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EX-95 - EXHIBIT 95 - GLOBE SPECIALTY METALS INCexhibi95.htm
EX-23.1 - EXHIBIT 23.1 - GLOBE SPECIALTY METALS INCexhibit231.htm
EX-23.2 - EXHIBIT 23.2 - GLOBE SPECIALTY METALS INCexhibit232.htm
EX-31.2 - EXHIBIT 31.2 - GLOBE SPECIALTY METALS INCexhibit312.htm
EX-32.1 - EXHIBIT 32.1 - GLOBE SPECIALTY METALS INCexhibit321.htm
EX-31.1 - EXHIBIT 31.1 - GLOBE SPECIALTY METALS INCexhibit311.htm
EX-21.1 - EXHIBIT 21.1 - GLOBE SPECIALTY METALS INCexhibit211.htm



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, 2015
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 3100
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 17, 2015, the registrant had 73,749,990 shares of common stock outstanding. As of December 31, 2014 (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 $1,119.7 million.

DOCUMENTS INCORPORATED BY REFERENCE
 
 
Portions of the Registrant's definitive Proxy Statement relating to the 2015 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, 2015
 
TABLE OF CONTENTS
           
       
Page
       
No.
   
PART I
Special Note Regarding Forward-Looking Statements
   
1
 
1
 
Business
   
2
 
1A
 
Risk Factors
   
9
 
1B
 
Unresolved Staff Comments
   
15
 
2
 
Properties
   
15
 
3
 
Legal Proceedings
   
15
 
4
 
Mine Safety Disclosure
   
16
 
 
PART II
5
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
   
17
 
6
 
Selected Financial Data
   
18
 
7
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
19
 
7A
 
Quantitative and Qualitative Disclosures About Market Risk
   
27
 
8
 
Financial Statements and Supplementary Data
   
28
 
9
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   
28
 
9A
 
Controls and Procedures
   
28
 
9B
 
Other Information
   
28
 
 
PART III
10
 
Directors, Executive Officers and Corporate Governance
   
29
 
11
 
Executive Compensation
   
29
 
12
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   
29
 
13
 
Certain Relationships and Related Transactions and Director Independence
   
29
 
14
 
Principal Accountant Fees and Services
   
29
 
 
PART IV
15
 
Exhibits and Financial Statement Schedules
   
30
 
   
Signatures
   
32
 
 
 
 
 
 

 
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 expected timing, completion and effects of the proposed business combination with FerroAtlántica;
 
 
the parties’ ability to consummate the business combination;
 
 
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;
 
 
our ability to satisfy the conditions to the completion of the business combination, including the receipt of approval of the Company’s stockholders;
 
 
our ability to obtain regulatory approvals required for the business combination on the terms expected and on the anticipated schedule;
 
 
our ability to meet expectations regarding the timing, completion and other aspects of the business combination;
 
 
the outcome of pending or potential litigation, including the ongoing shareholder litigation related to the business combination with FerroAtlántica;
 
 
the risk that the pendency of the business combination with FerroAtlántica could have an adverse impact on our relationships with employees, customers, prospective customers and suppliers;
 
 
the risk that the pendency of the business combination with FerroAtlántica could divert the attention of employees and management from day-to-day operations;
 
 
that the failure to consummate the business combination with FerroAtlántica could have a material adverse effect on our share price, business and cash flows, results of operations and financial position;
 
 
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);
 
 
 
1

 
 
 
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. The forward looking statements do not take into account the proposed business combination with FerroAtlántica and do not address possible future combined results of operations of the Company and FerroAtlántica after the business combination. 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.
 
Item 1.                 Business
 
Overview
 
Globe Specialty Metals, Inc. (GSM, Globe, 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 140,000 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 158,000 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 eight principal operating facilities located in the United States, Canada, Argentina and 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 having some of 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 2015 was a year of record shipments and record net sales as demand for silicon metal and silicon-based alloys remained strong.  Our average selling prices in fiscal 2015 increased for silicon metal and remained flat for silicon-based alloys compared to the prior year.
 
We experienced an increase of 5% in our average selling prices in fiscal year 2015, with a 5% increase in silicon metal pricing, while silicon-based alloys pricing remained flat compared to the prior year.  This increase was driven by higher pricing in the first half of the fiscal year.   During the second half of fiscal year 2015, silicon metal and silicon-based alloys pricing declined due to increased import competition.   Our fixed-price contracts were negotiated in November 2014 for the 2015 calendar year and were not affected by the recent decline in pricing.  However, we have some exposure to these recent pricing fluctuations with respect to our contracts that are index-linked and spot priced.
 
Volumes increased 3% year-over-year, driven by a 14% increase in silicon metal metric tons sold, offset by a 8% decrease in silicon-based alloys metric tons sold.  Customer demand continued to improve for silicon metal and silicon-based alloys in our major end markets, which include chemical, aluminum, automotive, steel, housing and solar. The sales mix shifted in fiscal year 2015 as we shipped more silicon metal than the prior year.  The increase in silicon metal metric tons sold was primarily due to increased demand from the solar, auto and housing sectors in the U.S. and in Europe. With this increase in demand for silicon metal, at a time when ferrosilicon prices were declining, we converted a silicon-based alloys furnace to a silicon metal furnace at one of our U.S. plants.
 
Proposed Business Combination
 
On February 23, 2015, the Company, Grupo Villar Mir, S.A.U., a public limited company (sociedad anónima) incorporated under the laws of Spain (“Grupo VM”), Grupo FerroAtlántica, S.A.U., a Spanish public limited liability company in the form of a sociedad anónima and wholly owned subsidiary of Grupo VM (“FerroAtlántica”), VeloNewco Limited, a newly formed private UK holding company and wholly owned subsidiary of Grupo VM (“VeloNewco”), and Gordon Merger Sub, Inc., a newly formed Delaware corporation and a direct wholly owned subsidiary of VeloNewco (“Merger Sub”), entered into a Business Combination Agreement (the “Original Business Combination Agreement”) pursuant to which the parties agreed, subject to the terms and conditions of the Original Business Combination Agreement, to combine the businesses of the Company and FerroAtlántica under VeloNewco as described below (the “Business Combination”). The Original Business Combination Agreement was amended and restated on May 5, 2015.  The Original Business Combination Agreement, as so amended and restated, is referred to as the “Business Combination Agreement”.
 
Transaction Overview
 
Subject to the terms and conditions of the Business Combination Agreement, VeloNewco agreed to acquire from Grupo VM all of the issued and outstanding ordinary shares of FerroAtlántica in exchange for an aggregate of 98,078,161 newly issued VeloNewco Class A ordinary shares (each an “A Ordinary Share”), which will result in FerroAtlántica becoming a wholly owned subsidiary of VeloNewco (the “Stock Exchange”). After consummation of the Stock Exchange, Merger Sub will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of VeloNewco (the “Merger”).
 
In the Stock Exchange, Grupo VM may be required to pay to VeloNewco as additional consideration for the A Ordinary Shares an amount in cash, if any, based upon FerroAtlántica’s net debt at closing. In the Merger, each share of common stock of the Company will be converted into the right to receive one VeloNewco ordinary share (each an “Ordinary Share”). The A Ordinary Shares and the Ordinary Shares will have the same rights, powers and preferences, and vote together as a single class, except for the right of the holders of Ordinary Shares to the R&W Proceeds as described below.
 
