Income Taxes

9 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 19. Income taxes

The determination of the estimated annual effective tax rate is based upon a number of significant estimates and judgments. In addition, as a global commercial enterprise, Woodward’s tax expense can be impacted by changes in tax

rates or laws, the finalization of tax audits and reviews, changes in the estimate of the amount of undistributed foreign earnings that Woodward considers indefinitely reinvested, issuance of future guidance, interpretation, and rule-making, and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The following table sets forth the tax expense and the effective tax rate for Woodward’s earnings before income taxes:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2023			2022			2023			2022
Earnings before income taxes	$	105,738		$	50,287		$	177,728		$	142,129
Income tax expense		21,139			10,841			28,012			24,472
Effective tax rate		20.0	%		21.6	%		15.8	%		17.2	%

The decrease in the effective tax rate for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 is primarily attributable to a larger stock-based compensation tax benefit in the quarter and larger state income tax credits.

The decrease in the effective tax rate for the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 is primarily attributable to the release of uncertain tax positions and larger state income tax credits, partially offset by a smaller year-to-date stock-based compensation tax benefit.

Gross unrecognized tax benefits were $10,533 as of June 30, 2023, and $11,938 as of September 30, 2022. At June 30, 2023, the amount of the liability for unrecognized tax benefits that, if recognized, would impact Woodward’s effective tax rate was $6,781. At this time, Woodward believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $2,522 in the next twelve months due to the completion of review by tax authorities, lapses of statutes, and the settlement of tax positions. Woodward’s tax expense includes accruals for potential interest and penalties related to unrecognized tax benefits and all other interest and penalties related to tax payments.

Woodward’s tax returns are subject to audits by U.S. federal, state, and foreign tax authorities, and these audits are at various stages of completion at any given time. Reviews of tax matters by authorities and lapses of the applicable statutes of limitation may result in changes to tax expense. Generally, Woodward’s fiscal years remaining open to examination for U.S. Federal income taxes include fiscal years 2019 and thereafter. Woodward’s fiscal years remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2018 and thereafter. Woodward’s fiscal years remaining open to examination in significant foreign jurisdictions include 2017 and thereafter.