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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-K
 
(Mark One)
   
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the fiscal year ended June 30, 2014
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from to

Commission File Number 001-34420
Globe Specialty Metals, Inc.
(Exact name of registrant as specified in its charter)

Delaware
20-2055624
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

 
600 Brickell Ave., Suite 1500
Miami, FL 33131
(Address of principal executive offices, including zip code)

(786) 509-6900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
         
 
Title of Each Class
 
Name of Each Exchange on Which Registered
 
  Common stock, $0.0001 par value   The NASDAQ Global Select Market  

Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of August 25, 2014, the registrant had 73,756,066 shares of common stock outstanding. As of December 31, 2013 (the last business day of the Registrant's most recently completed second fiscal quarter), the aggregate market value of such shares held by non-affiliates of the Registrant was approximately $1,165.9 million.

DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant's definitive Proxy Statement relating to the 2014 Annual Meeting of Stockholders, filed with the Securities and Exchange Commission, are incorporated by reference in Part III, Items 10 - 14 of this Annual Report on Form 10-K as indicated herein.

 
 

 

Globe Specialty Metals, Inc.
Form 10-K
For the Fiscal Year Ended June 30, 2014
 
TABLE OF CONTENTS
           
       
Page
       
No.
   
PART I
Special Note Regarding Forward-Looking Statements
   
1
 
1
 
Business
   
2
 
1A
 
Risk Factors
   
8
 
1B
 
Unresolved Staff Comments
   
12
 
2
 
Properties
   
12
 
3
 
Legal Proceedings
   
12
 
4
 
Mine Safety Disclosure
   
12
 
 
PART II
5
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
   
13
 
6
 
Selected Financial Data
   
14
 
7
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
15
 
7A
 
Quantitative and Qualitative Disclosures About Market Risk
   
23
 
8
 
Financial Statements and Supplementary Data
   
23
 
9
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   
23
 
9A
 
Controls and Procedures
   
23
 
9B
 
Other Information
   
24
 
 
PART III
10
 
Directors, Executive Officers and Corporate Governance
   
25
 
11
 
Executive Compensation
   
25
 
12
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   
25
 
13
 
Certain Relationships and Related Transactions and Director Independence
   
25
 
14
 
Principal Accountant Fees and Services
   
25
 
 
PART IV
15
 
Exhibits and Financial Statement Schedules
   
26
 
   
Signatures
   
28
 

 
 

 

PART I
 
Special Note Regarding Forward-Looking Statements
 
This Annual Report on Form 10-K contains “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. The forward-looking statements are contained principally in the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking statements include statements about:
 
 
the anticipated benefits and risks associated with our business strategy;
 
 
our future operating results and the future value of our common stock;
 
 
the anticipated size or trends of the markets in which we compete and the anticipated competition in those markets;
 
 
our ability to attract customers in a cost-efficient manner;
 
 
our ability to attract and retain qualified management personnel;
 
 
our future capital requirements and our ability to satisfy our capital needs;
 
 
the potential for additional issuances of our securities; and
 
 
the possibility of future acquisitions of businesses or assets.
 
Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties including, but not limited to:
 
 
the historic cyclicality of the metals industry and the attendant swings in market price and demand;
 
 
increases in energy costs and the effect on our cost of production;
 
 
disruptions in the supply of power;
 
 
availability of raw materials or transportation;
 
 
cost of raw material inputs and our ability to pass along those costs to customers;
 
 
costs associated with labor disputes and stoppages;
 
 
the concentration of our sales to a limited number of customers and the potential loss of a portion of sales to those customers;
 
 
our ability to generate sufficient cash to service our indebtedness;
 
 
integration and development of prior and future acquisitions;
 
 
our ability to effectively implement strategic initiatives and actions taken to increase sales growth;

 
our ability to compete successfully;
 
 
availability and cost of maintaining adequate levels of insurance;
 
 
our ability to protect our trade secrets or maintain our trademarks and other intellectual property;
 
 
equipment failures, delays in deliveries or catastrophic loss at any of our manufacturing facilities;

 
changes in laws protecting U.S. and Canadian companies from unfair foreign competition or the measures currently in place or expected to be imposed under those laws;

 
compliance with, potential liability under, and risks related to environmental, health and safety laws and regulations (and changes in such laws and regulations, including their enforcement or interpretation);
 
 
risks from our international operation, such as foreign exchange, tariff, tax, inflation, increased costs, political risks and our ability to expand in certain international markets; and
 
 
other risks described from time to time in our filings with the United States Securities and Exchange Commission (SEC), including the risks discussed under the heading “Risk Factors” in this Annual Report.
 
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date the statements are made. You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
 
 
1

 
Item 1.                 Business
 
Overview
 
Globe Specialty Metals, Inc. (GSM, the Company, we, us, or our) is one of the world’s largest and most efficient producers of silicon metal and silicon-based alloys, with approximately 100,000 metric tons (MT) of silicon metal capacity (excluding Dow Corning Corporation’s portion of the capacity of our Alloy, West Virginia and Becancour, Quebec plants) and 175,000 MT of silicon-based alloys capacity. Silicon metal, our principal product, is used as a primary raw material in making silicone compounds, aluminum and polysilicon. Our silicon-based alloys are used as raw materials in making steel, automotive components and ductile iron. We control the supply of most of our raw materials, and we capture, recycle and sell most of the by-products generated in our production processes.
 
Our products are currently produced in seven principal operating facilities located in the United States, Canada and Argentina, and we hold a currently idled facility in South Africa. Additionally, we operate facilities in Poland and China. Our flexible manufacturing capabilities allow us to optimize production and focus on products that enhance profitability. We also benefit from the lowest average operating costs of any large producer of silicon metal in the world, according to CRU International Limited (CRU), a leading metals industry consultant.
 
Fiscal 2014 was a year of record shipments and a near-record for net sales as demand for silicon metal and silicon-based alloys continues to improve. Despite our record shipments, we faced a tougher pricing environment due to weakness in the European economy and aggressive import competition in the U.S. market.  As a result, our average selling prices in fiscal 2014 decreased for both silicon metal and silicon-based alloys.  The May 3, 2013 lockout of unionized employees at the Becancour, Canada plant concluded on December 27, 2013 with the ratification of a new collective bargaining agreement.  The Becancour, Canada plant became fully operational in the fourth quarter of fiscal 2014.  We remain committed to pursuing opportunistic acquisitions and on November 21, 2013 completed the acquisition of Silicon Technology (Pty) Ltd. (Siltech), located in South Africa.  This acquisition increases the Company’s current silicon-based alloy capacity by approximately 30% and will facilitate access to the large and improving European, Asian and Middle Eastern markets.  We also continue to realize the benefits of maintenance outages taken in fiscal 2013 as our cost per pound decreased in fiscal 2014 compared to fiscal 2013.
 
Average selling prices decreased 6% from the prior year, with a 2% decrease in silicon metal and a 7% decrease in silicon-based alloys. Average selling prices declined as our annual 2014 silicon contracts renewed at lower prices than 2013 and 2012 calendar year annual contracts. Volumes increased 5% year over year, driven by a 22% increase in silicon-based alloys tons sold offset by a 9% decrease in silicon metal tons sold.  We experienced a decline in silicon metal tons sold due to the labor dispute at our Becancour, Canada plant.    Silicon-based alloys prices decreased primarily as a result of aggressive pricing of ferrosilicon imports, primarily from Russia and Venezuela.
 
Demand for silicon metal is improving based on end user demand for silicones, which are additives to hundreds of products such as cosmetics, textiles, paints and coatings, and growing demand for polysilicon, which is used to produce photovoltaic (solar) cells and semiconductors.  Demand for silicon-based alloys is largely driven by the end user requirements of steel producers and iron foundries.
 
Business segments
 
GMI
 
GMI currently operates six principal production facilities in the United States located in Beverly, Ohio, Alloy, West Virginia, Selma, Alabama, Niagara Falls, New York and Bridgeport, Alabama and one production facility in Canada located in Becancour, Quebec. GMI also operates coal mines and coal preparation plants in Kentucky and open-pit quartzite mines in Alabama.
 
Globe Metales
 
Globe Metales operates a production facility in Mendoza, Argentina and a cored-wire fabrication facility in San Luis, Argentina. Globe Metales specializes in producing silicon-based alloy products, either in lump form or in cored-wire, a delivery method preferred by some manufacturers of steel, ductile iron, machine and auto parts and industrial pipe.
 
Solsil
 
Solsil is continuing to develop its technology to produce upgraded metallurgical grade silicon metal (UMG) manufactured through a proprietary metallurgical process, which is primarily used in silicon-based photovoltaic (solar) cells. Solsil is located in Beverly, Ohio and is currently focused on research and development projects and is not producing material for commercial sale. We own a 97.25% interest in Solsil, Inc. (Solsil).
 
Corporate
 
The corporate office, located in Miami, Florida, includes general expenses, investments, and related investment income.
 
Other
 
Ningxia Yonvey Coal Industrial Co., Ltd. (Yonvey).   Yonvey produces carbon electrodes, an important input in our production process, at a production facility in Shizuishan in the Ningxia Hui Autonomous Region of China. We currently consume internally all of Yonvey’s output of electrodes. We hold a 98% ownership interest in Yonvey.
 
Ultracore Polska Sp.z.o.o (UCP).   UCP produces cored-wire silicon-based alloy products. The fabrication facility is located in Police in northern Poland.
 
Silicon Technology (Pty) Ltd. (Siltech). Siltech is a silicon-based alloy producer with a facility located in the village of Ballengeich, South Africa. The facility is currently idled. We intend to restart operations at the facility in the second half of calendar year 2014.
 
See our June 30, 2014 consolidated financial statements for financial information with respect to our segments.
 
 
 
2

 
 
Products and Operations
 
The following chart shows the location of our primary facilities, the products produced at each facility and each facility’s production capacity.
 
MAP

 
Customers and Markets
 
The following table details our shipments and average selling price per MT over the last eight quarters through June 30, 2014. See note 22 (Operating Segments) to our June 30, 2014 consolidated financial statements for additional information.
 
     
Quarter Ended
     
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
     
2014
 
2014
 
2013
 
2013
 
2013
 
2013
 
2012
 
2012
Shipments (MT) (a)
                               
 
Silicon metal
 
36,884   
 
36,530   
 
31,631   
 
31,619   
 
34,299   
 
40,310   
 
35,273   
 
40,487   
 
Silicon-based alloys
 
38,530   
 
37,396   
 
34,985   
 
30,416   
 
30,452   
 
29,072   
 
26,699   
 
29,543   
 
Total
 
75,414   
 
73,926   
 
66,616   
 
62,035   
 
64,751   
 
69,382   
 
61,972   
 
70,030   
                                   
Average selling price ($/MT) (a)
                           
 
Silicon metal
$
2,797   
 
2,791   
 
2,766   
 
2,699   
 
2,754   
 
2,793   
 
2,908   
 
2,789   
 
Silicon-based alloys
$
2,009   
 
2,001   
 
1,983   
 
2,019   
 
2,086   
 
2,069   
 
2,152   
 
2,273   
 
Silicon metal and silicon-based alloys
$
2,395   
 
2,391   
 
2,355   
 
2,365   
 
2,440   
 
2,490   
 
2,582   
 
2,571   
 
 ___________
 
(a)
Shipments and average selling price exclude coal, silica fume, other by-products and electrodes.
 
During the year ended June 30, 2014, our customers engaged primarily in the manufacture of silicone chemicals and polysilicon (31% of revenue), foundry alloys (19% of revenue), aluminum (17% of revenue) and steel (18% of revenue). Our customer base is geographically diverse, and includes North America, Europe, Asia and South America, which for the year ended June 30, 2014, represented 89%, 7%, 1% and 4% of our revenue, respectively.
 
For the year ended June 30, 2014, one customer accounted for more than 10% of revenues: Dow Corning, represented approximately 18% of revenues (approximately 75% of which was a result of the manufacturing joint ventures at our Alloy, West Virginia and Becancour, Quebec plants). Our ten largest customers account for approximately 48% of our revenue. These percentages include sales made under our joint venture agreements to Dow Corning.
 
Silicon Metal
 
We are among the world’s largest and most efficient producers of silicon metal. Silicon-based products are classified by the approximate percentage of silicon contained in the material and the levels of trace impurities. We produce specialty-grade, high quality silicon metal with silicon content generally greater than 99.25%. We produce the majority of this high-grade silicon metal for three industries: (i) the aluminum industry; (ii) the chemical industry; and (iii) polysilicon producers in the photovoltaic (solar)/semiconductor industry.
 
We market to primary and secondary aluminum producers who require silicon metal with certain purity requirements for use as an alloy, as well as to the secondary aluminum industry where specifications are not as stringent. Aluminum is used to manufacture a variety of automobile and truck components, including engine pistons, housings, and cast aluminum wheels and trim, as well as uses in high tension electrical wire, aircraft parts, beverage containers and other products which require optimal aluminum properties. The addition of silicon metal reduces shrinkage and the hot cracking tendencies of cast aluminum and improves the castability, hardness, corrosion resistance, tensile strength, wear resistance and weldability of the end products.
 
 
3

 
 
Purity and quality control are important. For instance, the presence of iron in aluminum alloys, in even small quantities, tends to reduce its beneficial mechanical properties as well as reduce its lustrous appearance, an important consideration when producing alloys for aluminum wheels. We have the ability to produce silicon metal with especially low iron content as a result of our precisely controlled production processes and use of metallurgical grade coal.
 
We market to all the major silicone chemical producers. Silicone chemicals are used in a broad range of applications, including personal care items, construction-related products, health care products and electronics. In construction and equipment applications, silicones promote adhesion, act as a sealer and have insulating properties. In personal care and health care products, silicones add a smooth texture, protect against ultra violet rays and provide moisturizing and cleansing properties. Silicon metal is an essential component of the manufacture of silicones, accounting for approximately 20% of the cost of production.
 
We market to producers of polysilicon and solar cells who utilize silicon metal as the core ingredient of their product. These manufacturers employ processes to further purify the silicon metal and then use the material to grow crystals. These crystals are then cut into wafers, which are capable of converting sunlight to electricity. The individual wafers are then soldered together to make solar cells.
 
Silicon-Based Alloy Products
 
We make ferrosilicon by combining silicon dioxide (quartzite) with iron in the form of scrap steel and iron oxides. To produce our high-grade silicon-based alloys, we combine ferrosilicon with other additions that can include precise measured quantities of other metals and rare earths to create alloys with specific metallurgical characteristics. Our silicon-based alloy products can be divided into four general categories: (i) ferrosilicon, (ii) magnesium-ferrosilicon-based alloys, (iii) ferrosilicon-based alloys and (iv) calcium silicon.
 
Magnesium-ferrosilicon-based alloys are known as “nodularizers” because, when combined with molten grey iron, they change the graphite flakes in the iron into spheroid particles, or “nodules,” thereby increasing the iron’s strength and resilience. The resulting product is commonly known as ductile iron. Ductile iron is employed in numerous applications, such as the manufacture of automobile crankshafts and camshafts, exhaust manifolds, hydraulic valve bodies and cylinders, couplings, sprockets and machine frames, as well as in commercial water pipes. Ductile iron is lighter than steel and provides better castability (i.e., intricate shapes are more easily produced) than untreated iron.
 
Ferrosilicon-based alloys (without or with very low concentrations of magnesium) are known as “inoculants” and can contain any of a large number of combinations of metallic elements. Inoculants act to evenly distribute the graphite particles found in both grey and ductile iron and refine other microscopic structures, resulting in a product with greater strength and improved casting and machining properties.
 
Calcium silicon is widely used to improve the quality, castability and machinability of steel. Calcium is a powerful modifier of oxides and sulfides. It improves the castability of the steel in a continuous casting process by keeping nozzles from clogging. Calcium also improves the machinability of steel, increasing the life of cutting tools.
 
By-Products
 
We capture, recycle and sell most of the by-products generated in our production processes. The largest volume by-product not recycled into the manufacturing process is silica fume. This dust-like material, collected in our air filtration systems, is sold to end users or to companies that process, package and market it for use as a concrete additive, refractory material or oil well conditioner. The other major by-products of our manufacturing processes are “fines,” the fine material resulting from crushing, and dross, which results from the purification process during smelting. The fines and dross that are not recycled into our own production processes are generally sold to customers who utilize these products in other manufacturing processes, including steel production.
 
