UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934 for the quarterly period ended November 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission file number 0-22496
SCHNITZER STEEL INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OREGON 93-0341923
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 N.W. Yeon Ave., P.O Box 10047
Portland, OR 97296-0047
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(503) 224-9900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The Registrant had 5,664,826 shares of Class A Common Stock, par value of $1.00
per share and 4,436,328 shares of Class B Common Stock, par value of $1.00 per
share outstanding at January 1, 1998.
Page 1 of 17
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheet at November 30, 1997
and August 31, 1997....................................................3
Consolidated Statement of Operations for the
Three Months Ended November 30, 1997 and 1996..........................4
Consolidated Statement of Shareholders' Equity for the
Year Ended August 31, 1997 and the Three Months
Ended November 30, 1997................................................5
Consolidated Statement of Cash Flows for the
Three Months Ended November 30, 1997 and 1996..........................6
Notes to Consolidated Financial Statements.................................7
Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................11
PART II. OTHER INFORMATION
Submission of Matters to a Vote of Security Holders.......................15
Exhibits and Reports on Form 8-K..........................................16
SIGNATURE PAGE............................................................17
2
<PAGE>
<TABLE>
<CAPTION>
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
Nov. 30, 1997 Aug. 31, 1997
-------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 3,169 $ 3,106
Accounts receivable, less allowance for
doubtful accounts of $466 and $524 29,009 31,010
Accounts receivable from related parties 1,173 1,215
Inventories (Note 2) 89,215 95,154
Deferred income taxes 10,737 10,737
Prepaid expenses and other 2,939 3,168
-------------- --------------
TOTAL CURRENT ASSETS 136,242 144,390
-------------- --------------
NET PROPERTY, PLANT & EQUIPMENT 149,196 151,136
OTHER ASSETS:
Investment in joint venture partnerships 75,854 74,605
Advances to joint venture partnerships 9,060 7,145
Goodwill 41,927 42,230
Intangibles and other 8,280 8,480
-------------- --------------
135,121 132,460
-------------- --------------
$ 420,559 $ 427,986
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt 163 361
Accounts payable 25,595 19,456
Accrued payroll liabilities 6,166 5,158
Deferred revenues 267 292
Current portion of environmental liabilities (Note 4) 5,880 5,787
Other accrued liabilities 9,365 8,438
-------------- --------------
TOTAL CURRENT LIABILITIES 47,436 39,492
-------------- --------------
DEFERRED INCOME TAXES 28,409 28,409
-------------- --------------
LONG-TERM DEBT LESS CURRENT PORTION 74,057 92,881
-------------- --------------
ENVIRONMENTAL LIABILITIES, NET OF CURRENT PORTION 24,019 24,530
-------------- --------------
OTHER LONG-TERM LIABILITIES 3,545 3,613
-------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock--20,000 shares authorized, none issued
Class A common stock--75,000 shares $1 par value
authorized, 5,685 and 5,737 shares issued and outstanding 5,685 5,737
Class B common stock--25,000 shares $1 par value
authorized, 4,437 and 4,445 shares issued and outstanding 4,437 4,445
Additional paid-in capital 108,303 109,994
Retained earnings 124,668 118,885
-------------- ---------------
243,093 239,061
-------------- ---------------
$ 420,559 $ 427,986
============== ===============
The accompanying notes are an integral part of this statement
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
For The Three Months Ended November 30,
-----------------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
REVENUES $ 105,403 $ 82,700
COSTS AND EXPENSES:
Cost of goods sold and other operating expenses 93,368 74,199
Selling and administrative 5,267 4,675
-------------- -------------
98,635 78,874
Income from joint ventures 3,794 727
-------------- -------------
INCOME FROM OPERATIONS 10,562 4,553
-------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (1,245) (529)
Other income 358 98
-------------- -------------
(887) (431)
-------------- -------------
