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As filed with the Securities and Exchange Commission on July 28, 2009
Registration No. 333-152513
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 5
to
 
Form S-1
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
Globe Specialty Metals, Inc.
(Exact name of registrant as specified in its charter)
 
         
Delaware   3330   20-2055624
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
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 registrant’s principal executive offices)
 
 
Jeff Bradley, Chief Executive Officer
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)
 
 
     
Jeffrey E. Jordan, Esq.
Arent Fox LLP
1050 Connecticut Avenue
Washington DC 20036
(202) 857-6000
  Michael Kaplan, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
 
 
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.  o
 
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.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
                     (Do not check if a smaller reporting company)
 
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.
 


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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.
 
SUBJECT TO COMPLETION, DATED JULY 28, 2009
PRELIMINARY PROSPECTUS
 
14,000,000 Shares
 
Globe Specialty Metals Logo
 
Common Stock
 
 
We are selling 5,600,000 shares of common stock and the selling stockholders are selling 8,400,000 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 2,100,000 additional shares of common stock from certain 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 $7.00 and $9.00 per share.
 
Our common stock has been approved for listing on The NASDAQ Global Select Market under the symbol “GSM.” 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 12.
 
                                 
          Underwriting
             
    Price to
    Discounts and
    Proceeds to
    Proceeds to
 
    Public     Commissions     Us     Selling Stockholders  
 
Per Share
  $           $           $           $        
Total
  $       $       $       $  
 
Delivery of the shares of common stock will be made on or about       , 2009.
 
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.
 
Credit Suisse Jefferies & Company J.P.Morgan
 
 
The date of this prospectus is          , 2009


 

 
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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          , 2009, 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.


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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 statement 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 world’s largest and most efficient producers of silicon metal and silicon-based alloys, with approximately 156,400 MT of silicon metal capacity and 72,800 MT of silicon-based alloys capacity at our principal operating facilities located in the U.S., Argentina and Brazil, and are also a leading developer of upgraded metallurgical silicon (UMG) for photovoltaic (solar) cells. The capital expenditure required to reopen our Niagara Falls, New York facility was substantially completed in fiscal 2009 and will bring our silicon metal capacity to 186,400 MT. 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-based alloys including magnesium-ferrosilicon-based alloys used to make ductile iron by increasing iron’s strength and resilience, ferrosilicon-based alloys used to increase the 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, 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 of 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 large 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 multi-year, annual, semi-annual or quarterly contracts on a period or calendar, semi-annual or quarterly basis, respectively, for the majority of our silicon metal production, allowing us to fix our sales price under these contracts and to improve the visibility of our earnings. We have grown our business through strategic acquisitions since 2006, and for the nine months ended March 31, 2009 we had net sales, an operating loss and a net loss of approximately $344,610,000, $33,792,000 and $43,619,000, respectively. Our operating results for the nine months ended March 31, 2009 include a $69,704,000 goodwill and intangible asset impairment charge.
 
During the ongoing global recession, we have remained profitable (excluding goodwill and intangible asset impairment charges) while many metals companies have experienced losses. We believe that our performance is a result of our market position as low cost leader, the recognized quality of our products, the strength of our contracts and our flexible manufacturing capabilities. Despite a 49% decline in volume (from the quarter ended September 30, 2008 to the quarter ended March 31, 2009), we generated $975,000 of operating income in the quarter ended March 31, 2009. Additionally, we achieved a gross margin percentage of 19% in the quarter ended March 31, 2009, as compared to 24% in the quarter ended December 31, 2008 and 29% in the quarter ended September 30, 2008. For the quarter ended March 31, 2009, selling, general and


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administrative expenses were 46% lower than the quarter ended December 31, 2008 and 25% lower than the quarter ended September 30, 2008.
 
Pursuant to a decline in customer demand in November and December 2008, we evaluated our production schedule and began selectively idling individual furnaces and reducing our workforce. Our flexible manufacturing capabilities allow us to turn furnaces on and off in a matter of days with little cost. When volume declined further in January and February 2009, we decided to suspend operations at our Selma, Alabama facility in April 2009 and we continued to reduce our workforce and curtail discretionary expenditures. We developed a model of best staffing practices on a per furnace basis and are implementing it at all of our facilities which will lead to further headcount reductions and allow us to reopen individual furnaces without substantially increasing headcount.
 
The continuing increase in our average silicon metal selling prices, which have risen in seven of the last eight quarters through March 31, 2009, has provided for significant revenue growth and profitability. Silicon-based alloy prices increased even more significantly over such eight quarters than silicon metal prices, and declined only modestly, 3%, in the most recent quarter. Specifically, over such eight quarters, since our major acquisitions were completed, the average selling price of our silicon metal and silicon-based alloys increased by a total of 41% and 94%, respectively, for a compounded quarterly growth rate of 5% and 10%, respectively.
 
We sell silicon metal and silicon-based alloys to a diverse base of customers worldwide. During the nine months ended March 31, 2009, we had over 580 customers engaged primarily in the production of silicone chemicals (24% of revenue), aluminum (22% of revenue), foundry alloys (17% of revenue), photovoltaic (solar) cells/semiconductors (12% of revenue) and steel (12% of revenue). Our customer base is geographically diverse, and includes customers in North America, Europe, South America and Asia, which for the nine months ended March 31, 2009, represented 65%, 21%, 10% and 4% of our revenue, respectively.
 
We operate our business through five principal subsidiaries, each of which, unless otherwise noted, is wholly owned by us.
 
Globe Metallurgical, Inc. (GMI), one of the world’s largest and most efficient manufacturers of silicon metal and silicon-based alloys, currently operates two production facilities in the United States, located in 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, together with additional leasing opportunities in the vicinity, we believe will cover our needs well into the future. GMI expects to reopen its idle silicon metal production facility in Niagara Falls, New York, depending on customer demand, in fiscal 2010. GMI also owns a production facility in Selma, Alabama that suspended operations in April 2009 in response to the recent decline in demand. This production facility could be reopened with minimal expense. In the nine months ended March 31, 2009, GMI manufactured and sold silicon metal and silicon-based alloys to more than 250 customers, predominantly in North America. Our production facilities in the United States have a combined silicon metal capacity of approximately 112,800 MT and our Beverly production facility has approximately 46,800 MT of silicon-based alloy capacity. Our Niagara Falls production facility is expected to be reopened in fiscal 2010, and when operating at full capacity is expected to increase our U.S. silicon metal production capacity by over 19%, or approximately 30,000 MT annually, bringing total U.S. production capacity to 142,800 MT.
 
Globe Metales S.A. (Globe Metales), previously known as Stein Ferroaleaciones S.A., a producer of silicon-based alloys, operates a production 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 silicon-based alloy products, either in lump form or in cored-wire, a delivery method preferred by some manufacturers of steel, ductile iron, machine parts, auto parts and industrial pipe. In the nine months ended March 31, 2009, we sold Globe Metales’ products to over 50 customers, about 82% of which are export customers located in 18 countries. Approximately one-fourth 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), previously known as Camargo Correa Metais S.A., one of the largest producers of silicon metal in Brazil, operates a production facility located in Breu


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Branco, Para, Brazil. Globe Metais has a number of leased quartzite mining operations throughout the state of Para, including one in Breu Branco. We believe our leased quartzite mining operations, together with additional leasing opportunities in the vicinity, will cover our quartzite supply needs well into the future. Additionally, Globe Metais has forest reserves in Breu Branco, which are farmed utilizing environmentally sensitive forestry management techniques to obtain the wood necessary for woodchips and charcoal, both of which are critical supplies in our production process. 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 production facility. In the nine months ended March 31, 2009, we exported about 61% of our Brazilian output to Europe, primarily to customers located in Germany, with other sales to customers in the Middle East and East Asia.
 
Solsil, Inc. (Solsil) is continuing to develop its technology to produce upgraded metallurgical grade silicon (UMG) through a proprietary metallurgical process. Solsil has historically supplied its silicon to global manufacturers of photovoltaic (solar) cells, ingots, and wafers. Solsil remains focused on research and development and is not presently producing material for commercial sale. As market demand increases, and assuming successful development of our UMG product, we plan to expand Solsil’s operations by adding new furnaces and by implementing new technologies under development. These steps will permit us to become a significant supplier in the photovoltaic (solar) cell market. In April 2008, Solsil and GMI entered into a joint development and supply agreement with BP Solar International Inc., a leading global designer, manufacturer and marketer of solar technology and a subsidiary of BP p.l.c., for the sale of UMG to the photovoltaic (solar) cell market and further metallurgical process development. Solsil’s operations are currently located within our production facility at Beverly, Ohio. In conjunction with the expansion and expected reopening of our Niagara Falls production facility in fiscal 2010, a portion of the production facility may be used for Solsil operations and, when completed, would permit us to produce approximately 4,000 MT of UMG annually. Additionally, subject to market demand, we may open a new production facility in Waterford, Ohio, adjacent to our Beverly production facility, specifically for our Solsil operations. This production facility may include additional research and development capabilities, and would add an additional 4,000 MT of UMG capacity. We own an 81% interest in Solsil.
 
Ningxia Yonvey Coal Industrial Co., Ltd. (Yonvey), 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 agreements, we hold an approximate 70% ownership interest in Yonvey. Yonvey’s operations are located in Chonggang Industrial Park, Shizuishan in the Ningxia Hiu Autonomous Region of China. We currently consume the majority of the output of electrodes from Yonvey internally.
 
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, photovoltaic (solar) and semiconductor 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 99.999% (5-9’s) and 99.999999999% (11-9’s).
 
The demand for silicon in metallurgical applications has increased in recent years, due mainly to increased demand for silicones and photovoltaic (solar) cells in the case of silicon, and in the case of ferrosilicon, the continuing infrastructure spending in emerging economies. Although demand, and as a result supply, has contracted in recent months, the expected rise in worldwide demand beyond 2010 would require a substantial expansion of global silicon production capacity. According to estimates included in the CRU Silicon Market and Industry Analysis, dated March 2009 (“CRU Analysis”), global silicon demand is projected to increase from 2010 through 2013 as industrial activity rebounds following 2009’s decline at a compounded annual rate of approximately 11.5%. This is driven, in part, by the expected increase in demand of polysilicon in the U.S. and European Union and shifting dynamics in the automotive industry globally. Polysilicon production capacity was expanded by manufacturers determined to capture accelerated demand from the photovoltaic (solar) industry. Additionally, while most of the new polysilicon capacity scheduled for completion in the next 4-5 years will be added at existing facilities and/or will be built by established producers, the polysilicon industry continues to


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attract new entrants focused on solar energy, increasing the demand for silicon metal as a raw material and of UMG as an alternative material.
 
While we believe near-term demand from the automotive sector in the U.S. will be soft, regulatory and consumer pressures are requiring automobiles to be more fuel-efficient, thus continuing the trend of incorporating a higher proportion of aluminum in each automobile. Furthermore, demand for automobiles is growing in certain regions, including Eastern Europe, Brazil, Russia, India and China. Auto production is shifting from Western Europe and Japan to Eastern Europe, China and South Asia with newer technologies and greater utilization of highly engineered metals. We also believe that the Middle East will be a significant source of demand for aluminum as that region’s countries diversify their economies away from energy and develop significant infrastructure to support other industrial pursuits. We believe that a significant driver of the steel industry will be renewed infrastructure spending both domestically and from emerging economies. Other drivers of increased steel and aluminum use include the machining and aerospace industries. Furthermore, significant growth in the photovoltaic (solar) and semiconductor industries over the past several years has resulted in greater demand for UMG. We believe that the photovoltaic (solar) market will have the highest growth rate of all silicon end-markets, driven by the increasing demand for clean and renewable energy sources. We further believe that UMG, which our Solsil subsidiary has produced and is further developing, will achieve stronger growth than polysilicon as the necessary material used in the production of silicon-based photovoltaic (solar) cells due to its continuing development, decreasing cost, and increasing acceptance with customers.
 
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, wear resistance 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 the volatility in price and supply of petroleum.
 
Worldwide economic conditions have been extremely volatile in the last several quarters, leading to recessionary conditions in many countries, and in particular in the United States, Western Europe and Japan. In addition, many commodity prices have declined significantly and the U.S. dollar has strengthened against most other currencies. Due to these adverse changes and generally slower industrial activity, silicon metal prices have declined from their 2008 peak although they have not experienced the significant negative change of many other commodities largely due to a sharp supply correction as producers reduced output to levels commensurate with demand. Although we have experienced significant demand reductions for our silicon metal products, we believe our industry-leading cost position, control over our raw materials and flexibility to switch between products provide substantial advantages relative to many of our peers, especially during these challenging times.
 
Competitive Strengths
 
We believe that we possess a number of competitive strengths that position us well to continue as one of the leading global suppliers of silicon metal and silicon-based alloys.
 
  •  Leading Market Positions.  We hold leading market shares in a majority of our products. We believe that, should our Niagara Falls facility operate at full production, we will achieve a capacity of approximately 186,400 MT of silicon metal annually, which we believe will represent approximately 18% of total Western World capacity and 61% of North American capacity. We estimate that we have approximately 20% of Western World capacity for magnesium ferrosilicon, including 50% of capacity


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  in North America, and are one of only six suppliers of calcium silicon in the Western World (with estimated 18% of capacity). 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. We believe that we are also a leader in the development and commercialization of UMG, which is becoming an important material in the production of photovoltaic (solar) cells. Our potential expansions at our Niagara Falls and Beverly facilities would enable us to become one of the largest producers globally of UMG.
 
  •  Low Cost Producer.  We have been recognized by CRU as the lowest average operating cost large silicon metal producer in the Western World. Currently, CRU lists four of our silicon metal manufacturing facilities as being among CRU’s eight most cost efficient silicon metal manufacturing facilities in the Western World, including three of the top four. We believe that our low cost position is a result of many strategic initiatives including our control over raw materials (which include captive 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 are working to expand our partnership with Recycled Energy Development, LLC to include a material upgrade to our existing furnaces at our Alloy, West Virginia facility. This would allow us not only to achieve the recovery of hot exhaust and its conversion to electricity, but we expect would also result in a more modern and efficient manufacturing platform. We also expect to lower the cost of UMG production through our research and development programs conducted with BP Solar International and other solar power researchers.
 
  •  Highly Variable Cost Structure.  We operate with a largely variable cost of production and have the ability to rapidly turn furnaces on and off to react to changes in customer demand. In response to the recent drop in demand associated with worldwide economic conditions, we were able to quickly idle our Selma, Alabama facility operations and idle certain furnaces at other facilities. We also implemented a major cost reduction program which reduced headcount by approximately 26% and cut other operating costs. As a result of these cost initiatives, and certain price increases, we experienced only approximately a 500 basis point decline in gross margin percentage from the quarter ended December 31, 2008 to the quarter ended March 31, 2009. We have the ability to quickly re-start furnaces as customer demand returns. We also have the ability, should demand unexpectedly continue to decline, to idle additional furnaces and further reduce costs. Additionally, we have the capability to switch production and mix between facilities to capture the best margins.
 
  •  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. Power represents approximately 30% of our total production costs. Certainty and stability with respect to power supply and costs are critical.
 
  •  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, will cover our quartzite supply needs well into the future. In Brazil, we own a forest reserve which can supply 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 Yonvey. We also obtain raw materials from a variety of other sources.
 
  •  Efficient and Environmentally Sensitive By-Product Usage.  We utilize or sell most of the by-products of our manufacturing process, which reduces the cost and limits the environmental impact of 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


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  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.
 
  •  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 expect our end-markets will become more diverse as we increase our sales to the photovoltaic (solar) market, which constituted approximately 7% of our sales in the nine months ended March 31, 2009. We also believe our diversification should help insulate us from economic downturns focused in any individual industry or geographic region.
 
  •  Experienced, Highly Qualified Management Team.  We have assembled a highly qualified management team with approximately 80 years of combined experience in the metals industry among our top three executives. Alan Kestenbaum, our Executive Chairman, Jeff Bradley, our Chief Executive Officer and Arden Sims, our Chief Operating Officer, have over 20, 25 and 35 years of experience, respectively, in 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.
 
Business Strategy
 
  •  Focus on Core Businesses.  In this difficult economic environment we are focused on retaining existing business and executing on existing take or pay customer contracts. We differentiate ourselves on the basis of our technical expertise and high product quality and use these capabilities to retain existing accounts and cultivate new business by demonstrating a willingness to work with our customers. 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 and change our product mix accordingly. When customer demand increases, 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.
 
  •  Continue to Rationalize Costs to Meet Current Levels of Demand.  We are focused on further reducing costs in order to maintain our profitability. Despite a significant decline in volumes sold we are seeking to sustain our gross margin percentage through cost reductions and price increases. We are watching demand very closely to determine when to re-start furnaces, or if volumes unexpectedly continue to decline, to idle furnaces. To date our largely variable cost of production has allowed us to remain profitable (excluding goodwill and intangible asset impairment charges) during periods of reduced demand.
 
  •  Pursue Attractive Growth Opportunities.  Depending on customer demand, we intend to reopen our Niagara Falls facility in fiscal year 2010. This increased production capacity should allow us to take advantage of any increases in customer demand for our products and should also increase the manufacturing flexibility across our system. We have negotiated a power supply agreement at a discount to local market prices with the State of New York which will provide low cost power for our Niagara Falls facility. This will enable us to continue to pursue our goal of being a low cost producer by making Niagara Falls among our lowest cost operations and bringing our average cost of production down. Subject to market demand, we are planning for a major expansion of Solsil, including possible dedicated capacity within our Niagara Falls facility as well as the opening of a new facility in Waterford, Ohio. These two new operations may include new furnaces and additional research and development facilities, and would add up to 8,000 MT of UMG production capacity.
 
  •  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 have reduced our fixed costs and, as volume returns, could spread the remaining fixed costs over the resulting increased production volume to further reduce costs per MT of silicon metal


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  and silicon-based alloy sold. We are expending resources on the further development of our UMG production technology with the goal of reducing the cost of production.
 
  •  Continue Pursuing Strategic Acquisition Opportunities.  The current economic downturn may present a significant opportunity to pursue complementary acquisitions at distressed valuations. Certain users of silicon metal and silicon alloys and certain suppliers have been adversely affected by the current environment and may present attractive opportunities. We are actively reviewing several possible opportunities to expand our strategic capabilities and leverage our products and operations. 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-based alloy products, including for photovoltaic (solar) applications and other vertically integrated activities, 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.
 
  •  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.
 
  •  Leverage Synergies Among Units.  According to CRU, we have four of the eight, and three of the four, 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.
 
Recent Developments
 
Although our financial statements for the year ended June 30, 2009 are not yet complete, the following information reflects our results based on currently available information.
 
We currently anticipate net sales for the quarter ended June 30, 2009 to be in the range of $78,000,000 to $83,000,000, compared to $76,146,000 for the prior quarter ended March 31, 2009. This increase in sequential quarterly revenues resulted primarily from an increase in sales volume and a modest improvement in the average selling price of silicon metal.
 
We currently anticipate cost of goods sold for the quarter ended June 30, 2009 to be in the range of $65,000,000 to $68,000,000, compared to $61,875,000 for the prior quarter ended March 31, 2009.
 
We currently anticipate operating income for the quarter ended June 30, 2009 to exceed the operating income recorded in the prior quarter ended March 31, 2009. This estimated increase is primarily related to higher sales and reduced restructuring costs.
 
Our estimates for net sales, cost of goods sold, and operating income are not yet final and are subject to further review and could change materially. We are currently performing our annual close procedures for the fiscal year ended June 30, 2009, and accordingly, the audited results for our fiscal year ended June 30, 2009 may be materially different from the aggregate of the anticipated results outlined above and our unaudited results for the nine months ended March 31, 2009.
 
Subsequent to March 31, 2009, we have not experienced any material adverse changes to our financial condition or results of operations.


