Washington, D.C. 20549 for the year ended December 31, 2018Form 20-F United States Securities and Exchange Commission UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
______________________________________________________________________
FORM 20-F
(Mark One)
___ Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
OR
_X_ Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2018
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
OR
___ Shell company report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.
_____________________________________
Commission File Number: 333-08704
ICON PUBLIC LIMITED COMPANY
(Exact name of Registrant as Specified in its Charter)
ICON PUBLIC LIMITED COMPANY
(Translation of Registrant’s name into English)
Ireland
(Jurisdiction of Incorporation or Organization)
SOUTH COUNTY BUSINESS PARK,
LEOPARDSTOWN,
DUBLIN 18, IRELAND
(Address of principal executive offices)
Brendan Brennan, Chief Financial Officer
South County Business Park, Leopardstown, Dublin 18, Ireland.
Brendan.Brennan@iconplc.com
+353-1-291-2000
_____________________________________
(Name, telephone number, email and/or facsimile number and address of Company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
ORDINARY SHARES, PAR VALUE €0.06 EACH
Name of exchange on which registered
NASDAQ GLOBAL SELECT MARKET
Securities registered or to be registered pursuant to section 12(g) of the Act:
Title of each class
NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE
(Title of class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report: 53,971,706 Ordinary Shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as determined in Rule 405 of the Securities Act. Yes X No__
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes __ No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No__
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months: Yes X No__
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non- accelerated filer.
Large accelerated filer X Accelerated filer __ Non-accelerated filer __
Emerging growth company _
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected
not to use the extended transition period for ocmplying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP X International Financial Reporting Standards as issued Other __
by the International Accounting Standards Board __
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow. Item 17 __ Item 18__
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes __ No X
TABLE OF CONTENTS
General
Cautionary Statement
PART I
Item 1. Identity of Directors, Senior Management and Advisors(cid:3)
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk(cid:3)
Item 12. Description of Securities Other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds(cid:3)
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethical Conduct
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers(cid:3)
Item 16F. Changes in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
I(cid:87)(cid:72)(cid:80)(cid:3)(cid:20)(cid:26)(cid:17)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)
Item(cid:3)18.(cid:3)FinancialStatements
Item 19. Financial Statements and Exhibits
Page
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General
As used herein, “ICON plc”, “ICON”, the “Company” and “we” or “us” refer to ICON public limited company and its consolidated
subsidiaries, unless the context requires otherwise.
Unless otherwise indicated, ICON plc’s financial statements and other financial data contained in this Form 20-F are presented
in United States dollars (“$”) and are prepared in accordance with generally accepted accounting principles in the United States
(“U.S. GAAP”).
In this Form 20-F, references to "U.S. dollars", "U.S.$" or "$" are to the lawful currency of the United States, references to "pounds
sterling", "sterling", "£", "pence" or "p" are to the lawful currency of the United Kingdom, references to “euro” or “€” are to the
European single currency adopted by nineteen members of the European Union (including the Republic of Ireland, France, Germany,
Spain, Italy, Finland, Belgium, Latvia, and the Netherlands). ICON publishes its consolidated financial statements in U.S. dollars.
Cautionary Statement Regarding Forward-looking Statements
Statements included herein which are not historical facts are forward-looking statements. Such forward-looking statements are
made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Forward-
looking statements may be identified by the use of future tense or other forward looking words such as “believe”, “expect”,
“anticipate”, “should”, “may”, “strategy”, or other variations or comparable terminology. The forward looking statements involve
a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, our
results could be materially adversely affected. The risks and uncertainties include, but are not limited to, dependence on the
pharmaceutical industry and certain clients, the need to regularly win projects and then to execute them efficiently and correctly,
the challenges presented by rapid growth, competition and the continuing consolidation of the industry, the dependence on certain
key executives, changes in the regulatory environment and other factors identified in the Company’s United States Securities and
Exchange Commission filings and in the “Risk Factors” included on pages 4 through 16. The Company has no obligation under
the PSLRA to update any forward looking statements and does not intend to do so.
1
Part I
Item 1. Identity of Directors, Senior Management and Advisors.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
Selected Historical Consolidated Financial Data for ICON plc
The following selected financial data set forth below are derived from the Company’s consolidated financial statements and should
be read in conjunction with, and are qualified by reference to, Item 5 “Operating and Financial Review and Prospects” and the
Company’s consolidated financial statements and related notes thereto included elsewhere in this Form 20-F.
The Company adopted ASC 606 'Revenue from Contracts with Customers' ("ASC 606") with a date of initial application of January
1, 2018. The new revenue recognition policies were applied in the preparation and presentation of the results for the twelve months
ended December 31, 2018. As ICON adopted the standard using the cumulative effect transition method, there is no restatement
of comparative amounts. The results for the year ended December 31, 2017 and previously therefore reflect the provisions of ASC
605 'Revenue Recognition'. The most significant impact of application of the new standard reflects the measurement of a clinical
trial service as a single performance obligation recognized over time. We concluded that ICON is the contract principal in respect
of both direct services and in the use of third parties (principally investigator services) that support the clinical trial. The progress
towards completion for clinical service contracts is measured based on total project costs (direct fees are therefore inclusive of
third party costs). Revenue is our primary measure of performance on adoption of ASC 606. In common with others in the sector,
our results previously separately identified that revenue stream which related to services provided by third parties. Those services
were previously separately identified as reimbursable expenses and presented separately in our Statement of Operations.
Reimbursable expenses are included within direct costs on adoption of ASC 606. Throughout the document revenue as reported
on adoption of ASC 606 is referred to as revenue. Revenue as reported for the years ended December 31, 2017 and previously are
gross revenues (inclusive of revenue from reimbursable expenses) or net revenues (excluding revenue from reimbursable expenses).
This treatment is consistent with the adoption of ASC 606 from January 1, 2018 without restatement of comparatives. See note
26 for impact of new accounting policy.
2
Statement of Operations Data:
Revenue/gross revenue
Reimbursable expenses (1)
Costs and expenses:
Direct costs (1)
Selling, general and administrative
Depreciation and amortization
Restructuring and other items
(2),(3),(4),(5)
Total costs and expenses
Income from operations
Net interest (expense)/income
Income before provision for income taxes
Provision for income taxes
Net income
Net income per ordinary share (6):
Basic
Diluted
Weighted average number
of ordinary shares outstanding:
Basic
Diluted
Balance Sheet Data:
Cash and cash equivalents
Available for sale investments
Working capital
Total assets
Non-current other liabilities
Non-current government grants
Ordinary share capital
Additional paid-in capital
Shareholders’ equity
2018
Year Ended December 31,
2017
2016
2015
2014
(in thousands, except share and per share data)
$
2,595,777 $
—
2,402,321 $
(643,882)
1,758,439
2,364,956 $
(698,469)
1,666,487
2,161,618 $
(586,640)
1,574,978
2,030,286
(526,970)
1,503,316
1,818,220
325,794
65,916
1,027,310
323,741
61,297
961,333
325,726
59,575
908,979
326,786
57,677
12,490
2,222,420
373,357
(8,743)
364,614
(41,958)
322,656 $
7,753
1,420,101
338,338
(10,281)
328,057
(46,569)
281,488 $
8,159
1,354,793
311,694
(11,522)
300,172
(37,993)
262,179 $
—
1,293,442
281,536
(2,686)
278,850
(39,311)
239,539 $
903,167
336,461
52,542
8,796
1,300,966
202,350
366
202,716
(30,248)
172,468
5.96 $
5.89 $
5.20 $
5.13 $
4.75 $
4.65 $
4.08 $
3.97 $
2.80
2.73
54,118,764
54,790,663
54,129,439
54,849,046
55,248,900
56,407,136
58,746,935
60,290,033
61,496,115
63,131,417
2018
Year Ended December 31,
2017
2016
(in thousands)
2015
2014
395,851 $
59,910
719,560
2,354,255
13,446
877
4,658
529,642
1,354,281
282,859 $
77,589
534,960
2,146,618
17,111
966
4,664
481,337
1,191,000
192,541 $
68,046
463,552
1,825,843
23,752
887
4,692
438,126
945,174
103,911 $
85,990
290,939
1,717,209
12,224
959
4,719
383,355
763,096
118,900
97,100
281,148
1,528,850
13,179
1,116
5,059
327,212
950,206
$
$
$
$
(1) Reimbursable expenses are comprised of payments to investigators and certain other costs reimbursed by clients under
terms specific to each of the Company’s contracts. Reimbursable expenses included within direct costs for the year-ended
December 31, 2018 were $702,812,000. See Note 2 (d) to the Audited Consolidated Financial Statements.
3
(2) A restructuring charge of $12.5 million was recognized during the year ended December 31, 2018, under a restructuring
plan adopted following a review of operations. The restructuring plan reflected resource rationalization across the business
to improve resource utilization. See Note 14 to the Audited Consolidated Financial Statements.
(3) A restructuring charge of $7.8 million was recognized during the year ended December 31, 2017, under a restructuring
plan adopted following a review of operations. The restructuring plan reflected resource rationalization across the business
to improve resource utilization. See Note 14 to the Audited Consolidated Financial Statements.
(4) A restructuring charge of $8.2 million was recognized during the year ended December 31, 2016 under a restructuring
plan adopted following a review by the Company of its operations. The restructuring plan includes resource
rationalizations in certain areas of the business to improve resource utilization and improve operational effectiveness,
resulting in a charge of $6.2 million, and office consolidation which resulted in the recognition of an onerous lease
obligation of $2.0 million. See Note 14 to the Audited Consolidated Financial Statements.
(5) A restructuring charge of $8.8 million was recognized during the year ended December 31, 2014. Following the closure
of the Company’s European Phase 1 services in 2013, the Company recognized a charge in 2014 in relation to its
Manchester, United Kingdom facility; $5.6 million in relation to asset impairments and $3.2 million in relation to an
onerous lease charge associated with this facility.
(6) Net income per ordinary share is based on the weighted average number of outstanding ordinary shares. Diluted net
income per share includes potential ordinary shares from the exercise of options.
Risk Factors
Various risk factors that are relevant to our business and the services we provide are outlined below. If any of these events were
to occur, our business operations and financial results could be materially adversely affected.
Risk Related to Our Business and Operations
We depend on a limited number of customers and a loss of, or significant decrease in business from one or more of them could
affect our business.
During the year ended December 31, 2018 39.5% of our revenues were derived from our top five customers, with one customer
contributing more than 10% of our revenues during the period (13.6%). During the year ended December 31, 2017 42% of our
revenues (including revenue from reimbursable expenses) were derived from our top five customers, with one customer contributing
more than 10% of our revenues (including revenue from reimbursable expenses) during the period (21.0%). No other customer
contributed more than 10% of our net revenues during this period. See note 16 Disaggregation of revenue.
During the year ended December 31, 2016 45% of our net revenues (excluding revenue from reimbursable expenses) were derived
from our top five customers, with one customer contributing more than 10% of our net revenues (excluding revenue from
reimbursable expenses) during the period (26%). No other customer contributed more than 10% of our net revenues during this
period. The loss of, or a significant decrease in business from one or more of these key customers could have a material adverse
impact on our results of operations and financial results.
Many of our contracts are long-term fixed-fee contracts. We would lose money in performing these contracts if the costs of
performance exceed the fixed fees for these projects and we are unable to negotiate a change order for the value of work
performed.
Many of our contracts are long-term fixed fee contracts. Revenues on these contracts are agreed in the contract between the
Company and the customer and are based on an assessment of progress towards completion based on the cost of time and
reimbursable costs. Factors considered in estimating time requirements include the complexity of the study, the number of
geographical sites where trials are to be conducted and the number of patients to be recruited at each site. The Company regularly
reviews the estimated hours on each contract to determine if the budget accurately reflects the agreed tasks to be performed taking
into account the state of progress at the time of review. The Company also endeavors to ensure that changes in scope are appropriately
monitored and change orders for additional revenue are promptly negotiated for additional work as necessary. If we were to fail
to successfully negotiate change orders for changes in the resources required or the scope of the work to be performed and the
costs of performance of these contracts exceeded their fixed fees, it could materially adversely affect our operations and financial
results.
4
If our customers discontinue using our services, or cancel or discontinue projects, our revenue will be adversely affected and/
or we may not receive their business in the future or may not be able to attract new clients.
Our clients may discontinue using our services completely or cancel some projects either without notice or upon short notice. The
termination or delay of a large contract or of multiple contracts could have a material adverse effect on our revenue and profitability.
Historically, clients have cancelled or discontinued projects and may in the future cancel their contracts with us for reasons
including, amongst others:
•
•
•
•
•
the failure of products being tested to satisfy safety or efficacy requirements;
unexpected or undesired clinical results of the product;
a decision that a particular study is no longer necessary or viable;
poor project performance, quality concerns, insufficient patient enrollment or investigator recruitment; and
production problems resulting in shortages of the drug.
If we lose clients, we may not be able to attract new ones and if we lose individual projects, we may not be able to replace them.
If we fail to attract or retain qualified staff, our performance may suffer.
Our business, future success and ability to continue to expand operations depends upon our ability to attract, hire, train and retain
qualified professional, scientific and technical operating staff. We compete for qualified professionals with other Clinical Research
Organizations “CROs”, temporary staffing agencies and the in-house departments of pharmaceutical, biotechnology and medical
device companies. An inability to attract and retain a sufficient number of high caliber clinical research professionals (in particular,
key personnel and executives) at an acceptable cost would impact our ability to provide our services, our future performance and
results of operations.
Our ability to perform clinical trials is dependent upon the ability to recruit suitable willing patients.
The successful completion of clinical trials is dependent upon the ability to recruit suitable and willing patients on which to test
the drug under study. The availability of suitable patients for enrollment on studies is dependent upon many factors including,
amongst others, the size of the patient population, the design of the study protocol, eligibility criteria, the referral practices of
physicians, the perceived risks and benefits of the drug under study and the availability of alternative medication, including
medication undergoing separate clinical trials. Insufficient or inappropriate patient enrollment may result in the termination or
delay of a study which could have a material adverse impact on our results of operations.
The Company is focused on continuing to develop its expertise in patient recruitment. The focus is on making it easier for the site
and the patient to actively participate in a trial to ensure increased predictability, enrolment and retention. Our site and patient
solutions group includes upfront planning of site and patient management including identification, enrolment and engagement.
Improved site selection is achieved through:
•
•
•
leading technology to identify where the patients are that match the protocol;
assessment of the qualification of sites based on real data;
partnerships with leading technology vendors such as Intel, EHR4CR and TriNeTX and developing the capability to
enable EMR interrogation into clinical insights such as sub-populations and larger pre-screened pool where the technology
and regulations are enabled.
The burden on the site in ensuring patient enrolment and engagement is achieved through integrated site networks. ICON have a
number of site alliance partners. During 2018, we enhanced our site and patient recruitment capabilities with an expansion of the
PMG Research network through a partnership with the Du Page Medical Group. We also use digital solutions to drive site
performance, including pre-screening, eConsent, learning management, document tracking and management with key applications.
5
Our ability to perform clinical trials is dependent upon our ability to recruit suitable willing investigators.
We contract with physicians located in hospitals, clinics or other similar sites, who serve as investigators in conducting clinical
trials to test new drugs on their patients. Investigators supervise administration of the study drug to patients during the course of
the clinical trial. The successful conduct of a clinical trial is dependent upon the integrity, experience and capabilities of the
investigators conducting the trial. Insufficient investigator recruitment, which in turn may lead to insufficient or inappropriate
patient enrollment, may result in the termination or delay of a study which could have a material adverse impact on our results of
operations.
We rely on third parties for important products and services.
We depend on certain third parties to provide us with products and services critical to our business. Such services include, amongst
others, suppliers of drugs for patients participating in trials, suppliers of kits for use in our central laboratory business, suppliers
of reagents for use in our testing equipment and providers of maintenance services for our equipment. The failure of any of these
third parties to adequately provide the required products or services or the significant increase in the costs of such products and
services could have a material adverse effect on our business.
Our business depends on the continued effectiveness and availability of our information systems, including the information
systems we use to provide our services to our clients, and any system failures of, security breaches of or cyber-attacks to these
systems may materially limit our operations or have a material adverse effect on our results of operations.
Due to the global nature of our business and our reliance on information systems to provide our services, we use web-enabled and
other integrated information systems in delivering our services. We will to continue to increase the use of these systems and such
systems will either be developed internally or provided in conjunction with third parties. We also provide access to similar
information systems to certain clients in connection with the services we provide them. As the use, scope and complexity of our
information systems continue to grow, we are exposed to and will increasingly be exposed to the risks inherent in the development,
integration and ongoing operation of evolving information systems, including:
•
•
disruption or failure of data centers, telecommunications facilities or other key infrastructure platforms;
security breaches, cyber-attacks or other failures or malfunctions in our application or information systems or their
associated hardware or other systems that we have access to or that we rely upon or that have access to our systems; and
•
excessive costs, excessive delays or other deficiencies in or problems with systems development and deployment.
The materialization of any of these risks may impede our ability to provide services, the processing of data, the delivery of databases
and services and the day-to-day management of our business and could result in the corruption, loss or unauthorized disclosure
of proprietary, confidential or other data, as well as reputational harm. While we have cybersecurity controls and disaster recovery
plans in place, they might not adequately protect us in the event of a system failure, security breach or cyber-attack. Despite any
precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, information
system security breaches, cyber-attacks and similar events that impact on our various computer facilities could result in interruptions
in the flow of data to our servers and from our servers to our clients. Corruption or loss of data may result in the need to repeat a
trial at no cost to the client, but at significant cost to us, or result in one or more of the termination of a contract, legal proceedings
or claims against us or damage to our reputation. Additionally, significant delays in system enhancements or inadequate performance
of new or upgraded systems once completed could damage our reputation and harm our business. Long-term disruptions in the
infrastructure caused by events such as security breaches, cyber-attacks, natural disasters, the outbreak of war, the escalation of
hostilities and acts of terrorism, particularly involving cities in which we have offices, could adversely affect our business.
Unauthorized disclosure of sensitive or confidential data, whether through system failure or employee negligence, fraud or
misappropriation, could damage our reputation and cause us to lose clients. Similarly, despite investing in information and cyber-
security controls there is a risk that unauthorized access to or through our information systems or those we develop for our clients,
whether by our employees or third parties, including a cyber-attack by computer programmers and hackers who may attack ICON
systems, develop and deploy viruses, worms, ransomware or other malicious software programs could result in negative publicity,
significant remediation costs, legal liability, loss of customers and damage to our reputation and could have a material adverse
effect on our results of operations and financial results. In addition, our liability insurance might not be sufficient in type, the cover
provided or amount to adequately cover us against claims related to security breaches, cyber-attacks and other related breaches.
6
Upgrading the information systems that support our operating processes and evolving the technology platform for our services
pose risks to our business.
Continued efficient operation of our business requires that we implement standardized global business processes and evolve our
information systems to enable this implementation. We have continued to undertake significant programs to optimize business
processes with respect to our services. A failure to effectively manage the implementation and adapt to new processes designed
into these new or upgraded systems in a timely and cost-effective manner may result in disruption to our business and negatively
affect our operations.
We have entered into agreements with certain vendors to provide systems development and integration services that develop or
license to us the IT platform for programs to optimize our business processes. If such vendors fail to perform as required or if
there are substantial delays in developing, implementing and updating the IT platform, our customer delivery may be impaired
and we may have to make substantial further investments, internally or with third parties, to achieve our objectives. Additionally,
our progress may be limited by parties with existing or claimed patents who seek to prevent us from using preferred technology
or seek license payments from us.
Meeting our objectives is dependent on a number of factors which may not take place as we anticipate, including obtaining adequate
technology-enabled services, creating IT-enabled services that our customers will find desirable and implementing our business
model with respect to these services. If we do not keep pace with rapid technological changes in the CRO industry, our products
and services may become less competitive or even obsolete. This applies in particular to our ICONIK, Firecrest and ADDPLAN
and One Search services. Also, increased requirements for investment in information technology may negatively impact our
financial condition, including profitability.
We rely on our interactive response technologies to provide accurate information regarding the randomization of patients and
the dosage required for patients enrolled in the trials.
We develop and maintain computer run and web based interactive response technologies to automatically manage the randomization
of patients in trials, assign the study drug and adjust the dosage when required for patients enrolled in trials we support. An error
in the design, programming or validation of these systems could lead to inappropriate assignment or dosing of patients, which
could give rise to patient safety issues, incorrect dosing of patients, invalidation of the trial and/or liability claims against the
Company, amongst other things, any of which could have a material effect on our financial condition and operations.
Our operations might be impacted by a disruption to travel systems.
Many of our operations rely on the availability of air or other transportation for the distribution of clinical trial materials, study
samples and personnel. While we have developed contingency plans to minimize the impact of such events, a disruption to the
availability of air transportation or other travel systems could have a material adverse impact on our ability to provide services
and results of operations.
We may make, or be unable to make, acquisitions in the future, which may lead to disruptions to our ongoing business.
We have made a number of acquisitions and will continue to review new acquisition opportunities. If we are unable to identify
suitable acquisition targets, complete an acquisition or successfully integrate an acquired company or business, our business may
be disrupted. The success of an acquisition will depend upon, among other things, our ability to:
•
•
•
•
effectively and quickly assimilate the operations and services or products of the acquired company or business;
integrate acquired personnel;
retain and motivate key employees;
retain customers; and
• minimize the diversion of management's attention from other business concerns.
In the event that the operations of an acquired company or business do not meet our performance expectations, we may have to
restructure the acquired company or business or write-off the value of some or all of the assets of the acquired company or business.
7
Improper performance of our services
The performance of clinical development services is complex and time-consuming. We may make mistakes in conducting a clinical
trial that could negatively impact or damage the usefulness of the clinical trial or cause the results to be reported improperly. If
the clinical trial results are compromised, we could be subject to significant costs or liability, which could have an adverse impact
on our ability to perform our services. Large clinical trials are costly, and while we endeavor to contractually limit our exposure
to such risks, improper performance of our services could have an adverse effect on our financial condition, damage our reputation
and result in the cancellation of current contracts or failure to obtain new contracts from affected or other clients.
Our relationships with existing or potential customers who are in competition with each other may adversely impact the degree
to which other customers or potential customers use our services, which may adversely affect our results of operations.
The biopharmaceutical industry is highly competitive, with biopharmaceutical companies each seeking to persuade payers,
providers and patients that their drug therapies are better and more cost-effective than competing therapies marketed or being
developed by competing companies. In addition to the adverse competitive interests that biopharmaceutical companies have with
each other, biopharmaceutical companies also have adverse interests with respect to drug selection and reimbursement with other
participants in the health care industry, including payers and providers. Biopharmaceutical companies also compete to be first to
market with new drug therapies. We regularly provide services to biopharmaceutical companies who compete with each other and
we sometimes provide services to such customers regarding competing drugs in development. Our existing or future relationships
with our biopharmaceutical customers may therefore deter other biopharmaceutical customers from using our services or may
result in our customers seeking to place limits on our ability to serve other biopharmaceutical industry participants. In addition,
our further expansion into the broader health care market may adversely impact our relationships with biopharmaceutical customers
and such customers may elect not to use our services, reduce the scope of services that we provide to them or seek to place
restrictions on our ability to serve customers in the broader health care market with interests that are adverse to theirs. Any loss
of customers or reductions in the level of revenues from a customer could have a material adverse effect on our results of operations,
business and prospects.
We have only a limited ability to protect our intellectual property rights and these rights are important to our success.
Our success depends, in part, upon our ability to develop, use and protect our proprietary methodologies, analytics, systems,
technologies and other intellectual property. Existing laws of the various countries in which we provide services or solutions offer
only limited protection of our intellectual property rights, and the protection in some countries may be very limited. We rely upon
a combination of trade secrets, confidentiality policies, non-disclosure, invention assignment and other contractual arrangements
and patent, copyright and trademark laws, to protect our intellectual property rights. These laws are subject to change at any time
and certain agreements may not be fully enforceable, which could further restrict our ability to protect our innovations. Our
intellectual property rights may not prevent competitors from independently developing services similar to or duplicative of ours.
Further, the steps we take in this regard might not be adequate to prevent or deter infringement or other misappropriation of our
intellectual property by competitors, former employees or other third parties and we might not be able to detect unauthorized use
of, or take appropriate and timely steps to enforce our intellectual property rights. Enforcing our rights might also require
considerable time, money and oversight and we may not be successful in enforcing our rights.
We may, in certain circumstances, grant a customer more expansive rights in intellectual property developed in connection with
a contract than we would normally grant. In such situations, we may forego the use of all intellectual property rights we create or
develop, which would limit our ability to reuse or deploy that intellectual property for other customers. Any limitation on our
ability to provide a service or solution may result in us losing revenue-generating opportunities and may also result in us incurring
additional expenses to develop or license new or modified solutions for other projects or customers.
The biopharmaceutical industry has a history of patent and other intellectual property litigation and we might be involved in
costly intellectual property lawsuits.
The biopharmaceutical industry has a history of intellectual property litigation, and these lawsuits will likely continue in the future.
Accordingly, we may face patent infringement legal proceedings by companies that have patents for similar business processes
or other legal proceedings alleging infringement of their intellectual property rights. Legal proceedings relating to intellectual
property could be expensive, take significant time and divert management’s attention from other business concerns, regardless of
the outcome of the litigation. If we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial
damages and we could be required to stop the infringing activity or obtain a license to use technology on unfavorable terms. Any
8
infringement or other legal processing related to intellectual property could have a material adverse effect on our operations and
financial condition.
We act as legal representative for some clients.
We act as the legal representative for certain clients in certain jurisdictions. As we believe that acting as legal representative of
clients exposes us to a higher risk of liability, this service is provided subject to our policy and requires certain preconditions to
be met. The preconditions relate to obtaining specific insurance commitments and indemnities from the client to cover the nature
of the exposure. However, there is no guarantee that the specific insurance will be available and provide cover or that a client will
fulfill its obligations in relation to their indemnity.
Risk Related to Our Industry
We are dependent on the continued outsourcing of research and development by the pharmaceutical, biotechnology and medical
device industries.
We are dependent upon the ability and willingness of the pharmaceutical, biotechnology and medical device companies to continue
to spend on research and development and to outsource the services that we provide. We are therefore subject to risks, uncertainties
and trends that affect companies in these industries that we do not control. We have benefited to date from the tendency of
pharmaceutical, biotechnology and medical device companies to outsource clinical research projects. Any downturn in these
industries or reduction in spending or outsourcing could materially adversely affect our business. The following could each result
in such a downturn:
•
•
if pharmaceutical, biotechnology or medical device companies expanded upon their in-house clinical or development
capabilities, they would be less likely to utilize our services;
if governmental regulations were changed, it could affect the ability of our clients to operate profitably, which may lead
to a decrease in research spending and therefore this could have a material adverse effect on our business; and
•
if unfavorable economic conditions or disruptions in the credit and capital markets negatively impacted our clients.
Large pharmaceutical companies are increasingly consolidating their vendor base and entering strategic partnership
arrangements with a limited number of outsource providers.
Large pharmaceutical companies are continually seeking to drive efficiencies in their development processes to both reduce costs
associated with the development of new drug candidates and accelerate time to market. As a result, large pharmaceutical companies,
in particular, are increasingly looking to consolidate the number of outsource providers with which they engage, with many entering
strategic partnership arrangements with a limited number of outsource providers. The failure to enter strategic partnership
arrangements with customers or the loss of existing customers as a result of them entering strategic partnership arrangements with
our competitors could have a material adverse impact on our results of operations.
Increased collaboration amongst pharmaceutical companies in research and development activities may lead to fewer research
opportunities.
Certain pharmaceutical companies have begun to collaborate in seeking to develop new drug candidates. Increased collaboration
amongst pharmaceutical companies may lead to fewer research opportunities, which in turn may lead to fewer outsource
opportunities for companies within the CRO industry. A reduction in outsource opportunities as a result of this increased
collaboration could have a material adverse impact on our results of operations.
We operate in a highly competitive and dynamic market.
The CRO industry is highly competitive. In particular, we compete with other large global CROs for strategic relationships with
large pharmaceutical companies. If we are unable to retain and renew existing strategic relationships and win new strategic
relationships, there would be a material adverse impact on our results. Similarly, we compete with other CROs for work which
comes outside of these strategic relationships and being unable to win work outside of these strategic relationships would have a
material adverse impact on our results.
The type and depth of services provided by CROs has changed in recent years. Failure to develop and market new services or
expand existing service offerings could adversely affect our business and operations.
9
New entrants may also enter the market which would further increase competition and could adversely affect our business and
operations.
Risk Related to Our Financial Results and Financial Position
Our quarterly results are dependent upon a number of factors and can fluctuate from quarter to quarter.
Our results of operations in any quarter can fluctuate or differ from expected or forecast results depending upon or due to, among
other things, the number and scope of ongoing client projects, the commencement, postponement, variation, cancellation or
termination of projects in a quarter, the mix of activity, cost overruns, employee hiring and other factors. Our revenue in any period
is directly related to the number of employees who were working on billable projects together with investigator activity during
that period. We may be unable to compensate for periods of under-utilization during one part of a fiscal period by earning revenue
during another part of that period. We believe that operating results for any particular quarter are not necessarily a meaningful
indicator of future results.
Also, if in future quarters, we are unable to continue to deliver operational efficiencies and our expenses grow faster than our
revenues, our operating margins, profitability and overall financial condition may be materially adversely impacted.
Our exposure to exchange rate fluctuations could adversely affect our results of operations.
Our contracts with clients are sometimes denominated in currencies other than the currency in which we incur expenses related
to such contracts. Where expenses are incurred in currencies other than those in which contracts are priced, fluctuations in the
relative value of those currencies could have a material adverse effect on our results of operations.
In addition, we are also subject to translation exposures as our consolidated financial results are presented in U.S. dollars, while
the local results of certain of our subsidiaries are prepared in currencies other than U.S. dollars, including, amongst others, the
pound sterling and the euro. Accordingly, changes in exchange rates between the U.S. dollar and those other currencies will affect
the translation of subsidiary companies' financial results into U.S. dollars in reporting our consolidated financial results.
Our effective tax rate may fluctuate from quarter-to-quarter, which may adversely affect our results of operations.
Our quarterly effective tax rate has depended and will continue to depend on the geographic distribution of our taxable earnings
amongst the multiple tax jurisdictions in which we operate and the tax law in those jurisdictions. Changes in the geographic mix
of our results of operations amongst these jurisdictions may have a significant impact on our effective tax rate from quarter to
quarter. Changes in tax law in one or more jurisdictions could also have a significant impact on our tax rate and results. In addition,
as we operate in multiple tax jurisdictions, we may be subject to audits in certain jurisdictions. These audits may involve complex
issues which could require an extended period of time for resolution. The resolution of audit issues may lead to differences,
additional taxes, fines or penalties which could have a material adverse impact on our effective tax rate and our financial condition
and results.
Our unsatisfied performance obligation (assessment of the realizable value of contracted awards) may not convert to revenue
and the rate of conversion may slow.
Our remaining unsatisfied performance obligation is that element of contracted awards that has not yet converted to revenue. This
value is not necessarily a meaningful predictor of future results, due to the potential for the cancellation or delay of projects
included in the backlog. No assurances can be given that we will be able to realize this backlog in full as revenue. A failure to
realize these contracted awards could have a material adverse impact on our results of operations. In addition, as the length and
complexity of projects increases, the rate at which contracted awards convert to revenue may be slower than in the past. A significant
reduction in the rate of conversion could have a material impact on our results of operations.
The Company is exposed to various risks in relation to our cash and cash equivalents and short term investments.
The Company’s treasury function manages our available cash resources and invests significant cash balances in various financial
institutions to try to ensure optimum returns for our surplus cash balances. These balances are classified as cash and cash equivalents
or short term investments depending on the maturity of the related investment. Cash and cash equivalents comprise cash and highly
liquid investments with maturities of three months or less. Short term investments comprise highly liquid investments with
maturities of greater than three months and minimum “A-” rated fixed and floating rate securities.
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Given the global nature of our business, we are exposed to various risks in relation to these balances including liquidity risk, credit
risk associated with the counterparties with whom we invest, interest rate risk on floating rate securities, sovereign risk (our
principle sovereign risk relates to investments in U.S. Treasury funds) and other factors.
Although we have not recognized any significant losses to date on our cash and cash equivalents or short term investments, any
significant declines in their market values could have a material adverse effect on our financial position and operating results.
Changes in accounting standards may adversely affect our financial statements
.
We prepare our financial statements in accordance with generally accepted accounting principles in the United States of America
('US GAAP') which is revised on an on-going basis by the authoritative bodies. It is possible that future accounting standard
changes, may require additional changes to the accounting treatment that we apply in preparation of our financial statements.
These changes may also require significant changes to our reporting systems. We applied ASC 606 - 'Revenue from contracts with
customers' with effect from January 1, 2018. Under this new standard, the Company is required to recognize revenue in respect
of our clinical trial services on a percentage of completion basis. The change in revenue recognition requires significant estimates
of project costs that will need to be updated and adjusted on a regular basis. These updates may result in unexpected variability
in the timing of recognition of revenue and therefore in our operating results. Application of ASC 842 - 'Leases' will result in the
recognition of a lease liability and right-of-use asset on the Consolidated Balance Sheet at December 31, 2019. See Item 5 for our
assessment of the impact of application.
Risk Related to Political, Legal or Regulatory Environment
We may lose business opportunities as a result of health care reform and the expansion of managed care organizations.
Numerous governments, including the U.S. government have undertaken efforts to control growing health care costs through
legislation, regulation and voluntary agreements with medical care providers and drug companies. If these efforts are successful,
pharmaceutical, biotechnology and medical device companies may react by spending less on research and development and
therefore this could have a material adverse effect on our business.
In addition to health care reform proposals, the expansion of managed care organizations in the health care market may result in
reduced spending on research and development. Managed care organizations' efforts to cut costs by limiting expenditures on
pharmaceuticals and medical devices could result in pharmaceutical, biotechnology and medical device companies spending less
on research and development. If this were to occur, we would have fewer business opportunities and our revenues could decrease,
possibly materially.
Healthcare reform legislation, other changes in the healthcare industry and in healthcare spending could adversely affect our
business model, financial condition or results of operations.
Our results of operations and financial conditions could be affected by changes in healthcare spending and policy. The healthcare
industry is subject to changing political, regulatory and other influences. It is possible that legislation will be introduced and
passed in the United States repealing, modifying or invalidating the current healthcare reform legislation, in whole or in part, and
signed into law. Because of the continued uncertainty about the implementation of the current healthcare reform legislation,
including the potential for further legal challenges or repeal of that legislation, we cannot quantify or predict with any certainty
the likely impact of the current healthcare reform legislation or its repeal on the health care sector, on our customers and ultimately
on our financial condition or results of operations, in particular the outsourcing of costs by our customer base to CROs.
We may lose business as a result of changes in the regulatory environment.
Various regulatory bodies throughout the world may enact legislation, rules and guidance which could introduce changes to the
regulatory environment for drug development and research. The adoption and implementation of such legislation, rules and guidance
is difficult to predict and therefore could have a material adverse effect on our business.
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Failure to comply with the regulations and requirements of the U.S. Food and Drug Administration and other regulatory
authorities could result in substantial penalties and/or loss of business.
The U.S. Food and Drug Administration, or "FDA", and other regulatory and government authorities and agencies inspect and
audit us from time to time to ensure that we comply with their regulations and guidelines, including environmental and health and
safety matters, and other requirements imposed in connection with the performance of government contracts. We must comply
with the applicable regulatory requirements governing the conduct of clinical trials and contracting with the government in all
countries in which we operate. If we fail to comply with any of these requirements we could suffer some or all of:
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termination of or delay in any research;
disqualification of data;
denial of the right to conduct business;
criminal penalties;
other enforcement actions including debarment from government contracts;
loss of clients and/or business; and
litigation from clients and/or patients and/or regulatory authorities and/or other affected third parties, and resulting material
penalties, damages and costs.
We are subject to political, regulatory, operational and legal risks associated with our international operations.
We are one of a small group of organizations with the capability and expertise to conduct clinical trials on a global basis. We
believe that this capability to provide our services globally in most major and developing pharmaceutical markets enhances our
ability to compete for new business from large multinational pharmaceutical, biotechnology and medical device companies. We
have expanded geographically in the past and intend to continue expanding in regions that have the potential to increase our client
base or increase our investigator and patient populations. We expect that revenues earned in emerging markets will continue to
account for an increasing portion of our total revenues. However, emerging market operations may present several risks, including
civil disturbances, health concerns, cultural differences such as employment, regulatory and business practices, compliance with
economic sanctions, laws and regulations, volatility in gross domestic product, economic and governmental instability, the potential
for nationalization of private assets and the imposition of exchange controls. In addition, operating globally means the Company
faces the challenges associated with coordinating its services across different countries, time zones and cultures.
Changes in the political and regulatory environment in the international markets in which we operate such as price or exchange
controls could impact our revenue and profitability and could lead to penalties, sanctions and reputational damages if we are not
compliant with those regulations. Political uncertainty and a lack of institutional continuity in some of the emerging, developing
or other countries in which we operate could affect the orderly operation of markets in these economies. In addition, in countries
with a large and complicated structure of government and administration, national, regional, local and other governmental bodies
may issue inconsistent decisions and opinions that could increase our cost of regulatory compliance and/or have a material adverse
effect on our business.
On June 23, 2016, the United Kingdom, or U.K., held a referendum, referred to as “Brexit”, in which voters approved an exit from
the European Union (E.U). As a result of the referendum, the British government continues to negotiate the terms of the U.K.’s
future relationship with the E.U. The terms of the exit continue to be unknown however it is possible that there will be greater
restrictions on trade and the transfer of goods and other items (including lab samples) between the U.K. and E.U. countries and
increased regulatory complexities. At present, these changes are not expected to significantly affect our operations or financial
results. Approximately 3% of our revenue is billed in Sterling. We currently employ approximately 700 people in the UK. The
announcement of Brexit and continued uncertainty around the terms of exit is causing volatility in global stock markets and
exchange rates. The fluctuation of currency exchange rates may expose us to gains and losses on non U.S. currency transactions.
Uncertainty of the legal environment in some emerging countries could also limit our ability to enforce our rights. In certain
emerging and developing countries we enjoy less comprehensive protection for some of our rights, including intellectual property
rights, which could undermine our competitive position.
If any of the above risks or similar risks associated with our international operations were to materialize, our results of operations
and financial condition could be materially adversely affected.
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We operate in many different jurisdictions and we could be adversely affected by violations of the Foreign Corrupt Practices
Act of 1977 (FCPA), UK Bribery Act of 2010 and similar anti-corruption laws in other jurisdictions.
The FCPA, UK Bribery Act of 2010 and similar anti-corruption laws in other jurisdictions prohibit companies and their
intermediaries from making improper payments for the purpose of obtaining or retaining business. In addition, the FCPA imposes
certain books, records and accounting control obligations on public companies and other issuers. Our internal policies mandate
compliance with these anti-corruption laws. We operate in many jurisdictions that have experienced corruption to some degree
and in certain circumstances, anti-corruption laws have appeared to conflict with local customs and practices. Despite our training
and compliance programs, we cannot assure that our internal control policies and procedures will protect us from acts in violation
of anticorruption laws committed by persons associated with us and our continued expansion, including in developing countries,
could increase such risk in the future. Violations of the FCPA, the U.K. Anti-Bribery Act of 2010 or other similar anti-corruption
laws in other jurisdictions, or even allegations of such violations, could disrupt our business and result in a material adverse effect
on our financial condition, results of operations, cash flows and reputation. For example, violations of anti-corruption laws can
result in restatements of, or irregularities in, our financial statements as well as severe criminal or civil sanctions. In some cases,
companies that violate the FCPA might be debarred by the U.S. government and/or lose their U.S. export privileges. In addition,
U.S. or other governments may seek to hold us liable for successor liability FCPA violations or violations of other anticorruption
laws committed by companies that we acquire or in which we invest. Changes in anti-corruption laws or enforcement priorities
could also result in increased compliance requirements and related costs which could materially adversely affect our business,
financial condition, results of operations and cash flows.
Current and proposed laws and regulations regarding the protection of personal data could result in increased risks of liability
or increased costs to us or could limit our service offerings.
The confidentiality, collection, use and disclosure of personal data, including clinical trial patient-specific information, is subject
to governmental regulation generally in the country that the personal data was collected or used. For example, United States federal
regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and as amended in 2014 by the
Health Information Technology for Economic and Clinical Health (“HITECH”) Act, require individuals’ written authorization, in
addition to any required informed consent, before Protected Health Information may be used for research. Such regulations specify
standards for de-identifications and for limited data sets. We are both directly and indirectly affected by the privacy provisions
surrounding individual authorizations because many investigators with whom we are involved in clinical trials are directly subject
to them as a HIPAA “covered entity” and because we obtain identifiable health information from third parties that are subject to
such regulations. As there are some instances where we are a HIPAA “business associate” of a “covered entity”, we can also be
directly liable for mishandling protected health information. Under HIPAA’s enforcement scheme, we can be subject to up to $1.5
million in annual civil penalties for each HIPAA violation.
The European data protection framework was significantly revised in 2018 with the coming into force of the General Data Protection
Regulation ('GDPR') containing new provisions specifically directed at the processing of health information, sanctions of up to
4% of worldwide gross revenue and extra-territoriality measures intended to bring non-EU companies under the proposed
regulation. Post GDPR implementation we are receiving increased volumes and breadth of data protection/privacy queries from
both sponsors and strategic alliance partners and anticipate that this will continue.
For the regulators in the European Union, or EU, personal data includes any information that relates to an identified or identifiable
natural person with health information carrying special obligations, including obtaining the explicit consent from the individual
for collection, use or disclosure of the information. EU regulations also apply to the personal data of EU data subjects traveling
or living outside the EU. In addition, we are subject to EU rules with respect to cross-border transfers of such data out of the EU.
The United States, the EU and its member states and other countries where we have operations, such as Japan, South Korea,
Malaysia, the Philippines, Russia and Singapore, continue to issue new privacy and data protection rules and regulations that relate
to personal data and health information. Failure to comply with certain certification/registration and annual re-certification/
registration provisions associated with these data protection and privacy regulations and rules in various jurisdictions, or to resolve
any serious privacy complaints, could subject us to regulatory sanctions, criminal prosecution or civil liability. Federal, state and
foreign governments are contemplating or have proposed or adopted additional legislation governing the collection, possession,
use or dissemination of personal data, such as personal health information and personal financial data as well as security breach
notification rules for loss or theft of such data. Additional legislation or regulation of this type might, among other things, require
us to implement new security measures and processes or bring within the legislation or regulation de-identified health or other
personal data, each of which may require substantial expenditures or limit our ability to offer some of our services. Additionally,
if we violate applicable laws, regulations or duties relating to the use, privacy or security of personal data, we could be subject to
civil liability or criminal prosecution, be forced to alter our business practices or suffer reputational harm.
13
The failure to comply with our government contracts or applicable laws and regulations could result in, among other things,
fines or other liabilities, and changes in procurement regulations could adversely impact our business, results of operations
or cash flows.
Revenues from our government customers are derived from sales to federal, state and local governmental departments and agencies
through various contracts. Sales to public segment customers are highly regulated. Noncompliance with contract provisions,
government procurement regulations or other applicable laws or regulations (including but not limited to the False Claims Act)
could result in civil, criminal and administrative liability, including substantial monetary fines or damages, termination of
government contracts or other public segment customer contracts, and suspension, debarment or ineligibility from doing business
with the government and other customers in the public segment. In addition, generally contracts in the public segment are terminable
at any time for convenience of the contracting agency or upon default. The effect of any of these possible actions by any governmental
department or agency could adversely affect our business, results of operations or cash flows. In addition, the adoption of new or
modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which
could have a negative effect on our business, results of operations or cash flows.
Liability claims brought against us could result in payment of substantial damages, costs and liabilities and decrease our
profitability.
Customer Claims
If we breach the terms of an agreement with a customer (for example if we fail to comply with the agreement, all applicable
regulations or Good Clinical Practice) this could result in claims against us for substantial damages which could have a material
adverse effect on our business. As we are a “people business” in that we provide staff to provide our services in hospitals and other
sites, there is a risk that our management, quality and control structures fail to quickly detect a failure by one or more employees
or contractors to comply with all applicable regulations and Good Clinical Practice and our internal requirements and standard
operating procedures thereby exposing us to the risk of claims by customers.
