SEC Info - Griffon Corp - ‘10-K’ for 9/30/18

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 are effective January 1, 2018 and have an immediate accounting effect, other significant provisions are not effective or may not result in accounting effects for September 30 fiscal year companies until October 1, 2018.

Given the significance of the TCJA, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

Among the significant changes to the U.S. Internal Revenue Code, the TCJA lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute 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 will apply to fiscal years ending September 30, 2019 and each year thereafter.

The Company has recorded provisional amounts for the effects of the TCJA where accounting is not complete, but a reasonable estimate has been determined. As of September 30, 2018, the company 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 the year ended 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. These have been included in the income tax provision for the year ended September 30, 2018. The Company will refine its calculation of the total post-1986 foreign E&P for any adjustments impacting its foreign subsidiaries and foreign tax credits. Under the TCJA, the Company will elect to pay the transition tax interest-free over eight years.

The provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the TCJA and may change as the Company receives additional clarification and implementation guidance.

In accordance with SAB 118 adjustments recorded to the provisional amounts will be reflected within the measurement period ending December 31, 2018 and will be included in income from continuing operations and net income as an adjustment to tax expense.

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



	For the Years Ended September 30,
	2018		2017			2016
Domestic	$	4,942	$	(1,339	)	$	23,163
Non-U.S.	28,868		18,037			9,050
	$	33,810	$	16,698		$	32,213

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



	For the Years Ended September 30,
	2018			2017			2016
Current	$	18,188		$	(3,426	)	$	6,388
Deferred	(17,633		)	2,341			6,044
Total	$	555		$	(1,085	)	$	12,432
U.S. Federal	$	(12,714	)	$	(6,689	)	$	4,358
State and local	5,175			3,307			3,287
Non-U.S.	8,094			2,297			4,787
Total provision	$	555		$	(1,085	)	$	12,432

Griffon's income tax provision for the years ended September 30, 2018, 2017 and 2016 included a $1,299, $4,440 and $2,193 benefit, respectively, from the early adoption of the new FASB accounting guidance which now requires excess tax benefits from vesting of equity awards to be recognized within income tax expense. Under this guidance all excess tax benefits (“windfalls”) and deficiencies (“shortfalls”) related to employee stock compensation are recognized within income tax expense. Under prior guidance windfalls were recognized to Additional Paid In Capital and shortfalls were only recognized to the extent they exceed the pool of windfall tax benefits.

Griffon’s income tax provision included benefits of ($421) in 2018, ($122) in 2017, and ($2,172) in 2016 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 U.S. Federal income statutory rate from continuing operations were as follows:



	For the Years Ended September 30,
	2018		2017		2016
U.S. Federal income tax provision (benefit) rate	24.5	%	35.0	%	35.0	%
State and local taxes, net of Federal benefit	10.2	%	12.4	%	6.6	%
Non-U.S. taxes - foreign permanent items and taxes	3.6	%	(12.4	)%	(1.6	)%
Non-U.S. tax true-up	—	%	(11.4	)%	—	%
Change in domestic manufacturing deduction	—	%	(5.8	)%	—	%
Change in tax contingency reserves	(0.6	)%	0.7	%	(6.3	)%
Impact of federal rate change on deferred tax balances	(60.0	)%	—	%	—	%
Repatriation of foreign earnings	61.6	%	—	%	—	%
Change in valuation allowance	13.4	%	(0.6	)%	(0.6	)%
Non-deductible/non-taxable items, net	(2.4	)%	8.3	%	2.6	%
Research and U.S. foreign tax credits	(39.4	)%	(3.6	)%	8.8	%
Share based compensation	(3.8	)%	(26.6	)%	(5.7	)%
Other	(5.5	)%	(2.5	)%	(0.2	)%
Effective tax provision (benefit) rate	1.6	%	(6.5	)%	38.6	%

