ESCO TECHNOLOGIES INC Income Taxes Disclosure
6. Income Tax Expense
Total income tax expense (benefit) for the years ended September 30, 2025, 2024, and 2023 was allocated to income tax expense as follows:
(Dollars in thousands) |
| 2025 |
| 2024 |
| 2023 | |
Income tax expense from continuing operations | $ | 36,554 | 28,325 | 24,684 | |||
Income tax expense (benefit) from discontinued operations |
| 57,464 |
| (317) |
| 1,718 | |
Total income expense | $ | 94,018 |
| 28,008 |
| 26,402 | |
The components of income from continuing operations before income taxes for 2025, 2024 and 2023 consisted of the following:
(Dollars in thousands) |
| 2025 |
| 2024 |
| 2023 | |
United States | $ | 121,169 |
| 101,123 |
| 90,404 | |
Foreign |
| 31,684 |
| 29,830 |
| 19,964 | |
Total income before income taxes | $ | 152,853 |
| 130,953 |
| 110,368 | |
The principal components of income tax expense (benefit) from continuing operations for 2025, 2024 and 2023 consist of:
(Dollars in thousands) |
| 2025 |
| 2024 |
| 2023 | |
Federal: |
|
|
|
|
|
| |
Current | $ | 25,007 |
| 25,584 |
| 21,923 | |
Deferred |
| (1,185) |
| (7,295) |
| (5,095) | |
State and local: |
|
|
| ||||
Current |
| 3,935 |
| 3,212 |
| 3,304 | |
Deferred |
| (228) |
| 17 |
| (950) | |
Foreign: |
|
|
| ||||
Current |
| 13,109 |
| 8,602 |
| 5,694 | |
Deferred |
| (4,084) |
| (1,795) |
| (192) | |
Total | $ | 36,554 |
| 28,325 |
| 24,684 | |
The actual income tax expense from continuing operations for 2025, 2024 and 2023 differs from the expected tax expense for those years (computed by applying the U.S. Federal corporate statutory rate) as follows:
|
| 2025 |
| 2024 |
| 2023 |
|
Federal corporate statutory rate |
| 21.0 | % | 21.0 | % | 21.0 | % |
State and local, net of Federal benefits | 2.3 |
| 2.5 |
| 2.1 | ||
Impact of foreign operations | 1.1 | 0.4 | 0.3 | ||||
Federal research credit | (1.1) | (0.8) | (0.9) | ||||
Executive compensation | 0.9 |
| 0.2 |
| 1.1 | ||
Valuation allowance | (0.1) |
| (0.3) |
| 0.3 | ||
U.S. tax on GILTI | 2.5 | 2.4 | 1.3 | ||||
GILTI foreign tax credits | (1.8) | (2.0) | (1.0) | ||||
FDII deduction | (1.1) | (1.7) | (1.7) | ||||
Other, net | 0.2 |
| (0.1) |
| (0.1) | ||
Effective income tax rate | 23.9 | % | 21.6 | % | 22.4 | % |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 30, 2025 and 2024 are presented below:
(Dollars in thousands) |
| 2025 |
| 2024 | |
Deferred tax assets: |
|
|
|
| |
Inventories | $ | 5,589 |
| 4,663 | |
Pension and other postretirement benefits |
| 417 |
| 460 | |
Capitalized research and development expenditures | 14,648 | 9,726 | |||
Lease liabilities | 8,571 | 7,183 | |||
Net operating and capital loss carryforwards — domestic |
| 473 |
| 544 | |
Net operating loss carryforward — foreign |
| 3,855 |
| 3,855 | |
Other compensation-related costs and other cost accruals |
| 9,904 |
| 9,289 | |
State credit carryforward |
| 1,016 |
| 1,601 | |
Total deferred tax assets |
| 44,473 |
| 37,321 | |
|
| ||||
Deferred tax liabilities: |
|
| |||
ROU assets | (8,906) | (6,627) | |||
Goodwill |
| (15,904) |
| (13,353) | |
Acquisition intangible assets |
| (107,190) |
| (66,986) | |
Depreciation, software amortization |
| (20,359) |
| (17,079) | |
Net deferred tax liabilities before valuation allowance |
| (107,886) |
| (66,724) | |
Less valuation allowance |
| (1,347) |
| (1,513) | |
Net deferred tax liabilities | $ | (109,233) |
| (68,237) | |
We had a foreign net operating loss (NOL) carryforward of $13.9 million at September 30, 2025, which reflects tax loss carryforwards in Germany, Canada, Japan, and the United Kingdom. Approximately $12.1 million of the tax loss carryforwards have no expiration date while the remaining $1.8 million will expire between 2031 and 2042.We had deferred tax assets related to state NOL carryforwards of $0.5 million at September 30, 2025 which expire between 2031 and 2045. We also had state research and other credit carryforwards of $1.0 million of which $0.1 million expires between 2035 and 2045. The remaining $0.9 million does not have an expiration date.
The valuation allowance for deferred tax assets as of September 30, 2025 and 2024 was $1.3 million and $1.5 million, respectively. The net change in the total valuation allowance for each of the years ended September 30, 2025 and 2024 was a decrease of $0.2 million and $0.3 million, respectively. In addition, we maintained a valuation allowance against state NOL carryforwards that are not expected to be realized in future periods of $0.4 million at September 30, 2025 and $0.5 million at September 30, 2024. Lastly, we released a valuation allowance against foreign deferred tax assets of $0.1 million in the year ended September 30, 2025, which resulted in a valuation allowance against foreign deferred assets which may not be realized in future periods of $0.9 million and $1.0 million at September 30, 2025 and 2024, respectively.
As of September 30, 2025, the Company does not have any material unrecognized tax benefits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Dec 1, 2025 | Showing above |
| 2024 | Nov 29, 2024 | |
| 2023 | Nov 29, 2023 | |
| 2022 | Nov 29, 2022 | |
| 2021 | Nov 29, 2021 | |
| 2020 | Nov 30, 2020 | |
| 2019 | Nov 29, 2019 | |
| 2018 | Nov 29, 2018 | |
| 2017 | Nov 29, 2017 | |
| 2016 | Nov 29, 2016 | |
| 2015 | Nov 30, 2015 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.