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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.
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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)(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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3) Filing Party:
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4) Date Filed:
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SCHNITZER STEEL INDUSTRIES, INC.
December 23, 2002
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of your Company,
which will be held on Monday, January 27, 2003 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,
/s/ Robert W. Philip
--------------------
Robert W. Philip
President
SCHNITZER STEEL INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 27, 2003
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 27, 2003 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 consider a shareholder proposal regarding the composition of the
Board of Directors; 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 22, 2002 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,
/s/ Ilene Dobrow Davidson
-------------------------
Ilene Dobrow Davidson
Secretary
Portland, Oregon
December 23, 2002
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: Ilene
Dobrow Davidson, 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 23, 2002.
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 22, 2002. At the close of business
on November 22, 2002, 5,024,668 shares of Class A Common Stock (Class A), par
value $1.00 per share, and 4,179,858 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, 2002 (unless otherwise noted in
the footnotes to the table), 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
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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
----------------------------------------- ---------------- ----------- ---------------- -----------
Schnitzer Steel Industries, Inc.
Voting Trust (the Schnitzer Trust) 3,499,638 83.7%
----------------------------------------- ---------------- ----------- ---------------- -----------
Manuel Schnitzer (2) 306,014 7.3%
----------------------------------------- ---------------- ----------- ---------------- -----------
Marilyn S. Easly (2) 536 * 273,078 6.5%
----------------------------------------- ---------------- ----------- ---------------- -----------
Carol S. Lewis (2) 189,323 4.5%
----------------------------------------- ---------------- ----------- ---------------- -----------
Scott Lewis(2) 59,505 1.2%
----------------------------------------- ---------------- ----------- ---------------- -----------
MANUEL SCHNITZER FAMILY GROUP,
Carol S. Lewis, Trustee (3) 876,717 21.0%
----------------------------------------- ---------------- ----------- ---------------- -----------
Dori Schnitzer (2) 369,973 8.9%
----------------------------------------- ---------------- ----------- ---------------- -----------
Susan Schnitzer (2) 290,608 7.0%
----------------------------------------- ---------------- ----------- ---------------- -----------
Jean S. Reynolds (2) 306,431 7.3%
----------------------------------------- ---------------- ----------- ---------------- -----------
MORRIS SCHNITZER FAMILY GROUP,
Dori Schnitzer, Trustee (3) 799,314 19.1%
----------------------------------------- ---------------- ----------- ---------------- -----------
Gilbert and Thelma S. Schnitzer (2) 35,757 (4) * 490,915 11.7%
----------------------------------------- ---------------- ----------- ---------------- -----------
Kenneth M. and Deborah S. Novack (2) 67,203 (4,5) 1.3% 257,409 6.2%
----------------------------------------- ---------------- ----------- ---------------- -----------
Gary Schnitzer (2) 114,380 (6) 2.2% 192,069 4.6%
----------------------------------------- ---------------- ----------- ---------------- -----------
GILBERT SCHNITZER FAMILY GROUP,
Gary Schnitzer, Trustee (3) 800,818 19.2%
----------------------------------------- ---------------- ----------- ---------------- -----------
Leonard and Lois T. Schnitzer (2) 158,328 (7) 3.1% 208,065 5.0%
----------------------------------------- ---------------- ----------- ---------------- -----------
Robert W. and Rita S. Philip (2) 190,268 (8) 3.6% 152,289 3.6%
----------------------------------------- ---------------- ----------- ---------------- -----------
LEONARD SCHNITZER FAMILY GROUP,
Rita S. Philip, Trustee (3) 1,022,789 24.5%
----------------------------------------- ---------------- ----------- ---------------- -----------
Artisan Partners Limited Partnership (13) 881,243 (9) 17.5%
----------------------------------------- ---------------- ----------- ---------------- -----------
Cascade Investment LLC (14) 602,200 (9) 12.0%
----------------------------------------- ---------------- ----------- ---------------- -----------
WM Advisors, Inc. (15) 534,690 (9) 10.6%
----------------------------------------- ---------------- ----------- ---------------- -----------
Dimensional Fund Advisors, Inc. (16) 377,700 (9) 7.5%
----------------------------------------- ---------------- ----------- ---------------- -----------
Tweedy Browne Company LLC (17) 362,706 (9) 7.2%
----------------------------------------- ---------------- ----------- ---------------- -----------
Goldman Sachs Asset Management (18) 308,436 (9) 6.1%
----------------------------------------- ---------------- ----------- ---------------- -----------
SAFECO Asset Management Company (19) 258,300 (9) 5.1%
----------------------------------------- ---------------- ----------- ---------------- -----------
2
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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
----------------------------------------- ---------------- ----------- ---------------- -----------
Robert S. Ball 5,000 *
----------------------------------------- ---------------- ----------- ---------------- -------------
William A. Furman 3,500 *
----------------------------------------- ---------------- ----------- ---------------- -------------
Ralph R. Shaw 5,000 *
----------------------------------------- ---------------- ----------- ---------------- -------------
Barry A. Rosen 87,724 (10) 1.7%
----------------------------------------- ---------------- ----------- ---------------- -------------
Kurt C. Zetzsche 60,379 (11) 1.2%
----------------------------------------- ---------------- ----------- ---------------- -------------
Kelly E. Lang 6,400 (12) *
----------------------------------------- ---------------- ----------- ---------------- -------------
All directors and executive officers
as a group (15 persons) (2) 764,287 (20) 13.5% 1,675,559 40.1%
========================================= ================ =========== ================ =============
* 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) Except as described below, Class B shares owned by these shareholders are
subject to the Schnitzer Trust and represented by voting trust certificates
beneficially owned by the shareholders. Class B shares beneficially owned
that are not subject to the Schnitzer Trust are as follows:
Marilyn S. Easly 42,310
Carol S. Lewis 60,000
Dori Schnitzer 75,000
Susan Schnitzer 75,000
Jean S. Reynolds 50,000
Kenneth M. and Deborah S. Novack 72,000
Gary Schnitzer 72,000
(3) Class B shares shown in the table as owned by a family group represent the
total number of shares subject to the Schnitzer Trust owned 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 by the shareholders to a foundation for which
shareholders serve as trustees.