Claims relating to Investigators
We contract with physicians who serve as investigators in conducting clinical trials to test new drugs on their patients. This testing
creates the risk of liability for personal injury to or death of the patients. Although investigators are generally required by law to
maintain their own liability insurance, we could be named in lawsuits and incur expenses arising from any professional malpractice
or other actions brought against the investigators with whom we contract.
Indemnification from Customers
Indemnifications provided by our customers against the risk of liability for personal injury to or death of the patients arising from
a study drug vary from customer to customer and from trial to trial and may not be sufficient in scope or amount, or our customer
may not have the financial ability to fulfill their indemnification obligations. Furthermore, we would be liable for our own negligence
and negligence of our employees which could lead to litigation from customers or action or enforcement by regulatory authorities.
Insurance
We maintain what we believe is an appropriate level of worldwide Professional Liability/Error and Omissions Insurance. In the
future we may be unable to maintain or continue our current insurance coverage on the same or similar terms. If we are liable for
a claim or settlement that is beyond the level of insurance coverage, we may be responsible for paying all or part of any award or
settlement amount. Also, the insurance policies contain exclusions which mean that the policy will not respond or provide cover
in certain circumstances.
Claims to Date
To date, we have not been subject to any liability claims that are expected to have a material effect on our business; however, there
can be no assurance that we will not become subject to such claims in the future or that such claims will not have a material effect
on our business.
Risk Related to Our Indebtedness
We have incurred debt, which could impair our flexibility and access to capital and adversely affect our financial position.
As of December 31, 2018 and December 31, 2017, we had an outstanding principal amount of indebtedness of $350 million under
our $350 million Note Purchase and Guarantee Agreement or ‘Senior Notes’ that we entered into on December 15, 2015. The
Senior Notes will mature on December 15, 2020. We also have up to $150 million of additional borrowing capacity available
under the Revolving Credit Facility which was entered into with Citibank, JP Morgan, Santander, HSBC Bank and Morgan Stanley
International on March 12, 2018. No amounts were drawn under the Revolving Credit Facility as of December 31, 2018. This
14
facility bears interest at LIBOR plus a margin. We are monitoring the phasing out of LIBOR currently scheduled for 2021. We
have engaged with our lenders on the implications of the change. In the absence of an agreed new rate, documents continue to be
negotiated using LIBOR. We will continue to engage with our lenders in respect of the requirement for a new rate and seek an
amendment letter at that point.
The cost and availability of credit are subject to changes in the global or regional economic environment. If conditions in the major
credit markets deteriorate our ability to obtain debt financing on favorable terms may be negatively affected. We may incur
additional debt in the future. Our debt could have significant adverse consequences, including to:
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limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business
purposes;
limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures,
acquisitions or other general business purposes;
require us to use all or a portion of our cash flow from operations to make debt service payments;
require us to sell certain assets;
restrict us from making strategic investments, including acquisitions or cause us to make non-strategic divestitures;
place us at a competitive disadvantage compared to our competitors that have less debt;
cause us to incur substantial fees from time to time in connection with debt amendments or refinancing;
limit our flexibility to plan for, or react to, changes in our business and industry; and
increase our vulnerability to the impact of adverse economic and industry conditions.
Our ability to meet our debt service obligations will depend on our future performance, which will be subject to financial, business
and other factors affecting our operations, many of which are beyond our control. If we do not have sufficient funds to meet our
debt service obligations, we may be required to refinance or restructure all or part of our existing debt, sell assets, borrow more
money or sell securities, none of which we can be assured that we would be able to do in a timely manner, or at all.
In addition, a failure to comply with the covenants under our indebtedness could result in an event of default under such indebtedness.
In the event of an acceleration of amounts due under our existing indebtedness as a result of an event of default, we may not have
sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any required accelerated
payments.
In addition, we are required, under the terms of the Senior Notes, to offer to purchase all of the outstanding Senior Notes if we
experience a change of control. Similar requirements exist in the Revolving Credit Facility. These provisions may delay or prevent
a change in control that our stockholders may consider desirable.
Covenants in our credit agreements may restrict our business and operations and our financial condition and results of
operations could be adversely affected if we do not comply with those covenants.
The Senior Notes and the Revolving Credit Facility credit agreements include certain customary covenants that limit our ability
to, amongst other things, subject to certain exceptions:
•
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incur or assume liens or additional debt;
dispose of assets;
engage in mergers or reorganizations; or
enter into certain types of transactions with affiliates.
The Senior Notes agreement also includes certain financial covenants that require us to comply with a consolidated leverage ratio,
a minimum EBITDA to consolidated net interest charge ratio and a maximum amount of priority debt, each of which are defined
15
in the Note Purchase and Guarantee Agreement. Our ability to comply with these financial covenants may be affected by events
beyond our control.
These covenants may limit our operating and financial flexibility and limit our ability to respond to changes in our business or
competitive activities.
In the event that we fail to pay principal or interest when due on the Senior Notes, or as a result of a material breach of any
representation, warranty or covenant or any other event of default then all outstanding amounts could become immediately due
and payable. If, in such a circumstance, any of the holders of the Senior Notes, accelerate the repayment of such indebtedness,
there can be no assurance that we will have sufficient assets to repay our indebtedness.
Interest rate fluctuations may materially adversely affect our results of operations and financial condition in the event that the
Company draws down on either Revolving Credit Facility or in respect of any future issuances of debt.
The interest rate in respect of the Senior Notes is fixed at 3.64% for the five year term of the agreement. The Revolving Credit
Facility bears interest at LIBOR plus a margin. There were no amounts drawn on either Revolving Credit Facility or the short
term uncommitted facility at December 31, 2018. The Company is therefore subject to interest rate volatility in respect of any
future draw down on the Revolving Credit Facility or in respect of any future issuances of debt.
Risk Related to Our Common Stock
Volatility in the market price of our common stock could lead to losses by investors.
The market price of our common stock has experienced volatility in the past and may experience volatility in the future which
could lead to losses for investors. Factors impacting volatility in the market price of our common stock include, amongst others:
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general market and economic conditions;
our results of operations;
issuance of new or changed securities analysts’ reports or recommendations;
developments impacting the industry or our competitors;
introduction of new products or services by us or our competitors;
the public's reaction to our press releases, our other public announcements and our filings with the SEC;
guidance, if any, that we provide to the public, any changes in this guidance or failure to meet this guidance;
changes in the credit rating of our debt;
sale, or anticipated sale, of large blocks of our stock;
additions or departures of key personnel;
regulatory or political developments;
litigation and governmental investigations;
changing economic conditions; and
exchange rate fluctuations.
In addition, stock markets have from time to time experienced significant price and volume fluctuations unrelated to the operating
performance of particular companies. Future fluctuations in stock markets may lead to volatility in the market price of our common
stock which could lead to losses by investors.
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Item 4. Information on the Company.
History and development
ICON public limited company (“ICON plc”) is a clinical research organization (“CRO”), founded in Dublin in 1990, which
provides outsourced development services on a global basis to the pharmaceutical, biotechnology and medical device industries.
We specialize in the strategic development, management and analysis of programs that support all stages of the clinical development
process - from compound selection to Phase I-IV clinical studies. The Company earns revenues by providing a number of different
services to its customers. These services, which are integral elements of the clinical development process, include clinical trial
management, consulting, contract staffing and laboratory services. The Company has the expertise and capability to conduct
clinical trials in most major therapeutic areas on a global basis and has the operational flexibility to provide development services
on a stand-alone basis or as part of an integrated “full service” solution. The Company has expanded predominately through
organic growth, together with a number of strategic acquisitions to enhance its expertise and capabilities in certain areas of the
clinical development process. The Company’s mission is to accelerate the development of drugs and devices that save lives and
improve the quality of life. Our vision is to be the Global CRO partner of choice in drug development by delivering best in class
information, solutions and performance in clinical and outcomes research.
We are a public limited company in Ireland and operate under the Companies Act of Ireland. Our principal executive office is
located at: South County Business Park, Leopardstown, Dublin 18, Republic of Ireland. The contact telephone number of this
office is +353 1 2912000. Our website is www.iconplc.com. Additionally, the SEC maintains a website (www.sec.gov) that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
We believe that we are one of a select group of CROs with the expertise and capability to conduct clinical trials in most major
therapeutic areas on a global basis and have the operational flexibility to provide development services on a stand-alone basis or
as part of an integrated “full service” solution. At December 31, 2018, we employed approximately 13,670 employees in 89
locations in 37 countries. During the year ended December 31, 2018, we derived approximately 34.5%, 55.7% and 9.8% of our
revenue in the United States, Europe and Rest of World, respectively. See Note 19 Business Segment and Geographical Information.
On July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited acquired Mapi Développement SAS ('Mapi')
and its subsidiaries ("Mapi Group"). Mapi Group has over 40 years of experience supporting Life-Science companies as the world
leading Patient-Centered Research Company in commercializing novel treatments through Real-World Evidence, Strategic
Regulatory Services, Pharmacovigilance, Market Access and Language Services. Mapi Group is the premier provider of Health
Research and Commercialization services to Life-Science companies enabling Market Authorization, Market Access and Market
Adoption of novel therapeutics. Cash outflows on acquisition were $145.8 million (see Note 4 of the Financial Statements at Item
19). The acquisition of Mapi Group strengthened ICON’s existing commercialization and outcomes research business adding
significant commercialization presence, analytics, real world evidence generation and strategic regulatory services.
On September 15, 2016, a subsidiary of the Company, ICON US Holdings Inc. acquired ICON Government & Public Health
Solutions, Inc. (''GPHS'') (formerly Clinical Research Management, Inc. ("ClinicalRM")) which resulted in net cash outflows of
$52.4 million (including certain payments made on behalf of GPHS totaling $9.2 million). GPHS is a full-service CRO specializing
in preclinical through Phase IV support of clinical research and clinical trial services for biologics, drugs and devices. The
organization helps customers progress their products to market faster, with a wide array of research, regulatory and sponsor services
within the U.S. and around the globe. GPHS provide full service and functional research solutions to a broad range of U.S.
government agencies and commercial customers. Their extensive expertise extends across basic and applied research, infectious
diseases, vaccines development and testing and the response to bio-threats. They have worked in collaboration with government
and commercial customers to respond to the threat of global viral epidemics.
On December 15, 2015, the Company issued through its subsidiary ICON Investments Five Unlimited Company (the "Issuer")
Senior Notes for aggregate gross proceeds of $350 million through a private placement. The Senior Notes will mature on December
15, 2020. Interest payable is fixed a 3.64% and is payable semi-annually on the Senior Notes on each June 15 and December 15,
which commenced on June 15, 2016. The Senior Notes are guaranteed by ICON plc. The Senior Notes may be redeemed, at the
Issuer's option, at any time prior to maturity, at par plus a make whole premium, together with accrued and unpaid interest, if any,
to the redemption date. The terms of the notes are set forth in the Note Purchase and Guarantee Agreement, dated as of December
15, 2015, by and among the Issuer, ICON plc and the purchasers named therein (“Note Purchase and Guarantee Agreement”). The
Issuer used the proceeds from the sale of the Senior Notes to repay the existing $350 million bridge facility. The Notes have not
been and will not be registered under the Securities Act of 1933, as amended and may not be offered or sold in the United
States absent registration or an applicable exemption from registration requirements.
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Industry Overview
The CRO industry provides independent product development solutions and services for the pharmaceutical, biotechnology and
medical device industries. Companies in these industries outsource services to CROs in order to manage the drug and device
development process more efficiently and to bring both patent-protected bio-similars and medical devices to market faster to
enhance patient well-being and maximize their return on investment. The CRO industry has evolved since the 1970s from a small
number of companies that provided limited clinical development services to a larger number of CROs that offer a range of services
that encompass the entire research and development process, including pre-clinical development, clinical trials management,
clinical data management, study design, biostatistical analyses, post market surveillance, regulatory affairs, central laboratory and
market access services. CROs are required to provide services in accordance with good clinical and laboratory practices, as
governed by the applicable regulatory authorities.
The CRO industry is highly fragmented, consisting of several hundred small, limited-service providers, medium sized CROs and
a small number of large CROs with global operations. Although there are few barriers to entry for small, specialist service providers,
we believe there are significant barriers to becoming a CRO with global capabilities and expertise. These barriers include the
infrastructure and experience necessary to serve the global demands of clients (sponsors), the ability to recruit sites and patients
globally, the simultaneous management of complex clinical trials, the ability to offer customers a variety of delivery models, broad
therapeutic expertise and the development and maintenance of the complex information technology systems required to integrate
these capabilities. In recent years, the CRO industry has experienced consolidation, resulting in the emergence of a select group
of CROs that have the capital, technical resources, integrated global capabilities, data and expertise to manage the development
programs of pharmaceutical, biotechnology and medical device companies. We believe that large and medium sized pharmaceutical
companies are selecting a limited number of CRO service providers with which they deal rather than utilizing many, in order to
form strategic partnerships with global CROs in an effort to drive incremental development efficiencies and leverage the scientific
and medical expertise. We believe that this trend will continue to concentrate the market share among the larger CROs with a track
record of quality, speed, flexibility, responsiveness, global capabilities and access to patients and overall development experience
and expertise.
New Drug Development – Ethical Pharmaceuticals and Biologics - An Overview
Before a new drug or biologic may be marketed, it must undergo extensive testing and regulatory review in order to determine
that it is safe and effective. The following discussion primarily relates to the FDA approval process for such products. Similar
procedures must be followed for product development with other global regulatory agencies. The stages of this development
process are as follows:
Preclinical Research “In vitro” (test tube) and animal studies must be conducted in accordance with applicable regulations to
establish the relative toxicity of the drug over a wide range of doses and to detect any potential to cause birth defects, affect vital
organs, cause mutations or cancer. Many of these tests must be performed before a new investigational therapy can progress into
human studies. If results warrant continuing development of the drug or biologic, the sponsor or owner of the asset will file for
an Investigational New Drug Application, or IND, which must be approved by the FDA before starting the proposed clinical trials.
However, preclinical studies will continue to be conducted in parallel with the clinical trials, some of which can take up to 3 years
to complete.
Clinical Trials (approximately 3.5 to 7 years).
Exploratory Development
Phase I (approximately 6 months to 1 year) consists of basic safety and tolerability testing in small numbers of human subjects,
initially in healthy volunteers, and includes studies which may show the drug is having an effect on the body, if it is safe, how it
is affected by other drugs, where it goes in the body, how long it remains active and how it is broken down by and eliminated from
the body. After single and multiple dose studies have been conducted, the asset can progress into Phase II, however, Phase I studies
will continue to be done to help support the development of the asset in new populations such as children or the elderly.
Phase II (approximately 2 to 3 years) includes basic efficacy and dose-range testing in a limited patient population (usually) 100
to 200 patients to help provide preliminary safety and evidence that the drug is likely to be effective in the target disease. If the
Phase II results are satisfactory the sponsor may decide to proceed to Phase III studies.
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Confirmatory Development
Phase III (2 years or greater) consists of efficacy and safety studies in several hundred to a few thousand patients at multiple
investigational sites (hospitals and clinics), often in multiple geographies. These studies look to definitively confirm the overall
benefit of the agent and, if successful, will be used to provide the labelling claims for the drug. These studies can be placebo-
controlled trials, in which the new drug is compared with a “sugar pill”, or studies comparing the new drug with one or more drugs
with established safety and efficacy profiles in the same therapeutic indication.
FDA approval, through submission of an investigational new drug (IND) application, is necessary for all clinical trials, regardless
of the phase of development. In addition, parallel independent committee approval is also required.
NDA or BLA Preparation and Submission. Upon completion of Phase III trials, the sponsor assembles the statistically analyzed
data from all phases of development into a single large submission along with the Chemistry, Manufacturing and Controls (CMC)
and preclinical data and the proposed labeling into the New Drug Application (NDA), or Biologics License Application (BLA)
and submits them for assessment and approval by the relevant division of the FDA.
Expanded Access Programs (EAPs), Sometimes a study drug may continue to be provided to subjects after completion of a
clinical trial, also called compassionate use. EAPs refer to the regulated use of a study drug outside of a clinical trial by patients
with serious or life-threatening conditions where there is no alternative therapy available. In this context the FDA may allow the
sponsor to make the study drug available to a larger number of patients for treatment use.
FDA Review and Approval of NDA or BLA (1 to 1.5 years). Data from all phases of development is scrutinized to confirm that
the applicant company has complied with all applicable regulations and that the benefit to risk ratio for the drug or biologic is
positive for the specific use (or “indication”) under study. The FDA may refuse to accept the NDA or BLA if the application has
administrative or content criteria which do not meet FDA standards. The FDA may also deny approval of the drug or biologic
product if applicable regulatory requirements are not satisfied, if the drug has not adequately shown to be effective or there are
safety concerns. Often a company will be required to conduct specific studies after the approval of a drug. These are called post
approval commitments.
Post-Market Surveillance, Phase IV Studies and Health Outcomes. Once approved by the FDA, the FDA requires the drug or
biologic license holder to collect and periodically report to the FDA additional safety (and perhaps efficacy) data on the drug or
biologic for as long as the license holder markets it (post-market surveillance, including pharmacovigilance). If the product is
marketed outside the U.S., these reports must include data from all countries in which the drug is sold. Additional studies (Phase
III and Phase IV) may be undertaken after initial approval to find new uses for the drug, to test new dosage formulations, or to
confirm selected non-clinical benefits, e.g., increased cost-effectiveness or improved quality of life. Additionally, FDA and other
regulatory agencies are requiring license holders of drugs or biologics to prepare risk management plans which are aimed at
assessing areas of product risk and actively managing such risks throughout the product lifecycle.
Key Trends Affecting the CRO Industry
CROs derive substantially all of their revenue from the research and development expenditures of pharmaceutical, biotechnology
and medical device companies. Based on investment analyst research and our internal estimates, we estimate that development
expenditures outsourced by pharmaceutical and biotechnology companies worldwide in 2018 was approximately $33 billion. We
believe that the following trends create further growth opportunities for global CROs, although there is no assurance that growth
will materialize.
Continued Innovation and Development of Enabling Technologies
Innovation Driving New Drug Development Activity.
New technologies together with improved understanding of disease pathology (driven by scientific advances such as the mapping
of the human genome) have increased the number of new drug candidates being investigated in early development. This has greatly
broadened the number of biological mechanisms being targeted which increasingly include rare/orphan diseases that currently
have no effective treatments.
These developments should lead to increased activity in both Preclinical and Phase I development and in turn lead to more treatments
in Phase II-III clinical trials. As the number of trials that need to be performed increases and these trials become focused in
indications where finding suitable patients is increasingly challenging, we believe that drug developers will increasingly rely on
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CROs to manage these trials to leverage their global expertise and to continue to focus their own competences on drug discovery
and sales and marketing.
New Technology Enabling More Efficient Development.
Technology innovation is playing an increasing important role in helping to support more efficient drug development. The larger
CROs have been at the forefront of this innovation developing technology solutions that support the integration of trial data across
multiple systems; data repositories that enable sponsors to get real time clinical insights on their drugs performance and tools that
support better trial designs and operation. These include;
•
•
adaptive trial software, such as ICON’s ADDPLAN software, which is part of the ICONIK Informatics Hub and is the
market leader for design, simulation and analysis of adaptive clinical trials spanning Phases I to IV. ADDPLAN has been
used by regulatory agencies (FDA, EMA (Europe) and PMDA (Japan)) to assess adaptive trial submissions;
FLEX ADVANTAGE is our interactive response technology platform (accessible through the web and web-enabled
mobile devices) for managing patient randomization, investigator sites and clinical suppliers;
• Data analysis from ICONIK Informatics Hub allows us to enhance the design and delivery of our projects, through
stronger engagement with investigators and patients;
•
•
PDx-Pop software is a graphical interface for NONMEM which has its own automation methodology which expedites
the iterative process of population pharmacokinetic modeling and analysis;
IMRA is a web based laboratory review application that allows global access to the latest laboratory data on a study - it
facilitates detailed analysis of any trends, signals, alerts or patient specific data on a real-time basis.
The emergence of M-health technologies that build on the global prevalence of mobile and digital technologies also have an
influence on drug development. It is now possible to capture health data using mobile devices and wearables. This enables sponsors
to gather new clinical and “real-world” patient insights and will also be used to enhance patient engagement and adherence
throughout the development process. As these devices mature it will also be possible to complete more “virtual trials” based on
remote monitoring of patients in their home environment which may drive further efficiencies in the trial process.
Social media is also becoming an important platform for life sciences companies to strengthen patient engagement programs and
collaborate with other stakeholders in the health care system. Many sufferers of specific diseases are forming patient groups and
actively collaborating using social media. These groups represent an important potential source of patients for new clinical studies
but can also provide valuable insights into effectiveness and safety of new treatments.
As the influence of technology on drug development grows, it broadens the potential number of partners that CROs will work
with in the future.
Expanded use of new patient data sources.
Pharmaceutical companies are looking to access a variety of new health care data sources containing medical and prescribing
records to help improve development programs and to get better evidence of the value their treatments are bringing to patients
once they are launched in the market. The larger global CROs have significant data management experience which can be leveraged
to support these efforts and have invested in analytics capabilities to help deliver better insights for customers during the product
lifecycle. Global CROs are also forging collaborations to access specific data sets that can provide further patient insights to
support better matching of patients to the clinical trial process.
Improving Productivity and Operating Efficiencies
Continuing focus on Productivity within Research and Development Programs.
Pharmaceutical and biotechnology companies continue to seek ways to improve the productivity of their development efforts and
increasingly see the use of CROs as a strategic component of these efforts. They are leveraging the expertise with CROs to help
identify the most promising drug candidates in early development and discontinue developing those that have safety issues, limited
efficacy or that will have significant reimbursement challenges. These companies are also initiating programs to drive more
efficiency in their development programs. One example of this has been the efforts to achieve a more seamless transition across
development phases, particularly Phase I-III. In parallel, regulatory initiatives such as the 21st Century Cures Act and the emergence
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of clinical trial techniques such as adaptive trial design and risk based clinical trial monitoring are enhancing development, allowing
effective treatments to get to patients quicker at reduced development costs.
Cost Containment Pressures.
Over the past several years, drug companies have sought more efficient ways of conducting business due to margin pressures
stemming from patent expirations, greater acceptance of generic drugs, pricing pressures caused by the impact of managed care,
purchasing alliances and regulatory consideration of the economic benefit of new drugs. Consequently, drug companies are
centralizing research and development, streamlining their internal structures and outsourcing certain functions to CROs, thereby
converting previously fixed costs to variable costs. Larger companies (and more recently medium sized companies) are actively
entering strategic partnerships with a limited number of CROs in an effort to drive increased efficiencies. The CRO industry and
in particular large CROs with global capabilities, considerable scientific knowledge and expertise are often able to perform the
needed services with greater focus and at a lower cost than the client could perform internally, although CRO companies themselves
are facing increased cost containment pressures as drug companies seek to further reduce their cost base.
Global trends influencing the CRO industry
Pressure to Accelerate Time to Markets and Globalization of the Marketplace.
Reducing product development time maximizes the client’s potential period of patent exclusivity, which in turn maximizes potential
economic returns. We believe that clients are increasingly using CROs that have the appropriate expertise and innovation to improve
the speed of product development to assist them in improving economic returns. In addition, applying for regulatory approval in
multiple markets and for multiple indications simultaneously, rather than sequentially, reduces product development time and
thereby maximizes economic returns. We believe that CROs with global capabilities, considerable knowledge and experience in
a broad range of therapeutic areas are key resources to support a global regulatory approval strategy. Alongside this, the increasing
need to access pools of new patients is leading to the conduct of clinical trials in new “emerging regions” such as Eastern Europe,
Latin America, Asia-Pacific and South America. We believe that having access to both traditional and emerging clinical research
markets gives global CROs a competitive advantage.
Growth within the Biotechnology Sector.
The nature of the drugs being developed is continuing to change. Biotechnology is enabling the development of targeted drugs
with diagnostic tests to determine whether a drug will be effective given a patient’s genomic profile. An increasing proportion of
research and development (“R&D”) expenditure is being spent on the development of highly technical drugs to treat very specific
therapeutic areas in areas of unmet medical need. Much of this discovery expertise is found in biotechnology firms. We believe
that it is to these organizations that the large pharmaceutical companies will look for an increasing proportion of their new drug
pipelines. Whether it is through licensing agreements, joint ventures or equity investment, we believe we may see the emergence
of more strategic relationships between small discovery firms and the larger pharmaceutical groups. As the majority of these
biotechnology companies do not have a clinical development infrastructure, we believe that the services offered by CROs will
continue to be in demand from such companies providing they have the necessary funding.
Increasing Number of Large Long-Term Studies and an increasing requirement to show the Economic Value of New Treatments.
We believe that to establish competitive claims and demonstrate product value, to obtain reimbursement authorization from bodies
such as the National Institute for Health and Clinical Excellence in the UK, and to encourage drug prescription by physicians in
some large and competitive categories, more clients need to conduct outcome studies to demonstrate, for example, that mortality
rates are reduced by certain drugs. To verify such outcomes, very large patient numbers are required and they must be monitored
over long time periods. We believe that as these types of studies increase there will be a commensurate increase in demand for
the services of CROs who have the ability to quickly assemble large patient populations, globally if necessary, and manage this
complex process throughout its duration.
The rising costs of health care in most developed countries also means there is an increasing pressure to show that new medical
treatments are more cost effective and deliver better patient outcomes than existing treatments regimes. This also means that
sponsors need to increasingly generate outcomes data both as part of the product approval submissions and as part of post-approval
research programs. This is creating opportunities for CROs who can offer support in developing and interpreting this data.
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A Focus on Long-term Product Safety.
The clinical trial approval process can only detect major and common adverse side effects of drugs; less common but no less
serious side effects may only become apparent after many years of use. As a result, there is an increase in the number of drugs
given “conditional approvals” where further ‘post-approval’ studies are being mandated. In addition, prudent sponsors undertake
similar studies to detect early warning signs of any potential problems with their products. Such studies may take the form of
prospective long-term safety studies, simpler observational studies or registries where patients meeting specific criteria for disease
or drug use are followed for long periods to detect any safety issues. CROs are well positioned to perform these studies on behalf
of sponsors.
Increasing Regulatory Demands.
Regulatory agencies are requiring more data to support new drug approvals and are seeking more evidence that new drugs are
safer and more effective than existing products. As a result, the complexity of clinical trials, the number of procedures required
to be conducted in these trials and the size of regulatory submissions are driving the demand for services provided by CROs.
The ICON Strategy
ICON’s mission is to accelerate the development of drugs and devices that save lives and improve the quality of life. Our vision
is to be the global CRO partner of choice in drug development by delivering best in class information, solutions and performance.
We have achieved strong growth since our foundation in 1990. The impact of the International Conference on Harmonization
Good Clinical Practice, the resulting globalization of clinical research and the acceleration in the understanding of human and
molecular biology which has led to many new treatment paths being explored were key catalysts of our early growth.
As our market has evolved, biopharmaceutical companies are tackling productivity challenges, increasing budget constraints and
greater demands to demonstrate product value; all of which are placing increased pressure on their revenues and levels of
profitability. However these trends have generally been positive for CROs, as increased outsourcing has been adopted by these
companies as they seek to create greater efficiencies in their development processes, convert previously fixed costs to variable,
and accelerate time to market for new treatments.
One consequence of the drive to accelerate time to market will be increased emphasis on making existing drug development phases
more seamless, through the use of techniques such as adaptive trial designs to filter the most promising compounds and test these
in parallel in several therapeutic indications or with other drug combinations.
Regulatory and reimbursement pressures will increase the emphasis on late stage (post marketing) research, while increasing
requirements to demonstrate the economic value of new treatments. As a result, outcomes and comparative effectiveness research
will most likely be required in order to secure on-going product reimbursement. Furthermore, we believe advances in molecular
biology and genetics will drive further growth in innovation in the long term which in turn should create further growth opportunities
for both biopharma companies and their outsource development partners.
We expect the increased adoption of outsourcing will be a core strategy of clients in the near term as they respond to the increased
pressures on their revenues and profitability. Larger clients were the first to form strategic partnerships with global CROs in an
effort to reduce the number of outsource partners with whom they engage and to reduce inefficiencies in their current drug
development models. More recently we have seen the increasing adoption of this partner model with mid-tier pharmaceutical and
biotechnology firms as they also seek to drive development efficiencies. As outsourcing penetration increases, we believe clients
may seek a greater level of integration of service offerings from CROs, although some will continue to purchase services on a
stand-alone basis. Creating greater connectivity and “seamlessness” between our services and the sharing of “real-time” clinical,
operational and “real world” data with clients will therefore become increasingly important for CROs. ICON will seek to benefit
from this increased outsourcing by clients to grow our business by increasing market share with our existing client base and adding
new clients within the Phase I-IV outsourced development services market; the aim being to ensure we will be considered for all
major Phase I-IV projects.
Our strategy to achieve these objectives is focused on the following areas:
Partnerships, Customers and Markets
We continue to focus on expanding and deepening our partnerships with existing customers, while also developing new customer
relationships.
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Strategic client relationships will increasingly manifest themselves in many different forms. Many of these relationships will
require innovative forms of collaboration across ICON service areas and departments and will therefore require increased flexibility
to offer services on both a standalone functional basis and as part of a fully integrated service solution. To support this objective,
we continue to evolve our collaboration and delivery models, invest in technology that will enable closer data integration across
our service areas and enhance our project and program management capabilities.
We continue to enhance our capabilities through both organic service development and targeted acquisitions, to meet the evolving
needs of both existing and new clients. In 2017 we acquired the Mapi Group, a leading Patient-Centered Health Outcomes Research
and Commercialization company. This acquisition strengthened ICON’s existing Commercialization and Outcomes Research
business adding significant commercialization presence, analytics, real world evidence generation and strategic regulatory
expertise. The combined organization will be a leader for real world evidence, post approval research, language services,
consultancy services supporting clinical outcomes assessments, pricing and market access and scientific communications.
We continue to target growth in under-penetrated CRO market segments, outsourcing penetration within Medical Device companies
has lagged that of bio-pharma firms but is beginning to accelerate. EU Regulatory reform enacted in 2017 is a further catalyst to
growth in this segment as it included stricter requirements to perform clinical evaluations and post sale surveillance. ICON is well
positioned in this market having acquired strong device development capabilities in the acquisition of Aptiv Solutions in 2014.
We continue to expand our presence in regions such as Asia-Pacific, in particular in China and Japan, building on our acquisition
of Niphix, the Japanese subsidiary of Aptiv Solutions, in 2014 and BeijingWits Medical Limited, a leading Chinese CRO, in 2012.
Operational Excellence and Quality
We continue to enhance our operating processes and delivery models to gain competitive advantage.
Our proprietary ICONIK platform, which integrates clinical data across multiple systems allows us to access clinical and real
world data to enhance protocol design, profile match patients to trials. It also facilitates collection of real-time data during the trial
process enabling better decision making and project execution. The platform uses data and evidence based research to develop
solutions that engage investigators and patients more effectively to improve patient recruitment and retention.
ADDPLAN is part of the ICONIK Informatics Hub. The software provides industry leading statistical design, simulation and
analysis for adaptive clinical trials, from phase I to IV and helps our customers identify the most promising drug candidates earlier
in the development process and in parallel test these across several therapeutic indications and with other drug combinations.
Finding and engaging suitable patients to conduct clinical trials is one of the biggest issues facing drug development industry
today. Less than 1% of the US population participates in clinical trials and the performance of investigative sites that do take part
in research is uneven, hard to predict and many trials do not meet the initial recruitment goals. The current market challenge in
patient enrollment creates an opportunity for ICON to differentiate its service offering and we are working to reduce patient
recruitment times through enhanced site and investigator selection based on key performance metrics and through use of our
proprietary Firecrest technology which is used to train and support sites during the development process. Our PMG site network
alliances enhanced our ability to enroll patients onto the clinical studies we perform. We have also developed strategic alliances
with investigator site groups and health care systems in all major global research markets. In partnership with others we are
pioneering patient recruitment solutions that leverage cognitive computing to transform clinical trial matching and allow a data-
driven approach to deliver the right patients for trials.
Quality project execution underpins all that we do and we have an ongoing focus on developing our people and processes to
continue to enhance our service delivery. We are also deploying supporting technologies which we believe will enable faster and
deeper insights into the quality of trial data.
We are focused on operational excellence across our support functions and we operate a global business support infrastructure
across functions including finance, information technology, facilities, human resources and legal. This is enabling us to enhance
the service levels across these support areas whilst driving down the costs of this service provision.
Talent, Leadership Development and Culture
At the core of our strategy is our people. Within ICON we have highly qualified and experienced teams, the majority of whom
have third level educational qualifications. The need to develop and retain this expertise and talent within the organization is
fundamental in enabling us to be the global CRO partner of choice for our customers. We have invested in creating an innovative
learning environment delivered through ICON’s training and development group, who have formed an industry leading
collaboration with University College Dublin. This enables ICON to provide customized management and development programs
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for global employees. These programs are focused on leadership development for those people management roles and specific
technical training in competencies that are core to our business, such as project and program management and clinical research
associate development. We continue to invest to refine and develop these programs.
Within our training program we have also created a Clinical Research Academy and a unique Graduate Certificate in Clinical Trial
Management which is enhancing the quality of graduate training in clinical research and increasing the pool of talent available to
ICON that can support our customers’ drug development programs.
Our learning and development programs are complemented by advanced people development practices which incorporate rigorous,
analytics based screening in the hiring process, global career frameworks, pay for performance aligned to our strategy, and on-
going talent review and succession planning.
Our leadership and talent programs contribute to the enhanced retention of our employees, better project deliverables for our
customers and the enhanced financial performance of the business.
Our investment in people was reflected by our inclusion in 2018 for the second consecutive year, by Forbes in their list of the best
employers in America. ICON was ranked the top CRO and amongst the top 10 employers in the Drugs and Biotechnology industry
overall.
Enhance Capabilities & Expertise
To meet the evolving needs of our clients we continue to enhance our capabilities through both organic service development and
targeted acquisitions. During 2018, we continued to enhance our scientific and therapeutic expertise to support our customers in
specific areas including Oncology, Orphan and Rare Diseases, CNS, Dermatology, Infectious Disease and Womens Health.
We have continued to invest in building our capabilities in the gathering, analysis and application of real world patient data within
both the clinical trial and post-trial observational study environments. Alongside expanding internal capabilities, we continue to
develop innovative partnerships with providers of real world data including EHR4CR and Trinetx. During 2018, we signed an
agreement with Intel to deploy the Intel® Pharma Analytics Platform for use in clinical trials. The Intel platform is an artificial
intelligence solution that enables remote monitoring and continuous capture of clinical data from study subjects using sensors and
wearable devices and can apply machine learning techniques to objectively measure symptoms and quantify the impact of new
therapies.
We continued to enhance our site and patient recruitment capabilities during 2018 with the expansion of the PMG Research network
through a partnership with the Du Page Medical Group. DuPage is the largest independent, multi-specialty physician group in the
Chicagoland area with access to more than 700 physicians in over 50 clinical specialties ranging from primary to specialty care
in areas such as cardiology and oncology. Through this agreement PMG assumed the research infrastructure at DuPage providing
expanded investigator and patient access and bringing clinical research as a care option to the communities served.
Applied Innovation
ICON is focused on applying innovation that can help our customers improve their development outcomes. We are focusing this
innovation in three critical areas; improving clinical trial design and execution; faster and more predictable patient recruitment;
and evolving clinical trials to be more patient centric which includes data collection and analysis directly from patient’s digital
devices. Our approach to developing solutions to these challenges incorporates partnering with best in class technology providers
but is also supported by a suite of differentiated ICON proprietary technologies.
Our ICONIK platform is a web-based information platform that facilitates the management, reporting, analysis and visualization
of all data relating to drug development, and supports our risk based monitoring solution. This solution allows monitoring resources
to be directed at specific sites based on real-time data analysis which can significantly reduce monitoring costs for clients.
Firecrest; ICON’s proprietary comprehensive site performance management system, is a web-based solution which enables accurate
study information, including protocol information, training manuals and case report forms, to be rolled out quickly and
simultaneously to investigative sites. It allows site behavior to be tracked to ensure training is understood, procedures are being
followed and that timelines and study parameters are met. It can significantly reduce the number of data queries originated from
investigator sites.
Our ADDPLAN software offers a leading statistical design, simulation and analysis software for adaptive clinical trials and helps
our customers identify the most promising drug candidates earlier. ADDPLAN is used by FDA, EMA and Japan’s PMDA, as well
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as over fifty top pharmaceutical and medical device companies and academic researchers (see Information Systems on page 27
for further information).
Alongside the application of these technology solutions we are also focused on innovation through the redesign and where
appropriate the automation of current clinical trial processes.
Services
ICON is a global provider of drug development solutions and services to the pharmaceutical, biotechnology and medical device
industries. These solutions span the Clinical Development lifecycle from compound selection to Phase I-III clinical studies and
post approval outcome research and market access consulting solutions.
We offer a broad range of specialized services to assist pharmaceutical, biotechnology and medical device companies to bring
new drugs and devices to market faster. Our services span the entire lifecycle of product development and can be adapted to
suit local trials or large global programs. Specific clinical development services offered to biopharmaceutical and medical device
companies include:
•
•
•
Product Development Planning;
Strategic Consulting;
Study Protocol Preparation;
• Clinical Pharmacology;
•
•
•
Pharmacokinetic and Pharmacodynamic Analysis;
Site Feasibility - EMR & Data Analytics ICON owned Site Networks;
Patient Recruitment & Retention;
• Digital Patient and Site Solutions - FIRECREST;
•
Project Management;
• Clinical Operations /Monitoring;
•
Patient Centric Monitoring;
• Data Management;
• Adaptive Trials -ADDPLAN;
• Virtual Trials;
• Medical Imaging;
• Biostatistics;
• Medical Affairs;
•
•
Pharmacovigilance;
Strategic Regulatory Services;
• Electronic Endpoint Adjudication;
• Medical Writing and Publishing;
25
•
•
Interactive Response Technologies;
Functional Solutions;
• Research Trials for US Government Agencies;
•
Strategic Resourcing Central Laboratories;
• Bioanalytical Laboratories;
• Biomarket Development;
• Real World Strategy & Analytics;
• Real World & Late Phase Research;
• Access, Commercialization & Communications;
•
Patient Centered Sciences and;
• Medical Device & Diagnostics Research.
Sales and Marketing
Our marketing strategy is focused on building a differentiated brand position for ICON and supporting our business development
efforts to develop and build relationships with pharmaceutical, biotechnology, medical device, and government and public health
organizations. Our marketing activities are coordinated centrally to ensure a consistent and differentiated market positioning for
ICON and to ensure all marketing efforts align to the overall strategic objectives of the business. Our business development teams
are located throughout the Americas, Europe and Asia Pacific regions. Business development activities are carried out by account
executives with assigned territories and global account directors supporting our large accounts. Specialized business development
teams focus on growing each of our business areas. Collectively, our business development team, senior executives and project
team leaders share responsibility for the maintenance of key client relationships. Our aim is to develop deeper relationships within
our client base in order to gain repeat business and give us opportunities to penetrate into other therapeutic indications and adjacent
service lines.
Competition
The CRO industry is fragmented, consisting of many small, niche service providers, a declining number of medium-sized providers
and a smaller number of large CROs, including ICON, that are differentiated by the scale of their global operations, breadth of
service portfolios and supporting technology infrastructure. The need to conduct complex research and access patients on a global
basis is driving market share to these global CROs. When competing for large development programmes, ICON competes primarily
with IQVIA, PAREXEL, Pharmaceutical Product Development ('PPD'), the Covance Drug Development business of LabCorp,
PRA Health Sciences and Syneos Health. In some specific markets, for example biotech and mid-tier pharma, ICON may also
compete against mid-tier CROs including Medpace.
CROs generally compete on the basis of previous product experience, the ability to recruit patients on a global basis, the depth of
therapeutic and scientific expertise, the strength of project teams, price and increasingly on the ability to apply new innovation
that can drive significant time and cost savings throughout the development process. An evolving area of competition is the need
to provide services that can help generate the evidence of the economic value of new treatments that payers and regulators require.
This requires access to new data sources which includes information to support the identification of suitable investigator sites and
patient populations as well as data on the value delivered by new products following marketing approval.
We believe that we compete favorably in all these areas and we continue to invest in our capabilities to ensure that we remain
competitive in the future.
26
Customers
During the year ended December 31, 2018 revenue was earned from over 800 clients. During the year ended December 31, 2018
39.5% of our revenues were derived from our top five customers, with one customer contributing more than 10% of our revenues
during the period (13.6%). No other customer contributed more than 10% of our revenues (including revenue from reimbursable
expenses) during this period. During the year ended December 31, 2017 42.0% of our revenues were derived from our top five
customers, with one customer contributing more than 10% of our revenues (including revenue from reimbursable expenses) during
the period (21.0%). No other customer contributed more than 10% of our revenues (including revenue from reimbursable expenses)
during this period. See note 16 Disaggregation of Revenue.
During the year ended December 31, 2016 45% of our net revenues (excluding reimbursable expenses) were derived from our top
five customers, with one customer individually contributing more than 10% of our net revenues during the period (26%). No other
customer contributed more than 10% of our net revenues during this period.
The loss of, or a significant decrease in business from one or more of these key customers could have a material adverse impact
on our results of operations.
Unsatisfied performance obligation
Our unsatisfied performance obligation consists of contracted revenue yet to be earned from projects awarded by clients. At
December 31, 2018 we had contracted unsatisfied performance obligations of $5.3 billion (see note 17 Contract Balances). We
believe that our backlog as of any date is not necessarily a meaningful predictor of future results due to the potential for cancellation
or delay of the projects included in the backlog, and no assurances can be given on the extent to which we will be able to realize
this backlog as net revenue.
Information Systems
Having access to accurate and timely information is critical in the management, delivery and quality of all aspects of drug
development. To enable this ICON has developed an Informatics strategy built around ICONIK, a web-based information platform
that enables the management, reporting, analysis and visualization of all data relating to drug development. ICONIK collects,
manages and standardizes study data from multiple sources, including Electronic Data Capture (EDC), patient diaries, central
laboratories and imaging, to provide a single view of study information. ICONIK enables ICON to deliver new services such as
ICONIK monitoring which uses near-real time clinical data to drive monitoring visit schedules thereby reducing overall cost and
time to market.
In addition to managing clinical data, ICONIK collects operational data, such as project management, clinical trials management
system (CTMS) and metric information to drive trial efficiency and transparency. Investigator data, such as payments, site details
and performance, can also be incorporated. ICONIK can be accessed via a portal that allows clients access to study related
information via a secure web based environment.
Firecrest, our site management and training technology, is another important component of our Informatics strategy. Firecrest
provides an on-line web-based portal to access visit by visit study guides which drive site performance and quality.
ICON also utilizes a range of enterprise applications that enable the delivery of our business services in a global environment.
The focus is to provide ease of access and capture of study information for our staff and clients globally. Our current information
systems are built on open standards and leading commercial business applications from vendors including Microsoft, Amazon,
Oracle, Dell, SAS and Medidata. IT expenditure is authorized by strict IT governance policies requiring senior level approval of
all strategic IT expenditure based on defined, measurable business benefits.
In Clinical Operations, we have deployed a suite of software applications that assist in the management and tracking of our clinical
trial activities. These software applications are both internally developed and commercially available applications from external
vendors. These include a clinical trial management application that tracks all relevant data in a trial and automates all management
and reporting processes. In our Data Management function, we have deployed leading clinical data management solutions including
EDC and Clinical Data Warehouse solutions from external vendors. This allows us to guarantee the integrity of client data and
provide consolidated information across client studies. In our clinical trials management area Firecrest Clinical provides a
comprehensive site performance management system that improves compliance, consistency and execution of activities at
investigative sites. The web-based solution enables accurate study information, including protocol information, training manuals
and case report forms, to be rolled out quickly and simultaneously to sites. Site behaviour can then be tracked to ensure training
27
is understood, procedures are being followed, timelines are met and study parameters are maintained. As well as meeting day to
day operational requirements, these systems are feeder systems into the ICONIK platform.
