<PAGE>

                       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 June 30, 2001


( )  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
         (State or other jurisdiction of incorporation or organization)

                                   75-0404410
                    (I.R.S. Employer Identification Number)

                        601 SOUTH RAGUET, LUFKIN, TEXAS
                    (Address of principal executive offices)

                                     75904
                                   (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 [_]

There were 6,248,121 shares of Common Stock, $1.00 par value per share,
outstanding as of June 30, 2001, not including 644,260 shares classified as
Treasury Stock.
<PAGE>

                        PART I  -  FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                    LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                             (Thousands of dollars)
<TABLE>
<CAPTION>


                                                                   June 30,    December 31,
                                                                     2001         2000
                                                                   --------     --------
                                                                  (Unaudited)
<S>                                                              <C>           <C>
ASSETS
Current assets:
  Cash                                                             $  2,497     $  2,003
  Invested funds                                                        759          759
  Receivables, net                                                   42,582       40,413
  Income taxes receivable                                                 -        1,239
  Inventories                                                        41,166       35,146
  Deferred income tax assets                                          6,082        6,082
                                                                   --------     --------
     Total current assets                                            93,086       85,642
                                                                   --------     --------
Property, plant and equipment, at cost                              251,247      255,050
Less accumulated depreciation                                       169,038      170,046
                                                                   --------     --------
                                                                     82,209       85,004
                                                                   --------     --------
Prepaid pension costs                                                45,992       43,492
Invested funds                                                        5,106        5,106
Goodwill, net                                                         8,709        8,841
Other assets, net                                                     7,922        7,360
                                                                   --------     --------
                                                                   $243,024     $235,445
                                                                   ========     ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Short-term debt                                                  $  4,680     $  7,790
  Current portion of long-term debt                                   1,623        1,809
  Accounts payable                                                   12,993       13,216
  Payroll and benefits                                                6,175        5,701
  Accrued warranty expenses                                           2,365        2,194
  Taxes payable                                                       7,881        4,130
  Commissions and other                                               6,774        5,601
                                                                   --------     --------
     Total current liabilities                                       42,491       40,441
                                                                   --------     --------
Deferred income tax liabilities                                      24,338       24,338
Postretirement benefits liability                                    10,972       10,972
Long-term notes payable, net of current portion                       6,048        7,043
Commitments and contingencies

Shareholders' equity:
   Preferred stock, no par value,
    2,000,000 shares authorized; none issued or outstanding               -            -
  Common stock, $1.00 par value per share;
    60,000,000 shares authorized;
    6,892,381 shares issued                                           6,892        6,892
  Capital in excess of par                                           17,994       18,069
  Retained earnings                                                 150,100      143,912
  Treasury stock, 644,260 and 679,360
     shares, respectively, at cost                                  (13,257)     (13,977)
  Accumulated other comprehensive income:
    Cumulative translation adjustment                                (2,554)      (2,245)
                                                                   --------     --------
     Total shareholders' equity                                     159,175      152,651
                                                                   --------     --------
                                                                   $243,024     $235,445
                                                                   ========     ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       1
<PAGE>

                   LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF EARNINGS
                            AND COMPREHENSIVE INCOME
           (In thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>

                                                             Three Months Ended June 30,  Six Months Ended June 30,
                                                                  2001          2000          2001          2000
                                                              ----------    ----------    ----------    ----------
                                                                     (Unaudited)                  (Unaudited)
<S>                                                          <C>            <C>           <C>           <C>
   Net sales                                                  $   73,185    $   67,847    $  136,644    $  124,618
   Cost of sales                                                  54,910        55,713       103,643       104,181
                                                              ----------    ----------    ----------    ----------
     Gross profit                                                 18,275        12,134        33,001        20,437
   Selling, general and administrative expenses                    9,238         8,325        18,280        16,429
                                                              ----------    ----------    ----------    ----------
     Operating income                                              9,037         3,809        14,721         4,008
   Interest and other expense, net                                  (227)         (234)         (974)         (101)
                                                              ----------    ----------    ----------    ----------
     Earnings before income tax provision                          8,810         3,575        13,747         3,907
   Income tax provision                                            3,480         1,479         5,361         1,605
                                                              ----------    ----------    ----------    ----------
     Net earnings                                                  5,330         2,096         8,386         2,302
   Change in foreign currency translation adjustment                 114           409          (309)         (146)
                                                              ----------    ----------    ----------    ----------
     Total comprehensive income                               $    5,444    $    2,505    $    8,077    $    2,156
                                                              ==========    ==========    ==========    ==========
   Earnings per share:
     Basic                                                    $     0.85    $     0.33    $     1.35    $     0.37
                                                              ==========    ==========    ==========    ==========
     Diluted                                                  $     0.83    $     0.33    $     1.32    $     0.37
                                                              ==========    ==========    ==========    ==========
   Dividends per share                                        $     0.18    $     0.18    $     0.36    $     0.36
                                                              ==========    ==========    ==========    ==========
   Weighted average number of shares outstanding:
     Basic                                                     6,248,121     6,290,413     6,231,076     6,294,500
     Diluted                                                   6,431,741     6,306,386     6,356,893     6,307,663