(5) Includes 19,610 shares subject to options exercisable prior to October 30,
2002.
(6) Includes 113,080 shares subject to options exercisable prior to October 30,
2002.
(7) Includes 151,918 shares subject to options exercisable prior to October 30,
2002.
(8) Includes 190,268 shares subject to options exercisable prior to October 30,
2002.
(9) Beneficial ownership as of October 31, 2002 as reported by the investment
manager on Form 13F. Data was obtained from information published by the
NASDAQ Stock Market, Inc.
(10) Includes 87,724 shares subject to options exercisable prior to October 30,
2002.
(11) Includes 60,279 shares subject to options exercisable prior to October 30,
2002.
(12) Includes 6,400 shares subject to options exercisable prior to October 30,
2002.
(13) Artisan Partners Limited Partnership, 1000 North Water Street, Suite 1770,
Milwaukee, WI 53202
(14) Cascade Investment L.L.C., 2365 Carillon Point, Kirkland, WA 98033
(15) WM Advisors, Inc., 1201 Third Ave., 22nd Floor, Seattle, WA 98101-3000
(16) Dimensional Fund Advisors, Inc.,1299 Ocean Ave., 11th Floor, Santa Monica,
CA 90401-1038
(17) Tweedy, Brown Co. LLC, 350 Park Avenue, Ninth Floor, New York, NY
10022-2634
(18) Goldman Sachs Asset Management, 32 Old Slip, 23rd Floor, New York, NY 10005
(19) SAFECO Asset Management Company, 601 Union Street, Suite 2500, Seattle, WA
98101-4074
(20) Includes 635,879 shares subject to options exercisable prior to October 30,
2002.
3
SCHNITZER STEEL INDUSTRIES, INC. VOTING TRUST AND BUY-SELL AGREEMENT
VOTING TRUST PROVISIONS. Substantially all of the outstanding Class B Common
Stock was subject to the Schnitzer Steel Industries, Inc. Voting Trust and
Buy-Sell Agreement dated March 31, 1991 (the Old Trust Agreement). The voting
trust provisions of the Old Trust Agreement expired on March 31, 2001. Prior to
that expiration, the beneficial owners of 84% of the outstanding shares of Class
B Common Stock entered into the Schnitzer Steel Industries, Inc. 2001 Restated
Voting Trust and Buy-Sell Agreement dated March 26, 2001 (the Schnitzer Trust
Agreement) pursuant to which the signatories agreed to extend the voting trust
provisions of the Old Trust Agreement for another ten years and thereby continue
to subject their shares to the terms of the Schnitzer Steel Industries, Inc.
Voting Trust (the Schnitzer Trust) until March 26, 2011. Shares of Class B
Common Stock beneficially owned by persons who did not sign the Schnitzer Trust
Agreement were distributed from the Schnitzer Trust effective March 31, 2001.
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
subject to 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 the trustees with votes equal to at least 52.5% of the
total number of shares subject to 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 26, 2011 unless terminated prior thereto by
agreement of the holders of trust certificates representing two-thirds of the
shares held in 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 contains transfer restrictions binding on both holders of voting trust
certificates and holders of shares of Class B Common Stock distributed from the
Schnitzer Trust, unless such restrictions are waived by the trustees. The
Schnitzer Trust Agreement prohibits shareholders who are subject thereto 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. Similarly,
a holder of Class B Common Stock subject to the transfer restrictions is
permitted to sell or make a charitable gift of the holder's Class B Common Stock
by first converting the shares into Class A Common Stock, which will then be
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 or exchange shares of Class A Common Stock owned by them for the
Class B Common Stock proposed to be converted.
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: Robert S.
Ball, William A. Furman, Carol S. Lewis, Scott Lewis, Kenneth M. Novack, Robert
W. Philip, Jean S. Reynolds, Dori Schnitzer, Gary Schnitzer, Leonard Schnitzer,
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.
4
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.
Name and Year First
Became Director Business Experience Age
------------------- ------------------- ---
Robert S. Ball Director of the Company since September 1993. 61
1993 Since 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. 57
1993 Since 1981, he has been President, 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.
Carol S. Lewis Director of the Company since December 1987. 65
1987 She is the former proprietor of Virginia
Jacobs, which has three linen and home
accessories stores. 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 a daughter of Manuel Schnitzer, a
brother of Leonard Schnitzer.
