Rationalizations and Impairments

2013 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 ceased production at our two highest cost graphite electrode plants, located in Brazil and South Africa, as well as a machine shop in Russia. These actions were substantially completed during the first half of 2014. Our graphite electrode capacity was reduced by approximately 60,000 metric tons as a result of these actions. In parallel, we adopted measures for reductions in overhead and related corporate operations. These actions and measures reduced global headcount by approximately 600 people, or approximately 20 percent of our global workforce.

2013 Engineered Solutions Rationalization

In order to optimize our Engineered Solutions platform and improve our cost structure, we also initiated actions to centralize certain operations and reduce overhead in our Engineered Solutions segment. These actions are expected to reduce global headcount by approximately 40 people and be substantially completed during 2014.

Total 2013 Rationalization Initiatives Impact to 2014 Financial Results

In the three and nine months ended September 30, 2014, as a result of the 2013 rationalization initiatives we incurred rationalization charges of $0.1 million and $0.9 million, respectfully, primarily related to contract termination costs. We also incurred non-cash accelerated depreciation charges of $0.8 million and $22.5 million in the three and nine months ended September 30, 2014, respectively. Other rationalization-related charges recorded in cost of sales in the three and nine months ended September 30, 2014 were $1.6 million and $6.8 million, respectively, and included cleaning and dismantling costs and loss reserves for inventory.

Charges incurred related to the 2013 rationalization initiatives for the three and nine months ended September 30, 2014 are as follows:



	For the Three Months Ended September 30, 2014								For the Nine Months Ended September 30, 2014
	Industrial Materials Segment			Engineered Solutions Segment		Total			Industrial Materials Segment		Engineered Solutions Segment			Total
	(Dollars in thousands)								(Dollars in thousands)
Accelerated depreciation (recorded in Cost of sales)	$	838		$	—	$	838		$	21,690	$	826		$	22,516
Other (recorded in Cost of sales)	1,618			6		1,624			6,194		622			6,816
Other (recorded in Selling and administrative)	21			—		21			99		—			99
Severance and related costs (recorded in Rationalizations)	(52		)	—		(52		)	366		(28		)	338
Contract terminations (recorded in Rationalizations)	81			—		81			609		—			609
Total 2013 rationalization plan and related charges	$	2,506		$	6	$	2,512		$	28,958	$	1,420		$	30,378

The 2013 rationalization initiatives will result in approximately $100 million of pre-tax charges, of which approximately $30 million will be cash outlays (net of cash inflows). Through September 30, 2014, we incurred $96.1 million of expense related to these initiatives.

The following table represents the roll-forward of the liability incurred for employee termination benefits and contract termination costs incurred in connection with the 2013 rationalization initiatives described above. This liability is recorded as a current liability on the Consolidated Balance Sheet.



	(Dollars in thousands)
Balance as of December 31, 2013	$	18,421
Charges incurred	693
Change in estimates	254
Payments and settlements	(16,053		)
Effect of change in currency exchange rates	(997		)
Balance as of September 30, 2014	$	2,318

2014 Engineered Solutions Rationalization

On July 29, 2014, we announced additional rationalization initiatives to increase profitability, reduce cost and improve global competitiveness in our Engineered Solutions segment. During the second quarter of 2014, worldwide pricing of our isomolded graphite products ("isomolded") within our Advanced Graphite Material ("AGM") product group, as well as our expectation of future pricing, significantly eroded, driven by significant over-capacity and recent competitor responses. In addition, solar product demand continued to erode, with polysilicon, silicon and silicon wafer production migrating to China. New competitors servicing this industry commenced production in China at pricing levels making the market now unprofitable. As a result of these conditions, the Company decided to cease isomolded production and pursue alternative supply chain relationships in our isomolded product line.

