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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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4) Date Filed:
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SCHNITZER STEEL INDUSTRIES, INC.
December 19, 2003
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of your Company,
which will be held on Monday, January 26, 2004 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 26, 2004
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 26, 2004 at 8 A.M., local time, for
the following purposes:
(1) To elect ten 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 28, 2003 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 19, 2003
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 19, 2003.
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 28, 2003. At the close of business
on November 28, 2003, 13,802,020 shares of Class A Common Stock (Class A), par
value $1.00 per share, and 6,180,676 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, 2003 (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
============================================= ============================ ============================
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) 5,759,970 81.6%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Marilyn S. Easly (2) 776,936 (20) 11.0%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Carol S. Lewis (2) 717,960 (20) 10.2%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Scott Lewis 82,430 *
--------------------------------------------- ---------------- ----------- ---------------- -----------
MANUEL SCHNITZER FAMILY GROUP,
Carol S. Lewis, Trustee (3) 1,367,706 19.4%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Dori Schnitzer (2) 639,946 9.1%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Susan Schnitzer (2) 517,038 7.3%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Jean S. Reynolds (2) 542,862 7.7%
--------------------------------------------- ---------------- ----------- ---------------- -----------
MORRIS SCHNITZER FAMILY GROUP,
Dori Schnitzer, Trustee (3) 1,344,450 19.0%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Gilbert and Thelma S. Schnitzer (2) 71,317 (4) * 868,566 12.3%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Kenneth M. and Deborah S. Novack (2) 69,193 (4,5) * 362,750 5.1%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Gary Schnitzer (2) 119,194 (6) * 124,862 1.8%
--------------------------------------------- ---------------- ----------- ---------------- -----------
GILBERT SCHNITZER FAMILY GROUP,
Gary Schnitzer, Trustee (3) 1,174,236 16.6%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Lois T. Schnitzer (2) 158,168 (7) 1.3% 416,130 5.9%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Robert W. and Rita S. Philip (2) 283,858 (8) 2.2% 302,578 4.3%
--------------------------------------------- ---------------- ----------- ---------------- -----------
LEONARD SCHNITZER FAMILY GROUP,
Rita S. Philip, Trustee (3) 1,873,578 26.5%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Artisan Partners Limited Partnership (13) 1,175,886 (9) 9.4%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Royce & Associates (14) 1,021,000 (9) 8.2%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Cascade Investment LLC (15) 990,400 (9) 8.0%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Goldman Sachs Asset Management (16) 709,200 (9) 5.7%
--------------------------------------------- ---------------- ----------- ---------------- -----------
WM Advisors, Inc. (17) 627,180 (9) 5.0%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Dimensional Fund Advisors, Inc. (18) 624,200 (9) 5.0%
--------------------------------------------- ---------------- ----------- ---------------- -----------
Robert S. Ball 10,000 *
--------------------------------------------- ---------------- ----------- ---------------- -----------
William A. Furman 7,000 *
--------------------------------------------- ---------------- ----------- ---------------- -----------
Ralph R. Shaw 10,000 *
============================================= ============================ ============================
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)
============================================= ============================ ============================
Barry A. Rosen 10,030 (10) *
--------------------------------------------- ---------------- ----------- ---------------- -----------
Kurt C. Zetzsche 8,662 (11) *
--------------------------------------------- ---------------- ----------- ---------------- -----------
Kelly E. Lang 2,000 (12) *
--------------------------------------------- ---------------- ----------- ---------------- -----------
All directors and executive officers
as a group (15 persons) (2) 776,035 (19) 5.9% 3,107,088 44.0%
============================================= ============================ ============================
* 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 84,620
Carol S. Lewis 120,000
Dori Schnitzer 150,000
Susan Schnitzer 150,000
Jean S. Reynolds 100,000
Kenneth M. and Deborah S. Novack 109,000
Gary Schnitzer 109,000
(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 29,220 shares subject to options exercisable prior to October 30,
2003.
(6) Consists of 119,194 shares subject to options exercisable prior to October
30, 2003.
