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Income Taxes | 12 Months Ended
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Sep. 30, 2016
Income Taxes |
Income Taxes | 14. Income Taxes Income before income taxes included income (loss) from domestic operations of $51.6 million, $(214.6) million, and $138.2 million for fiscal years ended September 30, 2016, 2015 and 2014 and income from foreign operations of $74.0 million, $63.1 million, and $176.6 million for fiscal years ended September 30, 2016, 2015 and 2014. Income tax (benefit) expense was comprised of:
|  | Fiscal Year Ended |
|  | September 30, 2016 |  | September 30, 2015 |  | September 30, 2014 |
|  | (in millions) |
Current: |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 33.7 |  | $ | (67.1 | ) | $ | 5.3 |
State |  |  | 12.4 |  |  | 2.6 |  |  | 3.3 |
Foreign |  |  | 26.1 |  |  | 37.2 |  |  | 46.3 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total current income tax (benefit) expense |  |  | 72.2 |  |  | (27.3 | ) |  | 54.9 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred: |  |  |  |  |  |  |  |  |  |
Federal |  |  | (63.4 | ) |  | (44.2 | ) |  | 27.7 |
State |  |  | (5.4 | ) |  | 1.2 |  |  | 5.6 |
Foreign |  |  | (41.3 | ) |  | (10.0 | ) |  | (6.2 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total deferred income tax (benefit) expense |  |  | (110.1 | ) |  | (53.0 | ) |  | 27.1 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total income tax (benefit) expense |  | $ | (37.9 | ) | $ | (80.3 | ) | $ | 82.0 |
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The major elements contributing to the difference between the U.S. federal statutory rate of 35.0% and the effective tax rate are as follows:
|  | Fiscal Year Ended |
|  | September 30, 2016 |  | September 30, 2015 |  | September 30, 2014 |
|  | Amount |  | % |  | Amount |  | % |  | Amount |  | % |
|  | (in millions) |
Tax at federal statutory rate |  | $ | 43.9 |  |  | 35.0 | % | $ | (53.0 | ) |  | 35.0 | % | $ | 110.2 |  |  | 35.0 | %
State income tax, net of federal benefit |  |  | 5.6 |  |  | 4.5 |  |  | (2.3 | ) |  | 1.5 |  |  | 5.0 |  |  | 1.6 |
Valuation allowance |  |  | (54.8 | ) |  | (43.6 | ) |  | 30.0 |  |  | (19.8 | ) |  | 6.3 |  |  | 2.0 |
Exclusion of tax on non-controlling interests |  |  | (24.7 | ) |  | (19.7 | ) |  | (29.3 | ) |  | 19.3 |  |  | — |  |  | — |
Income tax credits and incentives |  |  | (24.6 | ) |  | (19.6 | ) |  | (21.2 | ) |  | 14.0 |  |  | (18.8 | ) |  | (6.0 | )
Foreign tax rate differential |  |  | (19.7 | ) |  | (15.7 | ) |  | (24.8 | ) |  | 16.4 |  |  | (38.8 | ) |  | (12.3 | )
Tax exempt income |  |  | (17.6 | ) |  | (14.0 | ) |  | (13.2 | ) |  | 8.7 |  |  | (1.9 | ) |  | (0.6 | )
Change in uncertain tax positions |  |  | (5.0 | ) |  | (4.0 | ) |  | 6.6 |  |  | (4.3 | ) |  | (4.5 | ) |  | (1.4 | )
Change in tax rates |  |  | 34.6 |  |  | 27.6 |  |  | — |  |  | — |  |  | — |  |  | — |
Foreign residual income |  |  | 17.8 |  |  | 14.2 |  |  | 20.1 |  |  | (13.3 | ) |  | 16.9 |  |  | 5.4 |
Nondeductible costs |  |  | 6.1 |  |  | 4.8 |  |  | 2.8 |  |  | (1.8 | ) |  | 2.8 |  |  | 0.9 |
Nondeductible transaction costs |  |  | — |  |  | — |  |  | 2.8 |  |  | (1.8 | ) |  | 2.8 |  |  | 0.9 |
Other items, net |  |  | 0.5 |  |  | 0.3 |  |  | 1.2 |  |  | (0.9 | ) |  | 2.0 |  |  | 0.6 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total income tax expense |  | $ | (37.9 | ) |  | (30.2 | )% | $ | (80.3 | ) |  | 53.0 | % | $ | 82.0 |  |  | 26.1 | %
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During the year ended September 30, 2016 and 2015, the Company recognized a $10.1 million and $19.4 million tax benefit related to U.S. tax incentives and credits that previously expired on December 31, 2014 and 2013, respectively, and were subsequently extended due to a change in tax law. The deferred tax assets (liabilities) are as follows:
|  | Fiscal Year Ended |
|  | September 30, 2016 |  | September 30, 2015 |
|  | (in millions) |
Deferred tax assets: |  |  |  |  |  |  |
Compensation and benefit accruals not currently deductible |  | $ | 150.5 |  | $ | 166.7 |
Net operating loss carryforwards |  |  | 378.0 |  |  | 195.9 |
Self insurance reserves |  |  | 24.7 |  |  | 46.8 |
Research and experimentation and other tax credits |  |  | 125.3 |  |  | 43.0 |
Pension liability |  |  | 180.9 |  |  | 165.6 |
Accrued liabilities |  |  | 221.0 |  |  | 267.3 |
Other |  |  | 4.3 |  |  | 11.4 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total deferred tax assets |  |  | 1,084.7 |  |  | 896.7 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deferred tax liabilities: |  |  |  |  |  |  |
Unearned revenue |  |  | (212.6 | ) |  | (101.9 | )
Depreciation and amortization |  |  | (113.0 | ) |  | (76.5 | )
Acquired intangible assets |  |  | (155.5 | ) |  | (219.2 | )