In connection with the transaction, VeloNewco expects to purchase a buy side representations and warranties insurance policy (the “R&W Policy”) to insure against certain breaches of certain representations and warranties made by FerroAtlántica and Grupo VM in the Business Combination Agreement. Under the terms of the Articles of Association of VeloNewco (the “VeloNewco Articles”), if VeloNewco receives proceeds under the R&W Policy (after deduction of taxes applicable to such proceeds, if any) (the “R&W Proceeds”), VeloNewco is required to distribute the aggregate R&W Proceeds to the holders of the Ordinary Shares. Each A Ordinary Share automatically converts into one Ordinary Share upon the earlier to occur of: (a) the expiration of the R&W Policy; and (b) its transfer to any person or group which is not Grupo VM, any Grupo VM family member or any affiliate of Grupo VM or a Grupo VM family member.
 
Completion of the Business Combination is subject to Globe shareholder approval, regulatory approvals and customary closing conditions. The special meeting of Globe shareholders to consider adoption of the business combination agreement is scheduled for Thursday, September 10, 2015.
 
 
2

 
 
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, open-pit quartzite mines in Alabama and a concession to mine quartzite in Saint-Urbain, Quebec.
 
Globe Metales
 
Globe Metales operates a production facility in Mendoza, 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 Newcastle, South Africa.
 
See our June 30, 2015 consolidated financial statements for financial information with respect to our segments.
 
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
 
 
 
 
3

 
 
Customers and Markets
 
The following table details our shipments and average selling price per MT over the last eight quarters through June 30, 2015. See note 22 (Operating Segments) to our June 30, 2015 consolidated financial statements for additional information.
 
     
Quarter Ended
     
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
 
September 30,
     
2015
 
2015
 
2014
 
2014
 
2014
 
2014
 
2013
 
2013
Shipments (MT) (a)
                               
 
Silicon metal
 
39,536   
 
38,285   
 
38,436   
 
39,416   
 
36,884   
 
36,530   
 
31,631   
 
31,619   
 
Silicon-based alloys
 
32,615   
 
30,949   
 
32,450   
 
33,900   
 
38,530   
 
37,396   
 
34,985   
 
30,416   
 
Total
 
72,151   
 
69,234   
 
70,886   
 
73,316   
 
75,414   
 
73,926   
 
66,616   
 
62,035   
                                   
Average selling price ($/MT) (a)
                           
 
Silicon metal
$
2,932   
 
2,934   
 
2,916   
 
2,807   
 
2,797   
 
2,791   
 
2,766   
 
2,699   
 
Silicon-based alloys
$
1,962   
 
2,008   
 
2,030   
 
2,048   
 
2,009   
 
2,001   
 
1,983   
 
2,019   
 
Silicon metal and silicon-based alloys
$
2,491   
 
2,520   
 
2,511   
 
2,456   
 
2,395   
 
2,391   
 
2,355   
 
2,365   
 
 
 
(a)
Shipments and average selling price exclude coal, silica fume, other by-products and electrodes.
 
During the year ended June 30, 2015, our customers engaged primarily in the manufacture of silicone chemicals and polysilicon (36% of revenue), foundry alloys (17% of revenue), aluminum (17% of revenue) and steel (15% of revenue). Our customer base is geographically diverse, and includes North America, Europe, Asia and South America, which for the year ended June 30, 2015, represented 91%, 4%, 1% and 3% of our revenue, respectively.
 
For the year ended June 30, 2015, one customer accounted for more than 10% of revenues: Dow Corning, represented approximately 21% of revenues (approximately 77% 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 53% 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.
 
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.
 
 
4

 
 
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., Canada and South Africa. 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 a concession to mine quartzite in Saint-Urbain, Québec (we are not the operator of the mine, we utilize the services of a third party miner to extract the quartzite). These mines supply our U.S. and Canada 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 and Canada. 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 2021. 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. In Newcastle, South Africa, we have a contract with Eskom public utility company to supply 70 megawatts of electricity at the industrial tariff rate.
 
Mining Information
 
The following table provides a summary of our coal operations as of June 30, 2015:
 
   
Proven
 
Annual
 
Mining
 
Mining
 
Btu content
(Thousands of net tons)
 
Reserves
 
Production
 
Capacity
 
Method
 
per pound
Morgan Hollow/Colonel Hollow
 
364   
 
 144
 
 150
 
Surface
 
14,000   
Log Cabin
 
181   
 
 58
 
 80
 
 Underground
 
14,000   
Maple Creek
 
331   
 
 140
 
 150
 
Surface
 
14,000   
Bain Branch No. 3
 
3,518   
 
 42
 
 120
 
 Underground
 
14,000   
Engle Hollow
 
234   
 
 12
 
 24
 
 Underground
 
14,000   
Harpes Creek 4A
 
1,131   
 
 72
 
 100
 
 Underground
 
14,000   
Total
 
5,759   
 
 468
 
 624
       
 
Net sales for the twelve months ended June 30:
 
   
2015
   
2014
   
$ (in 000s)
 
MT
   
$ (in 000s)
 
MT
External Net Sales*
$
14,530   
 
136,075   
 
$
16,957   
 
178,218   
Internal Net Sales
 
79,893   
 
248,798   
   
60,103   
 
201,386   
Total Net Sales
$
94,423   
 
384,873   
  $
77,060   
 
379,604   
                   
*Includes by-products and other
                 
 
As of June 30, 2015, we had six active coal mines (two surface mines and four underground mines), located in Kentucky. We also had six inactive permitted coal mines available for extraction located in Kentucky and Alabama. 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.  The average mining recovery rate is approximately 60%. At June 30, 2015, we estimate our proven and probable reserves to be approximately 16,504,000 tons with an average permitted life of approximately 35 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.
 
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 65%.
 
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.
 
 
5

 
 
Competition
 
The silicon metal market and the silicon-based and manganese-based alloys markets are capital intensive, global and highly competitive. 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 positions 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 140,000 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 Western World capacity.
 
 
• 
Low Cost Producer.  We are among the lowest cost silicon metal producers 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 the global economic recession, we were 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 22% of our total cost of production for the fiscal year 2015. 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 other available alternatives for low ash metallurgical coal include 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. 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. 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.
 
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.
 
 
6

 
 
 
Focus on financial metrics and conservative balance sheet. We measure our success by reviewing pertinent financial metrics such as Reported and Adjusted EBITDA.
 
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 below.
 
       
Twelve Months
       
FY 2015
 
FY 2014
       
(Dollars in thousands)
Net income
$
34,627   
 
25,906   
Provision for income taxes
 
21,651   
 
7,705   
Net interest expense
 
4,076   
 
7,955   
Depreciation, depletion, amortization and accretion
 
52,006   
 
45,228   
Reported EBITDA
$
112,360   
 
86,794   
 
       
Twelve Months
       
FY 2015
 
FY 2014
       
(Dollars in thousands)
Reported EBITDA
$
112,360   
 
86,794   
 
Transaction and due diligence expenses
 
16,734   
 
1,081   
 
Siltech idling/start-up costs
 
6,474   
 
1,583   
 
Business interruption
 
5,252   
 
2,454   
 
Divestiture indemnification payment
 
4,559   
 
—    
 
Plant relocation
 
568   
 
—    
 
Lease termination
 
457   
 
—    
 
Remeasurement of stock option liability
 
(3,410)  
 
27,042   
 
Contract acquisition cost
 
—    
 
16,000   
 
Quebec Silicon lockout costs
 
—    
 
6,645   
 
Quebec Silicon curtailment gain
 
—    
 
(5,831)  
 
Remeasurement/true-up of equity compensation
 
—    
 
200    
 
Variable compensation
 
—    
 
3,885   
 
Bargain purchase gain
 
—    
 
(29,538)   
Adjusted EBITDA
$
142,994   
 
110,315   
 
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, 2015, we had 1,684 employees. We have 1,014 employees in the United States, 178 employees in Canada, 140 employees in Argentina, 217 employees in South Africa, 28 employees in Poland and 107 employees in China. Our total employees consist of 532 salaried employees and 1,152 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 3, 2018, respectively. Union employees in Argentina are working under a contract running through April 30, 2016. 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 runs 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.
 
