
(2)	Rationalizations

Industrial Materials Rationalization

On October 31, 2013, we announced a global initiative to reduce our Industrial Materials segment's cost base and improve our competitive position. As part of this initiative, we will close our two highest cost graphite electrode plants, located in Brazil and South Africa, as well as a machine shop in Russia. Upon these closures, our graphite electrode capacity will be reduced by approximately 60,000 metric tons. In parallel, we adopted measures for additional overhead reductions and related corporate operations. These actions in total are expected to reduce global headcount by approximately 600 people or approximately 20 percent of our global workforce. The rationalization plan is targeted to be substantially complete by the end of the second quarter of 2014

This rationalization initiative will result in approximately $100 million of pre-tax charges , of which approximately $30 million will be cash outlays, the majority of which will be incurred in 2014, and funded through working capital improvements. The remaining $70 million are non-cash costs, which primarily reflects the accelerated depreciation of assets, and will be expensed throughout the wind-down period. This rationalization plan is targeted to be substantially complete by the end of the second quarter of 2014

Impact to 2013 financial results

In 2013, as a result of the Industrial Materials rationalization, we incurred $19.4 million in charges for post-employment benefits (including corporate charges) and contract termination costs, in Rationalizations. As a result of the planned shut-down, certain assets in progress were written off and the estimated useful life of productive assets changed. Consequently, we incurred non-cash charges of $28.3 million of accelerated depreciation and $5.7 million of asset write-off, recorded in Cost of sales. We also recorded in Cost of sales $8.3 million of loss reserves for inventory of products that will not be used prior to the expected plant closures and will not be utilized elsewhere. This charge was also recorded in Cost of sales.

Engineering Solutions Rationalization

In order to optimize our Engineered Solutions platform and improve our cost structure, we initiated actions to centralize certain operations and reduce overhead. These actions are expected to reduce global headcount by approximately 40 people. The total expected cost of these actions is approximately $4.5 million, approximately $1.0 million of which will be cash outlays, the majority of which will be incurred in 2014. The remaining $3.5 million are non-cash costs, which primarily reflect the write-off of assets. We incurred approximately $3.9 million of expense related to this initiative in 2013 and we expect the remainder to be incurred in the first half of 2014.

Impact to 2013 financial results

In 2013, as a result of the Engineering Solutions Rationalization we incurred $0.8 million in charges for post-employment benefits (including corporate charges), recorded in Rationalizations. As a result of the centralization plans, certain assets were written off. Consequently, we incurred non-cash charges of $2.3 million in Cost of sales. Additionally, the estimated useful lives of certain productive assets were changed, which will result in accelerated depreciation charges in 2014. We also recorded in Cost of sales $0.9 million of loss reserves for inventory that will not be used as a result of the centralization plans.

The following table represents the roll-forward of the liability incurred for employee termination benefits and contract termination costs incurred in connection with the two initiatives described above. This liability is recorded as a current liability on the Consolidated Balance Sheet.



	(in thousands)
Balance as of December 31, 2012	$	—
Charges incurred	16,159
Change in estimates	3,997
Payments and settlements	(1,506		)
Effect of change in currency exchange rates	(229		)
Balance as of December 31, 2013	$	18,421

Charges incurred related to these plans for the year ended December 31, 2013 are as follows:



	For the Twelve Months Ended December 31, 2013
	Industrial Materials Segment		Engineered Solutions Segment		Total
	(dollars in thousands)
Accelerated depreciation (recorded in Cost of sales)	28,326		—		28,326
Inventory loss (recorded in Cost of sales)	8,255		896		9,151
Fixed asset write-offs (recorded in Cost of sales)	5,736		2,274		8,010
Other (recorded Selling and administrative)	59		—		59
Severance and related costs (recorded in Rationalizations)	18,579		767		19,346
Contract terminations (recorded in Rationalizations)	810		—		810
Total rationalization and related charges	$	61,765	$	3,937	$	65,702