INCOME BEFORE INCOME TAXES 9,675 4,122
Income tax provision (3,386) (1,341)
-------------- -------------
NET INCOME $ 6,289 $ 2,781
============== =============
EARNINGS PER SHARE $ 0.61 $ 0.27
============== =============
The accompanying notes are an integral part of this statement
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
Class A Class B
Common Stock Common Stock Additional
--------------------- ---------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
-------- ---------- -------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT 8/31/96 5,773 $ 5,773 4,575 $ 4,575 $ 113,747 $ 99,718 $ 223,813
Class B common stock converted
to Class A common stock 130 130 (130) (130)
Class A common stock repurchased (166) (166) (3,753) (3,919)
Net income 21,225 21,225
Dividends paid (2,058) (2,058)
-------- ---------- -------- ---------- ------------- ------------ -------------
BALANCE AT 8/31/97 5,737 5,737 4,445 4,445 109,994 118,885 239,061
Net income 6,289 6,289
Class B common stock converted
to Class A common stock 8 8 (8) (8)
Class A common stock repurchased (60) (60) (1,691) (1,751)
Dividends paid (506) (506)
-------- ---------- -------- ---------- ------------- ------------ -------------
BALANCE AT 11/30/97 5,685 $ 5,685 4,437 $ 4,437 $ 108,303 $ 124,668 $ 243,093
======== ========== ======== ========== ============= ============ =============
The accompanying notes are an integral part of this statement
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SCHNITZER STEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
For The Three Months Ended November 30,
---------------------------------------
1997 1996
------------- ------------
<S> <C> <C>
OPERATIONS:
Net income $ 6,289 $ 2,781
Noncash items included in income:
Depreciation and amortization 4,719 4,606
Equity in earnings of joint ventures
and other investments (3,794) (727)
Loss on disposal of assets 77 96
Cash provided (used) by assets and liabilities:
Accounts receivable 2,043 4,592
Inventories 5,939 (1,653)
Prepaid expenses and other 545 931
Accounts payable 6,139 (2,642)
Deferred revenue (25) (25)
Accrued expenses 1,935 726
Other assets and liabilities (220) 22
------------- ------------
NET CASH PROVIDED BY OPERATIONS 23,647 8,707
------------- ------------
INVESTMENTS:
Capital expenditures (2,558) (3,658)
Advances to joint ventures (1,915) (2,178)
Investments in joint ventures (36,550) (550)
Distributions from joint ventures 39,025 380
Capitalization of losses related to assets held for sale (464)
Proceeds from sale of assets 157
------------- ------------
NET CASH USED BY INVESTMENTS (2,305) (6,006)
------------- ------------
FINANCING:
Repurchase of Class A stock (1,751)
Dividends declared and paid (506) (516)
(Decrease) increase in long-term debt (19,022) 1,268
------------- ------------
NET CASH (USED) PROVIDED BY FINANCING (21,279) 752
------------- ------------
NET INCREASE IN CASH 63 3,453
CASH AT BEGINNING OF PERIOD 3,106 1,896
------------- ------------
CASH AT END OF PERIOD $ 3,169 $ 5,349
============= ============
The accompanying notes are an integral part of this statement
</TABLE>
6
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(Unaudited)
Note 1 - Summary Of Significant Accounting Policies:
Basis of Presentation
- ---------------------
The accompanying unaudited interim financial statements of Schnitzer
Steel Industries, Inc. (the Company) have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and note disclosures normally included in annual
financial statements have been condensed or omitted pursuant to those
rules and regulations. In the opinion of management, all adjustments,
consisting only of normal, recurring adjustments considered necessary
for a fair presentation, have been included. Although management
believes that the disclosures made are adequate to ensure that the
information presented is not misleading, it is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report
for the fiscal year ended August 31, 1997. The results for the three
months ended November 30, 1997 are not necessarily indicative of the
results of operations for the entire year.
Net Income Per Common Share
- ---------------------------
Net income per common share is based on the weighted average number of
common shares outstanding of 10,308,493 and 10,411,945 for the quarters
ended November 30, 1997 and 1996, respectively.