Raw Material Supply
 
We control the supply of most of our raw materials. All of our products require coal or charcoal, quartzite, woodchips and electrodes in their manufacture. Alden Resources provides a stable and long-term supply of low ash metallurgical grade coal supplying a substantial portion of our requirements to our operations in the U.S. and Canada. We have reduced our use of charcoal because of the increased coal supply from Alden Resources. We also obtain low ash metallurgical grade coal from other sources in the U.S. We use charcoal from South American suppliers for our Argentine operations. We have quartzite mining operations located in Billingsley, Alabama and Saint-Urbain, Québec. These mines supply our U.S. operations with a substantial portion of our requirements for quartzite, the principal raw material used in the manufacturing of all of our products. We believe that these mines, together with additional leasing opportunities in the vicinity, should cover our needs well into the future. We also obtain quartzite from other sources in the U.S. The quartzite is mined, washed and screened to our specifications by our suppliers. Woodchips are sourced locally by each plant, and we maintain a wood chipping operation at certain plants in the U.S and Canada, which allows us to either buy logs or chips based on market pricing and availability. Carbon electrodes are supplied by Yonvey and are also purchased from several other suppliers on annual contracts and spot purchases. Most of our metal purchases are made on the spot market or from scrap dealers, with the exception of magnesium, which is purchased under a fixed duration contract for our U.S. business. Our principal iron source for producing ferrosilicon-based alloys has been scrap steel. Magnesium and other additives are obtained from a variety of sources producing or dealing in these products. We also obtain raw materials from a variety of other sources. Rail and truck are our principal transportation methods for gravel and coal. We have rail spurs at all of our plants. Other materials arrive primarily by truck. We require our suppliers, whenever feasible, to use statistical process control procedures in their production processes to conform to our own processes.
 
We enter into long-term electric power supply contracts. Our power supply contracts result in stable, favorably priced, long-term commitments of power at reasonable rates, and we believe that most of our long-term power supply contracts provide us with a cost advantage. In West Virginia, we have a contract with Brookfield Energy to provide approximately 45% of our power needs, from a dedicated hydroelectric facility, at a fixed rate through December 2021. The remainder of our power needs in West Virginia, Ohio and Alabama are sourced through contracts that provide tariff rates at historically competitive levels. In connection with the reopening of our Niagara Falls, New York plant, and as an incentive to reopen the plant, we obtained a public-sector package including 40 megawatts of hydropower through 2013, which was subsequently extended to 2020. We have entered into power hedge agreements, the most recent of which ended in June 2013, for approximately 20% of the total power required by our Niagara Falls, New York plant.
 
Mining Information
 
The following table provides a summary of our coal operations as of June 30, 2014:
 
   
Proven
 
Annual
 
Mining
 
Mining
 
Btu content
(Thousands of net tons)
 
Reserves
 
Production
 
Capacity
 
Method
 
per pound
Elliott Branch
 
499   
 
 36
 
 100
 
Surface
 
14,000   
Lick Fork
 
492   
 
 120
 
 120
 
Surface
 
14,000   
Maple Creek
 
258   
 
 48
 
 50
 
Surface
 
14,000   
Bain Branch No. 3
 
3,537   
 
 96
 
 150
 
 Underground
 
14,000   
Engle Hollow
 
246   
 
 24
 
 24
 
 Underground
 
14,000   
Harpes Creek 4A
 
1,199   
 
 96
 
 100
 
 Underground
 
14,000   
Total
 
6,231   
 
 420
 
 544
       
 
Net sales for the twelve months ended June 30:
 
   
2014
   
2013
   
$ (in 000s)
 
MT
   
$ (in 000s)
 
MT
External Net Sales*
$
16,957   
 
178,218   
 
$
18,683   
 
170,576   
Internal Net Sales
 
60,103   
 
201,386   
   
50,201   
 
186,695   
Total Net Sales
  $
77,060   
 
379,604   
   
68,884   
 
357,271   
                   
*Includes by-products and other
                 
 
 
 
4

 
 
As of June 30, 2014, we had six active coal mines (three surface mines and three underground mines), located in Kentucky. We also had three inactive permitted coal mines available for extraction located in Kentucky and Tennessee. All of our coal mines are leased and the remaining term of the leases range from 2 to 40 years. The majority of the coal production is consumed internally in the production of silicon metal and silicon-based alloys. Reserves are defined by SEC Industry Standard Guide 7 as a mineral deposit that could be economically and legally extracted and produced at the time of the reserve determination. The estimate of proven and probable reserves is of recoverable tons, which represents the tons of product that can be used internally or delivered to the customer.  At June 30, 2014, we estimate our proven and probable reserves to be approximately 16,600,000 tons with an average permitted life of approximately 37 years at present operating levels. Present operating levels are determined based on a three-year annual average production rate. Reserve estimates were made by our geologists, engineers and third parties based primarily on drilling studies performed. These estimates are reviewed and reassessed from time to time. Reserve estimates are based on various assumptions, and any material changes in these assumptions could have a material impact on the accuracy of our reserve estimates.
 
The average mining recovery rate is approximately 60 %.
 
We currently have two coal processing facilities, one of which is inactive. The active facility processes approximately 720,000 tons of coal annually, with a capacity of 2,500,000 tons. The average coal processing recovery rate is approximately is 75 %.
 
Sales and Marketing Activities
 
Our silicon metal and silicon-based alloys are sold to a diverse base of customers worldwide. Our products are typically sold on annual and quarterly contracts, with some capacity for spot sales. These contracts are fixed price or priced based on index, generally with firm volume commitments from the customers.
 
Our marketing strategy is to maximize profitability by varying the balance of our product mix among the various silicon-based alloys and silicon metal. Our products are sold directly by our own sales staff located in Buenos Aires, Argentina, Police, Poland, and at various locations in the United States and Canada, who work together to optimize the sales efforts.
 
We also employ customer service representatives. Order receiving, entry, shipment coordination and customer service is handled primarily from the Beverly, Ohio facility for our U.S. operations, and in Buenos Aires, Argentina, and Police, Poland for our non U.S. operations. In addition to our direct sales force, we sell through distributors in various U.S. regions, Canada, Southern and Northern Mexico, Australia, South America and Europe.
 
We maintain credit insurance for the majority of our customer receivables to mitigate collection risk.
 
Competition
 
The silicon metal and silicon-based alloy markets are capital intensive and competitive. Our primary competitors are Elkem AS, owned by China National Bluestar Group Co. Ltd., and Grupo FerroAtlantica, S.A. In addition, we also face competition from other companies, such as, Rima Industrial SA and Ligas de Alumino SA, as well as producers in China and the former republics of the Soviet Union. We have historically proven to be a highly efficient, low cost producer, with competitive pricing and manufacturing processes that capture most of our production by-products for reuse or resale. We also have the flexibility to adapt to current market demands by switching certain furnaces between silicon-based alloy and silicon metal production with economical switching costs. We face continual threats from existing and new competition. Nonetheless, certain factors can affect the ability of competition to enter or expand. These factors include (i) lead time of three to five years to obtain the necessary governmental approvals and construction completion; (ii) construction costs; (iii) the need to situate a manufacturing facility proximate to raw material sources, and (iv) energy supply for manufacturing purposes.
 
Competitive Strengths
 
We believe that we possess a number of competitive strengths that position us well to continue as one of the leading global suppliers of silicon metal and silicon-based alloys.
 
 
• 
Leading Market Positions.   We hold leading market shares in our primary geography, North America, and in a majority of our products. According to data from CRU, we believe our silicon metal capacity of approximately 100,000 MT annually (excluding Dow Corning’s portion of the capacity of our Alloy, West Virginia and Becancour, Quebec plants), represents approximately 15% of the total merchant Western World capacity, including approximately 56% of total capacity and 100% of merchant capacity in North America. We estimate that we have approximately 20% total Western World capacity for magnesium ferrosilicon, including 50% capacity in North America, and are one of only six suppliers of calcium silicon in the Western World (with estimated 18% of total Western World capacity).
 
 
• 
Low Cost Producer.  We are the lowest cost large silicon metal producer in the world. Our low operating costs are primarily a result of our access to attractively priced power, proximity to, and ownership of, raw materials, and our efficient production process and skilled labor.
 
 
• 
Highly Variable Cost Structure.   We operate with a largely variable cost of production and have the ability to rapidly turn furnaces on and off to react to changes in customer demand.  During global economic recession, we are able to quickly idle certain furnaces as demand declined and then quickly re-start them at minimal cost as demand returned.
 
 
• 
Long-Term Power Contracts.   Electricity is the largest component of our production costs. Electricity accounted for approximately 21% of our total cost of production for the fiscal year 2014. Our power supply contracts result in stable, favorably priced, long-term commitments of power at reasonable rates.
 
 
• 
Vertically Integrated Business Model. To further enhance our cost position and increase operational and financial stability, we have increased our vertical integration over time through strategic acquisitions of providers of our principal raw materials. We now have captive sources for a majority of our raw material inputs on a cost basis, including each of our three primary inputs: Coal, woodchips and quartz, each in close proximity to our production facilities. Through our acquisition of Alden Resources, we are the only significant North American supplier of specialty low ash metallurgical coal which is used in the production of silicon metal and silicon-based alloys. We believe that the only other available alternatives for low ash metallurgical coal are charcoal, which is more expensive, and Colombian coal, which is less reactive with quartz, not as pure, requires additional handling and is more costly to ship to North American production facilities. We believe our integrated business model and ownership of raw materials provides us with an advantage over our competitors. We have stable, long-term access to critical raw materials for our production processes and do not have to compete with our competitors for supply. We also supply low ash metallurgical coal to our competitors. In addition, we are not reliant on any single supplier for our raw materials providing our business model with stability.
 
 
• 
Efficient and Environmentally Sensitive By-Product Usage.   We utilize or sell most of our manufacturing processes’ by-products, which reduces costs and limits environmental impact.
 
 
• 
Diverse Customers and End Markets.   Our wide range of customers, products, and end markets provides significant diversity and stability to our business. Our products are used in a wide range of end products spanning a broad variety of industries, including personal care and healthcare products, aluminum, automobiles, carbon and stainless steel, water pipe, solar, semiconductor, oil and gas, infrastructure and construction. We are also diversified geographically and sell our products to customers in over 30 countries. While our largest customer concentration is in the United States, we also have customers in Europe and South America. Although some of our end markets have similar growth drivers, others are less correlated and offer diversification benefits. We have the flexibility to adapt to current market demands by switching furnaces between silicon-based alloys and silicon metal production with low switching costs. This allows us to capitalize on our diversity and serve markets with the largest growth prospects. We have considerable diversification of customers across our primary end-markets. While our largest end-market is silicones, there is significant diversity within the silicones sector. Silicone chemicals are included in applications across a variety of industries, including healthcare, personal care, paints and coatings, sealants and adhesives, construction, electronics, transportation sectors, sports and fashion. Similarly, within each of our other primary end-markets, we observe considerable diversity in the end-use of our product. We believe that the variety of industries which our product ultimately serves results in revenue stability and insulation from significant changes in demand or product pricing within any particular industry.
 
 
• 
Experienced, Highly Qualified Management Team.   We have assembled a highly qualified management team with over 50 years of combined experience in the metals industry among our top two executives, Alan Kestenbaum, our Executive Chairman, and Jeff Bradley, our Chief Executive Officer and Chief Operating Officer. Alan Kestenbaum has over 25 years of experience in metals trading, distribution, finance and manufacturing, including as the founder of leading international metals trader Marco International. Jeff Bradley was formerly the CEO of Claymont Steel before joining GSM in 2008. Joe Ragan, our CFO, brings significant experience as the CFO of Boart Longyear, with over 10 years of experience in the metals and manufacturing industry. Our Chief Legal Officer, Stephen Lebowitz, brings deep private practice and in-house experience, spending seven years as part of BP plc’s in-house legal department prior to joining GSM. We believe that our management team has operational and technical skills to continue to operate our business at world class levels of efficiency and to consistently produce silicon metal and silicon-based alloys at the lowest costs. Additionally, our Board of Directors, led by Alan Kestenbaum, is comprised of six seasoned executives with strong management, metals, finance and international experience.
 
 
 
5

 
 
Business Strategy
 
 
• 
Focus on Core Businesses.   We differentiate ourselves on the basis of our technical expertise and high product quality and use these capabilities to retain existing accounts and cultivate new business. As part of this strategy, we are focusing our production and sales efforts on our silicon metal and silicon-based alloys end markets where we may achieve the highest profitability. We continue to evaluate our core business strategy and may divest certain non-core and lower margin businesses to improve our financial and operational results.
 
 
• 
Maintain Low Cost Position While Controlling Inputs.  We intend to maintain our position as one of the lowest cost producers of silicon metal in the world by continuing to control the cost of our raw material inputs through our captive sources and long-term supply contracts. We continue to focus on reducing our fixed costs in order reduce unit costs of silicon metal and silicon-based alloy sold.
 
 
Focus on financial metrics and conservative balance sheet. Reported and Adjusted EBITDA are pertinent non-GAAP financial metrics we utilize to measure our success and are included in our quarterly press releases. These financial metrics are used to provide supplemental measures of our performance which we believe are important because they eliminate items that have less bearing on our current and future operating performance and highlights trends in our core business that may not otherwise be apparent when relying solely on GAAP financial measures. Reconciliations of these measures to the comparable GAAP financial measures are provided elsewhere in this report.
 
       
Twelve Months
       
FY 2014
 
FY 2013
       
(Dollars in thousands)
Net income (loss)
$
18,611   
 
(19,809)  
Provision for income taxes
 
7,705   
 
2,734   
Net interest expense
 
7,955   
 
6,067   
Depreciation, depletion, amortization and accretion
 
45,228   
 
46,888   
Reported EBITDA
$
79,499   
 
35,880   
 
       
Twelve Months
       
FY 2014
 
FY 2013
       
(Dollars in thousands)
Reported EBITDA
$
79,499   
 
35,880   
 
Transaction and due diligence expenses
 
1,081   
 
3,374   
 
Remeasurement of stock option liability
 
27,042   
 
13,968   
 
Siltech start-up costs
 
1,583   
 
—    
 
Contract acquisition cost
 
16,000   
 
—    
 
Quebec Silicon lockout costs
 
6,645   
 
1,400   
 
Quebec Silicon curtailment gain
 
(5,831)  
    —    
 
Remeasurement/true-up of equity compensation
 
200    
 
—    
 
Business interruption
 
2,454    
 
(4,325)  
 
Bonus payments
 
3,885   
 
—    
 
Bargain purchase gain
 
(22,243)   
 
—    
 
Gain on remeasurement of equity investment
 
—    
 
(1,655)  
 
Goodwill impairment
 
—    
 
13,130   
 
Impairment of assets
 
—    
 
37,309   
Adjusted EBITDA
$
110,315   
 
99,081   
 
Reported and Adjusted EBITDA have limitations as analytical tools, and you should not rely upon them or consider them in isolation or as a substitute for GAAP measures, such as net income and other consolidated income or other cash flows statement data prepared in accordance with GAAP. In addition, these non-GAAP measures may not be comparable to other similarly titled measures of other companies. Because of these limitations, Reported and Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business.
 
 
• 
Continue Pursuing Strategic Acquisition Opportunities.   We continue to pursue complementary acquisitions at appropriate valuations. We are actively reviewing several possible transactions to expand our strategic capabilities and leverage our products and operations. We intend to build on our history of successful acquisitions by continuing to evaluate attractive acquisition opportunities for the purpose of increasing our capacity, increasing our access to raw materials and other inputs and acquiring further refined products for our customers. In particular, we will consider acquisitions or investments that will enable us to leverage our expertise in silicon metal and silicon-based alloy products and to grow in these markets, as well as enable us to enter new markets or sell new products. We believe our overall metallurgical expertise and skills in lean production technologies position us well for future growth.
 
 
• 
Leverage Flexible Manufacturing and Expand Other Lines of Business.   We plan to leverage our flexible manufacturing capabilities to optimize the product mix produced while expanding the products we offer. Additionally, we intend to leverage our broad geographic manufacturing reach to ensure that production of specific metals is in the most appropriate facility/region. In addition to our principal silicon metal products, we have the capability to produce silicon-based alloys, such as silicomanganese, using the same facilities. Our business philosophy is to allocate our furnace capacity to the products which we expect will maximize profitability.
 
Employees
 
As of June 30, 2014, we had 1,569 employees. We have 1,059 employees in the United States, 166 employees in Canada, 148 employees in Argentina, 70 employees in South Africa, 29 employees in Poland and 97 employees in China. Our total employees consist of 541 salaried employees and 1,028 hourly employees.  We are a party to several collective bargaining agreements. We believe that relations with our employees are satisfactory.
 
Our hourly employees at our Selma, Alabama facility are covered by a collective bargaining agreement with the Industrial Division of the Communications Workers of America, under a contract running through April 2, 2017. Our hourly employees at our Alloy, West Virginia, Niagara Falls, New York and Bridgeport, Alabama facilities are covered by collective bargaining agreements with The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union under contracts running through April 27, 2017, July 30, 2017, and March 31, 2015, respectively. Union employees in Argentina are working under a contract running through April 30, 2015. Our operations in Poland and China are not unionized. Our union employees in Canada work at the Bécancour, Québec, plant and are covered by a Union Certification held by the Communications, Energy and Paper Workers Union of Canada (“CEP”), Local 184.  The corresponding collective bargaining agreement at our Bécancour facility expired on April 30, 2013 and by effect of a “bridging clause” continued to apply until the union or the Company exercised its right to strike a lockout. We exercised such a right and declared a lockout on May 3, 2013. The lockout remained in effect until December 27, 2013. The CEP, Local 184 and the Company continued bargaining throughout this period with the assistance of a conciliator appointed by the Ministry of Labour. On December 21, 2013, the parties reached an agreement in principle on the new terms of a collective agreement which was put to a ratification vote of the union membership on December 27, 2013. The proposed collective agreement was ratified with a vote of 76%. The collective agreement was executed by the parties on January 3, 2014 with retroactive effect to January 1, 2014. The lockout was lifted by the Company upon the date of ratification of the collective agreement. On January 3, 2014, the plant began to normalize operations, according to the terms of a back-to-work protocol agreed to by the parties. Since that time, the new collective agreement has been in place and will run through April 30, 2017.
 