Scott Lewis Director of the Company since 1998. Mr. Lewis 43
1998 is currently a principal in and an
environmental design consultant with
Brightworks Northwest LLC. He was the former
Chief Executive Officer of Help1.com,
Director of Business Development of
Conversational Computing Corporation,
President of Sora Corporation, and an
information technology consultant. Scott
Lewis is the son of Carol S. Lewis, who is
the daughter of Manuel Schnitzer, a brother
of Leonard Schnitzer.
Kenneth M. Novack Chief Executive Officer of Schnitzer 56
1991 Investment Corp. (SIC) and Lasco Shipping Co.
since January 2002. Before then he was
President of SIC and an Executive Vice
President of the Company since 1991. 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 known
formerly as Ball, Janik & Novack. Mr. Novack
is the son-in-law of Gilbert Schnitzer, a
brother of Leonard Schnitzer.
Robert W. Philip Effective January 1, 2002, Mr. Philip assumed 55
1991 the position of Chief Executive Officer of
the Company. He had been President and a
director since March 1991, and 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.
5
Name and Year First
Became Director Business Experience Age
------------------- ------------------- ---
Jean S. Reynolds Director of the Company since September 1993. 53
1993 Jean S. Reynolds was previously a marketing
and efficiency consultant. She is a daughter
of Morris Schnitzer, a deceased brother of
Leonard Schnitzer.
Dori Schnitzer Secretary of the Company from June 1987 until 49
1991 June 2000 and became a director in March
1991. She also served as corporate counsel of
the Company from October 1987 to May 1991.
From May 1991 until June 2000, she was the
Vice President of Lasco Shipping Co., a
subsidiary of Schnitzer Investment Corp. Dori
Schnitzer is a daughter of Morris Schnitzer,
a deceased brother of Leonard Schnitzer.
Gary Schnitzer Executive Vice President in charge of the 60
1993 Company's California metals recycling
operations since 1980 and a director since
September 1993. Gary Schnitzer is the son of
Gilbert Schnitzer, a brother of Leonard
Schnitzer.
Leonard Schnitzer Chairman of the Board since March 1991. Mr. 77
1948 Schnitzer was Chief Executive Officer from
August 1973 until January 1, 2002.
Ralph R. Shaw Director of the Company since September 1993. 64
1993 Mr. Shaw is President of Shaw Management,
Inc., a financial services and venture
capital firm. He is also a director of
Dendreon Corporation.
The Board of Directors held four meetings during the fiscal year ended August
31, 2002. 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.
Robert Ball, William Furman, and Ralph Shaw are members of both the Audit
Committee and 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 2002, the Audit Committee held three
meetings and the Compensation Committee held seven meetings. 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 Ilene Dobrow Davidson, 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.
6
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 each person who served as the
Company's Chief Executive Officer during fiscal 2002 and each of the four other
most highly compensated executive officers of the Company in fiscal 2002
(hereinafter referred to as the Named Executive Officers):
=================================== =========== ======================================= ================ ================
Long-Term
Annual Compensation Compensation
------------- ------------ ------------ ----------------
Awards
Securities All Other
Name and Fiscal Underlying Compensa-
Principal Position Year Salary Bonus Other Options tion (2)
----------------------------------- ----------- ------------- ------------ ------------ ---------------- ----------------
Robert W. Philip (1) 2002 $453,300 $456,919 $9,500
----------- ------------- ------------ ------------ ---------------- ----------------
President and 2001 $449,400 $409,488 44,940 $8,500
----------- ------------- ------------ ------------ ---------------- ----------------
Chief Executive Officer 2000 $426,550 $315,000 40,500 $8,500
----------------------------------- ----------- ------------- ------------ ------------ ---------------- ----------------
Leonard Schnitzer (1,3) 2002 $179,373 $9,500
----------- ------------- ------------ ------------ ---------------- ----------------
Chairman of the Board 2001 $315,151 $143,705 31,515 $8,500
----------- ------------- ------------ ------------ ---------------- ----------------
2000 $299,387 $150,000 28,401 $8,500
----------------------------------- ----------- ------------- ------------ ------------ ---------------- ----------------
Gary Schnitzer (1) 2002 $302,959 $160,568 $9,500
----------- ------------- ------------ ------------ ---------------- ----------------
Executive Vice President 2001 $297,712 $130,077 24,258 $8,500
----------- ------------- ------------ ------------ ---------------- ----------------
2000 $282,778 $120,000 21,861 $8,500
----------------------------------- ----------- ------------- ------------ ------------ ---------------- ----------------
Kurt C. Zetzsche 2002 $269,871 $19,000
----------- ------------- ------------ ------------ ---------------- ----------------
President, Cascade Steel 2001 $267,821 $123,198 21,822 $17,000
----------- ------------- ------------ ------------ ---------------- ----------------
Rolling Mills, Inc. 2000 $258,177 $125,000 19,666 $17,000
----------------------------------- ----------- ------------- ------------ ------------ ---------------- ----------------
Barry A. Rosen (1) 2002 $251,462 $129,438 $9,500
----------- ------------- ------------ ------------ ---------------- ----------------
Vice President, Finance and 2001 $248,401 $113,192 20,240 $8,500
----------- ------------- ------------ ------------ ---------------- ----------------
Chief Financial Officer 2000 $235,818 $87,000 18,240 $8,500
----------------------------------- ----------- ------------- ------------ ------------ ---------------- ----------------
Kelly E. Lang 2002 $168,467 $68,285 6,375 $9,500
----------- ------------- ------------ ------------ ---------------- ----------------
Vice President, 2001 $162,000 $62,208 6,000 $8,500
----------- ------------- ------------ ------------ ---------------- ----------------
Corporate Controller 2000 $141,712 $66,700 6,000 $7,792
=================================== =========== ============= ============ ============ ================ ================
(1) The amounts in the table 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 2002, 2001 and 2000, 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.
