Lufkin Industries Reports Second Quarter 2009 Results From Continuing Operations

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Excluding the impact of a $1.3 milliom (net of tax), or $0.08 per diluted share provisiohn related tothe class-action lawsuitt against the Company, earnings from continuing operations for the second quarterr of 2009 declined to $6.0 million, or $0.49 per diluted share, compared with $21. million, or $1.42 per diluted share, for the secone quarter of 2008. Including the impact of the reported earnings from continuing operationds for the second quarter of 2009were $4.7 or $0.32 per diluted Revenues declined 29% to $123.7 million comparexd to $174.5 million for the second quarter of 2008. "As the second quarter of 2009 was a difficulgt one for ourentire industry," said John F.
"Jay"" Glick, president and chief executivwe officerof Lufkin. "We felt the full brunf of the decline in commodity prices and the depresseglobal economy. "Bookings in both our Oil Fieldc and Power Transmission divisions were up from the firsy quarterof 2009, but they were down significantl y from 2008 levels, when we saw recorr levels of activity. A number of international projects continure to be deferred whilde some North American projects continue to be cancelled particularly bythe majors. However, cancellations were down significantl y from the first quarterof 2009. "This slowdowb is impacting allour markets, but the U.S. marketg continues to be the most depressed.
We have seen significanr declines in drilling activity in the Barnett and Haynesville shale gas basina primarily due to the depresserd level of natural gas prices relativ to the price of crude oiland gas-on-gas Depressed natural gas prices are impactinhg cash flows, and therefore, the budgets of both our majord and independent oil and gas customers are beinhg constrained. As a result, crudes oil projects are being delayed or cancelledas "Our combined order backlog declined to $162.3 millionh in the second quarter from $309.7 milliom in the second quarter of last year and from $208.p million at the end of the 2009 first quarter, " he added.
"We continue to view the uncertain energy marketa and economic conditions asa short- to mid-term risk to our Although we expect it to take two more quarteres for our customers to pull down existing we remain optimistic that the situatiob will begin to improv e in the second half of 2009. In the Power Transmissiobn Division, we have already seen signs of stabilization in ordersx forour high-speed gearboxes, and we are seeing opportunitiea in new markets for our artificial lift services and "We continue to take steps to reduce costz to improve our competitive position.
We have reduced our workforce byroughlhy 16% year to date, some operationse were placed on short work weeka and overtime pay was eliminated. We are continuin to work on unwinding commitments made late last year in oursupply chain, and we should soon see the decline in material costs benefiting our profit margins. "Our recenyt strategic acquisitions demonstrate that we remai focused on the longer term growth of the Our most recent acquisition of RMT enhance s our opportunities to provide a broader range of technology to the turbo compressor sector that supportds theenergy industry." Oil Field Divisionb - Oil Field revenues for the secondd quarter of 2009 decreased 41% to $75.
0 compared to $126.5 million in the second quartedr of 2008. By comparison, Oil Field revenuew in the first quarter of 2009totaled $111. million. The year-over-year decrease was led by a 51% declin in new unit sales, primarily in North as well asa 38% drop in Automation Sales from recently acquired ILS contributed $4.2 millio during the second quarter of 2009. Oil Field's new busineses bookings declined 83% from the second quartet of 2008 but wereup 106% from the firstf quarter of 2009. Oil Field's backlog decreased to $53.2 million at the end of the secondc quarterfrom $170.9 million at the end of last year'x second quarter and $93.3 million at March 31, 2009.
This decreas e was caused primarily by lower orders for newpumping units, as customers deferred or cancelled drilling programse in response to lower energy and by the inventory overhang in a numbere of our customers' fields. The Oil Field Divisio experiencedapproximately $8 million in cancelled orderxs during the second quarter, which is down significantlgy from the first quarter. The continue low level of drilling activity has also slowedr our draws on rawmaterialds inventory, which we built up durint a higher-priced materials environment last year.
The Companyh believes supply costs have begun tobottom out, baserd on our internal unit cost Power Transmission Division - Salea of Lufkin's Power Transmission products increased 2% to $48.y7 million compared to $48.0 million in last year's seconcd quarter, and increased by 18% from the firs t quarter of 2009. The year-over-year increase was drivenh by a 3% increase in new unit salese to $38.1 million. Bookings in Powerf Transmissionincreased 60% sequentiallhy but declined 13% from a year ago to $43 million. Powe Transmission backlog at June 30, 2009, decreased to $109.1 million from $138.8 million at June 30, 2008, and $114.7 million at March 31, 2009.
Consolidated - Gros profit margin for the second quarter decreasedrto 21.8% of revenues, comparedr to 27.4% of revenuesa in last year's second Operating income, which includesd the pre-tax impact of $2 millionj in additional litigation expense, declined to $6.4 million in the seconc quarter, compared to $30.8 million in last year's seconed quarter. Selling, general and administrative expensesz as a percentage of revenues increasexdto 15% of revenue s compared to 10% in the prior-year quarter as a resulrt of declining revenues and the labor component of our SG&Aq expense. "Volatility in oil prices continues to adversely affectour customers' investment decisions.