(7) Consists of 158,168 shares subject to options exercisable prior to October
30, 2003, which options are held as Personal Representative of the Estate
of Leonard Schnitzer.
(8) Includes 281,758 shares subject to options exercisable prior to October 30,
2003.
(9) Beneficial ownership as of November 11, 2003 as reported by the investment
manager on Form 13F. Data was obtained from information published by the
NASDAQ Stock Market, Inc.
(10) Includes 9,530 shares subject to options exercisable prior to October 30,
2003.
(11) Includes 8,462 shares subject to options exercisable prior to October 30,
2003.
(12) Consists of 2,000 shares subject to options exercisable prior to October
30, 2003.
(13) Artisan Partners Limited Partnership, 875 E. Wisconsin Ave., Suite 800,
Milwaukee, WI 53202-5402
(14) Royce & Associates, LLC, 1414 Avenue of the Americas, 9, New York, NY
10019-2578
(15) Cascade Investment L.L.C., 2365 Carillon Point, Kirkland, WA 98033
(16) Goldman Sachs Asset Management, 32 Old Slip, 23rd Floor, New York, NY 10005
(17) WM Advisors, Inc., 1201 Third Ave., 22nd Floor, Seattle, WA 98101-3000
(18) Dimensional Fund Advisors, Inc.,1299 Ocean Ave., 11th Floor, Santa Monica,
CA 90401-1038
(19) Includes 623,832 shares subject to options exercisable prior to October 30,
2003.
(20) Includes 313,188 shares held in the Manuel Schnitzer Irrevocable Family
Trust for which both Marilyn Easly and Carol Lewis are co-trustees.
3
SCHNITZER STEEL INDUSTRIES, INC. VOTING TRUST AND BUY-SELL AGREEMENT
VOTING TRUST PROVISIONS. Pursuant to the terms of the Schnitzer Steel
Industries, Inc. 2001 Restated Voting Trust and Buy-Sell Agreement dated March
26, 2001 (the Schnitzer Trust Agreement), the beneficial owners of over 80% of
the outstanding shares of Class B Common Stock have made their shares subject to
the terms of the Schnitzer Steel Industries, Inc. Voting Trust (the Schnitzer
Trust). The Schnitzer Trust is divided into four separate groups, one for each
branch of the Schnitzer family. Carol S. Lewis, Dori Schnitzer, Gary Schnitzer,
and Rita S. Philip are the four trustees of the Schnitzer Trust and each is also
the separate trustee for his or her separate family group. Pursuant to the
Schnitzer Trust Agreement, the trustees as a group have the power to vote the
shares 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
Ten 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, and Ralph R. Shaw. If any nominee
is unable to stand for election, the persons named in the proxy will vote the
same for a substitute nominee. All of the nominees are currently directors of
the Company. The Company is not aware that any nominee is or will be unable to
stand for reelection. Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Abstentions and broker non-votes will have
no effect on the results of the vote.
Set forth below is the name, age, position with the Company, present principal
occupation or employment and five-year employment history of each of the
nominees for director of the Company.
4
Name and Year First
Became Director Business Experience Age
--------------- ------------------- ---
Robert S. Ball Director of the Company since September 1993. 62
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. 58
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. 66
1987 She is the former proprietor of Virginia
Jacobs, which had 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.
Scott Lewis Director of the Company since 1998. Mr. Lewis 44
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, a
business development executive with
Conversational Computing Corporation,
President of Sora Corporation, and an
information technology consultant. Scott
Lewis is the son of Carol S. Lewis.
Kenneth M. Novack Chief Executive Officer of Schnitzer Investment 57
1991 Corp. (SIC) since January 2002 and was Chairman
of the Board for Lasco Shipping Co. He was
President of SIC from 1991 until 2002 and an
Executive Vice President of the Company from
1991 until 2003. 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 married to a first cousin of
Carol S. Lewis.
Robert W. Philip Chief Executive Officer of the Company since 56
1991 January 2002. 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
married to a first cousin of Carol S. Lewis.