Note 2 - Inventories:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
November 30, August 31,
1997 1997
---------- ----------
(Unaudited) (Audited)
<S> <C> <C>
Scrap metals $ 25,128 $ 26,897
Work in process 19,421 24,358
Finished goods 28,376 28,109
Supplies 16,290 15,790
---------- ----------
$ 89,215 $ 95,154
========== ==========
</TABLE>
Scrap metal inventories are valued at LIFO; the remainder are at FIFO.
The determination of inventory under the LIFO method can be made only
at the end of each year based on the inventory levels and costs at that
time. Interim LIFO calculations are based on the Company's estimates of
expected year-end inventory levels and costs. The cost of scrap metal
inventories exceeded the stated LIFO value by $8,039 at November 30,
1997 and August 31, 1997.
7
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(Unaudited)
Note 3 - Related Party Transactions:
Certain shareholders of the Company own significant interests in, or
are related to owners of, the entities discussed below. As such, these
entities are considered related parties for financial reporting
purposes.
Transactions Affecting Cost of Goods Sold and Other Operating Expenses
----------------------------------------------------------------------
The Company charters several vessels from related shipping companies to
transport scrap metal to foreign markets. In 1993, the Company signed a
five-year time-charter agreement for one vessel. The agreement
guarantees the ship owner a residual market value of $2,500,000 at the
end of the time-charter. The Company entered into two additional
seven-year time-charters in May 1995. Charges incurred for these
charters were $2,320,000 and $2,033,000 for the quarters ended November
30, 1997 and 1996, respectively.
The Company purchased scrap metals from its joint venture operations
totaling $4,211,000 and $2,111,000 for the quarters ended November 30,
1997 and 1996, respectively.
The Company leases certain land and buildings from a real estate
company which is a related entity. The rent expense was $272,000 and
$354,000 for the quarters ended November 30, 1997 and 1996,
respectively.
Transactions Affecting Selling and Administrative Expenses
----------------------------------------------------------
The Company performs some administrative services and provides
operation and maintenance of management information systems for certain
related parties. These services are charged to the related parties
based upon costs plus a 15% margin for overhead and profit. The
administrative charges totaled $207,000 and $148,000 for the quarters
ended November 30, 1997 and 1996, respectively.
Transactions Affecting Other Income (Expense)
---------------------------------------------
The vessels discussed above are periodically sub-chartered to third
parties. In this case, a related shipping agency company acts as the
Company's agent in the collection of income and payment of expenses
related to sub-charter activities. Charges incurred for these
sub-charters were $348,000 and $819,000 for the three months ended
November 30, 1997 and 1996, respectively. These charges were offset by
income of $192,000 and $753,000 for the three months ended November 30,
1997 and 1996, respectively.
Note 4 - Environmental Liabilities:
During fiscal 1995, in conjunction with the due diligence proceedings
for the Company's acquisition of Manufacturing Management, Inc. (MMI),
the Company hired an independent third-party consultant to estimate the
costs to cure both current and future potential environmental
liabilities. The cumulative provision for the total cost specified in
the consultant's report was included in MMI's statement of operations
prior to its acquisition by the Company. This reserve was carried over
to the Company's balance sheet and at November 30, 1997 aggregated
$20.7 million.
8
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(Unaudited)
A portion of the liability recorded in fiscal 1995 relates to MMI's
status as a potentially responsible party (PRP) for the investigation
and cleanup of sediment along the Hylebos Waterway, on which the
Schnitzer Steel of Tacoma (SST) scrap yard is located. SST and five
other PRPs voluntarily entered into an Administrative Order of Consent
with the Environmental Protection Agency (EPA) to fund a pre-remedial
study of sediment contamination and remediation alternatives. SST's
share of the study, which is expected to be complete in 1998, is
approximately $2 million. Any further potential liabilities, if any,
cannot be estimated at this time.
