
2)	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 are substantially complete as of June 30, 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 are expected to reduce 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 six months ended June 30, 2014, as a result of the 2013 rationalization initiatives we incurred rationalization charges of $0.8 million and $0.9 million, primarily related to contract termination costs. We also incurred non-cash accelerated depreciation charges of $4.2 million and $21.7 million in the three and six months ended June 30, 2014, respectively. Other rationalization-related charges recorded in cost of sales in the three and six months ended June 30, 2014 were $4.9 million and $5.2 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 six months ended June 30, 2014 are as follows:



	For the Three Months Ended June 30, 2014						For the Six Months Ended June 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)	$	3,832	$	413	$	4,245	$	20,852	$	826		$	21,678
Other (recorded in Cost of sales)	4,255		625		4,880		4,576		615			5,191
Other (recorded in Selling and administrative)	54		—		54		79		—			79
Severance and related costs (recorded in Rationalizations)	831		—		831		945		(28		)	917
Total rationalization and related charges	$	8,972	$	1,038	$	10,010	$	26,452	$	1,413		$	27,865

The 2013 rationalization initiatives will result in approximately $95 million of pre-tax charges, of which approximately $25 million will be cash outlays (net of cash inflows). Through June 30, 2014, we incurred $93.6 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	609
Change in estimates	308
Payments and settlements	(15,993		)
Effect of change in currency exchange rates	247
Balance as of June 30, 2014	$	3,592

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, the solar production has continued to erode with poly-silicone, silicone and silicone wafer production migrating to China. New competitors servicing this industry have commenced production in China at pricing levels making the market now unprofitable. As a result of these conditions, the Company has decided to cease isomolded production and pursue an 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 flows, and accordingly, we estimated the fair-value of long-lived assets based on a market participant view. This impairment charge totaled $121.6 million in the three months ended June 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 $10.6 million in the three months ended June 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.

Severance and other related expected costs of these actions, including the costs to relocate certain fixed assets, are expected to result in approximately $12 million of additional charges. Approximately $7 million of these additional costs will be cash outlays, the majority of which will be incurred in 2014.



	For the Three and Six Months Ended June 30, 2014
	(Dollars in thousands)

Impairments (recorded in Impairments)	$	121,570
Other (recorded in Cost of sales)	10,563
Total 2014 Engineered Solutions rationalization and related charges	$	132,133