INCOME TAXES

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income taxes have been based on the following components of Income before taxes from continuing operations:

	For the Years Ended September 30,
	2021		2020		2019
Domestic	$	57,059	$	28,530	$	23,437
Non-U.S.	54,120		40,175		22,786
	$	111,179	$	68,705	$	46,223

Provision (benefit) for income taxes on income was comprised of the following from continuing operations:

	For the Years Ended September 30,
	2021		2020		2019
Current	$	26,177	$	24,140	$	26,218
Deferred	13,763		2,122		(5,465)
Total	$	39,940	$	26,262	$	20,753
U.S. Federal	$	14,577	$	7,897	$	8,973
State and local	7,132		7,223		5,499
Non-U.S.	18,231		11,142		6,281
Total provision	$	39,940	$	26,262	$	20,753

Differences between the effective income tax rate applied to Income before taxes from continuing operations and the U.S. Federal income statutory rate were as follows:

	For the Years Ended September 30,
	2021		2020		2019
U.S. Federal income tax provision rate	21.0	%	21.0	%	21.0	%
State and local taxes, net of Federal benefit	4.7	%	7.8	%	9.1	%
Non-U.S. taxes - foreign permanent items and taxes	3.0	%	4.2	%	3.1	%
Change in tax contingency reserves	0.2	%	0.2	%	(1.1)	%
Impact of foreign rate change on deferred tax balances	2.8	%	—	%	—	%
Tax Reform-Repatriation of Foreign Earnings and GILTI	0.4	%	0.3	%	1.6	%
Change in valuation allowance	0.4	%	(2.6)	%	5.0	%
Other non-deductible/non-taxable items, net	0.4	%	1.3	%	5.9	%
Non-deductible officer's compensation	4.0	%	5.4	%	8.2	%
Research and U.S. foreign tax credits	(0.1)	%	1.4	%	(6.4)	%
Share based compensation	(2.0)	%	—	%	0.6	%
Other	1.1	%	(0.8)	%	(2.1)	%
Effective tax provision (benefit) rate	35.9	%	38.2	%	44.9	%

The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows:

	At September 30,
	2021		2020
Deferred tax assets:
Bad debt reserves	$	2,066	$	3,980
Inventory reserves	11,298		9,371
Deferred compensation (equity compensation and defined benefit plans)	10,598		18,904
Compensation benefits	5,269		5,499
Insurance reserve	2,183		1,918
Warranty reserve	3,761		3,981
Lease liabilities	39,378		43,045
Net operating loss	10,706		9,618
Tax credits	7,198		7,031
Capital loss carryback	2,533		2,205
Other reserves and accruals	7,474		6,094
	102,464		111,646
Valuation allowance	(10,425)		(9,824)
Total deferred tax assets	92,039		101,822
Deferred tax liabilities:
Goodwill and intangibles	(46,585)		(44,051)
Property, plant and equipment	(53,817)		(48,172)
Right-of-use assets	(38,511)		(41,747)
Other	(1,232)		(634)
Total deferred tax liabilities	(140,145)		(134,604)
Net deferred tax liabilities	$	(48,106)	$	(32,782)

The components of the net deferred tax liability, by balance sheet account, were as follows:

	At September 30,
	2021		2020
Other assets	$	323	$	614
Other liabilities	(49,289)		(34,356)
Liabilities of discontinued operations	860		960
Net deferred liability	$	(48,106)	$	(32,782)

In 2021, the increase in the valuation allowance of $601 is primarily the result of foreign net operating losses and generation of state tax credits which will not be recognized, partially offset by the expiration of foreign tax credits during the year. In 2020, the decrease in valuation allowance of $999 is primarily due to the expiration of foreign tax credits during the year.

At both September 30, 2021 and 2020, Griffon has a policy election to indefinitely reinvest the undistributed earnings of foreign subsidiaries with operations outside the U.S. As of September 30, 2021, we have approximately $143,058 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. The Company continues to reinvest the undistributed earnings of its foreign subsidiaries and may be subject to additional foreign withholding taxes and U.S. state income taxes if it reverses its indefinite reinvestment assertion in the future. Outside basis differences were impractical to account for at this time and are currently considered as being permanent in duration.

At September 30, 2021, Griffon had no loss carryforwards for U.S. tax purposes and $8,332 for non-U.S. tax purposes. At September 30, 2020, Griffon had no loss carryforwards for U.S. tax purposes and $9,671 for non-U.S. tax purposes. The non-U.S. loss carryforwards expire in varying amounts beginning in 2027 to indefinite carryfoward.

At September 30, 2021 and 2020, Griffon had state and local loss carryforwards of $139,894 and $124,191, respectively, which expire in varying amounts through 2040.

At September 30, 2021 and 2020, Griffon had federal tax credit carryforwards of $5,933 and $5,954, respectively, which expire in varying amounts through 2035.

At September 30, 2021 and 2020, Griffon had capital loss carryovers for U.S. tax purposes of $10,327 and $10,500, respectively, which expire in varying amounts through 2026. The losses were generated in September 30, 2021 and September 30, 2019 tax years. The carryovers are available for three-year carryback or five-year carryforward periods.

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, 2021 and 2020 of $10,425 and $9,824, 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.

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 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.

The following is a roll forward of unrecognized tax benefits:

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
Additions based on tax positions related to the current year	180
Additions based on tax positions related to prior years	24
Lapse of Statutes	(7)
Settlements	—
Balance at September 30, 2021	$	4,377

If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $1,106. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2021 and 2020, 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 $100 and $77, 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.