As filed with the Securities and Exchange Commission on
July 25, 2008
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Globe Specialty Metals,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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3330
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20-2055624
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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One Penn Plaza
250 West 34th Street, Suite 2514
New York, NY 10119
(212) 798-8100
(Address, including zip code,
and telephone number, including
area code, of registrants
principal executive offices)
Alan
Kestenbaum, Executive Chairman
One Penn Plaza
250 West 34th Street, Suite 2514
New York, NY 10119
(212) 798-8100
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
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Jeffrey E. Jordan, Esq.
Arent Fox LLP
1050 Connecticut Avenue
Washington DC 20036
(202) 857-6000
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Michael Kaplan, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the
following
box.
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If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
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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):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
þ
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Smaller
reporting
company
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(Do not check if a smaller
reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Aggregate Offering
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Amount of
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Security Being Registered
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Price(1)(2)
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Registration Fee
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Shares of Common Stock, $0.0001 par value per share
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$150,000,000
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$5,895
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(1)
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Estimated solely for the purpose of calculating the registration
fee.
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(2)
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Includes shares of common stock subject to an over-allotment
option granted to the underwriters, if any.
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The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO
COMPLETION, DATED JULY 25, 2008
PRELIMINARY
PROSPECTUS
Shares
Common
Stock
We are
selling shares of
common stock and the selling stockholders are
selling shares of
common stock. We will not receive any proceeds from the sale of
shares by the selling stockholders.
The underwriters
have an option to purchase a maximum
of additional
shares of common stock from the selling stockholders to cover
over-allotments of shares. The underwriters can exercise this
right at any time within 30 days from the date of this
prospectus. The initial public offering price of the common
stock is expected to be between $
and $ per share.
We will apply to
list our common stock on The NASDAQ Global Market under the
symbol
.
Prior to this offering, our common stock and warrants have
traded on the AIM market of the London Stock Exchange under the
symbols GLBM and GLBW, respectively.
Investing in our
common stock involves risks. See Risk Factors on
page 10.
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Underwriting
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Price to
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Discounts and
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Proceeds to
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Proceeds to
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Public
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Commissions
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Us
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Selling
Stockholders
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Per Share
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$
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$
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$
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$
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Total
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$
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$
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$
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$
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Delivery of the
shares of common stock will be made on or
about , 2008.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Credit
Suisse
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Jefferies & Company
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JPMorgan
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The date of this
prospectus
is ,
2008
TABLE OF
CONTENTS
You should rely only on the information contained in this
document or any free writing prospectus we provide to you. We
have not authorized anyone to provide you with information that
is different. This document may only be used where it is legal
to sell securities. The information in this document may only be
accurate on the date of this document.
Dealer
Prospectus Delivery Obligation
Until
,
2008, all dealers that effect transactions in these
securities, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
an underwriter and with respect to unsold allotments or
subscriptions.
PROSPECTUS
SUMMARY
This summary highlights certain information appearing
elsewhere in this prospectus. As this is a summary, it does not
contain all of the information that you should consider in
making an investment decision. You should read the entire
prospectus carefully, including the information under Risk
Factors and our financial statements including the pro
forma financial statements and the related notes included in
this prospectus, before investing. Unless otherwise stated in
this prospectus, references to we, us or
our company refer to Globe Specialty Metals, Inc.
and its subsidiaries. In addition, references to MT
mean metric tons, each of which equals 2,204.6 pounds. Unless we
tell you otherwise, the information in this prospectus assumes
that the underwriters will not exercise their over-allotment
option.
Our
Business
Overview
We are one of the worlds largest and most efficient
producers of silicon metal and silicon-based alloys, with
approximately 186,400 MT of silicon metal capacity and 72,800 MT
of silicon-based alloys capacity at our principal operating
facilities located in the United States, Argentina and Brazil.
According to CRU International Limited (CRU), a leading
independent research firm on the metals industry, we currently
have approximately 77% of total U.S. capacity,
approximately 61% of total North American capacity, and
approximately 18% of total Western World capacity
for silicon metal. CRU defines Western World as all
countries supplying or consuming silicon metal with the
exception of China and the former Republics of the Soviet Union,
including Russia. In addition to our principal silicon metal
products, we produce high-grade silicon alloys including
magnesium-ferrosilicon-based alloys used to make ductile iron by
increasing irons strength and resilience,
ferrosilicon-based alloys used to increase strength and
castability of grey and ductile iron, and calcium silicon, used
in steel manufacturing, particularly in modern continuous
casting processes. Our silicon metal and silicon-based alloys
are important inputs to manufacture a wide range of industrial
products, including aluminum, silicone compounds used in the
chemical industry, ductile iron, automotive parts, photovoltaic
(solar) cells, electronic semiconductors and steel. Finally, we
capture, recycle and sell the majority of the by-products
generated in our production processes which not only reduces
manufacturing costs, but also significantly reduces the
environmental impact from our operations.
Our flexible manufacturing capabilities allow us to optimize
production and focus on products that improve profitability. We
also benefit from the lowest average operating costs of any
Western World producer, as estimated by CRU. CRU defines
operating costs as raw materials, energy, labor, other supplies
used in the actual production and its immediate management,
interest on working capital, freight, property taxes, other
indirect taxes, royalties and licenses. We achieve this by among
other things alternating production of some of our furnaces
among silicon-based alloy products and between silicon-based
alloys and silicon metal. We enter into annual contracts for
nearly all of our silicon metal production at the beginning of
each calendar year, allowing us to fix our sales price and to
improve visibility of our earnings. We have grown our business
through strategic acquisitions since 2006, and for our fiscal
year ended June 30, 2007 we had revenue and operating
income of approximately $350 million and $13 million,
respectively, on a pro forma basis.
We sell silicon metal and silicon-based alloys to a diverse base
of customers worldwide. During our fiscal year ended
June 30, 2007, we had over 520 customers, engaged primarily
in the manufacture of aluminum (32% of pro forma revenue),
silicone chemicals (26% of pro forma revenue), foundry alloys
(16% of pro forma revenue), photovoltaic (solar)
cells/semiconductors (8% of pro forma revenue), steel (6% of pro
forma revenue) and other industries (12% of pro forma revenue).
Our customer base is geographically diverse, including North
America, Europe, South America and Asia, which for the fiscal
year ended June 30, 2007, represented 71%, 20%, 8% and 1%
of our pro forma revenue, respectively.
We operate our business through the following principal
subsidiaries:
Globe Metallurgical, Inc.
(GMI), one of the worlds
largest and most efficient manufacturers of silicon metal and
silicon-based alloys, operates three manufacturing facilities in
the United States, located in Selma,
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Alabama, Beverly, Ohio and Alloy, West Virginia. In addition,
through GMI we operate a quartzite mine in Billingsley, Alabama
for which we have mine leasing rights that we believe will
satisfy our short and medium term needs, and have additional
leasing opportunities in the vicinity to cover our needs well
into the future. GMI recently announced it will reopen and
upgrade equipment at its idle silicon metal production facility
in Niagara Falls, New York. GMI manufactures and sells silicon
metals and silicon-based alloys to more than 250 customers,
predominantly in North America. Our facilities in the United
States have a combined silicon metal capacity of approximately
142,800 MT and our Beverly plant has approximately 46,800 MT of
silicon-based alloy capacity. The reopening of our Niagara Falls
plant will increase our silicon metal production by
approximately 30,000 MT annually.
Globe Metales S.A. (Globe Metales)
, previously known as
Stein Ferroaleaciones S.A., a Latin American producer of
silicon-based alloys, operates a smelting facility in Mendoza,
Argentina and two cored-wire fabrication facilities in
San Luis, Argentina and Police, Poland. Globe Metales also
owns minority interests in two hydroelectric power facilities
located in Mendoza, Argentina. Globe Metales specializes in
producing cored-wire silicon-based alloy products, a delivery
method preferred by some manufacturers of steel, ductile iron,
machine and auto parts and pipe. In fiscal year 2007, we sold
Globe Metales products to over 65 customers, about 65% of
which are export customers located in 24 countries.
Approximately one-third of our Argentine output is shipped to
North America and another one-third to Europe, with the
remainder sold in South America and Asia.
Globe Metais Industria e Comercio S.A. (Globe Metais)
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previously known as Camargo Correa Metais S.A., one of the
largest producers of silicon metal in Brazil, operates a
manufacturing facility located in Breu Branco, Para, Brazil.
Globe Metais has a number of leased quartzite mining operations
throughout the state of Para, including one in Breu Branco. Our
leased quartz mining operations, with reserves that we believe
will satisfy our short and medium term needs, and additional
leasing opportunities in the vicinity to cover our needs well
into the future, provide us an uninterrupted supply of raw
quartzite. Additionally, Globe Metais has forest reserves in
Breu Branco, which are utilized to obtain the wood necessary for
woodchips and charcoal, both of which are critical supplies in
our production process. We attempt to utilize environmentally
sensitive forestry management techniques. Our electric power is
provided by the Tucurui hydroelectric plant, the fifth largest
in the world, which is situated only a few kilometers away from
our manufacturing facility. In fiscal year 2007, we exported
about 77% of our Brazilian output to Europe, with our primary
customers located in Germany, and other sales to customers in
the Middle East and East Asia.
Solsil, Inc. (Solsil)
, produces high purity silicon
manufactured through a proprietary metallurgical process,
primarily used in silicon-based photovoltaic (solar) cells.
Solsil supplies its silicon to global manufacturers of
photovoltaic (solar) cells, ingots and wafers. Solsil currently
has six furnaces and we plan to expand and become a larger
supplier in the high purity solar grade silicon market. In April
2008, Solsil and GMI entered into a joint development supply
agreement with BP Solar International Inc., a subsidiary of BP
p.l.c., for the sale of solar grade silicon and further
metallurgical process development. Solsils operations are
currently located within our facility at Beverly, Ohio. In
conjunction with the reopening and expansion of our Niagara
Falls facility, a portion of the facility will be used for our
Solsil operations and when completed, is expected to permit us
to produce approximately 4,000 MT of solar grade silicon
annually.
Ningxia Yongvey Coal Industrial Co., Ltd. (Yongvey),
a
producer of carbon electrodes, an important input in our
production process, was formed in May 2008 through a business
combination. Pursuant to the terms of our agreement, we acquired
a majority ownership interest in Yongvey. Yongveys
operations are located in Chonggang Industrial Park, Shizuishan
in the Ningxia Hiu Autonomous Region of China.
Industry
Silicon-based products, primarily silicon metal and
silicon-based alloys, are used in the manufacture of various key
consumer and industrial products in the metallurgical, chemical,
solar and electronic markets. Silicon metal is produced by
smelting quartz with carbon substances (typically low ash coal
and/or
charcoal) and wood chips. Silicon metal and silicon-based alloys
are classified by their purity ranging from 50% up to
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99.999% (5-9s) and 99.999999999%
(11-9s).
Silicon metal and silicon-based alloys are important inputs used
by a number of different industries in the production of a broad
range of materials.
The demand for silicon in metallurgical applications has
increased in recent years, due mainly to increased demand for
silicones and solar cells in the case of silicon, and to rapid
expansion in global steelmaking in the case of ferrosilicon.
Furthermore, according to CRU, global silicon demand is
projected to increase rapidly through 2012 at a compounded
annual rate of approximately 6.7%. This is driven by the
increasing demand for steel and aluminum in various industrial
uses such as in the automotive industry, driven in large part by
the demand for automobiles in China and India, as well as
machining and aerospace industries. Additionally, the
significant growth in the photovoltaic (solar) and semiconductor
industries over the past several years has resulted in greater
demand for high purity solar silicon. We believe the solar
market will have the highest growth rate of all silicon
end-markets, driven by the increasing demand for clean and
renewable energy sources.
Aluminum producers use silicon metal as a strengthener and
alloying agent in both the primary and secondary production of
aluminum alloys as it improves castability and minimizes
shrinkage and cracking. We believe there is currently no viable
substitute for silicon, which improves the castability,
hardness, corrosion resistance, tensile strength and weldability
of the end products for which it is used. Silicon-based alloys
are essential in the production of ductile iron and other
specialty irons, which are replacing iron in sophisticated
applications requiring a stronger, lighter material, including
the manufacture of intricate machine parts, critical automotive
components and industrial pipe. Silicon metal is also an
essential raw material used by the chemical industry to produce
silicones, which are basic ingredients used in numerous consumer
products, including lubricants, cosmetics, shampoos, gaskets,
building sealants, automotive hoses, water repellent fluids and
high temperature paints and varnishes. Furthermore, silicones
are substitutes in many applications for petroleum-based
compounds, and as such, the demand for silicone benefits from
higher oil prices.
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.
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Leading Market Positions.
We hold leading
market shares in a majority of our products. We believe that
once Niagara reaches full production, we will achieve sales
volumes of approximately 186,400 MT of silicon metal annually,
which we believe will represent approximately 13% of Western
World market share and 44% of North American market share. We
estimate that we have approximately 20% Western World market
share for magnesium ferrosilicon, including 50% market share in
the Americas and are one of only six suppliers of calcium
silicon in the Western World (with estimated 18% market share).
As a result of our market leadership and breadth of products, we
possess critical insight into market demand allowing for more
efficient use of our resources and operating capacity.
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Low Cost Producer.
We have been recognized by
CRU as the lowest average operating cost silicon metal producer
in the Western World. Currently, CRU lists our four silicon
metal operating facilities as being among CRUs seven most
cost efficient silicon metal facilities in the Western World,
with our Beverly, Ohio facility ranked as the lowest cost
producer. We believe that our low cost position is a result of
many strategic initiatives including our control over raw
materials (which include owned sources), the implementation of
best-practices across all production facilities, aggressive
management of labor and overhead costs and our proximity to
customers which results in lower freight costs. We continually
search for ways to lower our production costs. For example, we
recently entered into an agreement with Recycled Energy
Development, LLC (RED), a company that develops power related
recycling projects, to construct and operate an innovative
energy recovery installation at our West Virginia facility that
will recycle hot exhaust from our furnaces and convert it into
electricity through a thermal process, reducing our effective
cost per megawatt hour.
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Long-Term Power Contracts.
We believe that we
have a cost advantage in our long-term power supply contracts
which provide a significant portion of our power needs. These
power supply contracts result in stable, favorably priced,
long-term commitments of power at reasonable rates.
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Stable Raw Material Supply Through Captive Mines and Forest
Reserves.
We have two mining operations, located
at Billingsley, Alabama and in the state of Para, Brazil, for
which we currently possess long-term lease mining rights. These
mines supply our plants with the majority of our requirements
for quartzite, the principal raw material used in the
manufacturing of our products. We believe that these mines,
taken together with additional leasing opportunities in the
vicinity, would cover our needs well into the future. In Brazil,
we own a forest reserve which supplies our Brazilian operations
with the wood necessary for woodchips and a majority of our
charcoal. We have also obtained a captive supply of electrodes,
an important input in our manufacturing process, through the
formation of Yongvey. We obtain other raw materials from a
variety of sources.
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Efficient and Environmentally Friendly By-Product
Usage.
We utilize or sell most of the by-products
of our manufacturing process, which reduces cost and
environmental impact from our operations. We have developed
markets for the by-products generated by our production
processes and have transformed our manufacturing operations so
that little solid waste disposal is required.
By-products
not recycled in the manufacturing process are generally either
sold to our 50%-owned affiliate, Norchem, Inc., or other
companies, which process the material for use in a variety of
other applications. Silica fume (also known as microsilica) is
used as a concrete additive, refractory material and oil well
conditioner. Fines, the fine material resulting from crushing,
and dross, which results from the purification process during
smelting, are typically recycled into our production process or
are sold to customers who utilize these products in other
manufacturing processes, including steel production.
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Diverse Products and Markets.
We sell our
diverse product mix to a broad range of industries and to
companies in over 40 countries. We believe that our end-market
diversification provides us with a variety of growth
opportunities. We also believe our diversification should help
insulate us from economic downturns focused in any individual
industry or geographic region.
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Experienced, Highly Qualified Management
Team.
We have assembled a highly qualified
management team with approximately 100 years of combined
experience in the metals business among our top four executives.
In particular, Alan Kestenbaum, our Executive Chairman, Jeff
Bradley, our Chief Executive Officer, Arden Sims, our Chief
Operating Officer and Daniel Krofcheck, our Chief Financial
Officer, have over 20, 25, 35 and 19 years of experience,
respectively, in the metals industries. We believe that our
management team has the operational and technical skill to
continue to operate our business at world class levels of
efficiency and to consistently produce silicon metal and
silicon-based alloys.
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Business
Strategy
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Focus on Core Businesses.
We seek to leverage
our technical expertise and high product quality to improve
profitability and increase market share. As part of this
strategy, we seek to sell our silicon metals and silicon-based
alloys to end-markets where we may achieve the highest
profitability. Also, we intend to invest in areas that allow us
to expand our capacity or improve cost efficiencies in those
core markets. We seek to evaluate our core business strategy and
may divest certain non-core and lower margin businesses to
improve our financial and operational results.
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Maintain Low Cost Position While Controlling
Inputs.
We intend to maintain our position as one
of the most cost-efficient producers of silicon metal in the
world. We intend to achieve this objective by continuing to
improve production efficiency from our existing furnaces while,
at the same time, controlling raw material costs from both our
captive sources and via competitive long-term supply contracts.
We also believe we will be able to spread fixed costs over the
resulting increased production volume to further reduce costs
per MT of silicon metal and silicon-based alloy sold.
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Continue Pursuing Strategic Acquisition
Opportunities.
We intend to build on our history
of successful acquisitions by continuing to identify and
evaluate 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.
We intend to continue to evaluate opportunities globally that
will complement and diversify our current business offerings and
strategy. In particular, we will consider acquisitions or
investments that will enable us to leverage our expertise in
silicon metal and silicon-
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based alloy products to grow in these markets as well as enable
us to enter new markets or sell new products. Our overall
metallurgical expertise and skills in lean production
technologies position us well for future growth. Consistent with
this strategy, we continually evaluate potential acquisition
opportunities, some of which could be material.
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Leverage Flexible Manufacturing and Expand Other Lines of
Business
. Our size and geographic diversity
enable us to produce specific metals in the most appropriate
facility/region. Besides our principal silicon metal products,
we have the capability to produce silicon-based alloys, such as
ferrosilicon and silicomanganese, using the same facilities. We
intend to continue to allocate our furnace capacity to the
products that we believe will improve profitability, taking into
account the costs of switching between products.
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Leverage Synergies Among Units.
We currently
operate four of the seven lowest cost silicon metal
manufacturing facilities in the Western World. We seek to
leverage each of our facilities best practices and apply
them across our system in order to maintain our leadership
position as a low cost producer.
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Pursue Attractive Near-term Growth
Opportunities.
We plan to take advantage of a
number of attractive near term growth opportunities including
the reopening of our Niagara Falls facility, and the development
at the Niagara facility of capacity specifically for our Solsil
operations. This increased production should allow us to take
advantage of the strong market conditions for our products and
should also increase the manufacturing flexibility across our
system. We have negotiated a favorable power supply contract
with the State of New York which will provide additional low
cost production.
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Risks
Associated with our Business
Please read the section entitled Risk Factors for a
discussion of some of the factors you should carefully consider
before deciding to invest in our common stock.
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 of serving 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. Prior to this offering, our common stock and
warrants have traded on the AIM market, under the symbols
GLBM and GLBW, respectively. Our web
site is www.glbsm.com. The information on our web site does not
constitute part of this prospectus.
5
The
Offering
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Issuer
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Globe Specialty Metals, Inc.
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Common stock offered by
Globe Specialty Metals, Inc
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shares
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Common stock offered by the selling stockholders
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shares
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Over-allotment option
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shares
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Common stock to be outstanding after the offering
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shares
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Use of Proceeds
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We expect to use the net proceeds received by us for general
corporate purposes, including, without limitation, to expand our
core businesses, to invest in new businesses, products and
technologies, both through acquisitions and capital programs,
and to fund our ongoing operating and working capital
requirements. See Use of Proceeds on page 25
for a more detailed description of our intended use of the
proceeds from this offering.
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We will not receive any proceeds from sales by the selling
stockholders.
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Risk Factors
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Please read Risk Factors beginning on page 10
of this prospectus for a discussion of factors you should
carefully consider before deciding to purchase shares of our
common stock.
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Proposed NASDAQ Global Market symbol
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The information above is based on the number of shares of common
stock outstanding as of March 31, 2008. It does not include:
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1,360,000 shares of common stock issuable upon the exercise
of stock options outstanding as of March 31, 2008 at a
weighted-average exercise price of $8.50 per share;
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19,046,910 shares of common stock issuable upon the
exercise of warrants outstanding as of March 31, 2008 at a
weighted-average exercise price of $5.00 per share;
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1,607,542 unit purchase options which represent the right
to purchase at an exercise price of $7.50 per unit purchase
option, one share of common stock and two warrants, or an
aggregate of 1,607,542 shares of common stock and warrants
to purchase 3,215,084 shares of common stock at an exercise
price of $5.00 per share; and
|
|
|
|
3,640,000 shares of common stock reserved for future awards
under our stock plan.
|
Except as otherwise indicated, all of the information in this
prospectus assumes no exercise of the underwriters
over-allotment option.
6
SUMMARY
CONSOLIDATED FINANCIAL DATA
(dollars
in thousands, except volume, pricing and per share
data)
The following tables summarize certain consolidated financial
data, which should be read in conjunction with our audited and
unaudited consolidated financial statements and related notes,
Selected Consolidated Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus. Successor entity refers to Globe Specialty
Metals, Inc. (GSM), formerly known as International Metal
Enterprises, Inc. (IME). IME, which was a special purpose
acquisition vehicle, acquired Globe Metallurgical, Inc. (GMI),
the Predecessor, on November 12, 2006 and IME changed its
name to Globe Specialty Metals, Inc. The operations of GSM were
insignificant compared with our subsequent acquisitions.
Therefore, GSM concluded that GMI is the Predecessor because it
was the first and largest acquisition, some of the founding
investors in GSM were also investors in GMI, and GMI is the
entity that has the most influence on the group of entities that
were acquired by GSM during the year ended June 30, 2007.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
Period from
|
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|
|
|
|
|
|
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Ended
|
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Ended
|
|
|
Year Ended
|
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July 1 to
|
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|
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March 31,
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March 31,
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June 30,
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November 12,
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Year Ended June 30,
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2008
|
|
|
2007
|
|
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2007
|
|
|
|
2006
|
|
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2006
|
|
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2005
|
|
|
|
|
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(Unaudited)
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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Income statement data:
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|
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|
|
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Net sales
|
|
$
|
316,751
|
|
|
|
121,250
|
|
|
|
221,928
|
|
|
|
$
|
73,173
|
|
|
|
173,008
|
|
|
|
132,223
|
|
Cost of sales
|
|
|
251,077
|
|
|
|
102,831
|
|
|
|
184,122
|
|
|
|
|
66,683
|
|
|
|
147,682
|
|
|
|
103,566
|
|
Selling, general and administrative
|
|
|
34,604
|
|
|
|
9,955
|
|
|
|
18,541
|
|
|
|
|
7,409
|
|
|
|
14,261
|
|
|
|
9,180
|
|
Research and development
|
|
|
407
|
|
|
|
53
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
30,663
|
|
|
|
8,411
|
|
|
|
19,145
|
|
|
|
|
(919
|
)
|
|
|
11,065
|
|
|
|
19,477
|
|
Interest and other income (expense)
|
|
|
(5,103
|
)
|
|
|
1,846
|
|
|
|
504
|
|
|
|
|
(7,579
|
)
|
|
|
(6,010
|
)
|
|
|
(5,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, deferred interest subject to
redemption and minority interest
|
|
|
25,560
|
|
|
|
10,257
|
|
|
|
19,649
|
|
|
|
|
(8,498
|
)
|
|
|
5,055
|
|
|
|
14,186
|
|
Provision for (benefit from) income taxes
|
|
|
7,343
|
|
|
|
3,106
|
|
|
|
7,047
|
|
|
|
|
(2,800
|
)
|
|
|
1,914
|
|
|
|
4,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before deferred interest subject to redemption
and minority interest
|
|
|
18,217
|
|
|
|
7,151
|
|
|
|
12,602
|
|
|
|
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
Deferred interest subject to redemption
|
|
|
|
|
|
|
(768
|
)
|
|
|
(768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
|
|
11,834
|
|
|
|
$
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic
|
|
$
|
0.32
|
|
|
|
0.15
|
|
|
|
0.25
|
|
|
|
$
|
(2,947.26
|
)
|
|
|
2,067.04
|
|
|
|
9,218.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share diluted
|
|
$
|
0.26
|
|
|
|
0.13
|
|
|
|
0.24
|
|
|
|
$
|
(2,947.26
|
)
|
|
|
2,067.04
|
|
|
|
9,218.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
|
|
|
|
|
|
|
|
0.07
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(1)
|
|
$
|
45,144
|
|
|
|
13,676
|
|
|
|
29,667
|
|
|
|
$
|
(2,670
|
)
|
|
|
16,199
|
|
|
|
22,807
|
|
Adjusted EBITDA(1)
|
|
|
42,335
|
|
|
|
11,402
|
|
|
|
25,818
|
|
|
|
|
(2,670
|
)
|
|
|
16,199
|
|
|
|
22,807
|
|
Capital expenditures
|
|
|
13,098
|
|
|
|
5,765
|
|
|
|
8,629
|
|
|
|
|
2,273
|
|
|
|
4,884
|
|
|
|
3,841
|
|
Silicon metal and related alloys:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments (MT)(2)
|
|
|
154,355
|
|
|
|
71,259
|
|
|
|
127,586
|
|
|
|
|
48,470
|
|
|
|
126,465
|
|
|
|
102,074
|
|
Average selling price per MT(2)
|
|
$
|
1,909
|
|
|
|
1,589
|
|
|
|
1,619
|
|
|
|
$
|
1,453
|
|
|
|
1,306
|
|
|
|
1,254
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Balance Sheet Data:
|
|
2008
|
|
|
2007
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
74,752
|
|
|
|
67,741
|
|
|
|
$
|
|
|
|
|
|
|
Working capital(3)
|
|
|
65,563
|
|
|
|
36,690
|
|
|
|
|
22,217
|
|
|
|
17,053
|
|
Total assets
|
|
|
508,749
|
|
|
|
389,762
|
|
|
|
|
140,572
|
|
|
|
99,660
|
|
Total debt including current portion
|
|
|
93,953
|
|
|
|
75,877
|
|
|
|
|
50,431
|
|
|
|
54,055
|
|
Long-term liabilities
|
|
|
89,674
|
|
|
|
82,280
|
|
|
|
|
49,650
|
|
|
|
55,561
|
|
Total stockholders equity
|
|
|
323,531
|
|
|
|
222,621
|
|
|
|
|
58,425
|
|
|
|
20,309
|
|
|
|
|
(1)
|
|
We have included EBITDA and adjusted EBITDA in this prospectus
to provide investors with a supplemental measure of our
operating performance. We believe EBITDA is an important
supplemental measure of operating performance because it
eliminates items that have less bearing on our operating
performance and so highlights trends in our core business that
may not otherwise be apparent when relying solely on generally
accepted accounting principles in the United States of America
(U.S. GAAP) financial measures. We also believe that
securities analysts, investors and other interested parties
frequently use EBITDA in the evaluation of issuers, many of
which present EBITDA when reporting their results.
|
|
|
|
EBITDA and adjusted EBITDA are not presentations made in
accordance with U.S. GAAP. As discussed above, we believe that
the presentation of EBITDA and adjusted EBITDA in this
prospectus is appropriate. However, when evaluating our results,
you should not consider EBITDA and adjusted EBITDA in isolation
of, or as a substitute for, measures of our financial
performance as determined in accordance with U.S. GAAP,
such as net income (loss). EBITDA and adjusted EBITDA have
material limitations as performance measures because they
exclude items that are necessary elements of our costs and
operations. Because other companies may calculate EBITDA and
adjusted EBITDA differently than we do, EBITDA may not be, and
adjusted EBITDA as presented in this prospectus is not,
comparable to similarly-titled measures reported by other
companies.
|
|
|
|
EBITDA represents net income (loss) before net interest expense,
the provision for income taxes, and depreciation and
amortization expense. Adjusted EBITDA represents EBITDA as
further adjusted by amortization of customer contract liability.
|
|
(2)
|
|
Shipments and average selling price per MT do not include
shipments and sales of by-products.
|
|
(3)
|
|
Working capital is defined as trade accounts receivable and
inventory less accounts payable and is derived from our
consolidated financial statements.
|
8
The following table reconciles net income (loss) to EBITDA and
adjusted EBITDA for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
July 1 to
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
November 12,
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
|
|
11,834
|
|
|
|
$
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
Provision for (benefit from) income taxes
|
|
|
7,343
|
|
|
|
3,106
|
|
|
|
7,047
|
|
|
|
|
(2,800
|
)
|
|
|
1,914
|
|
|
|
4,968
|
|
Net interest expense (income)(a)
|
|
|
5,303
|
|
|
|
(1,502
|
)
|
|
|
145
|
|
|
|
|
3,066
|
|
|
|
5,677
|
|
|
|
5,099
|
|
Depreciation and amortization(b)
|
|
|
14,255
|
|
|
|
5,689
|
|
|
|
10,641
|
|
|
|
|
2,762
|
|
|
|
5,467
|
|
|
|
3,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(c)
|
|
|
45,144
|
|
|
|
13,676
|
|
|
|
29,667
|
|
|
|
|
(2,670
|
)
|
|
|
16,199
|
|
|
|
22,807
|
|
Amortization of customer contract liability(d)
|
|
|
(2,809
|
)
|
|
|
(2,274
|
)
|
|
|
(3,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(c)
|
|
$
|
42,335
|
|
|
|
11,402
|
|
|
|
25,818
|
|
|
|
$
|
(2,670
|
)
|
|
|
16,199
|
|
|
|
22,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Net interest expense excludes interest income earned on common
shares subject to redemption of $768 for the nine months ended
March 31, 2007 and year ended June 30, 2007.
|
|
(b)
|
|
Amortization expense during the year ended June 30, 2006
excludes amortization of deferred financing fees of $564.
|
|
(c)
|
|
EBITDA and adjusted EBITDA include non-cash share-based
compensation expense of $6,617, $176 and $512 for the nine
months ended March 31, 2008 and 2007, and the year ended
June 30, 2007, respectively.
|
|
(d)
|
|
Certain noncancelable executory customer contracts were
purchased as part of the GMI and Globe Metais acquisitions
priced below market rates. The balance is being amortized over
the contractual term of the individual contracts and included in
net sales.
|
9
RISK
FACTORS
An investment in our common stock involves a high degree of
risk. You should consider and read carefully all of the risks
and uncertainties described below, together with all of the
other information contained in this prospectus, including the
consolidated financial statements and the related notes
appearing at the end of this prospectus before deciding to
invest in our common stock. 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. This prospectus also contains forward-looking
statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the
forward-looking statements as a result of specific factors,
including the risks described below.
Risks
Associated with our Business and Industry
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,
GMI has been particularly affected by recessionary conditions in
the end-markets for its products. In April 2003, GMI 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.
The world silicon metals industry has enjoyed favorable market
conditions enabling many silicon metals producers to operate
profitably. There can be no assurance, however, that national
and international metals markets will sustain their current
state; any decline 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 non-residential construction,
consumer durables, polysilicon, and chemical markets. 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 26% of cost of sales in the nine month period ended
March 31, 2008. The level of power consumption of our
electric production 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. facilities is supplied mostly
by AEP, Alabama Power and Brookfield Power through dedicated
lines. Our West Virginia facility obtains approximately 45% of
its power needs under a
15-year
fixed-price contract with a nearby hydroelectric facility. This
facility is over 70 years old and any breakdown could
result in the West Virginia facility having to pay much higher
rates for electric power from third parties. Our energy supply
for our facilities located in Argentina are supplied through the
Edemsa hydroelectric facilities located in Mendoza, Argentina.
Our energy needs for our facility in Brazil comes from the
Tucurui hydroelectric plant, the fifth largest in the world,
situated only a few kilometers away from our manufacturing
facility. While some of our power needs are supplied under
long-term contracts, we also
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purchase power under contracts which terminate within one year.
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, Argentina and Brazil 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 might mitigate
some of the losses resulting from catastrophic events. However,
deductibles and overall coverage under those policies may not be
sufficient to cover any or all losses, and such policies do not
cover all events. 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 Argentinas and Brazils 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 Argentinas 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 foundry alloys include metallurgical-grade coal,
charcoal, carbon electrodes, quartzite, wood chips, steel scrap,
and other metals, such as magnesium. While we have certain
long-term contracts, we buy other 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. Although there are alternative
sources for these raw materials, there can be no assurance that
we would be able to obtain adequate supplies of such materials
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 with fixed contracts, 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
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raw material inputs are subject to change and although we
currently believe we may be able to pass a significant amount of
increased input costs on to our customers, there is no assurance
that this will continue. Additionally, there is no assurance
that we will be able to obtain lower prices from our suppliers
should our sale prices decrease.
Our
U.S.-based
businesses benefit from U.S. antidumping duties and laws that
protect U.S. companies by taxing imports from foreign companies.
If these laws change, foreign companies will be able to compete
more effectively with us. Conversely, our foreign operations are
adversely affected by these U.S. duties and laws.
Currently, foreign suppliers who export merchandise to the
United States at unfairly low prices risk being found to be
dumping their products in the U.S. A finding of
dumping and resulting injury to the U.S. industry can lead
to the imposition of special antidumping duties on
the imported merchandise. We have, in the past, filed petitions
and other trade complaints with the U.S. Department of
Commerce and the U.S. International Trade Commission. These
complaints sometimes result in investigations of foreign
manufacturers and the imposition of trade relief. As a result of
such actions, antidumping orders are currently in place covering
silicon metal imports from China and Russia. These orders are
benefiting our U.S. operations by constraining supply and
increasing U.S. market prices and sales of domestic silicon
metal. While we have had degrees of success with these actions,
we rely on policy based rules that are subject to
constant change in interpretation as political, economic and
social conditions change and as political priorities in the
U.S. shift. In addition, the antidumping rules apply
differently based on the countries from which the goods
originate and other factors. Rates of duty can change as a
result of administrative reviews and new
shipper 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. A sunset review
of the order covering imports from China will be initiated in
2011. Thus, there is no assurance that the current orders will
remain in effect and continue to be enforced from year to year,
that the goods and countries now covered by antidumping orders
will continue to be covered, or that duties will continue to be
assessed at the same rates, changes in any of which could
adversely affect our business and profitability. Finally, at
times, in filing trade actions, we find ourselves acting against
the interests of our customers. There can be no assurance that
our customers will continue to desire to do business with us if
they become unhappy with our having filed a trade action.
Antidumping rules may, conversely, also adversely impact our
foreign operations.
The European Union, like the U.S., can provide antidumping
relief from imports sold at unfairly low prices. Our Brazilian
facility is our primary source to supply most of our European
demand. The European Union responded to claims of dumping by
Chinese silicon metal suppliers in 1997 by imposing a 49% duty.
Our Brazilian facility would be adversely affected if these
duties were revoked or if antidumping measures were imposed
against imports from Brazil.
We may
be unable to successfully integrate and develop our prior and
future acquisitions.
We acquired four private companies between November 2006 and
February 2008, and entered into a business combination in May
2008. 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:
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operating a significantly larger combined organization;
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coordinating geographically disparate organizations, systems and
facilities;
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consolidating corporate technological and administrative
functions;
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integrating internal controls and other corporate governance
matters;
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the diversion of managements attention from other business
concerns;
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unexpected customer or key employee loss from the acquired
businesses;
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hiring additional management and other critical personnel;
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negotiating with labor unions;
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a significant increase in our indebtedness; and
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potential environmental or regulatory liabilities and title
problems.
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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 and unexpected 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.
Hourly workers at our Alabama and West Virginia facilities are
covered by collective bargaining agreements with the Industrial
Division of the Communications Workers of America, under a
contract running through July 2010 and with The United Steel,
Paper and Forestry, Rubber, Manufacturing, Energy, Allied
Industrial and Service Workers International Union under a
contract running through April 24, 2011. Union employees in
Brazil are working under a contract running through
October 31, 2008 and in Argentina are working under a
contract running through April 2009. Our operations in Poland
are not unionized. New labor contracts will have to be
negotiated to replace expiring contracts from time to time. We
may be unable to satisfactorily renegotiate those labor
contracts on terms acceptable to us or without a strike or work
stoppage. In addition, existing labor contracts may not prevent
a strike or work stoppage, and any such work stoppage could have
a material adverse effect on our business.
We are
dependent on key personnel.
Our operations depend to a significant degree on the continued
employment of our core senior management team. In particular, we
are dependent on the skills, knowledge and experience of Alan
Kestenbaum, our Executive Chairman, Jeff Bradley, our Chief
Executive Officer, Daniel Krofcheck, our Chief Financial
Officer, and Arden Sims, our Chief Operating Officer. If these
employees are unable to continue in their respective roles, or
if we are unable to attract and retain other skilled employees,
our results of operations and financial condition could be
adversely affected. We currently have employment agreements with
Alan Kestenbaum, Jeff Bradley, Daniel Krofcheck and Arden Sims.
Although these agreements contain non-compete provisions, no
assurance can be given that such provisions will be enforceable
by us. Additionally, we are substantially dependent upon key
personnel in our financial and information technology staff who
enable us to meet our regulatory and contractual 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. Despite the fact that we
attempt to take appropriate maintenance and safety measures to
safeguard our workers, comply with safety regulations and avoid
malfunctions, we have experienced fatal accidents and equipment
malfunctions in our manufacturing facilities in recent years.
There can be no assurance that we will not experience fatal
accidents or equipment malfunctions again, which could
materially affect our business and operations.
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Unexpected
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.
There is no assurance that these processes will yield the cost
savings that we anticipate or that our proprietary technology
will not be challenged.
We rely on proprietary technologies and technical capabilities
in order to compete effectively and produce high quality silicon
metals and silicon based alloys. Some of these proprietary
technologies that we rely on are:
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computerized technology that monitors and controls production
furnaces;
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production software that monitors the introduction of additives
to alloys, allowing the precise formulation of the chemical
composition of products; and
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flowcaster equipment, which maintains certain characteristics of
silicon-based alloys as they are cast.
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In addition, there is no assurance that:
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we will have sufficient funds to develop new technology or
implement effectively the above technologies as competitors
improve their processes;
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if implemented, the technologies will work as planned; and
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even if they are implemented and work as planned, our
proprietary technologies will not be challenged and that we will
be able to protect our rights to these technologies.
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There can be no assurances that patent or other intellectual
property infringement claims will not be asserted against us by
a competitor or others, that any of our intellectual property
will be enforceable or that it will be able to 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 it may be enjoined from using our proprietary
intellectual property and 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.
No assurance can be given that we will 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
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 cannot assure you that we have been
or will 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.
14
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 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, we cannot
assure you that 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 will
not adversely affect our business, results of operations or
financial condition.
We
operate in a highly competitive industry.
The silicon-based alloy and silicon metal markets are capital
intensive and competitive. Our primary competitors are Elkem AS,
owned by Orkla ASA, a large Norwegian public company,
FerroAtlantica and various producers in China. Our competitors
may have greater financial resources, as well as other strategic
advantages to maintain, improve and possibly expand their
facilities; and as a result, they may be better positioned to
adapt to changes in the industry or the global economy. The
advantages that our competitors have over us could have a
material adverse effect on our business. In addition, there can
be no assurance that new entrants will not increase competition
in our industry, which could materially adversely affect our
business. An increase in the use of substitutes for certain of
our products also could have a material adverse effect on our
financial condition and operations.
We
have been operating at near the maximum capacity of our
currently operating facilities. Because the cost of increasing
capacity may be prohibitively expensive, we may have difficulty
increasing our production and profits.
Currently, our operating facilities are able to manufacture
collectively approximately 156,400 MT of silicon metal and
72,800 MT of silicon-based alloys on an annual basis. We
recently announced that GMI will reopen its idle silicon metal
production facility in Niagara Falls, New York which will
increase our silicon metal capacity by approximately 30,000 MT.
Bringing this facility back into production is expected to take
approximately six to nine months and our management estimates
that capital expenditures and other restart costs may exceed
$18 million. After we reopen this plant, once it is
operating at full capacity, our ability to increase production
and revenues may be dependent on expanding existing facilities
or opening new ones. Increasing capacity is difficult because:
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adding new production capacity to an existing silicon plant
would cost approximately $25 million and take at least 12
to 18 months to complete;
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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
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obtaining sufficient and dependable power at competitive rates
near areas with the required natural resources is difficult to
accomplish.
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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.
15
We
expect to have substantial capital requirements, and we may be
unable to obtain needed financing on satisfactory
terms.
We expect to make substantial capital expenditures. Our capital
requirements will depend on numerous factors, including costs
associated with the reopening and expansion of our previously
idle silicon metal production facility in Niagara Falls, New
York. We cannot predict accurately the timing and amount of our
capital requirements. For the nine month period ended
March 31, 2008, capital spending was approximately
$13.1 million. We intend to finance our capital
expenditures through cash flow from operations, net proceeds
from this offering and additional debt
and/or
equity financing. A decrease in expected revenues or adverse
change in market conditions could make obtaining this financing
economically unattractive or impossible. As a result, we may
lack the capital necessary to complete potential acquisitions or
capitalize on other business opportunities.
Some
of our subsidiaries 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.
Credit facilities maintained by some of our subsidiaries contain
covenants that, 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; repurchase stock; or make capital expenditures. These
credit facilities also require compliance with specified
financial covenants, including minimum interest coverage and
maximum leverage ratios. These subsidiaries cannot borrow under
their credit facilities if the additional borrowings would cause
them to breach the financial covenants. Further, a significant
portion of GMIs and Globe Metais assets are pledged
to secure indebtedness.
Our ability to continue to comply with applicable covenants may
be affected by events beyond our control. The breach of any of
the covenants contained in a credit facility, unless waived,
would be a default under the facility. 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 facility and exercise
all other rights available to them. We cannot assure you that we
will have sufficient funds to make these accelerated payments or
that we will be able to obtain any such waiver on acceptable
terms or at all.
Certain
of our subsidiaries are restricted from making distributions to
us which limits our ability to pay dividends.
Substantially all of our assets are held by and our revenues are
generated by our subsidiaries. Our subsidiaries borrow funds in
order to finance our operations. The terms of certain of those
financings place restrictions on distributions of funds to us.
If these limitations prevent distributions to us or our
subsidiaries do not generate positive cash flows, we will be
limited in our ability to pay dividends and may be unable to
transfer funds between subsidiaries if required to support our
subsidiaries.
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 coverages contain 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. 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.
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Solsil
may never operate profitably or generate substantial
revenues.
We acquired an approximate 81% interest in Solsil in February
2008 and although we expect to expand its operations through the
construction of new facilities, its financial prospects are
uncertain. Solsils continued growth, including the
construction of new facilities, will require a commitment of
significant financial resources that we may determine are not
available given the expansion of other existing operations. In
addition, Solsils continued growth requires a commitment
of personnel, including key positions in management, that may
not be available to us when needed. Unanticipated problems,
construction delays, cost overruns, environmental
and/or
governmental regulation, limited power availability or
unexpected liabilities may also be encountered. Some of the
other challenges we may encounter include:
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technical challenges, including further improving its process
for making solar grade silicon;
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increasing the size and scale of its operations on a
cost-effective basis;
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capitalizing on market demands and potentially rapid market
supply and demand fluctuations;
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acceptance by the market for our current and future products,
including the use of upgraded metallurgical silicon (UMG) as a
substitute for polysilicon in the photovoltaic (solar)
market; and
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responding to rapid technological changes.
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Failure to successfully address these and other challenges may
hinder or prevent our ability to achieve our objectives in a
timely manner.
U.S.
and world economic and political conditions, including acts or
threats of terrorism and/or war, could adversely affect our
business.
National and international political developments, instability
and uncertainties could result in continued economic weakness in
the United States and in international markets. These
uncertainties include ongoing military activity in Afghanistan
and Iraq, threatened hostilities with other countries, political
unrest and instability around the world and continuing threats
of terrorist attacks. Any actual armed hostilities, and any
future terrorist attacks in the United States or abroad, could
also have an adverse impact on the U.S. economy, global
financial markets and our business. The effects may include,
among other things, a decrease in demand in the automotive,
residential and non-residential construction, consumer durables
and chemical markets. Depending upon the severity, scope and
duration of these effects, the impact on our financial position,
results of operations and cash flows could be material.
We
have operations and assets in the U.S., Argentina, Brazil, 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:
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tariffs and trade barriers;
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currency fluctuations which could increase our costs in
U.S. dollars;
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regulations related to customs and import/export matters;
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tax issues, such as tax law changes and variations in tax laws;
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limited access to qualified staff;
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inadequate infrastructure;
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cultural and language differences;
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inadequate banking systems;
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different and more stringent environmental laws and regulations;
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restrictions on the repatriation of profits or payment of
dividends;
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crime, strikes, riots, civil disturbances, terrorist attacks,
wars;
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nationalization or expropriation of property;
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law enforcement authorities and courts that are weak or
inexperienced in commercial matters; and
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deterioration of political relations among countries.
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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. Should the value of the U.S. dollar rise
significantly in comparison to other currencies, we may lose
this competitive strength.
Exchange controls and restrictions on transfers abroad and
capital inflow restrictions have limited and can be expected to
continue to limit the availability of international credit. In
2001 and 2002, Argentina imposed exchange controls and transfer
restrictions substantially limiting the ability of companies to
retain foreign currency or make payments abroad. These
restrictions have been substantially eased, including those
requiring the Central Banks prior authorization for the
transfer of funds abroad in order to pay dividends. However,
Argentina may re-impose exchange control or transfer
restrictions in the future, among other things, in response to
capital flight or a significant depreciation of the Peso. In
addition, the government adopted various rules and regulations
in June 2005 that established new controls on capital inflows,
requiring, among other things, that 30% of all capital inflows
(subject to certain exceptions) be deposited for one year in a
non-assignable non-interest bearing account in Argentina.
Additional controls could have a negative effect on the economy
and Globe Metales 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
dividend payments as a holder of Globe Metales shares.
Risks
Related to the Offering
An
active trading market for our common stock may not develop in
the United States, and you may not be able to resell your shares
at or above the initial public offering price.
Prior to this offering, there had been no public market for
shares of our common stock in the United States. Our common
stock has been listed on the AIM market, under the symbol
GLBM since October 2005. However, historically there
has been a limited volume of trading in our common stock on the
AIM market, which has limited the liquidity of our common stock
on that market. We cannot predict whether or how investor
interest in our common stock on the AIM market might translate
to the market price of our common stock or the development of an
active trading market in the United States or how liquid that
market might become.
The initial public offering price for our common stock was
determined through negotiations with the underwriters based on a
number of factors, including the historic trading prices of our
common stock on the AIM market, that might not be indicative of
prices that will prevail in the trading market for our common
stock in the United States. An active trading market for our
shares in the United States may never develop or be sustained
following this offering. If an active market for our common
stock does not develop, it may be difficult to sell shares you
purchase in this offering without depressing the market price
for the shares, or at all.
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, investors may not be able to sell their
common stock at or above the initial public offering price. The
market price for our common stock may be influenced by many
factors, including:
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the success of competitive products or technologies;
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regulatory developments in the United States and foreign
countries;
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developments or disputes concerning patents or other proprietary
rights;
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the recruitment or departure of key personnel;
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18
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quarterly or annual variations in our financial results or those
of companies that are perceived to be similar to us;
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market conditions in the industries in which we compete and
issuance of new or changed securities analysts reports or
recommendations;
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the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
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the inability to meet the financial estimates of analysts who
follow our common stock;
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investor perception of our company and of the industry in which
we compete; and
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general economic, political and market conditions.
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A
substantial portion of our total outstanding shares may be sold
into the market at any time. This could cause the market price
of our common stock to drop significantly, even if our business
is doing well.
All of the shares being sold in this offering will be freely
tradable without restrictions or further registration under the
federal securities laws, unless purchased by our
affiliates as that term is defined in Rule 144
under the Securities Act. In addition,
approximately shares
of our common stock that were sold in a foreign offering in 2005
and listed on the AIM market
and shares
of our common stock underlying outstanding warrants and unit
purchase options are concurrently being registered under the
federal securities laws and also will be freely tradable
following completion of this offering, subject to the
lock-up
agreements described in Underwriting. The
remaining shares
of common stock outstanding upon the closing of this offering
are restricted securities as defined under Rule 144 of the
Securities Act. Restricted securities may be sold in the
U.S. public market only if registered or if they qualify
for an exemption from registration, including by reason of
Rule 144 or 701 under the Securities Act.
Approximately
restricted shares will be eligible for sale in the public market
beginning
in
2009, subject to limitations under Rule 144. In addition,
approximately
restricted shares held by our directors and executive officers
will be eligible for sale in the public market beginning
in
2009, subject in certain circumstances to the volume, manner of
sale and other limitations under Rule 144. Additionally, we
intend to register all shares of our common stock that we may
issue under our employee benefit plans. Once we register these
shares, they can be freely sold in the public market upon
issuance, subject to the
lock-up
agreements described in Underwriting. Sales of a
substantial number of shares of our common stock, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of
our common stock.
The
concentration of our capital stock ownership among our largest
stockholders, and their affiliates, will limit your ability to
influence corporate matters.
After our offering, we anticipate that our four largest
stockholders, including our Executive Chairman, together will
own approximately % of our
outstanding common stock. Additionally, these four stockholders
hold warrants to
purchase shares
of our common stock, which if fully exercised would result in
these stockholders together
owning % of our outstanding common
stock after our offering. 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 will limit your ability to influence
corporate matters, and as a result, actions may be taken that
you may not view as beneficial.
If you
purchase shares of our common stock in this offering, you will
suffer immediate and substantial dilution of your
investment.
The initial public offering price of our common stock is
substantially higher than the net tangible book value per share
of our common stock. Therefore, if you purchase shares of our
common stock in this offering, your interest will be diluted
immediately to the extent of the difference between the initial
public offering
19
price per share of our common stock and the net tangible book
value per share of our common stock after this offering. See
Dilution.
Material
weaknesses in internal control over financial reporting may
adversely affect our ability to comply with financial reporting
regulations and to publish accurate financial
statements.
We are aware of the existence of material weaknesses in the
designs and operations of our internal control over financial
reporting that could adversely affect our ability to record,
process, summarize and report financial data consistent with our
assertions in the financial statements. A material weakness is a
deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or
be detected on a timely basis. These material weaknesses in
internal control over financial reporting relate to deficiencies
in:
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Entity-level controls, including:
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Maintenance of an effective reporting structure and assignment
of authority and responsibility;
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A formal code of conduct and ethics hotline that have been fully
communicated and implemented;
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A fully operational board of directors and audit committee, thus
we have lacked independent oversight; and
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Adequate information technology reporting systems to assist in
generating accurate and timely financial reports, both for
internal and external purposes.
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Maintaining a sufficient complement of personnel with an
appropriate level of accounting knowledge, experience and
training in the application of U.S. GAAP commensurate with
our financial reporting requirements and business environment.
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Information technology general controls, including a lack of
formal policies and procedures related to program changes,
program development and general computer operations.
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We are addressing our material weaknesses and making the
appropriate changes to remedy concerns over our internal control
and to reduce the possibility of a misstatement in, or delay in
the production of, our financial statements. We have been, and
intend to continue, expanding our accounting and information
technology staff with persons with additional skills and
experience and improving our information technology general
controls and entity-level controls. We intend to engage
qualified outside professionals to provide support and guidance
in areas where we cannot economically maintain the required
skills and experience internally. We also intend to implement
formal written policies, processes and procedures and other
documentation to address our deficiencies related to the
application of U.S. GAAP, our entity-level controls and our
information systems and related controls.
We intend to continue to address deficiencies in entity-levels
controls, to expand our accounting and information technology
staff and information technology systems and engage outside
professionals if and as we believe necessary; however, because
of inherent limitations, our internal control over financial
reporting may not prevent or detect misstatements, errors or
omissions even after we improve them. Any projections of any
evaluation of effectiveness of internal control to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree
of compliance with our policies or procedures may deteriorate.
We cannot be certain in future periods that other control
deficiencies that may constitute one or more material weaknesses
or significant deficiencies in our internal control over
financial reporting will not be identified. If we fail to
maintain the adequacy of our internal controls, including any
failure to implement or difficulty in implementing required new
or improved controls, our business and results of operations
could be harmed, the results of operations we report could be
subject to adjustments, we could incur further remediation
costs, we could fail to be able to provide reasonable assurance
as to our financial results or the effectiveness of our internal
controls or meet our reporting obligations to the Securities and
Exchange Commission (SEC) and third parties (including lenders
under our
20
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financing arrangements and the holders of our debt securities)
on a timely basis and there could be a material adverse effect
on the price of our securities.
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We
have not yet completed our evaluation of our internal control
over financial reporting in compliance with Section 404 of
the Sarbanes-Oxley Act.
We will be required to comply with the internal control
evaluation and certification requirements of Section 404 of
the Sarbanes-Oxley Act (Section 404). We have not yet
completed our evaluation of our internal control over financial
reporting. We plan to continue evaluating and improving our
existing internal control environment so that we could
eventually certify that our system of internal control is
effective. During the course of our evaluation, we have
identified and may identify more areas requiring improvement and
may be required to design enhanced processes and controls to
address issues identified through this review. We may experience
higher than anticipated operating expenses as well as outside
auditing, consulting and other professional fees during the
implementation of these changes and thereafter. Further, we will
need to hire additional qualified personnel in order for us to
complete our evaluation and remedy our deficiencies, as well as
to maintain effective internal control over financial reporting.
If we are unable to implement these changes effectively or
efficiently, it could harm our operations, financial reporting
or financial results and could result in our conclusion that our
internal control over financial reporting is not effective.
The
requirements of being a public company may strain our resources,
divert managements attention and affect our ability to
attract and retain qualified board members.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended
and the rules adopted under the Securities Exchange Act. The
requirements of the Securities Exchange Act and these rules will
increase our legal and financial compliance costs, make some
activities more difficult, time-consuming or costly and increase
demand on our systems and resources. The Securities Exchange Act
requires, among other things, that we file annual, quarterly and
current reports with respect to our business and financial
condition. As a result, managements attention may be
diverted from other business concerns, which could have a
material adverse effect on our business, financial condition and
results of operations. We will need to hire more staff and
improve our information technology systems to comply with these
requirements, which will increase our costs. Our failure to
prepare and disclose this information in a timely manner could
subject us to penalties under federal securities laws, expose us
to lawsuits and restrict our ability to access capital markets.
These rules and regulations could also make it more difficult
for us to attract and retain qualified independent members of
our board of directors. Additionally, we expect these rules and
regulations to make it more difficult and more expensive for us
to obtain director and officer liability insurance. We may be
required to accept reduced coverage or incur substantially
higher costs to obtain coverage.
We
have broad discretion in the use of our net proceeds from this
offering and may not use them effectively.
Our management will have broad discretion in the application of
the net proceeds from this offering and could spend the proceeds
in ways that do not improve our operating results or enhance the
value of our common stock. Our stockholders may not agree with
the manner in which our management chooses to allocate and spend
the net proceeds. The failure by our management to apply these
funds effectively could result in financial losses that could
have a material adverse effect on our business and cause the
price of our common stock to decline. Pending their use, we may
invest our net proceeds from this offering in a manner that does
not produce income or that loses value.
We may
not pay any cash dividends in the foreseeable
future.
Although we paid a one-time special dividend in December 2006,
we may retain our future earnings, if any, to fund the
development and growth of our business. In addition, the terms
of any future debt agreements may preclude us from paying
dividends. As a result, capital appreciation, if any, of our
common stock may be your sole source of gain for the foreseeable
future.
21
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 the board of directors to
amend the bylaws, may make it more difficult for other persons,
without the approval of our 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.
22
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The
forward-looking statements are contained principally in the
sections entitled Prospectus Summary, Risk
Factors, Use of Proceeds,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business. 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:
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the anticipated benefits and risks associated with our business
strategy;
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our future operating results and the future value of our common
stock;
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the anticipated size or trends of the markets in which we
compete and the anticipated competition in those markets;
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our ability to attract customers in a cost-efficient manner;
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our ability to attract and retain qualified management personnel;
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our future capital requirements and our ability to satisfy our
capital needs;
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the anticipated use of the proceeds realized from this offering;
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the potential for additional issuances of our
securities; and
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the possibility of future acquisitions of businesses or assets.
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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. Forward-looking statements reflect
our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties. We discuss
many of these risks in this prospectus in greater detail under
the heading Risk Factors beginning on page 10.
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 of this prospectus. You should read this prospectus and
the documents that we have filed as exhibits to the registration
statement, of which this prospectus is a part, 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.
23
DIVIDEND
POLICY
Although we paid a one-time special dividend in December 2006,
at the present time, we intend to retain all of our available
earnings generated by operations for the development and growth
of the business. 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.
24
USE OF
PROCEEDS
We estimate that our net proceeds from the sale
of shares of common stock in this
offering will be approximately
$ million after deducting
estimated offering expenses of $
and underwriting discounts and commissions and assuming an
initial public offering price of $
per share. If the over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately
$ million. We will not
receive any proceeds from the sale of shares by the selling
stockholders.
We currently intend to use the net proceeds of this offering for
general corporate purposes, including, without limitation, to
expand our core businesses, to invest in new businesses,
products and technologies, both through acquisitions and capital
programs, and to fund our ongoing operating and working capital
requirements.
The amounts that we actually expend for these purposes may vary
significantly depending on a number of factors, including future
revenue growth, if any, and the amount of cash that we generate
from operations and our then current working capital needs. As a
result, management will retain broad discretion over the
allocation of the net proceeds from this offering. A portion of
the net proceeds may also be used to acquire products,
technologies or businesses that are complementary to our current
and future business and product lines. We have no current
agreements or commitments for material acquisitions of any
businesses, products or technologies. Pending use of the net
proceeds of this offering, we intend to invest the net proceeds
in interest-bearing, investment-grade securities.
A $1.00 increase (decrease) in the assumed public offering price
of $ per share of common stock
would increase (decrease) our expected net proceeds by
approximately $ , assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus remains the same and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
25
CAPITALIZATION
The following table presents the following information:
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our actual capitalization as of March 31, 2008; and
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our pro forma, as adjusted, capitalization reflecting the
foregoing, as well as the sale of
the shares
of common stock in this offering at an assumed initial public
offering price of $ per share
after deducting underwriting discounts and commissions and
estimated offering expenses.
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This table should be read with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our financial statements and notes to those
financial statements appearing elsewhere in this prospectus.
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As of March 31, 2008
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Pro Forma
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as
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Actual
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Adjusted
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(Dollars in thousands, except per share data)
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Cash and cash equivalents and marketable securities
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$
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74,752
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Short-term debt, including current portion of long-term debt
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$
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37,800
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Long-term debt
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56,153
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Stockholders equity:
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Common stock, $0.0001 par value per share;
150,000,000 shares authorized, 63,050,416 shares
issued and outstanding, actual;
and shares
issued and outstanding, pro forma as adjusted
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6
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Additional paid-in capital
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294,578
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Retained earnings
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28,421
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Accumulated other comprehensive income
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526
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Total stockholders equity
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323,531
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Total capitalization
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$
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417,484
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The information above is based on the number of shares of common
stock outstanding as of March 31, 2008. It does not include:
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1,360,000 shares of common stock issuable upon the exercise
of stock options outstanding as of March 31, 2008 at a
weighted-average exercise price of $8.50 per share;
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19,046,910 shares of common stock issuable upon the
exercise of warrants outstanding as of March 31, 2008 at a
weighted-average exercise price of $5.00 per share;
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1,607,542 unit purchase options which represent the right
to purchase at an exercise price of $7.50 per unit purchase
option, one share of common stock and two warrants, or an
aggregate of 1,607,542 shares of common stock and warrants
to purchase 3,215,084 shares of common stock at an exercise
price of $5.00 per share; and
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3,640,000 shares of common stock reserved for future awards
under our stock plan.
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26
DILUTION
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the initial public
offering price per share of our common stock and the pro forma
as adjusted net tangible book value per share of our common
stock after this offering. We calculate net tangible book value
per share of by dividing the net tangible book value (tangible
assets less total liabilities) by the number of outstanding
shares of common stock.
Our pro forma net tangible book value at March 31, 2008 was
$ , or
$ per share of common stock, based
on shares
of common stock outstanding upon the closing of this offering.
After giving effect to the sale of
shares of common stock by us in this offering at an assumed
initial public offering price of $
per share, less the estimated underwriting discounts and
commissions and the estimated offering expenses payable by us,
our pro forma as adjusted net tangible book value at
March 31, 2008, would be
$ million, or
$ per share. This represents an
immediate increase in the pro forma net tangible book value of
$ per share to existing
stockholders and an immediate dilution of
$ per share to new investors
purchasing shares in this offering. The following table
illustrates this per share dilution:
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Assumed initial public offering price
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$
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Pro forma net tangible book value per share as of March 31,
2008
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$
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Increase per share attributable to this offering
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Pro forma net tangible book value per share after this offering
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Dilution per share to new investors in this offering
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$
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The following table shows, at March 31, 2008, on a pro
forma basis as described above, the difference between the
number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by
existing stockholders and by new investors purchasing common
stock in this offering:
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Average
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Shares Purchased
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Total Consideration
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Price
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Number
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Percentage
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Amount
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Percentage
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per Share
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Existing stockholders
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$
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$
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New investors
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$
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$
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Total
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100.00
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%
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$
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100.00
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%
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Assuming the underwriters over-allotment option is
exercised in full, sales by us in this offering will reduce the
percentage of shares held by existing stockholders
to % and will increase the number
of shares held by new investors
to ,
or %. This information is based on
shares outstanding as of March 31, 2008. It excludes:
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1,360,000 shares of common stock issuable upon the exercise
of stock options outstanding as of March 31, 2008 at a
weighted-average exercise price of $8.50 per share;
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19,046,910 shares of common stock issuable upon the
exercise of warrants outstanding as of March 31, 2008 at a
weighted-average exercise price of $5.00 per share;
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1,607,542 unit purchase options which represent the right
to purchase at an exercise price of $7.50 per unit purchase
option, one share of common stock and two warrants, or an
aggregate of 1,607,542 shares of common stock and warrants
to purchase 3,215,084 shares of common stock at an exercise
price of $5.00 per share; and
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3,640,000 shares of common stock reserved for future awards
under our stock plan.
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To the extent these options or warrants are exercised, there
will be further dilution to the new investors.
Each $1.00 increase (decrease) in the assumed public offering
price per share of common stock would increase (decrease) the
pro forma deficit in net tangible book value by
$ per share (assuming no exercise
of the underwriters option to purchase additional shares)
and the dilution to investors in this offering by
$ per share, assuming the number
of shares offered by us, as set forth on the cover page of this
prospectus remains the same.
27
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except share and per share
amounts)
The following tables and related notes present our unaudited pro
forma consolidated statements for the fiscal year ended
June 30, 2007 and the nine months ended March 31,
2008. The unaudited pro forma consolidated financial data for
the fiscal year ended June 30, 2007 has been derived from
the following: (1) our audited consolidated financial
statements and accompanying notes, which are included elsewhere
in this prospectus; (2) the separate audited financial
statements and accompanying notes of GMI, for the period from
July 1, 2006 to November 12, 2006, and Solsil for the
fiscal year ended June 30, 2007, which are included
elsewhere in this prospectus; and (3) the separate
unaudited financial statements of Stein Ferroaleaciones, S.A.
(Stein Ferroaleaciones), UltraCore Polska Sp.z.o.o, and Ultra
Core Corporation (the three companies that we acquired in
November 2006 and previously known as the Stein Group, referred
to herein together as (SG)), for the period from July 1,
2006 to November 20, 2006, and Camargo Correa Metais S.A.
(Camargo) for the period from July 1, 2006 to
January 31, 2007, which are not included in this
prospectus. The unaudited pro forma consolidated financial data
for the nine months ended March 31, 2008 has been derived
from the following: (1) our unaudited consolidated
financial statements and accompanying notes, which are included
elsewhere in this prospectus; and (2) the unaudited
financial statements of Solsil for the period from July 1,
2007 to February 29, 2008, which are not included in this
prospectus. The unaudited pro forma consolidated financial data
has been prepared for illustrative purposes only and does not
purport to represent what our results of operations would
actually have been had the transactions described below in fact
occurred as of the dates specified. In addition, the unaudited
pro forma consolidated financial data does not purport to
project our results of operations for any future period.
On November 12, 2006, we acquired 100% of the outstanding
stock of GMI. The results of GMI are included in the
consolidated financial statements from that date. The aggregate
purchase price of GMI was $134,064, comprised of
8.6 million shares of our common stock valued at $47,961,
cash of $33,220, direct costs associated with the GMI
acquisition of $3,348, and assumed debt of $49,535. The value of
the common stock issued was determined based on the average
market price of our common stock over the
two-day
period before and after the terms of the acquisition were agreed
to and announced. On November 20, 2006, we acquired 100% of
the outstanding stock of the SG. The aggregate purchase price of
the SG was $39,136, comprised of cash of $34,476, direct costs
associated with the acquisition of $881, and assumed debt of
$3,779. The results of the SG are included in the consolidated
financial statements from that date. On January 31, 2007,
we acquired 100% of the outstanding stock of Camargo. The
aggregate purchase price of Camargo was $56,512, comprised of
cash of $38,635, direct costs associated with the acquisition of
$1,084, debt assumed of $14,393, and contingent consideration of
$2,400. The results of Camargo are included in the consolidated
financial statements from that date. On February 29, 2008,
we acquired approximately 81% of the outstanding stock of
Solsil. The aggregate purchase price of Solsil was $75,453,
comprised of 5.6 million shares of our common stock valued
at $72,092, direct costs associated with the acquisition of
$361, and assumed liabilities of $3,000. The results of Solsil
are included in our consolidated financial statements from that
date.
The unaudited pro forma consolidated statements of operations
for the fiscal year ended June 30, 2007 and the nine months
ended March 31, 2008 give pro forma effect to the following
events as if they were consummated on July 1, 2006:
|
|
|
|
|
our acquisition of all of the outstanding stock of GMI, SG and
Camargo;
|
|
|
|
our acquisition of approximately 81% of the outstanding stock of
Solsil;
|
|
|
|
the use of $111.6 million in cash related to the
acquisitions of GMI, SG and Camargo;
|
|
|
|
the issuance of 14.3 million shares of common stock for the
acquisitions of GMI and Solsil; and
|
|
|
|
other adjustments that management believes are directly related
to the GMI, SG, Camargo and Solsil acquisitions.
|
28
The GMI, SG, Camargo and Solsil acquisitions have been accounted
for using the purchase method of accounting. Under the purchase
method of accounting, the aggregate purchase price for each
acquisition (including transaction fees and expenses) has been
allocated to the tangible assets, identifiable intangible assets
and liabilities, based upon their respective fair values. The
allocation of the purchase price, useful lives assigned to the
assets and other adjustments made to the unaudited pro forma
consolidated financial data are based upon available information
and certain preliminary assumptions that we believe are
reasonable under the circumstances. We have not finalized the
purchase price allocation to the specific assets and liabilities
of Solsil. The final amounts allocated and the related useful
lives could differ from those reflected in the unaudited pro
forma consolidated financial data and the effects could be
material.
The following table reflects the preliminary purchase price
allocation associated with each acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
GMI
|
|
|
SG
|
|
|
Camargo
|
|
|
Solsil
|
|
|
|
(In years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Current assets
|
|
|
|
$
|
39,884
|
|
|
|
21,167
|
|
|
|
31,863
|
|
|
|
3,551
|
|
Property, plant, and equipment
|
|
|
|
|
108,865
|
|
|
|
17,741
|
|
|
|
22,110
|
|
|
|
6,938
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Indefinite
|
|
|
31,355
|
|
|
|
17,172
|
|
|
|
|
|
|
|
57,606
|
|
Unpatented technology
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,143
|
|
Customer relationships
|
|
1
|
|
|
103
|
|
|
|
50
|
|
|
|
11
|
|
|
|
|
|
Software
|
|
1
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity contracts
|
|
3-11
|
|
|
|
|
|
|
2,830
|
|
|
|
7,026
|
|
|
|
|
|
Supplier contracts
|
|
2
|
|
|
|
|
|
|
|
|
|
|
337
|
|
|
|
|
|
Trade names
|
|
Indefinite
|
|
|
316
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
3,215
|
|
|
|
550
|
|
|
|
16,561
|
|
|
|
3,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
|
|
183,832
|
|
|
|
59,798
|
|
|
|
77,908
|
|
|
|
85,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
33,680
|
|
|
|
15,486
|
|
|
|
27,217
|
|
|
|
7,102
|
|
Noncurrent liabilities
|
|
|
|
|
65,623
|
|
|
|
8,955
|
|
|
|
8,572
|
|
|
|
5,194
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
|
|
99,303
|
|
|
|
24,441
|
|
|
|
35,789
|
|
|
|
12,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
84,529
|
|
|
|
35,357
|
|
|
|
42,119
|
|
|
|
72,453
|
|
Debt assumed
|
|
|
|
|
49,535
|
|
|
|
3,779
|
|
|
|
14,393
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
|
|
$
|
134,064
|
|
|
|
39,136
|
|
|
|
56,512
|
|
|
|
75,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The goodwill amount has been assigned to the silicon metal and
silicon-based specialty alloys operating segment, which is our
only business segment. The allocation of the purchase price of
the GMI, SG and Camargo acquisitions to assets acquired and
liabilities assumed was finalized during the nine months ended
March 31, 2008. A $128 increase in goodwill associated with
the SG acquisition resulted from the finalization of the
purchase price allocation to trade names classified within other
intangible assets. The fair value of net assets acquired
relating to the Camargo acquisition exceeded the purchase price.
As such, the excess cost was allocated as a pro rata reduction
to property, plant, and equipment and purchased intangible
assets. In finalizing the purchase price allocation for the
Camargo acquisition, we recorded a $476 increase in inventory, a
$2,971 increase in property, plant, and equipment, a $973
increase in intangible assets, a $66 increase in accrued
liabilities, and a net $4,354 decrease in deferred tax assets.
The unaudited pro forma consolidated financial data should be
read in conjunction with (1) our audited and unaudited
consolidated financial statements and accompanying notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, which are included
elsewhere in this prospectus; and (2) the separate audited
financial statements and accompanying notes of GMI and Solsil,
which are included elsewhere in this prospectus.
29
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMI
|
|
|
SG
|
|
|
Camargo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006 to
|
|
|
July 1, 2006 to
|
|
|
July 1, 2006
|
|
|
Solsil
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
November 20,
|
|
|
to January 31,
|
|
|
July 1, 2006 to
|
|
|
Pro Forma
|
|
|
|
|
|
|
As Reported
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
June 30, 2007
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
|
|
|
Net sales
|
|
$
|
221,928
|
|
|
|
73,173
|
|
|
|
18,747
|
|
|
|
39,035
|
|
|
|
2,648
|
|
|
|
(5,670
|
)(a)(b)
|
|
|
349,861
|
|
Cost of sales
|
|
|
184,122
|
|
|
|
66,683
|
|
|
|
15,862
|
|
|
|
35,990
|
|
|
|
8,998
|
|
|
|
(6,460
|
)(a)(c)(d)
|
|
|
305,195
|
|
Selling, general and administrative
|
|
|
18,541
|
|
|
|
7,409
|
|
|
|
1,353
|
|
|
|
2,876
|
|
|
|
1,399
|
|
|
|
216
|
(c)
|
|
|
31,794
|
|
Research and development
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
19,145
|
|
|
|
(919
|
)
|
|
|
1,532
|
|
|
|
169
|
|
|
|
(7,749
|
)
|
|
|
574
|
|
|
|
12,752
|
|
Interest income (expense)
|
|
|
623
|
|
|
|
(3,066
|
)
|
|
|
(806
|
)
|
|
|
(222
|
)
|
|
|
154
|
|
|
|
(3,489
|
)(e)(f)(g)
|
|
|
(6,806
|
)
|
Foreign currency gain
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688
|
|
Other income (expense)
|
|
|
(807
|
)
|
|
|
(4,513
|
)
|
|
|
(77
|
)
|
|
|
(491
|
)
|
|
|
780
|
|
|
|
|
|
|
|
(5,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interest and
deferred interest subject to redemption
|
|
|
19,649
|
|
|
|
(8,498
|
)
|
|
|
649
|
|
|
|
(544
|
)
|
|
|
(6,815
|
)
|
|
|
(2,915
|
)
|
|
|
1,526
|
|
Provision for (benefit from) income taxes
|
|
|
7,047
|
|
|
|
(2,800
|
)
|
|
|
84
|
|
|
|
1
|
|
|
|
|
|
|
|
(3,512
|
)(h)
|
|
|
820
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
808
|
(i)
|
|
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before deferred interest subject to redemption
|
|
|
12,602
|
|
|
|
(5,698
|
)
|
|
|
565
|
|
|
|
(545
|
)
|
|
|
(6,815
|
)
|
|
|
(211
|
)
|
|
|
(102
|
)
|
Deferred interest subject to redemption
|
|
|
(768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
768
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
11,834
|
|
|
|
(5,698
|
)
|
|
|
565
|
|
|
|
(545
|
)
|
|
|
(6,815
|
)
|
|
|
557
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
46,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,041
|
(j)
|
|
|
52,963
|
|
Diluted
|
|
|
50,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,041
|
(j)
|
|
|
56,272
|
|
Earnings (loss) per common share basic
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share diluted
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma consolidated
statement of operations.
30
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended June 30, 2007
(a) To eliminate the intercompany sales and the related
cost of sales from GMI to Solsil, from Solsil to GMI, and from
Stein Ferroaleaciones to Ultra Core Company and UltraCore Polska
Sp.z.o.o.
(b) To reflect a full year of GMI and Camargo customer
contract amortization, which increases net sales by
$1.4 million and $0.9 million, respectively.
(c) To reflect a full year of depreciation and amortization
expense for acquired property, plant, and equipment and
intangible assets based on the purchase accounting fair market
valuations for the GMI, SG, Camargo and Solsil acquisitions. The
overall impact of depreciation and amortization adjustments
increase cost of sales by $4.1 million and selling, general
and administrative expenses by $0.4 million.
(d) To reflect the incremental fair value adjustment for
inventory of $0.1 million.
(e) To eliminate interest income attributable to
stockholders who elected to redeem their shares at the time of
the GMI acquisition of $0.8 million.
(f) To reduce interest income by $2.9 million to
reflect the acquisitions of GMI, SG, and Camargo as if they had
occurred on July 1, 2006.
(g) To eliminate GMI financing cost amortization, which was
written off as part of purchase accounting. This adjustment
reduced interest expense by $0.2 million.
(h) To reflect the tax impact of pro forma adjustments for
the GMI, SG, Camargo and Solsil acquisitions based on the
applicable statutory rates for the respective acquisition and to
reflect a tax benefit from operating losses generated by Solsil,
which we believe we will be able to utilize.
(i) To reflect a full year of minority interest related to
Solsil results.
(j) To adjust the basic and diluted shares outstanding to
assume that the shares issued for the acquisitions of GMI and
Solsil as well as those redeemed by redeeming shareholders had
occurred on July 1, 2006.
31
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solsil
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2007
|
|
|
|
|
|
|
|
|
|
As
|
|
|
to February 29,
|
|
|
Pro Forma
|
|
|
|
|
|
|
Reported
|
|
|
2008
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
316,751
|
|
|
|
5,599
|
|
|
|
(4,378
|
)(a)
|
|
|
317,972
|
|
Cost of sales
|
|
|
251,077
|
|
|
|
10,265
|
|
|
|
(3,940
|
)(a)(b)
|
|
|
257,402
|
|
Selling, general and administrative
|
|
|
34,604
|
|
|
|
1,026
|
|
|
|
|
|
|
|
35,630
|
|
Research and development
|
|
|
407
|
|
|
|
143
|
|
|
|
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
30,663
|
|
|
|
(5,835
|
)
|
|
|
(438
|
)
|
|
|
24,390
|
|
Interest income (expense)
|
|
|
(5,303
|
)
|
|
|
252
|
|
|
|
|
|
|
|
(5,051
|
)
|
Foreign currency gain
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Other income
|
|
|
176
|
|
|
|
520
|
|
|
|
|
|
|
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
|
25,560
|
|
|
|
(5,063
|
)
|
|
|
(438
|
)
|
|
|
20,059
|
|
Provision for (benefit from) income taxes
|
|
|
7,343
|
|
|
|
|
|
|
|
(2,069
|
)(c)
|
|
|
5,274
|
|
Minority interest
|
|
|
26
|
|
|
|
|
|
|
|
600
|
(d)
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
18,243
|
|
|
|
(5,063
|
)
|
|
|
2,231
|
|
|
|
15,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
57,636
|
|
|
|
|
|
|
|
5,629
|
(e)
|
|
|
63,265
|
|
Diluted
|
|
|
69,765
|
|
|
|
|
|
|
|
5,629
|
(e)
|
|
|
75,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share basic
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share diluted
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended March 31, 2008
(a) To eliminate the intercompany sales and the related
cost of sales from GMI to Solsil and from Solsil to GMI for the
period from July 1, 2007 through the acquisition of Solsil
on February 29, 2008.
(b) To reflect a full year of amortization for the Solsil
intangible asset unpatented technology, established in purchase
accounting, which had an incremental impact to cost of sales of
$0.4 million.
(c) To reflect the tax impact of pro forma adjustments
based on the applicable statutory rates.
(d) To reflect a full year of minority interest related to
Solsil results.
(e) To adjust the basic and diluted shares outstanding to
assume that the shares for the acquisition of Solsil were issued
on July 1, 2006.
32
SELECTED
CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share amounts)
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
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus. The selected consolidated financial data
presented below for the fiscal years ended June 30, 2007,
2006, 2005 and 2004 are derived from our audited consolidated
financial statements and for the one-year period ended
June 30, 2003 from unaudited financial statements. The
selected consolidated financial data presented below for the
nine month periods ended March 31, 2008 and March 31,
2007 are derived from our unaudited consolidated financial
statements and for the period from July 1, 2006 to
November 12, 2006 from audited financial statements.
Successor entity refers to Globe Specialty Metals, Inc. (GSM),
formerly known as International Metal Enterprises, Inc. (IME).
