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Income Taxes | 12 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 20. Income taxes Income taxes consisted of the following:
|  | Year Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 15,976 |  |  | $ | 40,173 |  |  | $ | 39,979 |
State |  |  | 1,383 |  |  |  | 2,402 |  |  |  | 3,697 |
Foreign |  |  | 22,588 |  |  |  | 34,660 |  |  |  | 25,968 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 10,784 |  |  |  | (2,015 | ) |  |  | (10,519 | )
State |  |  | (547 | ) |  |  | (2,948 | ) |  |  | (3,784 | )
Foreign |  |  | (8,698 | ) |  |  | (11,262 | ) |  |  | (16,141 | )
|  | $ | 41,486 |  |  | $ | 61,010 |  |  | $ | 39,200 |
Earnings before income taxes by geographical area consisted of the following:
|  | Year Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
United States |  | $ | 180,753 |  |  | $ | 211,267 |  |  | $ | 181,671 |
Other countries |  |  | 101,128 |  |  |  | 109,345 |  |  |  | 37,907 |
|  | $ | 281,881 |  |  | $ | 320,612 |  |  | $ | 219,578 |
Significant components of deferred income taxes presented in the Consolidated Balance Sheets are related to the following:
|  | At September 30, |
|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Defined benefit plans, other postretirement |  | $ | 6,238 |  |  | $ | 6,535 |
Foreign net operating loss carryforwards |  |  | 6,106 |  |  |  | 6,836 |
Inventory |  |  | 53,867 |  |  |  | 51,740 |
Stock-based and other compensation |  |  | 35,919 |  |  |  | 45,839 |
Defined benefit plans, pension |  |  | 5,624 |  |  |  | 11,399 |
Deferred revenue net of unbilled receivables |  |  | 39,990 |  |  |  | 32,310 |
Other reserves |  |  | 10,119 |  |  |  | 11,571 |
Tax credits and incentives |  |  | 14,340 |  |  |  | 13,580 |
Lease obligations |  |  | 5,764 |  |  |  | — |
Other |  |  | 9,223 |  |  |  | 5,611 |
Valuation allowance |  |  | (1,833 | ) |  |  | (3,638 | )
Total deferred tax assets, net of valuation allowance |  |  | 185,357 |  |  |  | 181,783 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill and intangibles - net |  |  | (218,900 | ) |  |  | (212,926 | )
Property, plant and equipment |  |  | (107,862 | ) |  |  | (97,469 | )
Right of use assets |  |  | (4,837 | ) |  |  | — |
Other |  |  | (2,673 | ) |  |  | (4,589 | )
Total deferred tax liabilities |  |  | (334,272 | ) |  |  | (314,984 | )
Net deferred tax liabilities |  | $ | (148,915 | ) |  | $ | (133,201 | )
Woodward has recorded a net operating loss (“NOL”) deferred tax asset of $6,106 as of September 30, 2020 and $6,836 as of September 30, 2019. A portion of these NOL carryforwards started to expire in 2019 and are currently offset by a valuation allowance. Woodward has 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 the expiration of net operating losses at a wholly owned subsidiary. At September 30, 20 20, Woodward has not provided for taxes on undistributed foreign earnings of $296,165 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. On December 22, 2017 the U.S. enacted the Tax Act. The Tax Act included significant changes to prior tax law, including a permanent reduction to the U.S federal corporate income tax rate of 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deemed inclusions of foreign low tax earnings, limitations on certain deductions, adjusted foreign tax credits, and business-related exclusions. Enactment of the Tax Act during December 2017 resulted in a net change to Woodward’s income tax expense in the amount of $14,778, which was recorded in the three-months ended December 31, 2017. After adjustments to amounts made throughout fiscal year 2018, the net impact of the enactment of the Tax Act was $10,860. Woodward finalized its assessment of the income tax effects of the Tax Act in the first quarter of fiscal year 2019. On June 14, 2019, the Internal Revenue Service (“IRS”) issued final regulations that modified the Transition Tax computation required by the Tax Act. As a result, in the three-months ended June 30, 2019, Woodward recognized additional income tax expense related to the Transition Tax of $10,588. The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% was effective January 1, 2018 (the “Effective Date”). When a U.S. federal tax rate change occurs during a taxpayer’s fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment. As a result of the Tax Act, Woodward calculated a U.S. federal statutory corporate income tax rate of 24.5% for the fiscal year ending September 30, 2018 and applied this rate in computing the income tax provision for the fiscal year ended September 30, 2018. The U.S. federal statutory corporate income tax rate of 24.5% is the weighted daily average rate between the pre-enactment U.S. federal statutory tax rate of 35% applicable to Woodward’s 2018 fiscal year prior to the Effective Date and the post-enactment U.S. federal statutory tax rate of 21% applicable to the 2018 fiscal year after the Effective Date. The U.S. federal statutory rate is 21% for the fiscal years ended September 30, 2020 and September 30, 2019. The following is a reconciliation of the U.S. Federal statutory tax 21% in the fiscal year ended September 30, 2020, 21.0% in fiscal year ended September 30, 2019 and 24.5% in the fiscal year ended September 30, 2018 to Woodward’s effective income tax rate:
|  | Year Ending September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Percent of pretax earnings |  |  |  |  |  |  |  |  |  |  |  |
Statutory tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 24.5 | %
State income taxes, net of federal tax benefit |  |  | 0.3 |  |  |  | (0.1 | ) |  |  | (0.5 | )
Taxes on international activities |  |  | (2.1 | ) |  |  | 0.2 |  |  |  | (1.8 | )
Research credit |  |  | (3.6 | ) |  |  | (3.3 | ) |  |  | (4.8 | )
Net excess income tax benefit from stock-based compensation |  |  | (2.8 | ) |  |  | (3.5 | ) |  |  | (1.4 | )
Domestic production activities deduction |  |  | — |  |  | – |  |  |  | (1.6 | )
Adjustments of prior period tax items |  |  | 1.0 |  |  |  | 0.9 |  |  |  | (5.0 | )
Effect of U.S. federal corporate rate reduction on net beginning U.S. deferred tax liability |  |  | — |  |  | – |  |  |  | (5.0 | )
Transition Tax |  |  | — |  |  |  | 3.3 |  |  |  | 6.2 |
Increased deferred tax liability associated with anticipated repatriation taxes |  |  | — |  |  | – |  |  |  | 3.7 |
Effect of U.S. federal corporate rate reduction on net current year U.S. deferred tax activity |  |  | — |  |  | – |  |  |  | 2.0 |
Other items, net |  |  | 0.9 |  |  |  | 0.5 |  |  |  | 1.6 |
Effective tax rate |  |  | 14.7 | % |  |  | 19.0 | % |  |  | 17.9 | %
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. The decrease in the effective tax rate for fiscal year 2020 compared to fiscal year 2019 is primarily attributable to (i) the additional income tax expense resulting from Transition Tax regulations issued by the IRS on June 14, 2019 which did not repeat in the current fiscal year and (ii) increased foreign earnings in a lower tax jurisdiction taxed at a lower rate resulting from the net gain on termination of the cross-currency interest rate swaps termination. This decrease was partially offset by a smaller favorable net excess income tax benefits from stock-based compensation. A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:
|  | Year Ending September 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Beginning balance |  | $ | 10,305 |  |  | $ | 8,364 |  |  | $ | 20,132 |
Additions to current year tax positions |  |  | 1,890 |  |  |  | 1,930 |  |  |  | 2,675 |
Reductions to prior year tax positions |  |  | (2,415 | ) |  | – |  |  |  | (14,458 | )
Additions to prior year tax positions |  |  | 71 |  |  |  | 11 |  |  |  | 15 |
Lapse of applicable statute of limitations |  |  | — |  |  | – |  |  | – |
Ending balance |  | $ | 9,851 |  |  | $ | 10,305 |  |  | $ | 8,364 |
Included in the balance of unrecognized tax benefits were $4,730 as of September 30, 2020 and $4,411 as of September 30, 2019 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 $84 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 had accrued gross interest and penalties of $489 as of September 30, 2020 and $437 as of September 30, 2019. In March 2020, the U.S. Congress passed the “Coronavirus Aid, Relief, and. Economic Security Act” (the “CARES Act”). The CARES Act provides relief from the certain economic impacts of COVID-19 to companies and individuals. Non-income tax impacts of the CARES Act include (i) extension of payment deadliness for certain U.S. payroll taxes and (ii) tax credits for certain qualifying costs incurred by the Company in connection with certain facility closures due to COVID-19. Non-income tax credits are generally recognized as a reduction to the related costs that generated the credits. The non-income tax impacts of the CARES Act were insignificant to the results of operations for the fiscal year ended September 30, 2020. 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 2018 and thereafter. In fiscal year 2020, Woodward concluded its U.S. Federal income tax examination through fiscal year 2017, which included a foreign tax carryback to fiscal year 2016. Woodward’s fiscal years remaining open to examination for significant U.S. state income tax jurisdictions include fiscal years 2016 and thereafter. Woodward closed various audits in foreign jurisdictions in the second and third quarters of fiscal year 2019. Consequently, fiscal years remaining open to examination in significant foreign jurisdictions include 2016 and 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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