Proprietary Rights and Licensing
 
The majority of our intellectual property relates to process design and proprietary know-how. Our intellectual property strategy is focused on developing and protecting proprietary know-how and trade secrets, which are maintained through employee and third-party confidentiality agreements and physical security measures. Although we have some patented technology, our businesses or profitability does not rely fundamentally upon such technology.
 
Regulatory Matters
 
We operate facilities in the U.S. and abroad, which are subject to foreign, federal, national, state, provincial and local environmental, health and safety laws and regulations, including, among others, those governing the discharge of materials into the environment, hazardous substances, land use, reclamation and remediation and the health and safety of our employees. These laws and regulations require us to obtain from governmental authorities permits to conduct certain regulated activities, which permits may be subject to modification or revocation by such authorities.
 
 
6

 
 
We are subject to the risk that we have not been or will not be at all times in complete compliance with such laws, regulations and permits. Failure to comply with these laws, regulations and permits may result in the assessment of administrative, civil and criminal penalties or other sanctions by regulators, the imposition of remedial obligations, the issuance of injunctions limiting or preventing our activities and other liabilities. Under these laws, regulations and permits, we could also be held liable for any and all consequences arising out of human exposure to hazardous substances or environmental damage we may cause or that relates to our operations or properties. Environmental, health and safety laws are likely to become more stringent in the future. Our costs of complying with current and future environmental, health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations and financial condition.
 
There are a variety of laws and regulations in place or being considered at the international, federal, regional, state, provincial and local levels of government that restrict or are reasonably likely to restrict the emission of carbon dioxide and other greenhouse gases. These legislative and regulatory developments may cause us to incur material costs to reduce the greenhouse gas emissions from our operations (through additional environmental control equipment or retiring and replacing existing equipment) or to obtain emission allowance credits, or result in the incurrence of material taxes, fees or other governmental impositions on account of such emissions. In addition, such developments may have indirect impacts on our operations, which could be material. For example, they may impose significant additional costs or limitations on electricity generators, which could result in a material increase in our energy costs.
 
Certain environmental laws assess liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. In addition to cleanup, cost recovery or compensatory actions brought by foreign, federal, state, provincial and local agencies, neighbors, employees or other third parties could make personal injury, property damage or other private claims relating to the presence or release of hazardous substances. Environmental laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of hazardous substances. Persons who arrange for the disposal or treatment of hazardous substances also may be responsible for the cost of removal or remediation of these substances. Such persons can be responsible for removal and remediation costs even if they never owned or operated the disposal or treatment facility. In addition, such owners or operators of real property and persons who arrange for the disposal or treatment of hazardous substances can be held responsible for damages to natural resources.
 
Soil or groundwater contamination resulting from historical, ongoing or nearby activities is present at certain of our current and historical properties, and additional contamination may be discovered at such properties in the future. Based on currently available information, we do not believe that any costs or liabilities relating to such contamination will have a material adverse effect on our financial condition, results of operations or liquidity.
 
Under current federal black lung benefits legislation, each coal mine operator is required to make certain payments of black lung benefits or contributions to:
 
• current and former coal miners totally disabled from black lung disease (pneumoconiosis);
 
• certain survivors of a miner who dies from black lung disease or pneumoconiosis; and
 
• a trust fund for the payment of benefits and medical expenses to claimants whose last mine employment was before January 1, 1970, where no responsible coal mine operator has been identified for claims (where a miner's last coal employment was after December 31, 1969), or where the responsible coal mine operator has defaulted on the payment of such benefits. The trust fund is funded by an excise tax on U.S. production of up to $1.10 per ton for deep mined coal and up to $0.55 per ton for surface-mined coal, neither amount to exceed 4.4% of the gross sales price.
 
The Patient Protection and Affordable Care Act (PPACA), which was implemented in 2010, made two changes to the Federal Black Lung Benefits Act. First, it provided changes to the legal criteria used to assess and award claims by creating a legal presumption that miners are entitled to benefits if they have worked at least 15 years in underground coal mines, or in similar conditions, and suffer from a totally disabling lung disease. To rebut this presumption, a coal company would have to prove that a miner did not have black lung or that the disease was not caused by the miner's work. Second, it changed the law so black lung benefits will continue to be paid to dependent survivors when the miner passes away, regardless of the cause of the miner's death. In addition to the federal legislation, we are also liable under various state statutes for black lung claims. Based on currently available information, we do not believe that any costs or liabilities relating to such matters will have a material adverse effect on our financial condition, results of operations or liquidity.
 
Other Information
 
Globe Specialty Metals, Inc. was incorporated in December 2004 pursuant to the laws of the State of Delaware under the name “International Metal Enterprises, Inc.” for the initial purpose to serve as a vehicle for the acquisition of companies operating in the metals and mining industries. In November 2006, we changed our name to “Globe Specialty Metals, Inc.”
 
Our internet website address is www.glbsm.com. Copies of the following reports are available free of charge through the internet website, as soon as reasonably practicable after they have been electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended: the Annual Report on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; any amendments to such reports; and proxy statements. Information on the website does not constitute part of this or any other report filed with or furnished to the SEC. The public may read and copy any materials we have filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains our reports, proxy and information statements, and our other SEC filings. The address of the SEC's web site is www.sec.gov.
 

 
7

 

Item 1A.                      Risk Factors
 
You should consider and read carefully all of the risks and uncertainties described below, together with all of the other information contained in this Annual Report on Form 10-K, including the consolidated financial statements and the related notes to consolidated financial statements. If any of the following events actually occur, our business, business prospects, financial condition, results of operations or cash flows could be materially affected. In any such case, the trading price of our common stock could decline, and you could lose all or part of your investment.
 
The metals industry, including silicon-based metals, is cyclical and has been subject in the past to swings in market price and demand which could lead to volatility in our revenues.
 
Our business has historically been subject to fluctuations in the price of our products and market demand for them, caused by general and regional economic cycles, raw material and energy price fluctuations, competition and other factors. Historically, our subsidiary, Globe Metallurgical, Inc., has been particularly affected by recessionary conditions in the end-markets for its products, such as automotive and construction. In April 2003, Globe Metallurgical, Inc. sought protection under Chapter 11 of the United States Bankruptcy Code following its inability to restructure or refinance its indebtedness in light of the confluence of several negative economic and other factors, including an influx of low-priced, dumped imports, which caused it to default on then-outstanding indebtedness. A recurrence of such economic factors could have a material adverse effect on our business prospects, condition (financial or otherwise) and results of operations.
 
In calendar 2009, the global silicon metal and silicon-based alloys industries suffered from unfavorable market conditions. The weakened economic environment of national and international metals markets that occurred during that time may return; any decline in the global silicon metal and silicon-based alloys industries could have a material adverse effect on our business prospects, condition (financial or otherwise), and results of operations. In addition, our business is directly related to the production levels of our customers, whose businesses are dependent on highly cyclical markets, such as the automotive, residential and nonresidential construction, consumer durables, polysilicon, steel, and chemical markets. In response to unfavorable market conditions, customers may request delays in contract shipment dates or other contract modifications. If we grant modifications, these could adversely affect our anticipated revenues and results of operations. Also, many of our products are internationally traded products with prices that are significantly affected by worldwide supply and demand. Consequently, our financial performance will fluctuate with the general economic cycle, which could have a material adverse effect on our business prospects, condition (financial or otherwise) and results of operations.
 
Our business is particularly sensitive to increases in energy costs, which could materially increase our cost of production.
 
Electricity is one of our largest production cost components, comprising approximately 21% of cost of goods sold. The level of power consumption of our submerged electric arc furnaces is highly dependent on which products are being produced and typically fall in the following ranges: (i) silicon-based alloys require between 3.5 and 8 megawatt hours to produce one MT of product and (ii) silicon metal requires approximately 11 megawatt hours to produce one MT of product. Accordingly, consistent access to low cost, reliable sources of electricity is essential to our business.
 
Electrical power to our U.S. and Canada facilities is supplied mostly by AEP, Alabama Power, Brookfield Power, Hydro Quebec, Tennessee Valley Authority and Niagara Mohawk Power Corporation through dedicated lines. Our Alloy, West Virginia facility obtains approximately 45% of its power needs under a fixed-price contract with a nearby dedicated hydroelectric facility. This facility is over 70 years old and any breakdown could result in the Alloy facility having to pay much higher rates for electric power from third parties. Our energy supply for our facilities located in Argentina is supplied through the Edemsa hydroelectric facilities located in Mendoza, Argentina. Our contract expired in October 2009; we are currently operating under a month-to-month arrangement. Because energy constitutes such a high percentage of our production costs, we are particularly vulnerable to cost fluctuations in the energy industry. Accordingly, the termination or non-renewal of any of our energy contracts, or an increase in the price of energy could materially adversely affect our future earnings, if any, and may prevent us from effectively competing in our markets.
 
Losses caused by disruptions in the supply of power would reduce our profitability.
 
Our operations are heavily dependent upon a reliable supply of electrical power. We may incur losses due to a temporary or prolonged interruption of the supply of electrical power to our facilities, which can be caused by unusually high demand, blackouts, equipment failure, natural disasters or other catastrophic events, including failure of the hydroelectric facilities that currently provide power under contract to our West Virginia, New York, Quebec and Argentina facilities. Large amounts of electricity are used to produce silicon metal and silicon-based alloys, and any interruption or reduction in the supply of electrical power would adversely affect production levels and result in reduced profitability. Our insurance coverage does not cover all events and may not be sufficient to cover any or all losses. Certain of our insurance policies will not cover any losses that may be incurred if our suppliers are unable to provide power during periods of unusually high demand.
 
Investments in Argentina’s electricity generation and transmission systems have been lower than the increase in demand in recent years. If this trend is not reversed, there could be electricity supply shortages as the result of inadequate generation and transmission capacity. Given the heavy dependence on electricity of our manufacturing operations, any electricity shortages could adversely affect our financial results.
 
Government regulations of electricity in Argentina give priority access of hydroelectric power to residential users and subject violators of these restrictions to significant penalties. This preference is particularly acute during Argentina’s winter months due to a lack of natural gas. We have previously successfully petitioned the government to exempt us from these restrictions given the demands of our business for continuous supply of electric power. If we are unsuccessful in our petitions or in any action we take to ensure a stable supply of electricity, our production levels may be adversely affected and our profitability reduced.
 
Any decrease in the availability, or increase in the cost, of raw materials or transportation could materially increase our costs.
 
Principal components in the production of silicon metal and silicon-based alloys include metallurgical-grade coal, charcoal, carbon electrodes, quartzite, wood chips, steel scrap, and other metals, such as magnesium. We buy some raw materials on a spot basis. We are dependent on certain suppliers of these products, their labor union relationships, mining and lumbering regulations and output and general local economic conditions, in order to obtain raw materials in a cost efficient and timely manner. An increase in costs of raw materials or transportation, or the decrease in their production or deliverability in a timely fashion, or other disruptions in production, could result in increased costs to us and lower productivity levels. We may not be able to obtain adequate supplies of raw materials from alternative sources on terms as favorable as our current arrangements or at all. Any increases in the price or shortfall in the production and delivery of raw materials, could materially adversely affect our business prospects, condition (financial or otherwise) or results of operation.
 
Cost increases in raw material inputs may not be passed on to our customers, which could negatively impact our profitability.
 
The availability and prices of raw material inputs may be influenced by supply and demand, changes in world politics, unstable governments in exporting nations and inflation. The market prices of our products and raw material inputs are subject to change. We may not be able to pass a significant amount of increased input costs on to our customers. Additionally, we may not be able to obtain lower prices from our suppliers should our sale prices decrease.
 
Compliance with and changes in environmental laws, including proposed climate change laws and regulations, could adversely affect our performance.
 
The principal environmental risks associated with our operations are emissions into the air and releases into the soil, surface water, or groundwater. Our operations are subject to extensive foreign, federal, state, provincial and local environmental laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures and greenhouse gas emissions. If we violate or fail to comply with these laws and regulations, we could be fined or otherwise sanctioned. Because environmental laws and regulations are becoming more stringent and new environmental laws and regulations are continuously being enacted or proposed, such as those relating to greenhouse gas emissions and climate change, the level of expenditures required for environmental matters could increase in the future. Future legislative action and regulatory initiatives could result in changes to operating permits, additional remedial actions, material changes in operations, increased capital expenditures and operating costs, increased costs of the goods we sell, and decreased demand for our products that cannot be assessed with certainty at this time.
 
Some of the proposed federal cap-and-trade legislation would require businesses that emit greenhouse gases to buy emission credits from the government, other businesses, or through an auction process. As a result of such a program, we may be required to purchase emission credits for greenhouse gas emissions resulting from our operations. Although it is not possible at this time to predict the final form of a cap-and-trade bill (or whether such a bill will be passed), any new restrictions on greenhouse gas emissions – including a cap-and-trade program – could result in material increased compliance costs, additional operating restrictions for our business, and an increase in the cost of the products we produce, which could have a material adverse effect on our financial position, results of operations, and liquidity.
 
Several Canadian provinces have implemented cap-and-trade programs.  Our facility in Canada may be required to purchase emission credits in the future which could result in material increased compliance costs, additional operating restrictions for our business, and an increase in the cost of the products we produce, which could have a material adverse effect on our financial position, results of operations, and liquidity.
 
 
8

 
 
We make a significant portion of our sales to a limited number of customers, and the loss of a portion of the sales to these customers could have a material adverse effect on our revenues and profits.
 
In the year ended June 30, 2014, we made approximately 48% of our consolidated net sales to our top ten customers and approximately 27% to our two top customers (10%, excluding sales made under our joint venture agreements with Dow Corning). We expect that we will continue to derive a significant portion of our business from sales to these customers. If we were to experience a significant reduction in the amount of sales we make to some or all of these customers and could not replace these sales with sales to other customers, it could have a material adverse effect on our revenues and profits.
 
On April 13, 2014, one of our customers, Momentive Performance Materials (“MPM”), filed for reorganization under Chapter 11 of the federal Bankruptcy Code.  There is a risk, as part of the bankruptcy process, that MPM will not pay its accounts payable to us in whole or that its payments to us may be delayed.  This would increase our exposure to losses from bad debts and could have a material adverse effect on our liquidity.  In addition, if MPM were to significantly reduce its business, it could have a material adverse effect on our business, financial condition and results of operations.
 
Our U.S.-based businesses benefit from U.S. antidumping duties and laws that protect U.S. companies by taxing unfairly traded imports from foreign companies. If these duties or laws change, foreign companies will be able to compete more effectively with us. Conversely, our foreign operations may be adversely affected by these U.S. duties and laws.
 
Antidumping duties are currently in place in the United States covering silicon metal imports from China and Russia. In addition, antidumping and countervailing duties are in place in Canada covering imports of Chinese silicon metal into that country. Antidumping orders normally benefit domestic producers by reducing the volume of unfairly traded imports and increasing market prices and sales of the domestic product. In the United States, rates of duty can change as a result of “administrative reviews” of antidumping orders. These orders can also be revoked as a result of periodic “sunset reviews,” which determine whether the orders will continue to apply to imports from particular countries. Antidumping and countervailing duties in Canada also are subject to periodic reviews. A sunset review of the U.S. order covering imports from China completed in 2012 resulted in that order remaining in place for an additional five years. However, the current orders may not remain in effect and continue to be enforced from year to year, the goods and countries now covered by antidumping and countervailing duty orders may no longer be covered, and duties may not continue to be assessed at the same rates. Changes in any of these factors could adversely affect our business and profitability. Finally, at times, in filing trade actions, we find ourselves acting against the interests of our customers. Some of our customers may not continue to do business with us because of our having filed a trade action. Antidumping and countervailing duty rules may, conversely, also adversely impact our foreign operations.
 
We may be unable to successfully integrate and develop our prior and future acquisitions.
 
We acquired six private companies between November 2006 and June 2011, entered into business combinations in May 2008 and November 2013, and entered into joint venture agreements in November 2009 and June 2012. In addition, we purchased the remaining 50% interest in an existing equity investment to become the sole owner in December 2012. We expect to acquire additional companies in the future. Integration of our prior and future acquisitions with our existing business is a complex, time-consuming and costly process requiring the employment of additional personnel, including key management and accounting personnel. Additionally, the integration of these acquisitions with our existing business may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Unanticipated problems, delays, costs or liabilities may also be encountered in the development of these acquisitions. Failure to successfully and fully integrate and develop these businesses and operations may have a material adverse effect on our business, financial condition, results of operations and cash flows. The difficulties of combining the acquired operations include, among other things:
 
 
• 
operating a significantly larger combined organization;
 
 
• 
coordinating geographically disparate organizations, systems and facilities;
 
 
consolidating corporate technological and administrative functions;
 
 
• 
integrating internal controls and other corporate governance matters;
 
 
• 
the diversion of management’s attention from other business concerns;
 
 
• 
unexpected customer or key employee loss from the acquired businesses;
 
 
• 
hiring additional management and other critical personnel;
 
 
• 
negotiating with labor unions;
 
 
• 
a significant increase in our indebtedness; and
 
 
• 
potential environmental or regulatory liabilities and title problems.
 
