SCHEDULE 14A INFORMATION
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 Section 240.14a-11(c) or
Section 240.14a-12
SCHNITZER STEEL INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(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)(1) 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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4) Proposed maximum aggregate value of transaction:
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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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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
December 5, 1997
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of your Company,
which will be held on Monday, January 5, 1998 at 8 A.M., local time, at the
Multnomah Athletic Club, 1849 SW Salmon Street, Portland, Oregon 97205.
The formal notice of the meeting and the proxy statement appear on the following
pages and describe the matters to be acted upon. Time will be provided during
the meeting for discussion and you will have an opportunity to ask questions
about your Company.
Whether or not you plan to attend the meeting in person, it is important that
your shares be represented and voted. After reading the enclosed notice of the
meeting and proxy statement, please sign, date and return the enclosed proxy at
your earliest convenience. Return of the signed and dated proxy card will not
prevent you from voting in person at the meeting should you later decide to do
so.
Sincerely,
Robert W. Philip
President
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 5, 1998
The Annual Meeting of Shareholders of Schnitzer Steel Industries, Inc. (the
Company) will be held at the Multnomah Athletic Club, 1849 SW Salmon Street,
Portland, Oregon 97205 on Monday, January 5, 1998 at 8 A.M., local time, for the
following purposes:
(1) To elect eleven directors each to serve until the next Annual Meeting
of Shareholders and until a successor has been elected and qualified;
(2) To approve and ratify the selection of Price Waterhouse LLP as the
independent auditors for the Company and its subsidiaries for the
fiscal year ending August 31, 1998; and
(3) To transact such other business as may properly be brought before the
meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on November 14, 1997 are
entitled to notice of and to vote at the meeting or any adjournments thereof.
Please sign and date the enclosed proxy and return it promptly in the enclosed
reply envelope. If you are able to attend the meeting, you may, if you wish,
revoke the proxy and vote personally on all matters brought before the meeting.
By Order of the Board of Directors,
Dori Schnitzer
Secretary
Portland, Oregon
December 5, 1997
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Schnitzer Steel Industries, Inc., an Oregon
corporation (the Company), to be voted at the Annual Meeting of Shareholders to
be held at the time and place and for the purposes set forth in the accompanying
Notice of Annual Meeting.
All proxies in the enclosed form that are properly executed and received by the
Company prior to or at the Annual Meeting and not revoked will be voted at the
Annual Meeting or any adjournments thereof in accordance with the instructions
thereon. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of the Company, at or before the taking of the vote at
the Annual Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a subsequent proxy relating to the same shares and
delivering it to the Secretary of the Company before the Annual Meeting, or
(iii) attending the Annual Meeting and voting in person (although attendance at
the Annual Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice revoking a proxy should be sent to Schnitzer Steel
Industries, Inc., P.O. Box 10047, Portland, Oregon 97296-0047, Attention: Dori
Schnitzer, Secretary, or hand-delivered to the Secretary at or before the taking
of the vote at the Annual Meeting.
The mailing address of the principal executive offices of the Company is P.O.
Box 10047, Portland, Oregon 97296-0047. This Proxy Statement and the
accompanying Notice of Annual Meeting and Proxy Card are first being mailed to
shareholders on or about December 5, 1997.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The record date for determination of shareholders entitled to receive notice of
and to vote at the Annual Meeting is November 14, 1997. At the close of business
on November 14, 1997, 5,746,326 shares of Class A Common Stock (Class A), par
value $1.00 per share, and 4,436,328 shares of Class B Common Stock (Class B),
par value $1.00 per share, of the Company (collectively, the Common Stock) were
outstanding and entitled to vote at the Annual Meeting. Each share of Class A
Common Stock is entitled to one vote and each share of Class B Common Stock is
entitled to ten votes with respect to each matter to be voted on at the Annual
Meeting.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, as of August 31, 1997, by (i) persons known to
the Company to be the beneficial owner of more than 5% of either class of the
Company's Common Stock, (ii) each of the Company's directors and nominees for
director, (iii) each executive officer of the Company named in the Summary
Compensation Table, and (iv) all directors and executive officers of the Company
as a group. Unless otherwise noted in the footnotes to the table, the persons
named in the table have sole voting and investment power with respect to all
outstanding shares of Common Stock shown as beneficially owned by them. Except
as noted below, the address of each shareholder in the table is Schnitzer Steel
Industries, Inc., P.O. Box 10047, Portland, Oregon 97296-0047.
