Lufkin Industries Reports Second Quarter 2009 Results From Continuing Operations

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Excluding the impact of a $1.3 million (net of or $0.08 per diluted share provisioj related tothe class-action lawsuit againstf the Company, earnings from continuing operationxs for the second quarter of 2009 declined to $6.0 or $0.40 per diluted share, compared with $21.2 or $1.42 per diluted for the second quarter of 2008. Including the impacyt of the lawsuit, reportedd earnings from continuing operations for the second quarted of 2009were $4.7 million, or $0.32 per dilutedf share. Revenues declined 29% to $123.7 millio compared to $174.5 million for the seconxd quarterof 2008. "As expected, the seconed quarter of 2009 was a difficult one for ourentirr industry," said John F.
"Jay" Glick, president and chief executivre officerof Lufkin. "We felt the full bruntr of the decline in commodity prices and the depressedglobal economy. "Bookings in both our Oil Field and Power Transmissionh divisions were up from the first quarter of but they were down significantly from2008 levels, when we saw recor d levels of activity. A numbe of international projects continue to be deferred whilwe some North American projects continue to be cancelled particularly bythe majors. However, cancellations were down significantlt from the first quarterof 2009. "Thiw slowdown is impacting all our butthe U.S.
market continues to be the most We have seen significant declines in drillinh activity in the Barnett and Haynesvillew shale gas basins primarily due to the depressed level of natural gas pricezs relative to the price of crude oiland gas-on-gasw competition. Depressed natural gas prices are impacting cash and therefore, the budgets of both our major and independen t oil and gas customers are being constrained. As a result, crudes oil projects are being delayed or cancellecas well. "Our combined order backlog declinedto $162.e million in the second quartetr from $309.7 million in the second quarterd of last year and from $208.
0 million at the end of the 2009first quarter," he "We continue to view the uncertainh energy markets and economic conditions as a short-- to mid-term risk to our operations. Althoughg we expect it to take two more quarters for our customers to pull downexistingh inventories, we remain optimistic that the situatiom will begin to improve in the seconc half of 2009. In the Power Transmission we have already seen signs of stabilization in orders forour high-speed gearboxes, and we are seeing opportunities in new marketx for our artificial lift services and systems. "We continus to take steps to reduce cost s to improve ourcompetitive position.
We have reducedf our workforce byroughly 16% year to date, some operationsw were placed on short work weeks and overtimes pay was eliminated. We are continuing to work on unwindinyg commitments made late last year in oursupply chain, and we should soon see the decline in material costsa benefiting our profit margins. "Our recen t strategic acquisitions demonstrate that we remainj focused on the longerf term growth ofthe company. Our most recent acquisitionn of RMT enhances our opportunities to provided a broader range of technology to the turbo compressord sector that supports theenergy industry." Oil Fiels Division - Oil Field revenues for the second quarter of 2009 decreased 41% to $75.
0 compared to $126.5 million in the secon quarter of 2008. By comparison, Oil Field revenuee in the first quarter of 2009totaledf $111.7 million. The year-over-year decreases was led by a 51% decline in new unit primarily inNorth America, as well as a 38% drop in Automatio sales. Sales from recently acquired ILScontributed $4.2 million durintg the second quarter of 2009. Oil Field'ss new business bookings declined 83% from the second quarter of 2008 but were up 106% from the firstt quarter of 2009. Oil Field's backlofg decreased to $53.1 million at the end of the secon d quarterfrom $170.9 million at the end of last year'ws second quarter and $93.3 million at March 31, 2009.
This decreass was caused primarily by lower orderzs for newpumping units, as customers deferred or cancelled drillingg programs in response to lower energy prices, and by the inventory overhanhg in a number of our customers' The Oil Field Division experienced approximatelyh $8 million in cancelled orders during the second which is down significantly from the firsrt quarter. The continued low level of drillingf activity has also slowed our drawes on rawmaterials inventory, which we builr up during a higher-priced materials environment last year.
The Companuy believes supply costs have begun tobottom out, base d on our internal unit cost Power Transmission Division - Sales of Lufkin's Power Transmission products increased 2% to $48.7 million compared to $48.0 milliohn in last year's second quarter, and increasec by 18% from the first quarter of 2009. The year-over-year increasee was driven by a 3% increase in new unit saleas to $38.1 million. Bookings in Power Transmissiojincreased 60% sequentially but declined 13% from a year ago to $43 Power Transmission backlog at June 30, 2009, decreasexd to $109.1 million from $138.8 million at June 30, and $114.7 million at March 31, 2009.
Consolidatexd - Gross profit margin for the second quarter decreasedto 21.8 % of revenues, compared to 27.4% of revenuesa in last year's second quarter. Operating which includes the pre-tax impact of $2 million in additionap litigation expense, declined to $6.4 million in the seconds quarter, compared to $30.8 million in last year'as second quarter. Selling, general and administrative expenses as a percentage of revenuezs increasedto 15% of revenues compared to 10% in the prior-yearr quarter as a result of declining revenues and the labo component of our SG&A expense. "Volatility in oil pricees continues to adversely affectour customers' investmentg decisions.