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

                   LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (In thousands of dollars)

                                                    Six Months Ended June 30,
                                                         2001          2000
                                                      -------       -------
                                                          (Unaudited)
Cash flows from operating activities:
 Net earnings                                         $ 8,386       $ 2,302
 Adjustments to reconcile net earnings
  to cash provided by operating activities:
     Depreciation and amortization                      5,673         5,574
     Pension income                                    (2,500)       (2,952)
     Postretirement benefits                                -           299
     (Gain) loss on disposition of
      property, plant and equipment                       633          (155)
     Increase in other assets                            (635)         (470)
     Changes in:
       Trade receivables                               (1,656)       (3,211)
       Income taxes receivable                          1,239          (156)
       Inventories                                     (6,359)       (6,238)
       Accounts payable                                  (212)        4,631
       Accrued liabilities                              5,142         2,163
                                                      -------       -------
    Net cash provided by operating activities           9,711         1,787
                                                      -------       -------
Cash flows from investing activities:
 Additions to property, plant and equipment            (3,693)       (3,587)
 Proceeds from disposition of
   property, plant and equipment                           90           420
                                                      -------       -------
    Net cash used in investing activities              (3,603)       (3,167)
                                                      -------       -------
Cash flows from financing activities:
 Net proceeds from (payments of) short-term debt       (3,110)        7,800
 Payments on long-term debt                              (856)       (1,558)
 Dividends paid                                        (2,198)       (2,271)
 Proceeds from exercise of stock options                  621             -
 Purchases of treasury stock                                -          (637)
                                                      -------       -------
    Net cash provided by (used in)
      financing activities                             (5,543)        3,334
                                                      -------       -------
Effect of translation on cash and
  cash equivalents                                        (71)          (74)
                                                      -------       -------
 Net increase in cash and cash equivalents                494         1,880

Cash and cash equivalents at beginning
 of period                                              2,003         1,065
                                                      -------       -------
Cash and cash equivalents at end
 of period                                            $ 2,497       $ 2,945
                                                      =======       =======

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                    LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
                   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 generally accepted accounting
   principles 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, 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, 2000. The results of
   operations for the three and six months ended June 30, 2001, are not
   necessarily indicative of the results that may be expected for the full
   fiscal year. Certain prior period amounts have been reclassified to conform
   to the current presentation.

2. INVENTORIES

   Consolidated inventories consist of the following:

                               June 30,   December 31,
                                 2001        2000
                              ---------   ------------
                              (In thousands of dollars)

Finished goods                  $ 7,168        $ 6,191
Work in process                   4,502          2,624
Raw materials                    29,496         26,331
                                -------        -------
                                $41,166        $35,146
                                =======        =======

3. EARNINGS PER SHARE

   The Company reports earnings per share ("EPS") in accordance with the
   provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
   "Earnings per Share". Basic EPS is computed by dividing net earnings (loss)
   by the weighted average number of shares outstanding during the period.
   Diluted EPS is computed considering the potentially dilutive effect of
   outstanding stock options. A reconciliation of the numerator and denominators
   of the basic and diluted per share computations follows (in thousands, except
   share and per share data):
<TABLE>
<CAPTION>

                                               Three Months Ended                  Six Months Ended
                                                     June 30,                           June 30,
                                            2001                2000               2001         2000
                                         ----------           ----------         ----------   ----------
<S>                                      <C>          <C>                  <C>                <C>
 Numerator:
  Net earnings                           $    5,330           $    2,096         $    8,386   $    2,302
 Denominator:
  Weighted average shares (Basic)         6,248,121            6,290,413          6,231,076    6,294,500
  Effect of outstanding options             183,620               15,973            125,817       13,163
                                         ----------           ----------         ----------   ----------
  Weighted average shares including
    assumed conversions  (Diluted)        6,431,741            6,306,386          6,356,893    6,307,663
                                         ==========           ==========         ==========   ==========
  Basic earnings per share               $     0.85           $     0.33         $     1.35   $     0.37
                                         ==========           ==========         ==========   ==========
  Diluted earnings per share             $     0.83           $     0.33         $     1.32   $     0.37
                                         ==========           ==========         ==========   ==========
 </TABLE>

   Options to purchase a total of 129,036 shares and 748,293 shares of the
   Company's common outstanding at June 30, 2001 and 2000, respectively, were
   excluded from the calculation of earnings per share because their effect on
   diluted earnings per share for the respective periods was antidilutive.

