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GSM > SEC Filings for GSM > Form 10-Q on 6-Nov-2013All Recent SEC Filings

Show all filings for GLOBE SPECIALTY METALS INC

Form 10-Q for GLOBE SPECIALTY METALS INC


6-Nov-2013

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, 2013 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, 2013.

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, 2013, 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 five reportable segments:

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

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

• Solsil - a developer 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

Customer demand has stabilized for silicon metal and silicon-based alloys as our major end markets which include chemical, aluminum, automotive, steel and solar are showing signs of improvement. While demand has stabilized, the sales mix shifted during the quarter which produced lower average sales prices when compared to the fourth quarter of fiscal year 2013. We experienced lower silicon metal indexed pricing compared to the prior quarter and on the silicon-based alloys, we continued to face reduced pricing and sales of ferrosilicon due to the aggressive pricing of imports, primarily from Russia and Venezuela. However, the prices of our ferrosilicon sales began to improve after we filed an antidumping case in July 2013 covering ferrosilicon imports from Russia and Venezuela.

On May 3, 2013, we exercised our right to lockout the unionized employees at the Becancour, Canada plant. At the time of the lockout, the plant shut down two of the three furnaces. Currently, management representatives of the plant operate the remaining furnace. During the quarter, the lockout cost the company approximately $900,000 per month in operating income. We currently cannot anticipate when we will have a negotiated resolution to the lockout.

Net sales for the first quarter decreased $8,063,000 or 4% from the immediately preceding quarter as a result of a 4% decrease in both tons shipped and pricing. Silicon metal volume declined 4,981 metric tons due to the lockout at our Becancour, Canada facility. This decline was partially offset by an increase in silicon metal volume from our U.S. based plants of 2,301 metric tons due to increased customer demand. Silicon-based alloys volumes were flat compared to the prior quarter.

During the first quarter, we incurred $2,608,000 in costs and lost profitability related to the Becancour lockout. During the first quarter, we continued to realize the benefits of the maintenance outages taken in fiscal 2013 and as a result, our cost of production decreased by approximately $2,100,000, excluding our Becancour, Canada plant. These production improvements partially offset the lower pricing and volumes.

Outlook

Customer demand for silicon metal in the United States is increasing as our end markets including steel, autos and consumer goods continue to strengthen. Index pricing has increased slightly, and we are optimistic about calendar 2014 pricing. However, Europe and South America remain weak, resulting in continued modest supply and demand imbalances. We recently started negotiations on our calendar 2014 silicon metal business and orders are coming at a healthy pace. As in the past, we have business that is fixed priced and business that is priced based on indices. 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.

We saw continued improvement in operational efficiency following the completion of the planned maintenance outages in the third quarter of fiscal 2013. Additionally, as a result of the significant outages in fiscal 2013, we are experiencing lower cost related to maintenance and furnace downtime. Additionally, we continue to look at all areas of the Company and will continue to take strong measures to further improve the cost structure across the company.

A favorable outcome from the Canadian anti-dumping and countervailing duties action against imports of silicon metal from China may have a positive impact on pricing and opportunities in the Canadian market. We have also filed a trade petition to address the unfair trade flow of ferrosilicon from Russia and Venezuela into the United States. We expect a final resolution of this trade petition in the first quarter of fiscal 2015.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience 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, 2013. 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, 2013, 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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