|IHS MARKIT LTD. filed this Form 10-Q on 06/26/2018|
as a result of fewer award grants in 2018, limited acceleration of share awards associated with severance activities, and fewer shares still vesting from awards granted prior to the merger between IHS and Markit.
Depreciation and Amortization Expense
For the three and six months ended May 31, 2018, compared to the three and six months ended May 31, 2017, depreciation and amortization expense increased on an absolute basis primarily because of the aM acquisition, but was relatively flat on a percentage of revenue basis.
Please refer to Note 6 to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a discussion of costs associated with our integration and other acquisition-related activities. During the six months ended May 31, 2018, we recorded approximately $53 million of direct and incremental costs associated with acquisition-related activities, including employee severance charges and retention costs, contract termination costs for facility consolidations, legal and professional fees, and performance compensation expense related to the aM acquisition.
Segment Adjusted EBITDA
For the three and six months ended May 31, 2018, compared to the three and six months ended May 31, 2017, Adjusted EBITDA increased primarily due to the leverage in our business model, as incremental revenue drives higher margins. We also continue to focus our efforts on cost management to improve overall margins. Resources segment Adjusted EBITDA increased slightly due to a return to revenue growth, partially offset by modest investment spending increases. Transportation and Financial Services segment Adjusted EBITDA continued to increase because of revenue growth that flowed through to segment Adjusted EBITDA.
As a percentage of revenue, Adjusted EBITDA continued to improve due to margin expansion from revenue growth and continued integration and business leveraging efforts. Transportation’s Adjusted EBITDA margin increase was partly offset by low aM margins and Resources Adjusted EBITDA margin was impacted by modest investment spending increases.
Provision for Income Taxes
Our effective tax rate is estimated based upon the effective tax rate expected to be applicable for the full year.
Our effective tax rate for the three and six months ended May 31, 2018 was 10 percent and negative 61 percent, respectively, compared to negative 1 percent and negative 3 percent for the three and six months ended May 31, 2017. The low or negative 2018 tax rates are primarily due to tax benefits associated with US tax reform of approximately $136 million in the first quarter of 2018, and excess tax benefits on stock-based compensation of approximately $7 million and $31 million for the three and six months ended May 31, 2018, respectively. The negative 2017 tax rates are primarily due to tax benefits associated