                                       4
<PAGE>

4.  LEGAL PROCEEDINGS

    A class action complaint was filed in the United States District Court for
    the Eastern District of Texas on March 7, 1997 by an employee and a former
    employee, which alleged race discrimination in employment. Certification
    hearings were conducted in Beaumont, Texas in February of 1998 and in
    Lufkin, Texas in August of 1998. The District Court in April of 1999 issued
    a decision that certified a class for this case, which includes all persons
    of a certain minority employed by the Company from March 6, 1994 to the
    present. The Company appealed this class certification decision by the
    District Court to the 5th Circuit United States Courts of Appeals in New
    Orleans, Louisiana. This appeal was denied on June 23, 1999.

    The Company is defending this action vigorously. Furthermore, the Company
    believes that the facts and the law in this action support its position and
    is confident that it will prevail if this case is tried on the merits.

    The Company is often subject to routine litigation arising in the normal
    course of its business. While the outcome of these proceedings cannot be
    predicted with certainty, management does not expect these matters to have a
    material adverse effect on the Company's financial position or results of
    operations.

5.  SEGMENT DATA

    The Company operates with four business segments - oil field, power
    transmission, foundry and trailer. In keeping with the Company's strategic
    objective of vertical integration, the Company's foundry segment also
    provides its oil field and power transmission segments with commercial
    castings. The four operating segments are supported by a corporate group.
    The accounting policies of the segments are the same as those described in
    the summary of significant accounting policies in the footnotes to the
    consolidated financial statements included in the Company's annual report on
    Form 10-K for the year ended December 31, 2000. Corporate expenses are
    allocated to the operating segments based primarily upon third party
    revenues. Following is a summary of key segment and product group
    information (in thousands of dollars):
<TABLE>
<CAPTION>
                                                Three Months Ended June 30, 2001
                                                --------------------------------
                                             Power
                              Oil Field  Transmission   Foundry      Trailer   Corporate        Total
                              ---------  ------------   -------      -------   ---------        -----
<S>                          <C>         <C>            <C>         <C>        <C>           <C>
Gross sales                    $43,604      $17,915      $11,657      $ 9,984      $   -         $83,160
Intercompany sales                (279)      (3,426)      (5,953)        (317)         -          (9,975)
                               -------      -------      -------      -------      -----         -------
Net sales                      $43,325      $14,489      $ 5,704      $ 9,667      $   -         $73,185
                               =======      =======      =======      =======      =====         =======
Operating income (loss)        $ 8,948      $ 1,285      $   272      $(1,468)     $   -         $ 9,037
Other income (expense)             (85)         (62)           2           11        (93)           (227)
                               -------      -------      -------      -------      -----         -------
Income (loss) before
  tax provision                $ 8,863      $ 1,223      $   274      $(1,457)     $ (93)        $ 8,810
                               =======      =======      =======      =======      =====         =======
<CAPTION>
                                                Three Months Ended June 30, 2000
                                                --------------------------------
                                             Power
                              Oil Field  Transmission   Foundry      Trailer   Corporate        Total
                              ---------  ------------   -------      -------   ---------        -----
<S>                          <C>         <C>            <C>         <C>        <C>           <C>
Gross sales                    $21,970      $17,407      $ 9,172      $24,039      $   -         $72,588
Intercompany sales                (197)      (1,022)      (3,522)           -          -          (4,741)
                               -------      -------      -------      -------      -----         -------
Net sales                      $21,773      $16,385      $ 5,650      $24,039      $   -         $67,847
                               =======      =======      =======      =======      =====         =======
Operating income (loss)        $ 2,357      $  (181)     $   390      $ 1,243      $   -         $ 3,809
Other income (expense)             (15)        (103)          (1)          (1)      (114)           (234)
                               -------      -------      -------      -------      -----         -------
Income (loss) before
  tax provision                $ 2,342      $  (284)     $   389      $ 1,242      $(114)        $ 3,575
                               =======      =======      =======      =======      =====         =======
</TABLE>