IME, which was a special purpose acquisition vehicle, acquired
Globe Metallurgical, Inc. (GMI), the Predecessor, on
November 12, 2006 and IME changed its name to Globe
Specialty Metals, Inc. The operations of GSM were insignificant
compared with our subsequent acquisitions. Therefore, GSM
concluded that GMI is the Predecessor because it was the first
and largest acquisition, some of the founding investors in GSM
were also investors in GMI, and GMI is the entity that has the
most influence on the group of entities that were acquired by
GSM during the year ended June 30, 2007. Prior to its
acquisition, GMI was in bankruptcy from April 2003 until
May 11, 2004. Predecessor of the predecessor entity refers
to GMI prior to its emergence from bankruptcy on May 11,
2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor of the
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Predecessor
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
July 1 to
|
|
|
|
|
|
|
|
|
May 11 to
|
|
|
|
July 1, 2003
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
November 12,
|
|
|
Year Ended June 30,
|
|
|
June 30,
|
|
|
|
to May 10,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
316,751
|
|
|
|
121,250
|
|
|
|
221,928
|
|
|
|
$
|
73,173
|
|
|
|
173,008
|
|
|
|
132,223
|
|
|
|
11,251
|
|
|
|
$
|
47,174
|
|
|
|
85,678
|
|
Cost of sales
|
|
|
251,077
|
|
|
|
102,831
|
|
|
|
184,122
|
|
|
|
|
66,683
|
|
|
|
147,682
|
|
|
|
103,566
|
|
|
|
7,918
|
|
|
|
|
35,776
|
|
|
|
85,962
|
|
Selling, general and administrative
|
|
|
34,604
|
|
|
|
9,955
|
|
|
|
18,541
|
|
|
|
|
7,409
|
|
|
|
14,261
|
|
|
|
9,180
|
|
|
|
1,966
|
|
|
|
|
13,388
|
|
|
|
14,588
|
|
Research and development
|
|
|
407
|
|
|
|
53
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
30,663
|
|
|
|
8,411
|
|
|
|
19,145
|
|
|
|
|
(919
|
)
|
|
|
11,065
|
|
|
|
19,477
|
|
|
|
1,367
|
|
|
|
|
(1,990
|
)
|
|
|
(14,872
|
)
|
Interest and other income (expense)
|
|
|
(5,103
|
)
|
|
|
1,846
|
|
|
|
504
|
|
|
|
|
(7,579
|
)
|
|
|
(6,010
|
)
|
|
|
(5,291
|
)
|
|
|
(1,975
|
)
|
|
|
|
(3,400
|
)
|
|
|
(29,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, deferred interest subject to
redemption and minority interest
|
|
|
25,560
|
|
|
|
10,257
|
|
|
|
19,649
|
|
|
|
|
(8,498
|
)
|
|
|
5,055
|
|
|
|
14,186
|
|
|
|
(608
|
)
|
|
|
|
(5,390
|
)
|
|
|
(44,185
|
)
|
Provision for (benefit from) income taxes
|
|
|
7,343
|
|
|
|
3,106
|
|
|
|
7,047
|
|
|
|
|
(2,800
|
)
|
|
|
1,914
|
|
|
|
4,968
|
|
|
|
251
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before deferred interst subject to redemption
and minority interest
|
|
|
18,217
|
|
|
|
7,151
|
|
|
|
12,602
|
|
|
|
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
|
|
(859
|
)
|
|
|
|
(5,390
|
)
|
|
|
(44,190
|
)
|
Deferred interest subject to redemption
|
|
|
|
|
|
|
(768
|
)
|
|
|
(768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
|
|
11,834
|
|
|
|
$
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
|
|
(859
|
)
|
|
|
$
|
(5,390
|
)
|
|
|
(44,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic
|
|
$
|
0.32
|
|
|
|
0.15
|
|
|
|
0.25
|
|
|
|
$
|
(2,947.26
|
)
|
|
|
2,067.04
|
|
|
|
9,218.06
|
|
|
|
(858.57
|
)
|
|
|
$
|
(5,389.65
|
)
|
|
|
(44,190.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share diluted
|
|
$
|
0.26
|
|
|
|
0.13
|
|
|
|
0.24
|
|
|
|
$
|
(2,947.26
|
)
|
|
|
2,067.04
|
|
|
|
9,218.06
|
|
|
|
(858.57
|
)
|
|
|
$
|
(5,389.65
|
)
|
|
|
(44,190.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
|
|
|
|
|
|
|
|
0.07
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of the
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Predecessor
|
|
|
|
March 31, 2008
|
|
|
June 30, 2007
|
|
|
|
June 30, 2006
|
|
|
June 30, 2005
|
|
|
June 30, 2004
|
|
|
|
June 30, 2003
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Cash and cash equivalents
|
|
$
|
74,752
|
|
|
|
67,741
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2,601
|
|
|
|
$
|
3,700
|
|
Working capital(1)
|
|
|
65,563
|
|
|
|
36,690
|
|
|
|
|
22,217
|
|
|
|
17,053
|
|
|
|
15,599
|
|
|
|
|
(13,369
|
)
|
Total assets
|
|
|
508,749
|
|
|
|
389,762
|
|
|
|
|
140,572
|
|
|
|
99,660
|
|
|
|
96,843
|
|
|
|
|
58,404
|
|
Total debt including current portion
|
|
|
93,953
|
|
|
|
75,877
|
|
|
|
|
50,431
|
|
|
|
54,055
|
|
|
|
66,608
|
|
|
|
|
64,108
|
|
Long-term liabilities
|
|
|
89,674
|
|
|
|
82,280
|
|
|
|
|
49,650
|
|
|
|
55,561
|
|
|
|
64,398
|
|
|
|
|
56,144
|
|
Total stockholders equity
|
|
|
323,531
|
|
|
|
222,621
|
|
|
|
|
58,425
|
|
|
|
20,309
|
|
|
|
11,785
|
|
|
|
|
(37,340
|
)
|
|
|
|
(1)
|
|
Working capital is defined as trade accounts receivable and
inventory less accounts payable and is derived from our
consolidated financial statements.
|
34
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Except as otherwise specified in this Managements
Discussion and Analysis of Financial Condition and Results of
Operations, dollar amounts are reflected in thousands.)
You should read the following discussion and analysis
together with Selected Consolidated Financial Data
and our consolidated financial statements and the notes to those
statements included elsewhere in this prospectus. 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 prospectus. 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.
Overview
We are one of the leading manufacturers of silicon metal and
silicon-based alloys. We currently own and operate eight
manufacturing facilities located in Beverly, Ohio, Alloy, West
Virginia, Selma, Alabama, Mendoza, Argentina, San Luis,
Argentina, Breu Branco, Brazil, Police, Poland and Shizuishan,
China. Currently, our facilities are producing collectively
approximately 156,400 MT of silicon metal and 72,800 MT of
silicon-based alloy products on an annual basis. We recently
announced that we will reopen our idle silicon metal production
facility in Niagara Falls, New York, which will increase our
silicon metal capacity by approximately 30,000 MT.
We were incorporated in December 2004 pursuant to the laws of
the State of Delaware under the name International Metal
Enterprises, Inc. for the initial purpose of serving 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.
In November 2006, we began to execute our strategy of seeking
out and acquiring leading manufacturers of silicon metal and
other silicon-based alloys and other related businesses. In
November 2006, we acquired Globe Metallurgical, Inc. (GMI). In
November 2006, we acquired Stein Ferroaleaciones S.A., whose
name subsequently was changed to Globe Metales S.A. (Globe
Metales), UltraCore Polska Sp.z.o.o, and Ultra Core Corporation;
the former three collectively known as the Stein Group (SG).
Ultra Core Corporations operations have subsequently been
integrated into the operations of GMI. In January 2007, we
acquired Camargo Correa Metais S.A. whose name subsequently was
changed to Globe Metais Industria e Comercio S.A. (Globe
Metais). In February 2008, we acquired Solsil, Inc. (Solsil) and
in May 2008 we entered into a business combination with Ningxia
Yongvey Coal Industrial Co., Ltd. (Yongvey).
Recent
Trends
Global silicon prices have experienced significant gains in
recent years due to a combination of demand increases in both
existing markets and in the growing photovoltaic (solar)
industry, in addition to supply constraints created by lack of
capacity expansion, scheduled and unplanned furnace outages and
electricity supply shortages. Other than the reopening of our
Niagara facility, we are not aware of any significant increases
in planned industry production capacity of silicon metal and
silicon-based alloys. Additional capacity typically requires a
significant planning period, high capital expenditures and
access to economically competitive power and raw material
supplies. While much of the supply growth in recent years has
come from China, the Chinese government has begun restricting
the growth of industries that are energy intensive, such as
silicon production, through the use of export taxes and other
measures.
Demand growth for silicon from the aluminum and chemical sectors
has been strong in recent years. Demand growth in the aluminum
sector is driven primarily by higher aluminum content in
automobiles. In the chemical sector demand growth has also been
strong as certain applications benefit from substitution for
higher priced petroleum based alternatives. Another contributor
to the growing demand for silicon products is
35
the photovoltaic (solar) industry. While the solar industry is
still in the early stages of growth and only represents about
0.5% of the electricity market, global demand is expected to
increase. As a producer of UMG, we plan to benefit from this
demand increase through Solsil. We believe a major factor
constraining the photovoltaic (solar) industry is the short
supply of silicon, which is only produced at the necessary
purity level by a limited number of companies world-wide. While
a number of producers of solar grade silicon have announced
their intentions to expand capacity, we believe scheduled
capacity increases will fall short of future demand.
Average spot silicon metal prices have increased more than 88%
during the 12 month period ended March 31, 2008. We
believe the increase in silicon pricing is being driven by the
above average demand growth from the aluminum, chemical and
photovoltaic (solar) industry in conjunction with supply
constraints. If these supply and demand dynamics continue,
pricing should remain strong.
Critical
Accounting Policies
We prepare our financial statements in accordance with
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. 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 all significant
accounting policies in the notes to our consolidated financial
statements. We believe that the following accounting policies
involve a higher degree of judgment or complexity.
Business
Combinations
We have completed a number of significant business acquisitions.
Our business strategy contemplates that we may pursue additional
acquisitions in the future. When we acquire a business, the
purchase price is allocated to the tangible assets, identifiable
intangible assets and liabilities acquired. Any residual
purchase price is recorded as goodwill. Management generally
engages independent third-party appraisal firms to assist in
determining the fair values of assets acquired. 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 can
include, but are not limited to, the cash flows that an asset is
expected to generate in the future, the appropriate weighted
average cost of capital, and the cost savings expected to be
derived from acquiring an asset. These estimates are inherently
uncertain.
Goodwill
and Other Intangibles
In accordance with Statement of Financial Accounting Standards
(SFAS) 142,
Goodwill and Other Intangible Assets,
we
annually review goodwill and other intangibles with indefinite
useful lives for impairment or whenever events or changes in
circumstances indicate the carrying amount may not be
recoverable. If we determine that the carrying value of goodwill
and other intangibles may not be recoverable, a permanent
impairment charge is recorded for the amount by which the
carrying value of goodwill and other intangibles exceeds its
fair value. Fair value is measured based on a discounted cash
flow method, using a discount rate determined by management to
be commensurate with the risk inherent in our current business
model, or a valuation technique based on multiples of earnings
consistent with the objective of measuring fair value. The
estimates of cash flows, future earnings, and discount rate are
subject to change due to the economic environment, including
such factors as interest rates, expected market returns and
volatility of markets served. Management believes that the
estimates of future cash flows, future earnings, and fair value
are reasonable; however, changes in estimates could result in
impairment charges. SFAS 142 also requires that intangible
assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with
SFAS 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets.
36
Share-Based
Compensation
We account for share-based payments to employees in accordance
with SFAS Statement No. 123 (revised 2004),
(SFAS 123(R))
Share-Based Payment
, which requires
that share-based payments (to the extent they are compensatory)
be recognized in our consolidated income statement based on
their fair values. In addition, we have applied the provisions
of the SECs Staff Accounting Bulletin No. 107
(SAB 107) in our accounting for SFAS 123(R). We
are required to estimate the stock awards that we ultimately
expect to vest and to reduce stock-based compensation expense
for the effects of estimated forfeitures of awards over the
expense recognition period. Given our stock-based compensation
was granted under a new plan and that there is relatively no
historical data, we have estimated a forfeiture rate of zero.
Actual forfeitures in the future may differ from this estimate.
We estimate the fair value of employee stock options using a
Black-Scholes valuation model. The fair value of an award is
affected by our stock price on the date of grant as well as
other assumptions, including the estimated volatility over the
term of the awards and the estimated period of time that we
expect employees to hold their stock options, which is
calculated using the simplified method allowed by SAB 107.
As there is limited trading data related to our common stock,
the expected volatility over the expected vesting term of our
stock-based compensation is based on the historical volatilities
of similar companies. The risk-free interest rate assumption we
use is based upon United States Treasury interest rates
appropriate for the expected life of the awards. Our expected
dividend rate is zero since we do not currently pay cash
dividends on our common stock and do not anticipate doing so in
the foreseeable future. Actual results could differ from these
estimates.
Income
Taxes
As part of the process of preparing consolidated financial
statements, we are required to estimate income taxes in each of
the jurisdictions in which we conduct business. This process
involves estimating actual current tax expense and temporary
differences between tax and financial reporting. Temporary
differences result in deferred tax assets and liabilities, which
are included in the consolidated balance sheet. We must assess
the likelihood that deferred tax assets will be recovered from
future taxable income. A valuation allowance is recognized to
reduce deferred tax assets if, and to the extent that, it is
more likely than not that all or some portion of the deferred
tax assets will not be realized. In the event that actual
results differ from estimates in future periods, and depending
on the tax strategies that we may be able to implement, changes
to the valuation allowance could be required, which could impact
our financial position and results of operations.
As part of our accounting for business combinations, some of the
purchase price is allocated to goodwill and intangible assets.
Amortization expenses associated with acquired intangible assets
are generally not tax deductible; however, deferred taxes have
been recorded for non-deductible amortization expenses as a part
of the purchase price allocation process. We have taken into
account the allocation of these identified intangibles among
different taxing jurisdictions in establishing the related
deferred tax liabilities. Income tax contingencies existing as
of the acquisition dates of the acquired companies are evaluated
quarterly and any adjustments are recorded as adjustments to
(a) reduce to zero any goodwill related to the acquisition,
(b) reduce to zero other noncurrent intangible assets
related to the acquisition, and (c) reduce income tax
expense.
We adopted FASB Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes
on July 1, 2008. This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109
Accounting for Income Taxes
. We recognize an uncertain
tax position only if it is more likely than not that the tax
position will be sustained upon examination by the relevant
taxing authority that has full knowledge of all relevant
information, based on the technical merits of the position. The
income tax position is measured at the largest amount of
benefits that is more than 50% likely of being realized upon
settlement with a taxing authority. The determination of an
uncertain tax position and the likelihood of being realized
requires critical judgment and estimates. We carefully assess
each of the uncertain tax positions in order to determine the
tax benefit that can be recognized in the financial statements.
37
Pensions
We have three noncontributory defined pension benefit plans that
were frozen in 2003. Our pension plans and postretirement
benefit plans are accounted for under SFAS No. 158
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An Amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS 158) using actuarial valuations required by
SFAS No. 87
Employers Accounting for Pensions
(SFAS 87) and SFAS No. 106
Employers Accounting for Postretirement Benefits Other
Than Pensions
(SFAS 106). We consider accounting for
employee benefit plans critical because we are required to make
significant subjective judgments about a number of actuarial
assumptions, including discount rates, long-term return on plan
assets, and mortality rates. Expected return on plan assets is
determined based on historical results adjusted for anticipated
market movements. Depending on the assumptions and estimates
used, the pension benefit expense could vary within a range of
outcomes and have a material effect on reported results. In
addition, the assumptions can materially affect accumulated
benefit obligations and future cash funding.
Results
of Operations
Our results of operations are significantly affected by our
recent acquisitions. We acquired GMI in November 2006, acquired
SG in November 2006, acquired Globe Metais in January 2007 and
acquired Solsil in February 2008. Accordingly, our results for
the nine months ended March 31, 2008 include the results of
GMI, SG and Globe Metais for the entire period and include the
results of Solsil for the one month following its acquisition.
Our results for the nine months ended March 31, 2007
include the results of GMI and SG for approximately four and a
half months following their acquisitions and the results of
Globe Metais for two months following its acquisition. Our
results for the year ended June 30, 2007 include the
results of GMI and SG for approximately seven and a half months
following their acquisitions and the results of Globe Metais for
the five months following its acquisition. Results for the years
ended June 30, 2006 and 2005 are the results for GMI, the
predecessor company which include the results of West Virginia
Alloys, Inc. (Alloy) from its acquisition on December 21,
2005.
GSM
Nine Months Ended March 31, 2008 vs. 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
|
Increase
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
316,751
|
|
|
|
121,250
|
|
|
|
195,501
|
|
|
|
161.2
|
%
|
Cost of sales
|
|
|
251,077
|
|
|
|
102,831
|
|
|
|
148,246
|
|
|
|
144.2
|
%
|
Selling, general and administrative
|
|
|
34,604
|
|
|
|
9,955
|
|
|
|
24,649
|
|
|
|
247.6
|
%
|
Research and development
|
|
|
407
|
|
|
|
53
|
|
|
|
354
|
|
|
|
667.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
30,663
|
|
|
|
8,411
|
|
|
|
22,252
|
|
|
|
264.6
|
%
|
Other income (expense)
|
|
|
(5,103
|
)
|
|
|
1,846
|
|
|
|
(6,949
|
)
|
|
|
(376.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, deferred interest subject to
redemption and minority interest
|
|
|
25,560
|
|
|
|
10,257
|
|
|
|
15,303
|
|
|
|
149.2
|
%
|
Provision for income taxes
|
|
|
7,343
|
|
|
|
3,106
|
|
|
|
4,237
|
|
|
|
136.4
|
%
|
Deferred interest subject to redemption
|
|
|
|
|
|
|
(768
|
)
|
|
|
768
|
|
|
|
Not applicable
|
|
Minority interest
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
|
|
11,860
|
|
|
|
185.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2008
|
|
|
Nine Months Ended March 31, 2007
|
|
|
|
Net Sales
|
|
|
Net Sales
|
|
|
|
($ in 000s)
|
|
|
MT
|
|
|
$/MT
|
|
|
($ in 000s)
|
|
|
MT
|
|
|
$/MT
|
|
|
|
(Unaudited)
|
|
|
Silicon metal and related alloys
|
|
$
|
294,711
|
|
|
|
154,355
|
|
|
$
|
1,909
|
|
|
$
|
113,209
|
|
|
|
71,259
|
|
|
$
|
1,589
|
|
Silica fume and other
|
|
|
22,040
|
|
|
|
|
|
|
|
|
|
|
|
8,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
316,751
|
|
|
|
|
|
|
|
|
|
|
$
|
121,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net sales was primarily attributable to the
timing of the acquisitions of GMI, SG and Globe Metais during
fiscal year 2007, resulting in incremental sales of
approximately $93.5 million, $13.2 million, and
$41.9 million, respectively, in the nine month period ended
March 31, 2008. The acquisition of Solsil in February 2008
contributed sales of $1.1 million in the nine month period
ended March 31, 2008. Additionally, price increases in
silicon metal, magnesium ferrosilicon and calcium silicon
products contributed $45.8 million of revenue.
Cost of
Sales:
The increase in cost of sales was primarily attributable to the
timing of the acquisitions of GMI, SG and Globe Metais during
fiscal year 2007, resulting in incremental cost of sales of
approximately $78.1 million, $12.4 million, and
$34.6 million, respectively, in the nine month period ended
March 31, 2008. The acquisition of Solsil in February 2008
contributed cost of sales of $1.1 million in the nine month
period ended March 31, 2008.
Additionally, cost of sales increased by $20.1 million
primarily due to higher prices for electrodes, electrical power
and increased labor costs. Depreciation expense on an increased
fixed asset base contributed $1.2 million of cost of sales
increase. Finalization of purchase accounting adjustments for
the acquisition of Globe Metais increased cost of sales by
$0.7 million.
Selling,
General and Administrative:
The acquisitions of GMI, SG and Globe Metais during fiscal year
2007 resulted in incremental expenses of approximately
$6.1 million, $1.1 million, and $2.9 million,
respectively, in the nine month period ended March 31,
2008. The acquisition of Solsil in February 2008 contributed
expenses of $0.1 million in the nine month period ended
March 31, 2008.
Share-based
compensation expense increased by $6.4 million over 2007
due to an increase in our common share price and additional
stock option grants. In addition, salary and benefits,
professional fees and other administrative cost increases added
$8.0 million to expenses during the nine month period ended
March 31, 2008.
Other
Income (Expense):
The acquisitions of GMI, SG and Globe Metais during fiscal year
2007 resulted in incremental interest expense of approximately
$2.0 million, $0.3 million, and $1.0 million,
respectively, in the nine month period ended March 31, 2008.
Other expense also increased by $0.7 million primarily due
to higher interest rates. Interest income was lower by
$2.9 million due to a reduction of cash resulting from the
acquisitions of GMI, SG and Globe Metais.
Provision
for Income Taxes:
The changes in our income tax provision were a result of changes
in the level of earnings and losses within the various tax
jurisdictions in which we operate, as well as the impact of tax
exempt interest and foreign tax rate differentials associated
with our Globe Metales and Globe Metais acquisitions.
39
Deferred
Interest Subject to Redemption:
This amount represents interest income attributable to
stockholders who elected to redeem their shares at the time of
the GMI acquisition.
GSM
(Successor) Fiscal Year Ended June 30, 2007 vs. GMI
(Predecessor) Fiscal Year Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
Increase
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
221,928
|
|
|
|
173,008
|
|
|
|
48,920
|
|
|
|
28.3
|
%
|
Cost of sales
|
|
|
184,122
|
|
|
|
147,682
|
|
|
|
36,440
|
|
|
|
24.7
|
%
|
Selling, general and administrative
|
|
|
18,541
|
|
|
|
14,261
|
|
|
|
4,280
|
|
|
|
30.0
|
%
|
Research and development
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
19,145
|
|
|
|
11,065
|
|
|
|
8,080
|
|
|
|
73.0
|
%
|
Other income (expense)
|
|
|
504
|
|
|
|
(6,010
|
)
|
|
|
6,514
|
|
|
|
(108.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and deferred interest subject to
redemption
|
|
|
19,649
|
|
|
|
5,055
|
|
|
|
14,594
|
|
|
|
288.7
|
%
|
Provision for income taxes
|
|
|
7,047
|
|
|
|
1,914
|
|
|
|
5,133
|
|
|
|
268.2
|
%
|
Deferred interest subject to redemption
|
|
|
(768
|
)
|
|
|
|
|
|
|
(768
|
)
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
11,834
|
|
|
|
3,141
|
|
|
|
8,693
|
|
|
|
276.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year Ended June 30, 2007
|
|
|
Year Ended June 30, 2006
|
|
|
|
Net Sales
|
|
|
Net Sales
|
|
|
|
($ in 000s)
|
|
|
MT
|
|
|
$/MT
|
|
|
($ in 000s)
|
|
|
MT
|
|
|
$/MT
|
|
|
|
(Unaudited)
|
|
|
Silicon metal and related alloys
|
|
$
|
206,528
|
|
|
|
127,586
|
|
|
$
|
1,619
|
|
|
$
|
165,177
|
|
|
|
126,465
|
|
|
$
|
1,306
|
|
Silica fume and other
|
|
|
15,400
|
|
|
|
|
|
|
|
|
|
|
|
7,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
221,928
|
|
|
|
|
|
|
|
|
|
|
$
|
173,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The acquisitions of SG and Globe Metais during fiscal year 2007
resulted in increased revenues of $22.2 million and
$27.6 million, respectively, in the year ended
June 30, 2007. The year ended June 30, 2007 includes
the revenues for GMI from its acquisition in November 2006. The
impact of comparing this amount to a full 12 months for the
year ended June 30, 2006, which only included approximately
6.5 months of Alloy sales from its acquisition in December
2005, results in a reduction of revenue of approximately
$32.5 million.
Production volume increases, which raised revenue by
$20.2 million, were offset by a maintenance related furnace
shutdown at one of our facilities, which reduced revenue by
$5.1 million. Pricing increases on silicon metal
contributed $12.7 million to revenue. The impact of the
amortization of customer contract liabilities in fiscal year
2007 contributed $3.8 million to revenue.
Cost of
Sales:
The year ended June 30, 2007 includes the cost of sales for
GMI from its acquisition in November 2006. The impact of
comparing this amount to a full 12 months for the year
ended June 30, 2006, which only included approximately
6.5 months of Alloy costs, results in a reduction in cost
of sales of approximately
40
$27.2 million. The acquisition of SG and Globe Metais
during fiscal year 2007 resulted in incremental cost of sales of
$20.3 million and $22.8 million, respectively, in the
year ended June 30, 2007.
The net increases in production volume during the period
contributed $12.9 million to cost of sales. Cost increases
for electrical power, wages, maintenance and production costs,
including freight expense, contributed $4.9 million to the cost
of sales increase. Purchase accounting adjustments at the time
of the acquisition of GMI created an increase in cost of sales
of $2.7 million.
Selling,
General and Administrative:
The year ended June 30, 2007 includes the selling, general
and administrative expenses for GMI from acquisition in November
2006. The impact of comparing this amount to a full
12 months for the year ended June 30, 2006 results in
a reduction in expenses of approximately $2.5 million. The
acquisition of SG and Globe Metais during fiscal year 2007
resulted in incremental expenses of $1.9 million and
$2.3 million, respectively, in the year ended June 30,
2007. The fiscal year ended June 30, 2007 also includes
general and administrative expenses of $3.0 million related
to GSM.
The GMI business had comparable monthly salary expenses between
fiscal 2006 and fiscal 2007 but had marginally higher
depreciation expense of $0.2 million. During the year ended
June 30, 2007, we entered into a new property insurance
contract which reduced expense by $0.6 million. The year
ended June 30, 2007 includes expenses for GMI from its
acquisition in November 2006.
Other
Income (Expense):
A reduction of $0.9 million of interest expense was related
to the impact of comparing a partial GMI fiscal year in 2007
versus a 12 month period in fiscal year 2006. The
acquisitions of SG and Globe Metais during fiscal year 2007
resulted in incremental expense of $1.3 million, in the
year ended June 30, 2007. The fiscal year ended
June 30, 2007 also includes interest income of
$5.9 million related to the cash balance held by GSM
following its November 2006 securities offering.
An additional increase in other income of $1.0 million was
primarily due to a reduction in the amortization of GMI deferred
financing fees.
Provision
for Income Taxes:
The changes in our income tax provision were a result of changes
in the level of earnings and losses within the various tax
jurisdictions in which we operate, as well as the impact of tax
exempt interest and foreign tax rate differentials associated
with the acquisitions of Globe Metales and Globe Metais.
Deferred
Interest Subject to Redemption:
This amount represents interest income attributable to
stockholders who elected to redeem their shares at the time of
the GMI acquisition.
41
GMI
(Predecessor) Fiscal Years Ended June 30, 2006 vs.
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
Increase
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
173,008
|
|
|
|
132,223
|
|
|
|
40,785
|
|
|
|
30.8
|
%
|
Cost of sales
|
|
|
147,682
|
|
|
|
103,566
|
|
|
|
44,116
|
|
|
|
42.6
|
%
|
Selling, general and administrative
|
|
|
14,261
|
|
|
|
9,180
|
|
|
|
5,081
|
|
|
|
55.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
11,065
|
|
|
|
19,477
|
|
|
|
(8,412
|
)
|
|
|
(43.2
|
)%
|
Other expense
|
|
|
6,010
|
|
|
|
5,291
|
|
|
|
719
|
|
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
5,055
|
|
|
|
14,186
|
|
|
|
(9,131
|
)
|
|
|
(64.4
|
)%
|
Provision for income taxes
|
|
|
1,914
|
|
|
|
4,968
|
|
|
|
(3,054
|
)
|
|
|
(61.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
3,141
|
|
|
|
9,218
|
|
|
|
(6,077
|
)
|
|
|
(65.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2006
|
|
|
Year Ended June 30, 2005
|
|
|
|
Net Sales
|
|
|
Net Sales
|
|
|
|
($ in 000s)
|
|
|
MT
|
|
|
$/MT
|
|
|
($ in 000s)
|
|
|
MT
|
|
|
$/MT
|
|
|
|
(Unaudited)
|
|
|
Silicon metal and related alloys
|
|
$
|
165,177
|
|
|
|
126,465
|
|
|
$
|
1,306
|
|
|
$
|
127,978
|
|
|
|
102,074
|
|
|
$
|
1,254
|
|
Silica fume and other
|
|
|
7,831
|
|
|
|
|
|
|
|
|
|
|
|
4,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
173,008
|
|
|
|
|
|
|
|
|
|
|
$
|
132,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The acquisition of the Alloy business in December 2005 resulted
in increased revenues of $55.0 million during the year
ended June 30, 2006.
Excluding the impact of Alloy, net sales decreased by
$1.8 million due to pricing decreases primarily on silicon
metal product. Lower sales volumes reduced revenues by
$9.8 million primarily due to temporary furnace outages at
two of our facilities. Additionally, sales of silicomanganese
were discontinued during fiscal year 2005, which resulted in a
reduction of revenue of $2.6 million during the year ended
June 30, 2006.
Cost of
Sales:
The acquisition of the Alloy business in December 2005 resulted
in incremental cost of sales of $44.2 million during the
year ended June 30, 2006.
Excluding the impact of Alloy, production volume decreases
reduced cost of sales by $5.7 million during the year ended
June 30, 2006. The impact of lower furnace efficiencies
during the year ended June 30, 2006 resulted in
approximately $5.6 million increase to cost of sales.
Selling,
General and Administrative:
The acquisition of the Alloy business in December 2005 was the
primary driver of an increase in expenses of $5.1 million
during the year ended June 30, 2006.
Excluding the impact of Alloy, our GMI subsidiary had comparable
period salary expenses with increases in professional fees
offset by lower miscellaneous charges.
42
Other
Expense:
The increase in other expense during the year ended
June 30, 2006, was primarily due to higher average daily
balances on the revolving credit line, which was utilized to
finance working capital needs.
Provision
for Income Taxes:
The changes in our income tax provision were a result of changes
in the level of earnings and losses within the various tax
jurisdictions in which we operate and changes in the current
years effective tax rate.
Liquidity
and Capital Resources
Sources
of Liquidity
Our principal sources of liquidity are cash flow from operations
and available borrowings under GMIs revolving credit
facility. As of March 31, 2008, our cash and cash
equivalents balance was $74,752. As of March 31, 2008, we
had $27,500 of revolving credit, with a weighted average
interest rate of 5.68% on the outstanding balance of $14,600.
Our subsidiaries borrow funds in order to finance operations.
The terms of certain of those financings 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 that cash generated from operations and borrowings under
our credit facilities will be sufficient to meet our working
capital requirements, anticipated capital expenditures and
scheduled debt payments for the next several years. Our ability
to satisfy debt service obligations, to fund planned capital
expenditures and to make acquisitions will depend upon our
future operating performance, which will be affected by
prevailing economic conditions in our industry and financial,
business and other factors, some of which are beyond our control.
A summary of our revolving credit agreements is as follows:
Senior Credit Facility
This credit facility
of our subsidiary, GMI, expires November 2009. Interest on the
facility accrues at the London Interbank Offered Rate (LIBOR) or
prime, at GMIs option, plus an applicable margin
percentage. At March 31, 2008, the interest rate on the
LIBOR borrowing was 5.00%, equal to LIBOR plus 2.75%. At
March 31, 2008, the interest rate on the prime borrowing
was 6.50%, equal to prime plus 1.75%. The total commitment on
this portion of the credit facility includes $6,664 for letters
of credit associated with foreign supplier contracts. The credit
facility is secured by substantially all of the assets of GMI
and is subject to certain restrictive and financial covenants,
which include limits on additional debt, restrictions on capital
expenditures, restrictions on dividend and other equity
distributions, and certain minimum interest, debt service, and
leverage ratios. GMI was in compliance with these loan covenants
at March 31, 2008.
Export Financing Agreements
Our Argentine and
Brazilian subsidiaries maintain various short-term export
financing arrangements. The terms of these agreements are
generally between six and twelve months. Interest accrues at
rates ranging from 5.20% to 7.50% at March 31, 2008.
Certain export accounts receivable balances are pledged as
collateral against these borrowings.
Other
Our subsidiary, Solsil, has $1,500 in
outstanding promissory notes, which mature on October 24,
2008. The notes accrue interest at LIBOR plus 3.00%, with
interest payable in kind and capitalized as outstanding
principal at the end of each quarter in lieu of payment in cash.
The promissory notes are secured by all property and assets of
Solsil. In addition, Solsil is subject to restrictions on
issuing dividend payments and securities. At March 31,
2008, the total debt balance was $1,552.
43
Cash
Flows
The following table summarizes our primary sources (uses) of
cash during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Nine Months Ended March 31,
|
|
|
Year Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cash and cash equivalents at beginning of period
|
|
$
|
67,741
|
|
|
|
1,996
|
|
|
|
1,996
|
|
|
|
$
|
|
|
|
|
2,601
|
|
Cash flows from operating activities
|
|
|
4,680
|
|
|
|
9,159
|
|
|
|
18,673
|
|
|
|
|
12,823
|
|
|
|
15,233
|
|
Cash flows from investing activities
|
|
|
(17,872
|
)
|
|
|
76,495
|
|
|
|
67,668
|
|
|
|
|
(43,648
|
)
|
|
|
(3,841
|
)
|
Cash flows from financing activities
|
|
|
20,203
|
|
|
|
(28,905
|
)
|
|
|
(20,596
|
)
|
|
|
|
30,825
|
|
|
|
(13,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
74,752
|
|
|
|
58,745
|
|
|
|
67,741
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
Net cash provided by operating activities was $4,680 and $9,159
during the nine months ended March 31, 2008 and
March 31, 2007, respectively. The $4,479 decrease in net
cash provided by operating activities from 2007 to 2008 was due
to stronger operating results, fueled by increased pricing and a
full year of operations of the acquired GMI, SG and Camargo
businesses, offset by increases in net working capital. Working
capital increased primarily due to increases in accounts
receivable from higher realized pricing and increases in
inventories, mainly electrodes, in anticipation of increased
prices and longer required lead times as sourcing was shifted to
Asia.
Net cash provided by operating activities was $18,673 and
$12,823 during the fiscal years 2007 and 2006, respectively. The
$5,850 increase in net cash provided by operating activities
from 2006 to 2007 was primarily due to increases in net income
provided by the addition of the SG and Camargo businesses as
well as increased pricing. A reduction in working capital
accounts in 2006, including accounts payable which increased
$4,846 due to timing of payments, provided the balance of the
cash provided from operating activities.
Net cash provided by operating activities was $12,823 and
$15,233 during the fiscal years 2006 and 2005, respectively. The
$2,410 decrease in net cash provided by operating activities
from 2005 to 2006 was primarily due to decreases in net income
of $6,077 caused by reduced shipments resulting from furnace
outages and lower selling prices. The impact of reduced
operating income was offset by cash flow provided by working
capital improvements in 2006. The increases in accounts payable
and accounts receivable were primarily due to the required build
up of working capital at Alloy, while the reduction in inventory
was due to improved inventory management.
Investing
Activities:
Net cash provided by (used in) investing activities was
$(17,872) and $76,495 during the nine month periods ended
March 31, 2008 and 2007, respectively. The net cash
provided from investing activities in 2007 came from the release
of the proceeds of our 2006 securities offering upon the
acquisition of GMI of $190,192 offset by the cash used in the
GMI, SG and Globe Metais acquisitions of $104,894. Additionally,
year over year capital expenditures increased from $5,765 to
$13,098 mainly due to Beverly furnace overhauls and Alloy
furnace electrical conversion projects.
Net cash provided by (used in) investing activities was $67,668
and $(43,648) during the fiscal years 2007 and 2006,
respectively. The net cash provided from investing activities in
2007 came from the release of the proceeds of our 2006
securities offering upon the acquisition of GMI of $190,192
offset by the cash used in the GMI, SG and Globe Metais
acquisitions of $104,894. During fiscal year 2006, we used
$38,764 for the purchase of Alloy. Additionally, year over year
capital expenditures increased from $4,884 to $8,629 mainly due
to Beverly furnace overhauls and Alloy furnace electrical
conversion projects.
44
Net cash used in investing activities was $43,648 and $3,841
during the fiscal years 2006 and 2005, respectively. The
increase of $39,807 in cash used in investing activities was due
to the acquisition of Alloy and a year over year increase of
$1,043 in capital expenditures.
Financing
Activities:
Net cash provided by (used in) financing activities was $20,203
and $(28,905) during the nine month periods ended March 31,
2008 and 2007, respectively. The increase of $49,108 in cash
provided by financing activities was mainly due to the
redemption of certain GSM shares for $42,802 and the payment of
dividends of $3,257 that occurred in 2007 but were not repeated
in 2008. Additionally, cash provided from borrowing increased by
$15,388 while cash provided by warrant exercises decreased by
$13,683 year over year.
Net cash provided by (used in) financing activities was
$(20,596) and $30,825 during the fiscal years 2007 and 2006,
respectively. During fiscal year 2006, the issuance of common
stock provided cash flow of $35,000 while debt repayment reduced
cash by $4,150. Our financing activities used net cash of
$20,596 during fiscal year 2007, mainly to purchase redeemed
shares of $42,802 and to pay dividends of $3,257. This was
offset by the proceeds from warrant exercises of $19,458 and net
borrowing of short and long-term debt of $6,975.
Net cash provided by (used in) financing activities was $30,825
and $(13,993) during the fiscal years 2006 and 2005,
respectively. During fiscal year 2006, the issuance of common
stock provided cash flow of $35,000 while debt repayment reduced
cash by $4,150. The cash used in financing activities during
fiscal year 2005 was for repayment of
long-term
debt.
Internal
Controls and Procedures
We will be required to comply with the internal control
requirements of the Sarbanes-Oxley Act for the fiscal year
ending June 30, 2010. We have identified certain
deficiencies in our internal controls that we consider to be
material weaknesses. These material weaknesses in internal
control over financial reporting relate to deficiencies in our
information technology general controls and entity-level
controls, and our failure to maintain a sufficient complement of
personnel with an appropriate level of accounting knowledge,
experience and training in the application of U.S. GAAP
commensurate with our financial reporting requirements and
business environment.
To address these material weaknesses, we have been, and intend
to continue expanding our accounting staff with persons with
additional skills and experience and improving our information
technology general controls and entity-level controls. We intend
to engage qualified outside professionals to provide support and
guidance in areas where we cannot economically maintain the
required skills and experience internally. We are in the process
of selecting a worldwide enterprise resource planning system
which will enable us better access to programs and data and
enhance our overall computer operations. We plan on implementing
a worldwide ethics hotline which will be available for all of
our operations. We have distributed several worldwide accounting
policies which affect our operations. We now have an audit
committee composed entirely of independent directors that will
meet regularly. We also intend to implement more written
policies, procedures and other documentation designed to address
our current control deficiencies.
Although these measures are designed to address our material
weaknesses, we intend to continue the expansion of our
accounting and information technology staff and engagements of
outside professionals. Our internal control over financial
reporting may not prevent or detect misstatements, errors or
omissions because of inherent limitations.
Because we have not fully addressed each of our material
weaknesses, we believe that certain material weaknesses continue
to exist at March 31, 2008, and that our internal controls
and procedures were ineffective at such date. While we cannot
provide any assurance to when our internal controls and
procedures will be effective, management intends to remediate
our current deficiencies by the end of fiscal 2010, when our
management must provide an assessment of the effectiveness of
our internal controls and procedures and our auditors must
provide an attestation thereof.
45
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements or
relationships with unconsolidated entities of financial
partnerships, such as entities often referred to as structured
finance or special purpose entities.
Litigation
and Contingencies
Through March 31, 2008, we paid an aggregate amount of
$2,384 in settlement of a lawsuit, including damages, legal fees
and related interest. In April 2008, we were granted permission
to appeal this judgment, but there is no assurance that we will
be successful in its appeal. We do not expect that the ultimate
disposition of this matter will have a material adverse effect
on our consolidated financial position, results of operations or
liquidity.
We are subject to various lawsuits, claims and proceedings that
arise in the normal course of business, including employment,
commercial, environmental, safety and health matters. Although
it is not presently possible to determine the outcome of these
matters, in the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on our
consolidated financial position, results of operations, or
liquidity.
At March 31, 2008, there are no liabilities recorded for
environmental contingencies. With respect to the cost for
ongoing environmental compliance, including maintenance and
monitoring, such costs are expensed as incurred.
Long-Term
Debt
Long-term debt comprised the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Senior term loan
|
|
$
|
18,641
|
|
|
|
24,750
|
|
Junior subordinated term loan
|
|
|
8,500
|
|
|
|
8,500
|
|
Junior subordinated term loan
|
|
|
8,500
|
|
|
|
8,500
|
|
Export prepayment financing
|
|
|
20,000
|
|
|
|
|
|
Export financing
|
|
|
6,450
|
|
|
|
9,028
|
|
Other
|
|
|
4,379
|
|
|
|
1,649
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
66,470
|
|
|
|
52,427
|
|
Less current portion of long-term debt
|
|
|
(10,317
|
)
|
|
|
(6,370
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$
|
56,153
|
|
|
|
46,057
|
|
|
|
|
|
|
|
|
|
|
Senior Term Loan
Loan principal and interest
payments are due in quarterly installments of $750 plus interest
at LIBOR or prime, at our option, plus an applicable margin
percentage. The interest rate on this loan was 6.6%, equal to
LIBOR plus 3.5%, at March 31, 2008. The unpaid principal
balance is due in full in November 2010. The loan is secured by
substantially all of the assets of GMI and is subject to certain
restrictive and financial covenants, which include limits on
additional debt, restrictions on capital expenditures,
restrictions on dividend and other equity distributions, and
certain minimum interest, debt service, and leverage ratios. GMI
was in compliance with these loan covenants at March 31,
2008.
We entered into an interest rate swap to fix LIBOR on 50% of the
original senior term loan. The agreement, which expires in March
2011, involves the exchange of the interest obligations relating
to an initial $15,000 notional amount of debt, with the notional
amount decreasing by $375 per quarter consistent with half of
the debt amortization on the senior term loan. The remaining
notional amount is $12,000 at March 31, 2008. Under the
interest rate swap, we receive LIBOR in exchange for a fixed
interest rate of 5.23% over the life of the agreement. The
agreement provides for a net cash settlement. We believe it is
not practical to designate the cash-settled interest rate swap
agreement as a fair value hedge as defined under SFAS 133.
46
Therefore, in accordance with SFAS 133, we adjust the
interest rate swap agreement to current market value through our
consolidated income statement based on the fair value of the
swap agreement as of each period end. The related increase in
interest expense totaled $880 and $22, respectively, for the
nine months ended March 31, 2008 and 2007. The fair value
of this derivative is recorded in other long-term liabilities
with a balance of $750 at March 31, 2008. The fair value of
this derivative is recorded in other assets with a value of $40
at June 30, 2007.
Junior Subordinated Term Loans
These loans
with D.E. Shaw mature in November 2011. Interest on one
loan accrues quarterly at prime plus 3.25%, with the aggregate
rate not to be less than 10.25%. Interest on the other loan
accrues monthly at LIBOR plus 8%. The interest rates on these
loans were 8.5% and 10.54%, respectively, at March 31,
2008. Both of these loans are secured by substantially all
assets of GMI on a subordinated basis and are subject to certain
loan covenant restrictions. GMI was in compliance with the loan
covenants at March 31, 2008.
Export Prepayment Financing
Our Brazilian
subsidiary has entered into a $20,000 export financing
arrangement maturing January 31, 2012. The arrangement
carries an interest rate of LIBOR plus 2.5%, paid semi-annually.
At March 31, 2008, the interest rate on this loan was
6.25%. The principal is payable in seven, semi-annual
installments starting in February 2009, with six installments of
$3,000 and one final installment of $2,000. As collateral, our
subsidiary has pledged certain third party customers
export receivables, 100% of the subsidiarys property,
plant, and equipment, and 2,000 MT of metallic silicon with an
approximate value of $3,800. The loan is subject to certain loan
covenant restrictions such as limits on issuing dividends,
disposal of pledged assets, and selling of forest areas. Our
subsidiary was in compliance with the loan covenants at
March 31, 2008. In addition, the proceeds from certain cash
receipts during the sixty days prior to a loan installment
payment date are restricted for payment of the respective
installment.
Export Financing
Our Brazilian subsidiary
maintains long-term export financing arrangements with three
banks in Brazil. At March 31, 2008, interest on $2,000 of
the balance outstanding accrues quarterly at the rate of LIBOR
plus 1.25%. Interest accrues on the remaining balance of $4,450
at rates ranging from 5.65% to 6.50%.
Commitments
and Contractual Obligations
The following tables summarize our contractual obligations at
June 30, 2007 and the effects such obligations are expected
to have on our liquidity and cash flows in future periods:
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Contractual Obligations
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Less Than
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One to
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Three to
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More Than
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(as of June 30, 2007)
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Total
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One Year
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Three Years
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Five Years
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5 Years
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(In thousands)
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Long-Term Debt Obligations(1)
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$
|
52,427
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|
|
|
6,370
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|
|
|
13,267
|
|
|
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32,790
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|
|
|
|
|
Interest on Long-Term Debt(2)
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|
|
16,239
|
|
|
|
4,554
|
|
|
|
8,248
|
|
|
|
3,437
|
|
|
|
|
|
Operating Lease Obligations(3)
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|
|
3,310
|
|
|
|
947
|
|
|
|
2,172
|
|
|
|
191
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|
|
|
|
|
Purchase Obligations(4)
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|
|
6,632
|
|
|
|
3,316
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|
|
|
3,316
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|
|
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Total
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$
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78,608
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15,187
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|
|
|
27,003
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|
|
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36,418
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|
|
|
|
|
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(1)
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Debt includes principal repayments on GMIs senior term
loan, GMIs two junior subordinated term loans and three
export financing arrangements and other loans used by our
subsidiary, Metais. All outstanding debt instruments are assumed
to remain outstanding until their respective due dates. This
balance excludes our revolving credit agreements which had an
outstanding balance of $11,685 on June 30, 2007. See Debt
footnote in the consolidated financial statements for further
details.
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(2)
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Estimated interest payments on our long-term debt assuming that
all outstanding debt instruments will remain outstanding until
their respective due dates. A portion of our interest is
variable rate so actual payments will vary with changes in LIBOR
and prime. This balance excludes interest from our revolving
credit agreements. See Debt footnote in the consolidated
financial statements for further details.
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47
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(3)
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Represents minimum rental commitments under noncancelable leases
for machinery and equipment, automobiles, and rail cars.
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(4)
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Purchase obligations include contractual commitments under
various long and short-term take or pay arrangements with
suppliers but exclude purchase orders issued in the ordinary
course of business. These obligations include commitments to
purchase magnesium raw material which specifies a minimum
purchase quantity for the calendar year 2008. In addition, GMI
has entered into commitments to purchase coal which specify a
minimum purchase quantity for calendar years 2008 through 2011.
|
The table above also excludes certain other obligations
reflected in our consolidated balance sheet, including estimated
funding for pension and post retirement benefit obligations, for
which the timing of payments may vary based on changes in the
fair value of plan assets (for pension obligations) and
actuarial assumptions. We expect to contribute approximately
$431 to the plan for the year ended June 30, 2009.
Recently
Implemented Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments an amendment of FASB
Statements No. 133 and 140 (SFAS 155). SFAS 155
is effective for all financial instruments acquired or issued
after July 1, 2007, and amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), and SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This statement resolves issues addressed in
Statement 133 Implementation Issue No. D1, Application of
Statement 133 to Beneficial Interests in Securitized Financial
Assets. The adoption of SFAS 155 had no impact to our
consolidated results of operations or financial condition.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109 (FIN 48).
This interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109 Accounting
for Income Taxes. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. This interpretation also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. The adoption of FIN 48 was not material to our
consolidated results of operations or financial condition.
Accounting
Pronouncements to be Implemented
In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurement (SFAS 157). SFAS 157 defines fair
value, establishes a framework for the measurement of fair
value, and enhances disclosures about fair value measurements.
The statement does not require any new fair value measures. We
are required to adopt SFAS 157 beginning on July 1,
2008. However, the FASB deferred the effective date of
SFAS 157, until July 1, 2009 for us, as it relates to
fair value measurement requirements for nonfinancial assets and
liabilities that are not remeasured at fair value on a recurring
basis. SFAS 157 is required to be applied prospectively,
except for certain financial instruments. Any transition
adjustment will be recognized as an adjustment to opening
retained earnings in the year of adoption. We are currently
evaluating the impact of adopting SFAS 157 on our results
of operations and financial position.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159). This statement permits companies,
at their option, to choose to measure many financial instruments
and certain other items at fair value. If the option to use fair
value is chosen, the statement requires additional disclosures
related to the fair value measurements included in the financial
statements. This statement is effective for us on July 1,
2008. We are currently evaluating the impact of adopting
SFAS 159 on our results of operations and financial
position.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. The objective of this statement is to
improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity
provides in its financial reports about a business combination
and its effects. This statement
48
establishes principles and requirements for how the acquirer
(i) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired entity,
(ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and
(iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement
applies prospectively to business combinations for which the
acquisition date is on or after July 1, 2009.
In December 2007, the FASB issued SFAS No. 160
(SFAS 160), Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51. The
objective of this statement is to improve the relevance,
comparability, and transparency of the financial information
that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This statement is effective for
us on July 1, 2009. We are currently assessing the
potential effect of SFAS 160 on our results of operations
and financial position.
In March 2008, the FASB issued SFAS No. 161
(SFAS 161), Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133.
This statement changes the disclosure requirements for
derivative instruments and hedging activities. Entities are
required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted
for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We are
currently assessing the potential effect of SFAS 161 on our
financial statements.
In March 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles. This
statement identifies the sources of accounting principles and
the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with US GAAP. This statement is
effective 60 days following the SECs approval of the
Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles. We do not expect
the implementation of this statement to have an impact on our
results of operations or financial position.
Quantitative
and Qualitative Disclosures about Market Risk
We are exposed to market risks arising from adverse changes in:
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commodity prices,
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interest rates, and
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foreign exchange rates
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In the normal course of business, we manage these risks through
a variety of strategies, including obtaining captive or
long-term contracted raw material supplies and hedging
strategies. Obtaining captive or long-term contracted raw
material supplies involves the acquisition of companies or
assets for the purpose of increasing our access to raw materials
or the identification and effective implementation of long-term
leasing rights or supply agreements. Our hedging strategies
include the use of derivatives. Our derivatives do not qualify
for hedge accounting and are marked to market through earnings.
We do not use derivative instruments for trading or speculative
purposes. The fair value of our derivatives fluctuate based on
market rates and prices. The sensitivity of our derivatives to
these market fluctuations is discussed below. See our
consolidated financial statements for further discussion of
these derivatives and our hedging policies. See our
Critical Accounting Policies for a discussion of the
exposure of our pension plan assets to risks related to stock
prices and discount rates.
49
Commodity
Prices
We are exposed to price risk for certain raw materials and
energy used in our production process. The raw materials and
energy which we use are largely commodities subject to price
volatility caused by changes in global supply and demand and
governmental controls. We attempt to reduce the impact of
increases in our raw material and energy costs by negotiating
long-term contracts and through the acquisition of companies or
assets for the purpose of increasing our access to raw materials
with favorable pricing terms. We have entered into long-term
power supply contracts that result in stable, favorably priced
long-term commitments for the majority of our power needs.
Additionally, we have long-term lease mining rights in the
U.S. and Brazil that supply us with a substantial portion
of our requirements for quartzite. In Brazil, we own a forest
reserve which supplies our Brazilian operations with the wood
necessary for woodchips and a majority of our charcoal. We also
obtained a captive supply of electrodes, through our recent
formation of a business combination in China.
To the extent that we have not mitigated our exposure to rising
raw material and energy prices, we may not be able to increase
our prices to offset such potential raw material or energy price
increases which could have a material adverse effect on our
results of operations and operating cash flows.
Interest
Rates
We are exposed to market risk from changes in interest rates on
certain of our long-term debt obligations. At June 30,
2007, we had approximately $45,808 of variable rate debt. To
manage our interest rate risk exposure and fulfill a requirement
of our senior term loan, we entered into an interest rate swap
agreement with an investment grade financial institution. The
agreement covered an initial notional amount of $15,000, with
the notional amount decreasing by $375 per quarter, consistent
with half of the debt amortization on our senior term loan. Our
interest rate swap agreement expires in March 2011. In
accordance with the interest rate swap agreement, we receive
LIBOR in exchange for a fixed interest rate of 5.23% over the
life of the agreement. Our interest rate swap agreement is not
accounted for as a hedge under SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
; therefore, the fair market value is recorded in
other assets in our consolidated balance sheet with a value of
$40 at June 30, 2007. The related gains or losses are
recorded as a component of interest expense in the consolidated
income statement.
If market interest rates were to increase or decrease by 10% for
the full 2008 fiscal year as compared to the rates in effect at
June 30, 2007, we estimate that the change would not have a
material impact to our cash flows or results of operations.
Foreign
Exchange Rates
We are exposed to market risk arising from changes in currency
exchange rates as a result of operations outside the United
States, principally in Brazil and Argentina. A portion of our
sales generated from our
non-U.S. operations
is denominated in currencies other than the U.S. dollar.
Most of our operating costs for our
non-U.S. operations
are denominated in local currencies, principally the Brazilian
Real and Argentine Peso. Consequently, the translated
U.S. dollar value of our
non-U.S. dollar
sales, and related accounts receivable balances, and our
operating costs are subject to currency exchange rate
fluctuations. Currency exchange rate fluctuations may favorably
or unfavorably impact reported earnings as changes are reported
directly in our consolidated income statement, and may affect
comparability of period-to-period operating results.
50
INDUSTRY
Silicon-based products, primarily silicon metal and
silicon-based alloys, are used in the manufacture of various key
consumer and industrial products in the metallurgical, chemical,
solar and electronic industry. Silicon metal is produced by
smelting quartz with carbon substances (typically low ash coal
and/or
charcoal) and wood chips. Silicon metal and silicon-based alloys
are classified by their purity ranging from 50% up to 99.999%
(5-9s) and 99.999999999%
(11-9s)
for high purity. According to CRU, the global demand for silicon
is projected to grow at a compounded annual rate of
approximately 6.7% from 2008 through 2012 with supply and demand
remaining tight.
Uses of
Silicon Metal
Silicon metal and silicon-based alloys are important inputs used
by a number of different industries in the production of a broad
range of materials. Demand for silicon metal comes primarily
from the aluminum and chemical industries, while most
silicon-based alloys are primarily used in steelmaking and
foundries. High purity silicon is used in electronics as well as
in the production of photovoltaic (solar) cells.
Aluminum producers use silicon metal as a strengthener and
alloying agent in both the primary and secondary production of
aluminum alloys. The addition of silicon metal to aluminum in
the casting process improves castability and minimizes shrinkage
and cracking, as well as improving corrosion resistance,
hardness, tensile strength and wear resistance. Aluminum
containing silicon metal as an alloy can be found in a variety
of automobile components, including engine pistons, housings and
cast aluminum wheels, as well as in building products and
packaging materials such as beverage containers.
The chemicals industry also utilizes silicon metal to produce
silicones. Silicones are the basic ingredients used in numerous
consumer products, including lubricants, cosmetics, shampoos,
gaskets, building sealants, automotive hoses, water repellent
fluids and high temperature paints and varnishes. Silicones are
readily adaptable to a variety of uses because they possess
several desirable qualities, including electrical resistance,
resistance to extreme temperatures, resistance to deterioration
from aging, water repellency, lubricating characteristics,
relative chemical and physiological inertness and resistance to
ultraviolet radiation. Furthermore, silicones are substitutes in
many applications for petroleum-based compounds. As a result,
the demand for silicone benefits from higher oil prices.
Silicon is also used in the electronic and photovoltaic (solar)
industries. Polysilicon is the essential raw material used in
the manufacture of silicon wafers for semiconductor chips and
for the rapidly growing photovoltaic (solar) cell industry.
Silicon metal is refined into computer chips for electronics, a
relatively mature market, but new electronic products are likely
to increase the demand for silicon semiconductors. Solar cell
products utilize high purity silicon at the 5-9s classification
and semiconductors at the
11-9s
classification. The significant growth in the solar industry
over the past several years has resulted in greater demand for
solar silicon, and we believe the solar market is projected to
have the highest growth rate of all silicon end-markets driven
by the increasing demand for clean and renewable energy sources.
Silicon-based alloys are essential in the production of ductile
iron and other specialty irons, which are replacing iron
castings in sophisticated applications requiring a stronger,
lighter material. These applications include the manufacture of
intricate machine parts, critical automotive components and
industrial pipe. Silicon alloys, or ferroalloys, are important
inputs for the steel industry, playing a critical role in the
production of steel.
Production
of Silicon
Silicon metal is produced by smelting quartz
(SiO
2
)
with carbon substances (typically low ash coal
and/or
charcoal) and wood chips, which provide porosity to the raw
material mix recipe. The carefully measured mixture is fed into
the top of a submerged electric-arc furnace by automatic
conveyors. Electric power is delivered to the furnaces by
pre-baked carbon electrodes. The electrodes act as conductors of
electricity in each furnace, generating heat in excess of
3,000°C. At this temperature, the mix of raw materials
reaches a molten state. The carbon, acting as a reducing agent,
combines with the oxygen to form carbon monoxide and leaves
behind silicon.
51
The molten silicon metal is intermittently tapped out of the
furnaces into ladles, where it is refined to reduce the calcium
and aluminum impurities in order to meet specific customer
requirements. After the refining process, the silicon metal is
cast into iron chills (molds) for cooling. When the casts have
cooled, they are weighed and crushed to the desired size.
Finished silicon metal is then shipped to the customer in bulk,
pallet boxes or bags.
The emissions from the process are typically collected above the
electric arc furnaces by dust collecting hoods and passed
through a dust collection and bagging system. The resulting
by-product is microsilica (also known as silica fume) which is
generally sold to a number of companies to utilize as a concrete
additive, refractory material or oil well conditioner.
Current
Market Conditions
Demand
According to CRU, global silicon demand is expected to increase
rapidly through 2012 mainly driven by advances in
chemical-related silicon consumption. Global silicon production
is expected to increase, primarily in China, but it is expected
that the share of Chinese silicon that is exported will drop
based on an array of measures instituted by the Chinese
authorities to curb silicon exports. Therefore, barring a sharp
decline in global demand or a change in Chinese government
policies, silicon market fundamentals are expected to remain
strong through 2010. The increasing demand, combined with
limited supply and long lead times required for construction of
new silicon production facilities suggests that silicon prices
are expected to remain high versus historical prices.
Total silicon consumption in the Western World rose by more than
3.8% in 2007, reaching a record 1.4 million MT. While
growth in demand for silicon is expected to be fueled primarily
by China, Western World demand is expected to continue to
account for approximately 68% of the projected 2012 global
demand of 2.3 million MT while the Western World will only
possess approximately 37% of global capacity at that time,
according to CRU. It is estimated that in 2007, the Western
World accounted for 83% of global demand and 47% of production.
Additionally, silicon inventories have fallen significantly
during the last two years in response to rising demand and
mounting supply constraints.
According to automotive associations, the aluminum content of
the average automobile in North America has nearly doubled to
approximately 327 lbs in 2007 from approximately 165 lbs in
1990, while Europe and Japan have shown a similar trend in the
increased use of silicon containing aluminum in vehicle
production. Furthermore, global passenger vehicle production is
expected to increase over 40% from 2004 to 2014.
The demand for high purity silicon for the solar industry has
increased in the past several years and is expected to continue,
stimulated by higher energy prices and the need for alternative
energy sources. While the solar industry is still in the early
stages of growth and only represents about 0.5% of the
electricity market, global demand is expected to significantly
increase as cost reductions are realized. We believe the major
factor holding back the photovoltaic (solar) industry is the
short supply of silicon, which is only produced at the necessary
purity level by a limited number of companies world-wide. A
number of semiconductor manufacturers, who also require high
purity polycrystalline silicon, have used their spare production
capacity to manufacture solar cells. Several of these
manufacturers have scheduled capacity expansions of
polycrystalline silicon in order to meet the expected demand
increases for photovoltaic (solar) cells.
According to an industry trade association, solar power demand
is estimated to have been 2,615 MW in 2007, and is expected
to rise to 8,300 MW in 2010, a 46% annual growth rate for
that period. According to CRU, to meet demand in 2010 for the
solar industry, the current levels of production of silicon used
in the manufacture of solar wafers must be doubled. Several
governments have established goals for high purity silicon
production and provided financing and rebate plans. A few states
in the sunbelt region currently operate under incentive
programs. California, New Jersey and Nevada are at the forefront
of adopting plans for solar power usage.
The tight supply of high purity silicon for the solar industry
is exhibited by customers willingness to sign contracts
with current prices, as well as to contracts extending several
years. The payment of deposits securing supplies further
demonstrates the high demand.
52
As an alternative to polysilicon, UMG, which is produced by
Solsil and other companies, has been introduced. Several
photovoltaic (solar) makers are using and/or experimenting with
the use of UMG. Because of the very high capital costs of
polysilicon production, we believe that UMG may be a viable
alternative to polysilicon. Because UMG is not as pure as
polysilicon, there are additional technical and operational
hurdles which must be overcome before UMG can fully displace
polysilicon in the photovoltaic (solar) market.
Capacity
A limited amount of idle silicon capacity currently exists in
the Western World. This limited amount of immediate capacity
coupled with increasing demand have been key drivers in the
recent silicon price increases. Additionally, a number of
different options are potentially available to increase silicon
capacity, including furnace rehabilitations, furnace
conversions, additions of new furnaces at existing plants and
the construction of greenfield smelters. Between 2000 and 2004,
furnace upgrades and capacity increases were the main source of
additional Western silicon capacity, according to CRU. Since
2000, these programs to increase capacity at existing facilities
contributed approximately 75,000 MT of additional production
capacity, while only an additional 15,000 MT is expected in 2008
and 2009 excluding the planned reopening of our Niagara
facility. Also, while the capital costs associated with
conversions are significantly lower than those incurred in the
construction of new production capacity, local operating cost
conditions such as electricity, wages and logistical costs may
be less favorable than at a greenfield site.
Location of new greenfield sites is important to the overall
viability of a plant due to access to power, quartz and other
essential production inputs. Even with the recent increase in
silicon prices, CRU believes that it would be difficult to
justify the comparatively high costs associated with the
investment in a greenfield Western World silicon plant,
therefore the construction of new sites outside of China is
unlikely. Additionally, any new production facilities in China
would need to obtain governmental approval, which recently has
been more difficult due to restrictions on expansion of energy
intensive industries, as well as increased costs of production.
Historical
and Current Pricing Environment
The increase in silicon prices since the end of 2005 can be
attributed mainly to increased demand and to different
supply-side forces. These forces include unplanned production
outages and other power constraints in China, South Africa and
Brazil. The increase in prices may also reflect a change in
perception by consumers. Consumers appear to have some concern
about the ability of the current production base to satisfy
demand from the solar sector.
China is expected to be the engine of demand growth in silicon,
and much of the growth is driven by the production of aluminum
alloys used for automotive applications. China is also expected
to drive the growth in demand for chemical-grade silicon. In
2007, China accounted for 43% of the worlds silicon
exports, the majority being of metallurgical and chemical grade.
Although Chinas domestic demand rose from 95,000 MT in
2002 to 229,000 MT in 2007, much of its production was exported.
Chinas production capacity is made up of more than 200
small producers. Chinas large number of producers has
contributed to overcapacity in China. The government has revoked
several export rebates and imposed taxes on exports to control
production. The government has also mandated the closing of
smaller and older plants in order to conserve energy and to meet
more stringent environmental standards.
Production costs globally have increased in the last few years.
Electricity expenditures are approximately 30% of silicon
production, and can be as high as 40% in Europe. The average
power rate in U.S. mills increased from $20.7
mills/kilowatt hour in 2002 to $34.8 mills/kilowatt hour in 2007
and is expected to reach $39.9 mills/kilowatt hour in 2009.
The combination of supply limitations and increasing production
costs coupled with a weak U.S. dollar have all contributed
to the increase in silicon prices. Going forward, CRU estimates
that global silicon demand is expected to advance by more than
600,000 MT, or 35%, between 2007 and 2012, boosted by large
increases in consumption, primarily in the chemical sector. This
increase in demand will necessitate new silicon capacity.
However, should the long-term growth in global silicon demand
turn out to be higher than the expected 6.2% per annum, silicon
prices could continue to rise.
53
BUSINESS
Overview
We are one of the worlds largest and most efficient
producers of silicon metal and silicon-based alloys, with
approximately 186,400 MT of silicon metal capacity and 72,800 MT
of silicon-based alloys capacity. In addition to our principal
silicon metal products, we produce high-grade silicon alloys
including magnesium-ferrosilicon-based alloys used to make
ductile iron by increasing irons strength and resilience,
ferrosilicon-based alloys used to increase strength and
castability of grey and ductile iron, and calcium silicon, used
in steel manufacturing, particularly in modern continuous
casting processes. Additionally, we specialize in producing a
variety of alloys in cored-wire form, a delivery method
preferred by a growing number of manufacturers, in both the
steel and foundry industries. Finally, we capture, recycle and
sell most of the by-products generated in our production
processes which not only reduces manufacturing costs, but also
significantly reduces the environmental impact from our
operations.
We sell our silicon-based alloys to a diverse base of customers
worldwide. Our silicon metal and silicon-based alloys are
important inputs to manufacture a wide range of industrial
products, including aluminum, silicone compounds used in the
chemical industry, ductile iron, automotive parts, photovoltaic
(solar) cells, electronic semiconductors and steel.
Our products are produced in our five principal operating
facilities which are located in Selma, Alabama, Beverly, Ohio,
Alloy, West Virginia, Mendoza, Argentina and Breu Branco,
Brazil. Additionally, we operate cored wire businesses in
Argentina and Poland. Our flexible manufacturing capabilities
allow us to optimize production and focus on products that
enhance profitability. We also benefit from the lowest average
operating costs, according to CRU, of any large producer
globally. One of the methods we use to achieve this is by
alternating production of some of our furnaces among
silicon-based alloy products and between silicon-based alloys
and silicon metal.
During our fiscal year ended June 30, 2007, we had over 520
customers, engaged primarily in the manufacture of aluminum (32%
of pro forma revenue), silicone chemicals (26% of pro forma
revenue), foundry alloys (16% of pro forma revenue),
photovoltaic (solar) cells/semiconductors (8% of pro forma
revenue), steel (6% of pro forma revenue) and other industries
(12% of pro forma revenue). Our customer base is geographically
diverse, and includes North America, Europe, South America and
Asia, which for the fiscal year ended June 30, 2007,
represented 71%, 20%, 8% and 1% of our pro forma revenue,
respectively. We usually enter into contracts for nearly all of
our silicon metal production at the beginning of each calendar
year, allowing us to fix our sales price and to improve our
earnings predictability. We have grown our business through
several strategic acquisitions since November 2006, and for our
fiscal year ended June 30, 2007, we had revenue and
operating income of approximately $350 million and
$13 million, respectively, on a pro forma basis.
We operate our business through the following principal
subsidiaries:
Globe Metallurgical, Inc.
In November 2006, we
acquired GMI, one of the worlds largest and most efficient
manufacturers of silicon metal and silicon-based alloys. GMI
operates three manufacturing facilities in the United States
located in Selma, Alabama, Beverly, Ohio and Alloy, West
Virginia. In addition, through GMI, we operate a quartzite mine
in Billingsley, Alabama for which we have mine leasing rights
that we believe will satisfy our short and medium term needs,
and have additional leasing opportunities in the vicinity to
cover our needs well into the future. GMI recently announced
that it will reopen and upgrade equipment at its idle silicon
metal production facility in Niagara Falls, New York. GMI
acquired the Alloy, West Virginia plant and the quartzite mining
operation in December 2005 and January 2006, respectively, from
Elkem Alloy LP, a subsidiary of Orkla ASA. GMI manufactures and
sells silicon metal and silicon-based alloys to more than 250
customers, predominantly in North America.
Globe Metales S.A.
In November 2006, we
acquired Stein Ferroaleaciones S.A., a Latin American producer
of silicon-based alloys, with operations in Argentina, Poland
and the United States. Subsequent to the acquisition, we
restructured Stein Ferroaleaciones S.A. into three separate
companies, Globe Metales,
54
UltraCore Polska Sp.z.o.o and Ultra Core Corporation. Globe
Metales, located in Argentina, operates a smelting facility in
Mendoza, Argentina and a cored-wire fabrication facility in
San Luis, Argentina. Globe Metales also owns minority
interests in two hydroelectric power facilities located in
Mendoza, Argentina. Globe Metales specializes in producing
cored-wire silicon-based alloy products, a delivery method
preferred by some manufacturers of steel, ductile iron, machine
and auto parts and pipe. In fiscal year 2007, we sold Globe
Metales products to over 65 customers, about 65% of which
are export customers located in approximately 24 countries.
Approximately one-third of our Argentine output is shipped to
North America and another one-third to Europe.
Globe Metais Industria e Comercio S.A.
In
January 2007, we acquired Camargo Correa Metais S.A. (now known
as Globe Metais Industria e Comercio S.A.), one of the largest
producers of silicon metal in Brazil. Globe Metais operates a
manufacturing facility in Breu Branco, Para, Brazil. Globe
Metais has a number of leased quartzite mining operations
throughout the state of Para, including one in Breu Branco. Our
leased quartz mining operations, with reserves that we believe
will satisfy our short and medium term needs and with additional
leasing opportunities in the vicinity to cover our needs well
into the future, provide us an uninterrupted supply of raw
quartzite. Additionally, Globe Metais has forest reserves in
Breu Branco which are utilized to obtain the wood necessary for
woodchips and charcoal, both of which are important inputs in
our production process. We attempt to utilize environmentally
sensitive forestry management techniques. Our electric power
comes from the Tucurui hydroelectric plant, the fifth largest in
the world, which is situated only a few kilometers from our
manufacturing facility. In fiscal year 2007, we exported about
77% of our Brazilian output to Europe, with our primary
customers located in Germany, and other sales to customers in
the Middle East and East Asia.
Solsil, Inc.
In February 2008, we acquired an
approximate 81% interest in Solsil, a producer of high purity
silicon manufactured through a proprietary metallurgical process
and which is primarily used in silicon-based photovoltaic
(solar) cells. Solsil supplies its silicon to several leading
global manufacturers of photovoltaic (solar) cells, ingots and
wafers. Solsil currently has six furnaces and has plans to
expand to become a larger supplier in the high purity solar
grade silicon market. In April 2008, Solsil and GMI entered into
a joint development supply agreement with BP Solar International
Inc. for the sale of solar grade silicon, as well as joint
development of an improved silicon making process and for cross
licensing of certain proprietary technology. Solsils
operations are located within our facility at Beverly, Ohio. In
conjunction with the reopening and expansion of our Niagara
Falls facility, a portion of the facility will be used for our
Solsil operations and when completed, is expected to permit us
to produce approximately 4,000 MT of solar grade silicon
annually.
Ningxia Yongvey Coal Industrial Co., Ltd.
In
May 2008, we entered into a business combination to produce
carbon electrodes, an important input in our production process.
Pursuant to the terms of our agreement, we acquired a majority
ownership interest in Yongvey. Yongveys operations are
located in Chonggang Industrial Park, Shizuishan in the Ningxia
Hiu Autonomous Region of China.
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.
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Leading Market Positions.
We hold leading
market shares in a majority of our products. We project that
once Niagara reaches full production, we will have sales volumes
of approximately 186,400 MT of silicon metal annually, which we
believe will represent approximately 13% Western World market
share, including 44% market share in North America. We estimate
that we have approximately 20% Western World market share for
magnesium ferrosilicon, including 50% market share in the
Americas and are one of only six suppliers of calcium silicon in
the Western World (with estimated 18% market share).
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Low Cost Producer.
We have been recognized by
CRU, a leading metals industry consultant, as the lowest average
operating cost silicon metal producer in the Western World.
Currently, CRU lists our four silicon metal manufacturing
facilities as being among CRUs seven most cost efficient
silicon
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metal manufacturing facilities in the Western World, with our
Beverly facility ranked as the lowest cost producer. We believe
that our low cost position is a result of many strategic
initiatives including our control over raw materials (which
include owned sources), our sharing best-practices across all
production facilities, our cost control measures and our
proximity to customers which results in lower freight costs.
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Long-Term Power Contracts.
We also believe
that we have a cost advantage in our long-term power supply
contracts which provide a significant portion of our power
needs. These power supply contracts result in stable, favorably
priced, long-term commitments of power at reasonable rates. In
Brazil, we have a contract with the state of Para to provide
power through June 2018. This contract includes a discount to
the local market price for power. In Argentina, we have a
contract with the province of Mendoza to provide power at a
discount to the local market price for power through October
2009, and with negotiations in progress to extend the favorable
terms of the contract beyond that date. In West Virginia, we
have a contract with Brookfield Energy to provide approximately
45% of our power needs at a fixed rate through December 2021.
The remainder of our power needs in West Virginia and Ohio are
sourced through contracts that provide tariff rates at
historically competitive levels. In connection with the
reopening of GMIs Niagara Falls plant, and as an incentive
to reopen the plant, we obtained a public-sector package
including 40 megawatts of hydropower over five years, with a
potential five year extension, and up to $25 million in
Empire Zone tax benefits recognized over 10 years subject
to achieving specified employment and investment targets.
Additionally, we entered into an agreement with RED to recycle
hot exhaust from our West Virginia facility and convert the hot
exhaust into electricity through a thermal process, reducing our
effective cost per megawatt hour. The project is anticipated to
be in operation in 2010. RED is required to supply all capital
and energy expertise to design, permit, construct, test and
commission the project, is entitled to receive a return on
capital and is obligated to share certain financial benefits of
the project with us. This agreement is subject to additional
feasibility studies being conducted by RED.
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Stable Raw Material Supply Through Captive Mines and Forest
Reserves.
We have two mining operations, located
at Billingsley, Alabama and in the state of Para, Brazil, for
which we currently possess long-term lease mining rights. These
mines supply our plants with a substantial portion of our
requirements for quartzite, the principal raw material used in
the manufacturing of our products, and we believe that these
mines taken together with additional leasing opportunities in
the vicinity would cover our needs well into the future. In
Brazil, we own a forest reserve which supplies our Brazilian
operations with the wood necessary for woodchips and a majority
of our charcoal. We ensure an uninterrupted supply of these raw
materials through environmentally sensitive forestry management
techniques used in our reforestation plantations. We have also
obtained a captive supply of electrodes, an important input in
our manufacturing process, through the formation of Yongvey. We
obtain other raw materials from a variety of sources.
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Efficient and Environmentally Friendly By-Product
Usage.
We utilize or sell most of our
manufacturing process by-products, which reduces costs and
limits environmental impact. We have accomplished this by
developing markets for the by-products generated by our
production processes, transforming our manufacturing operations
so that minimal solid waste disposal is required. The largest
volume by-product not recycled into the manufacturing process is
silica fume, also known as microsilica. This dust-like material,
collected in our air filtration systems, is sold to our
50%-owned affiliate, Norchem, Inc. (Norchem), and other
companies, which process, package and market it for use as a
concrete additive, refractory material and 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.
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Multiple Products and Markets.
We produce
multiple products in our U.S. and Latin American operations
focusing on both silicon metal and silicon-based alloys such as
ferrosilicon, magnesium-
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ferrosilicon and calcium silicon. We sell our products to a wide
variety of industries and to companies in over 40 countries. Our
diverse product and geographic end-market profile provides us
with numerous growth opportunities and may help insulate us from
economic downturns in any individual industry or geographic
region.
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Experienced, Highly Qualified Management
Team.
We have assembled a highly qualified
management team with approximately 100 years of combined
experience in the metals business among our top four executives.
In particular, Alan Kestenbaum, our Executive Chairman, Jeff
Bradley, our Chief Executive Officer, Arden Sims, our Chief
Operating Officer and Daniel Krofcheck, our Chief Financial
Officer, have over 20, 25, 35 and 19 years of experience,
respectively, in the metals industries. We believe that our
management team has the operational and technical skill to
continue to operate at world class levels of efficiency and to
consistently produce silicon metal and silicon-based alloys.
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Business
Strategy
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Focus on Core Businesses.
We seek to achieve
high market penetration in markets where we can differentiate
ourselves on the basis of technical expertise and product
quality. As part of this strategy, we are focusing our
production and sales efforts on our silicon metal and higher
margin specialized alloy businesses and expect to invest in
capital projects and acquisitions that would expand our capacity
or lower our costs in those areas. 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.
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Maintain Low Cost Position While Controlling
Inputs.
We intend to maintain our position as one
of the most cost-efficient producers of silicon metal in the
world. We intend to achieve this objective by continuing to
increase the yield from our existing smelting furnaces while at
the same time controlling the cost of the process inputs through
our captive sources and favorable supply contracts. We believe
we will be able to spread fixed costs over the resulting
increased production volume to further reduce costs per MT of
silicon metal and silicon-based alloy sold.
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Continue Pursuing Strategic Acquisition
Opportunities.
We intend to build on our history
of successful acquisitions by continuing to evaluate attractive
acquisition opportunities for the purpose of increasing our
capacity, product diversification, improving our raw materials
and other input supply sources and acquiring further refined
products for our customers. Our focus is on investing globally
in companies, technologies or products that complement and or
diversify our business or product offerings. In particular, we
will consider acquisitions or investments that will enable us to
leverage our expertise in silicon metal and silicon-based alloy
products 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.
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Leverage Flexible Manufacturing and Expand Other Lines of
Business.
We will leverage our flexible
manufacturing capabilities to optimize the product mix produced
while expanding the products we offer. Additionally we can
leverage our broad geographic manufacturing reach to ensure that
production of specific metals is in the most appropriate
facility/region. Besides our principal silicon metal products,
we have the capability to produce silicon-based alloys, such as
ferrosilicon and silicomanganese, using the same facilities. Our
business philosophy is to allocate our furnace capacity to the
products which we expect will improve profitability.
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Leverage Synergies Among Units.
We currently
operate the lowest cost silicon metal manufacturing facility and
four of the seven lowest cost silicon metal manufacturing
facilities in the Western World, as recognized by CRU, a leading
metals industry consultant. According to CRU, the average
operating cost of our four facilities is approximately 13.5%
lower than the Western World weighted average based on CRU data.
We try to identify and leverage each of our facilities
best practices and applying them across our system.
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Pursue Attractive Near-term Growth
Opportunities.
We will take advantage of a number
of attractive near term growth opportunities including the
reopening of our Niagara Falls facility, and the
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development at the Niagara facility of capacity specifically for
our Solsil operations. This increased capacity will allow us to
take advantage of the strong market conditions for our products
and will also increase the manufacturing flexibility across our
system. We have negotiated at the Niagara facility a favorable
power contract with the State of New York.
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Recent
Acquisitions and History
In 2002, Alan Kestenbaum, our Executive Chairman, together with
a related private equity investment vehicle, MI Capital, Inc.
and one of our former officers (collectively, MI Capital),
purchased the distressed debt of GMI prior to its filing for
bankruptcy in April 2003. Together they obtained a controlling
equity position in GMI and successfully led GMI through a
reorganization and emergence from bankruptcy in May 2004. GMI
has a long history producing silicon products that dates as far
back as the late 1800s.
In December 2005, GMI purchased a silicon metal plant in Alloy,
West Virginia from a competitor and financed the purchase using
equity capital. The Alloy plant substantially increased the
silicon metal capacity and facility square footage of GMI and
also brought GMI its two largest customers. In January 2006, GMI
completed the purchase of Alabama Sand & Gravel using
debt financing. This purchase was made from the same competitor
and provided GMI access to valuable quartzite mining rights in
Billingsley, Alabama.
Subsequent to MI Capitals acquisition and restructuring of
GMI in October 2005, Alan Kestenbaum organized an equity
offering by IME, a special purpose acquisition vehicle for the
acquisition of metal and mining-related companies. Alan
Kestenbaum also acted as the CEO of IME and led its evaluation
of acquisition opportunities. On November 12, 2006, IME
acquired GMI, and IME changed its name to Globe Specialty
Metals, Inc. Our management team has continued to follow a
strategy of seeking out, identifying and acquiring leading
manufacturers of silicon metal and other silicon-based alloys.
We believe we have been successful in our strategy as we have
grown rapidly through the additional acquisitions of Globe
Metales in November 2006, the acquisition of Globe Metais in
January 2007 and the acquisition of Solsil in February 2008.
Globe
Metallurgical, Inc. (United States)
In November 2006, we acquired GMI, one of the worlds
largest and most efficient manufacturers of silicon metal and
alloys. Through GMI, we operate three manufacturing facilities
in the United States located in Selma, Alabama, Beverly, Ohio
and Alloy, West Virginia, one quartzite mining operation in
Billingsley, Alabama and recently announced that we will reopen
our idle silicon metal production facility in Niagara Falls, New
York. GMI acquired our Alloy, West Virginia plant on
December 21, 2005 and our quartzite mining operation on
January 20, 2006 from a competitor, substantially
increasing our size and revenues.
Globe
Metales S.A. (Argentina)
In November 2006, we acquired Globe Metales, one of the leading
Latin American producers of silicon-based alloys, located in
Argentina. In conjunction with our acquisition of Globe Metales,
we also acquired its affiliate, UltraCore Polska Sp.z.o.o, a
manufacturer of cored wire products located in Poland. Through
Globe Metales and UltraCore Polska Sp.z.o.o, we operate a
smelting facility in Mendoza, Argentina and two cored-wire
fabrication facilities at San Luis, Argentina and Police,
Poland. In addition to the manufacturing facilities, we own
minority interests in the Nihuiles and Diamante hydroelectric
facilities located in Mendoza, Argentina.
Globe
Metais Industria e Comercio S.A. (Brazil)
In January 2007, we acquired Globe Metais, one of the largest
producers of silicon metal in Brazil. Globe Metais operates a
manufacturing facility in Breu Branco, Para, Brazil, has a
number of leased quartzite mining operations and owns forest
reserves throughout the state of Para, Brazil.
58
Solsil,
Inc. (United States)
In February 2008, we acquired an approximate 81% interest in
Solsil, a producer of high purity silicon manufactured through a
proprietary metallurgical process, which is primarily used in
silicon-based photovoltaic (solar) cells. In April 2008, Solsil
and GMI entered into a joint development supply agreement with
BP Solar International Inc. for the sale of solar grade silicon.
Solsils operations are located within our facility at
Beverly, Ohio. In conjunction with the reopening and expansion
of our Niagara Falls facility, a portion of the facility will be
used for our Solsil operations and when completed, is expected
to permit us to produce approximately 4,000 MT of solar grade
silicon annually.
Ningxia
Yongvey Coal Industrial Co., Ltd. (China)
In May 2008, we entered into a business combination to produce
carbon electrodes with a manufacturer of carbon electrodes.
Yongveys operations are located in Chonggang Industrial
Park, Shizuishan in the Ningxia Hiu Autonomous Region of China.
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. Prior to this offering, our common stock and
warrants have traded on the AIM market, under the symbols
GLBM and GLBW, respectively. Our web
site is www.glbsm.com. The information on our web site does not
constitute part of this prospectus.
Products
and Operations
Our operating facilities have the following approximate
production capacities:
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Locations
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Products
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Production Capacity (MT)
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Beverly, Ohio
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Silicon metal
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24,800
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Magnesium ferrosilicon
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38,300
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Ferrosilicon
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8,500
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Alloy, West Virginia
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Silicon metal
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67,100
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Selma, Alabama
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Silicon metal
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20,900
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Mendoza, Argentina
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Magnesium ferrosilicon
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12,900
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Calcium silicon
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13,100
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Breu Branco, Brazil
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Silicon metal
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43,600
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Niagara Falls, New York*
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Silicon metal
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30,000
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Totals
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Silicon metal
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Active capacity
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156,400
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Total capacity*
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186,400
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Fiscal year 2007 actual production**
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145,900
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Silicon alloys
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Active capacity
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72,800
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Fiscal year 2007 actual production**
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68,900
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*
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Reflects the planned reopening of the Niagara Falls facility
during the fiscal year ending June 30, 2009.
