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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
LUFKIN INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
LUFKIN INDUSTRIES, INC.
Lufkin, Texas
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 1, 2002
TO THE SHAREHOLDERS OF LUFKIN INDUSTRIES, INC.
Notice is hereby given that the Annual Meeting of the Shareholders of
Lufkin Industries, Inc., a Texas corporation, will be held at the Museum of
East Texas, 503 North Second, Lufkin, Texas, on the 1st day of May, 2002, at
9:00 a.m. local time, for the following purposes:
1. To elect three directors to the Company's board to serve until the
annual shareholders' meeting held in 2005 or until their successors have
been elected and qualified;
2. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on March 29, 2002, are
entitled to notice of and to vote at the meeting.
You are kindly requested to mark, sign, date and return the enclosed proxy
promptly, regardless of whether you expect to attend the meeting, in order to
ensure a quorum. If you are present at the meeting, and wish to do so, you may
revoke the proxy and vote in person.
It is sincerely hoped that it will be possible for you to personally attend
the meeting.
PAUL G. PEREZ
Secretary
April 5, 2002
LUFKIN INDUSTRIES, INC.
601 South Raguet
Lufkin, Texas 75904
PROXY STATEMENT
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GENERAL INFORMATION
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The accompanying proxy is solicited by the Board of Directors of Lufkin
Industries, Inc. (the "Company") for use at the Annual Meeting of Shareholders
to be held on May 1, 2002, and any adjournments thereof. The annual meeting
will be held at 9:00 a.m. local time, at the Museum of East Texas, 503 North
Second, Lufkin, Texas. When such proxy is properly executed and returned, the
shares it represents will be voted at the meeting in accordance with the
directions noted thereon; or if no direction is indicated, it will be voted in
favor of the proposals set forth in the notice attached to this Proxy
Statement.
Each shareholder of the Company giving a proxy has the unconditional right
to revoke his or her proxy at any time prior to its exercise, either in person
at the Annual Meeting of Shareholders or by oral or written notice to the
Company addressed to Secretary, Lufkin Industries, Inc., 601 South Raguet,
Lufkin, Texas 75904, phone number (936) 634-2211. A shareholder entitled to
vote for the election of directors can withhold authority to vote for all
nominees for directors, or can withhold authority to vote for certain nominees
for directors. Abstentions from the proposal to elect directors are treated as
votes against the particular proposal. Broker non-votes on any of such matters
are treated as shares as to which voting power has been withheld by the
beneficial holders of those shares and, therefore, as shares not entitled to
vote on the proposal as to which there is the broker non-vote.
In addition to the solicitation of proxies by use of this Proxy Statement,
directors, officers and employees of the Company may solicit the return of
proxies by mail, personal interview, telephone or facsimile. Officers and
employees of the Company will not receive additional compensation for their
solicitation efforts, but they will be reimbursed for any out-of-pocket
expenses incurred. Brokerage houses and other custodians, nominees and
fiduciaries will be requested, in connection with the stock registered in
their names, to forward solicitation materials to the beneficial owners of
such stock.
All costs of preparing, printing, assembling and mailing the Notice of
Annual Meeting of Shareholders, this Proxy Statement, the enclosed form of
proxy and any additional materials, as well as the cost of forwarding
solicitation materials to the beneficial owners of stock and all other costs
of solicitation, will be borne by the Company. The approximate date on which
this Proxy Statement will first be sent to shareholders is April 5, 2002.
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QUORUM AND VOTING SECURITIES
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At the close of business on March 29, 2002, which is the record date for
the determination of shareholders of the Company entitled to receive notice of
and to vote at the annual meeting or any adjournments thereof, the Company had
outstanding 6,393,633 shares of common stock, $1.00 par value (the "Common
Stock"). Each share of Common Stock is entitled to one vote upon each of the
matters to be voted on at the meeting.
The presence, either in person or by proxy, of holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. A majority vote is required for the election of directors in
Proposal Number 1. Withholding authority to vote for a director nominee and
broker non-votes in the election of directors will not affect the outcome of
the election of directors.
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PROPOSAL NO. 1: ELECTION OF DIRECTORS
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The Board of Directors has nominated and urges you to vote FOR the election
of the three directors who have been nominated to serve a three-year term of
office in the 2005 class of directors. Proxies solicited hereby will be so
voted unless shareholders specify otherwise in their proxies. The affirmative
vote of the holders of a majority of the Common Stock present in person or by
proxy at the meeting and entitled to vote is required for approval of this
Proposal.