 
7

 
 
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.
 
 
8

 
 
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 22% 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 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, under a month-to-month arrangement. Our power need in Newcastle, South Africa is supplied by Eskom public utility company at the industrial tariff rate. 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.
 
 
9

 
 
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.
 
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, 2015, we made approximately 53% of our consolidated net sales to our top ten customers and approximately 31% to our two top customers (14%, 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.
 
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. Sunset reviews of the U.S. orders covering silicon metal imports from China and Russia completed in 2012 and 2014, respectively, resulted in those orders 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.
 
Products we manufacture may be subject to unfair import competition that may affect our profitability.
 
A number of the products we manufacture, including silicon metal and ferrosilicon, are globally traded commodities that are sold primarily on the basis of price.  As a result, our sales volumes and prices may be adversely affected by influxes of imports of these products that are dumped (sold at unfairly low prices) or are subsidized by foreign governments.  Our silicon metal and ferrosilicon operations have been injured by such unfair import competition in the past.  The antidumping and countervailing duty laws provide a remedy for unfairly traded imports in the form of special duties imposed to offset the unfairly low pricing or subsidization.  However, the process for obtaining such relief is complex and uncertain.  As a result, while we have sought and obtained such relief in the past, in some cases we have not been successful.  Thus, there is no assurance that such relief will be obtained, and if it is not, unfair import competition could have a material adverse effect on our business, financial condition and results of 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.
 
 
10

 
 
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 3, 2018, respectively. Our union employees in Argentina are working under a contract running through April 30, 2016. 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 or to declare 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 July 2015, Jeff Bradley advised the Company that he desired to step down from his position as Chief Executive Officer and Chief Operating Officer effective August 31, 2015, to pursue other interests. At the time of Mr. Bradley’s departure, Mr. Kestenbaum will assume the additional role of CEO through the transaction close of the Business Combination with FerroAtlántica.  It is important that we retain the other members of our core senior management team following this change. In particular, we are dependent on the skills, knowledge and experience of Alan Kestenbaum, our Executive Chairman, 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, 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.
 
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 metal 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.
 
 
11

 
 
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 metal market and the silicon-based and manganese-based alloys markets are global, capital intensive and highly competitive. 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 have a material adverse effect on 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.
 
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 140,000 MT of silicon metal (excluding Dow Corning’s portion of the capacity of our Alloy, West Virginia and Becancour, Quebec plants) and 158,000 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.
 
 
12

 
 
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.
 
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.
 
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;
 
 
• 
developments in connection with the Business Combination with FerroAtlántica;
 
 
• 
investor perception of our company and of the industry in which we compete; and
 
 
• 
general economic, political and market conditions.
 
 
13

 
 
  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 42% 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.
 
Our entry into the Business Combination Agreement with FerroAtlántica may have adverse impacts.
 
On February 23, 2015, we entered into the Original Business Combination, which was amended and restated on May 5, 2015 by the Business Combination Agreement. Consummation of the Business Combination is subject to customary closing conditions, including approval and adoption of the Business Combination Agreement by our shareholders; approval by requisite governmental regulators and authorities, including approvals under applicable competition laws; approval for listing of the VeloNewco Ordinary Shares on the NASDAQ Global Select Market; and the absence of a material adverse effect on either our business or the business of FerroAtlántica.  It is not certain that these conditions will be satisfied or waived, that the necessary approvals will be obtained, or that we will be able to successfully consummate the Business Combination, or at all. We face risks and uncertainties due both to the pendency of the Business Combination as well as the potential failure to consummate the business combination, including:
 
 
We may not realize any or all of the potential benefits of the Business Combination that could result from combining the businesses of the Company and FerroAtlántica;
 
 
We will remain liable for significant transaction costs, including legal, financial advisory, accounting, and other costs relating to the Business Combination even if it is not consummated;
 
 
If the Business Combination Agreement is terminated before we complete the Business Combination, under some circumstances, we may have to pay a termination fee to FerroAtlántica of $25 million in cash;
 
 
The pending Business Combination could have an adverse impact on the Company’s relationships with employees, customers and suppliers, and prospective customers or other third parties may delay or decline entering into agreements with us as a result of the announcement of the proposed Business Combination; and
 
 
The restrictions and limitations on our conduct of business pending the Business Combination may disrupt or otherwise adversely affect our business; and
 
 
The attention of our management and employees may be diverted from day-to-day operations.
 
The occurrence of any of these events individually or in combination could have a material adverse effect on our share price, business and cash flows, results of operations and financial position.
 
Failure to complete the Business Combination could negatively impact the stock price of the Company and the future business and financial results of the Company.
 
If the Business Combination is not completed for any reason, including as a result of Company Shareholders failing to adopt the Business Combination Agreement, the ongoing business of the Company may be adversely affected and, without realizing any of the benefits of having completed the Business Combination, the Company would be subject to a number of risks, including the following:
 
 
The Company may be required, under certain circumstances, to pay FerroAtlántica a termination fee of $25 million or reimburse FerroAtlántica for certain expenses;
 
 
The Company is subject to certain restrictions on the conduct of its business prior to completing the Business Combination, which may adversely affect its ability to execute certain of its business strategies;
 
 
The Company has incurred and will continue to incur significant costs and fees associated with the proposed Business Combination;
 
 
The Company may experience negative reactions from the financial markets, including negative impacts on the Company’s stock price;
 
 
The Company may experience negative reactions from its customers, regulators and employees; and
 
 
Matters relating to the Business Combination (including integration planning) will require substantial commitments of time and resources by Company management, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to the Company as an independent company.
 
In addition, the Company could be subject to litigation related to any failure to complete the Business Combination or related to any enforcement proceeding commenced against the Company to perform its obligations under the Business Combination Agreement. If the Business Combination is not completed, these risks may materialize and may adversely affect the Company’s business, financial condition, financial results and stock price.
 
 
14

 
 
Legal proceedings in connection with the Business Combination, the outcomes of which are uncertain, could delay or prevent the completion of the Business Combination.
 
