INCOME TAXES

12 Months Ended

Sep. 30, 2011

Income Tax Disclosure [Text Block]

NOTE 12 – INCOME TAXES

Income taxes have been based on the following components of Income before taxes and discontinued operations:

	For the Years Ended September 30,
	2011			2010		2009
Domestic	$	(17,869	)	$	7,360	$	10,260
Non-U.S.		3,520			6,452		9,345
	$	(14,349	)	$	13,812	$	19,605

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

	For the Years Ended September 30,
	2011			2010			2009
Current	$	(4,169	)	$	7,974		$	4,831
Deferred		(2,749	)		(3,666	)		(3,144	)
Total	$	(6,918	)	$	4,308		$	1,687
U.S. Federal	$	(8,988	)	$	5,426		$	984
State and local		91			(1,795	)		1,543
Non-U.S.		1,979			677			(840	)
Total provision	$	(6,918	)	$	4,308		$	1,687

Griffon’s income tax provision (benefit) included benefits of ($733) in 2011, ($2,740) in 2010 and ($1,387) in 2009 reflecting the reversal of previously recorded tax liabilities primarily due to the resolution of various tax audits and due to the closing of certain statutes for prior years’ tax returns.

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

	For the Years Ended September 30,
	2011			2010			2009
U.S. Federal income tax rate		35.0	%		35.0	%		35.0	%
State and local taxes, net of Federal benefit		1.9			2.6			4.8
Non-U.S. taxes		(5.3	)		(11.3	)		(21.0	)
Acquisition costs		—			9.5			—
Reduction of tax contingency reserves		(2.2	)		(5.5	)		(1.0	)
Executive Compensation		(13.1	)		—			—
Non-U.S. dividends		—			—			4.3
Valuation allowance		27.2			—			(14.9	)
Meals and entertainment		(2.0	)		1.4			1.0
Research credits		5.4			—			—
Other		1.3			(0.5	)		0.4
Effective tax rate from continuing operations		48.2	%		31.2	%		8.6	%

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

	At September 30,
	2011			2010
Deferred tax assets:
Bad debt reserves	$	2,436		$	1,834
Inventory reserves		10,042			4,716
Deferred compensation		44,083			48,826
Compensation benefits		—			2,237
Insurance reserve		4,697			3,894
Restructuring reserve		342			619
Warranty reserve		3,617			3,185
Interest carryforward		3,942			—
Net operating loss		33,451			18,888
Tax credits		15,451			14,755
Other reserves and accruals		5,572			4,899
		123,633			103,853
Valuation allowance		(9,481	)		(13,977	)
Total deferred tax assets		114,152			89,876
Deferred tax liabilities:
Deferred income		(14,728	)		(16,619	)
Compensation benefits		(1,042	)		—
Goodwill and intangibles		(77,798	)		(77,099	)
Property, plant and equipment		(43,073	)		(29,120	)
Interest		(7,371	)		(8,687	)
Unremitted earnings		(13,258	)		(13,258	)
Other		(2,469	)		(2,825	)
Total deferred tax liabilities		(159,739	)		(147,608	)
Net deferred tax assets	$	(45,587	)	$	(57,732	)

The change in the valuation allowance relates to the benefit of foreign tax credits to offset the tax provision on future remittance of foreign earnings, partially offset by an increase in the valuation allowance for certain foreign tax attributes.

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

	At September 30,
	2011			2010
Prepaid and other current assets	$	17,412		$	10,897
Other assets		1,704			1
Current liabilities		(402	)		(4,719	)
Other liabilities		(65,042	)		(65,155	)
Assets of discontinued operations		741			1,244
Net deferred tax assets	$	(45,587	)	$	(57,732	)

Other than for the ATT pre-acquisition unremitted foreign earnings, Griffon has not recorded deferred income taxes on the undistributed earnings of its non-U.S. subsidiaries because of management’s ability and intent to indefinitely reinvest such earnings outside the U.S. At September 30, 2011, Griffon’s share of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately $68,011. It is not practical to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

Deferred income taxes on the undistributed earnings of non-U.S. subsidiaries have been recorded in the opening balance sheet for the ATT group of entities as these earnings were historically not indefinitely reinvested outside of the U.S.

At September 30, 2011 and 2010, Griffon had net operating loss carryforwards for federal tax purposes of $51,000 and $11,028, respectively, resulting from the acquisition of ATT and current year U.S. losses, and had loss carryforwards for non-U.S. tax purposes of $54,500 and $36,438, respectively. The U.S. loss carryforwards expire in 2027 and 2031, the non-U.S. loss carryforwards are available for carryforward indefinitely.

Griffon had State and local loss carryforwards at September 30, 2011 and 2010 of $5,900 and $5,400, respectively, which expire in varying amounts through 2031.

Griffon had foreign tax credit carryforwards of $13,291 and $11,188 at September 30, 2011 and 2010, respectively, which are available for use through 2020.

Griffon files U.S. Federal, state and local tax returns, as well as Germany, Canada, Brazil, Ireland, Australia, Mexico and Sweden non-U.S. jurisdiction tax returns. Griffon’s U.S. Federal income tax returns are no longer subject to income tax examination for years before 2006, the German income tax returns are no longer subject to income tax examination for years through 2007 and major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2000. Various U.S. state and non-U.S. statutory tax audits are currently underway. Griffon believes that the unrecognized tax benefits will be reduced by $1,741 for the release of reserves on the settlement of audits for years 2006 and 2008 within the next twelve months.

The following is a roll forward of the unrecognized tax benefits:

Balance at October 1, 2009		$8,138
Additions based on tax positions related to the current year		1,975
Assumed in business combination		4,391
Reductions based on tax positions related to prior years		(2,740	)
Balance at September 30, 2010		11,764
Additions based on tax positions related to the current year		1,858
Reductions based on tax positions related to prior years		(614	)
Lapse of Statutes		(60	)
Settlements		(38	)
Balance at September 30, 2011	$	12,910

If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $9,639. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2011 and 2010, 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 $2,586 and $2,134, respectively.