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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[_] 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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Last update: 02/22/2002
LUFKIN INDUSTRIES, INC.
Lufkin, Texas
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 7, 2003
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 7th day of May, 2003, 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 2006 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 14, 2003 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 1, 2003
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 7, 2003, 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 1, 2003.
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QUORUM AND VOTING SECURITIES
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At the close of business on March 14, 2003, 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 6,527,919 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 2006 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 nine
members.
The term of office of each of the Class III Directors expires at the time of
the 2003 Annual Meeting of Shareholders, or as soon thereafter as their
successors are elected or qualified. Mr. D. V. Smith, Mr. S. W. Henderson, III
and Mr. J. F. Anderson have been nominated to serve a three-year term as Class
III 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 2003 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 III Directors, if elected, whose term of office will
expire in 2006, 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 60. 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 69. Mr.
Henderson has been a director of the Company since 1971 and currently serves
as a member of the Compensation Committee and the Executive Committee.
John F. Anderson, Manager of his own investments. Age 60. Mr. Anderson
will serve as a member of the Pension Committee and the Executive Committee.
Report of the Audit Committee
The Audit Committee of the Board of Directors includes five 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 non-audit fees and reviewing the adequacy of the Company's internal
accounting controls. In May 2000, the Board adopted a new Audit
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Committee Charter. As set forth in the Audit Committee Charter, management of
the Company is responsible for 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 seven times during the year ended December 31, 2002.
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, 2002, 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, 2002, for filing with the Securities and Exchange Commission.
Principal Accounting Firm Fees
The following table sets forth the aggregate fees incurred by the Company to
independent auditors during the year ended December 31, 2002:
Audit Fees.................................................. $286,000
Financial Information Systems Design and Implementation Fees 0
All Other Fees:
Audit Related............................................... 50,540
Other - Tax Services........................................ 237,571
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Total All Other Fees........................................ 288,111
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Total................................................ $574,111
========
The above fees incurred by the Company to independent auditors during 2002
contain no 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.
Deloitte & Touche, LLP, independent public accountants, audited the
Company's consolidated financial statements for fiscal year ended December 31,
2002, and have advised the Company that they will have a representative at the
May 7, 2003 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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The following members of the Audit Committee have delivered the foregoing
report:
John H. Lollar, Chairman
B. H. O'Neal
Melvin E. Kurth, Jr.
J. T. Jongebloed
R. T. Blakely
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COMPANY INFORMATION
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INFORMATION ABOUT CURRENT AND CONTINUING DIRECTORS
Information about Mr. Smith, Mr. Henderson and Mr. Anderson can be found
above under "Nominees for Director." as Class III Directors whose term of
office will continue after the meeting and expire in 2006.
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 64.
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 Compensation Committee and Chairman
of the Audit Committee. He is a director of Plains Exploration and
Production Company, Inc.
Bob H. O'Neal, formerly President of Stewart & Stevenson Services, Inc.
Age 68. Mr. O'Neal became a director in 1992 and currently serves as a
member of the Audit Committee and Chairman of the Compensation Committee.
Thomas E. Wiener, Attorney. Age 62. Mr. Wiener became a director of the
Company in 1987 and currently serves on the Pension Committee and the
Executive Committee.
The Class II 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:
H. J. Trout, Jr., Manager of his own investments. Age 57. Mr. Trout has
been a director of the Company since 1980 and serves as a member of the
Executive Committee and Chairman of the Pension Committee.
J. T. Jongebloed, formerly Chairman, President & Chief Executive Officer
of Pool Energy Services, Inc. from 1978-1999. Age 61. Additionally, Mr.
Jongebloed is on the Board of Directors of Neuvo Energy. He became a
director of the Company in 2002 and serves as a member of the Audit
Committee and the Pension Committee.
R. T. Blakely, President of Performance Enhancement Group, Inc. Age 61.
Additionally, he is currently a trustee of Cornell University. Mr. Blakely
previously served as Executive Vice President and Chief Financial Officer
with Lyondell Chemical Company. He became a director of the Company in 2003
and serves as a member of the Audit Committee and Pension Committee.
Board Committees
The Board of Directors has a standing Audit Committee. The Audit Committee
is currently comprised of Messrs. J. H. Lollar, Chairman, M. E. Kurth, Jr., B.
H. O'Neal, R. T. Blakely and J. T. Jongebloed. The Audit Committee's
responsibilities and functions are discussed above under the section entitled
"Report of the Audit Committee".
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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, J.