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Risks Associated with our Business
 
Please read the section entitled “Risk Factors” for a discussion of the risk 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.


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The Offering
 
Issuer Globe Specialty Metals, Inc.
 
Common stock offered by
Globe Specialty Metals, Inc
5,600,000 shares
 
Common stock offered by the selling stockholders
8,400,000 shares
 
Over-allotment option Up to 2,100,000 shares to be sold by certain selling stockholders.
 
Common stock to be outstanding after the offering
72,544,254 shares
 
Use of Proceeds We expect to use approximately $20,000,000 to $30,000,000 of the net proceeds from this offering for capital expenditures. The remaining proceeds will be used for working capital and other general corporate purposes, which may include the acquisition of other businesses, products or technologies. We do not, however, have agreements or commitments for any specific acquisitions at this time. See “Use of Proceeds” on page 26 for a more detailed description of our intended use of the proceeds from this offering.
 
We will not receive any proceeds from sales by the selling stockholders.
 
Risk Factors Please read “Risk Factors” beginning on page 12 of this prospectus for a discussion of factors you should carefully consider before deciding to purchase shares of our common stock.
 
NASDAQ Global Select Market symbol
“GSM”
 
The information above is based on the number of shares of common stock outstanding as of June 30, 2009. It does not include:
 
  •  4,315,000 shares of common stock issuable upon the exercise of stock options outstanding as of June 30, 2009 at a weighted-average exercise price of $5.12 per share;
 
  •  201,453 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2009 at a weighted-average exercise price of $5.00 per share;
 
  •  1,325,414 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 1,325,414 shares of common stock and warrants to purchase 2,650,828 shares of common stock at an exercise price of $5.00 per share; and
 
  •  685,000 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.
 


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SUMMARY CONSOLIDATED FINANCIAL 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 “Management’s 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 13, 2006 and IME changed its name to Globe Specialty Metals, Inc. The operations of GSM were insignificant compared with our subsequent acquisitions. Therefore, GMI is the Predecessor because it was the first and most significant 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 have been acquired by GSM since November 13, 2006. The financial statements for the Successor periods are not comparable to the Predecessor periods, because the Predecessor periods do not include results of subsequent acquisitions, including Globe Metais and Globe Metales.
 
                                                           
   
                              Predecessor  
    Successor       Period from
             
    (Unaudited)                   July 1 to
    Year Ended
 
    Nine Months Ended March 31,     Year Ended June 30,       November 12,
    June 30,  
    2009     2008     2008     2007       2006     2006     2005  
   
    (Dollars in thousands except per share data and shipments)  
Statement of operations data:
                                                         
Net sales
  $ 344,610       316,751     $ 452,639       221,928       $ 73,173     $ 173,008       132,223  
Cost of sales
    257,714       251,378       345,165       184,122         66,683       147,682       103,566  
Selling, general and administrative
    48,475       34,303       49,610       18,541         7,409       14,261       9,180  
Research and development
    1,122       407       901       120                      
Restructuring charges
    1,387                                        
Goodwill and intangible asset impairment
    69,704                                        
                                                           
Operating (loss) income
    (33,792 )     30,663       56,963       19,145         (919 )     11,065       19,477  
Interest and other (expense) income
    (5,559 )     (5,103 )     (5,285 )     504         (7,579 )     (6,010 )     (5,291 )
                                                           
(Loss) income before income taxes, deferred interest subject to redemption and minority interest
    (39,351 )     25,560       51,678       19,649         (8,498 )     5,055       14,186  
Provision for (benefit from) income taxes
    7,290       7,343       15,936       7,047         (2,800 )     1,914       4,968  
                                                           
Net (loss) income before deferred interest subject to redemption and minority interest
    (46,641 )     18,217       35,742       12,602         (5,698 )     3,141       9,218  
Deferred interest subject to redemption
                      (768 )                    
Minority interest, net of tax
    3,022       26       721                            
                                                           
Net (loss) income attributable to common stock
  $ (43,619 )     18,243     $ 36,463       11,834       $ (5,698 )   $ 3,141       9,218  
                                                           
Net (loss) income per common share — basic
  $ (0.68 )     0.32     $ 0.62       0.25       $ (2,947.26 )   $ 2,067.04       9,218.06  
                                                           
Net (loss) income per common share — diluted
  $ (0.68 )     0.26     $ 0.50       0.24       $ (2,947.26 )   $ 2,067.04       9,218.06  
                                                           
Cash dividends declared per common share
  $           $       0.07       $     $        
                                                           
Other financial data:
                                                         
EBITDA(1)
  $ (16,623 )     45,144     $ 78,764       29,667       $ (2,670 )   $ 16,199       22,807  
Capital expenditures
    46,507       13,098       22,357       8,629         2,273       4,884       3,841  
Silicon metal and related alloys:
                                                         
Shipments (MT)(2)
    127,833       157,948       214,406       133,916         48,470       126,465       102,074  
Average selling price per MT(2)
  $ 2,520       1,930     $ 2,027       1,596       $ 1,453     $ 1,306       1,254  
 
                                           
   
    Successor       Predecessor  
    March 31,
    June 30,
    June 30,
      June 30,
    June 30,
 
Balance Sheet Data:
  2009     2008     2007       2006     2005  
   
    (Dollars in thousands)  
                                           
Cash and cash equivalents
  $ 45,022     $ 73,994       67,741       $        
Total assets
    471,388       548,174       389,343         140,572       99,660  
Total debt including current portion
    69,895       89,205       75,877         50,431       54,055  
Total stockholders’ equity
    304,202       342,281       222,621         58,425       20,309  


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(1) EBITDA represents net (loss) income attributable to common stock before the deduction of net interest expense, the provision for (benefit from) income taxes, and depreciation and amortization expense. We have included EBITDA in this prospectus to provide investors with a supplemental measure of our operating performance. We believe EBITDA is an important measure of operating performance because it eliminates items that have less bearing on our operating performance and highlights trends in our 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 is not a presentation made in accordance with U.S. GAAP. When evaluating our results, you should not consider 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 (loss) income. EBITDA has material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate EBITDA differently than we do, EBITDA, as presented in this prospectus, may not be comparable to similarly-titled measures reported by other companies.
 
The following table reconciles net (loss) income attributable to common stock to EBITDA for the periods presented:
 
                                                           
   
    Successor       Predecessor  
    Nine Months
                  Period from
             
    Ended
    Year Ended
      July 1 to
    Year Ended
 
    March 31,     June 30,       November 12,
    June 30,  
    2009     2008     2008     2007       2006     2006     2005  
   
    (Dollars in thousands)  
EBITDA reconciliation:                                                          
Net (loss) income attributable to common stock
  $ (43,619 )     18,243     $ 36,463       11,834       $ (5,698 )   $ 3,141       9,218  
Provision for (benefit from) income taxes
    7,290       7,343       15,936       7,047         (2,800 )     1,914       4,968  
Net interest expense(a)
    4,966       5,303       7,026       145         3,066       5,677       5,099  
Depreciation and amortization(b)
    14,740       14,255       19,339       10,641         2,762       5,467       3,522  
                                                           
EBITDA(c)(d)
  $ (16,623 )     45,144     $ 78,764       29,667       $ (2,670 )   $ 16,199       22,807  
                                                           
 
 
(a) Net interest expense excludes interest income earned on common shares subject to redemption of $768,000 for the year ended June 30, 2007.
 
(b) Amortization expense during the year ended June 30, 2006 excludes amortization of deferred financing fees of $564,000.
 
(c) EBITDA includes non-cash share-based compensation expense of $4,704,000 and $6,617,000 for the nine months ended March 31, 2009 and March 31, 2008, respectively, and expense of $8,176,000 and $512,000 for the year ended June 30, 2008, and the year ended June 30, 2007, respectively.
 
(d) For the nine months ended March 31, 2009, EBITDA also includes $1,387,000 of restructuring charges, an inventory write-down of $5,061,000 and $69,704,000 of goodwill and intangible asset impairment charges.
 
(2) Shipments and average selling price per MT do not include shipments and sales of by-products and electrodes.


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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 recently suffered from unfavorable market conditions. The weakened economic environment of national and international metals markets may continue or worsen; 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. In response to unfavorable market conditions, customers may request delays in contract shipment dates or other contract modifications. If we grant modifications, they could adversely affect our anticipated revenues and results of operations. In view of the current economic conditions, we cannot assure you that we will not grant contract modifications in the future. 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.
 
Worldwide economic conditions have been extremely volatile in the last several months, leading to slowing economic activity, particularly in the United States, Western Europe and Japan. In addition, many commodity prices have declined significantly. There is a risk that silicon metal market conditions will weaken further due to the economic environment, which could materially adversely affect our results of operations.
 
Our business is particularly sensitive to increases in energy costs which could materially increase our cost of production.
 
Electricity is one of our largest production cost components, comprising approximately 30% of cost of sales. 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.


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Electrical power to our U.S. facilities is supplied mostly by AEP, Alabama Power and Brookfield Power through dedicated lines. Our Alloy, 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 Alloy facility having to pay much higher rates for electric power from third parties. Our energy supply for our facilities located in Argentina is supplied through the Edemsa hydroelectric facilities located in Mendoza, Argentina under a contract expiring in October 2009; we expect prices to increase under a new contract. 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. 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 coverage 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 Argentina’s and Brazil’s electricity generation and transmission systems have been lower than the increase in demand in recent years. If this trend is not reversed, there could be electricity supply shortages as the result of inadequate generation and transmission capacity. Given the heavy dependence on electricity of our manufacturing operations, any electricity shortages could adversely affect our financial results.
 
Government regulations of electricity in Argentina give priority access of hydroelectric power to residential users and subject violators of these restrictions to significant penalties. This preference is particularly acute during Argentina’s winter months due to a lack of natural gas. We have previously successfully petitioned the government to exempt us from these restrictions given the demands of our business for continuous supply of electric power. If we are unsuccessful in our petitions or in any action we take to ensure a stable supply of electricity, our production levels may be adversely affected and our profitability reduced.
 
Any decrease in the availability, or increase in the cost, of raw materials or transportation could materially increase our costs.
 
Principal components in the production of silicon metal and silicon-based foundry alloys include metallurgical-grade coal, charcoal, carbon electrodes, quartzite, wood chips, steel scrap, and other metals, such as magnesium. We buy some raw materials on a spot basis. We are dependent on certain suppliers of these products, their labor union relationships, mining and lumbering regulations and output and general local economic conditions in order to obtain raw materials in a cost efficient and timely manner. An increase in costs of raw materials or transportation, or the decrease in their production or deliverability in a timely fashion, or other disruptions in production, could result in increased costs to us and lower productivity levels. We may not be able to obtain adequate supplies of raw materials from alternative sources on terms as favorable as our current arrangements or at all. Any increases in the price or shortfall in the production and delivery of raw materials, could materially adversely affect our business prospects, condition (financial or otherwise) or results of operation.
 
Cost increases in raw material inputs may not be passed on to our customers 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. We may not be able to pass a significant amount of increased input costs on to our customers. Additionally, we may not be able to obtain lower prices from our suppliers should our sale prices decrease.
 
We make a significant portion of our sales to a limited number of customers, and the loss of a portion of the sales to these customers could have a material adverse effect on our revenues and profits.
 
In the nine months ended March 31, 2009, we made approximately 50% of our consolidated net sales to our top ten customers and approximately 26% to our top two customers. We expect that we will continue to derive a significant portion of our business from sales to these customers. If we were to experience a significant reduction in the amount of sales we make to some or all of these customers and could not replace these sales with sales to other customers, it could have a material adverse effect on our revenues and profits.
 
Our U.S.-based businesses benefit from U.S. antidumping duties and laws that protect U.S. companies by taxing 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.
 
Antidumping duties are currently in place covering silicon metal imports from China and Russia. The orders imposing these duties benefit our U.S. operations by constraining supply and increasing U.S. market prices and sales of domestic silicon metal. 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, the current orders may not remain in effect and continue to be enforced from year to year, the goods and countries now covered by antidumping orders may no longer be covered, and duties may not continue to be assessed at the same rates. Changes in any of these factors could adversely affect our business and profitability. Finally, at times, in filing trade actions, we find ourselves acting against the interests of our customers. Some of our customers may not continue to do business with us because of our having filed a trade action. Antidumping 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:
 
  •  operating a significantly larger combined organization;
 
  •  coordinating geographically disparate organizations, systems and facilities;
 
  •  consolidating corporate technological and administrative functions;
 
  •  integrating internal controls and other corporate governance matters;


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  •  the diversion of management’s attention from other business concerns;
 
  •  unexpected customer or key employee loss from the acquired businesses;
 
  •  hiring additional management and other critical personnel;
 
  •  negotiating with labor unions;
 
  •  a significant increase in our indebtedness; and
 
  •  potential environmental or regulatory liabilities and title problems.
 
In addition, we may not realize all of the anticipated benefits from any prior and future acquisitions, such as increased earnings, cost savings and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher 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. Our union employees in Brazil are working under a contract running through October 2009. Our union employees in Argentina are working under a contract running through April 2010. New labor contracts will have to be negotiated to replace expiring contracts from time to time. If we are unable to satisfactorily renegotiate those labor contracts on terms acceptable to us or without a strike or work stoppage, the effects on our business could be materially adverse. Any strike or work stoppage could disrupt production schedules and delivery times, adversely affecting sales. In addition, existing labor contracts may not prevent a strike or work stoppage, and any such work stoppage could have a material adverse effect on our business.
 
We are dependent on key personnel.
 
Our operations depend to a significant degree on the continued employment of our core senior management team. In particular, we are dependent on the skills, knowledge and experience of Alan Kestenbaum, our Executive Chairman, Jeff Bradley, our Chief Executive Officer, Arden Sims, our Chief Operating Officer, Malcolm Appelbaum, our Chief Financial Officer, and Stephen Lebowitz, our Chief Legal Officer. If these employees are unable to continue in their respective roles, or if we are unable to attract and retain other skilled employees, our results of operations and financial condition could be adversely affected. We currently have employment agreements with Alan Kestenbaum, Jeff Bradley, Arden Sims, Malcolm Appelbaum and Stephen Lebowitz, each of which contains non-compete provisions. Such provisions may not be enforceable by us. Additionally, we are substantially dependent upon key personnel in our financial and information technology staff 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. We have experienced fatal accidents and equipment malfunctions in our manufacturing facilities in recent years and may 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. These processes may not yield the cost savings that we anticipate and our proprietary technology may be challenged.
 
We rely on proprietary technologies and technical capabilities in order to compete effectively and produce high quality silicon metals and silicon-based alloys. Some of these proprietary technologies that we rely on are:
 
  •  computerized technology that monitors and controls production furnaces;
 
  •  production software that monitors the introduction of additives to alloys, allowing the precise formulation of the chemical composition of products; and
 
  •  flowcaster equipment, which maintains certain characteristics of silicon-based alloys as they are cast.
 
We are subject to a risk that:
 
  •  we may not have sufficient funds to develop new technology and to implement effectively our technologies as competitors improve their processes;
 
  •  if implemented, our technologies may not work as planned; and
 
  •  our proprietary technologies may be challenged and we may not be able to protect our rights to these technologies.
 
Patent or other intellectual property infringement claims may be asserted against us by a competitor or others. Our intellectual property may not be enforceable and it may not prevent others from developing and marketing competitive products or methods. An infringement action against us may require the diversion of substantial funds from our operations and may require management to expend efforts that might otherwise be devoted to operations. A successful challenge to the validity of any of our proprietary intellectual property may subject us to a significant award of damages or we may be enjoined from using our proprietary intellectual property and which could have a material adverse effect on our operations.
 
We also rely on trade secrets, know-how and continuing technological advancement to maintain our competitive position. We may not be able to effectively protect our rights to unpatented trade secrets and know-how.
 
We are subject to environmental, health and safety regulations, including laws that impose substantial costs and the risk of material liabilities.
 
We are subject to extensive foreign, federal, national, state, provincial and local environmental, health and safety laws and regulations governing, among other things, the generation, discharge, emission, storage, handling, transportation, use, treatment and disposal of hazardous substances; land use, reclamation and remediation; and the health and safety of our employees. We are also required to obtain permits from governmental authorities for certain operations. We may not have been and may not be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be subject to penalties, fines, restrictions on operations or other sanctions. Under these laws, regulations and permits, we could also be held liable for any and all consequences arising out of human exposure to hazardous substances or environmental damage we may cause or that relates to our operations or properties.


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Under certain environmental laws, we could be required to remediate or be held responsible for all of the costs relating to any contamination at our or our predecessors’ past or present facilities and at third party waste disposal sites. We could also be held liable under these environmental laws for sending or arranging for hazardous substances to be sent to third party disposal or treatment facilities if such facilities are found to be contaminated. Under these laws we could be held liable even if we did not know of, or were not responsible for, such contamination, or even if we never owned or operated the contaminated disposal or treatment facility.
 
There are a variety of laws and regulations in place or being considered at the international, federal, regional, state and local levels of government that restrict or are reasonably likely to restrict the emission of carbon dioxide and other greenhouse gases. These legislative and regulatory developments may cause us to incur material costs if we are required to reduce or offset greenhouse gas emissions and may result in a material increase in our energy costs due to additional regulation of power generators.
 
Environmental laws are complex, change frequently and are likely to become more stringent in the future. Therefore, our costs of complying with current and future environmental laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances may adversely affect our business, results of operations and financial condition.
 
We operate in a highly competitive industry.
 
The silicon-based alloy and silicon metal markets are capital intensive and competitive. Our primary competitors are Elkem AS, owned by Orkla ASA, a large Norwegian public company, Grupo Ferroatlantica S.L. and various producers in China. Our competitors may have greater financial resources, as well as other strategic advantages to maintain, improve and possibly expand their facilities; and as a result, they may be better positioned to adapt to changes in the industry or the global economy. The advantages that our competitors have over us could have a material adverse effect on our business. In addition, new entrants may increase competition in our industry, which could materially adversely affect our business. An increase in the use of substitutes for certain of our products also could have a material adverse effect on our financial condition and operations.
 
We have historically operated at near the maximum capacity of our operating facilities. Because the cost of increasing capacity may be prohibitively expensive, we may have difficulty increasing our production and profits.
 
Our facilities are able to manufacture collectively approximately 156,400 MT of silicon metal and 72,800 MT of silicon-based alloys on an annual basis. GMI intends to reopen its idled silicon metal production facility in Niagara Falls, New York, depending on customer demand, in fiscal 2010, which will increase our silicon metal capacity by approximately 30,000 MT. After we reopen this plant and it is operating at full capacity, and after reopening the Selma, Alabama plant, our ability to increase production and revenues will depend on expanding existing facilities or opening new ones. Increasing capacity is difficult because:
 
  •  adding new production capacity to an existing silicon plant to produce approximately 14,000 MT of metallurgical grade silicon would cost approximately $25,000,000 per smelting furnace and take at least 12 to 18 months to complete;
 
  •  a greenfield development project would take at least three to five years to complete and would require significant capital expenditure and environmental compliance costs; and
 
  •  obtaining sufficient and dependable power at competitive rates near areas with the required natural resources is difficult to accomplish.
 
We may not have sufficient funds to expand existing facilities or open new ones and may be required to incur significant debt to do so, which could have a material adverse effect on our business.
 
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


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in mergers or acquisitions; pay dividends, including to us; repurchase stock; or make capital expenditures. These credit facilities also require compliance with specified financial covenants, including minimum interest coverage and maximum leverage ratios. 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 GMI’s 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 may not have sufficient funds to make these accelerated payments and may not be able to obtain any such waiver on acceptable terms or at all.
 
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.
 
Solsil may never operate profitably or generate substantial revenues.
 
