INCOME TAXES |
INCOME TAXES
Income taxes have been based on the following components of Income before taxes and discontinued operations: | | | | | | | | | | | | | | | | 2014 | | 2013 | | 2012 | Domestic | $ | (14,682 | ) | | $ | 16,083 |
| | $ | 27,910 |
| Non-U.S. | 8,966 |
| | (1,750 | ) | | (5,969 | ) | | $ | (5,716 | ) | | $ | 14,333 |
| | $ | 21,941 |
|
Provision (benefit) for income taxes on income from continuing operations was comprised of the following: | | | | | | | | | | | | | | | | 2014 | | 2013 | | 2012 | Current | $ | (408 | ) | | $ | 2,468 |
| | $ | 7,557 |
| Deferred | (5,131 | ) | | 5,075 |
| | (2,627 | ) | Total | $ | (5,539 | ) | | $ | 7,543 |
| | $ | 4,930 |
| U.S. Federal | $ | (6,486 | ) | | $ | 5,807 |
| | $ | 3,400 |
| State and local | (291 | ) | | 2,915 |
| | (1,301 | ) | Non-U.S. | 1,238 |
| | (1,179 | ) | | 2,831 |
| Total provision | $ | (5,539 | ) | | $ | 7,543 |
| | $ | 4,930 |
|
Griffon’s Income tax provision (benefit) included benefits of ($4,429) in 2014, ($3,209) in 2013, and ($3,356) in 2012 reflecting the reversal of previously recorded tax liabilities primarily due to 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 from continuing operations and U.S. Federal income statutory rate were as follows:
| | | | | | | | | | | | | 2014 | | 2013 | | 2012 | U.S. Federal income tax provision (benefit) rate | (35.0 | )% | | 35.0 | % | | 35.0 | % | State and local taxes, net of Federal benefit | 17.5 | % | | 2.8 | % | | 3.6 | % | Non-U.S. taxes | (35.8 | )% | | 5.3 | % | | 7.0 | % | Change in tax contingency reserves | (36.0 | )% | | (10.9 | )% | | (6.7 | )% | Repatriation of foreign earnings | 4.7 | % | | (8.3 | )% | | (12.3 | )% | U.S. Valuation allowance | 4.5 | % | | 10.1 | % | | (2.4 | )% | Non-deductible/non-taxable items, net | (3.4 | )% | | 11.6 | % | | 8.4 | % | Research credits | (3.9 | )% | | (7.4 | )% | | (0.7 | )% | Deferred tax impact of state rate change | (4.5 | )% | | 15.0 | % | | (11.0 | )% | Other | (5.0 | )% | | (0.6 | )% | | 1.6 | % | Effective tax provision (benefit) rate | (96.9 | )% | | 52.6 | % | | 22.5 | % |
The tax effect of temporary differences that give rise to future deferred tax assets and liabilities are as follows: | | | | | | | | | | | | 2014 | | 2013 | Deferred tax assets: | |
| | |
| Bad debt reserves | $ | 2,639 |
| | $ | 2,202 |
| Inventory reserves | 7,578 |
| | 9,295 |
| Deferred compensation (equity compensation and defined benefit plans) | 35,683 |
| | 32,645 |
| Compensation benefits | 4,662 |
| | 3,059 |
| Insurance reserve | 3,336 |
| | 3,360 |
| Restructuring reserve | 911 |
| | 699 |
| Warranty reserve | 2,286 |
| | 3,320 |
| Net operating loss | 32,512 |
| | 26,644 |
| Tax credits | 6,378 |
| | 7,311 |
| Other reserves and accruals | 4,164 |
| | 2,924 |
| | 100,149 |
| | 91,459 |
| Valuation allowance | (15,649 | ) | | (13,421 | ) | Total deferred tax assets | 84,500 |
| | 78,038 |
| Deferred tax liabilities: | |
| | |
| Deferred income | (11,091 | ) | | (13,124 | ) | Goodwill and intangibles | (72,086 | ) | | (70,216 | ) | Property, plant and equipment | (34,302 | ) | | (36,469 | ) | Interest | (3,582 | ) | | (5,154 | ) | Other | (927 | ) | | (5,164 | ) | Total deferred tax liabilities | (121,988 | ) | | (130,127 | ) | Net deferred tax liabilities | $ | (37,488 | ) | | $ | (52,089 | ) |
The change in the valuation allowance relates to the valuation allowance for certain state, local and foreign tax attributes.
The components of the net deferred tax liability, by balance sheet account, were as follows:
| | | | | | | | | | | | 2014 | | 2013 | Prepaid and other current assets | $ | 13,982 |
| | $ | 9,118 |
| Other assets | 872 |
| | 3,205 |
| Current liabilities | (2 | ) | | — |
| Other liabilities | (53,798 | ) | | (66,422 | ) | Assets of discontinued operations | 1,458 |
| | 2,010 |
| Net deferred liability | $ | (37,488 | ) | | $ | (52,089 | ) |
At both September 30, 2014 and 2013, 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, 2014, Griffon’s share of the undistributed earnings of the non-U.S. subsidiaries amounted to approximately $90,716. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
At September 30, 2014 and 2013, Griffon had loss carryforwards for non-U.S. tax purposes of $78,692 and $83,564, respectively. The non-U.S. loss carryforwards are available for carryforward indefinitely.
At September 30, 2014 and 2013, Griffon had state and local loss carryforwards of $7,905 and $6,057, respectively, which expire in varying amounts through 2034.
At September 30, 2014, Griffon had federal loss carryforwards of $11,036, which are available for carryforward through 2034. At September 30, 2013, Griffon had no federal loss carryforwards.
At September 30, 2014 and 2013, Griffon had federal tax credit carryforwards of $6,087 and $5,151, respectively, which expire beginning in 2017.
Griffon files U.S. Federal, state and local tax returns, as well as applicable returns in Germany, Canada, Brazil, Australia, Sweden, Mexico, 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 2010, the German income tax returns are no longer subject to income tax examination for years through 2010 and major U.S. state and other non-U.S. jurisdictions are no longer subject to income tax examinations for years before 2004. Various U.S. state and non-U.S. statutory tax audits are currently underway.
The following is a roll forward of unrecognized tax benefits: | | | | | | $ | 11,876 |
| Additions based on tax positions related to the current year | 1,343 |
| Additions based on tax positions related to prior years | 111 |
| Lapse of Statutes | (974 | ) | Settlements | (1,836 | ) | | 10,520 |
| Additions based on tax positions related to the current year | 848 |
| Additions based on tax positions related to prior years | 531 |
| Reductions based on tax positions related to prior years | (2,549 | ) | Lapse of Statutes | (1,204 | ) | Settlements | (240 | ) | | $ | 7,906 |
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If recognized, the amount of potential tax benefits that would impact Griffon’s effective tax rate is $4,634. Griffon recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2014 and 2013, 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 $754 and $1,672, 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. |