The Company's Fourth Restated Articles of Incorporation (the "Articles")
divide the Board of Directors, with respect to terms of office, into three
classes, designated as Class I, Class II and Class III. Each class of
directors is to be elected to serve a three-year term and is to consist of, as
nearly as possible, one-third of the members of the entire Board. In
accordance with the Company's Bylaws, the Company's Board of Directors is
currently fixed at 9 members.
The term of office of each of the Class II Directors expires at the time of
the 2002 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. H. J. Trout, Jr., Mr. H. H. King and
Mr. J. T. Jongebloed have been nominated to serve a three-year term as Class
II directors. Each of the nominees has consented to be named in this Proxy
Statement and to serve as a director, if elected.
It is intended that the proxies solicited hereby will be voted FOR the
election of the nominees for director listed below, unless authority to do so
has been withheld. If, at the time of the 2002 Annual Meeting of Shareholders,
any of the nominees should be unable or decline to serve, the discretionary
authority provided in the proxy will be used to vote for a substitute or
substitutes designated by the Board of Directors. The Board of Directors has
no reason to believe that any substitute nominee or nominees will be required.
Nominees for Director
The nominees for Class II Directors, if elected, whose term of office will
expire in 2005, and certain additional information with respect to each of
them, are as follows:
H. J. Trout, Jr., manager of his own investments. Age 56. Mr. Trout has
been a director of the Company since 1980 and serves as a member of the
Executive Committee, the Nominating Committee and is the Chairman of the
Pension Committee.
H. H. King, manager of his own investments. Age 69. Mr. King has been a
director since 1990 and also serves on the Executive Committee and the
Compensation Committee.
J. T. Jongebloed, formerly Chairman, President & CEO of Pool Energy
Services, Inc. from 1978-1999. Age 60. Mr. Jongebloed will serve as a
member of the Audit Committee and the Pension Committee.
Report of the Audit Committee
The Audit Committee of the Board of Directors includes four directors who
are independent, as defined by the standards of the New York Stock Exchange.
The Audit Committee assists the Board in overseeing matters relating to the
accounting and financial reporting practices of the Company, the adequacy of
its internal controls and the quality and integrity of its financial
statements. The Audit Committee's functions include making recommendations
concerning the engagement of independent auditors, reviewing with the
independent auditors the plan and results of the auditing engagement,
reviewing the scope and results of the Company's procedures for internal
auditing, reviewing professional services provided by the independent
auditors, reviewing the independence of the independent auditors, considering
the range of audit and nonaudit fees and reviewing the adequacy of the
Company's internal accounting controls. In May 2000, the Board adopted a new
Audit Committee Charter. As set forth in the Audit Committee Charter,
management of the Company is responsible for
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the preparation, presentation and integrity of the Company's financial
statements, and for the procedures designed to assure compliance with
accounting standards and applicable laws and regulations. The independent
auditors are responsible for auditing the Company's financial statements and
expressing an opinion as to their conformity with accounting principles
generally accepted in the United States.
The Audit Committee met two times during the year ended December 31, 2001.
Additionally, two quarterly conference calls between the Audit Committee
Chairman, the Company's independent auditor and Company executives to review
interim quarterly results were conducted. In performing its oversight
function, the Audit Committee reviewed and discussed with management and the
independent auditors the interim financial statements as well as the annual
financial statements and the independent auditor's examination and report on
the Company's annual financial statements. The Audit Committee has discussed
with the independent auditors the matters required to be discussed by
generally accepted auditing standards, including those described in Statement
of Auditing Standards No. 61, as amended, "Communication with Audit
Committees," as currently in effect. The Audit Committee has also received the
written disclosure statement from the independent auditors required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Committee also discussed with the auditors any
relationships that may impact their objectivity and independence and satisfied
itself as to the auditors' independence.
The Audit Committee reviewed the Company's audited financial statements for
the year ended December 31, 2001, and discussed them with management and the
independent auditors. Based on the review and discussions, the Audit Committee
recommended to the Board that the Company's audited financial statements be
included in its Annual Report on Form 10-K for the fiscal year ended December
31, 2001, for filing with the Securities and Exchange Commission.