We acquired an 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. Solsil’s 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 and continuing research and development efforts. In addition, Solsil’s 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, raw material shortages, environmental and/or governmental regulation, limited power availability or unexpected liabilities may also be encountered. Furthermore, Solsil’s future profitability is dependent on its ability to produce UMG at significantly larger scales than it currently produces today and with commercially viable costs. Some of the other challenges we may encounter include:
 
  •  technical challenges, including further improving Solsil’s proprietary metallurgical process;
 
  •  increasing the size and scale of our operations on a cost-effective basis;
 
  •  capitalizing on market demands and potentially rapid market supply and demand fluctuations;
 
  •  continued acceptance by the market of our current and future products, including the use of UMG in the photovoltaic (solar) market;


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  •  a rapidly growing competitive environment with more new players entering the photovoltaic (solar) market;
 
  •  achieving the objectives and responsibilities under our joint development and supply agreement with BP Solar International;
 
  •  alternative competing technologies such as thin films, ribbon string and nano-technology; and
 
  •  responding to rapid technological changes.
 
Failure to successfully address these and other challenges may hinder or prevent our ability to achieve our objectives in a timely manner.
 
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:
 
  •  tariffs and trade barriers;
 
  •  currency fluctuations which could decrease our revenues or increase our costs in U.S. dollars;
 
  •  regulations related to customs and import/export matters;
 
  •  tax issues, such as tax law changes and variations in tax laws;
 
  •  limited access to qualified staff;
 
  •  inadequate infrastructure;
 
  •  cultural and language differences;
 
  •  inadequate banking systems;
 
  •  different and more stringent environmental laws and regulations;
 
  •  restrictions on the repatriation of profits or payment of dividends;
 
  •  crime, strikes, riots, civil disturbances, terrorist attacks or wars;
 
  •  nationalization or expropriation of property;
 
  •  law enforcement authorities and courts that are weak or inexperienced in commercial matters; and
 
  •  deterioration of political relations among countries.
 
Our competitive strength as a low-cost silicon metal producer is partly tied to the value of the U.S. dollar compared to other currencies. The U.S. dollar has fluctuated significantly in value in comparison to major currencies in recent months. Should the value of the U.S. dollar rise in comparison to other currencies, we may lose this competitive strength.
 
Exchange controls and restrictions on transfers abroad and capital inflow restrictions have limited and can be expected to continue to limit the availability of international credit. 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 Bank’s 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.


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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 since October 2005, currently under the symbol “GLBM”. 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:
 
  •  the success of competitive products or technologies;
 
  •  regulatory developments in the United States and foreign countries;
 
  •  developments or disputes concerning patents or other proprietary rights;
 
  •  the recruitment or departure of key personnel;
 
  •  quarterly or annual variations in our financial results or those of companies that are perceived to be similar to us;
 
  •  market conditions in the industries in which we compete and issuance of new or changed securities analysts’ reports or recommendations;
 
  •  the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts;
 
  •  the inability to meet the financial estimates of analysts who follow our common stock;
 
  •  investor perception of our company and of the industry in which we compete; and
 
  •  general economic, political and market conditions.
 
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, we have outstanding approximately 58,544,254 shares of common stock and warrants to purchase 201,453 shares of common stock that were sold in Regulation S or other exempt offerings and are currently listed on the AIM market. Concurrent with this offering we are filing with the SEC a registration statement on Form S-1 to register approximately 45,276,989 shares of common stock, of which 44,032,268 shares are subject to lock-up agreements described in “Underwriting.” In addition,


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we intend to file with the SEC within approximately 90 days after the completion of this offering a registration statement on Form S-1 to register approximately 13,267,265 shares of common stock, 201,453 shares of common stock issuable upon the exercise of warrants and 3,976,242 shares of our common stock underlying unit purchase options, of which 3,865,260 shares are subject to lock-up agreements. Additionally, we intend to register 5,000,000 shares of our common stock that we may issue under our stock plan, some of which shares are not subject to lock-up agreements. 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.” 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, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. 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 beneficially own approximately 48% of our outstanding common stock. Consequently, these stockholders have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership 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 price per share of our common stock and the net tangible book value per share of our common stock after this offering. See “Dilution.”
 
Prior material weaknesses and significant deficiencies in internal control over financial reporting may not have been adequately remediated and may adversely affect our ability to comply with financial reporting regulations and to publish accurate financial statements.
 
As of June 30, 2008, we were aware of the existence of material weaknesses and significant deficiencies 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. While we believe that we have remediated these material weaknesses and significant deficiencies, the corrective actions we have taken have not been fully tested and may not adequately resolve the weaknesses. 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. As of June 30, 2008, these material weaknesses in internal control over financial reporting related to deficiencies in:
 
  •  Entity-level controls, including:
 
  —  Maintenance of an effective reporting structure and assignment of authority and responsibility;
 
  —  A formal code of conduct and ethics hotline that have been fully communicated and implemented;
 
  —  A fully operational Board of Directors and Audit Committee, thus we have lacked independent oversight; and
 
  —  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, including the resources necessary to successfully integrate acquired businesses.
 
  •  Information technology general controls, including a lack of formal policies and procedures related to program changes, program development and general computer operations.
 
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting. As of June 30, 2008, these significant deficiencies in internal control over financial reporting related to process-level control deficiencies, including retaining records of executed controls over period-end closing procedures, and reviews performed by management. Further, management had not defined a timeline for the remediation of the identified process-level control deficiencies.
 
Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, errors or omissions. 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 U.S. Securities and Exchange Commission (SEC) and third parties (including lenders under our financing arrangements) on a timely basis and there could be a material adverse effect on the price of our securities.
 
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. 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.
 
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.


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We do not expect to pay any cash dividends in the foreseeable future.
 
We intend to 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.
 
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.


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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,” “Management’s 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:
 
  •  the anticipated benefits and risks associated with our business strategy;
 
  •  our future operating results and the future value of our common stock;
 
  •  the anticipated size or trends of the markets in which we compete and the anticipated competition in those markets;
 
  •  our ability to attract customers in a cost-efficient manner;
 
  •  our ability to attract and retain qualified management personnel;
 
  •  our future capital requirements and our ability to satisfy our capital needs;
 
  •  the anticipated use of the proceeds realized from this offering;
 
  •  the potential for additional issuances of our securities; and
 
  •  the possibility of future acquisitions of businesses or assets.
 
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 12. 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.


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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.


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USE OF PROCEEDS
 
We estimate that our net proceeds from the sale of 5,600,000 shares of common stock in this offering will be approximately $40,164,000 after deducting estimated offering expenses of $1,500,000 and underwriting discounts and commissions and assuming an initial public offering price of $8.00 per share, which is the midpoint of the range included on the cover page of this prospectus. We will not receive any proceeds from the sale of shares by the selling stockholders.
 
We currently intend to use approximately $20,000,000 to $30,000,000 of our net proceeds from this offering for capital expenditures intended to improve operating efficiencies. 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. We expect to use the remainder of the net proceeds for working capital and general corporate purposes. We will have broad discretion in the way we use the net proceeds. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in interest-bearing, investment-grade securities.
 
The primary purposes of this offering are to raise additional capital, create a U.S. public market for our common stock, allow us easier and quicker access to the U.S. public markets should we need more capital in the future, increase the profile and prestige of our company with existing and possible future customers, vendors and strategic partners and make our stock more valuable and attractive to our employees and potential employees for compensation purposes.
 
A $1.00 increase (decrease) in the assumed public offering price of $8.00 per share of common stock, which is the midpoint of the range included on the cover page of this prospectus, would increase (decrease) our expected net proceeds by approximately $5,208,000, 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.


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CAPITALIZATION
 
The following table presents the following information:
 
  •  our actual capitalization as of March 31, 2009; and
 
  •  our pro forma capitalization reflecting the conversion of 18,960,020 of our warrants into 3,447,276 shares of our common stock, which occurred during our quarter ended June 30, 2009, as if it had occurred on March 31, 2009; and
 
  •  our pro forma, as adjusted, capitalization reflecting the foregoing, as well as the sale of the 5,600,000 shares of common stock offered by us in this offering at an assumed initial public offering price of $8.00 per share, which is the midpoint of the range included on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
This table should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes to those financial statements appearing elsewhere in this prospectus.
 
                         
    As of March 31, 2009  
                Pro Forma
 
                as
 
    Actual     Pro Forma     Adjusted  
    (Dollars in thousands, except per share data)  
 
Cash and cash equivalents and marketable securities
  $ 45,022       45,022       85,186  
                         
Short-term debt, including current portion of long-term debt
  $ 31,385       31,385       31,385  
Long-term debt
    38,510       38,510       38,510  
Minority interest
    6,278       6,278       6,278  
Stockholders’ equity:
                       
Common stock, $0.0001 par value per share; 150,000,000 shares authorized, 63,496,978 shares issued and outstanding, actual; and 66,944,254 shares issued and outstanding, pro forma; and 72,544,254 shares issued and outstanding, pro forma as adjusted
    6       7       7  
Additional paid-in capital
    301,674       301,673       341,837  
Retained earnings
    3,022       3,022       3,022  
Accumulated other comprehensive loss
    (496 )     (496 )     (496 )
Treasury stock at cost
    (4 )     (4 )     (4 )
                         
Total stockholders’ equity
    304,202       304,202       344,366  
                         
Total capitalization
  $ 380,375       380,375       420,539  
                         
 
The information above on actual capitalization is based on the number of shares of common stock outstanding as of March 31, 2009. It does not include:
 
  •  1,837,000 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2009 at a weighted-average exercise price of $15.00 per share (4,315,000 shares of common stock issuable upon the exercise of stock options are outstanding as of June 30, 2009 at a weighted-average exercise price of $5.12 per share);


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  •  19,161,473 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2009 at a weighted-average exercise price of $5.00 per share (201,453 shares of common stock issuable upon the exercise of warrants are outstanding as of June 30, 2009 at a weighted-average exercise price of $5.00 per share);
 
  •  1,325,414 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 1,325,414 shares of common stock and warrants to purchase 2,650,828 shares of common stock at an exercise price of $5.00 per share (such number of outstanding unit purchase options has not changed as of June 30, 2009); and
 
  •  3,163,000 shares of common stock reserved for future awards under our stock plan (685,000 shares of common stock are reserved for future awards under our stock plan as of June 30, 2009).


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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, 2009 was $253,111,000, or $3.78 per share of common stock, based on 66,944,254 shares of common stock outstanding immediately prior to the closing of this offering. After giving effect to the sale of 5,600,000 shares of common stock by us in this offering at an assumed initial public offering price of $8.00 per share, which is the midpoint of the range included on the cover page of this prospectus, 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, 2009, would be $293,275,000, or $4.04 per share. This represents an immediate increase in the pro forma net tangible book value of $0.26 per share to existing stockholders and an immediate dilution of $3.96 per share to new investors purchasing shares in this offering. The following table illustrates this per share dilution:
 
                 
Assumed initial public offering price
          $ 8.00  
Pro forma net tangible book value per share as of March 31, 2009
  $ 3.78          
Increase per share attributable to this offering
    0.26          
                 
Pro forma net tangible book value per share after this offering
                4.04  
                 
Dilution per share to new investors in this offering
          $ 3.96  
                 
 
The following table shows, at March 31, 2009, 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 who are officers, directors or affiliated persons and by new investors purchasing common stock in this offering:
 
                                         
    Shares Purchased     Total Consideration     Average Price
 
    Number     Percentage     Amount     Percentage     per Share  
 
Existing stockholders who are our officers, directors or affiliated persons
    11,677,901       45.5 %   $ 3,060,000       2.7 %   $ 0.26  
New investors
    14,000,000       54.5 %   $ 112,000,000       97.3 %   $ 8.00  
                                         
Total
    25,677,901       100.0 %   $ 115,060,000       100.0 %        
                                         
 
Assuming the underwriters’ over-allotment option is exercised in full, sales by the selling shareholders in this offering will reduce the percentage of shares held by existing stockholders who are our officers, directors or affiliated persons to 42.0% and will increase the number of shares held by new investors to 16,100,000, or 58.0%. This information is based on shares outstanding as of March 31, 2009 pro forma for the warrant conversion mentioned below. It excludes:
 
  •  1,837,000 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2009 at a weighted-average exercise price of $15.00 per share (4,315,000 shares of common stock issuable upon the exercise of stock options are outstanding as of June 30, 2009 at a weighted-average exercise price of $5.12 per share);
 
  •  19,161,473 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2009 at a weighted-average exercise price of $5.00 per share (201,453 shares of common stock issuable upon the exercise of warrants are outstanding as of June 30, 2009 at a weighted-average exercise price of $5.00 per share);


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  •  1,325,414 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 1,325,414 shares of common stock and warrants to purchase 2,650,828 shares of common stock at an exercise price of $5.00 per share (such number of outstanding unit purchase options has not changed as of June 30, 2009); and
 
  •  3,163,000 shares of common stock reserved for future awards under our stock plan (685,000 shares of common stock are reserved for future awards under our stock plan as of June 30, 2009).
 
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 of $8.00 per share of common stock, which is the midpoint of the range included on the cover page of this prospectus, would increase (decrease) the pro forma net tangible book value by $0.07 per share (assuming no exercise of the underwriters’ option to purchase additional shares) and the dilution to investors in this offering by $0.93 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus remains the same.


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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
 
The following tables and related notes present our unaudited pro forma consolidated financial statement for the fiscal year ended June 30, 2008. The unaudited pro forma consolidated financial data for the fiscal year ended June 30, 2008 has been derived from the following: (1) our audited 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 February 29, 2008, we acquired 81% of the outstanding stock of Solsil. The aggregate purchase price of Solsil was $75,659,000, comprised of 5,629,000 shares of our common stock valued at $72,092,000, direct costs associated with the acquisition of $567,000, and debt assumed of $3,000,000. The results of Solsil are included in our consolidated financial statements from that date.
 
The unaudited pro forma consolidated statement of operations for the fiscal year ended June 30, 2008 gives pro forma effect to the following events as if they were consummated on July 1, 2007:
 
  •  our acquisition of 81% of the outstanding stock of Solsil;
 
  •  the issuance of 5,629,000 shares of common stock for the acquisition of Solsil; and
 
  •  other adjustments that management believes are directly related to the Solsil acquisition.
 
The Solsil acquisition has 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 assumptions that we believe are reasonable under the circumstances.


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The following table reflects the final purchase price allocation associated with the Solsil acquisition:
 
             
    Amortization
     
    Life   Solsil  
    (In years)      
    (Dollars in thousands)  
 
Current assets
      $ 3,551  
Property, plant, and equipment
        6,938  
Intangible assets:
           
Goodwill
  Indefinite     57,656  
Unpatented technology
  10     13,143  
Noncurrent assets
        3,896  
             
Total assets acquired
        85,184  
             
Current liabilities
        7,102  
Noncurrent liabilities
        5,038  
             
Total liabilities assumed
        12,140  
             
Minority interest
        385  
             
Net assets acquired
        72,659  
Debt assumed
        3,000  
             
Total purchase price
      $ 75,659  
             
 
The goodwill amount has been assigned to the Solsil operating segment.
 
During the second quarter of fiscal 2009, we experienced a decrease in profitability, and a significant decline in demand for high purity solar-grade silicon. We performed an interim impairment test of goodwill and indefinite-lived intangible assets at the end of the second quarter of fiscal 2009. In performing this test, we made a substantial downward revision in the forecasted cash flows from Solsil as a result of a decrease in the market price for solar grade silicon and weakness in demand for solar products. We finalized this impairment analysis during the third quarter of fiscal 2009 and recorded an impairment charge totaling $65,340,000 comprised of the write-off of $57,656,000 of goodwill and $12,048,000 of unpatented technology offset by the write-off of associated deferred tax liabilities totaling $4,364,000. This impairment charge is entirely associated with Solsil and is not considered in the following unaudited pro forma consolidated statement of operations.
 
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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this prospectus; and (2) the separate audited and unaudited financial statements and accompanying notes of Solsil, which are included elsewhere in this prospectus.


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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended June 30, 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
  $ 452,639       5,599       (4,378 )(a)     453,860  
Cost of sales
    345,165       10,265       (3,472 )(a)(b)     351,958  
Selling, general and administrative
    49,610       1,026             50,636  
Research and development
    901       143             1,044  
                                 
Operating income (loss)
    56,963       (5,835 )     (906 )     50,222  
Interest (expense) income
    (7,026 )     252             (6,774 )
Foreign currency gain
    642                   642  
Other income
    1,099       520             1,619  
                                 
Income (loss) before income taxes and minority interest
    51,678       (5,063 )     (906 )     45,709  
Provision for (benefit from) income taxes
    15,936             (2,164 )(c)     13,772  
Minority interest, net of tax
    721             604 (d)     1,325  
                                 
Net income (loss) attributable to common stock
  $ 36,463       (5,063 )     1,862       33,262  
                                 
Weighted average shares outstanding:
                               
Basic
    58,982               3,753 (e)     62,735  
Diluted
    72,954               3,753 (e)     76,707  
                                 
Earnings per common share — basic
  $ 0.62                     $ 0.53  
                                 
Earnings per common share — diluted
  $ 0.50                     $ 0.43  
                                 
 
 
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended June 30, 2008
 
(a) To eliminate the intercompany sales of $2,580,000 and $1,798,000 and the related cost of sales of $2,580,000 and $1,798,000 from GMI to Solsil and from Solsil to GMI, respectively, 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 $876,000, as well as an additional $29,900 in cost of sales associated with fair value adjustments for inventory acquired in the Solsil acquisition.
 
(c) To reflect the tax impact of pro forma adjustments based on the applicable statutory rates as well as our ability to offset Solsil’s tax losses against our taxable income.
 
(d) To reflect a full year of minority interest, net of tax, 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, 2007.


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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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The selected consolidated financial data presented below for the nine months ended March 31, 2009 and 2008 are derived from our unaudited consolidated financial statements. The selected consolidated financial data presented below for the fiscal years ended June 30, 2008, 2007, 2006, 2005 and 2004 are derived from our audited consolidated financial statements. The selected consolidated financial data presented below for the period from July 1, 2006 to November 12, 2006 are derived 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 13, 2006 and IME changed its name to Globe Specialty Metals, Inc. The operations of GSM were insignificant compared with our subsequent acquisitions. Therefore, GMI is the Predecessor because it was the first and most significant 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 have been acquired by GSM since November 13, 2006. The financial statements for the Successor periods are not comparable to the Predecessor periods, because the Predecessor periods do not include results of subsequent acquisitions, including Globe Metais and Globe Metales. Prior to its acquisition, GMI was reorganizing pursuant to bankruptcy proceedings 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.
 