Investment in subsidiaries |  |  | (261.4 | ) |  | (239.2 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total deferred tax liabilities |  |  | (742.5 | ) |  | (636.8 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Valuation allowance |  |  | (183.8 | ) |  | (239.4 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net deferred tax assets |  | $ | 158.4 |  | $ | 20.5 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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As a result of certain realization requirements of ASC 718, the table of deferred tax assets and liabilities does not include certain deferred tax assets as of September 30, 2016, that arose directly from tax deductions related to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $3.8 million if and when such deferred tax assets are ultimately realized. As of September 30, 2016, the Company has available unused federal, state and foreign net operating loss (NOL) carryforwards of $503.8 million, $960.1 million and $789.6 million, respectively, which expire at various dates over the next several years; some foreign NOL carryforwards never expire. In addition, as of September 30, 2016, the Company has unused federal and state research and development credits of $67.4 million and $19.2 million, respectively, and California Enterprise Zone Tax Credits of $6.2 million. As of September 30, 2016 and 2015, gross deferred tax assets were $1,084.7 million and $896.7 million, respectively. The Company has recorded a valuation allowance of approximately $183.8 million and $239.4 million at September 30, 2016 and 2015, respectively, primarily related to state and foreign net operating loss carryforwards and credits and deferred tax assets related to certain pension obligations (primarily in the United Kingdom and Canada). The Company has performed an assessment of positive and negative evidence, including the nature, frequency, and severity of cumulative financial reporting losses in recent years, the future reversal of existing temporary differences, predictability of future taxable income exclusive of reversing temporary differences of the character necessary to realize the asset, relevant carryforward periods, taxable income in carry-back years if carry-back is permitted under tax law, and prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset that would otherwise expire. Although realization is not assured, based on the Company's assessment, the Company has concluded that it is more likely than not that the remaining gross deferred tax asset (exclusive of deferred tax liabilities) of $900.9 million will be realized and, as such, no additional valuation allowance has been provided. The net decrease in the valuation allowance of $55.6 million is primarily attributable to the release of $36.2 million of valuation allowances for the United Kingdom and Australia, $27.2 million impact from the change in the United Kingdom tax rate and the utilization of $10.7 million of foreign net operating loss carryforwards in the current year, partially offset by increases in valuation allowances for unbenefitable losses. Upon the acquisition of URS in October 2014, the Company had previously recorded a valuation allowance primarily against foreign net operating losses and deferred tax assets related to the pension obligation, consistent with those described above. Tax jurisdictions largely contributing to the URS related valuation allowance included $92.8 million recorded for the United Kingdom, $22.5 million recorded for Canada, $9.3 million recorded for the United States and $2.9 million recorded for Australia. In its determination of the realizability of its deferred tax assets, the Company evaluated positive evidence consisting of positive earnings trends over a sustainable period, positive economic conditions in the industries we operate in, possible prudent and feasible tax planning strategies (net of costs to implement the tax planning strategies) and actual usage of net operating loss and tax credit carryforwards. The Company also evaluated negative evidence consisting of significant net operating loss carryforwards, the cumulative history of losses in recent years, restriction on usage of losses under relevant tax laws, projections of future operations and economic downturns in the industries that we operate in. This evaluation was conducted on a tax jurisdictional basis or legal entity basis, as applicable, and based on the weighing of all positive and negative evidence, a determination was made as to the realizability of the deferred tax assets on that same basis. Certain valuation allowances in the amount of $23.3 million in the United Kingdom have been released due to sufficient positive evidence obtained during the year ended September 30, 2016. We evaluated the new positive evidence against any negative evidence and determined the valuation allowance was no longer necessary. This new positive evidence includes reaching a position of cumulative income over a three year period and the use of net operating losses on a taxable basis. In addition, the Company's United Kingdom affiliate has strong projected earnings in the United Kingdom. During the third quarter of 2016, the Company's Australian affiliate made an election in Australia to combine the tax results of the URS Australia business with the AECOM Australia business. This election resulted in the ability to utilize the URS Australia businesses' deferred tax assets against the combined future earnings of the Australian group and accordingly, the valuation allowance of $12.9 million was released. Generally, the Company would reverse its valuation allowance in a particular tax jurisdiction if the positive evidence examined, such as projected and sustainable earnings or a tax-planning strategy that allows for the usage of the deferred tax asset, is sufficient to overcome