       Since the announcement of the Business Combination, four putative class action lawsuits have been filed in the Court of Chancery of the State of Delaware on behalf of Company Shareholders alleging that members of the Company Board and/or Company management breached their fiduciary duties by failing to maximize the Company’s value in agreeing to the Business Combination and that the Company, Grupo VM, FerroAtlántica, Merger Sub and VeloNewco aided and abetted these alleged breaches. The actions were captioned Fraser v. Globe Specialty Metals, Inc., et al., C.A. No. 10823- VCG, City of Providence v. Globe Specialty Metals, Inc., et al., C.A. No. 10865-VCG, Int’l Union of Operating Engineers Local 478 Pension Fund v. Globe Specialty Metals, Inc., et al., C.A. No. 10899-VCG and Cirillo v. Globe Specialty Metals, Inc., et al., C.A. No. 10929-VCG. The actions have been consolidated for all purposes into C.A. No. 10865-VCG, now captioned In re Globe Specialty Metals, Inc. Stockholders Litigation, Consolidated C.A. No. 10865-VCG. Plaintiffs filed a motion for a preliminary injunction seeking to enjoin the Company from convening a special meeting of Company Shareholders to vote on the proposal to adopt the Business Combination Agreement or consummating the Business combination. In addition, Plaintiffs filed a motion for expedited proceedings, and supporting brief, in which they requested that the Court schedule a trial in this action before the Company Shareholders vote on the Business Combination. Defendants filed an opposition brief in which they objected to Plaintiffs’ motion for expedited proceedings to the extent it seeks expansive discovery and an expedited trial on the merits in lieu of a preliminary injunction hearing. Subsequently, the parties reached agreement on the scope of expedited discovery. The Court scheduled a hearing on Plaintiffs’ motion for a preliminary injunction for August 26, 2015. On June 15, 2015, Plaintiffs filed an amended consolidated class action complaint, realleging, among other things, that the Company’s board of directors and Chief Executive Officer, aided and abetted by Grupo VM, FerroAtlántica, Merger Sub and VeloNewco, breached their fiduciary duties by entering into the Business Combination for inadequate consideration and that certain provisions in the Business Combination Agreement unfairly deterred a potential alternative transaction. The amended complaint further alleges that, among other things, the Company’s preliminary proxy statement/prospectus filed with the SEC on May 6, 2015, is materially misleading and incomplete, and that the Company board of directors and Chief Executive Officer breached their fiduciary duties by failing to disclose purportedly material information to Company Shareholders in connection with the Business Combination. The amended complaint seeks, among other relief, an order enjoining the Defendants from consummating the proposed Business Combination; a declaration that the disclosures contained in the preliminary proxy statement/prospectus are deficient; damages; and attorneys’ fees and costs. On August 10, 2015, Plaintiffs filed their opening brief in support of their motion for preliminary injunction.
 
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
           10,566
 
Lease
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
Police, Poland
 
Manufacturing and other
43,951
 
Own
Other
Newcastle, South Africa
 
Manufacturing and other
395,100
 
2
**
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
Saint-Urbain, Quebec
 
Quartzite
 
Lease
 
GMI
 
 
 
Item 3.   
Legal Proceedings
 
The Company is subject to various lawsuits, investigations, claims, and proceedings that arise in the normal course of business, including, but not limited to, labor and employment, commercial, environmental, safety, and health matters, as well as claims and indemnities associated with its historical acquisitions and divestitures. Although it is not presently possible to determine the outcome of these matters, in the opinion of management, it is not reasonably possible that the ultimate disposition of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity. During the fiscal year ended June 30, 2015, the Company recorded an expense of $4,559,000 with respect to an indemnification obligation from a prior divestiture, of which $1,659,000 is unpaid and is included in Other long-term liabilities at June 30, 2015.
 
 Litigation Related to the Proposed Business Combination
 
    On March 23, 2015, a putative class action lawsuit was filed on behalf of the Company’s shareholders (“Company Shareholders”) in the Court of Chancery of the State of Delaware.  The action, captioned Fraser v. Globe Specialty Metals, Inc., et al., C.A. No. 10823-VCG, named as defendants the Company, the members of its board of directors, Grupo VM, FerroAtlántica, Merger Sub and VeloNewco.  The complaint alleged, among other things, that the Company directors breached their fiduciary duties by failing to obtain the best price possible for Company Shareholders, that the proposed merger consideration to be received by Company Shareholders is inadequate and significantly undervalued the Company, that the Company directors failed to adequately protect against conflicts of interest in approving the transaction, and that the Business Combination Agreement unfairly deters competitive offers.  The complaint also alleged that the Company, Grupo VM, FerroAtlántica, Merger Sub and VeloNewco aided and abetted these alleged breaches.  The action sought to enjoin or rescind the Business Combination, damages, and attorneys’ fees and costs.
 
 
15

 
    On April 1, 2015, a purported Company Shareholder filed a putative class action lawsuit on behalf of Company Shareholders challenging the Business Combination in the Court of Chancery of the State of Delaware.  The action, captioned City of Providence v. Globe Specialty Metals, Inc., et al., C.A. No. 10865-VCG, named as defendants the Company, the members of its board of directors, its Chief Executive Officer, Grupo VM, FerroAtlántica, Merger Sub and VeloNewco.  The complaint alleged, among other things, that the Company’s board of directors and Chief Executive Officer, aided and abetted by Grupo VM, FerroAtlántica, Merger Sub and VeloNewco, breached their fiduciary duties by entering into the Business Combination for inadequate consideration and that certain provisions in the Business Combination Agreement unfairly deterred a potential alternative transaction.  The complaint further alleged, among other things, that the Company’s Executive Chairman and Chief Executive Officer, aided and abetted by Grupo VM, FerroAtlántica, Merger Sub and VeloNewco, breached their fiduciary duties by negotiating the Business Combination Agreement, and, in the case of the Executive Chairman, by entering into a voting agreement in favor of the Business Combination Agreement, out of self-interest.  The action sought to enjoin the Business Combination, to order the board of directors to obtain an alternate transaction, damages, and attorneys’ fees and costs.
 
    On April 10, 2015, a purported Company Shareholder filed a putative class action lawsuit on behalf of Company Shareholders challenging the Business Combination in the Court of Chancery of the State of Delaware.  The action, captioned Int’l Union of Operating Engineers Local 478 Pension Fund v. Globe Specialty Metals, Inc., et al., C.A. No. 10899-VCG, named as defendants the Company, the members of its board of directors, its Chief Executive Officer, Grupo VM, FerroAtlántica, Merger Sub and VeloNewco.  The complaint made identical allegations and sought the same relief sought in City of Providence v. Globe Specialty Metals, Inc., et al., C.A. No. 10865-VCG.
 
    On April 21, 2015, a purported Company Shareholder filed a putative class action lawsuit on behalf of Company Shareholders challenging the Business Combination in the Court of Chancery of the State of Delaware.  The action, captioned Cirillo v. Globe Specialty Metals, Inc., et al., C.A. No. 10929-VCG, named as defendants the Company, its board of directors, Grupo VM, FerroAtlántica, Merger Sub and VeloNewco.  The complaint alleged, among other things, that the Company’s directors, aided and abetted by the Company, Grupo VM, FerroAtlántica, Merger Sub and VeloNewco, breached their fiduciary duties in agreeing to the Business Combination for inadequate consideration and that certain provisions in the Business Combination Agreement unfairly deterred a potential alternative transaction.  The action sought to enjoin or rescind the Business Combination, disclosure of information, damages, and attorneys’ fees and costs.
 