1
<PAGE>
<TABLE>
<CAPTION>
Name of Beneficial Owner or Class A Shares Class B Shares
Number of Persons in Group Beneficially Owned (1) Beneficially Owned (1)
- ------------------------------------------------------- ----------------------------- ---------------------------
Number Percent Number Percent
- ------------------------------------------------------- --------------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Schnitzer Steel Industries, Inc. Voting Trust
(the Schnitzer Trust) 4,434,628 99.8%
--------------- --------- --------------- -----------
Manuel Schnitzer (2) 15,000 * 295,882 6.7%
--------------- --------- --------------- -----------
Marilyn S. Easly (2) 6,300 * 326,610 7.3%
--------------- --------- --------------- -----------
Carol S. Lewis (2) 1,000 * 195,812 4.4%
--------------- --------- --------------- -----------
MANUEL SCHNITZER FAMILY GROUP,
Carol S. Lewis, Trustee (3) 1,152,927 25.9%
--------------- --------- --------------- -----------
Dori Schnitzer (2) 333,124 7.5%
--------------- --------- --------------- -----------
Susan Schnitzer (2) 333,134 7.5%
--------------- --------- --------------- -----------
Jean S. Reynolds (2) 283,674 6.4%
--------------- --------- --------------- -----------
MORRIS SCHNITZER FAMILY GROUP,
Dori Schnitzer, Trustee (3) 1,167,814 26.3%
--------------- --------- --------------- -----------
Gilbert and Thelma S. Schnitzer (2) 36,850(4) * 481,229 10.8%
--------------- --------- --------------- -----------
Kenneth M. and Deborah S. Novack (2) 39,500(4,5) * 272,037 6.1%
--------------- --------- --------------- -----------
Gary Schnitzer (2) 20,126(6) * 214,597 4.8%
--------------- --------- --------------- -----------
GILBERT SCHNITZER FAMILY GROUP,
Gary Schnitzer, Trustee (3) 972,288 21.9%
--------------- --------- --------------- -----------
Leonard and Lois T. Schnitzer (2) 35,633(7) * 213,655 4.8%
--------------- --------- --------------- -----------
Robert W. and Rita S. Philip (2) 37,875(8) * 138,222 3.1%
--------------- --------- --------------- -----------
LEONARD SCHNITZER FAMILY GROUP,
Rita S. Philip, Trustee (3) 1,141,599 25.7%
--------------- --------- --------------- -----------
Columbia Management Co. 550,000(9) 9.6%
1300 SW Sixth Avenue, P.O. Box 1350
Portland, OR 97207
--------------- --------- --------------- -----------
J.P. Morgan & Co., Inc. 788,400(9) 13.7%
60 Wall Street
New York, NY 10260
--------------- --------- --------------- -----------
Wanger Asset Management LP 646,000(9) 11.3%
227 W. Monroe, Suite 3000
Chicago, IL 60606
--------------- --------- --------------- -----------
Robert S. Ball 5,000 *
--------------- --------- --------------- -----------
William A. Furman 3,500 *
--------------- --------- --------------- -----------
Ralph R. Shaw 5,000 *
--------------- --------- --------------- -----------
Barry A. Rosen 19,390(10) *
--------------- --------- --------------- -----------
Kurt C. Zetzsche 18,687(11) *
--------------- --------- --------------- -----------
All directors and executive officers as a group
(15 persons) (2) 202,411(12) 1.9% 1,947,003 43.8%
--------------- --------- --------------- -----------
2
<PAGE>
* Less than 1%
(1) Includes, in all cases, shares held by either spouse, either directly or as
trustee or custodian. For purposes of this table, Class A shares
beneficially owned do not include Class A shares issuable upon conversion
of Class B shares.
(2) Class B shares owned by these shareholders are deposited in the Schnitzer
Trust and represented by voting trust certificates beneficially owned by
the shareholders.
(3) Class B shares shown in the table as owned by a family group represent the
total number of shares deposited in the Schnitzer Trust by members of the
family group. The trustee for each family group has certain voting powers
with respect to the family group's shares as described below under
"Schnitzer Steel Industries, Inc. Voting Trust and Buy-Sell Agreement."
(4) Includes shares contributed to a foundation for which shareholders serve as
trustees.
(5) Includes 4,000 shares subject to options exercisable prior to October 30,
1997.
(6) Includes 20,026 subject to options exercisable prior to October 30, 1997.
(7) Includes 25,633 shares subject to options exercisable prior to October 30,
1997.
(8) Includes 27,825 shares subject to options exercisable prior to October 30,
1997.
(9) Beneficial ownership as of June 30, 1997 as reported by the investment
manager on Form 13F. Data was obtained from Corporate Record published by
The NASDAQ Stock Market, Inc.
(10) Includes 15,390 shares subject to options exercisable prior to October 30,
1997.
(11) Includes 18,587 shares subject to options exercisable prior to October 30,
1997.
(12) Includes 94,074 shares subject to options exercisable prior to October 30,
1997.
</TABLE>
Schnitzer Steel Industries, Inc. Voting Trust and Buy-Sell Agreement
Voting Trust Provisions. Pursuant to the terms of the Schnitzer Steel
Industries, Inc. Voting Trust and Buy-Sell Agreement dated March 31, 1991 (the
Schnitzer Trust Agreement), the beneficial owners of substantially all
outstanding shares of Class B Common Stock have contributed their shares to the
Schnitzer Steel Industries, Inc. Voting Trust (the Schnitzer Trust). The
Schnitzer Trust is divided into four separate groups, one for each branch of the
Schnitzer family. Carol S. Lewis, Dori Schnitzer, Gary Schnitzer, and Rita S.
Philip are the four trustees of the Schnitzer Trust and each is also the
separate trustee for his or her separate family group. Pursuant to the Schnitzer
Trust Agreement, the trustees as a group have the power to vote the shares held
in the Schnitzer Trust and, in determining how the trust shares will be voted,
each trustee separately has the number of votes equal to the number of shares
held in trust for his or her family group. Any action by the trustees requires
the approval of trustees with votes equal to at least 52.5% of the number of
shares held by the Schnitzer Trust. Before voting with respect to the following
actions, each trustee is required to obtain the approval of holders of a
majority of the voting trust certificates held by his or her family group: (a)
any merger or consolidation of the Company with any other corporation, (b) the
sale of all or substantially all the Company's assets or any other sale of
assets requiring approval of the Company's shareholders, (c) any reorganization
of the Company requiring approval of the Company's shareholders, (d) any partial
liquidation or dissolution requiring approval of the Company's shareholders, and
(e) dissolution of the Company. The Schnitzer Trust will terminate on March 31,
2001 unless terminated prior thereto by agreement of the holders of trust
certificates representing two-thirds of the shares held by the trust for each
family group.