In 1996, prior to the Company's acquisition of Proler International
Corp. (Proler) (See note 5), an independent third party consultant was
engaged to estimate the costs to cure present and future potential
liabilities related to Proler's wholly owned and joint venture
properties. Proler recorded a liability of $8.6 million for the
probable costs to remediate its wholly-owned properties based upon the
consultant's estimates, increasing its environmental reserves to $9.8
million. The Company carried over the aggregate reserve to its
financial statements upon acquiring Proler and $9.2 million remained
outstanding on November 30, 1997. Concurrently, based upon the
consultant's estimates, Proler's joint venture operations recorded
additional liabilities of $4.1 million for the probable costs to
remediate their properties. The liability was recorded prior to the
Company's acquisition of Proler.
Between 1982 and 1987, MRI Corporation (MRI), a wholly owned subsidiary
of Proler, operated a tin can shredding and detinning facility in
Tampa, Florida. In 1989 and 1992, the EPA conducted a preliminary site
investigation of this property, and in December 1996, added the site to
the "National Priorities List". MRI and Proler, along with several
other parties, have been named as PRPs for this site by the EPA. Proler
included the probable costs associated with this site in the
aforementioned reserve. Additionally, Proler and this subsidiary have
been named or identified as PRPs at several other sites.
As part of the Proler acquisition, the Company became a fifty-percent
owner of Hugo Neu-Proler Company (HNP). HNP has agreed, as part of its
recent lease renewal with the Port of Los Angeles, to be responsible
for a multi-year, phased remedial clean-up project involving certain
environmental conditions on its scrap processing facility at its
Terminal Island Site in Los Angeles, California by the year 2001.
Remediation will include limited excavation and treatment of
contaminated soils, paving, installation of a stormwater management
system, construction of a noise barrier and perimeter wall around the
facility and groundwater monitoring. The probable costs to remediate
this property are included in the aforementioned reserve.
Note 5 - Acquisition of Proler International Corp.:
Between November 29, 1996 and December 6, 1996, PIC Acquisition Corp.
(PIC), a wholly owned subsidiary of the Company, acquired 100% of the
common stock of Proler International Corp. (Proler). On December 6,
1996, the Company completed the merger of PIC with Proler and, as a
result, Proler became a wholly owned subsidiary of the Company.
The Company has accounted for this acquisition using the purchase
method. Accordingly, the purchase price has been allocated to the
assets acquired and the liabilities assumed based on their estimated
fair values as of the effective date of the acquisition.
9
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(Unaudited)
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and Proler as though
the acquisition had occurred at the beginning of the period shown.
For the Three Months Ended
November 30, 1996
--------------------------
(in thousands)
Revenues $ 85,846
=========
Net income $ 1,818
=========
Earnings per share $ . 17
=========
These pro forma results have been prepared for comparative purposes
only and include certain adjustments to give effect for the
acquisition, together with related income tax effects. They do not
purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect at the beginning
of the period presented or of future results of operations of the
consolidated entities.
Note 6 - Subsequent Events:
On January 5, 1998 the Board of Directors declared a 5 cent per share
dividend on Class A and Class B common stock payable on February 20,
1997 to holders of record on February 5, 1997.
10
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SCHNITZER STEEL INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company operates in two business segments. Scrap Operations
collects, processes and recycles steel scrap through facilities in
Oregon, Washington and California. Additionally, as a result of its
acquisition of Proler International Corp. (Proler) effective November
29, 1996 (see Note 5 to the accompanying consolidated financial
statements), the Company participates in the management of 18 scrap
collection and processing facilities, including export terminals in Los
Angeles, California; Everett, Massachusetts; Providence, Rhode Island
and Jersey City, New Jersey, through joint ventures. Steel Operations
operates a mini-mill in Oregon which produces finished steel products
and maintains mill depots in California.