In addition, we may not realize all of the anticipated benefits from any prior and future acquisitions, such as increased earnings, cost savings and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher than expected acquisition and operating costs, unknown liabilities, inaccurate reserve estimates and fluctuations in markets. If these benefits do not meet the expectations of financial or industry analysts, the market price of our shares may decline.
 
We are subject to the risk of union disputes and work stoppages at our facilities, which could have a material adverse effect on our business.
 
Our hourly employees at our Selma, Alabama facility are covered by a collective bargaining agreement with the Industrial Division of the Communications Workers of America, under a contract running through April 2, 2017. Our hourly employees at our Alloy, West Virginia, Niagara Falls, New York and Bridgeport, Alabama facilities are covered by collective bargaining agreements with The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union under contracts running through April 27, 2017, July 30, 2017, and March 31, 2015, respectively. Our union employees in Argentina are working under a contract running through April 30, 2015. Our union employees in Canada work at the Bécancour, Québec, plant and are covered by a Union Certification held by the Communications, Energy and Paper Workers Union of Canada (“CEP”), Local 184.  The corresponding collective bargaining agreement at our Bécancour facility expired on April 30, 2013 and by effect of a “bridging clause” continued to apply until the union or the Company exercised its right to strike a lockout. We exercised such a right and declared a lockout on May 3, 2013. The lockout remained in effect until December 27, 2013. The CEP, Local 184 and the Company continued bargaining throughout this period with the assistance of a conciliator appointed by the Ministry of Labour. On December 21, 2013, the parties reached an agreement in principle on the new terms of a collective agreement which was put to a ratification vote of the union membership on December 27, 2013. The proposed collective agreement was ratified with a vote of 76%. The collective agreement was executed by the parties on January 3, 2014 with retroactive effect to January 1, 2014. The lockout was lifted by the Company upon the date of ratification of the collective agreement. On January 3, 2014, the plant began to normalize operations, according to the terms of a back-to-work protocol agreed to by the parties. Since that time, the new collective agreement has been in place and will run through April 30, 2017.
 
New labor contracts will have to be negotiated to replace expiring contracts from time to time. If we are unable to satisfactorily renegotiate those labor contracts on terms acceptable to us or without a strike or work stoppage, the effects on our business could be materially adverse. Any strike or work stoppage could disrupt production schedules and delivery times, adversely affecting sales. In addition, existing labor contracts may not prevent a strike or work stoppage, and any such work stoppage could have a material adverse effect on our business.
 
We are dependent on key personnel.
 
Our operations depend to a significant degree on the continued employment of our core senior management team. In particular, we are dependent on the skills, knowledge and experience of Alan Kestenbaum, our Executive Chairman, Jeff Bradley, our Chief Executive Officer and Chief Operating Officer, Joseph Ragan, our Chief Financial Officer, and Stephen Lebowitz, our Chief Legal Officer. If these employees are unable to continue in their respective roles, or if we are unable to attract and retain other skilled employees, our results of operations and financial condition could be adversely affected. We currently have employment agreements with Alan Kestenbaum, Jeff Bradley, Joseph Ragan and Stephen Lebowitz, each of which contains non-compete provisions. Such provisions may not be enforceable by us. Additionally, we are substantially dependent upon key personnel in our financial and information technology staff that enables us to meet our regulatory, contractual and financial reporting obligations, including reporting requirements under our credit facilities.
 
 
 
9

 
 
Metals manufacturing is an inherently dangerous activity.
 
Metals manufacturing generally, and smelting, in particular, is inherently dangerous and subject to fire, explosion and sudden major equipment failure. This can and has resulted in accidents resulting in the serious injury or death of production personnel and prolonged production shutdowns. We have experienced fatal accidents and equipment malfunctions in our manufacturing facilities in recent years, including a fire at our Bridgeport, Alabama facility in November 2011 and a fatality at our Selma, Alabama facility in October 2012, and may experience fatal accidents or equipment malfunctions again, which could materially affect our business and operations.
 
    Our mining operations are subject to risks that are beyond our control, which could result in materially increased expenses and decreased production levels.
 
We mine coal and quartzite at underground and surface mining operations. Certain factors beyond our control could disrupt our mining operations, adversely affect production and shipments and increase our operating costs, such as: a major incident at the mine site that causes all or part of the operations of the mine to cease for some period of time; mining, processing and plant equipment failures and unexpected maintenance problems; changes in reclamation costs; and, adverse weather and natural disasters, such as heavy rains or snow, flooding and other natural events affecting operations, transportation or customers.  For example, the recent installation of additional capacity at our quartz mine in Alabama took longer and was more costly than expected. Federal or state regulatory agencies have the authority under certain circumstances following significant health and safety incidents, such as fatalities, to order a mine to be temporarily or permanently closed. If this occurred, we may be required to incur capital expenditures to re-open the mine. Environmental regulations could impose costs on our mining operations, and future regulations could increase those costs or add new costs or limit our ability to produce and sell coal. Our failure to obtain and renew permits necessary for our mining operations could negatively affect our business.
 
Equipment failures may lead to production curtailments or shutdowns.
 
Many of our business activities are characterized by substantial investments in complex production facilities and manufacturing equipment. Because of the complex nature of our production facilities, any interruption in manufacturing resulting from fire, explosion, industrial accidents, natural disaster, equipment failures or otherwise could cause significant losses in operational capacity and could materially and adversely affect our business and operations.
 
We depend on proprietary manufacturing processes and software. These processes may not yield the cost savings that we anticipate and our proprietary technology may be challenged.
 
We rely on proprietary technologies and technical capabilities in order to compete effectively and produce high quality silicon metals and silicon-based alloys. Some of these proprietary technologies that we rely on are:
 
 
• 
computerized technology that monitors and controls production furnaces;
 
 
• 
production software that monitors the introduction of additives to alloys, allowing the precise formulation of the chemical composition of products; and
 
 
• 
flowcaster equipment, which maintains certain characteristics of silicon-based alloys as they are cast.
 
We are subject to a risk that:
 
 
• 
we may not have sufficient funds to develop new technology and to implement effectively our technologies as competitors improve their processes;
 
 
• 
if implemented, our technologies may not work as planned; and
 
 
• 
our proprietary technologies may be challenged and we may not be able to protect our rights to these technologies.
 
Patent or other intellectual property infringement claims may be asserted against us by a competitor or others. Our intellectual property may not be enforceable, and it may not prevent others from developing and marketing competitive products or methods. An infringement action against us may require the diversion of substantial funds from our operations and may require management to expend efforts that might otherwise be devoted to operations. A successful challenge to the validity of any of our proprietary intellectual property may subject us to a significant award of damages, or we may be enjoined from using our proprietary intellectual property, which could have a material adverse effect on our operations.
 
We also rely on trade secrets, know-how and continuing technological advancement to maintain our competitive position. We may not be able to effectively protect our rights to unpatented trade secrets and know-how.
 
We are subject to environmental, health and safety regulations, including laws that impose substantial costs and the risk of material liabilities.
 
We are subject to extensive foreign, federal, national, state, provincial and local environmental, health and safety laws and regulations governing, among other things, the generation, discharge, emission, storage, handling, transportation, use, treatment and disposal of hazardous substances; land use, reclamation and remediation; and the health and safety of our employees. We are also required to obtain permits from governmental authorities for certain operations. We may not have been and may not be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be subject to penalties, fines, restrictions on operations or other sanctions. Under these laws, regulations and permits, we could also be held liable for any and all consequences arising out of human exposure to hazardous substances or environmental damage we may cause or that relates to our operations or properties. For example, we are subject to federal and state regulations that require payment of benefits related to black lung disease in coal miners, and our exposure may significantly increase if new or additional legislation is enacted at the federal or state level.
 
Under certain environmental laws, we could be required to remediate or be held responsible for all of the costs relating to any contamination at our or our predecessors’ past or present facilities and at third party waste disposal sites. We could also be held liable under these environmental laws for sending or arranging for hazardous substances to be sent to third party disposal or treatment facilities if such facilities are found to be contaminated. Under these laws we could be held liable even if we did not know of, or were not responsible for, such contamination, or even if we never owned or operated the contaminated disposal or treatment facility.
 
There are a variety of laws and regulations in place or being considered at the international, federal, regional, state and local levels of government that restrict or are reasonably likely to restrict the emission of carbon dioxide and other greenhouse gases. These legislative and regulatory developments may cause us to incur material costs if we are required to reduce or offset greenhouse gas emissions and may result in a material increase in our energy costs due to additional regulation of power generators.
 
Environmental laws are complex, change frequently and are likely to become more stringent in the future. Therefore, our costs of complying with current and future environmental laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances may adversely affect our business, results of operations and financial condition.
 
We operate in a highly competitive industry.
 
The silicon-based alloy and silicon metal markets are capital intensive and competitive. Our primary competitors are Elkem AS, owned by China National Bluestar Group Co. Ltd., Grupo Ferroatlantica S.L. and various producers in China. Our competitors may have greater financial resources, as well as other strategic advantages to maintain, improve and possibly expand their facilities; and as a result, they may be better positioned to adapt to changes in the industry or the global economy. The advantages that our competitors have over us could have a material adverse effect on our business. In addition, new entrants may increase competition in our industry, which could materially adversely affect our business. An increase in the use of substitutes for certain of our products also could have a material adverse effect on our financial condition and operations.
 
 
 
10

 
 
We have historically operated at near the maximum capacity of our operating facilities. Because the cost of increasing capacity may be prohibitively expensive, we may have difficulty increasing our production and profits.
 
Our facilities are able to manufacture, collectively, approximately 100,000 MT of silicon metal (excluding Dow Corning’s portion of the capacity of our Alloy, West Virginia and Becancour, Quebec plants) and 175,000 MT of silicon-based alloys on an annual basis. Our ability to increase production and revenues will depend on expanding existing facilities or opening new ones. Increasing capacity is difficult because:
 
 
adding new production capacity to an existing silicon plant to produce approximately 30,000 MT of metallurgical grade silicon would cost approximately $120,000,000 and take at least 12 to 18 months to complete once permits are obtained, which could take more than a year;
 
 
a greenfield development project would take at least three to five years to complete and would require significant capital expenditure and environmental compliance costs; and
 
 
obtaining sufficient and dependable power at competitive rates near areas with the required natural resources is difficult to accomplish.
 
We may not have sufficient funds to expand existing facilities or open new ones and may be required to incur significant debt to do so, which could have a material adverse effect on our business.
 
We are subject to restrictive covenants under credit facilities. These covenants could significantly affect the way in which we conduct our business. Our failure to comply with these covenants could lead to an acceleration of our debt.
 
We entered into credit facilities that contain covenants that at certain levels, among other things, restrict our ability to sell assets; incur, repay or refinance indebtedness; create liens; make investments; engage in mergers or acquisitions; pay dividends, including to us; repurchase stock; or make capital expenditures. These credit facilities also require compliance with specified financial covenants, including minimum interest coverage and maximum leverage ratios. We cannot borrow under the credit facilities if the additional borrowings would cause a breach to the financial covenants. Further, a significant portion of our assets are pledged to secure the indebtedness.
 
Our ability to comply with the applicable covenants may be affected by events beyond our control. The breach of any of the covenants contained in the credit facilities, unless waived, would be a default. This would permit the lenders to terminate their commitments to extend credit under, and accelerate the maturity of, the facility. The acceleration of debt could have a material adverse effect on our financial condition and liquidity. If we were unable to repay our debt to the lenders and holders or otherwise obtain a waiver from the lenders and holders, the lenders and holders could proceed against the collateral securing the credit facilities and exercise all other rights available to them. We may not have sufficient funds to make these accelerated payments and may not be able to obtain any such waiver on acceptable terms or at all.
 
The issuance of dividends may or may not occur in the foreseeable future
 
The decision to pay dividends is at the discretion of our Board of Directors and depends on our financial condition, results of operations, capital requirements, financial covenants and other factors that our Board of Directors deems relevant. In the future, we intend to continue to consider declaring dividends on an annual basis, subject to reviewing our earnings and then current circumstances, but there is no guarantee that we will continue to issue dividends.
 
Our insurance costs may increase, and we may experience additional exclusions and limitations on coverage in the future.
 
We have maintained various forms of insurance, including insurance covering claims related to our properties and risks associated with our operations. Our existing property and liability insurance coverage contains exclusions and limitations on coverage. From time-to-time, in connection with renewals of insurance, we have experienced additional exclusions and limitations on coverage, larger self-insured retentions and deductibles and significantly higher premiums. For example, as a result of the fire at our facility in Bridgeport, Alabama, our business interruption insurance premium has increased significantly. As a result, in the future, our insurance coverage may not cover claims to the extent that it has in the past and the costs that we incur to procure insurance may increase significantly, either of which could have an adverse effect on our results of operations.
 
We have operations and assets in the U.S., Argentina, Canada, South Africa, China and Poland, and may have operations and assets in other countries in the future. Our international operations and assets may be subject to various economic, social and governmental risks.
 
Our international operations and sales will expose us to risks that could negatively impact our future sales or profitability. Our operations may not develop in the same way or at the same rate as might be expected in a country with an economy similar to the United States. The additional risks that we may be exposed to in these cases include, but are not limited to:
 
 
• 
tariffs and trade barriers;
 
 
• 
currency fluctuations, which could decrease our revenues or increase our costs in U.S. dollars;
 
 
• 
regulations related to customs and import/export matters;
 
 
• 
tax issues, such as tax law changes and variations in tax laws;
 
 
• 
limited access to qualified staff;
 
 
• 
inadequate infrastructure;
 
 
• 
cultural and language differences;
 
 
• 
inadequate banking systems;
 
 
• 
different and/or more stringent environmental laws and regulations;
 
 
• 
restrictions on the repatriation of profits or payment of dividends;
 
 
• 
crime, strikes, riots, civil disturbances, terrorist attacks or wars;
 
 
• 
nationalization or expropriation of property;
 
 
• 
law enforcement authorities and courts that are weak or inexperienced in commercial matters; and
 
 
• 
deterioration of political relations among countries.
 
Our competitive strength as a low-cost silicon metal producer is partly tied to the value of the U.S. dollar compared to other currencies. The U.S. dollar has fluctuated significantly in value in comparison to major currencies in recent years. Should the value of the U.S. dollar rise in comparison to other currencies, we may lose this competitive strength.
 
Exchange controls and restrictions on transfers abroad and capital inflow restrictions have limited, and can be expected to continue to limit, the availability of international credit. Argentina continues to impose exchange controls and transfer restrictions substantially limiting the ability of companies to buy foreign currency and to make dividends payments abroad. In response to capital flight and important losses of foreign currency reserves at the Central Bank, Argentina has imposed stringent import controls and restrictions, which are affecting the ability of many firms to adequately obtain raw materials and parts for their production. On July 30, 2014, Argentina entered into a selective default of its restructured debt. These recent events and additional controls could have a negative effect on the economy and our Argentine business if imposed in an economic environment where access to local capital is substantially constrained. Moreover, in such event, restrictions on the transfers of funds abroad may impede our ability to receive more dividend payments from our Argentine subsidiaries.
 
 
 
11

 
 
Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.
 
Our stock price may be volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the price at which you purchase the shares. The market price for our common stock may be influenced by many factors, including:
 
 
• 
the success of competitive products or technologies;
 
 
• 
regulatory developments in the United States and foreign countries;
 
 
• 
developments or disputes concerning patents or other proprietary rights;
 
 
• 
the recruitment or departure of key personnel;
 
 
• 
quarterly or annual variations in our financial results or those of companies that are perceived to be similar to us;
 
 
• 
market conditions in the industries in which we compete and issuance of new or changed securities analysts’ reports or recommendations;
 
 
• 
the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
 
 
• 
the inability to meet the financial estimates of analysts who follow our common stock;
 
 
• 
investor perception of our company and of the industry in which we compete; and
 
 
• 
general economic, political and market conditions.
 
The concentration of our capital stock ownership among our largest stockholders, and their affiliates, may limit your ability to influence corporate matters.
 
To the best of our knowledge, our four largest stockholders, including our Executive Chairman, together beneficially own approximately 41% of our outstanding common stock. Consequently, these stockholders have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership may limit your ability to influence corporate matters, and as a result, actions may be taken that you may not view as beneficial.
 
Provisions of our certificate of incorporation and by-laws could discourage potential acquisition proposals and could deter or prevent a change in control.
 
Some provisions in our certificate of incorporation and by-laws, as well as Delaware statutes, may have the effect of delaying, deferring or preventing a change in control. These provisions, including those providing for the possible issuance of shares of our preferred stock and the right of our Board of Directors to amend the bylaws, may make it more difficult for other persons, without the approval of the Board of Directors, to make a tender offer or otherwise acquire a substantial number of shares of our common stock or to launch other takeover attempts that a stockholder might consider to be in his or her best interest. These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock.
 
 
Item 1B.                         Unresolved Staff Comments
 
None.
 