Provisions Restricting Transfer The trustees are prohibited from selling or
encumbering any shares held in the Schnitzer Trust. The Schnitzer Trust
Agreement prohibits shareholders who are parties from selling or otherwise
transferring their voting trust certificates or their shares of Class B Common
Stock except to other persons in their family group or to entities controlled by
such persons. Such transfers are also restricted by the Company's Restated
Articles of Incorporation. A holder of voting trust certificates is permitted to
sell or make a charitable gift of the shares of Class B Common Stock represented
by his or her certificates by first directing the trustees to convert the shares
into Class A Common Stock which will then be distributed to the holder free from
restrictions under the agreement. However, before causing any shares to be
converted for sale, a holder must offer the shares (or the voting trust
certificates representing the shares) to the other voting trust certificate
holders who may purchase the shares at the current market price for the Class A
Common Stock. After the expiration of the voting trust, these transfer
restrictions will continue to apply to the Class B Common Stock formerly held by
the trust unless terminated by agreement of the holders of two-thirds of the
Class B Common Stock held by each family group.
ELECTION OF DIRECTORS
Eleven directors are to be elected at the Annual Meeting, each to hold office
until the next Annual Meeting and until his or her successor has been duly
elected and qualified. Proxies received from shareholders, unless directed
otherwise, will be voted FOR the election of the following nominees: Leonard
Schnitzer, Robert W. Philip, Kenneth M. Novack, Gary Schnitzer, Dori Schnitzer,
Carol S. Lewis, Jean S. Reynolds, Manuel Schnitzer, Robert S. Ball, William A.
3
<PAGE>
Furman, and Ralph R. Shaw. If any nominee is unable to stand for election, the
persons named in the proxy will vote the same for a substitute nominee. All of
the nominees are currently directors of the Company. The Company is not aware
that any nominee is or will be unable to stand for reelection. Directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Abstentions and broker non-votes will have no effect on the results
of the vote.
Set forth below is the name, age, position with the Company, present principal
occupation or employment and five-year employment history of each of the
nominees for director of the Company.
<TABLE>
<CAPTION>
Name and Year First
Became Director Business Experience Age
- ------------------- ----------------------------------------------------- ---
<S> <C> <C>
Leonard Schnitzer Chief Executive Officer since August 1973; became 73
1948 Chairman of the Board in March 1991.
Robert W. Philip President and a director since March 1991. Became 50
1991 director in March 1991. He had been a Vice President
of the Company since 1984 with responsibility for
the Company's Metra steel distribution division
from 1984 to the time of its sale in July 1990.
Mr. Philip is Leonard Schnitzer's son-in-law.
Kenneth M. Novack Executive Vice-President of the Company and President 51
1991 of Schnitzer Investment Corp. and certain other
Schnitzer Group Companies. From 1975 to 1980, he
worked for the Company as Vice President and then
Executive Vice President. Mr. Novack was also
President of SIC from 1978 to 1980. From 1981
until April 1991, he was a partner in the law firm
of Ball, Janik & Novack. Mr. Novack is the
son-in-law of Gilbert Schnitzer, a brother of
Leonard Schnitzer.
Gary Schnitzer Executive Vice President in charge of the Company's 55
1993 California scrap operations since 1980 and a
director since September 1993. Gary Schnitzer is
the son of Gilbert Schnitzer.
Dori Schnitzer Secretary of the Company since June 1987 and became 44
1991 a director in March 1991. She also served as
corporate counsel of the Company from October 1987
to May 1991 when she became Vice President of
Lasco Shipping Co. Dori Schnitzer is a daughter of
Morris Schnitzer, a deceased brother of Leonard
Schnitzer.
Carol S. Lewis Director of the Company since December 1987. She is 60
1987 currently proprietor of Virginia Jacobs, a linen and
home accessories store. From 1991 until 1995 she
worked as a marketing and fund-raising consultant.
From 1981 until 1991 she worked for Oregon Public
Broadcasting, the nonprofit operator of public
television and radio in Oregon, most recently as
President of the Oregon Public Broadcasting
Foundation. Carol Lewis is the daughter of Manuel
Schnitzer, a brother of Leonard Schnitzer.
Jean S. Reynolds Director of the Company since September 1993. Jean S. 48
1993 Reynolds is marketing a consultant. She is a daughter
of Morris Schnitzer, a deceased brother of Leonard
Schnitzer.
4
<PAGE>
Manuel Schnitzer Director of the Company until December 1987. He 90
1991 became a director again in March 1991. Manuel
Schnitzer is a brother of Leonard Schnitzer.
Robert S. Ball Director of the Company since September 1993. Since 56
1993 1982, he has been a partner in the Portland, Oregon
law firm of Ball Janik LLP.
William A. Furman Director of the Company since September 1993. Since 52
1993 1981, he has been the President and Chief Executive
Officer and a director of The Greenbrier Companies
of Portland, Oregon, a publicly held company with
subsidiaries, including Gunderson, Inc., engaged
in manufacturing, marketing and leasing of
railcars and other equipment.