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                                            Predecessor
 
                                                        of the
 
    Successor       Predecessor       Predecessor  
    Nine Months
                  Period from
                Period from
      Period from
 
    Ended
                  July 1 to
                May 11 to
      July 1, 2003
 
    March 31,     Year Ended June 30,       November 12,
    Year Ended June 30,     June 30,
      to May 10,
 
    2009     2008     2008     2007       2006     2006     2005     2004       2004  
    (Dollars in thousands, except per share data)  
Statement of operations data:
                                                                           
Net sales
  $ 344,610       316,751     $ 452,639       221,928       $ 73,173       173,008       132,223       11,251       $ 47,174  
Cost of sales
    257,714       251,378       345,165       184,122         66,683       147,682       103,566       7,918         35,776  
Selling, general and administrative
    48,475       34,303       49,610       18,541         7,409       14,261       9,180       1,966         13,388  
Research and development
    1,122       407       901       120                                    
Restructuring charges
    1,387                                                      
Goodwill and intangible asset impairment
    69,704                                                      
                                                                             
Operating (loss) income
    (33,792 )     30,663       56,963       19,145         (919 )     11,065       19,477       1,367         (1,990 )
Interest and other (expense) income
    (5,559 )     (5,103 )     (5,285 )     504         (7,579 )     (6,010 )     (5,291 )     (1,975 )       (3,400 )
                                                                             
(Loss) income before income taxes, deferred interest subject to redemption and minority interest
    (39,351 )     25,560       51,678       19,649         (8,498 )     5,055       14,186       (608 )       (5,390 )
Provision for (benefit from) income taxes
    7,290       7,343       15,936       7,047         (2,800 )     1,914       4,968       251          
                                                                             
Net (loss) income before deferred interst subject to redemption and minority interest
    (46,641 )     18,217       35,742       12,602         (5,698 )     3,141       9,218       (859 )       (5,390 )
Deferred interest subject to redemption
                      (768 )                                  
Minority interest, net of tax
    3,022       26       721                                          
                                                                             
Net (loss) income attributable to common stock
  $ (43,619 )     18,243     $ 36,463       11,834       $ (5,698 )     3,141       9,218       (859 )     $ (5,390 )
                                                                             
Net (loss) income per common share — basic
  $ (0.68 )     0.32     $ 0.62       0.25       $ (2,947.26 )     2,067.04       9,218.06       (858.57 )     $ (5,389.65 )
                                                                             
Net (loss) income per common share — diluted
  $ (0.68 )     0.26     $ 0.50       0.24       $ (2,947.26 )     2,067.04       9,218.06       (858.57 )     $ (5,389.65 )
                                                                             
Cash dividends declared per common share
  $           $       0.07       $                         $ —   
                                                                             
 
Balance sheet data:
 
                                                   
   
    Successor       Predecessor  
    March 31, 2009     June 30, 2008     June 30, 2007       June 30, 2006     June 30, 2005     June 30, 2004  
   
    (Dollars in thousands)  
Cash and cash equivalents
  $ 45,022     $ 73,994       67,741       $             2,601  
Total assets
    471,388       548,174       389,343         140,572       99,660       96,843  
Total debt including current portion
    69,895       89,205       75,877         50,431       54,055       66,608  
Total stockholders’ equity
    304,202       342,281       222,621         58,425       20,309       11,785  

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
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 seven manufacturing facilities located in Beverly, Ohio; Alloy, West Virginia; Mendoza, Argentina; San Luis, Argentina; Breu Branco, Brazil; Police, Poland and Shizuishan, China. We also own a facility in Selma, Alabama that was idled in April 2009 as a result of the recent decrease in demand. Currently, our facilities have the capacity to produce collectively approximately 156,400 MT of silicon metal and 72,800 MT of silicon-based alloy products on an annual basis. We expect to reopen our idle silicon metal production facility in Niagara Falls, New York, depending on customer demand, in fiscal 2010, which will increase our silicon metal capacity by approximately 30,000 MT. We have the ability to quickly reopen the Selma facility with minimal expense as demand improves.
 
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. Also 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 (UCP), and Ultra Core Corporation (UCC); the former three collectively known as the Stein Group (SG). UCP and UCC are included in our Other reportable segment. Ultra Core Corporation’s 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 Yonvey Coal Industrial Co., Ltd. (Yonvey).
 
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. Although prices have declined since late 2008, they have not fallen as sharply as many other commodities, as producers reacted quickly to reduce output in the face of softening demand. Other than the reopening of our Niagara Falls facility, we are not aware of any significant additions to global production capacity of silicon metal and silicon-based alloys in the Western World over the last ten years. Additional capacity, other than capacity from idle facilities, 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.


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Despite recent declines, demand growth for silicon from the aluminum, chemical and photovoltaic (solar) markets has been strong in recent years. Silicon pricing has remained at historically high levels due to not only the supply/demand imbalance, but also the growth in some of its end markets such as the photovoltaic (solar) cell market. While aluminum prices have declined significantly from earlier recorded highs and automobile production levels in the U.S. have decreased recently (leading to a softening of demand for ferrosilicon alloys), increased demand for higher aluminum content in automobiles and strong demand for automobiles in Eastern Europe, Brazil, Russia, India and China may provide a strong growth driver to the aluminum sector. Additionally, increasing fuel efficiency standards in both the U.S. and globally are likely to require lighter weight vehicles, and as a result, increased use of aluminum per vehicle. In the chemical sector demand growth has also been strong as certain applications benefit from petroleum based alternatives. One of the fastest growth drivers for silicon demand is the photovoltaic (solar) industry. While the solar industry is still in the early stages of growth and is expected to only represent about 0.7% of the U.S. electricity market in 2009, global solar power generation is expected to increase by approximately 28% annually through 2014, according to March 2009 U.S. Energy Information Administration estimates. As a leading developer of UMG, we plan to capitalize on this demand increase through Solsil’s proprietary technology and planned capacity expansion capabilities. Solsil is currently focused on research and development projects and is not producing material for commercial sale; we do not currently expect material revenues from Solsil until fiscal 2011.
 
Industry average spot silicon metal prices increased more than 89% from $0.94 per pound in January 2007 to a peak spot price of $1.77 per pound in March 2008. Prices declined 31% from the peak in March 2008 to $1.22 in March 2009. Despite a significant downturn in demand, silicon metal has maintained a price increase of approximately 30% from January 2007.
 
Outlook
 
Our results reflect the rapid decline in demand for silicon metal and silicon-based alloys as a result of the impact that the global recession, that took hold in the second quarter of fiscal 2009, has had on our end customers in the aluminum, silicones, steel and solar industries and their end-product users including automotive and industrial customers. Sales volumes continued to decline in the third fiscal quarter and began to stabilize in our fourth quarter. We expect sales volume to marginally improve in the near term due to customer restocking and as the overall outlook for our end users begins to return to more normalized levels. The aggregate average price of our products, combined, has remained stable and is expected to improve somewhat in the immediate to near term as a result of product mix and increased shipments anticipated under contracts with favorable pricing terms. However, we expect our average sales price for all products, including silicon metal, may be adversely impacted in fiscal 2010 as our annual contracts begin to expire and prices are reset to take into account the decreases in spot prices relative to higher levels seen when many of our current contracts were entered.
 
Cost of sales may be adversely impacted in the near term by the recent strengthening of the Brazilian Real, which impacts certain of our operating costs in Brazil, and by an increase in our Argentinean electric power rate. Our existing electric power contract in Argentina will expire on October 31, 2009, and we expect the new contract will be at a higher rate.
 
We have reduced our selling, general and administrative expenses beginning in our third fiscal quarter of 2009 as a result of headcount reductions, elimination of certain outside services and overall spending control. Our selling, general and administrative expenses are generally not correlated to revenues, and we believe that our infrastructure is scalable and do not expect that these expenses will increase proportionately with revenue growth.
 
Stock Option Modifications and Additional Stock Option Grants
 
In April 2009, our Board of Directors noted that our outstanding stock options had exercise prices substantially above the then current fair market value and unanimously determined that these options therefore had little or no current incentive value. In order to restore the incentive value of our option program and to achieve the purpose of giving the members of our management team incentives to seek to increase shareholder


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value, the Board of Directors modified the outstanding stock options held by certain officers and other members of our management team to reduce the exercise price to $4.00 per share which the Board of Directors determined equalled or exceeded the fair market value on the date of the modifications. Concurrently, the Board of Directors reset the vesting periods of these options such that the modified options would vest in 25% increments every six months from the date of the modification. At the same time, the Board of Directors reviewed information with respect to the compensation of officers at peer companies in our industry and determined, with the concurrence of a majority of the independent directors, that our company’s incentive compensation to its officers was low as compared to its peers. The Board of Directors unanimously approved the grant of additional options to members of executive management with an exercise price of $4.00 per share, with the amount of the additional option grants based upon the Board of Directors’ evaluation of each recipient officer’s base salary and incentive compensation as compared to peers at comparable companies, see “Executive Compensation — Grants of Plan-Based Awards.” The Board of Directors subsequently made a further review of the incentive compensation of the chief executive officers of comparable companies and determined that Mr. Bradley’s option grant should be increased by 150,000 shares in order to be comparable to the incentive compensation provided to the chief executive officers at comparable companies. In May 2009, an additional grant was made to Mr. Bradley with an exercise price of $5.00 per share, which the Board of Directors determined was equal to the fair market value on the date of the additional grant.
 
In accounting for the stock option modifications, we will recognize the incremental fair value of the awards calculated at the date of the modification in accordance with the guidance in SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). We have elected to treat all option awards as a single award and recognize compensation cost on a straight-line basis over the requisite service period of the entire award. Further, we have elected to recognize the total amount of remaining unrecognized compensation cost associated with any modified, unvested options and the incremental fair value of the modified award over the amended vesting period. Previously recognized compensation cost will not be reversed. For the additional stock option grants, we will recognize compensation expense based on the estimated grant date fair value. Prior to vesting, cumulative compensation cost for the new grants will equal the proportionate amount of the award earned to date.
 
We expect that the stock option modifications and additional stock option grants will result in incremental compensation expense of approximately $1,000,000 and $3,800,000, respectively, over the two year vesting period, beginning from the date of grant. Share-based compensation has no impact on our cash flows.
 
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


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average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and may impact reported depreciation and amortization in future periods, as well as any related impairment of goodwill or other long lived assets.
 
Goodwill and Other Intangibles
 
At March 31, 2009, we had goodwill and other intangibles with indefinite useful lives totaling $53,545,000. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS 142), we annually review, in the third quarter of our fiscal year, goodwill and other intangibles with indefinite useful lives for impairment. A review is also performed whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Reporting units are determined in accordance with the guidance in SFAS 142. 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 us 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 and business trends, including such factors as interest rates, expected market returns and volatility of markets served, as well as government regulation and technological change. We believe that the estimates of future cash flows, future earnings, and fair value are reasonable; however, changes in estimates, circumstances or conditions could have a significant impact on our fair valuation determination, which could then result in a material impairment charge in our results of operations.
 
Inventories
 
At March 31, 2009, we had inventories totaling $77,000,000. Inventories are valued at the lower of cost or market value, which does not exceed net realizable value. Cost of inventories is determined either by the first-in, first-out method or by the average cost method. When circumstances indicate a potential valuation issue, tests are performed to assess net realizable value, and as necessary, an inventory write-down is recorded for obsolete, slow moving or defective inventory. Management estimates market and net realizable value based on current and future selling prices for our inventories. Management believes that these estimates are reasonable; however, changes in estimates or future price decreases caused by changing economic conditions, including customer demand, could result in future inventory adjustments, resulting in decreased operating profits and lower asset levels.
 
Share-Based Compensation
 
During the nine months ended March 31, 2009, we recorded share-based compensation expense of $4,704,000. We account for share-based payments to employees in accordance with SFAS 123(R), which requires that share-based payments (to the extent they are compensatory) be recognized in our consolidated statement of operations based on their fair values. In addition, we have applied the provisions of the SEC’s Staff Accounting Bulletin No. 107 (SAB 107) in our accounting under SFAS 123(R). We are required to estimate the stock awards that we ultimately expect to vest and to reduce share-based compensation expense for the effects of estimated forfeitures of awards over the expense recognition period. Given our share-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, which would favorably impact our future results from operations.
 
We estimate the fair value of employee stock options using a Black-Scholes valuation model. Our common stock is currently traded on the AIM market of the London Stock Exchange. Accordingly, in making stock awards, we value our common stock based upon reported trades on the AIM market on or immediately preceding the date of grant and also based upon the average of the bid and ask prices reported on the AIM market. The fair value of an award is affected by our closing stock price on the AIM market 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


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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 share-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, which would impact our results from operations.
 
Income Taxes
 
We recorded a provision for income taxes of $7,290,000 during the nine months ended March 31, 2009. 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. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, estimates of future earnings in different tax jurisdictions and the expected timing of deferred income tax asset reversals. We believe that the determination to record a valuation allowance to reduce deferred income tax assets is a critical accounting estimate because it is based on an estimate of future taxable income in the various tax jurisdictions in which we do business, which is susceptible to change and may or may not occur, as well as the estimated timing of the reversal of temporary differences which create our deferred income tax assets, and because the impact of adjusting a valuation allowance may be material. 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 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 expense associated with acquired intangible assets is generally not tax deductible; however, deferred taxes have been recorded for non-deductible amortization expense 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 Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) on July 1, 2007. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s 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 benefit 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 it 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 consolidated financial statements.
 
Our practice is to review tax filing positions by jurisdiction and to record provisions for uncertain income tax positions as required by FIN 48, including interest and penalties when applicable. We believe we record and/or disclose such potential tax liabilities as appropriate and have reasonably estimated our income tax liabilities and recoverable tax assets. If new information becomes available, adjustments are charged against income at that time. We do not anticipate that such adjustments would have a material adverse effect on our


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consolidated financial position or liquidity; however, it is possible that the final outcomes could have a material impact on our reported results of operations.
 
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) using actuarial valuations required by SFAS No. 87 Employers’ Accounting for Pensions and SFAS No. 106 Employers’ Accounting for Postretirement Benefits Other Than Pensions. 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.
 
The weighted-average expected long-term rates of return on pension plan assets were 8.50% at both June 30, 2008 and 2007. This rate is determined annually by management based on a weighted average of current and historical market trends, historical and expected portfolio performance and the current and expected portfolio mix of investments. A 1.00% change in these expected long-term rates of return, with all other variables held constant, would not have a material impact on our pension expense.
 
The weighted-average discount rates for pension plan obligations were 6.75% and 6.25% at June 30, 2008 and 2007, respectively. The weighted-average discount rates for net period benefit (cost) were 6.25% and 5.75% at June 30, 2008 and 2007, respectively. These rates are used to calculate the present value of plan liabilities and are determined annually by management. The discount rate is established utilizing the Citigroup Pension Discount Curve. A 1.00% change in discount rate, with all other variables held constant, would not have a material impact on our pension expense and would impact the projected benefit obligation by approximately $2,073,000.
 
Results of Operations
 
Our results of operations are significantly affected by our recent acquisitions. We acquired GMI in November 2006, SG in November 2006, Globe Metais in January 2007, Solsil in February 2008 and Yonvey in May 2008. Accordingly, our results for the nine months ended March 31, 2009 and 2008 include the results of GMI, SG and Globe Metais for the entire period and include the results of Solsil for the one month period ended March 31, 2008 and for the nine months ended March 31, 2009. Results for the nine month period ended March 31, 2009 include the results of Yonvey for the entire period, whereas no Yonvey results are included for the nine month period ended March 31, 2008. Similarly, our results for the fiscal year ended June 30, 2008 include the results of GMI, SG and Globe Metais for the entire period and include the results of Solsil for the four months following its acquisition and include the results of Yonvey for the one and a half months following its acquisition. Our results for the fiscal 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 year ended June 30, 2006 are the results for GMI, the predecessor company which include the results of West Virginia Alloys, Inc. (Alloy) following its acquisition on December 21, 2005.


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GSM Nine Months Ended March 31, 2009 vs. Nine Months Ended March 31, 2008
 
                                 
    Nine Months Ended
             
    March 31,     Increase
    Percentage
 
    2009     2008     (Decrease)     Change  
    (Unaudited)              
    (Dollars in thousands)        
 
Results of Operations
                               
Net sales
  $ 344,610       316,751       27,859       8.8 %
Cost of sales
    257,714       251,378       6,336       2.5 %
Selling, general and administrative
    48,475       34,303       14,172       41.3 %
Research and development
    1,122       407       715       175.7 %
Restructuring charges
    1,387             1,387       Not applicable  
Goodwill and intangible asset impairment
    69,704             69,704       Not applicable  
                                 
Operating (loss) income
    (33,792 )     30,663       (64,455 )     (210.2 %)
Net interest expense
    (4,966 )     (5,303 )     337       (6.4 %)
Other (expense) income
    (593 )     200       (793 )     (396.5 %)
                                 
(Loss) income before income taxes and minority interest
    (39,351 )     25,560       (64,911 )     (254.0 %)
Provision for income taxes
    7,290       7,343       (53 )     (0.7 %)
Minority interest, net of tax
    3,022       26       2,996       11,523.1 %
                                 
Net (loss) income attributable to common stock
  $ (43,619 )     18,243       (61,862 )     (339.1 %)
                                 
 
Net Sales:
 
                                                 
    Nine Months Ended March 31, 2009     Nine Months Ended March 31, 2008  
    Sales     Sales  
    $ (in 000s)     MT     $/MT     $ (in 000s)     MT     $/MT  
 
Silicon metal and related alloys
  $ 322,105       127,833     $ 2,520     $ 304,907       157,948     $ 1,930  
Silica fume and other
    22,505                       11,844                  
                                                 
Total net sales
  $ 344,610                     $ 316,751                  
                                                 
 
Net sales for our reportable segments for the nine months ended March 31, 2009 compared to the nine months ended March 31, 2008 are summarized in the following table:
 
                                 
    Nine Months Ended
             
    March 31,     Increase
    Percentage
 
    2009     2008     (Decrease)     Change  
    (Unaudited)              
    (Dollars in thousands)        
 
GMI
  $ 223,354       214,366       8,988       4.2 %
Globe Metais
    77,064       76,174       890       1.2 %
Globe Metales
    41,640       30,641       10,999       35.9 %
Solsil
    2,117       1,090       1,027       94.2 %
Other
    14,673       4,715       9,958       211.2 %
Eliminations
    (14,238 )     (10,235 )     (4,003 )     39.1 %
                                 
Total net sales
  $ 344,610       316,751       27,859       8.8 %
                                 
 
The increase in net sales of $27,859,000 was primarily attributable to increased pricing partially offset by volume decreases. Increased pricing across almost all silicon metal and silicon-based alloy products increased revenue by approximately $53,590,000, $19,680,000 and $17,709,000 for GMI, Globe Metais and Globe Metales, respectively. The volume decline, caused by global economic decline, across almost all silicon metal and silicon-based alloy products offset pricing increases by $43,639,000, $19,560,000 and $7,448,000 for


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GMI, Globe Metais and Globe Metales, respectively. The increase in Solsil revenue of approximately $1,027,000 is primarily attributable to the timing of the Solsil acquisition in February 2008. The increase in Other revenue and Eliminations is primarily attributable to the timing of the Yonvey acquisition in May 2008 as Yonvey sells primarily to GMI and Globe Metais.
 
Cost of Sales:
 
Cost of sales for our reportable segments for the nine months ended March 31, 2009 compared to the nine months ended March 31, 2008 are summarized in the following table:
 
                                 
    Nine Months Ended
             
    March 31,     Increase
    Percentage
 
    2009     2008     (Decrease)     Change  
    (Unaudited)              
    (Dollars in thousands)        
 
GMI
  $ 163,321       176,478       (13,157 )     (7.5 %)
Globe Metais
    56,016       53,768       2,248       4.2 %
Globe Metales
    24,883       25,653       (770 )     (3.0 %)
Solsil
    9,568       1,134       8,434       743.7 %
Other
    16,853       4,289       12,564       292.9 %
Eliminations
    (12,927 )     (9,944 )     (2,983 )     30.0 %
                                 
Total cost of sales
  $ 257,714       251,378       6,336       2.5 %
                                 
 
The increase in cost of sales of $6,336,000 was primarily due to the impact of the Solsil and Yonvey acquisitions, increased power costs, lower factory capacity utilization and increased raw material costs, such increases being offset by lower sales and production volumes. The acquisition of Solsil in February 2008 contributed to an incremental cost of sales of approximately $8,434,000, which is approximately $7,407,000 in excess of the incremental sales. The high costs of sales relative to revenue reflect Solsil’s efforts to refine its production process. The cost of sales at Yonvey and Solsil for the nine months ended March 31, 2009 includes inventory write-downs of $5,061,000. Power costs primarily increased due to a new rate structure for the power contract at Globe Metais which started on July 1, 2008 and resulted in an increased cost of $9,900,000. Such increases were offset by a decrease in company-wide sales volumes of 30,115 metric tons, from 157,948 to 127,833 for the nine months ended March 31, 2008 versus March 31, 2009, respectively, which, combined with lower production levels, were the primary driver of the $13,157,000 decrease in GMI’s cost of sales.
 