Principal Accounting Firm Fees
The following table sets forth the aggregate fees paid by the Company to
independent auditors during the year ended December 31, 2001:
Audit fees...................................................... $285,750
Financial Information Systems Design and Implementation Fees.... 0
All Other Fees:
Audit Related................................................... 81,000
Other--Tax Services............................................. 268,942
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Total All Other Fees............................................ 349,942
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Total....................................................... $635,692
========
The above fees paid by the Company to independent auditors during 2001
contain no payment for consulting related work.
The Audit Committee has considered whether the provision of non-audit
services by the Company's independent auditors is compatible with maintaining
auditor independence.
This report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934 except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such acts.
Arthur Andersen LLP, independent public accountants, audited the Company's
consolidated financial statements for fiscal 2001, and have advised the
Company that they will have a representative at the May 1, 2002 Annual Meeting
of Shareholders to respond to appropriate questions. Such representative will
be permitted to make a statement if he desires to do so.
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In past years, the Audit Committee has recommended the appointment of
independent auditors for the current year to the Board of Directors, which in
turn has recommended ratification of such appointment by our shareholders.
Arthur Andersen LLP has served in that capacity for us since 1958 and is
familiar with the Company's business affairs, financial controls and
accounting procedures. This year, in light of the events surrounding Arthur
Andersen LLP, the Audit Committee and management of the Company are performing
additional due diligence. Accordingly, the shareholders are not being asked to
ratify the appointment of independent auditors to audit the Company's
financial statements for the year ending December 31, 2002. While we are
continuing to work with Arthur Andersen LLP as our independent auditor for the
financial statement review for the first quarter of 2002, the Audit Committee
will continue to monitor the situation carefully and to gather additional
information. The Audit Committee intends to make a decision with respect to
the appointment of our independent auditors for the year ending December 31,
2002 that we believe to be in the best interests of the Company and its
shareholders.
The following members of the Audit Committee have delivered the foregoing
report:
L. R. Jalenak, Jr., Chairman
John H. Lollar
Thomas E. Wiener
Melvin E. Kurth, Jr.
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COMPANY INFORMATION
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INFORMATION ABOUT CURRENT AND CONTINUING DIRECTORS
Information about Mr. King, Mr. H. J. Trout, Jr. and Mr. Jongebloed can be
found above under "Nominees for Director." The Class II Directors whose
present term of office will continue after the meeting and expire in 2005.
The Class I Directors, whose present term of office as directors will
continue after the meeting and expire in 2004, and certain additional
information with respect to each of them, are as follows:
John H. Lollar, Managing Partner of Newgulf Exploration, L. P. Age 63.
Mr. Lollar previously was Chairman, President and Chief Executive Officer
of Cabot Oil and Gas Corporation. He became a director of the Company in
1997 and currently serves as a member of the Audit Committee and the
Pension Committee. He is a director of Plains Resources, Inc.
Bob H. O'Neal, formerly President of Stewart & Stevenson Services, Inc.
Age 67. Mr. O'Neal became a director in 1992 and currently serves as a
member of the Compensation Committee and the Nominating Committee.
Thomas E. Wiener, attorney. Age 61. Mr. Wiener became a director of the
Company in 1987 and currently serves on the Audit Committee and the
Executive Committee.
The Class III Directors, whose present term of office as directors will
continue after the meeting and expire in 2003, and certain additional
information with respect to each of them, are as follows:
Douglas V. Smith, President, Chief Executive Officer and Chairman of the
Board of the Company. Age 59. Mr. Smith was elected President and Chief
Executive Officer of the Company in January 1993 and Chairman of the Board
in May 1995. He was also elected as a director in January 1993.
Simon W. Henderson, III, manager of his own investments. Age 68. Mr.
Henderson has been a director of the Company since 1971 and currently
serves as a member of the Compensation Committee, the Executive Committee
and the Nominating Committee.
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Melvin E. Kurth, Jr., manager of his own investments. Age 71. Mr. Kurth
has been a director of the Company since 1968 and currently serves as a
member of the Audit Committee and the Nominating Committee.
Board Committees
The Board of Directors has a standing Audit Committee. The Audit Committee
is currently comprised of Messrs. L. R. Jalenak, Jr., Chairman, M. E. Kurth,
Jr., J. H. Lollar and T. E. Wiener. The Audit Committee's responsibilities and
functions are discussed above under the section entitled "Report of the Audit
Committee".