T. Jongebloed and J. H. Lollar. 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.
Directors' Meetings and Compensation
During 2002, the Audit Committee had seven meetings, the Compensation
Committee had three meetings, the Executive Committee had two meetings, the
Pension Committee had three meetings, the Nominating Committee had one meeting
and the Board of Directors had five meetings. During 2002, 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 2002, 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 $4,500. 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.
INFORMATION ABOUT CURRENT EXECUTIVE OFFICERS
The following information is submitted with respect to the executive
officers of the Company:
Executive Officer
Name Position with Company Age Since
- --------------- ------------------------------------------------ --- -----------------
D. V. Smith.... Chairman, President & Chief Executive Officer 60 1993
J. F. Glick.... Vice President--Power Transmission 50 1994
S. H. Semlinger Vice President--Trailer 49 1992
L. M. Hoes..... Vice President--Oil Field 56 1996
P. G. Perez.... Vice President/Secretary 57 1996
R. D. Leslie... Vice President/Treasurer/Chief Financial Officer 57 1999
There is no significant family relationship either by blood or by marriage
among the officers of the Company.
All of the executive officers of the Company, with the exception of Mr.
Leslie, have been employed by the Company for more than five years in the same
or similar positions. Mr. Leslie has been employed by the Company since October
1992. Prior to becoming the Company's Treasurer, Mr. Leslie served as the
Company's Controller and Chief Accounting Officer. Prior to joining the
Company, Mr. Leslie was employed by Sanifill, Inc. in Houston, Texas, as Vice
President of Finance and Chief Accounting Officer. The executive officers of
the Company serve at the request of the Board of Directors of the Company. The
term of office for all executive officers expires at the next annual meeting of
the Board of Directors of the Company.
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 2002 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
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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.
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 2002 averaged 3.8%.
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 2002 was
$410,000 and he received a bonus of $150,000. 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
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additional year on each anniversary of the contract and currently expires on
December 31, 2005. 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 2002, 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 2002, 75,604 shares of stock options were
granted to the Company's officers which compares to 71,561 shares granted to
officers in 2001. Of the options granted to officers, 45,404 shares of stock
options were granted to Mr. Smith in 2002 compared to 53,061 granted to him in
2001. 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.
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
J. H. Lollar
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, 2002, exceeded $100,000:
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
- ------------------------------------------------------- -------------
Stock Options All Other
Name and Principal Position Year Salary Bonus(1) (Shares) Compensation(2)
- -------------------------------- ---- -------- -------- ------------- ---------------
Douglas V. Smith................... 2002 $409,231 $150,000 45,404 $36,034
President and 2001 390,000 390,000 53,061 26,027
Chief Executive Officer 2000 375,000 187,500 61,475 16,938
Larry M. Hoes...................... 2002 200,808 70,000 10,300 13,824
Vice President 2001 187,500 105,600 5,500 12,432
2000 178,000 88,800 4,300 8,082
John F. Glick...................... 2002 176,577 60,000 7,800 11,686
Vice President 2001 171,000 82,500 4,500 9,390
2000 165,000 37,400 4,300 7,480
Scott H. Semlinger................. 2002 168,577 20,000 7,800 9,592
Vice President 2001 163,000 44,000 4,500 8,949
2000 156,000 35,600 4,300 8,295
Robert D. Leslie................... 2002 150,577 34,000 7,100 10,340
Vice President, Treasurer and 2001 121,154 79,200 4,500 6,972
Chief Financial Officer 2000 114,462 48,000 3,300 5,151
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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.
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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 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.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value of Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
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Percentage of
Total Options
Options Granted to
Granted Employees Exercise Price Expiration
Name (Shares)(1) in 2002 (Per Share)(2) Date 5% 10%
- --------------------- ----------- ------------- -------------- ---------- ------- ---------
Douglas V. Smith(3).. 45,404 32% $22.575 02/26/2012 644,614 1,633,579
Larry M. Hoes(4)..... 10,300 7% 25.890 11/04/2012 167,705 424,999
John F. Glick(4)..... 7,800 5% 25.890 11/04/2012 127,000 321,844
Scott H. Semlinger(4) 7,800 5% 25.890 11/04/2012 127,000 321,844
Robert D. Leslie(4).. 7,100 5% 25.890 11/04/2012 115,603 292,960
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(1) The options were granted for a term of ten years subject to earlier
termination in certain events related to termination of employment.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(3) Options are 1/3 exercisable at time of grant, 1/3 starting twelve months
after the grant date, with full vesting occurring on the second anniversary
date.
(4) Options granted are exercisable starting twelve months after the grant
date, with 25% of the shares becoming exercisable at that time and with an
additional 25% of the option shares becoming exercisable on each successive
anniversary date, with full vesting occurring on the fourth anniversary
date.