Jean S. Reynolds Director of the Company since September 1993. 54
1993 Jean S. Reynolds was previously a marketing
and efficiency consultant. She is a first
cousin of Carol S. Lewis.
5
Name and Year First
Became Director Business Experience Age
--------------- ------------------- ---
Dori Schnitzer Secretary of the Company from June 1987 until 50
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
Executive Vice President of Lasco Shipping
Co., a subsidiary of Schnitzer Investment
Corp. Dori Schnitzer is a first cousin of
Carol S. Lewis.
Gary Schnitzer Executive Vice President in charge of the 61
1993 Company's California metals recycling
operations since 1980 and a director since
September 1993. Gary Schnitzer is a first
cousin of Carol S. Lewis.
Ralph R. Shaw Director of the Company since September 1993. 65
1993 Mr. Shaw is President of Shaw Management,
Inc., a financial services and venture
capital firm.
BOARD OF DIRECTORS INDEPENDENCE AND COMMITTEES
The Board of Directors has determined that Robert Ball, William Furman and Ralph
Shaw are "independent directors" as defined in recently-adopted rules of Nasdaq,
and has not determined that any other director qualifies as an independent
director. Although the new Nasdaq rules generally require Nasdaq-listed
companies to have a board of directors comprised of a majority of independent
directors, a "controlled company" is exempt from this requirement. The Schnitzer
family members who are parties to the Schnitzer Trust are a group of
shareholders who collectively hold more than 50% of the voting power of the
Company and, accordingly, the Company is an exempt controlled company. The
independent directors hold regularly scheduled meetings at which only
independent directors are present.
The Company has Compensation and Audit Committees of the Board of Directors.
Robert Ball, William Furman, and Ralph Shaw, the three directors who have been
determined to be independent directors, are the three members of both the Audit
Committee and the Compensation Committee. The Board of Directors has also
determined that each of these directors meets all additional independence and
financial literacy requirements for Audit Committee membership under Nasdaq
rules, and has determined that Mr. Shaw is an "audit committee financial expert"
as defined in regulations adopted by the Securities and Exchange Commission.
The principal functions of the Audit Committee are to oversee the accounting and
financial reporting processes of the Company and the audits of its financial
statements, to appoint, compensate, retain and oversee the independent auditors,
to review and approve all audit and non-audit services performed by the
independent auditors, and to discuss the results of the audit with the
independent auditors. The Board of Directors has adopted a written charter for
the Audit Committee.
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. The Company does not have a nominating
committee of the Board of Directors at this time, but intends to appoint a
nominating committee in 2004. 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.
6
During fiscal 2003, the Board of Directors held 10 meetings, the Audit Committee
held 10 meetings and the Compensation Committee held 1 meeting. 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 BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning compensation
paid or accrued by the Company to or on behalf of the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company in fiscal 2003 (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 (2) tion (3)
----------------------------- ---------- ------------ ------------ --------- --------------- -------------
Robert W. Philip (1) 2003 $554,808 $836,219 130,000 $10,000
---------- ------------ ------------ --------- --------------- -------------
President and 2002 $453,300 $456,919 $9,500
---------- ------------ ------------ --------- --------------- -------------
Chief Executive Officer 2001 $449,400 $409,488 89,880 $8,500
----------------------------- ---------- ------------ ------------ --------- --------------- -------------
Gary Schnitzer (1) 2003 $314,532 $226,261 67,100 $10,000
---------- ------------ ------------ --------- --------------- -------------
Executive Vice President 2002 $302,959 $160,568 $9,500
---------- ------------ ------------ --------- --------------- -------------
2001 $297,712 $130,077 48,516 $8,500
----------------------------- ---------- ------------ ------------ --------- --------------- -------------
Kurt C. Zetzsche 2003 $281,663 $164,792 58,024 $20,000
---------- ------------ ------------ --------- --------------- -------------
President, Cascade Steel 2002 $269,871 $19,000
---------- ------------ ------------ --------- --------------- -------------
Rolling Mills, Inc. 2001 $267,821 $123,198 43,644 $17,000
----------------------------- ---------- ------------ ------------ --------- --------------- -------------
Barry A. Rosen (1) 2003 $261,572 $197,314 53,446 $10,000
---------- ------------ ------------ --------- --------------- -------------
Vice President, Finance and 2002 $251,462 $129,438 $ 9,500
---------- ------------ ------------ --------- --------------- -------------
Chief Financial Officer 2001 $248,401 $113,192 40,840 $ 8,500
----------------------------- ---------- ------------ ------------ --------- --------------- -------------
Kelly E. Lang 2003 $176,395 $106,436 7,000 $10,000
---------- ------------ ------------ --------- --------------- -------------
Vice President, 2002 $168,467 $68,285 12,750 $9,500
---------- ------------ ------------ --------- --------------- -------------
Corporate Controller 2001 $162,000 $62,208 12,000 $8,500
==========================================================================================================
(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) Securities underlying options granted have been adjusted to reflect the
1-for-1 share dividend paid on August 14, 2003.