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



	At September 30,
	2018			2017
Deferred tax assets:
Bad debt reserves	$	1,404		$	2,509
Inventory reserves	7,709			7,615
Deferred compensation (equity compensation and defined benefit plans)	11,437			27,430
Compensation benefits	5,434			6,111
Insurance reserve	1,782			2,985
Restructuring reserve	—			29
Warranty reserve	2,598			2,893
Net operating loss	10,593			37,383
Tax credits	6,379			1,866
Other reserves and accruals	5,433			7,658
	52,769			96,479
Valuation allowance	(8,520		)	(17,466		)
Total deferred tax assets	44,249			79,013
Deferred tax liabilities:
Deferred income	—			(1,862		)
Goodwill and intangibles	(44,402		)	(70,560		)
Property, plant and equipment	(39,260		)	(51,488		)
Deferred gain on assets held for sale	—			(16,300		)
Other	(1,086		)	(1,016		)
Total deferred tax liabilities	(84,748		)	(141,226		)
Net deferred tax liabilities	$	(40,499	)	$	(62,213	)

The decrease in the valuation allowance of $8,946 is primarily the result of the disposition of PPC and its related valuation allowance on accumulated Germany net operating losses. The deferred tax gain on assets held for sale results from the book versus tax outside basis difference and was removed concurrent with the sale of PPC.

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



	At September 30,
	2018			2017
Other assets	$	61		$	6
Assets of discontinued operations held for sale	—			6,745
Other liabilities	(42,689		)	(58,505		)
Liabilities of discontinued operations held for sale	872			(12,584		)
Liabilities of discontinued operations not held for sale	1,257			2,125
Net deferred liability	$	(40,499	)	$	(62,213	)

At both September 30, 2018 and 2017, Griffon has a policy election to indefinitely reinvest the undistributed earnings of foreign subsidiaries with operations outside the U.S. Griffon considers the earnings of these foreign subsidiaries to be indefinitely invested outside the U.S. on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. The majority of the amounts held outside the U.S. are generally utilized to support non U.S. liquidity needs in order to fund operations and growth of the foreign subsidiaries, and for funding of acquisitions. 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, 2018, Griffon’s share of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately $64,204. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. If a determination is made to repatriate some or all of these foreign earnings, the income tax provision would be adjusted in the period of that determination to accrue for the taxes payable on such earnings.

At September 30, 2018 and 2017, Griffon had loss carryforwards for U.S. tax purposes of $6,089 and $1,264, respectively, and non-U.S. tax purposes of $7,319 and $7,941, respectively. The U.S. losses expire beginning in 2033. The non-U.S. loss carryforwards are available for carryforward indefinitely.

At September 30, 2018 and 2017, Griffon had state and local loss carryforwards of $124,442 and $114,837, respectively, which expire in varying amounts through 2038.

At September 30, 2018 and 2017, Griffon had federal tax credit carryforwards of $5,740 and $1,762, respectively, which expire beginning in 2028.

We believe it is more likely than not that the benefit from certain state net operating losses and federal tax credits will not be realized. In recognition of this risk, we have provided a valuation allowance as of September 30, 2018 and 2017 of $7,597 and $1,343, respectively, on the deferred tax assets relating to these state net operating loss carryforwards and federal credits. If our assumptions change and we determine we will be able to realize these state net operating loss carryforwards or federal credits, 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, Ireland 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 2013. Griffon's major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2011. 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, 2016	$	4,709
Additions based on tax positions related to the current year	177
Additions based on tax positions related to prior years	69
Reductions based on tax positions related to prior years	(8		)
Lapse of Statutes	(122		)
Balance at September 30, 2017	4,825
Additions based on tax positions related to the current year	152
Reductions based on tax positions related to prior years	(253		)
Additions based on tax positions related to prior years	26
Lapse of Statutes	(194		)
Settlements	(37		)
Balance at September 30, 2018	$	4,519

If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $1,248. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2018 and 2017, 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 $122 and $174, 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.

This ‘10-K’ Filing	Date	Other Filings

	9/30/19	10-K, 5
	12/31/18	10-Q, SD
Filed as of:	11/19/18	4, 5/A
Filed on:	11/16/18	4
	10/1/18
For Period end:	9/30/18	5, 5/A
	1/1/18
	12/31/17	10-Q, SD
	12/22/17
	9/30/17	10-K, 5
	9/30/16	10-K, 5
		List all Filings

Griffon Corp – ‘10-K’ for 9/30/18 – ‘R17’

On: Friday, 11/16/18, at 8:10pm ET · As of: 11/19/18 · For: 9/30/18 · Accession #: 50725-18-75 · File #: 1-06620

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Annual Report — Form 10-K — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

‘R17’ — Income Taxes

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