Gross margin represented approximately 25% of sales in the nine months ended March 31, 2009 compared to approximately 21% of sales for the same period in 2008. This is an improvement in gross margin of approximately 19%, primarily reflecting higher average selling prices only partially offset by higher power costs, inventory write-downs, and lower capacity utilization.


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Selling, General and Administrative:
 
Selling, general and administrative expenses for our reportable segments for the nine months ended March 31, 2009 compared to the nine months ended March 31, 2008 are summarized in the following table:
 
                                 
    Nine Months Ended
             
    March 31,     Increase
    Percentage
 
    2009     2008     (Decrease)     Change  
    (Unaudited)              
    (Dollars in thousands)        
 
GMI
  $ 17,939       15,924       2,015       12.7 %
Globe Metais
    6,957       6,060       897       14.8 %
Globe Metales
    2,624       1,742       882       50.6 %
Solsil
    907       253       654       258.5 %
Corporate
    16,588       9,699       6,889       71.0 %
Other
    3,460       625       2,835       453.6 %
                                 
Total selling, general and administrative
  $ 48,475       34,303       14,172       41.3 %
                                 
 
The increase in selling, general and administrative expenses of $14,172,000 was primarily due to an increase in employee headcount and related salaries, benefits and bonuses, the timing of the acquisition of Solsil and Yonvey, and the write-off of deferred offering expenses. During the nine months ended March 31, 2009, executive bonuses at the corporate level increased by approximately $5,290,000 and salaries and benefits at the corporate level increased by approximately $1,840,000 due to additional headcount. Approximately $2,500,000 of Corporate deferred offering costs were written-off in accordance with U.S. GAAP because our proposed initial public offering was postponed by more than 90 days. The increases were offset by a reduction of Corporate share-based compensation of approximately $1,900,000. The timing of the acquisitions of Solsil and Yonvey contributed incremental costs of approximately $654,000 and $3,061,000, respectively. Salaries, benefits and bonuses increased by approximately $2,100,000 at GMI due to increased headcount, increased profit sharing due to strong performance, and increased pension expenses due to plan asset losses. The increase in Globe Metais’ selling, general and administrative expenses was primarily due to a $631,000 write-off of customer receivables, driven by economic conditions, while Globe Metales’ increase in selling, general and administrative expenses was primarily due to increased salaries, benefits and bonuses and a $114,000 write-off of customer receivables.
 
Research and Development:
 
The increase in research and development cost of $715,000 was primarily due to the acquisition of Solsil in February 2008, which contributed an incremental $888,000 of cost, partially offset by a decrease of approximately $264,000 by Globe Metais.
 
Goodwill and Intangible Asset Impairment:
 
Goodwill and intangible asset impairment for the nine months ended March 31, 2009 was approximately $69,704,000. This impairment was entirely associated with Solsil. The global economic slowdown combined with the decrease in oil prices caused a sharp decline in product price and demand for upgraded metallurgical grade silicon. As a result, it was determined that the value of the Solsil operating segment no longer supported its goodwill and intangible asset balances. Pursuant to the general economic decline, we have completed impairment assessments for each of our business units, and determined that no further impairment losses exist at March 31, 2009.
 
Net Interest Expense:
 
Net interest expense decreased by approximately $337,000 due to the refinancing and repayment of credit facilities at GMI and Globe Metais, offset by lower interest income due to lower average cash balance and reduced interest rates.


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Other (Expense) Income:
 
Other expense increased by approximately $793,000 primarily due to the impact of foreign exchange losses related to the strengthening of the dollar against the Real and the Euro and lower income from investments accounted for under the equity method. Foreign exchange losses of $2,961,000 were primarily due to $3,624,000 in foreign exchange losses at Metais, partially offset by foreign exchange gains of $1,011,000 at Corporate related to a non U.S. dollar denominated liability. Lower income from unconsolidated affiliates of $305,000 were offset by the reversal of an accrual of $1,002,000 and lower legal fees of $369,000 based on the settlement of outstanding litigation, and $497,000 higher income from certain nonoperational third party transactions at GMI.
 
Provision for Income Taxes:
 
The effective tax rate was (19%) and 29% for the nine months ended March 31, 2009 and March 31, 2008, respectively. The change in effective tax rate in 2009 was primarily due to a change in the amount of loss before income taxes principally related to the Solsil impairment, as well as changes in the level of earnings and losses within the various tax jurisdictions in which we operate.
 
We currently operate under tax holidays in Brazil and Argentina. In Brazil, we are operating under a tax holiday which taxes our manufacturing income at the preferential rate of 15.25% compared to a statutory rate of 34%. The tax holiday in Brazil expires in 2016. In Argentina, our manufacturing income is taxed at a preferential rate which varies based on production levels from our Argentine facilities. The statutory rate in Argentina is 35%. The tax holiday in Argentina expires in 2012.
 
GSM Fiscal Year Ended June 30, 2008 vs. 2007
 
                                 
    Years Ended June 30,     Increase
    Percentage
 
    2008     2007     (Decrease)     Change  
    (Dollars in thousands)        
 
Results of Operations
                               
Net sales
  $ 452,639       221,928       230,711       104.0 %
Cost of sales
    345,165       184,122       161,043       87.5 %
Selling, general and administrative
    49,610       18,541       31,069       167.6 %
Research and development
    901       120       781       650.8 %
                                 
Operating income
    56,963       19,145       37,818       197.5 %
Other (expense) income
    (5,285 )     504       (5,789 )     (1,148.6 %)
                                 
Income before income taxes, deferred interest subject to redemption and minority interest
    51,678       19,649       32,029       163.0 %
Provision for income taxes
    15,936       7,047       8,889       126.1 %
Deferred interest subject to redemption
          (768 )     768       (100.0 %)
Minority interest, net of tax
    721             721       Not applicable  
                                 
Net income attributable to common stock
  $ 36,463       11,834       24,629       208.1 %
                                 
 
Net Sales:
 
                                                 
    Year Ended June 30, 2008     Year Ended June 30, 2007  
    Net Sales     Net Sales  
    ($ in 000s)     MT     $/MT     ($ in 000s)     MT     $/MT  
    (Unaudited)  
 
Silicon metal and related alloys
  $ 434,605       214,406     $ 2,027     $ 213,776       133,916     $ 1,596  
Silica fume and other
    18,034                       8,152                  
                                                 
Total net sales
  $ 452,639                     $ 221,928                  
                                                 


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Net sales for our reportable segments for the year ended June 30, 2008 compared to the year ended June 30, 2007 are summarized in the following table:
 
                                 
    Year Ended June 30,     Increase
    Percentage
 
    2008     2007     (Decrease)     Change  
    (Dollars in thousands)        
 
GMI
  $ 308,074       172,158       135,916       78.9 %
Globe Metais
    108,218       27,606       80,612       292.0 %
Globe Metales
    42,090       21,384       20,706       96.8 %
Solsil
    1,532             1,532       Not applicable  
Other
    7,071       4,585       2,486       54.2 %
Eliminations
    (14,346 )     (3,805 )     (10,541 )     277.0 %
                                 
Total net sales
  $ 452,639       221,928       230,711       104.0 %
                                 
 
The increase in net sales was primarily attributable to significant price increases and the timing of the acquisitions. GMI, Globe Metais and Globe Metales were all acquired during fiscal 2007. These increases represent additional volume in fiscal 2008 as well as the effect of price increases. In total, price increases in silicon metal and silicon-based alloys products increased revenue by approximately $47,600,000, $25,000,000 and $10,200,000 for GMI, Globe Metais and Globe Metales, respectively. The acquisitions of Solsil in February 2008 and Yonvey in May 2008 contributed sales of approximately $1,532,000 and $876,000, respectively, in the fiscal year ended June 30, 2008.
 
Cost of Sales:
 
Cost of sales for our reportable segments for the year ended June 30, 2008 compared to the year ended June 30, 2007 are summarized in the following table:
 
                                 
    Year Ended June 30,     Increase
    Percentage
 
    2008     2007     (Decrease)     Change  
    (Dollars in thousands)        
 
GMI
  $ 241,028       141,125       99,903       70.8 %
Globe Metais
    74,552       22,867       51,685       226.0 %
Globe Metales
    34,440       19,028       15,412       81.0 %
Solsil
    3,333             3,333       Not applicable  
Other
    6,793       4,714       2,079       44.1 %
Eliminations
    (14,981 )     (3,612 )     (11,369 )     314.7 %
                                 
Total cost of sales
  $ 345,165       184,122       161,043       87.5 %
                                 
 
The increase in cost of sales was primarily attributable to the timing of the acquisitions of GMI, Globe Metais and Globe Metales during fiscal year 2007, resulting in incremental cost of sales of approximately $65,900,000, $45,100,000 and $9,000,000, respectively, in the fiscal year ended June 30, 2008. The acquisitions of Solsil in February 2008 and Yonvey in May 2008 contributed cost of sales of approximately $3,333,000 and $1,142,000, respectively, in the fiscal year ended June 30, 2008. Additionally, cost of sales increased by $32,700,000, $6,400,000 and $6,500,000 primarily due to higher prices for raw materials, power and increased labor costs at GMI, Globe Metais and Globe Metales, respectively. These cost increases were more than offset by the sales price increases noted above.
 
Gross margin represented approximately 24% of sales in 2008 versus approximately 17% of sales in 2007, an improvement in gross margin of approximately 41% primarily reflecting higher sales prices only partially offset by higher raw material prices, power and labor costs.


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Selling, General and Administrative:
 
Selling, general and administrative expenses for our reportable segments for the year ended June 30, 2008 compared to the year ended June 30, 2007 are summarized in the following table:
 
                                 
    Year Ended June 30,     Increase
    Percentage
 
    2008     2007     (Decrease)     Change  
    (Dollars in thousands)        
 
GMI
  $ 18,632       11,300       7,332       64.9 %
Globe Metais
    8,896       2,258       6,638       294.0 %
Globe Metales
    2,100       1,407       693       49.3 %
Solsil
    558             558       Not applicable  
Corporate
    17,588       3,040       14,548       478.6 %
Other
    774       536       238       44.4 %
Eliminations
    1,062             1,062       Not applicable  
                                 
Total selling, general and administrative
  $ 49,610       18,541       31,069       167.6 %
                                 
 
The acquisitions of GMI, Globe Metais and Globe Metales during fiscal year 2007 resulted in incremental expenses of approximately $5,400,000, $3,000,000, and $700,000, respectively, in the fiscal year ended June 30, 2008. The acquisition of Solsil in February 2008 and Yonvey in May 2008 contributed expenses of approximately $558,000 and $266,000, respectively, in the fiscal year ended June 30, 2008. The remaining increase at GMI was primarily due to higher legal fees of approximately $1,200,000 and increased salary and benefits of approximately $1,100,000. The remaining increase at Globe Metais was primarily due to higher forest security costs of approximately $1,100,000, increased information system costs of $1,100,000, increased professional fees of $600,000, and increased salary and benefits of approximately $500,000.
 
Share-based compensation expense at Corporate increased by approximately $7,700,000 over 2007 due to an increase in our common share price and additional stock option grants. Professional fees at Corporate increased by approximately $4,600,000 due primarily to the performance of the 2007 audit and a portion of the 2008 audit, which were both charged in 2008. In addition, Corporate salary and benefits increased by $1,700,000 related to the creation of a corporate staff. Excluding the impact of share-based compensation, selling, general and administrative costs increased from approximately 8% as a percentage of sales in 2007 to 9% as a percentage of sales in 2008.
 
Research and Development:
 
The increase in research and development costs in 2008 was primarily due to the acquisition of Solsil in February 2008.
 
Other (Expense) Income:
 
The acquisitions of GMI, Globe Metais and Globe Metales during fiscal year 2007 resulted in incremental interest expense of approximately $1,900,000, $1,500,000, and $500,000, respectively, in the fiscal year ended June 30, 2008. Other expense decreased by approximately $700,000 primarily due to lower legal fees related to the Westbrook Resources Limited litigation. Interest income was lower by approximately $3,200,000 due to a reduction of cash resulting from the acquisitions of GMI, Globe Metais and Globe Metales. Additionally, GMI recorded an insurance recovery of approximately $700,000 in fiscal year 2008.
 
Provision for Income Taxes:
 
Income taxes as a percentage of pretax income were approximately 36% in fiscal year 2007 and approximately 31% in fiscal year 2008. 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 and tax holidays associated with our Globe Metales and Globe Metais acquisitions.


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We currently operate under tax holidays in Brazil and Argentina. In Brazil, we are operating under a tax holiday which taxes our manufacturing income at the preferential rate of 15.25% compared to a statutory rate of 34%. The tax holiday in Brazil expires in 2016. In Argentina, our manufacturing income is taxed at a preferential rate which varies based on production levels from our Argentine facilities. The statutory rate in Argentina is 35%. The tax holiday in Argentina expires in 2012.
 
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 in November 2006.
 
GSM (Successor) Fiscal Year Ended June 30, 2007 vs. GMI (Predecessor) Fiscal Year Ended June 30, 2006
 
On November 13, 2006, GSM, which was a special acquisition vehicle, acquired GMI. The operations of GSM were insignificant compared to our subsequent acquisitions occurring in fiscal year 2007. All periods presented prior to November 13, 2006 are referred to as “Predecessor,” and all periods on or after such date are referred to as “Successor.” The results of operations information for the 2007 Successor period represents consolidated financial information of GSM and its consolidated subsidiaries acquired after November 12, 2006, and the results of operations information for all Predecessor periods represents financial information of GMI and its consolidated subsidiaries. The financial statements for the Successor period are not comparable to the Predecessor period, because the Predecessor period does not include results of operations of Globe Metais and Globe Metales. Additionally, the Successor period includes the results of GMI and its consolidated subsidiaries for only seven and a half months, since the date of its acquisition by GSM. Lastly, the results for the year ended June 30, 2006 for GMI, the Predecessor period, include the results of West Virginia Alloys, Inc. (Alloy) following its acquisition on December 21, 2005.
 
                                   
    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
  $ 213,776       133,916     $ 1,596       $ 165,177       126,465     $ 1,306  
Silica fume and other
    8,152                         7,831                  
                                                   
Total net sales
  $ 221,928                       $ 173,008                  
                                                   


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Net sales for our reportable segments for the year ended June 30, 2007 compared to the year ended June 30, 2006 are summarized in the following table:
 
                                 
    Year Ended
             
    June 30,     Increase     Percentage  
    2007     2006     (Decrease)     Change  
    (Dollars in thousands)        
 
GMI
  $ 172,158       173,008       (850 )     (0.5 )%
Globe Metais
    27,606             27,606       Not applicable  
Globe Metales
    21,384             21,384       Not applicable  
Other
    4,585             4,585       Not applicable  
Eliminations
    (3,805 )           (3,805 )     Not applicable  
                                 
Total net sales
  $ 221,928       173,008       48,920       28.3 %
                                 
 
GMI sales decreased by approximately $850,000 in the year ended June 30, 2007, which includes the revenues for GMI from its acquisition in November 2006, as compared with the year ended June 30, 2006, which only includes approximately 6.5 months of Alloy sales from its acquisition in December 2005. The figures above include the impact of the amortization of customer contract liabilities at GMI in fiscal year 2007, which contributed approximately $3,000,000 to net sales. The remaining impact was due to primarily the acquisitions of Globe Metais, Globe Metales and Other during fiscal year 2007.
 
Cost of Sales:
 
Cost of sales for our reportable segments for the year ended June 30, 2007 compared to the year ended June 30, 2006 are summarized in the following table:
 
                                 
    Year Ended
             
    June 30,     Increase     Percentage  
    2007     2006     (Decrease)     Change  
    (Dollars in thousands)        
 
GMI
  $ 141,125       147,682       (6,557 )     (4.4 )%
Globe Metais
    22,867             22,867       Not applicable  
Globe Metales
    19,028             19,028       Not applicable  
Other
    4,714             4,714       Not applicable  
Eliminations
    (3,612 )           (3,612 )     Not applicable  
                                 
Total cost of sales
  $ 184,122       147,682       36,440       24.7 %
                                 
 
GMI experienced a $9,400,000 decrease in cost of sales due primarily to changes in sales and production mix, including the impact of the Alloy facility acquired in December 2005. Purchase accounting adjustments related to our acquisition of GMI created an increase in cost of sales of approximately $2,700,000. The remaining impact was due to primarily the acquisitions of Globe Metais, Globe Metales and Other during fiscal year 2007.


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Selling, General and Administrative:
 
Selling, general and administrative expenses for our reportable segments for the year ended June 30, 2007 compared to the year ended June 30, 2006 are summarized in the following table:
 
                                 
    Year Ended
             
    June 30,     Increase     Percentage  
    2007     2006     (Decrease)     Change  
    (Dollars in thousands)        
 
GMI
  $ 11,300       14,261       (2,961 )     (20.8 )%
Globe Metais
    2,258             2,258       Not applicable  
Globe Metales
    1,407             1,407       Not applicable  
Corporate
    3,040             3,040       Not applicable  
Other
    536             536       Not applicable  
                                 
Total selling, general and administrative
  $ 18,541       14,261       4,280       30.0 %
                                 
 
The fiscal year ended June 30, 2007 includes general and administrative expenses of approximately $3,000,000 related to the expansion of our Corporate functions. GMI’s selling, general and administrative expenses decreased by approximately $3,000,000 due to the fact that the year ended June 30, 2007 includes GMI operations from its acquisition in November 2006, when compared with the year ended June 30, 2006, which includes the operations of GMI for an entire year. The remaining impact was due to primarily the acquisitions of Globe Metais, Globe Metales and Other during fiscal year 2007.
 
Other Income (Expense):
 
A reduction of approximately $900,000 of interest expense is related to the impact of comparing a partial GMI fiscal year in 2007 versus a twelve month period in fiscal year 2006. Further, GMI’s fiscal 2006 results include approximately $1,000,000 of deferred financing fee amortization. The fiscal year ended June 30, 2007 also includes approximately $5,200,000 in interest income related primarily to the cash balances held by GSM following its November 2006 securities offering. The remaining impact was due to primarily the acquisitions of Globe Metais, Globe Metales and Other during fiscal year 2007.
 
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. In connection with our initial public offering in October 2005, $184,100,000 of the net proceeds of the offering were placed in a trust account to be held there until the earlier of the (i) consummation of our first business combination or (ii) liquidation of GSM.
 
Any stockholder who voted against our acquisition of GMI, our first business combination, had the option to demand that we convert common stock held by the dissenting stockholder to cash. In addition, our Board of Directors opted to permit each stockholder who purchased shares in the October 2005 offering to vote “for” the acquisition of GMI 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. The trust account income associated with the redeemed shares was recorded as a reduction of income attributable to common stock in our consolidated income statement under the title “deferred interest attributable to common stock subject to redemption.”


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Table of Contents

Liquidity and Capital Resources
 
Sources of Liquidity
 
Our principal sources of liquidity are cash flow from operations and available borrowings under GMI’s revolving credit facility. As of March 31, 2009, our cash and cash equivalents balance was approximately $45,022,000. As of March 31, 2009, we had $34,560,000 available on a revolving credit facility; there was no outstanding balance on the revolving credit facility at March 31, 2009, however, there were outstanding letters of credits for $440,000 associated with foreign supplier contracts. Our subsidiaries borrow funds in order to finance capital expansion programs. 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 we have access to adequate resources to meet our needs for normal operating costs, capital expenditure, mandatory debt redemptions, and working capital for our existing business. These resources include cash and cash equivalents, cash provided by operating activities, and unused lines of credit. Given the current uncertainty in the financial markets, our ability to access capital and the terms under which we can do so may change. Should we be required to raise capital in this environment, potential outcomes might include higher borrowing costs, less available capital, more stringent terms and tighter covenants, or in extreme conditions, an inability to raise capital. We estimate that our fiscal year 2009 capital expenditures will be approximately $52,000,000, which includes approximately $23,000,000 for the expansion of our Niagara Falls, New York facility, approximately $11,000,000 for Solsil and approximately $8,000,000 for Yonvey. 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, was due to expire in November 2009. Interest on the facility accrued at the London Interbank Offered Rate (LIBOR) or prime, at our option, plus an applicable margin percentage. At June 30, 2008, the interest rate on the borrowing was 6.3%, equal to prime plus 1.25%. The total commitment on this portion of the credit facility included approximately $2,222,000 for letters of credit associated with foreign supplier contracts. The credit facility was secured by substantially all of the assets of GMI and was subject to certain restrictive and financial covenants, which included limits on additional debt, restrictions on capital expenditures, restrictions on dividend and other equity distributions, and certain minimum interest, debt service, and leverage ratios.
 