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**
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Results affected by shutdown of one furnace at Selma facility
for extended period. Production data provided on a pro forma
basis assuming that acquisitions occurred at the beginning of
fiscal year 2007.
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59
Silicon
Metal
We are among the worlds 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) the photovoltaic (solar) cell/semiconductor industry.
We also produce upgraded metallurgical silicon for solar cell
applications. The approximate distribution by customer type on a
pro forma basis assuming that the acquisitions of GMI, SG,
Camargo and Solsil occurred at the beginning of fiscal year
ended June 30, 2006, is as follows:
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June 30, 2007
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June 30, 2006
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Aluminum
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46
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%
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53
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%
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Silicone chemicals
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38
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%
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34
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%
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Photovoltaic (solar) cell/semiconductor
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11
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%
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10
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%
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Others (including specialty aluminum)
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5
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%
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3
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%
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We market to both primary aluminum producers who require silicon
metal with certain purity constraints for use as an alloy, as
well as to the secondary aluminum industry where specifications
are not as stringent. Aluminum is used to manufacture automobile
and truck wheels and trim, 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 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 and other automotive trim.
We have the ability to produce silicon metal with especially low
iron content as a result of our precisely controlled production
processes.
The demand for high purity silicon for the solar industry has
increased in the past several years and is expected to continue,
stimulated by higher energy prices and the need for alternative
energy sources. According to an industry trade association,
solar power demand is estimated to have been 2,615 MW in
2007, and is expected to rise to 8,300 MW in 2010, a 46%
annual growth rate for that period. According to CRU, to meet
demand in 2010 for the solar industry, the current levels of
production of solar grade silicon must be doubled. Several
governments have established goals for solar power installations
and have provided financing and rebate plans. A few states in
the sunbelt region currently operate under incentive programs.
California, New Jersey and Nevada are at the forefront of
adopting plans for solar power usage. The tight supply of high
purity silicon for the solar industry is exhibited by
customers willingness to sign contracts extending current
prices several years. The payment of deposits securing supplies
further demonstrates the high demand.
Silicon-based
Alloy Products
Our high-grade silicon-based alloys are made of silicon combined
with iron in the form of scrap steel to produce ferrosilicon,
along with other additions which 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 three general categories:
(i) magnesium-ferrosilicon-based alloys,
(ii) ferrosilicon-based alloys and (iii) calcium
silicon.
Magnesium-ferrosilicon 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
irons 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
60
can be more easily produced) than untreated iron. We believe we
supply approximately 50% of the magnesium-ferrosilicon demand in
the Americas and 20% of the Western World.
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 alloys are widely used to improve the quality,
castability and machinability of steel. Calcium is a powerful
modifier of oxides and sulfides. It transforms alumina
inclusions into complex calcium aluminate compounds, improving
the castability of the steel in a continuous casting process,
avoiding deposits of solid inclusions inside tundish nozzles,
preventing clogging. Calcium also improves the machinability of
steel, increasing the life of cutting tools.
In addition to our nodularizer and inoculant alloy products, we
have the capability to produce other alloys, such as
ferrosilicon and silicomanganese, using the same facilities. Our
business philosophy is to allocate our furnace capacity to the
products that we believe will improve profitability and as such
have invested in flexible manufacturing technology that enables
us to switch production of some of our furnaces among alloy
products and between alloys and silicon metal, as the market
conditions change.
By-Products
We have reduced the environmental impact of our operations while
increasing our profitability by developing markets for the
by-products generated by our production processes, transforming
our manufacturing operations to reduce our need for solid waste
disposal. The largest volume by-product not recycled into the
manufacturing process is silica fume (also known as
microsilica). This dust-like material, collected in our air
filtration systems, is sold to our 50%-owned affiliate, Norchem,
and other companies which process, package and market it for use
as a concrete additive, refractory material or oil well
conditioner. The other major by-products of our manufacturing
processes are fines, the fine material resulting
from crushing, and dross, which results from the purification
process during smelting. The fines and dross that are not
recycled into our own production processes are generally sold to
customers who utilize these products in other manufacturing
processes, including steel production.
Raw
Material Supply
We have two mining operations located at Billingsley, Alabama
and in the state of Para, Brazil. These mines supply our
Brazilian and U.S. operations with a substantial portion of
our requirements for quartzite, the principal raw material used
in the manufacturing of all of our products. We believe that
these mines will satisfy our short and medium term needs for
quartzite and that additional leasing opportunities in the
vicinity would cover our needs well into the future. We also
obtain quartzite from other sources in South America and the
U.S. The gravel is mined, washed and screened to our
specifications by our suppliers. All of our products also
require coal or charcoal and woodchips in their manufacture. We
source our low ash metallurgical-grade coal mainly from the
midwest region of the U.S. for our U.S. operations and
use locally sourced charcoal from our forests or from local
suppliers for our South American operations. Woodchips are
sourced locally by each plant in Argentina and the U.S. and
are obtained in company-owned forests for the Brazil business.
Carbon electrodes are supplied by Yongvey and are also purchased
from several other suppliers on annual contracts. 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 has been scrap
steel generated by machine shops, mostly purchased from scrap
dealers. Magnesium and other additives are obtained from a
variety of sources producing or dealing in these products. Rail
and barge are the principal transportation methods for gravel
and coal. We have rail spurs and access to nearby barge
terminals at all of our plants. Other materials arrive primarily
by truck. In our endeavor to produce the highest quality
products, we require our suppliers, whenever feasible, to use
statistical process control procedures in their production
processes to conform to our own processes.
61
We believe that we have a cost advantage in most of our
long-term power supply contracts. Our power supply contracts
result in stable, favorably priced, long-term commitments of
power at reasonable rates. Our major power supply contracts are
listed in the table below.
|
|
|
|
|
|
|
|
|
Facility
|
|
Supplier
|
|
Terms
|
|
Price structure
|
|
Capacity
|
|
Beverly, Ohio
|
|
American Electric Power
|
|
Evergreen, 1-year
termination notice
|
|
Published tariff rate
|
|
2.5 MW firm
85 MW
interruptible
|
Breu Branco, Brazil
|
|
Electronorte
|
|
Through June 30, 2018
|
|
Fixed rate until June 2008, afterwards captive regulated price
with specified discount
|
|
73 MW
|
Mendoza, Argentina
|
|
EDEMSA
|
|
Through October 31, 2009
|
|
Specified discount from established price
|
|
24 MW
|
Selma, Alabama
|
|
Alabama Power
|
|
Evergreen, 1-year
termination notice
|
|
Published tariff rate
|
|
43 MW
|
Alloy, West Virginia
|
|
Appalachian Power
|
|
Through October 30, 2012
|
|
Published tariff rate
|
|
110 MW
|
Alloy, West Virginia
|
|
Brookfield Power
|
|
Through December 31,
2021
|
|
Fixed rate
|
|
100 MW
|
In connection with the reopening of GMIs Niagara Falls
plant, and as an incentive to reopen the plant, we obtained a
public-sector package including 40 megawatts of low cost
hydropower over five years, with a potential five year
extension, and up to $25 million in Empire Zone tax
benefits recognized over 10 years subject to achieving
specified employment and investment targets.
Sales and
Marketing Activities
Our products are typically sold through annual contracts which
lock in volumes and prices on a calendar year basis. During the
fourth quarter of each calendar year, senior management and the
sales team coordinate to determine the optimal product mix and
pricing schedule. Contract negotiations are held with customers
prior to the calendar year end to establish the pricing and
purchase volume for the following year.
We have the ability to recover increases in raw material and
power costs through escalation clauses in some long term
contracts and through annual adjustments in shorter term
renewable contracts. 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 marketed directly by our own marketing staff of 18 technical
sales professionals located in Buenos Aires, Argentina, Sao
Paulo, Brazil, Police, Poland, and at various locations in the
United States and who work together to optimize the marketing
efforts. The marketing staff is supported by our Technical
Services Manager, who supports the sales representatives by
advising foundry customers on how to improve their processes
using our products.
Our senior management maintains relationships with most of the
worlds major silicon-based alloys and silicon metal
buyers. Our team of sales representatives and technical
specialists, most with over 20 years experience in the
metals and casting industries, design alloy formulas to meet
customers specific needs, as well as offering technical
assistance with practical production problems. Sales
representatives are compensated through salary plus an incentive
bonus. Our sales representatives work within geographic focus
areas and sell across all of our product lines.
We also employ a Customer Service Director and 11 dedicated
customer service representatives. Order receiving, entry,
shipment coordination and customer service is handled from the
Beverly, Ohio facility for our U.S. operations, and in
Buenos Aires, Argentina, Sao Paulo, Brazil, 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.
62
Customers
We sell to a variety of customers in North America, Europe,
South America and Asia. For the year ended June 30, 2007,
no customer was responsible for 10% or more of our revenues
except for Dow Corning, which accounted for approximately 13% of
our total sales. We enter into annual contracts for nearly all
of our silicon metal production at the beginning of each
calendar year and do not consider sales backlog to be a
meaningful performance measure.
Silicon
Metal Customers
We sell silicon metal to over 130 companies, including 12
Fortune 500 companies, located in over 16 countries. We
typically have purchase commitments for a substantial portion of
a years production by the end of the preceding year which
allows us to better estimate our revenues and profitability. Our
silicon metal production is committed for the balance of
calendar 2008. For the fiscal year ended June 30, 2007, our
top ten silicon metal customers collectively represented
approximately 70% of our net silicon metal sales, with the
largest two customers, Dow Corning Corporation and Momentive
Performance Materials Inc., representing approximately 19% and
13% of net silicon metal sales, respectively, and approximately
13% and 9% of total sales, respectively.
Silicon-based
Alloy Customers
We believe that we distinguish ourselves from our competitors by
providing technical advice and service to our silicon-based
alloy customers and by tailoring the chemical composition of our
alloys to the specific requirements of each customers
product line and foundry process. Silicon-based alloy customers
are extremely quality conscious, as an error in chemical
composition or even product sizing can result in the scrapping
of an entire casting run. We have intensive quality control
measures at each stage of the manufacturing process to ensure
that our customers specifications are met.
Our silicon-based alloys are sold to a diverse base of customers
worldwide. We have evergreen year-to-year contracts with many of
our customers for the purchase of our
magnesium-ferrosilicon-based products while foundry ferrosilicon
alloys are typically purchased in smaller quantities for
delivery within 30 days. Our top ten silicon-based alloy
customers collectively represented approximately 39% of our net
sales of these products for the fiscal year ended June 30,
2007, and our top two customers, Tinfos ASA and McWane, Inc.,
accounted for 6% each of silicon-based alloy sales in the same
period. Our silicon-based alloys production is mostly committed
for the remainder of calendar 2008.
Facilities
We believe our facilities are suitable and adequate for our
business and current production requirements. The following
tables describe our office space, manufacturing facilities,
mining properties and forest properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Number of
|
|
|
Location of Facility
|
|
Purpose
|
|
Footage
|
|
Furnaces
|
|
Own/Lease
|
|
New York, New York
|
|
Office space
|
|
4,636
|
|
|
|
|
|
Lease
|
Beverly, Ohio
|
|
Manufacturing and other
|
|
273,377
|
|
|
5
|
*
|
|
Own
|
Selma, Alabama
|
|
Manufacturing and other
|
|
126,207
|
|
|
2
|
|
|
Own
|
Alloy, West Virginia
|
|
Manufacturing and other
|
|
1,063,032
|
|
|
5
|
|
|
Own
|
Niagara Falls, New York**
|
|
Manufacturing and other
|
|
227,732
|
|
|
2
|
|
|
Own
|
Mendoza, Argentina
|
|
Manufacturing and other
|
|
138,500
|
|
|
2
|
|
|
Own
|
San Luis, Argentina
|
|
Manufacturing and other
|
|
59,200
|
|
|
|
|
|
Own
|
Police, Poland
|
|
Manufacturing and other
|
|
43,951
|
|
|
|
|
|
Own
|
Breu Branco, Brazil
|
|
Manufacturing and other
|
|
410,953
|
|
|
4
|
|
|
Own
|
Shizuishan, China
|
|
Manufacturing and other
|
|
227,192
|
|
|
|
|
|
***
|
|
|
|
*
|
|
Excludes Solsils six smaller furnaces used to produce UMG
for solar cell applications.
|
|
**
|
|
This facility is not operational but is expected to be brought
into service during the fiscal year ending June 30, 2009.
|
63
|
|
|
***
|
|
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.
|
|
|
|
|
|
|
|
|
|
Location of Mine
|
|
Product
|
|
Own/Lease
|
|
Billingsley, Alabama
|
|
|
Quartzite
|
|
|
|
Lease
|
|
Para, Brazil
|
|
|
Quartzite
|
|
|
|
Lease
|
|
|
|
|
|
|
|
|
|
|
Location of Forest Property
|
|
Acreage
|
|
Own/Lease
|
|
Para, Brazil
|
|
|
113,000
|
|
|
|
Own
|
|
Employees
As of December 31, 2007, we had 1,064 employees. We
have 526 employees in the United States, 180 employees
in Argentina, 330 employees in Brazil, and
28 employees in Poland. Our total employees consist of
513 salaried employees and 551 hourly employees and
include 597 unionized workers.
We have not experienced any work stoppages and consider our
relations with our employees to be good. Our hourly employees at
our Alabama and West Virginia facilities are covered,
respectively, by collective bargaining agreements with the
Industrial Division of the Communications Workers of America,
under a contract running through July 2010 and with The United
Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied
Industrial and Service Workers International Union under a
contract running through April 24, 2011. Union employees in
Brazil are working under a contract running through
October 31, 2008 and in Argentina are working under a
contract running through April 2009. Our operations in Poland
are not unionized.
Research
and Development
In February 2008, we acquired Solsil, a producer of high purity
silicon manufactured through a proprietary metallurgical process
and which is primarily used in silicon-based photovoltaic
(solar) cells. Solsil conducts research and development
activities designed to improve the purity of its silicon. The
business performs experiments, including continuous batch
modifications with the goal of improving efficiencies, lowering
costs and developing new products that will meet the needs of
the photovoltaic (solar) industry. These activities are
performed at Solsils operations, which are located within
our facility at Beverly, Ohio.
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.
Competition
The silicon-based alloy and silicon metal markets are capital
intensive and competitive. Our primary competitors are Elkem AS,
owned by Orkla ASA, and Ferro Atlantica. In addition, we also
face competition from other companies, such as, Becancour
Silicon, Inc., Rima Industrial SA and Ligas de Alumino SA as
well as producers in China and the former republics of the
Soviet Union. We have historically proven to be a highly
efficient low cost producer, with competitive pricing and
manufacturing processes that capture most of our production
by-products
for reuse or resale. We also have the flexibility to adapt to
current market demands by switching between silicon-based alloy
and silicon metal production with reasonable 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.
64
Regulatory
Matters
We operate facilities in the U.S. and abroad which are
subject to federal, state, provincial and local environmental,
health and safety laws and regulations, including 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.
We cannot assure you that we have been or will be at all times
in complete compliance with such laws, regulations and permits.
Failure to comply with these laws and regulations 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 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 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
federal, state and local agencies, neighbors, employees or other
third parties could raise personal injury, property damage or
other private claims due 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.
There may be soil or groundwater contamination at current or
prior properties resulting from historical, ongoing or nearby
activities. 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.
Legal
Proceedings
We are subject to various lawsuits, claims and proceedings that
arise in the normal course of business, including employment,
commercial, environmental, safety and health matters. Although
it is not presently possible to determine the outcome of these
matters, in the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on our
consolidated financial position, results of operations, or
liquidity.
65
MANAGEMENT
Executive
Officers, Key Employees and Directors
The following table sets forth certain information concerning
our executive officers, key employees, and directors:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Alan Kestenbaum
|
|
|
46
|
|
|
Executive Chairman and Director
|
Jeff Bradley
|
|
|
48
|
|
|
Chief Executive Officer
|
Arden Sims
|
|
|
64
|
|
|
Chief Operating Officer
|
Daniel Krofcheck
|
|
|
54
|
|
|
Chief Financial Officer
|
Stephen Lebowitz
|
|
|
43
|
|
|
General Counsel
|
Theodore A. Heilman, Jr.
|
|
|
50
|
|
|
Senior Vice President
|
Bruno Santos Parreiras
|
|
|
40
|
|
|
Executive Director, Globe Metais, S.A.
|
Delfin Rabinovich
|
|
|
59
|
|
|
Executive Director, Globe Metales, S.A.
|
Stuart E. Eizenstat
|
|
|
65
|
|
|
Director
|
Daniel Karosen
|
|
|
33
|
|
|
Director
|
John P. OBrien
|
|
|
67
|
|
|
Director
|
Alan Kestenbaum
has served as Executive Chairman and
Director since our inception, and served as Chief Executive
Officer from our inception through May 2008. From June 2004,
Mr. Kestenbaum served as Chairman of Globe Metallurgical,
Inc., until its acquisition by us in November 2006. He has over
20 years of experience in metals including finance,
distribution, trading and manufacturing. Mr. Kestenbaum is
a founder and the Chief Executive Officer of Marco International
Corp., and its affiliates, a finance trading group specializing
in metals, minerals and other raw materials, founded in 1985.
Mr. Kestenbaum was involved in the expansion by certain of
Marco Internationals affiliates into China and the former
Soviet Union. He also established affiliated private equity
businesses in 1999 which were involved in sourcing and
concluding a number of private equity transactions, including
ones relating to McCook Metals, Scottsboro Aluminum and Globe
Metallurgical, Inc. From 1997 until June 2008,
Mr. Kestenbaum was also the Vice President of Marco Hi-tech
JV LLC, a nutritional ingredient supplier to the nutritional
supplement industry. Mr. Kestenbaum serves as a member of
the board of directors of Wolverine Tube, Inc., a provider of
copper and copper alloy tube, fabricated products and metal
joining products. Mr. Kestenbaum began his career in metals
with Glencore, Inc. and Philipp Brothers in New York City. He
received his B.A. in Economics
cum laude
from Yeshiva
University, New York.
Jeff Bradley
has served as our Chief Executive Officer
since May 2008. Prior to that, Mr. Bradley served as
Chairman, Chief Executive Officer and Director of Claymont Steel
Holdings, Inc., a company specializing in the manufacture and
sale of custom-order steel plates in the United States and
Canada. Prior to joining Claymont Steel, from September 2004 to
June 2005, Mr. Bradley served as vice president of
strategic planning for Dietrich Industries, a $900 million
construction products subsidiary of Worthington Industries. From
September 2000 to August 2004, Mr. Bradley served as a vice
president and general manager for Worthington Steel, a
diversified metal processing company. Mr. Bradley holds a
B.S. in Business Administration from Loyola College in
Baltimore, Maryland.
Arden Sims
joined our company in November 2006 and has
been serving as our Chief Operating Officer since that time.
Mr. Sims has also been serving as the President of Globe
Metallurgical, Inc. since 1984. From 1981 to 1984 Mr. Sims
served as President for SKW Metals & Alloys Inc. (now
CC Metals & Alloys Inc.), a competitor of Globe
Metallurgical. From 1970 to 1981, he held various management
positions at Union Carbide Corporations Metals Division
(subsequently purchased by Elkem Metals, another competitor of
Globe Metallurgical, Inc.). Mr. Sims holds a BS in
Electrical Engineering from the West Virginia Institute of
Technology.
66
Daniel Krofcheck
joined our company in June 2007 and has
been serving as our Chief Financial Officer since that time.
From September 1997 to December 2006, Mr. Krofcheck was the
Treasurer of Century Aluminum Company. He also served as a Vice
President of Century Aluminum Company from September 1998 to
December 2006. From 1988 to August 1997, Mr. Krofcheck held
various positions with H.J. Heinz Company, most recently as the
Assistant Treasurer. Earlier in his career, Mr. Krofcheck
worked at U.S. Steel in a variety of capacities, most
recently, as Manager of the New York Treasury office for three
years after obtaining his MBA. Mr. Krofcheck received an
MBA from the Wharton School of the University of Pennsylvania in
May, 1983 and a BS in Mathematics from The Pennsylvania State
University in February, 1975.
Stephen Lebowitz
has served as our General Counsel since
June 2008. Prior to that, from 2001 to 2008, Mr. Lebowitz
was in-house counsel at BP plc, one of the worlds largest
petroleum companies, to its jet fuel, marine and solar energy
divisions. Prior to joining BP, Mr. Lebowitz was in private
practice, both as a partner at the law firm Ridberg, Press and
Aaronson, and as an associate with the law firm Kaye Scholer
LLP. Mr. Lebowitz holds a B.A. from the University of
Vermont, received a law degree from George Washington
University, and while overseas as a Fulbright Scholar, obtained
an L.L.M. in European law.
Theodore A. Heilman, Jr.
has been serving our
company in a variety of capacities since our inception,
currently as our Senior Vice President. Mr. Heilman has
also served as our interim Chief Financial Officer between
November 2006 and June 2007, and until November 2006, as our
President. Mr. Heilman also served as one of our directors
from December 2004 until July 2008. Mr. Heilman has over
25 years of management and financial experience in
international business and commodities. Mr. Heilman was the
President of the Finance division of Marco International Corp.
from January 2003 until November 2006. From 1999 to June 2002,
Mr. Heilman served as President and Chief Executive Officer
of InterCommercial Markets LLC, an online commodity logistics
and trading services and software company that he founded, until
its merger with ExImWare, Inc., where he remained as resident
founder until January 2003. From 1989 to 1999, Mr. Heilman
was affiliated with the Mercon Group, a multinational commodity
trading and processing group, where he served in various
capacities including Executive Vice President and Chief
Operating Officer. From 1984 to 1989, he was affiliated with the
J. Aron Commodities Division of Goldman Sachs & Co. in
New York, where he was named a Vice President in sales and
trading, managing major U.S. corporate accounts and Latin
American supplier relationships. Mr. Heilman began his
business career as an international lending officer with The
Bank of New York (Irving Trust Co.). He received a B.S. in
Economics from the Wharton School of the University of
Pennsylvania and an M.B.A. from Harvard University.
Bruno Santos Parreiras
joined our company in January 2007
and has been serving as the Executive Director of Globe Metais,
our Brazilian subsidiary, since that time. Prior to such time,
Mr. Parreiras worked for Camargo Correa Metais S.A. (now
known as Globe Metais) in various positions starting in 1993,
and most recently as Executive Director since 2004.
Mr. Parreiras received his degree in metallurgical
engineering from the Federal University of Minas Gerais.
Delfin Rabinovich
joined our company in January 2007 and
has been serving as the Executive Director of Globe Metales, our
Argentine subsidiary, since that time. From 1973 to 1988,
Mr. Rabinovich held various management positions at FATE,
S.A. a major Argentine tire manufacturer. From 1988 to 1993, he
served as the general manager of KICSA Alumino, an aluminum
semi-fabricator. From 1993 to 1995, Mr. Rabinovich served
as the general manager of the DAPSA, a petroleum refiner. Since
such time he served as a management, marketing and technology
consultant in a variety of industries. Mr. Rabinovich
received his degree in industrial engineering from the
University of Buenos Aires and an M.S. in management from the
Sloan School of Management at the Massachusetts Institute of
Technology.
Non-Employee
Directors
Stuart Eizenstat
has served as a member of our board of
directors since February 2008. Mr. Eizenstat has been a
partner of the law firm of Covington & Burling LLP in
Washington, D.C. since 2001, and heads the law firms
international practice. He served as Deputy Secretary of the
United States Department of the Treasury from July 1999 to
January 2001. He was Under Secretary of State for Economic,
Business and
67
Agricultural Affairs from 1997 to 1999. Mr. Eizenstat
served as Under Secretary of Commerce for International Trade
from 1996 to 1997 and was the U.S. Ambassador to the
European Union from 1993 to 1996. From 1977 to 1981 he was Chief
Domestic Policy Advisor in the White House to President Carter.
He is a trustee of BlackRock Funds, a member of the board of
directors of the Chicago Climate Exchange and serves on the
International Advisory Council of The
Coca-Cola
Company, on the advisory board of BT Americas Inc. and on the
International Advisory Board of Group Menatep Limited. He has
received seven honorary doctorate degrees and awards from the
United States, French, German and Israeli governments. He is the
author of Imperfect Justice: Looted Assets, Slave Labor,
and the Unfinished Business of World War II.
Daniel Karosen
has served as a member of our board of
directors since December 2007. Mr. Karosen joined Mandel,
Fekete & Bloom, an accounting firm in Jersey City, New
Jersey in 2000, and has been a partner since 2006. Prior to
joining Mandel, Fekete & Bloom, Mr. Karosen was a
CPA at PricewaterhouseCoopers between 1997 and 2000.
Mr. Karosen is a graduate of the University of Notre Dame.
John P. OBrien
has served as a member of our board
of directors and as Chairman of the audit committee since April
2008. Mr. OBrien is the Managing Director of
Inglewood Associates, a professional services and investment
firm. Prior to joining Inglewood, Mr. OBrien had a
27 year career at Price Waterhouse where he served as the
Southeast Regional Managing Partner and a member of that
Firms Board and Management Committee.
Mr. OBrien has served on a number of Boards and is
currently the non-Executive Chairman of the board of directors
for Century Aluminum Company, where he has been a member of the
Board since 2000 and has also served as Chairman of the audit
committee. Mr. OBriens prior Board experience
includes serving as a director for Preformed Line Products,
Oglebay Norton Company, American Italian Pasta Company,
International Total Services Company and Equivest, Inc.
Mr. OBrien has a BS in Economics from the Wharton
School of the University of Pennsylvania.
Board of
Directors
Board
Composition
Our certificate of incorporation and bylaws, as amended, provide
that the authorized number of directors may be changed only by
resolution of the board of directors. We currently have
4 directors: Messrs. Eizenstat, Karosen, Kestenbaum
and OBrien.
Director
Independence
Our board of directors has reviewed the materiality of any
relationship that each of our directors has with us, either
directly or indirectly. Based on this review, the board has
determined that Messrs. Eizenstat, Karosen and OBrien
are independent directors as defined by NASDAQ and
Securities Exchange
Rule 10A-3.
Committees
of the Board of Directors
Our board of directors has an audit committee. Our board intends
to create a compensation committee and a nominating and
governance committee prior to the completion of the offering.
Each of the committees of the board of directors has, or will
have, the composition and responsibilities described below.
Audit committee.
Mr. OBrien and
Mr. Karosen are currently the members of our audit
committee. Our board intends to add at least one member to the
committee prior to the completion of the offering.
Mr. OBrien and Mr. Karosen satisfy, and it is
contemplated that any additional members will satisfy,
independence standards promulgated by the SEC and by NASDAQ, as
such standards apply specifically to members of audit
committees. Our audit committee is authorized to:
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approve and retain the independent auditors to conduct the
annual audit of our books and records;
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review the proposed scope and results of the audit;
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review and pre-approve the independent auditors audit and
non-audit services rendered;
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approve the audit fees to be paid;
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68
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review accounting and financial controls with the independent
auditors and our financial and accounting staff;
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review and approve transactions between us and our directors,
officers and affiliates;
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recognize and prevent prohibited non-audit services;
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establish procedures for complaints received by us regarding
accounting matters;
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oversee internal audit functions; and
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prepare the report of the audit committee that SEC rules require
to be included in our annual meeting proxy statement.
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Compensation committee.
All members of our
compensation committee will be qualified as independent under
the current definition promulgated by NASDAQ. Our compensation
committee will be authorized to:
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review and recommend the compensation arrangements for
management, including the compensation for our Chief Executive
Officer;
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establish and review general compensation policies with the
objective to attract and retain superior talent, to reward
individual performance and to achieve our financial goals;
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administer our stock incentive plan; and
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prepare the report of the compensation committee that SEC rules
require to be included in our annual meeting proxy statement.
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Nominating and governance committee.
All
members of our nominating and governance committee will be
qualified as independent under the current definition
promulgated by NASDAQ. Our nominating and governance committee
will be authorized to:
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identify and nominate members for election to the board of
directors;
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develop and recommend to the board of directors a set of
corporate governance principles applicable to our
company; and
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oversee the evaluation of the board of directors and management.
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Compensation
Committee Interlocks and Insider Participation
No member of our compensation committee will have been at any
time an employee of ours. None of our executive officers will
serve as a member of the board of directors or compensation
committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation
committee.
To the extent any members of our compensation committee and
affiliates of theirs have participated in transactions with us,
a description of those transactions will be described in
Certain Relationships and Related Person
Transactions.
Code of
Conduct and Ethics
We have adopted a code of conduct and ethics applicable to our
directors, officers and employees in accordance with applicable
federal securities laws and the NASDAQ rules.
69
EXECUTIVE
COMPENSATION
The following discussion and analysis of compensation
arrangements of our named executive officers for our fiscal year
ended June 30, 2007 should be read together with the
compensation tables and related disclosures set forth below.
This discussion contains forward-looking statements that are
based on our current plans, considerations, expectations and
determinations regarding future compensation programs. Actual
compensation programs that we adopt may differ materially from
currently planned programs as summarized in this discussion.
Compensation
Discussion and Analysis
Our executive compensation arrangements are designed to help us
attract talented individuals to manage and operate our business,
to reward those individuals fairly over time and to retain those
individuals who continue to meet our high expectations. The
goals of our executive compensation arrangements are to align
our executive officers compensation with our business
objectives and the interests of our stockholders and to
incentivize and reward our executive officers for our success.
To achieve these goals, we have established executive
compensation and benefit packages composed of a mix of base
salary and equity awards and, in some instances, cash incentive
payments, in proportions that our board believes are the most
appropriate to incentivize and reward our executive officers for
achieving our objectives. Our executive compensation
arrangements are also intended to make us competitive in our
industry, where there is significant competition for talented
employees, and to be fair relative to other professionals within
our organization. We believe that we must provide competitive
compensation packages to attract and retain the most talented
and dedicated executive officers possible and to help retain our
executive management over the longer term.
Role
of Our Executive Chairman in Setting Executive
Compensation
Historically, we have established executive officers
compensation arrangements when they joined our company.
Mr. Kestenbaum, our Executive Chairman, has individually
negotiated each of the executive officers compensation
arrangements, and these initial compensation terms were included
in an employment agreement with the executive.
Role
of Our Board and Compensation Committee in Setting Executive
Compensation
Following this offering, we anticipate that the process for
determining compensations will be modified, to shift the process
for initially setting compensation and periodically reviewing
compensation to an evaluation by the compensation committee in
consultation with the Executive Chairman. It is expected that
the compensation committee will make recommendations to the full
board regarding compensation decisions for our executive
officers.
Elements
of our Executive Compensation Arrangements
General.
Our executive compensation
arrangements may include three principal components: base
salary, long-term incentive compensation in the form of equity
awards and, in some cases, cash bonuses. Our executive officers
are also eligible to participate, on the same basis as other
employees, in our 401(k) plan and our other benefit programs
generally available to all employees. Although we have not
adopted any formal guidelines for allocating total compensation
among these components, we intend to implement and maintain
compensation plans that tie a substantial portion of our
executives overall compensation to the achievement of
corporate performance objectives. Additionally, pursuant to the
terms of employment agreements, some of our executive officers
are entitled to receive severance payments in the event that
their employment is terminated without cause.
We view each of the components of our compensation program as
related but distinct. Our decisions about each individual
component generally do not affect the decisions we make about
other components. For example, we do not believe that
significant compensation derived from one component of
compensation, such as equity appreciation, should necessarily
negate or reduce compensation from other elements, such as
salary or bonus.
70
Base Salary.
Upon joining our company, each of
our executive officers entered into an employment agreement that
provided for an initial base salary. These initial salaries are
the product of negotiation with the executive, but we generally
seek to establish salaries that we believe are commensurate with
the salaries being paid to executive officers serving in similar
roles at comparable metal manufacturing companies. In
establishing the base salaries of our executive officers, we
took into account a number of factors, including the
executives seniority, position, functional role and level
of responsibility and individual performance. Following this
offering, we expect to review base salaries of our executive
officers on an annual basis and make adjustments to reflect
individual performance-based factors, as well as our financial
status. Historically, we have not applied, nor do we intend to
apply, specific formulas to determine base salary increases.
Long-Term Equity Compensation.
We believe that
long-term performance is best incentivized through an ownership
culture that encourages performance by our executive officers
through the use of stock options
and/or
stock
grants. Our equity benefit plans have been established to
provide our executive officers with incentives to help align
their interests with the interests of our stockholders. We
believe that the use of stock options, which only provide value
to the executive officer if the value of our common stock
increases, offers the best approach to achieving our
compensation goals and provides tax and other advantages to our
executive officers relative to other forms of equity
compensation. We believe that our equity benefit plans are an
important retention tool for our executive officers.
Initial option grants to our executive officers are generally
set forth in an employment agreement. These initial option
grants are the product of negotiation with the executive, but we
generally seek to establish equity ownership levels that we
believe are commensurate with the equity stakes held by
executive officers serving in similar roles at comparable
companies. Following this offering, as part of our annual
compensation review process, we expect to provide subsequent
option grants to those executive officers determined to be
performing well.
With the exception of Mr. Kestenbaum, who as the founder of
our company received stock at our inception, our equity benefit
plans have provided the principal method for our executive
officers to acquire equity in our company. Prior to this
offering, we have granted stock options exclusively through our
2006 stock option plan, which was adopted by our board of
directors and approved by our stockholders to permit the grant
of stock options to our employees, officers, directors,
consultants, advisors and independent contractors. In 2007, each
of our named executive officers, who are designated below under
Executive Compensation Grant of
Plan-Based Awards, were awarded stock options under our
2006 stock option plan in the amounts indicated therein. In
determining the size of the stock option grants to our executive
officers, the board of directors took into account each
executive officers existing ownership stake in our
company, as well as his position, scope of responsibility,
ability to affect stockholder value, historic and recent
performance, and the equity ownership levels of executive
officers in similar roles of comparable companies in our
industry.
Cash Bonuses.
In addition to base salaries,
our executive officers are eligible to receive annual
discretionary cash bonuses. Prior to June 30, 2008, we have
not paid any cash bonuses to our executive officers, but
following this offering we may grant annual cash bonuses
intended to compensate executive officers for their individual
contributions to our achievement of corporate goals. Initially,
we expect that any bonus grants would be based upon subjective
determinations which may vary, from time to time, depending on
our overall strategic objectives and the job responsibilities of
each executive officer, but would relate generally to factors
such as achievement of milestones and financial factors such as
raising and maintaining capital.
Severance and Change of Control
Benefits.
Under their employment agreements, our
executive officers are entitled to cash severance benefits if
they are terminated without cause. In some instances, this may
include reimbursement for the costs of continued health
insurance premiums for a period of time after termination of
employment. The terms of these arrangements are more fully
described below under Executive
Compensation Employment Agreements, Severance and
Change of Control Arrangements.
401(k) Plan.
Certain of our
U.S. employees, including our executive officers, are
eligible to participate in our 401(k) plan. Our 401(k) plan is
intended to qualify as a tax qualified plan under
Section 401 of the Internal Revenue Code of 1986, as
amended (Code). Our 401(k) plan provides that each participant
may
71
contribute a portion of his or her pretax compensation, up to a
statutory limit. Employee contributions are held and invested by
the plans trustee.
Other Benefits and Perquisites.
We provide
medical insurance to certain full-time employees, including our
executive officers. Our executive officers generally do not
receive any perquisites, except that we pay an automobile
allowance for Mr. Kestenbaum. However, from time to time,
we have provided relocation expenses in connection with the
relocation of executive officers to the geographic area of our
corporate headquarters in New York. We intend to continue to
provide relocation expenses in the future, as necessary, to
obtain the services of qualified individuals.
Other Compensation.
Our board of directors or
compensation committee, in its discretion, may in the future
revise, amend or add to the benefits of any executive officer if
it deems it advisable.
Federal
Tax Considerations Under Sections 162(m) and 409A
Section 162(m) of the Code limits our deduction for federal
income tax purposes to not more than $1 million of
compensation paid to specified executive officers in a calendar
year. Compensation above $1 million may be deducted if it
is performance-based compensation within the meaning of
Section 162(m). We have not yet established a policy for
determining which forms of incentive compensation awarded to our
executive officers will be designed to qualify as
performance-based compensation. To maintain flexibility in
compensating our executive officers in a manner designed to
promote our objectives, we have not adopted a policy that
requires all compensation to be deductible. However, we expect
that the board of directors and the compensation committee will
evaluate the effects of the compensation limits of
Section 162(m) on any compensation it proposes to grant and
to provide future compensation in a manner consistent with our
best interests and those of our stockholders.
Section 409A of the Code addresses the tax treatment of
nonqualified deferred compensation benefits and provides for
significant taxes and penalties in the case of payment of
nonqualified deferred compensation. We currently intend to
structure our executive compensation programs to avoid
triggering these taxes and penalties under Section 409A.
Accounting
Considerations
Effective July 1, 2006, we adopted the fair value
provisions of SFAS 123(R). Under SFAS 123(R), we are
required to estimate and record an expense for each award of
equity compensation, including stock options, over the vesting
period of the award. Our board of directors has generally
determined to retain, for the foreseeable future, our stock
option program as the sole component of its long-term
compensation program, and, therefore, to record this expense on
an ongoing basis according to SFAS 123(R).
72
Summary
Compensation Table
The following table sets forth information regarding
compensation earned during our fiscal year ended June 30,
2007 by our principal executive officer, our principal financial
officer, and our two other executive officers whose total
compensation exceeded $100,000 for our fiscal year ended
June 30, 2007. We refer to these persons as our named
executive officers.
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Change in
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All
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Option
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Pension
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Other
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Name and Principal Position
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Year
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Salary(1)
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Awards(2)
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Value(3)
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Compensation(4)
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Total
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Alan Kestenbaum
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2007
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$
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318,182
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9,000
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327,182
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Executive Chairman, Director and Chief Executive Officer
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Arden Sims
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2007
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254,546
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755,000
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35,197
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1,044,743
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Chief Operating Officer
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Daniel Krofcheck
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2007
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20,834
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540,000
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560,834
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Chief Financial Officer
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Theodore A. Heilman, Jr.
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2007
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175,000
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755,000
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930,000
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Senior Vice President
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(1)
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We were formed as a special purpose acquisition company in
October 2005. Thus, prior to our acquisition of Globe
Metallurgical, Inc., in November 2006, none of our executive
officers were entitled to any compensation. Salary payments were
made to Mr. Kestenbaum, Mr. Sims and Mr. Heilman
starting on November 13, 2006. Mr. Krofcheck became an
employee on June 1, 2007. No bonuses were paid to any of
the executive officers during the fiscal year 2007.
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(2)
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Option award valuation was performed using a Black-Scholes
option pricing model. Option life estimated at 4 years from
the grant date for options awarded to Mr. Sims and
Mr. Heilman and at 6.5 years from the grant date for
options awarded to Mr. Krofcheck. The option exercise price
is based on our option vesting schedule. The risk free rate used
in the model was the zero-coupon government bond interest rate
at the time of option grant, as found on Bloomberg, of the
instrument with the term closest to the estimated option life.
The volatility factor used in the model was estimated at 43%
using the historical volatility of comparable companies that had
sufficient public trading history. Due to the uncertainty in the
timing, frequency and yield of any future dividend payments, the
dividend yield in the model was assumed to be 0%.
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(3)
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Calculated using a discount rate of 6.25% and an expected
long-term return on plan assets of 8.50%. Present value of
accumulated benefits of $343,857 at June 30, 2007 compared
to $308,660 at June 30, 2006. See Pension and Other
Employee Benefit Plans footnote in our consolidated financial
statements for methodology of calculation.
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(4)
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Auto expense allowance for our Executive Chairman from
November 15, 2006 to June 30, 2007.
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73
Grants of
Plan-Based Awards
The following table sets forth information regarding grants of
non-equity incentive plan awards and grants of equity awards
that we made during the fiscal year ended June 30, 2007 to
each of the executive officers named in the Summary Compensation
Table. All awards were stock options granted under our 2006
Employee, Director and Consultant Stock Option Plan.
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Exercise Price
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Number of
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of Option
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Grant Date Fair
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Grant
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Shares of
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Awards
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Value of Option Awards
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Name
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Date
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Stock
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($/Share)
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(1)
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Arden Sims
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11/13/06
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166,666
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$
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6.25
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$
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328,333
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Arden Sims
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11/13/06
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166,667
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8.50
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235,000
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Arden Sims
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11/13/06
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166,667
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10.00
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191,667
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Theodore A. Heilman, Jr.
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11/13/06
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166,666
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6.25
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328,333
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Theodore A. Heilman, Jr.
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11/13/06
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166,667
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8.50
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235,000
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Theodore A. Heilman, Jr.
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11/13/06
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166,667
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10.00
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191,667
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Daniel Krofcheck
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06/01/07
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200,000
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6.00
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540,000
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(1)
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See footnote (2) in Summary Compensation Table for
assumptions related to option award valuation.
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Outstanding
Equity Awards at Fiscal Year-End
The following table provides information about outstanding stock
options held by our executive officers named in the Summary
Compensation Table at June 30, 2007. All of these options
were granted under our 2006 Employee, Director and Consultant
Stock Option Plan. Our named executive officers did not hold any
restricted stock or other stock awards at the end of our fiscal
year. Our named executive officers did not exercise any stock
options during our fiscal year.
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Number of
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Number of
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Securities
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Securities
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Underlying
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Underlying
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Unexercised
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Unexercised
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Option
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Option
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Options (#)
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Options (#)
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Exercise Price
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Expiration
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Name
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Exercisable
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Unexercisable
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($/Share)
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Date
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Arden Sims
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166,666
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(1)
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$
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6.25
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11/13/11
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Arden Sims
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166,667
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(2)
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8.50
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11/13/11
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Arden Sims
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166,667
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(3)
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10.00
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11/13/11
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Theodore A. Heilman, Jr.
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166,666
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(1)
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6.25
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11/13/11
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Theodore A. Heilman, Jr.
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166,667
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(2)
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8.50
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11/13/11
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Theodore A. Heilman, Jr.
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166,667
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(3)
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10.00
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11/13/11
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Daniel Krofcheck
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200,000
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(4)
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6.00
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06/01/17
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(1)
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These options are fully vested.
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(2)
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These options will fully vest on November 13, 2008.
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(3)
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These options will fully vest on November 13, 2009.
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(4)
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These options vest as to 33.33% on June 1, 2008, as to an
additional 33.33% on June 1, 2009 and to the remaining
33.34% on June 1, 2010.
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Pension
Benefits
The following table provides information about a defined benefit
plan (Retirement Plan) that GMI had in place prior to entry into
bankruptcy protection. The Retirement Plan covers most employees
who met certain age and service requirements before
June 30, 2003. The Retirement Plan was amended in June 2003
to fix benefits and service accruals as of June 30, 2003.
Because of the June 2003 amendment to the Retirement Plan, of
the named executive officers, only Mr. Sims is entitled to
participate in the Retirement Plan. His
74
credited service is frozen at 15 years and his benefits are
fixed at his average salary for the 15 years ended
June 30, 2003 of $13,450 per month.
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Number of Years
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Present Value of
|
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Payments During
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Name
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Plan Name
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Credited Service
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Accumulated Benefit(1)
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Last Fiscal Year
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Arden Sims
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Globe Metallurgical, Inc.
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15
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$
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343,857
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(1)
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Calculated using a discount rate of 6.25% and an expected
long-term return on plan assets of 8.50%. See Pension and Other
Employee Benefit Plans footnote in our consolidated financial
statements for methodology of calculation.
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Employment
Agreements, Severance and Change of Control
Arrangements
The following is a description of the employment agreements and
severance and change of control arrangements with respect to
each named executive officer serving in that capacity at
June 30, 2007. The amount of compensation payable to each
named executive officer upon termination without cause,
termination for good reason and termination following a change
of control is shown below. The amounts shown assume that such
terminations were effective as of June 30, 2007, and are
estimates of the amounts which would be paid to the named
executives upon their termination. The actual amounts to be paid
can only be determined at the time of such executives
actual separation from us.
Employment
Agreements and Severance Arrangements
Alan Kestenbaum.
Mr. Kestenbaum serves as
our Executive Chairman. Mr. Kestenbaums employment
agreement with us provides for an annual base salary of $500,000
which is subject to annual upward adjustments at the discretion
of the board of directors, plus bonuses and stock options to be
awarded in our discretion. Mr. Kestenbaum shall also be
entitled to receive an automobile allowance in the amount of
$1,200 per month. During the term of his employment agreement,
Mr. Kestenbaum will serve as a member of our board of
directors without additional compensation. In the event of a
Change of Control (defined as a merger or
consolidation or other change in ownership of 50% or more of our
total voting power pursuant to a transaction or a series of
transactions, the approval by our stockholders of an agreement
to sell or dispose of all or substantially all of our assets, or
a change in the composition of our board or directors such that
fewer than a majority of the directors are Incumbent
Directors, as defined in the employment agreement),
Mr. Kestenbaum will be entitled to receive a severance
payment of $2.5 million, payable in one lump sum amount,
within 10 business days following such Change of Control. In the
event Mr. Kestenbaum is terminated without
Cause or he resigns For Good Reason, as
each such term is defined in the agreement, then
Mr. Kestenbaum is entitled to a payment of
$2.5 million, payable in one lump sum amount, provided
Mr. Kestenbaum first executes a release in a form
reasonably satisfactory to us. The term of his employment
agreement is four years expiring in November 2010, with
automatic one year renewal terms thereafter, unless we or
Mr. Kestenbaum give written notice to the other at least
90 days prior to the expiration of such term.
In addition, Mr. Kestenbaum has an employment agreement
with Solsil. Mr. Kestenbaums employment agreement
with Solsil provides for an annual base salary of $100,000 which
is subject to annual increases at the discretion of our board of
directors, plus bonuses to be awarded in the discretion of the
board of directors of Solsil. The term of his employment
agreement is three years expiring on May 31, 2009, with
automatic one year renewal terms thereafter, unless we or
Mr. Kestenbaum give written notice to the other at least
60 days prior to the expiration of such term. In the event
Mr. Kestenbaum is terminated without Cause or
he resigns For Good Reason, as each such term is
defined in the agreement, then Mr. Kestenbaum is entitled
to (i) continued payment of base salary at the rate then in
effect for the greater of (A) 12 months or
(B) the number of months remaining on the term of his
employment agreement with Solsil, (ii) continued provision
of benefits for 12 months, and (iii) payment on a
prorated basis of any bonus or other payments earned in
connection with Solsils then-existing bonus plan in place
at the time of termination. If Mr. Kestenbaum is deemed to
suffer a Total Disability as defined in the
agreement, he would be entitled to: (i) 12 months of
base salary at the then existing rate, (ii) continued
provision of benefits for 12 months, and (iii) payment
on a
75
prorated basis of any bonus or other payments earned in
connection with Solsils then-existing bonus plan in place
at the time of termination.
Jeff Bradley.
Mr. Bradley serves as our
Chief Executive Officer and reports directly to the Executive
Chairman. Mr. Bradleys employment agreement provides
for an annual base salary of $600,000 which is subject to annual
upward adjustments at the discretion of the board of directors.
In addition to Mr. Bradleys base salary, he shall be
eligible to receive annual stock grants of between 30,000 and
60,000 shares based on our achieving an EBITDA target with
respect to a given fiscal year, assuming 62,000,000 shares
are outstanding. Issuance of the stock grants shall be made at
such time as determined by the board of directors; provided,
however, that such grant must be issued on or before July 31
immediately following the end of the fiscal year for which such
grant is issuable. In the event Mr. Bradley is terminated
without Cause or he resigns For Good
Reason, as each such term is defined in the agreement,
then Mr. Bradley is entitled to a payment of his then base
salary payable in equal monthly installments on the first day of
each month during the 12 month period following such
termination, the right to continue participation in all
insurance benefit plans providing medical coverage, at the same
level as other similarly situated executives during the
12 month period following such termination with the
premiums paid by us, the balance of any annual incentive award
earned in respect of any fiscal year ending on or prior to the
termination date, or payable (but not yet paid) on or prior to
the termination date and payment of any annual incentive award
(prorated for the portion of the year in which Mr. Bradley
was employed by us), and the acceleration of the vesting of any
of the stock options referenced below. As an inducement to enter
into the agreement, we granted Mr. Bradley an option to
purchase 200,000 shares of our common stock at the
following strike prices and vesting schedule, provided
Mr. Bradley continues to be employed by us on each such
vesting date:
1
/
3
of such option has an exercise price of $25.00 and will vest on
May 26, 2009;
1
/
6
of such option has an exercise price of $30.00 and will vest on
May 26, 2010;
1
/
6
of such option has an exercise price of $35.00 and will vest on
May 26, 2010;
1
/
6
of such option has an exercise price of $42.50 and will vest on
May 26, 2011; and the final
1
/
6
of such option has an exercise price of $50.00 and will vest on
May 26, 2011. The term of his employment agreement is three
years expiring on May 26, 2011.
Arden Sims.
Mr. Sims serves as our Chief
Operating Officer, reporting to the Chief Executive Officer.
Mr. Simss employment agreement with us provides for
an annual base salary of $400,000 which is subject to annual
adjustments at the discretion of our board of directors, plus
bonuses to be awarded in our discretion based on merit. On
November 13, 2006, Mr. Sims was awarded, pursuant to
our 2006 Employee, Director and Consultant Stock Plan, a stock
option to purchase 500,000 shares of our common stock at
the following strike prices and vesting schedule, provided
Mr. Sims continues to be employed by us on each such
vesting date:
1
/
3
of such option has an exercise price of $6.25 and vested on
November 13, 2007;
1
/
3
of such option has an exercise price of $8.50 and will vest on
November 13, 2008; and the final
1
/
3
of such option has an exercise price of $10.00 and will vest on
November 13, 2009. The term of his employment agreement is
three years expiring on October 1, 2009, with automatic one
year renewal terms thereafter, unless we or Mr. Sims give
written notice to the other at least 90 days prior to the
expiration of such term. In the event Mr. Sims is
terminated without Cause or he resigns For
Good Reason, as each such term is defined in the
agreement, then Mr. Sims is entitled to severance in the
amount of one year of his base pay then in effect, payable in
one lump sum amount, provided Mr. Sims first executes a
release in a form reasonably satisfactory to us.
In addition, Mr. Sims has an employment agreement with
Solsil. Mr. Simss employment agreement with Solsil
provides for an annual base salary of $150,000 which is subject
to annual increases at the discretion of our board of directors,
plus bonuses to be awarded in the discretion of the board of
directors of Solsil. The term of his employment agreement is
three years expiring on May 31, 2009, with automatic one
year renewal terms thereafter, unless we or Mr. Sims give
written notice to the other at least 60 days prior to the
expiration of such term. In the event Mr. Sims is
terminated without Cause or he resigns For
Good Reason, as each such term is defined in the
agreement, then Mr. Sims is entitled to (i) continued
payment of base salary at the rate then in effect for the
greater of (A) 12 months or (B) the number of
months remaining on the term of his employment agreement with
Solsil, (ii) continued provision of benefits for
12 months, and (iii) payment on a prorated basis of
any bonus or other payments earned in connection with
Solsils then-existing bonus plan in place at the time of
termination. If Mr. Sims is deemed to suffer a Total
Disability as defined in the
76
agreement, he would be entitled to: (i) twelve months
of base salary at the then existing rate, (ii) continued
provision of benefits for 12 months, and (iii) payment
on a prorated basis of any bonus or other payments earned in
connection with Solsils then-existing bonus plan in place
at the time of termination.
Daniel Krofcheck.
Mr. Krofcheck serves as
our Chief Financial Officer, reporting to the Chief Executive
Officer and board of directors. Mr. Krofchecks
employment agreement provides for an annual base salary of
$250,000, which is subject to annual adjustments at the
discretion of our board of directors, plus bonuses to be awarded
in our discretion based on merit. For the fiscal year ended
June 30, 2008, Mr. Krofcheck is entitled to receive a
cash bonus of at least $100,000. We entered into a stock option
agreement with Mr. Krofcheck, under which
Mr. Krofcheck has received a stock option to purchase
200,000 shares of our common stock at the following strike
prices and vesting schedule, provided Mr. Krofcheck
continues to be employed by us on each such vesting date:
1
/
3
of such option has an exercise price of $6.00 and vested on
June 1, 2008;
1
/
3
of such option has an exercise price of $6.00 and will vest on
June 1, 2009; and the final
1
/
3
of such option has an exercise price of $6.00 and will vest on
June 1, 2010. The term of his employment agreement is three
years expiring on May 31, 2010.
In the event Mr. Krofcheck is terminated without
Cause or he resigns For Good Reason, as
each such term is defined in the agreement, then
Mr. Krofcheck is entitled to severance in the amount of one
year of his base pay then in effect, payable in equal monthly
installments. If Mr. Krofcheck is terminated without
Cause or he resigns For Good Reason,
following a Change of Control or within six months prior to the
consummation of a Change of Control, Mr. Krofcheck is
entitled to severance in the amount of his base salary, benefits
and other amounts payable under his employment agreement for the
then remaining term of the employment period.
Stephen Lebowitz.
Mr. Lebowitz serves as
our General Counsel and reports directly to the Executive
Chairman and Chief Executive Officer. Mr. Lebowitzs
employment agreement provides for an annual base salary of
$275,000 which is subject to annual upward adjustments at the
discretion of our board of directors. In addition,
Mr. Lebowitz is eligible to receive an annual stock grant
of 4,000 shares, or a lesser amount upon the determination of
the Compensation Committee based on the recommendation of the
Executive Chairman. As an inducement to enter into the
agreement, we granted Mr. Lebowitz an option to purchase
75,000 shares of our common stock at the following strike prices
and vesting schedule, provided Mr. Lebowitz continues to be
employed by us: 1/5 of such option has an exercise price of
$30.00 and will vest on June 20, 2009; 1/5 of such option
has an exercise price of $40.00 and will vest on June 20,
2010; 1/5 of such option has an exercise price of $50.00 and
will vest on June 20, 2011; 1/5 of such option has an
exercise price of $55.00 and will vest on June 20, 2012;
and the final 1/5 of such option has an exercise price of $60.00
and will vest on June 20, 2013. The term of his employment
agreement is five years expiring on June 20, 2013.
In the event Mr. Lebowitz is terminated without
Cause or he resigns For Good Reason, as
each such term is defined in the agreement, then
Mr. Lebowitz is entitled to a payment of his then base
salary and any accrued bonus stock grant as of the date of
termination, payable in equal monthly installments, as well as
benefits and other amounts payable under his employment
agreement for the twelve month period immediately following his
termination.
Theodore A. Heilman, Jr.
Mr. Heilman serves as
our Senior Vice President, reporting to the Chief Executive
Officer. Mr. Heilmans employment agreement provides
for an annual base salary of $275,000 which is subject to annual
adjustments at the discretion of our board of directors, plus
bonuses to be awarded in our discretion based on merit. On
November 13, 2006, Mr. Heilman was awarded, pursuant
to our 2006 Employee, Director and Consultant Stock Plan, a
stock option to purchase 500,000 shares of our common stock
at the following strike prices and vesting schedule, provided
Mr. Heilman continues to be employed by us on each such
vesting date:
1
/
3
of such option has an exercise price of $6.25 and vested on
November 13, 2007;
1
/
3
of such option has an exercise price of $8.50 and will vest on
November 13, 2008; and the final
1
/
3
of such option has an exercise price of $10.00 and will vest on
November 13, 2009. The term of his employment agreement is
three years expiring on November 13, 2009, with automatic
one year renewal terms thereafter, unless we or Mr. Heilman
give written notice to the other at least 90 days prior to
the expiration of such term.
77
In the event Mr. Heilman is terminated without
Cause or he resigns For Good Reason, as
each such term is defined in the agreement, then
Mr. Heilman is entitled to severance in the amount of one
year of his base pay then in effect, payable in one lump sum
amount, provided Mr. Heilman first executes a release in a
form reasonably satisfactory to us.
Employee
Benefit Plans
We believe that our ability to grant equity-based awards is a
valuable and necessary compensation tool that aligns the
long-term financial interests of our employees and directors
with the financial interests of our stockholders. In addition,
we believe that our ability to grant options and other
equity-based awards helps us to attract, retain and motivate
qualified employees, and encourages them to devote their best
efforts to our business and financial success. The material
terms of our equity incentive plan is described below.
2006
Employee, Director and Consultant Stock Option
Plan
Our 2006 Employee, Director and Consultant Stock Option Plan was
adopted by our board of directors in October 2006 and approved
by our stockholders in November 2006. A total of
5,000,000 shares of common stock have been reserved for
issuance under this plan, of which 3,640,000 shares were
available for grant as of March 31, 2008.
The plan is to be administered by our board of directors, except
to the extent that it permits the board of directors to delegate
its authority to the Compensation Committee. The plan authorizes
the issuance of stock grants to our employees, directors and
consultants, the grant of incentive stock options to our
employees and the grant of non-qualified options to our
employees and directors, and consultants.
The administrator has the authority to administer and interpret
the plan, determine the persons to whom awards will be granted
under the plan and, subject to the terms of the plan, the type
and size of each award, the terms and conditions for vesting,
cancellation and forfeiture of awards and the other features
applicable to each award or type of award. The administrator may
accelerate or defer the vesting or payment of awards, cancel or
modify outstanding awards, waive any conditions or restrictions
imposed with respect to awards or the stock issued pursuant to
awards and make any and all other determinations that it deems
appropriate, subject to the limitations contained in the plan,
and provisions designed to maintain compliance with the
requirements of Sections 422 (for incentive stock options),
and 409A of the Code, as well as other applicable laws and stock
exchange rules. In addition the Compensation Committee may
delegate part of its authority and powers under the plan to one
or more of our directors
and/or
officers, however, only the administrator will make awards to
participants who are our directors or executive officers.
All of our employees are eligible to receive awards under the
plan. The plan defines employees to include any of
our employees or employees of one of our affiliates, including
employees who are also serving as one of our officers or
directors, or as an officer or director of one of our
affiliates. All other awards may be granted to any participant
in the plan. Participation is discretionary, and awards are
subject to approval by the administrator. The aggregate number
of shares of common stock subject to awards that may be granted
to any one participant during any fiscal year may not exceed
500,000 shares.
The maximum number of shares of common stock that may be subject
to awards during the term of the plan is 5,000,000 shares.
Shares of common stock issued in connection with awards under
the plan may be shares that are authorized but unissued, or
previously issued shares that have been reacquired, or both. If
an award under the plan is forfeited, cancelled, terminated or
expires prior to the issuance of shares, the shares subject to
the award will be available for future grants under the plan.
However, shares of common stock tendered in payment for an award
or shares of common stock withheld for taxes will not be
available again for grant.
The following types of awards may be granted under the plan. All
of the awards described below are subject to the conditions,
limitations, restrictions, vesting and forfeiture provisions
determined by the administrator, in its sole discretion, subject
to such limitations as are provided in the plan. The number of
shares subject to any award is also determined by the
administrator, in its discretion.
78
Stock Grants.
A stock grant is an award of
outstanding shares of common stock and may subject the shares to
vesting or forfeiture conditions. Participants generally receive
dividend payments on the shares subject to a restricted stock
grant award during the vesting period, and are also generally
entitled to vote the shares underlying their awards.
Non-Qualified Stock Options.
An award of a
non-qualified stock option under the plan grants a participant
the right to purchase a certain number of shares of common stock
during a specified term in the future, after a vesting period,
at an exercise price equal to at least 100% of the fair market
value of the common stock on the grant date. The exercise price
may be paid by any of the means described below under
Stock-Based
Awards A non-qualified stock option is an option that does
not qualify under Section 422 of the Code.
Incentive Stock Options.
An incentive stock
option is a stock option that meets the requirements of
Section 422 of the Code, which include an exercise price of
no less than 100% of fair market value on the grant date, a term
of no more than 10 years, and that the option be granted
from a plan that has been approved by stockholders. Additional
requirements apply to an incentive stock option granted to a
participant who beneficially owns stock representing more than
10% of the total voting power of all of our outstanding stock on
the date of grant. If certain holding period requirements are
met and there is no disqualifying disposition of the shares, the
participant will be able to receive capital gain (rather than
ordinary income) treatment under the Code with respect to any
gain related to the exercise of the option.
Stock-Based Awards.
A stock-based award is a
grant by us under the plan of an equity award or an equity based
award which is not a non-qualified stock option, an incentive
stock option, or a stock grant. The administrator has the right
to grant stock-based awards having such terms and conditions as
the administrator may determine, including, without limitation,
the grants of shares based upon certain conditions, the grant of
securities convertible into shares and the grant of stock
appreciation rights, phantom stock awards or stock units. The
principal terms of each stock-based award will be set forth in
the participants award agreement, in a form approved by
the administrator and shall contain terms and conditions which
the administrator determines to be appropriate and in our best
interest.
Payment of the exercise price of a non-qualified stock option or
incentive stock option may be made in United States dollars or,
if permitted by the administrator, by tendering shares of common
stock owned by the participant and acquired at least six months
prior to exercise, having a fair market value equal to the
exercise price, by a combination of cash and shares of common
stock or by authorizing the sale of shares otherwise issuable
upon exercise, with the sale proceeds applied towards the
exercise price. Additionally, the administrator may provide that
stock options can be net exercised, that is exercised by issuing
shares having a value approximately equal to the difference
between the aggregate value of the shares as to which the option
is being exercised and the aggregate exercise price for such
number of shares, or that payment may be made through deliver of
a promissory note.
By its terms, awards granted under the plan are not transferable
other than (i) by will or the laws of descent and
distribution or (ii) as approved by the administrator in
its discretion and set forth in the applicable agreement with
the participant. Notwithstanding the foregoing, an incentive
stock option transferred except in compliance with
clause (i) above will no longer qualify as an incentive
stock option. During a participants lifetime, all rights
with respect to an award may be exercised only by the
participant (or by his or her legal representative) and cannot
be assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise) and cannot be subject to
execution, attachment or similar process.
Subject to certain limitations, the maximum number of shares
available for issuance under the plan, the number of shares
covered by outstanding awards, the exercise price applicable to
outstanding awards and the limit on awards to a single employee
shall be adjusted by the administrator if it determines that any
stock split, extraordinary dividend, stock dividend,
distribution (other than ordinary cash dividends),
recapitalization, merger, consolidation, reorganization,
combination or exchange of shares or other similar event
equitably requires such an adjustment.
79
Upon the occurrence of a Corporate Transaction, as
defined in the plan, the administrator, may, in its discretion
and as it deems appropriate as a consequence of such Corporate
Transaction, accelerate, purchase, adjust, modify or terminate
awards or cause awards to be assumed by the surviving
corporation in the transaction that triggered such Corporate
Transaction.
The plan will terminate in October 2016, the date which is ten
years from the date of its approval by our board of directors.
The plan may be amended or terminated by the administrator at an
earlier date, provided that no amendment that would require
stockholder approval under any applicable law or regulation
(including the rules of any exchange on which our shares are
then listed for trading) or under any provision of the Code, may
become effective without stockholder approval. A termination,
suspension or amendment of the plan may not adversely affect the
rights of any participant with respect to a previously granted
award, without the participants written consent.
Limitation
of Directors Liability and Indemnification
The Delaware General Corporation Law authorizes corporations to
limit or eliminate, subject to certain conditions, the personal
liability of directors to corporations and their stockholders
for monetary damages for breach of their fiduciary duties. Our
certificate of incorporation limits the liability of our
directors to the fullest extent permitted by Delaware law.
We have obtained director and officer liability insurance to
cover liabilities our directors and officers may occur in
connection with their services to us, including matters arising
under the Securities Act of 1933 (the Securities Act). Our
certificate of incorporation and bylaws also provide that we
will indemnify any of our directors and officers who, by reason
of the fact that he or she is one of our officers or directors,
is involved in a legal proceeding of any nature. We will repay
certain expenses incurred by a director or officer in connection
with any civil or criminal action or proceeding, specifically
including actions by us or in our name (derivative suits). Such
indemnifiable expenses include, to the maximum extent permitted
by law, attorneys fees, judgments, civil or criminal
fines, settlement amounts and other expenses customarily
incurred in connection with legal proceedings. A director or
officer will not receive indemnification if he or she is found
not to have acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, our best
interest.
Such limitation of liability and indemnification does not affect
the availability of equitable remedies. In addition, we have
been advised that in the opinion of the SEC, indemnification for
liabilities arising under the Securities Act is against public
policy as expressed in the Securities Act and is therefore
unenforceable.
There is no pending litigation or proceeding involving any of
our directors, officers, employees or agents in which
indemnification will be required or permitted. We are not aware
of any threatened litigation or proceeding that may result in a
claim for such indemnification.
80
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of the transactions we have
engaged in since the beginning of our fiscal year ended June 30,
2007, with our directors and officers and beneficial owners of
more than five percent of our voting securities and their
affiliates. Except as otherwise specified herein, dollar amounts
are reflected in thousands.
We entered into a silicon metal supply agreement, operations
agreement and facility site lease with Solsil, Inc., an
affiliate of Mr. Kestenbaum, Mr. Sims, and
Mr. Heilman which commenced July 1, 2006. Under these
agreements, Solsil purchases silicon metal from us at prices
based on a weekly published silicon metal price index and we
provide services to Solsil at market rates. During the eight
months ended February 29, 2008, prior to our acquisition of
Solsil, we earned $3,287 under the operating and lease agreement
in which Solsil was provided administrative and operating
support plus facility space. During the eight months ended
February 29, 2008, we sold $2,580 of
S-1
metallurgical grade silicon to Solsil. During the eight months
ended February 29, 2008, we purchased $1,798 in silicon
from Solsil. We provided a loan of $1,500 to Solsil on
October 24, 2007. This note accrued interest at LIBOR plus
3.0%, through February 29, 2008, with interest payable in
kind and capitalized as principal outstanding at the end of each
quarter in lieu of payment in cash. Subsequent to our
acquisition of Solsil, this note was eliminated in consolidation
at March 31, 2008.
On February 29, 2008, we acquired by merger approximately
81% of the capital stock of Solsil, which was owned in part by
Mr. Kestenbaum, who, directly or indirectly, held 5.9% of
Solsils preferred stock and 22.4% of Solsils common
stock, Mr. Sims, who held 1.8% of Solsils preferred
stock and 2.9% of Solsils common stock, Mr. Heilman,
who held 0.1% of Solsils common stock, D.E. Shaw, who,
directly or indirectly, held 52.0% of Solsils preferred
stock and 40.0% of Solsils common stock and Plainfield
Asset Management, who, directly or indirectly, held 40.0% of
Solsils preferred stock and 22.7% of Solsils common
stock. In addition, Mr. Kestenbaum and Mr. Sims each
held options for 3.3% of Solsils common stock. In
connection with the acquisition, we issued,
5,628,657 shares of our common stock, with
1,559,304 shares issued to Mr. Kestenbaum,
382,234 shares issued to Mr. Sims, 8,376 shares
issued to Mr. Heilman, 2,245,641 shares issued to D.E.
Shaw and 651,999 shares issued to Plainfield Asset
Management. D.E. Shaw continues to hold approximately 5.2% of
the Solsil common stock, and Plainfield Asset Management
continues to hold approximately 13.4% of the Solsil common stock.
We entered into agreements with Marco International, an
affiliate of Mr. Kestenbaum, to purchase graphitized carbon
electrodes. During the nine months ended March 31, 2008,
Marco International billed GMI $7,997 under these agreements. At
March 31, 2008, we owed $352 under the agreement. During
the nine months ended March 31, 2008, we sold calcium
silicon powder to Marco International and billed them $1,152. At
March 31, 2008, there were no receivables from Marco
International. We also paid Marco Realty $114 to rent office
space for our corporate headquarters in New York City, New York.
On November 10, 2005, GMI borrowed $8,500 from MI Capital,
Inc. and $8,500 from D.E. Shaw. The loan from MI Capital bears
interest at prime plus 3.25%, with a minimum of 10.25% per
annum, the loan from D.E. Shaw bears interest at LIBOR plus 8%,
and both loans mature on November 10, 2011. Both loans are
secured by junior liens on substantially all of GMIs
assets and are subordinated to GMIs senior debt. On
April 17, 2007, MI Capital sold its loan to D.E. Shaw. For
the period from July 1, 2006 to April 17, 2007, MI
Capital received interest of $787. For the period from
July 1, 2006 to June 30, 2007, D.E. Shaw received
interest of $1,352, and for the period from July 1, 2007 to
March 31, 2008, D.E. Shaw received interest of $1,512.
We own a 50% equity interest in Norchem, Inc. During the nine
months ended March 31, 2008, we sold Norchem product valued
at $3,161. At March 31, 2008, receivables from Norchem
totaled $341.
Solsil has outstanding loans with D.E. Shaw and Plainfield
Direct, Inc., shareholders of the Company, totaling
$1.5 million with interest payable at LIBOR plus 3% and due
on October 24, 2008. These notes also mature on
October 24, 2008.
We believe that all of the transactions above were made on terms
no less favorable to us than could have been obtained from
unaffiliated third parties. All future transactions, including
loans between us, our officers, principal stockholders and our
affiliates will be approved by a majority of the board of
directors, including a majority of the independent and
disinterested directors and will continue to be on terms no less
favorable to us than could be obtained from unaffiliated third
parties.
81
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect
to the beneficial ownership of our common stock, on a
fully-diluted as-converted basis as of March 31, 2008:
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the executive officers named in the Summary Compensation Table;
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each of our directors;
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all our current executive officers and directors as a group;
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each stockholder known by us to be the beneficial owner of more
than 5% of our outstanding shares of common stock; and
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each selling stockholder.
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Beneficial ownership is determined in accordance with the rules
of the SEC and includes voting or investment power with respect
to the securities. Shares of common stock that may be acquired
by an individual or group within 60 days of March 31,
2008, pursuant to the exercise of options or warrants, are
deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
Percentage of ownership is based on 63,050,416 shares of
common stock outstanding on March 31, 2008
plus shares
of common stock that we are selling in this offering. The
underwriters have an option to purchase up
to
additional shares of our common stock from the selling
stockholders to cover over-allotments. Brokers or other nominees
may hold shares of our common stock in street name
for customers who are the beneficial owners of the shares. As a
result, we may not be aware of each person or group of
affiliated persons who own more than 5% of our common stock.
Except as indicated in footnotes to this table, we believe that
the stockholders named in this table have sole voting and
investment power with respect to all shares of common stock
shown to be beneficially owned by them, based on information
provided to us by such stockholders. Unless otherwise indicated,
the address for each director and executive officer listed is:
c/o Globe
Specialty Metals, Inc., One Penn Plaza, 250 West
34th Street, Suite 2514, New York, NY 10119.
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Shares
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Shares
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Beneficially
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Percentage
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Beneficially
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Owned
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Beneficially Owned
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Owned Before
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Shares Being
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After the
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Before
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After
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Name and Address of Beneficial Owner
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the Offering
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Offered
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Offering
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Offering
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Offering
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Directors and Executive Officers:
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Alan Kestenbaum(1)
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10,777,165
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17
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%
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Jeff Bradley
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0
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Theodore A. Heilman, Jr.(2)
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407,039
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1
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%
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Arden Sims(3)
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826,748
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1
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%
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Daniel Krofcheck
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0
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Stephen Lebowitz
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0
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Stuart E. Eizenstat
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0
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Daniel Karosen
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0
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John P. OBrien
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0
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All directors and executive officers as a group (9
individuals)(4)
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12,010,952
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19
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%
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82
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Shares
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Shares
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Beneficially
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Percentage
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Beneficially
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Owned
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Beneficially Owned
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Owned Before
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Shares Being
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After the
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Before
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After
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Name and Address of Beneficial Owner
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the Offering
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Offered
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Offering
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Offering
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Offering
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Five Percent Stockholders:
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Luxor Capital Group LP(5)
767 Fifth Avenue
New York, NY 10153
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21,237,805
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29
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%
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Plainfield Asset Management LLC(6)
55 Railroad Avenue
Greenwich, CT 06830
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14,488,918
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21
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%
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D. E. Shaw Laminar International, Inc. and affiliates(7)
120 West
45
th
Street
New York, NY 10036
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8,028,917
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13
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%
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Franklin Mutual Advisers, LLC(8)
101 John F. Kennedy Parkway
Short Hills, NJ 07078
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5,661,904
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9
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%
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Corsair Capital Management LLC(9)
350 Madison Avenue
New York, NY 10017
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4,190,622
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7
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%
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Cartesian Capital Group, LLC
505 Fifth Avenue
New York, NY 10017
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4,179,962
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7
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%
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Selling Stockholders:
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*
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less than one (1%) percent.
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(1)
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Includes 77,967 shares subject to an escrow agreement and
forfeiture in certain cases.
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(2)
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Includes 166,666 shares issuable upon exercise of options
exercisable within 60 days of March 31, 2008 and
419 shares subject to an escrow agreement and forfeiture in
certain cases.
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(3)
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Includes 166,666 shares issuable upon exercise of options
exercisable within 60 days of March 31, 2008 and
19,112 shares subject to an escrow agreement and forfeiture
in certain cases.
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(4)
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Includes 333,332 shares issuable upon exercise of options
exercisable within 60 days of March 31, 2008 and
97,498 shares subject to an escrow agreement and forfeiture
in certain cases.
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(5)
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Includes (i) 7,109,799 shares issuable upon exercise
of immediately exercisable warrants and
(ii) 1,288,420 shares and 2,576,840 shares
underlying immediately exercisable warrants, issuable upon
exercise of 1,288,420 immediately exercisable unit purchase
options.
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(6)
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Includes 6,000,669 shares issuable upon exercise of
immediately exercisable warrants and 32,601 shares subject
to an escrow agreement and forfeiture in certain cases. Max
Holmes, Chief Investment Officer of Plainfield Asset Management
LLC (Plainfield), has the power to direct investments and/or
vote the securities held by the affiliates of Plainfield, for
which Plainfield serves as investment manager. For purposes of
the reporting requirements of the Securities Exchange Act of
1934, Plainfield and Max Holmes may be deemed to be a beneficial
owner of such securities; however, Plainfield and Max Holmes
each expressly disclaim beneficial ownership of such securities.
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(7)
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Includes 960,011 shares issuable upon exercise of
immediately exercisable warrants. Consists of
(a) 5,783,276 shares (including 960,011 shares
issuable upon exercise of warrants exercisable within
60 days of March 31, 2008) from D. E. Shaw
Laminar International, Inc., (b) 1,987,658 shares from
D. E. Shaw Composite Side Pocket Series 1, L.L.C., of which
99,383 shares are subject to an escrow agreement and
forfeiture in certain cases and (c) 257,983 shares
from D. E. Shaw Composite Side Pocket Series 7,
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L.L.C., of which 12,899 shares are subject to an escrow
agreement and forfeiture in certain cases. D. E.
Shaw & Co., L.P., as investment adviser, has voting
and investment control over the shares beneficially owned by D.
E. Shaw Laminar International, Inc., D. E. Shaw Composite Side
Pocket Series 1, L.L.C., and D. E. Shaw Composite Side
Pocket Series 7, L.L.C. Julius Gaudio, Eric Wepsic,
Maximilian Stone, Anne Dinning, and Lou Salkind, or their
designees, exercise voting and investment control over the
shares on D. E. Shaw & Co., L.P.s behalf.
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(8)
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Franklin Mutual Advisers LLC (Franklin) serves as investment
adviser with power to direct investments and/or sole power to
vote these securities owned by various individuals and
institutional investors. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Franklin is
deemed to be a beneficial owner of such securities; however,
Franklin expressly disclaims that it is, in fact, the beneficial
owner of such securities.
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(9)
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Includes 496,100 shares issuable upon exercise of
immediately exercisable warrants. Corsair Capital Management LLC
(Corsair) serves as investment manager with power to direct
investments
and/or
sole
power to vote these securities owned by various individuals and
institutional investors. The natural persons who have voting and
dispositive power for the shares held by Corsair are Steven
Major and Jay Petschek, each Managing Members of Corsair.
Mr. Major and Mr. Petschek disclaim beneficial
ownership of the shares except for their respective pecuniary
interests.
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84
DESCRIPTION
OF CAPITAL STOCK
We are authorized to issue 150,000,000 shares of common
stock, $.0001 par value per share, and
1,000,000 shares of preferred stock, $.0001 par value
per share, and there will
be shares
of common stock and no shares of preferred stock outstanding
upon completion of this offering. As of March 31, 2008, we
had 63,050,416 shares of common stock outstanding held of
record by 108 stockholders, and there were outstanding options
to purchase 1,360,000 shares of common stock, outstanding
warrants to purchase 19,046,910 shares of common stock and
1,607,542 outstanding unit purchase options, each of which
represents the right to purchase at an exercise price of $7.50
per unit purchase option, one share of common stock and two
warrants, or an aggregate of 1,607,542 shares of common
stock and warrants to purchase 3,215,084 shares of common
stock at an exercise price of $5.00 per share.
Common
Stock
Holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the
stockholders and do not have cumulative voting rights. Subject
to preferences that may be applicable to any outstanding shares
of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from
time to time by our board of directors out of funds legally
available for dividend payments. All outstanding shares of
common stock are fully paid and non-assessable, and the shares
of common stock to be issued upon completion of this offering
will be fully paid and non-assessable. The holders of common
stock have no preferences or rights of conversion, exchange,
pre-emption or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common
stock. In the event of any liquidation, dissolution or
winding-up
of our affairs, holders of common stock will be entitled to
share ratably in our assets that are remaining after payment or
provision for payment of all of our debts and obligations and
after liquidation payments to holders of outstanding shares of
preferred stock, if any.
Preferred
Stock
The preferred stock, if issued, would have priority over the
common stock with respect to dividends and other distributions,
including the distribution of assets upon liquidation. Our board
of directors has the authority, without further stockholder
authorization, to issue from time to time shares of preferred
stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series.
Although we have no present plans to issue any shares of
preferred stock, the issuance of shares of preferred stock, or
the issuance of rights to purchase such shares, could decrease
the amount of earnings and assets available for distribution to
the holders of common stock, could adversely affect the rights
and powers, including voting rights, of the common stock, and
could have the effect of delaying, deterring or preventing a
change in control of us or an unsolicited acquisition proposal.
Warrants
As of March 31, 2008, we had 19,046,910 warrants
outstanding, which warrants were trading on the AIM market under
the symbol GLBW. Each warrant entitles the holder to
purchase one share of common stock at a price of $5.00. The
warrants will expire on October 3, 2009 at
5:00 p.m. New York City time. The exercise price and
number of shares issuable on exercise of the warrants may be
adjusted in certain circumstances, including in the event of a
share dividend, or a recapitalization, reorganization, merger or
consolidation involving the company. However, the warrants will
not be adjusted for further issuances of shares of common stock
at a price below their exercise price.
Unit
Purchase Options
As of March 31
,
2008, we had 1,607,542 unit purchase
options outstanding. Each unit purchase option represents the
right to purchase at $7.50, one share of common stock and two
warrants to purchase common stock. Each warrant underlying a
unit purchase option represents the right to purchase one share
of common stock at a price of $5.00. The unit purchase options
will expire on October 3, 2010 at 5:00 p.m. New
York City time. The unit purchase options may be exercised on a
cashless basis at the holders option. The exercise price
and number of shares issuable on exercise of the unit purchase
options and warrants underlying unit purchase options may be
adjusted in certain circumstances, including in the event of a
share dividend, or a recapitalization, reorganization, merger or
consolidation involving the company. However, the unit purchase
85
options will not be adjusted for further issuances of shares of
common stock at a price below their exercise price.
Certain
Provisions of Our Amended and Restated Certificate of
Incorporation and Bylaws
Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws.
Provisions of our amended
and restated certificate of incorporation and amended and
restated bylaws, which will become effective upon the closing of
this offering, may delay or discourage transactions involving an
actual or potential change in our control or change in our
management, including transactions in which stockholders might
otherwise receive a premium for their shares, or transactions
that our stockholders might otherwise deem to be in their best
interests. Therefore, these provisions could adversely affect
the price of our common stock.
Among other things, our amended and restated certificate of
incorporation and amended and restated bylaws:
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permit our board of directors to issue up to
1,000,000 shares of preferred stock, with any rights,
preferences and privileges as they may designate;
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provide that the authorized number of directors may be changed
only by resolution of the board of directors;
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provide that all vacancies, including newly created
directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then
in office, even if less than a quorum;
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require that any action to be taken by our stockholders must be
effected at a duly called annual or special meeting of
stockholders and not be taken by written consent;
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provide that stockholders seeking to present proposals before a
meeting of stockholders or to nominate candidates for election
as directors at a meeting of stockholders must provide notice in
writing in a timely manner, and also specify requirements as to
the form and content of a stockholders notice;
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do not provide for cumulative voting rights, therefore allowing
the holders of a majority of the shares of common stock entitled
to vote in any election of directors to elect all of the
directors standing for election, if they should so choose;
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provide that special meetings of our stockholders may be called
only by the board of directors or by the chief executive
officer, or by the chief executive officer, president or
secretary pursuant to a written request by a majority of
directors or the written request of at least 10% of all
outstanding shares entitled to vote on the action
proposed; and
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provide that our amended and restated bylaws can be amended or
repealed at any regular or special meeting of stockholders or by
the affirmative vote of a majority of the entire board of
directors.