(3) Leonard Schnitzer resigned as Chief Executive Officer effective January 1,
2002.
7
STOCK OPTION GRANTS IN LAST FISCAL YEAR
In past years, the Company has typically granted options to Named Executive
Officers in the month of June. During 2002, options to the majority of the Named
Executive Officers were not granted until September, thereby falling in fiscal
2003. 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, 2002, as well as in September 2002.
===================================================================================== =============== ==============
INDIVIDUAL GRANTS
------------------------ -------------- --------------- --------------- -------------
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation for
Underlying Granted to Option Term (2)
Options Employees in Exercise Price Expiration ------------------------------
Name Granted (1) Fiscal Year Per Share Date 5% 10%
------------------------ -------------- --------------- --------------- ------------- --------------- --------------
Robert W. Philip 45,000(3) -- $17.75 9/24/12 $502,330 $1,273,002
------------------------ -------------- --------------- --------------- ------------- --------------- --------------
Leonard Schnitzer
------------------------ -------------- --------------- --------------- ------------- --------------- --------------
Gary Schnitzer 23,620(3) -- $17.75 9/24/12 $263,667 $ 668,184
------------------------ -------------- --------------- --------------- ------------- --------------- --------------
Kurt C. Zetzsche 20,422(3) -- $17.75 9/24/12 $227,968 $ 577,717
------------------------ -------------- --------------- --------------- ------------- --------------- --------------
Barry A. Rosen 18,779(3) -- $17.75 9/24/12 $209,628 $ 531,238
------------------------ -------------- --------------- --------------- ------------- --------------- --------------
Kelly E. Lang 6,375 10.9% $20.00 6/1/12 $ 80,184 $ 203,202
======================== ============== =============== =============== ============= =============== ==============
(1) Each option was granted on the date 10 years prior to the expiration date
shown in the table. Options become exercisable over five years, 20% per
year from the date of grant.
(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.
(3) The Compensation Committee normally makes option grants to Company
executives at the same time as grants made to other Company employees,
which traditionally takes place in the fourth quarter of each fiscal year.
However, grants made to the indicated executives in 2002 were not made
until the first month of fiscal 2003. These grants will be reflected in the
fiscal 2003 Summary Compensation Table and will again be reflected in the
fiscal 2003 Stock Option Grants table.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of August 31, 2002 regarding equity
compensation plans approved by the shareholders and equity compensation plans
that were not approved by the shareholders.
==================================== ========================= ========================== ==========================
(a) (b) (c)
Number of securities
Number of securities to Weighted average remaining available for
be issued upon exercise exercise price of future issuance
of outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
------------------------------------ ------------------------- -------------------------- --------------------------
Equity compensation plans approved
by security holders(1) 1,072,026 $17.69 1,216,892
------------------------------------ ------------------------- -------------------------- --------------------------
Equity compensation plans not
approved by security holders -- n/a --
------------------------------------ ------------------------- -------------------------- --------------------------
Total 1,072,026 $17.69 1,216,892
==================================== ========================= ========================== ==========================
(1) Consists entirely of shares of Class A Common Stock authorized for issuance
under the Company's 1993 Stock Incentive Plan.
8
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, 2002 by each of the Named
Executive Officers as well as the number and value of unexercised options held
by such persons at August 31, 2002.
=================== ============= ============= ============================== ==============================
Number of Unexercised Value of Unexercised in the Money
Shares Options at Fiscal Year-End Options at Fiscal Year-End (1)
Acquired Value ------------------------------ ------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------------- ------------- ------------- ------------- ---------------- ------------ -----------------
Robert W. Philip -- -- 190,268 58,491 $493,417 $280,855
------------------- ------------- ------------- ------------- ---------------- ------------ -----------------
Leonard Schnitzer -- -- 151,918 41,429 $356,552 $196,954
------------------- ------------- ------------- ------------- ---------------- ------------ -----------------
Gary Schnitzer -- -- 113,080 31,813 $272,426 $151,601
------------------- ------------- ------------- ------------- ---------------- ------------ -----------------
Kurt C. Zetzsche 40,430 $184,474 60,279 28,618 $ 77,824 $136,378
------------------- ------------- ------------- ------------- ---------------- ------------ -----------------
Barry A. Rosen -- -- 87,724 26,438 $219,743 $126,490
------------------- ------------- ------------- ------------- ---------------- ------------ -----------------
Kelly E. Lang -- -- 6,400 16,975 $ 23,110 $ 40,065
=================== ============= ============= ============= ================ ============ =================
(1) Aggregate value of shares covered by in the money options at August 31,
2002, less the aggregate exercise price of such options.
DEFINED BENEFIT RETIREMENT PLANS
PENSION RETIREMENT PLAN. The Company's Pension Retirement Plan (the 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 60 and no increase in annual compensation from current levels,
Gary Schnitzer, Robert W. Philip, Barry A. Rosen and Kelly E. Lang would receive
annual benefits for life of $38,000, $64,000, $59,000 and $54,000, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT BONUS PLAN. The Supplemental Executive
Retirement Bonus Plan (the Supplemental Plan) was adopted to provide a
competitive level of retirement income for key executives selected by the Board
of Directors. The Supplemental 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 $212,259 in 2002. 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 Supplemental 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 Supplemental 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
Supplemental Plan) with various levels of pay and service, based on the 2002
value for the inflation-adjusted cap.
