UNITED STATES
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 March 31, 2004
| ¨ | 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 | 75-0404410 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 601 SOUTH RAGUET, LUFKIN, TEXAS | 75904 | |
| (Address of principal executive offices) | (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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
There were 6,753,468 shares of Common Stock, $1.00 par value per share, outstanding as of May 6, 2004, not including 249,639 shares classified as Treasury Stock.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In thousands of dollars)
| March 31, |
December 31, |
|||||||
| 2004 |
2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 12,875 | $ | 19,408 | ||||
| Receivables, net |
46,864 | 42,908 | ||||||
| Inventories |
45,996 | 39,460 | ||||||
| Deferred income tax assets |
1,472 | 1,472 | ||||||
| Other current assets |
1,838 | 1,051 | ||||||
| Total current assets |
109,045 | 104,299 | ||||||
| Property, plant and equipment, at cost |
278,668 | 278,352 | ||||||
| Less accumulated depreciation |
191,793 | 189,352 | ||||||
| 86,875 | 89,000 | |||||||
| Prepaid pension costs |
57,313 | 56,563 | ||||||
| Goodwill, net |
11,491 | 11,539 | ||||||
| Other assets, net |
2,313 | 2,255 | ||||||
| Total assets |
$ | 267,037 | $ | 263,656 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Short-term notes payable |
$ | 1,220 | $ | 493 | ||||
| Current portion of long-term notes payable |
132 | 196 | ||||||
| Accounts payable |
15,573 | 14,037 | ||||||
| Accrued liabilities: |
||||||||
| Payroll and benefits |
6,281 | 5,965 | ||||||
| Warranty expenses |
1,724 | 1,698 | ||||||
| Taxes payable |
2,245 | 4,361 | ||||||
| Other |
6,545 | 6,718 | ||||||
| Total current liabilities |
33,720 | 33,468 | ||||||
| Deferred income tax liabilities |
30,930 | 31,349 | ||||||
| Postretirement benefits |
10,643 | 10,643 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock, $1.00 par value per share; 60,000,000 shares authorized; 6,990,767 and 6,892,381 shares issued, respectively |
6,991 | 6,892 | ||||||
| Capital in excess of par |
20,778 | 18,480 | ||||||
| Retained earnings |
168,389 | 167,862 | ||||||
| Treasury stock, 256,639 and 302,239 shares, respectively, at cost |
(5,302 | ) | (6,244 | ) | ||||
| Accumulated other comprehensive income: |
||||||||
| Cumulative translation adjustment |
888 | 1,206 | ||||||
| Total shareholders’ equity |
191,744 | 188,196 | ||||||
| Total liabilities and shareholders’ equity |
$ | 267,037 | $ | 263,656 | ||||
See accompanying notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME (UNAUDITED)
(In thousands of dollars, except per share data)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Sales |
$ | 68,629 | $ | 55,061 | ||||
| Cost of sales |
56,599 | 45,729 | ||||||
| Gross profit |
12,030 | 9,332 | ||||||
| Selling, general and administrative expenses |
9,334 | 8,243 | ||||||
| Operating income |
2,696 | 1,089 | ||||||
| Investment income |
107 | 69 | ||||||
| Interest expense |
(36 | ) | (11 | ) | ||||
| Other income (expense), net |
29 | 102 | ||||||
| Earnings before income tax provision |
2,796 | 1,249 | ||||||
| Income tax provision |
1,062 | 475 | ||||||
| Net earnings |
1,734 | 774 | ||||||
| Change in foreign currency translation adjustment |
(318 | ) | 729 | |||||
| Total comprehensive income |
$ | 1,416 | $ | 1,503 | ||||
| Net earnings per share: |
||||||||
| Basic |
$ | 0.26 | $ | 0.12 | ||||
| Diluted |
$ | 0.25 | $ | 0.12 | ||||
| Dividends per share |
$ | 0.18 | $ | 0.18 | ||||
| Weighted average number of shares outstanding: |
||||||||
| Basic |
6,665,266 | 6,527,777 | ||||||
| Diluted |
6,837,463 | 6,612,789 | ||||||
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands of dollars)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net earnings |
$ | 1,734 | $ | 774 | ||||
| Adjustments to reconcile net earnings to cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,896 | 2,951 | ||||||
| Deferred income tax provision |
372 | 193 | ||||||
| Pension income |
(750 | ) | (625 | ) | ||||
| Gain on disposition of property, plant and equipment |
(6 | ) | (73 | ) | ||||
| Changes in: |
||||||||
| Receivables, net |
(4,069 | ) | 926 | |||||
| Income taxes receivable |
— | 10 | ||||||
| Inventories |
(6,651 | ) | (4,250 | ) | ||||
| Other current assets |
(695 | ) | (884 | ) | ||||
| Accounts payable |
1,634 | 793 | ||||||
| Accrued liabilities |
(2,024 | ) | (1,780 | ) | ||||
| Net cash used in operating activities |
(7,558 | ) | (1,965 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant and equipment |
(1,079 | ) | (2,435 | ) | ||||