                                       5
<PAGE>

5. Segment Data (continued)

<TABLE>
<CAPTION>
                                                 Six Months Ended June 30, 2001
                                                --------------------------------
                                             Power
                              Oil Field  Transmission   Foundry      Trailer   Corporate        Total
                              ---------  ------------   -------      -------   ---------        -----
<S>                          <C>         <C>            <C>         <C>        <C>           <C>
Gross sales                   $80,174      $36,033      $ 23,138      $16,991      $   -         $156,336
Intercompany sales               (859)      (7,319)      (11,102)        (412)         -          (19,692)
                              -------      -------      --------      -------      -----         --------
Net sales                     $79,315      $28,714      $ 12,036      $16,579      $   -         $136,644
                              =======      =======      ========      =======      =====         ========
Operating income (loss)       $15,861      $ 1,815      $    393      $(3,348)     $   -         $ 14,721
Other income (expense)           (459)        (129)            5         (289)      (102)            (974)
                              -------      -------      --------      -------      -----         --------
Income (loss) before
  tax provision               $15,402      $ 1,686      $    398      $(3,637)     $(102)        $ 13,747
                              =======      =======      ========      =======      =====         ========
<CAPTION>
                                                 Six Months Ended June 30, 2000
                                                --------------------------------
                                             Power
                              Oil Field  Transmission   Foundry      Trailer   Corporate        Total
                              ---------  ------------   -------      -------   ---------        -----
<S>                          <C>         <C>            <C>         <C>        <C>           <C>
Gross sales                   $37,589      $31,572      $16,242       $45,798      $   -         $131,201
Intercompany sales               (264)      (1,097)      (5,222)            -          -           (6,583)
                              -------      -------      -------       -------      -----         --------
Net sales                     $37,325      $30,475      $11,020       $45,798      $   -         $124,618
                              =======      =======      =======       =======      =====         ========
Operating income (loss)       $ 2,856      $(1,057)     $   255       $ 1,954      $   -         $  4,008
Other income (expense)              3          (37)           -           111       (178)            (101)
                              -------      -------      -------       -------      -----         --------
Income (loss) before
  tax provision               $ 2,859      $(1,094)     $   255       $ 2,065      $(178)        $  3,907
                              =======      =======      =======       =======      =====         ========
</TABLE>
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

   The Company adopted the accounting and disclosure provisions of SFAS No. 133,
   "Accounting for Derivative Instruments and Hedging Activities", effective
   January 1, 2001.

   The Company's risk management strategy with regard to foreign-currency and
   interest-rate risks is to structure business transactions to minimize any
   foreign-currency or interest-rate exposure associated with the operations of
   its businesses. Sales contracts, including foreign sales contracts, are
   generally denominated in U.S. Dollars at a specific price per unit. The
   Company currently does not view its interest-rate risks to be significant to
   its operations and, therefore, has not entered into any hedging transactions
   in these areas as part of its overall risk management strategy.

   The Company has designated a note payable outstanding to a domestic bank
   denominated in Euros as a hedge against the Company's net investment in its
   French operations. As such, all foreign currency gains and losses associated
   with this note are used to offset changes in this investment as a result of
   currency exchange fluctuations and are included in other comprehensive income
   as part of the cumulative translation adjustment. Foreign currency gains of
   approximately $58,000 and $219,000, respectively, related to this note were
   included in other comprehensive income for the three and six months ended
   June 30, 2001.

                                       6
<PAGE>

6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

   In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
   "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
   Assets." SFAS No. 141 requires that the purchase method of accounting be used
   for all business combinations entered into after June 30, 2001. Use of the
   pooling-of-interests method will be prohibited. SFAS No. 142 changes the
   accounting method for goodwill from an amortization to an impairment-only
   approach. SFAS No. 142 will be effective for the Company's fiscal quarter
   ended March 31, 2002 and early adoption of this statement is not permitted.
   The Company, therefore, will continue to amortize goodwill recognized prior
   to June 30, 2001 pursuant to existing pronouncements until December 31, 2001.
   Any transition charges recognized upon implementation of SFAS No. 142 will be
   accounted for as a cumulative effect of a change in accounting principle. The
   Company is currently evaluating the possible effects of the adoption of these
   standards on its financial position, results of operations and cash flows.

