<PAGE>

                                 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 September 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                                            75-0404410
          -----                                            ----------
  (State or other jurisdiction                           (I.R.S. Employer
of incorporation or organization)                       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 [_]

There were 6,358,810 shares of Common Stock, $1.00 par value per share,
outstanding as of November 6, 2001, not including 533,571 shares classified as
Treasury Stock.
<PAGE>

                        PART I  -  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                   LUFKIN INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                           (In thousands of dollars)
<TABLE>
<CAPTION>

                                                   September 30,      December 31,
                                                        2001             2000
                                                   -------------      ------------
                                                    (Unaudited)
<S>                                               <C>                <C>
ASSETS
Current assets:
  Cash and cash equivalents                           $  9,348         $  2,003
  Invested funds                                         5,865              759
  Receivables, net                                      42,192           40,413
  Income taxes receivable                                    -            1,239
  Inventories                                           41,447           35,146
  Deferred income tax assets                             6,082            6,082
                                                      --------         --------
     Total current assets                              104,934           85,642
                                                      --------         --------
Property, plant and equipment, at cost                 253,326          255,050
Less accumulated depreciation                          170,985          170,046
                                                      --------         --------
                                                        82,341           85,004
                                                      --------         --------
Prepaid pension costs                                   47,242           43,492
Invested funds                                               -            5,106
Goodwill, net                                            8,655            8,841
Other assets, net                                        7,838            7,360
                                                      --------         --------
     Total assets                                     $251,010         $235,445
                                                      ========         ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Short-term debt                                     $      -         $  7,790
  Current portion of long-term notes payable             6,688            1,809
  Accounts payable                                      13,823           13,216
  Accrued payroll and benefits                           6,528            5,701
  Accrued warranty expenses                              2,363            2,194
  Taxes payable                                         12,238            4,130
  Accrued commissions and other                          6,700            5,601
                                                      --------         --------
     Total current liabilities                          48,340           40,441
                                                      --------         --------
Deferred income tax liabilities                         24,809           24,338
Postretirement benefits liability                       10,972           10,972
Long-term notes payable, net of current portion            726            7,043
Commitments and contingencies

Shareholders' equity:
  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                              18,145           18,069
  Retained earnings                                    155,523          143,912
  Treasury stock, 572,109 and 679,360
     shares, respectively, at cost                     (11,778)         (13,977)
  Accumulated other comprehensive income:
    Cumulative translation adjustment                   (2,619)          (2,245)
                                                      --------         --------
     Total shareholders' equity                        166,163          152,651
                                                      --------         --------
     Total liabilities and shareholders' equity       $251,010         $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                   Nine Months Ended
                                                       September 30,                       September 30,
                                                    -----------------------           ------------------------
                                                       2001          2000                 2001          2000
                                                   ----------    ----------           ----------     ---------
                                                          (Unaudited)                        (Unaudited)
 <S>                                              <C>           <C>                <C>            <C>
     Net sales                                     $   75,640    $   65,705           $  212,285    $  190,323
     Cost of sales                                     56,640        54,131              160,283       158,312
                                                   ----------    ----------           ----------    ----------
      Gross profit                                     19,000        11,574               52,002        32,011
     Selling, general and administrative
        expenses                                        8,274         7,598               26,554        24,027
                                                   ----------    ----------           ----------    ----------
      Operating income                                 10,726         3,976               25,448         7,984
     Interest and other income (expense), net             231          (230)                (744)         (331)
                                                   ----------    ----------           ----------    ----------
      Earnings before income tax provision             10,957         3,746               24,704         7,653
     Income tax provision                               4,397         1,483                9,758         3,088
                                                   ----------    ----------           ----------    ----------
      Net earnings                                      6,560         2,263               14,946         4,565
     Change in foreign currency translation
          adjustment                                      (65)         (190)                (374)         (336)
                                                   ----------    ----------           ----------    ----------
      Total comprehensive income                   $    6,495    $    2,073           $   14,572    $    4,229
                                                   ==========    ==========           ==========    ==========
     Earnings per share:
      Basic                                        $     1.04    $     0.36           $     2.39    $     0.73
                                                   ==========    ==========           ==========    ==========
      Diluted                                      $     1.01    $     0.36           $     2.33    $     0.72
                                                   ==========    ==========           ==========    ==========
     Dividends per share                           $     0.18    $     0.18           $     0.54    $     0.54
                                                   ==========    ==========           ==========    ==========
     Weighted average number of shares
           outstanding:
      Basic                                         6,320,272     6,273,431            6,260,959     6,287,426
      Diluted                                       6,498,239     6,333,347            6,404,159     6,316,173

