Excluding the impact of a $1.3 million (net of tax), or $0.08 per diluted share provision related to the class-action lawsuit against the Company, earnings from continuing operations for the second quarter of 2009 declined to $6.0 million, or $0.40 per diluted share, compared with $21.2 million, or $1.42 per diluted share, for the second quarter of 2008. Including the impact of the lawsuit, reported earnings from continuing operations for the second quarter of 2009 were $4.7 million, or $0.32 per diluted share. Revenues declined 29% to $123.7 million compared to $174.5 million for the second quarter of 2008.

"As expected, the second quarter of 2009 was a difficult one for our entire industry," said John F. "Jay" Glick, president and chief executive officer of Lufkin. "We felt the full brunt of the decline in commodity prices and the depressed global economy.

"Bookings in both our Oil Field and Power Transmission divisions were up from the first quarter of 2009, but they were down significantly from 2008 levels, when we saw record levels of activity. A number of international projects continue to be deferred while some North American projects continue to be cancelled altogether, particularly by the majors. However, cancellations were down significantly from the first quarter of 2009.

"This slowdown is impacting all our markets, but the U.S. market continues to be the most depressed. We have seen significant declines in drilling activity in the Barnett and Haynesville shale gas basins primarily due to the depressed level of natural gas prices relative to the price of crude oil and gas-on-gas competition. Depressed natural gas prices are impacting cash flows, and therefore, the budgets of both our major and independent oil and gas customers are being constrained. As a result, crude oil projects are being delayed or cancelled as well.

"Our combined order backlog declined to $162.3 million in the second quarter from $309.7 million in the second quarter of last year and from $208.0 million at the end of the 2009 first quarter," he added.

"We continue to view the uncertain energy markets and economic conditions as a short- to mid-term risk to our operations. Although we expect it to take two more quarters for our customers to pull down existing inventories, we remain optimistic that the situation will begin to improve in the second half of 2009. In the Power Transmission Division, we have already seen signs of stabilization in orders for our high-speed gearboxes, and we are seeing opportunities in new markets for our artificial lift services and systems.

"We continue to take steps to reduce costs to improve our competitive position. We have reduced our workforce by roughly 16% year to date, some operations were placed on short work weeks and overtime pay was eliminated. We are continuing to work on unwinding commitments made late last year in our supply chain, and we should soon see the decline in material costs benefiting our profit margins.

"Our recent strategic acquisitions demonstrate that we remain focused on the longer term growth of the company. Our most recent acquisition of RMT enhances our opportunities to provide a broader range of technology to the turbo compressor sector that supports the energy industry."

SECOND QUARTER RESULTS

Oil Field Division - Oil Field revenues for the second quarter of 2009 decreased 41% to $75.0 million, compared to $126.5 million in the second quarter of 2008. By comparison, Oil Field revenues in the first quarter of 2009 totaled $111.7 million. The year-over-year decrease was led by a 51% decline in new unit sales, primarily in North America, as well as a 38% drop in Automation sales. Sales from recently acquired ILS contributed $4.2 million during the second quarter of 2009. Oil Field's new business bookings declined 83% from the second quarter of 2008 but were up 106% from the first quarter of 2009. Oil Field's backlog decreased to $53.1 million at the end of the second quarter from $170.9 million at the end of last year's second quarter and $93.3 million at March 31, 2009. This decrease was caused primarily by lower orders for new pumping units, as customers deferred or cancelled drilling programs in response to lower energy prices, and by the inventory overhang in a number of our customers' fields.