Rationalizations

Throughout 2013 and 2014 the Company undertook rationalization plans in order to streamline our organization and lower our production costs. The following tables summarize the total rationalization and related charges incurred during 2013 and 2014 followed by the details of each plan.



	For the Year Ended December 31, 2013
	Industrial Materials Segment		Engineered Solutions Segment		Corporate, R&D and Other		Total
	(Dollars in thousands)
Accelerated depreciation (recorded in Cost of sales)	$	28,326	$	—	$	—	$	28,326
Inventory loss (recorded in Cost of sales)	7,886		896		—		8,782
Fixed asset write-offs and other(recorded in Cost of sales)	6,104		2,274		—		8,378
Other (recorded in Selling and administrative)	59		—		—		59
Severance and related costs (recorded in Rationalizations)	17,072		458		1,816		19,346
Contract terminations (recorded in Rationalizations)	810		—		—		810
Total 2013 rationalization and related charges	$	60,257	$	3,628	$	1,816	$	65,701



	For the Year Ended December 31, 2014
	Industrial Materials Segment		Engineered Solutions Segment		Corporate, R&D and Other		Total
	(Dollars in thousands)
Accelerated depreciation (recorded in Cost of sales)	$	22,388	$	3,649	$	—	$	26,037
Inventory loss (recorded in Cost of sales)	961		13,711		—		14,672
Fixed asset write-offs and other(recorded in Cost of sales)	5,552		1,278		—		6,830
Accelerated depreciation (recorded in Research and development)	—		—		2,312		2,312
Accelerated depreciation (recorded in Selling and administrative)	—		—		608		608
Other (recorded in Selling and administrative)	89		121		515		725
Severance and related costs (recorded in Rationalizations)	5,040		3,113		2,845		10,998
Contract terminations (recorded in Rationalizations)	469		146		11		626
Impairment of long-lived assets			121,570		—		121,570
Total 2014 rationalization and related charges	$	34,499	$	143,588	$	6,291	$	184,378

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. 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. These actions were substantially completed during the first half of 2014.

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 reduced global headcount by approximately 40 people and were substantially completed during 2014.

Total 2013 Rationalization Initiatives Impact to Financial Results

During 2013 and 2014, as a result of the 2013 rationalization initiatives we incurred rationalization charges of $20.2 million and $0.9 million, respectively, related to severance and contract termination costs. We also incurred non-cash accelerated depreciation charges of $28.3 million and $23.2 million in 2013 and 2014, respectively. Other rationalization-related charges recorded in cost of sales in 2013 were $17.2 million, representing fixed asset write offs and other charges, including cleaning and dismantling costs and loss reserves for inventory. Other rationalization-related charges recorded in cost of sales in 2014 were $7.1 million, and primarily comprised of inventory write-offs.

Charges incurred related to the 2013 rationalization initiatives for the twelve months ended December 31, 2013 and December 31, 2014 are as follows:



	For the Year Ended December 31, 2013
	Industrial Materials Segment		Engineered Solutions Segment		Corporate, R&D and Other		Total
	(Dollars in thousands)
Accelerated depreciation (recorded in Cost of sales)	$	28,326	$	—	$	—	$	28,326
Inventory loss (recorded in Cost of sales)	7,886		896		—		8,782
Fixed asset write-offs and other(recorded in Cost of sales)	6,104		2,274		—		8,378
Other (recorded in Selling and administrative)	59		—		—		59
Severance and related costs (recorded in Rationalizations)	17,072		458		1,816		19,346
Contract terminations (recorded in Rationalizations)	810		—		—		810
Total 2013 rationalization plan and related charges	$	60,257	$	3,628	$	1,816	$	65,701



	For the Year Ended December 31, 2014
	Industrial Materials Segment		Engineered Solutions Segment			Corporate, R&D and Other		Total
	(Dollars in thousands)
Accelerated depreciation (recorded in Cost of sales)	$	22,388	$	827		$	—	$	23,215
Inventory loss (recorded in Cost of sales)	961		485			—		1,446
Fixed asset write-offs and other(recorded in Cost of sales)	5,374		233			—		5,607
Other (recorded in Selling and administrative)	89		—			—		89
Severance and related costs (recorded in Rationalizations)	433		(28		)	—		405
Contract terminations (recorded in Rationalizations)	469		—			—		469
Total 2014 rationalization plan and related charges	$	29,714	$	1,517		$	—	$	31,231

The following table represents the roll-forward of the liability incurred for employee termination benefits and contract termination costs incurred in connection with the the 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, 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	613
Change in estimates	153
Payments and settlements	(16,494		)
Effect of change in currency exchange rates	(1,658		)
Balance as of December 31, 2014	$	1,035

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 during 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 $19.8 million in 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 in 2014 are as follows:



	For the Year Ended December 31, 2014

Accelerated depreciation (recorded in Cost of sales)	$	2,802
Inventory losses (recorded in Cost of sales)	13,225
Fixed asset write-offs and other (recorded in Cost of sales)	1,046
Severance and related charges (recorded in Rationalizations)	2,498
Contract terminations and other (recorded in Rationalizations)	195
Impairments (recorded in Impairments)	121,570
Total Engineered Solutions rationalization and related charges	$	141,336

The 2014 Engineered Solutions rationalization will result in approximately $25 million of pre-tax charges (excluding impairments of $121.6 million). During 2014 we have incurred $19.8 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	(40		)
Payments and settlements	(916		)
Effect of change in currency exchange rates	—
Balance as of December 31, 2014	$	1,655

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 2014 are as follows:



	For the Year Ended December 31, 2014
	(dollars in thousands)

Accelerated depreciation (recorded in Cost of sales)	$	20
Fixed asset write offs (recorded in Cost of sales)	178
Accelerated depreciation (recorded in R&D)	2,312
Accelerated depreciation (recorded in Selling and administrative)	608
Other charges (recorded in Selling and administrative)	515
Severance and related costs (recorded in Rationalizations)	8,096
Contract terminations (recorded in Rationalizations)	84
Total 2014 corporate rationalization and related charges	$	11,813

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	8,159
Change in estimates	21
Payments and settlements	(1,155		)
Effect of change in currency exchange rates	(152		)
Balance as of December 31, 2014	$	6,873