9
======================= ========================================================
Highest Consecutive Credited Years of Service
Five-Year Average ------------- -------------- -------------- ------------
Qualifying Compensation 10 15 20 25
----------------------- ------------- -------------- -------------- ------------
$200,000 $52,000 $ 78,000 $104,000 $130,000
----------------------- ------------- -------------- -------------- ------------
$250,000 $65,000 $ 97,500 $130,000 $162,500
----------------------- ------------- -------------- -------------- ------------
$300,000 $78,000 $117,000 $156,000 $195,000
----------------------- ------------- -------------- -------------- ------------
$350,000 $84,903 $127,355 $169,807 $212,259
----------------------- ------------- -------------- -------------- ------------
$400,000 $84,903 $127,355 $169,807 $212,259
======================= ============= ============== ============== ============
As of December 31, 2001, Gary Schnitzer, Robert W. Philip and Barry A. Rosen had
37, 30 and 20 years of service, respectively, and highest consecutive five-year
average qualifying compensation of $361,000, $732,000 and $376,000,
respectively. For Mr. Philip and Mr. Rosen, the compensation differs
significantly from that shown in the Summary Compensation Table because benefits
under the Supplemental Plan are based on total qualifying compensation received
from all Schnitzer Group companies.
DIRECTOR COMPENSATION
Directors who are not employees of Schnitzer Group companies receive an annual
fee of $15,000 plus $1,000 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. Directors may elect to
receive annual compensation in stock options in lieu of cash compensation based
on a pre-defined exchange ratio.
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 and
shipping agency businesses; Lasco Shipping Co. (LSC), formerly known as Pacific
Coast Shipping Co., and its wholly-owned subsidiary, Trans-Pacific Shipping Co.
(TPS), and Liberty Shipping Group Limited Partnership (LSGLP) and its general
partner LSGGP Corp. (LSGGP), all engaged in the ocean shipping business; and
Island Equipment Company, Inc. (IECO), engaged in various businesses in Guam and
other South Pacific islands.
Robert W. Philip spends limited time on the businesses of other Schnitzer Group
companies. Leonard Schnitzer serves as Chairman of the Schnitzer Group's
shipping companies. Barry A. Rosen serves as Chief Financial Officer for all of
the Schnitzer Group companies excluding LSC. The Company believes that the
sharing of top management and other resources (such as information systems,
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.
10
The Company leases certain properties used in its business from SIC. These
properties and certain lease terms are set forth in the following table:
==========================================================================
PROPERTY ANNUAL RENT EXPIRATION OF LEASES
-------------------------------- -------------------- --------------------
Corporate Headquarters $ 111,000 2006
-------------------------------- -------------------- --------------------
Metals Recycling Operations:
Portland facility and marine 1,577,000 2063
terminal Sacramento facility 88,000 2003
-------------------------------- -------------------- --------------------
Total $ 1,776,000
==========================================================================
The lease for the Portland metals recycling operation (the "Portland Metals
Recycling Lease") was signed in 1988. In accordance with the lease terms, the
rent payable under the lease was adjusted on September 1, 1998 to $109,945 per
month and is scheduled to adjust every five years thereafter. As a result of the
1998 Asian financial crisis and the adverse effects it had on the profitability
of the Metals Recycling Business, the Company and SIC agreed to modify the rent
payable under the Portland Metals Recycling Lease for the period from March 1,
1999 to September 1, 2003. This adjustment provided the Company with lower
monthly rents during 1999 and 2000, which were then offset by higher rents in
2001-2003. The Company and SIC agreed to modify the monthly rent as follows:
$82,118 per month from March 1, 1999 to December 31, 1999, $92,633 per month
from January 1, 2000 to December 31, 2000, $126,767 per month from January 1,
2001 to August 31, 2002, and $133,612 from September 1, 2002 to August 31, 2003.
The adjustments to be made on September 1, 2003 and every fifteen years
thereafter will be to the appraised fair market rent for the leased property.
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
applicable adjustment date. Pursuant to the terms of the lease, the Sacramento
facility rent was also adjusted on September 1, 1998 based on the same inflation
indexes. The Company subleases portions of the Portland facility to third
parties and received rent of approximately $134,000 in fiscal 2002. Of this
amount, subleases for approximately $90,000 per year continue through fiscal
2004.
From time to time, the Company ships recycled metal for export on vessels
chartered from LSC and TPS. In fiscal 2002, the Company incurred a total of $4.7
million in charter expense to LSC and TPS primarily under time charter
agreements with TPS covering two vessels. These time charters, seven year
agreements originally scheduled to expire in July 2002, were entered into to
partially hedge the volatile ocean freight markets. Under these charters, the
Company was obligated to pay TPS the actual cost of operating the ships plus
approximately $200,000 per month. Due in part to the world economic slow-down in
2002, ocean freight rates declined sharply. In order to take advantage of lower
market rates, the Company paid TPS $1.5 million in January 2002 to terminate the
charters, which amount represented the remaining balance of the charges under
the charters in excess of actual ship operating costs. Since the termination of
the time charter agreements, the Company has on occasion chartered vessels from
LSC and TPS at market rates. The determination to use a vessel chartered from
LSC or TPS is based upon ship availability, size and age of the vessel, and the
quoted price in comparison to other open market rates.
