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Share-based Payments
 3 Months Ended
Dec. 31, 2014
Share-based Payments  
Share-based Payments

11.Share-based Payments

 

The fair value of the Company’s employee stock option awards is estimated on the date of grant. The expected term of awards granted represents the period of time the awards are 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 option on the grant date. The Company uses historical data as a basis to estimate the probability of forfeitures. The Company did not grant any employee stock options during the three months ended December 31, 2014 and 2013.

 

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

 

 

 

2014

 

2013

 

 

 

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

 
1.6

 

$
27.69

 
1.6

 

$
24.73

 

Options granted

 

—

 

—

 

—

 

—

 

Options exercised

 
(0.1

)
26.24

 
(0.1

)
17.23

 

Options forfeited or expired

 

—

 
27.55

 
(0.1

)
26.74

 

Outstanding at December 31

 
1.5

 
27.75

 
1.4

 
25.15

 

 

 

 

 

 

 

 

 

 

 

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

 
1.5

 

$
27.75

 
1.4

 

$
25.15

 

 

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 vesting over a three-year 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 were $32.38 and $29.22 during the quarters ended December 31, 2014 and 2013, respectively. The weighted average grant date fair value of restricted stock unit awards were $31.06 and $29.19 during the quarters ended December 31, 2014 and 2013, respectively. Included in the restricted stock unit grants during the quarter ended December 31, 2014 were 2.6 million restricted stock units with a grant date fair value of $30.04 that were converted from unvested URS service based restricted stock awards assumed by the Company in connection with the acquisition of URS. Total compensation expense related to share-based payments was $62.3 million and $10.9 million during the three months ended December 31, 2014 and 2013, respectively. Included in total compensation expense during the three months ended December 31, 2014 was $43.9 million related to the settlement of accelerated URS equity awards with $17.6 million of Company stock and $26.3 million in cash which was classified as acquisition and integration expense. Unrecognized compensation expense related to total share-based payments outstanding was $175.2 million and $62.4 million as of December 31, 2014 and September 30, 2014, respectively, to be recognized on a straight-line basis over the awards’ respective vesting periods which are generally three years.

 

Cash flows attributable to tax benefits resulting from tax deductions in excess of compensation cost recognized for those stock options (excess tax benefits) is classified as financing cash flows. Excess tax benefits of $2.5 million and $0.4 million for the three months ended December 31, 2014 and 2013, respectively, have been classified as financing cash inflows in the consolidated statements of cash flows.