Ralph R. Shaw Director of the Company since September 1993. 57
1993 Mr. Shaw is President of Shaw Management, Inc., a
financial services and venture capital firm. He is
also a director of TRM Copy Centers Corporation.
</TABLE>
The Board of Directors held four meetings during the fiscal year ended August
31, 1997. Each director attended at least 75% of the aggregate number of
meetings of the Board and of committees of the Board on which they served.
The Company has Compensation and Audit Committees of the Board of Directors.
Messrs. Ball, Furman, and Shaw are members of the Audit Committee and Messrs.
Furman and Shaw are members of the Compensation Committee. The principal
function of the Audit Committee is to make recommendations to the Board as to
the engagement of independent auditors, to review the scope of the audit and
audit fees and to discuss the results of the audit with the independent
auditors. The Compensation Committee administers the Company's 1993 Stock
Incentive Plan and makes recommendations to the Board of Directors regarding
compensation for executive officers of the Company. During fiscal 1997, the
Audit Committee held two meetings and the Compensation Committee held one
meeting. The Company does not have a nominating committee of the Board of
Directors. Shareholders who wish to submit names for consideration for Board
membership should do so in writing addressed to the Board of Directors, c/o Dori
Schnitzer, Secretary, Schnitzer Steel Industries, Inc., P.O. Box 10047,
Portland, Oregon 97296-0047.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning compensation
paid or accrued by the Company to or on behalf of the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company (hereinafter referred to as the Named Executive Officers) for the
fiscal years ended August 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------ ---------------
Awards All
Securities Other
Name and Fiscal Underlying Compen-
Principal Position Year Salary(1) Bonus Other Options sation (1,2)
- ----------------------------------- --------- ------------- ----------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Schnitzer 1997 $286,391 $207,200 19,665 $ 7,175
--------- ------------- ----------- -------- --------------- ------------
Chief Executive Officer 1996 $275,187 $207,200 18,948 $ 6,750
--------- ------------- ----------- -------- --------------- ------------
1995 $262,214 $207,200 22,176 $ 4,275
--------- ------------- ----------- -------- --------------- ------------
Robert W. Philip 1997 $358,624 $412,500 29,220 $ 7,175
--------- ------------- ----------- -------- --------------- ------------
President 1996 $340,269 $375,000 21,043 $ 6,750
--------- ------------- ----------- -------- --------------- ------------
1995 $239,460 $375,000 22,781 $ 6,080
--------- ------------- ----------- -------- --------------- ------------
Gary Schnitzer 1997 $260,737 $160,000 16,440 $ 7,175
--------- ------------- ----------- -------- --------------- ------------
Executive Vice President 1996 $250,651 $150,000 11,843 $ 6,750
--------- ------------- ----------- -------- --------------- ------------
1995 $228,882 $150,000 13,807 $ 8,358
--------- ------------- ----------- -------- --------------- ------------
Kurt C. Zetzsche 1997 $235,426 $90,000 12,991 $ 16,000
--------- ------------- ----------- -------- --------------- ------------
President of Steel Operations 1996 $227,142 $90,000 10,649 $ 15,000
--------- ------------- ----------- -------- --------------- ------------
1995 $222,416 $100,000 12,416 $ 15,920
--------- ------------- ----------- -------- --------------- ------------
Barry A. Rosen 1997 $195,117 $110,000 11,787 $ 7,175
--------- ------------- ----------- -------- --------------- ------------
Vice President - Finance 1996 $188,110 $100,000 9,405 $ 6,750
--------- ------------- ----------- -------- --------------- ------------
1995 $141,908 $100,000 10,280 $ 6,340
========= ============= =========== ======== =============== ============
(1) The amounts in the table above do not include the amounts of salary and
bonus separately paid by other Schnitzer Group Companies to these officers
through a reimbursement arrangement under the Shared Services Agreement.
(2) For fiscal years, 1995, 1996 and 1997, All Other Compensation consists
entirely of Company contributions, net of reimbursement from other
Schnitzer Group companies, to the Company's Supplemental Retirement Plan
and Salary Deferral Retirement Plan, except that for Mr. Zetzsche for
fiscal 1995 and 1996, All Other Compensation consists of Company
contributions to the Cascade Steel Rolling Mills Employees' Retirement
Plan.
</TABLE>
6
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table provides information regarding stock options for Class A
Common Stock granted to the Named Executive Officers in the fiscal year ended
August 31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
Potential Realizable Value
Number of Percent of at Assumed Annual Rates of
Securities Total Options Stock Price Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees in Price Per Expiration ----------------------------
Name Granted (1) Fiscal Year Share Date 5% 10%
- ------------------------ ------------- -------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Schnitzer 19,665 14.4% $25.00 6/01/07 $309,180 $ 783,524
------------- -------------- -------------- ------------ ------------- ------------
Robert W. Philip 29,220 21.4% 25.00 6/01/07 459,408 1,164,229
------------- -------------- -------------- ------------ ------------- ------------
Gary Schnitzer 16,440 12.0% 25.00 6/01/07 258,476 655,028
------------- -------------- -------------- ------------ ------------- ------------
Kurt C. Zetzsche 12,991 9.5% 25.00 6/01/07 204,249 517,608
------------- -------------- -------------- ------------ ------------- ------------
Barry A. Rosen 11,787 8.6% 25.00 6/01/07 185,320 469,636
============= ============== ============== ============ ============= ============
(1) Each option was granted on the date 10 years prior to the expiration date
shown in the table. Options become exercisable for 20% of the shares on
each of the first five anniversaries of the grant date.