The Board of Directors also has a standing Compensation Committee which is
currently comprised of Messrs. B. H. O'Neal, Chairman, S. W. Henderson III, L.
R. Jalenak, Jr., and H. H. King. The functions performed by the Compensation
Committee include: reviewing executive salary and bonus structure; reviewing
the Company's stock option plan (and making grants thereunder); setting bonus
goals; and approving salary and bonus awards to key executives.
The Board of Directors also has a standing Nominating Committee which is
currently comprised of Messrs. M. E. Kurth, Chairman, S. W. Henderson III, B.
H. O'Neal and H. J. Trout, Jr.
Directors' Meetings and Compensation
During 2001, the Audit Committee had two meetings, the Compensation
Committee had two meetings, the Executive Committee had three meetings and the
Board of Directors had four meetings. During 2001, each continuing member of
the Board of Directors attended 75% or more of the meetings of the Board of
Directors and the committees of which he was a member.
During 2001, the directors received $1,000 for each meeting of the Board of
Directors and $1,000 for each committee meeting that they attended in addition
to a quarterly payment of $4,000. In addition, each director receives a 5,000
share stock option grant on the date of his election to the Board of Directors
and options to purchase 1,000 shares each year thereafter as long as he
continues on the Board.
EXECUTIVE COMPENSATION
Report of the Compensation Committee
The Compensation Committee of the Board of Directors of Lufkin Industries,
Inc. (the "Committee") is pleased to present the 2001 report on executive
compensation. This report of the Committee documents the components of the
Company's executive officer compensation program and describes the basis on
which the compensation program determinations were made by the Committee with
respect to the executive officers of the Company, including the executive
officers that are named in the compensation tables. The Committee meets
regularly and is comprised entirely of non-employee directors. The duty of the
Committee is to review compensation levels of members of management, as well
as administer the Company's various incentive plans including its annual bonus
plan and its stock option plan. The Committee reviews in detail, with the
Board of Directors, all aspects of compensation for all of the Company's
senior officers.
The Committee has retained the services of a national compensation
consulting firm, to assist the Committee in connection with the performance of
its various duties. Such firm provides advice to the Committee with respect to
how compensation paid by the Company to its senior officers compares to
compensation paid by other companies. Members of the Committee review
compensation surveys provided by the consulting firm as well as surveys
provided by other sources.
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Executive Compensation Program Philosophy
The design of the Company's executive compensation program is based on
three fundamental principles. First, compensation must support the concept of
pay for performance, that is, compensation awards are directly related to the
financial results of the Company, to increasing shareholders' value, and to
individual contributions and accomplishments. As a result, much of an
executive officer's compensation is "at risk" with annual bonus compensation,
at target levels, amounting to approximately 35% of total cash compensation.
The second principle of the program is that it should offer compensation
opportunities competitive with those provided by other comparable industrial
companies. It is essential that the Company be able to retain and reward its
executives who are critical to the long-term success of the Company's
diversified and complex businesses.
The final principle is that the compensation program must provide a direct
link between the long-term interests of the executives and the shareholders.
Through the use of stock-based incentives, the Committee focuses the attention
of executives on managing the Company from the perspective of an owner with an
equity stake.
Compensation Plan Components
Base Salary. The Committee has established base salary levels for the
Company's executive officers that are generally comparable to similar
executive positions in companies of similar size and complexity as the
Company. The Company obtains comparative salary information from published
market surveys and from a national compensation consulting firm. The
comparative data is from industrial companies of a comparable size in revenue
during this period. The Company's salaries were competitive with the market at
the fiftieth percentile in these comparisons. As part of its responsibilities,
the Committee approves all salary changes for the Company's officers and bases
individual salary changes on a combination of factors such as the performance
of the executive, salary level relative to the competitive market, the salary
increase budget for the Company, level of responsibility and the
recommendation of the Chief Executive Officer. In accordance with its review
process, the Committee approves base salary increases for those officers whose
salary level and performance warranted an adjustment. Base salary increases
approved for these officers in 2001 averaged 6.9%.
Incentive Compensation. The Company's performance, or that of a division or
business unit, as the case may be, for purposes of compensation decisions is
measured under the annual bonus plan against goals established at the start of
the year by the Committee. In each instance, the goals consisted in most part
of making budgeted sales and expense levels, as well as subjective individual
performance goals.
