GrafTech International(EAF) - 2018 Q4 - Annual Report

Financial Performance - For the year ended December 31, 2018, net sales reached $1,895,910,000, a significant increase from $550,771,000 in 2017 and $437,963,000 in 2016[337] - Net income for 2018 was $854,219,000, compared to $7,983,000 in 2017 and a loss of $235,843,000 in 2016[337] - EBITDA from continuing operations for 2018 was $1,102,625,000, up from $97,884,000 in 2017 and a loss of $12,251,000 in 2016[337] - Adjusted EBITDA from continuing operations for 2018 was $1,205,021,000, compared to $95,806,000 in 2017 and a loss of $2,898,000 in 2016[337] - Gross profit surged to $1,190.2 million in 2018, a 1,257% increase from $87.7 million in 2017[356] - Operating income reached $1,126.1 million in 2018, reflecting a 3,446% increase from $31.8 million in 2017[356] - Net income from continuing operations increased to $853.9 million in 2018, a 5,908% rise from $14.2 million in 2017[356] Sales and Production - Sales volume for 2018 was 185,000 metric tons, an increase from 172,000 metric tons in 2017 and 163,000 metric tons in 2016[340] - The weighted average realized price for graphite electrodes in 2018 was $9,937 per metric ton, significantly higher than $2,945 in 2017 and $2,459 in 2016[340] - Production volume for 2018 was 179,000 metric tons, compared to 166,000 metric tons in 2017 and 151,000 metric tons in 2016[340] - Total production capacity for 2018 was 208,000 metric tons, up from 195,000 metric tons in 2017 and 195,000 metric tons in 2016[340] - Capacity utilization for 2018 was 86%, compared to 85% in 2017 and 77% in 2016[340] - Sales to international customers accounted for approximately 78% of net sales in 2018, with significant contributions from Europe and other regions[352] Expenses and Costs - Interest expense rose by $104.2 million, or 338%, from $30.8 million in 2017 to $135.1 million in 2018, primarily due to increased borrowings[363] - Research and development expenses decreased by $1.3 million, or 38%, from $3.5 million in 2017 to $2.1 million in 2018[359] - Cost of sales increased by $12.3 million, or 3%, from $449.2 million in 2016 to $461.5 million in 2017, primarily due to increased sales volume of graphite electrodes[370] - Selling and administrative expenses decreased by $6.0 million, or 10%, from $58.5 million in 2016 to $52.5 million in 2017, attributed to cost reduction efforts[373] Tax and Valuation - The effective tax rate for 2018 was 5.4%, compared to a benefit of (314.2)% in 2017, primarily due to increased earnings and a partial release of a valuation allowance[366] - The effective tax rate for 2017 was (314.2)%, primarily due to the release of a $16 million valuation allowance reserve against deferred tax assets[378] - The company has a valuation allowance of $58.4 million against certain deferred tax assets as of December 31, 2018, due to insufficient taxable income in certain jurisdictions[466] Cash Flow and Financing - Cash flow provided by operating activities was $836.6 million for the year ended December 31, 2018, reflecting strong operational performance[410] - Net cash used in financing activities was $731.0 million for the year ended December 31, 2018, primarily due to debt repayments and dividend payments to Brookfield[422] - The company expects to continue debt repayments of approximately $125 million in future quarters of 2019[400] - The company declared a cash dividend of $160 million payable to Brookfield, contingent upon meeting specific financial ratios and conditions, which were satisfied, and the dividend was paid on May 8, 2018[395] Debt and Credit Agreements - The company entered into an amendment to its 2018 Credit Agreement, increasing the aggregate principal amount of term loans from $1,500 million to $2,250 million, with the Incremental Term Loans maturing on February 12, 2025[395] - The 2018 Credit Agreement established a $1,500 million senior secured term facility and a $250 million senior secured revolving credit facility[433] - The 2018 Term Loans amortize at a rate of 5% per annum, with the remainder due at maturity on February 12, 2025[441] - As of December 31, 2018, all of the Company's debt was based on variable interest rates, compared to 83% being fixed or zero interest rate obligations as of December 31, 2017[449] Environmental and Capital Expenditures - Environmental protection expenses increased to $12.355 million in 2018 from $7.973 million in 2017, reflecting a commitment to environmental standards[456] - Capital expenditures for the year ended December 31, 2018, amounted to $68.2 million, contributing to the net cash used in investing activities of $67.3 million[418] - Capital expenditures related to environmental protection rose to $4.080 million in 2018, up from $2.080 million in 2017[456] Accounting Changes - Revenue recognition is based on ASC 606, with revenue recognized when control of goods is transferred to customers, primarily through three- to five-year take-or-pay contracts[467][470] - The adoption of ASU 2016-15 on January 1, 2018 did not have a material impact on the consolidated financial statements[474] - The adoption of ASU No. 2017-07 on January 1, 2018 changed the presentation of benefit expenses but did not have a material impact on the consolidated financial statements[475] - The company anticipates additional assets and liabilities of approximately $10 million to be recorded due to the adoption of ASU No. 2016-02 on January 1, 2019[479] - The adoption of ASU No. 2017-04 on January 1, 2020 is not expected to have a material effect on the company's financial position or results of operations[480]