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Transfer
Agent and Registrar
The transfer agent and registrar for the common stock will
be .
Listing
We will apply to list our common stock on The NASDAQ Global
Market under the symbol
.
86
SHARES
ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common
stock in the United States, and a liquid trading market for our
common stock in the United States may not develop or be
sustained after this offering. Our common stock and warrants
traded on the AIM market under the symbols GLBM and
GLBW, respectively, since October 2005. Future sales
of substantial amounts of our common stock in the public market
could adversely affect market prices prevailing from time to
time. Furthermore, because only a limited number of shares will
be available for sale shortly after this offering due to
existing contractual and legal restrictions on resale as
described below, there may be sales of substantial amounts of
our common stock in the public market after the restrictions
lapse. This may adversely affect the prevailing market price and
our ability to raise equity capital in the future. We will apply
to list our common stock on The NASDAQ Global Market under the
symbol .
Based on the number of shares of common stock outstanding as
of ,
2008, upon completion of this
offering, shares
of common stock will be outstanding, assuming no exercise of the
underwriters over-allotment option and no exercise of
options or warrants prior to the completion of this offering.
All of the shares sold in this offering will be freely tradable
without restrictions or further registration under the
Securities Act, unless held by our affiliates as that term is
defined under Rule 144 under the Securities Act. In
addition,
approximately shares
of our common stock that were sold in a foreign offering in 2005
and listed on the AIM market
and shares
of our common stock underlying outstanding warrants and unit
purchase options are concurrently being registered under the
federal securities laws and also will be freely tradable
following completion of this offering, subject to the
lock-up
agreements described in Underwriting. The
remaining shares
of common stock outstanding upon the closing of this offering
are restricted securities as defined under Rule 144 of the
Securities Act. Restricted securities may be sold in the
U.S. public market only if registered or if they qualify
for an exemption from registration, including by reason of
Rule 144 or 701 under the Securities Act, which rules are
summarized below. These remaining shares will generally become
available for sale in the public market as follows:
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approximately
restricted shares will be eligible for sale in the public market
beginning
in 2009,
subject to the limitations under Rule 144; and
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approximately
restricted shares held by our directors and executive officers
will be eligible for sale in the public market beginning
in 2009,
subject in certain circumstances to the volume, manner of sale
and other limitations under Rule 144.
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Rule 144
In general, under Rule 144 under the Securities Act, as in
effect on the date of this prospectus, beginning
in
2009, a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has
beneficially owned shares of our common stock to be sold for at
least six months, would be entitled to sell an unlimited number
of shares of our common stock, provided current public
information about us is available. In addition, under
Rule 144, a person who is not one of our affiliates at any
time during the three months preceding a sale, and who has
beneficially owned the shares of our common stock to be sold for
at least one year, would be entitled to sell an unlimited number
of shares beginning one year after this offering without regard
to whether current public information about us is available.
In 2009,
our affiliates who have beneficially owned shares of our common
stock for at least six months are entitled to sell within any
three-month period a number of shares that does not exceed the
greater of:
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one percent of the number of shares of our common stock then
outstanding, which will equal
approximately shares
immediately after this offering; and
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the average weekly trading volume of our common stock on The
NASDAQ Global Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to the sale.
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Sales of restricted shares under Rule 144 by our affiliates
are also subject to requirements regarding the manner of sale,
notice and the availability of current public information about
us. Rule 144 also provides that affiliates relying on
Rule 144 to sell shares of our common stock that are not
restricted shares must nonetheless comply with the same
restrictions applicable to restricted shares, other than the
holding period requirement.
87
Notwithstanding the availability of Rule 144, certain
holders of our restricted shares will have entered into
lock-up
agreements as described below under Underwriting and
their restricted shares will become eligible for sale at the
expiration of the restrictions set forth in those agreements.
Stock
Options
As of March 31, 2008, options to purchase a total of
1,360,000 shares of common stock were outstanding, of which
339,998 were exercisable. An additional 3,640,000 shares
were available for future grants under our stock plan.
Upon completion of this offering, we intend to file a
registration statement under the Securities Act covering all
shares of common stock subject to outstanding options or
issuable pursuant to our stock plan. Subject to Rule 144
volume limitations applicable to affiliates, shares registered
under any registration statements will be available for sale in
the open market, beginning 90 days after the date of the
prospectus, except to the extent that the shares are subject to
vesting restrictions with us or the contractual restrictions
described below.
Concurrent
Registration
As of March 31, 2008, there
are shares
outstanding that were sold in Regulation S offerings and
are currently being traded on the AIM market
and shares
of our common stock underlying outstanding warrants and unit
purchase options. We are filing a concurrent registration
statement on
Form S-1
to
register shares
of our common stock that were issued in these offerings. Once we
register these shares, they can be freely sold in the public
market upon issuance, subject to the
lock-up
agreements described in Underwriting.
Notwithstanding the concurrent registration, certain holders of
these shares will have entered into
lock-up
agreements as described below under Underwriting and
their shares will become eligible for sale at the expiration of
the restrictions set forth in those agreements.
Lock-up
Agreements
Our officers, directors, selling stockholders and certain other
stockholders, who hold an aggregate of
approximately shares
of our common stock, have agreed, subject to limited exceptions,
not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, or enter into
any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership
of any shares of common stock or any securities convertible into
or exercisable or exchangeable for shares of common stock held
prior to the offering for a period of 180 days after the
date of this prospectus, without the prior written consent of
Credit Suisse Securities (USA) LLC. Credit Suisse Securities
(USA) LLC may in their sole discretion, choose to release any or
all of these shares from these restrictions prior to the
expiration of the
180-day
period.
Registration
Rights
Mr. Kestenbaum including members of his family,
Mr. Heilman and a former officer of GSM are parties to a
registration rights agreement with us. Pursuant to the
agreement, the holders of a majority of the shares subject to
the agreement are entitled to require us to register their
common stock for resale under the Securities Act of 1933 on up
to two occasions. They can elect to exercise these registration
rights at any time after the date on which the company has
become a reporting company under the Securities Exchange Act of
1934. In addition, they have certain piggy-back
registration rights on registration statements. We are obligated
to bear the expenses incurred in connection with the filing of
any such registration statements.
88
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material U.S. federal
income tax consequences relating to the purchase, ownership and
disposition of our common stock by
Non-U.S. Holders
(defined below), but does not purport to be a complete analysis
of all the potential tax consequences. This summary is based
upon the Code, the Treasury Regulations promulgated or proposed
thereunder (the Regulations) and administrative and judicial
interpretations thereof, all as of the date hereof and all of
which are subject to change at any time, possibly on a
retroactive basis. This summary is limited to the tax
consequences to those persons who hold common stock as capital
assets within the meaning of Section 1221 of the Code. This
summary does not purport to deal with all aspects of
U.S. federal income taxation that might be relevant to
particular
Non-U.S. Holders
in light of their particular investment circumstances or status,
nor does it address specific tax consequences that may be
relevant to particular persons (including, for example,
financial institutions, broker-dealers, insurance companies,
partnerships or other pass-through entities, expatriates,
tax-exempt organizations, controlled foreign
corporations, passive foreign investment
companies, corporations that accumulate earnings to avoid
U.S. federal income tax, or persons in special situations,
such as those who have elected to mark securities to market or
those who hold common stock as part of a straddle, hedge,
conversion transaction or other integrated investment). In
addition, this summary does not address U.S. federal
alternative minimum, estate and gift tax consequences or
consequences under the tax laws of any state, local or foreign
jurisdiction. We have not sought any ruling from the Internal
Revenue Service (the IRS) with respect to the statements made
and the conclusions reached in this summary. No assurance can be
given that the statements and conclusions made herein will be
respected by the IRS or, if challenged, by a court.
This summary is for general information only.
Non-U.S. Holders
are urged to consult their tax advisors concerning the
U.S. federal income taxation and other tax consequences to
them of the purchase, ownership and disposition of our common
stock, as well as the application of state, local and
non-U.S. income
and other tax laws.
For purposes of this summary, a
Non-U.S. Holder
means a beneficial owner of common stock (other than a
partnership) that for U.S. federal income tax consequences
is not: (1) an individual who is a citizen or resident of
the United States, (2) a corporation (or other entity
taxable as a corporation) created or organized under the laws of
the United States, any state thereof, or the District of
Columbia, (3) an estate the income of which is subject to
U.S. federal income tax regardless of its source, or
(4) a trust if (a) a court within the United States is
able to exercise primary supervision over the administration of
the trust, and one or more U.S. persons have the authority
to control all substantial decisions of the trust, or (b) a
valid election to be treated as a U.S. person is in effect
with respect to such trust.
If a
Non-U.S. Holder
is a partner in a partnership, or an entity treated as a
partnership for U.S. federal income tax purposes that holds
common stock, the
Non-U.S. Holders
tax treatment generally will depend upon the
Non-U.S. Holders
tax status and upon the activities of the partnership. If you
are a partner in a partnership which holds common stock, you
should consult your tax advisor.
Distributions
on Our Common Stock
As discussed under Dividend Policy above, we do not
expect to make distributions on our common stock. In the event
we do make a distribution, any distributions on our common stock
paid to
Non-U.S. Holders
generally will constitute dividends for U.S. federal income
tax purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S. federal
income tax principles. If a distribution exceeds our current and
accumulated earnings and profits, the excess will be treated as
a tax-free return of a
Non-U.S. Holders
investment, up to such holders tax basis in the common
stock. Any remaining excess will be treated as capital gain,
subject to the U.S. federal income tax treatment described
below in Disposition of Our Common Stock. Dividends
paid to a
Non-U.S. Holder
will be subject to a 30% U.S. federal withholding tax
unless such
Non-U.S. Holder
provides us or our agent, as the case may be, with a properly
executed:
1. IRS
Form W-8BEN
(or successor form) claiming, under penalties of perjury, a
reduction in withholding under a tax treaty (a Treaty
Exemption), or
2. IRS
Form W-8ECI
(or successor form) stating that a dividend paid on common stock
is not subject to withholding tax because it is effectively
connected with a U.S. trade or business of the
89
Non-U.S. Holder
(in which case such dividend generally will be subject to
regular graduated U.S. tax rates as described below).
The certification requirement described above also may require a
Non-U.S. Holder
that provides an IRS form or that claims a Treaty Exemption to
provide its U.S. taxpayer identification number.
Each
Non-U.S. Holder
is urged to consult its own tax advisor about the specific
methods for satisfying these requirements. A claim for exemption
will not be valid if the person receiving the applicable form
has actual knowledge or reason to know that the statements on
the form are false.
If dividends are effectively connected with a U.S. trade or
business of the
Non-U.S. Holder
(and, if required by an applicable treaty, attributable to a
U.S. permanent establishment or fixed base), the
Non-U.S. Holder,
although exempt from the withholding tax described above
(provided that the certifications described above are
satisfied), will be subject to U.S. federal income tax on
such dividends on a net income basis in the same manner as if it
were a resident of the United States. In addition, if such
Non-U.S. Holder
is a foreign corporation and dividends are effectively connected
with its U.S. trade or business (and, if required by
applicable treaty, attributable to a U.S. permanent
establishment), such
Non-U.S. Holder
may be subject to a branch profits tax equal to 30% (unless
reduced by treaty) in respect of such effectively-connected
income.
Disposition
of Our Common Stock
A
Non-U.S. Holder
will not be subject to U.S. federal income tax on income
realized on the sale, exchange or other disposition of our
common stock unless (a) the
Non-U.S. Holder
is an individual who is present in the United States for a
period or periods aggregating 183 or more days in the taxable
year of the disposition and certain other conditions are met;
(b) such gain or income is effectively connected with a
U.S. trade or business (and, if required by an applicable
income tax treaty, is attributable to a U.S. permanent
establishment or fixed base); or (c) we are, or have been
at any time during the five-year period preceding such
disposition (or, if shorter, the
Non-U.S. Holders
holding period, the shorter of which is referred to below as the
(Applicable Period)), a United States real property
holding corporation (USRPHC).
We believe that we currently are not, and do not anticipate
becoming, a USRPHC. Even if we were to become a USRPHC at any
time during the applicable testing period, however, any gain
recognized on the disposition of our common stock by a
Non-U.S. Holder
that did not own (directly or constructively) more than five
percent of our common stock during the applicable period would
not be subject to U.S. federal income tax, provided that
our common stock is considered regularly traded on an
established securities market within the meaning of
Section 897(c)(3) of the Code.
Backup
Withholding and Information Reporting
Generally, we must report annually to the IRS and to each
Non-U.S. Holder
certain information including the
Non-U.S. Holders
name, address and taxpayer identification number, the aggregate
amount of dividends paid to that
Non-U.S. Holder
during the calendar year and the amount of tax withheld, if any.
Backup withholding tax is imposed on dividends and certain other
types of payments to certain U.S. persons (currently at a
rate of 28%). Backup withholding tax will not apply to payments
of dividends on common stock or proceeds from the sale of common
stock payable to a
Non-U.S. Holder
if the certification described above in Distributions on
Our Common Stock is duly provided by such
Non-U.S. Holder
or the
Non-U.S. Holder
otherwise establishes an exemption, provided that the payor does
not have actual knowledge or reason to know that the Holder is a
U.S. person or that the conditions of any claimed exemption
are not satisfied. Certain information reporting may still apply
to payments of dividends even if an exemption from backup
withholding is established. Copies of any information returns
reporting the payment of dividends to a
Non-U.S. Holder
and any withholding also may be made available to the tax
authorities in the country in which a
Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
Backup withholding is not an additional tax and any amounts
withheld under the backup withholding tax rules from a payment
to a
Non-U.S. Holder
will be allowed as a refund, or a credit against such
Non-U.S. Holders
U.S. federal income tax liability, provided that the
requisite procedures are followed.
Non-U.S. Holders
are urged to consult their own tax advisors regarding their
particular circumstance and the availability of and procedure
for obtaining an exemption from backup withholding.
90
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2008, we and the selling stockholders have agreed to sell to the
underwriters named below, for whom Credit Suisse Securities
(USA) LLC, Jefferies & Company, Inc. and
J.P. Morgan Securities Inc. are acting as representatives,
the following respective numbers of shares of common stock:
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Number
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Underwriter
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of Shares
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Credit Suisse Securities (USA) LLC
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Jefferies & Company, Inc.
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J.P. Morgan Securities Inc.
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Total
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The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock in the
offering if any are purchased, other than those shares covered
by the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be
increased or the offering may be terminated.
The selling stockholders have granted to the underwriters a
30-day
option to purchase on a pro rata basis up to an aggregate
of
additional outstanding shares at the initial public offering
price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of
common stock.
The underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
selling concession of $ per share.
The underwriters and selling group members may allow a discount
of $ per share on sales to other
broker/dealers. After the initial public offering, the
representatives may change the public offering price and
concession and discount to broker/dealers.
The following table summarizes the compensation and estimated
expenses we and the selling stockholders will pay:
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Per Share
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Total
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Without
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With
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Without
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With
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Over-allotment
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Over-allotment
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Over-allotment
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Over-allotment
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Underwriting discounts and
commissions paid by us
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$
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$
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$
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$
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Expenses payable by us
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$
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$
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$
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$
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Underwriting discounts and commissions paid by selling
stockholders
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$
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$
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$
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$
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Expenses payable by selling stockholders
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$
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$
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$
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$
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The representatives have informed us that the underwriters do
not expect sales to accounts over which the underwriters have
discretionary authority to exceed 5% of the shares of common
stock being offered.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the SEC a registration statement under the Securities Act
relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares
of our common stock, or publicly disclose the intention to make
any offer, sale, pledge, disposition or filing, without the
prior written consent of Credit Suisse Securities (USA) LLC for
a period of 180 days after the date of this prospectus
,
except issuances pursuant to the exercise of employee stock
options and warrants outstanding on the date hereof. However, in
the event that either (1) during the last 17 days of
the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the lock-up period, we announce that
we will release earnings results during the
16-day
period beginning on the last day of the lock-up
period, then in either case the expiration of the
lock-up will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the
91
occurrence of the material news or event, as applicable, unless
Credit Suisse Securities (USA) LLC, Jefferies &
Company, Inc. and J.P. Morgan Securities Inc. waive, in
writing, such an extension.
Our officers, directors, selling stockholders and certain other
stockholders have agreed that they will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares
of our common stock, enter into a transaction that would have
the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or
other arrangement, without, in each case, the prior written
consent of Credit Suisse Securities (USA) LLC for a period of
180 days after the date of this prospectus. However, in the
event that either (1) during the last 17 days of the
lock-up period, we release earnings results or
material news or a material event relating to us occurs or
(2) prior to the expiration of the
lock-up
period, we announce that we will release earnings results during
the
16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension.
The underwriters have reserved for sale at the initial public
offering price up to shares
of the common stock for employees, directors and other persons
associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to
the extent these persons purchase the reserved shares. Any
reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the
other shares.
We and the selling stockholders have agreed to indemnify the
underwriters against liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to
make in that respect.
We will apply to list the shares of common stock on The NASDAQ
Global Market under the symbol .
In connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934 (the
Exchange Act).
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
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Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
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These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market
92
price of the common stock. As a result the price of our common
stock may be higher than the price that might otherwise exist in
the open market. These transactions may be effected on The
NASDAQ Global Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the
web sites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
In the ordinary course, the underwriters and their affiliates
have provided, and may in the future provide, investment
banking, commercial banking, investment management, or other
financial services to us and our affiliates for which they have
received compensation and may receive compensation in the future.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of Securities to the public in that Relevant Member
State prior to the publication of a prospectus in relation to
the Securities which has been approved by the competent
authority in that Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that it may,
with effect from and including the Relevant Implementation Date,
make an offer of Securities to the public in that Relevant
Member State at any time,
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
Euros 43,000,000 and (3) an annual net turnover of more
than Euros 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the manager for any
such offer; or
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of Shares to the public in relation to any
Shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the Shares to be offered so as to enable an
investor to decide to purchase or subscribe the Shares, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive 2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
Each of the underwriters has severally represented, warranted
and agreed as follows:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of section 21 of FSMA) to persons who
have professional experience in matters relating to investments
falling with Article 19(5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2005 or in circumstances in
which section 21 of FSMA does not apply to the
company; and
(b) it has complied with, and will comply with all
applicable provisions of FSMA with respect to anything done by
it in relation to the shares of common stock in, from or
otherwise involving the United Kingdom.
The underwriters and each of their affiliates have not
(i) offered or sold, and will not offer or sell, in Hong
Kong, by means of any document, our shares of common stock other
than (a) to professional investors as defined
in the Securities and Futures Ordinance (Cap.571) of Hong Kong
and any rules made under that Ordinance or (b) in other
circumstances which do not result in the document being a
prospectus as defined in the Companies Ordinance
(Cap. 32 of Hong Kong or which do not constitute an offer to the
public within the meaning of that Ordinance or (ii) issued
or had in its possession for the purposes of issue, and will not
93
issue or have in its possession for the purposes of issue,
whether in Hong Kong or elsewhere any advertisement, invitation
or document relating to our shares of common stock which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the securities laws of Hong Kong) other than with
respect to our securities which are or are intended to be
disposed of only to persons outside Hong Kong or only to
professional investors as defined in the Securities
and Futures Ordinance any rules made under that Ordinance. The
contents of this document have not been reviewed by any
regulatory authority in Hong Kong. You are advised to exercise
caution in relation to the offer. If you are in any doubt about
any of the contents of this document, you should obtain
independent professional advice.
This prospectus or any other offering material relating to our
shares of common stock has not been and will not be registered
as a prospectus with the Monetary Authority of Singapore, and
the shares of common stock will be offered in Singapore pursuant
to exemptions under Section 274 and Section 275 of the
Securities and Futures Act, Chapter 289 of Singapore
(Securities and Futures Act). Accordingly our shares of common
stock may not be offered or sold, or be the subject of an
invitation for subscription or purchase, nor may this prospectus
or any other offering material relating to our shares of common
stock be circulated or distributed, whether directly or
indirectly, to the public or any member of the public in
Singapore other than (a) to an institutional investor or
other person specified in Section 274 of the Securities and
Futures Act, (b) to a sophisticated investor, and in
accordance with the conditions specified in Section 275 of
the Securities and Futures Act or (c) otherwise pursuant
to, and in accordance with the conditions of, any other
applicable provision of the Securities and Futures Act;
Each person who is in possession of this prospectus is aware of
the fact that no German sales prospectus (Verkaufsprospekt)
within the meaning of the Securities Sales Prospectus Act
(Wertpapier-Verkaufsprospektgesetz, the Act) of the Federal
Republic of Germany has been or will be published with respect
to our shares of common stock. In particular, each underwriter
has represented that it has not engaged and has agreed that it
will not engage in a public offering in (offentliches Angebot)
within the meaning of the Act with respect to any of our shares
of common stock otherwise than in accordance with the Act and
all other applicable legal and regulatory requirements;
The shares of common stock are being issued and sold outside the
Republic of France and that, in connection with their initial
distribution, each underwriter has severally represented that it
has not offered or sold and will not offer or sell, directly or
indirectly, any shares of common stock to the public in the
Republic of France, and that it has not distributed and will not
distribute or cause to be distributed to the public in the
Republic of France this prospectus or any other offering
material relating to the shares of common stock, and that such
offers, sales and distributions have been and will be made in
the Republic of France only to qualified investors
(investisseurs qualifies) in accordance with
Article L.411-2
of the Monetary and Financial Code and decret
no. 98-880
dated 1st October, 1998; and
Our shares of common stock may not be offered, sold, transferred
or delivered in or from the Netherlands as part of their initial
distribution or at any time thereafter, directly or indirectly,
other than to, individuals or legal entities situated in The
Netherlands who or which trade or invest in securities in the
conduct of a business or profession (which includes banks,
securities intermediaries (including dealers and brokers),
insurance companies, pension funds, collective investment
institution, central governments, large international and
supranational organizations, other institutional investors and
other parties, including treasury departments of commercial
enterprises, which as an ancillary activity regularly invest in
securities; hereinafter, (Professional Investors), provided that
in the offer, prospectus and in any other documents or
advertisements in which a forthcoming offering of our shares of
common stock is publicly announced (whether electronically or
otherwise) in The Netherlands it is stated that such offer is
and will be exclusively made to such Professional Investors.
Individual or legal entities who are not Professional Investors
may not participate in the offering of our shares of common
stock, and this prospectus or any other offering material
relating to our shares of common stock may not be considered an
offer or the prospect of an offer to sell or exchange our shares
of common stock.
Determination
of Public Offering Price
The public offering price will be determined by negotiations
among us and the representative of the underwriters. Among the
factors to be considered in determining the public offering
price will be our future
94
prospects and those of our industry in general, sales, earnings
and certain of our other financial operating information in
recent periods, and the market prices of securities and certain
financial and operating information of companies engaged in
activities similar to those we engage in. The estimated public
offering price range set forth on the cover page of this
preliminary prospectus is subject to change as a result of
market conditions and other factors.
Our common stock has been quoted on the AIM market of the London
Stock Exchange since October 2005 under the symbol
GLBM.
The following table sets forth, for the periods indicated, the
high and low closing sale prices for our common stock on the AIM
market as reported by the London Stock Exchange. The sales
prices for our shares of common stock on the AIM market are
quoted in U.S. dollars.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended June 30, 2006
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
Not applicable
|
|
|
|
Not applicable
|
|
Second quarter
|
|
|
$ 5.25
|
|
|
|
$ 5.25
|
|
Third quarter
|
|
|
$ 5.35
|
|
|
|
$ 5.25
|
|
Fourth quarter
|
|
|
$ 5.44
|
|
|
|
$ 5.35
|
|
Year ended June 30, 2007
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
$ 5.40
|
|
|
|
$ 5.40
|
|
Second quarter
|
|
|
$ 5.57
|
|
|
|
$ 5.40
|
|
Third quarter
|
|
|
$ 5.58
|
|
|
|
$ 5.50
|
|
Fourth quarter
|
|
|
$ 7.15
|
|
|
|
$ 5.55
|
|
Year ending June 30, 2008
|
|
|
|
|
|
|
|
|
First quarter
|
|
|
$ 7.75
|
|
|
|
$ 7.15
|
|
Second quarter
|
|
|
$12.78
|
|
|
|
$ 7.80
|
|
Third quarter
|
|
|
$20.25
|
|
|
|
$12.78
|
|
Fourth quarter
|
|
|
$30.00
|
|
|
|
$19.25
|
|
Year ending June 30, 2009
|
|
|
|
|
|
|
|
|
First quarter (through July 23, 2008)
|
|
|
$31.25
|
|
|
|
$29.75
|
|
95
NOTICE TO
CANADIAN RESIDENTS
Resale
Restrictions
The distribution of shares of common stock in Canada is being
made only on a private placement basis exempt from the
requirement that we and the selling stockholders prepare and
file a prospectus with the securities regulatory authorities in
each province where trades of shares of common stock are made.
Any resale of the shares of common stock in Canada must be made
under applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be
made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek
legal advice prior to any resale of the shares of common stock.
Representations
of Purchasers
By purchasing shares of common stock in Canada and accepting a
purchase confirmation a purchaser is representing to us, the
selling stockholders and the dealer from whom the purchase
confirmation is received that:
|
|
|
|
|
the purchaser is entitled under applicable provincial securities
laws to purchase the shares of common stock without the benefit
of a prospectus qualified under those securities laws,
|
|
|
|
where required by law, that the purchaser is purchasing as
principal and not as agent,
|
|
|
|
the purchaser has reviewed the text above under Resale
Restrictions, and
|
|
|
|
the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of the shares of
common stock to the regulatory authority that by law is entitled
to collect the information.
|
Further details concerning the legal authority for this
information is available on request.
Rights of
Action Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages, or while still the owner of the shares of common stock,
for rescission against us and the selling stockholders in the
event that this prospectus contains a misrepresentation without
regard to whether the purchaser relied on the misrepresentation.
The right of action for damages is exercisable not later than
the earlier of 180 days from the date the purchaser first
had knowledge of the facts giving rise to the cause of action
and three years from the date on which payment is made for the
shares of common stock. The right of action for rescission is
exercisable not later than 180 days from the date on which
payment is made for the shares of common stock. If a purchaser
elects to exercise the right of action for rescission, the
purchaser will have no right of action for damages against us or
the selling stockholders. In no case will the amount recoverable
in any action exceed the price at which the shares of common
stock were offered to the purchaser and if the purchaser is
shown to have purchased the securities with knowledge of the
misrepresentation, we and the selling stockholders will have no
liability. In the case of an action for damages, we and the
selling stockholders will not be liable for all or any portion
of the damages that are proven to not represent the depreciation
in value of the shares of common stock as a result of the
misrepresentation relied upon. These rights are in addition to,
and without derogation from, any other rights or remedies
available at law to an Ontario purchaser. The foregoing is a
summary of the rights available to an Ontario purchaser. Ontario
purchasers should refer to the complete text of the relevant
statutory provisions.
Enforcement
of Legal Rights
All of our directors and officers as well as the experts named
herein and the selling stockholders may be located outside of
Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon us or
those persons. All or a substantial portion of our assets and
the assets of those persons may be located outside of Canada
and, as a result, it may not be possible to satisfy a judgment
against us or those persons in Canada or to enforce a judgment
obtained in Canadian courts against us or those persons outside
of Canada.
96
Taxation
and Eligibility for Investment
Canadian purchasers of shares of common stock should consult
their own legal and tax advisors with respect to the tax
consequences of an investment in the shares of common stock in
their particular circumstances and about the eligibility of the
shares of common stock for investment by the purchaser under
relevant Canadian legislation.
97
LEGAL
MATTERS
The validity of the securities offered in this prospectus is
being passed upon for us by Arent Fox LLP, Washington DC. Davis
Polk & Wardwell, New York, NY is acting as counsel for
the underwriters in this offering.
98
EXPERTS
The consolidated financial statements of Globe Specialty Metals,
Inc. as of June 30, 2007, and for the year ended
June 30, 2007, have been included herein in reliance upon
the report of KPMG LLP, independent registered public accounting
firm, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Globe Specialty Metals,
Inc., formerly known as International Metal Enterprises, Inc.,
as of June 30, 2006, December 31, 2005 and
December 31, 2004, and for the six months ended
June 30, 2006, for the year ended December 31, 2005
and for the period from December 23, 2004 (inception) to
December 31, 2004 have been included herein in reliance
upon the report of KPMG LLP, independent registered public
accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Globe Metallurgical,
Inc. as of November 12, 2006 and for the period from
July 1, 2006 to November 12, 2006, have been included
herein in reliance upon the report of KPMG LLP, independent
registered public accounting firm, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and
auditing.
The audited consolidated financial statements of Globe
Metallurgical, Inc. as of and for each of the years ended
June 30, 2006 and June 30, 2005, have been included
herein and in the registration statement in reliance upon the
audited reports of Hobe and Lucas Certified Public Accountants,
Inc., independent registered public accounting firm, for the
audited reports as of and for the years ended June 30, 2006
and June 30, 2005 appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The audited financial statements of Globe Metais S. A. (formerly
Camargo Correa Metais S.A ) as of December 31, 2006 and
2005 and for the years ended December 31, 2006, 2005 and
2004, and their accompanying notes thereto, included in this
Prospectus have been audited by BDO, independent auditors, as
stated in their report appearing elsewhere herein and are
included in reliance upon the report of such firm given upon
their authority as an expert in accounting and auditing.
The audited financial statements of Globe Metales S. A.
(formerly Stein Ferroaleaciones S.A.C.I.F.yA.) as of
June 30, 2006 and 2005 and for the years ended
June 30, 2006, 2005 and 2004, with their notes 1 to 17
and supplemental appendices I to VI, thereto, included in this
registration statement have been audited by Deloitte &
Co. S.R.L., independent auditors, as stated in their report
appearing herein (which report expressed an unqualified opinion
and included an explanatory paragraph stating that accounting
principles generally accepted in Buenos Aires City, Argentina
vary in certain significant respects from accounting principles
generally accepted in the United States of America, and that the
information relating to the nature and effect on such
differences is presented in Note 16 and 17 to the financial
statements), and are included in reliance upon the report of
such firm given upon their authority as an expert in accounting
and auditing.
The audited financial statements of Solsil, Inc. as of
June 30, 2007 and for the year ended June 30, 2007,
and their accompanying notes thereto, included in this
registration statement have been audited by Hobe and Lucas
Certified Public Accountants, Inc., independent registered
accounting firm, as stated in their report appearing elsewhere
herein, and are included in reliance upon the report of such
firm given upon their authority as an expert in accounting and
auditing.
The audited financial statements of Ultra Core Corporation as of
June 30, 2006 and for the year then ended of June 30,
2006, and their accompanying notes thereto, included in this
registration statement have been audited by Hochfelder and
Weber, P.C. Certified Public Accountants, appearing
elsewhere herein, and upon the authority of said firm given upon
their authority as an expert in accounting and auditing.
99
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on
Form S-1,
which includes exhibits, schedules and amendments, under the
Securities Act with respect to this offering of our securities.
Although this prospectus, which forms a part of the registration
statement, contains all material information included in the
registration statement, parts of the registration statement have
been omitted as permitted by rules and regulations of the SEC.
We refer you to the registration statement and its exhibits for
further information about us, our securities and this offering.
The registration statement and its exhibits, as well as any
other documents that we have filed with the SEC, can be
inspected and copied at the SECs public reference room at
100 F Street, N.E., Washington, D.C.
20549-1004.
The public may obtain information about the operation of the
public reference room by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains a website at
http://www.sec.gov
that contains the registration statement and other reports,
proxy and information statements and information that we file
electronically with the SEC.
After we have completed this offering, we will file annual,
quarterly and current reports, proxy statements and other
information with the SEC. We intend to make these filings
available on our website once the offering is completed. You may
read and copy any reports, statements or other information on
file at the public reference rooms. You can also request copies
of these documents, for a copying fee, by writing to the SEC, or
you can review these documents on the SECs website, as
described above. In addition, we will provide electronic or
paper copies of our filings free of charge upon request.
100
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
March 31, 2008 and June 30, 2007
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
June 30, 2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
74,752
|
|
|
|
67,741
|
|
Accounts receivable, net of allowance for doubtful accounts of
$122 and $116 at March 31, 2008 and June 30, 2007,
respectively
|
|
|
49,278
|
|
|
|
38,092
|
|
Inventories
|
|
|
55,087
|
|
|
|
39,093
|
|
Prepaid expenses and other current assets
|
|
|
15,147
|
|
|
|
11,307
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
194,264
|
|
|
|
156,233
|
|
Property, plant, and equipment, net of accumulated depreciation
|
|
|
161,692
|
|
|
|
149,648
|
|
Goodwill
|
|
|
106,261
|
|
|
|
48,527
|
|
Other intangible assets
|
|
|
18,777
|
|
|
|
8,602
|
|
Investments in affiliates
|
|
|
7,843
|
|
|
|
7,552
|
|
Deferred tax assets
|
|
|
5,657
|
|
|
|
8,948
|
|
Other assets
|
|
|
14,255
|
|
|
|
10,252
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
508,749
|
|
|
|
389,762
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
38,802
|
|
|
|
40,495
|
|
Current portion of long-term debt
|
|
|
10,317
|
|
|
|
6,370
|
|
Short-term debt
|
|
|
27,483
|
|
|
|
23,450
|
|
Accrued expenses and other current liabilities
|
|
|
18,209
|
|
|
|
14,546
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
94,811
|
|
|
|
84,861
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
56,153
|
|
|
|
46,057
|
|
Deferred tax liabilities
|
|
|
22,699
|
|
|
|
20,785
|
|
Other long-term liabilities
|
|
|
10,822
|
|
|
|
15,438
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
184,485
|
|
|
|
167,141
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingences (note 11)
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
733
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value. Authorized
150,000,000 shares;
issued and outstanding 63,050,416 and 56,672,188 shares at
|
|
|
|
|
|
|
|
|
March 31, 2008 and June 30, 2007, respectively
|
|
|
6
|
|
|
|
5
|
|
Additional paid-in capital
|
|
|
294,578
|
|
|
|
211,861
|
|
Retained earnings
|
|
|
28,421
|
|
|
|
10,178
|
|
Accumulated other comprehensive income
|
|
|
526
|
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
323,531
|
|
|
|
222,621
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
508,749
|
|
|
|
389,762
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Income Statements
Nine months ended March 31, 2008 and 2007
(In thousands, except per share amounts)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
316,751
|
|
|
|
121,250
|
|
Cost of goods sold
|
|
|
251,077
|
|
|
|
102,831
|
|
Selling, general, and administrative expenses
|
|
|
34,604
|
|
|
|
9,955
|
|
Research and development
|
|
|
407
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
30,663
|
|
|
|
8,411
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,295
|
|
|
|
4,918
|
|
Interest expense, net of capitalized interest of $226 and $65
during the nine months ended March 31, 2008 and 2007,
respectively
|
|
|
(7,598
|
)
|
|
|
(2,648
|
)
|
Foreign exchange gain (loss)
|
|
|
24
|
|
|
|
(122
|
)
|
Other income (expense)
|
|
|
176
|
|
|
|
(302
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, deferred interest
attributable to common stock subject to redemption, and minority
interest
|
|
|
25,560
|
|
|
|
10,257
|
|
Provision for income taxes
|
|
|
7,343
|
|
|
|
3,106
|
|
|
|
|
|
|
|
|
|
|
Net income before deferred interest attributable to common stock
subject to redemption, and minority interest
|
|
|
18,217
|
|
|
|
7,151
|
|
Deferred interest attributable to common stock subject to
redemption
|
|
|
|
|
|
|
(768
|
)
|
Minority interest
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
57,636
|
|
|
|
43,817
|
|
Diluted
|
|
|
69,765
|
|
|
|
47,328
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.26
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Statement of Changes in Stockholders
Equity
Nine months ended March 31, 2008
(In thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
Balance at June 30, 2007
|
|
|
56,672
|
|
|
$
|
5
|
|
|
|
211,861
|
|
|
|
10,178
|
|
|
|
577
|
|
|
|
222,621
|
|
Warrants exercised
|
|
|
700
|
|
|
|
|
|
|
|
3,497
|
|
|
|
|
|
|
|
|
|
|
|
3,497
|
|
UPOs exercised
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in acquisition of Solsil, Inc.
|
|
|
5,629
|
|
|
|
1
|
|
|
|
72,091
|
|
|
|
|
|
|
|
|
|
|
|
72,092
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
7,129
|
|
|
|
|
|
|
|
|
|
|
|
7,129
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available for sale securities (net of income
tax benefit of $26)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
Net income attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,243
|
|
|
|
|
|
|
|
18,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
|
63,051
|
|
|
$
|
6
|
|
|
|
294,578
|
|
|
|
28,421
|
|
|
|
526
|
|
|
|
323,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
Nine months ended March 31, 2008 and 2007
(In thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
Adjustments to reconcile net income attributable to common stock
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets
|
|
|
14,255
|
|
|
|
5,689
|
|
Amortization of customer contract liability
|
|
|
(2,809
|
)
|
|
|
(2,274
|
)
|
Share-based compensation
|
|
|
6,617
|
|
|
|
176
|
|
Minority interest
|
|
|
(26
|
)
|
|
|
|
|
Loss on sale of assets
|
|
|
3
|
|
|
|
|
|
Deferred taxes
|
|
|
373
|
|
|
|
(629
|
)
|
Deferred interest attributable to common stock subject to
redemption
|
|
|
|
|
|
|
768
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(13,467
|
)
|
|
|
(1,696
|
)
|
Inventories
|
|
|
(14,258
|
)
|
|
|
453
|
|
Prepaid expenses and other current assets
|
|
|
247
|
|
|
|
(944
|
)
|
Accounts payable
|
|
|
(2,192
|
)
|
|
|
(2,769
|
)
|
Accrued expenses and other current liabilities
|
|
|
2,216
|
|
|
|
6,168
|
|
Other
|
|
|
(4,522
|
)
|
|
|
(2,166
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,680
|
|
|
|
9,159
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(13,098
|
)
|
|
|
(5,765
|
)
|
Purchase of held-to-maturity treasury securities
|
|
|
(2,987
|
)
|
|
|
|
|
Acquisition of businesses, net of cash acquired of $87 and
$6,750 during the nine months ended March 31, 2008 and
2007, respectively
|
|
|
(277
|
)
|
|
|
(104,894
|
)
|
Note receivable from Solsil, Inc.
|
|
|
(1,500
|
)
|
|
|
|
|
Investments in affiliates
|
|
|
(10
|
)
|
|
|
|
|
Purchase of investments held in trust
|
|
|
|
|
|
|
(3,038
|
)
|
Funds released from trust
|
|
|
|
|
|
|
190,192
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(17,872
|
)
|
|
|
76,495
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from warrants exercised
|
|
|
3,498
|
|
|
|
17,181
|
|
Net borrowings of long-term debt
|
|
|
13,631
|
|
|
|
(2,270
|
)
|
Net borrowings of short-term debt
|
|
|
2,700
|
|
|
|
3,213
|
|
Solsil, Inc. common share issuance
|
|
|
374
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
(3,257
|
)
|
Purchase of redeemed shares
|
|
|
|
|
|
|
(42,802
|
)
|
Other financing activities
|
|
|
|
|
|
|
(970
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
20,203
|
|
|
|
(28,905
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
7,011
|
|
|
|
56,749
|
|
Cash and cash equivalents at beginning of period
|
|
|
67,741
|
|
|
|
1,996
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
74,752
|
|
|
|
58,745
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
5,357
|
|
|
|
2,492
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
7,684
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
|
|
(1)
|
Organization
and Business Operations
|
Globe Specialty Metals, Inc. and subsidiary companies (GSM, the
Company, we, or our) is among the worlds largest producers
of silicon metal and silicon-based specialty alloys, critical
ingredients in a variety of industrial and consumer products.
The Companys customers include major silicon chemical,
aluminum and steel manufacturers, auto companies and their
suppliers, ductile iron foundries, manufacturers of photovoltaic
solar cells and computer chips, and concrete producers.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
Basis
of Presentation
|
In the opinion of GSM management, the accompanying consolidated
financial statements include all adjustments necessary for a
fair presentation in conformity with accounting principles
generally accepted in the United States of America (US GAAP) of
the results for the interim periods presented and such
adjustments are of a normal, recurring nature. The accompanying
consolidated financial statements should be read in conjunction
with the notes to the consolidated financial statements of GSM
for the year ended June 30, 2007. There have been no
material changes to the Companys significant accounting
policies during the nine months ended March 31, 2008,
except as discussed below under recently implemented accounting
pronouncements.
Certain reclassifications have been made to prior year amounts
to conform to current year presentation.
The preparation of interim financial statements in conformity
with US GAAP requires management to make estimates and
assumptions that affect amounts reported in the consolidated
financial statements and related notes. Significant estimates
and assumptions in these consolidated financial statements
include valuation allowances for inventories, the carrying
amount of property, plant, and equipment, estimates of fair
value associated with accounting for business combinations,
goodwill and long-lived asset impairment tests, estimates of
fair value of investments, asset retirement obligations, income
taxes and deferred tax valuation allowances, valuation of
derivative instruments, the determination of discount and other
rate assumptions for pension expense and the determination of
the fair value of share-based compensation involving assumptions
about forfeiture rates, stock volatility, discount rates, and
expected time to exercise. Due to the inherent uncertainty
involved in making estimates, actual results reported in future
periods may be different from these estimates.
|
|
(d)
|
Fair
Value of Financial Instruments
|
Management believes that the carrying values of financial
instruments, including cash and cash equivalents, accounts
receivable, marketable securities, accounts payable, and accrued
expenses and other current liabilities approximate fair value as
a result of the short-term maturities of these instruments. We
believe the recorded carrying values of our debt balances
approximate fair value given the majority of our debt is at
variable rates tied to market indicators or short-term in nature.
|
|
(e)
|
Share-Based
Compensation
|
The Company accounts for share-based compensation under the
provisions of Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004),
Share-Based Payment
(SFAS 123(R)). Effective March 30, 2008, the
Company agreed to amend the terms of its share-based
compensation plan to remove the potential for cash settlement of
outstanding awards. Accordingly, the Company no longer has a
right or obligation to cash settle outstanding awards. Based on
this amendment, all outstanding awards were converted from
liability-classified awards to equity-classified awards. In
accordance with SFAS 123(R), when a
F-7
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
liability-classified award is modified so that it becomes
equity-classified without changing any of the other terms of the
award, the fair value of the award at the date of the
modification becomes its measurement basis from that point
forward. Additionally, as of the date of modification, the
Company reclassified its existing liability for share-based
compensation from other long-term liabilities to additional
paid-in capital.
|
|
(f)
|
Recently
Implemented Accounting Pronouncements
|
In February 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 155,
Accounting for Certain
Hybrid Financial Instruments an amendment of FASB
Statements No. 133 and 140
(SFAS 155). SFAS 155 is
effective for all financial instruments acquired or issued after
July 1, 2007, and amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS 133)
,
and SFAS No. 140,
Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.
This statement resolves
issues addressed in Statement 133 Implementation Issue
No. D1,
Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets.
The adoption of
SFAS 155 had no impact to the Companys consolidated
results of operations or financial condition.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48). This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109
Accounting for Income Taxes
. This interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The adoption of FIN 48
was not material to the Companys consolidated results of
operations or financial condition. See Note 10 (Income
Taxes) for further information relating to the implementation of
this interpretation.
|
|
(g)
|
Accounting
Pronouncements to be Implemented
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement
(SFAS 157). SFAS 157
defines fair value, establishes a framework for the measurement
of fair value, and enhances disclosures about fair value
measurements. The statement does not require any new fair value
measures. The Company is required to adopt SFAS 157
beginning on July 1, 2008. However, the FASB deferred the
effective date of SFAS 157, until July 1, 2009 for the
Company, as it relates to fair value measurement requirements
for nonfinancial assets and liabilities that are not remeasured
at fair value on a recurring basis. SFAS 157 is required to
be applied prospectively, except for certain financial
instruments. Any transition adjustment will be recognized as an
adjustment to opening retained earnings in the year of adoption.
The Company is currently evaluating the impact of adopting
SFAS 157 on its results of operations and financial
position.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
(SFAS 159). This statement permits
companies, at their option, to choose to measure many financial
instruments and certain other items at fair value. If the option
to use fair value is chosen, the statement requires additional
disclosures related to the fair value measurements included in
the financial statements. This statement is effective on
July 1, 2008 for the Company. The Company is currently
evaluating the impact of adopting SFAS 159 on its results
of operations and financial position.
In December 2007, the FASB issued SFAS No. 141(R)
Business Combinations.
The objective of this statement is
to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity
provides in its financial reports about a business combination
and its effects. This statement establishes principles and
requirements for how the acquirer (i) recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquired entity, (ii) recognizes and
measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and (iii) determines what
information to disclose to enable users of the financial
statements
F-8
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
to evaluate the nature and financial effects of the business
combination. This statement applies prospectively to business
combinations for which the acquisition date is on or after
July 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.
The objective of
this statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting
entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This statement is effective for
the Company on July 1, 2009. The Company is currently
assessing the potential effect of SFAS 160 on its results
of operations and financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
.
This statement changes the disclosure requirements for
derivative instruments and hedging activities. Entities are
required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted
for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The
Company is currently assessing the potential effect of
SFAS 161 on its financial statements.
In March 2008, the FASB issued SFAS No. 162,
The
Hierarchy of Generally Accepted Accounting Principles
. This
statement identifies the sources of accounting principles and
the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with US GAAP. This statement is
effective 60 days following the SECs approval of the
Public Company Accounting Oversight Board amendments to AU
Section 411,
The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles.
The Company
does not expect the implementation of this statement to have an
impact on its results of operations or financial position.
|
|
(3)
|
Business
Combinations
|
On November 12, 2006, the Company acquired 100% of the
outstanding stock of Globe Metallurgical, Inc. (GMI), a
manufacturer of silicon metal and silicon-based alloys. On
November 20, 2006, the Company acquired 100% of the
outstanding stock of Stein Ferroaleaciones S.A. (SFA), an
Argentine manufacturer of silicon-based alloys, and SFAs
two affiliates, UltraCore Polska Sp.z.o.o., a Polish
manufacturer of cored wire alloys, and Ultra Core Corporation, a
U.S.-based
alloy distributor. SFA has been renamed Globe Metales S.A. On
January 31, 2007, the Company acquired 100% of the
outstanding stock of Camargo Correa Metais S.A. (CCM), one of
Brazils largest producers of silicon metal and silica
fume. CCM has been renamed Globe Metais Indústria e
Comércio S.A.
The allocation of the purchase price of the GMI, SFA and CCM
acquisitions to assets acquired and liabilities assumed was
finalized during the nine months ended March 31, 2008. A
$128 increase in goodwill associated with the SFA acquisition
resulted from the finalization of the purchase price allocation
to trade names classified within other intangible assets. The
fair value of net assets acquired relating to the CCM
acquisition exceeded the purchase price. As such, the excess
cost was allocated as a pro rata reduction to property, plant,
and equipment and purchased intangible assets. In finalizing the
purchase price allocation for the CCM acquisition, the Company
recorded a $476 increase in inventory, a $2,971 increase in
property, plant, and equipment, a $973 increase in intangible
assets, a $66 increase in accrued liabilities, and a net $4,354
decrease in deferred tax assets. As a result of these final
purchase price allocation adjustments, the Company incurred
additional cost of sales totaling $1,257, reduced selling,
general, and administrative expenses by $193, reduced foreign
exchange gain by $921 and recorded an additional $66 in
provision for income taxes during the quarter ended
March 31, 2008.
F-9
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
On February 29, 2008, the Company completed the acquisition
of approximately 81% of Solsil, Inc. (Solsil). Solsil is engaged
in the production of high purity silicon manufactured through a
proprietary metallurgical process for use in silicon-based solar
cells. Solsil supplies its silicon to several leading global
manufacturers of photovoltaic cells, ingots and wafers, and the
acquisition will allow the Company to become a significant
supplier in the high purity solar-grade silicon market.
Solsils operating results are included in the consolidated
income statement from the date of acquisition.
Based on the terms of the acquisition agreement, GSM issued
5,628,657 new shares of common stock to shareholders and
optionholders of Solsil in exchange for the approximate 81%
interest in Solsil. These shares were valued at
$72.1 million based on an average share price of $12.81 two
days before and after the acquisition announcement on
January 31, 2008. Related acquisition costs were $361.
The former shareholders of Solsil, including certain GSM
directors and officers who owned approximately 28% of Solsil,
agreed to
lock-up
50%
of the GSM shares received in the transaction for six months and
the remaining 50% of the shares received in the transaction for
nine months. Certain institutional stockholders of Solsil, who
retained an approximately 19% interest in Solsil following the
transaction, are entitled to certain preemptive rights on the
future sale of equity securities of Solsil. They also agreed to
certain tag-along rights and drag-along
obligations in the event of the sale of Solsil.
Alan Kestenbaum, Chief Executive Officer, and Arden Sims, Chief
Operating Officer, were previously affiliated with Solsil. In
addition, during the eight months ended February 29, 2008,
prior to our acquisition of Solsil, and nine months ended
March 31, 2007, the Company:
|
|
|
|
|
Earned $3,287 and $1,195, respectively, under an operating and
lease agreement in which Solsil was provided administrative and
operating support, plus facility space.
|
|
|
|
Sold $2,580 and $795, respectively, in
S-1
metallurgical grade silicon grade material to Solsil.
|
|
|
|
Purchased $1,798 and $661, respectively, in silicon from Solsil.
|
|
|
|
Provided a $1,500 loan to Solsil on October 24, 2007. The
note accrued interest at LIBOR plus 3.0% through
February 29, 2008, with interest payable in kind and
capitalized as outstanding principal at the end of each quarter
in lieu of payment in cash. Based on our acquisition of Solsil,
this note is eliminated in consolidation at March 31, 2008.
|
F-10
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
The following table reflects the preliminary purchase price
allocation associated with the Solsil acquisition:
|
|
|
|
|
|
|
|
|
Amortization
|
|
Balance
|
|
|
|
Life
|
|
Sheet
|
|
|
|
(In Years)
|
|
Amounts
|
|
|
Current assets
|
|
|
|
$
|
3,551
|
|
Property, plant, and equipment
|
|
|
|
|
6,938
|
|
Intangible assets:
|
|
|
|
|
|
|
Goodwill
|
|
Indefinite
|
|
|
57,606
|
|
Unpatented technology
|
|
10
|
|
|
13,143
|
|
Noncurrent assets
|
|
|
|
|
3,896
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
|
|
85,134
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
7,102
|
|
Noncurrent liabilities
|
|
|
|
|
5,194
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
|
|
12,296
|
|
Minority interest
|
|
|
|
|
385
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
72,453
|
|
Debt assumed
|
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
|
|
$
|
75,453
|
|
|
|
|
|
|
|
|
The goodwill amount has been assigned to the silicon metal and
silicon-based specialty alloys operating segment, which is the
Companys only business segment.
The unaudited pro forma financial information in the table below
summarizes the combined results of the operations of GSM and
Solsil, on a pro forma basis, as though the companies had been
combined as of the beginning of the fiscal years presented. The
unaudited pro forma financial information combines the
historical results of operations of GSM, which includes the
results of operations of Solsil subsequent to the acquisition
date, and the historical results of operations of Solsil for the
periods from July 1, 2007 to February 29, 2008 and
July 1, 2006 to March 31, 2007, respectively.
This information is presented for informational purposes only
and is not indicative of the results of operations that would
have been achieved if the acquisition of Solsil had taken place
at the beginning of the fiscal years presented. The unaudited
pro forma financial information includes the purchase accounting
adjustments on historical Solsil inventory balances, adjustments
to depreciation on acquired property, plant, and equipment,
adjustments to amortization expense for acquired intangible
assets, adjustments to eliminate the impact of transactions
between the Company and Solsil prior to the acquisition date,
and related minority interest and tax effects of these pro forma
adjustments.
The following table summarizes the unaudited pro forma financial
information as if the Solsil acquisition was consummated at the
beginning of fiscal years 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
2008
|
|
|
2007
|
|
|
Net sales
|
|
$
|
317,972
|
|
|
|
121,208
|
|
Net income attributable to common stock
|
|
|
15,429
|
|
|
|
3,621
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
|
0.07
|
|
Diluted
|
|
|
0.20
|
|
|
|
0.07
|
|
F-11
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
During March 2008, Solsil issued an additional
37.14753 shares of common stock at a price of $53,839.39
per share to existing Solsil shareholders. Total proceeds of the
offering were $2.0 million, including proceeds received
from minority shareholders totaling $374. There was no change in
the Companys ownership in Solsil as a result of this share
issuance.
During March 2008, the Company purchased U.S. government
treasury securities with a term to maturity of 125 days.
These securities are valued at amortized cost, and the $2,987
balance of these securities at March 31, 2008 is recorded
in prepaid expenses and other current assets.
Inventories comprise the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Finished goods
|
|
$
|
15,207
|
|
|
$
|
12,563
|
|
Work in process
|
|
|
2,250
|
|
|
|
778
|
|
Raw materials
|
|
|
28,538
|
|
|
|
18,277
|
|
Parts and supplies
|
|
|
9,092
|
|
|
|
7,475
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
55,087
|
|
|
$
|
39,093
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008, $38,577 in inventory is valued using the
first-in,
first-out method and $16,510 using the average cost method. At
June 30, 2007, $26,545 in inventory is valued using the
first-in,
first-out method and $12,548 using the average cost method.
|
|
(6)
|
Property,
Plant, and Equipment
|
Property, plant, and equipment, net of accumulated depreciation,
comprise the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Land and improvements
|
|
$
|
11,942
|
|
|
|
11,368
|
|
Building and improvements
|
|
|
19,223
|
|
|
|
18,434
|
|
Machinery and equipment
|
|
|
41,790
|
|
|
|
32,604
|
|
Furnaces
|
|
|
90,946
|
|
|
|
83,546
|
|
Other
|
|
|
12,243
|
|
|
|
9,043
|
|
Construction in progress
|
|
|
3,743
|
|
|
|
2,351
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, gross
|
|
|
179,887
|
|
|
|
157,346
|
|
Less accumulated depreciation
|
|
|
(18,195
|
)
|
|
|
(7,698
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant, and equipment, net of accumulated depreciation
|
|
$
|
161,692
|
|
|
|
149,648
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the nine months ended March 31,
2008 was $11,311, of which $10,421 is recorded in cost of goods
sold and $890 is recorded in selling, general, and
administrative expenses. Depreciation expense for the nine
months ended March 31, 2007 was $4,682, of which $4,156 is
recorded in cost of goods sold and $526 is recorded in selling,
general, and administrative expenses
|
|
(7)
|
Goodwill
and Other Intangibles
|
Goodwill and other intangibles presented below have been
allocated to the silicon metal and silicon-based specialty
alloys operating segment, which is the Companys sole
operating segment.
F-12
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
Changes in the carrying amount of goodwill for the nine months
ended March 31, 2008 were as follows:
|
|
|
|
|
Balance at June 30, 2007
|
|
$
|
48,527
|
|
Purchase price allocation adjustment
|
|
|
128
|
|
Solsil acquisition
|
|
|
57,606
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
106,261
|
|
|
|
|
|
|
|
|
(b)
|
Other
Intangible Assets
|
Changes in the carrying amounts of definite lived intangible
assets for the nine months ended March 31, 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
Unpatented
|
|
|
|
|
|
|
Contracts
|
|
|
Technology
|
|
|
Other
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
$
|
9,574
|
|
|
|
|
|
|
|
595
|
|
Acquisitions
|
|
|
|
|
|
|
13,143
|
|
|
|
|
|
Purchase price allocation adjustments
|
|
|
1,243
|
|
|
|
|
|
|
|
(270
|
)
|
Tax valuation allowance adjustments
|
|
|
(869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
|
9,948
|
|
|
|
13,143
|
|
|
|
325
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
1,915
|
|
|
|
|
|
|
|
256
|
|
Amortization expense
|
|
|
2,820
|
|
|
|
55
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
|
4,735
|
|
|
|
55
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at March 31, 2008
|
|
$
|
5,213
|
|
|
|
13,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no changes in the value of the Companys
indefinite lived intangible assets during the nine months ended
March 31, 2008, except for the $128 adjustment resulting
from the finalization of the purchase price allocation to trade
names discussed above. The trade name balance is $476 and $604
at March 31, 2008 and June 30, 2007, respectively.
Amortization expense of purchased intangible assets was $2,944
for the nine months ended March 31, 2008, of which $2,893
is recorded in cost of goods sold and $51 is recorded in
selling, general, and administrative expenses. Amortization
expense of purchased intangible assets was $1,007 for the nine
months ended March 31, 2007, of which $892 is recorded in
cost of goods sold and $115 is recorded in selling, general, and
administrative expenses.
|
|
(c)
|
Customer
Contract Liability
|
The Company has certain noncancelable executory customer
contracts purchased as part of the Companys historical
acquisitions with future cash flows below market rates. The
related liability is being amortized over the contractual term
of the individual contracts. For the nine months ended
March 31, 2008 and 2007, $2,809 and $2,274, respectively,
of this liability was amortized and included in net sales. The
remaining unamortized liability of $643 at March 31, 2008
is included in other long-term liabilities.
F-13
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
Short-term debt comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Unused
|
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Credit Line
|
|
|
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Type debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
$
|
14,600
|
|
|
|
5.68
|
%
|
|
$
|
12,900
|
|
Export financing
|
|
|
11,331
|
|
|
|
6.04
|
|
|
|
467
|
|
Other
|
|
|
1,552
|
|
|
|
7.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,483
|
|
|
|
|
|
|
$
|
13,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Type debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
$
|
11,685
|
|
|
|
8.98
|
%
|
|
$
|
18,465
|
|
Export financing
|
|
|
11,185
|
|
|
|
5.33
|
|
|
|
|
|
Other
|
|
|
580
|
|
|
|
7.18
|
|
|
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,450
|
|
|
|
|
|
|
$
|
20,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Agreements
A summary of the
Companys revolving credit agreements at March 31,
2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Unused
|
|
|
Total
|
|
|
|
Balance
|
|
|
Commitment
|
|
|
Commitment
|
|
|
Fortis credit facility
|
|
$
|
14,600
|
|
|
|
6,236
|
|
|
|
27,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This credit facility of the Companys subsidiary, GMI,
expires November 2009. Interest accrues at the London Interbank
Offered Rate (LIBOR) or prime, at the Companys option,
plus an applicable margin percentage. At March 31, 2008,
the interest rate on $8,000 of the revolver was 5.00%, equal to
LIBOR plus 2.75%. At March 31, 2008, interest accrues at
6.5%, equal to prime plus 1.75%, on the remaining $6,600
outstanding balance. The total commitment on this credit
facility includes $6,664 for letters of credit associated with
foreign supplier contracts. The credit facility is secured by
substantially all of the assets of GMI and is subject to certain
restrictive and financial covenants, which include limits on
additional debt, restrictions on capital expenditures,
restrictions on dividend and other equity distributions, and
certain minimum interest, debt service, and leverage ratios. The
Company was in compliance with these loan covenants at
March 31, 2008.
Export Financing Agreements
The
Companys Argentine and Brazilian subsidiaries maintain
various short-term export financing arrangements. The terms of
these agreements are generally between six and twelve months.
Interest accrues at rates ranging from 5.2% to 7.5% at
March 31, 2008. Certain export accounts receivable balances
are pledged as collateral against these borrowings.
Other
The Companys subsidiary, Solsil,
has $1,500 in outstanding promissory notes, which mature on
October 24, 2008. The notes accrue interest at LIBOR plus
3%, with interest payable in kind and capitalized as outstanding
principal at the end of each quarter in lieu of payment in cash.
The promissory notes are secured by all property and assets of
Solsil. In addition, Solsil is subject to restrictions on
issuing dividend payments and securities. At March 31,
2008, the total debt balance was $1,552.
F-14
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
Long-term debt comprised the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Senior term loan
|
|
$
|
18,641
|
|
|
|
24,750
|
|
Junior subordinated term loan
|
|
|
8,500
|
|
|
|
8,500
|
|
Junior subordinated term loan
|
|
|
8,500
|
|
|
|
8,500
|
|
Export prepayment financing
|
|
|
20,000
|
|
|
|
|
|
Export financing
|
|
|
6,450
|
|
|
|
9,028
|
|
Other
|
|
|
4,379
|
|
|
|
1,649
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
66,470
|
|
|
|
52,427
|
|
Less current portion of long-term debt
|
|
|
(10,317
|
)
|
|
|
(6,370
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$
|
56,153
|
|
|
|
46,057
|
|
|
|
|
|
|
|
|
|
|
Senior Term Loan
Loan principal and
interest payments are due in quarterly installments of $750 plus
interest at LIBOR or prime, at the Companys option, plus
an applicable margin percentage. The interest rate on this loan
was 6.6%, equal to LIBOR plus 3.5%, at March 31, 2008. The
unpaid principal balance is due in full in November 2010. The
loan is secured by substantially all of the assets of GMI and is
subject to certain restrictive and financial covenants, which
include limits on additional debt, restrictions on capital
expenditures, restrictions on dividend and other equity
distributions, and certain minimum interest, debt service, and
leverage ratios. The Company was in compliance with these loan
covenants at March 31, 2008.
The Company entered into an interest rate swap to fix LIBOR on
50% of the original senior term loan balance. The agreement,
which expires in March 2011, involves the exchange of the
interest obligations relating to an initial $15,000 notional
amount of debt, with the notional amount decreasing by $375 per
quarter consistent with half of the debt amortization on the
senior term loan. The remaining notional amount is $12,000 at
March 31, 2008. Under the interest rate swap, the Company
receives LIBOR in exchange for a fixed interest rate of 5.23%
over the life of the agreement. The agreement provides for a net
cash settlement. The Company believes it is not practical to
designate the cash-settled interest rate swap agreement as a
fair value hedge as defined under SFAS 133. Therefore, in
accordance with SFAS 133, the Company adjusts the interest
rate swap agreement to current market value through the
consolidated income statement based on the fair value of the
swap agreement as of each period end. The related increase in
interest expense totaled $880 and $22, respectively, for the
nine months ended March 31, 2008 and 2007. The fair value
of this derivative is recorded in other long-term liabilities
with a balance of $750 at March 31, 2008. The fair value of
this derivative is recorded in other assets with a value of $40
at June 30, 2007.
Junior Subordinated Term Loans
These loans
with a related party mature in full in November 2011. Interest
on one loan accrues quarterly at prime plus 3.25%, with the
aggregate rate not to be less than 10.25%. Interest on the other
loan accrues monthly at LIBOR plus 8%. The interest rates on
these loans were 8.5% and 10.54%, respectively, at
March 31, 2008. Both of these loans are secured by
substantially all assets of GMI on a subordinated basis and are
subject to certain loan covenant restrictions. The Company was
in compliance with the loan covenants at March 31, 2008.
Export Prepayment Financing
The
Companys Brazilian subsidiary has entered into a $20,000
export financing arrangement maturing January 31, 2012. The
arrangement carries an interest rate of LIBOR plus 2.5%, paid
semi-annually. At March 31, 2008, the interest rate on this
loan was 6.25%. The principal is payable in seven, semi-annual
installments starting in February 2009, with six installments of
$3,000 and one final installment of $2,000. As collateral, the
Brazilian subsidiary has pledged certain third party
customers export receivables, 100% of the
subsidiarys property, plant, and equipment, and 2,000 tons
of metallic silicon with an approximate value of $3,800. The
loan is subject to certain loan covenant restrictions such as
limits on
F-15
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
issuing dividends, disposal of pledged assets, and selling of
forest areas. In addition, the proceeds from certain cash
receipts during the sixty days prior to a loan installment
payment date are restricted for payment of the respective
installment.
Export Financing
The Companys Brazilian
subsidiary maintains long-term export financing arrangements
with three banks in Brazil. At March 31, 2008, interest on
$2,000 of the balance outstanding accrues quarterly at the rate
of LIBOR plus 1.25%. Interest accrues on the remaining balance
of $4,450 at rates ranging from 5.65% to 6.50%.
The components of net periodic pension benefit for the
Companys defined benefit pension plans follow for the nine
months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Interest cost
|
|
$
|
886
|
|
|
|
420
|
|
Expected return on plan assets
|
|
|
(1,095
|
)
|
|
|
(554
|
)
|
Amortization of net loss
|
|
|
55
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit
|
|
$
|
(154
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
The Company expects to contribute approximately $610 to the
plans for the year ended June 30, 2008, of which $598 has
been contributed through March 31, 2008.
The following is a reconciliation, stated in percentage, of the
U.S. statutory federal income tax rate to our effective tax
rate for the nine months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory rate
|
|
|
35.0
|
|
|
|
35.0
|
|
State taxes, net of federal benefit
|
|
|
1.8
|
|
|
|
5.4
|
|
Income from tax exempt investments
|
|
|
|
|
|
|
(10.4
|
)
|
Foreign rate differential
|
|
|
(7.6
|
)
|
|
|
0.2
|
|
Other items
|
|
|
(0.5
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
28.7
|
|
|
|
30.3
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended March 31, 2008, the Company
decreased our valuation allowance by $869, which was reflected
as a reduction in the intangible assets related to our Brazilian
operations.
Effective July 1, 2007, the Company adopted FIN 48
which provides a comprehensive model for the recognition,
measurement and disclosure in financial statements of uncertain
income tax positions that a company has taken or expects to take
on a tax return. Under FIN 48, a company can recognize the
benefit of an income tax position only if it is more likely than
not (greater than 50%) that the tax position will be sustained
upon tax examination, based solely on the technical merits of
the tax position. Otherwise, no benefit can be recognized. The
tax benefits recognized are measured based on the largest
benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. Additionally, companies
are required to accrue interest and related penalties, if
applicable, on all tax exposures for which reserves have been
established consistent with jurisdictional tax laws. The Company
has elected to recognize interest expense and penalties related
to uncertain tax positions as a component of income tax expense.
As a result of the implementation of FIN 48, the Company
recognized no change in the liability for uncertain tax benefits
in the consolidated financial statements.
F-16
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
The Company is subject to income taxes in the United States and
other foreign jurisdictions. In the ordinary course of business,
there are transactions and calculations that involve uncertain
tax implications. The Company believes we have adequate support
for the positions taken on our tax returns and that adequate
provisions have been made for all outstanding issues for all
jurisdictions and all open years.
|
|
(11)
|
Commitments
and Contingencies
|
The Companys subsidiary, GMI, was sued by Westbrook
Resources Limited (Westbrook), an English company, in respect of
an alleged failure by GMI to perform under a contract entered
into in January 2005 to acquire 30,000 tons of manganese ore.
Through March 31, 2008, the Company paid an aggregate
amount of $2,384 in settlement of this lawsuit, including
damages, Westbrooks legal fees and related interest. In
April 2008, the Company was granted permission to appeal this
judgment, but there is no assurance that we will be successful
in our appeal.
We are subject to various lawsuits, claims, and proceedings that
arise in the normal course of business, including employment,
commercial, environmental, safety and health matters. Although
it is not presently possible to determine the outcome of these
matters, in the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on our
consolidated financial position, results of operations, or
liquidity.
|
|
(b)
|
Environmental
Contingencies
|
It is our policy to accrue for costs associated with
environmental assessments, remedial efforts or other
environmental liabilities when it becomes probable that a
liability has been incurred and the costs can be reasonably
estimated. When a liability for environmental remediation is
recorded, such amounts will be recorded without giving effect to
any possible future recoveries. At March 31, 2008, there
are no liabilities recorded for environmental contingencies.
With respect to the cost for ongoing environmental compliance,
including maintenance and monitoring, such costs are expensed as
incurred.
The Companys subsidiary, GMI, has entered into agreements
to purchase a minimum of approximately $553 and $1,056 of
magnesium per month during calendar years 2008 and 2009,
respectively. In addition, GMI has entered into an agreement to
purchase a minimum of approximately $650, $700, $750, and $750
of coal per month during calendar years 2008 through 2011,
respectively. These products will be utilized as raw materials
in GMIs manufacturing process.
|
|
(d)
|
Energy
Recycling Agreement
|
In January 2008, GMI entered into an agreement with Recycled
Energy Development (RED), a company that develops power related
recycling projects, to recycle hot exhaust from our West
Virginia facility. The project is anticipated to be in operation
in 2010. RED is required to supply all capital and energy
expertise to design, permit, construct, test, and commission the
project, is entitled to receive a return on capital and is
obligated to share certain financial benefits of the project
with us. This agreement is subject to additional feasibility
studies being conducted by RED.
|
|
(12)
|
Stockholders
Equity
|
In connection with the Companys initial public offering on
October 3, 2005, the Company sold 33,500,000 units
(individually, Unit), consisting of one share of the
Companys common stock and two
F-17
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
redeemable common stock purchase warrants. Also in connection
with its initial public offering, the Company issued an option
to purchase 1,675,000 units (individually, UPO) at an
exercise price of $7.50 per UPO. Each UPO consists of one share
of the Companys common stock and two redeemable common
stock purchase warrants. All of the Companys outstanding
warrants have an exercise price of $5.00 per common share, and
expire on October 3, 2009.
At July 1, 2007, 19,646,088 of the warrants issued in
connection with the Companys initial public offering and
all 1,675,000 of the UPOs remained outstanding. During the nine
months ended March 31, 2008, 699,440 of the warrants issued
in connection with the Companys initial public offering
were exercised and an additional 100,262 warrants and 50,131
common shares were issued in connection with a cashless exercise
of 67,458 UPOs. As a result of these transactions, 19,046,910
warrants and 1,607,542 UPOs remain outstanding at March 31,
2008.
Basic earnings per common share is based on the weighted average
number of common shares outstanding during the nine months ended
March 31, 2008 and 2007, respectively. Diluted earnings per
common share assumes the exercise of stock options, the
conversion of warrants, and the exercise of the UPOs, provided
in each case the effect is dilutive.
The reconciliation of the amounts used to compute basic and
diluted earnings per common share follows for the nine months
ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Basic earnings per share computation
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
57,636,156
|
|
|
|
43,817,226
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.32
|
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share computation
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
18,243
|
|
|
|
6,383
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
57,636,156
|
|
|
|
43,817,226
|
|
Effect of dilutive securities
|
|
|
12,128,756
|
|
|
|
3,510,578
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
69,764,912
|
|
|
|
47,327,804
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.26
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
The Company has 1,023,335 potential common shares associated
with outstanding employee stock options which are excluded from
the calculation of diluted earnings per common share because
their effect would be anti-dilutive.
|
|
(14)
|
Share-Based
Compensation
|
The Companys share-based compensation program comprises
the Globe Specialty Metals, Inc. 2006 Employee, Director and
Consultant Stock Plan (the Stock Plan), which was approved by
the Companys stockholders on November 10, 2006. The
Stock Plan provides for the issuance of a maximum of
5,000,000 shares of common stock for the granting of
incentive stock options, nonqualified options, stock grants and
stock-based awards. Any remaining shares available for grant,
but not yet granted, will be carried
F-18
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
over and used in the following year. During the nine months
ended March 31, 2008, share-based compensation awards were
limited to the issuance of nonqualified stock options. No other
share-based compensation awards were issued.
At March 31, 2008, there were 3,640,000 shares
available for grant. All option grants to date vest and become
exercisable in equal one-third increments on the first, second,
and third anniversaries of the date of grant and have maximum
contractual terms ranging from 5 to 10 years.
A summary of the changes in options outstanding under the Stock
Plan for the nine months ended March 31, 2008 is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term In
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Years
|
|
|
Value
|
|
|
Outstanding as of June 30, 2007
|
|
|
1,220,000
|
|
|
$
|
7.88
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
140,000
|
|
|
|
13.93
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2008
|
|
|
1,360,000
|
|
|
$
|
8.50
|
|
|
|
4.88
|
|
|
$
|
16,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of March 31, 2008
|
|
|
339,998
|
|
|
$
|
6.25
|
|
|
|
3.62
|
|
|
$
|
4,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of stock options
granted during the nine months ended March 31, 2008 was
$6.10.
The Company estimates the fair value of grants using the
Black-Scholes option pricing model. The following assumptions
were used to estimate the fair value of stock option awards for
the nine months ended March 31, 2008:
|
|
|
|
|
Risk-free interest rate
|
|
|
1.76%-3.42
|
%
|
Expected dividend yield
|
|
|
|
|
Expected volatility
|
|
|
43.00
|
|
Expected forfeiture rate
|
|
|
|
|
Expected term (years)
|
|
|
4.0 to 6.5
|
|
Weighted average per share fair value of
|
|
|
|
|
stock option grants at March 31, 2008
|
|
|
$13.23
|
|
The risk-free interest rate is based on the yield of zero coupon
U.S. Treasury bonds with terms similar to the expected term
of the options. The expected dividend yield is zero based on our
current expectation to not pay dividends to the Companys
common stockholders for the foreseeable future. Since there is
limited historical trading data related to the Companys
common stock, the expected volatility over the term of the
options is estimated using the historical volatilities of
similar companies. Given that the options granted are under a
new plan and that there is relatively no historical data, the
expected forfeiture rate is zero, and the expected term is the
average of the vesting period and contractual term.
For the nine months ended March 31, 2008 and 2007,
share-based compensation expense was $6,617 ($3,570 after tax)
and $176 ($95 after tax), respectively. The expense is reported
within selling, general, and administrative expenses.
F-19
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
As of March 31, 2008, the Company has unearned compensation
expense of $10,856, before income taxes, related to nonvested
stock option awards. The unrecognized compensation expense is
expected to be recognized over the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Share-based compensation cost (pre-tax)
|
|
$
|
1,499
|
|
|
|
5,996
|
|
|
|
3,121
|
|
|
|
240
|
|
It is the Companys policy to issue new shares to satisfy
the requirements of its share-based compensation plans. The
Company does not expect to repurchase shares in the future to
support our share-based compensation plans.
|
|
(15)
|
Related
Party Transactions
|
From time to time, the Company enters into transactions in the
normal course of business with related parties. Management
believes that such transactions are at arms length and for
terms that would have been obtained from unaffiliated third
parties.
Two members of the Board of Directors are affiliated with Marco
International, Marco Realty, and MI Capital. During the nine
months ended March 31, 2008 and 2007, the Company:
|
|
|
|
|
Paid Marco Realty $114 and $75, respectively, to rent office
space for its corporate headquarters in New York City, New York.
|
|
|
|
Entered into agreements with Marco International to purchase
graphitized carbon electrodes. Marco International billed $7,997
and $2,959, respectively, under these agreements. At
March 31, 2008, the Company owed $352 under the agreements.
|
|
|
|
Sold calcium silicon powder to Marco International for $1,152
and $264, respectively. At March 31, 2008, there were no
receivables from Marco International.
|
|
|
|
Recognized $377 in interest expense on an $8.5 million
financing arrangement, entered into on November 10, 2005
with MI Capital, during the nine months ended March 31,
2007. On April 17, 2007, the loan was sold to D.E. Shaw.
|
The Company is affiliated with Norchem through its 50.0% equity
interest. During the nine months ended March 31, 2008 and
2007, the Company sold Norchem product valued at $3,161 and
$932, respectively. At March 31, 2008, receivables from
Norchem totaled $341.
D.E. Shaw is a shareholder of the Company. The Company has
outstanding financing arrangements totaling $17.0 million
with D.E. Shaw at March 31, 2008, including the loan
purchased from MI Capital discussed above. Interest expense on
these financing arrangements totaled $1,512 and $438 during the
nine months ended March 31, 2008 and 2007, respectively.
Solsil has outstanding loans with D.E. Shaw and Plainfield
Direct, Inc., shareholders of the Company, totaling
$1.5 million, with interest payable at LIBOR plus 3% and
due on October 24, 2008. These notes also mature on
October 24, 2008.
We operate in one reportable segment, silicon metal and
silicon-based specialty alloys.
F-20
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
Included in the consolidated income statements are the following
amounts related to geographic data for the nine months ended
March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Operating
|
|
|
|
Net Sales
|
|
|
Amortization
|
|
|
Income
|
|
|
United States
|
|
$
|
253,679
|
|
|
|
9,300
|
|
|
|
11,080
|
|
Argentina
|
|
|
26,045
|
|
|
|
1,508
|
|
|
|
3,440
|
|
Brazil
|
|
|
32,342
|
|
|
|
3,388
|
|
|
|
16,087
|
|
Poland
|
|
|
4,685
|
|
|
|
59
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
316,751
|
|
|
|
14,255
|
|
|
|
30,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Operating
|
|
|
|
Net Sales
|
|
|
Amortization
|
|
|
Income
|
|
|
United States
|
|
$
|
103,883
|
|
|
|
4,223
|
|
|
|
8,105
|
|
Argentina
|
|
|
10,340
|
|
|
|
673
|
|
|
|
263
|
|
Brazil
|
|
|
4,829
|
|
|
|
774
|
|
|
|
206
|
|
Poland
|
|
|
2,198
|
|
|
|
19
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
121,250
|
|
|
|
5,689
|
|
|
|
8,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales are attributed to geographical regions based upon the
location of the selling unit.
Long-lived assets by geographical region at March 31, 2008
and June 30, 2007 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
220,333
|
|
|
|
141,673
|
|
Argentina
|
|
|
35,458
|
|
|
|
36,242
|
|
Brazil
|
|
|
30,222
|
|
|
|
27,970
|
|
Poland
|
|
|
717
|
|
|
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
286,730
|
|
|
|
206,777
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets consist of property, plant, and equipment, net
of accumulated depreciation, and goodwill and other intangible
assets.
The following is a summary of the Companys major customers
and their respective percentages of consolidated net sales for
the nine months ended March 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Dow Corning
|
|
|
15
|
%
|
|
|
18
|
%
|
All other customers
|
|
|
85
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
F-21
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
March 31, 2008 and 2007
(Dollars in thousands, except per share data)
(UNAUDITED)
The Company has two contracts with Dow Corning. The first
agreement is a four year arrangement in which Dow Corning
purchases 30,000 metric tons of silicon metal per year through
December 31, 2010. Under the second arrangement, effective
December 1, 2007 through January 31, 2009, the Company
will supply Dow Corning 13,000 metrics tons of silicon metal.
On April 24, 2008, Solsil and GMI entered into a joint
development supply agreement with BP Solar International Inc.
(BP Solar) for the sale of solar grade silicon. BP Solar and
Solsil will also deploy certain existing BP Solar technology at
Solsils facility and will jointly develop new technology
to enhance Solsils proprietary upgraded solar silicon
metallurgical process. Solsil and BP Solar will both contribute
towards the costs of the technology development. In conjunction
with the reopening and expansion of our Niagara Falls facility
discussed below, a portion of the facility will be dedicated to
our Solsil operations.
On May 15, 2008, the Company entered into a business
combination which provided an ownership interest of
approximately 60% of Ningxia Yongvey Coal Industrial Co., Ltd
(Yongvey). Yongvey is a producer of carbon electrodes, an
important input in the silicon metal production process. Prior
to the business combination, Yongveys predecessor was one
of the Companys electrode suppliers. Yongveys
operations are located in Chonggang Industrial Park, Shizuishan
in the Ningxia Hiu Autonomous Region of China. The aggregate
purchase price was 75 million Renminbi, approximately
$10.7 million based the average exchange rate on
May 15, 2008, which is comprised only of cash consideration.
On May 20, 2008, Empire State Development and New York
Power Authority announced that hydropower from the Niagara Power
Project would be supplied to the Company to enable it to reopen
and expand its currently idle manufacturing facility in Niagara
Falls, New York. The Company plans to reopen its silicon
production facility and invest in upgrading its equipment to
produce approximately 30,000 metric tons of metallurgical grade
silicon annually. In conjunction with the reopening and
expansion of our Niagara Falls facility, a portion of the
facility will be used for our Solsil operations and when
completed, is expected to permit us to produce annually
approximately 4,000 metric tons of solar grade silicon. Empire
State Development and New York Power Authority have created an
incentive package to the Company that provides 40 megawatts of
hydropower over five years, with a potential five year
extension, and up to $25 million in Empire Zone tax
benefits recognized over ten years subject to achieving
specified employment and investment targets.
F-22
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Globe Specialty Metals, Inc.:
We have audited the accompanying consolidated balance sheet of
Globe Specialty Metals, Inc. and subsidiary companies (the
Company) as of June 30, 2007 and the related consolidated
statements of income, changes in stockholders equity and
cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Globe Specialty Metals, Inc. and subsidiary
companies as of June 30, 2007, and the results of their
operations and their cash flows for the year then ended, in
conformity with U.S. generally accepted accounting
principles.