(3) For fiscal years 2003, 2002, and 2001, All Other Compensation consists
entirely of Company contributions to the Company's Supplemental Retirement
Plan and Salary Deferral Retirement Plan.
7
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options for Class A
Common Stock granted to the Named Executive Officers in the fiscal year ended
August 31, 2003.
======================================================================================================
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
Potential Realizable Value
Number of Percent of at Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term (2)
Options Employees in Price Per Expiration --------------------------
Name Granted (1) Fiscal Year Share Date 5% 10%
------------------ -------------- --------------- ------------- ----------- ------------ -------------
Robert W. Philip 90,000 (3) 22.7% $ 8.88 9/24/12 $502,330 $1,273,002
40,000 10.1% $18.00 6/1/13 $452,804 $1,147,495
------------------ -------------- --------------- ------------- ----------- ------------ -------------
Gary Schnitzer 47,240 (3) 11.9% $ 8.88 9/24/12 $263,667 $ 668,184
19,000 5.0% $18.00 6/1/13 $224,817 $ 569,731
------------------ -------------- --------------- ------------- ----------- ------------ -------------
Kurt C. Zetzsche 40,844 (3) 10.3% $ 8.88 9/24/12 $227,968 $ 577,717
17,180 4.3% $18.00 6/1/13 $194,479 $ 492,849
------------------ -------------- --------------- ------------- ----------- ------------ -------------
Barry A. Rosen 37,558 (3) 9.5% $ 8.88 9/24/12 $209,628 $ 531,238
15,888 4.0% $18.00 6/1/13 $179,854 $ 455,785
------------------ -------------- --------------- ------------- ----------- ------------ -------------
Kelly E. Lang 7,000 1.8% $18.00 6/1/13 $ 79,241 $ 200,812
================== ============== =============== ============= =========== ============ =============
(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; thus, two grant dates occurred in
fiscal 2003 for these executives.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of August 31, 2003 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 1,454,184 $10.44 2,061,432
approved by security holders(1)
------------------------------- ----------------------- -------------------- ------------------------
Equity compensation plans not
approved by security holders(2) 31,272 $8.71 --
------------------------------- ----------------------- -------------------- ------------------------
Total 1,485,456 $10.41 2,061,432
=============================== ======================= ==================== ========================
8
(1) Consists entirely of shares of Class A Common Stock authorized for issuance
under the Company's 1993 Stock Incentive Plan.
(2) Consists of the remaining portion of options issued to a consultant in
fiscal 2001. The option was fully vested in September 2001 and expires in
September 2005. The option may be exercised on a "net exercise" basis under
which the option price is paid by surrendering a portion of the shares to
be received on the exercise. Following a change of control of the Company,
if any, the consultant may elect to cancel all or any portion of the option
in exchange for $1.66 per share covered thereby.
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, 2003 by each of the Named
Executive Officers as well as the number and value of unexercised options held
by such persons at August 31, 2003.
