Income Taxes

12 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Note 19. Income taxes

Income taxes consisted of the following:

	Year Ended September 30,
	2024			2023			2022
Current:
Federal	$	46,102		$	41,195		$	21,869
State		4,841			2,641			2,310
Foreign		74,663			39,719			27,577
Deferred:
Federal		(18,888	)		(38,136	)		(13,216	)
State		(7,341	)		(10,006	)		(8,623	)
Foreign		(18,377	)		7,987			(1,717	)
	$	81,000		$	43,400		$	28,200

Earnings before income taxes by geographical area consisted of the following:

	Year Ended September 30,
	2024		2023		2022
United States	$	244,320	$	122,389	$	99,427
Other countries		209,651		153,379		100,471
	$	453,971	$	275,768	$	199,898

Significant components of deferred income taxes presented in the Consolidated Balance Sheets are related to the following:

	September 30, 2024			September 30, 2023
Deferred tax assets:
Defined benefit plans, other postretirement	$	3,695		$	3,769
Foreign net operating loss carryforwards		6,547			3,748
Inventory		77,013			68,034
Stock-based and other compensation		48,360			51,099
Deferred revenue net of unbilled receivables		43,400			46,283
Other reserves		7,850			8,244
Tax credits and incentives		30,886			28,319
Lease obligations		6,851			6,103
Other		4,622			4,476
Capitalized research and development costs		63,080			37,328
Valuation allowance		(5,983	)		(3,827	)
Total deferred tax assets, net of valuation allowance		286,321			253,576
Deferred tax liabilities:
Goodwill and intangibles - net		(198,012	)		(194,891	)
Property, plant and equipment		(97,340	)		(99,547	)
Right of use assets		(6,691	)		(5,948	)
Defined benefit plans, pension		(13,133	)		(9,892	)
Other		(8,612	)		(17,568	)
Total deferred tax liabilities		(323,788	)		(327,846	)
Net deferred tax liabilities	$	(37,467	)	$	(74,270	)

Woodward has recorded a net operating loss (“NOL”) deferred tax asset of $6,547 as of September 30, 2024 and $3,748 as of September 30, 2023. The majority of the NOL carryforwards as of September 30, 2024 expire at various times beginning in fiscal years 2027 through 2029.

Woodward has recorded tax credits and incentives deferred tax assets of $30,886 as of September 30, 2024 and $28,319 as of September 30, 2023. The majority of the tax credit and incentive carryforwards as of September 30, 2024 expire at various times beginning in fiscal year 2025 through 2035.

Deferred tax assets are reduced by a valuation allowance when the realization of the deferred tax asset is less than 50 percent likely. Both positive and negative evidence are considered in forming Woodward’s judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. Valuation allowances are reassessed whenever there are changes in circumstances that may cause a change in judgment.

The change in the valuation allowance was primarily the result of adjusting an existing valuation allowance for a current year foreign net operating loss that we assess is not realizable.

At September 30, 2024, Woodward has not provided for taxes on undistributed foreign earnings of $361,600 that it considered indefinitely reinvested. This balance has been reduced for foreign earnings that are now considered distributable and resulted in the booking of an associated net deferred tax liability of approximately $6,100 in the quarter. These earnings could become subject to income taxes if they are remitted as dividends, are loaned to Woodward or any of Woodward’s subsidiaries located in the United States, or if Woodward sells its stock in the foreign subsidiaries. Any additional U.S. taxes could be offset, in part or in whole, by foreign tax credits. The amount of such taxes and application of tax credits would be dependent on the income tax laws and other circumstances at the time these amounts are repatriated. Based on these variables, it is impractical to determine the income tax liability that might be incurred if these funds were to be repatriated.

The following is a reconciliation of the U.S. federal statutory tax 21% in the fiscal years ended September 30, 2024, September 30, 2023, and September 30, 2022 to Woodward’s effective income tax rate:

	Year Ending September 30,
	2024			2023			2022
Percent of pretax earnings
Statutory tax rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal tax benefit		(0.4	)		(1.6	)		(2.5	)
Taxes on international activities		(0.8	)		(0.6	)		0.8
Research credit		(2.1	)		(3.9	)		(4.5	)
Net excess income tax benefit from stock-based compensation		(3.0	)		(3.7	)		(2.5	)
Adjustments of prior period tax items		0.9			(1.3	)		—
Compensation and benefits		0.8			0.6			0.3
Distributable foreign earnings		1.4			4.6			—
Other items, net		—			0.6			1.5
Effective tax rate		17.8	%		15.7	%		14.1	%

In determining the tax amounts in Woodward’s financial statements, estimates are sometimes used that are subsequently adjusted in the actual filing of tax returns or by updated calculations. In addition, Woodward occasionally has resolutions of tax items with tax authorities related to prior years due to the conclusion of audits and the lapse of applicable statutes of limitations. Such adjustments are included in the “Adjustments of prior period tax items” line in the above table.

The increase in the effective tax rate for fiscal year 2024 compared to fiscal year 2023 is primarily attributable to a smaller research and development credit, smaller net excess income tax benefit from stock-based compensation as percent of current year earnings, fewer resolutions of tax items with taxing authorities in the current fiscal year, and increased return to provision items in the current fiscal year. This increase is partially offset by smaller current fiscal year projected future withholding taxes on unremitted earnings.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:

	Year Ending September 30,
	2024			2023			2022
Beginning balance	$	11,112		$	11,938		$	15,199
Additions to current year tax positions		5,673			3,933			1,783
Reductions to prior year tax positions		(99	)		(141	)		(963	)
Additions to prior year tax positions		180			—			112
Lapse of applicable statute of limitations		(2,592	)		(4,618	)		(4,193	)
Ending balance	$	14,274		$	11,112		$	11,938

Included in the balance of unrecognized tax benefits were $8,003 as of September 30, 2024 and $6,963 as of September 30, 2023 of tax benefits that, if recognized, would affect the effective tax rate. At this time, Woodward estimates that it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $1,909 in the next twelve months due to the completion of review by tax authorities, lapses of statutes, and the settlement of tax positions. Woodward accrues for potential interest and penalties related to unrecognized tax benefits and all other interest and penalties related to tax payments in tax expense.

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. Woodward’s fiscal years remaining open to examination for U.S. federal income taxes include fiscal years 2021 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 2018 and thereafter.