On September 18, 2008, GMI refinanced its credit facility with a $75,000,000 credit facility, comprised of a five-year senior secured term loan in an aggregate principal amount of $40,000,000 and a revolving credit facility of $35,000,000. Interest on the term loan accrues at LIBOR plus an applicable margin percentage or, at our option, prime plus an applicable margin percentage. Principal payments are due in quarterly installments of $2,105,000, commencing on December 31, 2008, and the unpaid principal balance is due in full in September 2013, subject to certain mandatory prepayments. Interest on advances under the revolving credit facility accrues at LIBOR plus an applicable margin percentage or, at our option, prime plus an applicable margin percentage. The amount available under the revolving credit facility is subject to a borrowing base calculation, and the total commitment on the revolving credit facility includes $10,000,000 for letters of credit associated with foreign supplier contracts. The credit facility is secured by substantially all of the assets of GMI and its principal subsidiary, West Virginia Alloys, 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, a maximum ratio of debt to earnings before interest, taxes, depreciation and amortization and minimum net worth and interest coverage requirements. We were in compliance with these loan covenants, as subsequently amended to increase annual limits for capital expenditures, at March 31, 2009.
 
In conjunction with this refinancing both of our $8,500,000 junior subordinated term loans were paid in full.
 
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.


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Interest accrues at rates ranging from 9.0% to 10.0% at March 31, 2009. Certain export accounts receivable balances are pledged as collateral against these borrowings.
 
Other — Our subsidiary Yonvey has approximately $8,045,000 in outstanding promissory notes, which mature through August 2009. The notes accrue interest at rates ranging from 8.2% to 12.7% at March 31, 2009. The promissory notes are secured by certain Yonvey assets.
 
Cash Flows
 
The financial information for the Successor periods are not comparable to the Predecessor periods because the Predecessor periods do not include results of subsequent acquisitions, including Globe Metais and Globe Metales. Additionally, the 2007 Successor period includes the results of GMI and its consolidated subsidiaries for only seven and a half months, since the date of its acquisition by GSM. 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,  
    2009     2008     2008     2007       2006     2005  
    (Unaudited)                            
    (Dollars in thousands)  
Cash and cash equivalents at beginning of period
  $ 73,994       67,741     $ 67,741       1,996       $       2,601  
Cash flows provided by operating activities
    31,639       4,680       32,206       18,673         12,823       15,233  
Cash flows (used in) provided by investing activities
    (43,255 )     (17,872 )     (26,608 )     67,668         (43,648 )     (3,841 )
Cash flows (used in) provided by financing activities
    (17,398 )     20,203       605       (20,596 )       30,825       (13,993 )
Effect of exchange rate changes on cash
    42             50                      
                                                   
Cash and cash equivalents at end of period
  $ 45,022       74,752     $ 73,994       67,741       $       —   
                                                   
 
Operating Activities:
 
Our business is cyclical and cash flows from operating activities may fluctuate during the year and from year-to-year due to economic conditions.
 
Net cash provided by operating activities was approximately $31,639,000 and approximately $4,680,000 during the nine months ended March 31, 2009 and 2008, respectively. The approximately $26,960,000 increase in net cash provided by operating activities was due to stronger operating results fueled by increased product pricing, decreases in accounts receivable due to a decline in sales in the fiscal third quarter, and increases in income taxes payable. The increase was only partially offset by decreased volume, a decrease in accounts payable due to lower purchases and production levels in the fiscal third quarter, and an increase in inventories due to slower sales.
 
Net cash provided by operating activities was approximately $32,206,000 and approximately $18,673,000 during the fiscal years 2008 and 2007, respectively. The approximately $13,533,000 increase 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 Globe Metais 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 approximately $18,673,000 and approximately $12,823,000 during fiscal years 2007 and 2006, respectively. The acquisitions of SG and Globe Metais during fiscal year


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2007 resulted in increased operating cash flows of $11,802,000. GMI’s operating cash flows decreased by approximately $8,032,000 in fiscal year 2007, which includes the operating results of GMI from its acquisition in November 2006, as compared with the fiscal year 2006, which only includes approximately 6.5 months of Alloy operations from its acquisition in December 2005. The decrease in GMI’s operating cash flows reflects the combined impact of significant working capital investment subsequent to our acquisition of GMI, offset by stronger operating results fueled by increased product pricing. The remaining operating cash flow is the result of interest earned on available cash balances.
 
Investing Activities:
 
Net cash used in investing activities was approximately $43,255,000 and approximately $17,872,000 during the nine months ended March 31, 2009 and 2008, respectively. Year-to-year capital expenditures increased from approximately $13,098,000 to $46,507,000 mainly due to capital investment in the reopening and expansion of the Niagara Falls facility, capital investment to increase UMG silicon capacity of Solsil, and capital improvement at Yonvey. Net cash from investing activities was decreased by approximately $2,987,000 in the nine months ended March 31, 2008 by the purchase of U.S. government treasury securities and increased by the same amount in the nine months ended March 31, 2009 by the sale of treasury securities.
 
Net cash (used in) provided by investing activities was approximately $(26,608,000) and approximately $67,668,000 during the fiscal years 2008 and 2007, respectively. Year over year capital expenditures increased from approximately $8,629,000 to approximately $22,357,000 mainly due to capital improvements, including furnace improvements to enhance the productivity, efficiency, and extend the useful life of our furnaces, made at our GMI facilities. The impact of capital expenditures was offset by net cash provided from investing activities in 2007 which came from the release of the proceeds of our 2006 securities offering upon the acquisition of GMI of approximately $190,192,000 offset by the cash used in the GMI, SG and Globe Metais acquisitions of approximately $104,894,000.
 
Net cash provided by (used in) investing activities was approximately $67,668,000 and approximately $(43,648,000) during fiscal years 2007 and 2006, respectively. The net cash provided by investing activities in fiscal year 2007 came from the release of the proceeds of our 2006 securities offering upon the acquisition of GMI of approximately $190,192,000, offset by the cash used in the GMI, SG and Globe Metais acquisitions of approximately $104,894,000. During fiscal year 2006, the Predecessor company used approximately $38,764,000 for the purchases of Alloy and Alabama Sand & Gravel. Year over year capital expenditures at GMI increased from approximately $4,884,000 to approximately $7,651,000 due to capital improvements, including furnace improvements to enhance the productivity, efficiency, and extend the useful life of our furnaces, made at our GMI facilities. Additionally, in fiscal year 2007, we also invested approximately $5,963,000 in two Argentine companies that hold ownership interests in hydroelectric plants in Argentina.
 
Financing Activities:
 
Net cash (used in) provided by financing activities was approximately $(17,398,000) and $20,203,000 during the nine months ended March 31, 2009 and 2008, respectively. During the nine months ended March 31, 2009, cash was used for the payment of debt of approximately $17,756,000 while cash was provided by the borrowing of approximately $16,331,000, including a $20,000,000 term loan in Brazil, in the nine months ended March 31, 2008. Cash provided by the exercise of warrants decreased by approximately $2,665,000 in the nine months ended March 31, 2009 as compared to the nine months ended March 31, 2008.
 
Net cash provided by (used in) financing activities was approximately $605,000 and approximately $(20,596,000) during the fiscal years 2008 and 2007, respectively. The increase of approximately $21,201,000 in cash provided by financing activities was mainly due to the redemption of certain GSM shares for approximately $42,802,000 and the payment of dividends of approximately $3,257,000 that occurred in 2007 but were not repeated in 2008. Cash was used for the payment of debt of approximately $1,525,000 in 2008 while cash was provided by the borrowing of approximately $6,975,000 in 2007. Cash provided by warrant exercises decreased by approximately $15,960,000 year over year.


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Net cash provided by (used in) financing activities was approximately $(20,596,000) and approximately $30,825,000 during the fiscal years 2007 and 2006, respectively. During fiscal year 2006, the issuance of common stock provided cash flow of approximately $35,000,000. Our financing activities used net cash of approximately $20,596,000 during fiscal year 2007, mainly to purchase redeemed shares of approximately $42,802,000 and to pay dividends of approximately $3,257,000. This was offset by the proceeds from warrant exercises of approximately $19,458,000. In fiscal year 2006, the Predecessor company repaid approximately $4,150,000 of its outstanding debt, while in fiscal year 2007, from the time of our acquisition of GMI through the end of the year, we increased cash through net borrowings at GMI of short and long term debt of approximately $2,860,000. Subsequent to our acquisitions of SG and Globe Metais, we increased cash at the acquired companies through net borrowings of short and long term debt of approximately $4,115,000.
 
Exchange Rate Change on Cash:
 
The effect of exchange rate changes on cash was related to fluctuations in Renminbi, the functional currency of our Chinese subsidiary, Yonvey.
 
Commitments and Contractual Obligations
 
The following tables summarize our contractual obligations at June 30, 2008 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:
 
                                         
Contractual Obligations
        Less Than
    One to
    Three to
    More Than
 
(as of June 30, 2008)
  Total     One Year     Three Years     Five Years     5 Years  
    (Dollars in thousands)  
 
Long-term debt obligations(1)
  $ 69,065       17,045       30,020       22,000        
Interest on long-term debt(2)
    13,388       5,378       6,972       1,038        
Operating lease obligations(3)
    1,717       1,126       591              
Purchase obligations(4)
    60,653       31,720       24,433       4,500        
                                         
Total
  $ 144,823       55,269       62,016       27,538        
                                         
 
 
(1) Debt includes principal repayments on GMI’s senior term loan, GMI’s two junior subordinated term loans and six 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. See Debt footnote in our consolidated financial statements for further details.
 
(2) 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 our consolidated financial statements for further details.
 
(3) Represents minimum rental commitments under noncancelable leases for machinery and equipment, automobiles, and rail cars.
 
(4) Purchase obligations include contractual commitments under various long and short-term take or pay arrangements with suppliers. These obligations include commitments to purchase magnesium raw material which specifies a minimum purchase quantity through the end of the calendar year 2009. 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 obligations, for which the timing of payments may vary based on changes in the fair value of pension plan assets and actuarial assumptions. We expect to contribute approximately $414,000 to our pension plans for the year ended June 30, 2009. Additionally, the table excludes a $10,000,000 advance received by Solsil for research and development services and facilities construction which would be refundable to BP Solar International if Solsil fails to perform under certain terms of the related agreement.


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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. At June 30, 2008, we identified certain deficiencies in our internal controls that we considered to be material weaknesses and significant deficiencies. These material weaknesses and significant deficiencies in internal control over financial reporting related to deficiencies in our information technology general controls, entity-level controls and process-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 and significant deficiencies, 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, entity-level controls and process-level controls. We have and continue to engage qualified outside professionals to provide support and guidance in areas where we cannot economically maintain the required skills and experience internally. We have implemented a worldwide ethics hotline which is available for all of our operations and have implemented a global code of conduct. We have distributed several worldwide accounting policies which affect our operations. We now have an Audit Committee composed entirely of independent directors that meets regularly. Additionally, we create an ethical atmosphere in the workplace by a consistent demonstration of “tone at the top.” We have and continue to implement more written policies, procedures and other documentation designed to strengthen our current controls.
 
We believe that we have remediated these material weaknesses and significant deficiencies, but the corrective actions we have taken have not been fully tested and may not adequately resolve the weaknesses. Management intends to complete its control assessment and cure any remaining significant 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.
 
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 June 30, 2008, we paid an aggregate amount of approximately $2,680,000, including damages, legal fees and related interest, pursuant to a judgment relating to a lawsuit over a contract to purchase manganese ore. In April 2008, we appealed this judgment and in April 2009 our appeal was dismissed and we were ordered to pay $117,000 for legal fees to the counter-party. We are not subject to any further liability for this matter.
 
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, 2009 and June 30, 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 unless there is a long-term monitoring agreement with a governmental agency, in which case a liability is established at the inception of the agreement.


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Long-Term Debt
 
Long-term debt comprised the following:
 
                         
    March 31,
    June 30,
    June 30,
 
    2009     2008     2007  
    (Dollars in thousands)  
 
Senior term loan
  $ 35,789       18,640       24,750  
Junior subordinated term loan
          8,500       8,500  
Junior subordinated term loan
          8,500       8,500  
Export prepayment financing
    17,000       20,000        
Export financing
    3,000       9,450       9,028  
Other
    2,440       3,975       1,649  
                         
Total long-term debt
    58,229       69,065       52,427  
Less current portion of long-term debt
    (19,719 )     (17,045 )     (6,370 )
                         
Long-term debt, net of current portion
  $ 38,510       52,020       46,057  
                         
 
Senior Term Loan — On September 18, 2008, GMI refinanced its revolving credit facility and senior term loan with a $75,000,000 credit facility, comprised of a five-year senior secured term loan in an aggregate principal amount of $40,000,000 and a revolving credit facility of $35,000,000. Interest on the senior term loan accrues at LIBOR plus an applicable margin percentage or, at our option, prime plus an applicable margin percentage. Principal payments are due in quarterly installments of $2,105,000, commencing on December 31, 2008, and the unpaid principal balance is due in full in September 2013, subject to certain mandatory prepayments. The interest rate on this loan was 2.77%, equal to LIBOR plus 2.25%, at March 31, 2009. The senior term loan is secured by substantially all of the assets of GMI and its principal subsidiary, West Virginia Alloys, 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, a maximum ratio of debt to earnings before interest, taxes, depreciation and amortization and minimum net worth and interest coverage requirements. We were in compliance with these loan covenants, as subsequently amended to increase annual limits for capital expenditures, at March 31, 2009.
 
In connection with GMI’s $75,000,000 credit facility, we entered into an interest rate cap arrangement and three interest rate swap agreements to reduce our exposure to interest rate fluctuations.
 
In October 2008, we entered into an interest rate cap arrangement to cap LIBOR on a $20,000,000 notional amount of debt, with the notional amount decreasing by $1,053,000 per quarter through the interest rate cap’s expiration on June 30, 2013. Under the interest rate cap, we capped LIBOR at a maximum of 4.5% over the life of the agreement.
 
In November 2008, we entered into an interest rate swap agreement involving the exchange of interest obligations relating to a $13,333,000 notional amount of debt, with the notional amount decreasing by $702,000 per quarter. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 2.85% over the life of the agreement. The agreement expires in June 2013.
 
In January 2009, we entered into a second interest rate swap agreement involving the exchange of interest obligations relating to a $12,632,000 notional amount of debt, with the notional amount decreasing by $702,000 per quarter. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 1.66% over the life of the agreement. The agreement expires in June 2013.
 
In April 2009, we entered into a third interest rate swap agreement involving the exchange of interest obligations relating to an $11,228,000 notional amount of debt, with the notional amount decreasing by $702,000 per quarter. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 2.05% over the life of the agreement. The agreement expires in June 2013.
 
Pursuant to the establishment of the $75,000,000 credit facility, we terminated our then existing interest rate swap.


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Junior Subordinated Term Loans — In connection with GMI’s $75,000,000 credit facility, the junior subordinated term loans were paid in full.
 
Export Prepayment Financing — Our Brazilian subsidiary has entered into a $20,000,000 export financing arrangement maturing January 31, 2012. The arrangement carries an interest rate of LIBOR plus 2.5%, paid semi-annually. At March 31, 2009, the interest rate on this loan was 4.15%. The principal is payable in seven, semi-annual installments starting in February 2009, with six installments of $3,000,000 and one final installment of $2,000,000. As collateral, our subsidiary has pledged certain third party customers’ export receivables, 100% of the subsidiary’s property, plant, and equipment, and 2,000 MT of metallic silicon with an approximate value of $5,402,000. The loan is subject to certain loan covenant restrictions such as limits on issuing dividends, disposal of pledged assets, and selling of forest areas. We were in compliance with the loan covenants at March 31, 2009. 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.
 
In connection with our export financing arrangement, we entered into an interest rate swap agreement involving the exchange of interest obligations relating to a $14,000,000 notional amount of debt, with the notional amount decreasing by $3,000,000 on a semi-annual basis through August 2011, and a final $2,000,000 notional amount swapped for the six month period ended January 2012. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 2.66% over the life of the agreement.
 
Export Financing — Our Brazilian subsidiary maintains long-term export financing arrangements with four banks in Brazil. At March 31, 2009, interest accrues on these agreements at rates ranging from 5.45% to 5.60%.
 
Recently Implemented Accounting Pronouncements
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). We partially adopted SFAS 157 on July 1, 2008. This adoption did not have a material impact to our consolidated results of operations or financial condition. Pursuant to FASB Staff Position No. 157-2, we deferred adopting SFAS 157 as it relates to fair value measurement requirements for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis until July 1, 2009. These include property, plant, and equipment, goodwill, other intangible assets and investments in unconsolidated affiliates. 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 carry our derivative agreements, as well as available-for-sale and trading securities, at fair value, determined using observable market based inputs. See Note 18 of our March 31, 2009 and 2008 condensed consolidated financial statements.
 
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. We elected to not fair value existing eligible items. Accordingly, the adoption of SFAS 159 had no impact to our consolidated results of operations or financial condition.
 
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 No. 133, Accounting for Derivative Instruments and Certain Hedging Activities (SFAS 133) and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. We have provided the enhanced disclosures required by SFAS 161 in Note 11 of our March 31, 2009 and 2008 condensed consolidated financial statements.


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In March 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). 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 U.S. GAAP. The adoption of SFAS 162 had no impact to our consolidated results of operations or financial condition.
 
Accounting Pronouncements to be Implemented
 
In December 2007, the FASB issued SFAS No. 141 (revised 2007), 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 us on July 1, 2009. We are currently assessing the potential effect of SFAS 160 on our results of operations and financial position.
 
Quantitative and Qualitative Disclosures about Market Risk
 
We are exposed to market risks arising from adverse changes in:
 
  •  commodity prices,
 
  •  interest rates, and
 
  •  foreign exchange rates
 
In the normal course of business, we manage these risks through a variety of strategies, including obtaining captive or long-term contracted raw material supplies and hedging strategies. Obtaining captive or long-term contracted raw material supplies involves the acquisition of companies or assets for the purpose of increasing our access to raw materials or the identification and effective implementation of long-term leasing rights or supply agreements. Our hedging strategies include the use of derivatives. Our derivatives do not qualify for hedge accounting under SFAS 133 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.
 
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.


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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 March 31, 2009 and June 30, 2008, respectively, we had approximately $52,789,000 and $57,640,000 of variable rate debt. To manage our interest rate risk exposure and fulfill a requirement of our senior term loan, we have entered into interest rate cap and interest rate swap agreements with investment grade financial institutions. We do not engage in interest rate speculation, and no derivatives are held for trading purposes. All derivatives are accounted for using mark-to-market accounting. We believe it is not practical to designate our derivative instruments as hedging instruments as defined under SFAS 133, as amended by SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. Accordingly, we adjust derivative financial instruments to current market value through the consolidated statement of operations based on the fair value of the agreement as of period end. Although not designated as hedged items as defined under SFAS 133, these derivative instruments serve to significantly offset our interest rate risk. Gains or losses from these transactions offset gains or losses on the transactions being hedged.
 