We have also developed an interactive response technology (IXR) system which provides features such as centralized patient
randomization, drug inventory management, patient diary collection and provides our clients with a fully flexible data retrieval
solution which can be utilized via telephone, internet browser or a mobile device. In our central laboratory business, we utilize a
comprehensive suite of software, including a laboratory information management system (LIMS), a kit / sample management
system and a web interface system to allow clients to review results online. Our Laboratory also utilizes (IMRA) a web based
laboratory application to facilitate detailed analysis of any potential trends, signal or alerts in Laboratory data. ICON provides
imaging services through the use of it internally developed MIRA platform and also utilizes Medidata’s Rave Commercial Imaging
for collecting, managing and processing data to support its imaging capabilities.
ICON supports Population Pharmacokinetics & Pharmacokinetic Pharmacodynamic modeling though the use of its proprietary
software NONMEM®. NONMEM® can also be accompanied with PDx-Pop proprietary software to provide graphical
interfaces.
All of the Company’s global finance operations utilize Oracle’s eBusiness suite to serve the organization’s financial and project
accounting requirements. Workday is used to fulfill our HR people management requirements.
The Company’s strategy of using technology to enhance our global processes can be seen from our deployment of platforms like
ICONIK Metrics Stream EDMS/QMS our global SOP Document Management system, our Web-based training delivery solution,
iLearn, workflow and automation platforms such as ServiceNow, Sailpoint for identity management and governance and Pega &
Argus for pharmacovigilance. The Electronic Trial Master File is delivered via ICON’s proprietary software ICOMaster or the
Wingspan software platform. Our business development and contracting teams use Salesforce.
Our IT systems are operated from two Data Centre hubs in Dublin, Ireland and Philadelphia, Pennsylvania. These hubs reside
within purpose built Data Centre facility locations. Other offices are linked to these hubs through a network managed by Verizon,
a tier one global telecommunications provider. This network provides global connectivity for our applications and allows
collaboration and communication using tools like Cisco Jabber, WebEx, Sharepoint and Box. Mobile staff can also access all
systems via secure remote access facilities. A global corporate intranet portal provides access to all authorized data and applications
for our internal staff as well as providing an internal platform for company-wide communication. IT systems are protected with
robust information security controls which are independently audited twice annually as part of maintaining ICON’s ISO27001:2013
certification.
Following the acquisition of Aptiv Solutions we have integrated and continue to enhance three new technology platforms into the
ICON offerings. These comprise ADDPLAN for simulation and design of exploratory/pilot and confirmatory/ pivotal adaptive
clinical trials (ADDPLAN® DF (Dose Finder), ADDPLAN® Base, ADDPLAN® MC (Multiple Comparison) and ADDPLAN® PE
(Population Enrichment)); AptivAdvantage which is an integrated platform comprising EDC, randomization and drug supply
management specifically created for execution of adaptive clinical trials and used to deliver risk-based monitoring; and Aptiv
Insite which is a novel approach to risk-based monitoring, using Verification by Statistical Sampling (VSS) to manage data quality
and site related risks. ICON utilizes PUBSHUB to automate medical and scientific communications and publications management.
Contractual Arrangements
We are generally awarded projects based upon our responses to requests for proposals received from companies in the
pharmaceutical, biotechnology and medical device industries, or work orders executed under our strategic partnership agreements.
Revenues on long term contracts are recognized based on an assessment of progress towards completion. Payment terms usually
provide either for payments based on the delivery of certain identified milestones, units delivered or monthly payments, according
to a contracted payment schedule over the life of the contract. Where clients request changes in the scope of a trial or in the services
to be provided by us, a change order or amendment is issued which may result either in an increase or decrease in the contract
value. We also contract on a "fee-for-service" or "time and materials" basis.
Contract periods may range from several weeks to several years depending on the nature of the work to be performed. In most
cases, an upfront portion of the contract fee is paid at the time the study or trial is started. The balance of the contract fee is generally
payable in installments over the study or trial duration and may be based on the completion of certain performance targets or
"milestones", on units delivered, or on a fixed monthly payment schedule. For instance, installment payments may be based on
patient enrollment dates or delivery of the database.
28
On adoption of ASC 606 'Revenue from Contracts with Customers', we concluded that ICON is the contract principal in respect
of both direct services and in the use of third parties (principally investigator services) that support the clinical trial. The progress
towards completion for clinical service contracts is measured based on total project costs (direct fees are therefore inclusive of
third party costs). Gross revenue or 'revenue' is therefore our primary measure of performance on adoption of ASC 606 and in
presentation of our results for the year ended December 31, 2018. In common with others in the sector, our results previously
separately identified that revenue stream which related to services provided by third parties. Those services were previously
separately identified as reimbursable expenses and presented separately in our Statement of Operations. Reimbursable expenses
include payments to investigators, travel and accommodation costs and various other expenses incurred over the course of the
clinical trial which are fully reimbursable by the client. Reimbursable expenses are included within direct costs on adoption of
ASC 606. See note 26 for impact of new accounting policy. Reimbursable expenses are included within the contract and are
invoiced on a monthly basis based on actual expenses incurred. Expenses incurred are determined by reference to activity.
As the currency in which contracts are priced can be different from the currencies in which costs relating to those contracts are
incurred, we usually negotiate currency fluctuation clauses in our contracts which allow for price adjustments if changes in the
relative value of those currencies exceed predetermined tolerances.
Most of our contracts are terminable immediately by the client with justifiable cause or with 30 to 90 days’ notice without cause.
In the event of termination, we are usually entitled to all sums owed for work performed and expenses incurred through the notice
of termination and certain costs associated with termination of the study. Termination or delay in the performance of a contract
occurs for various reasons, including, but not limited to, unexpected or undesired results, production problems resulting in shortages
of the drug, adverse patient reactions to the drug, the client's decision to de-emphasize a particular trial, inadequate patient enrollment
or investigator recruitment.
Government Regulation
Regulation of Clinical Trials
The clinical investigation of new drugs is highly regulated by government agencies. The standard for the conduct of clinical
research and development studies is Good Clinical Practice (“GCP”), which stipulates procedures designed to ensure the quality
and integrity of data obtained from clinical testing and to protect the rights and safety of clinical subjects.
The FDA and other prominent regulators have promulgated regulations and guidelines that pertain to applications to initiate trials
of products, the approval and conduct of studies, report and record retention, informed consent, applications for the approval of
drugs and post-marketing requirements. Pursuant to these regulations and guidelines, service providers that assume the obligations
of a drug sponsor are required to comply with applicable regulations and are subject to regulatory action for failure to comply
with such regulations and guidelines. In the United States and Europe, the trend has been in the direction of increased regulation
and enforcement by the applicable regulatory authority.
In providing services in the United States, we are obligated to comply with FDA requirements governing such activities. These
include ensuring that the study is approved by an appropriate Independent Review Board (“IRB”) and Ethics Committee, obtaining
patient informed consents, verifying qualifications of investigators, reporting patients’ adverse reactions to drugs and maintaining
thorough and accurate records. We must maintain critical documents for each study for specified periods, and such documents
may be reviewed by the study sponsor and the FDA.
The services we provide outside the United States are ultimately subject to similar regulation by the relevant regulatory authority.
In addition, our activities in Europe are affected by the European Medicines Agency.
We must retain records for each study for specified periods for inspection by the client and by the applicable regulatory authority
during audits. If we fail to comply adequately with applicable regulations and guidelines, it could result in a material adverse
effect. In addition, our failure to comply with applicable regulations and guidelines, depending on the extent of the failure, could
result in fines, debarment, termination or suspension of ongoing research, the disqualification of data or litigation by clients, any
of which could also result in a material adverse effect.
Potential Liability and Insurance
The nature of our business exposes us to potential liability including, but not limited to, potential liability for (i) breach of contract
or negligence claims by our customers; (ii) non-compliance with regulatory or legal obligations including, but not limited to, anti-
bribery and anti-corruption laws; (iii) third party (such as patients) claims in respect of our performance of services.
29
In addition, although we do not believe we are legally responsible for acts of third party investigators (physicians running trials),
we could be subject to claims arising as a result of the actions of these investigators.
We try to reduce this potential liability by:
•
Seeking contractual indemnification from customers in relation to certain activities. However, the terms and scope of
indemnification varies from customer to customer and project to project and the performance of these indemnities is not
secured. As a result, we bear the risk that indemnification may not be relevant or sufficient or that the indemnifying party
may not have the financial ability to fulfill its indemnification obligations. Furthermore this indemnification does not
protect us against our own acts or omissions such as our negligence or where our performance does not reach the required
contractual, industry or regulatory standard.
• Maintaining worldwide professional liability insurance. While we believe our insurance coverage is adequate, there is
no guarantee that we will continue to be able to maintain such insurance coverage on terms acceptable to us, if at all, or
that the relevant policy will respond and provide cover when we want it to.
We could be materially adversely affected if ICON is required to pay damages or bear the costs of defending or settling any claim
outside the scope of or in excess of a contractual indemnification provision, an indemnifying party does not fulfill its indemnification
obligations, the claim is in excess of level of our insurance coverage or the relevant circumstances are not covered by our insurance
policies.
Description of Property
Our principal executive offices are located in South County Business Park, Leopardstown, Dublin, Republic of Ireland, where we
own an office facility of approximately 15,000 square meters. We lease all other properties.
We maintain thirty-two offices in North America; twenty-eight in the United States, three in Canada and one in Mexico. We
maintain twenty-nine in Europe; five of our offices in the UK, three each in Germany and France, two each in Italy, Ireland, Spain,
and the Netherlands and one in each of Belgium, the Czech Republic, Hungary, Israel, Latvia, Poland, Romania, Sweden, Turkey
and the Ukraine. We have twenty offices in Asia; six offices in China (including one in Hong Kong), four in India, three in Japan,
two in Singapore, one in each of The Philippines, Russia, South Korea, Taiwan and Thailand. We have one office in Australia and
one in New Zealand. We have five offices in South America; one in each of Argentina, Brazil, Chile, Colombia and Peru. We
maintain one office in South Africa.
Organizational Structure
Details of the Company’s significant subsidiaries or entities under the Company's control at December 31, 2018 are as follows:
Company
ICON Clinical Research, S.A.
ICON Clinical Research PTY Limited
ICON Clinical Research Austria GmbH
DOCS International Belgium N.V.
ICON Pesquisas Clínicas LTDA.
ICON Clinical Research EOOD
ICON Clinical Research (Canada) Inc.
Mapi Life Sciences Canada Inc.
Country
Argentina
Australia
Austria
Belgium
Brazil
Bulgaria
Canada
Canada
30
Group ownership
100%
100%
100%
100%
100%
100%
100%
100%
Company
Oxford Outcomes LTD
ICON Chile Limitada
ICON Clinical Research (Beijing No.2) Co., Ltd
ICON Clinical Research (Beijing) Co., Ltd
Country
Canada
Chile
China
China
ICON Clinical Research Hong Kong Limited
China (Hong Kong)
Ispitivanja ICON d.o.o (ICON Research Ltd.)
Croatia
ICON Clinical Research s.r.o.
Czech Republic
DOCS International Nordic Countries A/S
DOCS International Finland Oy
DOCS International France S.A.S.
ICON Clinical Research S.A.R.L.
Mapi Développement SAS
Mapi Research Trust*
Mapi SAS
DOCS International Germany GmbH
ICON Clinical Research GmbH
ICON Klinikai Kutató Korlátolt Felel sség Társaság
(ICON Clinical Research Limited Liability Company)
ICON Clinical Research India Private Limited
ICON Clinical Research Israel Limited
DOCS Italia S.R.L.
ICON Japan K.K.
ICON Investments Limited
ICON Clinical Research Korea Yuhan Hoesa
(ICON Clinical Research Korea Ltd.)
ICON CRO Malaysia SDN. BHD.
ICON Clinical Research México, S.A. de C.V.
31
Denmark
Finland
France
France
France
France
France
Germany
Germany
Hungary
India
Israel
Italy
Japan
Jersey
Korea
Malaysia
Mexico
Group ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country
Group ownership
Company
DOCS Insourcing B.V.
DOCS International B.V.
ICON Contracting Solutions Holdings B.V.
Netherlands
Netherlands
Netherlands
ICON Clinical Research (New Zealand) Limited
New Zealand
ICON Clinical Research Perú S.A.
Peru
ICON Clinical Research Services Philippines, Inc.
Philippines
DOCS International Poland Sp. z o.o.
ICON Clinical Research Sp. z o.o.
DOCS Resourcing Limited
ICON (LR) Limited
Poland
Poland
Republic of Ireland
Republic of Ireland
ICON Clinical International Unlimited Company
Republic of Ireland
ICON Clinical Research Limited
Republic of Ireland
ICON Clinical Research Property Development (Ireland)
Limited
Republic of Ireland
ICON Holdings Unlimited Company
Republic of Ireland
ICON Holdings Clinical Research International Limited
Republic of Ireland
ICON Investments Five Unlimited Company
Republic of Ireland
ICON Investments Four Unlimited Company
Republic of Ireland
ICON Clinical Research S.R.L.
ICON Clinical Research (Rus) LLC
ICON Clinical Research d.o.o. Beograd
ICON Clinical Research (Pte) Limited
ICON Clinical Research Slovakia, s.r.o.
ICON Clinical Research España, S.L.
DOCS International Sweden AB
DOCS International Switzerland GmbH
ICON Clinical Research (Switzerland) GmbH
32
Romania
Russia
Serbia
Singapore
Slovakia
Spain
Sweden
Switzerland
Switzerland
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Company
ICON Clinical Research Taiwan Limited
ICON Clinical Research (Thailand) Limited
Country
Taiwan
Thailand
ICON Ankara Klinik Arastirma Dis Ticaret Anonim Sirketi
Turkey
DOCS Ukraine LLC
ICON Clinical Research LLC
DOCS International UK Limited
ICON Clinical Research (U.K.) Limited
ICON Development Solutions Limited
Mapi Life Sciences UK Limited
Addplan, Inc.
Beacon Bioscience, Inc.
C4 MedSolutions, LLC
CHC Group, LLC
Complete Healthcare Communications, LLC
Complete Publication Solutions, LLC
DOCS Global, Inc.
Global Pharmaceutical Strategies Group, LLC
ICON Clinical Research LLC
ICON Early Phase Services, LLC
ICON Government and Public Health Solutions, Inc.
(formerly Clinical Research Management (ClinicalRM))
ICON Laboratory Services, Inc.
ICON US Holdings Inc.
Managed Care Strategic Solutions, L.L.C.
Mapi USA, Inc.
MMMM Consulting, LLC
MMMM Group, LLC
33
Ukraine
Ukraine
United Kingdom
United Kingdom
United Kingdom
United Kingdom
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Group ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Company
Country
Group ownership
PMG Research of Bristol, LLC
PMG Research of Charleston, LLC
PMG Research of Charlotte, LLC
PMG Research of Christie Clinic, LLC
PMG Research of Hickory, LLC
PMG Research of Raleigh, LLC
PMG Research of Rocky Mount, LLC
PMG Research of Salisbury, LLC
PMG Research of Wilmington, LLC
PMG Research of Winston-Salem, LLC
PMG Research, Inc.
Pricespective, LLC
PubsHub LLC
*Mapi Research Trust is an association, its members are ICON Subsidiary
entities.
Item 4A. Unresolved Staff Comments.
Not applicable.
Item 5. Operating and Financial Review and Prospects.
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements, accompanying
notes and other financial information, appearing in Item 18. The Consolidated Financial Statements have been prepared in
accordance with U.S. GAAP.
Overview
We are a CRO, providing outsourced development services on a global basis to the pharmaceutical, biotechnology and medical
device industries. We specialize in the strategic development, management and analysis of programs that support all stages of the
clinical development process - from compound selection to Phase I-IV clinical studies. Our vision is to be the Global CRO partner
of choice in drug development by delivering best in class information, solutions and performance in clinical and outcomes research.
We believe that we are one of a select group of CROs with the expertise and capability to conduct clinical trials in most major
therapeutic areas on a global basis and have the operational flexibility to provide development services on a stand-alone basis or
as part of an integrated “full service” solution. At December 31, 2018, we employed approximately 13,670 employees, in 89
locations in 37 countries. During the year ended December 31, 2018 we derived approximately 34.5%, 55.7% and 9.8% of our
revenue in the United States, Europe and Rest of World, respectively.
Revenue consists of fees earned under contracts with third-party clients. In most cases, a portion of the contract fee is paid at the
time the study or trial is started, with the balance of the contract fee generally payable in installments over the study or trial duration,
based on the delivery of certain performance targets or milestones. Revenue from long term contracts is recognized on a proportional
34
performance method based on the relationship between time incurred and the total estimated duration of the trial or on a fee-for-
service basis according to the particular circumstances of the contract. As is customary in the CRO industry, we contract with third
party investigators in connection with clinical trials. Investigator costs and certain other third party costs are included in our
assessment of progress towards completion and costs incurred in measuring revenue. Where these costs are reimbursed by clients,
they are included in the total contract value recognized over time based on our assessment of progress towards completion.
As the nature of our business involves the management of projects, the majority of which have a duration of one to four years,
the commencement or completion of projects in a fiscal year can have a material impact on revenues earned with the relevant
clients in such years. In addition, as we typically work with some, but not all divisions of a client, fluctuations in the number and
status of available projects within such divisions can also have a material impact on revenues earned from such clients from year
to year.
Termination or delay in the performance of an individual contract may occur for various reasons, including, but not limited to,
unexpected or undesired results, production problems resulting in shortages of the drug, adverse patient reactions to the drug, the
client’s decision to de-emphasize a particular trial or inadequate patient enrollment or investigator recruitment. In the event of
termination the Company is usually entitled to all sums owed for work performed through the notice of termination and certain
costs associated with the termination of the study. In addition, contracts generally contain provisions for renegotiation in the event
of changes in the scope, nature, duration, or volume of services of the contract.
Our unsatisfied performance obligation comprises our assessment of contracted revenue yet to be earned from projects awarded
by clients. At December 31, 2018 we had a backlog of approximately $5.3 billion. We believe that our backlog as of any date is
not necessarily a meaningful predictor of future results, due to the potential for cancellation or delay of the projects included in
the backlog, and no assurances can be given on the extent to which we will be able to realize the backlog.
Although we are domiciled in Ireland, we report our results in U.S. dollars. As a consequence the results of our non-U.S. based
operations, when translated into U.S. dollars, could be materially affected by fluctuations in exchange rates between the U.S. dollar
and the currencies of those operations.
In addition to translation exposures, we are also subject to transaction exposures because the currency in which contracts are priced
can be different from the currencies in which costs relating to those contracts are incurred. Our operations in the United States are
not materially exposed to such currency differences as the majority of our revenues and costs are in U.S. dollars. However, outside
the United States the multinational nature of our activities means that contracts are usually priced in a single currency, most often
U.S. dollars or euro, while costs arise in a number of currencies, depending, among other things, on which of our offices provide
staff for the contract and the location of investigator sites. Although many such contracts benefit from some degree of natural
hedging, due to the matching of contract revenues and costs in the same currency, where costs are incurred in currencies other
than those in which contracts are priced, fluctuations in the relative value of those currencies could have a material effect on our
results of operations. We regularly review our currency exposures.
As we conduct operations on a global basis, our effective tax rate has depended and will depend on the geographic distribution of
our revenue and earnings among locations with varying tax rates. Our results therefore may be affected by changes in the tax rates
of the various jurisdictions. In particular, as the geographic mix of our results of operations among various tax jurisdictions changes,
our effective tax rate may vary significantly from period to period.
35
Operating Results
The following table sets forth, for the periods indicated, certain financial data as a percentage of revenue and the percentage
change in these items compared to the prior comparable period. The trends illustrated in the following table may not be indicative
of future results.
Revenue/gross revenue
Costs and expenses:
Direct costs
Selling, general and administrative
Depreciation
Amortization
Income from operations (excluding restructuring)
Restructuring
Income from operations (including restructuring)
Year Ended December 31,
2018
2017
2018
2017
Percentage of Revenue
100.0%
100.0%
Percentage Increase/
(Decrease)
8.1 %
1.6 %
70.0%
12.6%
1.9%
0.6%
14.9%
0.5%
14.4%
42.8%
13.5%
1.8%
0.7%
14.4%
0.3%
14.1%
77.0 %
0.6 %
16.4 %
(14.1)%
11.5 %
61.1 %
10.4 %
6.9 %
(0.6)%
3.1 %
2.4 %
8.2 %
(5.0)%
8.5 %
The provisions of ASC 606 were applied in the preparation and presentation of the results for the twelve months ended December
31, 2018. As ICON adopted the standard using the cumulative effect transition method, there is no restatement of comparative
amounts. The results for the year ended December 31, 2017 and previously therefore reflect the provisions of ASC 605 'Revenue
Recognition'. The most significant impact of application of the new standard reflects the measurement of a clinical trial service
as a single performance obligation recognized over time. We have concluded that ICON is the contract principal in respect of both
direct services and in the use of third parties (principally investigator services) that support the clinical trial. The progress towards
completion for clinical service contracts is measured based on total project costs (direct fees are therefore inclusive of third party
costs). Gross revenue is therefore our primary measure of performance on adoption of ASC 606. In common with others in the
sector, our results previously separately identified that revenue stream which related to services provided by third parties. Those
services were previously separately identified as reimbursable expenses and presented separately in our Statement of Operations.
Reimbursable expenses are included within direct costs on adoption of ASC 606. See note 26 for impact of new accounting policy.
Consistent with the provisions of ASC 606, our commentary and analysis in respect of the results for the year-ended December
31, 2018 reflect our assessment of revenue as presented. Our commentary and analysis in respect of the results for the years ended
December 31, 2017 and previously refer to net revenue unless otherwise stated (direct fee revenue excluding amounts reimbursable
from third parties) as our primary measure of performance prior to the adoption of ASC 606.
Year ended December 31, 2018 compared to year ended December 31, 2017
Revenue for the year increased by $193.5 million, or 8.1%, from $2,402.3 million (revenue including reimbursable expenses) for
the year ended December 31, 2017 to $2,595.8 million for the year ended December 31, 2018. Revenue increased by 6.9% in
constant currency or 3.7% in constant dollar organic. The increase in revenues can be explained by both continued organic growth
and the additional revenues from the acquisition of Mapi on July 27, 2017.
Revenues from our top five customers were $1,024.1 million in the year ended December 31, 2018 compared to $1,009.7 million
in the year December 31, 2017 or 39.5% and 42% respectively. The largest of these customers related to a strategic partnership
with a large global pharmaceutical company. Revenue (including revenue from reimbursables) from this customer contributed
21% of revenue for the year ended December 31, 2017, compared to 14% of revenue for the year ended December 31, 2018. The
addition of new customer accounts, particularly large and mid-tier pharma customers and biotech customers have resulted in a
reduction in this concentration of revenues from our top five customers.
Revenue in Ireland increased by $122.1 million in year ended December 31, 2018, from $944.1 million (gross revenue) for the
year ended December 31, 2017 to $1,066.2 million for the year ended December 31, 2018. Revenue in Ireland during the year
ended December 31, 2018 increased by 12.9% compared to an overall increase in group revenue of 8.1%. Revenue in Ireland is
principally a function of our global transfer pricing model. See note 19 Business Segment and Geographical Information for further
details.
36
Revenue for Rest of Europe increased by $24.3 million or 6.8%, from $355.6 million for the year ended December 31, 2017 (gross
revenue) to $379.9 million for the year ended December 31, 2018, principally reflecting the acquisition of Mapi in July 2017.
Revenue in the U.S. increased by $13.1 million or 1.5%, from $881.8 million for the year ended December 31, 2017 (gross revenue)
to $895.0 million for the year ended December 31, 2018. Revenues in the U.S. were positively impacted by both continued organic
growth and by the full year impact of the acquisition of Mapi in July 2017.
Revenue in our Rest of World (‘Other’) region increased by $33.9 million or 15.4%, from $220.8 million for the year ended
December 31, 2017 (gross revenue) to $254.7 million for the year ended December 31, 2018. Revenues in non-U.S. dollar
operations in this region were impacted by foreign currency translation and the movement in local rates to the U.S. dollar over
the comparative year.
Direct costs for the year increased by $790.9 million, or 77.0%, from $1,027.3 million for the year ended December 31, 2017 to
$1,818.2 million for the year ended December 31, 2018. Direct costs for the year ended December 31, 2018 include reimbursable
expenses of $702.8 million. Other direct costs increased by $88.1 million from $1,027.3 million for the year ended December 31,
2017 to $1,115.4 million. Other direct costs primarily consist of compensation, associated fringe benefits and share based
compensation expense for project-related employees and other direct project driven costs. The increase in other direct costs during
the period arose due to an increase in headcount and a corresponding increase in personnel related expenditure of $81.3 million
combined with an increase in other direct project related costs of $1.5 million, increases in laboratory costs of $4.3 million and
an increase in travel related costs of $1.0 million.
Selling, general and administrative expenses for the year increased by $2.1 million, or 0.6%, from $323.7 million for the year
ended December 31, 2017 to $325.8 million for the year ended December 31, 2018. Selling, general and administrative expenses
comprise primarily of compensation, related fringe benefits and share based compensation expense for non-project-related
employees, recruitment expenditure, professional service costs, advertising costs and all costs related to facilities and information
systems. As a percentage of revenue, selling, general and administrative expenses decreased from 13.5% of revenue for the year
ended December 31, 2017 to 12.6% of revenue for the year ended December 31, 2018. Personnel related costs increased by $2.7
million in the year, facilities related costs increased by $4.3 million and general overhead costs net of foreign exchange costs
decreased by $5.0 million.
Share based compensation expense recognized during the years ended December 31, 2018 and December 31, 2017 was $31.6
million and $30.6 million respectively.
Depreciation expense for the year increased by $7.1 million or 16.4%, from $43.4 million for the year ended December 31, 2017
to $50.6 million for the year ended December 31, 2018. The depreciation charge reflects investments in facilities, information
systems and equipment supporting the Company’s continued growth. As a percentage of revenue, the depreciation expense
increased from 1.8% for the year ended December 31, 2017 to 1.9% of revenues for the year ended December 31, 2018.
Amortization expense for the year decreased by $2.5 million or 14.1%, from $17.9 million for the year ended December 31, 2017
to $15.4 million for the year ended December 31, 2018. The amortization expense represents the amortization of intangible assets
acquired on business combinations. The amortization expense for the year incorporates a full year's amortization of intangibles
acquired in the Mapi acquisition on July 27, 2017. These increases were offset by the completion of amortization on other assets.
As a percentage of revenue, the amortization expense decreased from 0.7% of revenue for the year ended December 31, 2017 to
0.6% of revenues for the year ended December 31, 2018.
During the year ended December 31, 2018 the Company implemented a restructuring plan to improve operating efficiencies
resulting in recognition of a restructuring charge of $12.5 million. The restructuring plan includes the cost of resource
rationalizations in certain areas of the business to improve utilization. During the year ended December 31, 2017 the Company
implemented a restructuring plan to improve operating efficiencies resulting in recognition of a restructuring charge of $7.8 million.
See note 14 to the Audited Consolidated Financial Statements.
As a result of the above, income from operations increased by $35.0 million, or 10.4%, from $338.3 million ($346.1 million,
excluding restructuring and other charges) for the year ended December 31, 2017 to $373.4 million ($385.8 million excluding
restructuring charges) for the year ended December 31, 2018 . As a percentage of revenue, income from operations increased from
14.1% of revenues for year ended December 31, 2017 to 14.4% of revenues for year ended December 31, 2018.
Income from operations in Ireland increased by 10.8% from $232.0 million for the year ended December 31, 2017, to $257.1
million for year ended December 31, 2018. Income from operations in Ireland and other geographic regions are reflective of the
Company’s global transfer pricing model. Continued strategic investment in personnel and infrastructure together with on-going
enhancement of operating processes and the successful leverage of support costs in 2018 has continued to result in a decrease of
37
the proportion of the Group’s revenue used to support other Group entities and a corresponding increase in income from operations
in Ireland during 2018.
In the Rest of Europe region, income from operations increased by $9.8 million, from $26.5 million for the year ended December 31,
2017 to $36.3 million for the year ended December 31, 2018. Excluding restructuring charges recorded income from operations
in the Rest of Europe increased by $10.6 million, from $26.4 million for the year ended December 31, 2017 to $36.9 million for
the year ended December 31, 2018. As a percentage of revenues income from operations in the Rest of Europe region increased
from 7.5% for the year ended December 31, 2017 to 9.6% for the year ended December 31, 2018.
In the U.S. region, income from operations increased by $0.3 million or 0.5%, from $58.3 million for the year ended December 31,
2017 to $58.6 million for the year ended December 31, 2018. Excluding restructuring charges recorded income from operations
in the U.S. increased by $0.2 million, from $58.2 million for the year ended December 31, 2017 to $58.3 million for the year ended
December 31, 2018. As a percentage of revenues income from operations in the U.S. region decreased from 6.6% for the year
ended December 31, 2017 to 6.5% for the year ended December 31, 2018.
In other regions, income from operations decreased by $0.1 million, from $21.5 million for the year ended December 31, 2017 to
$21.4 million for the year ended December 31, 2018. Excluding restructuring charges recorded income from operations in other
regions decreased by $0.1 million, from $21.5 million for the year ended December 31, 2017 to $21.4 million for the year ended
December 31, 2018. As a percentage of revenues, income from operations in the other regions decreased from 9.7% for the year
ended December 31, 2017 to 8.4% for the year ended December 31, 2018.
Interest expense increased from $12.6 million for the year ended December 31, 2017 to $13.5 million for the year ended
December 31, 2018. No amounts were drawn down during the year ended December 31, 2017 or the year ended December 31,
2018. Interest income for the year ended December 31, 2018 increased from $2.3 million for the year ended December 31, 2017
to $4.8 million for the year ended December 31, 2018.
Provision for income taxes for the period decreased from $46.6 million for the year ended December 31, 2017 to $42.0 million
for the year ended December 31, 2018. The Company’s effective tax rate for the year ended December 31, 2018 was
11.5% compared with 14.2% (12.0% excluding the impact of restructuring charges and non-recurring items including US tax
reform) for the year ended December 31, 2017. The Company’s effective tax rate is principally a function of the distribution of
pre-tax profits in the territories in which it operates.
Year ended December 31, 2017 compared to year ended December 31, 2016
Net revenue for the year increased by $91.9 million, or 5.5%, from $1,666.5 million for the year ended December 31, 2016 to
$1,758.4 million for the year ended December 31, 2017. Revenue increased by 4.8% in constant currency. The increase in net
revenues can be explained by both continued organic growth and the additional net revenues from the acquisition of Mapi on July
27, 2017 and the full year impact of the acquisition of ICON Government & Public Health Solutions (''GPHS'') (formerly Clinical
Research Management) acquired on September 15, 2016.
Net revenues from our top five customers were $709.1 million in 2017 compared to $744.2 million in 2016, or 40% and 45%
respectively. The largest of these customers related to a strategic partnership with a large global pharmaceutical company. Net
revenue from this customer contributed 26% of net revenue for the year ended December 31, 2016, compared to 18% of net
revenue for the year ended December 31, 2017. The addition of new customer accounts, particularly large and mid-tier pharma
customers and biotech customers have resulted in a reduction in this concentration of revenues from our top five customers.
Net revenue in Ireland increased by $13.7 million in 2017, from $410.6 million for the year ended December 31, 2016 to $424.3
million for the year ended December 31, 2017. Net revenue in Ireland during the year ended December 31, 2017 increased by
3.3% compared to an overall increase in Group revenue of 5.5%. Net revenue in Ireland is principally a function of our global
transfer pricing model.
Net revenue for Rest of Europe increased by $23.9 million or 7.6%, from $313.2 million for the year ended December 31, 2016
to $337.1 million for the year ended December 31, 2017, principally reflecting the acquisition of Mapi in July 2017. Net revenue
in the U.S. increased by $27.7 million or 3.6%, from $763.8 million for the year ended December 31, 2016 to $791.5 million for
the year ended December 31, 2017. Net revenues in the U.S. were positively impacted by both continued organic growth and by
the acquisition of Mapi on July 27, 2017 and the full year impact of the acquisition of ICON Government & Public Health Solutions
(''GPHS'') on September 15, 2016. Net revenue in our Rest of World (‘Other’) region increased by $26.6 million or 14.9%, from
$178.9 million for the year ended December 31, 2016 to $205.5 million for the year ended December 31, 2017. Net revenues in
38
non-U.S. dollar operations in this region were impacted by foreign currency translation and the movement in local rates to the
U.S. dollar over the comparative year.
Direct costs for the year increased by $66.0 million, or 6.9%, from $961.3 million for the year ended December 31, 2016 to
$1,027.3 million for the year ended December 31, 2017. Direct costs consist primarily of compensation, associated fringe benefits
and share based compensation expense for project-related employees and other direct project driven costs. The increase in direct
costs during the period arose due to an increase in headcount and a corresponding increase in personnel related expenditure of
$56.6 million combined with an increase in other direct project related costs of $11.7 million. These were offset by decreases in
laboratory costs of $0.7 million and travel related costs of $1.7 million. As a percentage of net revenue, direct costs increased from
57.7% of revenue for the year ended December 31, 2016 to 58.4% of net revenue for the year ended December 31, 2017.
Selling, general and administrative expenses for the year decreased by $2.0 million, or 0.6%, from $325.7 million for the year
ended December 31, 2016 to $323.7 million for the year ended December 31, 2017. Selling, general and administrative expenses
comprise primarily of compensation, related fringe benefits and share based compensation expense for non-project-related
employees, recruitment expenditure, professional service costs, advertising costs and all costs related to facilities and information
systems. As a percentage of net revenue, selling, general and administrative expenses decreased from 19.5% of net revenue for
the year ended December 31, 2016 to 18.4% of net revenue for the year ended December 31, 2017. Personnel related costs increased
by $0.7 million in the year, facilities related costs decreased by $0.5 million and general overhead costs net of foreign exchange
costs decreased by $2.1 million. During the year ended December 31, 2017, a credit of $6.0 million was recorded being the
reduction in the assessment of the fair value of contingent consideration liability relating to the acquisition of (''GPHS'') (see note
4 of the Financial Statements at Item 19). Once-off professional costs of $3.5 million related to a proposed transaction were also
recorded.
Share based compensation expense recognized during the years ended December 31, 2017 and December 31, 2016 was $30.6
million and $40.3 million respectively.
Depreciation expense for the year increased by $1.3 million, or 3.1%, from $42.1 million for the year ended December 31, 2016
to $43.4 million for the year ended December 31, 2017. The depreciation charge reflects investments in facilities, information
systems and equipment supporting the Company’s continued growth. As a percentage of net revenue, the depreciation expense
remained unchanged at 2.5% of net revenues for the year ended December 31, 2016 and the year ended December 31, 2017.
Amortization expense for the year increased by $0.4 million, or 2.3%, from $17.5 million for the year ended December 31, 2016
to $17.9 million for the year ended December 31, 2017. The amortization expense represents the amortization of intangible assets
acquired on business combinations. The amortization expense for the year includes amortization of intangibles acquired in the
Mapi acquisition on July 27, 2017 and the impact of a full year’s amortization for GPHS acquired on September 15, 2016. These
increases were offset by the cessation of amortization on other assets. As a percentage of net revenue, the amortization expense
decreased from 1.1% of net revenue for the year ended December 31, 2016 to 1.0% of net revenues for the year ended December
31, 2017.
During the year ended December 31, 2017 the Company implemented a restructuring plan to improve operating efficiencies
resulting in recognition of a restructuring charge of $7.8 million during 2017. The restructuring plan includes the cost of resource
rationalizations in certain areas of the business to improve utilization. During the year ended December 31, 2016 the Company
implemented a restructuring plan to improve operating efficiencies resulting in recognition of a restructuring charge of $8.2 million
during 2016. The restructuring plan includes the cost of resource rationalizations in certain areas of the business to improve
utilization (resulting in a charge of $6.2 million), and office consolidation (resulting in the recognition of an onerous lease obligation
of $2.0 million). See note 14 to the Audited Consolidated Financial Statements.
As a result of the above, income from operations increased by $26.6 million, or 8.5%, from $311.7 million for the year ended
December 31, 2016 to $338.3 million for the year ended December 31, 2017 ($26.2 million, or 8.2% excluding restructuring
charges). As a percentage of net revenue, income from operations increased from 18.7% (19.2% excluding restructuring charges)
of net revenues for year ended December 31, 2016 to 19.2% (19.7% excluding restructuring charges) of net revenues for year
ended December 31, 2017.
Income from operations in Ireland increased by 7.4% from $216.1 million ($218.3 million excluding the impact of restructuring
and other charges) for the year ended December 31, 2016, to $232.0 million ($240.1 million excluding the impact of restructuring
and other charges) for year ended December 31, 2017. Income from operations in Ireland and other geographic regions are impacted
by the Company’s global transfer pricing model. Continued strategic investment in personnel and infrastructure together with on-
going enhancement of operating processes and the successful leverage of support costs in 2017 has continued to result in a decrease
of the proportion of the Group’s net revenue used to support other Group entities and a corresponding increase in income from
operations in Ireland during 2017.
39
In the Rest of Europe region, income from operations decreased by $7.7 million, from $34.2 million for the year ended December
31, 2016 to $26.5 million for the year ended December 31, 2017. Excluding restructuring charges recorded income from operations
in the Rest of Europe decreased by $10.1 million, from $36.5 million for the year ended December 31, 2016 to $26.4 million for
the year ended December 31, 2017. As a percentage of net revenues income from operations in the Rest of Europe region decreased
from 10.9% (11.7% excluding restructuring charges) for the year ended December 31, 2016 to 7.9% (7.8% excluding restructuring
charges) for the year ended December 31, 2017. Income from operations in Europe and in Ireland in the three month period and
year ended December 31, 2016 reflected the impact of a one-off intergroup transaction. This transaction resulted in an increase
in income from operations in Europe and a decrease in income from operations in Ireland in that period.
In the U.S. region, income from operations increased by $17.0 million or 41.2%, from $41.3 million for the year ended December
31, 2016 to $58.3 million for the year ended December 31, 2017. Excluding restructuring charges recorded income from operations
in the U.S. increased by $13.6 million, from $44.6 million for the year ended December 31, 2016 to $58.2 million for the year
ended December 31, 2017. As a percentage of net revenues income from operations in the U.S. region increased from 5.4% (5.8%
excluding restructuring charges) for the year ended December 31, 2016 to 7.4% (7.3% excluding restructuring charges) for the
year ended December 31, 2017, principally reflecting a credit of $6.0 million recorded on revaluation of the contingent consideration
related to the acquisition of GPHS, the income contribution since acquisition of GPHS, and the impact of refinements to the
consideration earned by US subsidiaries under the Group’s global transfer pricing model. These increases were offset in part by
increased amortization charges.
In other regions, income from operations increased by $1.5 million, from $20.0 million for the year ended December 31, 2016 to
$21.5 million for the year ended December 31, 2017. Excluding restructuring charges recorded income from operations in other
regions increased by $1.1 million, from $20.4 million for the year ended December 31, 2016 to $21.5 million for the year ended
December 31, 2017. As a percentage of net revenues, income from operations in the other regions decreased from 11.2% (11.4%
excluding restructuring charges) for the year ended December 31, 2016 to 10.4% (10.4% excluding restructuring charges) for the
year ended December 31, 2017.
Interest expense decreased from $13.0 million for the year ended December 31, 2016 to $12.6 million for the year ended December
31, 2017. This decrease primarily reflects the drawdown of $53.0 million under the five year committed multi-currency Revolving
Credit Facility in the year ended December 31, 2016. This facility bears interest at LIBOR plus a margin. No amounts were drawn
down during the year ended December 31, 2017. Interest income for the year ended December 31, 2017 increased from $1.5
million for the year ended December 31, 2016 to $2.3 million for the year ended December 31, 2017.
Provision for income taxes for the period increased from $38.0 million ($39.0 million excluding the impact of restructuring charges)
for the year ended December 31, 2016 to $46.6 million ($47.5 million excluding the impact of restructuring charges) for the year
ended December 31, 2017. The Company’s effective tax rate for the year ended December 31, 2017 was 14.2% (12.0% excluding
the impact of restructuring charges and non-recurring items including US tax reform) compared with 12.7% (12.7% excluding
the impact of restructuring charges) for the year ended December 31, 2016. The Company’s effective tax rate is principally a
function of the distribution of pre-tax profits in the territories in which it operates.
Liquidity and Capital Resources
The CRO industry is generally not capital intensive. The Group’s principal operating cash needs are payment of salaries, office
rents, travel expenditures and payments to investigators. Investing activities primarily reflect capital expenditures for facilities
and information systems enhancements, the purchase and sale of short term investments and acquisitions.
Our clinical research and development contracts are generally fixed price with some variable components and range in duration
from a few weeks to several years. Revenue from contracts is generally recognized as income on the basis of the relationship
between costs incurred and the total estimated contract costs. The cash flow from contracts typically consists of a small down
payment at the time the contract is entered into, with the balance paid in installments over the contract duration, in some cases on
the achievement of certain milestones. Therefore, cash receipts do not correspond to costs incurred and revenue recognized on
contracts.
40
Cash and cash equivalents and net borrowings
Cash and cash equivalents
Available for sale
investments
Private placement notes
Balance
December 31,
2017
Drawn down/
(repaid)
Net cash
inflow/
(outflow)
Other non-
cash
adjustments
Effect of
exchange
rates
Balance
December 31,
2018
$ in thousands
282,859
77,589
(348,888)
11,560
—
—
—
118,320
—
(5,328)
395,851
(18,909)
—
1,230
(376)
—
59,910
(349,264)
99,411
854
(5,328)
106,497
The Company’s cash and available for sale investments at December 31, 2018 amounted to $455.8 million compared with cash
and available for sale investments of $360.4 million at December 31, 2017. The Company’s cash and short term investment balances
at December 31, 2018 comprised cash and cash equivalents $395.9 million and short-term investments $59.9 million. The
Company’s cash and short term investment balances at December 31, 2017 comprised cash and cash equivalents $282.9 million
and short-term investments $77.6 million.
On March 12, 2018, the Company entered into a five year committed multi-currency Revolving Credit Facility for $150.0 million
with Citibank, JP Morgan, Santander, HSBC Bank and Morgan Stanley International (“Revolving Credit Facility”). Each bank
subject to the agreement has committed $30.0 million to the facility, with equal terms and conditions in place with all institutions.
The facility is guaranteed by ICON plc. The facility replaces the $100.0 million facility which was entered into in June 2014 due
to mature in June 2019. The facility bears interest at LIBOR plus a margin. No amounts were drawn at December 31, 2018, or at
December 31, 2017, in respect of the Revolving Credit Facility. Amounts available to the Group under the facility at December 31,
2018 were $150.0 million and at December 31, 2017 were $100.0 million.
On July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited, acquired Mapi Development SAS ('Mapi').
Mapi is a leading patient-centered health outcomes research and commercialization company. Cash outflows on acquisition were
$144.1 million.
On September 15, 2016, a subsidiary of the Company, ICON US Holdings Inc. acquired ICON Government & Public Health
Solutions (''GPHS'') (formerly Clinical Research Management (ClinicalRM)) which resulted in net cash outflows of $52.4 million
(including certain payments made on behalf of GPHS totaling $9.2 million).
On December 15, 2015, ICON Investments Five Unlimited Company issued Senior Notes for aggregate gross proceeds of $350.0
million in a private placement. The Senior Notes will mature on December 15, 2020. Interest payable is fixed at 3.64%, and is
payable semi-annually on the Senior Notes on each June 15 and December 15, which commenced on June 15, 2016. The Senior
Notes are guaranteed by ICON plc. In October 2015, the Company entered into an interest rate hedge in respect of the planned
issuance of the Senior Notes in December 2015. The interest rate hedge matured in November 2015 when the interest rate on the
Senior Notes was fixed. The interest rate hedge was effective in accordance with Financial Accounting Standards Board (“FASB”)
ASC 815, “Derivatives and Hedging”. The cash proceeds, representing the realized gain on the interest rate hedge, were received
on maturity in November 2015.