Item 2.   
Properties
 
We believe our facilities are suitable and adequate for our business and current production requirements. The following tables describe our primary office space, manufacturing facilities and mining properties:
 
     
 
Square
Footage
 
Number of
   
Business
Location of Facility
 
Purpose
 
Furnaces
Own/Lease
 
Segment Served
   
Miami, Florida   Office      6,314      
        
Corporate
New York, New York
 
Office
   
13,958
     
  Lease    
Corporate
Beverly, Ohio
 
Manufacturing and other
   
273,377
      5 *   Own    
GMI
Selma, Alabama
 
Manufacturing and other
   
126,207
     
2
  Own    
GMI
Alloy, West Virginia
 
Manufacturing and other
   
1,063,032
     
5
  Own    
GMI
Niagara Falls, New York
 
Manufacturing and other
   
227,732
     
2
  Own    
GMI
Bridgeport, Alabama
 
Manufacturing and other
   
155,100
     
1
  Own    
GMI
Nevisdale, Kentucky
 
Manufacturing and other
   
723,096
     
  Own    
GMI
Becancour, Canada
 
Manufacturing and other
   
365,887
     
3
  Own    
GMI
Mendoza, Argentina
 
Manufacturing and other
   
138,500
     
2
  Own    
Globe Metales
San Luis, Argentina
 
Manufacturing and other
   
59,200
     
  Own    
Globe Metales
Police, Poland
 
Manufacturing and other
   
43,951
     
  Own    
Other
Newcastle, South Africa
 
Manufacturing and other
   
395,100
     
  **    
Other
Shizuishan, China
 
Manufacturing and other
   
227,192
     
  **    
Other
              __________________________
 
Excludes Solsil’s seven smaller furnaces used to produce UMG for solar cell applications.
 
**
We own the long-term land use rights for the land on which this facility is located. We own the building and equipment forming part of this facility.
 
           
Business
Location of Mines
 
Product
 
Own/Lease
 
Segment Served
   
Alabama
 
Quartzite
 
Lease
 
GMI
Kentucky, Alabama and Tennessee
 
Coal
 
Lease
 
GMI
 
Item 3.   
Legal Proceedings
 
In the ordinary course of our business, we are subject to periodic lawsuits, investigations, claims and proceedings, including, but not limited to, contractual disputes, employment, environmental, health and safety matters, as well as claims associated with our historical acquisitions and divestitures. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations, claims and proceedings asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows, results of operations or liquidity.

Item 4.   
Mine Safety Disclosure
 
  This information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulations S-K (17 CFR 229.104) is included in exhibit 95 to this report.

 
12

 

PART II

Item 5.   
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Shares of our common stock are traded on the NASDAQ Global Select Market under the symbol “GSM.”
 
Price Range of Common Stock

Our shares began trading on the NASDAQ Global Select Market on July 30, 2009. The price range per share of common stock presented below represents the highest and lowest sales prices for our common stock on the NASDAQ Global Select Market during each quarter of the last two fiscal years.
 
   
Fourth Quarter
  
Third Quarter
  
Second Quarter
  
First Quarter
Fiscal year 2014 price range per common share
 $
18.42 – 21.97
 
16.80 – 22.00
 
15.21 – 18.37
 
10.80 – 15.69
Fiscal year 2013 price range per common share
 
10.57 – 13.97
 
13.85 – 15.95
 
13.07 – 15.95
 
12.10 – 17.23
 
Holders

As of August 25, 2014, there were approximately 18 holders of record of our common stock. The number of record holders does not include holders of shares in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.

Dividends and Dividend Policy

On August 19, 2014, our Board of Directors approved an annual dividend per common share of $0.30.

On August 20, 2013, our Board of Directors approved an annual dividend per common share of $0.275, payable quarterly in September 2013, December 2013, March 2014 and June 2014. On February 10, 2014, the Company’s Board of Directors approved an increase to the annual dividend to $0.30 per common share, payable quarterly in March 2014, June 2014, September 2014, and December 2014.

On August 17, 2012, our Board of Directors approved an annual dividend of $0.25 per common share, payable quarterly in September 2012, December 2012, March 2013 and June 2013. The Board of Directors approved an accelerated payment of the remaining annual quarterly dividends, and thus a dividend of $0.125 per share was paid in December 2012. On February 4, 2013, the Company’s Board of Directors approved a dividend of $0.0625 per common share, which was paid in March 2013.

The table presented below represents the dividends declared per common share during each quarter of the last two fiscal years.

   
Fourth Quarter
  
Third Quarter
  
Second Quarter
  
First Quarter
Fiscal year 2014 dividends declared per common share
$
 0.075
 
 0.075
 
 0.069
 
 0.069
Fiscal year 2013 dividends declared per common share
 
 0.063
 
 0.063
 
 0.125
 
 0.063
 
The decision to pay dividends is at the discretion of our Board of Directors and depends on our financial condition, results of operations, capital requirements, and other factors that our Board of Directors deems relevant.

 In the future, we intend to continue to consider declaring dividends on an annual basis, subject to reviewing our earnings and then current circumstances.

Purchases of Equity Securities by the Issuer and Affiliated Purchaser

We purchase shares of our common stock in the open market and through block purchases pursuant to a 10b5-1 plan. The table below sets forth information regarding our purchases of common stock during the quarter ended June 30, 2014:

Period
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar value of Shares that May Yet be Purchased Under Publicly Announced Plans or Programs
April 1, 2014 – April 30, 2014
$18.85
63,925
$47,165,000
May 1, 2014 – May 31, 2014
$18.52
61,727
$46,022,000
June 1, 2014 – June 30, 2014
N/A
0
$46,022,000
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
 Plan Category
Number of securities to be issued upon exercise of outstanding options
(a)
Weighted-average exercise price of outstanding options
(b)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by security holders 
1,714,996   
$17.05
2,481,651   
Equity compensation plans not approved by security holders 
—    
—    
Total 
1,714,996   
$17.05
2,481,651   


 
13

 

 
Item 6.   
Selected Financial Data

The following tables summarize certain selected consolidated financial data, which should be read in conjunction with our consolidated financial statements and the notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. The selected consolidated financial data presented below for the fiscal years ended June 30, 2014, 2013, 2012, 2011 and 2010 are derived from our audited consolidated financial statements.

   
Year Ended June 30,
   
2014
 
2013
 
2012
 
2011
 
2010
   
(Dollars in thousands, except per share data)
Statement of operations data:
           
Net sales
$
752,817   
 
757,550   
 
705,544   
 
641,863   
 
472,658   
Cost of goods sold
 
635,735   
 
657,911   
 
552,873   
 
488,018   
 
390,093   
Selling, general and administrative expenses
 
92,103   
 
64,663   
 
61,623   
 
54,739   
 
47,875   
Research and development
 
—    
 
—    
 
127   
 
87   
 
200   
Contract acquisition cost
 
16,000   
 
—    
 
—    
 
—    
 
—    
Curtailment gain
 
(5,831)  
 
—    
 
—    
 
—    
 
—    
Business interruption insurance recovery
 
—    
 
(4,594)  
 
(450)  
 
—    
 
—    
Goodwill and intangible asset impairment
 
—    
 
13,130   
 
—    
 
—    
 
—    
Impairment of long-lived assets
 
—    
 
35,387   
 
—    
 
—    
 
—    
Restructuring charges
 
—    
 
—    
 
—    
 
—    
 
(81)  
(Gain) loss on sale of business
 
—    
 
—    
 
(54)  
 
4,249   
 
(19,715)  
Operating (loss) income
 
14,810   
 
(8,947)  
 
91,425   
 
94,770   
 
54,286   
Bargain purchase gain
 
22,243   
 
—    
 
—    
 
—    
 
—    
Interest and other (expense) income
 
(10,737)  
 
(8,128)  
 
(4,789)  
 
(2,056)  
 
521   
(Loss) income before income taxes
 
26,316   
 
(17,075)  
 
86,636   
 
92,714   
 
54,807   
Provision for income taxes
 
7,705   
 
2,734   
 
28,760   
 
35,988   
 
20,539   
Net (loss) income
 
18,611   
 
(19,809)  
 
57,876   
 
56,726   
 
34,268   
(Income) loss attributable to noncontrolling interest, net of tax
 
(4,203)  
 
(1,219)  
 
(3,306)  
 
(3,918)  
 
(167)  
Net (loss) income attributable to Globe Specialty Metals, Inc.
$
14,408   
 
(21,028)  
 
54,570   
 
52,808   
 
34,101   
(Loss) earnings per common share - basic
$
0.26   
 
(0.28)  
 
0.73   
 
0.70   
 
0.46   
(Loss) earnings per common share - diluted
$
0.26   
 
(0.28)  
 
0.71   
 
0.69   
 
0.46   
Cash dividends declared per common share
$
0.29   
 
0.38   
 
0.20   
 
0.15   
 
—    

 
   
June 30,
 
June 30,
 
June 30,
 
June 30,
 
June 30,
   
2014
 
2013
 
2012
 
2011
 
2010
   
(Dollars in thousands)
Balance sheet data:
                   
Cash and cash equivalents
$
97,792   
 
169,676   
 
178,010   
 
166,208   
 
157,029   
Total assets
 
845,239   
 
871,623   
 
936,747   
 
678,269   
 
607,145   
Total debt, including current portion
 
125,204   
 
139,534   
 
140,703   
 
48,083   
 
41,079   
Total stockholders' equity
 
512,698   
 
546,080   
 
603,799   
 
515,276   
 
458,829   


 
14

 

Item 7.   
Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with “Selected Financial Data” and our consolidated financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve assumptions, risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described in the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Introduction

We are one of the leading manufacturers of silicon metal and silicon-based alloys. As of June 30, 2014, we owned and operated seven principal manufacturing facilities, in two primary operating segments: GMI, our North American operations and, Globe Metales, our Argentine operations.

Business Segments

We operate in five reportable segments:

 
GMI — a manufacturer of silicon metal and silicon-based alloys located in North America with plants in Beverly, Ohio, Alloy, West Virginia, Niagara Falls, New York, Selma, Alabama, Bridgeport, Alabama and Bécancour, Quebec and a provider of specialty metallurgical coal for the silicon metal and silicon-based alloys industries located in Corbin, Kentucky;

 
Globe Metales — a manufacturer of silicon-based alloys located in Argentina with a silicon-based alloys plant in Mendoza and a cored-wire fabrication facility in San Luis;

 
Solsil — a developer and manufacturer of upgraded metallurgical grade silicon metal located Beverly, Ohio;

 
Corporate — a corporate office including general expenses, investments, and related investment income; and

 
Other — includes an electrode production operation in China (Yonvey) and a cored-wire production facility located in Poland and a manufacturer of silicon-based alloys located in South Africa (the facility is currently idled). These operations do not fit into the above reportable segments and are immaterial for purposes of separate disclosure.

Overview and Recent Developments

Customer demand continues to improve for silicon metal and silicon-based alloys as our major end markets, which include chemical, aluminum, automotive, steel and solar, continue to show signs of improvement. The sales mix shifted in fiscal year 2014 as we shipped more silicon-based alloys than the prior year.  The increase in silicon-based alloys tons sold was primarily due to increased demand from the steel and automotive industries in North America. Due to the increased demand for silicon-based alloys, we converted a silicon furnace to a ferrosilicon furnace at one of our U.S. plants in fiscal year 2013. We experienced lower average selling prices in fiscal year 2014 compared to the prior year, but continue to see an improving pricing environment as demand for silicon based products improves.

The May 3, 2013 lockout of unionized employees at the Becancour, Canada plant concluded on December 27, 2013 with the ratification of a new collective bargaining agreement. At the time of the lockout, the plant shut down two of its three furnaces with management representatives of the plant operating the remaining furnace. The plant ramped up its operations during the third quarter and commenced full run-rate operations during the fourth quarter of fiscal year 2014.

Net sales for the fourth quarter increased $9,303,000 or 5% from the immediately preceding quarter as a result of a 2% increase in tons shipped and a 29% increase in silica fume and other products revenue. Silicon metal volumes increased 1% while silicon-based alloys volumes increased 3% as a result of improved demand from the steel and automotive industries in North America. Silicon metal prices and silicon-based alloys prices in the fourth quarter were essentially unchanged compared to the third quarter of fiscal year 2014.

The start-up of our South African acquisition, Siltech, remains on-track, and we are currently ramping up production in China at our electrode facility. These initiatives are expected to drive future earnings through higher sales volumes and lower costs.

Outlook

Customer demand for silicon metal in the United States is increasing as our end markets, including steel, autos and consumer goods, continue to strengthen. We have seen improvement in the European market and expect our recent Siltech acquisition will help improve our position overseas. Index pricing has increased, and we remain optimistic about calendar 2014 pricing. We expect continued price improvement in the second half of fiscal year 2015 as a result of the November 2014 contract negotiations. As in the past, we have business that is fixed-priced and business that is priced based on indices. We will continue to sell on a fixed and an indexed basis as appropriate and leave room for spot business as well. We are seeing consistent demand and positive signs for the major end markets that use our products directly and indirectly. The continued imposition of Canadian anti-dumping and countervailing duties action against imports of silicon metal from China may have a positive impact on pricing and opportunities in the Canadian market.
 
We saw continued improvement in operational efficiency following the completion of the planned maintenance outages in fiscal 2013, and, as a result, we are experiencing lower costs related to maintenance and furnace downtime. We anticipate maintenance outages at five of our U.S. facilities in the first quarter of fiscal 2015.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, known or expected trends and other factors that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates.

Business Combinations

We have completed a number of significant business acquisitions. Our business strategy contemplates that we may pursue additional acquisitions in the future. When we acquire a business, the purchase price is allocated based on the fair value of tangible assets and identifiable intangible assets acquired and liabilities assumed. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Goodwill as of the acquisition date is measured as the residual of the excess of the consideration transferred, plus the fair value of any noncontrolling interest in the acquiree at the acquisition date, over the fair value of the identifiable net assets acquired. We generally engage independent third-party appraisal firms to assist in determining the fair value of assets acquired and liabilities assumed. Such a valuation requires management to make significant estimates, especially with respect to intangible assets. These estimates are based on historical experience and information obtained from the management of the acquired companies. These estimates are inherently uncertain and may impact reported depreciation and amortization in future periods, as well as any related impairment of goodwill or other long lived assets.

See note 3 to the accompanying audited consolidated financial statements for detailed disclosures related to our acquisitions.

Inventories

Cost of inventories is determined by the first-in, first-out method or, in certain cases, by the average cost method. Inventories are valued at the lower of cost or market value. Circumstances may arise (e.g., reductions in market pricing, obsolete, slow moving or defective inventory) that require the carrying amount of our inventory to be written down to net realizable value. We estimate market and net realizable value based on current and future expected selling prices, as well as expected costs to complete, including utilization of parts and supplies in our manufacturing process. We believe that these estimates are reasonable; however, future market price decreases caused by changing economic conditions, customer demand, or other factors could result in future inventory write-downs that could be material.
 
 
15

 

Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. We consider various factors in determining whether an impairment test is necessary, including among other things, a significant or prolonged deterioration in operating results and projected cash flows, significant changes in the extent or manner in which assets are used, technological advances with respect to assets which would potentially render them obsolete, our strategy and capital planning, and the economic climate in the markets we serve. When estimating future cash flows and if necessary, fair value, we make judgments as to the expected utilization of assets and estimated future cash flows related to those assets. We consider historical and anticipated future results, general economic and market conditions, the impact of planned business and operational strategies and other information available at the time the estimates are made. We believe these estimates are reasonable; however, changes in circumstances or conditions could have a significant impact on our estimates, which might result in material impairment charges in the future.

As of June 30, 2014, the carrying value of property, plant and equipment at Yonvey is approximately $15,029,000. Yonvey is currently enhancing the production process to manufacture carbon electrodes which we use in certain of our plant furnaces. If market prices decrease below our cost to produce carbon electrodes we could decide to purchase from third party producers. Such a decision would require us to assess the recoverability of Yonvey’s long-lived assets..

Income Taxes

The Company’s deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, and applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. If management determines it is more-likely-than-not that a portion of the Company’s deferred tax assets will not be realized, a valuation allowance is recorded. The provision for income taxes is based on domestic (including federal and state) and international statutory income tax rates in the tax jurisdictions where the Company operates, permanent differences between financial reporting and tax reporting, and available credits and incentives.

Significant judgment is required in determining income tax provisions and tax positions. The Company may be challenged upon review by the applicable taxing authorities, and positions taken may not be sustained. All, or a portion of, the benefit of income tax positions are recognized only when the Company has made a determination that it is more-likely-than-not that the tax position will be sustained based upon the technical merits of the position. For tax positions that are determined as more-likely-than-not to be sustained, the tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The accounting for uncertain income tax positions requires consideration of timing and judgments about tax issues and potential outcomes and is a subjective estimate. In certain circumstances, the ultimate outcome of exposures and risks involves significant uncertainties. If actual outcomes differ materially from these estimates, they could have a material impact on the Company’s results of operations and financial condition. Interest and penalties related to uncertain tax positions are recognized in income tax expense. The U.S. is the Company’s most significant income tax jurisdiction.