                                       7
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The Company designs, manufactures, sells and services various types of oil field
pumping units, power transmission products, foundry castings and highway
trailers. The Company's oil field division manufactures numerous sizes and
configurations of oil field pumping units. The Company's power transmission
products (speed increasers and reducers) are designed, manufactured and sold
primarily for use in industrial applications such as petrochemical, refining,
rubber, plastics and steel and also for use in marine propulsion applications.
The Company's foundry castings are primarily customer-designed components
manufactured by the Company for use in customer products. The Company also
produces various types and styles of highway trailers, including vans, platforms
and dumps. In keeping with the Company's strategic objective of vertical
integration, the Company's foundry segment also provides its oil field and power
transmission segments with commercial castings.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001, COMPARED TO THREE MONTHS ENDED JUNE 30, 2000:

Net revenues for the three months ended June 30, 2001, increased 7.9% or
$5,338,000 to $73,185,000 from $67,847,000 for the three months ended June 30,
2000. Revenues for the prior year quarter have been restated to reflect the
reclassification of freight charges billed to customers as revenue and the
related expenses as cost of sales in accordance with the guidance specified by
EITF Issue 00-10. The Company previously accounted for freight billed to
customers as a reduction of cost of sales. Gross profit, operating income and
net earnings for this period were unaffected by this reclassification.

The Company reported net earnings of $5,330,000 or $0.83 per share (diluted) for
the three months ended June 30, 2001 compared to earnings of $2,096,000 or $0.33
per share (diluted) for the prior year quarter.

The following table summarizes the Company's net revenues and gross profit by
operating segment (in thousands of dollars):

                         Three Months Ended
                              June 30,                        %
                         -------------------   Increase    Increase
                          2001        2000    (Decrease)  (Decrease)
                         -------     -------   --------   ----------
Net Revenues
------------
Oil Field                $43,325     $21,773   $ 21,552      99.0
Power Transmission        14,489      16,385     (1,896)    (11.6)
Foundry Castings           5,704       5,650         54       1.0
Trailers                   9,667      24,039    (14,372)    (59.8)
                         -------     -------   --------
  Total                  $73,185     $67,847   $  5,338       7.9
                         =======     =======   ========
Gross Profit
------------
Oil Field                $12,502     $ 4,994   $  7,508     150.3
Power Transmission         4,988       3,569      1,419      39.8
Foundry Castings             798         947       (149)    (15.7)
Trailers                     (13)      2,624     (2,637)   (100.5)
                         -------     -------   --------
 Total                   $18,275     $12,134   $  6,141      50.6
                         =======     =======   ========

Oil Field revenues increased 99.0% to $43,325,000 from $21,773,000 in the second
quarter of 2000 as the increase in oil field activity that began in 2000
continued into the second quarter of this year. The continued strong demand for
the Company's pumping units is reflected in the Company's Oil Field backlog
which increased to $27,600,000 at June 30, 2001, from $15,300,000 at June 30,
2000 and from $23,900,000 at March 31, 2001.

                                       8
<PAGE>

Gross profit for the Oil Field Division increased to $12,502,000 for the three
months ended June 30, 2001 compared to $4,994,000 for the prior year quarter due
primarily to the increase in sales volumes noted above. Gross margin for the
comparable periods improved to 28.9% in 2001 compared to 22.9% in 2000 due
primarily to improvements in product mix and greater leverage achieved off of
the Company's fixed costs.

Revenues for the Company's Power Transmission segment decreased to $14,489,000
for the second quarter of 2001 compared to $16,385,000 for the 2000 second
quarter due primarily to continuing uncertain economic conditions in many of the
Company's domestic and international industrial markets. The Company's Power
Transmission backlog at June 30, 2001, however, improved to $28,900,000 from
$27,200,000 at June 30, 2000 and $26,700,000 at March 31, 2001.

Power Transmission gross profit and gross margin increased to $4,988,000 and
34.4%, respectively, for the three months ended June 30, 2001 compared to
$3,569,000 and 21.8%, respectively, for the comparable prior year quarter. This
improvement is due primarily to increased absorption of fixed overhead costs
resulting from volume increases attributable to gear reducers supplied to the
Company's Oil Field Division.

Foundry castings revenues for the 2001 second quarter totaled $5,704,000
compared to $5,650,000 for the same period last year as uncertain economic
conditions, combined with pricing pressure in domestic and foreign markets, have
continued to limit demand for the Foundry's commercial castings. Foundry backlog
at June 30, 2001 declined to $5,900,000 from $6,400,000 at both June 30, 2000
and March 31, 2001.

Foundry gross profit and gross margin decreased to $798,000 and 14.0%,
respectively, for the second quarter of 2001 compared to $947,000 and 16.8%,
respectively, for the 2000 second quarter. The decline in gross margin is due
primarily to reduced margins achieved on the Foundry's commercial castings in
2001, offset in part by increased absorption of fixed overhead costs
attributable to castings supplied to the Company's Oil Field Division.

Trailer revenues for the second quarter of 2001 decreased to $9,667,000 from
$24,039,000 for the three months ended June 30, 2000 as higher fuel and
operating costs experienced by the U.S. trucking industry continue to adversely
affect demand in the Company's trailer markets. Backlog for the trailer segment
totaled $6,900,000 at June 30, 2001, compared to $20,500,000 at June 30, 2000
and $11,600,000 at March 31, 2001.