In connection with GMI’s $75,000,000 credit facility, we entered into an interest rate cap arrangement and three interest rate swap agreements to reduce our exposure to interest rate fluctuations.
 
In October 2008, we entered into an interest rate cap arrangement to cap LIBOR on a $20,000,000 notional amount of debt, with the notional amount decreasing by $1,053,000 per quarter through the interest rate cap’s expiration on June 30, 2013. Under the interest rate cap, we capped LIBOR at a maximum of 4.5% over the life of the agreement.
 
In November 2008, we entered into an interest rate swap agreement involving the exchange of interest obligations relating to a $13,333,000 notional amount of debt, with the notional amount decreasing by $702,000 per quarter. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 2.85% over the life of the agreement. The agreement expires in June 2013.
 
In January 2009, we entered into a second interest rate swap agreement involving the exchange of interest obligations relating to a $12,632,000 notional amount of debt, with the notional amount decreasing by $702,000 per quarter. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 1.66% over the life of the agreement. The agreement expires in June 2013.
 
In April 2009, we entered into a third interest rate swap agreement involving the exchange of interest obligations relating to an $11,228,000 notional amount of debt, with the notional amount decreasing by $702,000 per quarter. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 2.05% over the life of the agreement. The agreement expires in June 2013.
 
Pursuant to the establishment of GMI’s $75,000,000 credit facility, we terminated our existing interest rate swap arrangement which was in place at June 30, 2008.
 
In connection with our Brazilian export financing arrangement, we entered into an interest rate swap agreement involving the exchange of interest obligations relating to a $14,000,000 notional amount of debt, with the notional amount decreasing by $3,000,000 on a semi-annual basis through August 2011, and a final $2,000,000 notional amount swapped for the six month period ended January 2012. Under the interest rate swap, we receive LIBOR in exchange for a fixed interest rate of 2.66% over the life of the agreement.
 
The $530,000 liability associated with the fair value of our interest rate derivative instruments at March 31, 2009 is included in other long-term liabilities. The $399,000 liability associated with the fair value of our interest rate derivative instrument at June 30, 2008 is included in other long-term liabilities.
 
If market interest rates were to increase or decrease by 10% for the full 2009 fiscal year as compared to the rates in effect at June 30, 2008, we estimate that the change would not have a material impact to our cash flows or results of operations.


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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, Argentina, and China. 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, Argentine Peso, and the Chinese Renminbi. Consequently, the translated U.S. dollar value of our non-U.S. dollar sales, and related accounts receivable balances, and our operating costs are subject to currency exchange rate fluctuations. Currency exchange rate fluctuations may favorably or unfavorably impact reported earnings as changes are reported directly in our consolidated statement of operations, and may affect comparability of period-to-period operating results. At March 31, 2009, we had entered into a series of foreign currency forward contracts to hedge a portion of its foreign currency exposure to the Brazilian Real. At March 31, 2009, we had entered into a series of foreign exchange forward contracts covering approximately 53,774,000 Reais, expiring at dates ranging from April 2009 to December 2009, at an average exchange rate of 2.41 Real to $1.00 U.S. dollar. The $900,000 asset associated with the fair value of our foreign exchange forward contracts is included in prepaid expenses and other current assets at March 31, 2009. At June 30, 2008, we did not have any foreign exchange forward contracts.
 
If foreign exchange rates were to increase or decrease by 10% for the full 2009 fiscal year as compared to the rates in effect at June 30, 2008, we estimate that the change may have a material impact to our cash flow and results of operations, resulting in increased cost of sales at Argentine, Brazilian and Chinese entities of approximately $9,000,000 or 10%. Such impact would be most dramatic in cost of sales and interest expense increases, as revenues are principally denominated in U.S. dollars.


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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 semiconductor industries. 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% (5-9’s) and 99.999999999% (11-9’s) for high purity. According to estimates in the CRU Analysis, the global demand for silicon is projected to grow at a compounded annual rate of approximately 11.5% from 2010 through 2013, as industrial activity rebounds following 2009’s decline.
 
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. We believe there is currently no viable substitute for silicon, which improves the castability, hardness, corrosion resistance, tensile strength, wear resistance and weldability of the end products for which it is used. Demand for silicon metal comes primarily from the aluminum and chemical industries, while most silicon-based alloys are primarily used in steelmaking and foundries. Higher purity silicon is used in semiconductor manufacturing 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, wear resistance and weldability. 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 semiconductor and photovoltaic (solar) industries. Polysilicon is the highest purity silicon currently manufactured and 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 through other manufacturing processes into computer chips for electronics, a relatively mature market, but new electronic products are likely to increase the demand for silicon semiconductors. Photovoltaic (solar) cell products utilize silicon at the 5-9s purity classification and semiconductors at the 11-9’s purity classification. The growth in the photovoltaic (solar) industry over the past several years has resulted in greater demand for photovoltaic (solar) cells, and we believe the photovoltaic (solar) market will continue 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-based 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 (SiO2) with carbon substances (typically low ash coal and/or charcoal) and wood chips, which provide porosity to the raw material mix. The carefully measured mixture is


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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. 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 estimates in the CRU Analysis, global silicon demand is expected to increase from 2010 through 2013 as industrial activity rebounds following 2009’s decline. This is driven by the increasing demand for aluminum and other silicon containing products in various industrial uses; such as the automotive industry, driven in large part by increased demand for higher aluminum content in automobiles and the demand for automobiles in Eastern Europe, Brazil, Russia, China and India, as well as machining and aerospace industries. Additionally, the U.S., Germany and South Korea are expected to drive much of the overall increase in chemical-grade consumption due to the expansion of polysilicon production capacity. 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 further protracted decline in global demand or a change in Chinese government policies, silicon market fundamentals are expected to regain strength beginning in 2010.
 
Increasing demand, combined with limited supply growth and long lead times required for construction of new silicon production facilities suggests that silicon prices will remain high versus historical prices. Worldwide economic conditions have been extremely volatile in the last several quarters, leading to slowing economic activity, particularly in the United States, Western Europe and Japan. In addition, many commodity prices have declined significantly and the U.S. dollar has strengthened against most other currencies. Silicon metal prices have declined from their 2008 peak however they have not experienced the significant negative change of many commodities largely due to reduced supply as producers reduced output to address lower demand. Although we have experienced significant demand reductions for our silicon metal products, we believe our industry leading low-cost facilities, raw material control and low switching costs between products provide a substantial advantage relative to many of our peers, especially during these challenging times.
 
Total silicon consumption in the Western World rose by more than 4.0% in 2008, reaching a record 1,480,000 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 70% of the projected 2013 global demand of 2,400,000 MT while the Western World will only possess approximately 40% of global capacity at that time, according to estimates in the CRU Analysis. It is estimated that in 2008, the Western World accounted for 82% of global demand and 44% of production. Silicon inventories have increased recently as demand declined, however it is expected that supply reductions will offset this effect in the near-term.
 
While we believe near-term demand for automobiles in the Western World will be soft, regulatory and consumer pressures will require automobiles to be more fuel-efficient, thus continuing the trend of incorporating a higher proportion of aluminum in each automobile. According to automotive associations, the aluminum content of the average automobile in North America has nearly doubled to approximately 326 lbs expected in 2009 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, despite the recent


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downturn in automotive production global passenger vehicle production is expected to increase approximately 22% from 2008 to 2014, according to R.L. Polk & Co. June 2009 estimates.
 
In the chemical sector, demand growth has also been strong prior to the recent downturn as certain applications benefit from substitution for petroleum based alternatives. One of the fastest growth drivers for silicon demand is the photovoltaic (solar) industry. Despite a recent decline, the demand for higher purity silicon for the photovoltaic (solar) industry has increased in the past several years and is expected to continue, stimulated by the need for alternative energy sources. While the photovoltaic (solar) industry is still in the early stages of growth and only represents about 0.7% of the electricity market, global demand is expected to significantly increase as cost reductions are realized. In addition to the recent economic turmoil, 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 photovoltaic (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 April 2009 European Photovoltaic Industry Association report, global solar power demand is estimated to have been 5,559 MW in 2008, and is expected to rise to 22,325 MW in 2013, a 32% annual growth rate for that period. Several governments have established goals for solar power installations 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.
 
As an alternative to polysilicon, UMG, which has been produced and is being further developed by Solsil and other companies, has been introduced. Standard metallurgical grade silicon is converted to a higher grade of purity through purification and additional processes. Several photovoltaic (solar) cell 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
 
Until recently, a limited amount of idle silicon capacity existed in the Western World. Due to a decrease in demand beginning in late calendar 2008, we idled our facility in Selma, Alabama in early calendar 2009. Similarly, producers in Canada and Europe have also idled portions of their capacity in the last several quarters. These supply rationalizations have provided support to short-term prices and eliminated the near-term need for new capacity. However, as demand recovers these facilities can be restarted quickly and capacity constraints will likely return to what the industry faced in mid-2008. This limited amount of immediate capacity coupled with increasing demand have been key drivers to historic silicon price increases through 2008. A number of different options are potentially available to increase silicon capacity, including furnace rehabilitations, furnace conversions, additions of new furnaces at existing facilities 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 virtually no additional capacity is expected in 2009 and 2010, excluding the planned reopening of our Niagara Falls 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 a projected rebound in silicon price, CRU believes that it would be difficult to justify the comparatively high costs associated with the investment in a greenfield Western World silicon plant. Additionally, any new production facilities in China would need to obtain


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governmental approval, which recently has been more difficult to obtain due to restrictions on expansion of energy intensive industries, as well as increased costs of production.
 
Historical and Current Pricing Environment
 
The overall 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 photovoltaic (solar) market.
 
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 2008, China accounted for 46% of the world’s silicon exports, the majority being of metallurgical and chemical grade. Although China’s domestic demand rose from 95,000 MT in 2002 to 267,500 MT in 2008, much of its production was exported. China’s production capacity is made up of more than 200 small producers. China’s 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 $41.0 mills/kilowatt hour in 2008. The average power rate for international utilities increased by approximately 84% from 2002 to 2007.
 
The CRU Analysis estimates that global silicon demand is expected to advance by nearly 600,000 MT, or 33%, between 2008 and 2013, boosted by large increases in consumption, primarily in the chemical and photovoltaic (solar) sectors. 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 5.9% per annum for that period, silicon prices could see additional upward pressure.


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BUSINESS
 
Overview
 
We are one of the world’s largest and most efficient producers of silicon metal and silicon-based alloys, with approximately 186,400 MT of silicon metal capacity (including the potential capacity from the reopening of the Niagara Falls facility) and 72,800 MT of silicon-based alloys capacity. In addition to our principal silicon metal products, we produce high-grade silicon-based alloys including magnesium-ferrosilicon-based alloys used to make ductile iron by increasing iron’s 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, semiconductors and steel.
 
Our products are produced in our four principal operating facilities which are located in 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 Western World producer. 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 the nine months ended March 31, 2009 (the first nine months of our fiscal year ended June 30, 2009), we had over 580 customers, engaged primarily in the manufacture of silicone chemicals (24% of revenue), aluminum (22% of revenue), foundry alloys (17% of revenue), photovoltaic (solar) cells/semiconductors (12% of revenue), and steel (12% of revenue). Our customer base is geographically diverse, and includes North America, Europe, South America and Asia, which for the nine months ended March 31, 2009, represented 65%, 21%, 10% and 4% of our revenue, respectively. We enter into multi-year, annual, semi-annual or quarterly contracts on a period or calendar, semi-annual or quarterly basis, respectively, for the majority of our silicon metal production, allowing us to fix our sales price under these contracts and to improve our earnings visibility. We have grown our business through several strategic acquisitions since November 2006, and for the nine months ended March 31, 2009, we had revenue, operating loss and net loss of approximately $344,610,000, $33,792,000 and $43,619,000, respectively. Our operating results for the nine months ended March 31, 2009 include a $69,704,000 goodwill and intangible asset impairment charge.
 
We operate with a largely variable cost base and can rapidly turn furnaces on and off to meet customer demand. We were able to adjust quickly to the 49% decline in volume (from our fiscal first quarter ended September 30, 2008 to our fiscal third quarter ended March 31, 2009) by taking furnaces at certain other facilities off-line during the quarters and by idling our Selma, Alabama production facility in April 2009. We were also able to significantly reduce headcount and curtail other spending. As a result of these capacity rationalizations and expense reductions and a modest increase in pricing, our gross margin percentage for the quarter ended March 31, 2009 of 19% was only approximately 500 basis points lower than our gross margin for the quarter ended December 31, 2008. We continue to closely monitor customer demand and expect that increasing volumes will allow us to bring on-line certain idled furnaces during our first quarter of fiscal 2010. We are also prepared, in the event of an unexpected shortfall in demand, to idle additional furnaces and further reduce expenses.


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The increase in silicon metal and silicon-based alloy prices over the past two years has provided for significant revenue growth and increased profitability. Specifically, over the last eight quarters the average selling price of our silicon metal and silicon-based alloys increased by a total of 41% and 94%, respectively, for a compounded quarterly growth rate of 5% and 10%, respectively. The table below details our shipments and average selling price per MT over the last eight quarters through March 31, 2009.
 
                                                                         
    Quarter Ended        
    March 31,
    December 31,
    September 30,
    June 30,
    March 31,
    December 31,
    September 30,
    June 30,
       
    2009     2008     2008     2008     2008     2007     2007     2007        
    (Unaudited)        
Shipments (MT)(a)
                                                                       
Silicon metal
    18,564       28,674       33,135       39,292       39,839       35,952       30,592       39,823          
Silicon-based alloys
    9,762       15,572       22,126       17,166       18,066       16,398       17,101       19,149          
                                                                         
Total
    28,326       44,246       55,261       56,458       57,905       52,350       47,693       58,972          
                                                                         
Average selling price ($/MT)
                                                                       
Silicon metal
  $ 2,563       2,539       2,567       2,520       2,366       2,053       2,033       1,818          
Silicon-based alloys
    2,471       2,542       2,393       1,795       1,547       1,423       1,359       1,271          
Silicon metal and silicon-based alloys
    2,531       2,540       2,497       2,300       2,110       1,856       1,791       1,640          
 
(a) Shipments and average selling price exclude silica fume, other by-products and electrodes.
 
We operate our business through five principal subsidiaries.
 
Globe Metallurgical, Inc.  In November 2006, we acquired GMI, one of the world’s largest and most efficient manufacturers of silicon metal and silicon-based alloys. GMI currently operates two production facilities in the United States located in 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, together with additional leasing opportunities in the vicinity, we believe will cover our needs well into the future. GMI expects to reopen its idle silicon metal production facility in Niagara Falls, New York, depending on customer demand, in fiscal 2010. GMI also owns a production facility in Selma, Alabama that was idled in April 2009 in response to the recent decline in demand. This production facility could be quickly re-opened with minimal expense. GMI acquired the Alloy, West Virginia production facility 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, UltraCore Polska Sp.z.o.o and Ultra Core Corporation. Globe Metales, located in Argentina, operates a production 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 the nine months ended March 31, 2009, Globe Metales’ products were sold to over 50 customers, about 82% of which are export customers located in approximately 18 countries. Approximately one-fourth 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.  In January 2007, we acquired Camargo Correa Metais S.A., one of the largest producers of silicon metal in Brazil. Globe Metais operates a production 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. We believe our leased quartzite mining operations, together with additional leasing opportunities in the vicinity will cover our needs well into the future. Additionally, Globe Metais has forest reserves in Breu Branco, which are farmed utilizing environmentally sensitive forestry management techniques to obtain the wood necessary for woodchips and charcoal, both of which are important inputs in our production process. Our electric power is provided by the Tucurui hydroelectric plant, the fifth largest in the world, which is situated only a few kilometers from our production facility. In the nine months ended March 31,


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2009, we exported about 61% 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 81% interest in Solsil, a producer of UMG manufactured through a proprietary metallurgical process and which is primarily used in silicon-based photovoltaic (solar) cells. Solsil has supplied its silicon to several leading global manufacturers of photovoltaic (solar) cells, ingots and wafers. At March 31, 2009, Solsil had seven furnaces. Solsil is currently focused on research and development projects and is not producing material for commercial sale. Solsil plans to expand and introduce new products under development that will permit it to become a larger supplier of UMG to the photovoltaic (solar) cell market. In April 2008, Solsil and GMI entered into a joint development and supply agreement with BP Solar International Inc. for the sale of UMG, as well as joint development of an improved silicon making process and for cross licensing of certain proprietary technology. BP Solar International Inc. is a leading global designer, manufacturer and marketer of solar technology. Solsil’s operations are located within our production facility at Beverly, Ohio. In conjunction with the expansion and expected reopening of our Niagara Falls production facility in fiscal 2010, a portion of the production facility may be used for our Solsil operations and is expected to permit us to produce approximately 4,000 MT of UMG annually. Additionally, subject to market demand, we may open a new production facility in Waterford, Ohio, adjacent to our Beverly, Ohio production facility specifically for our Solsil operations. This production facility may include new furnaces and additional research and development capabilities, and will add an additional 4,000 MT of capacity.
 
Ningxia Yonvey 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 agreements, we hold a 70% ownership interest in Yonvey. Yonvey’s operations are located in Chonggang Industrial Park, Shizuishan in the Ningxia Hiu Autonomous Region of China. We currently consume the majority of the output of electrodes from Yonvey internally.
 
The chart below shows our ownership and corporate structure. Unless otherwise noted, our subsidiaries are wholly owned.
 
(FLOW CHART)
 
 
(1) We own an 81% interest in Solsil.
 
(2) Globe Metales owns minority interests in two hydroelectric power facilities located in Mendoza, Argentina.
 
(3) Our subsidiary, LF Resources, Inc. owns a 70% interest in Yonvey.
 
(4) GMI owns a 50% interest in Norchem. The remaining 50% interest in Norchem is owned by the president of Norchem.
 
(5) The principal assets of Reflorestadora Agua Azul Ltda. are forest reserves located in Breu Branco, Brazil.
 
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 should Niagara Falls operate at full production, our capacity will be approximately 186,400 MT of silicon metal annually, which we believe will represent approximately 18% total Western World capacity, including 61% capacity in North America. We estimate that we have approximately 20% Western World capacity for magnesium ferrosilicon, including 50% capacity in North America and are one of only six suppliers of calcium silicon in the Western World (with estimated 18% capacity). As a result of our market leadership and breadth of products, we believe that we possess critical insight into market demand allowing for more efficient use of our resources and operating capacity. We believe that we are also a leader in the development and commercialization of UMG, which is becoming an important material in the production of photovoltaic (solar) cells. Our potential expansions at our Niagara Falls and Beverly facilities would enable us to become one of the largest producers globally of UMG.
 
  •  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 four of our silicon metal manufacturing facilities as being among CRU’s eight most cost efficient silicon metal manufacturing facilities in the Western World, including three of the top four. 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 are working to expand our partnership with Recycled Energy Development, LLC to include a material upgrade to our existing furnaces at our Alloy, West Virginia facility. This would allow us not only to achieve the recovery of hot exhaust and its conversion to electricity, but we expect would also result in a more modern and efficient manufacturing platform. We also expect to lower the cost of UMG production through our research and development programs conducted with BP Solar International and other solar power researchers.
 
  •  Highly Variable Cost Structure.  We operate with a largely variable cost of production and have the ability to rapidly turn furnaces on and off to react to changes in customer demand. In response to the recent drop in demand we were able to quickly idle our Selma, Alabama facility and idle certain furnaces at other facilities. We also implemented a major cost reduction program which reduced headcount by approximately 26% and cut other operating costs. As a result of these cost initiatives, and certain price increases, we experienced only approximately a 500 basis point decline in gross margin percentage from the quarter ended December 31, 2008 to the quarter ended March 31, 2009. We have the ability to quickly re-start furnaces as customer demand returns. We also have the ability, should demand unexpectedly continue to decline, to idle additional furnaces and reduce further costs.
 