Goodwill

Goodwill represents the excess purchase price of acquired businesses over fair values attributed to underlying net tangible assets and identifiable intangible assets. We test the carrying value of goodwill for impairment at a “reporting unit” level (which for the Company is represented by each reported segment and Core Metals (a component of GMI that produces silicon-based alloys)), using a two-step approach, annually as of the last day of February, or whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit may be impaired. In this case, a second step is performed to allocate the fair value of the reporting unit to the assets and liabilities of the reporting unit as if it had just been acquired in a business combination, and as if the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. The implied fair value of the reporting unit’s goodwill is then compared to the actual carrying value of goodwill. If the implied fair value is less than the carrying value, we would be required to recognize an impairment loss for that excess. The valuation of the Company’s reporting units requires significant judgment in evaluation of, among other things, recent indicators of market activity and estimated future cash flows, discount rates and other factors. The estimates of cash flows, future earnings, and discount rate are subject to change due to the economic environment and business trends, including such factors as raw material and product pricing, interest rates, expected market returns and volatility of markets served, as well as our future manufacturing capabilities, government regulation and technological change. We believe that the estimates of future cash flows, future earnings, and fair value are reasonable; however, changes in estimates, circumstances or conditions could have a significant impact on our fair valuation estimation, which could then result in an impairment charge in the future.

As of February 28, 2014, the estimated fair value of each of our reporting units was substantially in excess of their respective carrying values and no impairment charges were recorded during the year ended June 30, 2014.

Share-Based Compensation

Stock Options

Share-based payments are measured based on fair value using the Black-Scholes option-pricing model. The fair value of an award is affected by our stock price as well as other assumptions, including: (i) estimated volatility over the term of the awards (which is based upon the historical volatility of our common stock or stock of similar companies), (ii) estimated period of time that we expect participants to hold their stock options, (which is calculated using the simplified method allowed by SAB 107, or a participant-specific estimate for certain options), (iii) the risk-free interest rate (which we base upon United States Treasury interest rates appropriate for the expected term of the award), and (iv) our expected dividend yield. Certain of our share-based payment arrangements are liability-classified, which require adjustments to the fair value of the award and compensation expense based, in part, on the fair value of our stock and the assumptions discussed above at the end of each reporting period. Further, we estimate forfeitures for the purposes of expensing share-based payment awards that we ultimately expect to vest. The future value of our stock, the assumptions used, and changes to our estimated forfeitures could significantly impact the amount of share-based compensation expense we recognize in future periods.

Stock Appreciation Rights

Cash-settled stock appreciation rights are settled by cash transfer, based on the difference between our stock price on the date of exercise and the grant date. We estimate the fair value of stock appreciation rights using Black-Scholes option pricing model, which requires the use of the same assumptions utilized in valuing stock options. The future value of our stock and the assumptions used could significantly impact the amount of share-based compensation expense we recognize in future periods.

Results of Operations

Our results of operations are affected by our recent acquisitions. We acquired Alden Resources, Quebec Silicon and Siltech on July 28, 2011, June 13, 2012 and November 21, 2013, respectively.  Results from Alden Resources for the years ended June 30, 2014 and 2013 include results for the entire period and for the year ended June 30, 2012 include results for approximately eleven months. Results from Quebec Silicon for the years ended June 30, 2014 and 2013 include results for the entire period and for the year ended June 30, 2012 include results for approximately seventeen days. Results from Siltech for the year ended June 30, 2014 include results for approximately seven months.
 
 
16

 

GSM Fiscal Year Ended June 30, 2014 vs. 2013

Consolidated Operations:

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2014
 
2013
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
752,817   
 
757,550   
 
(4,733)  
 
(0.6%)
Cost of goods sold
 
635,735   
 
657,911   
 
(22,176)  
 
(3.4%)
Selling, general and administrative expenses
 
92,103   
 
64,663   
 
27,440   
 
42.4%
Contract acquisition cost
 
16,000   
 
—    
 
16,000   
 
NA
Curtailment gain
 
(5,831)  
 
—    
 
(5,831)  
 
NA
Business interruption insurance recovery
 
—    
 
(4,594)  
 
4,594   
 
(100.0%)
Goodwill impairment
 
—    
 
13,130   
 
(13,130)  
 
(100.0%)
Impairment of long-lived assets
 
—    
 
35,387   
 
(35,387)  
 
(100.0%)
 
Operating income (loss)
 
14,810   
 
(8,947)  
 
23,757   
 
(265.5%)
Bargain purchase gain
 
22,243   
 
—    
 
22,243   
 
NA
Gain on remeasurement of equity investment
 
—    
 
1,655   
 
(1,655)  
 
(100.0%)
Interest expense, net
 
(7,955)  
 
(6,067)  
 
(1,888)  
 
31.1%
Other loss
 
(2,782)  
 
(3,716)  
 
934   
 
(25.1%)
 
Income (loss) before provision for income taxes
 
26,316   
 
(17,075)  
 
43,391   
 
(254.1%)
Provision for income taxes
 
7,705   
 
2,734   
 
4,971   
 
181.8%
 
Net income (loss)
 
18,611   
 
(19,809)  
 
38,420   
 
(194.0%)
Income attributable to noncontrolling interest, net of tax
 
(4,203)  
 
(1,219)  
 
(2,984)  
 
244.8%
 
Net income (loss) attributable to Globe Specialty Metals, Inc.
$
14,408   
 
(21,028)  
 
35,436   
 
(168.5%)

Net Sales:

   
Year Ended June 30, 2014
 
Year Ended June 30, 2013
   
Net Sales
   
Net Sales
   
$ (in 000s)
 
MT
 
$/MT
   
$ (in 000s)
 
MT
 
$/MT
Silicon metal
$
377,954   
 
136,664   
  $
2,766   
 
$
422,564   
 
150,369   
  $
2,810   
Silicon-based alloys
 
282,998   
 
141,327   
 
2,002   
   
248,276   
 
115,766   
 
2,145   
Silicon metal and silicon-based alloys
 
660,952   
 
277,991   
 
2,378   
   
670,840   
 
266,135   
 
2,521   
Silica fume and other
 
91,865   
           
86,710   
       
Total net sales
$
752,817   
         
$
757,550   
       

Net sales decreased $4,733,000 or 1.0% from the prior year to $752,817,000 primarily as a result of a 6% decrease in the average selling price offset by a 5% increase in sales volume. The decrease in the average selling price compared to the prior year was driven by a 2% decrease in silicon metal and a 7% decrease in silicon-based alloys, resulting in a decrease of $26,193,000. The increase in sales volume compared to the prior year was driven by a 22% increase in silicon-based alloys tons sold offset by a 9% decrease in silicon metal tons sold. The increase in silicon-based alloys tons sold was primarily due to increased demand from the steel and automotive industries in North America. Due to the increased demand for silicon-based alloys, we converted a silicon furnace to a ferrosilicon furnace at one of our U.S. plants. The decrease in silicon metal tons sold was due to lower sales volume at the Becancour, Canada facility as the sales volume for the year ended June 30, 2014 reflects the impact of a nearly eight month lockout and subsequent ramp up of production at the facility once the lockout ended in December 2013 compared to full production in the prior year period.

The average selling price of both silicon metal and silicon-based alloys decreased 2% and 7%, respectively, in fiscal year 2014 compared to the prior year period. The decrease in pricing was due to weaker pricing in the marketplace driven by import competition and end-user demand, particularly in Europe.

Other revenue increased $5,155,000 in fiscal year 2014 primarily due to increased shipments of silica fume as we realized a full year of benefit having purchased the remaining 50% interest in an existing equity investment in December 2012.

Cost of Goods Sold:

The $22,176,000 or 3% decrease in cost of goods sold was a result of a 7% decrease in cost per ton sold. The decrease in cost per ton sold is primarily due to a shift in mix from higher cost silicon products to lower cost ferrosilicon products and manufacturing cost improvement initiatives.

Gross margin represented approximately 16% of net sales in the fiscal year 2014, an increase from 13% of net sales in fiscal year 2013. This gross margin expansion was primarily a result of increased shipment volumes and manufacturing cost improvement initiatives which more than offset a 6% decline in the average selling price year-over-year.

Selling, General and Administrative Expenses:

The increase in selling, general and administrative expenses of $27,440,000, or 42%, was primarily due to an increase in stock based compensation of approximately $18,850,000.  In addition, we had an increase in salaries and wages of $1,168,000 and an increase in variable-based compensation expense of $4,872,000.

Contract Acquisition Costs:

During the twelve months ended June 30, 2014, the Company acquired supply arrangements that resulted in a payment of $16,000,000.

Curtailment Gain:

The Company’s subsidiary, Quebec Silicon, sponsors a postretirement benefit plan for certain employees, based on length of service and remuneration. Postretirement benefits consist of a group insurance plan covering plan members for life insurance, disability, hospital, medical, and dental benefits. On December 27, 2013, the Communications, Energy and Paper Workers Union of Canada (“CEP”) ratified a new collective bargaining agreement, which resulted in a curtailment pertaining to the closure of the postretirement benefit plan for union employees retiring after January 31, 2016. The Company remeasured the benefit obligations reflecting the curtailment which resulted in a curtailment gain of $5,831,000.

Bargain Purchase Gain:

On November 21, 2013, we purchased 100% of the outstanding shares of Silicon Technology (Pty) Ltd. (Siltech) for $4,000,000. Siltech is a silicon-based alloy producer in South Africa with an annual production capacity of approximately 45,000 metric tons. The acquisition was made to increase the current silicon-based alloy capacity by approximately 30% and its strategic location will enable us to supplement our existing facility to service the large and improving European, Asian and Middle Eastern markets. Based on the preliminary purchase price allocation, the preliminary fair value of the identifiable net assets acquired of approximately $26,243,000 exceeded the purchase price of $4,000,000, resulting in a gain on bargain purchase of $22,243,000. The initial accounting for the business combination is not complete because the evaluation necessary to assess the fair values of the net assets acquired is still in process. Environmental remediation obligation assumed is not yet finalized, pending the completion of the third-party site study report. The preliminary purchase price allocation is subject to revision until the evaluations are completed to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Any changes to the fair value assessments will affect the gain on bargain purchase. Therefore, the final purchase price allocation may differ significantly from what is reflected in these condensed consolidated financial statements.
 
 
17

 

Net Interest Expense:

Net interest expense increased $1,888,000 in fiscal year 2014 compared to fiscal year 2013 primarily due to the write-off of deferred financing costs of $3,354,000 in connection with the refinancing of our existing $300 million Revolving Credit Facility, offset partially by a decrease of $941,000 attributable to loan repayment at Quebec Silicon.

Other Expense:

Other loss decreased $934,000 primarily due to foreign exchange loss on holdings of the Argentine peso partially offset by the elimination of a foreign exchange loss resulting from the revaluation of a U.S. dollar denominated loan at a foreign subsidiary in the prior year.

Provision for Income Taxes:
 
Provision for income taxes as a percentage of pre-tax income was approximately 29.3% or $7,705,000 in fiscal year 2014 and provision for income taxes as a percentage of pre-tax loss was approximately (16.0%) or $2,734,000 in fiscal year 2013. The tax rate increased compared to the prior year, due to increase in valuation allowance of $5,214,000 attributable to change in tax law that impacted the utilization of certain state tax credits offset by the nontaxable bargain purchase gain of $22,243,000 in connection with the acquisition of Siltech. In the prior year, the tax rate was impacted by certain nondeductible impairment charges recognized offset by a net reduction in valuation allowance associated with state tax credits due to an updated assessment regarding the likelihood of realization.

Segment Operations

GMI

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2014
 
2013
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
697,403   
 
702,275   
 
(4,872)  
 
(0.7%)
Cost of goods sold
 
587,318   
 
603,548   
 
(16,230)  
 
(2.7%)
Selling, general and administrative expenses
 
32,869   
 
29,706   
 
3,163   
 
10.6%
Contract acquisition cost
 
16,000   
 
—    
 
16,000   
 
NA
Curtailment gain
 
(5,831)  
 
—    
 
(5,831)  
 
NA
Business interruption insurance recovery
 
—    
 
(4,594)  
 
4,594   
 
(100.0%)
 
Operating income
$
67,047   
 
73,615   
 
(6,568)  
 
(8.9%)
 
Net sales decreased $4,872,000 or 1% from the prior year to $697,403,000. The decrease was primarily attributable to a 6% decrease in average selling prices. Silicon metal tons sold decreased 9% due to lower sales volume at the Becancour, Canada facility as the sales volume for the year ended June 30, 2014 reflects the impact of a nearly eight month lockout and subsequent ramp up of production at the facility once the lockout ended in December 2013 compared to full production in the prior year period. Silicon-based alloys tons sold increased 27% primarily due to increased demand from the steel and automotive industries in North America and from the conversion of a silicon furnace to a ferrosilicon furnace at one of our U.S. plants. Silicon metal pricing decreased 2% and silicon-based alloys pricing decreased 7% driven by pricing pressure from imports. Other revenue increased $4,685,000 primarily due to increased shipments of silica fume as we realized a full year of benefit having purchased the remaining 50% interest in an existing equity investment in December 2012.

Cost of goods sold decreased 3% while total tons shipped increased 5%. Cost per ton sold decreased in fiscal year 2014 primarily due to a shift in mix from higher cost silicon products to lower cost ferrosilicon products and manufacturing cost improvement initiatives.

Selling, general and administrative expenses increased $3,163,000 to $32,869,000. This increase was primarily due to increases in salaries and wages and professional fees.

During fiscal year 2014, the Company acquired supply arrangements that resulted in a payment of $16,000,000.

Our subsidiary, Quebec Silicon, sponsors a postretirement benefit plan for certain employees, based on length of service and remuneration. Postretirement benefits consist of a group insurance plan covering plan members for life insurance, disability, hospital, medical, and dental benefits. On December 27, 2013, the Communications, Energy and Paper Workers Union of Canada (“CEP”) ratified a new collective bargain agreement, which resulted in a curtailment pertaining to the closure of the postretirement benefit plan for union employees retiring after January 31, 2016. We remeasured the benefit obligations reflecting the curtailment which resulted in a curtailment gain of $5,831,000 during the second quarter of fiscal year 2014.
 
Operating income decreased $6,568,000 from the prior year to $67,047,000. This decrease was primarily due to a $16,000,000 expense for supply arrangements acquired offset by a $5,831,000 curtailment gain discussed above and a 6% decrease in the average selling price.

Globe Metales

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2014
 
2013
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
51,213   
 
51,266   
 
(53)  
 
(0.1%)
Cost of goods sold
 
42,179   
 
44,753   
 
(2,574)  
 
(5.8%)
Selling, general and administrative expenses
 
3,288   
 
2,901   
 
387   
 
13.3%
Goodwill impairment
 
—    
 
6,000   
 
(6,000)  
 
(100.0%)
 
Operating (loss) income
$
5,746   
 
(2,388)  
 
8,134   
 
(340.6%)
 
Net sales were essentially the same in fiscal year 2014 compared to fiscal year 2013. Total tons shipped increased 5% while the average selling price decreased 6% primarily due to product mix. Overall demand increased due to stronger demand from the steel market and the European economy.

Operating income increased $8,134,000 from the prior year to $5,746,000. The increase was primarily due to increased volumes and lower costs due to the devaluation of the Argentine peso as well as the recognition of a goodwill impairment of $6,000,000 during fiscal year 2013.
 
Solsil
 
     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2014
 
2013
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Cost of goods sold
  $
41   
 
2,542   
 
(2,501)  
 
(98.4%)
Selling, general and administrative expenses
 
1   
 
153   
 
(152)  
 
(99.3%)
Impairment of long-lived assets
 
—    
 
18,452   
 
(18,452)  
 
(100.0%)
 
Operating loss
$
(42)  
 
(21,147)  
 
21,105   
 
(99.8%)
 
 
18

 
 
 Solsil suspended commercial production during fiscal year 2010 as a result of a significant decline in the price of polysilicon and the decline in demand for upgraded metallurgical grade silicon.  Operating loss of ($21,147,000) from the prior year was related to the write-off of equipment as a result of our decision to indefinitely take these assets out of service in response to sustained pricing declines that have rendered its production methods uneconomical and inventory write-downs due to expected lower net realizable values for certain inventories.

Corporate
 
     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2014
 
2013
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Selling, general and administrative expenses
$
53,680   
 
30,699   
 
22,981   
 
74.9%
Impairment of long-lived assets
 
—    
 
16,935   
 
(16,935)  
 
(100.0%)
 
Operating loss
$
(53,680)  
 
(47,634)  
 
(6,046)  
 
12.7%
 
The operating loss increased $6,046,000 from the prior year to $53,680,000. Selling, general and administrative expenses increased $22,981,000 year over year primarily due to an increase in stock based compensation of approximately $18,850,000. The Company also had an increase in variable-based compensation of $5,147,000. These increases were offset by lower professional fees and the recognition of long-lived assets impairment of approximately $16,935,000 in the prior year.
 
