On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“TCJA”), which significantly changed U.S. tax law. The TCJA lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income. The TCJA also created a new minimum tax on certain foreign earnings, for which the Company has elected to record as a current period expense when incurred.

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 Company 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 and at September 30, 2020 has $8,344 remaining on this liability.

During fiscal 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. The Company evaluated the impact of the legislation and determined that while there was an impact on the timing of certain tax payments, there is no material impact on the Company’s consolidated financial statements or related disclosures



	For the Years Ended September 30,
	2020		2019			2018
Current	$	27,233	$	28,778		$	18,188
Deferred	2,095		(2,222		)	(17,633		)
Total	$	29,328	$	26,556		$	555
U.S. Federal	$	10,978	$	14,160		$	(12,714	)
State and local	7,331		6,187			5,175
Non-U.S.	11,019		6,209			8,094
Total provision	$	29,328	$	26,556		$	555



	For the Years Ended September 30,
	2020		2019		2018
U.S. Federal income tax provision (benefit) rate	21.0	%	21.0	%	24.5	%
State and local taxes, net of Federal benefit	6.0	%	6.6	%	10.2	%
Non-U.S. taxes - foreign permanent items and taxes	3.3	%	2.0	%	3.6	%
Change in tax contingency reserves	0.1	%	(0.7	)%	(0.6	)%
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	(1.5	)%	3.3	%	13.4	%
Other non-deductible/non-taxable items, net	1.4	%	3.1	%	(5.2	)%
Non-deductible officer's compensation	4.4	%	5.2	%	6.4	%
Research and U.S. foreign tax credits	1.4	%	(4.7	)%	(39.4	)%
Share based compensation	—	%	0.4	%	(3.8	)%
Other	(0.7	)%	(0.4	)%	(9.1	)%
Effective tax provision (benefit) rate	35.4	%	36.8	%	1.6	%



	At September 30,
	2020			2019
Deferred tax assets:
Bad debt reserves	$	3,980		$	1,980
Inventory reserves	9,371			8,361
Deferred compensation (equity compensation and defined benefit plans)	18,904			16,544
Compensation benefits	5,499			5,186
Insurance reserve	1,918			1,873
Warranty reserve	3,981			2,896
Lease liabilities	43,045			—
Net operating loss	9,618			11,077
Tax credits	7,031			9,373
Capital loss carryback	2,205			2,000
Interest	—			5,250
Other reserves and accruals	6,094			3,738
	111,646			68,278
Valuation allowance	(9,824		)	(10,823		)
Total deferred tax assets	101,822			57,455
Deferred tax liabilities:
Goodwill and intangibles	(44,051		)	(42,477		)
Property, plant and equipment	(48,172		)	(43,996		)
Right-of-use assets	(41,747		)	—
Other	(634		)	(1,096		)
Total deferred tax liabilities	(134,604		)	(87,569		)
Net deferred tax liabilities	$	(32,782	)	$	(30,114	)

During the year ended September 30, 2020, the Company adopted ASU 2016-02 relating to Leases (Topic 842). Deferred tax assets and liabilities were recorded relating to the lease liabilities and the right of use assets recognized under this new standard. The Company adopted this update under the modified retrospective approach which required no adjustment to a prior period. At September 30, 2020 the corresponding deferred tax asset and liabilities were $43,045 and $41,747, respectively.

In 2020, the decrease in the valuation allowance of $999 is primarily the result of the expiration of foreign tax credits, partially offset by the generation and usage or non-usage of foreign tax credit generated during the year.



	At September 30,
	2020			2019
Other assets	$	614		$	137
Other liabilities	(34,008		)	(31,141		)
Liabilities of discontinued operations	612			890
Net deferred liability	$	(32,782	)	$	(30,114	)

At both September 30, 2020 and 2019, Griffon has a policy election to indefinitely reinvest the undistributed earnings of foreign subsidiaries with operations outside the U.S. As of September 30, 2020, we have approximately $100,102 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, 2020, Griffon had no loss carryforwards for U.S. tax purposes and $9,671 for non-U.S. tax purposes. At September 30, 2019, Griffon had loss carryforwards for U.S. and non-U.S tax purposes of $5,419 and $7,413, respectively. The non-U.S. loss carryforwards are available for carryforward indefinitely.

At September 30, 2020 and 2019, Griffon had interest expense carryforwards of $0 and $25,000, respectively. The interest expense carryforward was utilized in September 30, 2020.

At September 30, 2020 and 2019, Griffon had capital loss carryovers for U.S. tax purposes of $10,500 and $9,524, respectively, generated in the September 30, 2019 tax year. 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 and state tax attributes will not be realized. In recognition of this risk, we have provided a valuation allowance as of September 30, 2020 and 2019 of $9,824 and $10,823, respectively, on the deferred tax assets. As it becomes probable that the benefits of these attributes will be realized, the reversal of valuation allowance will be recognized as a reduction of income tax expense.

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 2015. Griffon's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2013. Various U.S. state and statutory tax audits are currently underway.



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
Additions based on tax positions related to the current year	125
Additions based on tax positions related to prior years	20
Reductions based on tax positions related to prior years	(3		)
Lapse of Statutes	(23		)
Balance at September 30, 2020	$	4,180

If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $909. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2020 and 2019, 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 $77 and $66, 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.