Trailer gross profit decreased to a loss of  $13,000 for the three months ended
June 30, 2001 from gross profit of $2,624,000 for the comparable prior year
quarter due to the volume decline noted above.

Selling, general and administrative ("SG&A") expenses for the second quarter of
2001 increased to $9,238,000 from $8,325,000 for the same period in 2000.  This
increase is due primarily to increases in selling expense in response to the
increase in oil field activity.

Interest and other expense for the three months ended June 30, 2001 totaled
$227,000, compared to $234,000 for the prior year quarter due primarily to a
decrease in interest expense resulting from lower average short-term debt
balances.

SIX MONTHS ENDED JUNE 30, 2001, COMPARED TO SIX MONTHS ENDED JUNE 30, 2000:

Net revenues for the six months ended June 30, 2001, increased 9.7% or
$12,026,000 to $136,644,000 from $124,618,000 for the six months ended June 30,
2000. Revenues for the prior year period have been restated to reflect the
reclassification of freight charges billed to customers as revenue and the
related expenses as cost of sales in accordance with the guidance specified by
EITF Issue 00-10. The Company previously accounted for freight billed to
customers as a reduction of cost of sales. Gross profit, operating income and
net earnings for this period were unaffected by this reclassification.

                                       9
<PAGE>

The Company reported net earnings of $8,386,000 or $1.32 per share (diluted) for
the six months ended June 30, 2001 compared to earnings of $2,302,000 or $0.37
per share (diluted) for the comparable prior year period.

The following table summarizes the Company's net revenues and gross profit by
operating segment (in thousands of dollars):

<TABLE>
<CAPTION>
                            Six Months Ended
                                June 30,                        %
                          -------------------   Increase     Increase
                            2001       2000    (Decrease)   (Decrease)
                          -------     -------  ----------   ----------
Net Revenues
------------
<S>                       <C>        <C>         <C>         <C>
Oil Field                 $ 79,315   $ 37,325    $ 41,990    112.5
Power Transmission          28,714     30,475      (1,761)    (5.8)
Foundry Castings            12,036     11,020       1,016      9.2
Trailers                    16,579     45,798     (29,219)   (63.8)
                          --------   --------    --------
  Total                   $136,644   $124,618    $ 12,026      9.7
                          ========   ========    ========
Gross Profit
------------
Oil Field                 $ 22,945   $  7,946    $ 14,999    188.8
Power Transmission           9,168      6,496       2,672     41.1
Foundry Castings             1,447      1,329         118      8.9
Trailers                      (559)     4,666      (5,225)  (112.0)
                          --------   --------    --------
  Total                   $ 33,001   $ 20,437    $ 12,564     61.5
                          ========   ========    ========
</TABLE>
Oil Field revenues increased 112.5% to $79,315,000 from $37,325,000 in the first
half of 2000. The continued increase in drilling activity among oil producers
has resulted in significant increases in both new pumping unit sales and oil
field service activity. Oil Field backlog reflects this increase in activity,
increasing to $27,600,000 at June 30, 2001 from $15,300,000 at June 30, 2000 and
from $26,400,000 at December 31, 2000.

Gross profit for the Oil Field Division increased to $22,945,000 for the six
months ended June 30, 2001 compared to $7,946,000 for the comparable prior year
period due primarily to the increase in volumes noted above.  Gross margin for
the comparable periods improved to 28.9% in 2001 compared to 21.3% in 2000 due
primarily to greater leverage achieved off of the Company's fixed costs along
with improvements in product mix.

Revenues for the Company's Power Transmission segment decreased to $28,714,000
for the six months ended June 30, 2001 compared to $30,475,000 for the
comparable 2000 period as uncertain economic conditions in many of the Company's
domestic and international industrial markets continue into 2001. The Company's
Power Transmission backlog at June 30, 2001, however, improved to $28,900,000
from $27,200,000 at June 30, 2000, and $20,800,000 at December 31, 2000.

Power Transmission gross profit and gross margin improved to $9,168,000 and
31.9%, respectively, for the six months ended June 30, 2001 compared to
$6,496,000 and 21.3%, respectively, for the comparable period in 2000. These
improvements are due primarily to increased absorption of fixed overhead costs
as noted in the discussion of quarterly results above.