Chief Executive Officer Compensation. Mr. Smith's base salary for 2001 was
$390,000 and he received a bonus of $390,000. These amounts were determined by
the Compensation Committee as a part of a three year employment contract that
began on January 1, 1999. The term of the contract automatically extends for
an additional year on each anniversary of the contract and currently expires
on December 31, 2004. The Committee believes that the contract is competitive
and that the employment contract is critical to attract and retain the best
qualified executives.
Stock Options. During 2001, the Committee also made stock option grants to
the CEO and to each of the senior officers of the Company. Each of those
officers received stock options which were based on his responsibilities and
relative position in the Company. In 2001, 71,561 shares of stock options were
granted to the Company's officers which compares to 77,675 shares granted to
officers in 2000. Of the options granted to officers, 53,061 shares of stock
options were granted to Mr. Smith in 2001 compared to 61,475 granted to him in
2000. The Committee's policy is to make stock option grants annually and for
the purpose of tying a portion of the employees' compensation to the long-term
performance of the Company's Common Stock. By making such grants, the
Committee feels that these grants help senior officers' interests coincide
with those of the shareholders.
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No member of the Committee is a former or current officer or employee of
the Company or any of its subsidiaries. The following members of the
Compensation Committee have delivered the foregoing report:
B. H. O'Neal, Chairman
S. W. Henderson, III
L. R. Jalenak, Jr.
H. H. King
The foregoing report and the performance graph and related description
included in this Proxy Statement shall not be deemed to be filed with the
Securities and Exchange Commission except to the extent the Company
specifically incorporates such items by reference into a filing under the
Securities Act of 1933 or Securities Exchange Act of 1934.
Compensation of Executive Officers
The following table sets forth information with respect to the Chief
Executive Officer and the four most highly compensated executive officers of
the Company as to whom the total annual salary and bonus for the year ended
December 31, 2001, exceeded $100,000:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
- ------------------------------------------------ -------------
Name and Principal Stock Options All Other
Position Year Salary Bonus(1) (Shares) Compensation(2)
- ------------------------- ---- -------- -------- ------------- ---------------
Douglas V. Smith......... 2001 $390,000 390,000 53,061 $26,027
President and 2000 375,000 187,500 61,475 16,938
Chief Executive Officer 1999 360,000 -- 53,333 16,247
Larry M. Hoes............ 2001 187,500 105,600 5,500 12,432
Vice President 2000 178,000 88,800 4,300 8,082
1999 172,800 -- 6,000 7,833
John F. Glick............ 2001 171,000 82,500 4,500 9,390
Vice President 2000 165,000 37,400 4,300 7,480
1999 160,000 -- 6,000 8,376
Scott H. Semlinger....... 2001 163,000 44,000 4,500 8,949
Vice President 2000 156,000 35,600 4,300 8,295
1999 147,000 27,000 6,000 8,156
Paul G. Perez............ 2001 138,333 77,000 4,000 9,046
Vice President 2000 130,000 54,800 3,300 5,922
1999 118,000 -- 5,000 5,402
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(1) Annual bonus amounts are earned and accrued during the years indicated,
and paid in the first quarter of the following year.
(2) The All Other Compensation consists of the Company's contribution to the
Thrift Plan.
Stock Option Plans
The Company has a stock option plan (the "2000 Plan"), pursuant to which
options to purchase shares of the Company's stock are outstanding. The purpose
of the 2000 Plan is to advance the best interests of the Company by providing
those persons who have substantial responsibility for the management and
growth of the Company with additional incentive by increasing their
proprietary interest in the success of the Company. All
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options for stock are granted by the Compensation Committee. The term of the
Company's previous stock option plan (the "1990 Plan") expired in 2000 and no
future grants of awards under the 1990 Plan will be allowed. However, awards
that have been issued prior to the expiration of the 1990 Plan but that have
not expired will still be honored by the Company.
The following table shows, as to the Chief Executive Officer and the four
most highly compensated executive officers of the Company, information about
option grants in the last year. The Company does not grant any Stock
Appreciation Rights.