On July 27, 2015 the Company entered into a 364 day bridge facility for $350.0 million with two financial institutions. The facility
bore interest at LIBOR plus a margin and included certain guarantees and indemnities in favor of the two financial institutions.
The bridge facility was repaid in full in December 2015.
Net cash provided by operating activities was $268.6 million for the year ended December 31, 2018 compared with net cash
provided by operating activities of $383.1 million for the year ended December 31, 2017.
41
The dollar value of these balances and the related number of days’ revenue outstanding (i.e. revenue outstanding as a percentage
of revenue for the period, multiplied by the number of days in the period) can vary over a study or trial duration. Contract fees
are generally payable in installments based on the achievement of certain performance targets or “milestones” (e.g. target patient
enrollment rates, clinical testing sites initiated or case report forms completed), such milestones being specific to the terms of each
individual contract, while revenues on contracts are recognized as contractual obligations as performed. Billed and unbilled revenue
also includes amounts recoverable from customers in respect of reimbursable costs. On adoption of ASC 606, we concluded that
ICON is the contract principal in respect of both direct services and in the use of third parties (principally investigator services)
that support a clinical trial. The progress towards completion for clinical service contracts is measured based on total project costs
(including reimbursable costs). Reimbursable expenses are included within direct costs on adoption of ASC 606 and are recorded
based on activity undertaken by the third party. Amounts owed to investigators and others in respect of reimbursable expenses at
December 31, 2018 were $85.6 million (see note 7 Other liabilities). Contractual terms with our customers require ICON to receive
and discharge payment to third parties prior to billing the customer for these items. Days’ revenue outstanding will vary therefore
due to, amongst others, the scheduling of contractual milestones over a study or trial duration, the achievement of a particular
milestone during the period, the timing of receipt of invoices from third parties for reimbursable costs and or the timing of cash
receipts from customers. A decrease in the number of days’ revenue outstanding during a period will result in cash inflows to the
Company while an increase in days revenue outstanding will lead to cash outflows. The number of days’ revenue outstanding at
December 31, 2018 was 67 days compared to 49 days at December 31, 2017 . This reflects both extended credit terms provided
to a number of key accounts and timing of cash collections. The increase in days' revenue outstanding and a reduction in days
payment outstanding resulted in a reduction in cash provided by operations.
Net cash used in investing activities was $37.3 million for the year ended December 31, 2018 compared to net cash used in investing
activities of $177.8 million for the year ended December 31, 2017. Net cash used in the year ended December 31, 2018 arose
principally on the investment in capital expenditure of $48.4 million, offset in part by the net income on the sale of short-term
investments of $18.9 million. In December 2017, net cash used in investing activities of $177.8 million was driven by cash paid
for acquisitions of $144.1 million (excluding cash acquired with subsidiary undertaking of $19.6 million - see note 4 Business
Combinations for further details), capital expenditures of $44.7 million and the purchase of short-term investments of $41.7 million
offset by the sale of short-term investments of $33.1 million.
Capital expenditure of $48.4 million for the year ended December 31, 2018 comprised mainly of expenditure on global infrastructure
and information technology systems to support the Company’s growth. During the year ended December 31, 2018 the Company
incurred a net cash outflow of $18.8 million in respect of the purchase and sale of short-term investments. This compares to receipt
of a net $8.6 million during the year ended December 31, 2017.
Net cash outflow from financing activities amounted to $113.0 million for the year ended December 31, 2018 compared with net
cash outflow from financing activities of $119.3 million for the year ended December 31, 2017. Cash outflows in respect of
financing activities includes consideration paid by the Company for share buybacks pursuant to the Company’s share repurchase
program totalling $129.0 million in the year-ended December 31, 2018 (see note 12 Share Capital for further information).
As a result of these cash flows, cash and cash equivalents increased by $113.0 million for the year ended December 31, 2018
compared to an increase of $90.3 million for the year ended December 31, 2017.
Contractual obligations table
The following table represents our contractual obligations and commercial commitments as of December 31, 2018:
Operating lease obligations
Senior Notes
Interest on Senior Notes
Current and Non-current tax liabilities
Total (U.S.$ in millions)
Payments due by period
Total
Less than 1
year
1 to 3
years
3 to 5
years
More than
5 years
126.6
350.0
25.5
18.2
$520.3
(U.S.$ in millions)
32.6
—
12.7
1.4
$46.7
48.2
350.0
12.8
3.9
$414.9
26.6
—
—
9.6
$36.2
19.2
—
—
3.3
$22.5
42
We expect to spend approximately $55 million in the next twelve months on further investments in information technology, the
expansion of existing facilities and the addition of new offices. We believe that we will be able to fund our additional foreseeable
cash needs for the next twelve months from cash flow from operations, existing cash balances and funds available under negotiated
facilities. In the future, we may consider acquiring businesses to enhance our service offerings and global presence. Any such
acquisitions could require additional external financing and we may from time to time seek to obtain funds from public or private
issues of equity or debt securities. There can be no assurance that such financing will be available on terms acceptable to us.
Critical Accounting Policies
The preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United
States requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reported period.
We base our estimates and judgments on historical experience and on the other factors that we believe are reasonable under current
circumstances. Actual results may differ from these estimates if these assumptions prove to be incorrect or if conditions develop
other than as assumed for the purposes of such estimates. The following is a discussion of the accounting policies used by us,
which we believe are critical in that they require estimates and judgments by management.
Revenue Recognition
Significant management judgments and estimates must be made and used in connection with the recognition of revenue in any
accounting period. Material differences in the amount of revenue in any given period may result if these judgments or estimates
prove to be incorrect or if management’s estimates change on the basis of development of the business or market conditions. To
date there have been no material differences arising from these judgments and estimates.
We earn revenues by providing a number of different services to our clients. These services, which are integral elements of the
clinical development process, include clinical trials management, contract staffing, consulting, and laboratory services. Contracts
range in duration from a number of months to several years. The criteria for revenue recognition is based on five steps: (1) identify
the contract(s) with a customer; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4)
allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity
satisfies the performance obligation.
The Company adopted ASC 606 ‘Revenue from Contracts with Customers’, with a date of initial application of January 1, 2018.
The revenue recognition accounting policy applied in preparation of the results for the twelve months ended December 31, 2018
therefore reflect application of ASC 606. ICON has elected to adopt the standard using the cumulative effect transition method.
See note 26 for details of adoption.
The most significant impact of application of the standard relates to our assessment of performance and percentage of completion
in respect of our clinical trial service revenue. Prior to application of ASC 606, the revenue attributable to performance was
determined based on both input and output methods of measurement. We have concluded that under the new standard, a clinical
trial service is a single performance obligation satisfied over time i.e. the full service obligation in respect of a clinical trial
(including those services performed by investigators and other parties) is considered a single performance obligation. Promises
offered to the customer are not distinct within the context of the contract. We have concluded that ICON is the contract principal
in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical research
project. The transaction price is determined by reference to the contract or change order value (total service revenue and pass-
through/ reimbursable expenses) adjusted to reflect a realizable contract value. An assessment of the realizable contract value is
judgmental in nature. The realizable value assessment is updated at each reporting period, having regard to (i) contract terms and
(ii) customer experience.
Revenue is recognized on a percentage completion basis as the single performance obligation is satisfied. The progress towards
completion for clinical service contracts is measured therefore based on an input measure being total project costs (inclusive of
third party costs) at each reporting period. Measurement of the progress towards completion involves judgment and estimation.
Assessment of completion requires an evaluation of labor and related time cost incurred at the reporting date and third party costs
incurred at the reporting date. The assessment of third party costs incurred (principally investigator costs) requires a review of
activity performed and recorded by the third party services providers. The timing of payments to third parties in respect of cost
incurred reflect invoicing by third parties. The timing difference between the activity performed and receipt of invoices from third
parties may result in significant accrued amounts at reporting periods.
43
The assessment of progress towards completion also requires an up to date evaluation of the forecast costs to complete in respect
of these projects. Given the long-term nature of the clinical trials, and the complex nature of those trials, the forecast costs to
complete (being internal direct costs and costs that will be incurred by third parties (principally investigators)) is judgmental.
Forecast time (and related costs) is determined by reference to (i) contract terms and (ii) past experience. Forecast third party costs
to complete are determined by project by project reference to (i) contract terms and (ii) past experience.
Our contracting services revenue is recognized on a right to invoice basis. Our consulting services revenue is recognized based
on an assessment of progress towards completion at each reporting period. Laboratory services revenue is recognized when, or
as, obligations under the terms of a contract are satisfied, which occurs when control of the products or services are transferred
to the customer. Service revenue is recognized over time as the services are delivered to the customer based on an assessment of
progress towards completion.
Impact of New Accounting Pronouncements
Impact of new accounting pronouncements adopted during fiscal year-ended December 31, 2018
The Company adopted ASC 606 ‘Revenue from Contracts with Customers’, with a date of initial application of January 1, 2018.
The revenue recognition accounting policy applied in preparation of the results for the twelve months ended December 31, 2018
therefore reflect application of ASC 606. ICON has elected to adopt the standard using the cumulative effect transition method.
See note 26 for details of adoption.
The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance
obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in
the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation.
The most significant impact of application of the standard relates to our assessment of performance and percentage of completion
in respect of our clinical trial service revenue. Prior to application of ASC 606, the revenue attributable to performance was
determined based on both input and output methods of measurement. We have concluded that under the new standard, a clinical
trial service is a single performance obligation satisfied over time i.e. the full service obligation in respect of a clinical trial
(including those services performed by investigators and other parties) is considered a single performance obligation. Promises
offered to the customer are not distinct within the context of the contract. We have concluded that ICON is the contract principal
in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical research
project.
Impact of new accounting pronouncements which will be adopted during fiscal year-ended December 31, 2019
In February 2016, the FASB issued ASU 2016-02, 'Leases', requiring lessees to recognize a right-of-use asset and a lease liability
on the Consolidated Balance Sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be
classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but
updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing
or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after December 15,
2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified
retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented.
The updated standard is effective for us beginning in the first quarter of the year-ended December 31, 2019. We are currently
evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. See note
15 Commitments and Contingencies for details of operating leases held during year-ended December 31, 2018. A lease liability
and right-of-use asset will be recorded on the Consolidated Balance Sheet at December 31, 2019. We estimate the impact of the
adoption of ASC 842 will be the recognition of a right-of use asset and of lease liabilities in the range of $100 million to $110
million. Under the new standard we expect an insignificant change in net result due to the replacement of operating lease expenses
with amortization of the lease asset and the interest expense.
In July 2018, the FASB issued ASU 2018-11, which creates a new, optional transition method for implementing ASU 2016-02
and a lessor practical expedient for separating lease and non-lease components.
This ASU is effective:
For entities that have not early adopted ASU 2016-02 with the effective date of ASU 2016-02.
•
•
For entities that have early adopted ASU 2016-02 upon issuance. However, it can only be adopted by entities either at
(1) the beginning of the company’s first reporting period after issuance or (2) the entity’s mandatory ASC 842 effective date. The
Company has elected to adopt this transition method for implementing ASU 2016-02 and the related practical expedient.
44
In July 2018, the FASB issued ASU 2018-10 which clarifies and corrects errors in ASC 842. The effective date and transition
requirements in ASU 2018-10 are the same as the effective date and transition requirements of ASU 2016-02.
In January 2018, the FASB issued ASU 2018-01, which clarifies that land easements are in the scope of ASU 2016-02, 'Leases',
and provides transition relief. The effective date and transition requirements in ASU 2018-01 are the same as the effective date
and transition requirements of ASU 2016-02. This clarification does impact on the impact assessment of the adoption of ASC 842.
In August 2017, the FASB issue ASU 2017-12 'Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities' which changes the recognition and presentation requirements of hedge accounting, including:
• Eliminating the requirement to separately measure and report hedge ineffectiveness; and
•
Presenting all items that affect earnings in the same income statement line item as the hedged item.
The ASU also provides new alternatives for:
• Applying hedge accounting to additional hedging strategies;
• Measuring the hedged item in fair value hedges of interest rate risk;
• Reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing,
hedge documentation and application of the critical terms match method; and
• Reducing the risk of material error correction if a company applies the shortcut method inappropriately.
This ASU is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15,
2018. Early adoption is permitted any time after the issuance of the ASU, including in an interim period. If adopted at other than
the beginning of a fiscal year, cumulative effect adjustments are reflected as of the beginning of the fiscal year. The adoption of
the ASU is not expected to have a significant impact on the financial statements.
In February 2017, the FASB issued ASU 2017-05 'Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets
(Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets'.
In February 2017, the FASB issued ASU 2017-05 which clarifies the guidance in Subtopic 610-20 on accounting for derecognition
of a nonfinancial asset. The ASU also defines in-substance nonfinancial assets and includes guidance on partial sales of non-
financial assets. The adoption of ASU 2017-05 is not expected to have an impact on the financial statements.
In July 2017, the FASB issued ASU 2017-11 'Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception' under which down round features will not
cause certain equity-linked financial instruments to be accounted for as derivatives. A company that presents EPS information
will reflect the effect of a down round feature of free-standing equity-linked financial instruments in EPS only if it is triggered.
The ASU is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2018.
The adoption of the ASU is not expected to have an impact on the financial statements.
In June 2016, the FASB issued ASU 2016-13 'Measurement of Credit Losses on Financial Instruments', which significantly changes
the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses
expected to occur over their remaining life. The ASU is effective for public business entities that are SEC filers for interim and
annual periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2016-13 is not expected to have a significant
impact on the financial statements.
In July 2018, the FASB issued ASU 2018-09, which clarifies and corrects unintended application of guidance, and makes
improvements to several Codification Topics. The changes are part of an ongoing FASB project to make non-substantive technical
corrections, clarifications, and improvements that are not expected to have a significant effect on accounting practice or create a
significant administrative cost to most entities. Most of the amendments are effective immediately.
Some of the amendments are effective for:
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.
•
•
All other entities for annual periods in fiscal years beginning after December 15, 2019 and interim periods in fiscal years
beginning after December 15, 2020. Other amendments, which affect recently issued ASUs that are not yet effective, are effective
with the original ASU. The impact of adoption of ASU 2018-09 is not expected to be significant.
In June 2018, the FASB issued ASU 2018-08 which clarifies and improves current guidance about whether a transfer of assets (or
the reduction, settlement, or cancellation of liabilities) is a contribution or an exchange transaction. For transactions in which an
entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for securities that are traded, listed,
or quoted on an exchange or an over-the-counter market and serves as a resource recipient, the entity should apply the amendments
45
in this ASU on contributions received to annual and interim periods in fiscal years beginning after June 15, 2018. All other entities
should apply the amendments for transactions in which the entity serves as the resource recipient to annual periods in fiscal years
beginning after December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. For transactions in
which an entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for securities that are
traded, listed, or quoted on an exchange or an over-the-counter market and serves as a resource provider, the entity should apply
the amendments in this ASU on contributions made to annual and interim periods in fiscal years beginning after December 15,
2018. All other entities should apply the amendments for transactions in which the entity serves as the resource provider for annual
periods in fiscal years beginning after December 15, 2019 and interim periods in fiscal years beginning after December 15, 2020.
Early adoption of the amendments is permitted. The adoption of ASU 2018-08 is not expected to have a significant impact on the
financial statements.
In February 2018, the FASB issued ASU 2018-02 which allows a reclassification from accumulated other comprehensive income
to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This ASU is effective for all entities for
annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in
any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued
and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance.
The adoption of ASU 2018-02 is not expected to have a significant impact on the financial statements.
In December 2017, the FASB issued ASU 2017-15. The ASU eliminates Topic 995, which includes an exemption to the recognition
of deferred taxes on certain statutory reserve deposits that were, but are no longer, tax deferred. This ASU is effective for all entities
for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities,
including adoption in an interim period. The adoption of ASU 2017-15 is not expected to have a significant impact on the financial
statements.
Impact of other new accounting pronouncements
In January 2017, the FASB issued ASU 2017-04 'Intangibles - Goodwill and Other: Simplifying the test for goodwill impairment'
which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead,
impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The ASU
is effective for public businesses, that are SEC filers, for annual and interim periods in fiscal years beginning after December 15,
2019. The adoption of ASU 2017-04 is not expected to have a significant impact on the financial statements.
In August 2018, the FASB issued ASU 2018-15, which clarifies that implementation costs incurred by customers in cloud computing
arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use
software guidance.
This ASU is effective for:
•
•
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2019.
Early adoption is permitted. Our evaluation of the impact of adoption of ASU 2018-15 is on-going.
In August 2018, the FASB issued ASU 2018-14, which aims to improve the overall usefulness of disclosures to financial statement
users and reduce unnecessary costs to companies when preparing defined benefit plan disclosures.
This ASU is effective for:
•
Retrospective adoption is required and early adoption is permitted. Our evaluation of the disclosure impact of adoption of ASU
2018-14 is on-going.
Public business entities for financial statements issued for fiscal years ending after December 15, 2020.
In August 2018, the FASB issued ASU 2018-13 which aims to improve the overall usefulness of disclosures to financial statement
users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. This ASU is effective for
all entities for annual and interim periods in fiscal years beginning after December 15, 2019. Retrospective adoption is required
except for the following changes, which are required to be applied prospectively for only the most recent interim or annual period
presented in the initial fiscal year of adoption:
•
•
and
•
Early adoption is permitted. An entity may early adopt any eliminated or modified disclosure requirements and delay adoption of
the additional disclosure requirements until their effective date. In such cases, users should refer to the Codification for disclosure
requirements. Our evaluation of the disclosure impact of adoption of ASU 2018-13 is on-going.
Changes in unrealized gains and losses included in other comprehensive income for Level 3 instruments;
The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements;
The narrative description of measurement uncertainty.
46
In August 2018, the FASB issued ASU 2018-12 which changes how insurance entities recognize, measure, present and disclose
long-duration contracts. This ASU is effective for:
•
•
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2020.
Early adoption is permitted. The adoption of ASU 2018-12 is not expected to impact on the financial statements.
In June 2018, the FASB issued ASU 2018-07 which more closely aligns the accounting for employee and nonemployee share-
based payments.
This ASU is effective for:
•
•
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.
The adoption of ASU 2018-07 is not expected to have a significant impact on the financial statements.
Inflation
We believe that the effects of inflation generally do not have a material adverse impact on our operations or financial conditions.
Item 6. Directors, Senior Management and Employees.
Directors and Senior Management
The following table and accompanying biographies set forth certain information concerning each of ICON plc’s Directors, officers
and other key employees as of March 1, 2019.
Name
Ciaran Murray
Dr. Steve Cutler (1)(5)
Brendan Brennan (1)(5)
Ronan Murphy (2)(3)(5)
Declan McKeon (3)(4)
Dr. John Climax
Professor Dermot Kelleher
Professor William Hall (2)(4)
Mary Pendergast (2)
Professor Hugh Brady (3)
Eugene McCague (3)
Joan Garahy (2)(4)
Diarmaid Cunningham
Age
56
58
40
61
67
66
63
69
68
59
60
56
44
Position
Non Executive Chairman and Director
Chief Executive Officer and Director
Chief Financial Officer
Lead Independent Director
Director
Director
Director
Director
Director
Director
Director
Director
Chief Administrative Officer, General Counsel & Company Secretary
(1) Named Executive Officer of the Company.
(2) Member of Compensation and Organization Committee.
(3) Member of Audit Committee.
(4) Member of Nominating and Governance Committee.
(5) Member of Execution Committee.
Ciaran Murray was appointed as the Executive Chairman of ICON plc in March 2017, having previously served as Chief Executive
Officer from October 2011. In February 2018, the Board approved the appointment of Mr. Murray as non-Executive Chairman of
ICON plc with effect from May 12, 2018. Mr. Murray joined ICON as Chief Financial Officer in 2005 and he served in that
capacity until his appointment as Chief Executive Officer. Mr. Murray is an executive with 37 years experience forged from a
career spent operating in global markets in high-growth entrepreneurial companies and blue-chip multi-nationals, including PwC
Ireland, Kraft Foods, Novell Inc., Northern Foods and Codec Systems. Mr. Murray has also played a leadership role in advocating
for safe, ethical high-quality research through his 2014 Chairmanship of the Association of Clinical Research Organisations
(ACRO). ACRO represents the CRO industry globally to key stakeholders including pharmaceutical, biotech and medical device
companies, regulators, legislators and patient groups. In 2014, Mr. Murray was named as a leader in CRO Innovation by
PharmaVOICE100, a listing of the most influential people in the bio pharma industry. Mr. Murray graduated with a Bachelor of
Commerce degree from University College Dublin and he is a Fellow of the Institute of Chartered Accountants in Ireland. He was
awarded an Honorary Degree of Doctor of Laws from University College Dublin in 2013 for his support of third level research
and innovation in Ireland.
47
Dr. Steve Cutler was appointed Chief Executive Officer of ICON plc in March 2017, having previously served as Chief Operating
Officer from January 2014. Dr. Cutler served as Group President Clinical Research Services since November 2011 until his
appointment as Chief Operating Officer. Dr. Cutler was appointed to the Board of ICON plc in November 2015. Prior to joining
the Company, Dr. Cutler held the position of Chief Executive Officer of Kendle, having previously served as Chief Operating
Officer. Prior to Kendle, Dr. Cutler spent 14 years with Quintiles where he served as Senior Vice President, Global Project
Management; Senior Vice President, Clinical, Medical and Regulatory; Senior Vice President, Project Management - Europe; and
Vice President, Oncology - Europe, as well as regional leadership positions in South Africa and Australia. Prior to joining Quintiles,
Dr. Cutler held positions with Sandoz (now Novartis) in Australia and Europe. Dr. Cutler holds a B.Sc. and a Ph.D from the
University of Sydney and a Masters of Business Administration from the University of Birmingham (UK).
Brendan Brennan has served as Chief Financial Officer since February 2012. Mr. Brennan has developed his career over the last
twenty years from experience in various industries. Mr. Brennan joined ICON in 2006 and he has served in a number of senior
finance roles in the Company including the role of Senior Vice President of Corporate Finance. Prior to this he developed his
broad financial experience in Cement Roadstone Holdings, a major Irish building materials organization. Mr. Brennan spent a
number of years in public accounting with PwC prior to this. Mr. Brennan is a Fellow of the Institute of Chartered Accountants
in Ireland and holds a bachelor’s degree in Accounting and Finance from Dublin City University.
Ronan Murphy has served as an outside Director of the Company since October 2016. He was appointed as Lead Independent
Director in January 2019. Mr. Murphy is the former Senior Partner of PwC Ireland. Mr. Murphy was elected Senior Partner in
2007 and was re-elected for a further four year term in 2011. Following completion of the maximum two terms, Mr. Murphy
retired from the firm in 2015. Mr. Murphy was also a member of the PwC EMEA Leadership Board for a five year period from
2010 to 2015. Mr. Murphy joined PwC in 1980 and was admitted to the Partnership in 1992. As an Assurance Partner, he served
clients across a number of sectors. In 1995, Mr. Murphy joined the firm’s leadership team and held a number of operational
leadership roles, prior to being appointed as Partner in Charge of the Firm’s Assurance Practice in 2003, a position he held for
four years prior to his appointment as Senior Partner. Mr. Murphy is presently Chairman of Greencoat Renewables PLC and a
non-executive director of Davy Stockbrokers and of Liberty Insurance's operations in Ireland. Mr. Murphy currently serves as a
Board Member of the UCD Michael Smurfit Business School, as a council member of the ESRI and as Chair of Business in the
Community Ireland. He is also a founding Board Member of the British Irish Chamber of Commerce. Mr. Murphy completed a
Bachelor of Commerce and Masters in Business Studies at University College Dublin before qualifying as a chartered accountant
in 1982.
Declan McKeon has served as an outside Director of the Company since April 2010 and served as acting Chairman from April
2016 until March 2017. He served as the Lead Independent Director from March 2017 to December 2018. Mr. McKeon was a
partner in PwC Ireland from 1986 to 2007. His roles included leadership of the audit and business advisory team for PwC Ireland,
membership of the PwC Europe audit and business advisory services executive and market sector leader for consumer and industrial
products. Mr. McKeon holds a Bachelor of Commerce and Masters in Business Studies from University College Dublin and is a
Fellow of The Institute of Chartered Accountants in Ireland.
Dr. John Climax, one of the Company’s co-founders, served as Chairman of the Board of the Company from November 2002 to
December 2009 and as Chief Executive Officer from June 1990 to October 2002. From January 2010 he has held a position as an
outside Director of the Company. Dr. Climax has over 25 years of experience in the clinical research industry. Dr. Climax is the
Executive Chairman of DS Biopharma Limited. Dr. Climax received his primary degree in pharmacy in 1977 from the University
of Singapore, his masters in applied pharmacology in 1979 from the University of Wales and his Ph.D. in pharmacology from the
National University of Ireland in 1982. He has authored a significant number of papers and presentations, and holds adjunct
professorship at the Royal College of Surgeons of Ireland and an honorary professorship at the National University of Singapore.
He is currently Executive Chairman of DS Biopharma and CEO of Afimmune, both of which are private companies.
Professor Dermot Kelleher has served as an outside Director of the Company since May 2008. Professor Kelleher is currently
Dean of the Faculty of Medicine and Vice President (Health) at the University of British Columbia in Vancouver. From 2012 to
2015 he was Vice President (Health) and Dean of the Faculty of Medicine at Imperial College London and concurrently Dean of
the Lee Kong Chian School of Medicine in Singapore from 2012 to 2014. From 2004 to 2012 he was Head of the School of
Medicine and Vice Provost for Medical Affairs at Trinity College, Dublin, Ireland where he led the development of the Institute
of Molecular Medicine and Molecular Medicine Ireland. Professor Kelleher’s research interests have focused on immunology of
gastrointestinal infection, cancer and inflammatory diseases and over a distinguished thirty year career he has led significant
research projects in this field. He is a Fellow of the Academy of Medical Sciences. Alongside his notable academic appointments,
Professor Kelleher has been President of the Federation of European Academies of Medicine, has served as a visiting research
scientist with a major pharmaceutical company and has been a founder of a number of biotechnology companies.
48
Professor William Hall has served as an outside Director of the Company since February 2013. He is a renowned expert in infectious
diseases and virology. He currently serves as Distinguished Professor in Hokkaido University in Japan and is Professor Emeritus
of Medical Microbiology and the Centre for Research in Infectious Diseases at University College Dublin’s (UCD) School of
Medicine and Medical Science. He is also Executive Chairman of the UCD National Virus Reference Laboratory and is a Consultant
Microbiologist at St. Vincent’s University Hospital Dublin. Professor Hall also serves as a consultant to the Minister of Heath and
Children in the Republic of Ireland, providing input on a range of topics including influenza pandemic preparedness and
bioterrorism. Prior to his tenure at UCD, Professor Hall was Professor and Head of the Laboratory of Medical Virology, Senior
Physician and Director of the Clinical Research Centre at the Rockefeller University in New York. He previously served as an
Assistant and Associate Professor of Medicine at Cornell University. Professor Hall is a Board member of The Atlantic
Philanthropies and is a co-founder of the Global Virus Network.
Mary Pendergast has served as an outside Director of the Company since February 2014. Ms. Pendergast is an expert in the
regulatory aspects of drug development and is President of Pendergast Consulting, a consulting firm that advises biopharmaceutical
companies, patient groups, professional and advocacy organizations, governments and academic and financial institutions. Prior
to founding her own firm, Ms. Pendergast was Executive Vice President of Government Affairs at Elan Corporation plc from 1998
to 2003. Ms. Pendergast also spent more than 18 years at the US Food and Drug Administration (FDA), serving as Deputy
Commissioner and Senior Advisor to the FDA Commissioner and Associate Chief Counsel for Enforcement.
Professor Hugh Brady has served as an outside Director of the Company since April 2014. In September 2015, Professor Brady
took up the position of President and Vice-Chancellor of the University of Bristol - a member of the UK's Russell Group of elite
research-intensive universities. Professor Brady is also President Emeritus of University College Dublin (UCD), where he served
as President from 2004 until the end of 2013. During his tenure Professor Brady oversaw a major institution-wide transformation
program that included significant expansion of UCD’s science, engineering and biomedical research capacity through the
development of the O'Brien Centre for Science, Conway Institute for Biomedical Research, UCD Clinical Research Centre, the
Dublin Academic Medical Centre and the Ireland East Hospital Group. In addition, he led a major growth in UCD’s international
footprint. A nephrologist by training, Professor Brady was Professor of Medicine and Therapeutics at UCD before being appointed
the university’s President. Prior to that, he built a successful career as a physician and biomedical research scientist in the US -
spending almost a decade at Harvard University where he was Associate Professor of Medicine, Director of the Renal Division
of the Brockton/West Roxbury VA Medical Center and Consultant Physician at the Brigham and Women’s Hospital, Boston. He
has an international reputation in the pathogenesis of diabetic kidney disease and renal inflammation. Professor Brady has held
many national and international leadership roles, including Chairman of the Irish Health Research Board and Chairman of the
Universitas 21 Network of global research universities. He is also a non-executive Director of Kerry Group plc.
Eugene McCague was appointed as an outside Director of the Company in October 2017. Mr. McCague was a corporate partner
of Arthur Cox, one of Ireland’s premier law firms, from 1988 until June 2017. During his time with Arthur Cox, Mr. McCague
served as both managing partner and chairman of Arthur Cox and also advised a wide range of public and private companies on
mainstream corporate work, mergers and acquisitions, corporate restructurings and corporate governance. In addition to his
distinguished legal career, Mr. McCague also has extensive board experience with commercial, government and educational
organizations. Mr. McCague currently serves on the board of FLY Leasing Limited, an aircraft leasing company listed on the New
York Stock Exchange, and on the board of the Irish branch of AON Insurance. He also serves as chairman of Ibec, Ireland’s leading
business representative association. Mr. McCague’s previous board roles include the Health Service Executive, the Irish state body
which administers public health service in Ireland, chairman of the governing body of Dublin Institute of Technology, chairman
of the Dublin Institute of Technology Foundation and chairman of the governing authority of University College Dublin. Mr.
McCague was also president of the Dublin Chamber of Commerce in 2006. Mr. McCague holds a Bachelor of Civil Law degree
and a diploma in European Law from University College Dublin.
Joan Garahy was appointed as an outside Director of the Company in November 2017. Ms. Garahy is the managing director of
ClearView Investment & Pensions Limited, a financial advisory company. Ms. Garahy is also a non-executive director of both
Kerry Group plc and Irish Residential Properties REIT plc. Ms. Garahy’s previous executive roles include founder and managing
director of HBCL Investment & Pensions Ltd, director of investments at HC Financial Services Group, head of research at the
Irish National Pension Reserve Fund, head of research at Hibernian Investment Managers and her equity analyst roles with
Goodbody Stockbrokers and NCB Group. Ms. Garahy was also previously a non-executive director of Galway University
Foundation and she is currently a member of the board of The Irish Chamber Orchestra. Ms. Garahy holds a Bachelor of Science
degree from University College Galway and a Master of Science from University College Dublin.
49
Diarmaid Cunningham is Chief Administrative Officer, General Counsel, Executive Vice President and Company Secretary. Mr.
Cunningham joined the Company as General Counsel in November 2009. From 2009 until 2013, Mr. Cunningham was based in
the Company’s global headquarters in Dublin. In 2013, Mr. Cunningham was seconded to the Company’s US headquarters in
Pennsylvania and that secondment ended in 2018 when Mr. Cunningham returned to Dublin. In July 2016, Mr. Cunningham’s
role expanded to include Chief Administrative Officer in addition to General Counsel. This expansion of his role means Mr.
Cunningham has responsibility to the Company’s Quality Assurance, Client Contracts Services, Facilities and Procurement groups
in addition to his responsibility for the Company’s Legal group. Mr. Cunningham graduated with a Bachelor of Business and Legal
Studies from University College Dublin in 1997, qualified as a lawyer in 2001 and completed the Stanford Executive Program at
Stanford University in California in 2015. Mr. Cunningham served as Secretary to the Board of the Association of Clinical Research
Organizations (ACRO) in 2013 and 2014. ACRO represents the CRO industry globally to key stakeholders including
pharmaceutical, biotech and medical device companies, regulators, legislators and patient groups. Prior to joining the Company,
Mr. Cunningham spent 10 years with A&L Goodbody, one of Ireland's premier corporate law firms.
Board Practices
Board of Directors
The business of the Company is managed by the Directors who may exercise all the powers of the Company which are not required
by the Companies Act 2014 of Ireland or by the Constitution of the Company to be exercised by the Company in general meeting.
A meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors. The Directors may
delegate (with power to sub-delegate) to any Director holding any executive office and to any Committee consisting of one or
more Directors, together with such other persons as may be appointed to such Committee by the Directors, provided that a majority
of the members of each Committee appointed by the Directors shall at all times consist of Directors and that no resolution of any
such Committee shall be effective unless two of the members of the Committee present at the meeting at which it was passed are
Directors.
The Board comprises one executive and ten outside Directors at the date of this report. The outside Directors bring independent
judgment to bear on issues of strategy, performance, resources, key appointments and standards. The Company considers all of
its outside Directors to be of complementary skills, experience and knowledge and each outside Director has specific skills,
experience and knowledge that are valuable to the Company. The Board members between them have very strong financial,
pharmaceutical, CRO, scientific, medical and other skills and knowledge which are harnessed to address the challenges facing
the Group. The Board meets regularly throughout the year and all Directors have full and timely access to the information necessary
for them to discharge their duties. The Directors have access to the advice and services of the Company Secretary and may seek
external independent professional advice where required. The Board considers its current size (11 Directors) to be adequate but
continues to look for suitable qualified potential candidates to join the Board.
As set out below, certain other matters are delegated to Board Committees and all Board Committees report to the Board. The
Company maintains what it considers an appropriate level of insurance cover in respect of legal action against its Directors. The
Board, through the Nominating and Governance Committee, engages in succession planning for the Board and in so doing considers
the strength and depth of the Board and the levels of knowledge, skills and experience of the Directors necessary for the Company
to achieve its objectives. The Board meets at least four times each year. During the year ended December 31, 2018 the Board held
seven board meetings. All Directors allocated sufficient time to the Company during the year ended December 31, 2018 to effectively
discharge their responsibilities to the Company.
Directors’ retirement and re-election
The Company’s Constitution provides that, unless otherwise determined by the Company at a general meeting, the number of
Directors shall not be more than 15 nor less than 3. At each annual general meeting, one third of the Directors who are subject to
retirement by rotation, rounded down to the next whole number if it is a fractional number, shall retire from office. The Directors
to retire shall be those who have been longest in office, but as between persons who became or were last re-appointed on the same
day, those to retire shall be determined, unless otherwise agreed, by lot. Any additional Director appointed by the Company shall
hold office until the next annual general meeting and will be subject to re-election at that meeting. Accordingly, at the annual
general meeting of the Company to be held in 2019, it is anticipated that three Directors will retire in accordance with the Constitution
and offer themselves for re-election. The Board of Directors adopted a Non-Executive Director Policy for Service on April 24,
2018 which provides that, subject to individual waiver by the Board, an outside director of ICON plc shall serve on the Board of
the Directors for an initial term which expires at the fourth annual general meeting after their appointment. Each outside Director
may serve for a further two terms of 3 years each subject to the Board’s approval. After the final 3 year term the Board may request
that the outside Director serve for a further 1 year term which may be renewed annually subject to the Board’s approval. For an
outside director who previously served as an executive of the Company, the initial 3 year term referred to in this policy is deemed
50
to commence on the date that he is determined to be independent as per the NASDAQ Rules. This policy does not apply to Dr.
John Climax as he is a founder of the Company.
Lead Independent Director
The Board of Directors adopted a Lead Independent Director Charter on February 14, 2017 which provides that in circumstances
where the Chairman of the Board is not independent, the independent members of the Board of Directors shall appoint, from
among their number, a Lead Independent Director. The Lead Independent Director shall generally assist in optimizing the
effectiveness and independence of the Board of Directors by performing such duties as described in the charter, on behalf of the
Board of Directors, including coordinating the meetings of the other non-employee and independent directors, and such other
duties as determined from time to time by the Board of Directors and/or its independent members. Mr. Declan McKeon, who
served as Lead Independent Director since March 1, 2017 stepped down on January 1, 2019 and Mr. Ronan Murphy was appointed
as Lead Independent Director with effect from that date.
Board committees
The Board has delegated some of its responsibilities to Board Committees. There are four permanent Committees. These are the
Audit Committee, the Compensation and Organization Committee, the Nominating and Governance Committee and the Execution
Committee. Each Committee has been charged with specific responsibilities and each has written terms of reference that are
reviewed periodically. Minutes of Committee meetings are available to all members of the Board. The Company Secretary is
available to act as secretary to each of the Board Committees if required. Appropriate key executives are regularly invited to attend
meetings of the Board committees. The Audit Committee, Compensation and Organization Committee and Nominating and
Governance Committee each completed a self-evaluation of the performance of the committee in respect to the year ended December
31, 2018 and each committee was satisfied with their performance.
Audit Committee
The Audit Committee meets a minimum of four times a year. It reviews the quarterly and annual financial statements, the
effectiveness of the system of internal control and recommends the appointment and removal of the external auditors. It monitors
the adequacy of internal accounting practices and addresses all issues raised and recommendations made by the external auditors.
The Audit Committee pre-approves all audit and non-audit services provided to the Company by its external auditors on a quarterly
basis. The Audit Committee, on a case by case basis, may approve additional services not covered by the quarterly pre-approval,
as the need for such services arises. The Audit Committee reviews all services which are provided by the external auditor to review
the independence and objectivity of the external auditor, taking into consideration relevant professional and regulatory
requirements. The Chief Financial Officer, the Head of Internal Audit, the General Counsel and the external auditors normally
attend all meetings of the Audit Committee and have direct access to the Committee Chairman at all times. The Audit Committee
is currently comprised of four independent Directors: Ronan Murphy (Chairperson), Declan McKeon, Professor Hugh Brady and
Eugene McCague. Professor Dermot Kelleher and Professor William Hall, who served as a members of the Committee during
2018, stepped down on May 1, 2018. Professor Hugh Brady and Eugene McCague joined the Committee on May 1, 2018. Declan
McKeon stepped down as Chairperson and Ronan Murphy assumed the position of Chairperson of the Committee with effect
from February 19, 2019.
Compensation and Organization Committee
The Compensation and Organization Committee is responsible for senior executive remuneration. The committee aims to ensure
that remuneration packages are competitive so that individuals are appropriately rewarded relative to their responsibility, experience
and value to the Company. Annual bonuses for the executive Directors and senior executive management are determined by the
committee based on the achievement of the Company’s objectives. The Committee also oversees succession planning for the
Company’s senior management. The Compensation and Organization Committee is currently comprised of the following
independent Directors: Joan Garahy (Chairperson), Professor William Hall, Mary Pendergast and Ronan Murphy. Declan McKeon,
who served as a member of the Committee during 2018, stepped down as a member of the Committee on May 1, 2018. Joan
Garahy joined the Committee on May 1, 2018. Ronan Murphy stepped down as Chairperson of the Committee and Joan Garahy
assumed the position Chairperson with effect from February 19, 2019.
Nominating and Governance Committee
The Nominating and Governance Committee reviews the membership of the Board of the Company and Board committees on an
ongoing basis. As part of this it regularly evaluates the balance of skills, knowledge and experience on the Board and then, based
on this evaluation, identifies and, if appropriate, recommends individuals to join the Board of the Company. The Committee uses
51
an external search consultant as needed to assist it in identifying potential new outside Directors. Once potential suitable candidates
are identified either by the external search consultants or by members of the Nominating and Governance Committee, the Committee
then discusses and considers the skills, knowledge and experience of the potential candidate. The Committee will assess if the
Board of the Company requires and would benefit from the potential candidate’s skills, knowledge and experience and, if it decides
the potential candidate is suitable, the Committee would recommend to the Board of the Company that the potential candidate be
appointed. The Board of the Company then decides whether or not to appoint the candidate. The Committee considers diversity
of the Board members when making recommendations to the Board of the Company. The Nominating and Governance Committee
currently comprises the following independent Directors: Professor William Hall (Chairperson), Declan McKeon and Joan Garahy.
Ronan Murphy, who served as a member of the Committee during 2018, stepped down as a member of the Committee on May 1,
2018. Joan Garahy joined the Committee on May 1, 2018.
Execution Committee
The primary function of the Execution Committee is to exercise the powers and authority of the Board in intervals between meetings
of the Board within the limits set out in the Charter of the Execution Committee. The Execution Committee exercises business
judgment to act in what the committee members reasonably believe to be in the best interest of the Company and its shareholders.
All powers exercised by the Execution Committee are ratified at board meetings. This Committee convenes as often as it determines
to be necessary or appropriate. The Execution Committee is currently comprised of the following Directors and Officer: Steve
Cutler (Chairperson), Ronan Murphy, and Brendan Brennan. On January 1, 2019, Declan McKeon stepped down as a member of
the Execution Committee and Ronan Murphy joined the Committee.
Attendance at Board and Committee meetings
Attendance at Board and committee meetings by the Directors who held office during 2018 are set out as follows:
Directors’ Attendance Table
Director
Ciaran Murray
Dr. Steve Cutler
Declan McKeon (1) (2)
Dr. John Climax (1)
Dr. Ronan Lambe (1) (3)
Prof. Dermot Kelleher (1) (4)
Prof. William Hall (1) (4)
Mary Pendergast (1) (5)
Prof. Hugh Brady (1) (4)
Ronan Murphy (1) (5)
Eugene McCague (1) (4)
Joan Garahy (1) (2) (5)
Board
Audit
Compensation
and
Organization
Nominating
and
Governance
Number of meetings attended / number of meetings eligible to attend as a Director
7/7
7/7
7/7
7/7
5/5
7/7
7/7
6/7
7/7
7/7
7/7
7/7
—
—
4/4
—
—
2/2
2/2
—
2/2
4/4
2/2
—
—
—
2/2
—
—
—
4/4
3/4
—
4/4
—
2/2
—
—
5/5
—
—
—
5/5
—
—
3/3
—
2/2
Independent Director as defined under NASDAQ Rule 5605(a)(2).
(1)
(2) Mr. Declan McKeon retired from the Compensation and Organization Committee with effect from May 1, 2018. Ms. Joan Garahy was appointed to
the Compensation and Organization Committee with effect from May 1, 2018.
(3) Dr. Ronan Lambe retired as a Director of the Board on July 24, 2018.
(4) Prof. Dermot Kelleher and Prof. William Hall retired from the Audit Committee with effect from May 1, 2018 and Prof. Hugh Brady and Mr. Eugene
McCague were appointed to the Audit Committee with effect from May 1, 2018.
(5) Mr. Ronan Murphy retired from the Nominating and Governance Committee with effect from May 1, 2018 and Ms. Joan Garahy was appointed to the
Nominating and Governance Committee with effect from May 1, 2018.
(6) All decisions by the Execution Committee were made by written resolution and therefore no meetings were held.
52
Executive Officers and Directors Remuneration
Compensation Discussion & Analysis
Remuneration policy
The Compensation and Organization Committee seeks to achieve the following goals with the Company’s executive compensation
programs: to attract, motivate and retain key executives and to reward executives for value creation. The Committee seeks to foster
a performance-oriented environment by ensuring that a significant portion of each executive’s cash and equity compensation is
based on the achievement of performance targets that are important to the Company and its shareholders.
The Company’s executive compensation program has three main elements: base salary, a bonus plan and equity incentives in the
form of share related awards granted under the Company’s equity incentive plans. All elements of key executives’ compensation
are determined by the Compensation and Organization Committee based on the achievement of the Group’s and individual
performance objectives. Base salary, bonus awards and Directors’ fees were determined by the Compensation and Organization
Committee in U.S. dollars or euro.
Outside Directors’ remuneration
Outside Directors are remunerated by way of Directors’ fees and are also eligible for participation in the share option scheme.
During 2018, each Outside Director (excluding the Board Chairman) was paid an annual retainer of $65,000 and additional fees
for Board Committee service.
Mr. Murray’s Executive Chairman term expired on May 12, 2018 and he transitioned to the Outside Director role of Non-Executive
Chairman. The arrangements with the Non-Executive Chairman of the Board provide for payment of €300,000 (translated at
average rate for the year: $355,380) annually. During 2018, Mr. Declan McKeon served as Lead Independent Director and received
an additional fee of $25,000 for this role. Mr. Ronan Murphy was appointed as Lead Independent Director with effect from 1
January 2019 and he will receive an additional fee of $25,000 for this role.