January 24, 2008
F-24
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
June 30, 2007
(In thousands, except share and per share amounts)
|
|
|
|
|
Assets
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,741
|
|
Accounts receivable, net of allowance for doubtful accounts of
$116
|
|
|
38,092
|
|
Inventories
|
|
|
39,093
|
|
Prepaid expenses and other current assets
|
|
|
11,307
|
|
|
|
|
|
|
Total current assets
|
|
|
156,233
|
|
Property, plant, and equipment, net of accumulated depreciation
|
|
|
149,648
|
|
Goodwill
|
|
|
48,527
|
|
Other intangible assets
|
|
|
8,602
|
|
Investments in affiliates
|
|
|
7,552
|
|
Deferred tax assets
|
|
|
8,948
|
|
Other assets
|
|
|
10,252
|
|
|
|
|
|
|
Total assets
|
|
$
|
389,762
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
40,495
|
|
Current portion of long-term debt
|
|
|
6,370
|
|
Short-term debt
|
|
|
23,450
|
|
Accrued expenses and other current liabilities
|
|
|
14,546
|
|
|
|
|
|
|
Total current liabilities
|
|
|
84,861
|
|
Long-term liabilities:
|
|
|
|
|
Long-term debt
|
|
|
46,057
|
|
Deferred tax liabilities
|
|
|
20,785
|
|
Other long-term liabilities
|
|
|
15,438
|
|
|
|
|
|
|
Total liabilities
|
|
|
167,141
|
|
|
|
|
|
|
Commitments and contingences (note 13)
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
Common stock, $0.0001 par value. Authorized
150,000,000 shares; issued and outstanding
56,672,188 shares
|
|
|
5
|
|
Additional paid-in capital
|
|
|
211,861
|
|
Retained earnings
|
|
|
10,178
|
|
Accumulated other comprehensive income
|
|
|
577
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
222,621
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
389,762
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-25
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Income Statement
Year ended June 30, 2007
(In thousands, except per share amounts)
|
|
|
|
|
Net sales
|
|
$
|
221,928
|
|
Cost of goods sold
|
|
|
184,122
|
|
Selling, general, and administrative expenses
|
|
|
18,661
|
|
|
|
|
|
|
Operating income
|
|
|
19,145
|
|
Other income (expense):
|
|
|
|
|
Interest income
|
|
|
5,851
|
|
Interest expense, net of capitalized interest of $66
|
|
|
(5,228
|
)
|
Foreign exchange gain
|
|
|
688
|
|
Other expense
|
|
|
(807
|
)
|
|
|
|
|
|
Income before provision for income taxes and deferred interest
attributable to common stock subject to redemption
|
|
|
19,649
|
|
Provision for income taxes
|
|
|
7,047
|
|
|
|
|
|
|
Net income before deferred interest attributable to common stock
subject to redemption
|
|
|
12,602
|
|
Deferred interest attributable to common stock subject to
redemption
|
|
|
(768
|
)
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
11,834
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
Basic
|
|
|
46,922
|
|
Diluted
|
|
|
50,231
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
Diluted
|
|
|
0.24
|
|
See accompanying notes to consolidated financial statements.
F-26
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Statement of Changes in Stockholders
Equity
Year ended June 30, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
Balance at June 30, 2006
|
|
|
41,358
|
|
|
$
|
4
|
|
|
|
149,005
|
|
|
|
1,601
|
|
|
|
|
|
|
|
150,610
|
|
Shares issued in acquisition of Globe Metallurgical, Inc.
|
|
|
8,642
|
|
|
|
1
|
|
|
|
47,960
|
|
|
|
|
|
|
|
|
|
|
|
47,961
|
|
Retirement of shares converted or redeemed
|
|
|
(7,529
|
)
|
|
|
(1
|
)
|
|
|
(4,561
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,562
|
)
|
Cash dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,257
|
)
|
|
|
|
|
|
|
(3,257
|
)
|
Issuance of shares under warrant tender program
|
|
|
14,201
|
|
|
|
1
|
|
|
|
19,457
|
|
|
|
|
|
|
|
|
|
|
|
19,458
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment (net of income taxes of $316)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516
|
|
|
|
516
|
|
Unrealized gain on available for sale securities (net of income
taxes of $32)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
Net income attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,834
|
|
|
|
|
|
|
|
11,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
56,672
|
|
|
$
|
5
|
|
|
|
211,861
|
|
|
|
10,178
|
|
|
|
577
|
|
|
|
222,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-27
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Consolidated Statement of Cash Flows
Year ended June 30, 2007
(In thousands)
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
11,834
|
|
Adjustments to reconcile net income attributable to common stock
to net cash provided by operating activities:
|
|
|
|
|
Depreciation and amortization of purchased intangible assets
|
|
|
10,641
|
|
Amortization of customer contract liability
|
|
|
(3,849
|
)
|
Share-based compensation
|
|
|
512
|
|
Gain on sale of assets
|
|
|
(2
|
)
|
Deferred taxes
|
|
|
306
|
|
Deferred interest attributable to common stock subject to
redemption
|
|
|
768
|
|
Changes in assets and liabilities:
|
|
|
|
|
Decrease in accounts receivable, net
|
|
|
515
|
|
Increase in inventories
|
|
|
(2,650
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(2,193
|
)
|
Increase in accounts payable
|
|
|
1,308
|
|
Increase in accrued expenses and other current liabilities
|
|
|
5,416
|
|
Other operating cash flows
|
|
|
(3,933
|
)
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
18,673
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Capital expenditures
|
|
|
(8,629
|
)
|
Acquisition of businesses, net of cash acquired of $6,750
|
|
|
(104,894
|
)
|
Investments in affiliates
|
|
|
(5,963
|
)
|
Purchase of cash equivalents held in trust
|
|
|
(3,038
|
)
|
Funds released from trust
|
|
|
190,192
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
67,668
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Dividends paid
|
|
|
(3,257
|
)
|
Purchase of redeemed shares
|
|
|
(42,802
|
)
|
Net borrowings of long-term debt
|
|
|
1,544
|
|
Net borrowings of short-term debt
|
|
|
5,431
|
|
Proceeds from warrant tender program
|
|
|
19,458
|
|
Other financing activities
|
|
|
(970
|
)
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(20,596
|
)
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
65,745
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,996
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
67,741
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-28
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
June 30, 2007
(Dollars in thousands, except per share amounts)
|
|
(1)
|
Organization
and Business Operations
|
Globe Specialty Metals, Inc. and subsidiary companies (GSM, the
Company, we, us, or our) is among the worlds largest
producers of silicon metal and silicon-based specialty alloys,
critical ingredients in a variety of industrial and consumer
products. The Companys customers include major silicon
chemical, aluminum and steel manufacturers, auto companies and
their suppliers, ductile iron foundries, manufacturers of
photovoltaic solar cells and computer chips, and concrete
producers.
GSM was incorporated in Delaware on December 23, 2004,
under the name International Metal Enterprises, Inc., to serve
as a vehicle for the acquisition of operating companies in the
metals and mining industry.
On November 12, 2006, the Company acquired 100% of the
outstanding stock of Globe Metallurgical, Inc. (GMI), a
manufacturer of silicon metal and silicon-based alloys. GMI owns
and operates plants in Ohio, West Virginia and Alabama. GMI also
owns a currently idle silicon metal and ferroalloy manufacturing
plant located in Niagara Falls, New York. GMIs products
are sold primarily to the silicone chemical, aluminum, metal
casting, and solar cell industries, primarily in the United
States, Canada and Mexico. GMI also owns 50% of the outstanding
stock of Norchem, Inc. (Norchem). Norchem manufactures and sells
additives that enhance the durability of concrete, refractory
material and oil well conditioners. GMI sells silica fume (also
known as microsilica), a by-product of its ferrosilicon metal
and silicon metal production process, to Norchem as well as
other companies.
On November 20, 2006, the Company acquired 100% of the
outstanding stock of Stein Ferroaleaciones S.A. (SFA), an
Argentine manufacturer of silicon-based alloys, and SFAs
two affiliates, UltraCore Polska Sp.z.o.o. (UCP), a Polish
manufacturer of cored wire alloys, and Ultra Core Corporation
(UCC), a
U.S.-based
alloy distributor (collectively, Stein). SFA, incorporated in
Argentina in 1974, is among Latin Americas leading
producers of silicon-based specialty alloys. Headquartered in
Buenos Aires, Argentina, it operates an alloy manufacturing
plant in Mendoza province, Argentina and cored wire packing
plants in San Luis province, Argentina and Police, Poland.
Steins products are important ingredients in the
manufacturing of steel, ductile iron, machine and auto parts and
pipe. SFA has been renamed Globe Metales S.A. (Metales).
On January 31, 2007, the Company acquired 100% of the
outstanding stock of Camargo Correa Metais S.A. (CCM), one of
Brazils largest producers of silicon metal and silica
fume. CCM has been renamed Globe Metais Indústria e
Comércio S.A. (Globe Metais). Globe Metais operates a
manufacturing facility located in Breu Branco, Para, Brazil. It
also operates quartzite mining and forest reserves operations in
Para, Brazil. Through our Brazilian operations, we are one of
Brazils largest producers of silicon metal and silica
fume, raw materials used in the chemical, metallurgical,
electronic, cement and firebrick industries. The silicon metal
produced at our Brazilian facility supplies industries worldwide.
See note 3 (Business Combinations) for additional
information regarding the GMI, Stein and CCM acquisitions.
|
|
(2)
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
Basis
of Presentation and Principles of Consolidation
|
The Companys consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP) and include
the accounts of GSM. When the Company does not have a
controlling interest in an entity, but exerts significant
influence over the entity, the Company applies the equity method
of accounting. For investments in which the Company owns less
than 20% of the voting shares and does not have significant
influence, the cost method of accounting is used.
The Company also evaluates the consolidation of entities under
Financial Accounting Standards Board (FASB) Interpretation
No. 46,
Consolidation of Variable Interest Entities
(FIN 46). FIN 46 requires management to evaluate
whether an entity or interest is a variable interest entity and
whether the Company is the
F-29
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
primary beneficiary. Consolidation is required if both of these
criteria are met. The Company does not have any variable
interest entities requiring consolidation.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Certain reclassifications have been made to the consolidated
financial statements to conform with the financial statements
presented elsewhere in
form S-1.
The preparation of financial statements in conformity with US
GAAP requires management to make estimates and assumptions that
affect amounts reported in the consolidated financial statements
and related notes. Significant estimates and assumptions in
these consolidated financial statements include valuation
allowances for inventories, the carrying amount of property,
plant, and equipment, estimates of fair value associated with
accounting for business combinations, goodwill and long-lived
asset impairment tests, estimates of fair value of investments,
asset retirement obligations, income taxes and deferred tax
valuation allowances, valuation of derivative instruments, the
determination of discount and other rate assumptions for pension
expense and the determination of the fair value of share-based
compensation involving assumptions about forfeiture rates, stock
volatility, discount rates, and expected time to exercise. Due
to the inherent uncertainty involved in making estimates, actual
results reported in future periods may be different from these
estimates.
Revenue is recognized when a firm sales agreement is in place,
delivery has occurred and title and risks of ownership have
passed to the customer, the sales price is fixed or
determinable, and collectability is reasonably assured. Sales of
goods do not include multiple product
and/or
service elements. Shipping and other transportation costs
charged to buyers are recorded in both sales and cost of goods
sold. Sales taxes collected from customers and remitted to
governmental authorities are accounted for on a net basis and,
therefore, are excluded from sales in the consolidated income
statement.
|
|
(d)
|
Foreign
Currency Translation
|
The determination of the functional currency for the
Companys foreign subsidiaries is made based on appropriate
economic factors, including the currency in which the subsidiary
sells its products, the sales market in which the subsidiary
operates, and the currency in which the subsidiarys
financing is denominated. Based on these factors, management has
determined that the U.S. dollar is the functional currency
for Metales and Globe Metais. Translation gains and losses are
recognized on transactions in currencies other than the
U.S. dollar and included in income for the period in which
the exchange rates changed.
|
|
(e)
|
Cash
and Cash Equivalents
|
Cash equivalents consist of highly liquid investments that are
readily convertible into cash. Securities with contractual
maturities of three months or less, when purchased, are cash
equivalents. The carrying amount of these securities
approximates fair value because of the short-term maturity of
these instruments.
Supplemental disclosure of cash flow information follows:
|
|
|
|
|
Cash paid for interest and income taxes:
|
|
|
|
|
Interest
|
|
$
|
4,166
|
|
Income taxes
|
|
|
4,685
|
|
Refer to note 3 (Business Combinations) and note 14
(Stockholders Equity) for supplement disclosures of
noncash investing and financing activities.
F-30
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
Inventories are stated at the lower of cost or market value.
Cost is determined by the
first-in,
first-out method or the average cost method.
|
|
(g)
|
Property,
Plant, and Equipment
|
Property, plant, and equipment are recorded at cost.
Depreciation is calculated using the straight-line method based
on the estimated useful lives of assets. The estimated useful
lives of property, plant, and equipment follow:
|
|
|
|
|
|
|
Range of
|
|
|
|
Useful Lives
|
|
|
Asset type:
|
|
|
|
|
Land improvements
|
|
|
20 years
|
|
Buildings
|
|
|
35 years
|
|
Manufacturing equipment
|
|
|
6-25 years
|
|
Furnaces
|
|
|
20 years
|
|
Other
|
|
|
5-15 years
|
|
Costs that do not extend the life of an asset, materially add to
its value, or adapt the asset to a new or different use are
repair and maintenance costs, which are expensed as incurred.
The Companys acquisitions are accounted for using the
purchase method. The purchase price is allocated to the assets
acquired and the liabilities assumed based on their estimated
fair market values. Any excess purchase price over the fair
market value of the net assets acquired is recorded as goodwill.
For all acquisitions, operating results are included in the
consolidated income statement from the date of acquisition.
|
|
(i)
|
Goodwill
and Other Intangible Assets
|
Goodwill is the excess of cost of an acquired entity over the
amounts assigned to assets acquired and liabilities assumed in a
business combination. Goodwill is tested for impairment annually
at the end of the third quarter, and will be tested for
impairment between annual tests if an event occurs or
circumstances change that more likely than not would indicate
the carrying amount may be impaired. Impairment testing for
goodwill is done at a reporting unit level. Reporting units are
either one level below the operating segment level or an
aggregation of two or more reporting units within the same
operating segment if such reporting units share similar economic
characteristics. Goodwill relates and is assigned directly to a
specific reporting unit. An impairment loss generally would be
recognized when the carrying amount of the reporting units
net assets exceeds the estimated fair value of the reporting
unit. Refer to note 3 (Business Combinations) and
note 7 (Goodwill and Other Intangibles) for additional
information.
Other intangible assets include electricity and other supplier
contracts, customer relationships, trade names and other
intangible assets acquired from an independent party. Except for
trade names, our intangible assets have a definite life and are
amortized on a straight-line basis over their estimated useful
lives: Electricity Contracts 3 to 11 years;
Supplier Contracts 2 years; Customer
Relationships 1 year; and Software
1 year. Trade names have indefinite lives and are not
amortized but rather tested annually for impairment and written
down to fair value as required.
|
|
(j)
|
Impairment
of Long-Lived Assets
|
We review the recoverability of our long-lived assets, such as
plant and equipment and definite-lived intangible assets, when
events or changes in circumstances occur that indicate that the
carrying value of the asset or asset group may not be
recoverable. The assessment of possible impairment is based on
our ability to
F-31
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
recover the carrying value of the asset or asset group from the
expected future pre-tax cash flows (undiscounted and without
interest charges) of the related operations. We assess the
recoverability of the carrying value of long-lived assets at the
lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities.
If these cash flows are less than the carrying value of such
asset or asset group, an impairment loss is measured based on
the difference between estimated fair value and carrying value.
Assets to be disposed are written-down to the greater of their
fair value or salvage value. Fair values are based on
assumptions concerning the amount and timing of estimated future
cash flows and assumed discount rates, reflecting varying
degrees of perceived risk.
|
|
(k)
|
Share-Based
Compensation
|
Effective July 1, 2006, the Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS)
No. 123 (revised 2004),
Share-Based Payment
(SFAS 123(R)) as no share-based compensation awards
were granted prior to July 1, 2006. The Company recognizes
compensation expense based on the estimated grant date fair
value using the Black-Scholes option-pricing model. As awards
are liability-classified given net cash settlement provisions
contained in the Companys stock option plan, each award is
required to be remeasured to fair value each reporting period.
Prior to vesting, cumulative compensation cost equals the
proportionate amount of the award earned to date. The Company
has elected to treat each award as a single award and recognize
compensation cost on a straight-line basis over the requisite
service period of the entire award. Refer to note 16
(Share-Based Compensation) for further information on the
Companys accounting for share-based compensation.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax
benefit will not be realized.
|
|
(m)
|
Asset
Retirement Obligations
|
Asset retirement obligations are initially recorded at fair
value, and are capitalized as part of the cost of the related
long-lived asset and depreciated in accordance with the
Companys depreciation policies for property, plant, and
equipment. The fair value of the obligation is determined as the
discounted value of expected future cash flows. Accretion
expense is recorded each month to increase this discounted
obligation over time. The Companys asset retirement
obligations primarily relate to mine post-closure restoration
costs. Asset retirement obligations of $952 have been recorded
within Other Long-Term Liabilities at June 30, 2007.
|
|
(n)
|
Financial
Instruments
|
The Company accounts for derivatives and hedging activities in
accordance with SFAS No. 133,
Accounting for
Derivative Instruments and Certain Hedging Activities
,
(SFAS 133), as amended by SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.
SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their
respective fair values. The Companys sole derivative
instrument consists of an interest rate swap employed to manage
interest rate exposures on half of the Companys Senior
Term Loan discussed in note 9 (Debt). The agreement, which
expires in March 2011, involves the exchange of the interest
obligations relating to an initial $15,000 notional amount of
debt, with the notional amount decreasing by $375 per quarter
consistent with half of the debt amortization on the Senior Term
Loan. The remaining notional amount is $13,125 at June 30,
2007. Under the interest rate swap, the Company receives the
London Interbank Offered Rate (LIBOR) in exchange for a fixed
interest rate of 5.23%
F-32
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
over the life of the agreement. The agreement provides for a net
cash settlement. The Company believes it is not practical to
designate the cash-settled interest rate swap agreement as a
fair value hedge as defined under SFAS 133. Therefore, in
accordance with SFAS 133, the Company adjusts the interest
rate swap agreement to current market value through the
consolidated income statement based on the fair value of the
swap agreement as of each period end. The related reduction to
interest expense totaled $18 for the year ended June 30,
2007. The fair value of this derivative is recorded in Other
Assets with a value of $40 at June 30, 2007.
|
|
(o)
|
Fair
Value of Financial Instruments
|
Management believes that the carrying values of financial
instruments, including cash and cash equivalents, accounts
receivable, marketable securities, accounts payable, and accrued
expenses and other current liabilities approximate fair value as
a result of the short-term maturities of these instruments. See
also note 9 regarding the fair value of debt.
|
|
(p)
|
New
Accounting Pronouncements
|
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
(SFAS 154),
which replaces APB Opinion No. 20,
Accounting Changes
and SFAS No. 3,
Reporting Accounting Changes in
Interim Financial Statements.
SFAS 154 changes the
requirements of the accounting for, and reporting of, a change
in accounting principle. Upon the adoption of SFAS 154
beginning July 1, 2006, the Company has applied the
Standards guidance to changes in accounting methods as
required. The adoption of SFAS 154 was not material to the
Companys consolidated results of operations and financial
condition.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial
Instruments an amendment of FASB Statements
No. 133 and 140
(SFAS 155). SFAS 155 is
effective for all financial instruments acquired or issued after
July 1, 2007, and amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities,
and SFAS No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.
This Statement resolves issues addressed in
Statement 133 Implementation Issue No. D1,
Application
of Statement 133 to Beneficial Interests in Securitized
Financial Assets.
The Company does not expect the adoption
of SFAS 155 to have a material impact on its consolidated
results of operations and financial condition.
In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets an
amendment of FASB Statement No. 140
(SFAS 156).
This Statement amends SFAS No. 140,
Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities,
with respect to the accounting for
separately recognized servicing assets and servicing
liabilities. The impact of adopting SFAS 156 was not
material to the Companys consolidated results of
operations and financial condition.
In April 2006, the FASB issued FASB Staff Position (FSP)
FIN 46R-6,
Determining the Variability to Be Considered in Applying FASB
Interpretation No. 46(R)
(FIN 46R-6).
This FSP addresses how a reporting enterprise should determine
the variability to be considered in applying FIN 46R and is
effective on the first day of the first reporting period
beginning after June 15, 2006. The Company adopted FIN
46R-6 effective July 1, 2006. The impact of adopting
FIN 46R-6
was not material to the Companys consolidated results of
operations and financial condition.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48). This
Interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS 109. This Interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The
Company is required to adopt the provisions of FIN 48 as of
July 1, 2007. The Company is currently evaluating the
impact of FIN 48 on its consolidated results of operations
and financial condition.
F-33
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement
(SFAS 157). SFAS 157
defines fair value, establishes a framework for the measurement
of fair value, and enhances disclosures about fair value
measurements. The Statement does not require any new fair value
measures. The Company is required to adopt SFAS 157
beginning on July 1, 2008. SFAS 157 is required to be
applied prospectively, except for certain financial instruments.
Any transition adjustment will be recognized as an adjustment to
opening retained earnings in the year of adoption. The Company
is currently evaluating the impact of adopting SFAS 157 on
its results of operations and financial position.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS 158).
SFAS 158 requires employers to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position, to
recognize changes in that funded status in the year in which the
changes occur through accumulated other comprehensive income,
and to measure the funded status of a plan as of the date of its
yearend statement of financial position. The Company adopted
SFAS 158 as required on July 1, 2006. The impact of
adopting SFAS 158 was not material to the Companys
consolidated results of operations and financial condition.
In September 2006, the FASB issued FSP AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG AIR-1). The
FSP prohibits companies from accruing the cost of planned major
maintenance in advance of the activities actually occurring. The
Company adopted the provisions of AUG AIR-1 beginning
July 1, 2006. The impact of adopting FSP AUG AIR-1 was not
material to the Companys consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
(SFAS 159). This Statement permits
companies, at their option, to choose to measure many financial
instruments and certain other items at fair value. If the option
to use fair value is chosen, the Standard requires additional
disclosures related to the fair value measurements included in
the financial statements. This Statement is effective on
July 1, 2008 for the Company. The Company is currently
evaluating the impact of adopting SFAS 159 on its results
of operations and financial position.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations.
The objective of this Statement is
to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity
provides in its financial reports about a business combination
and its effects. This Statement establishes principles and
requirements for how the acquirer (i) recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquired entity, (ii) recognizes and
measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and (iii) determines what
information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. This Statement applies prospectively to
business combinations for which the acquisition date is on or
after July 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). The
objective of this Statement is to improve the relevance,
comparability, and transparency of the financial information
that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This Statement is effective for
the Company on July 1, 2009. The Company is currently
assessing the potential effect of SFAS 160 on its financial
statements.
F-34
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
|
|
(3)
|
Business
Combinations
|
On November 12, 2006, the Company acquired 100% of the
outstanding stock of GMI. The results of GMI are included in the
consolidated financial statements from that date. The aggregate
purchase price was $134,064, comprised of 8.6 million
shares of GSM common stock valued at $47,961, cash of $33,220,
direct costs associated with the acquisition of $3,348, and
assumed debt of $49,535. The value of the common stock issued
was determined based on the average market price of GSMs
common stock over the
two-day
period before and after the terms of the acquisition were agreed
to and announced. Refer to note 1 (Organization and
Business Operations) for a description of GMIs business
and operations.
On November 20, 2006, the Company acquired 100% of the
outstanding stock of Stein. The aggregate purchase price was
$39,136, comprised of cash consideration of $34,476, direct
costs associated with the acquisition of $881, and assumed debt
of $3,779. The results of Stein are included in the consolidated
financial statements from that date. Refer to note 1
(Organization and Business Operations) for a description of
Steins business and operations.
On January 31, 2007, GSM acquired 100% of the outstanding
stock of CCM. The aggregate purchase price was $56,512,
comprised of cash consideration of $38,635, direct costs
associated with the acquisition of $1,084, debt assumed of
$14,393, and contingent consideration of $2,400. The results of
CCM are included in the consolidated financial statements from
that date. The contingent consideration represents 5,000
Brazilian Real relating to certain outstanding tax matters that,
when resolved, will be paid. Refer to note 1 (Organization
and Business Operations) for a description of CCMs
business and operations.
F-35
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
The following table reflects the preliminary purchase price
allocation associated with each acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
(In Years)
|
|
GMI
|
|
|
Stein
|
|
|
CCM
|
|
|
Current assets
|
|
|
|
$
|
39,884
|
|
|
|
21,167
|
|
|
|
31,863
|
|
Property, plant, and equipment
|
|
|
|
|
108,865
|
|
|
|
17,741
|
|
|
|
22,110
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Indefinite
|
|
|
31,355
|
|
|
|
17,172
|
|
|
|
|
|
Customer relationships
|
|
1
|
|
|
103
|
|
|
|
50
|
|
|
|
11
|
|
Software
|
|
1
|
|
|
94
|
|
|
|
|
|
|
|
|
|
Electricity contracts
|
|
3-11
|
|
|
|
|
|
|
2,830
|
|
|
|
7,026
|
|
Supplier contracts
|
|
2
|
|
|
|
|
|
|
|
|
|
|
337
|
|
Trade names
|
|
Indefinite
|
|
|
316
|
|
|
|
288
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
3,215
|
|
|
|
550
|
|
|
|
16,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
|
|
183,832
|
|
|
|
59,798
|
|
|
|
77,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
33,680
|
|
|
|
15,486
|
|
|
|
27,217
|
|
Noncurrent liabilities
|
|
|
|
|
65,623
|
|
|
|
8,955
|
|
|
|
8,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
|
|
99,303
|
|
|
|
24,441
|
|
|
|
35,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
84,529
|
|
|
|
35,357
|
|
|
|
42,119
|
|
Debt assumed
|
|
|
|
|
49,535
|
|
|
|
3,779
|
|
|
|
14,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
|
|
$
|
134,064
|
|
|
|
39,136
|
|
|
|
56,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of net assets acquired relating to the CCM
acquisition exceeded the purchase price. As such, the excess
cost has been allocated as a pro rata reduction to property,
plant, and equipment, purchased intangible assets and other
noncurrent assets.
The goodwill amount has been assigned to the silicon metal and
silicon-based specialty alloys operating segment, which is the
Companys only business segment.
|
|
(d)
|
Unaudited
Pro Forma Financial Information
|
The unaudited pro forma financial information in the table below
summarizes the combined results of operations of GSM and the
acquired companies of GMI, Stein and CCM, on a pro forma basis,
as though the companies had been combined as of the beginning of
the fiscal year presented. The unaudited pro forma financial
information for fiscal 2007 combines the historical results of
operations of GSM for fiscal 2007, which includes the results of
operations of GMI, Stein and CCM subsequent to each
companys respective acquisition date, and the historical
results of operations of GMI, Stein and CCM for the period from
July 1, 2006 to each companys respective acquisition
date.
This information is presented for informational purposes only
and is not indicative of the results of operations that would
have been achieved if the acquisitions of GMI, Stein and CCM had
taken place at the beginning of the fiscal year presented. The
unaudited pro forma financial information includes the purchase
accounting adjustments on historical GMI, Stein and CCM
inventory balances, adjustments to depreciation on acquired
property, plant, and equipment, adjustments to amortization
expense for acquired intangible assets, adjustments to sales for
customer contract liabilities, adjustments to interest income,
and related tax effects, as well as other adjustments made in
purchase accounting.
F-36
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
The following table summarizes the unaudited pro forma financial
information as if the GMI, Stein and CCM acquisitions were
consummated on July 1, 2006:
|
|
|
|
|
|
|
Unaudited
|
|
|
|
2007
|
|
|
Net sales
|
|
$
|
350,565
|
|
Net income attributable to common stock
|
|
|
8,273
|
|
Earnings per common share:
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
Diluted
|
|
|
0.16
|
|
Inventories comprise the following:
|
|
|
|
|
Finished goods
|
|
$
|
12,563
|
|
Work in process
|
|
|
778
|
|
Raw materials
|
|
|
18,277
|
|
Parts and supplies
|
|
|
7,475
|
|
|
|
|
|
|
Total inventory
|
|
$
|
39,093
|
|
|
|
|
|
|
At June 30, 2007, $26,545 in inventory is valued using the
first-in,
first-out method and $12,548 using the average cost method.
|
|
(5)
|
Prepaid
Expenses and Other Current Assets
|
Prepaid expenses and other current assets at June 30, 2007
were as follows:
|
|
|
|
|
Deferred taxes
|
|
$
|
4,762
|
|
Other
|
|
|
7,677
|
|
|
|
|
|
|
Total
|
|
$
|
12,439
|
|
|
|
|
|
|
|
|
(6)
|
Property,
Plant, and Equipment
|
Property, plant, and equipment, net of accumulated depreciation,
comprise the following:
|
|
|
|
|
Land and improvements
|
|
$
|
11,368
|
|
Building and improvements
|
|
|
18,434
|
|
Machinery and equipment
|
|
|
32,604
|
|
Furnaces
|
|
|
83,546
|
|
Other
|
|
|
9,043
|
|
Construction in progress
|
|
|
2,351
|
|
|
|
|
|
|
Property, plant, and equipment, gross
|
|
|
157,346
|
|
Less accumulated depreciation
|
|
|
(7,698
|
)
|
|
|
|
|
|
Property, plant, and equipment, net of accumulated depreciation
|
|
$
|
149,648
|
|
|
|
|
|
|
Depreciation expense for the year ended June 30, 2007 was
$8,470, including $772 of depreciation associated with land
reclamation activities. Depreciation expense of $7,665 is
recorded in Cost of Goods Sold and $805 is recorded in Selling,
General, and Administrative Expenses.
F-37
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
|
|
(7)
|
Goodwill
and Other Intangibles
|
Goodwill and other intangibles presented below have been
allocated to the silicon metal and silicon-based specialty
alloys operating segment, which is the Companys sole
operating segment.
The changes in goodwill for the year ended June 30, 2007
are as follows:
|
|
|
|
|
Balance as of July 1, 2006
|
|
$
|
|
|
Acquisition of GMI
|
|
|
31,355
|
|
Acquisition of Stein
|
|
|
17,172
|
|
Acquisition of CCM
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2007
|
|
$
|
48,527
|
|
|
|
|
|
|
|
|
(b)
|
Other
Intangible Assets
|
The carrying amounts of other intangible assets at June 30,
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity contracts
|
|
$
|
9,574
|
|
|
|
(1,915
|
)
|
|
|
7,659
|
|
Customer relationships
|
|
|
164
|
|
|
|
(103
|
)
|
|
|
61
|
|
Supplier contracts
|
|
|
337
|
|
|
|
(94
|
)
|
|
|
243
|
|
Software
|
|
|
94
|
|
|
|
(59
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite lived intangible assets
|
|
|
10,169
|
|
|
|
(2,171
|
)
|
|
|
7,998
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
604
|
|
|
|
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,773
|
|
|
|
(2,171
|
)
|
|
|
8,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of purchased intangible assets was $2,171
for the year ended June 30, 2007 of which $1,946 is
recorded in Cost of Goods Sold and $225 is recorded in Selling,
General, and Administrative Expenses.
The estimated future amortization expense of purchased
intangible assets as of June 30, 2007 are as follows:
|
|
|
|
|
2008
|
|
$
|
4,022
|
|
2009
|
|
|
1,469
|
|
2010
|
|
|
711
|
|
2011
|
|
|
426
|
|
2012
|
|
|
361
|
|
Thereafter
|
|
|
1,009
|
|
|
|
(c)
|
Customer
Contract Liability
|
The Company has certain noncancelable executory customer
contracts purchased as part of the GMI and CCM acquisitions with
future cash flows below market rates. A $7,234 liability was
included in Other Long-Term Liabilities and is being amortized
over the contractual term of the individual contracts. As of
June 30, 2007, $3,849 of this liability has been amortized
and included in net sales.
F-38
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
|
|
(8)
|
Investments
in Affiliates
|
Investments in affiliates comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Ownership
|
|
|
June 30,
|
|
|
|
Interest
|
|
|
2007
|
|
|
Equity method investment:
|
|
|
|
|
|
|
|
|
Norchem, Inc.
|
|
|
50.00
|
%
|
|
$
|
1,589
|
|
Other investments Inversora Nihuiles S.A(a)
|
|
|
9.75
|
%
|
|
|
3,062
|
|
Inversora Diamante S.A.(b)
|
|
|
8.40
|
%
|
|
|
2,901
|
|
|
|
|
|
|
|
|
|
|
Total investments in affiliates
|
|
|
|
|
|
$
|
7,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This entity owns a 51% interest in Hidroelectrica Los Nihuiles
S.A., which is a hydroelectric company in Argentina.
|
|
(b)
|
|
This entity owns a 59% interest in Hidroelectrica Diamante S.A.,
which is a hydroelectric company in Argentina.
|
Equity loss from our Norchem, Inc. investment was $(23) for the
year ended June 30, 2007, which is included in Other
Expense.
Short-term debt comprised the following at June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Unused
|
|
|
|
Balance
|
|
|
Interest Rate
|
|
|
Credit Line
|
|
|
Type debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
$
|
11,685
|
|
|
|
8.98
|
%
|
|
$
|
18,465
|
|
Export financing
|
|
|
11,185
|
|
|
|
5.33
|
|
|
|
|
|
Other
|
|
|
580
|
|
|
|
7.18
|
|
|
|
2,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,450
|
|
|
|
|
|
|
$
|
20,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Agreements
A summary of the
Companys revolving credit agreements follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Unused
|
|
|
Total
|
|
|
|
Balance
|
|
|
Commitment
|
|
|
Commitment
|
|
|
Fortis credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
GMI(a)
|
|
$
|
4,075
|
|
|
|
17,425
|
|
|
|
21,500
|
|
GMI(b)
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
Bank credit facilities Argentina(c)
|
|
|
1,610
|
|
|
|
1,040
|
|
|
|
2,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,685
|
|
|
|
18,465
|
|
|
|
30,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This GMI credit facility expires November 2009. Interest accrues
at LIBOR or prime, at the Companys option, plus an
applicable margin percentage. At June 30, 2007, the
interest rate on this revolver was 9.8%, equal to prime plus
1.5%. This credit facility is secured by substantially all of
the assets of GMI and is subject to certain covenant
restrictions.
|
|
(b)
|
|
This GMI credit facility expires November 2009. Interest accrues
at prime plus 1.5%. At June 30, 2007, the interest rate on
this revolver was 7.8%. This credit facility is secured by
substantially all of the assets of GMI and is subject to certain
covenant restrictions.
|
F-39
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
|
|
|
(c)
|
|
The Companys Argentine subsidiary maintains three,
six-month unsecured revolving credit agreements. Interest
accrues at 11.0 to 11.5%.
|
Export Financing Agreements
The
Companys Argentine and Brazilian subsidiaries maintain
various short-term export financing arrangements. The terms of
these agreements are generally between six and twelve months.
Interest accrues at rates ranging from 4.1 to 7.0%. Certain
export accounts receivable balances are pledged as collateral
against these borrowings.
|
|
|
|
|
|
|
Outstanding
|
|
|
|
Balance
|
|
|
Fortis senior term loan
|
|
$
|
24,750
|
|
SPV Capital Funding, Inc. junior term loan
|
|
|
8,500
|
|
SPV Capital Funding, Inc. junior term loan
|
|
|
8,500
|
|
Export financing
|
|
|
9,028
|
|
Other
|
|
|
1,649
|
|
|
|
|
|
|
Total long-term debt
|
|
|
52,427
|
|
Less current portion of long-term debt
|
|
|
(6,370
|
)
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$
|
46,057
|
|
|
|
|
|
|
Senior Term Loan
Loan principal and
interest payments are due in quarterly installments of $750 plus
interest at LIBOR or prime, at the Companys option, plus
an applicable margin percentage. The interest rate on this loan
was 9.07% at June 30, 2007. The unpaid principal balance is
due in full in November 2010. The loan is secured by
substantially all of the assets of GMI and is subject to certain
restrictive and financial covenants which include limits on
additional debt, restrictions on capital expenditures,
restrictions on dividend and other equity distributions, and
certain minimum interest, debt service, and leverage ratios. The
Company was in compliance with these loan covenants at
June 30, 2007, except that the Company has received a
waiver with respect to the timing of delivery of select
financial statements and certain lien restrictions.
The Company has entered into an interest rate swap to fix the
LIBOR on approximately 50% of the outstanding balance. Refer to
the related discussion in note 2 (Summary of Significant
Accounting Policies Financial Instruments).
Junior Subordinated Term Loans
These loans
with a related party mature in full in November 2011. Interest
on one loan accrues quarterly at prime plus 3.25%, with the
aggregate rate not to be less than 10.25%. Interest on the other
loan accrues monthly at LIBOR plus 8%. The interest rates on
these loans were 11.50% and 13.32%, respectively, at
June 30, 2007. Both of these loans are secured by
substantially all of the assets of GMI on a subordinated basis
and are subject to certain loan covenant restrictions. The
Company was in compliance with the loan covenants at
June 30, 2007, except that the Company has received a
waiver with respect to the timing of delivery of select
financial statements, as well as certain notice requirements and
lien restrictions.
Export Financing
The Companys
subsidiary, Metais, maintains three long-term export financing
arrangements with three banks in Brazil. At June 30, 2007,
interest on the $3,918 and $1,052 balances outstanding accrues
quarterly at the rate of 6.50% and 8.13%, respectively. Interest
on the $4,058 balance outstanding accrues quarterly at LIBOR
plus 1.25%.
The following table shows debt maturities by fiscal year at
June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Total
|
|
|
$
|
6,370
|
|
|
|
10,117
|
|
|
|
3,150
|
|
|
|
15,790
|
|
|
|
17,000
|
|
|
|
52,427
|
|
F-40
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
At June 30, 2007, the recorded carrying values of our debt
balances approximate fair market value given the majority of our
debt is at variable rates tied to market indicators or
short-term in nature.
|
|
(10)
|
Accrued
Expenses and Other Current Liabilities
|
Accrued expenses and other current liabilities at June 30,
2007 were as follows:
|
|
|
|
|
Accrued salaries, wages and benefits
|
|
$
|
6,139
|
|
Deferred taxes
|
|
|
2,280
|
|
Accrued income taxes
|
|
|
2,071
|
|
Accrued property taxes
|
|
|
1,062
|
|
Accrued legal fees
|
|
|
734
|
|
Other
|
|
|
3,392
|
|
|
|
|
|
|
Total
|
|
$
|
15,678
|
|
|
|
|
|
|
|
|
(11)
|
Pension
and Other Employee Benefit Plans
|
|
|
(a)
|
Defined
Benefit Pension Plans
|
The Companys subsidiary, GMI, which was acquired on
November 12, 2006, sponsors three noncontributory defined
benefit pension plans covering certain domestic employees. These
plans were frozen in 2003.
The Companys funding policy has been to contribute, as
necessary, an amount in excess of the minimum requirements in
order to achieve the Companys long-term funding targets.
In fiscal 2007, the Company made contributions of $473 to the
domestic pension plans.
We use a June 30 measurement date for these defined benefit
pension plans.
F-41
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
Obligation and Funded Status
The following
provides a reconciliation of benefit obligations, plan assets
and funded status of the plans at June 30, 2007:
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
Benefit obligation at November 13, 2006
|
|
$
|
20,081
|
|
Interest cost
|
|
|
701
|
|
Actuarial gains
|
|
|
(608
|
)
|
Benefits paid
|
|
|
(662
|
)
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
19,512
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
Fair value of plan assets at November 13, 2006
|
|
$
|
17,518
|
|
Actual gain on plan assets
|
|
|
1,061
|
|
Employer contributions
|
|
|
473
|
|
Benefits paid
|
|
|
(662
|
)
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
18,390
|
|
|
|
|
|
|
Funded status at end of year:
|
|
|
|
|
Fair value of plan assets
|
|
$
|
18,390
|
|
Benefit obligation
|
|
|
(19,512
|
)
|
|
|
|
|
|
Funded status
|
|
$
|
(1,122
|
)
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consist of:
|
|
|
|
|
Noncurrent liability
|
|
$
|
(1,122
|
)
|
Amounts recognized in accumulated other comprehensive income at
end of year consist of:
|
|
|
|
|
Net actuarial gain
|
|
|
832
|
|
The accumulated benefit obligation for defined benefit pension
plans was $19,512 at June 30, 2007.
The following information is presented for pension plans where
the projected benefit obligation and accumulated benefit
obligation as of June 30, 2007 exceeded the fair value of
plan assets:
|
|
|
|
|
Projected benefit obligation / accumulated benefit obligation
|
|
$
|
16,715
|
|
Fair value of plan assets
|
|
|
15,524
|
|
Net Periodic Pension Expense
The components
of net periodic pension expense for the defined benefit pension
plans follow:
|
|
|
|
|
Interest cost
|
|
$
|
701
|
|
Expected return on plan assets
|
|
|
(923
|
)
|
Amortization of net loss
|
|
|
86
|
|
|
|
|
|
|
Net periodic benefit
|
|
$
|
(136
|
)
|
|
|
|
|
|
During the year ended June 30, 2008, the Company expects to
recognize $87 in pre-tax accumulated other comprehensive loss,
relating entirely to net losses, as net pension cost.
Assumptions and Other Data
The weighted
average assumptions used to determine benefit obligations at
June 30, 2007 follow:
F-42
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
The weighted average assumptions used to determine net periodic
benefit cost for year ended June 30, 2007 follow:
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
Expected return on plan assets
|
|
|
8.50
|
|
Expected return on plan assets is determined based on historical
results adjusted for anticipated market movements.
The Company expects to contribute approximately $1,054 to the
plans for the year ended June 30, 2008.
The following reflects the gross benefit payments which are
expected to be paid for the domestic pension plans the years
ended June 30:
|
|
|
|
|
2008
|
|
$
|
1,071
|
|
2009
|
|
|
1,115
|
|
2010
|
|
|
1,184
|
|
2011
|
|
|
1,199
|
|
2012
|
|
|
1,221
|
|
Years
2013-2016
|
|
|
6,473
|
|
The Companys overall strategy is to invest in high-grade
securities and other assets with a limited risk of market value
fluctuation. In general, the Companys goal is to maintain
the following allocation ranges:
|
|
|
|
|
Equity securities
|
|
|
55-70
|
%
|
Fixed income securities
|
|
|
30-40
|
%
|
Real estate
|
|
|
5-10
|
%
|
The weighted average asset allocation for the pension plans at
June 30, 2007 by asset category follows:
|
|
|
|
|
Equity securities
|
|
|
63.3
|
%
|
Fixed income securities
|
|
|
31.6
|
|
Real estate
|
|
|
4.6
|
|
Other
|
|
|
0.5
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
|
|
|
The Company administers healthcare benefits for certain retired
employees through a separate welfare plan requiring
reimbursement from the retirees.
The Company provides two defined contribution plans (401(k)
plans) that allow for employee contributions on a pre-tax basis.
Employer contributions have been suspended.
Other benefit plans offered by the Company include a
Section 125 Cafeteria Plan for the pre-tax payment of
healthcare costs and a flexible spending arrangement.
The sources of income before provision for income taxes and
deferred interest attributable to common stock subject to
redemption for the year ended June 30, 2007 were as follows:
|
|
|
|
|
U.S. operations
|
|
$
|
19,288
|
|
Non-U.S.
operations
|
|
|
361
|
|
F-43
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
Our tax provision consists of the following:
|
|
|
|
|
|
|
June 30, 2007
|
|
|
Current:
|
|
|
|
|
Federal
|
|
$
|
4,419
|
|
State
|
|
|
1,118
|
|
Foreign
|
|
|
340
|
|
|
|
|
|
|
Total current
|
|
|
5,877
|
|
Deferred:
|
|
|
|
|
Federal
|
|
|
633
|
|
State
|
|
|
348
|
|
Foreign
|
|
|
189
|
|
|
|
|
|
|
Total deferred
|
|
|
1,170
|
|
|
|
|
|
|
Total tax provision
|
|
$
|
7,047
|
|
|
|
|
|
|
The following is a reconciliation, stated in percentage, of the
U.S. statutory federal income tax rate to our effective tax
rate:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30, 2007
|
|
|
Federal statutory rate
|
|
|
35.0
|
|
State taxes, net of federal benefit
|
|
|
4.9
|
|
Income from tax exempt investments
|
|
|
(5.4
|
)
|
Foreign rate differential
|
|
|
1.9
|
|
Other items
|
|
|
(0.5
|
)
|
|
|
|
|
|
Effective tax rate
|
|
|
35.9
|
|
|
|
|
|
|
F-44
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
Significant components of the Companys deferred tax assets
and deferred tax liabilities at June 30, 2007 consist of
the following:
|
|
|
|
|
|
|
June 30, 2007
|
|
|
Deferred tax assets:
|
|
|
|
|
Inventory reserves
|
|
$
|
998
|
|
Accruals
|
|
|
2,983
|
|
Net operating losses and other carryforwards
|
|
|
40,748
|
|
Intangibles
|
|
|
1,050
|
|
Other assets
|
|
|
1,467
|
|
Share-based compensation
|
|
|
237
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
47,483
|
|
Valuation allowance
|
|
|
(31,830
|
)
|
|
|
|
|
|
Net deferred tax assets
|
|
|
15,653
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Fixed assets
|
|
|
(23,879
|
)
|
Accounts receivable
|
|
|
(604
|
)
|
Investments
|
|
|
(525
|
)
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(25,008
|
)
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(9,355
|
)
|
|
|
|
|
|
During the year ended June 30, 2007, the Company adopted a
policy of permanent reinvestment of earnings from foreign
subsidiaries in accordance with APB Opinion No. 23,
Accounting for Income Taxes Special Areas
(APB 23). As a result, U.S. taxes have not been
provided on unremitted earnings of our foreign subsidiaries.
Unremitted earnings of foreign subsidiaries are determined to be
permanently reinvested in accordance with APB 23.
The Company has tax benefits for net operating loss
carryforwards (NOLs) which expire at various dates in the
future. The Companys NOLs and expiration dates at
June 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Expires
|
|
Federal
|
|
$
|
10,987
|
|
|
Various dates through 2026
|
State
|
|
|
2,076
|
|
|
Various dates
|
Foreign
|
|
|
26,263
|
|
|
No expiration
|
The Company maintains a valuation allowance for the entire
amount of our Brazil and Poland NOLs. The Company decreased our
valuation allowance during the year by $282 which was reflected
as a reduction in the intangible assets related to Brazil. The
total valuation allowance at June 30, 2007 is $31,830 and
consists of the following:
|
|
|
|
|
Federal NOLs
|
|
$
|
3,848
|
|
State NOLs
|
|
|
292
|
|
Foreign NOLs
|
|
|
26,263
|
|
Federal credits
|
|
|
1,336
|
|
Capital loss carryover
|
|
|
91
|
|
F-45
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
|
|
(13)
|
Commitments
and Contingencies
|
The Companys subsidiary, GMI, was sued by Westbrook
Resources Limited, an English company, in respect of an alleged
failure by GMI to perform under a contract entered into in
January 2005 to acquire 30,000 tons of manganese ore. There is a
counter claim by GMI against Westbrook in respect to the same
subject matter whereby GMI maintains that the quality, quantity
and delivery schedules maintained by Westbrook were in breach of
the contract. The case went to trial in June 2007, and a
judgment was rendered in November 2007 in favor of Westbrook for
a sum to be assessed. The assessment hearing will take place
early in 2008. Westbrook is seeking damages of approximately
$2,750 and reimbursement of legal costs of approximately GBP500.
Management intends to appeal any such judgment but there is no
assurance that GMI will be successful in its appeal. GMI has
reserved a total of $3,800 related to this contingency at
June 30, 2007.
We are subject to various lawsuits, claims and proceedings that
arise in the normal course of business, including employment,
commercial, environmental, safety and health matters. Although
it is not presently possible to determine the outcome of these
matters, in the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on our
consolidated financial position, results of operations, or
liquidity.
|
|
(b)
|
Environmental
Contingencies
|
It is our policy to accrue for costs associated with
environmental assessments, remedial efforts or other
environmental liabilities when it becomes probable that a
liability has been incurred and the costs can be reasonably
estimated. When a liability for environmental remediation is
recorded, such amounts will be recorded without giving effect to
any possible future recoveries. At June 30, 2007, there are
no liabilities recorded for environmental contingencies. With
respect to the cost for ongoing environmental compliance,
including maintenance and monitoring, such costs are expensed as
incurred.
The Company is subject to income taxes in the United States and
other foreign jurisdictions. In the ordinary course of business,
there are transactions and calculations that involve uncertain
tax implications. Accruals for tax contingencies are provided
for in accordance with the requirements of SFAS No. 5,
Accounting for Contingencies.
The Company believes that
it has adequate support for the positions taken on its tax
returns and that adequate provisions have been made for all
outstanding issues for all jurisdictions and all open years.
F-46
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
Electric power is a major cost of the Companys production
process, as large amounts of electricity are required to operate
arc furnaces. A summary of electric power purchase commitments
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Facility
|
|
Supplier
|
|
Terms
|
|
Structure
|
|
Capacity
|
|
Beverly, Ohio
|
|
American Electric
Power
|
|
Evergreen, 1-year
termination notice
|
|
Published tariff rate
|
|
2.5 MW firm
85 MW
interruptible
|
Breu Branco, Brazil
|
|
Electronorte
|
|
Through June 30, 2018
|
|
Fixed rate until
June 2008,
afterwards
captive regulated
price with
specified discount
|
|
73 MW
|
Mendoza, Argentina
|
|
EDEMSA
|
|
Through October 31, 2009
|
|
Specified discount
from price
established by
CAMMESA
|
|
24 MW
|
Selma, Alabama
|
|
Alabama Power
|
|
Evergreen, 1-year
termination notice
|
|
Published tariff rate
|
|
43 MW
|
Alloy, West Virginia
|
|
Appalachian Power
|
|
Through December 31, 2007,
with option to renew for
1-year
|
|
Published tariff rate
|
|
75 MW
|
Alloy, West Virginia
|
|
Brookfield Power
|
|
Through December 31, 2021
|
|
Fixed rate
|
|
100 MW
|
|
|
(e)
|
Operating
Lease Commitments
|
The Company leases certain machinery and equipment, automobiles
and rail cars. For the year ended June 30, 2007, lease
expense was $281.
Minimum rental commitments under noncancelable leases
outstanding at June 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
$
|
947
|
|
|
|
1,317
|
|
|
|
855
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
(14)
|
Stockholders
Equity
|
The Company is authorized to issue 1 million shares of
preferred stock with such designations, voting and other rights
and preferences as may be determined from time to time by the
Board of Directors. To date, no preferred stock has been issued
by the Company.
|
|
(b)
|
Conversion
and Redemption of Common Stock
|
Under the provisions of the Companys amended and restated
certificate of incorporation, any stockholder who voted against
the Companys acquisition of GMI had the option to demand
that the Company convert common stock held by the dissenting
stockholder to cash. In addition, the Companys Board of
Directors opted to permit each stockholder holding offering
shares to vote for the business combination while at
the same time electing to redeem his shares for cash.
Approximately 8.4% of stockholders voted against the GMI
acquisition and approximately 9.8% voted for the acquisition but
elected to redeem their shares. A total of 7,528,857 of common
shares were redeemed for cash payments totaling $42,802. As of
June 30, 2006, 6,699,999 of the redeemed shares were
recorded outside of permanent equity. The redemption of the
additional 828,858 shares was treated as a reduction of
stockholders equity in fiscal 2007.
F-47
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
In connection with the Companys initial public offering on
October 3, 2005, the Company sold 33,500,000 units
(individually, Unit) in the offering at a price of $6.00 per
Unit, generating gross offering proceeds of $201,000. Each Unit
consisted of one share of the Companys common stock,
having a par value of $0.0001 per share, and two redeemable
common stock purchase warrants. The warrants became exercisable
at the later of the completion of a business combination or
October 3, 2006. With the acquisition of GMI completed on
November 13, 2006, the warrants became exercisable at that
date. The warrants have an exercise price of $5.00 per common
share, and expire on October 3, 2009.
During the fiscal year, the Company executed public and private
tender offers to repurchase, redeem or convert outstanding
warrants. As a result of these tender offers, 47,353,912 of the
67,000,000 warrants issued in connection with the Companys
initial public offering were repurchased, redeemed or converted,
resulting in remaining outstanding warrants of 19,646,088 at
June 30, 2007. The tender offers resulted in the issuance
of additional 14,201,302 shares of common stock and
proceeds of $19,458.
Also in connection with its initial public offering, the Company
issued, for minimal consideration, an option to the
representative of the underwriters to purchase
1,675,000 units (individually, UPO) at an exercise price of
$7.50 per UPO. Each UPO consists of one share of the
Companys common stock, having a par value of $0.0001 per
share, and two redeemable common stock purchase warrants. The
warrants became exercisable at the later of the completion of a
business combination or October 3, 2006. With the
acquisition of GMI completed on November 13, 2006, the
warrants became exercisable at that date. The warrants have an
exercise price of $5.00 per common share, and expire on
October 3, 2009. At June 30, 2007, all 1,675,000 UPOs
remain outstanding.
The Company has accounted for all warrant transactions as a
component of stockholders equity.
A cash dividend of $0.07 per share was declared for shareholders
of record as of November 17, 2006. The $3.3 million
dividend was distributed on December 8, 2006.
Basic earnings per common share is based on the weighted average
number of common shares outstanding during the year ended
June 30, 2007. Diluted earnings per common share assumes
the exercise of stock options, the conversion of warrants, and
the exercise of the UPOs, provided in each case the effect is
dilutive.
The reconciliation of the amounts used to compute basic and
diluted earnings per common share follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Weighted
|
|
|
Per Common
|
|
|
|
Attributable to
|
|
|
Average
|
|
|
Share
|
|
|
|
Common Stock
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic earnings per common share
|
|
$
|
11,834
|
|
|
|
46,922,343
|
|
|
$
|
0.25
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
3,308,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
11,834
|
|
|
|
50,231,313
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following potential common shares were excluded from the
calculation of diluted earnings per common share because their
exercise price was greater than the average market price for the
period presented:
|
|
|
|
|
Stock options
|
|
|
1,220,000
|
|
UPOs
|
|
|
5,025,000
|
|
|
|
|
|
|
Total
|
|
|
6,245,000
|
|
|
|
|
|
|
F-48
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
|
|
(16)
|
Share-Based
Compensation
|
The Companys share-based compensation program comprises
the Globe Specialty Metals, Inc. 2006 Employee, Director and
Consultant Stock Plan (the Stock Plan), which was approved by
the Companys stockholders on November 10, 2006. The
Stock Plan provides for the issuance of a maximum of
5,000,000 shares of common stock for the granting of
incentive stock options, nonqualified options, stock grants and
stock-based awards. Any remaining shares available for grant,
but not yet granted, will be carried over and used in the
following year. During the year ended June 30, 2007,
share-based compensation awards were limited to the issuance of
nonqualified stock options. No other share-based compensation
awards were issued.
At June 30, 2007, there were 3,780,000 shares
available for grant. All option grants to date vest and become
exercisable in equal one-third increments on the first, second,
and third anniversaries of the date of grant and have maximum
contractual terms ranging from 5 to 10 years.
A summary of the changes in options outstanding, all of which
are nonvested and not exercisable, under the Stock Plan for the
year ended June 30, 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term in Years
|
|
|
Value
|
|
|
As of July 1, 2006
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,220,000
|
|
|
|
7.88
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
1,220,000
|
|
|
$
|
7.88
|
|
|
|
5.28
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of stock options
granted during the year was $1.71.
The Company estimates the fair value of grants using the
Black-Scholes option pricing model. The following assumptions
were used to estimate the fair value of stock option awards for
the year ended June 30, 2007:
|
|
|
|
|
Risk-free interest rate
|
|
|
4.84%-4.97
|
%
|
Expected dividend yield
|
|
|
|
|
Expected volatility
|
|
|
43.00
|
|
Expected forfeiture rate
|
|
|
|
|
Expected term (years)
|
|
|
4.0 to 6.5
|
|
Weighted average per share fair value of
|
|
|
|
|
stock option grants at June 30, 2007
|
|
|
$2.57
|
|
The risk-free interest rate is based on the yield of zero coupon
U.S. Treasury bonds with terms similar to the expected term
of the options. The expected dividend yield is zero based on our
current expectation to not pay dividends to the Companys
common stockholders for the foreseeable future. Since there is
limited historical trading data related to the Companys
common stock, the expected volatility over the term of the
options is estimated using the historical volatilities of
similar companies. Given that the options granted are under a
new plan and that there is relatively no historical data, the
expected forfeiture rate is zero, and the expected term is the
average of the vesting period and contractual term.
For the year ended June 30, 2007, share-based compensation
expense was $512 ($312 after tax). The expense is reported
within Selling, General, and Administrative Expenses. The
Company has recorded its $512 liability for share-based
compensation expense within Other Long-Term Liabilities.
F-49
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
As of June 30, 2007, the Company has unearned compensation
expense of $2,628, before income taxes, related to nonvested
stock option awards. This expense will be recognized over a
weighted average period of 3 years. The unrecognized
compensation expense is expected to be recognized over the
following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Share-based compensation cost (pre-tax)
|
|
$
|
1,047
|
|
|
|
1,047
|
|
|
|
534
|
|
It is the Companys policy to issue new shares to satisfy
the requirements of its share-based compensation plans. The
Company does not expect to repurchase shares in the future to
support our share-based compensation plans.
|
|
(17)
|
Related
Party Transactions
|
From time to time, the Company enters into transactions in the
normal course of business with related parties. Management
believes that such transactions are at arms length and for
terms that would have been obtained from unaffiliated third
parties.
Two members of the Board of Directors are affiliated with Marco
International, MI Capital, and Marco Realty. During fiscal 2007,
the Company:
|
|
|
|
|
Recognized $421 in interest expense on an $8.5 million
financing arrangement entered into on November 10, 2005
between MI Capital and GMI. On April 17, 2007, the loan was
sold to D.E. Shaw.
|
|
|
|
Paid Marco Realty $105 to rent office space for its corporate
headquarters in New York City, New York.
|
|
|
|
Entered into agreements with Marco International to purchase
graphitized carbon electrodes. Marco International billed GMI
$4,847 under these agreements.
|
|
|
|
Entered into an agreement to sell 1,152 metric tons of calcium
silicon powder to Marco International. Marco International
agreed to pay 80% of the price in advance in return for interest
at LIBOR + 5.0%. Interest was payable until Marco International
was paid by its customer. As of June 30, 2007, sales under
this agreement totaled $1,438. Interest paid to Marco
International totaled $45. At June 30, 2007, Metales owed
$111 under the agreement.
|
Alan Kestenbaum, Chief Executive Officer, and Arden Sims, Chief
Operating Officer, are affiliated with Solsil, Inc. (Solsil).
During fiscal 2007, the Company:
|
|
|
|
|
Earned $2,205 under an operating and lease agreement in which
Solsil is provided administrative and operating support, plus
facility space. At June 30, 2007, Solsil owed $1,186 under
the agreement.
|
|
|
|
Sold $1,512 in
S-1
metallurgical grade silicon grade material to Solsil under a
supply agreement that ends in December 2026. As of June 30,
2007, Solsil owed $571 under the agreement.
|
|
|
|
Purchased $954 in silicon from Solsil. At June 30, 2007,
GMI owed $137 under the agreement.
|
The Company is affiliated with Norchem through its 50.0% equity
interest. During the year, the Company sold Norchem product
valued at $2,403. At June 30, 2007, receivables from
Norchem totaled $711.
D.E. Shaw is a shareholder of the Company. The Company has
outstanding financing arrangements totaling $17.0 million
with D.E. Shaw at June 30, 2007, including the loan
purchased from M.I. Capital discussed above. Interest
expense on these financing arrangements totaled $928 during the
year ended June 30, 2007.
F-50
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
We operate in one reportable segment, silicon metal and
silicon-based specialty alloys.
Included in the consolidated financial statements are the
following amounts related to geographic data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Operating
|
|
|
Long-Lived
|
|
|
|
Net Sales
|
|
|
Amortization
|
|
|
Income
|
|
|
Assets
|
|
|
United States
|
|
$
|
172,158
|
|
|
|
7,494
|
|
|
|
16,277
|
|
|
|
141,673
|
|
Argentina
|
|
|
18,633
|
|
|
|
1,180
|
|
|
|
756
|
|
|
|
36,242
|
|
Brazil
|
|
|
27,606
|
|
|
|
1,940
|
|
|
|
2,361
|
|
|
|
27,970
|
|
Poland
|
|
|
3,531
|
|
|
|
27
|
|
|
|
(249
|
)
|
|
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221,928
|
|
|
|
10,641
|
|
|
|
19,145
|
|
|
|
206,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales are attributed to geographical regions based upon the
location of the selling unit. Long-lived assets consist of
property, plant, and equipment, net of accumulated depreciation,
and goodwill and other intangible assets.
The following is a summary of the Companys major customers
and their respective percentages of consolidated net sales for
the year ended June 30, 2007:
|
|
|
|
|
Dow Corning
|
|
|
15
|
%
|
All other customers
|
|
|
85
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
The Company has two contracts with Dow Corning. The first
agreement is a
4-year
arrangement in which Dow Corning purchases 30,000 metric tons of
silicon metal per year through December 31, 2010. The
second arrangement is a
1-year
deal
for 6,000 metric tons ending December 31, 2007.
|
|
(19)
|
Parent
Company Condensed Financial Information
|
As discussed in note 9, the Companys subsidiary, GMI,
has long-term debt outstanding as of June 30, 2007 which
places restrictions on dividend and other equity distributions.
As GMIs restricted net assets represent a significant
portion of the Companys consolidated net assets, the
Company is presenting the following parent company only
condensed financial information:
F-51
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
GLOBE
SPECIALTY METALS, INC.
(Parent Company Only)
Condensed Balance Sheet
June 30, 2007
|
|
|
|
|
Assets
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,027
|
|
Prepaid expenses and other current assets
|
|
|
266
|
|
|
|
|
|
|
Total current assets
|
|
|
52,293
|
|
Investments in affiliates
|
|
|
153,874
|
|
Deferred tax assets
|
|
|
237
|
|
Due from affiliates
|
|
|
19,724
|
|
Other assets
|
|
|
833
|
|
|
|
|
|
|
Total assets
|
|
$
|
226,961
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
11
|
|
Due to affiliates
|
|
|
190
|
|
Accrued expenses and other current liabilities
|
|
|
1,212
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,413
|
|
Long-term liabilities:
|
|
|
|
|
Other long-term liabilities
|
|
|
2,927
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,340
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
Common stock, $0.0001 par value. Authorized
150,000,000 shares; issued and outstanding
56,672,188 shares
|
|
|
5
|
|
Additional paid-in capital
|
|
|
211,861
|
|
Retained earnings
|
|
|
10,178
|
|
Accumulated other comprehensive income
|
|
|
577
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
222,621
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
226,961
|
|
|
|
|
|
|
F-52
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
GLOBE
SPECIALTY METALS, INC.
(Parent Company Only)
Condensed Income Statement
Year ended June 30, 2007
|
|
|
|
|
Equity in income from operating subsidiaries, net of tax
|
|
$
|
10,344
|
|
Selling, general, and administrative expenses
|
|
|
(3,040
|
)
|
Interest income
|
|
|
5,243
|
|
|
|
|
|
|
Income before income taxes and deferred interest attributable to
common stock subject to redemption
|
|
|
12,547
|
|
Income tax benefit
|
|
|
55
|
|
|
|
|
|
|
Net income before deferred interest attributable to common stock
subject to redemption
|
|
|
12,602
|
|
Deferred interest attributable to common stock subject to
redemption
|
|
|
(768
|
)
|
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
11,834
|
|
|
|
|
|
|
F-53
GLOBE
SPECIALTY METALS, INC.
AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial
Statements (Continued)
June 30, 2007
(Dollars in thousands, except per share amounts)
GLOBE
SPECIALTY METALS, INC.
(Parent Company Only)
Condensed Statement of Cash Flows
Year ended June 30, 2007
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income attributable to common stock
|
|
$
|
11,834
|
|
Adjustments to reconcile net income attributable to common stock
to
|
|
|
|
|
net cash used in operating activities:
|
|
|
|
|
Equity in income from operating subsidiaries
|
|
|
(10,344
|
)
|
Share-based compensation
|
|
|
512
|
|
Deferred taxes
|
|
|
(237
|
)
|
Deferred interest attributable to common stock subject to
redemption
|
|
|
768
|
|
Changes in assets and liabilities:
|
|
|
|
|
Increase in due from affiliates
|
|
|
(19,724
|
)
|
Increase in prepaid expenses and other current assets
|
|
|
(266
|
)
|
Decrease in accounts payable
|
|
|
(79
|
)
|
Increase in accrued expenses and other current liabilities
|
|
|
1,202
|
|
Increase in due to affiliates
|
|
|
190
|
|
Other operating cash flows
|
|
|
(827
|
)
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(16,971
|
)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Acquisition of businesses, net of cash acquired of $6,750
|
|
|
(92,581
|
)
|
Purchase of cash equivalents held in trust
|
|
|
(3,038
|
)
|
Funds released from trust
|
|
|
190,192
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
94,573
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Dividends paid
|
|
|
(3,257
|
)
|
Purchase of redeemed shares
|
|
|
(42,802
|
)
|
Proceeds from warrant tender program
|
|
|
19,458
|
|
Other financing activities
|
|
|
(970
|
)
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(27,571
|
)
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
50,031
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,996
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
52,027
|
|
|
|
|
|
|
F-54
Report of
Independent Registered Public Accounting Firm
The Board of Directors
Globe Specialty Metals, Inc.:
We have audited the accompanying balance sheets of Globe
Specialty Metals, Inc., formerly known as International Metal
Enterprises, Inc., as of December 31, 2004 and
December 31, 2005 and June 30, 2006, and the related
statements of operations, changes in stockholders equity
and cash flows for the period from December 23, 2004
(inception) to December 31, 2004, the year ended
December 31, 2005 and the six months ended June 30,
2006. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Globe Specialty Metals, Inc. as of December 31, 2004 and
2005 and June 30, 2006, and the results of its operations
and its cash flows for the periods then ended in conformity with
U.S. generally accepted accounting principles.
June 25, 2008
F-56
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Balance Sheets
June 30, 2006 and December 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,996,309
|
|
|
|
2,132,432
|
|
|
|
25,000
|
|
Investments held in trust, including trust interest receivable
|
|
|
187,104,616
|
|
|
|
184,952,629
|
|
|
|
|
|
Prepaid insurance
|
|
|
|
|
|
|
71,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
189,100,925
|
|
|
|
187,156,311
|
|
|
|
25,000
|
|
Deferred offering costs
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
189,100,925
|
|
|
|
187,156,311
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
90,205
|
|
|
|
53,723
|
|
|
|
|
|
Due to affiliates
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
Accrued expenses
|
|
|
10,000
|
|
|
|
31,407
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
100,205
|
|
|
|
85,130
|
|
|
|
76,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred underwriters fees
|
|
|
970,000
|
|
|
|
970,000
|
|
|
|
|
|
Common stock subject to possible redemption;
6,699,999 shares at $5.50 per share
|
|
|
36,820,000
|
|
|
|
36,820,000
|
|
|
|
|
|
Deferred interest attributable to common stock subject to
possible redemption
|
|
|
600,923
|
|
|
|
170,526
|
|
|
|
|
|
Commitments and contingencies (note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value. Authorized
150,000,000 shares, 150,000,000 shares and
75,000,000 shares at June 30, 2006 and
December 31, 2005 and 2004, respectively; issued and
outstanding 41,358,025 shares, 41,358,025 shares and
4,250,000 shares at June 30, 2006 and
December 31, 2005 and 2004, respectively
|
|
|
4,136
|
|
|
|
4,136
|
|
|
|
425
|
|
Additional paid-in capital
|
|
|
149,005,230
|
|
|
|
149,005,230
|
|
|
|
24,575
|
|
Retained earnings (accumulated deficit)
|
|
|
1,600,431
|
|
|
|
101,289
|
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
150,609,797
|
|
|
|
149,110,655
|
|
|
|
23,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
189,100,925
|
|
|
|
187,156,311
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-57
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Statements of Operations
Six months ended June 30, 2006, year ended
December 31, 2005
and period from December 23, 2004 (inception) to
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Trust investment income
|
|
$
|
2,151,987
|
|
|
|
852,629
|
|
|
|
|
|
Interest income
|
|
|
43,299
|
|
|
|
17,120
|
|
|
|
|
|
Formation and operating costs
|
|
|
(265,747
|
)
|
|
|
(596,834
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before provision for income taxes and deferred
interest attributable to common stock subject to possible
redemption
|
|
|
1,929,539
|
|
|
|
272,915
|
|
|
|
(1,100
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before deferred interest attributable to
common stock subject to possible redemption
|
|
|
1,929,539
|
|
|
|
272,915
|
|
|
|
(1,100
|
)
|
Deferred interest attributable to common stock subject to
possible redemption
|
|
|
(430,397
|
)
|
|
|
(170,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
1,499,142
|
|
|
|
102,389
|
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
41,358,025
|
|
|
|
16,026,518
|
|
|
|
7,858,025
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.04
|
|
|
|
0.01
|
|
|
|
0.00
|
|
See accompanying notes to financial statements.
F-58
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Statements of Changes in Stockholders Equity
Six months ended June 30, 2006, year ended
December 31, 2005
and period from December 23, 2004 (inception) to
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
deficit)
|
|
|
Equity
|
|
|
Common shares issued December 23, 2004
|
|
|
4,250,000
|
|
|
$
|
425
|
|
|
|
24,575
|
|
|
|
|
|
|
|
25,000
|
|
Net loss attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,100
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
4,250,000
|
|
|
|
425
|
|
|
|
24,575
|
|
|
|
(1,100
|
)
|
|
|
23,900
|
|
Stock dividends
|
|
|
3,608,025
|
|
|
|
361
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
Sale of 33,500,000 units, net of offering expenses
|
|
|
33,500,000
|
|
|
|
3,350
|
|
|
|
186,771,016
|
|
|
|
|
|
|
|
186,774,366
|
|
Net proceeds subject to possible redemption of
6,699,999 shares
|
|
|
|
|
|
|
|
|
|
|
(36,820,000
|
)
|
|
|
|
|
|
|
(36,820,000
|
)
|
Deferred underwriters fees
|
|
|
|
|
|
|
|
|
|
|
(970,000
|
)
|
|
|
|
|
|
|
(970,000
|
)
|
Net income attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,389
|
|
|
|
102,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
41,358,025
|
|
|
|
4,136
|
|
|
|
149,005,230
|
|
|
|
101,289
|
|
|
|
149,110,655
|
|
Net income attributable to common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,499,142
|
|
|
|
1,499,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
|
41,358,025
|
|
|
$
|
4,136
|
|
|
|
149,005,230
|
|
|
|
1,600,431
|
|
|
|
150,609,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements
F-59
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Statements of Cash Flows
Six months ended June 30, 2006, year ended
December 31, 2005
and period from December 23, 2004 (inception) to
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stock
|
|
$
|
1,499,142
|
|
|
|
102,389
|
|
|
|
(1,100
|
)
|
Adjustments to reconcile net income (loss) attributable to
common stock to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred interest attributable to common stock subject to
possible redemption
|
|
|
430,397
|
|
|
|
170,526
|
|
|
|
|
|
Changes in operating assets/liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust interest receivable
|
|
|
507,948
|
|
|
|
(507,948
|
)
|
|
|
|
|
Prepaid insurance
|
|
|
71,250
|
|
|
|
(71,250
|
)
|
|
|
|
|
Accounts payable
|
|
|
36,482
|
|
|
|
53,723
|
|
|
|
|
|
Accrued expenses
|
|
|
(21,407
|
)
|
|
|
30,307
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
2,523,812
|
|
|
|
(222,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments held in trust
|
|
|
(2,659,935
|
)
|
|
|
(184,444,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,659,935
|
)
|
|
|
(184,444,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of offering expenses
of $14,150,634 and $75,000 in 2005 and 2004, respectively
|
|
|
|
|
|
|
186,849,366
|
|
|
|
(50,000
|
)
|
Proceeds from loans payable related party and due to
affiliates
|
|
|
|
|
|
|
325,000
|
|
|
|
75,000
|
|
Repayment of loans payable related party
|
|
|
|
|
|
|
(400,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
186,774,366
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(136,123
|
)
|
|
|
2,107,432
|
|
|
|
25,000
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,132,432
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,996,309
|
|
|
|
2,132,432
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-60
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Notes to Financial Statements
June 30, 2006 and December 31, 2005 and 2004
|
|
(1)
|
Organization
and Business Operations
|
Globe Specialty Metals, Inc. (formerly known as International
Metal Enterprises, Inc.) (the Company or our) was incorporated
in the United States of America in the State of Delaware on
December 23, 2004 to serve as a vehicle for the acquisition
of operating companies in the metals and mining industry.
Primarily all activity through June 30, 2006 relates to the
Companys formation, organizational activities, the
completion of its initial public offering and activities related
to identifying and evaluating prospective acquisition
candidates. As of June 30, 2006, the Company had not yet
commenced any commercial operations. See note 11
(Subsequent Events) for discussion of the Companys
subsequent business combinations.
|
|
(2)
|
Initial
Public Offering
|
On October 3, 2005, the Company sold 33,500,000 units
(individually, Unit) in an initial public offering (the
Offering) at a price of $6.00 per unit, generating gross
offering proceeds of $201,000,000. The total costs of the
Offering were $14,225,634, resulting in net proceeds of
$186,774,366. Each Unit consists of one share of the
Companys common stock, having a par value of $0.0001 per
share, and two redeemable common stock purchase warrants. Each
warrant entitles the holder to purchase from the Company one
share of common stock at an exercise price of $5.00 per share.
The warrants become exercisable on the later of (i) the
completion of a business combination, and
(ii) October 3, 2006. The warrants expire on
October 3, 2009. Also in connection with the Offering, the
Company issued, for $100, an option to the representative of the
underwriters to purchase 1,675,000 units (individually, UPO) at
an exercise price of $7.50 per UPO. Each UPO consists of one
share of the Companys common stock and two redeemable
common stock purchase warrants. The warrants underlying each UPO
are exercisable at $5.00 per share. The warrants become
exercisable on the later of (i) the completion of a
business combination, and (ii) October 3, 2006. The
warrants expire on October 3, 2009.
The Companys management has broad discretion with respect
to the specific application of the net proceeds of the Offering,
although substantially all of the net proceeds of the Offering
are intended to be generally applied toward consummating a
business combination with a company that is engaged in the
metals and mining industry.
$184,100,000 of the net proceeds of the Offering were placed in
a trust account (the Trust Fund) to be held there until the
earlier of the (i) consummation of the Companys first
business combination or (ii) liquidation of the Company.
Under the agreement governing the Trust Fund, funds will
only be invested in United States municipal, tax-exempt
securities with a maturity of 180 days or less. The
investments held in trust amounted to $187,104,616 and
$184,952,629 at June 30, 2006 and December 31, 2005,
respectively. These amounts, which include related income from
the change in market value in the period, are restricted, and
are not at the Companys disposal until the consummation of
a business combination. The remaining net proceeds received from
the Offering may be used to pay for business, legal and
accounting due diligence on prospective acquisitions and
continuing general and administrative expenses.
The Company, after signing a definitive agreement for the
acquisition of a target business, will submit such transaction
for stockholder approval. In the event that stockholders owning
20% or more of the outstanding stock, excluding, for this
purpose, those persons who were stockholders prior to the
Offering, vote against a proposed business combination and
exercise their conversion rights as described in note 8
(Stockholders Equity), the business combination will not
be consummated. All of the Companys stockholders prior to
the Offering, which include all of the Officers and Directors of
the Company (Initial Stockholders), have agreed to vote their
8,476,025 founding shares of common stock in accordance with the
vote of the majority in interest of all other stockholders of
the Company (Public Stockholders) with respect to a proposed
F-61
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Notes to Financial Statements (Continued)
June 30, 2006 and December 31, 2005 and 2004
business combination. After consummation of a business
combination, these voting provisions will no longer be
applicable.
The Companys amended and restated certificate of
incorporation provides for mandatory liquidation of the Company,
without stockholder approval, in the event that the Company does
not consummate a business combination by the later of
(i) 12 months from the date of the consummation of the
Offering or (ii) 18 months after the date of the
consummation of the Offering in the event that either a letter
of intent, an agreement in principle or a definitive agreement
to complete a business combination is executed but not
consummated within such 12 month period. In the event of
liquidation, it is likely that the per share value of the
residual assets remaining available for distribution (including
Trust Fund assets) will be less than the initial public
offering price per share in the Offering, due to costs related
to the Offering and since no value would be attached to the
warrants contained in the Units sold.
|
|
(3)
|
Summary
of Significant Accounting Policies
|
|
|
(a)
|
Basis
of Presentation
|
The Companys financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP).
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect amounts reported in the financial statements and related
notes. Significant estimates and assumptions in these financial
statements include estimates of the fair value of investments.
Due to the inherent uncertainty involved in making estimates,
actual results reported in future periods may be different from
these estimates.
|
|
(c)
|
Cash
and Cash Equivalents
|
Cash equivalents consist of highly liquid investments that are
readily convertible into cash. Securities with contractual
maturities of three months or less, when purchased, are cash
equivalents. The carrying amount of these securities
approximates fair value because of the short-term maturity of
these instruments.
|
|
(d)
|
Investments
Held in Trust
|
Investments held in trust represents amounts invested in
short-term, tax-exempt U.S. municipal bonds with a maturity of
180 days or less. Investments held in trust are recorded at
fair value and include the related investment income receivable
earned at the respective balance sheet date. These funds will be
held in trust until the earlier of the (i) consummation of
a business combination or (ii) liquidation of the Company.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax
benefit will not be realized.
|
|
(f)
|
Fair
Value of Financial Instruments
|
Management believes that the carrying values of financial
instruments, including cash and cash equivalents, investments
held in trust, trust interest receivable, accounts payable, and
accrued expenses approximate fair value as a result of the
short-term maturities of these instruments.
F-62
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Notes to Financial Statements (Continued)
June 30, 2006 and December 31, 2005 and 2004
Accrued expenses of $10,000, $31,407 and $1,100 at June 30,
2006, December 31, 2005 and December 31, 2004,
respectively, are principally related to unbilled professional
fees.
|
|
(5)
|
Deferred
Underwriters Fees
|
The Companys lead manager and placing agent, and its
nominated adviser elected to defer their nonaccountable fees in
connection with the Offering in the amounts of $921,250 and
$48,750, respectively. Upon completion of a business
combination, $921,250 of the funds now in the Trust Fund
will be payable to the placing agent and $48,750 will be payable
to its nominated adviser.
The provision for income taxes differs from that computed at the
federal statutory corporate tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Federal tax (benefit) at 34% statutory rate
|
|
$
|
656,043
|
|
|
|
92,791
|
|
|
|
(374
|
)
|
State income taxes, net of federal benefit
|
|
|
203,123
|
|
|
|
28,730
|
|
|
|
(116
|
)
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income from tax exempt investments
|
|
|
(958,215
|
)
|
|
|
(379,650
|
)
|
|
|
|
|
Valuation allowance provision
|
|
|
67,324
|
|
|
|
287,924
|
|
|
|
490
|
|
Other
|
|
|
31,725
|
|
|
|
(29,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded a deferred income tax asset to reflect the
tax effect of federal net operating loss carryforwards of
approximately $271,635, $220,228, and $374 at June 30,
2006, December 31, 2005, and December 31, 2004,
respectively. The Company also recorded a deferred income tax
asset to reflect the tax effect of state net operating loss
carryforwards of approximately $84,103, $68,186, and $116 at
June 30, 2006, December 31, 2005, and
December 31, 2004, respectively. The Companys federal
and state net operating loss carryforwards expire between 2024
and 2026. In recognition of the uncertainty regarding the
ultimate amount of income tax benefits to be derived, the
Company has recorded a full valuation allowance against these
assets.
|
|
(7)
|
Commitments
and Contingencies
|
The Company is subject to income taxes in the United States. In
the ordinary course of business, there are transactions and
calculations that involve uncertain tax implications. Accruals
for tax contingencies are provided for in accordance with the
requirements of SFAS No. 5,
Accounting for
Contingencies
. The Company believes that it has adequate
support for the positions taken on its tax returns and that
adequate provisions have been made for all outstanding issues
for all jurisdictions and all open years.
|
|
(b)
|
Operating
Commitments
|
The Company presently occupies office space provided by an
affiliate of a founding stockholder. This affiliate, Marco
Realty, has agreed that, until the acquisition of a target
business by the Company, it will make such office space, as well
as certain office and secretarial services, available to the
Company, as may be required by the Company from time to time.
The Company has agreed to pay this affiliate $7,500 per month
for such services, commencing on the effective date of the
Offering. Upon completion of a business combination or the
distribution of the Trust Fund to our new stockholders, the
Company will no longer be required to pay this monthly fee.
F-63
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Notes to Financial Statements (Continued)
June 30, 2006 and December 31, 2005 and 2004
Under our initial certificate of incorporation, the Company was
authorized to issue 75,000,000 shares of common stock with
a par value of $0.0001. On December 23, 2004, the Company
sold 4,250,000 shares of common stock at the price of
$0.00588 per share to the Directors and Officers of the Company
and their affiliates. Total proceeds from this offering were
$25,000.