Potential
Realizable
Value of Assumed
Annual Rates of
Stock
Price
Appreciation
Individual Grants For Option Term
--------------------------------------------------------------------------- -----------------
Percentage of
Total Options
Options Granted to
Granted Employees Exercise Price Expiration
Name (Shares)(1) in 2001 (Per Share)(2) Date 5% 10%
---- ------- ------------- -------------- ---------- ------- ---------
Douglas V. Smith(3)..... 53,061 39% $18.375 02/13/2011 612,354 1,554,157
Larry M. Hoes(4)........ 5,500 4% 25.960 12/04/2011 89,815 227,585
John F. Glick(4)........ 4,500 4% 25.960 12/04/2011 13,485 186,165
Scott H. Semlinger(4)... 4,500 4% 25.960 12/04/2011 46,485 186,165
Paul G. Perez(4)........ 4,000 3% 25.960 12/04/2011 65,320 165,480
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) The options were granted for a term of ten years subject to earlier
termination in certain events related to termination of employment.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(3) Options are 1/3 exercisable at time of grant, 1/3 starting twelve months
after the grant date, with full vesting occurring on the second
anniversary date.
(4) Options granted are exercisable starting twelve months after the grant
date, with 25% of the shares becoming exercisable at that time and with an
additional 25% of the option shares becoming exercisable on each
successive anniversary date, with full vesting occurring on the fourth
anniversary date.
The following table presents information concerning exercises of stock
options during 2001 and the unexercised options held at the end of 2001 by the
Chief Executive Officer and the other named officers.
AGGREGATED OPTION EXERCISES IN 2001 AND OPTION VALUES AT 12/31/2001
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at 12/31/01
Options at 12/31/01 (#) ($)(1)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ----------- ---------- ----------- ------------- ----------- -------------
Douglas V. Smith........ 62,000 571,000 181,003 55,866 1,417,397 534,709
Larry M. Hoes........... -- -- 21,450 12,850 122,635 76,275
John F. Glick........... 7,000 72,897 18,450 11,850 106,110 75,435
Scott H. Semlinger...... 15,250 114,979 14,200 11,100 72,710 65,835
Paul G. Perez........... 5,000 49,390 17,363 9,787 117,321 60,622
- --------
(1) Values are based on the difference between the exercise price and the
closing price of $26.800 per share of Common Stock on the last trading day
of 2001. The actual value, if any, of the unexercised options will depend
on the market price of the Common Stock at the time of exercise of the
options.
-8-
Retirement Plan
Certain employees of the Company, including its executive officers, are
participants in the Company's Retirement Plan for Employees (the "Qualified
Plan"). The Qualified Plan is a defined benefit plan, qualified under Section
401 of the Internal Revenue Code, which provides benefits based on an
employee's years of service and covered compensation. Covered compensation
consists of Salary and Bonus as set forth in the Summary Compensation Table on
page 7 of this Proxy Statement. The benefits are based on the average of the
highest five consecutive years of covered compensation received during the
last ten years of service. Benefits are estimated on straight-life annuity
computations and do reflect offsets for primary Social Security benefits.
Under the Code, the maximum amount of compensation that can be considered by a
tax-qualified plan is $170,000, subject to annual adjustments. In addition,
the Code limits the maximum amount of benefits that may be paid under such a
plan. Accordingly, the Company has adopted an unfunded, nonqualified plan
("Restoration Plan") to provide supplemental retirement benefits to covered
executives. The Restoration Plan benefit is based on the same benefit formula
for the Qualified Plan except that it does not limit the amount of a
participant's compensation or maximum benefit. The Company also maintains an
additional nonqualified plan ("SERP") for Mr. Smith, which credits him with an
additional .5 years of service for each year of service credited to him under
the Qualified Plan. The benefits calculated under the Restoration Plan and
SERP are offset by the participant's benefit payable under the Qualified Plan.
The following table shows the annual benefits payable upon retirement at age
65 for various compensation and years of credited service combinations under
these plans. Payment of the specified retirement benefits is contingent upon
continuation of the plans in their present form until the employee retires.
Directors who are not, or who have not been, employees of the Company will not
receive benefits under the plans. The years of credited service for the
persons named in the Summary Compensation Table are: Mr. Smith, nine years
(plus an additional four and one-half years under the SERP); Mr. Hoes, five
years; Mr. Glick, seven years; Mr. Semlinger, 26 years; and Mr. Perez, eight
years.
