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Income Taxes | 12 Months Ended
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Sep. 30, 2017
Income Taxes |
Income Taxes | Note 1 6. Income taxes Income taxes consisted of the following: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |
﻿ |  |  | Year Ended September 30,
﻿ |  |  | 2017 |  | 2016 |  | 2015
﻿Current: |  |  |  |  |  |  |  |  |
﻿ | Federal |  | $ | 17,872 |  | $ | 81,127 |  | $ | 23,923
﻿ | State |  |  | 1,379 |  |  | 6,067 |  |  | 3,108
﻿ | Foreign |  |  | 15,118 |  |  | 9,689 |  |  | 18,343
﻿Deferred: |  |  |  |  |  |  |  |  |
﻿ | Federal |  |  | 16,907 |  |  | (40,801) |  |  | 19,236
﻿ | State |  |  | (2,561) |  |  | (9,054) |  |  | 751
﻿ | Foreign |  |  | 3,525 |  |  | (1,380) |  |  | (5,864)
﻿ |  |  | $ | 52,240 |  | $ | 45,648 |  | $ | 59,497
Earnings before income taxes by geographical area consisted of the following: ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | Year Ended September 30,
﻿ |  | 2017 |  | 2016 |  | 2015
﻿United States |  | $ | 192,220 |  | $ | 175,146 |  | $ | 172,315
﻿Other countries |  |  | 60,527 |  |  | 51,340 |  |  | 68,634
﻿ |  | $ | 252,747 |  | $ | 226,486 |  | $ | 240,949
Significant components of deferred income taxes presented in the Consolidated Balance Sheets are related to the following: ﻿
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﻿ |  |  |  |  |  |  |
﻿ |  |  | At September 30,
﻿ |  |  | 2017 |  | 2016
﻿Deferred tax assets: |  |  |  |  |  |
﻿ | Defined benefit plans, other postretirement |  | $ | 11,947 |  | $ | 13,017
﻿ | Foreign net operating loss carryforwards |  |  | 4,707 |  |  | 5,255
﻿ | Inventory |  |  | 29,444 |  |  | 27,332
﻿ | Deferred and stock-based compensation |  |  | 37,693 |  |  | 34,388
﻿ | Defined benefit plans, pension |  |  | 1,148 |  |  | 8,955
﻿ | Deferred revenue |  |  | 92,426 |  |  | 92,213
﻿ | Other reserves |  |  | 10,850 |  |  | 13,968
﻿ | Tax credits and incentives |  |  | 9,769 |  |  | 7,744
﻿ | Other |  |  | 7,700 |  |  | 7,411
﻿ | Valuation allowance |  |  | (3,714) |  |  | (3,317)
﻿ | Total deferred tax assets, net of valuation allowance |  |  | 201,970 |  |  | 206,966
﻿Deferred tax liabilities: |  |  |  |  |  |
﻿ | Goodwill and intangibles - net |  |  | (103,781) |  |  | (99,030)
﻿ | Property, plant and equipment |  |  | (109,229) |  |  | (88,986)
﻿ | Other |  |  | (2,418) |  |  | (2,533)
﻿ | Total deferred tax liabilities |  |  | (215,428) |  |  | (190,549)
﻿Net deferred tax assets (liabilities) |  | $ | (13,458) |  | $ | 16,417
Woodward has recorded a net operating loss (“NOL”) deferred tax asset of $4,707 as of September 30, 2017 and $5,255 as of September 30, 2016. A portion of these NOL carryforwards will start to expire in 2018 and is currently offset by a valuation allowance. We have placed valuation allowances against all other NOL carryforwards that are less than 50 percent likely to be realized. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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 new valuation allowances placed on two wholly owned subsidiaries with net operating losses and a reassessment of another valuation allowance based on a change in estimate of future earnings. At September 30, 2017, Woodward has not provided for taxes on undistributed foreign earnings of $405,286 that it considered indefinitely reinvested. 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 rate of 35 percent to Woodward’s effective income tax rate: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |
﻿ |  |  | Year Ending September 30,
﻿Percent of pretax earnings |  |  | 2017 |  | 2016 |  | 2015
﻿Statutory tax rate |  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
﻿State income taxes, net of federal tax benefit |  |  | (0.3) |  |  | 0.4 |  |  | 1.2 |
﻿Taxes on international activities |  |  | (7.6) |  |  | (2.2) |  |  | (3.8) |
﻿Research credit |  |  | (3.2) |  |  | (3.6) |  |  | (0.8) |
﻿Retroactive extension of research credit |  |  | - |  |  | (3.2) |  |  | (2.4) |