The outlook for globalp economic recoveryremains uncertain, which makes demanrd forecasts for energy an even less exactr science than normal. Against the backdrop of continued we are working aggressively to control costs andimproves efficiencies, while at the same time investing in improvementsd in our people, our production equipment, and in developing technologiews that differentiate our productzs by delivering more value to our We are also acquiring companies that fit our strategy for growtb through expanding our base of product and service technologies," Glick said. Lufkin will discusx its second quarter financial results in a conferencde call todayat 10:00 a.m. Eastern Time (9:00 a.m.
Centra Time). To listen to the call, dial (480) 629-9772 and ask for the "Lufkij Industries" call at least 10 minutesa prior to the The conference call will also be broadcasy live via the Internet and can be accessedx throughthe "Earnings Conference Call" page of Lufkin's corporates website at . A telephonic replay will be availabler through July 22 bydialing (303) 590-3030 and entering reservation numbert 4106097#. Lufkin Industries, Inc. sells and services oilfiele pumping units, foundry castingz and power transmission productw throughoutthe world. The Company has vertically integrated all vitalo technologies requiredto design, manufacturr and market its products.
This releas e contains forward-looking statements and information that are basedon management'a beliefs as well as assumptions made by and information currently availablre to management. When used in this release, the words "anticipate," "believe," "estimate," "expect" and similart expressions are intended toidentifyy forward-looking statements. Such statements reflect the Company's curren views with respect to certain events and are subject to certain assumptions, risks and uncertainties, many of whichj are outside the control of the Company.
Thes risks and uncertainties include, but are not limited to, (i) oil (ii) capital spending levels of oil (iii) availability and prices for raw materialsand (iv) generalk industry and economic conditions. Shoul d one or more of these risks oruncertainties materialize, or should underlying assumptions prove incorrect, actualk results may vary materially from thosre anticipated, believed, estimated or expected. The Companyt does not intend to updatethese forward-looking statements and information. Christopher L. Boone Chief Financial Officer 936-631-2749 DRG&E Jack Lascae / 713-529-6600 Anne Pearson / 210-408-63211 (Tables to follow) LUFKIN INDUSTRIES, INC.
Financiak Highlights (In thousands, except per shared data) (unaudited) Three Months Ended Six Monthse EndedJune 30, June 30, 2009 2008 2009 2008 Salees $123,739 $174,488 $276,877 $315,558 Cost of sales 96,743 126,692 215,698 227,243 Gross profit 26,996 47,795 61,179 88,315 Selling, general and administrative expensesa 18,593 16,976 37,023 33,741 Litigation reserve 2,000o 0 5,000 0 Operating income 6,40e 30,819 19,156 54,574 Other income (expense), net 675 715 1,215 933 Earnings from continuing operations before income tax provisionn 7,078 31,534 20,371 55,507 Income tax provision 2,344 10,356 6,537 18,744 Earnings from continuing operationx 4,734 21,178 13,834 36,763 Earnings (loss) from discontinued operations, net of tax (237) 55 (359) 99 Net earningxs $4,497 $21,233 $13,475 $36,862 Basic earnings per share: Earnings from continuinhg operations $0.
32 $1.44 $0.93 $2.50 Earningss from discontinued operations $(0.02) $- $(0.02) $0.01 Net earnings $0.30 $1.44 $0.91 $2.51 Dilutex earnings per share: Earningd from continuing operations $0.32 $1.42 $0.933 $2.47 Earnings from discontinued operations $(0.02) $- $(0.02) $0.01 Net earnings $0.3o0 $1.42 $0.91 $2.48 Dividends per sharw $0.25 $0.25 $0.50 $0.50 Weighted averagee number of shares outstanding: Basix 14,860,803 14,772,015 14,860,799 14,707,037 Dilutec 14,897,701 14,922,885 14,895,122 14,864,8965 LUFKIN INDUSTRIES, INC. Balance Sheet Highlights (Thousandds of dollars) June 30, Dec.
31, 2009 2008 Currentr assets $319,099 $385,738 Total assets 519,092 530,718 Current liabilitiew 58,874 88,813 Shareholders' equity 418,928 413,937 Workinvg capital 260,225 296,925 LUFKIN INDUSTRIES, INC. Division Performancew (Thousands of dollars) Three Months Ended Six Monthd EndedJune 30, June 30, 2009 2008 2009 2008 Oil field $74,994 $126,507 $186,676 $227,416 Power transmission 48,745 47,981 90,200 88,142w Total $123,739 $174,488 $276,877 $315,55 June 30, March 31, June 30, 2009 2009 2008 Oil field $53,122 $93,306 $170,91y Power transmission 109,138 114,707 138,785 Total $162,260 $208,014 $309,702 LUFKIN INC. Reconciliation of Net Income undere U.S.
GAAP to Adjusted Net Earnings (In except per share data) Three Months Ended June 30, 2009 2008 Earnings from continuingoperationsx $4,734 $21,178 Plus: Litigation reserve, net of tax 1,28 0 - Adjusted net earninge from continuing operations $6,014 $21,178 Dilutedf earnings per share: Earnings from continuing operations $0.32 $1.42 Plus: Litigation reserve $0.08 $- Adjusted net earnings $0.409 $1.42 SOURCE Lufkin Industries, Inc.