Discontinued Operations and Related Assets Held for Sale

On February 26, 2016, the Company announced that it had initiated a strategic review of its Engineered Solutions business segment to better direct its resources and simplify its operations. Any potential sale of assets was prohibited by the Revolving Facility without approval of the requisite lenders thereunder. On April 27, 2016, GrafTech and certain of its subsidiaries entered into an amendment to the Revolving Facility (see Note 6 "Debt and Liquidity") which, among other things, permits the sale of assets with the restriction that the proceeds be utilized to pay down revolver borrowings. As of June 30, 2016, the Engineered Solutions segment qualified for reporting as discontinued operations as its divestiture represents a strategic shift for the Company.

During the second quarter of 2016, we evaluated the fair value of the Engineered Solutions business segment utilizing the market approach (Level 3 measure). As a result, we incurred an impairment charge to our Engineered Solutions business segment of $105.6 million to align the carrying value with estimated fair value. The analysis was updated as of December 31, 2016, resulting in an additional impairment charge of $14.3 million. We continue to update this estimate and during the six months ended June 30, 2017, we further reduced the estimated fair value by $5.3 million based upon current information. The current estimate reflects management’s view of the manner in which the Engineered Solutions business will be divested, including assumptions as to if and how it will be split, given the lines of business and asset groups that constitute the Engineered Solutions segment. Amongst other things, the split into groups influences the computation of the impairment charge. These assumptions and estimates are subject to change until divestiture is completed and may be adjusted in the quarter that the information becomes available.

On November 30, 2016, we completed the sale of our Fiber Materials Inc. business, which was a business line within our former Engineered Solutions business. The sale resulted in cash proceeds of $15.9 million and a loss of $0.2 million. We have the ability to realize up to $8.5 million of additional proceeds based on the earnings of the Fiber Materials business over the 24 months following the transaction. We have elected to record this contingent consideration as it is realized and as such it is not recognized thus far on the transaction.

On July 3, 2017, we completed the sale of our Advanced Energy Technologies business. This sale resulted in an additional impairment of $2.8 million to the carrying value of our Engineered Solutions business as of June 30, 2017. See Note 13 "Subsequent Events" for more information.

The following tables summarize the results of the Engineered Solutions business segment, reclassified as discontinued operations for the three and six months ended June 30, 2016 and 2017.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2017			2016			2017
	(Dollars in thousands)

Net sales	$	29,930		$	32,428		$	59,019		$	64,193
Cost of sales	24,569			28,610			50,554			57,022
Gross profit	5,361			3,818			8,465			7,171
Research and development	813			711			1,691			1,281
Selling and administrative expenses	5,059			4,106			9,514			7,800
Impairment	105,600			2,800			105,600			5,300
Operating loss	(106,111		)	(3,799		)	(108,340		)	(7,210		)
Other income	(81		)	(47		)	(72		)	(18		)
Interest expense	951			524			1,670			1,133
Loss from discontinued operations before income taxes	(106,981		)	(4,276		)	(109,938		)	(8,325		)
(Benefit from) income taxes on discontinued operations	(843		)	(226		)	(1,236		)	(209		)
Loss from discontinued operations	$	(106,138	)	$	(4,050	)	$	(108,702	)	$	(8,116	)

The significant components of our Statements of Cash Flows for the Engineered Solutions business segment held for sale are as follows:



	For the Six Months Ended June 30,
	2016			2017
	(Dollars in thousands)

Depreciation and amortization	$	3,052		$	2,311
Impairment	105,600			5,300
Deferred income taxes	(1,236		)	(209		)
Capital expenditures	2,513			432

The following table summarizes the carrying value of the assets and liabilities of discontinued operations as of December 31, 2016 and June 30, 2017.



	As of December 31, 2016			As of June 30, 2017
	(Dollars in thousands)
Assets of discontinued operations:
Accounts receivable	$	17,094		$	18,325
Inventories	71,816			58,050
Prepaid expenses and other current assets	320			952
Net property plant and equipment	79,048			78,827
Other assets	12,608			11,669
Total assets of discontinued operations prior to impairment	180,886			167,823

Impairment	(119,907		)	(125,207		)

Total assets of discontinued operations	$	60,979		$	42,616

Liabilities of discontinued operations:
Accounts payable	$	7,253		$	6,389
Accrued income and other taxes	2,326			994
Other accrued liabilities	10,463			8,785
Total current liabilities of discontinued operations	20,042			16,168

Other long-term obligations	850			971

Total liabilities of discontinued operations	$	20,892		$	17,139