  •  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 contract beyond that date, although we expect contractual rates to be at a higher price. 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 GMI’s Niagara Falls plant, and as an incentive to reopen the plant, we obtained a public-sector package including 40 megawatts of hydropower through 2013, with a potential five year extension, and up to $25,000,000 in Empire Zone tax benefits recognized over 10 years subject to achieving specified employment and investment targets.
 
  •  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


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  possess long-term lease mining rights. These mines supply our plants with a 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 will 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 Yonvey. We also obtain raw materials from a variety of other sources.
 
  •  Efficient and Environmentally Sensitive 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.
 
  •  Diverse 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-ferrosilicon and calcium silicon. We sell our products to a wide variety of industries and to companies in over 40 countries. We believe that our diverse product and geographic end-market profile provides us with numerous growth opportunities and should help insulate us from economic downturns occurring in any individual industry or geographic region, however global macroeconomic factors will impact the effectiveness of our industrial and geographical diversity strategy. We expect our end-markets will become more diverse as we increase our sales to the photovoltaic (solar) market, which constituted 7% of our sales in the nine months ended March 31, 2009.
 
  •  Experienced, Highly Qualified Management Team.  We have assembled a highly qualified management team with approximately 80 years of combined experience in the metals industry among our top three executives. Alan Kestenbaum, our Executive Chairman, Jeff Bradley, our Chief Executive Officer and Arden Sims, our Chief Operating Officer, have over 20, 25 and 35 years of experience, respectively, in 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.
 
Business Strategy
 
  •  Focus on Core Businesses.  In this difficult economic environment we are focused on retaining existing business and executing on existing take or pay customer contracts. We differentiate ourselves on the basis of our technical expertise and high product quality and use these capabilities to retain existing accounts and cultivate new business. As part of this strategy, we are focusing our production and sales efforts on our silicon metals and silicon-based alloys to end markets where we may achieve the highest profitability. When customer demand returns to normalized levels we expect to invest in capital projects that would expand our capacity or lower our costs in those markets. 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.
 
  •  Continue to Rationalize Costs to Meet Current Levels of Demand.  We are focused on reducing costs in order to maintain our profitability. Despite a significant decline in volumes sold we are seeking to


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  maintain our gross margin percentage through cost reductions and price increases. We are monitoring demand very closely to determine when to re-start furnaces, or if volumes unexpectedly continue to decline, to idle other furnaces. Our largely variable cost of production allows us to remain profitable (excluding goodwill and intangible asset impairment charges) during periods of reduced demand.
 
  •  Pursue Attractive Growth Opportunities.  We intend to reopen our Niagara Falls facility in fiscal 2010 subject to market demand, and, as demand dictates may add capacity for our Solsil operations in Ohio and at Niagara Falls. This increased capacity will allow us to take advantage of any improvements in market conditions for our products and will also increase the manufacturing flexibility across our system. We have negotiated for the Niagara Falls facility a power supply agreement at a discount to local market prices with the State of New York which will enable us to continue to pursue our goal of being a low cost producer. We also have the ability to re-open our Selma, Alabama facility should market demand require such capacity.
 
  •  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 smelting furnaces while at the same time controlling the cost of the process inputs through our captive sources and long-term supply contracts. We have reduced our fixed costs and as volume returns could spread them over the resulting increased production volume to further reduce costs per MT of silicon metal and silicon-based alloy sold.
 
  •  Continue Pursuing Strategic Acquisition Opportunities.  The current economic downturn presents a significant opportunity to pursue complementary acquisitions at distressed prices. Certain customers and suppliers have been adversely affected by the current environment and may present suitable opportunities. We are actively reviewing several possible transactions to expand our strategic capabilities and leverage our products and operations. We intend to build on our history of successful acquisitions by continuing to evaluate attractive acquisition opportunities for the purpose of increasing our capacity, increasing our access to raw materials and other inputs and acquiring further refined products for our customers. 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, including for photovoltaic (solar) applications to grow in these markets as well as enable us to enter new markets or sell new products. We believe our overall metallurgical expertise and skills in lean production technologies position us well for future growth.
 
  •  Leverage Flexible Manufacturing and Expand Other Lines of Business.  We 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.
 
  •  Leverage Synergies Among Units.  According to CRU, we currently have four of the eight, and three of the four, lowest cost silicon metal manufacturing facilities in the Western World. Additionally, according to CRU, the average operating cost of four of our facilities is approximately 9.6% lower than the Western World weighted average based on CRU data. We seek to leverage each of our facilities’ best practices and apply them across our system.
 
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.


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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.
 
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 13, 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, the acquisition of Solsil in February 2008, and the Yonvey business combination in May 2008.
 
Globe Metallurgical, Inc. (United States)
 
In November 2006, we acquired GMI, one of the world’s largest and most efficient manufacturers of silicon metal and alloys. Through GMI, we currently operate two manufacturing facilities in the United States located in Beverly, Ohio and Alloy, West Virginia, one quartzite mining operation in Billingsley, Alabama and we intend to 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. We also own a silicon metal production facility in Selma, Alabama that we idled in April 2009 as a result of decreased demand.
 
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.
 
Solsil, Inc. (United States)
 
In February 2008, we acquired an 81% interest in Solsil, a producer of UMG 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 and supply agreement with BP Solar International Inc. for the sale of UMG. Solsil’s operations are located within our facility at Beverly, Ohio. Solsil is currently focused on research and development and is not presently producing material for commercial sale. As market demand increases, a portion of our Niagara Falls facility may be used for our Solsil operations which would permit us to produce approximately 4,000 MT of UMG annually.
 
Ningxia Yonvey Coal Industrial Co., Ltd. (China)
 
In May 2008, we acquired through a business combination an approximate 58% interest in Yonvey, a manufacturer of carbon electrodes, and after a subsequent contribution hold an approximate 70% ownership


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interest. Yonvey’s 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 facilities have the following approximate production capacities:
 
             
Locations
  Products   Production Capacity (MT)
 
Beverly, Ohio
  Silicon metal     24,800  
    Magnesium ferrosilicon     38,300  
    Ferrosilicon     8,500  
Alloy, West Virginia
  Silicon metal     67,100  
Selma, Alabama*
  Silicon metal     20,900  
Mendoza, Argentina
  Magnesium ferrosilicon     12,900  
    Calcium silicon     13,100  
Breu Branco, Brazil
  Silicon metal     43,600  
Niagara Falls, New York**
  Silicon metal     30,000  
             
Totals
           
Silicon metal
  Active capacity     135,500  
    Total capacity*,**     186,400  
    Twelve months ended March 31, 2009
actual production
    129,185  
Silicon-based alloys
  Active capacity     72,800  
    Twelve months ended March 31, 2009
actual production
    63,568  
 
 
* Reflects the capacity of the idled Selma, Alabama facility.
 
** Reflects the potential capacity from the reopening of the Niagara Falls facility.


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Silicon Metal
 
We are among the world’s largest and most efficient producers of silicon metal. Silicon-based products are classified by the approximate percentage of silicon contained in the material and the levels of trace impurities. We produce specialty-grade, high quality silicon metal with silicon content generally greater than 99.25%. We produce the majority of this high-grade silicon metal for three industries: (i) the aluminum industry; (ii) the chemical industry; and (iii) the photovoltaic (solar)/semiconductor industry. We also produce UMG for photovoltaic (solar) applications. The approximate distribution by customer type is as follows:
 
                         
        Nine Months ended
  Twelve Months ended
        March 31, 2009   June 30, 2008
 
      Aluminum     36 %     45 %
      Silicone chemicals     41 %     36 %
      Photovoltaic (solar) cell/semiconductor     19 %     13 %
      Others (including specialty aluminum)     4 %     6 %
 
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 a variety of automobile and truck components, including engine pistons, housings, and cast aluminum wheels and trim, as well as uses in high tension electrical wire, aircraft parts, beverage containers and other products which require optimal aluminum properties. The addition of silicon metal reduces shrinkage and the hot cracking tendencies of cast aluminum and improves the castability, hardness, corrosion resistance, tensile strength, wear resistance and weldability of the end products.
 
Purity and quality control are important. For instance, the presence of iron in aluminum alloys, in even small quantities, tends to reduce its beneficial mechanical properties as well as reduce its lustrous appearance, an important consideration when producing alloys for aluminum wheels 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.
 
We market to all the major silicone chemical producers. Silicone chemicals are used in a broad range of applications including in personal care items, construction-related products, health care products and electronics. In construction and equipment applications silicones promote adhesion, act as a sealer and have insulating properties. In personal care and health care products silicones add a smooth texture, prevent against ultra violet rays and provide moisturizing and cleansing properties. Silicon metal is an essential component of the manufacture of silicones, accounting for approximately 20% of raw materials used.
 
We market to producers of silicon wafers and solar cells who utilize silicon metal as the core ingredient of their product. These manufacturers employ a chemical process to further purify the silicon metal and then use the material to grow crystals. These crystals are then cut into wafers which are capable of converting sun light to electricity. The individual wafers are then soldered together to make solar cells.
 
Silicon-Based Alloy Products
 
We make ferrosilicon by combining silicon dioxide (quartzite) with iron in the form of scrap steel and iron oxides. To produce our high-grade silicon-based alloys, we combine ferrosilicon with other additions 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 four general categories: (i) ferrosilicon, (ii) magnesium-ferrosilicon-based alloys, (iii) ferrosilicon-based alloys and (iv) 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 iron’s strength and resilience. The resulting product is commonly known as ductile iron. Ductile iron is employed in numerous applications such as the manufacture of automobile crankshafts and camshafts, exhaust manifolds, hydraulic valve bodies and cylinders, couplings, sprockets and machine frames, as well as in commercial water pipes. Ductile iron is lighter than steel and provides better castability (i.e., intricate shapes


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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, and 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, together with additional leasing opportunities in the vicinity will 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 and 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 and from local suppliers for the Brazil business. Carbon electrodes are supplied by Yonvey and are also purchased from several other suppliers on annual contracts and spot purchases. Most of our metal purchases are made on the spot market or from scrap dealers, with the exception of magnesium which is purchased under a fixed duration contract for our U.S. business. Our principal iron source for producing ferrosilicon 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.


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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, then regulated price with specified discount   73 MW firm
Mendoza, Argentina
  EDEMSA   Through October 31, 2009   Specified discount from price established   24 MW firm
2.5 MW interruptible
Selma, Alabama*
  Alabama Power   Evergreen, 1-year
termination notice
  Published tariff rate   2.15 MW firm
40.85 MW interruptible
Alloy, West Virginia
  Appalachian Power   Through October 30, 2012,
with option to renew for
1-year
  Published tariff rate   110 MW interruptible
Alloy, West Virginia
  Brookfield Power   Through December 31,
2021
  Fixed rate   100 MW (hydro power)
Niagara Falls, New York**
  New York Power Authority   Through May 20, 2013   Specified discount from published tariff rate   40 MW maximum (hydro power)
 
 
* Plant idled in April 2009.
 
** Plant not currently operational. Niagara Falls is expected to re-open, depending on customer demand, in fiscal 2010. Terms of the contract provide for a potential five year extension.
 
In connection with the reopening of GMI’s Niagara Falls plant, and as an incentive to reopen the plant, we obtained a public-sector package including 40 megawatts of low cost hydropower through 2013, with a potential five year extension, and up to $25,000,000 in Empire Zone tax benefits recognized over 10 years subject to achieving specified employment and investment targets.
 
Sales and Marketing Activities
 
Our silicon metal is typically sold through contracts which are between three-months and several years in length and serve to lock in volumes and prices. Our multi-year contracts represent approximately 39% of our silicon metal sales for the nine months ended March 31, 2009 and expire at the end of 2010. On average, the multi-year contracts are typically priced below current spot market prices. Our annual contracts typically reset at the beginning of each calendar year and quarterly contracts typically reset at the beginning of each calendar quarter. 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. Contracts are generally priced slightly below spot market prices at the time the contracts are negotiated. If a customer’s order is not fulfilled during the contract period, production would extend beyond the contract period to fulfill that customer’s demand. Our silicon-based alloys are typically sold on a spot basis or through short term contracts up to three months in duration.
 
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 12 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


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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 world’s 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 9 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.
 
Customers
 
We sell to a variety of customers in North America, Europe, South America and Asia. For the nine months ended March 31, 2009, no customer was responsible for 10% or more of our revenues except for Dow Corning Corporation, which accounted for approximately 16% of our total sales, and Wacker Chemie AG, which accounted for approximately 10%. Our ten largest customers account for approximately 50% of our sales. We enter into multi-year, annual, semi-annual or quarterly contracts for a majority of our silicon metal production not currently under contract at the beginning of each period, calendar year, semi-annual or calendar quarter, respectively, and do not consider sales backlog to be a meaningful performance measure.
 
Silicon Metal Customers
 
We sell silicon metal to over 180 companies, including 12 Fortune 500 companies, located in over 16 countries. We typically have purchase commitments for a significant portion of a year’s production by the end of the preceding year which allows us to better estimate our revenues and profitability. Our silicon metal production for the furnaces currently operating is committed for the balance of calendar year 2009, and we have the ability to turn additional furnaces on to support an increase in demand. For the nine months ended March 31, 2009 our top ten silicon metal customers collectively represented approximately 77% of our net silicon metal sales, with the largest two customers, Dow Corning Corporation and Wacker Chemie AG, representing approximately 27% and 17% of net silicon metal sales, respectively, and approximately 16% and 10% 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 customer’s 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 44% of our net sales of these products for the nine months ended March 31, 2009, and our top two customers, Affival S.A. and ArcelorMittal, accounted for 8% and 6% each of silicon-based alloy sales, respectively, in the same period. Our silicon-based alloys production for the furnaces currently operating is mostly committed for the remainder of calendar year 2009, and we have the ability to turn on additional furnaces to support an increase in demand.


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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   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 Solsil’s seven smaller furnaces used to produce UMG for solar cell applications.
 
**   This facility is currently idled.
 
***  This facility is not operational but is expected to be brought into service during fiscal 2010.
 
**** 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 March 31, 2009, we had 1,074 employees. We have 405 employees in the United States, 163 employees in Argentina, 251 employees in Brazil, 21 employees in Poland and 234 employees in China. Our total employees consist of 679 salaried employees and 395 hourly employees and include 474 unionized workers. We reduced headcount 16% from the 1,283 employees we had at June 30, 2008 in reaction to reduced customer demand by idling the Selma, Alabama facility and making reductions in all our other facilities. We intend to continue to reduce the workforce to match current demand. As customer demand increases, and we turn back on furnaces at our currently operational facilities, we do not expect to increase staffing levels. Only when demand requires the starting of the Niagara Falls facility and the Selma, Alabama facility will additional employees be required.
 
We have not experienced any work stoppages and consider our relations with our employees to be good. Our hourly employees at our Selma, Alabama and Alloy, 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, 2009; renegotiation of the contract in Brazil will commence on October 1, 2009. Union employees in Argentina are working under a contract signed on June 30, 2009 and running through April 30, 2010. Our operations in Poland and China are not unionized.


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Research and Development
 
In February 2008, we acquired Solsil, a producer of UMG 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 Solsil’s operations, which are currently located within our facility at Beverly, Ohio. In April 2008, Solsil and GMI entered into a joint development and supply agreement with BP Solar International Inc., a subsidiary of BP p.l.c., for the sale of UMG and further metallurgical process development. Our success in producing UMG for the solar industry will help to lower the production cost of photovoltaic (solar) cells and increase the overall affordability of the technology.
 
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 Grupo Ferroatlantica S.L. 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.
 
Regulatory Matters
 
We operate facilities in the U.S. and abroad which are subject to foreign, federal, national, state, provincial and local environmental, health and safety laws and regulations, including, among others, those governing the discharge of materials into the environment, hazardous substances, land use, reclamation and remediation and the health and safety of our employees. These laws and regulations require us to obtain from governmental authorities permits to conduct certain regulated activities, which permits may be subject to modification or revocation by such authorities.
 
We are subject to the risk that we have not been or will not be at all times in complete compliance with such laws, regulations and permits. Failure to comply with these laws, regulations and permits may result in the assessment of administrative, civil and criminal penalties or other sanctions by regulators, the imposition of remedial obligations, the issuance of injunctions limiting or preventing our activities and other liabilities. Under these laws, regulations and permits, we could also be held liable for any and all consequences arising out of human exposure to hazardous substances or environmental damage we may cause or that relates to our operations or properties. Environmental, health and safety laws are likely to become more stringent in the future. Our costs of complying with current and future environmental, health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations and financial condition.


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There are a variety of laws and regulations in place or being considered at the international, federal, regional, state and local levels of government that restrict or are reasonably likely to restrict the emission of carbon dioxide and other greenhouse gases. These legislative and regulatory developments may cause us to incur material costs 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 make personal injury, property damage or other private claims relating to the presence or release of hazardous substances. Environmental laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of hazardous substances. Persons who arrange for the disposal or treatment of hazardous substances also may be responsible for the cost of removal or remediation of these substances. Such persons can be responsible for removal and remediation costs even if they never owned or operated the disposal or treatment facility. In addition, such owners or operators of real property and persons who arrange for the disposal or treatment of hazardous substances can be held responsible for damages to natural resources.
 
Soil or groundwater contamination resulting from historical, ongoing or nearby activities is present at certain of our current and historical properties, and additional contamination may be discovered at such properties in the future. Based on currently available information, we do not believe that any costs or liabilities relating to such contamination will have a material adverse effect on our financial condition, results of operations or liquidity.
 
Legal Proceedings
 
Through March 31, 2009, we paid an aggregate amount of approximately $2,680,000, including damages, legal fees and related interest, pursuant to a judgment relating to a lawsuit over a contract to purchase manganese ore. In April 2008, we appealed this judgment and in April 2009 our appeal was dismissed and we were ordered to pay $117,000 for legal fees to the counter-party. We are not subject to any further liability for this matter.
 
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.


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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
    47     Executive Chairman and Director
Jeff Bradley
    49     Chief Executive Officer
Arden Sims
    65     Chief Operating Officer
Malcolm Appelbaum
    48     Chief Financial Officer
Stephen Lebowitz
    44     Chief Legal Officer
Theodore A. Heilman, Jr. 
    51     Senior Vice President
Bruno Santos Parreiras
    41     Executive Director, Globe Metais, S.A.
Delfin Rabinovich
    60     Executive Director, Globe Metales, S.A.
Stuart E. Eizenstat
    65     Director
Daniel Karosen
    33     Director
Franklin Lavin
    50     Director
Donald G. Barger, Jr. 
    66     Director
Thomas A. Danjczek
    62     Director
 
Alan Kestenbaum has served as Executive Chairman and Director since our inception in December 2004, and served as Chief Executive Officer from our inception through May 2008. From June 2004, Mr. Kestenbaum served as Chairman of Globe Metallurgical, Inc., until its acquisition by us in November 2006. He has over 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 International’s affiliates into China and the former Soviet Union. He also established affiliated private equity businesses in 1999 which were involved in sourcing and concluding a number of private equity transactions, including ones relating to McCook Metals, Scottsboro Aluminum and Globe Metallurgical, Inc. 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. From June 2005 until February 2008, Mr. Bradley served as Chairman, Chief Executive Officer and Director of Claymont Steel Holdings, Inc., a company specializing in the manufacture and sale of custom-order steel plates in the United States and Canada. Mr. Bradley was not employed after his February 2008 departure from Claymont Steel until he joined us in May 2008. Prior to joining Claymont Steel, from September 2004 to June 2005, Mr. Bradley served as Vice President of strategic planning for Dietrich Industries, a construction products subsidiary of Worthington Industries. From September 2000 to August 2004, Mr. Bradley served as a vice president and general manager for Worthington Steel, a diversified metal processing company. Mr. Bradley holds a B.S. in