significant negative evidence, such as large net operating loss carryforwards or a cumulative history of losses in recent years. Given the current and forecasted earnings trend in the United Kingdom, sufficient positive evidence in the form of sustained earnings may become available in 2017 to release all or a portion of the related valuation allowance. Certain operations in Canada continue to forecast losses and the valuation allowances could be reduced if the earnings trends reverse. In the United States, the valued deferred tax assets have a restricted life or use under relevant tax law and, therefore, it is unlikely that the valuation allowance related to these assets will reverse. In addition, the Company is continually investigating tax planning strategies that, if prudent and feasible, may be implemented to realize a deferred tax asset that would otherwise expire unutilized. The identification and internal/external approval (as relevant) of such a prudent and feasible tax planning strategy could cause a reduction in the valuation allowance. As of September 30, 2016 and 2015, the Company has remaining tax-deductible goodwill of $210.8 million and $261.2 million, respectively, resulting from acquisitions. The amortization of this goodwill is deductible over various periods ranging up to 15 years. Generally, the Company does not provide for U.S. taxes or foreign withholding taxes on gross book-tax differences in its non-U.S. subsidiaries because such basis differences of approximately $1.6 billion are able to and intended to be reinvested indefinitely. If these basis differences were distributed, foreign tax credits could become available under current law to partially or fully reduce the resulting U.S. income tax liability. There may also be additional US or foreign income tax liability upon repatriaton, although the calculation of such additional taxes is not practicable. The Company has recorded a deferred tax liability in the amount of $113.2 million relating to certain foreign subsidiaries for which the basis differences are not intended to be reinvested indefinitely. As of September 30, 2016 and 2015, the Company had a liability for unrecognized tax benefits, including potential interest and penalties, net of related tax benefit, totaling $96.8 million and $107.6 million, respectively. The gross unrecognized tax benefits as of September 30, 2016 and 2015 were $87.9 million and $95.2 million, respectively, excluding interest, penalties, and related tax benefit. Of the $87.9 million, approximately $71.6 million would be included in the effective tax rate if recognized. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
|  | Fiscal Year Ended |
|  | September 30, 2016 |  | September 30, 2015 |
|  | (in millions) |
Balance at the beginning of the year |  | $ | 95.2 |  | $ | 47.5 |
Gross increase due to acquisitions |  |  | — |  |  | 49.4 |
Gross increase in current period's tax positions |  |  | 7.6 |  |  | 6.0 |
Gross increase in prior years' tax positions |  |  | 5.2 |  |  | 6.4 |
Gross decrease in prior years' tax positions |  |  | (16.6 | ) |  | (0.2 | )
Decrease due to settlement with tax authorities |  |  | (3.2 | ) |  | (2.0 | )
Decrease due to lapse of statute of limitations |  |  | (1.8 | ) |  | (4.6 | )
Gross change due to foreign exchange fluctuations |  |  | 1.5 |  |  | (7.3 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance at the end of the year |  | $ | 87.9 |  | $ | 95.2 |
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The Company classifies interest and penalties related to uncertain tax positions within the income tax expense line in the accompanying consolidated statements of operations. As of September 30, 2016, the accrued interest and penalties were $12.5 million and $2.6 million, respectively, excluding any related income tax benefits. At September 30, 2015, the accrued interest and penalties, including balances acquired in the URS acquisition, were $13.9 million and $3.5 million, respectively, excluding any related income tax benefits. The Company files income tax returns in numerous tax jurisdictions, including the U.S., and numerous U.S. states and non-U.S. jurisdictions around the world. The statute of limitations varies by jurisdiction in which the Company operates. Because of the number of jurisdictions in which the Company files tax returns, in any given year the statute of limitations in certain jurisdictions may expire without examination within the 12-month period from the balance sheet date. The Company concluded its examination by the U.S. Internal Revenue Service for the fiscal years ended September 30, 2010 and September 30, 2011 in the fourth quarter of 2016, with no material adjustments. The U.S. Internal Revenue Service initiated an examination of URS for the years ended December 31, 2012, December 31, 2013 and October 17, 2014 in August 2016. With a few exceptions, the Company is no longer subject to U.S. state or non-U.S. income tax examinations by tax authorities for years before fiscal 2011. While it is reasonably possible that the total amounts of unrecognized tax benefits could significantly increase or decrease within the next twelve months, an estimate of the range of possible change cannot be made.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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