On February 18, 2005, the Company declared a stock dividend
of 0.76470588 shares of common stock for every one share of
common stock of the Company, payable to holders of record on
February 18, 2005. The result of this stock dividend was to
increase outstanding common shares by 3,250,000 shares.
Also on February 18, 2005, the total number of authorized
common shares was increased to 120,000,000 shares.
On March 24, 2005, the Company declared a stock dividend of
0.11666666 shares of common stock for every one share of
common stock of the Company, payable to holders of record on
March 24, 2005. The result of this stock dividend was to
increase outstanding common shares by 875,000 shares. Also
on March 24, 2005, the total number of authorized common
shares was increased to 150,000,000 shares.
On September 23, 2005, the Company declared a stock
dividend such that every one share of outstanding common stock
of the Company was to be combined into and automatically became,
without any action on the part of the shareholder, 0.93827156701
outstanding shares of common stock of the Company. The result of
this stock dividend was to reduce outstanding common shares by
516,975 shares.
The par value of common shares was unchanged by the above stock
dividends. Weighted average shares outstanding and earnings per
share amounts have been adjusted to give effect to these stock
dividends.
The Company is authorized to issue 1,000,000 shares of
preferred stock, par value $0.0001, with such designations,
voting and other rights and preferences as may be determined
from time to time by the Companys Board of Directors. To
date, no preferred stock has been issued by the Company.
|
|
(c)
|
Conversion
and Redemption of Common Stock
|
With respect to a business combination which is approved and
consummated, any Public Stockholder who votes against the
business combination may demand that the Company convert his
shares to cash. The per share conversion price will equal the
amount in the Trust Fund as of the record date for
determination of stockholders entitled to vote on the business
combination divided by the number of shares of common stock held
by Public Stockholders at the consummation of the Offering.
Accordingly, Public Stockholders holding up to 20% of the
aggregate number of shares owned by all Public Stockholders may
seek conversion of their shares in the event of a business
combination. The number of shares subject to such conversion was
6,699,999 at both June 30, 2006 and December 31, 2005.
Such Public Stockholders are entitled to receive their per share
interest in the Trust Fund computed without regard to the
shares held by Initial Stockholders. Due to this potential
redemption, which is not under the Companys control, 20%
of the Trust Fund balance, including investment income earned,
is recorded outside of stockholders equity at
June 30, 2006 and December 31, 2005.
Basic and diluted earnings (loss) per common share is based on
the weighted average number of common shares outstanding during
the six months ended June 30, 2006, the year ended
December 31, 2005 and the period from December 23,
2004 (inception) to December 31, 2004.
The warrants and UPOs issued in connection with the Offering are
not considered to have a dilutive effect as these instruments
are only exercisable at the later of the completion of a
business combination or October 3, 2006, and this
contingency had not be satisfied as of June 30, 2006.
F-64
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Notes to Financial Statements (Continued)
June 30, 2006 and December 31, 2005 and 2004
The amounts used to compute basic and diluted earnings (loss)
per common share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Weighted
|
|
|
|
|
|
|
(Loss)
|
|
|
Average
|
|
|
Per Common
|
|
|
|
Attributable to
|
|
|
Shares
|
|
|
Share
|
|
|
|
Common Stock
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Basic and diluted loss per common share for the nine days ended
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
$
|
(1,100
|
)
|
|
|
7,858,025
|
|
|
$
|
|
|
Basic and diluted income per common share for the year ended
June 30, 2005
|
|
$
|
102,389
|
|
|
|
16,026,518
|
|
|
$
|
0.01
|
|
Basic and diluted income per common share for the six months
ended June 30, 2006
|
|
$
|
1,499,142
|
|
|
|
41,358,025
|
|
|
$
|
0.04
|
|
|
|
(10)
|
Related
Party Transactions
|
From time to time, the Company enters into transactions in the
normal course of business with related parties. Management
believes that such transactions are at arms length and for
terms that would have been obtained from unaffiliated third
parties.
Two members of the Companys Board of Directors, Alan
Kestenbaum and Michael Barenholtz, are affiliated with Marco
International, Marco Realty and MI Capital, Inc.
From December 23, 2004 (inception) to June 30, 2006,
the salaries of the Companys Officers and Directors have
been paid by Marco International. There is no obligation or
intent for the Company to reimburse Marco International directly
or indirectly for these costs. Accordingly, the Companys
financial statements do not include any salary costs for our
Officers and Directors.
Marco Realty has provided office space, as well as certain
office and secretarial services, to the Company. The statements
of operations include charges of $22,500 and $45,000 for such
fees for the year ended December 31, 2005 and six months
ended June 30, 2006, respectively.
At December 31, 2004, the Company had an accounts payable
balance due to MI Capital, Inc. of $75,000 that was converted
into a non-interest bearing note payable on March 24, 2005.
The note was repayable on the earlier of February 15, 2006
or the date on which the Company consummated an initial public
offering of its securities. This note was paid in October 2005
after consummation of the Offering.
On February 14, 2005, the Company signed a $225,000,
non-interest bearing promissory note payable with MI Capital,
Inc. to be paid on the earlier of February 15, 2006 or the
date on which the Company consummated an initial public
offering. This note was paid in October 2005 after consummation
of the Offering.
On July 20, 2005, the Company signed a $100,000,
non-interest bearing promissory note payable with MI Capital,
Inc. to be paid on the earlier of February 23, 2006 or the
date on which the Company consummated an initial public
offering. This note was paid in October 2005 after consummation
of the Offering.
On November 12, 2006, the Company acquired 100% of the
outstanding stock of Globe Metallurgical, Inc. (GMI), a
manufacturer of silicon metal and silicon-based alloys. The
aggregate purchase price was $134.1 million, comprised of
8.6 million shares of the Companys common stock
valued at $48.0 million, cash of $33.2 million, direct
costs associated with the acquisition of $3.3 million, and
assumed debt of $49.5 million. GMI owns and operates plants
in Ohio, West Virginia and Alabama. GMI also owns a currently
idle silicon metal and ferroalloy manufacturing plant located in
Niagara Falls, New York. GMIs products are sold primarily
to the silicone chemical, aluminum, metal casting, and solar
cell industries, primarily in the United States, Canada and
Mexico. GMI also owns 50% of the outstanding stock of Norchem,
Inc. (Norchem). Norchem manufactures and sells additives that
enhance the durability of concrete, refractory material and oil
well conditioners. GMI sells silica fume (also known as
microsilica), a by-product of its ferrosilicon metal and
F-65
GLOBE
SPECIALTY METALS, INC.
(formerly known as International Metal Enterprises, Inc.)
Notes to Financial Statements (Continued)
June 30, 2006 and December 31, 2005 and 2004
silicon metal production process, to Norchem as well as other
companies. With the acquisition of GMI, the tax-exempt interest
earned by the Trust Fund during calendar year 2006 became
taxable to the Company for New York State income tax purposes.
Under the provisions of the Companys amended and restated
certificate of incorporation, any stockholder who voted against
the Companys acquisition of GMI had the option to demand
that the Company convert common stock held by the dissenting
stockholder to cash. In addition, the Companys Board of
Directors opted to permit each stockholder holding offering
shares to vote for the business combination while at
the same time electing to redeem his shares for cash.
Approximately 8.4% of stockholders voted against the GMI
acquisition and approximately 9.8% voted for the acquisition but
elected to redeem their shares. A total of 7,528,857 of common
shares were redeemed for cash payments totaling
$42.8 million. As of June 30, 2006, 6,699,999 of the
redeemed shares were recorded outside of stockholders
equity. The redemption of the additional 828,858 shares was
treated as a reduction of stockholders equity in during
the year ended June 30, 2007.
With the acquisition of GMI completed on November 12, 2006,
the 67,000,000 warrants and the 1,675,000 UPOs issued in
connection with the Offering became exercisable at that date.
During the year ended June 30, 2007, the Company executed
public and private tender offers to repurchase, redeem or
convert outstanding warrants. As a result of these tender
offers, 47,353,912 of the warrants issued in connection with the
Offering were repurchased, redeemed or converted. The tender
offers resulted in the issuance of additional
14,201,302 shares of common stock and proceeds of
$19.5 million.
On November 20, 2006, the Company acquired 100% of the
outstanding stock of Stein Ferroaleaciones S.A. (SFA), an
Argentine manufacturer of silicon-based alloys, and SFAs
two affiliates, UltraCore Polska Sp.z.o.o., a Polish
manufacturer of cored wire alloys, and Ultra Core Corporation, a
U.S.-based
alloy distributor (collectively, Stein). The aggregate purchase
price was $39.1 million, comprised of cash consideration of
$34.5 million, direct costs associated with the acquisition
of $0.9 million, and assumed debt of $3.8 million. SFA
is among Latin Americas leading producers of silicon-based
specialty alloys. Headquartered in Buenos Aires, Argentina, it
operates an alloy manufacturing plant in Mendoza province,
Argentina and cored wire packing plants in San Luis province,
Argentina and Police, Poland. Steins products are
important ingredients in the manufacturing of steel, ductile
iron, machine and auto parts and pipe. SFA has been renamed
Globe Metales S.A.
A cash dividend of $0.07 per share was declared for shareholders
of record as of November 17, 2006. The $3.3 million
dividend was distributed on December 8, 2006.
On January 31, 2007, the Company acquired 100% of the
outstanding stock of Camargo Correa Metais S.A. (CCM), one of
Brazils largest producers of silicon metal and silica
fume. The aggregate purchase price was $56.5 million,
comprised of cash consideration of $38.6 million, direct
costs associated with the acquisition of $1.1 million, debt
assumed of $14.4 million, and contingent consideration of
$2.4 million. CCM has been renamed Globe Metais
Indústria e Comércio S.A. (Globe Metais). Globe Metais
operates a manufacturing facility located in Breu Branco, Para,
Brazil. It also operates quartzite mining and forest reserves
operations in Para, Brazil and is one of Brazils largest
producers of silicon metal and silica fume, raw materials used
in the chemical, metallurgical, electronic, cement and firebrick
industries.
On February 29, 2008, the Company acquired approximately
81% of the outstanding stock of Solsil, Inc. (Solsil), a
producer of high purity silicon manufactured through a
proprietary metallurgical process for use in silicon-based solar
cells. Solsil supplies its silicon to several leading global
manufacturers of photovoltaic cells, ingots and wafers. Based on
the terms of the acquisition agreement, 5,628,657 new shares of
common stock of the Company were issued to shareholders and
option holders of Solsil in connection with the acquisition of
approximately 81% of the share capital of Solsil.
F-66
Consolidated Financial Statements
November 12, 2006 and June 30, 2006 and 2005
(With Independent Auditors Reports Thereon)
F-67
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Globe Metallurgical, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of
Globe Metallurgical, Inc. and Subsidiaries (the Company) as of
November 12, 2006 and the related consolidated statements
of operations, changes in stockholders equity and
comprehensive income, and cash flows for the period from
July 1, 2006 to November 12, 2006. These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the auditing standards
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Globe Metallurgical, Inc. and Subsidiaries as of
November 12, 2006, and the results of their operations and
their cash flow for the period from July 1, 2006 to
November 12, 2006, in conformity with U.S. generally
accepted accounting principles.
July 18, 2008
F-68
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Globe Metallurgical, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Globe Metallurgical, Inc. and Subsidiaries as of June 30,
2006 and 2005 and the related consolidated statements of
operations, changes in stockholders equity and
comprehensive income and cash flows for the years then ended.
These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Globe Metallurgical, Inc. and Subsidiaries as of
June 30, 2006 and 2005, and the results of their operation
and their cash flows for the years then ended, in conformity
with U.S. generally accepted accounting principles.
Certified
Public Accountants, Inc.
Hobe & Lucas
Certified Public Accountants, Inc.
Independence, Ohio
October 11, 2006
F-69
Globe
Metallurgical, Inc. and Subsidiaries
Consolidated
Balance Sheets
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable, net
|
|
|
18,292
|
|
|
|
17,095
|
|
|
|
10,443
|
|
Accounts receivable, other
|
|
|
887
|
|
|
|
2,222
|
|
|
|
87
|
|
Inventory
|
|
|
20,695
|
|
|
|
17,200
|
|
|
|
13,842
|
|
Prepaid expenses
|
|
|
907
|
|
|
|
1,537
|
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
40,781
|
|
|
|
38,054
|
|
|
|
27,354
|
|
Property, machinery, and equipment, net
|
|
|
54,382
|
|
|
|
54,860
|
|
|
|
30,008
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expenses
|
|
|
2,111
|
|
|
|
2,179
|
|
|
|
350
|
|
Customer contract, net
|
|
|
1,951
|
|
|
|
2,180
|
|
|
|
|
|
Deferred tax asset
|
|
|
4,409
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
1,740
|
|
|
|
1,618
|
|
|
|
1,598
|
|
Other assets
|
|
|
151
|
|
|
|
278
|
|
|
|
141
|
|
Goodwill
|
|
|
1,194
|
|
|
|
1,194
|
|
|
|
|
|
Reorganization value in excess of amounts allocable to
identifiable assets
|
|
|
26,995
|
|
|
|
40,209
|
|
|
|
40,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
38,551
|
|
|
|
47,658
|
|
|
|
42,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
133,714
|
|
|
|
140,572
|
|
|
|
99,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable trade
|
|
$
|
19,695
|
|
|
|
12,078
|
|
|
|
7,232
|
|
Revolving credit facility
|
|
|
5,375
|
|
|
|
5,500
|
|
|
|
5,525
|
|
Accrued expenses and other liabilities
|
|
|
3,759
|
|
|
|
2,007
|
|
|
|
1,432
|
|
Current portion of long-term debt
|
|
|
3,066
|
|
|
|
3,066
|
|
|
|
1,982
|
|
Accrued taxes payable
|
|
|
1,533
|
|
|
|
8,107
|
|
|
|
6,112
|
|
Accrued pension payable, current portion
|
|
|
|
|
|
|
1,433
|
|
|
|
1,150
|
|
Interest payable
|
|
|
383
|
|
|
|
306
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,811
|
|
|
|
32,497
|
|
|
|
23,790
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension, net of current portion
|
|
|
2,563
|
|
|
|
1,014
|
|
|
|
2,478
|
|
Preferred stock, $.01 par value. Authorized
10,000 shares; 2,500 shares issued and outstanding, at
June 30, 2006 and June 30, 2005 subject to mandatory
redemption
|
|
|
|
|
|
|
1,696
|
|
|
|
1,637
|
|
Deferred tax liability
|
|
|
|
|
|
|
4,900
|
|
|
|
4,898
|
|
Other liabilities
|
|
|
4,033
|
|
|
|
175
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
41,094
|
|
|
|
41,865
|
|
|
|
46,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
47,690
|
|
|
|
49,650
|
|
|
|
55,561
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value. Authorized
2,500 shares, 1,993 shares issued and outstanding at
November 12, 2006 and June 30, 2006; 1,000 shares
issued and outstanding at June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
47,508
|
|
|
|
47,508
|
|
|
|
12,508
|
|
Accumulated other comprehensive loss
|
|
|
(1,098
|
)
|
|
|
(584
|
)
|
|
|
(559
|
)
|
Retained earnings
|
|
|
5,803
|
|
|
|
11,501
|
|
|
|
8,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
52,213
|
|
|
|
58,425
|
|
|
|
20,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
133,714
|
|
|
|
140,572
|
|
|
|
99,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-70
Globe
Metallurgical, Inc. and Subsidiaries
Consolidated Statements of Operations
Period from July 1, 2006 to November 12, 2006, and
Years Ended June 30, 2006 and 2005
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
73,173
|
|
|
|
173,008
|
|
|
|
132,223
|
|
Cost of sales
|
|
|
66,683
|
|
|
|
147,682
|
|
|
|
103,566
|
|
Selling, general, and administrative expenses
|
|
|
7,409
|
|
|
|
14,261
|
|
|
|
9,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(919
|
)
|
|
|
11,065
|
|
|
|
19,477
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of affiliate
|
|
|
122
|
|
|
|
20
|
|
|
|
147
|
|
Bankruptcy and restructuring professional costs
|
|
|
(163
|
)
|
|
|
(237
|
)
|
|
|
(611
|
)
|
Interest expense
|
|
|
(3,066
|
)
|
|
|
(5,677
|
)
|
|
|
(5,099
|
)
|
Westbrook legal expense
|
|
|
(3,800
|
)
|
|
|
|
|
|
|
|
|
Miscellaneous income (expense)
|
|
|
(672
|
)
|
|
|
(116
|
)
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(8,498
|
)
|
|
|
5,055
|
|
|
|
14,186
|
|
(Provisions for) benefit from income taxes
|
|
|
2,800
|
|
|
|
(1,914
|
)
|
|
|
(4,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share basic and diluted
|
|
$
|
(2,947.26
|
)
|
|
|
2,067.04
|
|
|
|
9,218.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-71
Globe
Metallurgical, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
and Comprehensive Income
For the Period July 1, 2006 to November 12, 2006, and
Years Ended June 30, 2006 and 2005
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Total
|
|
|
Beginning balance, July 1, 2004
|
|
|
1,000
|
|
|
$
|
|
|
|
|
12,508
|
|
|
|
135
|
|
|
|
(858
|
)
|
|
|
11,785
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,218
|
|
|
|
9,218
|
|
Accrued pension, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(694
|
)
|
|
|
|
|
|
|
(694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
|
1,000
|
|
|
|
|
|
|
|
12,508
|
|
|
|
(559
|
)
|
|
|
8,360
|
|
|
|
20,309
|
|
Issuance of common stock
December 21, 2005
|
|
|
993
|
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,141
|
|
|
|
3,141
|
|
Accrued pension, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006
|
|
|
1,993
|
|
|
|
|
|
|
|
47,508
|
|
|
|
(584
|
)
|
|
|
11,501
|
|
|
|
58,425
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,698
|
)
|
|
|
(5,698
|
)
|
Accrued pension, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
(514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 12, 2006
|
|
|
1,993
|
|
|
$
|
|
|
|
|
47,508
|
|
|
|
(1,098
|
)
|
|
|
5,803
|
|
|
|
52,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-72
Globe
Metallurgical, Inc. and Subsidiaries
Consolidated
Statement of Cash Flows
For the Period July 1, 2006 to November 12, 2006, and
Years Ended June 30, 2006 and 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
Adjustments to reconcile net income (loss)to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,533
|
|
|
|
5,156
|
|
|
|
3,332
|
|
Amortization
|
|
|
229
|
|
|
|
875
|
|
|
|
190
|
|
(Gain) loss on sale of assets
|
|
|
(6
|
)
|
|
|
|
|
|
|
38
|
|
Deferred income taxes
|
|
|
(2,828
|
)
|
|
|
2
|
|
|
|
(532
|
)
|
Equity in income of affiliate
|
|
|
(122
|
)
|
|
|
(20
|
)
|
|
|
(147
|
)
|
Pension (benefit) cost
|
|
|
(45
|
)
|
|
|
(104
|
)
|
|
|
(62
|
)
|
Pension contributions
|
|
|
(669
|
)
|
|
|
(1,121
|
)
|
|
|
(679
|
)
|
Non-cash interest
|
|
|
804
|
|
|
|
596
|
|
|
|
1,478
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
362
|
|
|
|
(8,546
|
)
|
|
|
179
|
|
Inventories
|
|
|
(3,495
|
)
|
|
|
6,710
|
|
|
|
(3,638
|
)
|
Prepaid expenses and other current assets
|
|
|
630
|
|
|
|
1,462
|
|
|
|
(2,455
|
)
|
Deferred expenses
|
|
|
68
|
|
|
|
(2,518
|
)
|
|
|
59
|
|
Cash surrender value officers life insurance
|
|
|
|
|
|
|
55
|
|
|
|
89
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
780
|
|
Other assets
|
|
|
127
|
|
|
|
(112
|
)
|
|
|
(4
|
)
|
Accounts payable
|
|
|
7,617
|
|
|
|
4,846
|
|
|
|
1,940
|
|
Accrued expenses and other liabilities
|
|
|
6,162
|
|
|
|
2,401
|
|
|
|
5,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,669
|
|
|
|
12,823
|
|
|
|
15,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses
|
|
|
|
|
|
|
(38,764
|
)
|
|
|
|
|
Purchases of property, machinery, and equipment
|
|
|
(2,273
|
)
|
|
|
(4,884
|
)
|
|
|
(3,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,273
|
)
|
|
|
(43,648
|
)
|
|
|
(3,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock redemption
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(771
|
)
|
|
|
(51,348
|
)
|
|
|
(10,737
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
|
47,198
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
35,000
|
|
|
|
|
|
Net borrowings of short-term debt
|
|
|
(125
|
)
|
|
|
(25
|
)
|
|
|
(3,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(3,396
|
)
|
|
|
30,825
|
|
|
|
(13,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(2,601
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
2,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,936
|
|
|
|
4,358
|
|
|
|
2,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
56
|
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-73
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
|
|
(1)
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Globe Metallurgical, Inc. and Subsidiaries (the Company) own and
operate plants in Ohio, West Virginia and Alabama, which produce
silicon metal and ferroalloy products. The Companys
products are sold primarily to the chemical, aluminum, metal
castings and solar cell industries, nationally and
internationally. Additionally, the Company owns an idle plant
located in Niagara Falls, New York.
|
|
(b)
|
Consolidation
and Basis of Presentation
|
The consolidated financial statements include the accounts of
the Company, from December 21, 2005 forward, its wholly
owned subsidiary, West Virginia Alloys, Inc., and from
January 20, 2006 forward, its wholly owned subsidiary,
Alabama Sand and Gravel, Inc. (ASG). The June 30, 2006
accounts also include the accounts of West Virginia
Environmental Services, Inc. which the Company sold prior to
June 30, 2006 at a net loss of $249 (note 6).
Intercompany transactions are eliminated.
The Companys 50% ownership of Norchem, Inc. (Norchem) is
accounted for under the equity method.
|
|
(c)
|
Cash
and Cash Equivalents
|
The Company considers cash equivalents to be highly liquid
investments that are readily convertible into cash. Securities
with contractual maturities of three months or less, when
purchased, are considered cash equivalents. The Company records
changes in a book overdraft position, in which the
Companys bank account is not overdrawn but recently issued
and outstanding checks result in a negative general ledger
balance as cash flows from operating activities.
Credit is granted to both domestic and international customers.
An allowance for doubtful accounts in the amount of $114 at
November 12, 2006 and June 30, 2006 and 2005 is
recorded using the Companys prior bad debt experience and
current estimates of uncollectible accounts. The Companys
policy is to maintain credit insurance coverage on substantially
all trade receivables over $25 which are not covered by letters
of credit or bank documentary collections.
Inventories are stated at the lower of cost or market. Cost is
determined by the
first-in,
first-out method.
|
|
(f)
|
Property,
Machinery, and Equipment
|
Property, machinery, and equipment are carried at cost, except
as required by fresh-start reporting. Depreciation is computed
using the straight-line method over the estimated useful lives
of the related assets; 20 years for land improvements,
30 years for buildings and improvements and 5 to
15 years for machinery and equipment. When assets are
retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized as income for the period.
The cost of maintenance and repairs is charged to income as
incurred, whereas significant renewals and betterments are
capitalized.
|
|
(g)
|
Impairment
of Long-Lived Assets
|
The Company reviews the recoverability of our long-lived assets,
such as machinery and equipment and definite-lived intangible
assets, when events or changes in circumstances occur that
indicate that the carrying value of the asset or asset group may
not be recoverable. The assessment of possible impairment is
based on our ability to recover the carrying value of the asset
or asset group from the expected future pretax cash flows
(undiscounted and without interest charges) of the related
operations. We assess the recoverability of the carrying value
of long-lived assets at the lowest level for which identifiable
cash flows are largely independent
F-74
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
of the cash flows of other assets and liabilities. If these cash
flows are less than the carrying value of such asset or asset
group, an impairment loss is measured based on the difference
between estimated fair value and carrying value. Fair values are
based on assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates,
reflecting varying degrees of perceived risk.
Revenue is recognized when a firm sales agreement is in place,
delivery has occurred and title and risks of ownership have
passed to the customer, the sales price is fixed or
determinable, and collectability is reasonably assured. Sales of
goods do not include multiple product
and/or
service elements. Shipping and other transportation costs
charged to buyers are recorded in both sales and cost of goods
sold. Sales taxes collected from customers and remitted to
governmental authorities are accounted for on a net basis and,
therefore, are excluded from sales in the consolidated income
statements.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles, requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax
benefit will not be realized.
|
|
(k)
|
Asset
Retirement Obligations
|
Asset retirement obligations are initially recorded at fair
value and are capitalized as part of the cost of the related
long-lived asset and depreciated in accordance with the
Companys depreciation policies for property, machinery and
equipment. The fair value of the obligation is determined as the
discounted value of expected future cash flows. Accretion
expense is recorded each month to increase this discounted
obligation over time. The Companys asset retirement
obligations primarily relate to mine post closure restoration
costs. Asset retirement obligations of $65, $175 and $0 have
been recorded within other liabilities at November 12, 2006
and June 30, 2006 and 2005, respectively.
|
|
(l)
|
Financial
Instruments
|
The Company accounts for derivatives and hedging activities in
accordance with Statement of Financial Standards (SFAS)
No. 133,
Accounting for Derivative Instruments and
Certain hedging Activities
(SFAS 133), as amended by
SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at
their respective fair values. The Companys sole derivative
instrument consists of an interest rate swap employed to manage
interest rate exposures on half of the Companys initial
balance of the senior term loan discussed in note 9. The
agreement, which expires in March 2011, involves the exchange of
the interest obligations relating
F-75
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
to an initial $15,000 notional amount of debt, with the notional
amount decreasing by $375 per quarter consistent with half of
the debt amortization on the senior term loan. The remaining
notional amount is $13,125 at November 12, 2006. Under the
interest rate swap, the Company receives the London Interbank
Offered Rate (LIBOR) in exchange for a fixed interest rate of
5.23% over the life of the agreement. The agreement provides for
a net cash settlement. The Company believes it is not practical
to designate the cash-settled interest rate swap agreement as a
fair value hedge as defined under SFAS 133. Therefore, in
accordance with SFAS 133, the Company adjusts the interest
rate swap agreement to current market value through the
consolidated income statement based on the fair value of the
swap agreement as of each period-end. The approximate fair value
of this derivative is recorded in other assets with a value of
$75 at November 12, 2006.
|
|
(m)
|
Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets and
Goodwill
|
The Company follows the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets
. The standard
provides that goodwill and intangible assets with indefinite
lives are no longer amortized. The standard provides that
goodwill be tested for impairment annually and will be tested
for impairment between annual tests if an event occurs or
circumstances change that more likely than not would indicate
the carrying amount may be impaired. The Company selected June
30 for its annual impairment testing. The Company recognized no
impairment during the period from July 1, 2006 to
November 12, 2006 or the years ended June 30, 2006 and
2005.
|
|
(n)
|
Intangibles
Subject to Amortization
|
An acquired customer contract (note 6) with a life of
four years is amortized using the straight-line method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Customer contract
|
|
$
|
2,491
|
|
|
|
2,491
|
|
|
|
|
|
Accumulated amortization
|
|
|
540
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,951
|
|
|
|
2,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the period from July 1, 2006 to
November 12, 2006 and the year ended June 30, 2006 was
$229 and $311, respectively. Total estimated future amortization
expense for the period from November 13, 2006 to
June 30, 2007 and for the subsequent years ended
June 30, 2008, 2009 and 2010 is $396, $622, $622 and $311,
respectively.
|
|
(o)
|
Deferred
Issuance Costs
|
Deferred financing costs are amortized as interest expense over
the lives of the respective debt using the straight-line method.
Loss contingencies associated with outstanding litigation for
which it is determined it is probable that a loss has occurred
and the amount of loss can be reasonably estimated are accrued
when those costs can be reasonably estimated. Legal fees are
expensed as incurred.
The Company enters into operating leases as described in
note 11. Rent expense on operating leases is charged to the
profit and loss account on a straight-line basis over the lease
term, even if the payments are not made on such a basis.
F-76
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
|
|
(r)
|
New
Accounting Pronouncements
|
In June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48)
. FIN 48 clarifies the
application of SFAS No. 109,
Accounting for Income
Taxes
, by establishing a threshold condition that a tax
position must meet for any part of the benefit of that position
to be recognized in an enterprises financial statements.
In addition to recognition, FIN 48 provides guidance
concerning measurement, derecognition, classification, and
disclosure of tax positions. The requirements of FIN 48
were originally effective for the years beginning after
December 15, 2006, however, the FASB decided to defer the
effective date of FIN 48 for nonpublic entities for a period of
one year if certain conditions are met. As such, the Company has
elected to defer the adoption of FIN 48 for the period
ended November 12, 2006.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement
(SFAS 157). SFAS 157
defines fair value, establishes a framework for the measurement
of fair value, and enhances disclosures about fair value
measurements. The statement does not require any new fair value
measures. The Company is required to adopt SFAS 157
beginning on July 1, 2008. SFAS 157 is required to be
applied prospectively, except for certain financial instruments.
Any transition adjustment will be recognized as an adjustment to
opening retained earnings in the year of adoption. The Company
is currently evaluating the impact of adopting SFAS 157 on
its results of operations and financial position.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS 158).
SFAS 158 requires employers to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as
an asset or liability in its statement of financial position, to
recognize changes in the funded status in the year in which the
changes occur through accumulated other comprehensive income,
and to measure the funded status of a plan as of the date of its
yearend statement of financial position. The Company will adopt
SFAS 158 as required on June 30, 2007. The impact of
adopting SFAS 158 will not be material to the
Companys consolidated results of operations and financial
condition.
In September 2006, the FASB issued FSP AUG AIR-1,
Accounting
for Planned Major Maintenance Activities
(AUG AIR-1). The
FSP prohibits companies from accruing the cost of planned major
maintenance in advance of the activities actually occurring. The
Company adopted the provisions of AUG AIR-1 beginning
July 1, 2006. The impact of adopting FSP AUG AIR-1 was not
material to the Companys consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
(SFAS 159). This statement permits
companies, at their option, to choose to measure many financial
instruments and certain other items at fair value. If the option
to use fair value is chosen, the statement requires additional
disclosures related to the fair value measurements included in
the financial statements. This statement is effective on
July 1, 2008 for the Company. The Company is currently
evaluating the impact of adopting SFAS 159 on its results
of operations and financial position.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
. The objective of this statement is
to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity
provides in its financial reports about a business combination
and its effects. This statement establishes principles and
requirements for how the acquirer (i) recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquired, (ii) recognizes and measures the
goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to
disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
This statement applies prospectively to business combinations
for which the acquisition date is on or after July 1, 2009.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(SFAS 160). The
objective of this statement is to improve the relevance,
comparability, and transparency of the financial information
that a reporting entity provides in its
F-77
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
consolidated financial statements by establishing accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. This
statement is effective for the Company on July 1, 2009. The
Company is currently assessing the potential effect of SFAS 160
on its financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
(SFAS 161)
. This statement changes the disclosure
requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related
interpretations, and (c) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The
Company is currently assessing the potential effect of
SFAS 161 on its results of operations and financial
position.
In March 2008, the FASB issued SFAS No. 162,
The
Hierarchy of Generally Accepted Accounting Principles
. This
statement identifies the sources of accounting principles and
the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities
that are presented in conformity with accounting principles
generally accepted in the United States of America
(U.S. GAAP) This statement is effective 60 days
following the SECs approval of the Public Company
Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.
The Company does not expect
the implementation of this statement to have an impact on its
results of operations and financial position.
Inventory, net at November 12, 2006 and June 30, 2006
and 2005 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Finished goods
|
|
$
|
9,205
|
|
|
|
4,669
|
|
|
|
2,601
|
|
Raw materials
|
|
|
5,519
|
|
|
|
6,387
|
|
|
|
6,635
|
|
Supplies
|
|
|
5,971
|
|
|
|
6,144
|
|
|
|
4,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,695
|
|
|
|
17,200
|
|
|
|
13,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Property,
Machinery, and Equipment
|
Property, machinery, and equipment at November 12, 2006 and
June 30, 2006 and 2005 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Land and improvements
|
|
$
|
3,277
|
|
|
|
3,332
|
|
|
|
965
|
|
Buildings and improvements
|
|
|
3,650
|
|
|
|
3,650
|
|
|
|
2,481
|
|
Equipment
|
|
|
57,112
|
|
|
|
56,476
|
|
|
|
29,403
|
|
Construction in progress
|
|
|
1,814
|
|
|
|
411
|
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,853
|
|
|
|
63,869
|
|
|
|
33,863
|
|
Less accumulated depreciation
|
|
|
11,471
|
|
|
|
9,009
|
|
|
|
3,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,382
|
|
|
|
54,860
|
|
|
|
30,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
Depreciation expense for the periods from July 1, 2006 to
November 12, 2006, and for the years ended June 30,
2006 and 2005 was $2,533, $5,156 and $3,332 of which $1,863,
$4,040 and $2,826 was included in Cost of Sales and $670, $1,116
and $506 was included in Selling, General and Administrative
Expenses, respectively.
|
|
(4)
|
Financial
Information of Equity Affiliates
|
The Company has a 50% ownership of Norchem. Norchem sells
additives that enhance the durability of concrete. Certain of
these additives are derived from by-products generated in the
Companys production process. The equity method of
accounting has been used for this investment because the Company
has the ability to exercise significant influence over, but does
not control this entity. The Company received back office fees
from Norchem of $0, $225 and $255 from July 1, 2006 to
November 12, 2006, and the years ended June 30, 2006
and 2005, respectively. The Company had $1,111, $2,798, and
$2,404 in sales to Norchem during the period from July 1,
2006 to November 12, 2006 and years ended June 30,
2006 and 2005, respectively.
|
|
(5)
|
Earnings
(Loss) per Common Share
|
Basic earnings (loss) per common share is based on net income
(loss) divided by the weighted average number of common shares
outstanding for the period from July 1, 2006 to
November 12, 2006, and years ended June 30, 2006 and
2005. The Company had no instruments outstanding which would
result in dilutive potential common share during the period from
November 12, 2006 or during the years ended June 30,
2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
November 12, 2006
|
|
|
2006
|
|
|
2005
|
|
|
Net (loss) income
|
|
$
|
(5,698
|
)
|
|
|
3,141
|
|
|
|
9,218
|
|
Weighted average common shares
|
|
|
1,933
|
|
|
|
1,520
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share basic and diluted
|
|
$
|
(2,947.26
|
)
|
|
|
2,067.04
|
|
|
|
9,218.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 21, 2005, the Company, through its wholly owned
subsidiaries established on that date, West Virginia Alloys,
Inc. (WVA) and West Virginia Environmental Services, Inc.
(WVES), purchased the West Virginia smelting assets of Elkem
Metals Company-Alloy, L.P. (Elkem) for $36,000 plus $1,014 of
acquisition costs. Accordingly, the results of the West Virginia
smelting operations have been included in the accompanying
consolidated financial statements from that date forward. The
acquisition was made for the purpose of expanding the
Companys manufacturing capacity in silicon metal. The
Company disposed of the stock of WVES on June 16, 2006 at a
loss of $249. Subsequent to the sale of the stock, the Company
entered into a
30-year
cost
sharing agreement with WVES under which it agreed to monthly
disposal services of $46 subject to volume and cost adjustments.
In addition, the Company agreed to reimburse, if required, up to
$600 of closure costs related to a nonhazardous industrial waste
disposal facility owned by WVES. Following is a condensed
balance sheet showing the fair value of the assets acquired and
the liabilities assumed as of the date of acquisition:
|
|
|
|
|
|
|
WVA
|
|
|
Current assets
|
|
$
|
10,061
|
|
Property, machinery, and equipment
|
|
|
24,412
|
|
Customer contract
|
|
|
2,491
|
|
Intangible assets
|
|
|
50
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
37,014
|
|
|
|
|
|
|
The remaining assets of Elkem, a hydroelectric facility, were
purchased by a related party, Alloy Power (note 15).
F-79
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
On January 20, 2006 the Company acquired the stock of ASG
from Elkem for $1,750. Accordingly, the results of ASG
operations are included in the accompanying consolidated
financial statements from that date forward. The acquisition was
made to vertically integrate a producer of the principal raw
material used in the Companys manufacturing processes.
Following is a condensed balance sheet showing the fair values
of assets acquired and the liabilities assumed as of the date of
acquisition:
|
|
|
|
|
|
|
ASG
|
|
|
Current assets
|
|
$
|
274
|
|
Property, machinery and equipment
|
|
|
713
|
|
Other assets
|
|
|
25
|
|
Goodwill arising in the acquisition
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
2,206
|
|
Current liabilities
|
|
|
281
|
|
Long-term liabilities
|
|
|
175
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
1,750
|
|
|
|
|
|
|
For both acquisitions noted above, the allocation of the
acquisition cost is based on an appraisal of fair values.
The Companys preferred stock pays no dividends and
provides for its redemption at $1 per share ($2,500) from 20% of
the Companys Free Cash Flow, as defined, beginning
September 30, 2005, but no later than May 2010. The Company
is restricted from amending its Articles of Incorporation and
Bylaws, issuing additional preferred shares or declaring any
dividends as long as any of the preferred shares remain
outstanding. The Company did not anticipate the redemption of
these shares until May 2010. As a result, the preferred stock is
presented as a discounted long-term liability at June 30,
2006 and 2005.
On November 12, 2006, the Company redeemed the preferred
stock for $2,500, including accreted interest of $804, which was
recorded in interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Revolving credit facility due to a bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
$27,500 limit expiring November 10, 2009; interest accrued
at LIBOR or prime, at the Companys option, plus an
applicable margin percentage; (7.82% at November 12, 2006
and 7.92% at June 30, 2006), secured by substantially all
assets of the Company and subject to certain covenant
restrictions
|
|
$
|
5,375
|
|
|
|
5,500
|
|
|
|
|
|
Revolving credit facility DE Shaw*:
|
|
|
|
|
|
|
|
|
|
|
|
|
$17,000 limit expiring June 22, 2007; interest accrued at
LIBOR plus 5.00%; (8.13%) secured by substantially all assets of
the Company
|
|
|
|
|
|
|
|
|
|
|
5,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,375
|
|
|
|
5,500
|
|
|
|
5,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-80
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Senior term loan due to a bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due in quarterly payments of $750 plus interest at
LIBOR or prime, at the Companys option, plus an applicable
margin percentage (9.07% at November 12, 2006 and 9.35% at
June 30, 2006) unpaid principal due November 2010;
secured by substantially all assets of the Company and subject
to certain covenant restrictions
|
|
$
|
27,000
|
|
|
|
27,750
|
|
|
|
|
|
Junior subordinated term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
MI Capital*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due November 2011; interest accrues quarterly at prime
plus 3.25%, minimum 10% (11.50% at November 12, 2006 and at
June 30, 2006); secured by substantially all assets of the
Company and subject to certain loan covenant restrictions
|
|
|
8,500
|
|
|
|
8,500
|
|
|
|
|
|
Junior subordinated term debt DE Shaw*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due November 2011; interest accrues monthly at LIBOR
plus 8%, minimum 10% (13.32% at November 12, 2006 and 13.2%
at June 30, 2006); secured by substantially all assets of
the Company on a subordinated basis and subject to certain loan
covenant restrictions
|
|
|
8,500
|
|
|
|
8,500
|
|
|
|
|
|
Various capital leases with monthly payments aggregating $6
|
|
|
160
|
|
|
|
181
|
|
|
|
|
|
Term loan agreement DE Shaw*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due in 2005; interest accrued at LIBOR plus 5.70%
(8.83%); secured by substantially all assets of the Company
|
|
|
|
|
|
|
|
|
|
|
1,982
|
|
Term loan A MI Capital*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due in 2010; interest accrued quarterly at 7.00%;
secured by substantially all assets of the Company
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
Term loan B MI Capital*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due in 2010; interest accrued at the prime rate plus
3.00%, minimum 10% beginning November 11, 2005 and payable
in kind; secured by substantially all assets of the Company
|
|
|
|
|
|
|
|
|
|
|
23,448
|
|
Term loan C MI Capital*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due in 2009; interest accrued at 12.00%; (5% payable
in cash and 7% payable in kind); secured by substantially all
assets of the Company
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
Term loan C finance fee MI Capital*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal due in 2009; interest accrued quarterly at 12.00%;
secured by substantially all assets of the Company
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,160
|
|
|
|
44,931
|
|
|
|
48,530
|
|
Less current portion
|
|
|
3,066
|
|
|
|
3,066
|
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,094
|
|
|
|
41,865
|
|
|
|
46,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-81
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
Future principal payments on long-term debt are as follows:
|
|
|
|
|
November 12:
|
|
|
|
|
2007
|
|
$
|
3,066
|
|
2008
|
|
|
3,066
|
|
2009
|
|
|
3,028
|
|
2010
|
|
|
3,000
|
|
2011
|
|
|
32,000
|
|
|
|
|
|
|
|
|
$
|
44,160
|
|
|
|
|
|
|
Additionally, the Company has two letters of credit with a
lender totaling $425 and $425 at November 12, 2006 and
June 30, 2006, respectively.
|
|
(10)
|
Pension
and Other Benefits
|
The Company sponsors three noncontributory defined benefit
pension plans that were frozen in 2003.
The Company used a November 12, 2006 measurement date for
the period from July 1, 2006 to November 12, 2006 and
a June 30 measurement date for the years ended June 30,
2006 and 2005. The following provides a reconciliation of
benefit obligations, plan assets and funded status of these
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
18,506
|
|
|
|
18,426
|
|
|
|
16,942
|
|
Interest cost
|
|
|
428
|
|
|
|
1,078
|
|
|
|
1,072
|
|
Actuarial loss (gain)
|
|
|
1,504
|
|
|
|
(10
|
)
|
|
|
1,355
|
|
Benefit payments
|
|
|
(357
|
)
|
|
|
(988
|
)
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, end of year
|
|
|
20,081
|
|
|
|
18,506
|
|
|
|
18,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
16,057
|
|
|
|
14,794
|
|
|
|
13,791
|
|
Actual return on assets
|
|
|
1,149
|
|
|
|
1,131
|
|
|
|
1,267
|
|
Employer contributions
|
|
|
669
|
|
|
|
1,122
|
|
|
|
679
|
|
Benefit payments
|
|
|
(357
|
)
|
|
|
(988
|
)
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
|
17,518
|
|
|
|
16,059
|
|
|
|
14,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(2,563
|
)
|
|
|
(2,447
|
)
|
|
|
(3,632
|
)
|
Calculation of net amount recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund status end of year
|
|
|
(2,563
|
)
|
|
|
(2,447
|
)
|
|
|
(3,632
|
)
|
Unrecognized net actuarial loss
|
|
|
1,854
|
|
|
|
1,025
|
|
|
|
984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
|
(709
|
)
|
|
|
(1,422
|
)
|
|
|
(2,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification of net amount recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
|
(2,563
|
)
|
|
|
(2,447
|
)
|
|
|
(3,632
|
)
|
Accumulated other comprehensive loss
|
|
|
1,854
|
|
|
|
1,025
|
|
|
|
984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(709
|
)
|
|
|
(1,422
|
)
|
|
|
(2,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-82
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
Plans with accumulated benefit obligations in excess of plan
assets as of November 12, 2006 and June 30, 2006 and
2005, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation Exceeds
|
|
|
|
Fair Value of Plan Assets
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Projected benefit obligation
|
|
$
|
20,081
|
|
|
|
18,506
|
|
|
|
18,426
|
|
Accumulated benefit obligation
|
|
|
20,081
|
|
|
|
18,506
|
|
|
|
18,426
|
|
Fair value of plan assets
|
|
|
17,518
|
|
|
|
16,059
|
|
|
|
14,794
|
|
Components of the net periodic pension benefit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Interest cost
|
|
$
|
428
|
|
|
|
1,078
|
|
|
|
1,072
|
|
Expected return on plan assets
|
|
|
(514
|
)
|
|
|
(1,268
|
)
|
|
|
(1,134
|
)
|
Recognized actuarial loss
|
|
|
41
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit
|
|
$
|
(45
|
)
|
|
|
(104
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions
The Company determines its actuarial assumptions on an annual
basis. The assumptions for the defined benefit calculations for
the period from July 1, 2006 to November 12, 2006 and
years ended June 30, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
July 1,
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
Years Ended June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
Expected return on plan assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected return on plan assets is determined based on historical
results adjusted for anticipated market movements.
The Company expects to contribute approximately $473 to the plan
from November 13, 2006 to June 30, 2007. Benefits
expected to be paid by the plan during the ensuing five years
and thereafter are approximately as follows:
|
|
|
|
|
|
|
|
|
11/13/06 - 6/30/07
|
|
|
|
|
|
$
|
635
|
|
7/1/07 - 6/30/08
|
|
|
|
|
|
|
986
|
|
7/1/08 - 6/30/09
|
|
|
|
|
|
|
1,041
|
|
7/1/09 - 6/30/10
|
|
|
|
|
|
|
1,122
|
|
7/1/10 - 6/30/11
|
|
|
|
|
|
|
1,178
|
|
7/1/12 - 6/30/16
|
|
|
|
|
|
|
6,211
|
|
F-83
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
Following is an analysis of plan assets by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
37
|
%
|
|
|
|
|
Equity
|
|
|
53
|
|
|
|
52
|
|
|
|
46
|
|
|
|
|
|
International equity
|
|
|
15
|
|
|
|
16
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys overall strategy is to invest in high-grade
securities and other assets with a limited risk of market value
fluctuation. In general, the Companys goal is to maintain
the following allocation ranges:
|
|
|
|
|
Fixed income
|
|
|
30%-40
|
%
|
Equity
|
|
|
40-50
|
|
International equity
|
|
|
15-20
|
|
The Company administers healthcare benefits for certain retired
employees through a separate welfare plan requiring
reimbursement from the retirees.
The Company provides two defined contribution plans (401(k)
Plans) that allow for employee contributions on a pretax basis.
Employer contributions have been suspended.
Other benefit plans offered by the Company include a
Section 125 Cafeteria Plan for the pretax payment of
healthcare costs and a flexible spending arrangement.
The Company leases certain machinery and equipment, automobiles,
and railcars under both operating leases and on a month-to-month
basis. Rent expense was $660, $745, and $814 for the period from
July 1, 2006 to November 12, 2006 and the years ended
June 30, 2006 and 2005, respectively.
Future minimum lease payments under noncancelable operating
leases with initial lease terms longer than one year at
November 12, 2006 were as follows:
|
|
|
|
|
2007
|
|
$
|
1,372
|
|
2008
|
|
|
1,018
|
|
2009
|
|
|
517
|
|
2010
|
|
|
18
|
|
|
|
|
|
|
|
|
$
|
2,925
|
|
|
|
|
|
|
|
|
(12)
|
Commitments
and Contingencies
|
Legal
Contingencies
The Company was sued by Westbrook Resources Limited, an English
company, for an alleged failure to perform under a contract
entered into in January 2005, to acquire 30,000 tons of
manganese ore. There is a counterclaim by the Company against
Westbrook in respect to the same subject matter whereby we
maintain that the quality, quantity and delivery schedules
maintained by Westbrook were in breach of the contract. The case
went to trial in June 2007, and a judgment was rendered in
November 2007 in favor of Westbrook for a sum to be assessed.
The assessment hearing took place early in 2008. Westbrook is
seeking damages of approximately $2,750 and reimbursement of
legal costs of approximately GBP 500. Management intends to
appeal any such judgment but there is no assurance that the
Company will be successful in its appeal. The Company has
reserved a total of $3,800 related to this contingency at
November 12, 2006.
F-84
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
We are subject to various lawsuits, claims, and proceedings that
arise in the normal course of business, including employment,
commercial, environmental, safety and health matters. Although
it is not presently possible to determine the outcome of these
matters, in the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on our
consolidated financial position, results of operations, or
liquidity.
Environmental
Contingencies
The Company accrues for costs associated with environmental
assessments, remedial efforts and other environmental
liabilities when it becomes probable that a liability has been
incurred and the costs can be reasonably estimated. When a
liability for environmental remediation is recorded, such
amounts will be recorded without giving effect to any possible
future recoveries. At November 12, 2006, June 30, 2006
and June 30, 2005 there are no liabilities recorded for
environmental contingencies. With respect to the cost of ongoing
environmental compliance, including maintenance and monitoring,
such costs are expensed as incurred.
Tax
Contingencies
The Company is subject to income taxes in the United States. In
the ordinary course of business, there are transactions and
calculations that involve uncertain tax implications. Accruals
for tax contingencies are provided for in accordance with the
requirements of SFAS No. 5,
Accounting for
Contingencies
. The Company believes we have adequate support
for the positions taken on our tax returns and that adequate
provisions have been made for all outstanding issues for all
jurisdictions and all open years.
Concentration
of Credit Risk
The Companys products are sold primarily to the chemical,
aluminum, metal castings and solar cell industries.
For the period from July 1, 2006 to November 12, 2006,
two customers accounted for 16.3% and 10.7% of sales,
respectively. Accounts receivable from these customers were
$1,329 and $1,019, respectively, at November 12, 2006.
For the year ended June 30, 2006, three customers accounted
for 13%, 12%, and 10% of sales, respectively. Accounts
receivable from these customers were $2,460, $2,808, and $841,
respectively, at June 30, 2006.
For the year ended June 30, 2005, one customer accounted
for 13% of sales. Accounts receivable from this customer were
$477 at June 30, 2005.
The Companys policy is to maintain credit insurance
coverage on substantially all trade receivables over $25 which
are not covered by letters of credit or bank documentary
collections. Trade receivables of $18,292, $17,095 and $10,443
were outstanding at November 12, 2006 and June 30,
2006 and 2005, respectively.
At November 12, 2006, 44% of the Companys labor force
was subject to collective bargaining agreements. No contracts
are scheduled to expire in the next year.
F-85
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
Power
Commitments
Electric power is a major cost of the Companys production
process, as large amounts of electricity are required to operate
arc furnaces. A summary of electric power purchase commitments
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Facility
|
|
Supplier
|
|
Terms
|
|
Structure
|
|
Capacity
|
|
Beverly, Ohio
|
|
American Electric
Power
|
|
Evergreen, 1 year
|
|
Published tariff rate
|
|
2.5 MW firm,
85 MW interruptible
|
Selma, Alabama
|
|
Alabama Power
|
|
Evergreen, 1 year
|
|
Published tariff rate
|
|
43 MW
|
|
|
|
|
|
|
|
|
|
Alloy, West
Virginia
|
|
Appalachian Power
|
|
Through October 30,
2012
|
|
Published tariff rate
|
|
110 MW
|
Alloy, West
Virginia
|
|
Brookfield Power
|
|
Through December 31,
2021
|
|
Fixed rate
|
|
100 MW
|
Income taxes for the period from July 1, 2006 to
November 12, 2006 and the years ended June 30, 2006
and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Current
|
|
$
|
28
|
|
|
|
1,912
|
|
|
|
5,500
|
|
Deferred
|
|
|
(2,828
|
)
|
|
|
2
|
|
|
|
(532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,800
|
)
|
|
|
1,914
|
|
|
|
4,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the U.S. statutory
federal income tax rate to our effective tax rate stated in
percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
|
|
|
34.0
|
|
State taxes, net of federal benefit
|
|
|
2.4
|
|
|
|
3.9
|
|
|
|
1.0
|
|
Nondeductible interest expense
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
33.0
|
%
|
|
|
37.9
|
|
|
|
35.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-86
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
The Companys deferred tax assets and liabilities at
November 12, 2006 and June 30, 2006 and 2005 consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating losses and carryforwards
|
|
$
|
13,349
|
|
|
|
19,192
|
|
|
|
18,960
|
|
Inventory reserves
|
|
|
|
|
|
|
71
|
|
|
|
|
|
Accruals
|
|
|
3,184
|
|
|
|
1,262
|
|
|
|
1,589
|
|
Other assets
|
|
|
81
|
|
|
|
135
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,614
|
|
|
|
20,660
|
|
|
|
20,610
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(6,107
|
)
|
|
|
(6,030
|
)
|
|
|
(5,845
|
)
|
Investments
|
|
|
(558
|
)
|
|
|
(513
|
)
|
|
|
(505
|
)
|
Intangibles
|
|
|
(16
|
)
|
|
|
(57
|
)
|
|
|
|
|
Other
|
|
|
(36
|
)
|
|
|
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,717
|
)
|
|
|
(6,600
|
)
|
|
|
(6,548
|
)
|
Valuation allowance
|
|
|
(5,488
|
)
|
|
|
(18,960
|
)
|
|
|
(18,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
4,409
|
|
|
|
(4,900
|
)
|
|
|
(4,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes are provided for the difference between the book
and tax basis of assets and liabilities recorded for financial
statement and income tax reporting purposes. Principal
differences relate to net operating loss carryforwards,
depreciable assets (use of different depreciation lives and
methods), accounts receivable (use of different valuation
reserve methods), inventory (use of different cost
capitalization and valuation reserve methods), investments
(different valuation methods) and certain accrued expenses (use
of different expensing methods).
At November 12, 2006, the Company has, for book purposes,
approximately $11,816 of net operating loss carryforwards
(NOLs), expiring through 2026. The Company has approximately
$1,540 of alternative minimum tax and tax credit carryforwards
at November 12, 2006. At November 12, 2006, the
valuation allowance was reduced $13,472 of which $13,213 reduced
the reorganization value in excess of amounts allocable to
identifiable assets for changes to the methodology used to
determine the availability of the Companys historical net
operating losses available to offset future earnings.
The composition of the valuation allowance at November 12,
2006 is as follows:
|
|
|
|
|
|
|
November 12,
|
|
|
|
2006
|
|
Federal NOLs
|
|
$
|
(3,738
|
)
|
State NOLs
|
|
|
(330
|
)
|
Federal credits
|
|
|
(1,336
|
)
|
Capital loss carryover
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
$
|
(5,488
|
)
|
|
|
|
|
|
|
|
(14)
|
Financial
Instruments
|
The Company used the following methods and assumptions to
estimate the fair value of financial instruments:
Cash and Cash Equivalents
The carrying
amounts approximate fair value.
Long and Short-Term Debt
The carrying amounts
of short-term borrowings approximate fair value. The fair value
of long-term debt with fixed interest rates is based on current
rates at which the Company
F-87
GLOBE
METALLURGICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Continued)
November 12, 2006 and June 30, 2006 and 2005
(Dollars in thousands, except share and per share
amounts)
could borrow funds with similar remaining maturities. The
carrying amount of borrowings under variable interest rate
agreements approximates fair value.
The carrying amounts and fair values of financial instruments at
November 12, 2006 and June 30, 2006 and 2005 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 12, 2006
|
|
|
2006
|
|
|
2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit
|
|
|
5,375
|
|
|
|
5,375
|
|
|
|
5,500
|
|
|
|
5,500
|
|
|
|
5,525
|
|
|
|
5,525
|
|
Variable rate debt
|
|
|
44,000
|
|
|
|
44,000
|
|
|
|
44,750
|
|
|
|
44,750
|
|
|
|
25,430
|
|
|
|
25,430
|
|
Fixed rate debt
|
|
|
160
|
|
|
|
160
|
|
|
|
181
|
|
|
|
181
|
|
|
|
23,100
|
|
|
|
22,665
|
|
|
|
(15)
|
Related-Party
Transactions
|
In December 2005, the Company entered into a
15-year
supply agreement with Alloy Power to purchase hydroelectric
power, which amounted to $7,653 during the period from
December 21, 2005 to June 30, 2006 and no payable
balance from July 1, 2006 to November 12, 2006. This
supply of hydroelectric power to the Company was subsequently
contracted to be purchased from an unrelated third party in
October 2006.
Shareholders and affiliates have entered into financing
arrangements with the Company (notes 8 and 9).
The Company sold intellectual property and other assets for
making refined silicon to Solsil, Inc. (Solsil) during the year
ended June 30, 2006. Solsil paid approximately $2,510 for
the reimbursement of administrative expenses and other costs and
the Company recorded the proceeds against selling, general, and
administrative expenses. The total amount sold to Solsil under a
supply agreement for the period from July 1, 2006 and
November 12, 2006 was $687. The receivable associated with
this supply agreement was $161 at November 12, 2006.
Additionally, the Company entered into a facility site lease
with Solsil. The site lease begins July 1, 2006 at a
monthly rate of approximately $6 per month. Amounts purchased
from Solsil were $198 during the period from July 1, 2006
to November 12, 2006, of which $37 was payable to Solsil at
November 12, 2006. There were no amounts purchased from
Solsil prior to June 30, 2006. Additionally, there were
receivables from Solsil in the amount of $1,543 as of
June 30, 2006 related to the sale of assets to Solsil.
Additional sales of assets were sold to this related party from
July 1, 2006 to November 12, 2006 in the amount of
$225.
The Company has a 50% ownership interest in Norchem. The Company
received a back office fee from Norchem of $0, $225 and $225 and
sales to Norchem of $1,111, $2,798 and $2,404 during the period
from July 1, 2006 to November 12, 2006 and years ended
June 30, 2006 and 2005, respectively. Amounts due from
Norchem and included in accounts receivable were $299, $242, and
$137 at November 12, 2006, June 30, 2006 and 2005,
respectively.
The Company paid a management fee to MI Capital for various
services of $125, $300 and $300 during the period from
July 1, 2006 and November 12, 2006, and the years
ended June 30, 2006 and 2005, respectively.
We operate in one reportable segment, silicon metal and
silicon-based specialty alloys.
In August 2006, the Company entered into a merger agreement with
International Metal Enterprises, Inc. whose name was
subsequently changed to Globe Specialty Metals, Inc. (GSM). On
the November 12, 2006, GSM finalized the merger agreement
by acquiring 100% of the outstanding stock of the Company. The
aggregate purchase price was $134,064, which comprised
8.6 million shares of GSM common stock valued at $47,961,
cash of $33,220, GSMs direct costs associated with the
acquisition of $3,348 and assumed debt of $49,535.
F-88
INDEPENDENT
AUDITORS REPORT
To the Shareholders and Management of
Camargo Corrêa Metais S.A.
Breu Branco PA
|
|
1.
|
We have audited the consolidated balance sheets of Camargo
Corrêa Metais S.A. as of December 31, 2006 and 2005,
and the related consolidated statements of operations, changes
in shareholders equity, and changes in financial position
for the three years ended December 31, 2006, 2005 and 2004,
all expressed in Brazilian reais and prepared under the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements.
|
|
2.
|
We conducted our audits in accordance with auditing standards
generally accepted in Brazil and with generally accepted
auditing standards in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
|
|
3.
|
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Camargo Corrêa Metais
S.A. as of December 31, 2006 and 2005, and the related
consolidated statements of operations, changes in
shareholders equity, and changes in financial position for
the three years ended December 31, 2006, 2005 and 2004 in
conformity with Brazilian accounting standards.
|
|
4.
|
As mentioned in Note 7, the Company has total recoverable
taxes of R$15.984 thousand and R$9.834 thousand as of
December 31, 2006 and 2005, respectively, that may be
compensated with other Federal tax debits arising from the
Companys normal business future operations, and for which
the Company depends on Tax Authorities approval for both
compensation
and/or
refund. The Company estimates to use the total amount of its
recoverable taxes in 5 years starting in year 2008. The
Brazilian Federal Revenue Service has a
5-year
period to approve the Companys requests.
|
F-90
INDEPENDENT
AUDITORS REPORT
To the Shareholders and Management of
Camargo Corrêa Metais S.A.
Breu Branco PA
|
|
1.
|
Brazilian accounting standards vary in certain respects from the
accounting principles generally accepted in the United States of
America, including the presentation of a statement of cash flow.
Information relating to the nature and effect of such
differences is presented in Notes 18 and 19 in the
consolidated financial statements.
|
|
2.
|
This report is being reissued in connection with the
consolidated financial statements of the Companys new
parent company Globe Specialty Metals, Inc. as commented in
Note 20.
|
São Paulo, March 30, 2007,
except for Notes 7, 18 and 19 for which the date is
June 11, 2008.
Esmir de Oliveira
Audit Partner
BDO Trevisan Auditores Independentes
F-91
SCHEDULE 1
(Page 1)
CAMARGO CORRÊA METAIS S.A.
|
|
Section .1.
|
CONSOLIDATED
BALANCE SHEETS IN DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts stated in thousands of Brazilian Reais - R$)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Cash and banks
|
|
|
12,522
|
|
|
|
299
|
|
Accounts receivable from customers
|
|
|
19,414
|
|
|
|
19,393
|
|
Inventories
|
|
|
19,793
|
|
|
|
21,285
|
|
Recoverable taxes
|
|
|
2,290
|
|
|
|
2,032
|
|
Other receivables
|
|
|
459
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,478
|
|
|
|
43,405
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
Recoverable taxes
|
|
|
13,694
|
|
|
|
7,802
|
|
Other receivables
|
|
|
275
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,969
|
|
|
|
7,995
|
|
Investments
|
|
|
650
|
|
|
|
650
|
|
Deferred charges
|
|
|
4,314
|
|
|
|
4,655
|
|
Property, plant and equipment, net
|
|
|
97,043
|
|
|
|
103,490
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
|
115,976
|
|
|
|
116,790
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
170,454
|
|
|
|
160,195
|
|
|
|
|
|
|
|
|
|
|
F-92
SCHEDULE 1
(Page 2)
CAMARGO CORRÊA METAIS S.A.
|
|
Section .2.
|
CONSOLIDATED
BALANCE SHEETS IN DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts stated in thousands of Brazilian Reais - R$)
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Suppliers trade payables
|
|
|
25,949
|
|
|
|
12,387
|
|
Financial institutions
|
|
|
12,469
|
|
|
|
15,081
|
|
Salary and vacations payable
|
|
|
2,111
|
|
|
|
2,492
|
|
Dividends and interest on equity capital
|
|
|
|
|
|
|
319
|
|
Taxes payable
|
|
|
3,271
|
|
|
|
158
|
|
Other liabilities
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
44,061
|
|
|
|
30,437
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Financial institutions
|
|
|
7,114
|
|
|
|
10,556
|
|
Other liabilities
|
|
|
1,953
|
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
9,067
|
|
|
|
12,084
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
289,010
|
|
|
|
289,010
|
|
Capital reserve
|
|
|
15
|
|
|
|
15
|
|
Accumulated losses
|
|
|
(171,699
|
)
|
|
|
(171,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
117,326
|
|
|
|
117,674
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
|
170,454
|
|
|
|
160,195
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-93
SCHEDULE 2
CAMARGO CORRÊA METAIS S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Amounts stated in thousands of
|
|
|
|
Brazilian Reais - R$)
|
|
|
Gross sales
|
|
|
137,354
|
|
|
|
114,675
|
|
|
|
125,301
|
|
Deductions from sales
|
|
|
(5,665
|
)
|
|
|
(3,372
|
)
|
|
|
(2,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,689
|
|
|
|
111,303
|
|
|
|
122,374
|
|
Cost of goods sold
|
|
|
(103,402
|
)
|
|
|
(90,508
|
)
|
|
|
(96,896
|
)
|
Depreciation
|
|
|
(8,847
|
)
|
|
|
(8,208
|
)
|
|
|
(8,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
19,440
|
|
|
|
12,587
|
|
|
|
17,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
(12,434
|
)
|
|
|
(6,030
|
)
|
|
|
(5,430
|
)
|
Administrative expenses
|
|
|
(5,382
|
)
|
|
|
(5,578
|
)
|
|
|
(4,472
|
)
|
Depreciation
|
|
|
(687
|
)
|
|
|
(653
|
)
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
937
|
|
|
|
326
|
|
|
|
6,729
|
|
Financial results, net
|
|
|
(153
|
)
|
|
|
(204
|
)
|
|
|
617
|
|
Other income (expense), net
|
|
|
(908
|
)
|
|
|
(8,636
|
)
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(124
|
)
|
|
|
(8,514
|
)
|
|
|
7,959
|
|
Non-operating results
|
|
|
(30
|
)
|
|
|
93
|
|
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results before income taxes and participation of employees and
administrators
|
|
|
(154
|
)
|
|
|
(8,421
|
)
|
|
|
7,211
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(1,443
|
)
|
Participation of the employees and administrators in the results
|
|
|
(194
|
)
|
|
|
(826
|
)
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(348
|
)
|
|
|
(9,247
|
)
|
|
|
5,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-94
SCHEDULE 3
CAMARGO
CORRÊA METAIS S.A.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
AS OF
DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
Capital
|
|
|
Capital
|
|
|
(Accumulated
|
|
|
|
|
|
|
Stock
|
|
|
Reserve
|
|
|
Losses)
|
|
|
Total
|
|
|
|
(Amounts stated in thousands of Brazilian Reais
R$)
|
|
|
Balances as of December 31, 2003
|
|
|
289,010
|
|
|
|
15
|
|
|
|
(165,775
|
)
|
|
|
123,250
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
5,429
|
|
|
|
5,429
|
|
Proportional distribution of profit
|
|
|
|
|
|
|
|
|
|
|
(1,758
|
)
|
|
|
(1,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2004
|
|
|
289,010
|
|
|
|
15
|
|
|
|
(162,104
|
)
|
|
|
126,921
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
(9,247
|
)
|
|
|
(9,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2005
|
|
|
289,010
|
|
|
|
15
|
|
|
|
(171,351
|
)
|
|
|
117,674
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
(348
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2006
|
|
|
289,010
|
|
|
|
15
|
|
|
|
(171,699
|
)
|
|
|
117,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-95
SCHEDULE 4
CAMARGO
CORRÊA METAIS S.A.
CONSOLIDATED
STATEMENTS OF CHANGES IN FINANCIAL POSITION
AS OF
DECEMBER, 31 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Amounts stated in thousands of Brazilian Reais
R$)
|
|
|
SOURCES OF FUNDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash items
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,534
|
|
|
|
8,861
|
|
|
|
8,847
|
|
Write-off of property, plant and equipment
|
|
|
1,126
|
|
|
|
148
|
|
|
|
748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,660
|
|
|
|
9,009
|
|
|
|
9,595
|
|
From third parties
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in other long-term liabilities
|
|
|
425
|
|
|
|
10,204
|
|
|
|
2,118
|
|
Transfers from long-term assets to current assets
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504
|
|
|
|
10,204
|
|
|
|
2,118
|
|
Total sources of funds
|
|
|
11,164
|
|
|
|
19,213
|
|
|
|
11,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USES OF FUNDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income for the year
|
|
|
348
|
|
|
|
9,247
|
|
|
|
(5,429
|
)
|
Addition to property, plant and equipment
|
|
|
2,869
|
|
|
|
4,861
|
|
|
|
11,247
|
|
Additions to deferred charges
|
|
|
1,004
|
|
|
|
1,406
|
|
|
|
1,785
|
|
Increase in other long-term assets
|
|
|
6,052
|
|
|
|
7,803
|
|
|
|
23
|
|
Dividends and interest on equity capital
|
|
|
|
|
|
|
|
|
|
|
1,758
|
|
Decrease in long-term liabilities
|
|
|
812
|
|
|
|
|
|
|
|
|
|
Transfer from long-term liabilities to current liabilities
|
|
|
2,630
|
|
|
|
702
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,715
|
|
|
|
24,019
|
|
|
|
9,562
|
|
(Decrease) increase in working capital
|
|
|
(2,551
|
)
|
|
|
(4,806
|
)
|
|
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Represented by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
54,478
|
|
|
|
43,405
|
|
|
|
44,565
|
|
At beginning of year
|
|
|
43,405
|
|
|
|
44,565
|
|
|
|
42,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
|
11,073
|
|
|
|
(1,160
|
)
|
|
|
2,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
44,061
|
|
|
|
30,437
|
|
|
|
26,791
|
|
At beginning of year
|
|
|
30,437
|
|
|
|
26,791
|
|
|
|
26,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,624
|
|
|
|
3,646
|
|
|
|
169
|
|
(Decrease) increase in working capital
|
|
|
(2,551
|
)
|
|
|
(4,806
|
)
|
|
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-96
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006, 2005 AND
2004
1. OPERATIONS
Camargo Corrêa Metais S.A. (the Company) main
purpose is the production, sale, and export of silicon metal and
silica fume. Their exports represent a substantial part of the
Companys sales. Its plant, installed in the town of Breu
Branco, State of Para, serves metallurgical and chemical
industries. To that end it may explore mineral deposits in
Brazil, sell minerals for producing and selling silicon, silica
fume and other alloys, produce and sell charcoal and timber and
forested and reforested land.
2. PRESENTATION
OF THE FINANCIAL STATEMENTS
The Companys financial statements have been prepared in
accordance with Laws 6.404/76 and 9.249/95 that, in 1996,
extinguished adjustment for inflation of permanent assets,
shareholders equity, and other non-cash items of the
Balance Sheets.
3. SUMMARY
OF SIGNIFICANT ACCOUNTING PRACTICES
3.1.
Statement
of income, and current and noncurrent assets and
liabilities
|
|
|
|
a.
|
they are based on the accrual basis of accounting;
|
|
|
b.
|
the classification of current and noncurrent assets and
liabilities is made in compliance with articles 179 and 180
of Law No. 6.404/76;
|
|
|
c.
|
rights are stated at their realizable values, including earnings
and monetary variations incurred, less the corresponding income
to recognize, when applicable;
|
|
|
|
|
d.
|
obligations are stated at their known or calculable values, plus
the corresponding charges and monetary variations incurred, less
the corresponding expenses to recognize, when applicable;
|
|
|
|
|
e.
|
income and social contribution taxes were determined based on
the respective rates in effect on the tax basis and in
conformity with legal provisions; and
|
|
|
|
|
f.
|
for better presentation and accounting disclosure, the Company
reclassified expenditures from CPMF to Financing Expenditures
that were previously classified in Administrative Expenses.
|
3.2.
Inventories
Stated at the lower of average acquisition cost or market or
realization values. (note 6)
3.3.
Investments
Valued at cost, adjusted for inflation through December 1995. A
provision for possible losses during realization are recognized
at the amount deemed necessary.
3.4.
Property,
plant and equipment
Recorded at acquisition and installation cost, less accumulated
depreciation. Depreciation was calculated on the straight-line
method at rates that take into consideration the useful lives of
assets and were established in conformity with a technical
report, except for forest, for which depletion is based on the
area harvested during the year.
3.5.
Revenue
recognition
Revenue is recorded when title passes to the customer,
represented by the date in which the products are shipped
normally at FOB sales method to the client. Selling prices are
fixed based on purchase orders or contractual arrangements.
Provision, when applicable, is made for estimated returns and
estimated credit losses.
Shipping and handling costs are classified as selling expenses
in the consolidated statement of income.
F-97
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
3.6.
Income
tax and social contribution
Income tax and social contribution are calculated according to
prevailing tax legislation over taxable income, adjusted from
income before tax. The provision for income tax is recognized at
the rate of 15%, plus 10% surtax on taxable income. The
provision for social contribution tax is recognized at the rate
of 9%.
3.7.
Use
of estimates
The preparation of financial statements in accordance with
Brazilian accounting practices requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
4. CONSOLIDATED
FINANCIAL STATEMENTS
The consolidated financial statements as of December 31,
2006, 2005 and 2004 were prepared in accordance with the
consolidation practices provided in the Corporate Law and
comprise the individual financial statements of Camargo
Corrêa Metais S.A. and of its subsidiary Reflorestadora
Água Azul Ltda.
The consolidation process of balance sheet accounts and
statement of operations accounts corresponds to the sum of the
balances of assets, liabilities, income and expenses of the
companies included in the consolidation, according to their
nature, complemented by the elimination of interests held in the
shareholders equity of Camargo Corrêa Metais S.A., as
well as assets, liabilities, income, costs and expenses arising
from transactions between them.
5. CUSTOMERS TRADE
RECEIVABLES
|
|
|
|
|
|
|
|
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
(R$000)
|
|
|
Trade notes receivable Domestic customers
|
|
|
3,348
|
|
|
|
1,862
|
|
Customers overseas Third parties
|
|
|
6,828
|
|
|
|
128
|
|
Customers overseas Companies of the Group
|
|
|
19,836
|
|
|
|
25,157
|
|
(-) Advances on export contracts
|
|
|
(10,598
|
)
|
|
|
(7,754
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,414
|
|
|
|
19,393
|
|
|
|
|
|
|
|
|
|
|
6. INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
(R$000)
|
|
|
Finished products
|
|
|
7,881
|
|
|
|
8,229
|
|
Work in process
|
|
|
3,074
|
|
|
|
5,005
|
|
Raw materials
|
|
|
6,577
|
|
|
|
5,536
|
|
Production and packing materials
|
|
|
448
|
|
|
|
577
|
|
Advances to suppliers
|
|
|
252
|
|
|
|
304
|
|
Others
|
|
|
1,561
|
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,793
|
|
|
|
21,285
|
|
|
|
|
|
|
|
|
|
|
F-98
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
7. RECOVERABLE
TAXES
|
|
|
|
|
|
|
|
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
(R$000)
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
IRPJ and CSL Prepayments in the current year
|
|
|
1,097
|
|
|
|
2,032
|
|
COFINS to offset
|
|
|
174
|
|
|
|
|
|
IPI to offset
|
|
|
804
|
|
|
|
|
|
Other taxes recoverable
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,290
|
|
|
|
2,032
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
IRPJ and CSL Prepayments from prior years
|
|
|
2,627
|
|
|
|
259
|
|
PIS recoverable
|
|
|
1,924
|
|
|
|
1,480
|
|
COFINS recoverable
|
|
|
8,140
|
|
|
|
5,324
|
|
IPI credits Refund requests
|
|
|
990
|
|
|
|
726
|
|
Other taxes recoverable
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,694
|
|
|
|
7,802
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,984
|
|
|
|
9,834
|
|
|
|
|
|
|
|
|
|
|
Captions:
|
|
|
|
|
|
|
|
|
IRPJ Corporate Income Tax
|
|
|
|
|
|
|
|
|
CSL Social Contribution Tax on Income
|
|
|
|
|
|
|
|
|
PIS Contribution the Social Integration Program
|
|
|
|
|
|
|
|
|
COFINS Contribution for Social Security Funding
|
|
|
|
|
|
|
|
|
IPI Federal VAT
|
|
|
|
|
|
|
|
|
F-99
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
Refund requests regarding PIS and COFINS are associated with
credits taken on the acquisition of electric power, services,
and inputs used in the production process. Refund requests for
all the above-mentioned tax credits have been filed with the
Federal Revenue Service, as legally required. The Company may
also compensate all Federal tax credits, including PIS and
COFINS, with other Federal tax debits arising from the
Companys normal business future operations, for which the
Company depends on Tax Authorities approval. The Company
estimates to use the total amount of its recoverable taxes in
5 years starting in year 2008. The Brazilian Federal
Revenue Service has a
5-year
period to approve the Companys requests.
|
|
8.
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
Depreciation Rates
|
|
(R$000)
|
|
|
(R$000)
|
|
|
Net (R$000)
|
|
|
Net (R$000)
|
|
|
Plots of land
|
|
|
|
|
1,061
|
|
|
|
|
|
|
|
1,061
|
|
|
|
1,061
|
|
Buildings and facilities
|
|
2,33 to 4,00
|
|
|
60,912
|
|
|
|
25,067
|
|
|
|
35,845
|
|
|
|
37,114
|
|
Machinery and equipment
|
|
3,33 to 33,33
|
|
|
103,074
|
|
|
|
70,376
|
|
|
|
32,698
|
|
|
|
38,968
|
|
Furniture and fixtures
|
|
10
|
|
|
514
|
|
|
|
394
|
|
|
|
120
|
|
|
|
154
|
|
Vehicles
|
|
5,00 to 20,00
|
|
|
447
|
|
|
|
407
|
|
|
|
40
|
|
|
|
160
|
|
Forests information(1)
|
|
Variable according
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to the extraction
|
|
|
31,464
|
|
|
|
5,362
|
|
|
|
26,102
|
|
|
|
24,893
|
|
Rights and trademarks
|
|
Variable according
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to the extraction
|
|
|
929
|
|
|
|
268
|
|
|
|
661
|
|
|
|
701
|
|
Others
|
|
|
|
|
959
|
|
|
|
443
|
|
|
|
516
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
199,360
|
|
|
|
102,317
|
|
|
|
97,043
|
|
|
|
103,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Forests information refers to accumulated costs of the
Companys reforestation project. Depletion is calculated as
the area is being exploited.
|
|
|
9.
|
SUPPLIERS
TRADE PAYABLES
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
(R$000)
|
|
|
Centrais Betricas Norte do Brasil
|
|
|
|
|
|
|
|
|
Eletronorte
|
|
|
16,978
|
|
|
|
4,647
|
|
SGL Carbon
|
|
|
2,460
|
|
|
|
2,493
|
|
Other suppliers and accounts payable
|
|
|
6,511
|
|
|
|
5,247
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,949
|
|
|
|
12,387
|
|
|
|
|
|
|
|
|
|
|
The Company has an electric power supply contract until 2018
with Eletronorte. In 2008, in compliance with the contract, the
tariff will be adjusted. Since August 2005, Eletronorte has not
included in its invoices amounts representing the collection of
the power transmission. The Company, following the opinion of
its legal counselors, has been formally protesting on a monthly
basis that non-billing, and the amount is duly recorded in Trade
Payable. ANEEL Brazilian Electric Power Agency,
started the mediation between the parties.
F-100
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
|
|
10.
|
FINANCIAL
INSTITUTIONS
|
Loans and financing were made chiefly for export operations and
acquisition of property, plant, and equipment for the Company.
Their composition is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
Type
|
|
Interest Rates
|
|
12/31/2006
|
|
12/31/2005
|
|
|
|
|
|
|
(R$000)
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradesco
|
|
Export financing
|
|
5,49% to 5,80%
|
|
|
94
|
|
|
|
7
|
|
Unibanco
|
|
Export financing
|
|
4,40% to 6,00%
|
|
|
1,664
|
|
|
|
3,582
|
|
Unibanco
|
|
Export prepayment
|
|
Libor + 1,25%
|
|
|
2,256
|
|
|
|
|
|
Banco Votorantim
|
|
Export financing
|
|
5.80%
|
|
|
1,596
|
|
|
|
|
|
Citibank
|
|
Export financing
|
|
5,13% to 5,29%
|
|
|
|
|
|
|
706
|
|
HSBC
|
|
Export financing
|
|
4,10% to 5,71%
|
|
|
|
|
|
|
4,755
|
|
Banco do Brasil
|
|
Export financing
|
|
4,15% to 6,02%
|
|
|
6,359
|
|
|
|
5,557
|
|
Banco do Brasil
|
|
FINAME
|
|
TJLP
|
|
|
500
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,469
|
|
|
|
15,081
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unibanco
|
|
Export prepayment
|
|
Libor + 1,25%
|
|
|
6,412
|
|
|
|
9,360
|
|
Banco do Brasil
|
|
FINAME
|
|
TJLP
|
|
|
702
|
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,114
|
|
|
|
10,556
|
|
|
|
|
|
|
|
|
19,583
|
|
|
|
25,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Captions:
TJLP Long-term Interest Rate
FINAME Government Agency for Machinery &
Equipment Financing
Long-term amounts have the following composition per year of
maturity:
|
|
|
|
|
|
|
|
|
Maturity
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
(R$000)
|
|
|
2007
|
|
|
|
|
|
|
2,834
|
|
2008
|
|
|
6,908
|
|
|
|
7,515
|
|
2009
|
|
|
206
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,114
|
|
|
|
10,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
(R$000)
|
|
|
State VAT (ICMS)
|
|
|
2,644
|
|
|
|
48
|
|
Other taxes and contributions
|
|
|
627
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,271
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
Until April 2006, in compliance with Law 6,489/02, the Company,
as well as other 186 companies, had a tax incentive from
the government of the State of Pará regarding ICMS.
Starting in April 2006, item I of article 5 of Law
6,489/02 was declared unconstitutional by the Brazilian Supreme
Federal Court. The amounts of ICMS payable since then are
recorded in Taxes Payable, whose period was extended by the
Government of Pará, as a way of softening the effect of the
incentive loss.
On December 15, 2006, the Government of Pará enacted
Decree 2680, reestablishing the Tax Incentive with the same
previous benefits.
F-101
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
|
|
12.
|
RELATED
PARTY TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Camargo Correa
|
|
|
Camargo Correa
|
|
|
|
|
|
|
|
|
|
Overseas LTD
|
|
|
Cimentos S/A
|
|
|
Camargo Correa S/A
|
|
|
Other Related Parties
|
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2005
|
|
|
|
(R$000)
|
|
|
Balance sheet positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
19,836
|
|
|
|
25,157
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370
|
|
|
|
546
|
|
Interest on equity (capital payable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
Income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
82,931
|
|
|
|
77,096
|
|
|
|
3,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange variation
|
|
|
(894
|
)
|
|
|
1,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and/ or expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,028
|
|
|
|
1,587
|
|
|
|
13.
|
CONTINGENT
LIABILITIES
|
Based on the evaluation of legal advisors, the financial
statements do not include provisions for contingent liabilities
of civil, tax / fiscal or labor natures. According to
that evaluation, the most relevant proceedings against the
Company classified as possible loss are commented below:
13.1.