(2) In accordance with rules of the Securities and Exchange Commission, these
amounts are the hypothetical gains or "option spreads" that would exist for
the respective options based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the options were granted
over the full option term.
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides certain information concerning exercises of stock
options during the fiscal year ended August 31, 1997 by each of the Named
Executive Officers as well as the number and value of unexercised options held
by such persons at August 31, 1997.
<TABLE>
<CAPTION>
Value of Unexercised in the
Number of Unexercised Money Options at Fiscal
Shares Options at Fiscal Year-End Year-End (1)
Acquired on Value ----------- -------------- ----------- ---------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ------------ ------------ ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Schnitzer 25,633 56,778 $346,621 $676,765
------------ ------------ ----------- -------------- ----------- ---------------
Robert W. Philip 26,825 68,725 387,237 874,829
------------ ------------ ----------- -------------- ----------- ---------------
Gary Schnitzer 19,025 41,622 276,991 536,521
------------ ------------ ----------- -------------- ----------- ---------------
Kurt C. Zetzsche 17,588 35,954 256,241 466,164
------------ ------------ ----------- -------------- ----------- ---------------
Barry A. Rosen 14,390 31,078 208,844 400,380
============ ============ =========== ============== =========== ===============
(1) Aggregate value of shares covered by the options at August 31, 1997, less
the aggregate exercise price of such options.
</TABLE>
7
<PAGE>
Defined Benefit Retirement Plans
Pension Retirement Plan. The Company's Pension Retirement Plan is a defined
benefit plan qualified under Section 401(a) of the Internal Revenue Code of 1986
(the Code). All employees (except Leonard Schnitzer and certain union and
on-call employees) of the Company and certain other Schnitzer Group companies
are eligible to participate in the plan after meeting certain service
requirements. Generally, pension benefits become fully vested after five years
of service and are paid in monthly installments beginning when the employee
retires at age 65. Annual benefits equal 2% of qualifying compensation for each
plan year of service after August 31, 1986. Upon their retirement, assuming
retirement at age 65 and no increase in annual compensation from current levels,
Messrs. Gary Schnitzer, Robert W. Philip, and Barry A. Rosen would receive
annual benefits for life of $77,992, $92,909, and $88,797, respectively.
Supplemental Executive Retirement Bonus Plan. The Supplemental Executive
Retirement Bonus Plan was adopted to provide a competitive level of retirement
income for key executives selected by the Board of Directors. The plan
establishes an annual target benefit for each participant based on continuous
years of service (up to a maximum of 25 years) and the average of the
participant's five highest consecutive calendar years of compensation, with the
target benefit subject to an inflation-adjusted limit equal to $170,035 in 1997.
The target benefit is reduced by 100% of primary social security benefits and
the Company-paid portion of all benefits payable under the Company's qualified
retirement plans to determine the actual benefit payable under the plan. The
actual benefit shall be paid as a straight life annuity or in other actuarially
equivalent forms. Benefits are payable under the plan only to participants who
terminate employment after age 55 with 10 credited years of service or after age
60. The following table shows the estimated annual target benefits under the
plan, before the reductions based on social security and Company-paid retirement
benefits, for executives who retire at age 60 (the normal retirement age under
the plan) with various levels of pay and service, based on the 1997 value for
the inflation-adjusted cap.
<TABLE>
<CAPTION>
Highest Consecutive Five-Year
Average Qualifying Compensation Credited Years of Service
- --------------------------------- ------------ ------------- ------------- -------------
10 15 20 25
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$200,000 $52,000 $ 78,000 $104,000 $130,000
-------- ------------ ------------- ------------- -------------
$250,000 $65,000 $ 97,500 $130,000 $162,500
-------- ------------ ------------- ------------- -------------
$300,000 $68,014 $102,021 $136,028 $170,035
-------- ------------ ------------- ------------- -------------
$350,000 $68,014 $102,021 $136,028 $170,035
-------- ------------ ------------- ------------- -------------
$400,000 $68,014 $102,021 $136,028 $170,035
======== ============ ============= ============= =============
</TABLE>
As of December 31, 1996, Messrs. Gary Schnitzer, Robert W. Philip and Barry A.
Rosen had 32, 25 and 15 years of service, respectively, and highest consecutive
five-year average qualifying compensation of $292,915, $437,296 and $297,820,
respectively. For Mr. Philip and Mr. Rosen, the compensation differs
significantly from that shown in the Summary Compensation Table because benefits
under the plan are based on total qualifying compensation received from all
Schnitzer Group companies.
Director Compensation
Directors who are not employees of the Schnitzer Group receive an annual fee of
$10,000 plus $500 for attending each Board meeting or committee meeting held
other than on the same day as a Board meeting, and are reimbursed for expenses
of attending Board and committee meetings.