Results of Operations
The Company's revenues and operating results by business segment are
summarized below (in thousands, except number of shipments):
<TABLE>
<CAPTION>
For the Three Months Ended
November 30,
---------------------------------
1997 1996
---------- ----------
(unaudited)
<S> <C> <C>
REVENUES:
Scrap Operations:
Ferrous sales $ 55,459 $ 44,786
Nonferrous sales 6,306 4,395
Other sales 4,454 1,977
---------- ----------
Total sales 66,219 51,158
Ferrous sales to Steel Operations (14,098) (12,301)
Steel Operations 53,282 43,843
---------- ----------
Total $ 105,403 $ 82,700
========== ==========
INCOME FROM OPERATIONS:
Scrap Operations $ 7,420 $ 4,272
Steel Operations 1,027 1,163
Joint ventures 3,760 727
Corporate expense & eliminations (1,645) (1,609)
---------- ----------
Total $ 10,562 $ 4,553
========== ==========
NET INCOME $ 6,289 $ 2,781
========== ==========
</TABLE>
11
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued):
<TABLE>
<CAPTION>
For the Three Months Ended
November 30,
---------------------------------
1997 1996
---------- ----------
(unaudited)
<S> <C> <C>
SHIPMENTS:
SCRAP OPERATIONS:
Ferrous scrap (long tons):
To Steel Operations 115 110
To unaffiliated customers 298 255
---------- ----------
Total 413 365
========== ==========
Number of scrap export shipments 9 8
========== ==========
Nonferrous scrap (pounds) 14,670 12,079
========== ==========
STEEL OPERATIONS:
Finished steel products (short tons) 149 133
========== ==========
</TABLE>
Revenues. Consolidated revenues for the three months ended November 30, 1997
increased $22.7 million (27%) over the same quarter last year. Revenue increases
were generated by Steel Operations and Scrap Operations.
Revenues from Scrap Operations before intercompany eliminations increased $15
million (29%) reflecting both an increase in shipments and higher average
selling prices. Ferrous scrap revenues increased $10.7 million (24%). Shipments
of ferrous scrap to unaffiliated customers increased 43,000 tons to 298,000
tons. Average selling prices were 9% higher than the quarter ended November 30,
1996. Shipments to Steel Operations also increased 5%.
Steel Operations' revenues increased by $9.4 million (22%) to $53.3million. The
Company's sales of finished steel increased 16,500 tons due to the addition of a
new wire rod block completed in February 1997. Additionally, revenues increased
as the result of the sale of 16,400 tons of billets during the first quarter. No
billets were sold during the same period last year. The overall average selling
price for finished steel products remained unchanged.
Cost of Goods Sold. Overall cost of goods sold increased $19.2 million (26%)
during the first quarter of fiscal 1998 compared with the first quarter of
fiscal 1997. Cost of goods sold as a percentage of revenues decreased from 90%
to 89%. Gross profit in total increased by $3.5 million (42%) as a result of the
increases in sales in Steel Operations and Scrap Operations.
Cost of goods sold for Scrap Operations decreased as a percentage of revenues
from 87% to 84%. Scrap Operations' gross profit increased from $6.7 million to
$10.3 million. The increase was due to the impact of higher volumes shipped at
higher average selling prices partially off-set by increases in product cost.
12
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued):
Steel Operations' cost of good sold for the first quarter of fiscal 1998
increased $9.6 million to $51.6 million and increased as a percentage of revenue
from 96% to 97%. The increase in cost of goods sold is attributable to the
increase in finished steel shipments. Cost of goods sold per ton, excluding
billets, remained unchanged at $316 per ton. Gross profit decreased from $1.8
million to $1.7 million as a result in a change in the mix of products shipped.
Income from Joint Ventures. Income from joint ventures increased $3.1 million
over the same quarter last year. This increase is primarily attributable to the
November 1996 acquisition of Proler.
Interest Expense. Interest expense increased from $.5 million for the three
months ended November 30, 1996 to $1.3 million for the same period this year
primarily as a result of higher average borrowings associated with the Proler
acquisition.
Liquidity and Capital Resources. Cash provided by operations for the first
quarter of 1998 was $23.6 million, compared with $8.7 million for the first
quarter of fiscal 1997. The increase in cash flow is primarily attributable to
increased earnings, the timing of collection of accounts receivable, a reduction
in inventories, and an increase in accounts payable and accrued liabilities
during the quarter ended November 30, 1997.