Outside Directors are not eligible for performance related bonuses and no pension contributions are made on their behalf. The
Compensation and Organization Committee sets non-Executive remuneration.
Executive Directors’ and Key Executive Officers’ remuneration
Total cash compensation is divided into a base salary portion and a bonus incentive portion. The Committee targets total cash
compensation with regard to healthcare/ biopharmaceutical companies of similar market capitalization and peer CRO companies,
adjusted upward or downward based on individual performance and experience and level of responsibility. The Compensation
and Organization Committee believes that the higher the executive’s level of responsibility within the Company, the greater the
percentage of the executive’s compensation that should be tied to the Company’s performance. Target bonus incentive for executive
officers range between 50% and 100% with actual pay outs ranging from 25% to 100% of salary based on group and individual
performance.
A total bonus of $1.4 million was awarded to the following individuals; Dr. Steve Cutler Chief Executive Officer ($1.1 million)
and Mr. Brendan Brennan Chief Financial Officer ($0.3 million) to reflect their contribution to the performance of the Company
during 2018. These amounts were approved by the Compensation and Organization Committee and will be paid during the year-
ended December 31, 2019.
The Company’s executives are eligible to receive equity incentives, including stock options, restricted share units and performance
share units, granted under the Company’s equity incentive plans. If executives receive equity incentive grants, they are normally
approved annually at the first scheduled meeting of the Committee in the fiscal year. The grant date is determined by the Committee,
and grants are awarded at the closing price on the day of grant. Newly hired executives may receive sign-on grants. In addition,
the Committee may, at its discretion, issue additional equity incentive awards to executives if the Committee determines such
awards are necessary to ensure appropriate incentives are in place. The number of equity awards granted to each participant is
determined primarily by the Committee at the start of each year based on peer groups and advice from independent compensation
consultants.
All executive officers are eligible to participate in applicable pension plans. The Company’s contributions are generally a fixed
percentage of their annual compensation, supplementing contributions by the executive. The Company has the discretion to make
additional contributions if deemed appropriate by the Committee. The Company’s contributions are determined at the peer group
53
median of comparable Irish companies and peer CRO companies. Contributions to this plan are recorded as an expense in the
Consolidated Statement of Operations.
Third party Agreements and Arrangements
ICON has not identified any arrangements or agreements relating to compensation or other payments provided by a third party to
ICON’s directors or director nominees in connection with their candidacy or board service as required to be disclosed pursuant
to NASDAQ Rule 5250(b)(3).
Executive Compensation
Summary compensation table - Year ended December 31, 2018
Name & principal
position
Year
Salary
Bonus
Pension
contribut
ion
All other
compens
ation
Subtotal
$’000
$’000
$’000
$’000
$’000
Share-
based
compensa
tion
$’000
Director’
s Fees
Total
compens
ation
$’000
$’000
Ciaran Murray
Non-executive
Chairman, former
Chairman and former
Chief Executive Officer
Dr. Steve Cutler
Chief Executive Officer
and former Chief
Operating Officer
Brendan Brennan,
Chief Financial Officer
Total
2018
135
—
17
5
157
2,677
232
3,066
2018
1,100
1,100
186
195
2,581
5,235
44
7,860
2018
2018
560
1,795
323
1,423
70
273
26
226
979
3,717
1,569
9,481
—
276
2,548
13,474
Summary compensation table - Year ended December 31, 2017
Name & principal
position
Year
Salary
Bonus
Pension
contribut
ion
All other
compens
ation
Subtotal
$’000
$’000
$’000
$’000
$’000
Share-
based
compens
ation
$’000
Director’
s Fees
Total
compens
ation
$’000
$’000
Ciaran Murray
Executive Chairman
and former Chief
Executive Officer
Dr. Steve Cutler
Chief Executive Officer
and former Chief
Operating Officer
Brendan Brennan,
Chief Financial Officer
Total
2017
1,119
339
140
35
1,633
5,903
—
7,536
2017
1,045
1,210
110
235
2,600
4,453
37
7,090
2017
2017
525
2,689
393
1,942
66
316
26
296
1,010
5,243
1,503
11,859
—
37
2,513
17,139
54
Director Compensation
Summary compensation table - Year ended December 31, 2018
Name
Year
Salary
Ciaran Murray*
Declan McKeon
John Climax
Ronan Lambe**
Dermot Kelleher
William Hall
Mary Pendergast
Hugh Brady
Steve Cutler
Ronan Murphy
Eugene McCague
Joan Garahy
Total
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
$’000
135
—
—
—
—
—
—
—
1,100
—
—
—
1,235
Company
pension
contributi
on
$’000
All other
compensat
ion
$’000
Subtotal
$’000
157
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
1,295
2,581
—
—
—
1,300
—
—
—
2,738
Share-
based
compensat
ion
$’000
2,677
279
279
1,416
279
283
277
277
5,235
173
133
133
11,441
Director’s
fees
Total
Compens
ation
$’000
232
127
65
36
69
102
78
73
44
102
73
82
1,083
$’000
3,066
406
344
1,452
348
385
355
350
7,860
275
206
215
15,262
17
—
—
—
—
—
—
—
186
—
—
—
203
*
**
Appointed as Executive Chairman on March 1, 2017 and non-Executive Chairman from May 12, 2018
Retired from the Board at the AGM on July 24, 2018
Summary compensation table - Year ended December 31, 2017
Name
Year
Salary
Ciaran Murray *
Declan McKeon**
John Climax
Ronan Lambe
Dermot Kelleher
William Hall
Mary Pendergast
Hugh Brady
Steve Cutler
Ronan Murphy
Eugene McCague ***
Joan Garahy ****
Total
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
$’000
1,119
—
—
—
—
—
—
—
1,045
—
—
—
2,164
Company
pension
contributi
on
$’000
140
All other
compensat
ion
Subtotal
$’000
374
$’000
1,633
Share-
based
compensat
ion
$’000
5,903
—
—
—
—
—
—
—
110
—
—
—
250
—
—
—
—
—
—
—
—
—
—
—
—
—
—
137
137
137
137
148
131
131
1,445
2,600
4,453
—
—
—
1,819
—
—
—
4,233
27
—
—
11,341
Director’s
fees
Total
Compensa
tion
$’000
—
169
69
69
83
113
81
65
37
110
16
8
820
$’000
7,536
306
206
206
220
261
212
196
7,090
137
16
8
16,394
*
**
Appointed as Executive Chairman on March 1, 2017.
Appointed as Lead Independent Director on March 1, 2017. Acting Chairman until March 1, 2017.
*** Appointed to the Board on October 3, 2017.
**** Appointed to the Board on November 16, 2017.
55
Disclosure of Compensation Agreements
Employment Contracts, Termination of Employment and Change in Control Arrangements
The Company does not have any termination or change of control agreements with its named executive officers other than as set
out below and in the agreements relating to their equity incentives which provide for accelerated vesting on change of control.
Directors’ and Executive Officers’ service agreements and letters of engagement
Dr. Steve Cutler
Dr. Steve Cutler has served as Chief Executive Officer since March 2017 having served as Chief Operating Officer of the Company
from January 2014 until March 2017. Prior to his appointment as Chief Operating Officer he served as Group President Clinical
Research Services since November 2011. He has served as an Executive Director of the Company since November 2015. The
Chief Executive Officer service agreement with Dr. Cutler is terminable on 12 months’ notice by either party. Under the terms of
this agreement Dr. Cutler is entitled to receive an annual salary of $1,100,000 and a bonus to be agreed by the Compensation and
Organization Committee. He is also entitled to receive a pension contribution, a car allowance of $12,000 and medical insurance
coverage for himself and his dependents. He was previously granted and held at March 1, 2019 165,328 ordinary share options
at exercise prices ranging from $47.03 to $115.11 per share, 27,867 Restricted Share Units which vest on various dates between
March 2019 and March 2021 and 55,616 (up to a maximum of 111,232 based on certain performance conditions) Performance
Share Units which vest between March 2019 and March 2021 subject to the fulfillment of certain performance conditions. His
Chief Executive Officer service agreement requires him to devote his full time and attention to his duties for the Company excepting
certain outside director positions authorized by the Company. The agreement with Dr. Cutler includes termination and change of
control provisions and also includes certain post-termination clauses including non-disclosure, non-competition and non-
solicitation provisions. Dr. Cutler has a separate agreement with the Company in respect to his role as a director of ICON plc.
Under the terms of this agreement he is entitled to receive an annual fee of $44,000.
Mr. Brendan Brennan
Mr. Brendan Brennan has served as Chief Financial Officer since February 2012 having previously served as acting Chief Financial
Officer since October 2011. Prior to this appointment, he served in a number of senior finance roles in the Company including
the role of Senior Vice President of Corporate Finance. The service agreement with Mr. Brennan is terminable on 12 months’
notice by either party. Under the terms of this agreement Mr. Brennan is entitled to receive an annual salary of $559,802 (€472,566)
and a bonus to be agreed by the Compensation and Organization Committee. He is also entitled to receive a pension contribution,
a car allowance of €20,000 and medical insurance coverage for himself and his dependents. He was previously granted and held
at March 1, 2019 73,472 ordinary share options at exercise prices ranging from $32.37 to $115.11 per share, 7,376 Restricted
Share Units, which vest on various dates between March 2019 and March 2021, and 17,526 (up to a maximum of 35,052 based
on certain performance conditions) Performance Share Units which vest between March 2019 and March 2021 subject to the
fulfillment of certain performance conditions. His service agreement requires him to devote his full time and attention to his duties
for the Company excepting certain outside Director positions authorized by the Board. The agreement with Mr. Brennan includes
termination and change of control provisions and also includes certain post-termination clauses including non-disclosure, non-
competition and non-solicitation provisions.
Mr. Ciaran Murray
Mr. Ciaran Murray has served as Non-Executive Chairman of the Board of Directors since May 2018 having served as Executive
Chairman of the Board of Directors from March 2017 until May 2018. Mr. Murray served as Chief Executive Officer of the
Company from October 2011 until March 2017. Mr. Murray has served as an Director of the Company since October 2011. He
previously served as Chief Financial Officer of the Company from October 2005 until October 2011. Mr. Murray entered into an
agreement with the Company in respect of his role as Executive Chairman which was effective from March 2017. Under this
agreement from October 18, 2017, Mr. Murray was entitled to receive an annual salary of $355,380 (€300,000) and a bonus to be
agreed by the Compensation and Organization Committee. Mr. Murray’s Executive Chairman term expired on May 12, 2018 and
he transitioned to Non-Executive Chairman. The current arrangement with Mr. Murray provides for the payment to him of fees
of $355,380 (€300,000) per annum in respect of his position as Non-Executive Chairman. His previous service agreement as
Executive Chairman included termination provisions and also includes certain post-termination clauses including non-disclosure,
non-competition and non-solicitation provisions which still apply. As Chief Financial Officer, Chief Executive and Executive
Chairman, Mr. Murray was granted and held ordinary share options, Restricted Share Units and Performance Share Units. The
vesting of the ordinary share options and Restricted Share Units which were unvested on Mr. Murray ceasing to be an ICON plc
56
employee on May 12, 2018 was accelerated and the outstanding Ordinary Share options and Restricted Share Units vested on that
date. The unvested Performance Share Units with vesting dates between May 12, 2018 and March 2019 were forfeited on Mr.
Murray ceasing to be an ICON plc employee on May 12, 2018. He was previously granted and held at March 1, 2019 133,259
ordinary share options at exercise prices ranging from $47.03 to $125.74 per share.
Mr. Ronan Murphy
Mr. Ronan Murphy has served as Lead Independent Director from January 2019 having served as an outside Director of the
Company since October 2016. The arrangements with Mr. Murphy (including changes effective from February 2019) continue to
provide for the payment to him of Directors fees of $122,500 per annum. He was previously granted and held at March 1, 2019
12,698 ordinary share options at an exercise prices ranging from $90.03 to $125.74.
Dr. John Climax
Dr. John Climax, one of the Company’s co-founders, served as Chairman of the Board of the Company from November 2002 to
December 2009. He also served as Chief Executive Officer of the Company from June 1990 to October 2002 and is currently an
outside Director of the Company. The arrangements with Dr. Climax provide for the payment to him of Director fees of $65,000
per annum. He was previously granted and held at March 1, 2019 47,755 ordinary share options at exercise prices ranging from
$22.30 to $125.74 per share.
Mr. Declan McKeon
Mr. Declan McKeon has served as an outside Director of the Company since April 2010. He served as Lead Independent Director
from March 2017 until January 2019, having served as Acting Chairman of the Board from April 2016 until March 2017. The
arrangements with Mr. McKeon effective from January 2019, provide for the payment to him of Directors fees of $90,000 per
annum in respect of his position as Director. He was previously granted and held at March 1, 2019 23,495 ordinary share options
at exercise prices ranging from $40.83 to $125.74.
Professor Dermot Kelleher
Professor Dermot Kelleher has served as an outside Director of the Company since May 2008. The arrangements with Professor
Kelleher provide for the payment to him of Director fees of $65,000 per annum. He was previously granted and held at March 1,
2019 23,495 ordinary share options at an exercise price ranging from $40.83 to $125.74.
Professor William Hall
Professor William Hall has served as an outside Director of the Company since February 2013. The arrangements with Professor
Hall provide for the payment to him of Directors fees of $97,500 per annum. He was previously granted and held at March 1,
2019 23,495 ordinary share options at exercise prices ranging from $40.83 to $125.74.
Ms. Mary Pendergast
Ms. Mary Pendergast has served as an outside Director of the Company since February 2014. The arrangements with Ms. Pendergast
provide for the payment to her of Directors fees of $77,500 per annum. She was previously granted and held at March 1, 2019
43,255 ordinary share options at exercise prices ranging from $40.83 to $125.74.
Professor Hugh Brady
Professor Hugh Brady has served as an outside Director of the Company since April 2014. The arrangements with Professor Brady
provide for the payment to him of Directors fees of $77,500 per annum. He was previously granted and held at March 1, 2019
43,255 ordinary share options at exercise prices ranging from $40.83 to $125.74.
Mr. Eugene McCague
Mr. Eugene McCague has served as an outside Director of the Company since October 2017. The arrangements with Mr. McCague
provide for the payment to him of Directors fees of $77,500 per annum. He was previously granted and held at March 1, 2019
5,005 ordinary share options at an exercise price of $125.74.
57
Ms. Joan Garahy
Ms. Joan Garahy has served as an outside Director of the Company since November 2017. The arrangements with Ms. Garahy
provide for the payment to her of Directors fees of $97,500 per annum effective from February 20, 2019. She was previously
granted and held at March 1, 2019 5,005 ordinary share options at an exercise price of $125.74.
Employees
At December 31, 2018, December 31, 2017 and December 31, 2016 we employed approximately 13,670, 13,250 and 12,500
people respectively. Our employees are not unionized and we believe we have a satisfactory relationship with our employees.
Share Ownership
Shares
The following table sets forth certain information as of March 1, 2019 regarding beneficial ownership of our ordinary shares by
all of our current Directors and executive officers. Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their ordinary shares, except to the extent authority is shared by spouses
under applicable law.
Name of Owner or
Identity of Group
Mr. Ciaran Murray
Dr. Steve Cutler
Mr. Brendan Brennan
Dr. John Climax
Professor Dermot Kelleher
Mr. Declan McKeon
Professor William Hall
Ms. Mary Pendergast
Professor Hugh Brady
Mr. Ronan Murphy
Mr. Eugene McCague
Ms. Joan Garahy
No. of
Shares (1)
—
40,424
9,199
685,011
—
—
—
—
—
—
—
—
% of total
Shares
—
0.08%
0.02%
1.27%
—
—
—
—
—
—
—
—
(1) As used in these tables, each person has the sole or shared power to vote or direct the voting of a security, or the sole or
shared investment power with respect to a security ( i.e. the power to dispose, or direct the disposition, of a security). A
person is deemed as of any date to have "beneficial ownership" of any security if that such person has the right to acquire
such security within 60 days after such date.
58
Restricted Share Units and Performance Share Units
The following table sets forth certain information as of March 1, 2019 regarding beneficial ownership of restricted share units
(“RSUs”) and performance share units (“PSUs”) which have been issued to our current Directors and executive officers.
Name of Owner or
Identity of Group
Dr. Steve Cutler
Mr. Brendan Brennan
No. of
RSUs
5,271
4,299
4,424
5,272
4,299
4,302
1,190
1,009
1,966
1,192
1,009
1,010
Vesting Date
March 3, 2019
March 3, 2019
March 4, 2019
March 3, 2020
March 3, 2020
March 3, 2021
March 3, 2019
March 3, 2019
March 4, 2019
March 3, 2020
March 3, 2020
March 3, 2021
No. of
PSUs (1)
22,117
18,449
15,050
Vesting Date
March 4, 2019
March 3, 2020
March 3, 2021
9,827
4,167
3,532
March 4, 2019
March 3, 2020
March 3, 2021
(1) Of the issued PSUs, performance conditions will determine how many vest. If performance targets are exceeded, additional
PSUs will be issued and will vest in accordance with the terms of the relevant PSU award. The PSUs vest based on service
and specified EPS targets over the period 2015 - 2018, 2016 - 2019, 2017 - 2020 and 2018 - 2021. Depending on the actual
amount of EPS from 2015 to 2021, up to an additional 73,142 PSUs may also be granted.
Share Options
The following table sets forth certain information as of March 1, 2019 regarding options to acquire ordinary shares of the Company
by all of our current Directors and executive officers.
Name of Owner or
Identity of Group
Mr. Ciaran Murray
Dr. Steve Cutler
Mr. Declan McKeon
Exercise price Expiration Date
$47.03 March 3, 2022
$48.67 March 17, 2022
$68.39 March 18, 2023
$71.95 March 4, 2024
$90.03 May 19, 2025
$125.74 May 18, 2026
$47.03 March 3, 2022
$48.67 March 17, 2022
$68.39 March 18, 2023
$71.95 March 4, 2024
$83.47 March 3, 2025
$115.11 March 3, 2026
$40.83 May 23, 2022
$68.39 March 18, 2023
$65.60 May 20, 2024
$90.03 May 19, 2025
$125.74 May 18, 2026
No. of
Options (1)
12,540
26,916
35,157
45,948
7,693
5,005
3,167
6,789
12,500
30,632
62,887
49,353
2,000
4,000
6,335
6,155
5,005
59
Name of Owner or
Identity of Group
Mr. Brendan Brennan
Dr. John Climax
Professor Dermot
Kelleher
Professor William Hall
Ms. Mary Pendergast
Professor Hugh Brady
Mr. Ronan Murphy
Mr. Eugene McCague
Ms. Joan Garahy
No. of
Options (1)
15,813
1,006
6,967
10,285
13,611
14,206
11,584
2,000
2,500
10,000
10,000
10,557
7,693
5,005
2,000
4,000
6,335
6,155
5,005
2,000
4,000
6,335
6,155
5,005
10,000
10,000
10,557
7,693
5,005
10,000
10,000
10,557
7,693
5,005
7,693
5,005
5,005
5,005
Exercise price Expiration Date
$32.37 May 1, 2021
$47.03 March 3, 2022
$48.67 March 17, 2022
$68.39 March 18, 2023
$71.95 March 4, 2024
$83.47 March 3, 2025
$115.11 March 3, 2026
$22.30 April 27, 2020
$32.37 May 1, 2021
$40.83 May 23, 2022
$68.39 March 18, 2023
$65.60 May 20, 2024
$90.03 May 19, 2025
$125.74 May 18, 2026
$40.83 May 23, 2022
$68.39 March 18, 2023
$65.60 May 20, 2024
$90.03 May 19, 2025
$125.74 May 18, 2026
$40.83 May 23, 2022
$68.39 March 18, 2023
$65.60 May 20, 2024
$90.03 May 19, 2025
$125.74 May 18, 2026
$40.83 May 23, 2022
$68.39 March 18, 2023
$65.60 May 20, 2024
$90.03 May 19, 2025
$125.74 May 18, 2026
$40.83 May 23, 2022
$68.39 March 18, 2023
$65.60 May 20, 2024
$90.03 May 19, 2025
$125.74 May 18, 2026
$90.03 May 19, 2025
$125.74 May 18, 2026
$125.74 May 18, 2026
$125.74 May 18, 2026
(1) The title of securities covered by all of the above options are non-qualified.
60
In February 2018, the Board approved the appointment of Mr. Murray as non-Executive Chairman of the Board of Directors with
effect from May 12, 2018. Mr. Murray ceased to be an employee of the Company as of this date. Mr. Murray was granted and
held ordinary share options, Restricted Share units and Performance Share units as Chief Financial Officer, Chief Executive Officer
and Executive Chairman. The vesting of the Ordinary Share Options and Restricted Share Units which were unvested on Mr.
Murray ceasing to be an ICON plc employee (May 12, 2018) were accelerated and the outstanding Ordinary Share Options and
Restricted Share Units vested on that date. The unvested Performance Share Units with vesting dates between May 12, 2018 and
March 2019 were forfeit on Mr. Murray ceasing to be an ICON plc employee on May 12, 2018.
Equity Incentive Plans
On April 23, 2013 the Company adopted the 2013 Employees Restricted Share Unit and Performance Share Unit Plan (the “2013
RSU Plan”) pursuant to which the Compensation and Organization Committee of the Company’s Board of Directors may select
any employee, or any Director holding a salaried office or employment with the Company, or a Subsidiary to receive an award
under the plan. On May 11, 2015, the 2013 RSU Plan was amended and restated in order to increase the number of ordinary shares
that can be issued under the RSU Plan by 2.5 million shares. Accordingly, an aggregate of 4.1 million ordinary shares have been
reserved for issuance under the 2013 RSU Plan. The shares are awarded at par value and vest over a service period. Awards under
the 2013 RSU Plan may be settled in cash or shares at the option of the Company.
On July 21, 2008 the Company adopted the 2008 Employees Restricted Share Unit Plan (the “2008 RSU Plan”) pursuant to which
the Compensation and Organization Committee of the Company’s Board of Directors may select any employee, or any Director
holding a salaried office or employment with the Company or a Subsidiary to receive an award under the plan. An aggregate of
1.0 million ordinary shares have been reserved for issuance under the 2008 RSU Plan.
On July 21, 2008 the Company adopted the Employee Share Option Plan 2008 (the “2008 Employee Plan”) pursuant to which
the Compensation and Organization Committee of the Company’s Board of Directors may grant options to any employee, or any
Director holding a salaried office or employment with the Company or a Subsidiary for the purchase of ordinary shares. On the
same date, the Company also adopted the Consultants Share Option Plan 2008 (the “2008 Consultants Plan”), pursuant to which
the Compensation and Organization Committee of the Company’s Board of Directors may grant options to any consultant, adviser
or non-executive Director retained by the Company or any Subsidiary for the purchase of ordinary shares.
On February 14, 2017 both the 2008 Employee Plan and the 2008 Consultants Plan (together the “2008 Option Plans”) were
amended and restated in order to increase the number of options that can be issued under the 2008 Consultants Plan from 400,000
to 1 million and to extend the date for options to be granted under the 2008 Option Plans. An aggregate of 6.0 million ordinary
shares have been reserved under the 2008 Employee Plan as reduced by any shares issued or to be issued pursuant to options
granted under the 2008 Consultants Plan under which a limit of 1 million shares applies. Further, the maximum number of ordinary
shares with respect to which options may be granted under the 2008 Employee Option Plan, during any calendar year to any
employee shall be 400,000 ordinary shares. There is no individual limit under the 2008 Consultants Plan. No options may be
granted under the 2008 Option Plans after February 14, 2027.
Each option granted under the 2008 Option Plans will be a nonqualified stock option, or NSO and not an incentive stock option
as described in Section 422 of the Internal Revenue Code. Each grant of an option under the 2008 Options Plans will be evidenced
by a Stock Option Agreement between the optionee and the Company. The exercise price will be specified in each Stock Option
Agreement, however option prices will not be less than 100% of the fair market value of an ordinary share on the date the option
is granted.
On January 17, 2003 the Company adopted the Share Option Plan 2003 (the “2003 Share Option Plan”) pursuant to which the
Compensation and Organization Committee of the Board could grant options to officers and other employees of the Company or
its subsidiaries for the purchase of ordinary shares. An aggregate of 6.0 million ordinary shares were reserved under the 2003
Share Option Plan; and, in no event could the number of ordinary shares issued pursuant to options awarded under this plan exceed
10% of the outstanding shares, as defined in the 2003 Share Option Plan, at the time of the grant, unless the Board expressly
determined otherwise. Further, the maximum number of ordinary shares with respect to which options could be granted under the
2003 Share Option Plan during any calendar year to any employee was 400,000 ordinary shares. The 2003 Share Option Plan
expired on January 17, 2013. No new options may be granted under this plan.
Share option awards are granted with an exercise price equal to the market price of the Company’s shares at date of grant. Share
options typically vest over a period of five years from date of grant and expire eight years from date of grant. The maximum
contractual term of options outstanding at December 31, 2018 is eight years.
61
Item 7. Major Shareholders and Related Party Transactions.
The following table sets forth certain information regarding beneficial ownership of ICON's ordinary shares as of March 1, 2019 (i)
by each person that beneficially owns more than 5% of the outstanding ordinary shares, based upon information known to us and
publicly available information; and (ii) by all of our current Directors, officers and other key employees as a group. Unless otherwise
indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their ordinary
shares, except to the extent authority is shared by spouses under applicable law.
Name of Owner or Identity of Group
WCM Investment Management (2)
Wellington Management Company, LLP (2)
All Directors, officers and other key employees as a group (3)
No. of Shares
(1)
5,272,086
3,728,130
1,578,677
Percent of
Class
9.8%
6.9%
2.9%
(1) As used in this table, each person has the sole or shared power to vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose, or direct the disposition, of a security). A person is
deemed as of any date to have "beneficial ownership" of any security if that such person has the right to acquire such security
within 60 days after such date.
(2) Neither the Company nor any of its officers, Directors or affiliates holds any voting power in this entity.
(3) Includes 633,915 ordinary shares issuable upon the exercise of stock options granted by the Company, 40,172 RSUs awarded
by the Company to Directors, officers and other key employees and 169,956 PSUs awarded by the Company to Directors,
officers and other key employees. Of the PSUs, performance conditions determine how many of them will vest and, if
performance targets are exceeded, additional PSUs will be issued and vest in accordance with the terms of the relevant PSU
award, the figure included is the maximum amount of PSUs that may be issued.
ICON plc, is not directly or indirectly, owned or controlled by another corporation or by any government.
Related Party Transactions
Subsidiaries of the Company earned revenue of $633,000 (2017: $743,000) from DS Biopharma Limited (formerly Dignity
Sciences Limited) during the year. Dr. John Climax is Chief Executive Officer and both Dr. John Climax and Dr. Ronan Lambe
are Directors and shareholders of DS Biopharma Limited. $338,000 was recorded as due from DS Biopharma Limited at
December 31, 2018. The contract terms were agreed on an arm’s length basis.
During the year ended December 31, 2017, personal expenses totaling $178,000 were settled by the Company on behalf of Mr.
Ciaran Murray. Payment was received in advance from Mr. Murray in respect of these expenses. The Company transferred
ownership of an asset at fair value ($77,000) to Mr. Ciaran Murray effective November 1, 2017. Payment was received in full in
January 2018.
On July 22, 2016, Mr. Thomas Lynch retired as a Director of the Company, having previously resigned as Chairman of the Company
in March 2016. An expense of €231,750 was recorded during 2018 in respect of consultancy services provided by a company
controlled by Mr. Lynch. $64,000 was recorded as due to Mr. Lynch under the terms of the agreement at December 31, 2018.
Item 8. Financial Information.
Financial Statements
See Item 18.
Significant Changes
There have been no significant changes to our business that we believe could reasonably be expected to have a material adverse
effect on our business, results of operations and financial condition.
62
Legal Proceedings
ICON is not party to any litigation or other legal proceedings that we believe could reasonably be expected to have a material
adverse effect on our business, results of operations and financial condition.
Dividends
We have not paid cash dividends on our ordinary shares and do not currently intend to pay cash dividends on our ordinary shares
in the foreseeable future.
Item 9. The Offer and Listing.
ICON’s ordinary shares are traded on the NASDAQ Global Select Market under the symbol “ICLR”. ICON plc’s ADR program
was terminated on January 31, 2013 and ICON plc’s ordinary shares began directly trading on NASDAQ on February 4, 2013. Prior
to that date, ICON plc’s ADSs were traded on NASDAQ and ICON plc’s Depository for the ADSs was The Bank of New York
Mellon.
Item 10. Additional Information.
Constitution
We hereby incorporate by reference our Constitution, as amended, located under the heading “Constitution of the Company” in
Exhibit 3.1.
The following is a summary of certain provisions of the current Constitution of the Company. This summary does not purport to
be complete and is qualified in its entirety by reference to the complete text of the Constitution of the Company, which are included
as an exhibit to this annual report.
Objects
The Company is incorporated under the name ICON plc, and is registered in Ireland under registered number 145835. The
Company's objects, which are detailed in the Constitution of the Company, are broad and include, but are not limited to, the carrying
on the business of an investment holding company.
Directors
Subject to certain exceptions, Directors may not vote on matters in which they have a material interest. Any Director who holds
any executive office, serves on any committee or otherwise performs services, which, in the opinion of the Directors, are outside
the scope of the ordinary duties of a Director, may be paid such extra remuneration as the Directors may determine. The Directors
may exercise all the powers of the Company to borrow money. These powers may be amended by special resolution of the
shareholders. The Directors are not required to retire at any particular age. One-third of the Directors retire and offer themselves
for re-election at each Annual General Meeting ("AGM") of the Company. The Directors to retire by rotation are those who have
been longest in office since their last appointment or reappointment. As between persons who became or were appointed Directors
on the same date, those to retire are determined by agreement between them or, otherwise, by lot. All of the shareholders entitled
to attend and vote at the AGM may vote on the re-election of Directors. There is no requirement for Directors to hold shares set
out in the Constitution.
Rights, Preferences and Dividends Attaching to Shares
The Company has only one class of shares, Ordinary Shares with a par value of €0.06 per share. All such Ordinary Shares rank
equally with respect to voting, payment of dividends and on any winding-up of the Company. Any dividend, interest or other sum
payable to a shareholder that remains unclaimed for one year after having been declared may be invested by the Directors for the
benefit of the Company until claimed. If the Directors so resolve, any dividend which has remained unclaimed for 12 years from
the date of its declaration shall be forfeited and cease to remain owing by the Company. In the event of the Company being wound
up, if the assets available for distribution among the Members shall be more than sufficient to repay the whole of the share capital
paid up or credited as paid up at the commencement of the winding up, the excess shall be distributed among the Members in
proportion to the capital at the commencement of the winding up paid up or credited as paid up on the said Ordinary Shares held
by them respectively. An Ordinary Share shall be deemed to be a redeemable share in certain circumstances. The liability of
shareholders to invest additional capital is limited to the amounts remaining unpaid on the shares held by them.
63
Action Necessary to Change the Rights of Shareholders
The rights attaching to shares in the Company may be varied by special resolutions passed at class meetings of that class of
shareholders of the Company.
Annual and General Meetings
The AGM shall be held in such place and at such time as shall be determined by the board, but no more than 15 months shall pass
between the dates of consecutive AGMs. Directors may call an Extraordinary General Meeting (“EGM”) at any time. The members,
in accordance with the Constitution of the Company and Irish Company law, may also requisition EGM’s. Notice of the AGM or
an EGM passing any special resolution must be given at least 21 clear days prior to the scheduled date and, in the case of any
other general meeting, not less than 14 clear days’ notice. All holders of Ordinary Shares are entitled to attend, speak at and vote
at general meetings of the Company.
Limitations on the Right to Own Shares
There are no limitations on the right to own shares in the Constitution of the Company.
Disclosure of Share Ownership
Under Irish law, the Company can require parties to disclose their interests in shares. The Constitution of the Company entitle the
Directors to require parties to provide details regarding their identity and the nature and extent of any interest which such parties
hold in Ordinary Shares. Under Irish law, if a party acquires or disposes of Ordinary Shares so as to bring his interest above or
below 3% of the total issued share capital of the Company, he must notify the Company of that. The Company would also need
to be notified of the acquisition by an existing substantial (i.e. 3% plus) shareholder, of every movement of one whole percentage
integer (e.g. 3.9% to 4.1% but not 4.1% to 4.9%) or more.
Other Provisions of the Constitution
There are no provisions in the Constitution of the Company:
(i) delaying or prohibiting a change in the control of the Company, but which operate only with respect to a merger, acquisition
or corporate restructuring;
(ii) discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number
of shares; or
(iii) governing changes in capital, in each case, where such provisions are more stringent than those required by law.
Material Contracts
Not applicable.
Exchange Controls and Other Limitations Affecting Security Holders
Irish exchange control regulations ceased to apply from and after December 31, 1992. Except as indicated below, there are no
restrictions on non-residents of Ireland dealing in domestic securities, which includes shares or depository receipts of Irish
companies. Except as indicated below, dividends and redemption proceeds also continue to be freely transferable to non-resident
holders of such securities.
The Financial Transfers Act, 1992 gives power to the Minister for Finance of Ireland to make provision for the restriction of
financial transfers between Ireland and other countries and persons. Financial transfers are broadly defined, and include all transfers
which would be movements of capital or payments within the meaning of the treaties governing the European Communities. The
acquisition or disposal of shares issued by an Irish incorporated company and associated payments may fall within this definition.
In addition, dividends or payments on redemption or purchase of shares and payments on a liquidation of an Irish incorporated
company would fall within this definition.
The Financial Transfers Act, 1992 prohibits financial transfers involving a number of persons, entities and bodies, which is subject
to amendment on an ongoing, regular basis and currently includes, but is not limited to: certain persons and activities in Sudan,
the Republic of Guinea-Bissau, Côte d’Ivoire, Libya, Iraq, the Democratic People's Republic of Korea, Myanmar, Somalia, Tunisia,
Liberia, Democratic of Congo, Lebanon, certain activities, persons and entities in Syria and Iran; certain persons and entities
associated with the Taliban in Afghanistan; certain persons, entities and bodies in Ukraine; and certain known terrorists and terrorist
groups and countries that harbor certain terrorist groups, without the prior permission of the Central Bank of Ireland.
64
There are no restrictions under the Company’s Constitution or under Irish Law that limit the right of non-residents or foreign
owners to hold the Company’s ordinary shares or vote at general meetings of the Company.
Taxation
General
The following discussion is based on existing Irish tax law, Irish court decisions and the practice of the Revenue Commissioners
of Ireland, and the convention between the United States and Ireland for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to income and capital gains (the "Treaty"). This discussion does not purport to deal with the tax
consequences of owning the ordinary shares for all categories of investors, some of which may be subject to special rules. Prospective
purchasers of ordinary shares are advised to consult their own tax advisors concerning the overall tax consequences arising in
their own particular situations under Irish law. Each prospective investor should understand that future legislative, administrative
and judicial changes could modify the tax consequences described below, possibly with retroactive effect.
As used herein, the term "U.S. Holder" means a beneficial owner of ordinary shares that (i) owns the ordinary shares as capital
assets; (ii) is a U.S. citizen or resident, a U.S. corporation, an estate the income of which is subject to U.S. federal income taxation
regardless of its source or a trust that meets the following two tests: (A) a U.S. court is able to exercise primary supervision over
the administration of the trust, and (B) one or more U.S. persons have the authority to control all substantial decisions of the trust;
and for the purpose of the discussion under Irish Taxation of U.S. Holders (A) is not a resident of, or ordinarily resident in, Ireland
for the purposes of Irish tax; and (B) is not engaged in trade or business in Ireland through a permanent establishment.
AS USED HEREIN, REFERENCES TO THE ORDINARY SHARES SHALL INCLUDE SHARES HELD IN THE ACCOUNTS
OF PARTICIPANTS THROUGH THE DEPOSITARY TRUST COMPANY (“THE DTC”).
Irish Taxation
Irish corporation tax on income
ICON is a public limited company incorporated and resident for tax purposes in Ireland by virtue of its place of central management
and control being in Ireland.
Companies which are resident in the Republic of Ireland are subject to Irish corporation tax on their total profits (wherever arising
and, generally, whether or not remitted to the Republic of Ireland). The question of residence, by virtue of management and control,
is essentially one of fact. It is the present intention of the Company's management to continue to manage and control the Company
from the Republic of Ireland, so that the Company will continue to be resident in the Republic of Ireland.
The standard rate of Irish corporation tax on trading income (with certain exceptions) is currently 12.5%.
A research and development tax credit is available in Ireland where an Irish resident company incurs qualifying expenditure on
research and development activities. Qualifying expenditure incurred in a particular account period results in a tax credit of 25%
of that expenditure.
Corporation tax is charged at the rate of 25% on a company's non-trading income and certain types of trading income not eligible
for the lower rate of 12.5% referred to above.
Capital gains arising to an Irish resident company are liable to tax at 33%. However, a capital gains tax exemption is available in
Ireland for qualifying Irish resident companies in respect of disposals of certain qualifying shareholdings.
The exemption from capital gains tax on the disposal of shares by an Irish resident company will apply where certain conditions
are met. These conditions principally are:
• The company claiming the exemption must hold (directly or indirectly) at least 5% of the ordinary share capital of the
company in which the interest is being disposed of, throughout a continuous period of at least 12 months, within the two
year period prior to disposal;
• The shares being disposed of must be in a company, which at the date of disposal, is resident in a Member State of the
European Communities or in a country with which Ireland has signed or made specific arrangements to sign a double
tax agreement (together a “Relevant Territory”);
65
• The shares must be in a company which is primarily a trading company or the company making the disposal together
with its “5% plus subsidiaries” should be primarily a trading group; and
• The shares must not derive the greater part of their value from land or mineral rights in the State.
Irish withholding tax on dividends
Unless specifically exempted, all dividends paid by the Company, will be subject to Irish withholding tax at the standard rate of
income tax in force at the time the dividend is paid, which is currently 20%.
An individual shareholder who is neither resident nor ordinarily resident for tax purposes in Ireland, but is resident in a country
with which Ireland has a double tax treaty, or in a member state of the European Union, other than Ireland (together, a Relevant
Territory), will be exempt from withholding tax provided he or she makes the requisite declaration.
Irish resident corporate shareholders will be exempt from withholding tax. Where the shareholding held by the recipient Company,
in the company paying the dividend is not 51% or greater a declaration must be made in order to avail of the exemption.
Non-Irish resident corporate shareholders will be exempt from withholding tax on the production of the appropriate certificates
and declarations where they:
•
•
•
•
are resident in a Relevant Territory and are not controlled (directly or indirectly) by Irish residents;
are ultimately controlled (directly or indirectly) by residents of a Relevant Territory; or
have the principal class of their shares, or shares of a 75% parent, substantially and regularly traded on one or more
recognized stock exchanges in a Relevant Territory (including Ireland) or Territories; or
are wholly owned by two or more companies, each of whose principal class of shares is substantially and regularly traded
on one or more recognized stock exchanges in a Relevant Territory (including Ireland) or Territories.
U.S. holders of ordinary shares should note, however, that detailed documentation requirements may need to be complied with.
Special arrangements are available in the case of an interest in shares held in Irish companies through a depositary or in accounts
of participants through the DTC. In certain cases the depositary or the DTC can receive and pass on a dividend from an Irish
company without deducting withholding tax, provided the depositary or the DTC is a qualifying intermediary, and provided the
person beneficially entitled to the distribution would meet the same conditions outlined above for the withholding tax exemption
to apply and has provided the qualifying intermediary with the appropriate declarations. The depositary or the DTC shall be
regarded as a qualifying intermediary provided the following conditions are met:
•
•
•
the depositary or the DTC is resident in a Relevant Territory; and
the depositary or the DTC have entered into a qualifying intermediary agreement with the Irish tax authorities; and
the depositary or the DTC have been authorized by the Irish Revenue Commissioners as a qualifying intermediary and
such authorization has not expired or been revoked.
Irish income tax on dividends
Irish resident or ordinarily resident shareholders will generally be liable to Irish income tax on dividend income at their marginal
rate of income tax. This income may also be liable to Pay Related Social Insurance (“PRSI”) of up to 4% and the Universal Social
Charge (“USC”) of up to 11% (up to 15% in total).
Under certain circumstances, non-Irish resident shareholders will be subject to Irish income tax on dividend income. This liability
is limited to tax at the standard rate of 20% and therefore, where withholding tax has been deducted, this will satisfy the tax liability.
No PRSI or USC should apply in these circumstances.
However, a non-Irish resident shareholder will not have an Irish income tax liability on dividends from the Company if the holder
is neither resident nor ordinarily resident in the Republic of Ireland and the holder is:
66
•
•
•
•
•
an individual resident in the U.S. or in a Relevant Territory;
a corporation that is ultimately controlled by persons resident in the U.S. or in a Relevant Territory;
a corporation whose principal class of shares (or its 75% or greater parent’s principal class of shares) is substantially and
regularly traded on a recognized stock exchange in an EU country or in a Relevant Territory;
a corporation resident in another EU member state or in a Relevant Territory, which is not controlled directly or indirectly
by Irish residents; or
a corporation that is wholly owned by two or more corporations each of whose principal class of shares is substantially
and regularly traded on a recognized stock exchange in an EU country or in a Relevant Territory.
U.S. Holders who do not qualify for the above income tax exemption may be able to obtain treaty benefits under the double tax
treaty.
Irish domicile levy
Certain non-Irish resident individuals that are domiciled in Ireland will be subject to an annual levy of €200,000 if their Irish-
located property exceeds €5,000,000, their worldwide annual income exceeds €1,000,000 and their liability to Irish Income Tax
in that year is less than €200,000.
Irish capital gains tax on disposal of shares
Irish resident or ordinarily resident shareholders will be liable to capital gains tax at 33% on gains arising from the disposal or
part disposal of their shareholding.
A person who is not resident or ordinarily resident in Ireland, who has not been an Irish resident within the past five years and
who does not carry on a trade in Ireland through a branch or agency will not be subject to Irish capital gains tax on the disposal
of ordinary shares or shares held in accounts of participants through the DTC, so long as the shares do not derive the greater part
of their value from Irish land or mineral rights.
There are provisions to subject a person who disposes of an interest in a company while temporarily being non-Irish resident, to
Irish capital gains tax. This treatment will apply to Irish domiciled individuals:
• who cease to be Irish resident;
• who beneficially own the relevant assets when they cease to be resident;
•
if there are not more than 5 years of assessment between the last year of Irish tax residence prior to becoming temporarily
non-resident and the tax year that he/she resumes Irish tax residency;
• who dispose of the relevant assets during this temporary non-residence; and
•
the interest disposed of represents 5% or greater of the issued share capital of the company or is worth at least
€500,000.
In these circumstances the person will be deemed, for Irish capital gains tax purposes, to have sold and immediately reacquired
the interest in the company on the date of his or her departure and will be subject to tax at 33% of the taxable gain.
Irish capital acquisitions tax
Irish capital acquisitions tax (referred to as CAT) applies to gifts and inheritances. Subject to certain tax-free thresholds, gifts and
inheritances are liable to tax at 33%.
Where a gift or inheritance is taken under a disposition made after December 1, 1999 it will be within the charge to CAT:
•
to the extent that the property of which the gift or inheritance consists is situated in the Republic of Ireland at the date of
the gift or inheritance;
67
• where the person making the gift or inheritance is or was resident or ordinarily resident in the Republic of Ireland at the
date of the disposition under which the gift or inheritance is taken;
•
in the case of a gift taken under a discretionary trust where the person from whom the gift is taken was resident or ordinarily
resident in the Republic of Ireland at the date he made the settlement, or at the date of the gift or, if he is dead at the date
of the gift, at the date of his death; or
• where the person receiving the gift or inheritance is resident or ordinarily resident in the Republic of Ireland at the date
of the gift or inheritance.
For these purposes a non-Irish domiciled individual will not be regarded as resident or ordinarily resident in the Republic of Ireland
on a particular date unless they are resident or ordinarily resident in the Republic of Ireland on that date and have been resident
for the 5 consecutive tax years immediately preceding the year of assessment in which the date falls.