As a result of the above, we tested our long-lived assets used to produce advanced graphite materials for recovery, based on undiscounted cash flows from the use and eventual disposition of these assets. The carrying value of the assets exceeded these undiscounted cash flow and, accordingly, we estimated the fair-value of these long-lived assets based on a market participant view. This resulted in an impairment charge totaling $121.6 million in the nine months months ended September 30, 2014, and included the impairment of certain acquired customer relationship and technology intangible assets. Goodwill associated with this line of business of $0.4 million was fully impaired, and included in the $121.6 million charge. Other impairment related charges, primarily inventory write-downs, were $13.4 million in the nine months ended September 30, 2014. If business conditions and plans do not achieve our expected returns in the Engineered Solutions segment, we may undertake additional restructurings, rationalizations or similar actions which could result in additional charges, write-offs and impairments.

Charges incurred related to the 2014 Engineered Solutions rationalization initiatives for the three and nine months ended September 30, 2014 are as follows:



	For the Three Months Ended September 30, 2014		For the Nine Months Ended September 30, 2014
	(dollars in thousands)

Accelerated depreciation (recorded in Cost of sales)	$	2,802	$	2,802
Other (recorded in Cost of sales)	2,780		13,341
Severance and related charges (recorded in Rationalizations)	2,537		2,537
Contract terminations (recorded in Rationalizations)	74		74
Impairments (recorded in Impairments)	—		121,570
Total 2014 Engineered Solutions rationalization and related charges	$	8,193	$	140,324

The 2014 Engineered Solution rationalization will result in approximately $25 million of pre-tax charges (excluding impairments of $121.6 million), of which, approximately $5 million will be cash outlays (net of cash inflows), the majority of which will be incurred in 2014. Through September 30, 2014 we have incurred $18.8 million related to this program.

The following table represents the roll-forward of the liability incurred for employee termination benefits and contract termination costs incurred in connection with the 2014 Engineered Solutions rationalization initiatives described above. This liability is recorded as a current liability on the Consolidated Balance Sheet.



	(Dollars in thousands)
Balance as of December 31, 2013	$	—
Charges incurred	2,611
Change in estimates	—
Payments and settlements	(386		)
Effect of change in currency exchange rates	—
Balance as of September 30, 2014	$	2,225

2014 Corporate and Research & Development Rationalization

During the third quarter of 2014, we announced the conclusion of another phase of our on-going company-wide cost savings assessment. This resulted in changes to the Company’s operating and management structure in order to streamline, simplify and decentralize the organization. These actions will reduce costs by a combination of reduced contractor costs, attrition, early retirements and layoffs. Additionally, the Company will downsize its corporate functions by approximately 25 percent, relocate to a smaller, more cost effective corporate headquarters and establish a new Technology and Innovation Center.

Charges incurred related to the 2014 Corporate and Research & Development rationalization initiatives for the three and nine months ended September 30, 2014 are as follows:



	For the Three and Nine Months Ended September 30, 2014
	(dollars in thousands)

Accelerated depreciation (recorded in Cost of sales)	$	5
Accelerated depreciation (recorded in Overhead)	89
Severance and related costs (recorded in Rationalizations)	8,130
Contract terminations (recorded in Rationalizations)	74
Total 2014 corporate rationalization and related charges	$	8,298

The 2014 Corporate and Research and Development rationalization plan will result in approximately $20 million of charges consisting of severance, accelerated depreciation and other related costs . Approximately $12 million of these costs will be cash outlays, the majority of which are expected to be disbursed in 2015.

The following table represents the roll-forward of the liability incurred for employee termination benefits and contract termination costs incurred in connection with the 2014 Corporate and Research & Development rationalization initiatives described above. This liability is recorded as a current liability on the Consolidated Balance Sheet.



	(Dollars in thousands)
Balance as of December 31, 2013	$	—
Charges incurred	8,204
Change in estimates	—
Payments and settlements	—
Effect of change in currency exchange rates	—
Balance as of September 30, 2014	$	8,204