8
<PAGE>
CERTAIN TRANSACTIONS
The Company is part of the Schnitzer Group of companies, all of which are
controlled by members of the Schnitzer family. Other companies in the group
include: Schnitzer Investment Corp. (SIC), engaged in the real estate, cold
storage and shipping agency businesses; Pacific Coast Shipping Co. (PCS) and its
wholly-owned subsidiary, Trans-Pacific Shipping Co. (TPS), and Liberty Shipping
Group Limited Partnership (LSGLP) and Liberty Belle Limited Partnership (LBLP)
and their general partner LSGGP Corp. (LSGGP), all engaged in the ocean shipping
business; Island Equipment Company, Inc. (IECO), engaged in various businesses
in Guam and other South Pacific islands; and Isla Insurance Company (Isla), an
issuer of surety bonds and builder's risk insurance in Guam.
Certain executive officers of the Company fulfill similar executive functions
for other companies in the Schnitzer Group. Leonard Schnitzer, Robert W. Philip
and Kenneth M. Novack, the members of the Company's Office of the President,
also make up the Office of the President of SIC. Robert W. Philip has the
principal operating responsibility for the Company, but he also spends time on
the businesses of other Schnitzer Group companies. Leonard Schnitzer serves as
Chairman of the Schnitzer Group's shipping companies and spends substantial
amounts of his time on their businesses. Kenneth M. Novack spends substantial
amounts of his time on the businesses of SIC, IECO, Isla, and other Schnitzer
Group companies. Barry A. Rosen serves as Chief Financial Officer for all of the
Schnitzer Group companies. The Company believes that the sharing of top
management and other resources (such as data processing, accounting, legal,
financial, tax, treasury, risk management and human resources) provides benefits
to the Company and the other Schnitzer Group companies by giving each of them
access to a level of experience and expertise that can only be supported by a
larger organization.
The Company leases certain properties used in its business from SIC. These
properties and certain lease terms are set forth in the following table:
<TABLE>
<CAPTION>
EXPIRATION
PROPERTY ANNUAL RENT OF LEASE
- -------------------------------------------- -------------- --------------
<S> <C> <C>
Corporate Headquarters $ 246,000 2006
-------------- --------------
Scrap Operations:
Portland facility and marine terminal 1,056,000 2063
Sacramento facility 80,000 2003
-------------- --------------
Total $1,382,000
=============== ==============
</TABLE>
The rent for the Portland scrap operations will adjust on September 1, 1998 and
every five years thereafter. The adjustments made on September 1, 2003 and every
fifteen years thereafter will be to appraised fair market rent. Intervening rent
adjustments will be based on the average of the percentage increases or
decreases in two inflation indexes over the five years prior to the adjustment.
The Sacramento facility rent also adjusts on September 1, 1998 based on the same
inflation indexes. The Company subleases a portion of the Portland facility to a
third party for $38,000 per year until 2000.
The Company ships steel scrap on vessels chartered from PCS and TPS. In fiscal
1997, the Company incurred a total of $9,163,000 in charter expense to PCS and
TPS for shipments of steel scrap. SIC acts as managing agent for PCS and TPS and
was paid $133,000 in agency fees by the Company during fiscal 1997. In May 1993,
the Company entered into a five-year time charter of a ship from TPS. Under this
charter, the Company pays to TPS the actual cost of operating the ship plus
approximately $130,000 per quarter, and pays to SIC agency fees of $185,000 per
year. At the end of the charter, the Company guarantees that TPS will be able to
sell the ship for TPS's remaining capital investment at that time of $2,500,000,
and the Company is entitled to either purchase the ship or receive any proceeds
in excess of $2,500,000. In May 1995, the Company entered into two additional
seven-year time charters with TPS. In August 1996, these two time charters were
re-negotiated due to the condition of the vessels and lower charter rates
experienced in the shipping industry. Under each of these re-negotiated
charters, the Company pays to TPS the actual cost of operating the ship plus
approximately $200,000 per quarter. Additionally, the vessels discussed above
are periodically sub-chartered to third parties. In this case, SIC acts as the
Company's agent in the collection of income and payment of expenses related to
sub-charter activities. Charter expense to PCS and TPS incurred for these
vessels while sub-chartered totaled $871,000 in 1997. These charter expenses
were offset by sub-charter income of $747,000 in 1997.
9
<PAGE>
The Company provides management and administrative services to, and in some
cases receives services from, SIC, LSGLP, LBLP, LSGGP, IECO and Isla, pursuant
to a Second Amended Shared Services Agreement, as amended as of September 1,
1994. The agreement provides that all service providing employees, except
executive officers, are charged out at rates based on the actual hourly
compensation expense to the Company for such employees (including fringe
benefits but excluding bonuses) plus an hourly charge for reimbursement of space
costs associated with such employees, all increased by 15% as a margin for
additional overhead and profit. The Company independently determines the
salaries to pay its executive officers, and the other companies reimburse the
Company fully for salaries and related benefits the other companies decide to
pay, plus the hourly space charge and the 15% overhead and profit margin. Under
the agreement, the Company independently determines the amount of bonus to pay
to each of its employees, and the other companies reimburse the Company fully
for any bonuses the other companies decide to pay. The agreement also provides
for the monthly payment by these related parties to the Company of amounts
intended to reimburse the Company for their proportionate use of the Company's
telephone and computer systems. Charges by the Company under the agreement in
fiscal 1997 totaled $1,046,000.
From time to time, the law firm of Ball Janik LLP, of which director Robert S.
Ball is a partner, provides legal services to the Company. Ball Janik LLP
provides legal services on a more regular basis to other companies in the
Schnitzer Group.