==================================================================================================
Value of Unexercised in the
Number of Unexercised Money Options at Fiscal
Shares Options at Fiscal Year-End Year-End (1)
Acquired Value -------------------------- --------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------- ----------- ---------- ----------- ------------- ----------- -------------
Robert W. Philip 171,400 $2,791,103 263,758 192,360 $ 3,744,053 $ 2,822,748
----------------- ----------- ---------- ----------- ------------- ----------- -------------
Gary Schnitzer 146,380 $1,587,223 109,746 100,760 $ 1,439,122 $ 1,490,536
----------------- ----------- ---------- ----------- ------------- ----------- -------------
Kurt C. Zetzsche 147,220 $1,436,327 294 88,304 $ 5,306 $ 1,309,886
----------------- ----------- ---------- ----------- ------------- ----------- -------------
Barry A. Rosen(2) 171,804 $1,274,316 28,438 81,530 $ 412,389 $ 1,209,418
----------------- ----------- ---------- ----------- ------------- ----------- -------------
Kelly E. Lang 23,750 $ 223,900 -- 30,000 -- $ 418,150
==================================================================================================
(1) Aggregate value of shares covered by in the money options at August 31,
2003, less the aggregate exercise price of such options.
(2) Mr. Rosen transferred certain options to his former spouse during the year
ended August 31, 2003. The information shown in this table for Mr. Rosen
includes the following related to the former spouse: 61,304 shares acquired
on exercise, $404,250 in value realized, 26,420 exercisable but unexercised
options at fiscal year-end and $375,964 in value of unexercised in the
money exercisable options at fiscal year-end.
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 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 $43,000, $61,000, $57,000 and $56,000, 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 certain limitations on bonuses to be included, with
the target benefit subject to an inflation-adjusted limit equal to $212,259 in
2003. 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
9
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 2003 value for the inflation-adjusted
cap.
===============================================================================
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, 2002, Gary Schnitzer, Robert W. Philip and Barry A. Rosen had
39, 32 and 22 years of service, respectively, and highest consecutive five-year
average qualifying compensation of $371,000, $777,000 and $390,000,
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 $20,000 plus $1,200 for attending each Board meeting or committee meeting
held other than on the same day as a Board meeting and are reimbursed for
expenses incurred attending Board and committee meetings. Committee chairs
receive an annual retainer of $3,500. Beginning June 2004, the directors will
participate in the Company's 1993 Stock Incentive Plan and will each receive an
annual grant of 3,000 stock options that will vest annually over five years with
a term of ten years. The option exercise price will be based upon the closing
price of the Company's Class A shares on the date of grant. Directors may elect
to receive annual compensation in stock options in lieu of cash compensation
based on the Black-Scholes option pricing model as a basis for exchange.
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; Liberty Shipping Group LLC (LSGLLC) and its manager
LSGGP LLC (LSGGP), engaged in the ocean shipping business; and Island Equipment
Company, Inc. (IECO), engaged in various businesses in Guam and other South
Pacific islands. Lasco Shipping Co. (LSC) and its wholly-owned subsidiary,
Trans-Pacific Shipping Co. (TPS), were formerly part of the Schnitzer Group, but
were sold by the Schnitzer family in December 2003.
The Company leases certain properties used in its business from SIC. These
properties and certain lease terms are set forth in the following table:
===============================================================================
EXPIRATION
PROPERTY ANNUAL RENT OF LEASES
-------------------------------------- ------------------- -------------
Corporate Headquarters $ 319,000 2014
-------------------------------------- ------------------- -------------
Metals Recycling Operations:
Portland facility and marine terminal 1,834,000 2063
-------------------------------------- ------------------- -------------
Total $2,153,000
===============================================================================
10
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, 2003 to $1,834,000 per
year and is scheduled to adjust every five years thereafter. The adjustment made
on September 1, 2003 was based on an analysis of market rates performed by
independent experts and consultations with independent counsel and was approved
by the Company's independent directors. In 2018 and every fifteen years
thereafter, adjustments to appraised fair market rent for the leased property
will likewise be made. Intervening rate 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.