The following table presents information concerning exercises of stock
options during 2002 and the unexercised options held at the end of 2002 by the
Chief Executive Officer and the other named officers.
AGGREGATED OPTION EXERCISES IN 2002 AND OPTION VALUES AT 12/31/2002
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at 12/31/02 (#) Options at 12/31/02 ($) (1)
Acquired on Value ------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ------------ ------------ ----------- ------------- ----------- -------------
Douglas V. Smith.. 39,000 340,822 195,317 47,956 1,047,526 116,247
Larry M. Hoes..... -- -- 26,525 18,075 85,855 25,355
John F. Glick..... -- -- 23,275 14,825 79,380 25,355
Scott H. Semlinger -- -- 18,275 14,825 53,130 25,355
Robert D. Leslie.. 3,963 44,611 10,262 13,375 26,819 20,393
- --------
(1) Values are based on the difference between the exercise price and the
closing price of $23.450 per share of Common Stock on the last trading day
of 2002. 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.
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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, ten years (plus an
additional five and one-half years under the SERP); Mr. Hoes, six years; Mr.
Glick, eight years; Mr. Semlinger, twenty-seven years; and Mr. Leslie, ten
years.
Estimated Annual Benefits Upon Retirement
------------------------------------------------------
Average Annual Compensation for Highest Five 15 Years 20 Years 25 Years 30 Years 35 Years
Years During Last Ten 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
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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, 1997.
[CHART]
Lufkin Oil & Gas NASDAQ
Industries, Inc. Equipment/Services Market Index
---------------- ------------------ ------------
1997 100.00 100.00 100.00
1998 53.18 51.42 141.04
1999 45.20 68.98 248.76
2000 56.39 95.20 156.35
2001 86.62 67.03 124.64
2002 77.92 62.36 86.94
Compensation Committee Interlocks and Insider Participation
During 2002, 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 2002, 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, 2005, with a minimum annual salary of $410,000,
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, 2002, would be approximately $2,400,000, payable in a lump sum
-10-
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, Leslie, and P. G. Perez, Vice President/Corporate
Secretary, with maximum severance benefits at December 31, 2002, of
approximately $613,000, $518,000, $425,000, $460,000 and $445,000,
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, 2002, 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.............. 453,700 7.0%
Dimensional Funds Advisors, Inc............... 433,600 6.6%
John F. Anderson.............................. 21,324 *
John F. Glick................................. 26,175 *
Simon W. Henderson, III....................... 83,179 1.3%
Larry M. Hoes................................. 28,545 *
James T. Jongebloed........................... 5,000 *
Melvin E. Kurth, Jr........................... 71,716 1.1%
Robert D. Leslie.............................. 10,263 *
John H. Lollar................................ 12,000 *
Bob H. O'Neal................................. 11,500 *
Paul G. Perez................................. 23,251 *
Scott H. Semlinger............................ 18,630 *
Douglas V. Smith.............................. 208,317 3.2%
H. J. Trout, Jr............................... 255,926 3.9%
Thomas E. Wiener.............................. 25,372 *
Directors and Officers as a group (14 persons) 801,198 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
2002, the Company believes that all Section 16(a) reporting requirements
related to the Company's directors and executive officers were timely fulfilled
during 2002.
-11-
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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, 2003, 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, 2004, and
March 3, 2004. 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.
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ADDITIONAL FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Shareholders may obtain additional financial information for the year ended
December 31, 2002, 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.
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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 1, 2003
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Lufkin Industries, Inc. 000000 0000000000 0 0000
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MR A SAMPLE 000000000.000 ext
DESIGNATION (IF ANY) 000000000.000 ext
ADD 1 000000000.000 ext
ADD 2 000000000.000 ext
ADD 3 000000000.000 ext
ADD 4
ADD 5 Holder Account Number
ADD 6
C 1234567890 J N T
[Bar Code]
[ ] Mark this box with an X if
you have made changes to
your name or address details
above.
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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 - D.V. Smith [ ] [ ]
02 - S.W. Henderson, III [ ] [ ]
03 - J.F. Anderson [ ] [ ]
[B] Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
NOTE: Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian etc., please give full title as
such. For joint accounts each joint owner should sign.
Signature 1 - Please keep signature within the box
|-------------------------------------------------|
| |
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Signature 2 - Please keep signature within the box
|-------------------------------------------------|
| |
|-------------------------------------------------|
Date (mm/dd/yyyy)
|-------------------------------------------------|
| / / |
|-------------------------------------------------|
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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 7th day of
May, 2003, 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 D.V. Smith, S.W. Henderson, III and J.F. Anderson to the
Company's board to serve until the annual shareholders' meeting held in
2006 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 1, 2003.