Pursuant to a policy adopted by the Board of Directors, all transactions with
other Schnitzer Group companies require the approval of a majority of the
independent directors or must be within guidelines established by them.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the Committee) is composed
of two outside directors. The Committee is responsible for developing and making
recommendations to the Board with respect to the Company's compensation policies
and the levels of compensation to be paid to executive officers. In addition,
the Committee has the sole responsibility for the administration of, and the
grant of stock options and other awards under, the Company's 1993 Stock
Incentive Plan. The Company has engaged a nationally recognized compensation and
benefits consulting firm to assist the Committee and the Company in gathering
information on competitive compensation practices and in reviewing executive
compensation.
The objectives of the Company's executive compensation program are to attract
and retain highly qualified executives, and to motivate them to maximize
shareholder returns by achieving both short-term and long-term strategic Company
goals. The three basic components of the executive compensation program are base
salary, annual bonus dependent on corporate performance, and stock options.
Base Salary
For purposes of determining fiscal 1997 salaries, the Committee considered
market analyses prepared by the Company's compensation consultant. The salary
data consisted of a broad survey of durable goods manufacturing companies and
steel companies. Using trend line analysis on the broad survey data, the
consultant estimated average salary levels for a durable goods company with $400
million in annual revenues, and these estimated averages were reasonably
confirmed by the steel industry data. The Committee used these estimated
averages as the basis for establishing salaries for executive officers, with
modifications in certain cases to reflect historical salary levels or reduced
time commitments to the Company's business.
Annual Bonuses
Executive officers are eligible to receive annual bonuses, based on Company
performance, which provide them a direct financial incentive to achieve
corporate objectives each year. Bonuses for 1997 for all named executive
officers were determined with reference to target bonus amounts expressed as a
percentage of salary. Target bonuses are higher as a percentage of salary for
more senior officers. The determination of actual bonuses is discretionary for
the Committee and is based generally on overall Company profitability, business
unit profitability, achievement of nonfinancial objectives and subjective
judgements as to individual performance. No specific weight is accorded to any
single factor and different factors may be accorded greater or lesser weight in
particular years or for particular officers.
Fiscal 1997 was a positive year for the Company in a number of significant
areas. The successful acquisition and integration of Proler International Corp.
in November 1996 has positioned the Company to become a more effective national
competitor in the scrap steel industry. Pursuant to this acquisition, the
Company's management team has developed a strong working relationship with Hugo
Neu, the Company's partner in the Proler scrap joint ventures.
10
<PAGE>
Additionally, the Company's finished steel operations successfully began
producing new products during fiscal 1997 on a new rod block installed on the
Company's second rolling mill. The completion of this project has provided the
Company with the opportunity to increase its return on overall investment in the
steel mill's assets.
While the Committee views these measures to position the Company for future
growth very positively, the Company's earnings per share suffered from the
dilution of additional shares issued during the year. In addition, price
softness in a number of product areas resulted in some contraction of profit
margins, contributing to the fact that net earnings were essentially unchanged
from the 1996 total.
As a result of the Company's overall performance and achievement of other
objectives, such as those mentioned above, during fiscal 1997, all named
executive officers received bonuses within the target range.
Stock Options
The stock option program is the Company's principal long-term incentive plan for
executive officers. The objectives of the stock option program are to align
executive and shareholder long-term interest by creating a strong and direct
link between executive compensation and shareholder return, and to create
incentives for executives to remain with the Company for the long term through
standard five-year vesting of options. Options are awarded with an exercise
price equal to the market price of Class A Common Stock on the date of grant and
have a term of 10 years. Prior to 1996, options had been granted only to six
executive officers of the Company. In 1996 and 1997, the Committee granted
non-statutory stock options under the plan to an additional 20 employees of the
Company, each of whom has significant management responsibilities.
The Committee has implemented an annual option grant program. Annual awards to
the top five executive officers are made based on grant guidelines expressed as
a percentage of salary, with such guidelines generally set at the median for
companies in the broad market survey provided by the consultants.
Section 162(m) of the Internal Revenue Code of 1986 limits to $1,000,000 per
person the amount that the Company may deduct for compensation paid to any of
its most highly compensated officers in any year. The levels of salary and bonus
generally paid by the Company do not exceed this limit. Under IRS regulations,
the $1,000,000 cap on deductibility will not apply to compensation received
through the exercise of a nonqualified stock option that meets certain
requirements. This option exercise compensation is equal to the excess of the
market price at the time of exercise over the option price and, unless limited
by Section 162(m), is generally deductible by the Company. It is the Company's
current policy generally to grant options that meet the requirements of the IRS
regulations.
Chief Executive Officer Compensation
Dr. Schnitzer's base salary for fiscal 1997 was fixed at $286,000 which is
approximately 75% of the average salary level for his position estimated by the
Company's compensation consultant based on survey data as discussed above. The
Committee believes that a lower than average salary level is appropriate since
Dr. Schnitzer devotes time to the businesses of other companies in the Schnitzer
Group to a greater extent than other executive officers of the Company.
Dr. Schnitzer received a bonus for 1997 of $207,200 which is 72% of the salary
established for him for fiscal 1997. This is within the range of target bonuses
payable under the annual bonus program and was awarded for the reasons discussed
above.
During fiscal 1997, Dr. Schnitzer received an option for 19,665 shares of Class
A Common Stock as part of the Company's annual option grant program. The size of
the award was determined using the median grant guideline percentage for chief
executive officers determined from survey data and applying that guideline
percentage to Dr. Schnitzer's 1997 base salary.
