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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The following table summarizes the U.S. and non-U.S. components of income before provision for income taxes:
For the Year Ended December 31,
 202120202019
 (Dollars in thousands)
U.S.$(69,087)$51,672 $85,365 
Non-U.S.525,493 458,373 757,462 
Income before provision for income taxes$456,406 $510,045 $842,827 
 
Provision for income taxes consists of the following:
 For the Year Ended December 31,
 202120202019
 
U.S. income taxes:
Current$645 $(7,660)$16,589 
Deferred2,132 27,822 5,690 
2,777 20,162 22,279 
Non-U.S. income taxes:
Current71,088 63,092 64,134 
Deferred(5,789)(7,583)11,812 
65,299 55,509 75,946 
Provision for income taxes$68,076 $75,671 $98,225 
Provision for income taxes in 2021 was $68.1 million on income before taxes of $456.4 million. In 2020, provision for income taxes was $75.7 million on income before taxes of $510.0 million, and in 2019, provision for income taxes was $98.2 million on income before taxes of $842.8 million. The change in tax expense from year to year is primarily due to the reduction in pre-tax income, the mix of worldwide earnings from various countries taxed at different rates and the U.S. taxation of GILTI. The years 2019 and 2021 also included the partial release of a valuation allowance recorded against the deferred tax asset related to certain foreign, U.S. federal and state tax attributes.
Provision for income taxes differed from the amount computed by applying the U.S. federal income tax rate of 21% for the years ended December 31, 2021, 2020 and 2019 to income before the provision for income taxes as set forth in the following table:
For the Year Ended December 31,
 202120202019
 (Dollars in thousands)
Tax at statutory U.S. federal rate$95,845 $107,109 $176,994 
Impact of U.S. Tax Cuts and Jobs Act of 2017 - GILTI51,016 45,539 65,531 
Impact of Tax Receivable Agreement49 (4,429)713 
Valuation allowance(2,208)(980)(14,548)
State taxes, net of federal tax benefit1,414 3,591 4,231 
U.S. tax impact of foreign earnings (net of foreign tax credits)537 2,113 2,181 
Establishment/resolution of uncertain tax positions(48)(78)(1,293)
Adjustment for foreign income taxed at different rates(38,530)(38,464)(76,922)
Foreign tax credits(43,821)(37,280)(56,171)
Change-in-Control-related compensation10,626 — — 
Other(6,804)(1,450)(2,491)
Provision for income taxes$68,076 $75,671 $98,225 
    