Foundry castings revenues for the six months ended June 30, 2001 totaled
$12,036,000 compared to $11,020,000 for the same period last year.   Although
Foundry castings revenues have shown a slight increase over prior year levels,
uncertain economic conditions and continuing pricing pressure from domestic and
foreign competition have affected demand for the Foundry's commercial castings.
Foundry backlog at June 30, 2001 declined to $5,900,000 from $6,400,000 at June
30, 2000, and from $6,900,000 at December 31, 2000.

                                       10
<PAGE>

Foundry gross profit increased to $1,447,000 for the first half of 2001 from
$1,329,000 for the comparable 2000 period due primarily to the inter-segment
volume increases noted above in the discussion of second quarter results.
Foundry gross margin, however, decreased slightly to 12.0% from 12.1% for the
comparable prior year period due to lower margins achieved on the Foundry's
commercial castings.

Trailer revenues for the first half of 2001 decreased to $16,579,000 from
$45,798,000 for the six months ended June 30, 2000 due to the continuing adverse
effect of higher fuel and operating costs experienced by the U.S. trucking
industry on the demand for new trailers. Backlog for the trailer segment totaled
$6,900,000 at June 30, 2001, compared to $20,500,000 at June 30, 2000 and
$9,500,000 at December 31, 2000.

Trailer gross profit decreased to a loss of $559,000 for the six months ended
June 30, 2001 from profit of $4,666,000 for the comparable prior year period due
to the revenue declines noted above.

Selling, general and administrative ("SG&A") expenses for the six months ended
June 30, 2001 increased to $18,280,000 from $16,429,000 for the same period in
2000, due primarily to an increase in selling expenses related to the increase
in oil field activity.

Interest and other expense for the six months ended June 30, 2001 increased to
$974,000 compared to $101,000 for the comparable prior year period. This
increase was due primarily to a net loss recorded on the disposal of certain of
the Company's fixed assets totaling $633,000 for 2001, compared to a net gain on
disposals of fixed assets totaling $155,000 in 2000.


LIQUIDITY AND CAPITAL RESOURCES

The Company has historically relied on cash flows from operations and third-
party borrowings to finance its operations, including acquisitions, dividend
payments and stock purchases.

The Company's cash balance totaled $2.5 million at June 30, 2001, compared to
$2.0 million at December 31, 2000. For the six months ended June 30, 2001, net
cash flows provided by operating activities totaled $9.7 million, cash used in
investing activities totaled $3.6 million and cash used in financing activities
amounted to $5.5 million. Significant components of cash provided by operating
activities include net earnings adjusted for non-cash expenses, offset by a $1.8
million net increase in working capital items, primarily inventories. Cash used
in investing activities included capital expenditures totaling approximately
$3.7 million for, among other things, ongoing additions and modifications to
certain of the Company's production facilities along with purchases and
replacements of production equipment and operating vehicles. Significant
components of cash used in financing activities include a net decrease of
approximately $3.1 million in short-term debt, dividend payments totaling
approximately $2.2 million or $0.36 per share and payments on long-term debt
totaling $0.9 million.

Total debt balances at June 30, 2001, including current maturities of long-term
debt, consisted of $4.7 million outstanding under the Company's discretionary
short-term demand facilities and $7.7 million of notes payable to various banks
and individuals. Total debt decreased to $12.4 million at June 30, 2001,
compared to $16.6 million at December 31, 2000. This decrease was attributable
to the net payments on short- and long-term debt noted above.

The Company currently has short-term credit facilities in place with three
domestic banks totaling $35.0 million. These facilities consist of $15.0 million
in discretionary demand facilities, with $5.0 million available from each of the
three banks, along with a $20.0 million committed facility available from one of
the three banks. As noted above, the Company had borrowed $4.7 million against
the $15.0 million demand facilities at June 30, 2001 and no amounts are
currently outstanding under the $20.0 million committed facility. One of these
facilities, consisting of the $20.0 million committed facility and one of the
$5.0 million demand facilities, expires September 1, 2002. The remaining two
facilities are annual agreements, which the Company expects to successfully
renew during 2001. Weighted average interest rates on these demand facilities
were 5.0% and 7.0% at June 30, 2001 and December 31, 2000, respectively.

                                       11
<PAGE>

The Company has a stock purchase plan under which the Company is authorized to
spend up to $17.1 million for purchases of its common stock. Purchased shares
are added to treasury stock and are available for general corporate purposes
including the funding of the Company's stock option plans. As of June 30, 2001,
the Company held 644,260 shares of treasury stock at an aggregate cost of
approximately $13.3 million. Authorizations of approximately $0.2 million
remained at June 30, 2001.

The Company believes that its cash flows from operations and its available
borrowing capacity under its credit agreements will be sufficient to fund its
operations, including planned capital expenditures, dividend payments and stock
purchases, through the next twelve months.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company adopted the accounting and disclosure provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", effective
January 1, 2001.