In August 2003, the Company entered into a new agreement with SIC for the lease
of its administrative offices in conjunction with a reconfiguration of the space
it occupies. The rent, according to the new agreement, was based on an analysis
of market rates performed by independent experts and consultations with
independent counsel and was approved by the Company's independent directors.
Until August 2003, the Company leased the property upon which its Sacramento
operation is located from SIC. Upon expiration of the lease in August 2003, the
Company purchased the property from SIC. The purchase price of $1.1 million was
determined by an independent appraisal and was approved by the Company's
independent directors.
Periodically, the Company charters vessels from LSC and TPS at market rates to
transport recycled metal to foreign markets. The number of vessels chartered
varies from year to year depending on ship availability, size and age of the
vessel and the quoted price in comparison to other open market rates. In fiscal
2003, the Company incurred a total of $1.9 million for charters and related
expenses.
The Company provides management and administrative services to, and in some
cases receives services from, SIC, LSGLLC, LSGGP, and IECO 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. The Company
provided management and administrative services to LSC and TPS until their sale
in December 2003. Net charges by the Company to the related parties under the
agreement in fiscal 2003 totaled $0.9 million.
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 financial performance and stock
option grants.
11
BASE SALARY
The Company's salary revisions generally become effective in June of each year.
For purposes of determining the executive officers' salaries effective June
2003, 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 cash awards
based on improvements in Economic Value Added (EVA(R)). EVA is a measure of
operating profit after deductions for income taxes and the estimated weighted
average cost of the Company's debt and equity capital. The EVA bonus plan is
based on three key concepts: 1) an individual's target bonus, 2) a bonus
multiple based on the calculated variance from expected EVA, which is based upon
the prior year's actual EVA plus a pre-determined improvement factor and 3) an
individual's 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 or during periodic plan
recalibrations. 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.
The bonus amounts earned by the Chief Executive Officer and the other Named
Executive Officers under the Plan for fiscal 2003 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 executives occurred in
June 2003. Moreover, 2002 option grants to certain executive officers did not
occur until September 2002 and therefore also 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. In the past, the levels of
salary and bonus paid by the Company have not exceeded this limit. In 2003, due
to the Company's exceptional EVA performance, the salary and bonus paid to Mr.
Philip exceeded $1,000,000. The Committee intends to consider strategies to
ensure full deductibility of executive compensation in the future. 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
12
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 $554,808 in fiscal 2003, reflecting an increase of approximately 22%
over fiscal 2002. When setting the base salary, the Committee took into account
the following:
o The increased responsibilities that were assumed when he was appointed
Chief Executive Officer,
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 2003 EVA performance was significantly higher than the
pre-established target resulting in a payout of $836,219.
COMPENSATION COMMITTEE
Ralph R. Shaw, Chair
Robert S. Ball
William A. Furman
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
communicated by SAS 61.
- Received the written disclosures and the letter from the Company's
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.
AUDIT COMMITTEE
Ralph R. Shaw, Chair
Robert S. Ball
William A. Furman
13
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, 1998 and ending on
August 31, 2003. The graph assumes that $100 was invested in the Company's
Common Stock and each index on August 31, 1998, and that all dividends were
reinvested.
=====================================================================================================================
8/31/98 8/31/99 8/31/00 8/31/01 8/31/02 8/31/03
-------------------------------- ------------ ----------- ------------ ------------- ------------- -------------
Schnitzer Steel Industries, Inc. 100.00 119.86 100.81 89.57 132.52 350.59
-------------------------------- ------------ ----------- ------------ ------------- ------------- -------------
Standard & Poors 500 Index 100.00 139.83 162.64 122.98 100.85 113.02
-------------------------------- ------------ ----------- ------------ ------------- ------------- -------------
Standard & Poors Steel Index 100.00 125.92 88.27 104.17 94.74 100.36
=====================================================================================================================
SHAREHOLDER PROPOSAL
Cascade Investment, L.L.C., 2365 Carillon Point, Kirkland, Washington 98033, a
holder of 694,400 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, partner, controlling shareholder or executive officer of any
organization (nonprofit or for-profit) to which Schnitzer Steel or its
affiliates 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.