COMPENSATION COMMITTEE
Ralph R. Shaw, Chair
William A. Furman
11
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock with the cumulative total return of the
Standard & Poor's 500 Stock Index and the Standard & Poor's Steel Industry Group
Index for the period commencing on November 16, 1993 (the date of the Company's
initial public offering) and ending on August 31, 1997. The graph assumes that
$100 was invested in the Company's Common Stock and each index on November 16,
1993, and that all dividends were reinvested.
[line graph depicting performance]
<TABLE>
<CAPTION>
11/16/93 2/28/94 8/31/94 2/28/95 8/31/95 2/29/96 8/31/96 2/28/97 8/31/97
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Schnitzer Steel Industries, Inc. 100.00 152.90 136.39 103.82 143.03 154.26 141.36 149.98 177.63
Standard & Poors 500 100.00 100.73 104.01 108.14 126.32 145.67 149.99 183.79 210.96
Standard & Poors Steel Index 100.00 111.92 125.88 101.41 95.18 97.63 82.07 90.35 105.37
</TABLE>
12
<PAGE>
APPROVAL AND RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors of the Company has, subject to approval and ratification
by the shareholders, selected Price Waterhouse LLP as independent auditors for
the Company for the fiscal year ending August 31, 1998.
A representative of Price Waterhouse LLP is expected to be present at the
meeting. Such representative will have the opportunity to make a statement if he
desires to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL
AND RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
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 who own more than 10% of the
outstanding Common Stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and
representations that no other reports were required, during fiscal 1997 its
officers and directors complied with all applicable Section 16(a) filing
requirements.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal by a shareholder of the Company to be considered for inclusion in
proxy materials for the Company's 1999 Annual Meeting of Shareholders must be
received in proper form by the Company at its principal office no later than
August 7, 1998.
GENERAL
The Board of Directors of the Company is not aware of any matters other than the
aforementioned matters that will be presented for consideration at the Annual
Meeting. If other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote thereon in
accordance with their best judgement.
The cost of preparing, printing and mailing this Proxy Statement and of the
solicitation of proxies by the Company will be borne by the Company.
Solicitation will be made by mail and, in addition, may be made by directors,
officers and employees of the Company personally, or by telephone or telegram.
The Company will request brokers, custodians, nominees and other like parties to
forward copies of proxy materials to beneficial owners of stock and will
reimburse such parties for their reasonable and customary charges or expenses in
this connection.
The Company will provide to any person whose proxy is solicited by this proxy
statement, without charge, upon written request to its Corporate Secretary, a
copy of the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS WHO
DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO EXECUTE AND RETURN
THE ENCLOSED PROXY IN THE REPLY ENVELOPE PROVIDED.
By Order of the Board of Directors,
Dori Schnitzer
Secretary
December 5, 1997
13
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints ROBERT W. PHILIP, KENNETH M. NOVACK, and
BARRY A. ROSEN, and each of them, with full power of substitution, as proxies,
and authorizes them to represent and to vote, as designated below, all the stock
of SCHNITZER STEEL INDUSTRIES, INC. that the undersigned is entitled to vote at
the 1998 Annual Meeting of Stockholders of SCHNITZER STEEL INDUSTRIES, INC. to
be held on January 5, 1998, at 8:00 a.m., local time, at the Multnomah Athletic
Club, 1849 SW Salmon Street, Portland, OR 97205, and at any adjournment or
postponement thereof, as indicated on the reverse side.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s).
If no direction is made, this proxy will be voted FOR the Election of
Directors and FOR the proposal to ratify the selection of Price Waterhouse LLP
as the Company's independent auditors for the current fiscal year. If this proxy
is executed in such manner as not to withhold authority to vote for the election
of any nominee to the Board of Directors, it shall be deemed to grant such
authority.
(Continued, and to be dated and signed
on the reverse side.)
SCHNITZER STEEL INDUSTRIES, INC.
P.O. Box 11119
New York, N.Y. 10203-0119
<PAGE>
<TABLE>
<CAPTION>
Directors recommend a vote "FOR"
<S> <C> <C> <C>
1. Election of Directors FOR all nominees [ ] WITHHOLD AUTHORITY [ ] EXCEPTIONS [ ]
listed below to vote for all
nominees listed
below.
Nominees: Leonard Schnitzer, Robert W. Philip, Kenneth M. Novack, Gary Schnitzer, Dori Schnitzer,
Carol S. Lewis, Jean S. Reynolds, Manuel Schnitzer, Robert S. Ball, William A. Furman, and
Ralph R. Shaw
INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box
and write that nominee's name in the space provided below.
Exceptions _______________________________________________________________________________________
Directors recommend a vote "FOR"
2. Proposal to ratify the selection of Price 3. These proxies may vote in their discretion as
Waterhouse LLP as independent auditors for to other matters which may come before the
the fiscal year ending August 31, 1998. meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Change of Address and [ ]
or Comments Mark Here
Note: Please sign exactly as shown at left.
If stock is jointly held, each owner should
sign. Executors, administrators, trustees,
guardians, attorneys and corporate officers
should indicate their fiduciary capacity or
full title when signing.
Dated: _________________________________, 1997
______________________________________________
Signature
______________________________________________
Signature (if jointly held)
Votes MUST be indicated (X) [ ]
in Black or Blue Ink
Please Mark, Date, Sign and Mail This Proxy Card Promptly in the Enclosed Envelope.
</TABLE>