The Company's risk management strategy with regard to foreign-currency and
interest-rate risks is to structure business transactions to minimize any
foreign-currency or interest-rate exposure associated with the operations of its
businesses. Sales contracts, including foreign sales contracts, are generally
denominated in U.S. Dollars at a specific price per unit. The Company currently
does not view its interest-rate risks to be significant to its operations and,
therefore, has not entered into any hedging transactions in these areas as part
of its overall risk management strategy.

The Company has designated a note payable outstanding to a domestic bank
denominated in Euros as a hedge against the Company's net investment in its
French operations. As such, all foreign currency gains and losses associated
with this note are used to offset changes in this investment as a result of
currency exchange fluctuations and are included in other comprehensive income as
part of the cumulative translation adjustment. Foreign currency gains of
approximately $58,000 and $219,000, respectively, related to this note were
included in other comprehensive income for the three and six months ended June
30, 2001.

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations entered into after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. SFAS No. 142 changes the
accounting method for goodwill from an amortization to an impairment-only
approach. SFAS No. 142 will be effective for the Company's fiscal quarter ended
March 31, 2002 and early adoption of this statement is not permitted. The
Company, therefore, will continue to amortize goodwill recognized prior to June
30, 2001 pursuant to existing pronouncements until December 31, 2001. Any
transition charges recognized upon implementation of SFAS No. 142 will be
accounted for as a cumulative effect of a change in accounting principle.  The
Company is currently evaluating the possible effects of the adoption of these
standards on its financial position, results of operations and cash flows.

FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS

This Quarterly Report contains forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate", "believe", "estimate", "expect" and similar expressions are
intended to identify forward-looking statements. 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. These risks and uncertainties include, but are not
limited to,  (i) oil prices, (ii) capital spending levels of oil producers,
(iii) availability and prices for raw materials and (iv) general industry and
economic conditions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, believed, estimated or expected. The
Company does not intend to update these forward-looking statements and
information.

                                       12
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not utilize financial instruments for trading purposes and does
not hold any derivative financial instruments that could expose the Company to
significant market risk. The Company's financial instruments include cash,
accounts receivable, accounts payable and debt obligations. The book value of
accounts receivable, short-term debt and accounts payable are considered to be
representative of their fair market value because of the short maturity of these
instruments. The Company believes the carrying values of its long-term debt
obligations approximate fair values because the interest rates on these
obligations are comparable to what the Company believes it could currently
obtain for debt with similar terms and maturities. The Company's accounts
receivable are not concentrated in one customer or industry and are not viewed
as an unusual credit risk.

                                       13
<PAGE>

                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

A class action complaint was filed in the United States District Court for the
Eastern District of Texas on March 7, 1997 by an employee and a former employee
that alleged race discrimination in employment. Certification hearings were
conducted in Beaumont, Texas in February of 1998 and in Lufkin, Texas in August
of 1998. The District Court in April of 1999 issued a decision that certified a
class for this case which includes all persons of a certain minority employed by
the Company from March 6, 1994 to the present. The Company appealed this class
certification decision by the District Court to the 5th Circuit United States
Courts of Appeals in New Orleans, Louisiana. This appeal was denied on June 23,
1999.

The Company is defending this action vigorously. Furthermore, the Company
believes that the facts and the law in this action support its position and is
confident that it will prevail if this case is tried on the merits.

The Company is often subject to routine litigation arising in the normal course
of its business.  While the outcome of these proceedings cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the Company's financial position or results of operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2001 Annual Meeting of Shareholders of the Company was held on May 2, 2001.
Matters presented to the shareholders at the meeting were the election of four
directors and the ratification of the appointment of the Company's independent
auditors for the year 2001.  The following numbers of votes were cast as to the
nominees for director: J. H. Lollar, 5,438,383 votes for and 3,773 votes
withheld; B. H. O'Neal, 5,438,325 votes for and 3,831 votes withheld; H. J.
Trout, Jr., 5,379,564 votes for and 62,592 votes withheld and T. E. Wiener,
5,439,583 votes for and 2,573 votes withheld. In connection with the appointment
of the independent auditors, 5,393,628 shares voted for ratification, 47,713
shares voted against and 815 votes were withheld.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     None

(b)  Reports on Form 8-K

     None

                                       14
<PAGE>

                                   SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.

Date:  August 6, 2001

LUFKIN INDUSTRIES, INC.

By    /s/   R. D. Leslie
    -------------------------------
     Vice President/Treasurer/Chief Financial Officer
     Principal Financial and Accounting Officer


                                       15