14
SUPPORTING STATEMENT
In the 2003 proxy statement, 81% of the Class A shares that voted approved our
proposal that the board of directors be required to nominate a majority of
independent directors. Unfortunately, the Schnitzer Trust opposed it and, with
its supervoting Class B stock, defeated the proposal.
We passionately believe that a majority of the board of directors needs to be
independent and represent the majority economic owners of the Company - the
public shareholders - not the Schnitzer Trust.
Recent investor scandals have made investors, the public and even Congress
realize the importance of independent directors. Independent directors give
investors confidence that a publicly-held corporation is being managed for the
benefit of all shareholders, not insiders and controlling shareholders.
In recent years, Schnitzer Steel paid more than $20 million to companies owned
and controlled by members of the Schnitzer family under real estate leases,
management and administrative services and shipping costs. We don't know the
number of Schnitzer family employees.
The Schnitzer extended family holds 8 of 11 director positions. Why should an
economic minority have 72% of the directors?
The Schnitzer Trust controls the Company because of supermajority voting rights.
Schnitzer's power structure is similar to Adelphia Communications. Adelphia's
"supervoting stock" enabled the Rigas' family interest to exercise voting
control to elect eight of nine corporate directors, while holding only 12.5
percent of the equity, and steal from shareholders through self-dealing. There
is a lesson to be learned by the Adelphia case: an economic minority should not
control the board of directors.
Supervoting stock is not incompatible with a majority of independent directors.
Both the New York Times and Washington Post companies, with founding families
owning supervoting stock but a minority of the economic interest, have a
majority of independent directors. If those families can get comfortable with a
majority of independent directors, so can the Schnitzer family.
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 Proposal is identical to a proposal submitted last year by the same
proponent. Of the total Class A and Class B shares outstanding and entitled to
vote at last year's meeting, only 35% of the shares were voted in favor of the
Proposal and it was defeated both by a majority of the total shares voted and a
majority of votes taking into account the 10-for-1 voting power of the Class B
stock.
The proponent suggests 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 are not Schnitzer family members and 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.
These independent directors are also the three members of the Company's Audit
and Compensation Committees.
The proponent's comparison of the Company to Adelphia Communications is not
instructive. Companies with a majority of independent directors have not been
immune from corporate scandals. Particularly in light of the Company's
longstanding related party transaction policy discussed above, proponent's
insinuation that the Company's Board of Directors is more likely to allow
dishonest behavior by executives is totally unjustified and blatantly
inflammatory.
15
Schnitzer family shareholders and other public shareholders share substantial
common interests. Of the more than 35 Schnitzer family members who are
participants in the Schnitzer Trust, only four are in Company management or
otherwise employed by the Company. Of the seven Schnitzer family directors, four
have no closer family relationship to any Company executive than that of a first
cousin. Among Schnitzer family members there is substantial independence from
Company management, and family shareholders and public shareholders all have the
same interest in being owners of a well-run company that maximizes shareholder
returns and value.
After more than a year of proposals, deliberation, public comment, SEC review,
reproposals and further deliberation, Nasdaq and the NYSE have recently adopted,
and the SEC has recently approved, new corporate governance rules for Nasdaq and
NYSE listed companies. Under these new rules, both Nasdaq and the NYSE will soon
require public company boards generally to have at least a majority of
independent directors. However, both Nasdaq and the NYSE have included in their
final rules an exception 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 controlling shareholders have the
right to select directors and control certain key decisions by virtue of their
ownership rights. Now that the "controlled company" exception has been approved
by the SEC, Nasdaq and the NYSE after extensive review and comment, the Board of
Directors believes that this exception represents sound public and corporate
policy and has elected to rely on it for compliance with Nasdaq's new corporate
governance rules, at least until the Company's 2005 Annual Meeting of
Shareholders.
