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Income Taxes
 12 Months Ended
Sep. 30, 2025
Income Tax Disclosure [Abstract]  
Income Taxes

Note 19. Income taxes

Income taxes consisted of the following:

 

 

Year Ended September 30,

 

 

 

2025

 

 

2024

 

 

2023

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

77,033

 

 

$

46,102

 

 

$

41,195

 

State

 

 

8,287

 

 

 

4,841

 

 

 

2,641

 

Foreign

 

 

46,338

 

 

 

74,663

 

 

 

39,719

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(27,268

)

 

 

(18,888

)

 

 

(38,136

)

State

 

 

(6,361

)

 

 

(7,341

)

 

 

(10,006

)

Foreign

 

 

(18,729

)

 

 

(18,377

)

 

 

7,987

 

 

 

$

79,300

 

 

$

81,000

 

 

$

43,400

 

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

 

 

Year Ended September 30,

 

 

 

2025

 

 

2024

 

 

2023

 

United States

 

$

366,744

 

 

$

244,320

 

 

$

122,389

 

Other countries

 

 

154,667

 

 

 

209,651

 

 

 

153,379

 

 

 

$

521,411

 

 

$

453,971

 

 

$

275,768

 

 

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

 

 

September 30, 2025

 

 

September 30, 2024

 

Deferred tax assets:

 

 

 

 

 

 

Defined benefit plans, other postretirement

 

$

3,453

 

 

$

3,695

 

Foreign net operating loss carryforwards

 

 

2,564

 

 

 

6,547

 

Inventory

 

 

81,241

 

 

 

77,013

 

Stock-based and other compensation

 

 

48,764

 

 

 

48,360

 

Deferred revenue net of unbilled receivables

 

 

45,144

 

 

 

43,400

 

Other reserves

 

 

11,841

 

 

 

7,850

 

Tax credits and incentives

 

 

32,171

 

 

 

30,886

 

Lease obligations

 

 

6,171

 

 

 

6,851

 

Other

 

 

6,668

 

 

 

4,622

 

Capitalized research and development costs

 

 

83,582

 

 

 

63,080

 

Valuation allowance

 

 

(4,080

)

 

 

(5,983

)

Total deferred tax assets, net of valuation allowance

 

 

317,519

 

 

 

286,321

 

Deferred tax liabilities:

 

 

 

 

 

 

Goodwill and intangibles - net

 

 

(182,717

)

 

 

(198,012

)

Property, plant and equipment

 

 

(94,238

)

 

 

(97,340

)

Right of use assets

 

 

(6,037

)

 

 

(6,691

)

Defined benefit plans, pension

 

 

(15,657

)

 

 

(13,133

)

Other

 

 

(7,804

)

 

 

(8,612

)

Total deferred tax liabilities

 

 

(306,453

)

 

 

(323,788

)

Net deferred tax assets (liabilities)

 

$

11,066

 

 

$

(37,467

)

Woodward has recorded a net operating loss (“NOL”) deferred tax asset of $2,564 as of September 30, 2025 and $6,547 as of September 30, 2024. The majority of the NOL carryforwards as of September 30, 2025 expire at various times beginning in fiscal years 2027 through 2045.

Woodward has recorded tax credits and incentives deferred tax assets of $32,171 as of September 30, 2025 and $30,886 as of September 30, 2024. The majority of the tax credit and incentive carryforwards as of September 30, 2025 expire at various times beginning in fiscal year 2027 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 the utilization of foreign net operating losses.

At September 30, 2025, Woodward has not provided for taxes on undistributed foreign earnings of $327,400 that it considered indefinitely reinvested. This balance has been reduced for foreign earnings that are considered distributable, which results in an associated cumulative net deferred tax liability of approximately $6,040 as of September 30, 2025. These undistributed 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 21.0% in the fiscal years ended September 30, 2025, September 30, 2024, and September 30, 2023 to Woodward’s effective income tax rate:

 

 

Year Ended September 30,

 

 

 

2025

 

 

2024

 

 

2023

 

Percent of pretax earnings

 

 

 

 

 

 

 

 

 

Statutory tax rate

 

 

21.0

%

 

 

21.0

%

 

 

21.0

%

State income taxes, net of federal tax benefit

 

 

0.3

 

 

 

(0.4

)

 

 

(1.6

)

Taxes on international activities

 

 

0.4

 

 

 

(0.8

)

 

 

(0.6

)

Research credit

 

 

(1.2

)

 

 

(2.1

)

 

 

(3.9

)

Net excess income tax benefit from stock-based compensation

 

 

(3.5

)

 

 

(3.0

)

 

 

(3.7

)

Adjustments of prior period tax items

 

 

0.4

 

 

 

0.9

 

 

 

(1.3

)

Compensation and benefits

 

 

0.3

 

 

 

0.8

 

 

 

0.6

 

Distributable foreign earnings

 

 

0.3

 

 

 

1.4

 

 

 

4.6

 

German tax rate change

 

 

(2.6

)

 

 

—

 

 

 

—

 

Other items, net

 

 

(0.2

)

 

 

—

 

 

 

0.6

 

Effective tax rate

 

 

15.2

%

 

 

17.8

%

 

 

15.7

%

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 decrease in the effective tax rate for fiscal year 2025 compared to fiscal year 2024 is primarily attributable to a reduction in the German corporate tax rate and lower projected future withholding taxes on unremitted foreign earnings in the current fiscal year. These favorable items were partially offset by a reduced research and development credit, lower benefits related to foreign intangible income, and higher state income tax expense driven by increased U.S. earnings in the current fiscal year.

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

 

 

Year Ended September 30,

 

 

 

2025

 

 

2024

 

 

2023

 

Beginning balance

 

$

14,274

 

 

$

11,112

 

 

$

11,938

 

Additions to current year tax positions

 

 

4,982

 

 

 

5,673

 

 

 

3,933

 

Reductions to prior year tax positions

 

 

(231

)

 

 

(99

)

 

 

(141

)

Additions to prior year tax positions

 

 

250

 

 

 

180

 

 

 

0

 

Lapse of applicable statute of limitations

 

 

(2,004

)

 

 

(2,592

)

 

 

(4,618

)

Ending balance

 

$

17,271

 

 

$

14,274

 

 

$

11,112

 

Included in the balance of unrecognized tax benefits were $8,858 as of September 30, 2025 and $8,003 as of September 30, 2024 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 $1,076 in the next 12 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 2022 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.