    On May 4, 2015, the Court of Chancery of the State of Delaware consolidated these four actions for all purposes into C.A. No. 10865-VCG, now captioned In re Globe Specialty Metals, Inc. Stockholders Litigation, Consolidated C.A. No. 10865-VCG. The Court further designated the complaint filed in C.A. No. 10865-VCG as the operative complaint in the consolidated action. Plaintiffs filed a motion for a preliminary injunction seeking to enjoin the Company from convening a special meeting of Company Shareholders to vote on the proposal to adopt the Business Combination Agreement or consummating the Business Combination. In addition, Plaintiffs filed a motion for expedited proceedings, and supporting brief, in which they requested that the Court schedule a trial in this action before the Company Shareholders vote on the Business Combination. Defendants, including Globe, filed an opposition brief in which they objected to Plaintiffs’ motion for expedited proceedings to the extent it seeks expansive discovery and an expedited trial on the merits in lieu of a preliminary injunction hearing. Subsequently, the parties reached agreement on the scope of expedited discovery. The Court scheduled a hearing on Plaintiffs’ motion for a preliminary injunction for August 26, 2015.
 
On June 15, 2015, Plaintiffs filed an amended consolidated class action complaint, realleging, among other things, that the Company’s board of directors and Chief Executive Officer, aided and abetted by Grupo VM, FerroAtlántica, Merger Sub and VeloNewco, breached their fiduciary duties by entering into the Business Combination for inadequate consideration and that certain provisions in the Business Combination Agreement unfairly deterred a potential alternative transaction. The amended complaint further alleges that, among other things, the Company’s preliminary proxy statement/prospectus filed with the SEC on May 6, 2015, is materially misleading and incomplete, and that the Company’s board of directors and Chief Executive Officer breached their fiduciary duties by failing to disclose purportedly material information to Company Shareholders in connection with the Business Combination. The amended complaint seeks, among other relief, an order enjoining the Defendants from consummating the proposed Business Combination; a declaration that the disclosures contained in the preliminary proxy statement/prospectus are deficient; damages; and attorneys’ fees and costs.
 
On August 10, 2015, Plaintiffs filed their opening brief in support of their motion for preliminary injunction.
 
The amended complaint does not specify the amount of damages sought by Plaintiffs in the consolidated action and it is not presently possible to determine the outcome of these matters.  Accordingly, the possible loss, if any, related to these matters is uncertain and cannot be reasonably estimated at this time.
 
Environmental Contingencies
 
At June 30, 2015, there are no significant liabilities recorded for environmental contingencies. 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.
 
Asset Retirement Obligations
 
As of June 30, 2015 and 2014, the Company has recorded asset retirement obligation accruals for mine reclamation and preparation plant closure costs totaling $14,764,000 and $9,134,000, respectively. There were no assets that were legally restricted for purposes of settling asset retirement obligations at June 30, 2015 or 2014.
 
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.
 
 
16

 

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 2015 price range per common share
$
17.41 – 21.99
 
15.11 – 19.43
 
15.41 – 19.01
 
17.84 – 21.41
Fiscal year 2014 price range per common share
 
18.42 – 21.97
 
16.80 – 22.00
 
15.21 – 18.37
 
10.80 – 15.69
 
Holders
 
As of August 21, 2015, 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 February 3, 2015, the Company’s Board of Directors approved an annual dividend of $0.32 per common share, payable quarterly.
 
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.
 
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 2015 dividends declared per common share
$
 0.080
 
 0.080
 
 0.075
 
 0.075
Fiscal year 2014 dividends declared per common share
 
 0.075
 
 0.075
 
 0.069
 
 0.069
 
 
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, 2015:
 
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, 2015 – April 30, 2015
 
$0.00
 
0
 
$45,780,000
May 1, 2015 – May 31, 2015
 
$0.00
 
0
 
$45,780,000
June 1, 2015 – June 30, 2015
 
$0.00
 
0
 
$45,780,000
 
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
 
1,589,136   
 
$17.06
 
2,450,521    
Equity compensation plans not approved by security holders
 
—    
 
—    
 
—    
Total
 
1,589,136   
 
$17.06
 
2,450,521   
 
 
17

 
 
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, 2015, 2014, 2013, 2012 and 2011 are derived from our audited consolidated financial statements.
 
   
Year Ended June 30,
   
2015
 
2014
 
2013
 
2012
 
2011
   
(Dollars in thousands, except per share data)
Statement of operations data:
           
Net sales
$
800,773   
 
752,817   
 
757,550   
 
705,544   
 
641,863   
Cost of goods sold
 
650,677   
 
635,735   
 
657,911   
 
552,873   
 
488,018   
Selling, general and administrative expenses
 
88,205   
 
92,103   
 
64,663   
 
61,623   
 
54,739   
Research and development
 
—    
 
—    
 
—    
 
127   
 
87   
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   
 
—    
 
—    
(Gain) loss on sale of business
 
—    
 
—    
 
—    
 
(54)  
 
4,249   
Operating income (loss)
 
61,891   
 
14,810   
 
(8,947)  
 
91,425   
 
94,770   
Bargain purchase gain
 
—    
 
29,538   
 
—    
 
—    
 
—    
Interest and other (expense) income
 
(5,613)  
 
(10,737)  
 
(8,128)  
 
(4,789)  
 
(2,056)  
Income (loss) before income taxes
 
56,278   
 
33,611   
 
(17,075)  
 
86,636   
 
92,714   
Provision for income taxes
 
21,651   
 
7,705   
 
2,734   
 
28,760   
 
35,988   
Net income (loss)
 
34,627   
 
25,906   
 
(19,809)  
 
57,876   
 
56,726   
Income attributable to noncontrolling interest, net of tax
 
(3,307)  
 
(4,203)  
 
(1,219)  
 
(3,306)  
 
(3,918)  
Net income (loss) attributable to Globe Specialty Metals, Inc.
$
31,320   
 
21,703   
 
(21,028)  
 
54,570   
 
52,808   
Earnings (loss) per common share - basic
$
0.42   
 
0.29   
 
(0.28)  
 
0.73   
 
0.70   
Earnings (loss) per common share - diluted
$
0.42   
 
0.29   
 
(0.28)  
 
0.71   
 
0.69   
Cash dividends declared per common share
$
0.31   
 
0.29   
 
0.38   
 
0.20   
 
0.15   
 
 
   
June 30,
 
June 30,
 
June 30,
 
June 30,
 
June 30,
   
2015
 
2014
 
2013
 
2012
 
2011
   
(Dollars in thousands)
Balance sheet data:
                   
Cash and cash equivalents
$
115,944   
 
97,792   
 
169,676   
 
178,010   
 
166,208   
Total assets
 
829,360   
 
845,126   
 
871,623   
 
936,747   
 
678,269   
Total debt, including current portion
 
101,048   
 
125,204   
 
139,534   
 
140,703   
 
48,083   
Total stockholders' equity
 
512,502   
 
520,528   
 
546,080   
 
603,799   
 
515,276   
 

 
18

 
 
 
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. The forward-looking statements do not take into account the proposed business combination with FerroAtlántica and do not address possible future combined results of operations of the Company and FerroAtlántica after the business combination.

Introduction

We are one of the leading manufacturers of silicon metal and silicon-based alloys. As of June 30, 2015, we owned and operated eight 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;

 
Solsil — a developer 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 (Siltech). 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 in our major end markets, which include chemical, aluminum, automotive, steel, housing and solar. The sales mix shifted in fiscal year 2015 as we shipped more silicon metal than the prior year.  The increase in silicon metal tons sold was primarily due to increased demand from the solar, automotive and housing sectors in the U.S. and in Europe. With this increase in demand for silicon metal, at a time when ferrosilicon prices were declining, we converted a  silicon-based alloys furnace to a silicon metal furnace at one of our U.S. plants. We partially offset the reduction in silicon-based alloys production with shipments from our Siltech facility in South Africa.

