Share-based Payments

9 Months Ended

Jun. 30, 2016

9.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.

Stock option activity for the nine months ended June 30 was as follows:

	2016				2015
	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, prior year	1.3		$	28.26	1.6		$	27.69
Options granted	—		—		—		—
Options exercised	(0.4	)	23.78		(0.3	)	25.02
Options forfeited or expired	—		—		—		—

Outstanding at June 30	0.9		30.30		1.3		28.22


Vested and expected to vest in the future as of June 30	0.9		$	30.30	1.3		$	28.22

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 $29.91 and $32.32 during the nine months ended June 30, 2016 and 2015, respectively. The weighted average grant date fair value of restricted stock unit awards were $29.81 and $31.06 during the nine months ended June 30, 2016 and 2015, respectively. Included in the restricted stock unit grants during the nine months ended June 30, 2015 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 $56.2 million and $98.1 million during the nine months ended June 30, 2016 and 2015, respectively. Included in total compensation expense during the nine months ended June 30, 2015 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 $113.2 million and $115.5 million as of June 30, 2016 and September 30, 2015, respectively, to be recognized on a straight-line basis over the awards’ respective vesting periods which are generally three years.

Cash flow 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 $3.8 million and $3.6 million for the nine months ended June 30, 2016 and 2015, respectively, have been classified as financing cash inflows in the Consolidated Statements of Cash Flows.