Tax
contingencies
The Company is a defendant in the following Tax Proceedings:
|
|
|
|
|
Tax deficiency notice issued by the Federal Revenue Service and
taxes claimed in court by the National Treasury, concerning
Import Tax and Federal VAT (IPI), supposedly due to the
non-compliance with the Drawback regime, at an amount of R$2,871
thousand (R$2,155 thousand in 2005);
|
|
|
|
Tax deficiency notice issued by the Treasury Department of the
State of Pará due to the assumed lack of payment of the
ICMS rate difference in the acquisition of materials used in the
Production process, at an amount of R$334 thousand;
|
|
|
|
Tax deficiency notice of IBAMA for the assumed suppression of
native vegetation without authorization of the competent agency,
at an amount of R$214 thousand;
|
|
|
|
Fiscal execution by the National Treasury in relation to taxes
offset in the Statement of Federal Taxes and Contributions
(DCTF), rejected due to the supposed expiration of the right to
the Credits used in the offsetting, at an amount of R$47
thousand;
|
|
|
|
Fiscal execution by the National Treasury in relation to taxes
offset in the Statement of Federal Taxes and Contributions
(DCTF) and rejected due to the supposed expiration of the right
to the Credits used in the offsetting, at an amount of R$221
thousand; and
|
|
|
|
Taxes offset in the Statement of Federal Taxes and Contributions
(DCTF), whose credits used in the process were partially
rejected by the Federal Revenue Service, at an amount of R$448
thousand.
|
13.2.
Labor
Contingencies
The Company is a defendant in individual and collective Labor
Proceedings, and is codefendant in labor complaints filed by
employees of outsourced companies, at an amount of R$616
thousand.
13.3.
Civil
Contingencies
The Company is a defendant in the following Civil Proceedings:
|
|
|
|
|
An action filed by OSCAR LUIS DE MORAES for compensation of
assumed losses to a Rural Property, at an amount of R$850
thousand;
|
F-102
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
An action filed by TRANSMIX Comercio, Representacoes
e Trasportes Ltda, for compensation of supposed material and
moral damages, and loss of profits, amounting to R$17,931
thousand, whose sentence was favorable to CCM, determining the
termination of the action without judgment of merit.
|
14.1.
Capital
Stock
The companys capital stock is represented by
33,115,708,363 common shares, all nominative and without par
value.
14.2.
Capital
Reserve
Refer to investment in Fiscal Incentives.
|
|
15.
|
TAX
LOSSES AND CREDITS TO OFFSET
|
The Company has tax losses at the amount of R$181,489 thousand
(R$181,217 thousand in 2005) and social contribution tax
negative basis of R$119,368 thousand (R$119,097 thousand in
2005) to be offset with future income. The company did not
recognize a deferred tax asset from these bases because of the
lack of historical losses in current earnings. The
Companys management intends to accrue a deferred tax asset
as soon as conditions for recovery together with expectation of
future positive basis begin to be of reasonable occurrence.
The Company has insurance policies to cover its assets of the
kinds named and operational risks (fire, break of machines,
electric damages, tumults and strikes, flooding, equipment in
general and others), loss of profits, civil liability, group
life insurance, and transportation. For renewal of the policy to
the period 2006/2007, the services of a specialized company was
contracted to evaluate the assets and real estate properties of
the Company, based on market values.
|
|
17.
|
FINANCIAL
INSTRUMENTS
|
The Company operates and manages those investments through
control policies and establishment of operating strategy
approved by the management.
As established by CVM (Brazilian SEC)
Instruction No. 235/95, we present the following
information about financial instruments:
Cash on hand, in banks and financial investments:
The amounts accounted for are close to their realization values.
Derivatives:
The Company does not operate with derivatives.
Risk management:
(i) Exchange
and interest rate risks
This risk is due to the possibility of the Company incurring
losses in view of fluctuations in exchange and interest rates.
Therefore, the Company continually monitors those oscillations,
with the purpose of evaluating the need of contracting
operations to protect the Company against the risk of
instability in exchange and interest rates, and the Company
adopts a conservative policy in the investment of its resources.
The Company does not have financial instruments deemed to
protect exposure to exchange rates and interest rates as of
December 31, 2006 and 2005.
F-103
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
(ii) Credit
Risks
The Companys sales policy is associated to the level of
credit risk it is willing to run in the course of business.
The diversification of its receivables, the selection of
customers, as well as the
follow-up
of
financing periods of sales and individual limits are procedures
adopted to minimize possible problems of default related to
accounts receivable.
|
|
18.
|
RECONCILIATION
OF STATEMENTS OF SHAREHOLDERS EQUITY AND NET INCOME FOR
DIFFERENCES BETWEEN BRAZILIAN GAAP AND US GAAP AS OF
DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(R$000)
|
|
|
Shareholders equity BR GAAP
|
|
|
117,326
|
|
|
|
117,674
|
|
|
|
126,921
|
|
US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges written-off under US GAAP (Note A)
|
|
|
(4,314
|
)
|
|
|
(4,655
|
)
|
|
|
(4,447
|
)
|
Asset retirement obligation SFAS 143
(Note B)
|
|
|
(126
|
)
|
|
|
(84
|
)
|
|
|
(42
|
)
|
Deferred income tax on US GAAP differences (Note C)
|
|
|
1,492
|
|
|
|
1,583
|
|
|
|
1,512
|
|
Inflationary restatement period when Brazilian Reais not
considered to be a functional currency (Note D)
|
|
|
8,739
|
|
|
|
9,712
|
|
|
|
10,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity US GAAP
|
|
|
123,117
|
|
|
|
124,230
|
|
|
|
134,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income BR GAAP
|
|
|
(348
|
)
|
|
|
(9,247
|
)
|
|
|
5,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges treatment (Note A)
|
|
|
266
|
|
|
|
(208
|
)
|
|
|
(1
|
)
|
Asset retirement obligation SFAS 143
(Note B)
|
|
|
(63
|
)
|
|
|
(63
|
)
|
|
|
(63
|
)
|
Deferred tax on US GAAP differences (Note C)
|
|
|
(69
|
)
|
|
|
92
|
|
|
|
447
|
|
Inflationary restatement (Note D)
|
|
|
(851
|
)
|
|
|
(871
|
)
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income US GAAP
|
|
|
(1,065
|
)
|
|
|
(10,297
|
)
|
|
|
5,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-104
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
|
|
A.
|
ACCUMULATED
EFFECTS OF DEFERRED CHARGES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(R$000)
|
|
|
Write-off of deferred charges from balance position:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(1,652
|
)
|
|
|
(1,957
|
)
|
|
|
(1,738
|
)
|
SAP implementation
|
|
|
(1,548
|
)
|
|
|
(1,333
|
)
|
|
|
(981
|
)
|
Other maintenance
|
|
|
(1,114
|
)
|
|
|
(1,365
|
)
|
|
|
(1,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total write-off
|
|
|
(4,314
|
)
|
|
|
(4,655
|
)
|
|
|
(4,447
|
)
|
Effect in shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance of 2004
|
|
|
(3,193
|
)
|
|
|
(3,193
|
)
|
|
|
(3,193
|
)
|
Current earnings 2004
|
|
|
(827
|
)
|
|
|
(827
|
)
|
|
|
(827
|
)
|
Current earnings 2005
|
|
|
(137
|
)
|
|
|
(137
|
)
|
|
|
|
|
Current earnings 2006
|
|
|
176
|
|
|
|
|
|
|
|
|
|
Deferred tax effect 2004
|
|
|
(427
|
)
|
|
|
(427
|
)
|
|
|
(427
|
)
|
Deferred tax effect 2005
|
|
|
(71
|
)
|
|
|
(71
|
)
|
|
|
|
|
Deferred tax effect 2006
|
|
|
90
|
|
|
|
|
|
|
|
|
|
Write off
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total effect in equity
|
|
|
(4,314
|
)
|
|
|
(4,655
|
)
|
|
|
(4,447
|
)
|
Effect in net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold: depreciation
|
|
|
936
|
|
|
|
933
|
|
|
|
497
|
|
Selling, general and administrative: depreciation
|
|
|
333
|
|
|
|
265
|
|
|
|
34
|
|
Administrative expenses
|
|
|
(1,003
|
)
|
|
|
(1,406
|
)
|
|
|
(1,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross effect in net income
|
|
|
266
|
|
|
|
(208
|
)
|
|
|
(1,254
|
)
|
Deferred tax effect (34%)
|
|
|
(90
|
)
|
|
|
71
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net effect in net income
|
|
|
176
|
|
|
|
(137
|
)
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Brazilian GAAP pre-operational expenses relating to
start-up
operations, research and development, implementation of software
and other maintenance costs are registered as deferred charges
in long-term assets and amortized over a five year period using
the straight-line method. According to US GAAP those expenses
are expensed immediately in current earnings when incurred.
Accordingly, the net amounts of R$4,314 thousand, R$4,655
thousand and R$4,447 thousand were written off against
accumulated losses, including reversion of the amount amortized
in current earnings of 2006, 2005 and 2004, respectively.
|
|
B.
|
ASSET
RETIREMENT OBLIGATIONS (ARO)
|
Under Brazilian GAAP no accounting provision exists for costs to
be incurred by the company for closing and restoration of the
pit mines. For US GAAP, according to SFAS 143 all future
costs incurred by the company related to closing, reforestation,
and restoration should be measured as per its discounted present
value. This value is calculated as the present value to restore
four pit mines in time ranges from five to thirty years. The
average value used to restore each mine is $0.50 of Reais (fifty
cents of Reais) per depleted ton. The estimate of $0.50 per ton
is based on past costs incurred by the Company with other mines
already depleted. The total future value restoration cost for
the four mines with different depletion time horizons is R$1,198
thousand. This value is equivalent to R$186 thousand in 2003
present value terms. The discount rate used to calculate the
present value obligations is the TJLP Long Term
Interest Rate issued by the Brazilian National Monetary Council
of 9% representing the discount rate on long-term liabilities.
The reconciliation statement to US GAAP recognizes an ARO in
2003 and increased its carrying amount by R$186 thousand, which
is accrued against the liability.
F-105
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
The reconciliation statement to US GAAP also recognizes yearly
amortization of R$14 thousand on the asset portion of ARO.
Concurrently, the annual amount of R$49 thousand is accrued to
liabilities as accretion (interest) expense to justify the
AROs additional future cost.
The adjustments relating to recognition of the Asset Retirement
Obligation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(R$000)
|
|
|
Adjustments in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax over ARO (accumulated net income effect x 34%)
|
|
|
63
|
|
|
|
42
|
|
|
|
21
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation
|
|
|
144
|
|
|
|
158
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARO related assets
|
|
|
207
|
|
|
|
200
|
|
|
|
193
|
|
Adjustments in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
ARO liability
|
|
|
333
|
|
|
|
284
|
|
|
|
235
|
|
Adjustments in shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current earnings 2004
|
|
|
(42
|
)
|
|
|
(42
|
)
|
|
|
(42
|
)
|
Current earnings 2005
|
|
|
(42
|
)
|
|
|
(42
|
)
|
|
|
|
|
Current earnings 2006
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
(126
|
)
|
|
|
(84
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity US GAAP
|
|
|
207
|
|
|
|
200
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments in current earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income US GAAP adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion (interest) expense
|
|
|
(49
|
)
|
|
|
(49
|
)
|
|
|
(49
|
)
|
ARO depreciation expense
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges (deferred tax effect not included)
|
|
|
(63
|
)
|
|
|
(63
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. DEFERRED
INCOME TAXES
The reconciliation statement to US GAAP recognizes the deferred
income tax effect over all temporary differences from the
restatement from Brazilian GAAP. Only the adjustments of ARO and
write-off of Deferred Charges are considered temporary
differences. The inflationary restatement of fixed assets and
share capital based on
EITF 94-2
is considered a permanent difference since it will not reoccur
in the future.
F-106
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
The adjustments of deferred tax assets can be summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(R$000)
|
|
|
Adjustments affecting equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges written off from long-term assets
|
|
|
(4,314
|
)
|
|
|
(4,655
|
)
|
|
|
(4,447
|
)
|
Creation of ARO
|
|
|
(126
|
)
|
|
|
(84
|
)
|
|
|
(42
|
)
|
Other
|
|
|
52
|
|
|
|
84
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,388
|
)
|
|
|
(4,655
|
)
|
|
|
(4,447
|
)
|
|
|
|
x 34
|
%
|
|
|
x 34
|
%
|
|
|
x 34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax credit created against accumulated earnings
|
|
|
1,492
|
|
|
|
1,583
|
|
|
|
1,512
|
|
Adjustments affecting current earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges adjustments to income statement to agree with
US GAAP
|
|
|
266
|
|
|
|
(208
|
)
|
|
|
(1,252
|
)
|
Amortization of ARO in current earnings
|
|
|
(63
|
)
|
|
|
(63
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
(271
|
)
|
|
|
(1,315
|
)
|
Deferred tax effect over:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges (34%)
|
|
|
(90
|
)
|
|
|
71
|
|
|
|
426
|
|
ARO (34%)
|
|
|
21
|
|
|
|
21
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax (expense) created in current earnings
|
|
|
(69
|
)
|
|
|
92
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. INFLATIONARY
RESTATEMENT
Brazil changed its currency during 1995 from Cruzeiro to Real.
Prior to 1995 Brazil was considered a hyperinflationary economy.
This practice usually converged to the U.S. Dollar to serve
as proxy functional currency. Starting in 1995 Brazil entered a
period of currency stability. Starting from end of 1997 the
Brazilian economy was no longer considered hyperinflationary
after the three consecutive years, and the new currency, the
Real, could be used as a functional currency for US GAAP
purposes. This adjustment to the Real as a new functional
currency creates an inflationary restatement.
The effects of the inflationary restatement to US GAAP are
demonstrated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(R$000)
|
|
|
Effect in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital restatement
|
|
|
31,949
|
|
|
|
31,949
|
|
|
|
31,949
|
|
Fixed asset restatement (net effect)
|
|
|
(23,210
|
)
|
|
|
(22,237
|
)
|
|
|
(21,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect in equity
|
|
|
8,739
|
|
|
|
9,712
|
|
|
|
10,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect in current earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Reversal) Addition of depreciation expense from restatement
|
|
|
(851
|
)
|
|
|
(871
|
)
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E.
|
FAIR
VALUE ADJUSTMENT OF AVAILABLE FOR SALE SECURITY
ELETROBRÁS
|
The Company has interest shares on Eletrobrás (public
trading company in Brazil), which is kept at cost method with no
adjustment at fair value in accordance with Brazilian GAAP. For
US GAAP purposes, this investment is classified as an available
for sale security and in this regard has to be adjusted at fair
value against Other Comprehensive Income, within the equity
account, with no effect in the income statement, as in
accordance with FAS 115
Accounting for
Certain Instruments in Debit and Equity Securities
. The
adjustments presented in the reconciliation are net of 34%
income tax. The Company obtained the shares on Eletrobrás
on April 28, 2005. The shares of Eletrobrás are quoted
at Bovespa (São Paulo Stock Exchange).
F-107
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
|
|
F.
|
DEFERRED
TAX ASSET AND VALUATION ALLOWANCE
|
FAS 109 requires establishment of a deferred tax asset with
the related valuation allowance arisen from accumulated tax
losses presumed to be offset in the future. According to
Brazilian income tax, accumulated losses are indefinite and can
be compensated up to 30% with future income. Income tax rate is
34% (25% income tax and 9% social contribution). The
Companys deferred tax asset would be around
R$61.706 thousand in 2006 and R$61.614 thousand in
2005, which are reduced by a 100% valuation allowance.
F-108
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
|
|
19.
|
STATEMENTS
OF CASH FLOW AS OF DECEMBER 31, 2006, 2005 AND 2004
|
19.1.
Statements
of Cash Flow per Brazilian GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(R$000)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the year
|
|
|
(348
|
)
|
|
|
(9,247
|
)
|
|
|
5,429
|
|
Adjustments to reconcile net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,534
|
|
|
|
8,861
|
|
|
|
8,847
|
|
Loss on disposal of permanent assets
|
|
|
1,126
|
|
|
|
148
|
|
|
|
748
|
|
Interest, monetary and exchange variation
|
|
|
95
|
|
|
|
1,079
|
|
|
|
750
|
|
Increases and decreases in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivable
|
|
|
(21
|
)
|
|
|
(9,040
|
)
|
|
|
13,192
|
|
Inventories
|
|
|
1,492
|
|
|
|
1,822
|
|
|
|
(9,178
|
)
|
Suppliers
|
|
|
13,562
|
|
|
|
1,639
|
|
|
|
(2,557
|
)
|
Tax and contribution payable
|
|
|
3,113
|
|
|
|
(274
|
)
|
|
|
(139
|
)
|
Payment of software implementation costs
|
|
|
(697
|
)
|
|
|
(575
|
)
|
|
|
(1,148
|
)
|
Payment of research and development costs
|
|
|
(307
|
)
|
|
|
(831
|
)
|
|
|
(637
|
)
|
Other assets and liabilities, net
|
|
|
(5,990
|
)
|
|
|
(2,765
|
)
|
|
|
(2,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,907
|
|
|
|
64
|
|
|
|
7,139
|
|
Net cash provided by operating activities
|
|
|
21,559
|
|
|
|
(9,183
|
)
|
|
|
12,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property plant and equipment
|
|
|
(2,869
|
)
|
|
|
(4,861
|
)
|
|
|
(11,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,869
|
)
|
|
|
(4,861
|
)
|
|
|
(11,247
|
)
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings from short and long term debts
|
|
|
19,719
|
|
|
|
29,308
|
|
|
|
28,768
|
|
Payments of short and long term debts
|
|
|
(25,867
|
)
|
|
|
(18,121
|
)
|
|
|
(25,710
|
)
|
Payment of interest on equity capital
|
|
|
(319
|
)
|
|
|
(1,176
|
)
|
|
|
(1,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(6,467
|
)
|
|
|
10,011
|
|
|
|
1,106
|
|
Net increase (decrease) in cash
|
|
|
12,223
|
|
|
|
(4,033
|
)
|
|
|
2,427
|
|
Cash at the beginning of the year
|
|
|
299
|
|
|
|
4,332
|
|
|
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the year
|
|
|
12,522
|
|
|
|
299
|
|
|
|
4,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
1,477
|
|
|
|
686
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid or compensated
|
|
|
|
|
|
|
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-109
CAMARGO
CORRÊA METAIS S.A.
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
AS OF DECEMBER 31, 2006, 2005 AND 2004
19.2.
Reconciliation
of Statements of Cash Flow for differences between Brazilian
GAAP and US GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Brazilian
|
|
|
|
|
|
U.S.
|
|
|
Brazilian
|
|
|
|
|
|
U.S.
|
|
|
Brazilian
|
|
|
|
|
|
U.S.
|
|
|
|
GAAP
|
|
|
Adjust.
|
|
|
GAAP
|
|
|
GAAP
|
|
|
Adjust.
|
|
|
GAAP
|
|
|
GAAP
|
|
|
Adjust.
|
|
|
GAAP
|
|
|
|
(R$000)
|
|
|
Net Income
|
|
|
(348
|
)
|
|
|
(717
|
)
|
|
|
(1,065
|
)
|
|
|
(9,247
|
)
|
|
|
(1,050
|
)
|
|
|
(10,297
|
)
|
|
|
5,429
|
|
|
|
(704
|
)
|
|
|
4,725
|
|
Operating activities per Brazilian GAAP
|
|
|
21,907
|
|
|
|
|
|
|
|
21,907
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
|
7,139
|
|
|
|
|
|
|
|
7,139
|
|
US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charges treatment
(Note 19-A)
|
|
|
|
|
|
|
(266
|
)
|
|
|
(266
|
)
|
|
|
|
|
|
|
208
|
|
|
|
208
|
|
|
|
|
|
|
|
1,254
|
|
|
|
1,254
|
|
Asset retirement obligations
(Note 19-B)
|
|
|
|
|
|
|
63
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
63
|
|
Deferred tax on US GAAP differences -
(Note 19-C)
|
|
|
|
|
|
|
69
|
|
|
|
69
|
|
|
|
|
|
|
|
(92
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(447
|
)
|
|
|
(447
|
)
|
Inflationary restatement
(Note 19-D)
|
|
|
|
|
|
|
851
|
|
|
|
851
|
|
|
|
|
|
|
|
871
|
|
|
|
871
|
|
|
|
|
|
|
|
(166
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by operating activities
|
|
|
21,559
|
|
|
|
|
|
|
|
21,559
|
|
|
|
(9,183
|
)
|
|
|
|
|
|
|
(9,183
|
)
|
|
|
12,568
|
|
|
|
|
|
|
|
12,568
|
|
Total cash provided by (used in) investing activities
|
|
|
(2,869
|
)
|
|
|
|
|
|
|
(2,869
|
)
|
|
|
(4,861
|
)
|
|
|
|
|
|
|
(4,861
|
)
|
|
|
(11,247
|
)
|
|
|
|
|
|
|
(11,247
|
)
|
Total cash provided by (used in) financing activities
|
|
|
(6,467
|
)
|
|
|
|
|
|
|
(6,467
|
)
|
|
|
10,011
|
|
|
|
|
|
|
|
10,011
|
|
|
|
1,106
|
|
|
|
|
|
|
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
12,223
|
|
|
|
|
|
|
|
12,223
|
|
|
|
(4,033
|
)
|
|
|
|
|
|
|
(4,033
|
)
|
|
|
2,427
|
|
|
|
|
|
|
|
2,427
|
|
Cash at the beginning of the year
|
|
|
299
|
|
|
|
|
|
|
|
299
|
|
|
|
4,332
|
|
|
|
|
|
|
|
4,332
|
|
|
|
1,905
|
|
|
|
|
|
|
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the year
|
|
|
12,522
|
|
|
|
|
|
|
|
12,522
|
|
|
|
299
|
|
|
|
|
|
|
|
299
|
|
|
|
4,332
|
|
|
|
|
|
|
|
4,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
1,477
|
|
|
|
|
|
|
|
1,477
|
|
|
|
686
|
|
|
|
|
|
|
|
686
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid / compensated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,443
|
|
|
|
|
|
|
|
1,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2007 there was a change in the Companys
shareholding. The 33.115.698.412 registered common shares
belonging to Camargo Corrêa S.A. were sold to Globe Metais
Participações Ltda.
During an Extraordinary Meeting held on February 26, 2007
the new shareholders decided to change the Companys name
to Globe Metais Ind. e Com. S.A. During the same meeting, it
approved the merger between Globe Metais Participações
Ltda and Globe Metais Ind. e Com. S.A., with all shares of the
new company being held by Globe Specialty Metals, Inc.
F-110
GLOBE
METALES S.A.
(FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
Carlos Pellegrini 1141 Piso 11
CIUDAD AUTÓNOMA DE BUENOS AIRES
ARGENTINA
|
|
|
Main activity:
|
|
Manufacture and sale of special ferrous alloys
|
|
Date of Registration with the Argentina Public Registry of
Commerce:
|
|
February 28, 1975
|
|
Last amendment to the Bylaws:
|
|
May 24, 2007
|
|
Registration with the Companys Inspection Bureau (IGJ):
|
|
252,694
|
|
Expiration date of its Bylaws:
|
|
February 28, 2074
|
|
Name of Parent Company (Note 1):
|
|
Global Specialty Metals, Inc.
|
|
Legal Address:
|
|
615 DuPont Highway, Kent County, Dove, Delaware,
United States of America
|
|
Main activity of Parent Company:
|
|
Manufacture and sale of special ferrous alloys
|
|
Ownership interest held by the Parent Company (direct and
indirect interest):
|
|
100%
|
FISCAL
YEAR
N
o
32
BEGINNING ON JULY 1, 2005
FINANCIAL STATEMENTS AS OF JUNE 30, 2006
(presented comparatively with fiscal years ended
June 30, 2005 and 2004)
CAPITAL STRUCTURE AS OF JUNE 30, 2006 and 2005
(in Argentine pesos Note 4)
|
|
|
|
|
|
|
Subscribed and Paid in
|
|
|
25,000,000 common non-endorsable shares with a face value of $1
and one vote per share
|
|
|
25,000,000
|
|
|
|
|
|
|
F-111
INDEPENDENT
AUDITORS REPORT
To the Board of Directors and Shareholders
of Globe Metales S.A. (formerly Stein Ferroaleaciones
S.A.C.I.F.yA.):
We have audited the accompanying balance sheets of Globe Metales
S. A. (the Company) as of June 30, 2006 and
2005, and the related statements of income, shareholders
equity, and cash flows for the each of the three years in the
period ended June 30, 2006 with related notes 1 to 17
and supplemental appendices I to VI, thereto. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
June 30, 2006 and 2005, and the results of their operations
and their cash flows for the each of the three years in the
period ended June 30, 2006 in conformity with accounting
principles generally accepted in Buenos Aires City, Argentina.
Accounting principles generally accepted in Buenos Aires City,
Argentina vary in certain significant respects from accounting
principles generally accepted in the United States of America
(US GAAP). A description of the significant differences between
such principles and those accounting principles generally
accepted in the United States of America and the effect of those
differences on the determination of the results of operations
and the statements of cash flows for each of the three years in
the period ended June 30, 2006 and on the determination of
shareholders equity as of June, 2006 and 2005, are set
forth in Notes 16 and 17 to the accompanying financial
statements.
Deloitte & Co. S.R.L.
Buenos Aires City, Argentina
Guillermo Cohen
(Partner)
July 11, 2008
F-112
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
BALANCE
SHEET AS OF JUNE 30, 2006
(presented
comparatively with fiscal year ended June 30, 2005)
(Note 2.1)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In Argentine pesos)
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash on hand and banks (Note 3.a)
|
|
|
4,720,941
|
|
|
|
4,873,739
|
|
Investments (Appendix I)
|
|
|
343,676
|
|
|
|
190,844
|
|
Trade receivables (Note 3.b)
|
|
|
10,619,625
|
|
|
|
5,188,505
|
|
Other receivables (Note 3.c)
|
|
|
6,745,126
|
|
|
|
5,566,873
|
|
Inventories (Note 3.d)
|
|
|
12,024,420
|
|
|
|
9,864,422
|
|
Other assets (Note 3.e)
|
|
|
1,573,706
|
|
|
|
1,032,260
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
36,027,494
|
|
|
|
26,716,643
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Other receivables (Note 3.c)
|
|
|
4,435,896
|
|
|
|
9,544,914
|
|
Fixed assets (Appendix II)
|
|
|
35,366,938
|
|
|
|
36,465,785
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
39,802,834
|
|
|
|
46,010,699
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
75,830,328
|
|
|
|
72,727,342
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Trade accounts payable (Note 3.f)
|
|
|
12,668,760
|
|
|
|
10,022,636
|
|
Bank and financial loans (Note 3.g)
|
|
|
3,854,865
|
|
|
|
3,311,364
|
|
Salaries and social security contributions (Note 3.h)
|
|
|
932,865
|
|
|
|
739,495
|
|
Taxes payable (Note 3.i)
|
|
|
489,314
|
|
|
|
233,698
|
|
Other liabilities (Note 3.j)
|
|
|
214,020
|
|
|
|
238,854
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,159,824
|
|
|
|
14,546,047
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Trade accounts payable (Note 3.f)
|
|
|
1,119,041
|
|
|
|
|
|
Bank and financial loans (Note 3.g)
|
|
|
1,542,000
|
|
|
|
2,089,132
|
|
Deferred income taxes (Note 3.k)
|
|
|
2,525,284
|
|
|
|
1,844,775
|
|
Other liabilities (Note 3.j)
|
|
|
3,758,382
|
|
|
|
3,891,265
|
|
Reserves (Appendix III)
|
|
|
3,961,715
|
|
|
|
3,126,060
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
12,906,422
|
|
|
|
10,951,232
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
31,066,246
|
|
|
|
25,497,279
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY (according to the corresponding
statement)
|
|
|
44,764,082
|
|
|
|
47,230,063
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
75,830,328
|
|
|
|
72,727,342
|
|
|
|
|
|
|
|
|
|
|
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements
F-113
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
STATEMENT
OF INCOME FOR THE FISCAL YEAR ENDED JUNE 30, 2006
(presented
comparatively with the fiscal years ended June 30, 2005 and
2004) (Note 2.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In Argentine pesos)
|
|
|
Net sales (Note 3.l)
|
|
|
101,462,933
|
|
|
|
99,316,171
|
|
|
|
78,058,542
|
|
Cost of sales (Appendix IV)
|
|
|
(76,060,325
|
)
|
|
|
(71,446,936
|
)
|
|
|
(60,947,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25,402,608
|
|
|
|
27,869,235
|
|
|
|
17,111,245
|
|
Selling expenses (Appendix VI)
|
|
|
(14,545,136
|
)
|
|
|
(14,467,711
|
)
|
|
|
(10,418,592
|
)
|
Administrative expenses (Appendix VI)
|
|
|
(1,440,423
|
)
|
|
|
(1,204,386
|
)
|
|
|
(1,138,530
|
)
|
Financial results net (Note 3.m)
|
|
|
(3,039,276
|
)
|
|
|
(3,614,996
|
)
|
|
|
(1,391,771
|
)
|
Other income and expenses (Note 3.n)
|
|
|
1,578,672
|
|
|
|
722,689
|
|
|
|
(951,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from ordinary operations before income tax
|
|
|
7,956,445
|
|
|
|
9,304,831
|
|
|
|
3,211,284
|
|
Income tax (Note 3.o)
|
|
|
(1,879,203
|
)
|
|
|
(3,125,810
|
)
|
|
|
(1,030,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from ordinary operations
|
|
|
6,077,242
|
|
|
|
6,179,021
|
|
|
|
2,181,073
|
|
Extraordinary loss (Note 3.p)
|
|
|
|
|
|
|
(28,910
|
)
|
|
|
(6,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
6,077,242
|
|
|
|
6,150,111
|
|
|
|
2,174,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements
F-114
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
STATEMENT
OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE
FISCAL YEAR ENDED JUNE 30, 2006
(presented comparatively with the fiscal year ended
June 30, 2005) (Note 2.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Shareholders Contributions
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical
|
|
|
|
|
|
|
|
|
|
|
|
|
to Capital
|
|
|
|
|
|
Legal
|
|
|
|
|
|
|
|
|
Unappropriated
|
|
|
Appraisal
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Stock
|
|
|
|
|
|
Reserves
|
|
|
Other
|
|
|
Total
|
|
|
Retained
|
|
|
Reserve
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
(Note 2.3.h)
|
|
|
Total
|
|
|
(Note 2.3.h)
|
|
|
Reserves
|
|
|
Reserves
|
|
|
Earnings
|
|
|
(Note 2.3.g)
|
|
|
Total
|
|
|
Total
|
|
|
|
(In Argentine pesos)
|
|
|
Balance at the beginning of the year
|
|
|
25,000,000
|
|
|
|
6,969,027
|
|
|
|
31,969,027
|
|
|
|
2,847,015
|
|
|
|
|
|
|
|
2,847,015
|
|
|
|
9,816,061
|
|
|
|
6,207,930
|
|
|
|
50,840,033
|
|
|
|
43,418,637
|
|
Adjustment to prior years (Notes 2.1 and 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,609,970
|
)
|
|
|
|
|
|
|
(3,609,970
|
)
|
|
|
(1,359,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total balances modified at the beginning of the year
|
|
|
25,000,000
|
|
|
|
6,969,027
|
|
|
|
31,969,027
|
|
|
|
2,847,015
|
|
|
|
|
|
|
|
2,847,015
|
|
|
|
6,206,091
|
|
|
|
6,207,930
|
|
|
|
47,230,063
|
|
|
|
42,058,693
|
|
Resolution of the Ordinary Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meeting held on September 14, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal reserves and other reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
420,007
|
|
|
|
1,500,000
|
|
|
|
1,920,007
|
|
|
|
(1,920,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,880,055
|
)
|
|
|
|
|
|
|
(7,880,055
|
)
|
|
|
(337,102
|
)
|
Technical appraisal reserve decrease due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets depreciation (Appendix II)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(663,168
|
)
|
|
|
(663,168
|
)
|
|
|
(641,639
|
)
|
Net income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,077,242
|
|
|
|
|
|
|
|
6,077,242
|
|
|
|
6,150,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of year
|
|
|
25,000,000
|
|
|
|
6,969,027
|
|
|
|
31,969,027
|
|
|
|
3,267,022
|
|
|
|
1,500,000
|
|
|
|
4,767,022
|
|
|
|
2,483,271
|
|
|
|
5,544,762
|
|
|
|
44,764,082
|
|
|
|
47,230,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements
F-115
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
STATEMENT
OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2006
(presented
comparatively with the fiscal years ended June 30, 2005 and
2004) (Note 2.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In Argentine pesos)
|
|
|
CASH VARIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent at the beginning of the year(1)
|
|
|
4,873,739
|
|
|
|
1,911,909
|
|
|
|
4,850,086
|
|
Cash and cash equivalent at the end of year(1)
|
|
|
4,720,941
|
|
|
|
4,873,739
|
|
|
|
1,911,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalent
|
|
|
(152,798
|
)
|
|
|
2,961,830
|
|
|
|
(2,938,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAUSES OF VARIATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary income for the year
|
|
|
6,077,242
|
|
|
|
6,179,021
|
|
|
|
2,181,073
|
|
Interest income
|
|
|
(163,569
|
)
|
|
|
(379,930
|
)
|
|
|
(362,254
|
)
|
Interest expense
|
|
|
1,460,415
|
|
|
|
1,089,710
|
|
|
|
661,200
|
|
Income tax
|
|
|
1,879,203
|
|
|
|
3,125,810
|
|
|
|
1,030,211
|
|
Adjustments to reconcile the net cash flow from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses not representing use of cash (Note 11.a)
|
|
|
3,816,745
|
|
|
|
3,330,278
|
|
|
|
2,572,622
|
|
Income not representing sources of cash (Note 11.b)
|
|
|
(122,778
|
)
|
|
|
(299,614
|
)
|
|
|
(878,677
|
)
|
Net changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in trade receivables
|
|
|
(5,267,551
|
)
|
|
|
267,892
|
|
|
|
251,197
|
|
(Increase) decrease in current investments
|
|
|
(97,640
|
)
|
|
|
(122,021
|
)
|
|
|
19,316
|
|
Increase in other receivables
|
|
|
(1,960,674
|
)
|
|
|
(278,247
|
)
|
|
|
(3,211,253
|
)
|
Increase in inventories
|
|
|
(2,159,998
|
)
|
|
|
(2,953,475
|
)
|
|
|
(1,358,510
|
)
|
Increase in other assets
|
|
|
(298,885
|
)
|
|
|
(45,759
|
)
|
|
|
|
|
Net increase (decrease) in current and non-current liabilities
except insolvency proceedings and financial loans
|
|
|
3,111,859
|
|
|
|
(127,189
|
)
|
|
|
4,083,374
|
|
Net decrease of insolvency proceedings
|
|
|
(10,105
|
)
|
|
|
|
|
|
|
(15,951
|
)
|
Decrease in reserves
|
|
|
|
|
|
|
(60,037
|
)
|
|
|
|
|
Dividend payments
|
|
|
(1,447,357
|
)
|
|
|
(337,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by ordinary operations
|
|
|
4,816,907
|
|
|
|
9,389,337
|
|
|
|
4,972,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary loss for the year
|
|
|
|
|
|
|
(28,910
|
)
|
|
|
(6,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,816,907
|
|
|
|
9,360,427
|
|
|
|
4,965,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of fixed assets
|
|
|
(2,384,735
|
)
|
|
|
(3,530,777
|
)
|
|
|
(14,124,609
|
)
|
Loans to related companies
|
|
|
(2,223,216
|
)
|
|
|
(485,778
|
)
|
|
|
(148,350
|
)
|
Proceeds from sale of fixed assets
|
|
|
|
|
|
|
|
|
|
|
70,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,607,951
|
)
|
|
|
(4,016,555
|
)
|
|
|
(14,202,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in loans
|
|
|
(361,754
|
)
|
|
|
(2,382,042
|
)
|
|
|
6,298,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(361,754
|
)
|
|
|
(2,382,042
|
)
|
|
|
6,298,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalent
|
|
|
(152,798
|
)
|
|
|
2,961,830
|
|
|
|
(2,938,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Company considers as cash and cash equivalent the balances
of cash on hand and banks and highly liquid short term
investments with originally maturities of three month or less.
|
Notes 1 to 17 and appendixes I to VI
are an integral part of these financial statements
F-116
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS
(in Argentine Pesos, except where otherwise indicated)
|
|
1.
|
BUSINESS
DESCRIPTION AND CHANGES IN THE COMPANYS
OWNERSHIP
|
Globe Metales S.A. (former Stein Ferroaleaciones S.A.C.I.F.y A.)
(the Company), manufactures silicon metal alloys,
primarily calcium silicide and magnesium ferrosilicon, in
industrial plants located in the provinces of Mendoza and
San Luis in Argentina. Approximately 80% of its production
is exported, and the remaining 20% goes to the domestic market.
Its primary clients are several national and worldwide steel
mills and casting companies.
On November 20, 2006, 100% of Stein Ferroaleaciones
S.A.C.I.F.y A.s capital stock was acquired by Globe
Specialty Metals, Inc., located in the United States. As a
consequence of such acquisition, the Company is now a subsidiary
of Globe Specialty Metals, Inc. which has operations and
industrial plants for silicon metal alloy production in the
United States, Brazil, Argentina and Poland.
Due to the abovementioned shares transfer, on May 21, 2007,
the Companys Special Shareholders Meeting was called
and decided to change Stein Ferroaleaciones S.A.C.I.F.y
A.s corporation name to Globe Metales S.A.
On February 10, 2000, the First National Commercial Circuit
Court No. 9 approved the agreement entered into by the
Company with its common creditors who were verified by the
Companys Insolvency Proceedings. At the issuing of these
financial statements, the Company has been paying these
liabilities in accordance with agreed payment proposal agreement
(Note 3.j).
The present value of these liabilities presented as current
amount to 214,020 and 212,961 as of June 30, 2006 and 2005,
respectively, and non-current amount to 3,713,678 and 3,841,265
as of June 30, 2006 and 2005, respectively (Note 3.j).
|
|
2.
|
BASIS FOR
THE PREPARATION OF THESE FINANCIAL STATEMENTS AND SIGNIFICANT
ACCOUNTING POLICIES
|
2.1
Accounting policies applied and purpose of the financial
statements
These financial statements have been prepared in accordance with
the provisions of Technical Resolutions of the Federación
Argentina de Consejos Profesionales de Ciencias Economicas
(F.A.C.P.C.E.) (Argentine Federation of Professional Economic
Council), with the modifications adopted by the Consejo
Profesional de Ciencias Económicas de la Ciudad
Autónoma de Buenos Aires (C.P.C.E.C.A.B.A.) (Institute of
Professional Economic Council of the City of Buenos Aires),
herein (Argentine GAAP).
These financial statements have been prepared for inclusion in
its parent companys registration statement on
Form S-1
to be filed with the United States Securities and Exchange
Commission (SEC).
The Companys financial statements for the fiscal years
ended June 30, 2006, 2005 and 2004 have been prepared in
accordance with Argentine GAAP. The Argentine GAAP financial
statements were previously issued by the Company for statutory
purposes in Argentina and approved by the Companys Board
of Directors on September 11, 2006, September 8, 2005
and October 14, 2004, respectively.
These Argentine GAAP financial statements included herein
contain certain adjustments and reclassifications as approved by
the Companys Shareholders meeting held on May 5, 2008
and the Companys Board of Directors meeting held on
July 11, 2008, as detailed in Note 15.
2.2
Consideration for the effects of inflation
These financial statements have been price level adjusted to
December 31, 2002, to reflect the effects of the price
level variations, applying the method established by Argentine
Technical Resolution
N
o
6
of the F.A.C.P.C.E.
Decree
N
o
664/03
and Resolution
N
o
4/03
issued by the Inspección General de Justicia (Company
Inspection Bureau) suspended the adjustment for inflation of
financial statements effective March 1, 2003, whereas the
C.P.C.E.C.A.B.A. did the same effective October 1, 2003,
(according to Resolution CD
190
/
2003
issued by the C.P.C.E.C.A.B.A.)
F-117
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
Given the low inflation rates measured by the variation of the
wholesale internal price index general level, which is the index
established to homogeneously adjust financial statements between
December, 2002 and September, 2003, the Company decided not to
apply any adjustment for such period.
2.3
Principal valuation criteria
The main valuation criteria used in the preparation of the
financial statements are as follow:
a)
Current monetary items:
Cash on hand and banks, receivables and liabilities in Argentine
pesos have been stated at their nominal values, including, when
applicable, the interest accrued at each year-end. Due to the
low variation level of the overall wholesale internal price
index, both year-ends as of June 30, 2006 and 2005 are
regarded as periods of monetary stability, therefore implicit
financial components of current items have not been segregated.
b)
Assets and liabilities denominated in foreign
currency
Assets and liabilities stated in foreign currency have been
valued at the prevailing exchange rate at each year-end. Due to
the low variation level of the wholesale internal price index,
both year-ends have been regarded as periods of monetary
stability, therefore implicit financial components of current
items have not been segregated.
c)
Investments:
Investments in government securities have been valued at their
market value at the end of each year.
Investments in deposits in guarantees for future foreign
exchange contracts have been valued at face value, adjusted, as
applicable, for the market value change of such contract at the
end of the year (Notes 7 and 12).
d)
Non-current receivables and payables
:
Long-term receivables and payables with no associated interest
rate or other type of financial compensation have been valued at
their discounted value or net realizable value, as applicable,
at the end of the year.
e)
Inventories:
Inventories have been valued at cost and approximately at their
replacement cost at the end of each year. The value of
inventories does not exceed their recoverable value at the end
of each year.
f)
Other assets:
Assets held for sale:
have been valued at their net
realizable value at the end of the year.
Spare parts:
have been valued at the cost of last
purchase, which is representative of replacement costs value at
the end of each year.
The values determined do not exceed their recoverable values.
g)
Fixed assets:
Original values: were inflation adjusted as detailed in
Note 2.2, net of accumulated depreciation corresponding to
their assigned useful life.
Depreciation: is calculated by the straight-line method on their
inflation adjusted values as detailed in Note 2.2 according
to their estimated useful life of each group of assets.
In October 1996, the Companys fixed assets located in
Mendoza and San Luis were technically revaluated. The
Companys management, in consultation with the third
parties, concluded to recognize the valuation excess over the
book value with an offsetting entry in the technical appraisal
reserve account in the statement of changes in
shareholders equity. The adjusted book value, which
includes revaluation and adjustment for inflation as detailed in
Note 2.2, was the basis to assess such fixed assets
depreciation.
F-118
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
The technical appraisal reserve is depreciated over the
remaining useful life of fixed assets with an off-set by
reducing in the same amount the reserve initially recorded in
the statement of changes in shareholders equity.
The carrying value of fixed assets does not exceed their
recoverable value.
h)
Shareholders equity:
Capital Stock, Reserves and Retained Earnings: these accounts
have been adjusted by inflation as detailed in Note 2.2.
Excess value of adjusted Capital Stock over its face value is
allocated to Adjustment to Capital Stock account in
Shareholders Equity.
Legal reserve: in accordance with the provisions of Argentine
Law N° 19,550; 5% of net income for the year is to be
appropriated to the legal reserve until such reserve reaches 20%
of the Companys capital stock plus adjustment to capital
stock.
i)
Income accounts:
These accounts were stated at their nominal values, except
charges for assets consumed (depreciation and decreases of fixed
assets) recognized according to the adjusted values of such
assets as detailed in Note 2.2.
j)
Income taxes:
Argentine GAAP require that income taxes be recorded by applying
the deferred income tax method. This criterion implies
recognizing tax assets and liabilities from temporary
differences between accounting and tax valuations.
According to the new generally accepted accounting principles
set forth in resolution CD No. 93/2005 of the
C.P.C.E.C.A.B.A., effective as of January 1, 2008, the
difference between the book value of fixed assets adjusted into
constant Argentine pesos and their corresponding basis used for
tax purposes corresponds to a temporary difference considered in
deferred income tax computations. However, Argentine GAAP allows
the option to disclose the mentioned effect in a note to the
financial statements. The Company has opted, as allowed by
accounting standards, not to recognize the deferred tax
liability due to the difference between the adjusted value of
fixed assets and their tax value. The value of this liability
not recognized in the financial statements is approximately
3,600,000 and 3,900,000 as of June 30, 2006 and 2005,
respectively, with an estimated reversal period of 17 years.
k)
Allowances and reserves:
Allowances: amounts have been provided in order to reduce the
valuation of trade receivables based on analysis of doubtful
accounts.
Reserves: amounts have been provided for various contingencies
which are probable and can be reasonably estimated, based on
managements expectations in consultation with the legal
counsels.
l)
Use of estimates:
The preparation of financial statements in conformity with
Argentine GAAP requires management to make estimates and
assumptions that affect the amounts of assets and liabilities
disclosed and the disclosure of contingent assets and
liabilities in the financial statements and the amounts of
reported revenue and expenses during the reporting period.
Actual results could differ from these estimates.
F-119
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
|
|
3.
|
DETAIL OF
MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS
|
a)
Cash
on hand and banks
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
In Argentine Pesos
|
|
|
|
|
|
|
|
|
Cash on hand
|
|
|
24,058
|
|
|
|
26,374
|
|
Banks
|
|
|
1,791,748
|
|
|
|
220,656
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,815,806
|
|
|
|
247,030
|
|
|
|
|
|
|
|
|
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Cash on hand
|
|
|
24,674
|
|
|
|
10,766
|
|
Banks
|
|
|
2,880,461
|
|
|
|
4,615,943
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,905,135
|
|
|
|
4,626,709
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,720,941
|
|
|
|
4,873,739
|
|
|
|
|
|
|
|
|
|
|
b)
Trade
receivables
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
In Argentine Pesos
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,510,672
|
|
|
|
641,434
|
|
Checks to be deposited
|
|
|
427,440
|
|
|
|
213,110
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,938,112
|
|
|
|
854,544
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,552,128
|
|
|
|
1,897,908
|
|
Related companies (Note 13)
|
|
|
5,211,857
|
|
|
|
2,518,525
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
6,763,985
|
|
|
|
4,416,433
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts (Appendix III)
|
|
|
(82,472
|
)
|
|
|
(82,472
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,619,625
|
|
|
|
5,188,505
|
|
|
|
|
|
|
|
|
|
|
c)
Other
receivables
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Current
|
|
|
|
|
|
|
|
|
In Argentine Pesos
|
|
|
|
|
|
|
|
|
Export VAT reimbursement
|
|
|
1,327,942
|
|
|
|
1,976,466
|
|
Tax credit balances
|
|
|
2,828,382
|
|
|
|
2,111,023
|
|
Income tax advances and withholdings (net of income tax
|
|
|
|
|
|
|
|
|
provision of 1,198,695 in 2006 and 1,638,429 in 2005)
|
|
|
538,085
|
|
|
|
15,617
|
|
Prepaid expenses
|
|
|
702,590
|
|
|
|
411,620
|
|
Deposits in guarantee
|
|
|
47,775
|
|
|
|
32,602
|
|
Loans to personnel
|
|
|
35,493
|
|
|
|
18,500
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
5,480,267
|
|
|
|
4,565,828
|
|
|
|
|
|
|
|
|
|
|
F-120
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Export VAT reimbursements
|
|
|
1,264,859
|
|
|
|
875,766
|
|
Other receivables
|
|
|
|
|
|
|
125,279
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,264,859
|
|
|
|
1,001,045
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,745,126
|
|
|
|
5,566,873
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
In Argentine Pesos
|
|
|
|
|
|
|
|
|
Loans
|
|
|
485,778
|
|
|
|
485,778
|
|
Tax credit balances
|
|
|
1,443,458
|
|
|
|
2,262,976
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,929,236
|
|
|
|
2,748,754
|
|
|
|
|
|
|
|
|
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Loan to related companies (Note 13)
|
|
|
2,506,660
|
|
|
|
283,444
|
|
Parent company (Note 13)
|
|
|
|
|
|
|
6,432,697
|
|
Other receivables
|
|
|
|
|
|
|
80,019
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,506,660
|
|
|
|
6,796,160
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,435,896
|
|
|
|
9,544,914
|
|
|
|
|
|
|
|
|
|
|
d)
Inventories
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Finished products
|
|
|
4,456,910
|
|
|
|
3,370,031
|
|
Raw materials
|
|
|
6,793,566
|
|
|
|
5,743,768
|
|
Packaging materials
|
|
|
531,705
|
|
|
|
354,964
|
|
Goods in transit
|
|
|
242,239
|
|
|
|
207,569
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
12,024,420
|
|
|
|
9,676,332
|
|
Advances to suppliers
|
|
|
|
|
|
|
188,090
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,024,420
|
|
|
|
9,864,422
|
|
|
|
|
|
|
|
|
|
|
e)
Other
assets
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Assets held for sale
|
|
|
487,360
|
|
|
|
244,799
|
|
Spare parts
|
|
|
1,086,346
|
|
|
|
787,461
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,573,706
|
|
|
|
1,032,260
|
|
|
|
|
|
|
|
|
|
|
F-121
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
f)
Trade
accounts payable
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Current
|
|
|
|
|
|
|
|
|
In Argentine Pesos
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
7,191,808
|
|
|
|
6,186,466
|
|
Accrual for invoices to be received
|
|
|
2,865,426
|
|
|
|
2,351,931
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
10,057,234
|
|
|
|
8,538,397
|
|
|
|
|
|
|
|
|
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
1,687,282
|
|
|
|
1,346,824
|
|
Related companies (Note 13)
|
|
|
924,244
|
|
|
|
137,415
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,611,526
|
|
|
|
1,484,239
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,668,760
|
|
|
|
10,022,636
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
In Argentine Pesos
Trade accounts payable
|
|
|
1,119,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,119,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
g)
Bank
and financial loans
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Current
|
|
|
|
|
|
|
|
|
In Argentine Pesos
|
|
|
|
|
|
|
|
|
Bank loans(1)
|
|
|
2,012,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
2,012,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Financial loans(2) and (3)
|
|
|
1,842,349
|
|
|
|
3,311,364
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,854,865
|
|
|
|
3,311,364
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Financial loans(2)
|
|
|
1,542,000
|
|
|
|
2,089,132
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,542,000
|
|
|
|
2,089,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In June 2006, the Company obtained a 2,000,000 loan maturing in
November 2006 that accrues interest of BIBOR (Buenos Aires
Interbank Offered Rate) plus 2.5%.
|
|
(2)
|
|
In the year 2004, the Company entered into an exclusive
distribution agreement by which the Company received
US$1,250,000 as advanced payment for exports. Such amount
accrues an annual interest rate of 8% and has a final maturity
in 2009. The outstanding balances as of June 30, 2006 and
2005 are current of 981,842 and 762,605 and non-current of
1,542,000 and 2,089,132, respectively.
|
|
(3)
|
|
In June 2005, the Company obtained on different dates US$500,000
maturing between July and August 2006 and accruing 8.25% annual
interest.
|
F-122
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
h)
Salaries
and social security contributions
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Salaries payable
|
|
|
659,326
|
|
|
|
517,101
|
|
Social security payable
|
|
|
273,539
|
|
|
|
222,394
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
932,865
|
|
|
|
739,495
|
|
|
|
|
|
|
|
|
|
|
i)
Taxes
payable
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Withholdings
|
|
|
475,764
|
|
|
|
215,764
|
|
Other tax liabilities
|
|
|
13,550
|
|
|
|
17,934
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
489,314
|
|
|
|
233,698
|
|
|
|
|
|
|
|
|
|
|
j)
Other
liabilities
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Current
|
|
|
|
|
|
|
|
|
Insolvency proceedings:
|
|
|
|
|
|
|
|
|
Preferred creditors
|
|
|
5,145
|
|
|
|
10,095
|
|
Common creditors
|
|
|
208,875
|
|
|
|
202,866
|
|
Others
|
|
|
|
|
|
|
25,893
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
214,020
|
|
|
|
238,854
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Insolvency proceedings:
|
|
|
|
|
|
|
|
|
Common creditors
|
|
|
3,576,091
|
|
|
|
3,314,629
|
|
Late reviewed creditors
|
|
|
330,072
|
|
|
|
330,072
|
|
Preferred creditors
|
|
|
|
|
|
|
4,809
|
|
Discount present value adjustment
|
|
|
(806,435
|
)
|
|
|
(422,195
|
)
|
Creditors with preference under review
|
|
|
613,950
|
|
|
|
613,950
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,713,678
|
|
|
|
3,841,265
|
|
|
|
|
|
|
|
|
|
|
Others accruals
|
|
|
44,704
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
44,704
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,758,382
|
|
|
|
3,891,265
|
|
|
|
|
|
|
|
|
|
|
F-123
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
k)
Deferred
income taxes
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred income tax details are as follows:
|
|
|
|
|
|
|
|
|
Non-current liabilities for deferred taxes, net
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(1,313,283
|
)
|
|
|
(964,369
|
)
|
Other receivables
|
|
|
(351,580
|
)
|
|
|
(182,439
|
)
|
Inventories
|
|
|
843,372
|
|
|
|
591,570
|
|
Fixed assets
|
|
|
4,190,739
|
|
|
|
3,138,882
|
|
Other assets
|
|
|
122,034
|
|
|
|
|
|
Other liabilities
|
|
|
255,216
|
|
|
|
189,866
|
|
Reserves
|
|
|
(1,221,214
|
)
|
|
|
(928,735
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,525,284
|
|
|
|
1,844,775
|
|
|
|
|
|
|
|
|
|
|
l)
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Domestic market sales
|
|
|
22,450,612
|
|
|
|
20,090,253
|
|
|
|
16,840,638
|
|
Export market sales
|
|
|
80,351,406
|
|
|
|
80,162,511
|
|
|
|
61,986,701
|
|
Tax refund on exports
|
|
|
1,898,305
|
|
|
|
1,934,967
|
|
|
|
1,469,525
|
|
Withholdings taxes on exports
|
|
|
(3,237,390
|
)
|
|
|
(2,871,560
|
)
|
|
|
(2,238,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
101,462,933
|
|
|
|
99,316,171
|
|
|
|
78,058,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
m)
Financial
results net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Generated by assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
163,569
|
|
|
|
379,930
|
|
|
|
362,264
|
|
Adjustment of discounted value of tax credits
|
|
|
(483,266
|
)
|
|
|
73,904
|
|
|
|
|
|
Exchange differences
|
|
|
232,658
|
|
|
|
(1,222,136
|
)
|
|
|
148,020
|
|
Holding results of other assets(1)
|
|
|
242,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal profit (loss)
|
|
|
155,522
|
|
|
|
(768,302
|
)
|
|
|
510,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generated by liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses (Appendix VI)
|
|
|
(3,317,576
|
)
|
|
|
(2,823,952
|
)
|
|
|
(1,776,312
|
)
|
Adjustment of insolvency proceeding liabilities
|
|
|
122,778
|
|
|
|
(100,316
|
)
|
|
|
(62,370
|
)
|
Exchange differences
|
|
|
|
|
|
|
77,574
|
|
|
|
(63,373
|
)
|
Subtotal loss
|
|
|
(3,194,798
|
)
|
|
|
(2,846,694
|
)
|
|
|
(1,902,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss
|
|
|
(3,039,276
|
)
|
|
|
(3,614,996
|
)
|
|
|
(1,391,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Corresponds to holding results from the valuation of assets held
for sale at their realizable value at the end of the fiscal year
ended June 30, 2006.
|
F-124
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
n)
Other
income and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Decrease in insolvency proceedings liabilities
|
|
|
|
|
|
|
428,840
|
|
|
|
|
|
Insurance refunds(1)
|
|
|
4,616,328
|
|
|
|
409,630
|
|
|
|
|
|
Income from sale of fixed assets
|
|
|
234,720
|
|
|
|
6,300
|
|
|
|
|
|
Insolvency proceedings expenses
|
|
|
(606
|
)
|
|
|
(11,973
|
)
|
|
|
(159,495
|
)
|
Decrease in tax credits
|
|
|
|
|
|
|
(110,108
|
)
|
|
|
|
|
Reserve for labor lawsuits
|
|
|
(52,557
|
)
|
|
|
|
|
|
|
(210,117
|
)
|
Legal expenses
|
|
|
|
|
|
|
|
|
|
|
(146,848
|
)
|
Reserve for contingencies
|
|
|
(300,693
|
)
|
|
|
|
|
|
|
|
|
Results for sale of other assets
|
|
|
|
|
|
|
|
|
|
|
148,824
|
|
Renegotiations of electric supply contract(2)
|
|
|
(2,918,520
|
)
|
|
|
|
|
|
|
|
|
Others
|
|
|
|
|
|
|
|
|
|
|
(583,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss)
|
|
|
1,578,672
|
|
|
|
722,689
|
|
|
|
(951,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
On January 23, 2005, an accident occurred which resulted in
shutting down alloy number 3 (furnace). The Company negotiated
and received from the insurance company compensation for its
losses.
|
|
(2)
|
|
In August 2005, the Company signed an agreement with Empresa
Distribuidora de Energía de Mendoza S.A. (EDEMSA) by which
the amount paid for energy in previous periods was revised with
an impact of 2,918,520 recorded as other expense. Such amount
will be paid in 31 monthly installments. The balance of
this amount as of June 30, 2006 is included in trade
accounts payable current for 1,220,771 and trade accounts
payable non-current for 1,119,041 and accrues interest at an
annual rate of 16%.
|
o)
Income
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current tax (Note 10)
|
|
|
(1,198,695
|
)
|
|
|
(1,638,429
|
)
|
|
|
(184,746
|
)
|
Deferred tax
|
|
|
(680,508
|
)
|
|
|
(1,487,381
|
)
|
|
|
(845,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1,879,203
|
)
|
|
|
(3,125,810
|
)
|
|
|
(1,030,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the income tax recognized in the
statement of income and the income tax resulting from applying
the tax rate effective to income before income taxes for the
years ended on June 30, 2006, 2005 and 2004 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net income for the year before income tax
|
|
|
7,956,445
|
|
|
|
9,275,921
|
|
|
|
3,204,687
|
|
Income tax rate in effect
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax rate in effect applied to net
|
|
|
|
|
|
|
|
|
|
|
|
|
income for the year before income tax
|
|
|
(2,784,756
|
)
|
|
|
(3,246,572
|
)
|
|
|
(1,121,640
|
)
|
Permanent differences
|
|
|
905,553
|
|
|
|
120,762
|
|
|
|
91,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax
|
|
|
(1,879,203
|
)
|
|
|
(3,125,810
|
)
|
|
|
(1,030,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
p)
Extraordinary
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Results for adjustments in relation to insolvency proceedings
|
|
|
|
|
|
|
(28,910
|
)
|
|
|
(6,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loss
|
|
|
|
|
|
|
(28,910
|
)
|
|
|
(6,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-125
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
As of June 30, 2006 and 2005 and according to the minutes
of the Extraordinary General Shareholders meeting held on
August 2, 1996, the Companys capital stock amounted
to 25,000,000 shares, subscribed and paid in, and
registered with the Company Inspection Bureau of the Buenos
Aires City on December 3, 1996.
|
|
5.
|
TERMS AND
INTEREST RATES OF INVESTMENTS, RECEIVABLES AND
LIABILITIES
|
a)
Classification
of investments and receivables
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Past due
|
|
|
1,554,124
|
|
|
|
1,485,025
|
|
Without fixed maturity
|
|
|
391,450
|
|
|
|
6,939,588
|
|
Due:
|
|
|
|
|
|
|
|
|
Up to 3 months
|
|
|
12,122,685
|
|
|
|
8,592,587
|
|
Between 3 to 6 months
|
|
|
1,967,447
|
|
|
|
277,224
|
|
Between 6 to 9 months
|
|
|
1,257,223
|
|
|
|
223,654
|
|
Between 9 to 12 months
|
|
|
497,970
|
|
|
|
157,513
|
|
Between 1 to 2 years
|
|
|
3,425,276
|
|
|
|
1,177,372
|
|
Between 2 to 3 years
|
|
|
1,010,620
|
|
|
|
1,720,645
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
22,226,795
|
|
|
|
20,573,608
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance for doubtful accounts
|
|
|
(82,472
|
)
|
|
|
(82,472
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22,144,323
|
|
|
|
20,491,136
|
|
|
|
|
|
|
|
|
|
|
Accrual of interest:
As of June 30, 2006, accounts receivables with related
companies accrue interest at LIBOR (London Interbank Offered
Rate) plus 4% annually.
b)
Classification
of liabilities
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Without fixed maturity
|
|
|
1,992,060
|
|
|
|
476,575
|
|
Due:
|
|
|
|
|
|
|
|
|
Up to 3 months
|
|
|
12,862,554
|
|
|
|
11,918,574
|
|
Between 3 to 6 months
|
|
|
2,171,347
|
|
|
|
1,275,452
|
|
Between 6 to 9 months
|
|
|
875,823
|
|
|
|
231,853
|
|
Between 9 to 12 months
|
|
|
442,260
|
|
|
|
763,872
|
|
Between 1 to 2 years
|
|
|
5,917,714
|
|
|
|
2,902,700
|
|
Between 2 and 3 years
|
|
|
865,141
|
|
|
|
814,141
|
|
Over 3 years
|
|
|
1,977,632
|
|
|
|
3,988,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,104,531
|
|
|
|
22,371,219
|
|
|
|
|
|
|
|
|
|
|
Interest rate in relation to bank and financial loans and the
trade account payable in relation to the contract with EDEMSA
are detailed in Notes 3.g and 3.n, respectively.
|
|
6.
|
ASSETS
SUBJECT TO AUTHORIZATION FOR DISPOSAL
|
The insolvency agreement noted in Note 1 restricts the
Company from selling certain assets and requires an approval to
be obtained for disposal. As of June 30, 2006 and 2005, the
Company was in compliance with these restrictions.
F-126
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
As of June 30, 2006, the Company guaranteed a US$1,000,000
bank loan by transferring trade accounts receivable balances
until the loan is paid.
As of June 30, 2006, the Company had deposits in the amount
of 97,640 for open foreign currency positions (Note 12).
As of June 30, 2006, the Company granted the rights of
collection of certain purchase orders to a local client for the
payment of a 2,000,000 loan until the loan is paid in full.
As of June 30, 2006, the Company had an outstanding
revolving pledge on a distribution contract for 179 tons of
steel strips that guaranteed a US$99,196 bank debt. The debt was
paid in full in July 2006.
During 2004, the Company received, as an export advance payment,
US$1,250,000 for a distribution agreement signed with an
overseas client, which was approved by the Companys Board
of Directors. As guarantee for such advance payment, the
electrical furnace No. 4 from the plant in Mendoza was
pledged for an amount of US$1,400,000. The amount of the
liability in relation to such advance is 2,523,842 and 2,851,737
as of June 30, 2006 and 2005, respectively.
In accordance with law
N
o
22.095
and as a consequence of the merger that took place in 1996 with
Silarsa S.A., the Company has the following benefits: Mining
promotion Regime established by Resolution
N
o
20/88
of the Mining Secretariat and its modification 4/2005, whereby
it exempts the production of Furnace
N
o
4
from income tax payments until 2008 and the production of
Furnace
N
o
5
until 2012, in agreement with a decreasing exemption scale.
These benefits are conditioned to the export of a minimum of 80%
of annual sales.
The plant located in the Lujan de Cuyo Petrochemical Industrial
Park, in the Province of Mendoza, has the benefits of Law
N
o
24.196
of mining promotion. The assets included in the calculation of
the presumptive minimum income tax are exempt by this law.
|
|
10.
|
INCOME
TAX AND PRESUMPTIVE MINIMUM INCOME TAX
|
For the fiscal years ended June 30, 2006, 2005 and 2004,
the Company determined income tax due by applying the
corresponding tax rate to net taxable income, which resulted in
charges to income of such fiscal years for 1,198,695, 1,638,429
and 184,746, respectively.
Additionally, the Company calculates tax on minimum presumed
income applying the current 1% tax rate to taxable assets
estimated at year-end. This tax is complementary to income tax.
The Companys tax liability will coincide with the higher
of such taxes. However, if the tax on minimum presumed income
exceeds income tax during one tax year, such excess may be
computed as prepayment of any income tax excess over the tax on
minimum presumed income that may be generated in the next ten
years. For the fiscal years ended June 30, 2006, 2005 and
2004, no accrual has been made for the presumptive minimum
income tax, since the income tax charge was greater.
F-127
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
|
|
11.
|
STATEMENT
OF CASH FLOWS
|
|
|
a)
|
Expenses
not representing use of cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Depreciation of fixed assets
|
|
|
2,820,065
|
|
|
|
2,668,097
|
|
|
|
2,285,686
|
|
Write-offs of fixed assets residual value
|
|
|
349
|
|
|
|
|
|
|
|
|
|
Net financial results
|
|
|
160,676
|
|
|
|
28,076
|
|
|
|
|
|
Increase in reserves
|
|
|
835,655
|
|
|
|
584,105
|
|
|
|
286,936
|
|
Increase in accruals
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,816,745
|
|
|
|
3,330,278
|
|
|
|
2,572,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b)
|
Income
not representing sources of cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Reserves
|
|
|
|
|
|
|
|
|
|
|
(111,512
|
)
|
Net financial results
|
|
|
|
|
|
|
|
|
|
|
(687,308
|
)
|
Income from sales of other assets
|
|
|
|
|
|
|
|
|
|
|
(148,824
|
)
|
Financial result net related to insolvency proceeding
|
|
|
(122,778
|
)
|
|
|
(299,614
|
)
|
|
|
68,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(122,778
|
)
|
|
|
(299,614
|
)
|
|
|
(878,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
DERIVATIVE
INSTRUMENTS
|
The Company has entered into future foreign exchange contracts
for US$35,000 that mature in July and August 2006. As of
June 30, 2006, the future contracts were valued at their
respective market values, resulting in a loss of 105 for the
fiscal year ended June 30, 2006 which was recognized in
statement of income in the financial result net
account.
|
|
13.
|
BALANCES
AND TRANSACTIONS WITH THE PARENT COMPANY AND RELATED
COMPANIES
|
Balances at June 30, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
|
Non-current
|
|
|
Trade Accounts
|
|
|
|
|
|
|
|
Companies
|
|
Receivables
|
|
|
Receivables
|
|
|
Payable
|
|
|
Sales
|
|
|
Purchases
|
|
|
Related Companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultracore Polska
|
|
|
4,445,041
|
|
|
|
2,506,660
|
|
|
|
157,605
|
|
|
|
3,386,733
|
|
|
|
254,683
|
|
Ultracore USA
|
|
|
766,816
|
|
|
|
|
|
|
|
693,918
|
|
|
|
1,003,468
|
|
|
|
438,509
|
|
Product
|
|
|
|
|
|
|
|
|
|
|
72,721
|
|
|
|
|
|
|
|
72,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,211,857
|
|
|
|
2,506,660
|
|
|
|
924,244
|
|
|
|
4,390,201
|
|
|
|
765,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-128
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
Balances at June 30, 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
Trade Accounts
|
|
|
|
|
|
|
|
Companies
|
|
Trade Receivables
|
|
|
Receivables
|
|
|
Payable
|
|
|
Sales
|
|
|
Purchases
|
|
|
Parent Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hurlington S.A.(1)
|
|
|
|
|
|
|
6,432,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ultracore Polska
|
|
|
1,372,635
|
|
|
|
283,444
|
|
|
|
|
|
|
|
484,795
|
|
|
|
|
|
Ultracore USA
|
|
|
1,056,552
|
|
|
|
|
|
|
|
137,415
|
|
|
|
19,363,648
|
|
|
|
137,415
|
|
Product
|
|
|
89,338
|
|
|
|
|
|
|
|
|
|
|
|
89,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,518,525
|
|
|
|
6,716,141
|
|
|
|
137,415
|
|
|
|
19,937,781
|
|
|
|
137,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Parent company of Stein Ferroaleaciones S.A.C.I.F.y A. until
acquired by Globe Specialty Metals, Inc. on November 20,
2006.
|
On July 19, 2006, the Company signed a mutual contract for
US$4,000,000 to finance its expansion operations. This contract
has a
3-year
maturity. the contract contains a guarantee which includes a
floating pledge on the Mendoza plants inventory for
US$1,500,000 and the partial assignment of the collection from
the distribution contract mentioned in Note 8.
On November 20, 2006, 100% of Stein Ferroaleaciones
S.A.C.I.F.y A.s capital stock was bought by Globe
Specialty Metals, Inc., located in the United States. As a
consequence of such acquisition, the Company is now a subsidiary
of Globe Specialty Metals, Inc. which has operations and
industrial plants for silicon metal alloys production in the
United States, Brazil, Argentina and Poland.
Due to the abovementioned shares transfer, on May 21, 2007,
the Companys Special Shareholders Meeting was called
and decided to change Stein Ferroaleaciones S.A.C.I.F.y
A.s corporation name to Globe Metales S.A.
In April 2007, the Company acquired a 100% capital interest in
Ultra Core Energy S.A. Through such acquisition, the Company
holds 9.73% of Inversora Nihuiles S.A., parent company of
Hidroeléctrica Nihuiles S.A., and 8.40% of Inversora
Diamante S.A., a parent company of Hidroeléctrica Diamante
S.A., both in the province of Mendoza, Argentina.
The Company has signed a sale agreement for the property
classified as assets held for sale amounting to 487,360
(Note 3.e). This property was sold for 486,541 on
April 19, 2007 and the amount collected was recognized as
advance payments in the fiscal year 2007. Such property transfer
is to be approved by the court involved in the composition with
creditors procedure (Note 1). The approval is pending
with the court.
|
|
15.
|
ADJUSTMENTS
AND RECLASSIFICATIONS
|
Effective for the Company on July 1, 2006, except for
certain matters which application will be effective as from
July 1, 2008, new generally accepted accounting principles
were introduced by Resolution CD
No. 93/2005
of the Professional Council in Economic Sciences of the
Autonomous City of Buenos Aires to converge the accounting
principles in Argentina and involved the issuance of Resolution
No. 312/2005 by the Argentine Federation of Professional
Councils in Economic Sciences.
Since the acquisition of the Company by Globe Specialty Metals,
Inc., the Companys new management has made certain
adjustments and reclassification to conform these financial
statements to consolidated parent company financial statements
and accounting policies.
During the fiscal year ended June 30, 2007, as a
consequence of the changes introduced in Argentine GAAP as
mentioned above, the Companys new management changed the
accounting criterion to measure the deferred tax applied
historically, where discounted values were used to measure
deferred income tax assets and
F-129
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
liabilities. The Companys new management has adopted
measuring deferred income tax assets and liabilities on an
undiscounted basis. This change has been retroactively applied
by the Company in these financial statements. Additionally, the
Company recognized the deferred income tax effect related to the
corresponding adjustment detailed below. This change and the
deferred income tax effect related to the corresponding
adjustments detailed below have resulted in an increase in the
deferred income tax liability as of June 30, 2006 and 2005
of 1,544,284 and 1,844,775, respectively, and a
(decrease) increase in deferred income tax expense
of (300,491), 1,487,381 and 845,465 for the fiscal years ended
June 30, 2006, 2005 and 2004 respectively.
During the fiscal year ended June 30, 2007, the
Companys new management modified the accounting criterion
applied historically for the recognition of major furnace
maintenance provisions which was based on the recognition of a
provision before such maintenance was carried out. The
Companys new management has adopted a policy which
requires the capitalization of the major maintenance expenses of
furnaces when done and depreciation of the major maintenance
expenses until the next maintenance period. This change has been
retroactively applied by the Company in these financial
statements. Such change resulted in a decrease in the other
non-current liabilities as of June 30, 2006 and 2005 in the
amount of 3,027,504 and 2,434,057, respectively, and, as of
June 30, 2006, an increase in fixed assets in the amount of
380,808 and a decrease in production costs for 974,255, 684,177
and 599,544 for the fiscal years ended June 30, 2006, 2005
and 2004, respectively.
During the fiscal year ended June 30, 2007, in accordance
with new Argentine accounting principles in effect as mentioned
above, the Companys new management recognized an
impairment charge for fixed assets in the amount of 2,621,602.
This impairment charge offset the impaired assets revaluation
adjustment made during 1996 (Note 2.3.g) with an offsetting
entry reducing the technical appraisal reserve account in the
statement of changes in shareholders equity.
During the fiscal year ended June 30, 2007, the
Companys new management has determined based on new
estimates and projections of the Companys future
activities and operations, that a portion of the VAT receivable
balance will not be recoverable, therefore reducing it during
such fiscal year.
For the purpose of these financial statements and considering
the requirement to submit the information detailed in
Notes 16 and 17 and in accordance with the new parent
companys accounting policies, the Company has adopted the
revenue recognition criteria followed by the parent company
which establishes that revenue is recognized when a firm sales
agreement is in place, delivery has occurred and title and risk
of ownership have passed to the customer, the sale price is
fixed and determinable, and collectability is reasonably
assured. The Companys new management has decided to
retroactively modify the revenue recognition criteria previously
followed under Argentine GAAP in previous years. Such change has
caused a decrease in net sales of 996,895 and 2,672,869 for the
fiscal years ended June 2006 and 2005, respectively, and a
decrease in net income for 213,520 and 862,392 for the fiscal
years ended June 30, 2006 and 2005, respectively.
During the fiscal year ended June 30, 2007, and based on
the information and consultation with legal advisors, the
Companys new management accrued additional amounts
compared to those estimated by the previous management as of
June 30, 2006 and 2005. This change represents a correction
of prior year balances as of June 30, 2006 and 2005, and
for the fiscal years ended June 30, 2006, 2005 and 2004.
These additional accruals primarily relate to contingencies for
Customs General Administration claims associated with temporary
imports of assets with an import date prior to 1999. These
additional amounts have resulted in an increase in the
non-current reserve balances as of June 30, 2006 and 2005
in the amount of 3,164,675 and 2,682,270, respectively, and an
increase in financial
result-net
loss in the statement of income in the amount of 482,405,
584,105 and 76,819 for the fiscal years ended June 30,
2006, 2005 and 2004, respectively.
During the fiscal year ended June 30, 2007, the
Companys new management accrued an additional amount for
insolvency proceedings compared to the one estimated by the
previous management as of June 30, 2006 and 2005. That
change represents a correction of prior year balances as of
June 30, 2006 and 2005, and for the fiscal years ended
June 30, 2006, 2005 and 2004. These additional accruals
primarily relate to adjustments of the amounts due to creditors
who were verified by the Companys insolvency Proceedings.
These additional amounts have resulted in an increase in the
non-current reserve balances as of June 30, 2006
F-130
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
and 2005 in the amount of 1,405,975 and 654,590, respectively,
and a loss (gain) in the financial
result-net
in the statement of income in the amount of 751,325, 325 and
(16,712) for the fiscal years ended June 30, 2006, 2005 and
2004, respectively.
The combined effect of these adjustments described in this note
at the beginning of the years ended June 30, 2006 and 2005
amounts to 3,609,970 and 1,359,944, respectively, that have been
included in the statement of changes in Shareholders
Equity as adjustments to prior years.
|
|
16.
|
SUMMARY
OF SIGNIFICANT DIFFERENCES BETWEEN ARGENTINE GAAP AND
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US
GAAP)
|
The Companys financial statements have been prepared in
accordance with Argentine GAAP, which differs in certain
respects from US GAAP. Such differences involve certain methods
for measuring the amounts shown in the financial statements, as
well as additional disclosures required by US GAAP.
Inflation
accounting
As discussed in Note 2.2, under Argentine GAAP, the
financial statements are presented in constant Argentine pesos
based on the application of therein mentioned resolutions.
Under US GAAP, financial statements are prepared on a historical
cost basis. However, the reconciliation detailed in Note 17
do not include the reversal of the adjustment to net income and
shareholders equity for the effects of inflation, as
permitted by the SEC, as this adjustment represents a
comprehensive measure of the effects of price-level changes in
the Argentine economy, and as such, is considered a more
meaningful presentation than historical cost-based financial
reporting for both Argentine and US GAAP. Consequently, the
reconciliation, as permitted by SEC regulations, does not
include the effects of inflation on US GAAP net income and
shareholders equity.
Valuation
differences
The principal valuation differences, other than inflation
accounting, between Argentine GAAP and US GAAP as they
relate to the Companys shareholders equity as of
June 30, 2006 and 2005 and net income for the years ended
June 30, 2006, 2005 and 2004, are reflected in the amounts
provided in Note 17 and principally relate to the items
discussed in the following paragraphs. The additional
disclosures required under US GAAP have not been included.
Under Argentine GAAP, the Company accounts for income taxes
using the liability method. Accordingly, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets are also recognized
for tax loss carry-forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income for the period that includes
the enactment date. A valuation allowance is recognized for that
component of deferred tax assets which is not recoverable. The
Argentine GAAP is similar to US GAAP set forth in Statement of
Financial Accounting Standards issued by the Financial
Accounting Standards Board in the United States of America
(SFAS) No. 109, Accounting for Income Taxes.
However, under Argentine GAAP and in accordance with
C.P.C.E.C.A.B.A. Resolution MD No. 11/2003, the differences
between the price-level adjusted amounts of assets and
liabilities and their tax basis are treated as permanent
differences for deferred income tax calculation purposes. Under
US GAAP, the Company applies Emerging Issues Task Force in the
United States of America (EITF)
93-9,
Application of FASB Statement No. 109 in Foreign
Financial Statements Restated for General
Price-Level Changes, which requires such differences
to be treated as temporary differences in calculating deferred
income taxes.
F-131
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
In addition, the US GAAP deferred income tax adjustment includes
the effect on deferred income taxes of the other reconciling
items described herein, as appropriate.
|
|
b)
|
Capitalization
of interest cost
|
Through December 31, 2005, the capitalization of interest
cost for those assets which require a period of time to get them
ready for their intended use was discretionary under Argentine
GAAP. The Company did not capitalize interest over the value of
its fixed assets in accordance with Argentine GAAP.
Under US GAAP, the Company applied SFAS No. 34,
Capitalization of Interest Cost, whereby interest
capitalization on assets is mandatory for those assets which
require a period of time to get them ready for their intended
use.
|
|
c)
|
Discounted
value of certain receivables and liabilities
|
Under Argentine GAAP, certain long-term receivables and
liabilities (except for deferred income tax liabilities) were
valued based on the best estimate of discounted value of amounts
expected to be received or paid. Such discount was reversed for
US GAAP purposes.
|
|
d)
|
Holding
gains on assets held for sale
|
Under Argentine GAAP, assets held for sale are valued at their
net realizable value at the end of the year. Under US GAAP,
assets held for sale are valued at the lower of the assets
carrying amount or fair value less cost to sell.
|
|
e)
|
Valuation
of fixed assets technical appraisal
reserve
|
Under Argentine GAAP, in the year 1996, the accounting values of
certain fixed assets were technically appraised based on a
report issued by an independent valuation specialist. Under
Argentine GAAP, technical appraisal and revaluation adjustments
of certain fixed assets was permitted until the year 2003 under
certain circumstances. Technical appraisal resulting in upward
adjustment of fixed assets is not permitted under US GAAP.
New US
GAAP accounting pronouncement
In June 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in
income tax positions. FIN 48 requires that management
determine whether a tax position is more likely than not to be
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits
of the position. Once it is determined that a position meets
this recognition threshold, the position is measured to
determine the amount of benefit to be recognized in the
financial statements. The Company has decided to apply the
provisions of FIN 48 on a prospective basis effective on
July 1, 2007.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157), which
clarifies the definition of fair value, establishes guidelines
for measuring fair value, and expands disclosures regarding fair
value measurements. SFAS No. 157 does not require any
new fair value measurements and eliminates inconsistencies in
guidance found in various prior accounting pronouncements.
SFAS No. 157 will be effective for the Company on
July 1, 2008. However, the FASB deferred the effective date
of SFAS 157 until the beginning of the Companys 2009
fiscal year, as it relates to fair value measurement
requirements for non-financial assets and liabilities that are
not remeasured at fair value on a recurring basis. SFAS 157 is
required to be applied prospectively, except for certain
financial instruments. The Company is currently evaluating the
impact that the adoption of SFAS No. 157 could have on
its financial statements.
F-132
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
|
|
17.
|
RECONCILIATION
OF NET INCOME, AND SHAREHOLDERS EQUITY TO US
GAAP
|
The following is a summary of the significant adjustments to net
income for the years ended June 30, 2006, 2005 and 2004,
and to shareholders equity as of June 30, 2006 and
2005, which would have been required if US GAAP had been applied
instead of Argentine GAAP in the financial statements. The
additional US GAAP disclosures have not been included.