The Company provides management and administrative services to, and in some
cases receives services from, SIC, LSGLP, LSGGP, IECO and other Schnitzer Group
companies 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 and 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 to cover capital employed. 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% 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. Net charges by the Company to the related
parties under the agreement in fiscal 2002 totaled $1.0 million.
11
The law firm of Ball Janik LLP, of which director Robert S. Ball is a partner,
provides legal services on a regular basis to SIC, but did not provide legal
services to the Company in fiscal 2002.
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 previously established by
them.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the Committee) is composed
of three 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 sole responsibility for the administration of, and
the grant of stock options and other awards under, the Company's 1993 Stock
Incentive Plan, as amended.
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
The Company's salary revisions generally become effective in June of each year.
For purposes of determining salaries effective June 2002, the committee
considered the improvement in the Company's results in relation to the Company's
peers, the metals recycling and steel industries in general, economic conditions
and executive performance.
ANNUAL BONUSES
During fiscal 2001, the Company adopted the Schnitzer Steel Industries, Inc.
Economic Value Added Bonus Plan (the Plan). The Plan provides for awards based
on improvements in Economic Value Added (EVA). EVA is a measure of operating
profit after deductions for taxes and the cost of the Company's debt and equity
capital. The EVA bonus plan is based on three key concepts: 1) a target bonus,
2) a bonus multiple based on the calculated variance from expected EVA which
includes a pre-determined improvement factor and 3) a bonus bank. Target bonuses
are stated as a percentage of the annual salary for each executive officer. The
target bonuses for the executive officers were developed in part from
recommendations of the consultants engaged to assist the Company in implementing
the Plan. The expected EVA improvement from year to year is a fixed amount that
is adjusted only when significant changes in the Company's capital structure or
business occur. The executive officers' bonuses under the Plan will be greater
than their stated target bonuses if the Company's EVA exceeds the predetermined
EVA, i.e., the prior year's EVA plus the expected EVA improvement. Likewise,
bonuses will be lower than the target, and can be negative, if the Company's EVA
results are less than the expected EVA. Under the Plan, the bonus an individual
earns is credited to a bonus bank. The bonus available to be paid to the
individual for a fiscal year is equal to the amount of the bonus bank balance,
up to the target bonus for that fiscal year, plus one-third of the bonus bank
balance in excess of the target bonus. No bonus is paid when the bonus bank
balance is negative and negative bonus bank balances are carried forward to
offset future bonuses earned. There is no cap on the bonus awards that can be
achieved for superior levels of EVA improvement and similarly there is no floor
on how negative the bonus bank can reach for sub-par performance. Bonuses are
also based on the performance of specified EVA centers and/or the consolidated
EVA results of the Company. The EVA centers represent various geographic areas
or divisions within the Company. While the EVA bonuses for certain executive
officers are based solely on the consolidated EVA results of the Company, other
officers' bonuses are based partially on the results of the EVA center for which
they have primary responsibility and partially on the consolidated EVA results
of the Company.
The Committee believes that EVA improvement in excess of that expected provides
the best operating performance measure of shareholder returns in excess of the
cost of capital. To ensure that the Plan provides strong incentives for
management to increase shareholder value and does not reward poor performance by
reducing performance standards or penalize superior performance by raising such
standards, it is the Committee's intention that expected EVA improvement will
not be recalibrated for at least three years beginning with fiscal 2001.
12
The Plan replaces the Company's previous discretionary bonus plan. Due to the
nature of the EVA Plan, the executive officers accept more risk than existed
under the discretionary bonus plan.
The bonus amounts earned by the Chief Executive Officer and the other Named
Executive Officers under the Plan for fiscal 2002 are shown in the Summary
Compensation Table.
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 interests 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. Options
are awarded with an exercise price equal to the market price of Class A Common
Stock on the date of grant and typically have a term of 10 years.
The Committee has implemented an annual option grant program. Annual awards to
the top five executive officers are normally made based on grant guidelines
expressed as a percentage of salary. Option grants to most executive officers in
2002 did not occur until September and therefore fell in fiscal 2003.
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
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
Mr. Philip assumed the position of Chief Executive Officer effective January 1,
2002 at which time his base salary was unchanged. Mr. Philip was paid a base
salary of $453,300 in fiscal 2002, reflecting an increase of less than 1% over
fiscal 2001. When setting the base salary, the Committee took into account the
following:
o Comparison of base salaries, perquisites and incentives for Chief
Executive Officers of peer companies,
o The Company's improving financial performance,
o The assessment by the Committee of Mr. Philip's individual performance
and contributions, and
o Current economic conditions.
The Committee believes that Mr. Philip's annual base salary falls within the
competitive range of salaries for similar positions at similar companies.
Mr. Philip's participation in the EVA bonus plan for the last fiscal year was
tied to the Company's achievement of pre-established EVA target levels. The
Company's fiscal 2002 EVA performance was higher than the pre-established target
resulting in a payout of $456,919.
COMPENSATION COMMITTEE
Ralph R. Shaw, Chair
Robert S. Ball
William A. Furman
13
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has:
- Reviewed and discussed the audited financial statements with
management.