| Proceeds from disposition of property, plant and equipment |
26 | 79 | ||||||
| Increase in other assets |
(91 | ) | (255 | ) | ||||
| Acquisition of other companies |
(5 | ) | — | |||||
| Net cash used in investing activities |
(1,149 | ) | (2,611 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from short-term notes payable |
743 | — | ||||||
| Payments on long-term notes payable |
(60 | ) | (88 | ) | ||||
| Dividends paid |
(1,207 | ) | (1,175 | ) | ||||
| Proceeds from exercise of stock options |
2,712 | — | ||||||
| Purchases of treasury stock |
— | (31 | ) | |||||
| Net cash provided (used) by financing activities |
2,188 | (1,294 | ) | |||||
| Effect of translation on cash and cash equivalents |
(14 | ) | 168 | |||||
| Net decrease in cash and cash equivalents |
(6,533 | ) | (5,702 | ) | ||||
| Cash and cash equivalents at beginning of period |
19,408 | 27,608 | ||||||
| Cash and cash equivalents at end of period |
$ | 12,875 | $ | 21,906 | ||||
See accompanying notes to consolidated financial statements
4
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 accounting principles generally accepted in the United States of America 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, including a summary of major accounting policies, 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, 2003. The results of operations for the three months ended March 31, 2004, are not necessarily indicative of the results that may be expected for the full fiscal year.
2. Acquisitions
During the third quarter of 2003, the Company completed two strategic acquisitions that expanded its Oil Field segment. The Company purchased the remaining shares of Lufkin Argentina S.A., its 1992 Argentina joint venture with Baker Hughes, Inc, effective July 1, 2003. Lufkin Argentina manufactures and services oil field pumping units and automation equipment for use in Argentina and other South American countries. The Company also purchased the operating assets of Basin Technical Services in Midland, Texas on July 30, 2003. This acquisition enhanced Oil Field’s product and service offerings in the oil field automation marketplace. The aggregate purchase price for these acquisitions was $3.9 million in cash.
During the fourth quarter of 2003, the Company completed the acquisition on December 9, 2003, of the operating assets and commercial operations of D&R Oil Field Services located in Drayton Valley, Alberta, Canada. This acquisition within the Oilfield segment strengthened the Company’s presence in Canada’s oil field service business. The aggregate purchase price for this acquisition was $1.9 million in cash.
The Company has substantially completed the purchase allocation process for these three acquisitions, but additional adjustments may be made in 2004 as final valuations and analysis of fair values are completed.
3. Receivables
The following is a summary of the Company’s receivable balances (in thousands of dollars):
| March 31, 2004 |
December 31, 2003 |
|||||||
| Accounts receivable |
$ | 47,176 | $ | 43,154 | ||||
| Notes receivable |
42 | 45 | ||||||
| Total receivables |
47,218 | 43,199 | ||||||
| Allowance for doubtful accounts |
(354 | ) | (291 | ) | ||||
| Net receivables |
$ | 46,864 | $ | 42,908 | ||||
Bad debt expense related to receivables was $0.1 million and $0.1 million in the three months ended March 31, 2004 and 2003, respectively.
5
4. Property, Plant & Equipment
The following is a summary of the Company’s P. P. & E. balances (in thousands of dollars):
| March 31, 2004 |
December 31, 2003 |
|||||||
| Land |
$ | 3,050 | $ | 3,060 | ||||
| Land improvements |
6,863 | 6,864 | ||||||
| Buildings |
65,124 | 65,197 | ||||||
| Machinery and equipment |
186,746 | 186,361 | ||||||
| Furniture and fixtures |
3,964 | 3,978 | ||||||
| Computer equipment and software |
12,921 | 12,892 | ||||||
| Total property, plant and equipment |
278,668 | 278,352 | ||||||
| Less accumulated depreciation |
(191,793 | ) | (189,352 | ) | ||||
| Total property, plant and equipment, net |
$ | 86,875 | $ | 89,000 | ||||
Depreciation expense related to property, plant and equipment was $2.9 million and $2.9 million in the three months ended March 31, 2004 and 2003, respectively.
5. Inventories
Inventories used in determining cost of sales were as follows (in thousands of dollars):
| March 31, 2004 |
December 31, 2003 | |||||
| Gross inventories @ FIFO: |
||||||
| Finished goods |
$ | 5,521 | $ | 3,475 | ||
| Work in process |
9,688 | 7,411 | ||||
| Raw materials & component parts |
50,194 | 47,967 | ||||
| Total gross inventories @ FIFO |
65,403 | 58,853 | ||||
| Less reserves: |
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