The person who receives the gift or inheritance (“the beneficiary”) is primarily liable for CAT. In the case of an inheritance, where
a beneficiary and personal representative of the deceased are both non-residents, a solicitor must be appointed to be responsible
for paying inheritance tax. Taxable gifts or inheritances received by an individual since December 5, 1991 from donors in the
same threshold class are aggregated and only the excess over a specified tax-free threshold is taxed. The tax-free threshold is
dependent on the relationship between the donor and the donees and the aggregation since December 5, 1991 of all previous gifts
and inheritances, within the same tax threshold.
The tax-free threshold amounts that apply are:
•
•
•
€16,250 in the case of persons who are not related to one another;
€32,500 in the case of gifts or inheritances received from inter alia a brother or sister or from a brother or sister of a parent
or from a grandparent; and
€320,000 in the case of gifts and inheritances received from a parent (or from a grandparent by a minor child of a deceased
child) and specified inheritances received by a parent from a child for gifts or inheritances taken on or after October 10,
2018. This threshold was €310,000 prior to October 10, 2018.
Gifts and inheritances passing between spouses are exempt from CAT.
A gift or inheritance of ordinary shares or ADSs will be within the charge to Irish capital acquisitions tax, notwithstanding that
the person from whom or by whom the gift or inheritance is received is domiciled or resident outside Ireland.
The Estate Tax Convention between Ireland and the United States generally provides for Irish capital acquisitions tax paid on
inheritances in Ireland to be credited against U.S. Federal Estate tax payable in the United States and for tax paid in the United
States to be credited against tax payable in Ireland, based on priority rules set forth in the Estate Tax Convention. The Estate Tax
Convention does not apply to Irish capital acquisitions tax paid on gifts.
Irish stamp duty
Irish stamp duty, which is a tax on certain documents, is payable on all transfers of ordinary shares (other than between spouses)
whenever a document of transfer is executed. Where the transfer is attributable to a sale, stamp duty will be charged at a rate of
1%, rounded to the nearest euro. The stamp duty is calculated on the amount or value of the consideration (i.e. purchase price) or,
if the transfer is by way of a gift (subject to certain exceptions) or for consideration less than the market value, on the market value
of the shares. Where the consideration for the sale is expressed in a currency other than euro, the duty will be charged on the euro
equivalent calculated at the rate of exchange prevailing on the date of the transfer.
Transfers through the DTC of book entry interests in shares are not subject to Irish stamp duty.
A transfer of ordinary shares by a shareholder to a depositary or custodian for deposit and a transfer of ordinary shares from the
depositary or the custodian for the purposes of the withdrawal of the underlying ordinary shares in accordance with the terms of
a deposit agreement will be stampable at the ad valorem rate if the transfer relates to a sale, a contemplated sale, a gift or any other
change in the beneficial ownership of such ordinary shares. However transfers of ordinary shares into or out of the DTC are not
subject to Irish stamp duty provided that no change in beneficial ownership of the shares has occurred and provided a contract for
sale in respect of the transferring shares is not in place.
68
The person accountable for payment of stamp duty is normally the transferee or, in the case of a transfer by way of gift, or for a
consideration less than the market value, all parties to the transfer.
Transfers of ordinary shares between associated companies (broadly, companies within a 90% group relationship and subject to
the satisfaction of certain conditions) are exempt from stamp duty in the Republic of Ireland. In the case of transfers of ordinary
shares where no beneficial interest passes (e.g. a transfer of shares from a beneficial owner to his nominee), no stamp duty arises.
No stamp duty shall arise on the transfer of ordinary shares where the consideration for the transfer does not exceed €1,000,
provided the instrument contains a statement certifying that the transaction does not form part of a larger transaction or a series
of larger transactions, in respect of which the amount of the total consideration attributable to the shares would exceed €1,000.
Documents on Display
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and
file reports and other information with the SEC. The SEC maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov.
We “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by reference is an important part of this report and more
recent information automatically updates and supersedes more dated information contained or incorporated by reference in this
report. Our SEC file number for Exchange Act reports is 333-08704.
As a foreign private issuer, we are exempt from certain rules under the Exchange Act, including prescribing the furnishing and
content of proxy statements to shareholders.
We will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a
copy of any or all documents referred to above which have been or may be incorporated by reference in this report (not including
exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for
such copies should be directed to us at the following address: ICON plc, South County Business Park, Leopardstown, Dublin 18,
Ireland, Attention: Erina Fox telephone number: +353 1 2912000.
Exemptions From Corporate Governance Listing Requirements Under the NASDAQ Marketplace Rules
NASDAQ may provide exemptions from certain NASDAQ corporate governance standards to a foreign private issuer if, among
other reasons those standards are contrary to a law, rule or regulation of a public authority exercising jurisdiction over such issuer
or contrary to generally accepted business practices in the issuer’s home country of domicile, provided, that, the foreign private
issuer properly notifies NASDAQ and makes the required disclosure except to the extent that such exemptions would be contrary
to United States federal securities laws.
The exemptions that the Company relies on, and the practices the Company adheres to, are as follows:
• The Company is exempt from provisions set forth in NASDAQ Rule 5620(c), which requires each issuer (other than limited
partnerships) to provide for a quorum in its by-laws for any meeting of the holders of common stock, which shall in no
case be less than 33.33% of the outstanding shares of the issuer’s common voting stock. The Company’s Constitution
requires that only 3 members be present, in person or by proxy, at a shareholder meeting to constitute a quorum. This
quorum requirement is in accordance with Irish law and generally accepted business practices in Ireland.
• The Company is exempt from provisions set forth in NASDAQ Rule 5635(c) which requires (other than for certain specified
exceptions) shareholder approval prior to the establishment or material amendment of a stock option or purchase plan or
other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers,
Directors, employees or consultants. Irish law does not require shareholder approval with respect to equity compensation
arrangements. Accordingly, the 2013 Employees Restricted Share Unit Plan and the amendments to the Employee Share
Option Plan 2008 and Consultants Share Option Plan 2008 were adopted by the Board of Directors without shareholder
approval.
•
The Company is exempt from provisions set forth in NASDAQ Rule 5605(b)(2), which requires independent Directors
to hold regularly scheduled meetings at which only independent Directors are present. Irish law does not require independent
Directors to hold regularly scheduled meetings at which only independent Directors are present. The Company holds
regularly scheduled meetings which all of the Directors may attend and the Lead Independent Director may call meetings
69
of the independent directors and non-employee directors of the Board, as appropriate, in accordance with the Lead
Independent Director Charter.
Item 11 . Quantitative and Qualitative Disclosures about Market Risk.
The principal market risks (i.e. risk of loss arising from adverse changes in market rates and prices) to which we are exposed
include foreign currency risk and interest rate risk.
Foreign Currency Exchange Risk
We are subject to a number of foreign currency risks given the global nature of our operations. The principal foreign currency
risks to which the business is subject to includes both foreign currency translation risk and foreign currency transaction risk.
Although domiciled in Ireland, we report our results in U.S. dollars. As a consequence the results of our non-U.S. based operations,
when translated into U.S. dollars, could be affected by fluctuations in exchange rates between the U.S. dollar and the currencies
of those operations.
We are also subject to foreign currency transaction exposures as the currency in which our contracts are priced can be different
from the currencies in which costs relating to those contracts are incurred. Our operations in the United States are not materially
exposed to such currency differences as the majority of revenues and costs are in U.S. dollars. However, outside the United States
the multinational nature of our activities means that contracts may be priced in a single currency, most often U.S. dollars, or euro,
while costs arise in a number of currencies, depending, among other things, on which of our offices provide staff for the contract
and the location of investigator sites. Although many such contracts benefit from some degree of natural hedging due to the
matching of contract revenues and costs in the same currency, where costs are incurred in currencies other than those in which
contracts are priced, fluctuations in the relative value of those currencies could have a material effect on our results of operations.
We regularly review our foreign currency exposures and enter into forward currency contracts to manage our exposure. We had
no open foreign currency contracts at December 31, 2018.
The following significant exchange rates applied during the year:
Euro:USD
Pound Sterling:USD
Interest Rate Risk
Average Rate
2018
1.1846
1.3401
2017
1.1229
1.2883
Closing Rate
2018
1.1467
1.2754
2017
1.2005
1.3513
We are exposed to interest rate risk in respect of our cash and cash equivalents and available for sale investments. Our treasury
function actively manages our available cash resources and invests significant cash balances to try to ensure optimum returns for
the Company. Financial instruments are classified either as cash and cash equivalents or available for sale investments depending
upon the maturity of the related investment. Funds may be invested in the form of floating rate notes and medium term minimum
“A-” rated corporate securities. We may be subject to interest rate risk in respect of interest rate changes on amounts invested.
Interest rate risk is managed by monitoring the composition of the Company’s investment portfolio on an ongoing basis having
regard to current market interest rates and future trends.
In December 2015 we issued $350 million in the private placement market, the rate on these senior notes is fixed at 3.64% for the
five year term. The interest rate is further reduced by an interest rate cash flow hedge which was entered into in advance of the
rate fixing date. This cash flow hedge was deemed to be fully effective in accordance with Financial Accounting Standards Board
(“FASB”) ASC 815 “Derivatives and Hedging”. The realized gain related to this derivative is recorded within other comprehensive
income and is amortized over the life of the Senior Notes. The effective rate on our 5 year Senior Notes is fixed at 3.37%. ICON
did not have any short term borrowings in 2018 and were not exposed to changes in market interest rates as a result.
70
The sensitivity analysis below represents the hypothetical change in the net interest payable of a 1% movement in market interest
rates.
Interest Income
Interest Expense
Interest for the
year ended
December 31,
2018
(in thousands)
Interest
Change 1%
increase in
market interest
rate
(in thousands)
Interest
Change 1%
decrease in
market interest
rate
(in thousands)
$4,759
($13,502)
($8,743)
$8,155
($13,502*)
($5,347)
$1,372
($13,502*)
($12,130)
*No variable debt drawn down during year ended December 31, 2018.
Item 12 . Description of Securities Other than Equity Securities.
Not applicable.
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
None.
Item 15. Controls and Procedures.
(a) Disclosure controls and procedures
An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief
Executive Officer (CEO) and the Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures as
at December 31, 2018. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities
and Exchange Commission rules and forms.
(b) Management's Annual Report on Internal Accounting Control over Financial Reporting
Reference is made to page 76 of this Form 20-F.
(c) Attestation Report of Independent Registered Public Accounting Firm
Reference is made to page 77 of this Form 20-F.
(d) Changes in Internal Controls over Financial Reporting
Effective January 1, 2018, we adopted the new revenue standard, ASC Topic 606, Revenue from Contracts with Customers, and
implemented a new clinical trial service revenue process and internal controls to assist in the application of the new revenue
standard. There were no changes in our internal controls over financial reporting that occurred during the period covered by this
Form 20-F that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
71
Item 16. Reserved.
Item 16A. Audit Committee Financial Expert
Mr. Declan McKeon acts as the Audit Committee financial expert serving on our Audit Committee and Board of Directors. The
Board has determined that Mr. McKeon is independent.
Item 16B. Code of Ethical Conduct
Our Global Code of Ethical Conduct applies to all ICON employees.
There are no waivers from the provisions of the Code of Ethical Conduct that are required to be disclosed.
This Code of Ethical Conduct is available on our website at the following address:
https://investor.iconplc.com/corporate-governance/governance-documents
Item 16C. Principal Accountant Fees and Services
Our principal accountants for the years ended December 31, 2018 and December 31, 2017 were KPMG.
The table below summarizes the fees for professional services rendered by KPMG for the audit of our annual financial statements
for the years ended December 31, 2018 and December 31, 2017 and fees billed for other services rendered by KPMG.
Audit fees (1)
Audit related fees (2)
Tax fees (3)
Total
12 month period ended
December 31, 2018
(in thousands)
71%
2%
27%
$1,661
$40
$642
12 month period ended
December 31, 2017
(in thousands)
42%
35%
23%
$1,556
$1,297
$850
$2,343
100%
$3,703
100%
(1) Audit fees include annual audit fees for the Company and its subsidiaries.
(2) Audit related fees principally consist of fees for financial due diligence services, fees for audit of the financial statements, fees
for the audit of employee benefit plans and fees for pension reviews. The lower level of audit related fees in 2018 compared to
2017 relates to additional financial due diligence services ($1.1 million) provided in 2017 in connection with a proposed significant
one-time acquisition transaction.
(3) Tax fees are fees for tax compliance and tax consultation services.
The Audit Committee pre-approves all audit and non-audit services provided to the Company by its auditors.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
72
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Total Number
of Shares
Purchased
Average Price
Paid per Share
Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Plan
Total Price
Paid for
Shares
Purchased as
Part of a
Publicly
Announced
Plan
Maximum
Approximate
Value of
Shares
that may yet
be
purchased
under
the Publicly
Announced
Plan
(in thousands, except per share data)
474,118
756,001
199,068
152,601
—
1,121,907
93,628
—
—
—
—
—
—
2,376
218,715
—
196,591
148,521
—
—
118,943
21,088
—
—
357,303
165,716
—
4,026,576
$77.63
$76.77
$76.13
$77.96
—
$79.08
$79.92
—
—
—
—
—
—
$114.49
$113.06
—
$108.20
$114.04
—
—
$134.22
$132.20
—
—
$139.94
$132.76
—
$92.40
474,118
756,001
199,068
152,601
—
1,121,907
93,628
—
—
—
—
—
—
2,376
218,715
—
196,591
148,521
—
—
118,943
21,088
—
—
357,303
165,716
—
4,026,576
$36,804
$58,039
$15,157
$11,897
—
$88,726
$7,483
—
—
—
—
—
—
$272
$24,728
—
$21,271
$16,937
—
—
$15,964
$2,788
—
—
$50,000
$22,000
—
$372,066
$363,196
$305,157
$290,000
$278,103
$278,103
$189,377
$181,894
$181,894
$181,894
$181,894
$181,894
$181,894
$181,894
$181,622
$156,894
$156,894
$135,623
$118,686
$118,686
$118,686
$102,722
$99,934
$99,934
$99,934
$49,934
$27,934
$27,934
$27,934
October 10/1/16– 10/31/16
November 11/1/16 – 11/30/16
December 12/1/16 – 12/31/16
January 1/1 /17– 1/31/17
February 2/1/17 – 2/28/17
March 3/1/17 – 3/31/17
April 4/1/17 – 4/30/17
May 5/1/17 – 5/31/17
June 6/1/17 – 6/30/17
July 7/1/17 – 7/31/17
August 8/1/17 – 8/31/17
September 9/1/17 – 9/30/17
October 10/1/17 – 10/31/17
November 11/1/17 – 11/30/17
December 12/1/17 – 12/31/17
January 1/1 /18– 1/31/18
February 2/1/18 – 2/28/18
March 3/1/18 – 3/31/18
April 4/1/18 – 4/30/18
May 5/1/18 – 5/31/18
June 6/1/18 – 6/30/18
July 7/1/18 – 7/31/18
August 8/1/18 – 8/31/18
September 9/1/18 – 9/30/18
October 10/1/18 – 10/31/18
November 11/1/18 – 11/30/18
December 12/1/1 – 12/31/18
On October 3, 2016 the Company commenced a previously announced share buyback program of up to $400 million. During the
year ended December 31, 2018, the Company redeemed a total of 1,008,162 ordinary shares under this program for total
consideration of $129.0 million. At December 31, 2018 a total of 4,026,576 ordinary shares were redeemed by the Company under
this buyback program for a total consideration of $372.1 million
On January 8, 2019 the Company announced a share buyback program of up to 1 million shares to be executed opportunistically
during 2019 depending on cash commitments. All ordinary shares that are redeemed under the buyback program will be canceled
in accordance with the constitutional documents of the Company and the nominal value of these shares transferred to an
undenominated capital fund as required under Irish Company law.
73
Under the repurchase programs, a broker purchased the Company's shares from time to time on the open market or in privately
negotiated transactions in accordance with agreed terms and limitations. The programs are designed to allow share repurchases
during periods when the Company would ordinarily not be permitted to do so because it may be in possession of material non-
public or price-sensitive information, applicable insider trading laws or self-imposed trading blackout periods. The Company's
instructions to the broker were irrevocable and the trading decisions in respect of the repurchase programs were made independently
of and uninfluenced by the Company. The Company confirms that on entering the share repurchase plans it had no material non-
public, price-sensitive or inside information regarding the Company or its securities. Furthermore, the Company will not enter
into additional plans whilst in possession of such information. The timing and actual number of shares acquired by way of the
redemption will be dependent on market conditions, legal and regulatory requirements and the other terms and limitations contained
in the programs. In addition, acquisitions under the programs may be suspended or discontinued in certain circumstances in
accordance with the agreed terms. Therefore, there can be no assurance as to the timing or number of shares that may be acquired
under the programs.
Item 16F. Changes in Registrant's Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
See Item 10 "Exemptions from Corporate Governance Listing Requirements under the NASDAQ Marketplace Rules".
Item 16H. Mine Safety Disclosure
Not applicable.
Part III
Item 17. Financial Statements.
See item 18.
Item 18. Financial Statements.
Reference is made to pages 76 to 135 of this Form 20-F.
Item 19. Exhibits.
Consolidated Financial Statements of ICON plc and subsidiaries
Exhibits
Management's Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as at December 31, 2018 and December 31, 2017
Consolidated Statements of Operations for the years ended December 31, 2018, December 31, 2017 and December 31, 2016
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, December 31, 2017 and December 31,
2016
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years ended December 31, 2018,
December 31, 2017 and December 31, 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, December 31, 2017 and December 31, 2016
Notes to the Consolidated Financial Statements
74
Exhibits of ICON plc and subsidiaries
Exhibit
Number
Title
3.1
12.1*
12.2*
21.1
23.1*
Description of the Constitution of the Company (incorporated by reference to exhibit 99.2 to the Form
6K (File No. 333-08704) filed on July 25, 2016).
Section 302 certifications.
Section 906 certifications.
List of Subsidiaries (incorporated by reference to Item 4 of Form 20-F filed herewith).
Consent of KPMG, Independent Registered Public Accounting Firm
101.1*
Interactive Data Files (XBRL – Related Documents)
* Filed herewith
75
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
The Company's internal control over financial reporting is a process designed by, or under the supervision of, the Company's
executive and financial officers and effected by the Company's board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting
purposes in accordance with generally accepted accounting principles.
A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorization of management and Directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitation due to, for example, the potential for human error or circumvention of control, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2018. In
making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control – Integrated Framework 2013. Based upon the assessment performed, we determined that, as of
December 31, 2018 the Company's internal control over financial reporting was effective. Effective January 1, 2018, we adopted
the new revenue standard, ASC Topic 606, Revenue from Contracts with Customers, and implemented a new clinical trial service
revenue process and internal controls to assist in the application of the new revenue standard. There have been no changes in the
Company's internal control over financial reporting during 2018 that have materially affected, or are reasonably likely to affect
materially, the Group's internal control over financial reporting.
KPMG, an independent registered public accounting firm, has audited the consolidated financial statements of ICON plc and
subsidiaries as of and for the year ended December 31, 2018, included herein, and has issued an audit report on the effectiveness
of our internal control over financial reporting, which is included on pages 77 and 78 of Form - 20F.
76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
ICON plc:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of ICON plc and subsidiaries ("the Company") as of
December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, shareholders' equity
and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2018, and the
related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 1, 2019 expressed an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2018, the Company has changed its method
of accounting for revenue recognition, due to the adoption of ASC Topic 606, Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
(signed) KPMG
We have served as the Company’s auditor since 1990.
Dublin, Ireland
March 1, 2019
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
ICON plc:
Opinion on Internal Control Over Financial Reporting
We have audited ICON plc and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations
of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework 2013 issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
("PCAOB"), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements
of operations, comprehensive income, shareholders' equity and comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2018, and the related notes, (collectively, the “consolidated financial statements”), and
our report dated March 1, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
(signed) KPMG
Dublin, Ireland
March 1, 2019
78
ICON plc
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets:
Cash and cash equivalents
Available for sale investments (Note 3a)
Accounts receivable, net (Note 17)
Unbilled revenue (Note 17)
Other receivables
Prepayments and other current assets
Income taxes receivable (Note 13)
Total current assets
Other Assets:
Property, plant and equipment, net (Note 6)
Goodwill (Note 4)
Other non-current assets
Non-current income taxes receivable (Note 13)
Non-current deferred tax asset (Note 13)
Investments in equity- long term (Note 3b)
Intangible assets (Note 5)
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable
Payments on account (Note 17)
Other liabilities (Note 7)
Income taxes payable (Note 13)
Total current liabilities
Other Liabilities:
Non-current bank credit lines and loan facilities (Note 22)
Non-current other liabilities (Note 8)
Non-current government grants (Note 11)
Non-current income taxes payable (Note 13)
Non-current deferred tax liability (Note 13)
Commitments and contingencies (Note 15)
Total Liabilities
Shareholders' Equity:
Ordinary shares, par value 6 euro cents per share;
100,000,000 shares authorized, (Note 12)
53,971,706 shares issued and outstanding at December 31, 2018 and
54,081,601 shares issued and outstanding at December 31, 2017.
Additional paid-in capital
Other undenominated capital (Note 12 (a))
Accumulated other comprehensive income (Note 21)
Retained earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
December 31, 2018 December 31, 2017
(in thousands)
$395,851
59,910
414,791
362,926
40,459
36,801
19,445
1,330,183
158,669
756,260
14,525
20,023
13,577
6,963
54,055
$2,354,255
$13,288
274,468
317,143
5,724
610,623
349,264
13,446
877
17,551
8,213
—
999,974
4,658
529,642
983
(69,328)
888,326
1,354,281
$2,354,255
$282,859
77,589
379,501
268,509
33,798
34,377
24,385
1,101,018
163,051
769,058
15,393
18,396
8,074
—
71,628
$2,146,618
$18,590
298,992
233,503
14,973
566,058
348,888
17,111
966
14,879
7,716
—
955,618
4,664
481,337
912
(38,713)
742,800
1,191,000
$2,146,618
The accompanying notes are an integral part of these consolidated financial statements.
79
ICON plc
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue:
Gross revenue
Reimbursable expenses
Costs and expenses:
Direct costs
Selling, general and administrative
Depreciation and amortization
Restructuring (Note 14)
Total costs and expenses
Income from operations
Interest income
Interest expense
Income before income taxes expense
Income tax expense (Note 13)
Net income
Net income per ordinary share:
Basic
Diluted
Year Ended
December 31,
2018
2017
2016
(in thousands, except share and per share data)
$
2,595,777 $
—
2,402,321 $
(643,882)
1,758,439
2,364,956
(698,469)
1,666,487
1,818,220
325,794
65,916
12,490
2,222,420
373,357
4,759
(13,502)
364,614
(41,958)
322,656 $
1,027,310
323,741
61,297
7,753
1,420,101
338,338
2,346
(12,627)
328,057
(46,569)
281,488 $
961,333
325,726
59,575
8,159
1,354,793
311,694
1,484
(13,006)
300,172
(37,993)
262,179
5.96 $
5.89 $
5.20 $
5.13 $
4.75
4.65
$
$
$
Weighted average number of ordinary shares outstanding:
Basic (Note 2 (v))
Diluted (Note 2 (v))
54,118,764
54,790,663
54,129,439
54,849,046
55,248,900
56,407,136
The accompanying notes are an integral part of these consolidated financial statements.
80
ICON plc
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income
Other comprehensive income, net of tax
Currency translation adjustment
Currency impact of long-term funding
Unrealized capital (loss)/gain– investments
Actuarial gain/(loss) on defined benefit pension plan
Amortization of interest rate hedge
Fair value of cash flow hedge
Total comprehensive income
Year Ended
December 31,
2017
(in thousands)
2018
2016
$
322,656 $
281,488 $
262,179
(26,522)
(4,834)
(155)
2,855
(923)
(1,036)
292,041 $
33,966
13,730
(272)
50
(923)
1,036
329,075 $
(12,839)
(8,428)
11
(2,485)
(923)
—
237,515
$
The accompanying notes are an integral part of these consolidated financial statements.
81
ICON plc
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
Shares
Amount
Additional
Paid-in
Capital
Other
Undenominated
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Balance at December 31, 2015
54,958,912 $
4,719 $
383,355 $
715 $
(61,636) $ 435,943 $ 763,096
Comprehensive Income:
Net income
Currency translation adjustment
Currency impact of long-term
funding
Unrealized capital loss -
investments
Actuarial gain on defined benefit
pension plan
Net gain on interest rate hedge
Total comprehensive income
Exercise of share options
Issue of restricted share units/
performance share units
Share based compensation expense
Share issue costs
—
—
—
—
—
—
—
393,240
607,878
—
—
Repurchase of ordinary shares
(1,429,187)
Share repurchase costs
Excess income tax benefit on
exercise of equity compensation
Balance at December 31, 2016
Comprehensive Income:
Net income
Currency translation adjustment
Currency impact of long-term
funding
Unrealized capital loss -
investments
Actuarial loss on defined benefit
pension plan
Amortization of interest rate hedge
Fair value of cash flow hedge
Total comprehensive income
Exercise of share options
Issue of restricted share units /
performance share units
Share based compensation expense
Share issue costs
—
—
—
—
—
—
—
—
—
—
458,243
681,742
—
—
Repurchase of ordinary shares
(1,589,227)
Share repurchase costs
Cumulative effect adjustment from
adoption of ASU 2016-09
—
—
—
—
—
—
—
—
—
26
41
—
—
(94)
—
—
—
—
—
—
—
—
—
10,113
—
40,343
(17)
—
—
4,332
—
—
—
—
—
—
—
—
—
—
—
94
—
—
— 262,179
262,179
(12,839)
(8,428)
11
(2,485)
(923)
—
—
—
—
—
—
—
—
—
—
(12,839)
(8,428)
11
(2,485)
(923)
— 237,515
—
—
—
—
10,139
41
40,343
(17)
— (110,000)
(110,000)
—
—
(275)
(275)
—
4,332
—
—
—
—
—
—
—
—
31
44
—
—
(103)
—
—
—
—
—
—
—
—
—
—
13,875
—
29,351
(15)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
103
—
—
— 281,488
281,488
33,966
13,730
(272)
50
(923)
1,036
—
—
—
—
—
—
—
—
—
—
—
33,966
13,730
(272)
50
(923)
1,036
— 329,075
—
—
—
—
13,906
44
29,351
(15)
— (133,106)
(133,106)
—
—
(106)
(106)
6,677
6,677
54,530,843 $
4,692 $
438,126 $
809 $
(86,300) $ 587,847 $ 945,174
Balance at December 31, 2017
54,081,601 $
4,664 $
481,337 $
912 $
(38,713) $ 742,800 $1,191,000
82
ICON plc
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
Shares
Amount
Additional
Paid-in
Capital
Other
Undenominated
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Balance at December 31, 2017
54,081,601 $
4,664 $
481,337 $
912 $
(38,713) $ 742,800 $1,191,000
Cumulative effect adjustment from
adoption of ASC 606
—
—
—
Balance at January 1, 2018
54,081,601
4,664
481,337
—
912
—
(48,104)
(48,104)
(38,713)
694,696
1,142,896
Comprehensive income:
Net income
Currency translation adjustment
Currency impact of long-term
funding
Unrealized capital loss -
investments
Actuarial gain on defined benefit
pension plan
Amortization of interest rate hedge
Fair value of cash flow hedge
Total comprehensive income
Exercise of share options
Issue of restricted share units /
performance share units
Share based compensation expense
Share issue costs
—
—
—
—
—
—
—
—
408,699
489,568
—
—
—
—
—
—
—
—
—
—
29
36
—
—
Repurchase of ordinary shares
(1,008,162)
Share repurchase costs
—
(71)
—
—
—
—
—
—
—
—
—
16,777
—
31,544
(16)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
71
—
— 322,656
322,656
(26,522)
(4,834)
(155)
2,855
(923)
(1,036)
—
—
—
—
—
—
—
—
—
—
—
(26,522)
(4,834)
(155)
2,855
(923)
(1,036)
— 292,041
—
—
—
—
16,806
36
31,544
(16)
— (128,960)
(128,960)
—
(66)
(66)
Balance at December 31, 2018
53,971,706
4,658
529,642
983
(69,328)
888,326
1,354,281
The accompanying notes are an integral part of these consolidated financial statements.
83
ICON plc
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of property, plant and equipment
Depreciation expense
Amortization of intangibles
Amortization of government grants
Interest on short term investments
Realized (gain)/loss on sale of short term investments
Gain on re-measurement of financial assets
Amortization of gain on interest rate hedge
Amortization of financing costs
Stock compensation expense
Deferred tax expense
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable
Increase in unbilled revenue
Decrease/(increase) in other receivables
(Increase)/decrease in prepayments and other current assets
Decrease/(increase) in other non-current assets
Decrease in payments on account
Increase/(decrease) in other current liabilities
(Decrease)/increase in other non-current liabilities
Decrease in income taxes payable
(Decrease)/increase in accounts payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of subsidiary undertakings
Cash acquired with subsidiary undertaking
Sale of available for sale investments
Purchase of available for sale investments
Purchase of investments in equity - long term
Net cash used in investing activities
Cash flows from financing activities:
Financing costs
Drawdown of credit lines and facilities
Repayment of credit lines and facilities
Proceeds from the exercise of equity compensation
Share issue costs
Excess tax benefit on exercise of equity compensation
Repurchase of ordinary shares
Share repurchase costs
Net cash used in financing activities
Effect of exchange rate movements on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year Ended
December 31,
Year Ended
December 31,
Year Ended
December 31,
2018
2017
(in thousands)
2016
$
322,656 $
281,488 $
262,179
70
50,565
15,351
(47)
(1,329)
(56)
(800)
(923)
812
31,594
1,652
(37,557)
(98,510)
3,107
(3,237)
856
(6,253)
2,009
(1,034)
(5,220)
(5,067)
268,639
(48,397)
(1,645)
—
99,865
(80,956)
(6,163)
(37,296)
228
43,436
17,861
(44)
(1,088)
(112)
—
(923)
556
30,573
10,729
57,747
(62,491)
1,771
4,359
(1,524)
(7,174)
6,679
(3,710)
(2,293)
7,014
383,082
(44,717)
(144,131)
19,649
33,086
(41,701)
—
(177,814)
(823)
—
—
16,842
(16)
—
(128,960)
(66)
(113,023)
(5,328)
112,992
282,859
395,851 $
—
—
—
13,950
(15)
—
(133,106)
(106)
(119,277)
4,327
90,318
192,541
282,859 $
$
151
42,125
17,450
(44)
(823)
(50)
—
(923)
566
40,343
1,545
2,526
(16,753)
(1,829)
1,872
(2,157)
(45,754)
(44,713)
3,008
(690)
1,175
259,204
(42,601)
(54,209)
3,168
40,858
(22,030)
—
(74,814)
—
73,000
(73,000)
10,180
(17)
6,402
(110,000)
(275)
(93,710)
(2,050)
88,630
103,911
192,541
The accompanying notes are an integral part of these consolidated financial statement
84
ICON plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business
ICON plc and its subsidiaries ("the Company" or "ICON") is a clinical research organization ("CRO"), providing outsourced
development services on a global basis to the pharmaceutical, biotechnology and medical device industries. We specialize in the
strategic development, management and analysis of programs that support all stages of the clinical development process from
compound selection to Phase I-IV clinical studies. Our vision is to be the Global CRO partner of choice in drug development by
delivering best in class information, solutions and performance in clinical and outcomes research.
We believe that we are one of a select group of CROs with the expertise and capability to conduct clinical trials in most major
therapeutic areas on a global basis and have the operational flexibility to provide development services on a stand-alone basis or
as part of an integrated "full service" solution. At December 31, 2018 we had approximately 13,670 employees, in 89 locations
in 37 countries. During the year ended December 31, 2018, we derived approximately 34.5%, 55.7% and 9.8% of our net revenue
in the United States, Europe and Rest of World, respectively.
We began operations in 1990 and have expanded our business predominately through internal growth, together with a number of
strategic acquisitions to enhance our capabilities and expertise in certain areas of the clinical development process. We are
incorporated in Ireland and our principal executive office is located at: South County Business Park, Leopardstown, Dublin 18,
Republic of Ireland. The contact telephone number of this office is +353 1 2912000.
2. Significant Accounting Policies
The accounting policies noted below were applied in the preparation of the accompanying financial statements of the Company
and are in conformity with accounting principles generally accepted in the United States.
(a) Basis of consolidation
The consolidated financial statements include the financial statements of the Company and all of its subsidiaries. All significant
intercompany profits, transactions and account balances have been eliminated. The results of subsidiary undertakings acquired in
the period are included in the Consolidated Statement of Operations from the date of acquisition.
(b) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. The principal management estimates and judgments used in preparing the
financial statements relate to revenue recognition and taxation.
(c) Revenue recognition
The Company primarily earns revenues by providing a number of different services to its customers. These services, which are
integral elements of the clinical development process, include clinical trials management, consulting, contract staffing, and
laboratory services. Contracts range in duration from a number of months to several years.
85
ASC 606 - Revenue from Contracts with Customers (year-ended December 31, 2018)
ICON adopted ASC 606 ' 'Revenue from Contracts with Customers' standard using the cumulative effect transition method. Under
this transition method, ICON has applied the new standard as at the date of initial application (i.e. January 1, 2018), without
restatement of comparative amounts. The cumulative effect of initially applying the new standard (to revenue, costs and tax) is
recorded as an adjustment to the opening balance of equity at the date of initial application. The comparative information has not
been adjusted and therefore continues to be reported under ASC 605 ‘Revenue Recognition’ and therefore in accordance with
previous accounting policies. See note 26 Impact of change in accounting policies for details of the impact of adoption of the new
accounting policy.
The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance
obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in
the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation.
Clinical trial service revenue
The most significant impact of application of the standard relates to our assessment of performance and percentage of completion
in respect of our clinical trial service revenue. Prior to application of ASC 606, the revenue attributable to performance was
determined based on both input and output methods of measurement on a percentage of completion basis. We have concluded that
under the new standard, a clinical trial service is a single performance obligation satisfied over time i.e. the full service obligation
in respect of a clinical trial (including those services performed by investigators and other parties) is considered a single performance
obligation. Promises offered to the customer are not distinct within the context of the contract. We have concluded that ICON is
the contract principal in respect of both direct services and in the use of third parties (principally investigator services) that support
the clinical research project. The transaction price is determined by reference to the contract or change order value (total service
revenue and pass-through/ reimbursable expenses) adjusted to reflect a realizable contract value. Revenue is recognized as the
single performance obligation is satisfied. The progress towards completion for clinical service contracts is measured based on
an input measure being total project costs (inclusive of third party costs) at each reporting period.
Contracting services revenue
On evaluation of the principles at (1) - (5) set-out above in respect of ASC 606, the Company has availed of the practical expedient
which results in recognition of revenue on a right to invoice basis. Application of the practical expedient reflects the right to
consideration from the customer in an amount that corresponds directly with the value to the customer of the performance completion
to date. This reflects hours performed by contract staff.
Consulting services revenue
On application of the ASC 606 'Revenue from Contracts with Customers' principles at (1) - (5) set-out above, we have concluded
that our consulting services contracts represent a single performance obligation satisfied over time. The transaction price is
determined by reference to contract or change order value. Revenue is recognized as the performance obligation is satisfied. The
progress towards completion for consulting contracts is measured based on total project inputs (time) at each reporting period.
Laboratory services revenue
Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the
products or services are transferred to the customer. Revenue for laboratory services is measured as the amount of consideration
we expect to receive in exchange for transferring products or services. Where contracts with customers contain multiple performance
obligations, the transaction price is allocated to each performance obligation based on the estimated relative selling price of the
promised good or service. Service revenue is recognized over time as the services are delivered to the customer based on the extent
of progress towards completion of the performance obligation. The determination of the methodology to measure progress requires
judgment and is based on the nature of services provided. This requires an assessment of the transfer of value to the customer.
The right to invoice measure of progress is generally related to rate per unit contracts, as the extent of progress towards completion
is measured based on discrete service or time-based increments, such as samples tested or labor hours incurred. Revenue is recorded
in the amount invoiced since that amounts corresponds to the value of the Company's performance and the transfer of value to the
customer.
ASC 605 - Revenue recognition (years ended December 31, 2017 and December 31, 2016)
Revenue for services, as rendered, is recognized only after persuasive evidence of an arrangement exists, the sales price is fixed
or determinable and collectability is reasonably assured.
86
Clinical trials management revenue is recognized on a proportional performance method. Depending on the contractual terms
revenue is either recognized on the percentage of completion method based on the relationship between hours incurred and the
total estimated hours of the trial or on the unit of delivery method. Contract costs equate to the product of labor hours incurred
and compensation rates. For the percentage of completion method, the input (effort expended) method has been used to measure
progress towards completion as there is a direct relationship between input and productivity. Contract revenue is the product of
the aggregated labor hours required to complete the specified contract tasks at the agreed contract rates. The Company regularly
reviews the estimate of total contract time to ensure such estimates remain appropriate taking into account actual contract stage
of completion, remaining time to complete and any identified changes to the contract scope. Remaining time to complete depends
on the specific contract tasks, the complexity of the contract and can include geographical site selection and initiation, patient
enrollment, patient testing and level of results analysis required. While the Company may routinely adjust time estimates, the
Company's estimates and assumptions historically have been accurate in all material respects in the aggregate. Where revenue is
recognized on the unit of delivery method, the basis applied is the number of units completed as a percentage of the total number
of contractual units.
Consulting revenue is recognized on a fee-for-service basis as each hour of the related service is performed.
Contract staffing revenue is recognized on a fee-for-service basis, over the time the related service is performed, or in the case of
permanent placement, once the candidate has been placed with the client.
Laboratory service revenue is recognized on a fee-for-service basis. The Company accounts for laboratory service contracts as
multiple element arrangements, with contractual elements comprising laboratory kits and laboratory testing, each of which can
be sold separately. Sales prices for contractual elements are determined by reference to objective and reliable evidence of their
sales price. Revenues for contractual elements are recognized on the basis of the number of deliverable units completed in the
period.
Informatics revenue is recognized on a fee-for-service basis. Informatics contracts are treated as multiple element arrangements,
with contractual elements comprising license fee revenue, support fee revenue and revenue from software services, each of which
can be sold separately. Sales prices for contractual elements are determined by reference to objective and reliable evidence of their
sales price.
License and support fee revenues are recognized rateably over the period of the related agreement. Revenue from software services
is recognized using the percentage of completion method based on the relationship between hours incurred and the total estimated
hours required to perform the service.
Contracts generally contain provisions for renegotiation in the event of changes in the scope, nature, duration, or volume of services
of the contract. Renegotiated amounts are recognized as revenue by revision to the total contract value arising as a result of an
authorized customer change order.
(d) Third party costs (Reimbursable expenses)
Reimbursable expenses comprise investigator payments and certain other costs which are reimbursed by clients under terms
specific to each contract to the investigators. Third party costs (Reimbursable expenses) and the related revenue were separately
presented on the face of the Consolidated Statement of Operations for periods up to and including the year-ended December 31,
2017. See sections (c) and (e) for accounting policy in respect of the treatment of activity relating to reimbursable expenses on
revenue (c) and costs (e) on adoption of ASC 606 'Revenue from Contracts with Customers'.
(e) Direct costs
Direct costs consist of compensation, associated employee benefits and share-based payments for project-related employees and
other direct project-related costs.
On adoption of ASC 606 'Revenue from Contracts with Customers', reimbursable expenses are presented within direct costs. This
presentation is to align the presentation of costs with our assessment that our clinical trial service is a single performance obligation
satisfied over time i.e. the full service obligation is in respect of a clinical trial (including those services performed by investigators
and other parties) is considered a single performance obligation. Reimbursable expenses are recorded once the activity which
forms the basis for the cost has occurred. Direct costs for the year-ended December 31, 2018 are therefore inclusive of third party
costs of $702.8 million.
87
Investigator payment costs are recorded and reported reflecting investigator activity over the life of the contract. Investigator
payments are made based on predetermined contractual arrangements. Payments may differ from the recording and reporting of
the expense which is based on activity.
(f) Advertising costs
All costs associated with advertising and promotion are expensed as incurred. The advertising and promotion costs were $6,516,637,
$6,744,333 and $7,167,050 for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 respectively.
(g) Foreign currencies and translation of subsidiaries
The Company's financial statements are prepared in United States dollars. Transactions in currencies other than United States
dollars are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in currencies other
than United States dollars are translated into United States dollars at exchange rates prevailing at the Balance Sheet date. Adjustments
resulting from these translations are charged or credited to income. Amounts charged or credited to the Consolidated Statement
of Operations for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 were as follows:
Year ended
December 31,
(in thousands)
2017
2018
2016
Amounts (credited)/ charged
$
(3,876) $
7,760 $
2,094
The financial statements of subsidiaries with other functional currencies are translated at period end rates for the Consolidated
Balance Sheet and average rates for the Consolidated Statement of Operations. Translation gains and losses arising are reported
as a movement on accumulated other comprehensive income. Foreign currency transaction gains and losses are reported in other
comprehensive income rather than through income where the foreign currency transaction is 'long-term investment' in nature i.e.
settlement is not planned or anticipated in the foreseeable future.
(h) Disclosure of fair value of financial instruments
Cash, cash equivalents, unbilled revenue, other receivables, available for sale investments, prepayments and other current assets,
accounts receivable, accounts payable, investigator payments, payments on account, accrued liabilities, accrued bonuses and
income taxes payable have carrying amounts that approximate fair value due to the short term maturities of these instruments.
Other liabilities' carrying amounts approximate fair value based on net present value of estimated future cash flows. Debt is
measured at historical cost.
Financial instruments are measured in the Consolidated Balance Sheet at fair value using a fair value hierarchy of valuation inputs.
The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable
in the market. Each fair value measurement is reported in one of three levels, which is determined by the lowest level input that
is significant to the fair value measurement in its entirety. These levels are:
Level 1:
Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2:
Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active and model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3:
Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability.
88
The Group's Senior notes (private placement debt) is carried at $350.0 million (prior to related financing costs). The carrying
value at December 31, 2018, closely approximates fair value.
The Company classifies its investments in short term debt or equity investments as available for sale, as it does not actively trade
such securities nor does it intend to hold them to maturity. The fair value of short term investments are represented by level 1 fair
value measurements – quoted prices in active markets for identical assets. The unrealized movements in fair value are recognized
in equity until disposal or sale, at which time, those unrealized movements from prior periods are recognized in Consolidated
Statement of Operations. Losses other than temporary, which reduce the carrying amount below cost are recognized in Consolidated
Statement of Operations.
(i) Business combinations
The cost of a business combination is measured as the aggregate of the fair values at the date of exchange of assets given, liabilities
incurred or assumed and equity instruments issued in exchange for control. Where a business combination agreement provides
for an adjustment to the cost of the acquisition which is contingent upon future events, the amount of the estimated adjustment is
recognized at the acquisition date at the fair value of the contingent consideration. Any changes to this estimate outside the
measurement period will depend on the classification of the contingent consideration. If the contingent consideration is classified
as equity it shall not be re-measured and the settlement shall be accounted for within equity. If the contingent consideration is
classified as a liability any adjustments will be accounted for through the Consolidated Statement of Operations or Other
Comprehensive Income depending on whether the liability is considered a financial instrument.
The assets, liabilities and contingent liabilities of businesses acquired are measured at their fair values at the date of acquisition.
In the case of a business combination which is completed in stages, the fair values of the identifiable assets, liabilities and contingent
liabilities are determined at the date of each exchange transaction. When the initial accounting for a business combination is
determined provisionally, any subsequent adjustments to the provisional values allocated to the identifiable assets, liabilities and
contingent liabilities are made within twelve months of the acquisition date and presented as adjustments to goodwill in the
reporting period in which the adjustments are determined.