The Board of Directors has not, however, reached a final conclusion regarding
reliance on the controlled company exception for the longer term, and expects to
consider this issue further over the next year in conjunction with the Schnitzer
family. For now, the Company believes that the current composition of the Board
of Directors, taken together with the Company's related party transaction policy
and Board committee structure, appropriately recognizes the right of controlling
shareholders to select a majority of directors while ensuring a strong role for
independent 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 Audit Committee has selected PricewaterhouseCoopers LLP as independent
auditors for the Company for the fiscal year ending August 31, 2004. 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.
Aggregate fees billed by the Company's principal accountants,
PricewaterhouseCoopers LLP, for audit services related to the most recent two
fiscal years, and for other professional services billed in the most recent two
fiscal years, were as follows:
FISCAL 2003 FISCAL 2002
----------- -----------
Audit Fees (1) $ 297,250 $ 239,950
Audit-Related Fees (2) 52,671 --
Tax Fees (3) 71,679 289,712
All Other Fees -- --
----------- -----------
Total $ 421,600 $ 518,062
=========== ===========
(1) Comprised of the audit of the Company's annual financial statements and
reviews of the Company's quarterly financial statements, as well as
consents related to and reviews of other documents filed with the
Securities and Exchange Commission.
(2) Comprised of acquisition due diligence and consultations regarding
financial accounting and reporting.
(3) Comprised of services for tax compliance, tax return preparation, tax
advice and tax planning.
16
The Audit Committee reviewed the non-audit services rendered by
PricewaterhouseCoopers LLP in and for fiscal 2002 and fiscal 2003 as set forth
in the above table and concluded that such services were compatible with
maintaining the accountants' independence. Under the Sarbanes-Oxley Act of 2002,
all audit and non-audit services performed by the Company's independent
accountants must now be approved in advance by the Audit Committee to assure
that such services do not impair the accountants' independence from the Company.
Accordingly, the Audit Committee has adopted an Audit and Non-Audit Services
Pre-Approval Policy (the "Policy") which sets forth the procedures and the
conditions pursuant to which services to be performed by the independent
accountants are to be pre-approved. Pursuant to the Policy, certain services
described in detail in the Policy may be pre-approved on an annual basis
together with pre-approved maximum fee levels for such services. The services
eligible for annual pre-approval consist of services that would be included
under the categories of Audit Fees, Audit-Related Fees and Tax Fees in the above
table as well as services for limited review of actuarial reports and
calculations. If not pre-approved on an annual basis, proposed services must
otherwise be separately approved prior to being performed by the independent
accountants. In addition, any services that receive annual pre-approval but
exceed the pre-approved maximum fee level also will require separate approval by
the Audit Committee prior to being performed. The Audit Committee may delegate
authority to pre-approve audit and non-audit services to any member of the Audit
Committee, but may not delegate such authority to management.
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 the following individuals filed
the indicated number of late reports and total number of late transactions: Gary
Schnitzer - three late reports with four late transactions; Kenneth and Deborah
Novack - two late reports with two late transactions; Marilyn Easly - one late
report with one late transaction; Barry Rosen - two late reports with twelve
late transactions; Gilbert Schnitzer - one late report with one late
transaction; Alan Davis - one late report with one late transaction; Samantha
Davis - one late report with one late transaction; Jean Reynolds - one late
report with three late transactions; Leonard Schnitzer - one late report with
two late transactions; David Easly - one late report with one late transaction;
Robert Philip - two late reports with three late transactions; Terry Glucoft -
one late report with one late transaction; Kelly Lang - one late report with one
late transaction; Jay Robinovitz - one late report with one late transaction;
Kurt Zetzsche - one late report with one late transaction; Jill Schnitzer
Edelson - one late report with two late transactions; Gayle Romain - one late
report with seven late transactions; Carol Lewis - two late reports with two
late transactions.
SHAREHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Any proposal by a shareholder of the Company to be considered for inclusion in
proxy materials for the Company's 2005 Annual Meeting of Shareholders must be
received in proper form by the Company at its principal office no later than
August 21, 2004.
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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.
For the 2005 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
4, 2004, 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, 2003.
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 19, 2003
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