We experienced an increase of 5% in our average selling prices in fiscal year 2015, which was driven by an increase in pricing in the first half of the fiscal year.   During the second half of fiscal year 2015, silicon metal and silicon-based alloys pricing declined due to increased import competition. Our fixed-price contracts were negotiated in November 2014 for the 2015 calendar year and were not affected by the recent decline in pricing.  However, we have some exposure to these recent pricing fluctuations with respect to our contracts that are index-linked and spot priced.

Net sales for the fourth quarter increased $7,368,000 or 4% from the immediately preceding quarter as a result of a 4% increase in metric tons shipped and a 11% increase in silica fume and other products revenue due to improved pricing. Silicon metal volumes increased 3% while silicon-based alloys volumes increased 5% as a result of improved demand from the solar, automotive, and housing industries in North America and Europe. Silicon metal prices were flat and silicon-based alloys prices decreased 3% in the fourth quarter compared to the third quarter of fiscal year 2015.

During the quarter ended June 30, 2015, we temporarily idled our South African facility (Siltech) as a result of high winter electricity rates.  Furthermore, we have begun to review strategic alternatives for the Siltech facility including, but not limited to, marketing the facility for potential sale. 

Proposed Business Combination

On February 23, 2015, the Company, Grupo Villar Mir, S.A.U., a public limited company (sociedad anónima) incorporated under the laws of Spain (“Grupo VM”), Grupo FerroAtlántica, S.A.U., a Spanish public limited liability company in the form of a sociedad anónima and wholly owned subsidiary of Grupo VM (“FerroAtlántica”), VeloNewco Limited, a newly formed private UK holding company and wholly owned subsidiary of Grupo VM (“VeloNewco”), and Gordon Merger Sub, Inc., a newly formed Delaware corporation and a direct wholly owned subsidiary of VeloNewco (“Merger Sub”), entered into a Business Combination Agreement (the “Original Business Combination Agreement”) pursuant to which the parties agreed, subject to the terms and conditions of the Original Business Combination Agreement, to combine the businesses of the Company and FerroAtlántica under VeloNewco as described below (the “Business Combination”). The Original Business Combination Agreement was amended and restated on May 5, 2015.  The Original Business Combination Agreement, as so amended and restated, is referred to as the “Business Combination Agreement”.

Transaction Overview

Subject to the terms and conditions of the Business Combination Agreement, VeloNewco agreed to acquire from Grupo VM all of the issued and outstanding ordinary shares of FerroAtlántica in exchange for an aggregate of 98,078,161 newly issued VeloNewco Class A ordinary shares (each an “A Ordinary Share”), which will result in FerroAtlántica becoming a wholly owned subsidiary of VeloNewco (the “Stock Exchange”). After consummation of the Stock Exchange, Merger Sub will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of VeloNewco (the “Merger”).

In the Stock Exchange, Grupo VM may be required to pay to VeloNewco as additional consideration for the A Ordinary Shares an amount in cash, if any, based upon FerroAtlántica’s net debt at closing. In the Merger, each share of common stock of the Company will be converted into the right to receive one VeloNewco ordinary share (each an “Ordinary Share”). The A Ordinary Shares and the Ordinary Shares will have the same rights, powers and preferences, and vote together as a single class, except for the right of the holders of Ordinary Shares to the R&W Proceeds as described below.

In connection with the transaction, VeloNewco expects to purchase a buy side representations and warranties insurance policy (the “R&W Policy”) to insure against certain breaches of certain representations and warranties made by FerroAtlántica and Grupo VM in the Business Combination Agreement. Under the terms of the Articles of Association of VeloNewco (the “VeloNewco Articles”), if VeloNewco receives proceeds under the R&W Policy (after deduction of taxes applicable to such proceeds, if any) (the “R&W Proceeds”), VeloNewco is required to distribute the aggregate R&W Proceeds to the holders of the Ordinary Shares. Each A Ordinary Share automatically converts into one Ordinary Share upon the earlier to occur of: (a) the expiration of the R&W Policy; and (b) its transfer to any person or group which is not Grupo VM, any Grupo VM family member or any affiliate of Grupo VM or a Grupo VM family member.

Completion of the Business Combination is subject to Globe shareholder approval, regulatory approvals and customary closing conditions. The special meeting of Globe shareholders to consider adoption of the business combination agreement is scheduled for Thursday, September 10, 2015.
 
Outlook

Customer demand for silicon in our end markets, including solar, automotive, and housing, are strong in the U.S. and improving in Europe, particularly automotive.  Index pricing for silicon metal and silicon-based alloys has been declining, since the beginning of the 2015 calendar year, due to increased import competition.  Our fixed-price contracts were negotiated in November 2014 for the 2015 calendar year and therefore, these contracts will not be affected by the recent decline in pricing for the first half of fiscal year 2016.  However, we have some exposure with respect to these recent pricing fluctuations with our contracts that are index-linked and spot priced.  We remain optimistic about the end-market demand, and for most of our products, anticipate the pricing in the U.S. and Europe will adjust to this strong demand. We are experiencing consistent demand and positive signs for the major end markets that use our products directly and indirectly. The imposition of Canadian anti-dumping and countervailing duties against imports of silicon metal from China will continue to positively impact pricing and opportunities in the Canadian market.

We experienced improvement in operational efficiency following the completion of the planned maintenance outages in fiscal 2014 and 2015. As a result, during fiscal 2015 normalized costs related to maintenance and furnace downtime were lower.  With maintenance outages scheduled at five of our U.S. facilities in the first quarter of fiscal 2016, we anticipate similar improvement in operational efficiency.
 
 
19

 

 
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 over the past several years. 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.

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, 2015, the carrying value of property, plant and equipment at Yonvey is approximately $13,293,000. If market prices decrease below our cost to produce carbon electrodes at Yonvey, 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.

As of June 30, 2015, the carrying value of property, plant and equipment at Siltech is approximately $45,558,000. During the quarter ended June 30, 2015, we temporarily idled Siltech as a result of high winter electricity rates. We assessed the recoverability of the carrying value of the long-lived assets of Siltech and concluded that the undiscounted cash flows associated with the Siltech asset group exceeded the carrying value at June 30, 2015.

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, 2015, the date of our most recent impairment test, the estimated fair value of each of our reporting units was in excess of their respective carrying values and no impairment charges were recorded during the year ended June 30, 2015.

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.
 
 
20

 
 
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 acquisition. We acquired Siltech on November 21, 2013. Results from Siltech for the year ended June 30, 2015 include results for the entire period and for the year ended June 30, 2014 include results for approximately seven months.

