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INCOME TAXES | 12 Months Ended
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Sep. 30, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES On December 22, 2017, the "Tax Cuts and Jobs Act" ("TCJA") was signed into law, significantly impacting several sections of the Internal Revenue Code. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. Though certain key aspects of the TCJA were effective January 1, 2018 and had an immediate accounting effect, other significant provisions were not effective or did not result in accounting effects for September 30 fiscal year companies until October 1, 2018. Among the significant changes to the U.S. Internal Revenue Code, the TCJA reduced the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company computed its income tax expense for the September 30, 2018 fiscal year using a blended Federal Tax Rate of 24.5%. The 21% Federal Tax Rate applies to the fiscal year ended September 30, 2019 and each year thereafter. In accordance with U.S. GAAP for income taxes, as well as SAB 118, the Company made a reasonable estimate of the impacts of the TCJA for the year ended September 30, 2018 and recorded a $20,587 benefit on the revaluation of deferred tax liabilities as a provisional amount for the re-measurement of deferred tax assets and liabilities, as well as an amount for deductible executive compensation expense, both of which have been reflected in the tax provision for 2018. SAB 118 allows for a measurement period of up to one year from the date of enactment to complete the Company’s accounting for the impacts of the TCJA. Our analysis under SAB 118 was completed in December 2018 and resulted in no material adjustments to the provision amounts recorded as of September 30, 2018. The TCJA requires companies to pay a one-time transition tax on mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits (“E&P”). The Company has recorded a provisional transition tax charge of $13,100 net of foreign tax credits for fiscal year 2018. The Company ultimately incurred a transition tax charge of $12,699. Under the TCJA, the Company elected to pay the transition tax interest-free over eight years. The TCJA makes broad and complex changes to the U.S. tax code that affect our fiscal year ended September 30, 2019, including but not limited to: (1) creating the base erosion anti-abuse tax measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries; (2) creating a new provision designed to tax global intangible low-tax income (“GILTI”) of foreign subsidiaries; and (3) a foreign derived intangible income. We have estimated the impact of these changes in our income tax provision for 2019. The GILTI provision of the TCJA requires the Company to include in its U.S. Income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. An accounting policy election is available to account for the tax effects of GILTI either as a current period expense when incurred, or to recognize deferred taxes for book and tax basis differences expected to reverse as GILTI in future years. We have elected to account for the tax effects of GILTI as a current period expense when incurred. Income taxes have been based on the following components of Income before taxes from continuing operations:
| For the Years Ended September 30,
| 2019 |  | 2018 |  | 2017
Domestic | $ | 49,723 |  |  | $ | 4,942 |  |  | $ | (1,339 | )
Non-U.S. | 22,455 |  |  | 28,868 |  |  | 18,037 |
| $ | 72,178 |  |  | $ | 33,810 |  |  | $ | 16,698 |
Provision (benefit) for income taxes on income was comprised of the following from continuing operations:
| For the Years Ended September 30,
| 2019 |  | 2018 |  | 2017
Current | $ | 28,778 |  |  | $ | 18,188 |  |  | $ | (3,426 | )
Deferred | (2,222 | ) |  | (17,633 | ) |  | 2,341 |
Total | $ | 26,556 |  |  | $ | 555 |  |  | $ | (1,085 | )
U.S. Federal | $ | 14,160 |  |  | $ | (12,714 | ) |  | $ | (6,689 | )
State and local | 6,187 |  |  | 5,175 |  |  | 3,307 |
Non-U.S. | 6,209 |  |  | 8,094 |  |  | 2,297 |
Total provision | $ | 26,556 |  |  | $ | 555 |  |  | $ | (1,085 | )
Griffon's income tax provision from the excess tax benefits from vesting of equity awards to be recognized within income tax expense in 2019 totaled $304, compared to income tax benefits in 2018 and 2017 of $1,299 and $4,440, respectively. Griffon’s income tax provision included benefits of $576, $421 and $122 in 2019, 2018 and 2017, respectively, reflecting the reversal of previously recorded tax liabilities including the resolution of various tax audits and the closing of certain statutes for prior years’ tax returns. Differences between the effective income tax rate applied to Income and the U.S. Federal income statutory rate from continuing operations were as follows:
| For the Years Ended September 30,
| 2019 |  | 2018 |  | 2017
U.S. Federal income tax provision (benefit) rate | 21.0 | % |  | 24.5 | % |  | 35.0 | %
State and local taxes, net of Federal benefit | 6.6 | % |  | 10.2 | % |  | 12.4 | %
Non-U.S. taxes - foreign permanent items and taxes | 2.0 | % |  | 3.6 | % |  | (12.4 | )%
Non-U.S. tax true-up | — | % |  | — | % |  | (11.4 | )%
Change in domestic manufacturing deduction | 0.7 | % |  | — | % |  | (5.8 | )%
Change in tax contingency reserves | (0.7 | )% |  | (0.6 | )% |  | 0.7 | %
Impact of federal rate change on deferred tax balances | — | % |  | (60.0 | )% |  | — | %
Tax Reform-Repatriation of Foreign Earnings and GILTI | 1.0 | % |  | 61.6 | % |  | — | %
Change in valuation allowance | 3.3 | % |  | 13.4 | % |  | (0.6 | )%
Other non-deductible/non-taxable items, net | 3.1 | % |  | (5.2 | )% |  | 7.6 | %
Non-deductible officer's compensation | 5.2 | % |  | 6.4 | % |  | 0.7 | %
Research and U.S. foreign tax credits | (4.7 | )% |  | (39.4 | )% |  | (3.6 | )%
Share based compensation | 0.4 | % |  | (3.8 | )% |  | (26.6 | )%
Other | (1.1 | )% |  | (9.1 | )% |  | (2.5 | )%