﻿Net excess income tax benefit from stock-based compensation |  |  | (1.4) |  |  | (2.6) |  |  | - |
﻿Domestic production activities deduction |  |  | (1.5) |  |  | (2.1) |  |  | (1.6) |
﻿Adjustments of prior period tax items |  |  | (0.9) |  |  | (0.2) |  |  | (2.1) |
﻿Other items, net |  |  | 0.6 |  |  | (1.3) |  |  | (0.8) |
﻿Effective tax rate |  |  | 20.7 | % |  | 20.2 | % |  | 24.7 | %
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 majority of these adjustments are related to the conclusion of audits, effective settlement, and lapse of applicable statutes of limitations in various tax jurisdictions. Income taxes for the fiscal year ended September 30, 2017 benefitted from impact of repatriation to the United States of certain net foreign profits and losses in the first quarter. The U.S. foreign tax credits available as a result of the repatriation of the foreign net earnings were greater than the U.S. taxes payable on these net foreign earnings. The excess U.S. foreign tax credit are expected to offset U.S. taxes on other foreign source income. On December 18, 2015, the Protecting Americans from Tax Hikes (“PATH”) Act of 2015 was enacted, which permanently extended the Research and Experimentation (“R&E”) Tax Credit. As a result, income taxes for the year ended September 30, 2016 included a net benefit related to the retroactive impact from the last three quarters of fiscal year 2015 of the R&E Credit pursuant to the PATH Act. In addition, income taxes for the year ended September 30, 2016 included a net benefit related to the full year impact of fiscal year 2016 of the R&E Credit. Woodward adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” in its second quarter of fiscal year 2016 resulting in the recognition through earnings of a net excess income tax benefit from stock-based compensation. On December 19, 2014, the Tax Increase Prevention Act of 2014 was enacted, which retroactively extended the R&E Credit through December 31, 2014. As a result, income taxes for the year ended September 30, 2015 included a net benefit related to the retroactive impact from the last three quarters of fiscal year 2014 of the R&E Credit pursuant to the Tax Increase Prevention Act. A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows: ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | Year Ending September 30,
﻿ |  | 2017 |  | 2016 |  | 2015
﻿Beginning balance |  | $ | 23,526 |  | $ | 21,469 |  | $ | 22,687
﻿Additions to current year tax positions |  |  | 2,560 |  |  | 3,588 |  |  | 2,234
﻿Reductions to prior year tax positions |  |  | (5,753) |  |  | (2,292) |  |  | (7,785)
﻿Additions to prior year tax positions |  |  | 3,501 |  |  | 761 |  |  | 5,124
﻿Lapse of applicable statute of limitations |  |  | (3,702) |  |  | - |  |  | (791)
﻿Ending balance |  | $ | 20,132 |  | $ | 23,526 |  | $ | 21,469
Included in the balance of unrecognized tax benefits were $9,677 as of September 30, 2017 and $11,426 as of September 30, 2016 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 $7,726 in the next twelve months due to the completion of reviews 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 had accrued gross interest and penalties of $1,123 as of September 30, 2017 and $1,273 as of September 30, 2016. 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 limitations may result in changes to tax expense. Fiscal years remaining open to examination in significant foreign jurisdictions include 2008 and thereafter. Woodward’s fiscal years remaining open to examination in the United States include fiscal years 201 4 and thereafter. Woodward is currently under examination by the Internal Revenue Service for fiscal year 2014. Woodward has concluded U.S. federal income tax examinations through fiscal year 2012. Woodward is generally subject to U.S. state income tax examinations for fiscal years 2012 and the periods thereafter.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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