</TABLE>



         See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

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


                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                       2001          2000
                                                     --------       -------
                                                          (Unaudited)
Cash flows from operating activities:
  Net earnings                                       $ 14,946       $ 4,565
  Adjustments to reconcile net earnings
    to cash provided by operating activities:
        Depreciation and amortization                   8,468         8,466
        Pension income                                 (3,750)       (4,428)
        Postretirement benefits                             -           448
        (Gain) loss on disposition of
         property, plant and equipment                    454          (159)
        Increase in other assets                         (211)         (474)
        Changes in:
          Trade receivables                            (1,592)       (2,001)
          Income taxes receivable                       1,239         2,198
          Inventories                                  (6,546)       (4,566)
          Accounts payable                                691           205
          Accrued liabilities                          10,070         1,854
                                                     --------       -------
      Net cash provided by operating activities        23,769         6,108
                                                     --------       -------
Cash flows from investing activities:
   Additions to property, plant and equipment          (6,024)       (4,598)
   Proceeds from disposition of
     property, plant and equipment                        193           431
                                                     --------       -------
      Net cash used in investing activities            (5,831)       (4,167)
                                                     --------       -------
Cash flows from financing activities:
   Net proceeds from (payments on)
      short-term debt                                  (7,790)        7,071
   Payments on long-term debt                          (1,297)       (2,264)
   Dividends paid                                      (3,336)       (3,410)
   Proceeds from exercise of stock options              1,893            25
   Purchases of treasury stock                              -        (1,067)
                                                     --------       -------
      Net cash provided by (used in)
       financing activities                           (10,530)          355
                                                     --------       -------
Effect of translation on cash and
 cash equivalents                                         (63)          (82)
                                                     --------       -------
   Net increase in cash and cash equivalents            7,345         2,214
Cash and cash equivalents at beginning
 of period                                              2,003         1,065
                                                     --------       -------
Cash and cash equivalents at end
 of period                                           $  9,348       $ 3,279
                                                     ========       =======

         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 nine months
ended September 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:

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

Finished goods                       $ 5,971        $ 6,191
Work in process                        4,416          2,624
Raw materials                         31,060         26,331
                                     -------        -------
                                     $41,447        $35,146
                                     =======        =======

3. EARNINGS PER SHARE

   The Company reports earnings per share ("EPS") in accordance with the
provisions of 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                Nine Months Ended
                                                   September 30,                    September 30,
                                         --------------------------        ------------------------------
                                             2001           2000              2001                2000
                                         ----------      ----------        ----------          ----------
<S>                                      <C>          <C>                  <C>          <C>
 Numerator:
  Net earnings                           $    6,560      $    2,263        $   14,946          $    4,565
 Denominator:
  Weighted average shares (Basic)         6,320,272       6,273,431         6,260,959           6,287,426
  Effect of outstanding options             177,967          59,916           143,200              28,747
                                         ----------      ----------        ----------          ----------
  Weighted average shares including
    assumed conversions  (Diluted)        6,498,239       6,333,347         6,404,159           6,316,173
                                         ==========      ==========        ==========          ==========
   Basic earnings per share              $     1.04      $     0.36        $     2.39          $     0.73
                                         ==========      ==========        ==========          ==========
   Diluted earnings per share            $     1.01      $     0.36        $     2.33          $     0.72
                                         ==========      ==========        ==========          ==========


</TABLE>

                                       4
<PAGE>

3. EARNINGS PER SHARE  (CONTINUED)

   Options to purchase a total of 137,686 and 525,289 shares of the Company's
common outstanding at September 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. 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
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
Company's Corporate group provides administrative services to the four business
segments. 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 and assets
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 September 30, 2001
                           -------------------------------------------------------------------
                                           Power
                           Oil Field   Transmission  Foundry   Trailer   Corporate      Total
                           ---------   ------------ --------   -------   ---------    --------
<S>                       <C>          <C>          <C>        <C>       <C>         <C>
Gross sales                 $45,344       $20,539   $10,923    $ 9,500     $  -       $ 86,306
Intercompany sales             (236)       (3,545)   (6,547)      (338)       -        (10,666)
                            -------       -------   -------    -------     ----       --------
Net sales                   $45,108       $16,994   $ 4,376    $ 9,162     $  -       $ 75,640
                            =======       =======   =======    =======     ====       ========
Operating income (loss)     $ 9,810       $ 2,251   $   (12)   $(1,323)    $  -       $ 10,726
Other income (expense)         (130)          165         -         95      101            231
                            -------       -------   -------    -------     ----       --------
Earnings (loss) before
 tax provision              $ 9,680       $ 2,416   $   (12)   $(1,228)    $101       $ 10,957
                            =======       =======   =======    =======     ====       ========

