SEC Filings

10-Q
AECOM filed this Form 10-Q on 02/06/2019
Entire Document
 

Table of Contents

 

9.              Share-based Payments

 

The fair value of an outstanding employee stock option award is estimated on the date of grant. The expected term of the stock option granted represents the period of time the stock option is expected to be outstanding. The risk-free interest rate is based on U.S. Treasury bond rates with maturities equal to the expected term of the stock option on the grant date. The Company uses historical data as a basis to estimate the probability of forfeitures.

 

Stock option activity for the three months ended December 31 was as follows:

 

 

 

2018

 

2017

 

 

 

Shares of stock
under options

 

Weighted average
exercise price

 

Shares of stock
under options

 

Weighted average
exercise price

 

 

 

(in millions)

 

 

 

(in millions)

 

 

 

Outstanding at September 30

 

0.6

 

$

31.62

 

0.7

 

$

31.11

 

Options granted

 

 

 

 

 

Options exercised

 

 

 

(0.1

)

27.67

 

Options forfeited or expired

 

 

 

 

 

Outstanding at December 31

 

0.6

 

31.62

 

0.6

 

31.54

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest in the future as of December 31

 

0.6

 

$

31.62

 

0.6

 

$

31.54

 

 

The Company grants stock units to employees under its Performance Earnings Program (PEP), whereby units are earned and issued dependent upon meeting established cumulative performance objectives and vest over a three-year service period. Additionally, the Company issues restricted stock units to employees which are earned based on service conditions. The grant date fair value of PEP awards and restricted stock unit awards is that day’s closing market price of the Company’s common stock. The weighted average grant date fair value of PEP awards was $27.50 and $37.90 during the three months ended December 31, 2018 and 2017, respectively. The weighted average grant date fair value of restricted stock unit awards was $27.50 and $36.93 during the three months ended December 31, 2018 and 2017, respectively. Total compensation expense related to these share-based payments including stock options was $15.6 million and $16.5 million during the three months ended December 31, 2018 and 2017, respectively. Unrecognized compensation expense related to total share-based payments outstanding as of December 31, 2018 and September 30, 2018 was $123.0 million and $94.3 million, respectively, to be recognized on a straight-line basis over the awards’ respective vesting periods which are generally three years.

 

10.       Income Taxes

 

The Company’s effective tax rate was (106.7)% and (60.9)% for the three months ended December 31, 2018 and 2017, respectively. The most significant item contributing to the difference between the statutory U.S. federal income tax rate of 21.0% and the Company’s effective tax rate for the three month period ended December 31, 2018 was a $38.1 million benefit related to the release of a valuation allowance on foreign tax credits. This item is not expected to have a continuing impact on the effective tax rate for the remainder of the fiscal year. The most significant items contributing to the difference between the statutory U.S. federal income tax rate of 24.5% and the Company’s effective tax rate for the three month period ended December 31, 2017 were a $41.7 million net benefit related to one-time U.S. federal tax law changes and a benefit of $11.2 million related to changes in uncertain tax positions primarily in the U.S. and Canada.

 

During the first quarter of fiscal 2019, a valuation allowance in the amount of $38.1 million related to foreign tax credits was released due to sufficient positive evidence obtained during the quarter. The positive evidence included the issuance of regulations during the quarter related to The Tax Cuts and Jobs Act (Tax Act) and forecasting the utilization of the foreign tax credits within the foreseeable future. The Company evaluated the new positive evidence against any negative evidence to determine the valuation allowance was no longer needed.

 

During the first quarter of fiscal 2018, President Trump signed the Tax Act into law. The Tax Act reduced the Company’s U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on accumulated earnings of foreign subsidiaries, created new taxes on certain foreign sourced earnings, and eliminated or reduced certain deductions.

 

Other significant provisions included a base erosion anti-abuse tax (BEAT) on excessive amounts paid to foreign related parties and a minimum tax on global intangible low-taxed income (GILTI). The Company has made an accounting policy election to recognize the current tax impact of GILTI as a period cost and has included the impact in the estimated annual effective tax rate as of December 31, 2018.

 

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