Estimated Annual Benefits Upon Retirement
------------------------------------------------------
Average Annual
Compensation for Highest
Five
Years During Last Ten 15 Years 20 Years 25 Years 30 Years 35 Years
Years of Service of Service of Service of Service of Service
- ------------------------ ---------- ---------- ---------- ---------- ----------
$125,000................ $32,369 $43,827 $55,286 $66,744 $66,744
150,000................ 39,244 52,994 66,744 80,494 80,494
175,000................ 46,119 62,161 78,202 94,244 94,244
200,000................ 52,994 71,327 89,661 107,994 107,994
225,000................ 59,869 80,494 101,119 121,744 121,744
250,000................ 66,744 89,661 112,577 135,494 135,494
300,000................ 80,494 107,994 135,494 162,994 162,994
400,000................ 107,994 144,661 181,327 217,994 217,994
-9-
Performance Graph
The following performance graph compares the performance of the Company's
common stock to the NASDAQ Market Value Index and to the Media General
Oilfield Services Index (which includes the Company) for the last five years.
The graph assumes that the value of the investment in the Company's common
stock and each index was $100 at December 31, 1995.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(As of December 31)
[Chart appears here]
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
Lufkin Industries, Inc. 100 146.62 77.97 66.28 82.68 127.01
Oil & Gas Equipment/Services 100 151.57 77.94 104.54 144.28 101.6
NASDAQ Market Index 100 122.32 172.52 304.29 191.25 152.46
Compensation Committee Interlocks and Insider Participation
During 2001, no executive officer of the Company served as (i) a member of
the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of another entity, one of whose executive officers served on the
Board of Directors of the Company, or (ii) a director of another entity, one
of whose executive officers served on the Board of Directors of the Company or
its subsidiaries.
During 2001, no member of the compensation committee (or board committee
performing equivalent functions) (i) was an officer or employee of the
Company, (ii) was formerly an officer of the Company or (iii) had any business
relationship or conducted any transactions with the Company.
Employment Contract and Change in Control Arrangement
The Company has entered into an employment contract with Mr. Smith that
currently expires December 31, 2004, with a minimum annual salary of $390,000,
subject to review annually by the Compensation Committee. The Company has also
entered into a severance agreement with Mr. Smith that provides for severance
benefits to be paid to him following a change in control of the Company (as
defined) or a termination of his employment. Maximum severance benefits at
December 31, 2001, would be approximately $2,340,000, payable in a lump sum
payment, such amount representing three times the salary and bonus received by
Mr. Smith during the year. Similar agreements were entered into by Messrs.
Hoes, Glick, Semlinger, Perez and R. D. Leslie, Vice
-10-
President/Treasurer/Chief Financial Officer, with maximum severance benefits
at December 31, 2001, of approximately $586,200, $507,000, $414,000, $430,666
and $408,400, respectively. These amounts represent two times the salary and
bonus received by these individuals during the year.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table reflects the beneficial ownership of the Company's
Common Stock as of December 31, 2001, with respect to (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) the directors and nominees for
director; (iii) each executive officer named in the Summary Compensation Table
and (iv) the Company's directors and officers as a group.
Number of Shares Percent
Name of Beneficial Owner Owned Beneficially(1) of Class
- ------------------------ --------------------- --------
Fidelity Management and
Research............... 621,400 9.7%
Dimensional Funds
Advisors, Inc.......... 411,500 6.4%
Heartland Advisors,
Inc.................... 400,000 6.2%
John F. Glick........... 21,350 *
Simon W. Henderson,
III.................... 82,179 1.3%
Larry M. Hoes........... 23,470 *
L. R. Jalenak, Jr....... 11,400 *
Henry H. King........... 12,128 *
Melvin E. Kurth, Jr..... 75,716 1.2%
John H. Lollar.......... 11,000 *
Bob H. O'Neal........... 10,500 *
Paul G. Perez........... 19,363 *
Scott H. Semlinger...... 14,555 *
Douglas V. Smith........ 194,003 3.0%
H. J. Trout, Jr......... 269,926 4.2%
W. W. Trout, Jr......... 17,129 *
Thomas E. Wiener........ 24,672 *
Directors and Officers
as a group (14
persons)............... 787,391 12.2%
- --------
* Indicates ownership of less than one percent of the outstanding shares of
Common Stock of the Company.
(1) Includes shares subject to presently exercisable options.