</TABLE>

                                       5
<PAGE>

5.  SEGMENT DATA (CONTINUED)

<TABLE>
<CAPTION>
                                          Three Months Ended September 30, 2000
                           -------------------------------------------------------------------
                                           Power
                           Oil Field   Transmission  Foundry   Trailer   Corporate      Total
                           ---------   ------------ --------   -------   ---------    --------
<S>                       <C>          <C>          <C>        <C>       <C>         <C>
Gross sales                 $26,203       $17,084   $10,201    $17,674     $   -       $ 71,162
Intercompany sales             (331)       (1,273)   (3,853)         -         -         (5,457)
                            -------       -------   -------    -------     -----       --------
Net sales                   $25,872       $15,811   $ 6,348    $17,674     $   -       $ 65,705
                            =======       =======   =======    =======     =====       ========
Operating income (loss)     $ 3,002       $   832   $   534    $  (392)    $   -       $  3,976
Other income (expense)          (39)           18        (3)        (7)     (199)          (230)
                            -------       -------   -------    -------     -----       --------
Earnings (loss) before
 tax provision              $ 2,963       $   850   $   531    $  (399)    $(199)      $  3,746
                            =======       =======   =======    =======     =====       ========
</TABLE>

<TABLE>
<CAPTION>
                                          Nine Months Ended September 30, 2001
                           -------------------------------------------------------------------
                                           Power
                           Oil Field   Transmission  Foundry   Trailer   Corporate      Total
                           ---------   ------------ --------   -------   ---------    --------
<S>                       <C>          <C>          <C>        <C>       <C>         <C>
Gross sales                 $125,519      $ 56,571   $ 34,061    $26,512     $   -       $242,663
Intercompany sales            (1,095)      (10,863)   (17,649)      (771)        -        (30,378)
                            --------      --------   --------    -------     -----       --------
Net sales                   $124,424      $ 45,708   $ 16,412    $25,741     $   -       $212,285
                            ========      ========   ========    =======     =====       ========
Operating income (loss)     $ 25,671      $  4,066   $    381    $(4,670)    $   -       $ 25,448
Other income (expense)          (589)           36          5       (195)       (1)          (744)
                            --------      --------   --------    -------     -----       --------
Earnings (loss) before
 tax provision              $ 25,082      $ 4,102    $    386    $(4,865)    $  (1)      $ 24,704
                            ========      =======    ========    =======     =====       ========
 </TABLE>

<TABLE>
<CAPTION>
                                          Nine Months Ended September 30, 2000
                           -------------------------------------------------------------------
                                           Power
                           Oil Field   Transmission  Foundry   Trailer    Corporate      Total
                           ---------   ------------ ---------  ---------  ---------    ---------
<S>                       <C>          <C>          <C>        <C>        <C>          <C>
Gross sales                 $ 63,791      $ 48,656   $ 26,443    $63,472     $   -       $202,362
Intercompany sales              (594)       (2,370)    (9,075)         -         -        (12,039)
                            --------      --------   --------    -------     -----       --------
Net sales                   $ 63,197      $ 46,286   $ 17,368    $63,472     $   -       $190,323
                            ========      ========   ========    =======     =====       ========
Operating income (loss)     $  5,858      $   (225)  $    789    $ 1,562     $   -       $  7,984
Other income (expense)           (36)          (18)        (3)       103      (377)          (331)
                            --------      --------   --------    -------     -----       --------
Earnings (loss) before
 tax provision              $  5,822      $   (243)  $    786    $ 1,665     $(377)      $  7,653
                            ========      ========   ========    =======     =====       ========

</TABLE>

                                       6
<PAGE>

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 the investment as a result of
currency exchange fluctuations and are included in other comprehensive income as
part of the cumulative translation adjustment. A foreign currency loss of
approximately $125,000 and a gain of $94,000, respectively, related to this note
were included in other comprehensive income for the three and nine months ended
September 30, 2001, respectively.

