INCOME TAXES

12 Months Ended

Sep. 30, 2012

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,
	2012			2011			2010
Domestic	$	27,910		$	(17,869	)	$	7,360
Non-U.S.		(5,969	)		3,520			6,452
	$	21,941		$	(14,349	)	$	13,812

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

	For the Years Ended September 30,
	2012			2011			2010
Current	$	7,557		$	(4,169	)	$	7,974
Deferred		(2,627	)		(2,749	)		(3,666	)
Total	$	4,930		$	(6,918	)	$	4,308
U.S. Federal	$	3,400		$	(8,988	)	$	5,426
State and local		(1,301	)		91			(1,795	)
Non-U.S.		2,831			1,979			677
Total provision	$	4,930		$	(6,918	)	$	4,308

Griffon’s income tax provision (benefit) included benefits of ($3,356) in 2012, ($733) in 2011 and ($2,740) in 2010 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,
	2012			2011			2010
U.S. Federal income tax provision (benefit) rate		35.0	%		(35.0	)%		35.0	%
State and local taxes, net of Federal benefit		3.6			(1.9	)		2.6
Non-U.S. taxes		7.0			5.3			(11.3	)
Non-deductible acquisition costs		—			—			9.5
Change in contingency reserves		(6.7	)		2.2			(5.5	)
Executive compensation limits		7.1			13.1			—
Repatriation of foreign earnings		(12.3	)		—			—
Valuation allowance on foreign tax credits		(2.4	)		(27.2	)		—
Non-deductible meals and entertainment		1.2			2.0			1.4
Research credits		(0.7	)		(5.4	)		—
Deferred tax impact of state rate change		(11.0	)		—			—
Other		1.6			(1.3	)		(0.4	)
Effective tax provision (benefit) rate		22.5	%		(48.2	)%		31.3	%

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

	At September 30,
	2012			2011
Deferred tax assets:
Bad debt reserves	$	2,071		$	2,436
Inventory reserves		12,589			10,042
Deferred compensation (Equity compensation and defined benefit plans)		42,773			44,083
Compensation benefits		2,706			—
Insurance reserve		3,924			4,697
Restructuring reserve		489			342
Warranty reserve		3,587			3,617
Interest carryforward		—			3,942
Net operating loss		25,708			33,451
Tax credits		5,622			15,451
Other reserves and accruals		651			5,572
		100,120			123,633
Valuation allowance		(10,541	)		(9,481	)
Total deferred tax assets		89,579			114,152
Deferred tax liabilities:
Deferred income		(14,051	)		(14,728	)
Compensation benefits		—			(1,042	)
Goodwill and intangibles		(70,463	)		(77,798	)
Property, plant and equipment		(33,673	)		(43,073	)
Interest		(6,542	)		(7,371	)
Unremitted earnings		—			(13,258	)
Other		(1,323	)		(2,469	)
Total deferred tax liabilities		(126,052	)		(159,739	)
Net deferred tax liabilities	$	(36,473	)	$	(45,587	)

The change in the valuation allowance relates to the foreign tax credits, partially offset by an increase in the valuation allowance for certain foreign tax attributes.

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

	At September 30,
	2012			2011
Prepaid and other current assets	$	16,059		$	17,412
Other assets		2,956			1,704
Current liabilities		(129	)		(402	)
Other liabilities		(55,882	)		(65,042	)
Assets of discontinued operations		523			741
Net deferred liability assets	$	(36,473	)	$	(45,587	)

At September 30, 2011, other than for the ATT pre-acquisition unremitted foreign earnings, and at September 30, 2012, 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, 2012, Griffon’s share of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately $75,189. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

At September 30, 2011 deferred income taxes were recorded on pre-acquisition undistributed earnings of non-U.S. subsidiaries for the ATT group of entities. The deferred income taxes were recorded as these earnings were historically not indefinitely reinvested outside of the U.S. At September 30, 2012 the pre-acquisition unremitted foreign earnings of ATT group were distributed as a dividend to the U.S. Parent Corp. recognizing the previously recorded deferred tax liability.

At September 30, 2012 and 2011, Griffon had net operating loss carryforwards for federal tax purposes of $0 and $51,000, respectively, resulting from the acquisition of ATT and prior year U.S. losses, and had loss carryforwards for non-U.S. tax purposes of $75,400 and $54,500, respectively. The non-U.S. loss carryforwards are available for carryforward indefinitely.

Griffon had State and local loss carryforwards at September 30, 2012 and 2011 of $6,303 and $5,900, respectively, which expire in varying amounts through 2032.

Griffon had foreign tax credit carryforwards of $3,361 and $13,291 at September 30, 2012 and 2011, respectively, which are available for use through 2017.

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 2001. Various U.S. state and non-U.S. statutory tax audits are currently underway.

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

Balance at October 1, 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
Additions based on tax positions related to the current year		1,840
Reductions based on tax positions related to prior years		(822	)
Lapse of Statutes		(617	)
Settlements		(1,435	)
Balance at September 30, 2012	$	11,876

If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $8,605. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2012 and 2011, 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 $2,141 and $2,586, 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.