(j) Goodwill and Impairment
Goodwill represents the excess of the cost of acquired entities over the net amounts assigned to assets acquired and liabilities
assumed. Goodwill primarily comprises acquired workforce in place which does not qualify for recognition as an asset apart from
goodwill. Goodwill is stated net of any provision for impairment. The Company tests goodwill annually for any impairments or
whenever events occur which may indicate impairment. The Company applied the provisions of ASU 2017-04 with effect from
January 1, 2018. Under the amendment, the Company was required to perform its annual goodwill impairment test by comparing
the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for any amount by which
the carrying amount exceeds the reporting unit's fair value up to the amount of existing goodwill. The amendment allows an entity
to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. No impairment
was recognized as a result of the impairment testing carried out for the years ended December 31, 2018, December 31, 2017 and
December 31, 2016.
(k) Intangible assets
Intangible assets are amortized on a straight line basis over their estimated useful life.
(l) Cash and cash equivalents
Cash and cash equivalents include cash and highly liquid investments with initial maturities of three months or less and are stated
at cost, which approximates market value.
(m) Investments in debt, equity and other
Available for sale investments
The Company classifies short-term investments as available for sale in accordance with the terms of FASB ASC 320, Investments
– Debt and Equity Securities. Realized gains and losses are determined using specific identification. The investments are reported
at fair value, with unrealized gains or losses reported in a separate component of shareholders' equity. Any differences between
the cost and fair value of the investments are represented by accrued interest and unrealized gains/losses.
89
Long term investments
The Company classifies its interests in funds having considered the nature of its investment, the extent of influence over operating
and financial decisions and the availability of readily determinable fair values. The Company determined that the interests in funds
at December 31, 2018 meet the definition of equity securities without readily determinable fair values. Effective from 1 January
2018, the Company concluded that the interests held at December 31, 2018 qualify for the NAV practical expedient in ASC 820
'Fair value measurements and disclosures'. Any increases or decreases in fair value are recognized in net income in the period.
These are therefore measured at Level 3 of the fair value hierarchy.
(n) Accounts receivable, net
Accounts receivable are recorded at fair value less an allowance for doubtful accounts. The allowance is an estimate based on
historical collection experience, current economic and market conditions, and a review of the current status of each customer's
trade accounts receivable. Account balances are written-off against the allowance when the Group determines that it is probable
that the receivable will not be recovered.
(o) Inventory
Inventory is valued at the lower of cost and net realizable value and after provisions for obsolescence. The cost of inventories
comprises the purchase price and attributable costs, less trade discounts. At December 31, 2018 the carrying value of inventory,
included within prepayments and other current assets on the Consolidated Balance Sheet, was $2.3 million (2017: $2.2 million).
(p) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is
computed using the straight line method based on the estimated useful lives of the assets as listed below:
Building
Computer equipment and software
Office furniture and fixtures
Laboratory equipment
Motor vehicles
Years
40
2-8
8
5
5
Leasehold improvements are amortized using the straight line method over the estimated useful life of the asset or the lease term,
whichever is shorter.
(q) Leased assets
Costs in respect of operating leases are charged to the Consolidated Statement of Operations on a straight line basis over the lease
term.
Assets acquired under capital finance leases are included in the Consolidated Balance Sheet at the present value of the future
minimum lease payments and are depreciated over the shorter of the lease term and their remaining useful lives. The corresponding
liabilities are recorded in the Consolidated Balance Sheet and the interest element of the capital lease rental is charged to interest
expense.
(r) Income taxes
The Company applies the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation
allowance to the amount more likely than not to be realized. The Company recognizes the effect of income tax positions only if
those positions will more likely than not be sustained. Recognized income tax positions are measured at the largest amount of tax
90
benefit that is greater than 50 percent likely of being realized upon settlement. Interest and penalties related to income taxes are
included in income tax expense and classified with the related liability on the Consolidated Balance Sheet. The Company accounts
for the impact of GILTI (“global intangible low-taxed income”) as a period item in the period it arises and has therefore not
provided for deferred taxes in respect of this item.
(s) Government grants
Government grants received relating to capital expenditures are shown as deferred income and credited to income on a basis
consistent with the depreciation policy of the relevant assets. Grants relating to categories of operating expenditures are credited
to income in the period in which the expenditure to which they relate is charged.
Under the grant agreements amounts received may become repayable in full should certain circumstances specified within the
grant agreements occur, including downsizing by the Company, disposing of the related assets, ceasing to carry on its business or
the appointment of a receiver over any of its assets. The Company has not recognized any loss contingency having assessed as
remote the likelihood of these events arising.
(t) Research and development credits
Research and development credits are available to the Company under the tax laws in certain jurisdictions, based on qualifying
research and development spend as defined under those tax laws. Research and development credits are generally recognized as
a reduction of income tax expense. However, certain tax jurisdictions provide refundable credits that are not wholly dependent on
the Company's ongoing income tax status or income tax position. In these circumstances the benefit of these credits is not recorded
as a reduction to income tax expense, but rather as a reduction of operating expenditure.
(u) Pension costs
The Company contributes to defined contribution plans covering all eligible employees. The Company contributes to these plans
based upon various fixed percentages of employee compensation and such contributions are expensed as incurred.
The Company operates, through two subsidiaries, a defined benefit plan for certain of its United Kingdom and Swiss employees.
The Company accounts for the costs of these plans in accordance with ASC 715-30. These plans are presented in accordance with
the requirements of FASB ASC 715-60 Defined Benefit Plans – Other Post retirement.
(v) Net income per ordinary share
Basic net income per ordinary share has been computed by dividing net income available to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period. Diluted net income per ordinary share is computed by adjusting
the weighted average number of ordinary shares outstanding during the period for all potentially dilutive ordinary shares outstanding
during the period and adjusting net income for any changes in income or loss that would result from the conversion of such potential
ordinary shares.
There is no difference in net income used for basic and diluted net income per ordinary share. The reconciliation of the number
of shares used in the computation of basic and diluted net income per ordinary share is as follows:
Weighted average number of ordinary shares outstanding for basic net income
per ordinary share
Effect of dilutive share options outstanding
Weighted average number of ordinary shares outstanding for diluted net income
per ordinary share
54,118,764
671,899
54,129,439
719,607
55,248,900
1,158,236
54,790,663
54,849,046
56,407,136
Year Ended December 31,
2018
2017
2016
(w) Share-based compensation
The Company accounts for its share options, restricted share units ("RSUs") and performance share units ("PSUs") in accordance
with the provisions of FASB ASC 718, Compensation – Stock Compensation. Share-based compensation expense for equity-
91
settled awards made to employees and Directors is measured and recognized based on estimated grant date fair values. These
equity-settled awards include employee share options, RSUs and PSUs.
Share-based compensation expense for share options awarded to employees and Directors is estimated at the grant date based on
each option's fair value as calculated using the Black-Scholes option-pricing model. Share-based compensation for RSUs and
PSUs awarded to employees and Directors is calculated based on the market value of the Company's shares on the date of award
of the RSUs and PSUs. The value of awards expected to vest is recognized as an expense over the requisite service periods.
Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from original
estimates.
Estimating the grant date fair value of share options as of the grant date using an option-pricing model, such as the Black-Scholes
model, is affected by the Company's share price as well as assumptions regarding a number of complex variables. These variables
include, but are not limited to, the expected share price volatility over the term of the awards, risk-free interest rates and the
expected term of the awards.
Liability classified awards are measured at the fair value of the award on the grant date and remeasured at each reporting period
at fair value until the award is settled.
(x) Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of the asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured at the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of the carrying amount of the asset or fair value less selling costs.
(y) Derivative financial instruments
We enter into transactions in the normal course of business using various financial instruments in order to hedge against exposure
to fluctuating exchange and interest rates. We use derivative financial instruments to reduce exposure to fluctuations in interest
rates. A derivative is a financial instrument or other contract whose value changes in response to some underlying variable, which
has an initial net investment smaller than would be required for other instruments that have a similar response to the variable and
that will be settled at a future date. We do not enter into derivative financial instruments for trading or speculative purposes. We
did not hold any interest rate swap contracts or forward currency contracts at December 31, 2018 or December 31, 2017.
We use derivative financial instruments to reduce exposure to fluctuations in foreign exchange rates. During the years-ended
December 31, 2017 and December 31, 2018 we entered into forward currency contracts in respect of identified exposure arising
from euro payments. All contracts expired during the year ended December 31, 2018.
Our accounting policies for derivative financial instruments are based on whether they meet the criteria for designation as cash
flow or fair value hedges. A designated hedge of the exposure to variability in the future cash flows of an asset or a liability, or of
a forecasted transaction, is referred to as a cash flow hedge. A designated hedge of the exposure to changes in fair value of an asset
or a liability is referred to as a fair value hedge. The criterion for designating a derivative as a hedge includes the assessment of
the instrument's effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction and the
probability that the underlying transaction will occur. For derivatives with cash flow hedge accounting designation, we report the
gain or loss from the effective portion of the hedge as a component of Other Comprehensive Income and reclassify it into earnings
in the same period or periods in which the hedged transaction affects earnings and within the same Statement of Operations line
item as the impact of the hedged transaction. For derivatives with fair value hedge accounting designation, we recognize gains or
losses from the change in fair value of these derivatives, as well as the offsetting change in the fair value of the underlying hedged
item, in earnings. Fair value gains and losses arising on derivative financial instruments not qualifying for hedge accounting are
reported in our Consolidated Statement of Operations.
(z) Financing costs and gain on interest rate hedge
The interest rate in respect of the Senior Notes is fixed at 3.64% for the five year term of the agreement. The associated interest
cost is recognized in interest expense in the period since drawdown in December 2015.
Cash proceeds ($4.6 million) received in November 2015 in respect of the realized hedge gain are amortized to the Consolidated
Statement of Operations, net against interest payable, over the period of the Senior Notes.
92
Deferred financing costs (including issue costs relating to the Senior Notes) are reported at cost less accumulated amortization
and the related amortization expense is included in interest expense, in our Consolidated Statement of Operations.
(aa) Reclassifications
Certain amounts in the consolidated financial statements have been reclassified where necessary to conform to the current year
presentation.
3. Investments
(a)
Available for sale investments
At start of year
Purchases
Sales and maturities
Interest on short term investments
Realized gain on sale of short term investments
Unrealized capital loss – investments
At end of year
December 31,
2018
December 31,
2017
(in thousands)
$77,589
80,956
(99,865)
1,329
56
(155)
$68,046
41,701
(33,086)
1,088
112
(272)
$59,910
$77,589
The Company classifies its investment in short term investments as available for sale. Short term investments comprise highly
liquid investments with maturities of greater than three months and minimum "A-" rated fixed and floating rate securities. Short
term investments at December 31, 2018 have an average maturity of 1.22 years compared to 1.58 years at December 31, 2017.
The investments are reported at fair value with unrealized gains or losses reported in a separate component of shareholders' equity.
Any differences between the cost and fair value of investments are represented by accrued interest and unrealized gains/losses.
The fair value of short term investments are represented by level 1 fair value measurements – quoted prices in active markets for
identical assets.
The following table represents our available for sale short term investments by major security type as of December 31, 2018:
US government debt securities
Corporate securities
Term deposits
Total (U.S.$ in millions)
Maturity by period
Cost
Total
14.91
44.92
1.34
$61.17
Unrealized
gains /
(losses)
Fair Value
Total
Less than 1
year
(U.S.$ in millions)
(0.07)
(1.19)
—
($1.26)
14.84
43.73
1.34
$59.91
5.96
11.48
0.70
$18.14
1 to 5
years
8.88
32.25
0.64
$41.77
The contractual maturity of certain investments in the portfolio is greater than 12 months; however, classification as short-term
investments reflects the Company practice and intention in respect of these investments. The company recognizes the unrealized
losses in fair value in equity as these unrealized losses on short term investments have been considered as temporary.
(b)
Investments in equity - long term
The Company entered into subscription agreements with a number of funds. Capital totaling $6.2 million had been advanced under
the terms of the subscription agreements at December 31, 2018. The Company determined that the interests in the funds meet the
definition of equity securities without readily determinable fair values. Effective from 1 January 2018, the Company concluded
that the interests held at December 31, 2018 qualify for the NAV practical expedient in ASC 820 'Fair value measurements and
disclosures'. An increase in fair value of $0.8 million was recognized in net income during the period bringing the carrying value
93
of the subscriptions to $6.963 million at December 31, 2018. The Company had committed to future investments of $21.3 million
in respect of these funds.
4. Goodwill
Opening goodwill
Current year acquisitions
Prior period acquisition (note 4 (a))
Foreign exchange movement
Closing goodwill
December 31,
2018
December 31,
2017
(in thousands)
$
$
769,058 $
—
1,048
(13,846)
756,260 $
616,088
129,222
1,393
22,355
769,058
The Company has made a number of strategic acquisitions since inception to enhance its capabilities and experience in certain
areas of the clinical development process. Goodwill arising on acquisition represents the excess of the cost of acquired entities
over the net amounts assigned to assets acquired and liabilities assumed. Goodwill primarily comprises of the acquired workforce
in place which does not qualify for recognition as an asset apart from goodwill.
The Company acquired Mapi Développement SAS ('Mapi') during the year-ended December 31, 2017 resulting in the recognition
of goodwill of $130.3 million (note 4 (a)).
The Company tests goodwill annually for impairment or whenever events occur which may indicate impairment. The results of
the Company's goodwill impairment testing assessed at September 30, 2018 during the year ended December 31, 2018 provided
no evidence of impairment and indicated the existence of sufficient headroom such that a reasonably possible change to the key
assumptions used would be unlikely to result in an impairment of the related goodwill.
(a) Acquisitions - Mapi Group
On July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited, acquired Mapi Group. Mapi Group is a leading
patient-centered health outcomes research and commercialization company. Cash outflows on acquisition were $145.8 million.
The acquisition agreement provided for working capital targets to be achieved. On March 26, 2018, the Company paid $1.6 million
in respect of these targets on completion of the working capital review.
94
The acquisition of Mapi has been accounted for as a business combination in accordance with FASB ASC 805 Business
Combinations. The table following summarizes the Company’s assessment of the fair values of the assets acquired and liabilities
assumed:
Cash
Property, plant and equipment
Goodwill*
Order book
Customer list
Accounts receivable
Unbilled revenue
Prepayments and other current assets
Other receivables
Income taxes receivable
Accounts payable
Payments on account
Other liabilities
Non-current other liabilities
Non-current deferred tax liability
Net assets acquired
Cash outflows
Working capital adjustment
Total consideration
July 27, 2017
(in thousands)
19,649
4,872
130,270
13,012
18,392
15,874
6,984
2,587
1,430
4,262
(2,994)
(31,445)
(24,952)
(1,061)
(11,104)
145,776
144,131
1,645
145,776
$
$
$
*Goodwill represents the acquisition of an established workforce with experience in late phase commercialization, analytics, real
world evidence generation and strategic regulatory services in clinical trial services for biologics, drugs and devices. Goodwill
related to the business acquired is not tax deductible. In finalizing the goodwill on acquisition of Mapi in the twelve month period
from acquisition, fair value adjustments were made which resulted in increases in other liabilities ($3.9 million), plant and equipment
($1.7 million) and accounts receivable ($1.7 million) and income taxes receivable ($1.5 million) and decreases in unbilled revenue
($4.8 million), prepayments and other current assets ($1.9 million) and other receivables ($1.0 million) and in payment on account
($2.6 million) and non-current deferred tax liability ($9.1 million). Customer list and order backlog assets were also finalized.
The proforma effect of the Mapi acquisition if completed on January 1, 2016 would have resulted in net revenue, net income and
earnings per share for the fiscal years ending December 31, 2017 and December 31, 2016 as follows:
Net revenue
Net income
Basic earnings per share
Diluted earnings per share
Year Ended
2017
2016
(in thousands)
$ 1,811,018 $ 1,750,643
$
$
$
284,903 $
263,101
5.26 $
5.19 $
4.76
4.66
(b) Acquisition of ICON Government & Public Health Solutions (formerly Clinical Research Management (ClinicalRM))
On September 15, 2016, a subsidiary of the Company, ICON US Holdings Inc. acquired ICON Government & Public Health
Solutions (''GPHS'') (formerly Clinical Research Management (ClinicalRM)) which resulted in net cash outflows of $52.4 million
(including certain payments made on behalf of GPHS totaling $9.2 million). GPHS is a full-service CRO specializing in preclinical
through Phase IV support of clinical research and clinical trial services for biologics, drugs and devices. The organization helps
95
customers progress their products to market faster with a wide array of research, regulatory and sponsor services within the U.S.
and around the globe. GPHS provide full service and functional research solutions to a broad range of US government agencies.
Their extensive expertise extends across basic and applied research, infectious diseases, vaccines development, testing and the
response to bio-threats. They have worked in collaboration with government and commercial customers to respond to the threat
of global viral epidemics. Further consideration of up to $12.0 million was payable if certain performance milestones are achieved
in respect of periods up to December 31, 2017. The fair value of the contingent consideration on acquisition and at March 31,
2017, was estimated at $6.0 million. The evaluation of the performance and forecast performance of GPHS against performance
milestones was updated as required at June 30, 2017. Arising from that evaluation, the fair value of the contingent consideration
liability was determined as $Nil, resulting in a net credit of $6.0 million being recorded within selling, general & administrative
expenses in the Consolidated Statement of Operations during the year ended December 31, 2017.
The acquisition of GPHS has been accounted for as a business combination in accordance with FASB ASC 805 Business
Combinations. The table following summarizes the fair values of the assets acquired and liabilities assumed:
Cash
Property, plant and equipment
Goodwill*
Customer lists
Order backlog
Brand
Accounts receivable
Unbilled revenue
Prepayments and other current assets
Accounts payable
Other liabilities
Non-current other liabilities
Net assets acquired
Total consideration
September 15, 2016
(in thousands)
$3,168
939
35,969
4,012
1,668
1,409
11,431
3,868
1,673
(165)
(5,569)
(7)
$58,396
$58,396
*Goodwill represents the acquisition of an established workforce with experience in preclinical through Phase IV support of
clinical research and clinical trial services for biologics, drugs and devices. Goodwill related to the US portion of the business
acquired is tax deductible. In finalizing the goodwill on acquisition of GPHS in the twelve month period from acquisition, fair
value adjustments were made which resulted in an increase to unbilled revenue ($1.1 million) and other liabilities ($1.1 million)
and in a decrease to accounts receivable ($0.3 million) and accounts payable ($0.5 million). Customer list, order backlog and
brand intangible asset values were also finalized.
The proforma effect of the GPHS acquisition if completed on January 1, 2015 would have resulted in net revenue, net income and
earnings per share for the fiscal years ended December 31, 2016 and December 31, 2015 as follows:
Net revenue
Net income
Basic earnings per share
Diluted earnings per share
96
Year Ended
December 31,
2016
2015
(in thousands)
$
$
$
$
1,713,245 $
266,148 $
4.82 $
4.72 $
1,639,085
244,167
4.16
4.05
(c) Acquisition of PMG
On December 4, 2015, a subsidiary of the Company, ICON Clinical Research LLC. acquired PMG for cash consideration of $65.4
million, including certain payments on behalf of PMG totaling $10.1 million. PMG is an integrated network of 52 clinical research
sites in North Carolina, South Carolina, Tennessee, Illinois and Iowa. The site network includes wholly owned facilities and
dedicated clinical research sites. PMG conducts clinical trials in all major therapeutic areas and has particular expertise in vaccine,
gastroenterology, cardiovascular, neurology and endocrinology studies. It has a proprietary database of clinical trial participants.
It also has access to in excess of 2 million active patients via electronic medical records through its partnerships with health care
institutions and community physical practices.
5. Intangible Assets
Cost
Customer relationships acquired
Technology asset acquired
Order backlog
Trade names/ brands acquired
Volunteer list acquired
Non-compete arrangements
Mapi intangible asset
Foreign exchange movement
Total cost
Accumulated amortization
Foreign exchange movement
Net book value
December 31,
2018
December 31,
2017
(in thousands)
$
109,622 $
11,169
31,220
2,766
1,325
489
—
(5,085)
151,506
(100,249)
2,798
91,230
11,169
18,208
2,766
1,325
489
32,305
(2,389)
155,103
(84,898)
1,423
$
54,055 $
71,628
On July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited acquired Mapi Group. Mapi is a leading patient-
centered health outcomes research and commercialization company. The acquisition of Mapi strengthens ICON’s existing
commercialization and outcomes research business adding significant commercialization presence, analytics, real world evidence
generation and strategic regulatory services. The value of certain customer relationships and order backlog identified of $18.4
million and $13.0 million respectively were recognized on acquisition and are being amortized over approximately over 8 years
and 8.5 years, the estimated period of benefit. In total, $5.8 million has been amortized in the period since the date of acquisition.
On September 15, 2016, a subsidiary of the Company, ICON US Holdings Inc., acquired ICON Government & Public Health
Solutions (''GPHS''), a full-service CRO specializing in preclinical through Phase IV support of clinical research and clinical trial
services for biologics, drugs and devices. The organization helps customers progress their products to market faster with a wide
array of research, regulatory and sponsor services within the U.S. and around the globe. GPHS provide full service and functional
research solutions to a broad range of US government agencies. The value of certain customer relationship, order backlog and
brand assets identified of $4.0 million, $1.7 million and $1.4 million respectively are being amortized over approximately 7 years,
2 years and 5 years respectively, the estimated period of benefit. In total, $4.4 million has been amortized in the period since the
date of acquisition.
On December 4, 2015, a subsidiary of the Company, ICON Clinical Research LLC, acquired PMG, an integrated network of 52
clinical research sites in North Carolina, South Carolina, Tennessee, Illinois and Iowa. The site network includes wholly owned
facilities and dedicated clinical research sites. PMG conducts clinical trials in all major therapeutic areas and has particular expertise
in vaccine, gastroenterology, cardiovascular, neurology and endocrinology studies. The value of certain customer relationship and
order backlog assets identified of $6.9 million and $3.0 million respectively are being amortized over approximately 7 years and
2 years respectively, the estimated period of benefit. In total, $6.0 million has been amortized in the period since the date of
acquisition. The order backlog is fully amortized at December 31, 2018.
On February 27, 2015, a subsidiary of the Company, ICON Holdings Unlimited Company (formerly ICON Holdings), acquired
MediMedia Pharma Solutions. Headquartered in Yardley, Pennsylvania, MediMedia Pharma Solutions includes MediMedia
97
Managed Markets and Complete Healthcare Communications. MediMedia Managed Markets is a leading provider of strategic
payer-validated market access solutions. Complete Healthcare Communications is one of the leading medical and scientific
communication agencies working with medical affairs, commercial and brand development teams within life science companies.
The value of certain customer relationships and order backlog identified of $22.8 million and $2.5 million respectively are being
amortized over approximately 7 years and 1 year, the estimated period of benefit. $15.0 million has been amortized in the period
since the date of acquisition. The order backlog is fully amortized at December 31, 2018.
On May 7, 2014, a subsidiary of the Company, ICON US Holdings Inc., acquired Aptiv Solutions, Inc. ("Aptiv"), a global
biopharmaceutical and medical device development services company and leader in adaptive clinical trials. Aptiv offers full-
service clinical trial consulting and regulatory support for drugs, medical devices and diagnostics with a specific focus on strategy
to increase product development efficiency and productivity. The value of certain customer relationships and order backlog
identified of $21.4 million and $7.9 million respectively are being amortized over approximately 7 years and 3 years, the estimated
period of benefit. In total, $22.2 million has been amortized in the period since the date of acquisition. The order backlog is fully
amortized at December 31, 2018.
On February 15, 2013, subsidiaries of the Company, ICON Clinical Research LLC (formerly ICON Clinical Research, Inc.) and
ICON Clinical Research (U.K.) Limited, acquired the Clinical Trial Services division of Cross Country Healthcare, Inc. Cross
Country Healthcare's Clinical Trial Services division includes US resourcing providers, ClinForce and Assent Consulting, whose
services include contract staffing, permanent placement and functional service provision ("FSP"). The value of certain customer
relationships and order backlog identified of $3.3 million and $0.6 million respectively are being amortized over approximately
3 years and 1 year, the estimated period of benefit. The full $3.9 million has been amortized in the period since the date of
acquisition.
On February 28, 2012, a subsidiary of the Company, ICON Clinical Research LLC (formerly ICON Clinical Research, Inc.),
acquired PriceSpective, a strategy consulting company. The value of certain customer relationships identified of $10.2 million is
being amortized over approximately 10 years, the estimated period of benefit. The value of order backlog and certain non-compete
arrangements identified of $0.4 million and $0.4 million respectively are being amortized over approximately 0.8 years and 3
years, the estimated period of benefit. In total, $7.8 million has been amortized in the period since the date of acquisition.
On February 15, 2012, a subsidiary of the Company, ICON Clinical Research Limited, acquired BeijingWits Medical, a Chinese
CRO. The value of certain customer relationships and order backlog identified of $1.8 million and $0.4 million respectively are
being amortized over approximately 10 years and 4 years, the estimated period of benefit. The value of certain non-compete
arrangements identified of $0.01 million are being amortized over approximately 5 years, the estimated period of benefit. In total,
$1.7 million has been amortized in the period since the date of acquisition.
On July 14, 2011, a subsidiary of the Company, ICON Clinical Research Limited, acquired Firecrest Clinical Limited, a provider
of technology solutions that boost investigator site performance and study management. The value of certain technology assets
and customer relationships identified of $11.2 million and $5.2 million respectively are being amortized over approximately 7.5
years, the estimated period of benefit. The value of the Firecrest trade name and order backlog identified of $1.4 million and $1.2
million respectively are being amortized over approximately 4.5 years and 1.2 years, the estimated period of benefit. In total, $16.4
million has been amortized in the period since the date of acquisition.
On January 14, 2011, a subsidiary of the Company, ICON Clinical Research (U.K.) Limited, acquired Oxford Outcomes Limited,
an international health outcomes consultancy business. The value of certain customer relationships and order backlog identified
of $6.6 million and $0.6 million respectively were amortized over approximately 6.5 years and 2 years, the estimated period of
benefit. The intangible assets identified have been fully amortized at December 31, 2018.
On November 14, 2008, subsidiaries of the Company, ICON Holdings Clinical Research International Limited and ICON Clinical
Research LLC (formerly ICON Clinical Research, Inc.), acquired Prevalere Life Sciences, a US provider of bioanalytical and
immunoassay laboratory services. The value of certain customer relationships identified of $7.4 million is being amortized over
periods ranging from approximately 7 to 11 years, the estimated period of the benefit. In total, $7.2 million has been amortized
in the period since the date of acquisition.
On February 11, 2008, a subsidiary of the Company, ICON Clinical Research LLC (formerly ICON Clinical Research, Inc.),
acquired Healthcare Discoveries, a US provider of Phase I clinical trial services. The value of certain client relationships identified
of $1.6 million was amortized over periods ranging from approximately 2 to 9 years, the estimated periods of benefit. The value
of certain volunteer lists identified of $1.3 million was amortized over approximately 6 years, the estimated period of benefit. The
intangible assets identified have been fully amortized at December 31, 2018.
98
Future intangible asset amortization expense for the years ended December 31, 2019 to December 31, 2023 is as follows:
2019
2020
2021
2022
2023
6. Property, Plant and Equipment, net
Cost
Land
Building
Computer equipment and software
Office furniture and fixtures
Laboratory equipment
Leasehold improvements
Motor vehicles
Less accumulated depreciation and asset write offs
Property, plant and equipment (net)
7. Other Liabilities
Personnel related liabilities
Facility related liabilities
General trade and overhead liabilities*
Other liabilities
Short term government grants (note 11)
Restructuring (note 14)
Year Ended
December 31,
(in thousands)
$
$
13,183
12,895
10,857
6,069
4,221
47,225
December 31,
2018
December 31,
2017
(in thousands)
$
$
3,476 $
86,621
399,192
83,215
36,092
25,827
144
634,567
(475,898)
158,669 $
3,464
88,411
358,874
78,372
34,918
24,097
42
588,178
(425,127)
163,051
December 31,
2018
December 31,
2017
(in thousands)
$
$
171,866 $
14,012
118,845
4,289
42
8,089
317,143 $
168,964
13,061
41,789
4,628
35
5,026
233,503
*includes amounts due to third parties in respect of reimbursable expenses of $85.6 million at December 31, 2018.
99
8. Non-Current Other Liabilities
Defined benefit pension obligations, net (note 9)
Other non-current liabilities
9. Employee Benefits
December 31,
2018
December 31,
2017
(in thousands)
3,320 $
10,126
13,446 $
6,061
11,050
17,111
$
$
Certain Company employees are eligible to participate in a defined contribution plan (the "Plan"). Participants in the Plan may
elect to defer a portion of their pre-tax earnings into a pension plan, which is run by an independent party. The Company
matches participant's contributions typically at 8% of the participant's annual compensation. Contributions to the plan are
recorded as an expense in the selling, general and administrative line in the Consolidated Statement of Operations.
Contributions for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 were $25,241,000,
$20,355,000 and $20,952,000 respectively.
The Company's United States operations maintain a retirement plan (the "U.S. Plan") that qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code. Participants in the U.S. Plan may elect to defer a portion of their pre-tax
earnings, up to the Internal Revenue Service annual contribution limit. The Company matches participant's contributions up to
3% and matches 50% of participant's contributions thereafter to a maximum Company contribution of 4.5% of the participant's
annual compensation. Contributions to this U.S. Plan are recorded, in the year contributed, as an expense in the Consolidated
Statement of Operations. Contributions for the years ended December 31, 2018, December 31, 2017 and December 31, 2016 were
$15,532,000, $14,946,000 and $15,223,000 respectively.
ICON Development Solutions Limited pension plan
One of the Company's subsidiaries, ICON Development Solutions Limited, operates a defined benefit pension plan in the United
Kingdom for its employees. The plan is managed externally and the related pension costs and liabilities are assessed in accordance
with the advice of a professionally qualified actuary. Plan assets at December 31, 2018, December 31, 2017 and December 31,
2016, consist of units held in independently administered funds. The pension costs of this plan are presented in the following
tables in accordance with the requirements of ASC 715-60, Defined Benefit Plans – Other Postretirement. The plan has been
closed to new entrants with effect from July 1, 2003.
Funded status
Projected benefit obligation
Fair value of plan assets
Funded status
Non-current other liabilities (note 8)
December 31,
2018
December 31,
2017
(in thousands)
(30,045) $
27,297
(37,759)
32,423
(2,748) $
(2,748) $
(5,336)
(5,336)
$
$
$
100
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Expenses
Benefits paid
Actuarial (gain)/loss
Foreign currency exchange rate changes
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants' contributions
Benefits paid
Foreign currency exchange rate changes
Fair value of plan assets at end of year
December 31,
2018
December 31,
2017
$
(in thousands)
37,759 $
124
895
24
—
(3,049)
(3,844)
(1,864)
32,906
112
929
22
(8)
(68)
658
3,208
$
30,045 $
37,759
December 31,
2018
December 31,
2017
$
(in thousands)
32,423 $
(584)
153
24
(3,049)
(1,670)
24,876
979
4,008
22
(68)
2,606
$
27,297 $
32,423
The fair values of the assets above do not include any of the Company's own financial instruments, property occupied by, or other
assets used by, the Company.
The following amounts were recorded in the Consolidated Statement of Operations as components of the net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Expenses
Net periodic benefit cost
December 31,
2018
December 31,
2017
(in thousands)
December 31,
2016
$
$
124 $
895
(624)
248
—
112 $
929
(586)
250
(8)
75
1,017
(646)
—
8
643 $
697 $
454
The following assumptions were used at the commencement of the year in determining the net periodic pension benefit cost for
the years ended December 31, 2018, December 31, 2017 and December 31, 2016:
Discount rate
Rate of compensation increase
Expected rate of return on plan assets
December 31,
2018
2.5%
3.7%
2.0%
December 31,
2017
2.7%
3.9%
2.1%
December 31,
2016
4.0%
3.7%
3.0%
101
Other comprehensive income
Actuarial (gain)/loss - benefit obligation
Actuarial loss/(gain) – plan assets
Actuarial gain recognized in net periodic benefit cost
Total
December 31,
2018
December 31,
2017
(in thousands)
December 31,
2016
$
$
(3,844) $
1,208
(248)
658 $
(393)
(250)
10,057
(5,215)
—
(2,884) $
15 $
4,842
The estimated net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next year are $0.1 million and $Nil respectively.
Amounts recognized in accumulated other comprehensive income that have not yet been recognized as components of net periodic
benefit cost are as follows:
Net actuarial loss
Total
Benefit Obligation
December 31,
2018
December 31,
2017
(in thousands)
December 31,
2016
$
$
4,254 $
7,138 $
7,123
4,254 $
7,138 $
7,123
The following assumptions were used in determining the benefit obligation at December 31, 2018 and December 31, 2017:
Discount rate
Rate of compensation increase
December 31,
2018
2.9%
3.7%
December 31,
2017
2.5%
3.7%
The discount rate is determined by reference to UK long dated government and corporate bond yields at the Balance Sheet date.
This is represented by the iboxx corporate bond over 15 year index plus 10 basis points.
Plan Assets
The assets of the scheme are invested with Legal and General and are held in a combination of: the Active Corporate Bond over
10 Year fund, Gilt and Index Linked Gilt funds. The overall investment strategy is that approximately 75% of investments are in
government bonds (both fixed interest and index linked), approximately 25% of investments are held in corporate bonds. There
is no self-investment in employer related assets. The expected long-term rate of return on assets at December 31, 2018 of 2.1%
was calculated as the value of the fund after application of a market value reduction factor. The expected long term rates of return
on different asset classes are as follows:
Asset Category
Corporate Bonds
Gilts
Cash
Expected long-
term return per
annum
2.9%
1.8%
2.9%
The long-term expected return on corporate bonds and gilts (fixed interest and index linked) is determined by reference to bond
yields and gilt yields at the Balance Sheet date.
102
The underlying asset split of the fund is shown below.
Asset Category
Corporate Bonds
Gilts
Cash
December 31,
2018
25%
71%
4%
100%
December 31,
2017
22%
65%
13%
100%
Applying the above expected long term rates of return to the asset distribution at December 31, 2018, gives rise to an expected
overall rate of return of scheme assets of approximately 2.1% per annum.
Plan Asset Fair Value Measurements
Quoted Prices in Active
Markets for Identical Assets
Level 1
(in thousands)
Cash
Fixed Income Securities
Legal and General Active Corporate Bond – Over 10 Year
Legal and General Gilt Funds
Legal and General Index Linked Gilt Funds
Cash Flows
December 31,
2018
1,029 $
December 31,
2017
4,086
$
6,688
7,136
12,444
27,297 $
7,188
7,611
13,538
32,423
$
The Company expects to contribute $0.2 million to the pension fund in the year ending December 31, 2019.
The following annual benefit payments, which reflect expected future service as appropriate, are expected to be paid.
2019
2020
2021
2022
2023
Years 2024 - 2028
(in thousands)
295
311
383
412
403
3,451
$
The expected cash flows are estimated figures based on the members expected to retire over the next 10 years assuming no early
retirements plus an additional amount based on recent average withdrawal experience. At the present time it is not clear whether
annuities will be purchased when members reach retirement or whether pensions will be paid each month out of scheme assets.
The cash flows above have been estimated on the assumption that pensions will be paid monthly out of scheme assets. If annuities
are purchased, then the expected benefit payments will be significantly different from those shown above.
103
Aptiv Solutions pension plan
On May 7, 2014 the Company acquired 100% of the common stock of Aptiv Solutions ("Aptiv"). The acquisition of Aptiv was
accounted for as a business combination in accordance with FASB ASC 805 Business Combinations. The Company has a defined
benefit plan covering its employees in Switzerland as mandated by the Swiss government. Benefits are based on the employee's
years of service and compensation. Benefits are paid directly by the Company when they become due, in conformity with the
funding requirements of applicable government regulations. The plan is managed externally and the related pension costs and
liabilities are assessed in accordance with the advice of a professionally qualified actuary. Plan assets at December 31, 2018 and
December 31, 2017 consist of units held in independently administered funds. The pension costs of this plan are presented in the
following tables in accordance with the requirements of ASC 715-60, Defined Benefit Plans – Other Postretirement.
Funded status
Projected benefit obligation
Fair value of plan assets
Funded status
Non-current other liabilities (note 8)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Settlement
Prior service cost
Transferred (benefits paid)/balances
Actuarial gain
Foreign currency exchange rate changes
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Expected return on plan assets
Actual return on plan assets
Scheme contributions
Plan participants' contributions
Transferred (benefits paid)/balances
Settlement
Foreign currency exchange rate changes
Fair value of plan assets at end of year
December 31,
2018
December 31,
2017
(in thousands)
(5,279) $
4,707
(572) $
(572) $
(5,927)
5,202
(725)
(725)
$
$
$
December 31,
2018
December 31,
2017
$
(in thousands)
5,927 $
138
47
83
(409)
(8)
(77)
(372)
(50)
6,928
243
54
120
(1,019)
—
(76)
(626)
303
$
5,279 $
5,927
December 31, December 31,
2017
2018
(in thousands)
5,202 $
41
(240)
109
83
(77)
(409)
(2)
4,707 $
6,006
47
(296)
157
120
(76)
(1,019)
263
5,202
$
$
The fair values of the assets above do not include any of the Company's own financial instruments, property occupied by, or
other assets used by, the Company.
104
Service cost
Interest cost
Expected return on plan assets
Amortization of net (gain)/loss
Amortization of prior service credit
Settlement
Curtailment
Net periodic benefit credit
December 31,
2018
December 31,
2017
(in thousands)
December 31,
2016
$
$
138 $
47
(41)
(69)
(8)
(93)
—
(26) $
243 $
54
(47)
(43)
(8)
(214)
—
(15) $
352
82
(48)
22
(8)
(136)
—
264
The following assumptions were used at the commencement of the year in determining the net periodic pension benefit cost for
the years ended December 31, 2018, December 31, 2017 and December 31, 2016:
Discount rate
Rate of compensation increase
Expected rate of return on plan assets
Other comprehensive income
Actuarial gain - benefit obligation
Actuarial loss/(gain) – plan assets
Prior service credit recognized in net periodic benefit cost
Actuarial gain/(loss) recognized in net periodic benefit cost
Amortization of net prior service credit
Net prior service cost occurring during the year
Total
$
$
December 31,
2018
0.80%
2.00%
0.80%
December 31,
2017
0.75%
2.00%
0.75%
December 31,
2016
0.95%
2.00%
0.95%
December 31,
2018
(372) $
240
93
69
8
(9)
December 31,
2017
(626) $
296
215
43
8
(1)
December 31,
2016
(1,157)
(1,233)
136
(22)
8
(89)
29 $
(65) $
(2,357)
The estimated net gain and prior service credit for the defined benefit pension plan that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next year are $95,000 and $9,000 respectively.
Amounts recognized in accumulated other comprehensive income that have not yet been recognized as components of net periodic
benefit cost are as follows:
Net actuarial gain
Total
December 31,
2018
December 31,
2017
(in thousands)
December 31,
2016
$
$
(1,254) $
(1,283) $
(1,218)
(1,254) $
(1,283) $
(1,218)
105
Benefit Obligation
The following assumptions were used in determining the benefit obligation at December 31, 2018 and December 31, 2017:
Discount rate
Rate of compensation increase
December 31,
2018
0.80%
2.00%
December 31,
2017
0.80%
2.00%
The discount rate is determined by reference to Swiss corporate bond yields at the Balance Sheet date.
Plan Assets
The pension plan is an insured arrangement with Swiss Life. The assets are an insurance contract whose value depends on the
amount saved by employees and the interest granted by Swiss Life. The value of assets does not depend on the performance of
any underlying assets. There is no self-investment in employer related assets.
Cash Flows
The Company expects to contribute $0.1 million to its pension fund in the year ending December 31, 2019.
The following annual benefit payments, which reflect expected future service as appropriate, are expected to be paid.
2019
2020
2021
2022
2023
Years 2023 - 2028
(in thousands)
678
212
209
204
199
908
$
The expected cash flows are estimated figures based on the members expected to retire over the next 10 years assuming no early
retirements plus an additional amount based on recent average withdrawal experience. At the present time it is not clear whether
annuities will be purchased when members reach retirement or whether pensions will be paid each month out of scheme assets.
The cash flows above have been estimated on the assumption that pensions will be paid monthly out of scheme assets. If annuities
are purchased, then the expected benefit payments will be significantly different from those shown above.
10. Equity Incentive Schemes and Stock Compensation Charges
Share Options
On July 21, 2008 the Company adopted the Employee Share Option Plan 2008 (the "2008 Employee Plan") pursuant to which the
Compensation and Organization Committee of the Company's Board of Directors may grant options to any employee, or any
Director holding a salaried office or employment with the Company or a Subsidiary for the purchase of ordinary shares. On the
same date, the Company also adopted the Consultants Share Option Plan 2008 (the "2008 Consultants Plan"), pursuant to which
the Compensation and Organization Committee of the Company's Board of Directors may grant options to any consultant, adviser
or non-executive Director retained by the Company or any Subsidiary for the purchase of ordinary shares.
On February 14, 2017 both the 2008 Employee Plan and the 2008 Consultants Plan (together the "2008 Option Plans") were
amended and restated in order to increase the number of options that can be issued under the 2008 Consultants Plan from 400,000
to 1 million and to extend the date for options to be granted under the 2008 Option Plans.
An aggregate of 6.0 million ordinary shares have been reserved under the 2008 Employee Plan, as reduced by any shares issued
or to be issued pursuant to options granted under the 2008 Consultants Plan, under which a limit of 1 million shares applies.
106
Further, the maximum number of ordinary shares with respect to which options may be granted under the 2008 Employee Option
Plan, during any calendar year to any employee shall be 400,000 ordinary shares. There is no individual limit under the 2008
Consultants Plan. No options may be granted under the 2008 Option Plans after February 14, 2027.
Each option granted under the 2008 Option Plans will be an employee stock option, or NSO, as described in Section 422 or 423
of the Internal Revenue Code. Each grant of an option under the 2008 Options Plans will be evidenced by a Stock Option Agreement
between the optionee and the Company. The exercise price will be specified in each Stock Option Agreement, however option
prices will not be less than 100% of the fair market value of an ordinary share on the date the option is granted.
On January 17, 2003 the Company adopted the Share Option Plan 2003 (the "2003 Share Option Plan") pursuant to which the
Compensation and Organization Committee of the Board could grant options to officers and other employees of the Company or
its subsidiaries for the purchase of ordinary shares. An aggregate of 6.0 million ordinary shares were reserved under the 2003
Share Option Plan; and in no event could the number of ordinary shares issued pursuant to options awarded under this plan exceed
10% of the outstanding shares, as defined in the 2003 Share Option Plan, at the time of the grant, unless the Board expressly
determined otherwise. Further, the maximum number of ordinary shares with respect to which options could be granted under the
2003 Share Option Plan during any calendar year to any employee was 400,000 ordinary shares. The 2003 Share Option Plan
expired on January 17, 2013. No new options may be granted under this plan.
Share option awards are granted with an exercise price equal to the market price of the Company's shares at date of grant. Prior
to 2018, share options typically vest over a period of five years from date of grant and expire eight years from date of grant. Share
options granted to non-executive directors during 2018 vest over 12 months and expire eight years from the date of grant. The
maximum contractual term of options outstanding at December 31, 2018 is eight years.
The following table summarizes the transactions for the Company's share option plans for the years ended December 31, 2018,
December 31, 2017 and December 31, 2016:
Outstanding at December 31, 2015
Granted
Exercised
Cancelled
Outstanding at December 31, 2016
Granted
Exercised
Cancelled
Outstanding at December 31, 2017
Granted
Exercised
Cancelled
Outstanding at December 31, 2018
Options Granted
Under Plans
Weighted Average
Exercise Price
1,626,582 $
256,191 $
(393,240) $
(23,089) $
1,466,444 $
219,113 $
(458,243) $
(55,921) $
1,171,393 $
167,557 $
(408,699) $
(9,505) $
920,746 $
34.87 $
69.61 $
25.79 $
29.74 $
43.45 $
85.98 $
30.35 $
54.35 $
56.02 $
118.90 $
41.12 $
32.35 $
74.32 $
Weighted
Average Grant
Date Fair
Value
11.94
20.10
9.84
11.19
13.94
25.06
10.72
16.76
17.15
36.84
13.55
11.39
22.39
Vested and exercisable at December 31, 2018
397,923 $
56.10 $
17.11
The weighted average remaining contractual life of options outstanding and options exercisable at December 31, 2018, was 5.01
years and 3.83 years respectively (2017: 4.86 years and 3.44 years respectively). 241,149 options are expected to vest during the
year ended December 31, 2019 (255,198 options were expected to vest during the year ended December 31, 2018).