   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.

   During the third quarter of 2001, the Financial Accounting Standards Board
also issued SFAS No. 143, "Asset Retirement Obligations" and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". The Company
has reviewed these pronouncements and, at this time, does not believe they will
have any effects on its financial position, results of operations and cash
flows. However, the Company will continue to review its position on these
pronouncements prior to their adoption date.

                                       7
<PAGE>

ITEM 2.  MANAGEMENTS 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 SEPTEMBER 30, 2001, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000:

   Net revenues for the three months ended September 30, 2001 increased to
$75,640,000 from $65,705,000 for the three months ended September 30, 2000 as
oil field sales increased while being offset by continuing weakness in the
trailer market.

   The Company reported net earnings of $6,560,000 or $1.01 per share (diluted)
for the three months ended September 30, 2001 compared to earnings of $2,263,000
or $0.36 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):

<TABLE>
<CAPTION>
                             Three Months Ended
                                September 30,                       %
                            --------------------    Increase     Increase
                              2001        2000     (Decrease)   (Decrease)
                            -------      -------   ----------   ----------
<S>                         <C>          <C>       <C>          <C>
Net Revenues
------------
Oil Field                   $45,108      $25,872     $19,236       74.4
Power Transmission           16,994       15,811       1,183        7.5
Foundry Castings              4,376        6,348      (1,972)     (31.1)
Trailers                      9,162       17,674      (8,512)     (48.2)
                            -------      -------     -------
  Total                     $75,640      $65,705     $ 9,935       15.1
                            =======      =======     =======

Gross Profit
------------
Oil Field                   $12,645      $ 5,364     $ 7,281     135.7
Power Transmission            5,669        4,180       1,489      35.6
Foundry Castings                568        1,044        (476)    (45.6)
Trailers                        118          986        (868)    (88.0)
                            -------      -------     -------
  Total                     $19,000      $11,574     $ 7,426       64.2
                            =======      =======     =======
</TABLE>

Oil Field revenues increased 74.4% to $45,108,000 in the third quarter of 2001
from $25,872,000 in the third quarter of 2000 as the increase in oil field
activity that began in 2000 continued into the third quarter of this year.
However, the weakening of the oil field market due to lower energy prices and
global economic uncertainty is reflected in the Company's Oil Field backlog,
which decreased to $21,400,000 at September 30, 2001 from $27,600,000 at June
30, 2001 but was still increased over the $18,200,000 backlog for the same
period last year.

                                       8
<PAGE>

Gross profit for the Oil Field Division increased to $12,645,000 for the three
months ended September 30, 2001 compared to $5,364,000 for the prior year
quarter due primarily to the increase in sales volumes and service activity
noted above.  Gross margin for the comparable periods improved to 28.0% in 2001
compared to 20.7% in 2000 due primarily to greater leverage achieved off of the
Company's fixed costs.

Revenues for the Company's Power Transmission segment increased to $16,994,000
for the third quarter of 2001 compared to $15,811,000 for the 2000 third quarter
due to higher volumes in repair and service activity and European operations.
The Company's Power Transmission backlog at September 30, 2001 increased to
$30,300,000 from $22,600,000 at September 30, 2000 and $28,900,000 at June 30,
2001.

Power Transmission gross profit and gross margin increased to $5,669,000 and
33.4%, respectively, for the three months ended September 30, 2001 compared to
$4,180,000 and 26.4%, 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 and increased volume of higher margin repair and
service sales.

Foundry castings revenues for the 2001 third quarter decreased to $4,376,000
compared to $6,348,000 for the same period last year due primarily to a decline
in the domestic capital goods markets. Foundry backlog at September 30, 2001
declined to $4,600,000 from $5,900,000 at June 30, 2001 and $7,400,000 at
September 30, 2000.

Foundry gross profit and gross margin decreased to $568,000 and 13.0%,
respectively, for the third quarter of 2001 compared to $1,044,000 and 16.4%,
respectively, for the 2000 third quarter. The decline in gross profit and gross
margin are directly related to the above noted decrease in revenue.

Trailer revenues for the third quarter of 2001 decreased to $9,162,000 from
$17,674,000 for the three months ended September 30, 2000 due to the continued
decline in the freight market as shipping volumes decreased and operating costs
increased. Backlog for the Trailer segment totaled $4,800,000 at September 30,
2001 compared to $6,900,000 at June 30, 2001 and $6,800,000 at September 30,
2000.