The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are set forth in the following table:
 As of December 31,
 20212020
 (Dollars in thousands)
Deferred tax assets:
Post-employment and other employee benefits$17,375 $18,202 
Foreign tax credit and other carryforwards32,452 37,101 
Capitalized research and experimental costs1,935 3,897 
Environmental reserves1,133 1,111 
Inventory adjustments10,545 7,381 
Long-term contract option amortization982 1,031 
Provision for rationalization charges71 96 
Mark-to-market hedges— 3,552 
Previously taxed income5,229 2,163 
Other2,175 1,483 
Total gross deferred tax assets71,897 76,017 
Less: valuation allowance(10,550)(12,773)
Total deferred tax assets61,347 63,244 
Deferred tax liabilities:
Fixed assets$51,595 $54,485 
Inventory8,834 8,573 
Goodwill and acquired intangibles9,502 7,552 
Mark-to-market hedges2,824 — 
Other3,079 3,254 
Total deferred tax liabilities75,834 73,864 
Net deferred tax (liability) $(14,487)$(10,620)
Net deferred tax assets are separately stated as deferred income taxes in the amount of $61.3 million as of December 31, 2021 and $63.2 million as of December 31, 2020. Net deferred tax liabilities are separately stated as deferred income taxes in the amount of $75.8 million at December 31, 2021 and $73.9 million at December 31, 2020.
At each reporting period, we assess the need for valuation allowances against deferred tax assets based on determinations of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Examples of positive evidence would include a strong earnings history, an event or events that would increase our taxable income through a continued reduction of expenses, and tax planning strategies that would indicate an ability to realize deferred tax assets. Examples of negative evidence would include cumulative losses in recent years and history of tax attributes expiring unused. In circumstances where the significant positive evidence does not outweigh the negative evidence in our assessment, we have established and maintained valuation allowances on those net deferred tax assets. However, the recognition of the valuation allowance does not result in or limit the Company's ability to utilize these tax assets in the future.
Valuation allowance activity for the years ended December 31, 2021, 2020 and 2019 is as follows:
(Dollars in thousands)
Balance as of December 31, 2018$58,446 
Credited to income(14,548)
Changes attributable to write-off of underlying assets(30,138)
Translation adjustment(24)
Balance as of December 31, 2019
$13,736 
Credited to income(980)
Translation adjustment 17 
Balance as of December 31, 2020
$12,773 
Credited to income(2,208)
Translation adjustment(15)
Balance as of December 31, 2021
$10,550 
During 2018, we determined that sufficient positive evidence existed that allowed us to conclude that a full valuation allowance was no longer required to be recorded against the deferred tax assets related the U.S. tax attributes. This positive evidence was primarily supplied by the Company exiting a cumulative loss period in the United States as well as sufficient U.S. current and forecasted taxable income that would utilize the U.S. tax attributes. As a result, a partial release (to reflect only the economic benefit of the attributes) of the valuation allowance against federal net operating losses and state losses was recorded in 2018, while a full release of the valuation allowance against the federal foreign tax credit carryforward, other federal deferred tax assets was also recorded. A valuation allowance of $35.8 million is included in the December 31, 2018 balance reflected above as there was not sufficient positive evidence that the deferred tax asset related to the U.S. federal net operating loss would generate more than its estimated economic benefit. This valuation allowance and the related deferred tax asset were subsequently released to the income statement in 2019. In 2020, the reduction in the valuation allowance resulted primarily from expirations of NOLs upon which a valuation allowance was previously recorded. In 2021, the decrease in valuation allowance was mainly attributable to changes in expected future utilization, state law changes and expiration of U.S. state NOL carryforward during the year.
As of December 31, 2021, we have a total foreign tax credit carryforward of $13.1 million. These tax credit carryforwards begin to expire in 2027. In addition, we have state net operating loss carryforwards of $239.6 million (net of federal benefit), which can be carried forward from five to 20 years. These state net operating loss carryforwards result in a deferred tax asset of $14.3 million as of December 31, 2021. We also have U.S. state tax credits of $0.1 million as of December 31, 2021. Our foreign loss carryforwards on a gross basis are $6.8 million and may be carried forward indefinitely.
As of December 31, 2021, we had unrecognized tax benefits of $0.1 million, which, if recognized, would have a favorable impact on our effective tax rate. No material amounts of accrued interest or penalties have been recorded as of December 31, 2021 or 2020. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(Dollars in thousands)
Balance as of December 31, 2019
$184 
   Settlements(75)
   Foreign currency impact16 
Balance as of December 31, 2020
$125 
   Lapse of statutes of limitations(45)
   Foreign currency impact(7)
Balance as of December 31, 2021
$73 
    It is reasonably possible that a reduction of unrecognized tax benefits of up to $0.1 million may occur within 12 months due to settlements and the expiration of statutes of limitation.
    We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. All U.S. federal tax years prior to 2018 are generally closed by statute or have been audited and settled with the applicable domestic tax authorities. Other jurisdictions are generally closed for years prior to 2016.
    As of December 31, 2021, the Company has accumulated undistributed earnings generated by our foreign subsidiaries of approximately $1.2 billion. Because $1.1 billion of such earnings have previously been subject to taxation by way of the transition tax on foreign earnings required by the Tax Cuts and Jobs Act of 2017, as well as the current and previous years’ GILTI inclusion, any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign withholding and state taxes. We intend, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.
GrafTech has considered the tax impact of COVID-19 legislation, including the American Rescue Plan Act, and has concluded that there is no material tax impact. The Company continues to monitor the tax effects of any legislative changes.