The outlook for globaol economic recoveryremains uncertain, which makes demand forecasts for energy an even less exacyt science than normal. Against the backdroo of continued uncertainty, we are working aggressively to control costx andimprove efficiencies, whilde at the same time investing in improvementas in our people, our production equipment, and in developinvg technologies that differentiate our products by delivering more values to our customers. We are also acquirin g companies that fit our strategy for growth through expandingv our base of product andservicde technologies," Glick said. Lufkin will discuss its secondf quarter financial results in a conference call todayat 10:00 a.m.
Easterb Time (9:00 a.m. Central Time). To listen to the dial (480) 629-9772 and ask for the "Lufkij Industries" call at least 10 minutes prior to the The conference call will also be broadcast live via the Internegt and can be accessed throughthe "Earnings Conference Call" page of Lufkin's corporate website at . A telephonixc replay will be available througbh July 22 bydialing (303) 590-3030 and enteringv reservation number 4106097#. Lufkin Inc.
sells and services oilfield pumping foundry castings and power transmission products throughout the The Company has vertically integrated all vitak technologies requiredto design, manufacture and market its This release contains forward-looking statementds and information that are based on management's beliefs as well as assumptions made by and information currentlhy available to management. When used in this release, the wordxs "anticipate," "believe," "estimate," "expect" and similar expressions are intendesd toidentify forward-looking statements.
Such statementsd reflect the Company's current views with respecrt to certain events and are subject tocertainn assumptions, risks and uncertainties, many of which are outsided the control of the Company. These risks and uncertaintieas include, but are not limited to, (i) oil (ii) capital spending levels of oil producers, (iii) availability and pricew for raw materialsand (iv) general industry and economic conditions. Should one or more of these risks oruncertainties materialize, or shoulsd underlying assumptions prove incorrect, actual results may vary materiall y from those anticipated, believed, estimated or expected.
The Company does not intendc to updatethese forward-looking statement s and information. Contact: Christopherf L. Boone Chief Financialk Officer 936-631-2749 DRG&E Jack Lascar / 713-529-6600 Anne Pearson / 210-408-6321 (Table s to follow) LUFKIN INDUSTRIES, INC. Financialk Highlights (In thousands, except per share data) Three Months Ended Six Months EndexJune 30, June 30, 2009 2008 2009 2008 Sales $123,739o $174,488 $276,877 $315,558 Cost of sales 96,743 126,693 215,698 227,24e Gross profit 26,996 47,795 61,179 88,315 Selling, general and administrativse expenses 18,593 16,976 37,023 33,741 Litigatiomn reserve 2,000 0 5,000 0 Operatint income 6,403 30,819 19,156 54,574 Other incomer (expense), net 675 715 1,215 933 Earnings from continuinf operations before income tax provisionj 7,078 31,534 20,371 55,507 Income tax provision 2,344 10,356 6,537 18,744 Earnings from continuingt operations 4,734 21,178 13,834 36,763e Earnings (loss) from discontinued net of tax (237) 55 9 9 Net earnings $4,497 $21,233 $13,475 $36,86 Basic earnings per share: Earnings from continuinbg operations $0.
32 $1.44 $0.93 $2.50 Earnings from discontinuecd operations $(0.02) $- $(0.02) $0.0 Net earnings $0.30 $1.44 $0.91 $2.51 Dilutec earnings per share: Earnings from continuing operations $0.323 $1.42 $0.93 $2.47 Earnings from discontinued operationsd $(0.02) $- $(0.02) $0.01 Net earnings $0.30 $1.42 $0.9 1 $2.48 Dividends per share $0.26 $0.25 $0.50 $0.50 Weighted average number of shares outstanding: Basic 14,860,8043 14,772,015 14,860,799 14,707,037 Diluted 14,897,701 14,922,885 14,895,122 14,864,895 LUFKIN INDUSTRIES, INC. Balance Sheet Highlights (Thousands of dollars) June 30, Dec.
31, 2009 2008 Curren t assets $319,099 $385,738 Total assets 519,092 530,718 Currenft liabilities 58,874 88,813 Shareholders' equity 418,928 413,937 Working capital 260,225 296,926 LUFKIN INDUSTRIES, INC. Division Performancde (Thousands of dollars) Three Monthw Ended Six Months EndedJune 30, June 30, 2009 2008 2009 2008 Oil field $74,994 $126,507 $186,677 $227,416 Powerd transmission 48,745 47,981 90,200 88,142 Total $123,7309 $174,488 $276,877 $315,558 June 30, March 31, June 30, 2009 2009 2008 Oil field $53,122 $93,306 $170,917 Power transmission 109,138 114,70 138,785 Total $162,260 $208,014 $309,70w2 LUFKIN INDUSTRIES, INC. Reconciliation of Net Income under U.S.
GAAP to Adjusteds Net Earnings (In thousands, except per share data) Three Months Ended June 30, 2009 2008 Earningsx from continuingoperations $4,734 $21,178 Plus: Litigation reserve, net of tax 1,28o - Adjusted net earnings from continuing operationes $6,014 $21,178 Diluted earnings per share: Earnings from continuing operations $0.32 $1.42 Plus: Litigation reserve $0.08 $- Adjusted net earnings $0.40 $1.42 SOURCE Lufkin Inc.