Trailer gross profit decreased to $118,000 for the three months ended September
30, 2001 from $986,000 for the comparable prior year quarter due to the revenue
decline noted above.  Gross margin for the 2001 third quarter declined to 1.3%
from 5.6% for the third quarter of 2000 due primarily to the negative impact of
the volume declines on labor and overhead absorption.

Selling, general and administrative ("SG&A") expenses for the third quarter of
2001 increased to $8,274,000 from $7,598,000, or 8.9% for the same period in
2000 due to higher Oil Field selling activity and Corporate legal expenses.

Interest and other income/expense for the three months ended September 30, 2001
totaled $231,000 of income compared to an expense of $230,000 for the prior year
quarter due primarily to the Company eliminating short-term debt and its related
interest expense early in the third quarter of 2001 and increased income from
invested cash in the third quarter of 2001.



NINE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2000:

Net revenues for the nine months ended September 30, 2001 increased 11.5% or
$21,962,000 to $212,285,000 from $190,323,000 for the nine months ended
September 30, 2000. This increase in revenues is due primarily to a substantial
increase in oil field activity, offset in part by continuing weakness in the
trailer market.

                                       9
<PAGE>

The Company reported net earnings of $14,946,000 or $2.33 per share (diluted)
for the nine months ended September 30, 2001 compared to a net earnings of
$4,565,000 or $0.72 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>
                             Nine Months Ended
                               September 30,                       %
                            --------------------   Increase     Increase
                              2001        2000    (Decrease)   (Decrease)
                            --------     -------  ----------   ----------
<S>                         <C>         <C>        <C>         <C>
    Net Revenues
    ---------------------
    Oil Field               $124,424    $ 63,197   $ 61,227        96.9
    Power Transmission        45,708      46,286       (578)       (1.3)
    Foundry Castings          16,412      17,368       (956)       (5.5)
    Trailers                  25,741      63,472    (37,731)      (59.5)
                            --------    --------   --------
    Total                   $212,285    $190,323   $ 21,962        11.5
                            ========    ========   ========
    Gross Profit
    ---------------------
    Oil Field               $ 35,591    $ 13,310   $ 22,281       167.4
    Power Transmission        14,837      10,675      4,162        39.0
    Foundry Castings           2,015       2,373       (358)      (15.1)
    Trailers                    (441)      5,653     (6,094)     (107.8)
                            --------    --------   --------
    Total                   $ 52,002    $ 32,011   $ 19,991        62.5
                            ========    ========   ========
</TABLE>

Oil Field revenues for the nine months ended September 30, 2001 increased 96.9%
to $124,424,000 from $63,197,000 in the nine months ended September 30, 2000.
Increased production activity among oil producers resulted in significant
increases in both new pumping unit sales and oil field service activity. While
the Oil Field backlog increased to $21,400,000 in the third quarter of 2001
compared to $18,200,000 in the same period of 2000, the decrease in the backlog
from the December 31, 2000 level of $26,400,000 reflects the current decline in
the oil field market due to lower energy prices and global economic uncertainty.

Gross profit for the Oil Field Division increased to $35,591,000 for the nine
months ended September 30, 2001 compared to $13,310,000 for the comparable prior
year period due primarily to the increase in volumes noted above.  Gross margin
for the comparable periods improved to 28.6% in 2001 compared to 21.1% in 2000
due primarily to increased leverage on the Company's fixed costs.

Revenues for the Company's Power Transmission segment decreased slightly to
$45,708,000 for the nine months ended September 30, 2001 compared to $46,286,000
for the same 2000 period due to a decline in new equipment sales, offset
partially by increased repair and service activity. The Company's Power
Transmission backlog at September 30, 2001 increased to $30,300,000 from
$22,600,000 at September 30, 2000 and $20,800,000 at December 31, 2000.

Power Transmission gross profit and gross margin, however, increased to
$14,837,000 and 32.5%, respectively, for the nine months ended September 30,
2001 from $10,675,000 and 23.1%, respectively, for the comparable period in
2000.  This improvement was due primarily to increased absorption of fixed
overhead costs and higher margin repair and service activity as noted in the
discussion of quarterly results above.

