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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income before the provision for income taxes was derived from the following sources:
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
| (Dollars in thousands)
U.S. | $ | 55,107 |  |  | $ | (69,087) |  |  | $ | 51,672 |
Foreign | 397,211 |  |  | 525,493 |  |  | 458,373 |
Income before provision for income taxes | $ | 452,318 |  |  | $ | 456,406 |  |  | $ | 510,045 |
The provision for income taxes consists of the following:
| Year Ended December 31, |
| 2022 |  | 2021 |  | 2020
| (Dollars in thousands) |
U.S. income taxes: |  |  |  |  |  |
Current | $ | 3,590 |  |  | $ | 645 |  |  | $ | (7,660) |  |
Deferred | 13,302 |  |  | 2,132 |  |  | 27,822 |  |
| 16,892 |  |  | 2,777 |  |  | 20,162 |  |
Foreign income taxes: |  |  |  |  |  |
Current | 48,744 |  |  | 71,088 |  |  | 63,092 |  |
Deferred | 3,720 |  |  | (5,789) |  |  | (7,583) |  |
| 52,464 |  |  | 65,299 |  |  | 55,509 |  |
Provision for income taxes | $ | 69,356 |  |  | $ | 68,076 |  |  | $ | 75,671 |  |
The increase in the provision for income taxes in 2022 versus 2021 is primarily due to the mix of worldwide earnings from various countries taxed at different rates and the U.S. taxation of GILTI, partially offset by the reduction in pre-tax income. The 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, 2022, 2021 and 2020 to income before the provision for income taxes as set forth in the following table:
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
| (Dollars in thousands)
Tax at statutory U.S. federal rate | $ | 94,987 |  |  | $ | 95,845 |  |  | $ | 107,109 |
Impact of U.S. Tax Cuts and Jobs Act of 2017 - GILTI | 38,153 |  |  | 51,016 |  |  | 45,539 |
Impact of Tax Receivable Agreement | (39) |  |  | 49 |  |  | (4,429) |
Valuation allowance | (1,259) |  |  | (2,208) |  |  | (980) |
State taxes, net of federal tax benefit | 2,182 |  |  | 1,414 |  |  | 3,591 |
U.S. tax impact of foreign earnings (net of foreign tax credits) | 348 |  |  | 537 |  |  | 2,113 |
Establishment/resolution of uncertain tax positions | (40) |  |  | (48) |  |  | (78) |
Adjustment for foreign income taxed at different rates | (25,656) |  |  | (38,530) |  |  | (38,464) |
Foreign tax credits | (34,264) |  |  | (43,821) |  |  | (37,280) |
Change-in-Control-related compensation | (1,432) |  |  | 10,626 |  |  | — |
Other | (3,624) |  |  | (6,804) |  |  | (1,450) |
Provision for income taxes | $ | 69,356 |  |  | $ | 68,076 |  |  | $ | 75,671 |
The tax effects of temporary differences that give rise to significant components of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are set forth in the following table:
| December 31,
| 2022 |  | 2021
| (Dollars in thousands)
Deferred tax assets: |  |  |
Post-employment and other employee benefits | $ | 15,088 |  |  | $ | 17,375 |
Foreign tax credit and other carryforwards | 25,856 |  |  | 32,452 |
Capitalized research and experimental costs | 736 |  |  | 1,935 |
Environmental reserves | 1,040 |  |  | 1,133 |
Inventory adjustments | 5,767 |  |  | 10,545 |
Long-term contract option amortization | 934 |  |  | 982 |
Previously taxed income | 8,304 |  |  | 5,229 |
Other | 2,695 |  |  | 2,246 |
Total gross deferred tax assets | 60,420 |  |  | 71,897 |
Less: valuation allowance | (9,269) |  |  | (10,550) |
Total deferred tax assets | 51,151 |  |  | 61,347 |
Deferred tax liabilities: |  |  |
Fixed assets | $ | 51,410 |  |  | $ | 51,595 |
Inventory | 14,649 |  |  | 8,834 |
Goodwill and acquired intangibles | 10,089 |  |  | 9,502 |
Mark-to-market hedges | 3,903 |  |  | 2,824 |
Other | 4,205 |  |  | 3,079 |
Total deferred tax liabilities | 84,256 |  |  | 75,834 |
Net deferred tax liability | $ | (33,105) |  |  | $ | (14,487) |
At each reporting period, the Company assesses the need for valuation allowances against deferred tax assets and whether it is more likely than not that deferred tax benefits will be realized in each jurisdiction. Consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Examples of positive evidence include a strong earnings history, an event or events that would increase the Company's taxable income or reduce expenses, or tax planning strategies that would create the ability to realize deferred tax assets. Examples of negative evidence include cumulative losses in recent years or a history of tax attributes expiring unused. In circumstances where the negative evidence outweighs the positive evidence, the Company has established or maintained valuation allowances on the jurisdiction’s net deferred tax assets. However, the recognition of the valuation allowance does not limit the Company's ability to utilize these tax assets on a tax return in the future should taxable income be realized in sufficient amount to realize the assets. Valuation allowance activity for the years ended December 31, 2022, 2021 and 2020 is as follows:
| (Dollars in thousands)
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 |
Credited to income | (1,259) |
Translation adjustment | (22) |
Balance as of December 31, 2022 | $ | 9,269 |
The decrease in the valuation allowance in 2022 was primarily attributable to changes in expected future utilization, state law changes and expiration of U.S. state NOL carryforwards during the year. The reduction in the valuation allowance in 2021 resulted primarily from expirations of NOL carryforwards upon which a valuation allowance was previously recorded. As of December 31, 2022, the Company had a total foreign tax credit carryforward of $6.9 million. These tax credit carryforwards begin to expire in 2027. In addition, the Company had state NOL carryforwards of $163.8 million (net of federal benefit), which can be carried forward from five to 20 years. These state NOL carryforwards resulted in a deferred tax asset of $12.2 million as of December 31, 2022. The Company also has U.S. state tax credits of $0.1 million as of December 31, 2022. The Company's foreign loss carryforwards on a gross basis were $6.8 million as of December 31, 2022 and may be carried forward indefinitely. As of December 31, 2022, the Company had unrecognized tax benefits of $0.1 million, which, if recognized, would have a favorable impact on the effective tax rate. No material amounts of accrued interest or penalties have been recorded as of December 31, 2022 or 2021. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (Dollars in thousands)
Balance as of December 31, 2020 | $ | 125 |
Lapse of statute of limitations | (45) |
Foreign currency impact | (7) |
Balance as of December 31, 2021 | $ | 73 |
Lapse of statute of limitations | (40) |
Foreign currency impact | 3 |
Balance as of December 31, 2022 | $ | 36 |
It is reasonably possible that there will be no more unrecognized tax benefits within 12 months due to settlements and the expiration of statutes of limitation. The Company files 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 2017. As of December 31, 2022, the Company has accumulated undistributed earnings generated by its 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 GrafTech's foreign investments would generally be limited to foreign withholding and state taxes. The Company intends, however, to indefinitely reinvest these earnings and expect future U.S. cash generation to be sufficient to meet future U.S. cash needs.

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