Lufkin s Acquisition Of. G:\corpfin\Current Projects\Project Beta\Publications\Project Beta IR Slides 01-1.ppt

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1 Lufkin s Acquisition Of G:\corpfin\Current Projects\Project Beta\Publications\Project Beta IR Slides 01-1.ppt

2 Forward-Looking Statements This document contains forward-looking statements and information regarding the Company and Quinn s Oilfield Supply ( Quinn ) ), including statements that describe the Company s beliefs, estimates and expectations with respect to both the Company and Quinn. These forward-looking statements are based on management s beliefs as well as assumptions made by and information currently available to management. 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. Undue reliance should not be placed on forward-looking statements. Information about risks and uncertainties that could cause actual results to differ materially from forwardlooking statements is contained in Part I, Item 1A. Risk Factors of the Company s Annual Report on Form 10-K for the year ended December 31, All forward-looking statements attributable to the Company or persons acting on the Company s behalf are expressly qualified in their entirety by these risk factors. Should one or more of these risks or uncertainties ti materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. In addition to these risks and uncertainties, there can be no guarantee that the proposed transaction with Quinn will be consummated. Even if the proposed transaction is consummated, there can be no guarantee that the Company will be able to effect the integration of Quinn s operations smoothly or efficiently or that the anticipated benefits of the transactions will be achieved. The forward-looking statements included in this document are only made as of the date hereof, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances Lufkin Industries, Inc. 2

3 Transaction Summary Consideration Structure Transaction value of $302.7million subject to certain closing adjustments All cash transaction to acquire substantially all of the assets of Quinn s Oilfield Supply Ltd. ( Quinn ), including certain affiliates Funding to be provided from new credit facilities Closing Conditions Regulatory approvals, including HSR clearance Satisfactory financing arrangement Final Lufkin Board of Directors approval Timing Transaction expected to be completed in Q Lufkin Industries, Inc. 3

4 Quinn Overview Quinn is a leading manufacturer of: Downhole reciprocating pumps for rod lift applications Progressive cavity pumps p ( PCP ) and related equipment Strong brand name Founded in 1965, privately held and based in Canada More than 450 employees and 50 locations across Canada and the U.S. Over 150,000 square feet of manufacturing space 2011E revenue: ~$140 million 2011 Lufkin Industries, Inc. 4

5 Strategic Rationale Highly complementary to Lufkin s artificial lift offering Pairs Lufkin s strong position in surface rod lift systems with a leading provider of downhole rod pumps Integrated packaging becoming more important, particularly in international locations Combination i enables better optimization i i of the rod lift system Further expands Lufkin s artificial lift product offering with PCPs Fit with Automation strategy by integrating downhole devices to monitor and control production 2011 Lufkin Industries, Inc. 5

6 Strategic Rationale (Continued) Expands manufacturing and field service capabilities Quinn has quality manufacturing facilities with significant growth capacity Extensive field service and repair footprint in major oil-producing regions throughout North America Able to customize and adapt solutions to fit field requirements International manufacturing opportunities for Quinn products 2011 Lufkin Industries, Inc. 6

7 Strategic Rationale (Continued) Significant growth opportunities Unconventional oil outlook is encouraging Leverage Lufkin s international footprint Sell more bundled products and services to shared customers Expanded d geographic selling network to cross-sell products and services to new customers Increased aftermarket and service opportunities for both companies 2011 Lufkin Industries, Inc. 7

8 Overview Of Downhole Rod Pumps Surface One of three key components Unit within a rod lift system Highly technical Sucker Rod Downhole Rod Pump Harsh environment and constant motion leads to wear Significant service, repair and replacement opportunities Quinn has significant aftermarket revenue 2011 Lufkin Industries, Inc. 8

9 Quinn 2011E Geographic Revenue Split ~45% U.S. ~55% Canada Lufkin Industries, Inc.

10 Quinn Canadian Locations Expands Canadian footprint 30 Canadian operations All but 5 are new to Lufkin 10

11 Quinn U.S. Locations U.S. forecasted to account for ~45% of revenue and has been higher growth in recent years. Quinn s approach to the market and distribution channels are similar to Lufkin. Own shops Service and support product in the field 11

12 Financial Summary EBITDA Multiple 9.0x to 9.5x 2011E EBITDA 7.5x to 8.0x 2012P EBITDA Accretion Expected to be accretive to earnings and cash flow in 2011E and 2012P Detail to follow during Q4 Financing Debt package in process with lenders; expected to fully fund Quinn and Pentagon transactions Pro forma total debt to 2011E EBITDA of ~2.0x Pro forma total debt to book capitalization of ~40% at close Targeting year-end 2012P range of 30% to 35% 2011 Lufkin Industries, Inc. 12

13 Questions? 2011 Lufkin Industries, Inc. 13