- Discussed with the independent auditors the matters required to be
discussed by SAS 61.
- Received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1, and
has discussed with the independent auditors the auditors'
independence.
- Based on the review and discussions above, recommended to the Board of
Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the last fiscal year for
filing with the Securities and Exchange Commission.
- Considered whether the provision by the principal accountant of
professional services other than for the audit of the Company's
financial statements is compatible with maintaining the principal
accountant's independence, and determined that it is compatible.
The Board of Directors has determined that the members of the Audit Committee
are independent. The Audit Committee has adopted a written charter.
AUDIT COMMITTEE
Ralph R. Shaw, Chair
Robert S. Ball
William A. Furman
14
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 Iron and Steel
Industry Group Index for the period commencing on August 31, 1997 and ending on
August 31, 2002. The graph assumes that $100 was invested in the Company's
Common Stock and each index on August 31, 1997, and that all dividends were
reinvested.
[GRAPH]
-------------------------------- ------- ------- ------- ------- ------- -------
8/31/97 8/31/98 8/31/99 8/31/00 8/31/01 8/31/02
-------------------------------- ------- ------- ------- ------- ------- -------
Schnitzer Steel Industries, Inc. 100.00 46.17 55.34 46.54 41.36 61.19
-------------------------------- ------- ------- ------- ------- ------- -------
Standard & Poors 500 Index 100.00 108.09 151.14 175.81 132.93 108.84
-------------------------------- ------- ------- ------- ------- ------- -------
Standard & Poors Steel Index 100.00 61.60 77.57 54.37 64.17 58.36
-------------------------------- ------- ------- ------- ------- ------- -------
SHAREHOLDER PROPOSAL
Cascade Investment, L.L.C., 2305 Carillon Point, Kirkland, Washington 98033, a
holder of 602,200 shares of Class A Common Stock, submitted the following
resolution (the "Proposal"), for the reasons stated. The Board of Directors
recommends a vote AGAINST the Proposal and asks shareholders to read through the
Company's response, which follows the shareholder proposal.
PROPOSAL
RESOLVED, that the shareholders request that the Board adopt a policy that a
majority of director candidates the Board nominates for election qualify as
"Independent." For these purposes, an "Independent" director is one who: (a) is
not currently, and has not been within the past three years, an officer or
employee of the Company or its affiliates, (b) is not a member of the Immediate
Family of an individual who is, or has been within the past three years,
employed by the Company or any of its affiliates as an executive officer, (c) is
not a director, controlling shareholder or executive officer of any organization
(nonprofit or for-profit) to which Schnitzer Steel made or received payments
that exceed $200,000, in any of the past three years, and (d) is not employed at
another entity where any of Schnitzer Steel's executives serve on that entity's
compensation committee. "Immediate Family" includes a person's spouse, parents,
children, siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, uncle, aunt, niece, nephew and anyone who resides
in such person's home.
15
SUPPORTING STATEMENT
Independent directors give investors confidence that a publicly-held corporation
is being managed for the benefit of all shareholders, not insiders and
controlling shareholders. A majority of independent directors is even more
critical when a publicly-held company, like Schnitzer Steel, has extensive
transactions with companies that are privately-held by key shareholders and
senior management.
In fiscal 2001, Schnitzer Steel paid at least $15.39 million to companies owned
and controlled by members of the Schnitzer family. These payments range from
leasing major facilities and headquarters office space to management and
administrative services to shipping costs. For example, the proxy statement
acknowledges that Schnitzer Steel paid $13.5 million for vessel charter expenses
to two companies controlled by members of the Schnitzer family.
Investors need to have confidence that the Schnitzer Steel board has the
independence necessary to examine closely these conflict of interest and
self-dealing transactions. Is the board asking the hard questions about the
payments? Are there competitive alternatives? Should there be competitive
bidding for those contracts? Is the status quo being maintained to protect those
contracts?
We believe establishing a board composed of a majority of truly independent
directors is essential to safeguarding the interests of minority shareholders.
The Schnitzer family controls a disproportionate number of board seats.
Currently, only 2 of Schnitzer Steel's 11 directors are truly independent; 8 are
members of the Schnitzer family and one is a partner in the law firm that
represents both Schnitzer Steel and the other companies controlled by members of
the Schnitzer family. While the Schnitzer Trust can, by itself, defeat this
Proposal because of its supervoting rights of Class B stock, such action alone
will illustrate the need for this Proposal.
In this world of Enron Corp., WorldCom Inc., and Adelphia Communications,
directors need to be in fact independent. There is no substitute for a majority
of independent directors.
Accordingly, we urge you to VOTE FOR THIS PROPOSAL.
COMPANY RESPONSE AND RECOMMENDATION OF THE BOARD
The Board of Directors recommends a vote AGAINST adoption of the Proposal for
the following reasons:
The proponent of the Proposal asserts that a majority of independent directors
is needed to ensure that transactions between the Company and other entities
controlled by the Schnitzer Family are independently reviewed. The Board of
Directors currently includes three directors who meet the definition of
"Independent Director" set forth in the Proposal. Under the Company's Policy
Regarding Transactions with Related Parties adopted in 1993, all transactions
between the Company and any entity controlled by the Schnitzer family must be
approved by a majority of these independent directors. Accordingly, the
proponent's principal concern about independent review and approval of
transactions with other Schnitzer companies is and has been fully addressed by
the Company's policy.