Foundry castings revenues for the nine months ended September 30, 2001 totaled
$16,412,000 compared to $17,368,000 due to reductions in capital goods spending
by customers. Foundry backlog at September

                                       10
<PAGE>

30, 2001 declined to $4,600,000 from $7,400,000 at September 30, 2000 and from
$6,900,000 at December 31, 2000.

Foundry gross profit and gross margin decreased to $2,015,000 and 12.3%,
respectively, for the first nine months of 2001 from $2,373,000 and 13.7%,
respectively, for the comparable 2000 period due primarily to the above noted
revenue decline.

Trailer revenues for the nine months ended September 30, 2001 decreased to
$25,741,000 from $63,472,000 for the nine months ended September 30, 2000 due to
the continuing adverse effect of higher operating costs and lower freight volume
on the demand for new trailers. Backlog for the Trailer segment totaled
$4,800,000 at September 30, 2001 compared to $6,800,000 at September 30, 2000
and $9,500,000 at December 31, 2000.

Trailer gross profit and gross margin decreased to a loss of $441,000 and 1.7%,
respectively, for the nine months ended September 30, 2001 from a profit of
$5,653,000 and 8.9%, respectively, for the comparable prior year period due to
the volume declines noted above.

Selling, general and administrative ("SG&A") expenses for the nine months ended
September 30, 2001 increased to $26,554,000 from $24,027,000 for the same period
in 2000, primarily due to higher selling expenses in Oil Field related to
increased activity and Corporate legal expenses. However, SG&A expenses as a
percentage of consolidated net revenues decreased slightly to 12.5% in the first
nine months of 2001 compared to 12.6% for the prior year period.

Interest and other income/expense for the nine months ended September 30, 2001
totaled $744,000 compared to $331,000 of expense for the prior year period. This
increase is primarily due to non-recurring losses on the disposal of fixed
assets, offset by lower interest expense from decreased short-term debt.

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 $9.3 million at September 30, 2001 compared
to $2.0 million at December 31, 2000. For the nine months ended September 30,
2001, net cash flows provided by operating activities were $23.8 million, cash
used in investing activities totaled $5.8 million and cash used in financing
activities amounted to $10.5 million. Significant components of cash provided by
operating activities include net earnings adjusted for non-cash expenses of
$20.1 million and a working capital reduction of $3.7 million. Cash used in
investing activities included capital expenditures totaling approximately $6.0
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 (i) a net decrease of approximately $7.8 million
in short-term debt; (ii) payments on long-term debt totaling $1.3 million; (iii)
dividend payments totaling approximately $3.3 million or $0.54 per share; and
(iv) offset by proceeds from the exercise of stock options totaling $1.9
million.

Total debt balances at September 30, 2001, including current maturities of long-
term debt, consisted of $7.4 million of notes payable to various banks and
individuals. Total debt decreased by $9.2 million for the nine months ending
September 30, 2001 from $16.6 million at December 31, 2000. This decrease was
attributable to net short-term demand repayments totaling approximately $7.8
million and principal payments on long-term notes payable totaling $1.3 million
during the first nine months of 2001.

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 available from each of the three
banks, along with $20.0 million committed facility available from one of the
three

                                       11
<PAGE>

banks. The Company has no amounts currently outstanding under either the demand
or committed facilities at September 30, 2001. One of these facilities,
consisting of the $20.0 million committed facility and one of the $5.0 million
facilities, expires September 1, 2002. The remaining two facilities are annual
agreements and were successfully renewed during the third quarter of 2001. The
weighted average interest rate on these demand facilities at December 31, 2000
was 7.0%.

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 September 30,
2001, the Company held 572,109 shares of treasury stock at an aggregate cost of
approximately $11.8 million. Authorizations of approximately $0.2 million
remained at September 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 the investment as a result of
currency exchange fluctuations and are included in other comprehensive income as
part of the cumulative translation adjustment. A foreign currency loss of
approximately $125,000 and a gain of $94,000, respectively, related to this note
were included in other comprehensive income for the three and nine months ended
September 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.

During the third quarter of 2001, the Financial Accounting Standards Board also
issued SFAS No. 143, "Asset Retirement Obligations" and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". The Company
has reviewed these pronouncements and, at this time, does not believe they will
have any effects on its financial position, results of operations and cash
flows. However, the Company will continue to review its position on these
pronouncements prior to their adoption date.

                                       12
<PAGE>

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.

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 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 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:  November 12, 2001

LUFKIN INDUSTRIES, INC.

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


                                       15