Effective tax provision (benefit) rate | 36.8 | % |  | 1.6 | % |  | (6.5 | )%
The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows:
| At September 30,
| 2019 |  | 2018
Deferred tax assets: |  |  |  |  |
Bad debt reserves | $ | 1,980 |  |  | $ | 1,404 |
Inventory reserves | 8,361 |  |  | 7,709 |
Deferred compensation (equity compensation and defined benefit plans) | 16,544 |  |  | 11,437 |
Compensation benefits | 5,186 |  |  | 5,434 |
Insurance reserve | 1,873 |  |  | 1,782 |
Warranty reserve | 2,896 |  |  | 2,598 |
Net operating loss | 11,077 |  |  | 10,593 |
Tax credits | 9,373 |  |  | 6,379 |
Capital loss carryback | 2,000 |  |  | — |
Interest | 5,250 |  |  | — |
Other reserves and accruals | 3,738 |  |  | 5,433 |
| 68,278 |  |  | 52,769 |
Valuation allowance | (10,823 | ) |  | (8,520 | )
Total deferred tax assets | 57,455 |  |  | 44,249 |
Deferred tax liabilities: |  |  |  |  |
Goodwill and intangibles | (42,477 | ) |  | (44,402 | )
Property, plant and equipment | (43,996 | ) |  | (39,260 | )
Other | (1,096 | ) |  | (1,086 | )
Total deferred tax liabilities | (87,569 | ) |  | (84,748 | )
Net deferred tax liabilities | $ | (30,114 | ) |  | $ | (40,499 | )
In 2019, the increase in the valuation allowance of $2,302 is primarily the result of the generation and usage or non-usage of Foreign Tax Credit generated during the year. The components of the net deferred tax liability, by balance sheet account, were as follows:
| At September 30,
| 2019 |  | 2018
Other assets | $ | 137 |  |  | $ | 61 |
Other liabilities | (31,141 | ) |  | (42,689 | )
Liabilities of discontinued operations | 890 |  |  | 2,129 |
Net deferred liability | $ | (30,114 | ) |  | $ | (40,499 | )
At both September 30, 2019 and 2018, Griffon has a policy election to indefinitely reinvest the undistributed earnings of foreign subsidiaries with operations outside the U.S. As of September 30, 2019, we have approximately $83,002 of unremitted earnings of non-U.S. subsidiaries. The Company generates substantial cash flow in the U.S. and does not have a current need for the cash to be returned to the U.S. from the foreign entities. In the event these earnings are later remitted to the U.S., any estimated withholding tax on remittance of those earnings is expected to be immaterial to the income tax provision. At September 30, 2019 and 2018, Griffon had loss carryforwards for U.S. tax purposes of $5,419 and $6,089, respectively, and non-U.S. tax purposes of $7,413 and $7,319, respectively. The U.S. losses expire beginning in 2033. The non-U.S. loss carryforwards are available for carryforward indefinitely. At September 30, 2019, Griffon had interest expense carryforwards for U.S. tax purposes of $25,000. This carryforward is available for carryforward indefinitely. At September 30, 2019 and 2018, Griffon had state and local loss carryforwards of $127,354 and $124,442, respectively, which expire in varying amounts through 2039. At September 30, 2019 and 2018, Griffon had federal tax credit carryforwards of $8,948 and $5,740, respectively, which expire in varying amounts through 2035. At September 30, 2019, Griffon had capital loss carryover for U.S. tax purposes of $9,524. The carryover is available for three-year carryback or five-year carryforward. We believe it is more likely than not that the benefit from certain federal tax credits, state net operating losses and credits, and foreign net operating losses will not be realized. In recognition of this risk, we have provided a valuation allowance as of September 30, 2019 and 2018 of $10,823 and $8,520, respectively, on the deferred tax assets relating to these federal credits, state net operating loss carryforwards and credits, and foreign net operating losses. If our assumptions change and we determine we will be able to realize these federal credits, state net operating loss carryforwards or credits, or foreign net operating losses, the benefits relating to the reversal of the valuation allowance will be recognized as a reduction of income tax expense. If certain substantial changes in Griffon's ownership occur, there would be an annual limitation on the amount of carryforward(s) that can be utilized. Griffon files U.S. Federal, state and local tax returns, as well as applicable returns in Canada, Australia, U.K. and other non-U.S. jurisdictions. Griffon’s U.S. Federal income tax returns are no longer subject to income tax examination for years before 2014. Griffon's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2012. Various U.S. state and non-U.S. statutory tax audits are currently underway. The following is a roll forward of unrecognized tax benefits:
Balance at September 30, 2017 | $ | 4,825 |
Additions based on tax positions related to the current year | 152 |
Additions based on tax positions related to prior years | (253 | )
Reductions based on tax positions related to prior years | 26 |
Lapse of Statutes | (194 | )
Settlements | (37 | )
Balance at September 30, 2018 | 4,519 |
Additions based on tax positions related to the current year | 117 |
Additions based on tax positions related to prior years | (559 | )
Lapse of Statutes | (16 | )
Balance at September 30, 2019 | $ | 4,061 |
If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $790. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2019 and 2018, the combined amount of accrued interest and penalties related to tax positions taken or to be taken on Griffon’s tax returns and recorded as part of the reserves for uncertain tax positions was $66 and $122, respectively. Griffon cannot reasonably estimate the extent to which existing liabilities for uncertain tax positions may increase or decrease within the next twelve months as a result of the progression of ongoing tax audits or other events. Griffon believes that it has adequately provided for all open tax years by tax jurisdiction.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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