GSM Fiscal Year Ended June 30, 2013 vs. 2012

Consolidated Operations:

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2013
 
2012
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
757,550   
 
705,544   
 
52,006   
 
7.4%
Cost of goods sold
 
657,911   
 
552,873   
 
105,038   
 
19.0%
Selling, general and administrative expenses
 
64,663   
 
61,623   
 
3,040   
 
4.9%
Research and development
 
—    
 
127   
 
(127)  
 
NA
Business interruption insurance recovery
 
(4,594)  
 
(450)  
 
(4,144)  
 
920.9%
Goodwill impairment
 
13,130   
 
—    
 
13,130   
 
NA
Impairment of long-lived assets
 
35,387   
 
—    
 
35,387   
 
NA
Gain on sale of business
 
—    
 
(54)  
 
54   
 
NA
 
Operating (loss) income
 
(8,947)  
 
91,425   
 
(100,372)  
 
(109.8%)
Gain on remeasurement of equity investment
 
1,655   
 
—    
 
1,655   
 
NA
Interest expense, net
 
(6,067)  
 
(7,367)  
 
1,300   
 
(17.6%)
Other (loss) income
 
(3,716)  
 
2,578   
 
(6,294)  
 
(244.1%)
 
(Loss) income before provision for income taxes
 
(17,075)  
 
86,636   
 
(103,711)  
 
(119.7%)
Provision for income taxes
 
2,734   
 
28,760   
 
(26,026)  
 
(90.5%)
 
Net (loss) income
 
(19,809)  
 
57,876   
 
(77,685)  
 
(134.2%)
Income attributable to noncontrolling interest, net of tax
 
(1,219)  
 
(3,306)  
 
2,087   
 
(63.1%)
 
Net (loss) income attributable to Globe Specialty Metals, Inc.
$
(21,028)  
 
54,570   
 
(75,598)  
 
(138.5%)
 
Net Sales:

   
Year Ended June 30, 2013
 
Year Ended June 30, 2012
   
Net Sales
   
Net Sales
   
$ (in 000s)
 
MT
 
$/MT
   
$ (in 000s)
 
MT
 
$/MT
Silicon metal
$
422,564   
 
150,369   
  $
2,810   
 
$
360,726   
 
119,634   
  $
3,015   
Silicon-based alloys
 
248,276   
 
115,766   
 
2,145   
   
269,919   
 
113,468   
 
2,379   
Silicon metal and silicon-based alloys
 
670,840   
 
266,135   
 
2,521   
   
630,645   
 
233,102   
 
2,705   
Silica fume and other
 
86,710   
           
74,899   
       
Total net sales
$
757,550   
         
$
705,544   
       

Net sales increased $52,006,000 or 7% from the prior year to $757,550,000 primarily as a result of a 14% increase in metric tons sold, offset by a 7% decrease in average selling prices.  The increase in sales volume was driven by a 26% increase in silicon metal tons sold and a 2% increase in silicon-based alloys tons sold, resulting in an increase of $98,140,000.   The increase in silicon metal volume was due to the acquisition of Quebec Silicon on June 18, 2012 which contributed 36,323 tons during fiscal year 2013, partially offset by a decrease from our Beverly, Ohio facility due to the conversion of a silicon furnace to a ferrosilicon furnace.  The slight increase in silicon-based alloys was primarily due to increased demand from the steel and automotive industries in North America.

The average selling price of silicon metal decreased by 7% and the average selling price of silicon-based alloys decreased 10% during fiscal 2013 as compared to fiscal 2012.  The decrease in silicon metal pricing was due to lower pricing on calendar 2012 and 2013 contracts, including lower pricing on index based contracts, and the effect of selling 49% of the silicon volume from the Becancour, Quebec plant joint venture at cost plus a modest margin.  The decrease in silicon-based alloys pricing was due to weaker pricing in the marketplace driven by import competition and end-user demand, particularly in Europe.

Other revenue increased $11,811,000 due to an increase in third party coal sales from Alden Resources. The acquisition of Quebec Silicon and the step acquisition of a 50% interest in an existing equity investment, both resulted in an increase in silica fume sales.

Cost of Goods Sold:

The $105,038,000 or 19% increase in cost of goods sold was a result of a 14% increase in metric tons sold and a 4% increase in cost per ton sold.  The increase in cost per ton sold is primarily due to the impact of planned major maintenance performed on several of our furnaces during fiscal 2013, including a 98 day outage on our largest furnace in Alloy, West Virginia, a 31 day outage on a furnace at our Niagara Falls, New York facility, and a 45 day outage on one of our two furnaces at our Argentine facility.  Additionally, the acquisition of Quebec Silicon increased the mix of silicon metal sales, which has a higher production cost than silicon-based alloys, resulted in increased cost per ton sold. Cost of goods sold further increased from a write-down of $1,922,000 for certain of Solsil’s inventories to expected net realizable values.  The increases in cost of goods sold were partially offset by costs associated with the fire at our Bridgeport, Alabama ferrosilicon facility in the previous year.

Gross margin represented approximately 13% of net sales in fiscal 2013, a decrease from 22% of net sales in the previous year.  This decrease was a result of lower silicon metal and silicon-based alloy selling prices, a higher cost per ton sold and the write-down of inventories.

Selling, General and Administrative Expenses:

The increase in selling, general and administrative expenses of $3,040,000 or 5% was primarily due to an increase in stock based compensation expense of approximately $13,796,000, of which $12,738,000 represents the remeasurement cost resulting from the change in the classification of the outstanding options from equity awards to liability awards and vesting of outstanding liability classified option awards. In addition, the acquisition of Quebec Silicon increased expenses of $2,506,000 in fiscal year 2013.  This was offset by a reduction in variable-based compensation of $7,918,000, and a reduction of due diligence and transaction expenses of $3,964,000.
 
 
19

 
Business Interruption Insurance Recovery:

During fiscal year 2013, we recognized business interruption proceeds of $4,594,000, of which $4,046,000 was related to the fire at our Bridgeport, Alabama facility in the second quarter of fiscal year 2012. During fiscal year 2012, we recognized business interruption proceeds of $450,000.

Goodwill Impairment

During fiscal year 2013, we recognized an impairment of goodwill of approximately $13,130,000.

During the year ended June 30, 2013, we recognized an impairment charge to write-off goodwill associated with our electrode business in China (Yonvey) as a result of delays in our ability to develop a new production method that caused us to revise our expected future cash flows. In estimating the fair value of Yonvey, we considered cash flow projections using assumptions about, among other things, overall market conditions and successful cost rationalization initiatives (principally through the development of new production methods that will enable sustainable quality and pricing). We made a downward revision in the forecasted cash flows from our Yonvey reporting unit which resulted in an impairment of the entire goodwill balance of approximately $7,775,000 (impairment charge of $7,130,000, net of adjustments for foreign exchange rate changes). The impairment charge is recorded within the Other reporting segment. As of June 30, 2013, the carrying value of the property, plant and equipment at Yonvey is expected to be recovered by the undiscounted future cash flows associated with the asset group. Yonvey is currently testing new raw materials for use in new production methods. Deterioration in overall market conditions or our inability to execute our cost rationalization initiatives (through development of new production methods or other means) could have a negative effect on these assumptions, and might result in an impairment of Yonvey’s long lived assets in the future.
 
During the year ended June 30, 2013, in connection with our annual goodwill impairment test, we recognized an impairment charge of $6,000,000 related to the partial impairment of goodwill at our silicon-based alloy business in Argentina (Metales) resulting from sustained sales price declines that caused us to revise our expected future cash flows. The impairment charge is recorded within the Metales reporting segment. Fair value was estimated based on discounted cash flows and market multiples. Estimates under our discounted income based approach involve numerous variables including anticipated sales price and volumes, cost structure, discount rates and long term growth that are subject to change as business conditions change, and therefore could impact fair values in the future. As of June 30, 2013, the fair value of Metales’ reporting unit exceeded the carrying value of the reporting unit by less than 10%. The remaining goodwill is $8,313,000 as of June 30, 2013.

Impairment of long-lived assets:

During fiscal year 2013, we recognized an impairment of long-lived assets of approximately $35,387,000.

In recent years, Solsil has been focused on research and development projects and was not producing material for commercial sale. Although we expected to expand operations through the construction of new facilities using new technologies, the falling prices of polysilicon make further research and development pursuits commercially not viable. During the quarter ended March 31, 2013, we recognized an impairment charge of $18,452,000 to write-off equipment related to Solsil as a result of our decision to take these assets out of service which was done, in response to sustained pricing declines that have rendered our production methods uneconomical. The amount of the impairment charge was determined by comparing the estimated fair value (assumed to be zero) of the assets to their carrying amount. The impairment is recorded within the Solsil reporting segment.

In 2011, we acquired exploration licenses related to certain mines located in Nigeria, which granted us the right to explore for, among other things, manganese ore, a raw material used in the production of certain silicon and manganese based alloys. During fiscal year 2013, based upon difficulties encountered in gaining secure access to the mines, we determined that exploration of these mines is not feasible and have decided to abandon our plan to conduct exploration activities. Accordingly, we recognized an impairment charge of $16,935,000 (representing the aggregate carrying amount of the licenses). The impairment has been recorded to the Corporate segment.

Gain on Sale of Business:

The gain on sale of business in fiscal year 2012 was the result of a subsequent settlement associated with the sale of our Brazilian manufacturing operations on November 5, 2009.

Gain on Remeasurement of Equity Investment:

During fiscal year 2013, we purchased the remaining 50% interest in an existing equity investment. We recognized a gain on the fair value remeasurement on our existing 50% equity investment.

Net Interest Expense:

Net interest expense decreased by $1,300,000 mainly attributable to the write-off of deferred financing costs of approximately $1,600,000 related to the repayment and cancellation of the our senior credit facility and term loan in the fourth quarter of fiscal year 2012.  This was partially offset by higher debt outstanding following the acquisition of Quebec Silicon on June 13, 2012.

Other (Loss) Income:

Other (loss) income decreased by $6,249,000 from a gain of $2,578,000 to a loss of ($3,716,000) primarily due to the foreign exchange loss of $1,409,000 resulting from the revaluation of a U.S. dollar loan at a foreign subsidiary, the devaluation of the Argentine peso and the mark-to-market and settlement of foreign exchange contracts, offset by the foreign exchange gains from the revaluation of long-term Brazilian reais denominated liabilities in the prior year.

Provision for Income Taxes:

Provision for income taxes as a percentage of pre-tax income was approximately (16%) or $2,734,000 in fiscal year 2013 and was approximately 33% in fiscal year 2012. For fiscal year 2013, although we recognized a pre-tax loss of $17,075,000, we recognized income tax expense of $2,734,000 primarily as a result of certain impairment charges recognized for which no tax benefit is available or is expected.
 
Segment Operations

GMI

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2013
 
2012
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
702,275   
 
631,495   
 
70,780   
 
11.2%
Cost of goods sold
 
603,548   
 
499,859   
 
103,689   
 
20.7%
Selling, general and administrative expenses
 
29,706   
 
28,544   
 
1,162   
 
4.1%
Business interruption insurance recovery
 
(4,594)  
 
(450)  
 
(4,144)  
 
920.9%
 
Operating income
$
73,615   
 
103,542   
 
(29,927)  
 
(28.9%)
 
Net sales increased by $70,780,000 or 11% from the prior year to $702,275,000.  The increase was primarily attributable to a 17% increase in tons sold, offset by a 6% decrease in average selling prices.  Silicon metal volume increased 26% primarily due to the acquisition of Quebec Silicon on June 13, 2012 which contributed 36,323 tons during fiscal 2013, partially offset by a decrease from our Beverly, Ohio facility due to the conversion of a silicon furnace to a ferrosilicon furnace. Silicon-based alloys volume increased 6% primarily due to increased demand from the steel and automotive industries in North America.  Silicon metal pricing decreased by 7% primarily due to lower pricing on calendar 2012 and 2013 contracts, including lower pricing on index-based contracts, and the effect of selling 49% of the silicon metal volume from the Becancour, Quebec joint venture at cost plus a modest margin.  Silicon-based alloys pricing decreased 9% due to a reduction in both ferrosilicon and magnesium ferrosilicon pricing driven by pricing pressure from imports.

Operating income decreased by $29,927,000 from the prior year to $73,615,000.  The decrease was attributable to lower average selling for silicon metal and silicon-based alloys. Cost of goods sold increased by 21% while shipments increased by 17%.  The increase in cost per ton sold is primarily due to the acquisition of Quebec Silicon, which increased the mix of silicon metal sales, a product with a higher cost of production, and the impact of planned major maintenance performed on several of GMI’s furnaces during fiscal 2013, including a 98 day outage on GMI’s largest furnace in Alloy, West Virginia, a 31 day outage on a furnace at GMI’s Niagara Falls, New York facility, and a 10 day outage at GMI’s furnace in Bridgeport, Alabama facility.  The increases in cost of goods sold were partially offset by the impact of the fire at our Bridgeport facility during the fiscal year 2012.  Additionally, selling, general and administrative expenses increased by $1,162,000 primarily due to the acquisition of Quebec Silicon which contributed $2,506,000.
 
20

 
 
Globe Metales
 
     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2013
 
2012
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
51,266   
 
64,063   
 
(12,797)  
 
(20.0%)
Cost of goods sold
 
44,753   
 
49,084   
 
(4,331)  
 
(8.8%)
Selling, general and administrative expenses
 
2,901   
 
3,647   
 
(746)  
 
(20.5%)
Goodwill impairment
 
6,000   
 
—    
 
6,000   
 
NA
 
Operating (loss) income
$
(2,388)  
 
11,332   
 
(13,720)  
 
(121.1%)
 
Net sales decreased $12,797,000 or 20% from the prior year to $51,266,000.  This decrease was primarily due to an 11% decrease in volume and 12% decrease in average selling price.  Volume declined due to a 45 day planned major maintenance in fiscal 2013 and weak demand from Europe.  Overall pricing decreased due to weaker demand from the steel market, continued weakness in Europe and a mix shift from calcium silicon to ferrosilicon with a lower selling price.

Income from operations decreased by $13,720,000 from operating income of $11,332,000 in the prior year to operating loss of ($2,338,000).  The decrease was primarily due to the recognition of goodwill impairment of $6,000,000 during the third fiscal quarter of 2013.  This was further impacted by a higher cost per ton sold, lower volume and lower average selling prices.  Cost of goods sold decreased 9% while shipments decreased 11%.  This increase in cost per ton sold was primarily due to the planned 45 day outage one of the two furnaces during fiscal 2013.

Solsil

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2013
 
2012
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net Sales
$
—    
 
—    
 
—    
 
NA
Cost of goods sold
 
2,542   
 
526   
 
2,016   
 
383.3%
Selling, general and administrative expenses
 
153   
 
331   
 
(178)  
 
(53.8%)
Research and development
 
—    
 
127   
 
(127)  
 
NA
Impairment of long-lived assets
 
18,452   
 
—    
 
18,452   
 
NA
 
Operating loss
$
(21,147)  
 
(984)  
 
(20,163)  
 
2,049.1%
 
Net sales remained constant at $0.  This was attributable the Solsil suspending commercial production during fiscal year 2010 as a result of a significant decline in the price of polysilicon and the decline in demand for upgraded metallurgical silicon.  We are concentrating our efforts on research and development activities focused on reducing the cost of production.

Operating loss increased by $20,163,000 from the prior year to ($21,147,000) primarily due to the write-off equipment as a result of our decision to indefinitely take these assets out of service in response to sustained pricing declines that have rendered its production methods uneconomical and inventory write-downs due to expected lower net realizable values for certain inventories.
 
Corporate

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2013
 
2012
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Selling, general and administrative expenses
$
30,699   
 
27,322   
 
3,377   
 
12.4%
Gain on sale of business
 
—    
 
(54)  
 
54   
 
NA
Impairment of long-lived assets
 
16,935   
 
—    
 
16,935   
 
NA
 
Operating loss
$
(47,634)  
 
(27,268)  
 
(20,366)  
 
74.7%
 
Operating loss increased by $20,366,000 from the prior year to ($47,634,000).  Selling, general and administrative expenses increased by $3,377,000 year over year was primarily due to an increase in stock based compensation of approximately $13,796,000, of which $12,738,000 represents the remeasurement cost resulting from the change in the classification of the outstanding options from equity awards to liability awards and vesting of outstanding liability classified option awards and fees related to SAP implementation.  This was partially offset by a reduction in variable-based compensation of $7,278,000 and a reduction of due diligence and transaction related costs of $3,964,000.

During fiscal year 2013, we recognized an impairment of long-lived assets of approximately $16,935,000. In 2011, we acquired exploration licenses related to certain mines located in Nigeria, which granted us the right to explore for, among other things, manganese ore, a raw material used in the production of certain silicon and manganese based alloys. During the third quarter of fiscal year 2013, based upon difficulties encountered in gaining secure access to the mines, we determined that exploration of these mines is not feasible and have decided to abandon our plan to conduct exploration activities at these mines. Accordingly, we recognized an impairment charge of approximately $16,935,000 (representing the aggregate cost basis of the licenses).

Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity are our cash and cash equivalents balance, cash flows from operations, and unused commitments under our existing credit facilities. At June 30, 2014, our cash and cash equivalents balance was approximately $97,792,000, and we had $208,110,000 available for borrowing under our existing financing arrangements. We generated cash flows from operations totaling $62,556,000 during the year ended June 30, 2014.