GSM Fiscal Year Ended June 30, 2015 vs. 2014

Consolidated Operations:
 
     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2015
 
2014
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
800,773   
 
752,817   
 
47,956   
 
6.4%
Cost of goods sold
 
650,677   
 
635,735   
 
14,942   
 
2.4%
Selling, general and administrative expenses
 
88,205   
 
92,103   
 
(3,898)  
 
(4.2%)
Contract acquisition cost
 
—    
 
16,000   
 
(16,000)  
 
NA
Curtailment gain
 
—    
 
(5,831)  
 
5,831   
 
NA
 
Operating income
 
61,891   
 
14,810   
 
47,081   
 
317.9%
Bargain purchase gain
 
—    
 
29,538   
 
(29,538)  
 
NA
Interest expense, net
 
(4,076)  
 
(7,955)  
 
3,879   
 
(48.8%)
Other loss
 
(1,537)  
 
(2,782)  
 
1,245   
 
(44.8%)
 
Income before provision for income taxes
 
56,278   
 
33,611   
 
22,667   
 
67.4%
Provision for income taxes
 
21,651   
 
7,705   
 
13,946   
 
181.0%
 
Net income
 
34,627   
 
25,906   
 
8,721   
 
33.7%
Income attributable to noncontrolling interest, net of tax
 
(3,307)  
 
(4,203)  
 
896   
 
(21.3%)
 
Net income attributable to Globe Specialty Metals, Inc.
$
31,320   
 
21,703   
 
9,617   
 
44.3%
 
Net Sales:
 
   
Year Ended June 30, 2015
 
Year Ended June 30, 2014
   
Net Sales
   
Net Sales
   
$ (in 000s)
 
MT
 
$/MT
   
$ (in 000s)
 
MT
 
$/MT
Silicon metal
$
450,788   
 
155,673   
  $
2,896   
 
$
377,954   
 
136,664   
  $
2,766   
Silicon-based alloys
 
261,258   
 
129,914   
 
2,011   
   
282,998   
 
141,327   
 
2,002   
Silicon metal and silicon-based alloys
 
712,046   
 
285,587   
 
2,493   
   
660,952   
 
277,991   
 
2,378   
Silica fume and other
 
88,727   
           
91,865   
       
Total net sales
$
800,773   
         
$
752,817   
       
  
Net sales increased $47,956,000 or 6% from the prior year to $800,773,000 primarily as a result of a 5% increase in average selling prices and a 3% increase in metric tons sold.  The increase in sales volume was driven by a 14% increase in silicon metal tons sold, offset by a 8% decrease in silicon-based alloys tons sold, resulting in an increase to net sales of $18,060,000.  Additionally, a 5% increase in average selling prices resulted in an increase to net sales of $33,034,000, offset by a $3,138,000 decrease to net sales of other products.  The increase in silicon metal tons sold was due to the unionized employee lockout at the Becancour Canada plant (the lockout concluded on December 27, 2013), which resulted in 17,453 fewer tons sold in the prior year.
The decrease in silicon-based alloys tons sold occurred as we converted one of our U.S. furnaces from silicon-based alloys to silicon metal when demand for silicon metal was strong and prices in the ferrosilicon market were deteriorating.

The average selling price of silicon metal increased 5% and the average selling price of silicon-based alloys remained approximately the same.  The increase in silicon metal pricing was due to higher pricing on annual calendar 2015 contracts, including higher pricing on index-based contracts.  The lack of change in silicon-based alloys pricing is due to an increase in import competition.

Other revenue decreased $3,138,000 in fiscal year 2015 primarily due to a decrease in fines sales.

Cost of Goods Sold:

The $14,942,000 or 2% increase in cost of goods sold was a result of a 3% increase in metric tons sold, offset by a 1% decrease in cost per ton sold.  This decrease in cost per ton sold was primarily due to the ramp-up of production subsequent to the conclusion of the unionized employee lockout at the Becancour, Canada plant (the lockout concluded on December 27, 2013), which resulted in higher cost per ton sold in the third quarter of fiscal year 2014.

Gross margin represented approximately 19% of net sales in the twelve months ended June 30, 2015 and increased from 16% of net sales in the twelve months ended June 30, 2014.  This increase was primarily as a result of an increase in average selling prices, an increase in metric tons sold and a decrease in cost per ton sold.

Selling, General and Administrative Expenses:

The decrease in selling, general and administrative expenses of $3,898,000 or 4% was primarily due to a decrease in stock-based compensation of approximately $30,579,000, primarily due to the re-measurement of liability based awards resulting from a decline in our stock price from June 2014 to June 2015.  This decrease was offset by a divestiture indemnification payment of $4,559,000, an increase in accounting, legal and professional fees of $15,640,000 primarily related to the proposed Business Combination, an increase in salaries and benefits of $4,059,000, and an increase in variable based compensation of $3,944,000.

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 in the fiscal year ended June 30, 2014.
 
 
21

 
    Bargain Purchase Gain:

On November 21, 2013, the Company purchased 100% of the outstanding shares of Silicon Technology (Pty) Ltd. (Siltech) for $4,000,000. The Company paid for the acquisition from available cash. 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 Company’s current silicon-based alloy capacity by approximately 30% and its strategic location will enable the Company to supplement its existing facility to service the large European, Asian and Middle Eastern markets. The purchase price allocation for the Siltech acquisition was finalized during the quarter ended December 31, 2014 and the fair value of the identifiable net assets acquired of $33,538,000 exceeded the purchase price of $4,000,000 resulting in a gain on bargain purchase of $29,538,000.

Interest Expense, Net:

Net interest expense decreased $3,879,000 compared to the prior year primarily due to the write-off of deferred financing costs of approximately $3,354,000 in connection with the refinancing of our existing $300,000,000 Revolving Credit Facility in the prior year.

Other Loss:

Other expense decreased $1,245,000 primarily due to a higher foreign exchange gain of a U.S. dollar loan at a foreign subsidiary and holdings of the Argentine peso.

Provision for Income Taxes:

Provision for income taxes as a percentage of pre-tax income was approximately 38.5% or $21,651,000 in fiscal year 2015 and provision for income taxes as a percentage of pre-tax income was approximately 22.9% or $7,705,000 in fiscal year 2014. The tax rate increased compared to the prior year, this increase was the result in losses in jurisdictions where no tax benefit was provided. In the prior year, the tax rate was impacted by the nontaxable bargain purchase gain of $29,538,000 in connection with the acquisition of Siltech.
 
Segment Operations

GMI

     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2015
 
2014
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
753,905   
 
697,403   
 
56,502   
 
8.1%
Cost of goods sold
 
605,065   
 
587,318   
 
17,747   
 
3.0%
Selling, general and administrative expenses
 
34,107   
 
32,869   
 
1,238   
 
3.8%
Contract acquisition cost
 
—    
 
16,000   
 
(16,000)  
 
NA
Curtailment gain
 
—    
 
(5,831)  
 
5,831   
 
NA
 
Operating income
$
114,733   
 
67,047   
 
47,686   
 
71.1%
 
Net sales increased $56,502,000 or 8% from the prior year to $753,905,000.  The increase was primarily attributable to a 2% increase in tons sold coupled with a 6% increase in average selling prices.  Silicon metal volume increased 14% primarily due to the unionized employee lockout at the Becancour, Canada plant (the lockout concluded on December 27, 2013), which contributed 21,300 fewer tons during the twelve months ended June 30, 2014, and an increase due to the conversion of a silicon-based alloys furnace to a silicon metal furnace.  Silicon-based alloys volume decreased 11%, as we converted a silicon-based alloys furnace to silicon metal. Silicon metal pricing increased 5% primarily due to higher pricing on annual calendar 2015 contracts, including higher pricing on index-based contracts.  Silicon-based alloys pricing increased 3% from stronger pricing in the  U.S., from higher end-user demand.

Cost of goods sold increased 3% while total tons shipped increased 2%.

Selling, general and administrative expenses increased $1,238,000 to $34,107,000. 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 fiscal year 2014.
 
Operating income increased $47,686,000 from the prior year to $114,733,000.  This increase was primarily due to higher average selling prices for silicon metal and silicon-based alloys and higher silicon metal volume.
 
