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GSM > SEC Filings for GSM > Form 10-Q on 9-Nov-2012All Recent SEC Filings

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Form 10-Q for GLOBE SPECIALTY METALS INC


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains "forward-looking statements" as that term is used in the Private Securities Litigation Reform Act of 1995. Certain statements made in this quarterly report involve risks and uncertainties. These forward-looking statements reflect the Company's best judgment based on our current expectations, assumptions, estimates and projections about us and our industry, and although we base these statements on circumstances that we believe to be reasonable when made, there can be no assurance that future events will not affect the accuracy of such forward-looking information. As such, the forward-looking statements are not guarantees of future performance, and actual results may vary materially from the results and expectations discussed in this report. Factors that might cause the Company's actual results to differ materially from those anticipated in forward-looking statements are more fully described in the "Risk Factors" sections contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012 and in this Quarterly Report. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report, as well as the more detailed information in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012.

Introduction

Globe Specialty Metals, Inc., together with its subsidiaries (collectively, "we" or "our") is one of the leading manufacturers of silicon metal and silicon-based alloys. As of September 30, 2012, we owned and operated six principal manufacturing facilities and coal mines, in two primary operating segments: GMI, our U.S. operations and, Globe Metales, our Argentine operations.

Business Segments

We operate in six 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 Metais - a distributor of silicon metal manufactured in Brazil. This segment includes the historical Brazilian manufacturing operations, previously comprised of a manufacturing plant in Breu Branco and mining operations and forest reserves, which were all sold on November 5, 2009;

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

• Solsil - a developer and manufacturer of upgraded metallurgical grade silicon metal located in the United States with operations in 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. These operations do not fit into the above reportable segments, and are immaterial for purposes of separate disclosure.

Overview and Recent Developments

We are presently running all our furnaces at full capacity subject to planned maintenance outages and are continuing to successfully integrate Quebec Silicon, achieving significant production efficiencies and a lowered cost of production. In addition, we continue to realize company-wide benefits from our overall efficiency initiatives. During the first quarter we were impacted by weather-related power outages at our Alloy, West Virginia and Bridgeport, Alabama plants. These outages occurred in July and served to reduce pre-tax income by approximately $3,000,000.

Net sales for the quarter ended September 30, 2012 were up 5% from the preceding quarter ended June 30, 2012, as a result of a 5% increase in tons shipped and a small increase in average selling prices. The increase in shipments was largely related to a full quarter's ownership of Quebec Silicon which was acquired on June 17, 2012 and shipments made to Dow Corning under our joint venture arrangements.

Net loss before benefit from income taxes totaled $6,337,000 in the first quarter ended September 30, 2012, and includes a pre-tax charge of $23,600,000 for a change to our existing stock option plan to allow for cash settlement of stock options and a pre-tax transaction and due diligence costs of $651,000. This compares to income before provision for income taxes in the preceding quarter ended June 30, 2012 of $15,158,000, which included pre-tax transaction and due diligence costs of $3,765,000.

Outlook

The diverse end markets that we serve including steel, autos and consumer goods continue to show consistent demand which we expect to continue, despite weakness in Europe.

We recently started negotiations on our calendar 2013 silicon metal business and orders are coming at a healthy pace. To-date, we have commitments for more than half of our expected calendar 2013 silicon metal production and negotiations are continuing for the balance. As in the past, we have business that is fixed priced and business that is priced based on indexes. To-date, the fixed priced and indexed business, together, is at an aggregate price above the current published indexes. We will continue to sell on a fixed and an indexed basis as appropriate and leave room for spot business as well. We are seeing consistent demand and positive signs for the major end market that use our products directly and indirectly. Additionally, we are continuing to develop other potential revenue streams such as fume that will add additional value and increase profitability.

In the second quarter ending December 31, 2012 we are taking several planned maintenance outages, specifically, the three furnaces in Becancour, Canada that will be down for one week each and two furnaces at our Alloy, West Virginia plant. The effect of these outages will reduce silicon metal production, and sales, by approximately 5%. This is expected to reduce EBITDA by approximately $3,000,000 from the first quarter.

Critical Accounting Policies

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. 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. Management bases our estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from the estimates used under different assumptions or conditions. We have provided a description of significant accounting policies in the notes to our condensed consolidated financial statements and our Annual Report on Form 10-K for the fiscal year ended June 30, 2012. Our critical accounting policies have not significantly changed from those discussed in "Part II - Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, except as follows:

Income Taxes

In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate, which is based on our expected annual income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Subsequent recognition, derecognition and measurement of a tax position taken in a previous period are separately recognized in the quarter in which they occur.


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