Recent corporate governance initiatives of NASDAQ and the NYSE on the heels of
the corporate scandals referred to by the proponent have given careful
consideration to the independence of public company boards of directors. While
both NASDAQ and the NYSE have proposed that public company boards generally have
at least a majority of independent directors, both have proposed an exception to
this rule for "controlled companies," companies like Schnitzer Steel of which
more than 50% of the voting power is held by a group. The "controlled company"
exception recognizes that majority shareholders have the right to select
directors and control certain key decisions by virtue of their ownership rights.
As a NASDAQ-listed company, the Company is monitoring the corporate governance
rules proposed by NASDAQ. The Company will, of course, fully comply with those
rules once adopted, and the Board of Directors intends to consider whether or
not to rely on the "controlled company" exception, if it is available, after the
rules are finalized.
16
Until NASDAQ's corporate governance rules are finalized and the terms of the
"controlled company" exception are finally established, the Board of Directors
believes that the question of whether or not the Company should have a majority
of independent directors is premature. For now, the Company believes that the
current composition of the Board of Directors, taken together with the Company's
policy, appropriately balances shareholder interests with the recognized right
of majority owners to select directors. ACCORDINGLY, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION OF THE PROPOSAL.
Holders of Class A Common Stock and Class B Common Stock will vote together as a
single class on the Proposal. The Proposal will be adopted if the votes cast in
favor of the Proposal exceed the votes cast against the Proposal. Accordingly,
abstentions and broker non-votes will have no effect on the results of the vote.
The proxies will be voted for or against the Proposal or as an abstention in
accordance with the instructions specified on the proxy form. If no instructions
are given, proxies will be voted against the Proposal.
INDEPENDENT AUDITORS
The Board of Directors of the Company has selected PricewaterhouseCoopers LLP as
independent auditors for the Company for the fiscal year ending August 31, 2003.
A representative of PricewaterhouseCoopers 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.
In addition to the audit of the Company's financial statements and other related
services, the Company retained PricewaterhouseCoopers LLP for tax services. In
fiscal 2002, PricewaterhouseCoopers LLP performed services that allowed the
Company to identify and quantify available California Enterprise Zone tax
credits. Aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the most recent fiscal year are as follows:
Audit fees (including quarterly reviews
and other audit related services) $228,350
Financial information systems design and
implementation fees --
All other fees 289,712
--------
Total $518,062
========
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 2002 all of
its officers, directors and 10% shareholders complied with all applicable
Section 16(a) filing requirements, except that Scott Lewis filed one late report
that included a total of 22 late transactions.
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Any proposal by a shareholder of the Company to be considered for inclusion in
proxy materials for the Company's 2004 Annual Meeting of Shareholders must be
received in proper form by the Company at its principal office no later than
August 25, 2003.
DISCRETIONARY AUTHORITY
Although the Notice of Annual Meeting of Shareholders provides for transaction
of any other business that properly comes before the meeting, the Board of
Directors has no knowledge of any matters to be presented at the meeting other
than the matters described in this Proxy Statement. The enclosed proxy, however,
gives discretionary authority to the proxy holders to vote in accordance with
their judgment if any other matters are presented.
17
For the 2004 Annual Meeting of Shareholders, unless notice of a shareholder
proposal to be raised at the meeting without inclusion in the Company's proxy
materials is received by the Company at its principal office prior to November
8, 2003, proxy voting on that proposal at the Annual Meeting will be subject to
the discretionary voting authority of the Company's designated proxy holders. If
timely notice is received by the Company, the designated proxy holders may still
have discretionary voting authority over the proposal depending upon compliance
by the Company and the proponents with certain requirements set forth in rules
of the Securities and Exchange Commission.
GENERAL
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, 2002.
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,
/s/ Ilene Dobrow Davidson
-------------------------
Secretary
December 23, 2002
18
DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
[_] Sign, Date and Return the [X]
Proxy Card Promptly Using Votes must be indicated
the Enclosed Envelope. [X] in Black or Blue ink.
The Board of Directors recommends a vote "FOR ALL" on Proposal 1 and "AGAINST"
on Proposal 2.
1. Election of Directors
Nominees: Leonard E. Schnitzer, Robert W. Philip, Kenneth M. Novack, Gary
Schnitzer, Dori Schnitzer, Carol S. Lewis, Jean S. Reynolds, Scott
Lewis, Robert S. Ball, William A. Furman, and Ralph R. Shaw
FOR [ ] WITHHOLD [ ] EXCEPTIONS [ ]
ALL FOR ALL
(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.)
FOR AGAINST ABSTAIN
Exceptions* ____________________________ [ ] [ ] [ ]
2. Shareholder proposal regarding composition of the Board of Directors.
3. The proxies may vote in their discretion as to other matters which may come
before the meeting.
S C A N L I N E
If shares are held jointly each shareholder
named should sign. Legal representatives of
shareholders should add their titles when
signing.
Date Share Owner sign here Co-Owner sign here
______ _____________________ _______________________
SCHNITZER STEEL INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2003 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints ROBERT W. PHILIP 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 2003 Annual
Meeting of Stockholders of SCHNITZER STEEL INDUSTRIES, INC. to be held on
January 27, 2003, 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 AGAINST the shareholder proposal regarding the composition of the
Board of Directors. 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
To change your address, please mark this box. [_]