, 1994 to the present. The Company appealed this class
certification decision by the District Court to the 5th Circuit United States
Courts of Appeals in New Orleans, Louisiana. This appeal was denied on June 23,
1999.
The Company is defending this action vigorously. Furthermore, the Company
believes that the facts and the law in this action support its position and is
confident that it will prevail if this case is tried on the merits.
The Company is often subject to routine litigation arising in the normal course
of its business. While the outcome of these proceedings cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the Company's financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Date: November 10, 2000
LUFKIN INDUSTRIES, INC.
By /s/ R. D. Leslie
------------------------
Vice President/Treasurer/Chief Financial Officer
Principal Financial and Accounting Officer
15