Globe Metales
 
     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2015
 
2014
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Net sales
$
44,945   
 
51,213   
 
(6,268)  
 
(12.2%)
Cost of goods sold
 
40,007   
 
42,179   
 
(2,172)  
 
(5.1%)
Selling, general and administrative expenses
 
3,587   
 
3,288   
 
299   
 
9.1%
 
Operating income
$
1,351   
 
5,746   
 
(4,395)  
 
(76.5%)
 
Net sales decreased $6,268,000 or 12% from the prior year to $44,945,000.  This decrease was due to a 12% decrease in silicon-based alloys tons sold, partially offset by a 1% increase in average selling prices.  Overall volume decreased due to weaker demand from Europe, partially offset by an increase in demand from North America solar, automotive, and housing markets.

Operating income decreased $4,395,000.  The decrease was due to the decrease in silicon-based alloys tons sold as well a 7% increase in cost per ton sold, driven by higher raw materials cost from higher inflation.
 
Solsil
 
     
Years Ended
       
     
June 30,
       
     
2015
 
2014
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Cost of goods sold
  $
81   
 
41   
 
40   
 
97.6%
Selling, general and administrative expenses
 
—    
 
1   
 
(1)  
 
(100.0%)
 
Operating loss
$
(81)  
 
(42)  
 
(39)  
 
92.9%
 
 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.
 
22

 
Corporate
 
     
Years Ended
       
     
June 30,
 
Increase
 
Percentage
     
2015
 
2014
 
(Decrease)
 
Change
     
(Dollars in thousands)
Results of Operations
               
Selling, general and administrative expenses
$
45,533   
 
53,680   
 
(8,147)  
 
(15.2%)
 
Operating loss
$
(45,533)  
 
(53,680)  
 
8,147   
 
(15.2%)
 
Operating loss decreased $8,147,000 from the prior year to $45,533,000.  Selling, general and administrative expenses decreased primarily due to a decrease in stock-based compensation of approximately $30,579,000, primarily due to the re-measurement of liability based awards resulting from a decline in our stock price from June 2014 to June 2015.  This decrease was partially offset by a $4,559,000 divestiture indemnification payment and an increase of $14,334,000 in professional fees related to costs incurred in connection with the proposed Business Combination.

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
 
29,538   
 
—    
 
29,538   
 
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
 
33,611   
 
(17,075)  
 
50,686   
 
(296.8%)
Provision for income taxes
 
7,705   
 
2,734   
 
4,971   
 
181.8%
 
Net income (loss)
 
25,906   
 
(19,809)  
 
45,715   
 
(230.8%)
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.
$
21,703   
 
(21,028)  
 
42,731   
 
(203.2%)
 
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.
 
23

 
 
Bargain Purchase Gain:

On November 21, 2013, the Company purchased 100% of the outstanding shares of Silicon Technology (Pty) Ltd. (Siltech) for $4,000,000. The Company paid for the acquisition from available cash. 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 Company’s current silicon-based alloy capacity by approximately 30% and its strategic location will enable the Company to supplement its existing facility to service the large European, Asian and Middle Eastern markets. The fair value of the identifiable net assets acquired of $33,538,000 exceeded the purchase price of $4,000,000 resulting in a gain on bargain purchase of $29,538,000.

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 22.9% 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 $29,538,000 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.
 
 
24

 
 
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%)
 
 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.

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, 2015, our cash and cash equivalents balance was approximately $115,944,000, and we had $198,978,000 available for borrowing under our existing financing arrangements. We generated cash flows from operations totaling $109,249,000 during the year ended June 30, 2015.

As of June 30, 2015, the amount of cash and cash equivalents, included in the Company’s consolidated cash that was held by foreign subsidiaries was approximately $11,155,000. 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. We have provided for tax on earnings of $2,174,000 in Argentina that we do not consider permanently reinvested.

In the second quarter of fiscal 2015, the Company entered into an arrangement to have the option to sell selected accounts receivables up to a cap of $35,000,000 on a non-recourse basis to an unrelated financial institution under a receivables purchase arrangement in the U.S. An amendment to the agreement was entered into in the fourth quarter which raised the cap to $55,000,000. During fiscal 2015, the Company sold $175,592,000 of receivables under the arrangement and as of June 30, 2015, $46,567,000 of receivables was outstanding with the financial institution.

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, 2015 consolidated financial statements for additional information.
 
Cash Flows

The following table summarizes our primary sources (uses) of cash during the periods presented:
       
Year Ended June 30,
       
2015
 
2014
 
2013
           
(Dollars in thousands)
   
Cash and cash equivalents at beginning of period
$
97,792   
 
169,676   
 
178,010   
Cash flows provided by operating activities
 
109,249   
 
62,556   
 
72,740   
Cash flows used in investing activities
 
(42,243)  
 
(64,271)  
 
(49,029)  
Cash flows used in financing activities
 
(49,753)  
 
(68,608)  
 
(30,994)  
Effect of exchange rate changes on cash
 
899   
 
(1,561)  
 
(1,051)  
 
Cash and cash equivalents at end of period
$
115,944    
 
97,792    
 
169,676    
 
Fiscal Year Ended June 30, 2015 vs. 2014

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 2015, net cash provided by operating activities was $109,249,000, compared to $62,556,000 in the prior year. The increase in net cash provided by operating activities is primarily due to significant increase in operating results for fiscal year 2015 as compared to the prior year, which was partially offset by a decrease in working capital.  In fiscal year 2015, inventory increased due to the start-up of the Siltech facility, increased production at Yonvey, and mine production at Alden.

Investing Activities:

During fiscal year 2015, net cash used in investing activities was $42,243,000, compared to $64,271,000 in the prior year.  The decrease is primarily due to $13,396,000 used for the purchase of marketable securities in fiscal 2014, while fiscal 2015 included $7,776,000 in proceeds from the sale of marketable securities. In addition, the acquisition of Siltech in fiscal 2014 resulted in the use of approximately $3,800,000 in net cash. These decreases in cash used for investing activities were partially offset by capital expenditures. In fiscal year 2015, capital expenditures increased by approximately $2,944,000 primarily due to the start-up of the Siltech facility.

We expect the capital spending for fiscal year 2016 to be approximately $36,000,000, which we plan to fund primarily with cash from operations.
 
25

 
Financing Activities:

During fiscal year 2015, net cash used in financing activities was approximately $49,753,000, compared to $68,608,000 in the prior year. The decrease in net cash used in financing activities is primarily due to the decrease of $28,720,000 of stock repurchases made in the prior year which was partially offset by a $9,826,000 increase in net debt payments in fiscal 2015 when compared to the prior year.

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.
 
Fiscal Year Ended June 30, 2014 vs. 2013

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.
 
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, 2015 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:
 
Contractual Obligations
         
2017-
 
2019-
 
2021 and
(as of June 30, 2015)
 
Total
 
2016
 
2018
 
2020
 
beyond
     
(Dollars in thousands)
Long-term debt obligations
  $
101,048   
 
953    
 
95    
 
100,000    
 
—    
Power commitments (1)
 
17,794   
 
17,794    
 
—    
 
—    
 
—    
Purchase obligations (2)
 
42,646   
 
31,486    
 
11,160    
 
—    
 
—    
Operating lease obligations
 
8,472   
 
2,247    
 
2,048    
 
1,052    
 
3,125    
Capital lease obligations
 
7,193   
 
2,627    
 
2,797    
 
932    
 
837