Capital expenditures for the three months ended November 30, 1997 totaled $2.6
million compared with $3.7 million during the same period last year. The Company
anticipates spending approximately $12 million on capital expenditures during
the remainder of fiscal 1998.
In March 1995, the Company purchased all of the outstanding stock of MMI. Prior
to the acquisition, MMI established a reserve of approximately $24 million to
reflect the cost to cure environmental liabilities. At acquisition, this reserve
was carried over to the Company's balance sheet. Additionally, in conjunction
with the Company's acquisition of Proler in November 1996, the Company recorded
environmental liabilities of $9.8 million, representing the reserve Proler had
established prior to the acquisition. The Company expects to require significant
future cash outlays, as it incurs the actual costs relating to the remediation
of such environmental liabilities.
As of November 30, 1997, the Company had unsecured revolving lines of credit
available totaling $200 million maturing in 2002. The Company had additional
unsecured lines of credit available of $55 million, $35 million of which was
uncommitted. In the aggregate, the Company had borrowings outstanding under
these lines totaling $63.8 million at November 30, 1997.
Pursuant to a stock repurchase program announced by the Company in May 1994, the
Company is authorized to repurchase shares of its stock when the market price of
the Company's stock is not reflective of management's opinion of an appropriate
valuation of the stock. Management believes that repurchasing shares under these
conditions enhances shareholder value. During the quarter ended November 30,
1997, the Company repurchased 60,000 shares of its stock for a total of
$1,691,000.
The Company believes that the current cash balance, internally generated funds,
and existing credit facilities will provide adequate financing for capital
expenditures, working capital, stock repurchases, and debt service requirements
for the next twelve months. In the longer term, the Company may seek to finance
business expansion, including potential acquisitions, with additional borrowing
arrangements or additional equity financing.
13
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued):
Forward Looking Statements. Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward looking statements that
involve a number of risks and uncertainties. In particular, the Company has
stated its expectations regarding its financial results. Among the factors that
could cause actual results to differ materially are the following: supply and
demand conditions and decisions of other market participants over which the
Company has no control and which are inherently difficult to predict; the
current financial crisis facing certain Asian countries; railroad service
difficulties; business conditions and growth in the scrap and steel industries;
competitive factors, including pricing pressures from national steel companies;
availability of scrap supply, fluctuations in scrap prices and seasonality of
results.
14
<PAGE>
SCHNITZER STEEL INDUSTRIES, INC.
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1998 annual meeting of the shareholders was held on January 5,
1998. Holders of 4,380,545 shares of the Company's Class A common
stock, entitled to one vote per share, and 4,425,628 shares of the
Company's Class B common stock, entitled to ten votes per share, were
present in person or by proxy at the meeting.
(b) 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 were elected
directors of the Company.
(c) The meeting was called for the following purposes:
1. To elect 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 as directors of the Company.
This proposal was approved as follows:
<TABLE>
<CAPTION>
Votes For Votes Withheld
---------- --------------
<S> <C> <C>
Leonard Schnitzer 48,608,396 28,429
Robert W. Philip 48,610,596 26,229
Kenneth M. Novack 48,610,196 26,629
Gary Schnitzer 48,608,096 28,729
Dori Schnitzer 48,608,096 28,729
Carol S. Lewis 48,610,096 26,729
Jean S. Reynolds 48,610,096 26,729
Manuel Schnitzer 48,605,996 30,829
Robert S. Ball 48,609,888 26,937
William A. Furman 48,618,996 17,829
Ralph R. Shaw 48,618,996 17,829
</TABLE>
2. To approve and ratify the appointment of Price Waterhouse LLP as
the independent auditors of the Corporation.
This proposal was approved by the stockholders with 48,633,611
votes cast for and 1,594 votes cast against. There were 1,620
abstentions and 0 broker non-votes.
15
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
10.1 Addendum No. 4 to M/V Jade Orient Uniform Trade Charter
Agreement dated October 31, 1997 between the Registrant and
Trans-Pacific Shipping Co.