Each director and nominee for director listed above possesses sole voting
and investment powers as to all the shares listed as being beneficially owned
by such person. The shares listed above include 7,093 shares held in a family
limited partnership over which Mr. Henderson shares investment and voting
control.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons holding more than ten percent of a
registered class of the Company's equity securities to file with the
Securities and Exchange Commission ("SEC") and any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted (i)
initial reports of ownership, (ii) reports of changes in ownership and (iii)
annual reports of ownership of Common Stock and other equity securities of the
Company. Such directors, officers and ten-percent shareholders are also
required to furnish the Company with copies of all such filed reports.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
2001, the Company believes that all Section 16(a) reporting requirements
related to the Company's directors and executive officers were timely
fulfilled during 2001.
-11-
- -------------------------------------------------------------------------------
PROPOSALS OF SHAREHOLDERS
- -------------------------------------------------------------------------------
A proposal of a shareholder intended to be presented at the next annual
meeting must be received at the Company's principal executive offices no later
than November 30, 2002, if the shareholder making the proposal desires such
proposal to be considered for inclusion in the Company's proxy statement and
form of proxy relating to such meeting. The Company has also adopted Bylaw
provisions which require that nominations of persons for election to the Board
of Directors and the proposal of business by shareholders at an annual meeting
of shareholders must fulfill certain requirements which include the
requirement that notice of such nominations or proposals must be delivered to
the Secretary of the Company not less than 60 days nor more than 90 days prior
to the anniversary of the prior annual meeting. In order to be timely for next
year's annual meeting such notice must be delivered between February 1, 2003,
and March 3, 2003. If such timely notice of a shareholder proposal is not
given, the proposal may not be brought before the annual meeting. If timely
notice is given but is not accompanied by a written statement to the extent
required by applicable securities laws, the Company may exercise discretionary
voting authority over proxies with respect to such proposal if presented at
the annual meeting.
- -------------------------------------------------------------------------------
ADDITIONAL FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
Shareholders may obtain additional financial information for the year ended
December 31, 2001, from the Company's Form 10-K Report filed with the
Securities and Exchange Commission. A copy of the Form 10-K Report may be
obtained without charge by written request to the Secretary, Lufkin
Industries, Inc., P.O. Box 849, Lufkin, Texas 75902.
- -------------------------------------------------------------------------------
OTHER MATTERS
- -------------------------------------------------------------------------------
The Board of Directors has at this time no knowledge of any matters to be
brought before the meeting other than those referred to above. However, if any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote said proxy in accordance with
their best judgment on such matters.
By Order of the Board of Directors
PAUL G. PEREZ
Secretary
April 5, 2002
-12-
- --------------------------------------------------------------------------------
PROXY-LUFKIN INDUSTRIES, INC.
- --------------------------------------------------------------------------------
This Proxy is Solicited by the Board of Directors
The undersigned hereby constitutes and appoints DOUGLAS V. SMITH and PAUL G.
PEREZ, and each or either of them, lawful attorneys and proxies of the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to attend the annual meeting of shareholders of LUFKIN
INDUSTRIES, INC., (herein the "Company") to be held at the Museum of East Texas,
503 North Second, Lufkin, Texas, at 9:00 a.m., Lufkin time on the 1st day of
May, 2002, and any adjournment(s) thereof, with all powers the undersigned would
possess if personally present and to vote thereat, as provided below, the
number of shares the undersigned would be entitled to vote if personally
present.
1. Election of H.H. King, J.T. Jongebloed and H.J. Trout, Jr. to the Company's
board to serve until the annual shareholders' meeting held in 2005 or until
their successors have been elected and qualified.
In accordance with their discretion, said attorneys and proxies are authorized
to vote upon such other business as may properly come before such meeting or any
adjournments thereof.
Every properly signed proxy will be voted in accordance with the specification
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL
1. All prior proxies are hereby revoked.
This proxy will also be voted in accordance with the discretion of the proxies
or proxy on any other business. Receipt is hereby acknowledged of the Notice of
Annual Meeting and Proxy Statement of the Company dated April 5, 2002.
000000 0000000000 0 0000 +
Lufkin Industries, Inc. 000000000.000 ext
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Use a black pen. Print in
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areas as shown in this
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- --------------------------------------------------------------------------------
Annual Meeting Proxy Card
- --------------------------------------------------------------------------------
[A] ELECTION OF DIRECTORS
1. The Board of Directors recommends a vote FOR the listed nominees.
For Withhold
01 - H. H. King [ ] [ ]
02 - J. T. Jongebloed [ ] [ ]
03 - H. J. Trout, Jr. [ ] [ ]
[B] AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
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- ----------------------- ---------------------- -----------------