As of June 30, 2014, the amount of cash and cash equivalents, included in the Company’s consolidated cash that was held by foreign subsidiaries was approximately $32,776,000. If these funds are needed for operations in the U.S., the Company will be required to accrue and pay taxes in the U.S. to repatriate these funds. However, the Company’s intent is to permanently reinvest these funds outside the U.S. and the Company’s current plans do not indicate a need to repatriate them to fund operations in the U.S.

Certain of our subsidiaries borrow funds in order to finance working capital requirements and capital expansion programs. The terms of certain of our financing arrangements place restrictions on distributions of funds to us, however, we do not expect this to have an impact on our ability to meet our cash obligations. We believe we have access to adequate resources to meet our needs for normal operating costs, capital expenditure, and working capital for our existing business. Our ability to fund planned capital expenditures and make acquisitions will depend upon our future operating performance, which will be affected by prevailing economic conditions in our industry as well as financial, business and other factors, some of which are beyond our control.

On August 20, 2013, we refinanced our existing credit facility. The previous facility that was due to expire May 31, 2017, has been replaced with the new facility that extends the expiration to August 20, 2018, improves pricing and increases the flexibility we have to pursue our strategic objectives all while maintaining the capacity of the revolving credit facility at $300,000,000, plus an accordion feature of an additional $150,000,000. See note 10 (debt) to our June 30, 2014 consolidated financial statements for additional information.
 
 
21

 

Cash Flows

The following table summarizes our primary sources (uses) of cash during the periods presented:

       
Year Ended June 30,
       
2014
 
2013
 
2012
        (Dollars in thousands)
Cash and cash equivalents at beginning of period
$
169,676   
 
178,010   
 
166,208   
Cash flows provided by operating activities
 
62,556   
 
72,740   
 
103,907   
Cash flows used in investing activities
 
(64,271)  
 
(49,029)  
 
(151,705)  
Cash flows (used in) provided by financing activities
 
(68,608)  
 
(30,994)  
 
59,862   
Effect of exchange rate changes on cash
 
(1,561)  
 
(1,051)  
 
(262)  
 
Cash and cash equivalents at end of period
$
97,792    
 
169,676    
 
178,010    
 
Operating Activities:

Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year-to-year due to economic conditions.

During fiscal year 2014, net cash provided by operating activities was $62,556,000, compared to $72,740,000 in the prior year. The decrease in net cash provided by operating activities is primarily attributable to payments made to acquire supply agreements and the cash settlement of stock appreciation rights exercised during the year , offset by favorable working capital comparisons to the prior year.

Investing Activities:

During fiscal year 2014, net cash used in investing activities was $64,271,000, compared to $49,029,000 in the prior year. During the year, $13,396,000 of cash was used to purchase marketable securities. In addition, $3,800,000 of cash was used, net of cash acquired, in the acquisition of Siltech.

We expect the capital spending for fiscal year 2015 to be approximately $45,000,000, which we plan to fund primarily with cash from operations.

Financing Activities:

During fiscal year 2014, net cash used in financing activities was approximately $68,608,000, compared to $30,994,000 in the prior year. The increase in net cash used in financing activities was mainly attributable to the utilization of $28,962,000 to purchase shares of our own common stock and the net repayment of $14,250,000 under our revolving credit agreements.. These increases in cash used in financing activities were offset by a decrease in Dividend payments of $6,751,000 as a result of an additional dividend payment made during fiscal year 2013.

Exchange Rate Change on Cash:

The effect of exchange rate changes on cash was related to fluctuations in renminbi, Canadian dollars and rand, the functional currency of our Chinese, Canadian and South African subsidiaries.
 
Commitments and Contractual Obligations

The following tables summarize our contractual obligations at June 30, 2014 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:
 
Contractual Obligations
         
2016-
 
2018-
 
2020 and
(as of June 30, 2014)
 
Total
 
2015
 
2017
 
2019
 
beyond
     
(Dollars in thousands)
Long-term debt obligations
  $
125,204   
 
59    
 
100    
 
125,045    
 
—    
Power commitments (1)
 
15,956   
 
15,956    
 
—    
 
—    
 
—    
Purchase obligations (2)
 
21,926   
 
21,926    
 
—    
 
—    
 
—    
Operating lease obligations
 
6,657   
 
3,617    
 
2,953    
 
87    
 
—    
Capital lease obligations
 
9,816   
 
2,585    
 
5,038    
 
879    
 
1,314    
                       
(1) Represents minimum charges that are enforceable and legally binding, and do not represent total anticipated purchases. Minimum charges requirements expire after prociding one year notice of contract cancellation.
 
(2) The Company has outstanding purchase obligations with suppliers for raw materials in the normal course of business. These purchase obligation amounts represent on those items which are based on agreements that are enforceable and legally binding, and do not represent total anticipated purchases.
 
 
The table above also excludes certain other obligations reflected in our consolidated balance sheet, including estimated funding for pension obligations, for which the timing of payments may vary based on changes in the fair value of pension plan assets and actuarial assumptions. We expect to contribute approximately $2,033,000 to our pension plans for the year ended June 30, 2014.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements or relationships with unconsolidated entities of financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Litigation and Contingencies

We are subject to various lawsuits, claims and proceedings that arise in the normal course of business, including employment, commercial, environmental, safety and health matters, as well as claims associated with our historical acquisitions and divestitures. Although it is not presently possible to determine the outcome of these matters, in the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

At June 30, 2014, there are no significant liabilities recorded for environmental contingencies except for the $10,000 preliminary purchase price allocation recorded in connection with the acquisition of Siltech. The initial accounting for the business combination is not complete, pending the completion of the third-party site study report. The provisional amount is subject to revision until the Company’s evaluations of the purchase price allocation are completed to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. With respect to the cost for ongoing environmental compliance, including maintenance and monitoring, such costs are expensed as incurred unless there is a long-term monitoring agreement with a governmental agency, in which case a liability is established at the inception of the agreement.

Accounting Pronouncements to be Implemented

In May 2014, the Financial Accounting Standards Board issued a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. Accordingly, we will adopt this new guidance beginning in fiscal 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance and management is currently evaluating which transition approach to use. We are currently evaluating the impact of this guidance on our consolidated financial position and results of operations.
 
 
22

 

Item 7A.   
Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks arising from adverse changes in:

 
• 
commodity prices,

 
• 
interest rates, and

 
• 
foreign exchange rates.

In the normal course of business, we manage these risks through a variety of strategies, including obtaining captive or long-term contracted raw material supplies and hedging strategies. Obtaining captive or long-term contracted raw material supplies involves the acquisition of companies or assets for the purpose of increasing our access to raw materials or the identification and effective implementation of long-term leasing rights or supply agreements. We entered into derivative instruments to hedge certain commodity price, interest rate, and foreign currency risks. We do not engage in commodity, interest rate, or currency speculation, and no derivatives are held for trading purposes.

All derivatives are accounted for using mark-to-market accounting. We believe it is not practical to designate our derivative instruments as hedging instruments as defined under ASC Subtopic 815-10, Derivatives and Hedging (ASC 815). Accordingly, we adjust our derivative financial instruments to current market value through the consolidated statement of income based on the fair value of the agreement as of period-end. Although not designated as hedged items as defined under ASC 815, these derivative instruments serve to significantly offset our commodity, interest rate, and currency risks. Gains or losses from these transactions offset gains or losses on the assets, liabilities, or transactions being hedged. No credit loss is anticipated as the counterparties to our derivative agreements are major financial institutions that are highly rated.

Commodity Prices:

We are exposed to price risk for certain raw materials and energy used in our production process. The raw materials and energy which we use are largely commodities, subject to price volatility caused by changes in global supply and demand and governmental controls. Derivative financial instruments are not used extensively to manage our exposure to fluctuations in the cost of commodity products used in our operations. We attempt to reduce the impact of increases in our raw material and energy costs by negotiating long-term contracts and through the acquisition of companies or assets for the purpose of increasing our access to raw materials with favorable pricing terms. We have entered into long-term power supply contracts that result in stable, favorably priced long-term commitments for the majority of our power needs. Additionally, we have long-term lease mining rights in the U.S. that supply us with a substantial portion of our requirements for quartzite. We also have obtained a captive supply of electrodes through our 98% ownership interest in Yonvey.

In June 2010, we entered into a power hedge agreement on a 175,440 MWh notional amount of electricity, representing approximately 20% of the total power required by our Niagara Falls, New York plant. This hedge covers our expected needs not supplied by the facility’s long-term power contract over the term of the hedge agreement. The notional amount decreases equally per month through the duration of the agreement. Under the power hedge agreement, we fixed the power rate at $39.60 per MWh over the life of the contract.  This contract expired on June 30, 2012. In October 2010, we entered into a power hedge agreement on a 87,600 MWh notional amount of electricity. The agreement is effective July 1, 2012 and the notional amount decreases equally per month with a fixed power rate at $39.95 per MWh over the life of the contract. This contract expired on June 30, 2013. At June 30, 2014, we have no outstanding power hedge agreements.

To the extent that we have not mitigated our exposure to rising raw material and energy prices, we may not be able to increase our prices to our customers to offset such potential raw material or energy price increases, which could have a material adverse effect on our results of operations and operating cash flows.

Interest Rates:

We are exposed to market risk from changes in interest rates on certain of our short-term and long-term debt obligations. The Company had outstanding revolving multi-currency credit facility of $125,000,000 at June 30, 2014, with weighted average interest rate of 1.66%. The Company previously entered into interest rate cap arrangement and swap agreements to mitigate the risk of interest rate fluctuations on its recently terminated senior credit facility and long-term debt. The Company settled these agreements in connection with the termination of the senior credit facility and long-term debt. The Company would consider entering into hedge agreements to mitigate the interest rate risk, if conditions warrant. At June 30, 2014, we have no outstanding interest rate derivatives.

If market interest rates were to increase or decrease by 10% for the full 2014 fiscal year as compared to the rates in effect at June 30, 2014, we estimate that the change would not have a material impact to our cash flows or results of operations.

We are also subject to interest rate risk with respect to our pension and postretirement benefit obligations, as changes in interest rates will effectively increase or decrease our liabilities associated with these benefit plans, which also results in changes to the amount of pension and postretirement benefit expense recognized each period.

Foreign Currency Risk:

We are exposed to market risk arising from changes in currency exchange rates as a result of operations outside the United States, principally in Argentina, Canada and China. A portion of our net sales generated from our non-U.S. operations is denominated in currencies other than the U.S. dollar. Most of our operating costs for our non-U.S. operations are denominated in local currencies, principally the Argentine peso and the Chinese renminbi. Consequently, the translated U.S. dollar value of our non-U.S. dollar sales, and related accounts receivable balances, and our operating costs are subject to currency exchange rate fluctuations. Derivative instruments are not used extensively to manage this risk. At June 30, 2014, we have no outstanding foreign exchange forward and option contracts at June 30, 2014.

A hypothetical uniform 10% increase or decrease in the value of the dollar relative to all the currencies in which our transactions are denominated would not have a material impact to our cash flows or results of operations.
 
Item 8.   
Financial Statements and Supplementary Data
 
The financial statements appearing on pages 32 to 53 are incorporated herein by reference.
 
Item 9.   
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A.   
Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as such term is defined in Securities Exchange Act Rule 13a-15(e) or 15d-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal controls over financial reporting. Our internal control system over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.
 
 
23

 

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of our annual consolidated financial statements, management has undertaken its assessment of the effectiveness of our internal control over financial reporting as of June 30, 2014, based on the criteria established in “Internal Control-Integrated Framework (1992)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of June 30, 2014.

Management’s evaluation of the effectiveness of internal control over financial reporting did not include Siltech, which we acquired on November 21, 2013, as management concluded that it was not possible to conduct an assessment of Sitech’s internal control over financial reporting in the period between the consummation date and the date of management’s evaluation. The assets of Siltech represented approximately 6% of total assets at June 30, 2014. There was no revenue recorded by Siltech for the year ended June 30, 2014.

Report of Independent Registered Public Accounting Firm
 
Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this report, has issued its report on the effectiveness of our internal control over financial reporting, a copy of which appears on page 30 of this annual report.
 
Changes in Internal Control Over Financial Reporting

Other than the Siltech acquisition, there were no changes in our internal control over financial reporting during the year ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Item 9B.   
Other Information

Not applicable.

 
24

 

PART III

Certain information required by Part III is omitted from this report in that we will file a definitive proxy statement pursuant to Regulation 14A with respect to our 2014 Annual Meeting (the “Proxy Statement”) no later than 120 days after the end of the fiscal year covered by this report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference.

Item 10.   Directors, Executive Officers and Corporate Governance

Except as set forth below, the information required by this Item is hereby incorporated herein by reference to the Proxy Statement.

Set forth below is certain information about our executive officers:
 
             
Name
 
Age
 
Position
   
Alan Kestenbaum
   
52
   
Executive Chairman and Director
Jeff Bradley
   
54
   
Chief Executive Officer and Chief Operating Officer
Joseph Ragan
   
53
   
Chief Financial Officer
Stephen Lebowitz
   
49
   
Chief Legal Officer

Alan Kestenbaum has served as Executive Chairman and Director since our inception in December 2004, and served as Chief Executive Officer from our inception through May 2008. From June 2004, Mr. Kestenbaum served as Chairman of Globe Metallurgical, Inc., until its acquisition by us in November 2006. He has over 25 years of experience in metals including finance, distribution, trading and manufacturing. Mr. Kestenbaum is a founder and the Chief Executive Officer of Marco International Corp., and its affiliates, a finance trading group specializing in metals, minerals and other raw materials, founded in 1985. Mr. Kestenbaum was involved in the expansion by certain of Marco International’s affiliates into China and the former Soviet Union. He also established affiliated private equity businesses in 1999 which were involved in sourcing and concluding a number of private equity transactions, including ones relating to McCook Metals, Scottsboro Aluminum and Globe Metallurgical, Inc. Mr. Kestenbaum began his career in metals with Glencore, Inc. and Philipp Brothers in New York City. He received his B.A. in Economics cum laude from Yeshiva University, New York.

Jeff Bradley has served as our Chief Executive Officer since May 2008 and our Chief Operating Officer since August 2010. From June 2005 until February 2008, Mr. Bradley served as Chairman, Chief Executive Officer and Director of Claymont Steel Holdings, Inc., a company specializing in the manufacture and sale of custom-order steel plate in the United States and Canada. Mr. Bradley was not employed after his February 2008 departure from Claymont Steel until he joined us in May 2008. Prior to joining Claymont Steel, from September 2004 to June 2005, Mr. Bradley served as Vice President of strategic planning for Dietrich Industries, a construction products subsidiary of Worthington Industries. From September 2000 to August 2004, Mr. Bradley served as a vice president and general manager for Worthington Steel, a diversified metal processing company. Mr. Bradley holds a B.S. in Business Administration from Loyola College in Baltimore, Maryland.

Joseph Ragan joined our company as Chief Financial Officer in May 2013. Prior to that, Mr. Ragan served from 2008 to 2013 as Chief Financial Officer for Boart Longyear, the world's largest drilling services contractor for the global mining sector, operating in more than 40 countries and selling its products in nearly 100 countries. Prior to joining Boart Longyear, he held the position of Chief Financial Officer for the GTSI Corporation, a leading technology solutions provider for the public sector listed on NASDAQ. Earlier in his career, he held various international and domestic finance positions for PSEG, The AES Corporation, and Deloitte and Touche. He received his Bachelor of Science in Accounting from The University of the State of New York, his Master's degree in Accounting from George Mason University, and is a Certified Public Accountant in the commonwealth of Virginia.

Stephen Lebowitz has served as our Chief Legal Officer since July 2008. Prior to that, from 2001 to 2008, Mr. Lebowitz was in-house counsel at BP p.l.c., one of the world’s largest petroleum companies, to its jet fuel, marine and solar energy divisions. Prior to joining BP, Mr. Lebowitz was in private practice, both as a partner at the law firm Ridberg, Press and Aaronson, and as an associate with the law firm Kaye Scholer LLP. Mr. Lebowitz holds a B.A. from the University of Vermont, received a law degree from George Washington University, and while overseas as a Fulbright Scholar, obtained an L.L.M. in European law.
 
Item 11.   Executive Compensation

The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.

Item 13.   Certain Relationships and Related Transactions and Director Independence

The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.

Item 14.   Principal Accountant Fees and Services

The information required by this Item is hereby incorporated herein by reference to the Proxy Statement.

 
25

 

PART IV

Item 15.   
Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Annual Report on Form 10-K:

(1)  
Financial Statements

     
Page
 
Reports of Independent Registered Public Accounting Firms
 
 
30
 
Consolidated Balance Sheets at June 30, 2014 and 2013
   
32
 
Consolidated Statements of Operations for the years ended June 30, 2014, 2013, and 2012
   
33
 
Consolidated Statements of Comprehensive Income (Loss) – Years ended June 30, 2014, 2013, and 2012
   
34
 
Consolidated Statements of Changes in Stockholders’ Equity for the years ended June 30, 2014, 2013, and 2012
   
35
 
Consolidated Statements of Cash Flows for the years ended June 30, 2014, 2013, and 2012
   
36
 
Notes to Consolidated