(Amounts are expressed in Argentine pesos)
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NET INCOME
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net Income in accordance with Argentine GAAP
|
|
|
6,077,242
|
|
|
|
6,150,111
|
|
|
|
2,174,476
|
|
US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted value of certain receivables and liabilities
(Note 16.c)
|
|
|
151,834
|
|
|
|
129,486
|
|
|
|
212,826
|
|
Capitalization of interest cost and related depreciation of
capitalized interest (Note 16.b)
|
|
|
(13,678
|
)
|
|
|
(13,678
|
)
|
|
|
259,880
|
|
Difference in deferred income taxes (Note 16.a)
|
|
|
(157,734
|
)
|
|
|
427,990
|
|
|
|
(74,362
|
)
|
Holding gains on assets held for sale (Note 16.d)
|
|
|
(242,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income in accordance with US GAAP
|
|
|
5,815,103
|
|
|
|
6,693,909
|
|
|
|
2,572,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF SHAREHOLDERS EQUITY
|
|
2006
|
|
|
2005
|
|
|
Shareholders Equity in accordance with Argentine
GAAP
|
|
|
44,764,082
|
|
|
|
47,230,063
|
|
US GAAP adjustments:
|
|
|
|
|
|
|
|
|
Valuation of fixed assets technical appraisal
reserve (Note 16.e)
|
|
|
(5,544,762
|
)
|
|
|
(6,207,930
|
)
|
Discounted value of certain receivables and liabilities
(Note 16.c)
|
|
|
250,889
|
|
|
|
99,055
|
|
Capitalization of Interest cost (Note 16.b)
|
|
|
232,525
|
|
|
|
246,203
|
|
Difference in deferred income taxes (Note 16.a)
|
|
|
(2,383,697
|
)
|
|
|
(2,225,963
|
)
|
Holding gains on assets held for sale (Note 16.d)
|
|
|
(242,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity in accordance with US GAAP
|
|
|
37,076,476
|
|
|
|
39,141,428
|
|
|
|
|
|
|
|
|
|
|
Additional
information on the Statements of Cash flows
The statements of cash flows presented in the financial
statements are prepared based on Argentine GAAP. Under both
Argentine GAAP and US GAAP, the Company considers all highly
liquid investments with original maturity of three months or
less to be cash equivalents. As a result, no differences exist
between the total amounts of cash and cash equivalents reported
in the statements of cash flows prepared under Argentine GAAP
and US GAAP.
F-133
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y A.)
NOTES TO
THE FINANCIAL STATEMENTS (Continued)
(in Argentine Pesos, except where otherwise indicated)
Main differences in the Companys cash flow statements
between Argentine GAAP and US GAAP relates to the disclosure of
certain items that should be classified differently between
operating and financing activities under Argentine GAAP and US
GAAP. Such differences mainly relate to dividends paid and
interest paid, and the presentation of the effect of exchange
rate changes on cash balances held in foreign currencies as a
separate part of the reconciliation of the change in cash and
cash equivalents during the years.
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CASH FLOW
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Total cash provided by operating activities in accordance with
Argentine GAAP
|
|
|
4,816,907
|
|
|
|
9,360,427
|
|
|
|
4,965,751
|
|
US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
1,447,357
|
|
|
|
377,102
|
|
|
|
|
|
Financial interests
|
|
|
(358,121
|
)
|
|
|
(398,682
|
)
|
|
|
(72,332
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(321,900
|
)
|
|
|
72,447
|
|
|
|
(215,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by operating activities in accordance with
US GAAP
|
|
|
5,584,243
|
|
|
|
9,411,294
|
|
|
|
4,677,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash used by investing activities in accordance with
Argentine GAAP and US GAAP
|
|
|
(4,607,951
|
)
|
|
|
(4,016,555
|
)
|
|
|
(14,202,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by (used in) financing activities in
accordance with Argentine GAAP
|
|
|
(361,754
|
)
|
|
|
(2,382,042
|
)
|
|
|
6,298,590
|
|
US GAAP adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(1,447,357
|
)
|
|
|
(377,102
|
)
|
|
|
|
|
Financial interests
|
|
|
358,121
|
|
|
|
398,682
|
|
|
|
72,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash provided by (used in) financing activities in
accordance with US GAAP
|
|
|
(1,450,990
|
)
|
|
|
(2,360,462
|
)
|
|
|
6,370,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(474,698
|
)
|
|
|
3,034,277
|
|
|
|
(3,153,851
|
)
|
CASH AT THE BEGINNING OF THE YEAR
|
|
|
4,873,739
|
|
|
|
1,911,909
|
|
|
|
4,850,086
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
321,900
|
|
|
|
(72,447
|
)
|
|
|
215,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AT THE END OF THE YEAR
|
|
|
4,720,941
|
|
|
|
4,873,739
|
|
|
|
1,911,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-134
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y
A.)
Appendix I
INVESTMENTS
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended
June 30, 2005)
(in Argentine pesos)
|
|
|
|
|
|
|
|
|
|
|
Book Value
|
|
Denomination
|
|
2006
|
|
|
2005
|
|
|
CURRENT
|
|
|
|
|
|
|
|
|
In foreign currency (Appendix V)
|
|
|
|
|
|
|
|
|
Deposits in guarantee for future contracts (Notes 7 and 12)
|
|
|
97,640
|
|
|
|
|
|
Government securities
|
|
|
246,036
|
|
|
|
190,844
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
343,676
|
|
|
|
190,844
|
|
|
|
|
|
|
|
|
|
|
F-135
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y
A.)
Appendix II
FIXED
ASSETS
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended
June 30, 2005)
(in Argentine pesos)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ORIGINAL VALUES
|
|
|
DEPRECIATION
|
|
|
NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the
|
|
|
|
|
|
|
|
|
|
|
|
at the
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
Values at the
|
|
|
Beginning of
|
|
|
|
|
|
Rate
|
|
|
Amount
|
|
|
at the End of
|
|
|
Book Value
|
|
|
Book Value
|
|
ITEMS
|
|
Year
|
|
|
Additions
|
|
|
Write-offs
|
|
|
End of Year
|
|
|
Year
|
|
|
Write-offs
|
|
|
%
|
|
|
(1)
|
|
|
Year
|
|
|
2006
|
|
|
2005
|
|
|
Land
|
|
|
490,047
|
|
|
|
|
|
|
|
|
|
|
|
490,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490,047
|
|
|
|
490,047
|
|
Buildings
|
|
|
8,884,410
|
|
|
|
78,062
|
|
|
|
|
|
|
|
8,962,472
|
|
|
|
3,723,256
|
|
|
|
|
|
|
|
2
|
%
|
|
|
199,842
|
|
|
|
3,923,098
|
|
|
|
5,039,374
|
|
|
|
5,161,154
|
|
Machinery
|
|
|
4,590,033
|
|
|
|
69,860
|
|
|
|
|
|
|
|
4,659,893
|
|
|
|
3,807,631
|
|
|
|
|
|
|
|
7
|
%
|
|
|
245,793
|
|
|
|
4,053,424
|
|
|
|
606,469
|
|
|
|
782,402
|
|
Vehicles
|
|
|
391,120
|
|
|
|
|
|
|
|
|
|
|
|
391,120
|
|
|
|
348,263
|
|
|
|
|
|
|
|
20
|
%
|
|
|
12,394
|
|
|
|
360,657
|
|
|
|
30,463
|
|
|
|
42,857
|
|
Tools
|
|
|
176,996
|
|
|
|
|
|
|
|
|
|
|
|
176,996
|
|
|
|
156,348
|
|
|
|
|
|
|
|
20
|
%
|
|
|
5,162
|
|
|
|
161,510
|
|
|
|
15,486
|
|
|
|
20,648
|
|
Furniture
|
|
|
1,263,331
|
|
|
|
380,808
|
|
|
|
|
|
|
|
1,644,139
|
|
|
|
1,230,312
|
|
|
|
|
|
|
|
10
|
%
|
|
|
12,338
|
|
|
|
1,242,650
|
|
|
|
401,489
|
|
|
|
33,019
|
|
Installations
|
|
|
1,916,078
|
|
|
|
692,023
|
|
|
|
|
|
|
|
2,608,101
|
|
|
|
1,278,262
|
|
|
|
|
|
|
|
20
|
%
|
|
|
92,765
|
|
|
|
1,371,027
|
|
|
|
1,237,074
|
|
|
|
637,816
|
|
Furnaces
|
|
|
58,135,571
|
|
|
|
544,890
|
|
|
|
(529,996
|
)
|
|
|
58,150,465
|
|
|
|
29,305,113
|
|
|
|
(529,647
|
)
|
|
|
5
|
%
|
|
|
2,278,511
|
|
|
|
31,053,977
|
|
|
|
27,096,488
|
|
|
|
28,830,458
|
|
Equipment
|
|
|
12,554,257
|
|
|
|
519,187
|
|
|
|
(254,668
|
)
|
|
|
12,818,776
|
|
|
|
12,132,833
|
|
|
|
(254,668
|
)
|
|
|
10
|
%
|
|
|
627,869
|
|
|
|
12,506,034
|
|
|
|
312,742
|
|
|
|
421,424
|
|
Computer systems
|
|
|
74,920
|
|
|
|
10,691
|
|
|
|
|
|
|
|
85,611
|
|
|
|
28,960
|
|
|
|
|
|
|
|
|
|
|
|
8,559
|
|
|
|
37,519
|
|
|
|
48,092
|
|
|
|
45,960
|
|
Advances to suppliers
|
|
|
|
|
|
|
89,214
|
|
|
|
|
|
|
|
89,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2006
|
|
|
88,476,763
|
|
|
|
2,384,735
|
|
|
|
(784,664
|
)
|
|
|
90,076,834
|
|
|
|
52,010,978
|
|
|
|
(784,315
|
)
|
|
|
|
|
|
|
3,483,233
|
|
|
|
54,709,896
|
|
|
|
35,366,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005
|
|
|
84,977,135
|
|
|
|
3,530,777
|
|
|
|
(31,149
|
)
|
|
|
88,476,763
|
|
|
|
48,732,391
|
|
|
|
(31,149
|
)
|
|
|
|
|
|
|
3,309,736
|
|
|
|
52,010,978
|
|
|
|
|
|
|
|
36,465,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes 2,820,065 and 2,668,097 charged to production cost
(Appendix VI) for the fiscal years ended June 30,
2006 and 2005, respectively, and 663,168 and 641,639 charged to
the technical appraisal reserve for the fiscal years ended
June 30, 2006 and 2005, respectively.
|
F-136
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y
A.)
Appendix III
ALLOWANCES
AND RESERVES
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended
June 30, 2005)
(in Argentine pesos)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at
|
|
|
|
|
|
|
|
|
Balance at End of Year
|
|
|
|
Beginning of Year
|
|
|
Increases
|
|
|
Decreases
|
|
|
2006
|
|
|
2005
|
|
|
Deducted from current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
82,472
|
|
|
|
|
|
|
|
|
|
|
|
82,472
|
|
|
|
82,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
82,472
|
|
|
|
|
|
|
|
|
|
|
|
82,472
|
|
|
|
82,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for labor lawsuits
|
|
|
242,670
|
(1)
|
|
|
52,557
|
|
|
|
|
|
|
|
295,227
|
|
|
|
242,670
|
|
Reserve for contingencies
|
|
|
2,883,390
|
(2)
|
|
|
783,098
|
|
|
|
|
|
|
|
3,666,488
|
|
|
|
2,883,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,126,060
|
|
|
|
835,655
|
|
|
|
|
|
|
|
3,961,715
|
|
|
|
3,126,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2006
|
|
|
3,208,532
|
|
|
|
835,655
|
|
|
|
|
|
|
|
4,044,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005
|
|
|
2,684,464
|
(3)
|
|
|
584,105
|
|
|
|
(60,037
|
)
|
|
|
|
|
|
|
3,208,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Included in other income and expenses.
|
|
(2)
|
|
Included 300,693 in other income and expenses and 482,405 in
financial result net
|
|
(3)
|
|
Included in financial result net.
|
F-137
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y
A.)
Appendix IV
COST OF
SALES
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended
June 30, 2005 and 2004)
(in Argentine pesos)
|
|
|
|
|
|
|
|
|
|
|
|
|
Items
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Inventory at the beginning of year (except advances to suppliers)
|
|
|
9,676,332
|
|
|
|
6,910,947
|
|
|
|
5,552,437
|
|
Purchases for the year
|
|
|
48,163,371
|
|
|
|
47,659,462
|
|
|
|
40,417,294
|
|
Production costs (Appendix VI)
|
|
|
30,245,042
|
|
|
|
26,552,859
|
|
|
|
21,888,513
|
|
Inventory at the end of year (except advances to suppliers)
|
|
|
(12,024,420
|
)
|
|
|
(9,676,332
|
)
|
|
|
(6,910,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
76,060,325
|
|
|
|
71,446,936
|
|
|
|
60,947,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-138
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y
A.)
Appendix V
ASSETS
AND LIABILITIES IN FOREIGN CURRENCY
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal year ended
June 30, 2005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
Exchange
|
|
|
Amount in Argentine pesos
|
|
Account
|
|
Currency
|
|
Amount
|
|
|
Rate
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash on hand and banks
|
|
US
|
|
$
|
336,450
|
|
|
|
3.046
|
|
|
|
1,024,827
|
|
|
|
3,941,875
|
|
|
|
Euros
|
|
|
403,586
|
|
|
|
3.892
|
|
|
|
1,570,755
|
|
|
|
676,711
|
|
|
|
Chilean Pesos
|
|
|
6,333
|
|
|
|
0.006
|
|
|
|
38
|
|
|
|
|
|
|
|
Reales
|
|
|
123
|
|
|
|
1.399
|
|
|
|
172
|
|
|
|
1,342
|
|
|
|
Pounds
|
|
|
55,004
|
|
|
|
5.624
|
|
|
|
309,343
|
|
|
|
6,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
2,905,135
|
|
|
|
4,626,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
US
|
|
$
|
75,427
|
|
|
|
3.046
|
|
|
|
229,750
|
|
|
|
110,924
|
|
|
|
Euros
|
|
|
29,272
|
|
|
|
3.892
|
|
|
|
113,926
|
|
|
|
79,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
343,676
|
|
|
|
190,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
US
|
|
$
|
1,869,683
|
|
|
|
3.046
|
|
|
|
5,695,053
|
|
|
|
3,161,004
|
|
|
|
Euros
|
|
|
274,296
|
|
|
|
3.897
|
|
|
|
1,068,932
|
|
|
|
1,255,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
6,763,985
|
|
|
|
4,416,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
US
|
|
$
|
403,280
|
|
|
|
3.046
|
|
|
|
1,228,391
|
|
|
|
956,845
|
|
|
|
Euros
|
|
|
9,370
|
|
|
|
3.892
|
|
|
|
36,468
|
|
|
|
41,472
|
|
|
|
Pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
1,264,859
|
|
|
|
1,001,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
11,277,655
|
|
|
|
10,235,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
US
|
|
$
|
757,023
|
|
|
|
3.046
|
|
|
|
2,305,892
|
|
|
|
6,796,160
|
|
|
|
Euros
|
|
|
51,585
|
|
|
|
3.892
|
|
|
|
200,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
2,506,660
|
|
|
|
6,796,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
2,506,660
|
|
|
|
6,796,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
13,784,315
|
|
|
|
17,031,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
US
|
|
$
|
819,703
|
|
|
|
3.086
|
|
|
|
2,529,603
|
|
|
|
1,484,239
|
|
|
|
Euros
|
|
|
21,049
|
|
|
|
3.892
|
|
|
|
81,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
|
|
2,611,526
|
|
|
|
1,484,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and financial loans
|
|
US
|
|
$
|
597,002
|
|
|
|
3.086
|
|
|
|
1,842,349
|
|
|
|
3,311,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
4,453,875
|
|
|
|
4,795,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and financial loans
|
|
US
|
|
$
|
499,676
|
|
|
|
3.086
|
|
|
|
1,542,000
|
|
|
|
2,089,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
1,542,000
|
|
|
|
2,089,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
5,995,875
|
|
|
|
6,884,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-139
GLOBE
METALES S.A. (FORMERLY STEIN FERROALEACIONES S.A.C.I.F.y
A)
Appendix VI
INFORMATION
REQUIRED UNDER LAW ARTICLE 64, Inc. b) OF LAW
No. 19.550
Corresponding to the year ended on June 30, 2006
(presented comparatively with the fiscal years ended
June 30, 2005 and 2004)
(in Argentine pesos)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
Selling
|
|
|
Administrative
|
|
|
Financial
|
|
|
|
|
|
|
|
Items
|
|
Total
|
|
|
Costs
|
|
|
Expenses
|
|
|
Expenses
|
|
|
Expenses
|
|
|
2005
|
|
|
2004
|
|
|
Fees
|
|
|
626,595
|
|
|
|
242,858
|
|
|
|
164,842
|
|
|
|
218,895
|
|
|
|
|
|
|
|
363,703
|
|
|
|
399,122
|
|
Salaries and wages
|
|
|
8,044,394
|
|
|
|
6,940,362
|
|
|
|
580,761
|
|
|
|
523,271
|
|
|
|
|
|
|
|
6,089,351
|
|
|
|
4,258,339
|
|
Social security payments
|
|
|
1,320,817
|
|
|
|
1,119,639
|
|
|
|
95,922
|
|
|
|
105,256
|
|
|
|
|
|
|
|
1,027,964
|
|
|
|
809,127
|
|
Other personnel benefits
|
|
|
1,088,905
|
|
|
|
1,014,308
|
|
|
|
20,572
|
|
|
|
54,025
|
|
|
|
|
|
|
|
1,074,915
|
|
|
|
688,780
|
|
Bank and financial interest
|
|
|
358,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
358,120
|
|
|
|
398,682
|
|
|
|
72,332
|
|
Fees and bank commissions
|
|
|
415,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415,547
|
|
|
|
384,453
|
|
|
|
378,114
|
|
Supplier and other interest
|
|
|
1,303,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,303,022
|
|
|
|
1,172,845
|
|
|
|
415,632
|
|
Tax interest
|
|
|
282,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,882
|
|
|
|
2,297
|
|
|
|
170,973
|
|
Taxes, impositions, and contributions
|
|
|
1,134,821
|
|
|
|
55,550
|
|
|
|
338,485
|
|
|
|
8,284
|
|
|
|
732,502
|
|
|
|
1,074,530
|
|
|
|
953,363
|
|
Insurance
|
|
|
645,571
|
|
|
|
375,921
|
|
|
|
8,694
|
|
|
|
35,453
|
|
|
|
225,503
|
|
|
|
543,385
|
|
|
|
258,677
|
|
Electricity
|
|
|
10,724,660
|
|
|
|
10,718,740
|
|
|
|
3,263
|
|
|
|
2,657
|
|
|
|
|
|
|
|
8,182,459
|
|
|
|
5,975,432
|
|
Utilities
|
|
|
367,888
|
|
|
|
247,895
|
|
|
|
52,063
|
|
|
|
67,930
|
|
|
|
|
|
|
|
347,086
|
|
|
|
303,593
|
|
Maintenance, spares, and materials
|
|
|
3,061,501
|
|
|
|
3,040,510
|
|
|
|
3,416
|
|
|
|
17,575
|
|
|
|
|
|
|
|
3,792,471
|
|
|
|
4,451,206
|
|
Commissions
|
|
|
2,056,969
|
|
|
|
|
|
|
|
2,056,969
|
|
|
|
|
|
|
|
|
|
|
|
1,971,453
|
|
|
|
1,183,085
|
|
Mobility, travel allowances, and representation expenses
|
|
|
1,670,208
|
|
|
|
336,872
|
|
|
|
1,208,917
|
|
|
|
124,419
|
|
|
|
|
|
|
|
1,222,071
|
|
|
|
1,128,136
|
|
Third party services
|
|
|
2,440,671
|
|
|
|
2,235,583
|
|
|
|
175,386
|
|
|
|
29,702
|
|
|
|
|
|
|
|
2,861,739
|
|
|
|
1,629,736
|
|
Leases
|
|
|
393,073
|
|
|
|
307,099
|
|
|
|
|
|
|
|
85,974
|
|
|
|
|
|
|
|
324,476
|
|
|
|
130,148
|
|
Transport costs
|
|
|
6,597,963
|
|
|
|
375,312
|
|
|
|
6,222,651
|
|
|
|
|
|
|
|
|
|
|
|
7,160,113
|
|
|
|
6,209,868
|
|
Export expenses
|
|
|
2,980,761
|
|
|
|
|
|
|
|
2,980,761
|
|
|
|
|
|
|
|
|
|
|
|
3,885,154
|
|
|
|
3,056,225
|
|
Depreciation of fixed assets
|
|
|
2,820,065
|
|
|
|
2,808,838
|
|
|
|
6,946
|
|
|
|
4,281
|
|
|
|
|
|
|
|
2,668,097
|
|
|
|
2,285,686
|
|
Computer expenses
|
|
|
102,898
|
|
|
|
74,821
|
|
|
|
5,750
|
|
|
|
22,327
|
|
|
|
|
|
|
|
98,809
|
|
|
|
112,157
|
|
Postage and office supplies
|
|
|
142,860
|
|
|
|
63,602
|
|
|
|
40,946
|
|
|
|
38,312
|
|
|
|
|
|
|
|
133,094
|
|
|
|
113,275
|
|
Cleaning and gardening services
|
|
|
291,100
|
|
|
|
271,706
|
|
|
|
4,084
|
|
|
|
15,310
|
|
|
|
|
|
|
|
169,151
|
|
|
|
105,103
|
|
Others
|
|
|
676,886
|
|
|
|
15,426
|
|
|
|
574,708
|
|
|
|
86,752
|
|
|
|
|
|
|
|
100,610
|
|
|
|
133,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2006
|
|
|
49,548,177
|
|
|
|
30,245,042
|
|
|
|
14,545,136
|
|
|
|
1,440,423
|
|
|
|
3,317,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005
|
|
|
|
|
|
|
26,552,859
|
|
|
|
14,467,711
|
|
|
|
1,204,386
|
|
|
|
2,823,952
|
|
|
|
45,048,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2004
|
|
|
|
|
|
|
21,888,513
|
|
|
|
10,418,592
|
|
|
|
1,138,530
|
|
|
|
1,776,312
|
|
|
|
|
|
|
|
35,221,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-140
SOLSIL,
INC.
(A
DEVELOPMENT STAGE COMPANY)
FINANCIAL
STATEMENTS
JUNE
30, 2007
F-141
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Solsil, Inc.
Beverly, Ohio
We have audited the accompanying balance sheet of Solsil, Inc.
(a development stage company) as of June 30, 2007, and the
related statements of operation, stockholders equity, and
cash flows for the year then ended, and the period beginning
March 29, 2006 (inception) and ended June 30, 2007.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Solsil, Inc. as of June 30, 2007 and the results of its
operations and its cash flows for the year then ended, and the
period beginning March 29, 2006 (inception) and ended
June 30, 2007 in conformity with accounting principles
generally accepted in the United States of America.
Certified
Public Accountants, Inc.
Hobe & Lucas
Certified Public Accountants, Inc.
Independence, Ohio
September 17, 2007, except for Note 9, as to which the
date is June 25, 2008
F-142
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 2007
ASSETS
|
|
|
|
|
|
|
2007
|
|
|
Current assets
|
|
|
|
|
Cash
|
|
$
|
254,014
|
|
Accounts receivable
|
|
|
136,091
|
|
Inventory
|
|
|
942,842
|
|
|
|
|
|
|
Total current assets
|
|
|
1,332,947
|
|
|
|
|
|
|
Property, plant and equipment at cost
|
|
|
|
|
Buildings
|
|
|
98,189
|
|
Equipment
|
|
|
6,383,158
|
|
|
|
|
|
|
|
|
|
6,481,347
|
|
Less: accumulated depreciation
|
|
|
337,051
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
6,144,296
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,477,243
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable
|
|
$
|
3,502,518
|
|
Deferred revenue
|
|
|
1,120,000
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,622,518
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
8% cumulative voting series A preferred stock,
$0.01 par value 275 shares authorized, -0- issued and
outstanding
|
|
|
|
|
Common stock, $0.01 par value, 3,000 shares
authorized, 1,457 shares issued and 1,447 shares
outstanding
|
|
|
15
|
|
Additional paid-in capital
|
|
|
12,798,078
|
|
(Deficit) accumulated during development stage
|
|
|
(9,923,368
|
)
|
|
|
|
|
|
|
|
|
2,874,725
|
|
Less: Treasury stock 10 common shares at cost
|
|
|
(20,000
|
)
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,854,725
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,477,243
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-143
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATION
FOR THE YEAR ENDED JUNE 30, 2007, AND FOR THE PERIOD
BEGINNING
MARCH 29, 2006 (INCEPTION) AND ENDED JUNE 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
through
|
|
|
|
2007
|
|
|
June 30, 2007
|
|
|
Sales net
|
|
$
|
2,647,884
|
|
|
|
2,647,884
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
8,998,478
|
|
|
|
11,332,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deficit (net research and development)
|
|
|
(6,350,594
|
)
|
|
|
(8,685,096
|
)
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
1,399,051
|
|
|
|
2,186,256
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7,749,645
|
)
|
|
|
(10,871,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
154,479
|
|
|
|
167,984
|
|
Other income
|
|
|
780,000
|
|
|
|
780,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
934,479
|
|
|
|
947,984
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
|
(6,815,166
|
)
|
|
|
(9,923,368
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,815,166
|
)
|
|
|
(9,923,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(4,696.39
|
)
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-144
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEAR ENDED JUNE 30, 2007 AND THE PERIOD BEGINNING MARCH
29, 2006
(INCEPTION) AND ENDED JUNE 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Accumulated Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Stock
|
|
|
Total
|
|
|
Issuance of common stock
|
|
|
1,348.3900
|
|
|
$
|
14
|
|
|
|
5,024,078
|
|
|
|
|
|
|
|
|
|
|
|
5,024,092
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
759,926
|
|
|
|
|
|
|
|
|
|
|
|
759,926
|
|
Net loss June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,108,202
|
)
|
|
|
|
|
|
|
(3,108,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2006
|
|
|
1,348.3900
|
|
|
|
14
|
|
|
|
5,784,004
|
|
|
|
(3,108,202
|
)
|
|
|
(20,000
|
)
|
|
|
2,655,816
|
|
Issuance of common stock, Net of issuance costs of $43,379
|
|
|
108.2668
|
|
|
|
1
|
|
|
|
6,056,619
|
|
|
|
|
|
|
|
|
|
|
|
6,056,620
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
957,455
|
|
|
|
|
|
|
|
|
|
|
|
957,455
|
|
Net loss June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,815,166
|
)
|
|
|
|
|
|
|
(6,815,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2007
|
|
|
1,456.6568
|
|
|
$
|
15
|
|
|
|
12,798,078
|
|
|
|
(9,923,368
|
)
|
|
|
(20,000
|
)
|
|
|
2,854,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
F-145
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2007 AND THE PERIOD BEGINNING MARCH
29, 2006
(INCEPTION) AND ENDED JUNE 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
through
|
|
|
|
2007
|
|
|
June 30, 2007
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,815,166
|
)
|
|
|
(9,923,368
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net (loss) to cash provided (used) by
operating activities:
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
957,455
|
|
|
|
1,717,381
|
|
Depreciation
|
|
|
337,051
|
|
|
|
337,051
|
|
Increase in accounts receivable
|
|
|
(136,091
|
)
|
|
|
(136,091
|
)
|
Increase in inventory
|
|
|
(942,842
|
)
|
|
|
(942,842
|
)
|
Increase in accounts payable
|
|
|
850,519
|
|
|
|
3,502,518
|
|
Decrease in accrued expenses
|
|
|
(4,167
|
)
|
|
|
|
|
Increase in deferred revenue
|
|
|
1,120,000
|
|
|
|
1,120,000
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,633,241
|
)
|
|
|
(4,325,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(5,183,852
|
)
|
|
|
(6,481,347
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,183,852
|
)
|
|
|
(6,481,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
6,056,621
|
|
|
|
11,080,712
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6,056,621
|
|
|
|
11,060,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(3,760,472
|
)
|
|
|
254,014
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents beginning
|
|
|
4,014,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents ending
|
|
$
|
254,014
|
|
|
|
254,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-146
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2007
|
|
NOTE 1
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
This summary of significant policies of Solsil, Inc.,
(hereinafter the Company), is presented to assist in
understanding the financial statements. The financial statements
and notes are representations of the Companys management,
which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally
accepted in the United States of America and have been
consistently applied in the preparation of the financial
statements.
Nature
of Operations
The Company is primarily engaged in the development of refined
silicon to be used in the solar panel industry. The Company
recognizes its revenues as required by Staff Accounting
Bulletin No. 101 Revenue Recognition in
Financial Statements. Revenue is only recognized on
product sales once the product has been shipped to the customers
(FOB Origin), and all other obligations have been met.
Accounts
Receivable
The Company grants credit to its customers in the ordinary
course of business. The Company provides for an allowance for
uncollectible receivables based on prior experience. The
allowance at June 30, 2007 was zero.
Inventories
Inventories are recorded at the lower of cost
(first-in,
first out) or market.
Research
and Development
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amount
charged in 2007 was $6,350,594.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Income
Tax
In 2006, the Company was part of a controlled group with Globe
Metallurgical, Inc. (GMI). As a result, surtax and minimum
exemptions and expensing of depreciable assets were allocated
among related parties. At June 30, 2006, 100% of the
allocable items were allocated to GMI. As of July 1, 2006
the Company is no longer part of a controlled group. Deferred
tax assets and liabilities are determined based on the
difference between financial reporting and the tax basis of
assets and liabilities, and are measured using the enacted tax
rates and laws that are expected to be in effect when the
differences are expected to reverse.
Development
Stage Entity
The Company was incorporated in the state of Delaware on
March 29, 2006. It is primarily engaged in the development
and marketing of refined silicon to be used in the solar panel
industry. Realization of a major
F-147
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
JUNE 30, 2007
portion of its assets is dependent upon the Companys
ability to successfully develop and market its products, meet
its future financing requirements, and the success of future
operations (see Note 9).
Concentrations
of Risk
The Companys cash is deposited in FDIC-insured banks. The
funds are insured up to $100,000. Periodically the cash in the
bank exceeds federally insured limits.
During 2007, 84% of sales were derived from two customers who
are also related parties of the Company. Accounts receivable at
June 30, 2007 were $136,091 from these customers.
Depreciation
Property, plant and equipment are stated at cost. The Company
depreciates property, plant and equipment over its estimated
useful lives on a straight-line basis. Useful lives of property,
plant and equipment range between 7 to 10 years for
equipment and 40 years for buildings.
Stock
Options
The Company maintains the 2006 Non-Qualified Stock Plan (the
plan). The plan provides for the granting of non-qualified stock
options to select employees, officers, directors and consultants
as an incentive to such eligible persons. There are
100 shares available for grant under the plan. Each option
is exercisable as stated in the recipients employment
agreement and expires ten years after the date of grant. Each
option shall be at fair market value on the date of the grant.
At June 30, 2006, 100 shares with exercise prices of
$50,000 were outstanding of which 33 shares were
exercisable. At June 30, 2007, 100 shares with
exercise prices of $50,000 were outstanding of which
66 shares were exercisable.
A summary of option activity under the plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
Outstanding at March 29, 2006 (Inception)
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
100
|
|
|
|
50,000
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2006
|
|
|
100
|
|
|
|
50,000
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
100
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable shares at June 30, 2007
|
|
|
66
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
In December 2004 the Financial Accounting Standards Board
(FASB) issued FASB No. 123 (revised),
Share-Based Payment, (FASB 123(R)). FASB 123(R)
eliminates the alternative of using Accounting Principles
Boards Opinion No. 25, Accounting for stock issued
to employees (APB No. 25) intrinsic
F-148
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
JUNE 30, 2007
value method of accounting that was provided in FASB 123 as
originally issued. Under APB No. 25, issuing stock options
to employees generally resulted in recognition of no
compensation cost. FASB No. 123(R) requires entities to
recognize the cost of services received in exchange for awards
of equity instruments based on the grant-date fair value of
these awards (with limited exceptions.). The Company has
incurred an additional $957,455 of compensation cost in 2007.
The fair value for the stock was estimated at the date of grant
using a Black-Scholes option pricing model with the following
assumptions for all options granted: a risk free interest rate
of 5.07%, expected life of the options of six years, no expected
dividend yield and a volatility factor of 63%.
Shipping
and Handling Costs
Shipping and handling costs are included in the cost of sales.
Inventories at June 30, 2007 consists of:
|
|
|
|
|
Finished goods
|
|
$
|
141,484
|
|
Work in process
|
|
|
15,635
|
|
Raw materials
|
|
|
785,723
|
|
|
|
|
|
|
|
|
$
|
942,842
|
|
|
|
|
|
|
|
|
NOTE 3
|
FAIR
VALUE OF FINANCIAL STATEMENTS
|
The carrying amount of cash, accounts receivable and liabilities
approximates the fair value reported on the balance sheet.
The sources of loss from continuing operations before income
taxes for the year ended June 30, 2007 were generated
completely from its U.S. operations in the amount of
$(6,815,166).
Income taxes for the period ended June 30 are as follows:
|
|
|
|
|
|
|
2007
|
|
|
Current
|
|
$
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
The significant reconciling items between the income tax charge
stated and the amount of income tax charge that would result
from applying the U.S. domestic federal statutory tax rate
of 34% is a valuation allowance against deferred tax assets.
|
|
|
|
|
|
|
2007
|
|
|
Federal tax rate
|
|
|
(34.0
|
)%
|
Increase in valuation allowance
|
|
|
34.0
|
%
|
|
|
|
|
|
Effective tax rate
|
|
|
|
|
|
|
|
|
|
F-149
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
JUNE 30, 2007
The Companys deferred tax assets and liabilities at June
30 consist of:
|
|
|
|
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
Net operating losses and carryforwards
|
|
$
|
2,900,000
|
|
Stock based compensation
|
|
|
584,000
|
|
Research and development credits
|
|
|
236,800
|
|
|
|
|
|
|
|
|
|
3,720,800
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
|
|
(196,300
|
)
|
|
|
|
|
|
Valuation allowance
|
|
|
(3,524,500
|
)
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
|
|
|
|
|
|
|
Deferred taxes are provided for the difference between the book
and tax basis of assets and liabilities recorded for financial
statement and income tax reporting purposes. Principal
differences relate to depreciation methods of property, plant
and equipment, net operating loss carryforwards and research and
development credits.
During 2007, the valuation allowance increased by $2,311,500.
At June 30, 2007 the Company has approximately $8,535,000
of net operating loss carryforwards expiring in 2026 and 2027.
The Company has approximately $236,000 of research and
development tax credit carryforwards expiring in 2026.
|
|
NOTE 5
|
STOCKHOLDERS
EQUITY
|
Preferred
Stock
Each share of the series A convertible preferred stock is
convertible into common shares based on the original issue price
plus accrued dividends divided by $48,804.89. Preferred shares
are entitled to cumulative dividends at a rate of 9.5% if paid
by additional preferred shares or 8% if paid by cash. In the
event no cash dividends are paid prior to June 30, 2009 the
cumulative dividends rate becomes 12%. The preferred shares are
to be redeemed anytime on or after July 3, 2012 with the
vote of 75% of the preferred shares for the original issue price
plus accrued dividends. Please see the cancellation of preferred
shares in subsequent event footnote 9.
Board
of Directors
The Companys Board of Directors consists of six
individuals, four elected by common shareholders including one
designated by a specific shareholder and two elected by
preferred shareholders, both of which are designated by two
specific preferred shareholders.
F-150
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
JUNE 30, 2007
Basic loss per common share is based on net loss divided by the
weighted average number of common shares outstanding for the
year ended June 30, 2007. There is no dilutive effect of
basic earnings per share.
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
Net loss
|
|
$
|
(6,815,166
|
)
|
Weighted average common shares
|
|
|
1,451.15
|
|
|
|
|
|
|
Loss per share basic and diluted
|
|
$
|
(4,696.39
|
)
|
|
|
|
|
|
NOTE
7 OPERATING SEGMENT
The Company operates in one reportable segment, silicon metal.
|
|
NOTE 8
|
RELATED
PARTY TRANSACTIONS
|
Related
Party Sales
During 2007, 84% of sales were derived from two customers who
are also related parties of the Company. Accounts receivable at
June 30, 2007 were $136,091 from these customers.
Sales
Agreement
In July 2006 the Company entered into an agreement with a
shareholder to supply solar grade silicon through September
2011. The agreement calls for a fee of $3,900,000 of which
$1,900,000 was received as of June 30, 2007, with
$2,000,000 due upon completion of specific terms. Revenue
recognized from this agreement was $780,000 in 2007, with
$1,120,000 of deferred revenue at June 30, 2007. The
agreement has a three-year renewal option. The agreement
provides that the Company supply at a fixed price, at least 300
and up to 700 metric tons annually to be used solely in the
shareholders production process. The sales price per
kilogram under this agreement is independent of the
Companys actual cost of production. Sales to this customer
were $1,066,028 in 2007. See note 9 regarding subsequent
replacement of this agreement.
GMI
Agreements
The Company purchased intellectual property and other assets for
manufacturing refined silicon from GMI, a related party, during
the period beginning March 29, 2006 and ending
June 30, 2006. The price paid equaled the aggregate
investment made by the Company, amounting to $2,509,910, plus 8%
interest, calculated on an annual basis, beginning
March 31, 2006. The interest was $32,872 during the
June 30, 2006 fiscal year. Additionally, the Company
entered into a supply agreement, operating and facility site
lease with GMI. There was no activity under the supply agreement
during the year. The site lease began July 1, 2006.
Accounts payable to this related party were $1,757,481 at
June 30, 2007 and are included in accounts payable.
Additionally, in 2007, the Company purchased additional assets
from this related party in the amount of $224,978.
Supply
Agreement
The supply agreement with GMI expires in December 2026 with a
ten-year renewal option. The agreement calls for GMI to provide
S-1
metallurgical grade silicon at the greater of GMIs direct
cost plus 15% or the mean price of the bid and ask prices in
Ryans Notes the week prior to delivery. Purchases from GMI
were $2,198,655 in 2007.
F-151
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
JUNE 30, 2007
Operating
Agreement
Under the agreement, GMI is to provide administrative and
operating services. The Company shall reimburse GMI for its
direct cost plus 5%. Expenses related to this agreement were
$3,006,564 in 2007.
Facility
Site Lease
The facility site lease expires June 2026 with two ten-year
renewal options. Rent is payable in monthly installments of
$6,250. Rent expense was $75,000 for 2007.
|
|
NOTE 9
|
SUBSEQUENT
EVENTS
|
On July 1, 2007, the Company determined that they were no
longer a development stage company since they have effectively
brought their high purity silicon product to market.
In July 2007, the Company entered an agreement to issue up to
225.3863 of its Series A 8% cumulative convertible
Preferred Stock (Preferred Shares) at $48,805 per share. On
February 29, 2008, pursuant to the merger agreement with
Globe Specialty Metals, Inc. (GSM), each of the Companys
Preferred Shares issued and outstanding on February 28,
2008 were converted into 6,058.543 shares of GSMs
stock in exchange for all obligations due to the preferred
stockholders of record on February 28, 2008.
In July 2007 the Company issued 81.9588 preferred shares in
exchange for $4,000,000.
In October 2007 the Company obtained $3,000,000 short term
financing from related parties and existing investors. The paid
in kind interest is to be capitalized as principal outstanding
on these notes. The interest rate is the sum of the LIBOR rate
plus 3%. The financing maturity date is October 24, 2008.
On February 29, 2008, 81% of Solsil stock was acquired by
Globe Specialty Metals, Inc. (GSM). Based on the terms of the
acquisition agreement, GSM will issue 5,628,657 new shares of
common stock to shareholders and option holders of Solsil in
exchange for the approximate 81% interest in Solsil. The
estimated purchase price for Solsil was $75.5 million.
On April 24, 2008, the Company and Globe Metallurgical,
Inc. signed an agreement with BP Solar International, Inc. for
the sale of solar grade silicon from Solsil to BP Solar on a
take or pay basis. BP Solar will also deploy certain existing BP
Solar silicon technology at Solsils facility and will
jointly develop new technology to enhance Solsils
proprietary upgraded solar silicon metallurgical process.
As discussed in Note 8 (Related Party Transactions), the
Company entered into an agreement with a shareholder to supply
solar grade silicon through September 2011. Effective
January 1, 2008, this agreement was replaced with a new
agreement extending through December 31, 2012. The selling
price per kilogram under the new agreement is the lower of the
Companys fully loaded costs, as defined in the agreement,
plus an applicable profit margin or a fixed price specified in
the agreement. The fixed price decreases on an annual basis
through calendar year 2012.
F-152
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
BALANCE SHEETS
DECEMBER 31, 2007 AND JUNE 30, 2007
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(UNAUDITED)
|
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
727,126
|
|
|
|
254,014
|
|
Accounts receivable
|
|
|
989,913
|
|
|
|
136,091
|
|
Prepaid expenses
|
|
|
40,431
|
|
|
|
|
|
Inventory
|
|
|
909,584
|
|
|
|
942,842
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,667,054
|
|
|
|
1,332,947
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment at cost
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
98,189
|
|
|
|
98,189
|
|
Equipment
|
|
|
6,493,001
|
|
|
|
6,383,158
|
|
Construction in progress
|
|
|
616,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,207,760
|
|
|
|
6,481,347
|
|
Less: Accumulated depreciation
|
|
|
676,036
|
|
|
|
337,051
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
6,531,724
|
|
|
|
6,144,296
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,198,778
|
|
|
|
7,477,243
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,559,290
|
|
|
|
3,502,518
|
|
Notes payable
|
|
|
3,000,000
|
|
|
|
|
|
Accrued expenses
|
|
|
40,194
|
|
|
|
|
|
Deferred revenue
|
|
|
730,000
|
|
|
|
1,120,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,329,484
|
|
|
|
4,622,518
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
8% cumulative voting series A preferred stock,
$0.01 par value, 275 shares authorized, 82 shares
issued and outstanding at December 31, 2007; -0- shares
issued and outstanding at June 30, 2007
|
|
|
1
|
|
|
|
|
|
Common stock, $0.01 par value, 3,000 shares
authorized,
1,457 shares issued and 1,447 shares outstanding
|
|
|
15
|
|
|
|
15
|
|
Additional paid-in capital
|
|
|
16,910,898
|
|
|
|
12,798,078
|
|
Accumulated deficit
|
|
|
(4,098,252
|
)
|
|
|
|
|
Deficit accumulated during development stage
|
|
|
(9,923,368
|
)
|
|
|
(9,923,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,889,294
|
|
|
|
2,874,725
|
|
Less: Treasury stock, 10 common shares at cost
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,869,294
|
|
|
|
2,854,725
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
9,198,778
|
|
|
|
7,477,243
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-154
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
STATEMENTS OF OPERATION
FOR THE SIX MONTHS ENDED DECEMBER 31, 2007
AND 2006
AND FOR THE PERIOD BEGINNING MARCH 29, 2006 (INCEPTION) AND
ENDED JUNE 30, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception to
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
Net sales
|
|
$
|
4,241,050
|
|
|
|
905,160
|
|
|
|
2,647,884
|
|
Cost of sales
|
|
|
8,139,315
|
|
|
|
3,813,968
|
|
|
|
11,332,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deficit
|
|
|
(3,898,265
|
)
|
|
|
(2,908,808
|
)
|
|
|
(8,685,096
|
)
|
General and administrative expenses
|
|
|
624,109
|
|
|
|
669,306
|
|
|
|
2,186,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,522,374
|
)
|
|
|
(3,578,114
|
)
|
|
|
(10,871,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
34,122
|
|
|
|
95,656
|
|
|
|
167,984
|
|
Other income
|
|
|
390,000
|
|
|
|
|
|
|
|
780,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,122
|
|
|
|
95,656
|
|
|
|
947,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before provision for income taxes
|
|
|
(4,098,252
|
)
|
|
|
(3,482,458
|
)
|
|
|
(9,923,368
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,098,252
|
)
|
|
|
(3,482,458
|
)
|
|
|
(9,923,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share: basic and diluted
|
|
$
|
(2,813.46
|
)
|
|
|
(2,408.79
|
)
|
|
|
Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-155
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Issued
|
|
|
Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Common
|
|
|
Preferred
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
Balance June 30, 2007
|
|
|
1,456.6568
|
|
|
$
|
15
|
|
|
|
|
|
|
|
12,798,078
|
|
|
|
(9,923,368
|
)
|
|
|
(20,000
|
)
|
|
|
2,854,725
|
|
Issuance of preferred stock
|
|
|
81.9588
|
|
|
|
|
|
|
|
1
|
|
|
|
3,999,990
|
|
|
|
|
|
|
|
|
|
|
|
3,999,991
|
|
Syndication costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,053
|
)
|
|
|
|
|
|
|
|
|
|
|
(42,053
|
)
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,883
|
|
|
|
|
|
|
|
|
|
|
|
154,883
|
|
Net loss December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,098,252
|
)
|
|
|
|
|
|
|
(4,098,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
1,538.6156
|
|
|
$
|
15
|
|
|
|
1
|
|
|
|
16,910,898
|
|
|
|
(14,021,620
|
)
|
|
|
(20,000
|
)
|
|
|
2,869,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-156
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
AND FOR THE PERIOD BEGINNING MARCH 29, 2006 (INCEPTION) AND
ENDED JUNE 30, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception to
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,098,252
|
)
|
|
|
(3,482,458
|
)
|
|
|
(9,923,368
|
)
|
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
154,883
|
|
|
|
478,728
|
|
|
|
1,717,381
|
|
Depreciation expense
|
|
|
338,985
|
|
|
|
168,526
|
|
|
|
337,051
|
|
Increase in accounts receivable
|
|
|
(853,822
|
)
|
|
|
(470,046
|
)
|
|
|
(136,091
|
)
|
(Increase) decrease in inventory
|
|
|
33,258
|
|
|
|
(447,218
|
)
|
|
|
(942,842
|
)
|
Increase in prepaid expense
|
|
|
(40,431
|
)
|
|
|
(82,231
|
)
|
|
|
|
|
Increase (decrease) in accounts payable
|
|
|
(943,228
|
)
|
|
|
20,656
|
|
|
|
3,502,518
|
|
Increase (decrease) in accrued expenses
|
|
|
40,194
|
|
|
|
(4,167
|
)
|
|
|
|
|
Increase (decrease) in deferred revenue
|
|
|
(390,000
|
)
|
|
|
|
|
|
|
1,120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(5,758,413
|
)
|
|
|
(3,818,210
|
)
|
|
|
(4,325,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(726,413
|
)
|
|
|
(3,618,073
|
)
|
|
|
(6,481,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(726,413
|
)
|
|
|
(3,618,073
|
)
|
|
|
(6,481,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
6,100,002
|
|
|
|
11,080,712
|
|
Payments of syndication costs
|
|
|
(42,052
|
)
|
|
|
(43,379
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(20,000
|
)
|
Proceeds from preferred stock issue
|
|
|
3,999,990
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6,957,938
|
|
|
|
6,056,623
|
|
|
|
11,060,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
473,112
|
|
|
|
(1,379,660
|
)
|
|
|
254,014
|
|
Cash and equivalents beginning
|
|
|
254,014
|
|
|
|
4,014,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents ending
|
|
$
|
727,126
|
|
|
|
2,634,825
|
|
|
|
254,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements
F-157
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
|
|
NOTE 1
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
This summary of significant policies of Solsil, Inc.,
(hereinafter the Company or Solsil), is
presented to assist in understanding the financial statements.
The financial statements and notes are representations of the
Companys management, which is responsible for their
integrity and objectivity. These accounting policies conform to
accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of
the financial statements.
Nature
of Operations
The Company is primarily engaged in the development of refined
silicon to be used in the solar panel industry. The Company
recognizes its revenues as required by Staff Accounting
Bulletin No. 101 Revenue Recognition in
Financial Statements. Revenue is only recognized on
product sales once the product has been shipped to the customers
(FOB origin), and all other obligations have been met.
Accounts
Receivable
The Company grants credit to its customers in the ordinary
course of business. The Company provides for an allowance for
uncollectible receivables based on prior experience. There was
no allowance for uncollectible receivables at December 31,
2007 and June 30, 2007.
Inventories
Inventories are recorded at the lower of cost
(first-in,
first-out) or market.
Research
and Development
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amounts
charged in during the six months ended December 31, 2007
and 2006 were $3,898,265 and $2,908,808, respectively.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Income
Tax
In 2006, the Company was part of a controlled group with Globe
Metallurgical, Inc. (GMI). As a result, surtax and minimum
exemptions and expensing of depreciable assets were allocated
among related parties. At June 30, 2006, 100% of the
allocable items were allocated to GMI. As of July 1, 2006
the Company was no longer part of a controlled group. Deferred
tax assets and liabilities are determined based on the
difference between financial reporting and the tax basis of
assets and liabilities, and are measured using the enacted tax
rates and laws that are expected to be in effect when the
differences are expected to reverse.
Development
Stage Entity
The Company was incorporated in the state of Delaware on
March 29, 2006. It is primarily engaged in the development
and marketing of refined silicon to be used in the solar panel
industry. The Companys ability
F-158
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
to successfully develop and market its products, meet its future
financing requirements, are conditions for the success of future
operations. On July 1, 2007, the Company determined that
they were no longer a developmental stage company since it
effectively brought its high purity silicon product to market.
Concentrations
of Risk
The Companys cash is deposited in FDIC-insured banks. The
funds are insured up to $100,000. Periodically, the cash
balances in the bank exceed federally insured limits.
During the six months ended December 31, 2007, 88% of sales
were derived from two customers who are also related parties of
the Company. Accounts receivable at December 31, 2007 were
$966,247 from these customers. During the six months ended
December 31, 2006, 91% of sales were derived from two
customers who are also related parties of the Company. Accounts
receivable at June 30, 2007 were $136,091 from these
customers.
Depreciation
Property, plant and equipment are stated at cost. The Company
depreciates property, plant and equipment over its estimated
useful lives on a straight-line basis. Useful lives of property,
plant and equipment range between 7 to 10 years for
equipment and 40 years for buildings.
Stock
Options
The Company maintains the 2006 Non-Qualified Stock Plan (the
Plan). The Plan provides for the granting of non-qualified stock
options to select employees, officers, directors and consultants
as an incentive to such eligible persons. There are
100 shares available for grant under the Plan. Each option
is exercisable as stated in the recipients employment
agreement and expires ten years after the date of grant. Each
option shall be at fair market value on the date of the grant.
At December 31, 2006, 100 shares with exercise prices
of $50,000 were outstanding of which 50 shares were
exercisable. At December 31, 2007, 100 shares with
exercise prices of $50,000 were outstanding of which
83 shares were exercisable.
A summary of option activity under the plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
Outstanding at June 30, 2007
|
|
|
100
|
|
|
$
|
50,000
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
100
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Exercisable shares at June 30, 2007
|
|
|
66
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Exercisable shares at December 31, 2007
|
|
|
83
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
In December 2004, the Financial Accounting Standards Board
(FASB) issued FASB No. 123 (revised),
Share-Based Payment, (FASB 123(R)). FASB 123(R)
eliminates the alternative of using Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25) intrinsic value
method of accounting that was provided in FASB 123 as originally
issued. Under APB No. 25, issuing stock options to
employees generally resulted in recognition of no compensation
cost. FASB No. 123(R) requires
F-159
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
entities to recognize the cost of services received in exchange
for awards of equity instruments based on the grant-date fair
value of these awards (with limited exceptions.). The Company
has incurred $154,833 and $478,728 of stock-based compensation
expense for the six months ended December 31, 2007 and
2006, respectively.
The fair value for the stock options was estimated at the date
of grant using a Black-Scholes option pricing model with the
following assumptions for all options granted: a risk free
interest rate of 5.07%, expected life of the options of six
years, no expected dividend yield and a volatility factor of 63%.
Shipping
and Handling Costs
Shipping and handling costs are included in the cost of sales.
Inventories at December 31, 2007 and June 30, 2007
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
Finished goods
|
|
$
|
104,332
|
|
|
$
|
141,484
|
|
Work in process
|
|
|
89,507
|
|
|
|
15,635
|
|
Raw materials and supplies
|
|
|
715,745
|
|
|
|
785,723
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
909,584
|
|
|
$
|
942,842
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3
|
FAIR
VALUE OF FINANCIAL STATEMENTS
|
The carrying amount of cash, accounts receivable and liabilities
approximates the fair value reported on the balance sheet.
The sources of loss from continuing operations before income
taxes for the six months ended December 31, 2007 and
December 31, 2006 were generated completely from the
Companys U.S. operations in the amount of
$(4,098,252) and $(3,482,458), respectively.
Income taxes for the six month periods ended December 31,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Current
|
|
$
|
|
|
|
$
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-160
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
The Companys deferred tax assets and liabilities at
December 31, 2007 and June 30, 2007 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and carryforwards
|
|
$
|
4,398,000
|
|
|
|
2,900,000
|
|
Stock based compensation
|
|
|
636,600
|
|
|
|
584,000
|
|
Research and development credits
|
|
|
236,800
|
|
|
|
236,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,271,400
|
|
|
|
3,720,800
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(348,400
|
)
|
|
|
(196,300
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(4,923,000
|
)
|
|
|
(3,524,500
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes are provided for the difference between the book
and tax basis of assets and liabilities recorded for financial
statement and income tax reporting purposes. Principal
differences relate to depreciation methods of property, plant
and equipment, net operating loss carryforwards and research and
development credits.
The significant reconciling items between the income tax charge
stated and the amount of income tax charge that would result
from applying the US domestic federal statutory rate of 34% is a
valuation allowance against deferred tax assets.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Federal tax rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)
|
Increase in valuation allowance
|
|
|
34.0
|
|
|
|
34.0
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 the Company has approximately
$12,935,000 of net operating loss carry forwards expiring in
2026 and 2027. At December 31, 2007, the Company had
$236,000 of research and development tax credit carryforwards
expiring in 2026.
NOTE 5
STOCKHOLDERS EQUITY
Preferred
Stock
Each share of the series A convertible preferred stock is
convertible into common shares based on the original issue price
plus accrued dividends divided by $48,804.89. Preferred shares
are entitled to cumulative dividends at a rate of 9.5% if paid
by additional preferred shares or 8% if paid by cash. In the
event no cash dividends are paid prior to June 30, 2009,
the cumulative dividends rate becomes 12%. On February 29,
2008, pursuant to the merger agreement with Globe Specialty
Metals, Inc. (GSM), each of the Companys preferred shares
issued and outstanding on February 28, 2008 were converted
into 6,058.543 shares of GSMs stock in exchange of
all the obligations due to the preferred stockholder.
F-161
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
Board
of Directors
The Companys Board of Directors consists of six
individuals, four elected by common shareholders including one
designated by a specific shareholder and two elected by
preferred shareholders, both of which are designated by two
specific preferred shareholders.
NOTE 6
LOSS PER SHARE
Basic loss per common share is based on net loss divided by the
weighted average number of common shares outstanding for the six
months ended December 31, 2007 and December 31, 2006.
There is no dilutive effect on basic earnings per share.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Net loss
|
|
$
|
(4,098,252
|
)
|
|
|
(3,482,458
|
)
|
Weighted average common shares
|
|
|
1,456.66
|
|
|
|
1,445.73
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(2,813.46
|
)
|
|
|
(2,408.79
|
)
|
|
|
|
|
|
|
|
|
|
NOTE 7
RELATED PARTY TRANSACTIONS
Related
Party Sales
During the six months ended December 31, 2007 and 2006, 88%
and 91% of sales, respectively were derived from two customers
who are also related parties of the Company. Accounts receivable
from these customers at December 31, 2007 and 2006 were
$966,247 and $823,526, respectively.
Sales
Agreement
In July 2006 the Company entered into an agreement with a
shareholder to supply solar grade silicon through September
2011. The agreement calls for a fee of $3,900,000 of which
$1,900,000 was received during 2007, with $2,000,000 due upon
completion of specific terms. Revenue recognized from this
agreement was $390,000 in 2007, with $730,000 of deferred
revenue at December 31, 2007. The agreement has a
three-year renewal option. The agreement provides that the
Company supply at least 300 and up to 700 metric tons annually
to be used solely in the shareholders production process.
The sales price per kilogram under this agreement is independent
of the Companys actual cost of production. Sales to this
customer were $2,413,830 and $177,208 for the six months ended
December 31, 2007 and 2006, respectively. See note 10
regarding subsequent replacement of this agreement.
GMI
Agreements
The Company purchased intellectual property and other assets for
manufacturing refined silicon from GMI, a related party, during
the period beginning March 29, 2006 and ending
June 30, 2006. The price paid equaled the aggregate
investment made by the Company, amounting to $2,509,910, plus 8%
interest, calculated on an annual basis, beginning
March 31, 2006. The interest was $0 and $49,958 during the
six months ended December 31, 2007 and 2006, respectively.
Additionally, the Company entered into a supply agreement (see
below), operating and facility site lease with GMI. The site
lease began July 1, 2006. Accounts payable to this related
party were $962,227 and $804,080 at December 31, 2007 and
2006, respectively and are included in accounts payable.
F-162
SOLSIL,
INC.
(A DEVELOPMENT STAGE COMPANY THROUGH JUNE 30, 2007)
NOTES TO THE FINANCIAL
STATEMENTS (Continued)
(UNAUDITED)
Supply
Agreement
The supply agreement with GMI expires in December 2026 with a
ten-year renewal option. The agreement calls for GMI to provide
S-1
metallurgical grade silicon at the greater of GMIs direct
cost plus 15% or the mean price of the bid and ask prices in
Ryans Notes the week prior to delivery. Purchases from GMI
were $1,928,018 and $976,364 for the six months ended
December 31, 2007 and 2006, respectively.
Operating
Agreement
Under the agreement, GMI is to provide administrative and
operating services. The Company shall reimburse GMI for its
direct costs plus 5%. Expenses related to this agreement were
$3,006,564 and $1,754,106 for the six months ended
December 31, 2007 and 2006, respectively.
Facility
Site Lease
The facility site lease expires June 2026 with two ten-year
renewal options. Rent is payable in monthly installments of
$6,250. Rent expense was $38,403 for the six months ended
December 31, 2007 and $37,500 for the six months ended
December 31, 2006.
|
|
NOTE 8
|
BUSINESS
SEGMENTS
|
The Company operates in one reportable segment, silicon metal.
On October 24, 2007, the Company obtained a $3,000,000
short-term financing from related parties at a variable interest
rate per annum equal to the sum of the LIBOR rate plus 3%. The
paid in kind interest is to be capitalized quarterly as
principal outstanding on these notes. These notes mature on
October 24, 2008 and are secured by all assets and
properties of the Company.
|
|
NOTE 10
|
SUBSEQUENT
EVENTS
|
On February 29, 2008, approximately 81% of Solsil stock was
acquired by Globe Specialty Metals, Inc. (GSM). Based on the
terms of the acquisition agreement, GSM issued 5,628,657 new
shares of GSMs common stock to shareholders and option
holders of Solsil in exchange for the approximate 81% interest
in Solsil. The estimated purchase price for the 81% interest in
Solsil is $75.5 million.
On April 24, 2008, Solsil, Inc. and Globe Metallurgical,
Inc. signed an agreement with BP Solar International Inc. for
the sale of solar grade silicon. The Company said BP Solar and
Solsil will also deploy certain existing BP Solar silicon
technology at Solsils facility and will jointly develop
new technology to enhance Solsils proprietary upgraded
solar silicon metallurgical process.
As discussed in Note 7 (Related Party Transactions), the
Company entered into an agreement with a shareholder to supply
solar grade silicon through September 2011. Effective
January 1, 2008, this agreement was replaced with a new
agreement extending through December 31, 2012. The selling
price per kilogram under the new agreement is the lower of the
Companys fully loaded costs, as defined in the agreement,
plus an applicable profit margin or a fixed price specified in
the agreement. The fixed price decreases on an annual basis
through calendar year 2012.
F-163
August 3,
2006
INDEPENDENT
AUDITORS REPORT
Board of Directors
Ultra Core Corporation
Park Ridge, IL 60068
We have audited the accompanying balance sheet of Ultra Core
Corporation as of June 30, 2006 and the related statement
of income, retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet of Ultra Core Corporation as
of June 30, 2006 and the related statement of income,
retained earnings, and cash flows for the year ended
June 30, 2006 present fairly in all material respects, the
financial position of Ultra Core Corporation and the results of
its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
/s/
Hochfelder
& Weber P.C.
Hochfelder & Weber, P.C.
Certified Public Accountants
Chicago, Illinois
F-165
ULTRA
CORE CORPORATION
BALANCE
SHEET
JUNE 30, 2006
|
|
|
|
|
ASSETS
|
CURRENT ASSETS
|
|
|
|
|
Cash
|
|
$
|
118,290
|
|
Accounts Receivable
|
|
|
1,311,744
|
|
Inventory
|
|
|
1,810,801
|
|
|
|
|
|
|
Total Current Assets
|
|
|
3,240,835
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT
|
Equipment
|
|
|
8,557
|
|
Furniture and Fixtures
|
|
|
8,756
|
|
Leasehold Improvements
|
|
|
2,210
|
|
Automobile
|
|
|
15,622
|
|
|
|
|
|
|
Total Property and Equipment
|
|
|
35,145
|
|
Less: Accumulated Depreciation
|
|
|
(29,091
|
)
|
|
|
|
|
|
Net Property and Equipment
|
|
|
6,054
|
|
|
|
|
|
|
|
OTHER ASSETS
|
Deposits
|
|
|
14,907
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
3,261,796
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
CURRENT LIABILITIES
|
|
|
|
|
Accounts Payable
|
|
$
|
742,622
|
|
Accrued Payroll
|
|
|
11,156
|
|
Income Taxes Payable
|
|
|
56,815
|
|
Customer Deposit
|
|
|
47,543
|
|
Accrued Interest Payable
|
|
|
3,704
|
|
Loan Payable Crecera
|
|
|
443,253
|
|
Loan Payable Crecera Brillions
|
|
|
1,393,762
|
|
Loan Payable Morales
|
|
|
400,000
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
3,098,855
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
Common Stock Authorized 10,000 shares,
Par Value $.00 per share, 1,000 shares Issued and
Outstanding
|
|
|
0
|
|
Additional Paid in Capital
|
|
|
1,000
|
|
Retained Earnings
|
|
|
161,941
|
|
|
|
|
|
|
Total Equity
|
|
|
162,941
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
3,261,796
|
|
|
|
|
|
|
The accompanying notes and accountants report are an
integral part of these statements.
F-166
ULTRA
CORE CORPORATION
STATEMENT
OF INCOME AND RETAINED EARNINGS
FOR THE
YEAR ENDED JUNE 30, 2006
|
|
|
|
|
SALES
|
|
$
|
9,910,945
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
|
|
Cost of Product
|
|
|
8,871,432
|
|
Import Expenses
|
|
|
231,099
|
|
|
|
|
|
|
Total Cost of Goods Sold
|
|
|
9,102,531
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
808,414
|
|
|
|
|
|
|
|
EXPENSES
|
Accounting and Legal Fees
|
|
|
59,122
|
|
Advertising
|
|
|
8,687
|
|
Bank Charges
|
|
|
6,414
|
|
Commissions
|
|
|
1,348
|
|
Depreciation
|
|
|
7,230
|
|
Insurance General
|
|
|
27,012
|
|
Interest
|
|
|
109,221
|
|
General Expenses
|
|
|
42,834
|
|
Moving Expense
|
|
|
53,344
|
|
Outside Services
|
|
|
4,361
|
|
Payroll and Payroll Taxes
|
|
|
154,420
|
|
Rent
|
|
|
40,136
|
|
Telephone
|
|
|
9,296
|
|
Consulting
|
|
|
58,350
|
|
|
|
|
|
|
Total Expenses
|
|
|
581,775
|
|
|
|
|
|
|
NET INCOME BEFORE PROVISION FOR INCOME TAX
|
|
|
226,639
|
|
PROVISION FOR INCOME TAX
|
|
|
89,590
|
|
|
|
|
|
|
NET INCOME
|
|
|
137,049
|
|
Retained Earnings Beginning of Year
|
|
|
255,892
|
|
Distributions
|
|
|
(231,000
|
)
|
|
|
|
|
|
Retained Earnings End of Year
|
|
$
|
161,941
|
|
|
|
|
|
|
The accompanying notes and accountants report are an
integral part of these statements.
F-167
ULTRA
CORE CORPORATION
STATEMENT
OF CASH FLOWS
FOR THE
YEAR ENDED JUNE 30, 2006
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net Income
|
|
$
|
137,049
|
|
Adjustments to reconcile net income to net cash used by
operations:
|
|
|
|
|
Depreciation and Amortization
|
|
|
7,230
|
|
Changes in Assets and Liabilities:
|
|
|
|
|
(Increase) Decrease in Accounts Receivable
|
|
|
(771,181
|
)
|
(Increase) Decrease in Inventory
|
|
|
(737,638
|
)
|
(Increase) Decrease in Other Assets
|
|
|
(311
|
)
|
Increase (Decrease) in Payables
|
|
|
67,136
|
|
Increase (Decrease) in Customer Deposits
|
|
|
1,575
|
|
|
|
|
|
|
NET CASH USED BY OPERATING ACTIVITIES
|
|
|
(1,296,140
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
Fixed Asset Purchases
|
|
|
(4,591
|
)
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
Net Proceeds from Loans
|
|
|
1,728,269
|
|
Distributions
|
|
|
(450,000
|
)
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,278,269
|
|
|
|
|
|
|
DECREASE IN CASH
|
|
|
(22,462
|
)
|
CASH BEGINNING OF YEAR
|
|
|
140,752
|
|
|
|
|
|
|
CASH END OF YEAR
|
|
$
|
118,290
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
Cash Paid During the Year for:
|
|
|
|
|
Interest
|
|
$
|
106,854
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
152,401
|
|
|
|
|
|
|
The accompanying notes and accountants report are an
integral part of these statements.
F-168
ULTRA
CORE CORPORATION
NOTES TO
FINANCIAL STATEMENTS
JUNE 30,
2006
|
|
NOTE 1
|
BUSINESS
DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Business
Description
Ultra Core Corporation was incorporated on April 30, 2003
under the laws of the State of Illinois. The Company is a
wholesale distributor of alloys that are used by the foundry and
steel industry.
Basis of
Accounting
The Company records its income and expenses on the accrual basis
of accounting. Under this method revenue is recorded when earned
and expenses are recorded when incurred.
Property
and Equipment
Property and equipment are carried at cost. Expenditures for
major renewals and betterments which substantially increase the
useful lives of existing assets are capitalized. Maintenance and
repairs are charged to operating expense as incurred.
The Company provides for depreciation of equipment using
accelerated methods over periods ranging from five to seven
years. Leasehold improvements are amortized utilizing the
straight-line method over a period of thirty-nine years.
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Cash and
Cash Equivalents
Cash and cash equivalents include cash and highly liquid
investments with initial maturities of three months or less.
Inventory
Inventory consists primarily of alloys used by the foundry and
steel industries, which are valued at cost, using the
First In, First Out method.
Uncollectible
Accounts Receivable
The Company uses the specific identification method for accounts
receivable balances considered uncollectible. As of
June 30, 2006, management considers no accounts to be
uncollectible.
On May 28, 2004, the Company entered into an Accounts
Receivable Financing Agreement (Financing Agreement) with
Crecera Finance Company whereby the Company can finance up to a
maximum of $500,000 of its eligible accounts receivables with a
75% advance rate. The Company receives the balance of the
accounts receivables when Crecera receives payment from the
customers. The Financing Agreement, bears an interest rate of
9.9% per annum. At June 30, 2006, the outstanding balance
is shown as a current liability under the caption Loan
Payable-Crecera in the Companys balance sheet.
F-169
ULTRA
CORE CORPORATION
NOTES TO
FINANCIAL STATEMENTS (Continued)
JUNE 30,
2006
On March 16, 2006, the Company entered into an Accounts
Receivable Financing Agreement (Financing Agreement) with
Crecera Finance Company whereby the Company borrowed $1,500,000
in exchange for an interest in all current and future
receivables of Brillions, a customer of the Company. At
June 30, 2006, Brillions accounts receivable balance is
$181,607. As accounts receivables for Brillions are paid,
Crecera collects the payments and applies these payments to the
loan until the loan is paid in full including interest. The
Financing Agreement bears interest at LIBOR + 4.5% per annum. At
June 30, 2006, the outstanding balance is shown as a
current liability under the caption Loan
Payable Crecera Brillions.
On July 15, 2005, Ultra Core Corporation extended a loan
agreement with Juan Morales. The balance at June 30, 2006
is as follows:
|
|
|
|
|
Loan agreement, interest at 4.5% per annum, Limited to $400,000
with maturity date of July 15, 2006
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
NOTE 3
|
LEASE
COMMITMENTS
|
Ultra Core Corporation conducts its operations from
facilities that are leased under a non-cancelable operating
lease entered into on October 6, 2003. The lease expires on
October 31, 2006.
The Company leases an apartment under a non-cancelable operating
lease entered into on January 27, 2006. This apartment is
occupied by an employee of the Company, and the lease expires on
July 31, 2006
The following is a schedule of future minimum rental payments
required under the above operating leases as of June 30,
2006.
|
|
|
|
|
Year Ending June 30
|
|
Amount
|
|
|
2007
|
|
$
|
10,309
|
|
|
|
|
|
|
|
|
NOTE 4
|
MAJOR
CUSTOMERS AND SUPPLIERS
|
For the year ended June 30, 2006, nine customers accounted
for 85% of total revenue. At June 30, 2006, five customers
accounted for 77% of total accounts receivable.
For the year ended June 30, 2006, the Company purchased
100% of its inventory from one supplier, a related party.
|
|
NOTE 5
|
CONCENTRATIONS
OF CREDIT RISK
|
The Company maintains a cash balance in one financial
institution in excess of the insurance limits provided by the
Federal Deposit Insurance Corporation. The uninsured balance at
June 30, 2006 is $17,790.
The Company purchases all of its inventory from a related party,
Stein, a high quality ferroalloys producer located in Argentina.
At June 30, 2006, Ultra Core Corporations payable to
Stein is $648,276.
During the year ended June 30, 2006, the Company
distributed $450,000 to the shareholders of the company which
consisted of $231,000 dividends and $219,000 return of capital.
F-170
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table sets forth an itemization of the various
costs and expenses, all of which we will pay, in connection with
the issuance and distribution of the securities being
registered. All of the amounts shown are estimated except the
SEC registration fee, the NASDAQ listing fee and the FINRA
filing fee:
|
|
|
|
|
SEC registration fee
|
|
$
|
5,895
|
|
NASDAQ listing fee
|
|
|
|
|
FINRA filing fee
|
|
|
15,500
|
|
Accounting fees and expense
|
|
|
|
|
Printing and engraving expenses
|
|
|
|
|
Legal fees and expenses
|
|
|
|
|
Blue Sky fees and expenses
|
|
|
|
|
|
|
|
|
|
Transfer Agent and Registrar fees
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Our certificate of incorporation and bylaws provide that each
person who was or is made a party or is threatened to be made a
party to or is otherwise involved (including, without
limitation, as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or an
officer of Globe Specialty Metals, Inc. or is or was serving at
our request as a director, officer, or trustee of another
corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee
benefit plan, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer or trustee
or in any other capacity while serving as a director, officer or
trustee, shall be indemnified and held harmless by us to the
fullest extent authorized by the Delaware General Corporation
Law against all expense, liability and loss (including
attorneys fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or
suffered by such.
Section 145 of the Delaware General Corporation Law permits
a corporation to indemnify any director or officer of the
corporation against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or
was a director or officer of the corporation, if such person
acted in good faith and in a manner that he or she reasonably
believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or
proceeding, if he or she had no reason to believe his or her
conduct was unlawful. In a derivative action, (
i.e
., one
brought by or on behalf of the corporation), indemnification may
be provided only for expenses actually and reasonably incurred
by any director or officer in connection with the defense or
settlement of such an action or suit if such person acted in
good faith and in a manner that he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be provided if such person
shall have been adjudged to be liable to the corporation, unless
and only to the extent that the court in which the action or
suit was brought shall determine that the defendant is fairly
and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
II-1
Pursuant to Section 102(b)(7) of the Delaware General
Corporation Law, Article Eighth of our certificate of
incorporation eliminates the liability of a director to us for
monetary damages for such a breach of fiduciary duty as a
director, except for liabilities arising:
|
|
|
|
|
from any breach of the directors duty of loyalty to us;
|
|
|
|
from acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
|
|
|
|
under Section 174 of the Delaware General Corporation
Law; and
|
|
|
|
from any transaction from which the director derived an improper
personal benefit.
|
We carry insurance policies insuring our directors and officers
against certain liabilities that they may incur in their
capacity as directors and officers. In addition, we expect to
enter into indemnification agreements with each of our directors
and executive officers prior to completion of the offering.
Additionally, reference is made to the Underwriting Agreement
filed as Exhibit 1.1 hereto, which provides for
indemnification by the underwriters of Globe Specialty Metals,
Inc., our directors and officers who sign the registration
statement and persons who control Globe Specialty Metals, Inc.
under certain circumstances.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
In the three years preceding the filing of this Registration
Statement, we have sold the following securities that were not
registered under the Securities Act.
(a) Issuances
of Capital Stock and Warrants
The following sales and issuances of securities described below
were deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2) or Regulation D
promulgated thereunder:
|
|
|
|
|
On October 3, 2005, we consummated the initial public
offering of our units at an initial offering price of $6.00 per
unit. Each unit consisted of one share of common stock and one
warrant to purchase one share of common stock at an exercise
price of $5.00. See Description of Capital
Stock Warrants for more information.
|
|
|
|
On November 10, 2006, we issued approximately
8.6 million shares of our common stock as part of the
consideration paid for the acquisition of Globe Metallurgical,
Inc.
|
|
|
|
In January and February 2007, we issued an aggregate of
3,633,480 shares of common stock as part of a private offer
to exercise or exchange warrants made to certain of our warrant
holders.
|
|
|
|
Between January 2007 and May 2007, we issued an aggregate of
5,541,348 shares of common stock as part of a private offer
to exercise or exchange warrants made to all of our remaining
warrant holders.
|
|
|
|
On February 29, 2008, we issued 5,628,657 of common stock
as part of the acquisition of Solsil, Inc.
|
With respect to the issuance of the securities described below,
an exemption from registration was unnecessary, in that these
transactions did not involve a sale of securities as
this term is used in Section 2(3) of the Securities Act:
|
|
|
|
|
On March 24, 2005, we increased the number of authorized
shares of capital from 121,000,000 to 151,000,000, consisting of
150,000,000 shares of common stock and
1,000,000 shares of preferred stock. We paid a stock
dividend of 0.11666666 shares of common stock,
$0.0001 par value, for each outstanding share of common
stock, and such shares were issued pursuant to the same
exemption as outlined in the immediately preceding paragraph.
The total number of issued shares following such stock dividend
was 8,375,000 and included 98,529 shares issued to Theodore
A. Heilman, Jr. and 6,804,442 shares issued to Alan
Kestenbaum and members of his immediate family.
|
II-2
(b) Certain
Grants and Exercises of Stock Options
The sale and issuance of the securities described below were
deemed to be exempt from registration under the Securities Act
in reliance on Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not
involving a public offering.
Pursuant to our stock plans and certain stand-alone stock option
agreements, we have issued options to purchase an aggregate of
1,360,000 shares of common stock as of March 31, 2008.
Of these options:
|
|
|
|
|
options to purchase 0 shares of common stock have been
canceled or lapsed without being exercised;
|
|
|
|
options to purchase 0 shares of common stock have been
exercised; and
|
|
|
|
options to purchase a total of 1,360,000 shares of common
stock are currently outstanding, at a weighted average exercise
price of $8.50 per share.
|
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following exhibits are filed as part of this
Registration Statement:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation
|
|
3
|
.2
|
|
Certificate of Amendment to the Amended and Restated Certificate
of Incorporation
|
|
3
|
.3
|
|
Amended and Restated Bylaws*
|
|
4
|
.1
|
|
Amended and Restated Credit Agreement dated as of
December 21, 2005, as amended, by and among GMI, Alloys and
International Metal Enterprises, the Lenders party thereto,
Fortis Capital Corp., as Administrative Agent and as Collateral
Agent, and Societe Generale, as Documentation Agent*
|
|
5
|
.1
|
|
Form of opinion of Arent Fox LLP*
|
|
10
|
.1
|
|
2006 Employee, Director and Consultant Stock Option Plan
|
|
10
|
.2
|
|
Employment Agreement, dated May 26, 2008, between GSM and
Jeff Bradley
|
|
10
|
.3
|
|
Employment Agreement, dated November 13, 2006, between GSM
and Alan Kestenbaum
|
|
10
|
.4
|
|
Employment Agreement, dated May 31, 2006, between Solsil
and Alan Kestenbaum
|
|
10
|
.5
|
|
Employment Agreement, dated November 13, 2006, between GSM
and Arden Sims
|
|
10
|
.6
|
|
Employment Agreement, dated May 31, 2006, between Solsil
and Arden Sims
|
|
10
|
.7
|
|
Employment Agreement, dated November 13, 2006, between GSM
and Theodore A. Heilman, Jr.
|
|
10
|
.8
|
|
Employment Agreement, dated June 8, 2007, between GSM and
Daniel Krofcheck
|
|
10
|
.9
|
|
Employment Agreement, dated June 20, 2008, between GSM and
Stephen Lebowitz
|
|
21
|
.1
|
|
Subsidiaries
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
Consent of Deloitte
|
|
23
|
.3
|
|
Consents of Hobe & Lucas Certified Public Accountants,
Inc.
|
|
23
|
.4
|
|
Consent of BDO Trevisan
|
|
23
|
.5
|
|
Consent of Hochfelder & Weber, P.C.
|
|
23
|
.6
|
|
Consent of Arent Fox LLP (included in Exhibit 5.1)*
|
|
24
|
|
|
Power of Attorney (included on the signature page of this
Registration Statement)
|
|
|
|
*
|
|
To be filed by amendment.
|
II-3
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
i. To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective registration statement.
iii. To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(4) That in a primary offering of securities of the
undersigned registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
i. Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
iii. The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
iv. Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
(b) The undersigned hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses
II-4
incurred or paid by a director, officer, or controlling person
of the registrant in the successful defense of any action, suit,
or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, New York on
July 24, 2008.
Globe Specialty Metals, Inc.
Alan Kestenbaum, Executive Chairman
We, the undersigned officers and directors of Globe Specialty
Metals, Inc., hereby severally constitute and appoint Alan
Kestenbaum, Jeff Bradley and Daniel Krofcheck and each of them
singly (with full power to each of them to act alone), our true
and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution in each of them for him and in
his name, place and stead, and in any and all capacities, to
sign any and all amendments (including post-effective
amendments) to this Registration Statement (or any other
Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as
full to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his
substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities held on the dates indicated.
|
|
|
|
|
|
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
/s/
Alan
Kestenbaum
Alan
Kestenbaum
|
|
Executive Chairman, Director
and Principal Executive Officer
|
|
July 23, 2008
|
|
|
|
|
|
/s/
Daniel
Krofcheck
Daniel
Krofcheck
|
|
Chief Financial Officer and
Principal Accounting Officer
|
|
July 23, 2008
|
|
|
|
|
|
Stuart
E. Eizenstat
|
|
Director
|
|
July 23, 2008
|
|
|
|
|
|
/s/
Daniel
Karosen
Daniel
Karosen
|
|
Director
|
|
July 23, 2008
|
|
|
|
|
|
/s/
John
P. OBrien
John
P. OBrien
|
|
Director
|
|
July 23, 2008
|
II-6
Exhibit
Index
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation
|
|
3
|
.2
|
|
Certificate of Amendment to the Amended and Restated Certificate
of Incorporation
|
|
3
|
.3
|
|
Amended and Restated Bylaws*
|
|
4
|
.1
|
|
Amended and Restated Credit Agreement dated as of
December 21, 2005, as amended, by and among GMI, Alloys and
International Metal Enterprises, the Lenders party thereto,
Fortis Capital Corp., as Administrative Agent and as Collateral
Agent, and Societe Generale, as Documentation Agent*
|
|
5
|
.1
|
|
Form of opinion of Arent Fox LLP*
|
|
10
|
.1
|
|
2006 Employee, Director and Consultant Stock Option Plan
|
|
10
|
.2
|
|
Employment Agreement, dated May 26, 2008, between GSM and
Jeff Bradley
|
|
10
|
.3
|
|
Employment Agreement, dated November 13, 2006, between GSM
and Alan Kestenbaum
|
|
10
|
.4
|
|
Employment Agreement, dated May 31, 2006, between Solsil
and Alan Kestenbaum
|
|
10
|
.5
|
|
Employment Agreement, dated November 13, 2006, between GSM
and Arden Sims
|
|
10
|
.6
|
|
Employment Agreement, dated May 31, 2006, between Solsil
and Arden Sims
|
|
10
|
.7
|
|
Employment Agreement, dated November 13, 2006, between GSM
and Theodore A. Heilman, Jr.
|
|
10
|
.8
|
|
Employment Agreement, dated June 8, 2007, between GSM and
Daniel Krofcheck
|
|
10
|
.9
|
|
Employment Agreement, dated June 20, 2008, between GSM and
Stephen Lebowitz
|
|
21
|
.1
|
|
Subsidiaries
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
Consent of Deloitte
|
|
23
|
.3
|
|
Consents of Hobe & Lucas Certified Public Accountants,
Inc.
|
|
23
|
.4
|
|
Consent of BDO Trevisan
|
|
23
|
.5
|
|
Consent of Hochfelder & Weber, P.C.
|
|
23
|
.6
|
|
Consent of Arent Fox LLP (included in Exhibit 5.1)*
|
|
24
|
|
|
Power of Attorney (included on the signature page of this
Registration Statement)
|
|
|
|
*
|
|
To be filed by amendment.
|