10.2 Addendum No. 4 to M/V Jade Pacific Uniform Trade Charter
Agreement dated October 31, 1997 between the Registrant and
Trans-Pacific Shipping Co.
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHNITZER STEEL INDUSTRIES, INC.
(Registrant)
Date: January 14, 1998 By: /s/ BARRY A. ROSEN
---------------------- -------------------------------------
Barry A. Rosen
Vice President, Finance
17
Addendum No. 4
To
M/V JADE ORIENT Uniform Time Charter
Dated May 9, 1995
Between
Trans-Pacific Shipping Co.
And
Schnitzer Steel Industries, Inc.
Reference is made to that certain Uniform Time Charter entered into as
of May 9, 1995 by and between Trans-Pacific Shipping Co. ("Owner") and Schnitzer
Steel Industries, Inc. ("Charterer") as amended by Addendum No. 1; Addendum No.
2 dated May 9, 1995; and Addendum No. 3 dated August 28, 1996 (all of which are
collectively referred to as the "Charter Party") whereby Owner let and Charterer
hired the vessel called M/V JADE ORIENT (the "Vessel").
Owner and Charterer agree to amend the Charter Party as follows:
1. Effective November 1, 1997 Charter hire shall be calculated as the sum
of the actual daily running costs of the Vessel plus a monthly payment of
$97,327.00.
2. Except as modified herein, all other terms and conditions of the
Charter Party remain unmodified and in full force and effect.
Executed at Portland, Oregon on October 31, 1997.
TRANS-PACIFIC SHIPPING CO. SCHNITZER STEEL INDUSTRIES, INC.
By Lasco Shipping Co., As Agent
By: /s/ ANDREAS THEOHARIS By: /s/ ROBERT PHILIP
------------------------------ ------------------------------
Addendum No. 4
To
M/V JADE PACIFIC Uniform Time Charter
Dated May 9, 1995
Between
Trans-Pacific Shipping Co.
And
Schnitzer Steel Industries, Inc.
Reference is made to that certain Uniform Time Charter entered into as
of May 9, 1995 by and between Trans-Pacific Shipping Co. ("Owner") and Schnitzer
Steel Industries, Inc. ("Charterer") as amended by Addendum No. 1; Addendum No.
2 dated May 9, 1995; and Addendum No. 3 dated August 28, 1996 (all of which are
collectively referred to as the "Charter Party") whereby Owner let and Charterer
hired the vessel called M/V JADE PACIFIC (the "Vessel").
Owner and Charterer agree to amend the Charter Party as follows:
1. Effective November 1, 1997, Charter hire shall be calculated as the
sum of the actual daily running cost of the Vessel plus a monthly payment of
$94,528.00.
2. Except as modified herein, all other terms and conditions of the
Charter Party remain unmodified and in full force and effect.
Executed at Portland, Oregon on October 31, 1997.
TRANS-PACIFIC SHIPPING CO. SCHNITZER STEEL INDUSTRIES, INC.
By Lasco Shipping Co., As Agent
By: /s/ ANDREAS THEOHARIS By: /s/ ROBERT PHILIP
------------------------------ ------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 3,169
<SECURITIES> 0
<RECEIVABLES> 30,182
<ALLOWANCES> 466
<INVENTORY> 89,215
<CURRENT-ASSETS> 136,242
<PP&E> 267,935
<DEPRECIATION> 118,739
<TOTAL-ASSETS> 420,559
<CURRENT-LIABILITIES> 47,436
<BONDS> 74,057
0
0
<COMMON> 10,122
<OTHER-SE> 232,971
<TOTAL-LIABILITY-AND-EQUITY> 420,559
<SALES> 105,403
<TOTAL-REVENUES> 105,403
<CGS> 93,368
<TOTAL-COSTS> 98,635
<OTHER-EXPENSES> (358)
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 1,245
<INCOME-PRETAX> 9,675
<INCOME-TAX> 3,386
<INCOME-CONTINUING> 6,289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,289
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