The intrinsic value of options exercised during the year ended December 31, 2018 amounted to $38.2 million. The intrinsic value
of options outstanding and options exercisable at December 31, 2018 amounted to $48.6 million and $28.3 million respectively.
Intrinsic value is calculated based on the market value versus strike price of the Company's shares at the date of exercise.
107
Non-vested shares outstanding as at December 31, 2018 are as follows:
Non-vested outstanding at December 31, 2017
Granted
Vested
Forfeited
Options
Outstanding
Number of
Shares
694,727 $
Weighted
Average
Exercise Price
Weighted
Average Fair
Value
20.03
36.84
18.51
16.84
68.06 $
118.90
62.21
56.58
167,557
(336,756)
(2,705)
Non-vested outstanding at December 31, 2018
522,823 $
88.18 $
26.41
Outstanding and exercisable share options:
The following table summarizes information concerning outstanding and exercisable share options as of December 31, 2018:
Range Exercise
Price
Options Outstanding
Number of
Shares
Weighted
Average
Remaining
Contractual Life
Options Exercisable
Weighted Average
Exercise Price
Number of
Shares
Weighted Average
Exercise Price
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
20.28
22.30
23.66
26.71
32.37
36.22
37.90
40.83
47.03
48.67
51.35
65.60
66.47
66.97
68.39
71.95
83.47
90.03
115.11
125.74
$20.28 - $125.74
18,190
52,811
1,161
450
20,848
2,141
920
40,502
22,685
50,896
2,030
66,752
4,267
1,249
135,400
127,905
127,136
77,846
107,794
59,763
920,746
0.16
1.32
1.57
1.69
2.33
2.46
2.93
3.39
3.17
3.21
3.60
5.38
4.39
4.45
4.18
5.17
6.17
6.38
7.17
7.38
18,190
52,811
1,161
450
20,848
2,141
920
25,360
14,020
34,906
1,224
24,543
1,572
—
79,069
74,473
22,461
23,774
—
—
5.01 $
74.32
397,923 $
56.10
Options outstanding include both vested and unvested options as at December 31, 2018. Options exercisable represent options
which have vested at December 31, 2018. From the date of grant, substantially all options vest over a five year period at 20% per
annum.
108
Fair value of Stock Options Assumptions
The weighted average fair value of options granted during the years ended December 31, 2018, December 31, 2017 and
December 31, 2016 was calculated using the Black-Scholes option pricing model. The weighted average fair values and assumptions
were as follows:
Weighted average fair value
Assumptions:
Expected volatility
Dividend yield
Risk-free interest rate
Expected life
December 31,
2018
Year Ended
December 31,
2017
December 31,
2016
$
36.84
$
25.06
$
20.10
30%
—%
2.76%
5.0 years
29%
—%
1.93%
5.0 years
30%
—%
1.39%
5.0 years
Expected volatility is based on the historical volatility of our common stock over a period equal to the expected term of the options;
the expected life represents the weighted average period of time that options granted are expected to be outstanding given
consideration to vesting schedules and our historical experience of past vesting and termination patterns. The risk-free rate is based
on the U.S. government zero-coupon bonds yield curve in effect at time of the grant for periods corresponding with the expected
life of the option.
Restricted Share Units and Performance Share Units
On July 21, 2008 the Company adopted the 2008 Employees Restricted Share Unit Plan (the "2008 RSU Plan") pursuant to which
the Compensation and Organization Committee of the Company's Board of Directors may select any employee, or any Director
holding a salaried office or employment with the Company, or a Subsidiary to receive an award under the plan. An aggregate of
1.0 million ordinary shares have been reserved for issuance under the 2008 RSU Plan.
On April 23, 2013 the Company adopted the 2013 Employees Restricted Share Unit and Performance Share Unit Plan (the "2013
RSU Plan") pursuant to which the Compensation and Organization Committee of the Company's Board of Directors may select
any employee, or any Director holding a salaried office or employment with the Company, or a Subsidiary to receive an award
under the plan. On May 11, 2015 the 2013 RSU Plan was amended and restated in order to increase the number of shares that can
be issued under the RSU Plan by 2.5 million shares. Accordingly, an aggregate of 4.1 million ordinary shares have been reserved
for issuance under the 2013 RSU Plan. The shares are awarded at par value and vest over a service period. Awards under the 2013
RSU Plan may be settled in cash or shares at the option of the Company.
The Company has awarded RSUs and PSUs to certain key individuals of the Group. The following table summarizes RSU and
PSU activity for the year ended December 31, 2018:
PSU
Outstanding
Number of
Shares
PSU
Weighted
Average
Fair
Value
Outstanding at December 31, 2017
511,026 $
72.07
Granted
Shares vested
Forfeited
71,906 $
(215,826) $
(116,053) $
116.02
68.28
70.89
PSU
Weighted
Average
Remaining
Contractual
Life
0.93
RSU
Outstanding
Number
of Shares
RSU
Weighted
Average
Fair Value
715,970 $
72.65
160,113 $
(276,495) $
(64,911) $
123.42
67.99
78.92
RSU
Weighted
Average
Remaining
Contractual
Life
1.28
Outstanding at December 31, 2018
251,053 $
85.95
0.96
534,677 $
89.50
1.22
The fair value of RSUs vested for the year ended December 31, 2018 totaled $18.8 million (2017: $16.6 million).
109
The fair value of PSUs vested for the year ended December 31, 2018 totaled $14.7 million (2017: $15.0 million).
The PSUs vest based on service and specified EPS targets over the period 2015 – 2018, 2016 – 2019, 2017 – 2020 and 2018 –
2021. Since 2013, 147,630 PSUs (net of forfeitures) have been granted. Depending on the actual amount of EPS from 2015 to
2021, up to an additional 103,423 PSUs may also be granted.
Non-cash stock compensation expense
Income from operations for the year ended December 31, 2018 is stated after charging $31.6 million in respect of non-cash stock
compensation expense. Non-cash stock compensation expense has been allocated as follows:
Direct costs
Selling, general and administrative
Total compensation costs
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
$
$
17,408 $
14,186 $
18,020 $
12,553 $
21,903
18,440
31,594 $
30,573 $
40,343
Total non-cash stock compensation expense not yet recognized at December 31, 2018 amounted to $43.1 million. The weighted
average period over which this is expected to be recognized is 2.19 years.
The amendments required by Accounting Standards Update (‘ASU’) 2016-09 ‘Improvements to Employee Share-Based Payment
Accounting’ require the Company to record all tax effects related to share-based payments through the income statement rather
than additional paid in capital. The Company has applied the updated standard prospectively in the twelve months of the year
ended December 31, 2017.
The income tax expense for the year ended December 31, 2018 reflects a net income tax benefit of $12.7 million in connection
with stock compensation (including excess tax benefits) and the total tax benefit in connection with stock options exercised during
2018 was $3.6 million. The income tax expense for the year ended December 31, 2017 reflects a net income tax benefit of $9.3
million in connection with stock compensation (including excess tax benefits) and the total tax benefit in connection with stock
options exercised during 2017 was $3.2 million. The income tax expense for the year ended December 31, 2016 reflects a net
income tax benefit of $3.5 million in connection with stock compensation (excluding excess tax benefits) and the cash tax benefit
realized in connection with stock options exercised during 2016 was $3.4 million.
11. Government Grants
Received
Less accumulated amortization
Foreign exchange translation adjustment
Total government grants
Less current portion
Non-current government grants
December 31,
2018
December 31,
2017
(in thousands)
3,539 $
(2,792)
172
919
(42)
877 $
3,539
(2,745)
207
1,001
(35)
966
$
$
Capital grants received may be refundable in full if certain events occur. Such events, as set out in the related grant agreements,
include sale of the related asset, liquidation of the Company or failure to comply with other conditions of the grant agreements.
No loss contingency has been recognized as the likelihood of such events arising has been assessed as remote. Government grants
amortized to the profit and loss account amounted to $47,000 for the year ended December 31, 2018. A net charge of $44,000 was
recorded in respect of government grants during the year ended December 31, 2017. As at December 31, 2018 the Company had
$3.2 million in restricted retained earnings, pursuant to the terms of grant agreements.
110
12. Share Capital
Holders of ordinary shares will be entitled to receive such dividends as may be recommended by the Board of Directors of the
Company and approved by the shareholders and/or such interim dividends as the Board of Directors of the Company may decide.
On liquidation or a winding up of the Company, the par value of the ordinary shares will be repaid out of the assets available for
distribution among the holders of the ordinary shares of the Company. Holders of ordinary shares have no conversion or redemption
rights. On a show of hands, every holder of an ordinary share present in person or proxy at a general meeting of shareholders shall
have one vote, for each ordinary share held with no individual having more than one vote.
During the year ended December 31, 2018, 408,699 options were exercised by employees at an average exercise price of $41.12
per share for total proceeds of $16.8 million. During the year ended December 31, 2018, 276,495 ordinary shares were issued in
respect of certain RSUs and 215,826 ordinary shares were issued in respect of PSUs previously awarded by the Company.
During the year ended December 31, 2017, 458,243 options were exercised by employees at an average exercise price of $30.35
per share for total proceeds of $13.9 million. During the year ended December 31, 2017, 361,102 ordinary shares were issued in
respect of certain RSUs and 320,640 ordinary shares were issued in respect of PSUs previously awarded by the Company.
During the year ended December 31, 2016, 393,240 options were exercised by employees at an average exercise price of $25.79
per share for total proceeds of $10.1 million. During the year ended December 31, 2016, 296,386 ordinary shares were issued in
respect of certain RSUs and 311,492 ordinary shares were issued in respect of PSUs previously awarded by the Company.
(a) Share Repurchase Program
On October 3, 2016 the Company commenced a previously announced share buyback program of up to $400 million. During the
year ended December 31, 2018, the Company redeemed a total of 1,008,162 ordinary shares under this program for total
consideration of $129.0 million. At December 31, 2018 a total of 4,026,576 ordinary shares were redeemed by the Company
under this buyback program for a total consideration of $372.1 million. All ordinary shares that were redeemed under the buyback
program were canceled in accordance with the Constitution of the Company and the nominal value of these shares transferred to
a other undenominated capital fund as required under Irish Company Law.
On July 31, 2015 the Company commenced a buyback program of up to $400 million under which the Company could acquire
its outstanding ordinary shares (by way of redemption), in accordance with Irish law, the United States securities laws and the
Company's constitutional documents through open market share acquisitions. A total of 5,316,062 ordinary shares were redeemed
by the Company under this buyback program for a total consideration of $400 million. All ordinary shares that were redeemed
under the buyback program were canceled in accordance with the Constitution of the Company and the nominal value of these
shares transferred to a other undenominated capital reserve as required under Irish Company Law. The share buyback program
was completed in December 31, 2015, with a total of 6,198,481 ordinary shares redeemed during the year ended December 31,
2015 for total consideration of $457.9 million (including the programe for $400 million).
Under the repurchase program, a broker purchased the Company's shares from time to time on the open market or in privately
negotiated transactions in accordance with agreed terms and limitations. The program was designed to allow share repurchases
during periods when the Company would ordinarily not be permitted to do so because it may be in possession of material non-
public or price-sensitive information or due to applicable insider trading laws or self-imposed trading blackout periods. The
Company's instructions to the broker were irrevocable and the trading decisions in respect of the repurchase program were made
independently of and uninfluenced by the Company. The Company confirms that on entering the share repurchase plans it had no
material non-public, price-sensitive or inside information regarding the Company or its securities. Furthermore, the Company will
not enter into additional plans whilst in possession of such information. The timing and actual number of shares acquired by way
of the redemption will be dependent on market conditions, legal and regulatory requirements and the other terms and limitations
contained in the program. In addition, acquisitions under the program may be suspended or discontinued in certain circumstances
in accordance with the agreed terms. Therefore, there can be no assurance as to the timing or number of shares that may be acquired
under the program.
111
13. Income Taxes
The Company's United States and Irish based subsidiaries file tax returns in the United States and Ireland respectively. Other
foreign subsidiaries are taxed separately under the laws of their respective countries.
The components of income before income tax expense are as follows:
Ireland
United States
Other
Income before provision for income taxes
The components of provision for income taxes are as follows:
Provision for income taxes:
Current tax expense:
Ireland
United States
Other
Total current tax expense
Deferred tax expense/(benefit):
Ireland
United States
Other
Total deferred tax expense
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
$
243,988 $
27,499
93,127
218,306 $
28,426
81,325
201,221
11,466
87,485
364,614 $
328,057 $
300,172
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
28,042 $
2,885
9,379
20,084 $
5,792
9,964
22,931
7,768
5,749
40,306
35,840
36,448
1,054
875
(277)
261
8,980
1,488
1,652
10,729
1,284
613
(352)
1,545
Provision for income taxes
41,958
46,569
37,993
Impact on shareholders equity and other comprehensive income of the tax
consequence of :
Excess tax benefit on stock compensation
Currency impact on long term funding
Fair value of cash flow hedge
—
119
(148)
—
973
148
(4,332)
(396)
—
Total
$
41,929 $
47,690 $
33,265
112
Ireland's statutory income tax rate is 12.5%. The Company's consolidated reported provision for income taxes differed from the
amount that would result from applying the Irish statutory rate as set forth below:
Taxes at Irish statutory rate of 12.5% (2017:12.5%; 2016:12.5%)
Foreign and other income taxed at higher rates
Research & development tax incentives
Movement in valuation allowance
Effects of change in tax rates
Increase/(decrease) in unrecognized tax benefits
Impact of stock compensation
Impact of deemed repatriation under US Tax Reform
Other
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
45,577 $
7,649
(1,243)
5,667
(147)
(5,423)
(8,301)
—
(1,821)
41,007 $
6,324
(830)
1,329
925
933
(9,917)
7,694
(896)
37,522
4,642
(907)
1,208
576
(1,521)
(4,121)
—
594
Provision for income taxes
$
41,958 $
46,569 $
37,993
In 2017, the provision for income taxes included non-recurring items related to US Tax Reform (H.R.1). The income tax expense
recognized in respect of deemed repatriation of historic earnings of non-U.S. subsidiaries owned by our U.S. subsidiaries
was $7.7 million. The income tax expense recognized in respect of the change in the US federal income tax rate from 35% to 21%
was $0.5 million (included in “Effects of change in tax rates” above).
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are
presented below:
Deferred tax liabilities:
Property, plant and equipment
Goodwill
Other intangible assets
Other
Total deferred tax liabilities recognized
Deferred tax assets:
Operating loss and tax credits carry-forwards
Property, plant and equipment
Accrued expenses and payments on account
Stock compensation
Deferred compensation
Deferred revenue
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax assets recognized
Overall net deferred tax asset
113
December 31,
2018
December 31,
2017
(in thousands)
$
981 $
25,149
9,397
5,703
41,230
29,995
4,893
24,599
6,490
2,197
5,681
2
73,857
(27,263)
1,139
22,655
11,801
4,139
39,734
24,962
4,062
24,433
5,786
2,548
—
740
62,531
(22,439)
46,594
40,092
$
5,364 $
358
At December 31, 2018 Ireland subsidiaries had tax credit carry-forwards for income tax purposes that may be carried forward
indefinitely, available for offset against future tax liabilities, if any, of $4.0 million (2017: $4.5 million).
At December 31, 2018 U.S. subsidiaries had U.S. federal and state net operating loss ("NOL") carry-forwards of approximately
$15.1 million and $32.6 million, respectively. These NOLs are available for offset against future taxable income and expire between
2022 and 2037. Of the $15.1 million U.S. federal NOLs, approximately $2.2 million is available for offset against future U.S.
federal taxable income. The subsidiary's ability to use the remaining U.S. federal and state NOL carry-forwards is limited on an
annual basis due to changes of ownership in 2000, 2010, 2014 and 2017, as defined by Section 382 of the Internal Revenue Code
of 1986, as amended. Of the U.S. federal NOLs, $12.9 million are limited by Section 382. Of the $12.9 million of losses, the
amounts are available as follows: $4.9 million for the years 2019 – 2020, $7.5 million in 2021-2025, $0.5 million for the years
2026 – 2035. As at December 31, 2018 , U.S subsidiaries also had excess disallowed interest carry-forwards of $21.9 million.
These carry-forwards are available for offset against future taxable income in the event that the U.S subsidiaries have excess
capacity for interest deductions in future years.
At December 31, 2018 other than those in the U.S. and Ireland, we had operating loss carry-forwards for income tax purposes that
may be carried forward indefinitely, available to offset against future taxable income, if any, of approximately $72.9 million (2017:
$77.2 million). In addition at December 31, 2018 those subsidiaries had tax credit carry-forwards for income tax purposes that
may be carried forward indefinitely, available to offset against future tax liabilities, if any, of $4.9 million (2017: $4.8 million).
At December 31, 2018 those subsidiaries also had additional operating loss carry forwards of $4.7 million which are due to expire
between 2019 and 2025 (2017: $4.7 million) and operating carry-forwards of $3.2 million which are due to expire between 2026
and 2035 (2017: $0 million).
The expected expiry dates of these losses are as follows:
2021-2034
2035-2037
Federal
NOL's
(in thousands)
14,323
766
State
NOL's
12,158
20,464
$
15,089 $
32,622
In addition, US subsidiaries have alternative minimum tax credit carry-forwards of approximately $0.4 million that are available
to reduce future U.S. federal regular income taxes through 2020. Any remaining alternative minimum tax credits will be fully
refundable in 2021. We also have minimum tax credit carry-forwards of approximately $0.3 million that are available to offset
future U.S. federal income taxes. These credits will be fully used or refunded before 2022.
The valuation allowance at December 31, 2018 was approximately $27.3 million. The valuation allowance for deferred tax assets
as of December 31, 2017 and December 31, 2016 was $22.4 million and $20.3 million respectively. The net change in the total
valuation allowance was an increase of $4.8 million during 2018 and an increase of $2.1 million during 2017. Of the total increase
of $4.8 million in 2018, $5.6 million resulted in current year income tax expense and $0.8 million was recognized in Other
Comprehensive Income. Of the total increase of $2.1 million in 2017, $0.5 million resulted in a current year income tax expense,
and $1.6 million was recognized in Other Comprehensive Income.
The valuation allowances at December 31, 2018 and December 31, 2017 were primarily related to operating losses and tax credits
carried forward that, in the judgment of management, are not more likely than not to be realized. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred
tax liabilities and projected future taxable income in making this assessment. In respect of deferred tax assets not subject to a
valuation allowance, management considers that it is more likely than not that these deferred tax assets will be realized on the
basis that there will be sufficient reversals of deferred tax liabilities and taxable income in future periods. During 2017, there were
no movements in the valuation allowance that had a material impact on the effective tax rate. During 2018, the Company recognized
a valuation allowance of $6.2 million in respect of disallowed interest carry-forwards generated during the year as management
does not consider it more likely than not that the Company will have sufficient capacity with which to utilize these losses.
114
The Company has recognized a deferred tax liability of $4.9 million (2017: $3.1 million) for investments in foreign subsidiaries
where the Company does not consider the earnings to be indefinitely reinvested. For the deferred tax liability not recognized in
respect of temporary differences related to investments in foreign subsidiaries which are consider to be indefinitely reinvested, it
is not practicable to calculate the exact unrecognized deferred tax liability, however it is not expected to be material as Ireland
allows a tax credit in respect of distributions from foreign subsidiaries at the statutory tax rate in the jurisdiction of the subsidiary
so that no material tax liability would be expected to arise in the event these earnings were ever remitted. In addition, withholding
taxes applicable to remittances from foreign subsidiaries would not be expected to be material given Ireland’s tax treaty network
and the EU parent subsidiary directive.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows:
Unrecognized tax benefits at start of year
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
Settlements
Lapse of statute of limitations
December 31,
2018
December 31,
2017
(in thousands)
December 31,
2016
$
23,720 $
2,084
(2,915)
3,065
(182)
(4,339)
26,620 $
—
(3,050)
4,765
(2,523)
(2,092)
28,166
1,151
(2,483)
1,104
(837)
(481)
Unrecognized tax benefits at end of year
$
21,433 $
23,720 $
26,620
The relevant statute of limitations for unrecognized tax benefits totaling $1.3 million could potentially expire during 2019.
Included in the balance of total unrecognized tax benefits at December 31, 2018 were potential benefits of $21.4 million, which
if recognized, would affect the effective rate on income tax from continuing operations. The balance of total unrecognized tax
benefits at December 31, 2017 and December 31, 2016 included potential benefits which, if recognized, would affect the effective
rate of income tax from continuing operations of $23.7 million and $26.6 million respectively.
Interest and penalties recognized as a net benefit during the year ended December 31, 2018 amounted to $1.3 million (2017: net
expense of $0.9 million, 2016: net expense of $0.1 million) and are included within the provision for income taxes. Total accrued
interest and penalties as of December 31, 2018 and December 31, 2017 were $1.1 million and $2.4 million respectively and are
included in closing income taxes payable at those dates.
Our major tax jurisdictions are the United States and Ireland. We may potentially be subjected to tax audits in both our major
jurisdictions. In the United States tax periods open to audit include the years ended December 31, 2015, December 31, 2016,
December 31, 2017 and December 31, 2018. In Ireland, tax periods open to audit include the years ended December 31, 2014,
December 31, 2015, December 31, 2016, December 31, 2017 and December 31, 2018. During such audits, local tax authorities
may challenge the positions taken by us in our tax returns.
14. Restructuring charges
Restructuring and other items recognized during the year ended December 31, 2018 comprise:
December 31,
2018
$
$
12,490
12,490
Year Ended
December 31,
2017
(in thousands)
December 31,
2016
7,753 $
8,159
7,753 $
8,159
Restructuring charges
Net charge
115
Restructuring Charges
A restructuring charge of $12.5 million was recognized during the year ended December 31, 2018, under a restructuring plan
adopted following a review of operations. The restructuring plan reflected resource rationalization across the business to improve
resource utilizations, resulting in a charge of $9.7 million and office consolidation resulting in the recognition of an onerous lease
obligation of $2.8 million.
Total provision recognized
Utilized
Foreign exchange
Provision at December 31, 2018
Prior Period Restructuring Charges
Workforce
reductions
Onerous
Lease
(in thousands)
$
$
9,684 $
(5,399)
—
4,285 $
2,806 $
(672) $
—
2,134 $
Total
12,490
(6,071)
—
6,419
A restructuring charge of $7.8 million was recognized during the year ended December 31, 2017, under a restructuring plan
adopted following a review of operations. The restructuring plan reflected resource rationalization across the business to improve
resource utilization. No additional charge was recorded during the twelve months ended December 31, 2018.
Restructuring charges
Utilized
Provision at December 31, 2017
Utilized
Provision at December 31, 2018
Workforce
reductions
(in thousands)
$
$
$
7,753
(4,656)
3,097
(1,015)
2,082
A restructuring charge of $8.2 million was recognized during the year ended December 31, 2016, under a restructuring plan adopted
following a review by the Company of its operations. The restructuring plan includes resource rationalizations in certain areas of
the business to improve resource utilization, resulting in charge of $6.2 million and office consolidation resulting in the recognition
of an onerous lease of $2.0 million during the twelve months ended December 31, 2016. No additional charge was recorded during
the twelve months ended December 31, 2017 and December 31, 2018.
Total provision recognized
Utilized
Foreign exchange
Provision at December 31, 2016
Utilized
Provision at December 31, 2017
Utilized
Provision at December 31, 2018
Workforce
Reductions
Onerous
Lease
(in thousands)
$
$
$
$
6,190 $
(5,734)
(63)
393 $
(393)
— $
—
— $
1,969 $
(571)
—
1,398 $
(1,081)
317 $
(317)
— $
Total
8,159
(6,305)
(63)
1,791
(1,474)
317
(317)
—
At December 31, 2018 $7.2 million is included within other liabilities and $1.3 million within non-current other liabilities.
116
15. Commitments and Contingencies
Litigation
The Company is not party to any litigation or other legal proceedings that the Company believes could reasonably be expected to
have a material adverse effect on the Company's business, results of operations and financial condition.
Operating Leases
The Company has several non-cancelable operating leases, primarily for facilities, that expire over the next 13 years. These leases
generally contain renewal options and require the Company to pay all executory costs such as maintenance and insurance. The
Company recognized $40.3 million, $44.0 million and $44.0 million in rental expense, including rates, for the years ended
December 31, 2018, December 31, 2017 and December 31, 2016 respectively. Future minimum rental commitments for operating
leases with non-cancelable terms in excess of one year are as follows:
2019
2020
2021
2022
2023
Thereafter
Total
16. Disaggregation of Revenue
Revenue disaggregated by customer profile is as follows:
Top client
Clients 2-5
Clients 6-10
Clients 11-25
Other
Total
Minimum rental payments
(in thousands)
32,634
26,839
21,306
15,781
10,829
19,194
126,583
$
YTD
December 31,
2018
December 31,
2017
(in thousands)
$
352,335 $
671,723
385,741
461,351
724,627
503,875
505,818
348,841
421,759
622,028
$2,595,777
$2,402,321
Revenue for the year ended December 31, 2018 reflects revenue as reported on adoption of ASC 606.
Our customers have similar profiles and economic characteristics, and therefore have similar degrees of risk and growth
opportunities.
117
17. Trade accounts receivable, unbilled services (contract assets) and payments on account (contract liabilities)
Trade accounts receivables and unbilled revenue are as follows:
Billed services (accounts receivable)
Unbilled services (unbilled revenue)
Trade accounts receivable and unbilled revenue
Allowance for doubtful accounts (note 18)
December
31, 2018
December
31, 2017
(in thousands)
$
423,680
$
388,431
362,926
786,606
268,509
656,940
(8,889)
(8,930)
Trade accounts receivable and unbilled revenue, net
$
777,717
$
648,010
Unbilled services and payments on account (contract assets and liabilities) were as follows:
(in thousands, except percentages)
Unbilled services (unbilled revenue)
Unearned revenue (payments on account)
Net balance
December
31, 2018
December
31, 2017
$ Change
% Change
$
$
362,926
(274,468)
$
268,509
(298,992)
$
94,417
24,524
35.2 %
(8.2)%
88,458
$
(30,483) $
118,941
390.2 %
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our
contracts with customers. We record assets for amounts related to performance obligations that are satisfied but not yet billed and/
or collected. These assets are recorded as unbilled receivables and therefore contract assets rather than accounts receivables when
receipt of the consideration is conditional on something other than the passage of time. Liabilities are recorded for amounts that
are collected in advance of the satisfaction of performance obligations.
Unbilled services/revenue balances arise where invoicing or billing is based on the timing of agreed milestones related to service
contracts for clinical research. Contractual billing arrangements in respect of certain reimbursable expenses (principally
investigators) require billing by the investigator to the Company prior to billing by the Company to the customer.
The most significant impact of application of ASC 606 is the measurement of a clinical trial service as a single performance
obligation recognized over time. We concluded that ICON is the contract principal in respect of both direct services and in the use
of third parties (principally investigator services) that support a clinical trial. The progress towards completion for clinical service
contracts is measured based on total project costs (including reimbursable costs). Reimbursable expenses are included within
direct costs on adoption of ASC 606 and are recorded based on activity undertaken by the third party. Amounts owed to investigators
and others in respect of reimbursable expenses at December 31, 2018 were $85.6 million (see note 7 Other liabilities).
Payments on account decreased by $24.5 million over the same period resulting in an increase of $118.9 million in the net balance
of unbilled services and payments on account between December 31, 2017 and December 31, 2018. These fluctuations are primarily
due to timing of payments and invoicing related to the Group's clinical trial management contracts. Billings and payments are
established by contractual provisions including predetermined payment schedules which may or may not correspond to the timing
of the transfer of control of the Company's services under the contract. Unbilled services arise from long-term contract when a
cost-based input method of revenue recognition is applied and revenue recognized exceeds the amount billed to the customer.
The bad debt expense recognized on the Group's receivables and unbilled services was $0.7 million for the twelve months ended
December 31, 2018.
As of December 31, 2018 approximately $5.3 billion of revenue is expected to be recognized in the future in respect of unsatisfied
performance obligations. The Company expects to recognize revenue on approximately 40% of the unrealized performance
obligation over the next 12 months, with the remainder recognized thereafter over the duration of the customer contracts.
118
18. Provision for Doubtful Debts
The Company does business with most major international pharmaceutical companies. Provision for doubtful debts at December 31,
2018 comprises:
Opening provision
Amounts used during the year
Amounts provided during the year
Amounts released during the year
Foreign exchange
Closing provision
December 31,
2018
December 31,
2017
$
(in thousands)
8,930 $
(995)
3,083
(2,355)
226
9,450
(2,733)
5,116
(3,106)
203
$
8,889 $
8,930
19. Business Segment and Geographical Information
The Company is a clinical research organization ("CRO"), providing outsourced development services on a global basis to the
pharmaceutical, biotechnology and medical device industries. It specializes in the strategic development, management and analysis
of programs that support all stages of the clinical development process - from compound selection to Phase I-IV clinical studies.
The Company has the expertise and capability to conduct clinical trials in most major therapeutic areas on a global basis and has
the operational flexibility to provide development services on a stand-alone basis or as part of an integrated "full service" solution.
The Company has expanded predominately through internal growth, together with a number of strategic acquisitions to enhance
its expertise and capabilities in certain areas of the clinical development process.
The Company determines and presents operating segments based on the information that is internally provided to the chief operating
decision maker, together the ('CODM') in accordance with FASB ASC 280-10 Disclosure about Segments of an Enterprise and
Related Information. The Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, were together considered
the Company's CODM in the period up to and including March 1, 2017. On March 1, 2017, Mr Ciaran Murray transitioned from
his role as Chief Executive Officer to the role of Executive Chairman of the Board of Directors and Dr. Steve Cutler was appointed
as Chief Executive Officer. As of March 1, 2017, the Company determined that the CODM was comprised of the Chief Executive
Officer and the Chief Financial Officer in accordance with the requirements of ASC 280-10 Disclosures about Segments of an
Enterprises and Related Information.
The Company operates as one business segment, which is the provision of outsourced development services on a global basis to
the pharmaceutical, biotechnology and medical devices industries.
Revenues are allocated to individual entities based on where the work is performed in accordance with the Company's global
transfer pricing model. Revenues and income from operations in Ireland are a function of this transfer pricing model.
Given ICON Clinical Research Limited's ("ICON Ireland") role in the development and management of the Group, it's ownership
of key intellectual property, customer relationships, its key role in the mitigation of risks faced by the Group, plus the responsibility
for maintaining the Group's global network, ICON Ireland acts as the group entrepreneur and enters into the majority of the
Company's customer contracts. As such, ICON Ireland remunerates most of the other operating entities ("cost plus service
providers") in the ICON Group on the basis of a guaranteed cost plus mark up for the services they perform in each of their local
territories.
The cost plus mark up for each ICON entity is established to ensure that each of ICON Ireland and the ICON entities in the various
geographical areas that are involved in the conduct of services for customers, earn an appropriate arms-length return having regard
to the assets owned, risks borne and functions performed by each entity from these intercompany transactions. The cost plus mark-
up policy is reviewed annually to ensure that it is market appropriate.
Under this method, the residual operating profits (or losses) of the Group, once the cost plus service providers have been paid
their respective intercompany service fee, are retained by ICON Ireland. The geographic split of revenue disclosed for each region
outside Ireland is the cost plus revenue attributable to these entities. The revenues disclosed as relating to Ireland are the net
revenues after deducting the cost plus revenues attributable to the activities performed outside Ireland.
119
The Company's areas of operation outside of Ireland include the United States, United Kingdom, Belgium, France, Germany, Italy,
Spain, The Netherlands, Sweden, Turkey, Poland, Czech Republic, Latvia, Russia, Ukraine, Hungary, Israel, Romania, Canada,
Mexico, Brazil, Colombia, Argentina, Chile, Peru, India, China (including Hong Kong), South Korea, Japan, Thailand, Taiwan,
Singapore, The Philippines, Australia, New Zealand, and South Africa.
There have been no changes to the basis of segmentation or the measurement basis for the segment results since the prior year.
Reportable segment information at December 31, 2018 and December 31, 2017 and for the years ended December 31, 2018,
December 31, 2017 and December 31, 2016 is as follows:
a) The distribution of revenue by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
December 31,
2018
Year ended
December 31,
2017
Restated*
(in thousands)
December 31,
2016
Restated*
$
1,066,200 $
379,883
894,978
254,716
944,130 $
355,552
881,829
220,810
995,365
319,935
866,901
182,755
$
2,595,777 $
2,402,321 $
2,364,956
* 2017 and 2016 restated to reflect gross revenue.
b) The distribution of income from operations, including restructuring and other items, by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
257,089 $
36,280
58,561
21,427
232,032 $
26,493
58,322
21,491
216,149
34,200
41,348
19,997
$
373,357 $
338,338 $
311,694
c) The distribution of income from operations, excluding restructuring and other items, by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
269,196 $
36,904
58,340
21,407
240,115 $
26,351
58,164
21,461
218,334
36,509
44,590
20,420
$
385,847 $
346,091 $
319,853
120
d) The distribution of property, plant and equipment, net, by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
December 31,
2018
December 31,
2017
$
(in thousands)
106,206 $
9,807
25,535
17,121
111,329
9,026
27,797
14,899
$
158,669 $
163,051
e) The distribution of depreciation and amortization by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
f) The distribution of total assets by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
g) The distribution of capital expenditures by geographical area was as follows:
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
34,721 $
5,331
21,605
4,259
26,277 $
6,857
24,246
3,917
25,766
6,914
23,462
3,433
$
65,916 $
61,297 $
59,575
Year Ended
December 31,
2018
December 31,
2017
(in thousands)
$
1,073,411 $
514,010
646,512
120,322
880,378
504,418
650,681
111,141
$
2,354,255 $
2,146,618
Ireland
Rest of Europe
U.S.
Other
Total
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
30,942 $
2,590
9,311
5,554
24,468 $
2,819
11,027
6,403
27,670
2,851
8,432
3,648
$
48,397 $
44,717 $
42,601
121
h) The following table sets forth the clients which represented 10% or more of the Company's net revenue in each of the periods
set out below.
Client A
i) The distribution of interest income by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
December 31,
2018
14%
Year ended
December 31,
2017
21%
December 31,
2016
26%
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
$
2,620 $
1,750
17
372
1,084 $
1,222
16
24
407
1,040
2
35
4,759 $
2,346 $
1,484
j) The distribution of the income tax charge by geographical area was as follows:
Ireland
Rest of Europe
U.S.
Other
Total
20. Supplemental Disclosure of Cash Flow Information
Cash paid for interest
Cash paid for income taxes
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
29,096 $
(434)
3,761
9,535
20,345 $
1,921
14,772
9,531
24,215
5,528
8,381
(131)
$
41,958 $
46,569 $
37,993
December 31,
2018
Year ended
December 31,
2017
(in thousands)
December 31,
2016
$
$
13,060 $
18,558 $
13,094 $
12,305 $
13,615
10,205
122
21. Accumulated Other Comprehensive Income
Currency translation adjustments
Currency impact on long term funding
Actuarial loss on defined benefit pension plan (note 9)
Unrealized capital loss – investments (note 3)
Realized gain on interest rate hedge
Amortization of interest rate hedge
Fair value of cash flow hedge
Total
22. Long-Term Debt – Senior Notes
Year ended
December 31,
2018
December 31,
2017
$
(in thousands)
(62,710) $
(5,016)
(3,000)
(450)
4,658
(2,810)
—
(36,188)
(182)
(5,855)
(295)
4,658
(1,887)
1,036
$
(69,328) $
(38,713)
In December 2015 the Company issued $350 million in the private placement market which is due for repayment in 2020.
The interest rate in respect of the Senior Notes is fixed at 3.64% for the five year term of the agreement. The associated interest
cost is recognized in interest expense in the period since drawdown in December 2015.
In October 2015, the Company entered into an interest rate hedge in respect of the planned issuance of the Senior Notes in December
2015. The interest rate hedge matured in November 2015 when the interest rate on the Senior Notes was fixed. The interest rate
hedge was effective in accordance with Financial Accounting Standards Board ("FASB") ASC 815, "Derivatives and Hedging".
The cash proceeds ($4.6 million), representing the realized gain on the interest rate hedge, were received on maturity in November
2015 and are recorded within Other Comprehensive Income. The realized gain is being amortized to the income statement, net
against interest payable, over the period of the Senior Notes.
The Senior Notes agreement also includes certain financial covenants that require compliance with a consolidated leverage ratio,
a minimum EBIT to consolidated net interest charge ratio and a maximum amount of priority debt, each of which are defined in
the Note Purchase and Guarantee Agreement. The Company was in compliance with these covenants at December 31, 2018.
The Senior Notes have not been, and will not be, registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration or an applicable exemption from registration requirements.
23. Impact of New Accounting Pronouncements
Impact of new accounting pronouncements adopted during fiscal year-ended December 31, 2018
ASC 606 'Revenue from Contracts with Customers'
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides that an
entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The updated standard replaces
most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective
or cumulative effect transition method. To achieve the core principle of the new standard, an entity should apply the following
steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when
(or as) the entity satisfies a performance obligation. Subsequent to issuing ASU 2014-09, the FASB issued the following amendments
concerning clarification of ASU 2014-09. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers
(Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), which further clarifies
the implementation guidance on principal versus agent considerations. The new guidance requires either a retrospective or a
modified retrospective approach to adoption. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers
(Topic 606), Identifying Performance Obligations and Licensing (“ASU 2016-10”), which clarifies the identification of
performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. In May
123
2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients (“ASU 2016-12”), which provides clarification on assessing the collectability criterion, presentation of sales
taxes, measurement date for non-cash consideration and completed contracts at transition.
The updated standard was effective for ICON in the first quarter of the year ended December 31, 2018. ICON elected to adopt
the updated standard using the cumulative effect transition method. Under this transition method, ICON applied the new standard
as of the date of initial application (i.e. January 1, 2018), without restatement of comparative period amounts. ICON recorded
the cumulative effect of initially applying the new standard (to revenue and cost) as an adjustment to the opening balance of equity
at the date of initial application. The most significant impact relates to our assessment of measurement of performance and
percentage of completion in respect of our clinical trials service revenue. ICON applied the requirements of the new standard to
those contracts not completed at the date of initial application. See note 26 Impact of New Accounting Policy for the impact of the
adoption of the new accounting standard.
In May 2017, the FASB issued ASU 2017-10 'Service Concession Arrangements (Topic 853): Determining the Customer of the
Operation Services' which clarifies that the customer in a service concession arrangement is always the grantor. This ASU is
effective at the same time as ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (the new revenue standard).
•
•
If an entity had early adopted the new revenue standard before this ASU was issued (May 16, 2017), the entity may adopt
this ASU on its effective date with certain specific transition provisions.
If an entity early adopts the new revenue standard after this ASU was issued, the entity must adopt this ASU at the same
time as the new revenue standard with certain specific transition provisions.
• An entity may elect to early adopt this ASU before the adoption of the new revenue standard with certain specific transition
provisions.
The adoption of the ASU did not have a significant impact on the financial statements.
In January 2017, the FASB issued ASU 2017-01 'Business combinations - Clarifying the definition of a business' to provide a new
framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
This ASU was effective for public business entities for annual and interim periods in fiscal years beginning after December 15,
2017. The ASU may be early adopted. The adoption of ASU 2017-01 did not have a significant impact on the financial statements.
In March 2017, the FASB issued ASU 2017-07 'Compensation-Retirement Benefits (Topic 715): Improving the Presentation of
Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost' which requires companies to present the service cost
component of net benefit cost in the same line items in which they report compensation cost. Companies will present all other
components of net benefit cost outside operating income, if this subtotal is presented. This ASU was effective for public business
entities for annual and interim periods in fiscal years beginning after December 15, 2017. The adoption of ASU 2017-07 did not
have a significant impact on the financial statements.
In January 2016, the FASB issued ASU 2016-01 'Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement
of the Financial Assets and Financial Liabilities' which will significantly change the income statement impact of equity investments
and the recognition of changes in fair value of financial liabilities when the fair value option is elected. The ASU was effective
for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The adoption of
ASU 2016-01did not have a significant impact on the financial statements.
In March 2016, the FASB issued ASU 2016-04, 'Recognition of Breakage for Certain Prepaid Stored-Value Products', which
allows entities to recognize breakage on prepaid stored-value products consistent with how breakage is recognized under the new
revenue standard. The exception applies to prepaid stored-value products in physical or digital form, with stored monetary values
that are redeemable for goods and services, including those that can be redeemed for cash (e.g. prepaid gift cards issued on a
specific payment network and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and
traveler's checks). The ASU was effective for public business entities for interim and annual periods in fiscal years beginning after
December 15, 2017. The adoption of ASU 2016-04 did not have a significant impact on the financial statements.
In August 2016, the FASB issued ASU 2016-15, 'Classification of Certain Cash Receipts and Cash Payments', which addresses
eight classification issues related to the statement of cash flows:
• Debt prepayment or debt extinguishment costs;
•
Settlement of zero-coupon bonds;
• Contingent consideration payments made after a business combination;
•
Proceeds from the settlement of insurance claims;
124
•
Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies;
• Distributions received from equity method investees;
• Beneficial interests in securitization transactions; and
•
Separately identifiable cash flows and application of the predominance principle.
The ASU was effective for public business entities for interim and annual periods in fiscal years beginning after December 15,
2017. The adoption of ASU 2016-15 did not have a significant impact on the financial statements. Any contingent consideration
payment arrangements arising on business combinations effected in the future will be reviewed for cash flow statement classification
in line with ASU 2016-15. There were no contingent consideration payment arrangements during the year ended December 31,
2018.
In October 2016, the FASB issued ASU 2016-16, 'Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory',
which requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than
inventory. This ASU was effective for public business entities for annual and interim periods in fiscal years beginning after
December 15, 2017. For all other entities, the ASU is effective for annual periods in fiscal years beginning after December 15,
2018, and interim periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2016-16 did not have a
significant impact on the financial statements.
In November 2016, the FASB issued ASU 2016-18, 'Statement of Cash Flows (Topic 230): Restricted Cash', which requires
companies to include cash and cash equivalents that have restrictions on withdrawal or use in total cash and cash equivalents on
the statement of cash flows. This ASU was effective for public business entities for annual and interim periods in fiscal years
beginning after December 15, 2017. For all other entities, the ASU is effective for annual periods in fiscal years beginning after
December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2016-18 did
not have a material impact on the financial statements.
Financial statement effects of tax reform
H.R.1 was enacted on December 22, 2017. The effective date of the law for most provisions is January 1, 2018 however the effects
were required to be recognized in December 2017 financial statements. In response, the SEC staff issued SAB 118, which allows
registrants to record provisional amounts during a 'measurement period'. See Note 13 for assessment of impact of H.R.1 on the
December 31, 2017 financial statements.
Impact of new accounting pronouncements which will be adopted during fiscal year-ended December 31, 2019
In February 2016, the FASB issued ASU 2016-02, 'Leases', requiring lessees to recognize a right-of-use asset and a lease liability
on the Consolidated Balance Sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be
classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but
updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing
or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after December 15,
2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified
retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented.
The updated standard is effective for us beginning in the first quarter of the year-ended December 31, 2019. We are currently
evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. See Note
15 Commitments and Contingencies for details of operating leases held during year-ended December 31, 2018. A lease liability
and right-of-use asset will be recorded on the Consolidated Balance Sheet at December 31, 2019. We estimate the impact of the
adoption of ASC 842 will be the recognition of a right-of use asset and of lease liabilities in the range of $100 million to $110
million. Under the new standard we expect an insignificant change in net result due to the replacement of operating leases expenses
with amortization of the lease asset and the interest expense.
In July 2018, the FASB issued ASU 2018-11, which creates a new, optional transition method for implementing ASU 2016-02
and a lessor practical expedient for separating lease and non-lease components.
This ASU is effective:
For entities that have not early adopted ASU 2016-02, with the effective date of ASU 2016-02.
•
•
For entities that have early adopted ASU 2016-02, upon issuance. However, it can only be adopted by entities either at
(1) the beginning of the company’s first reporting period after issuance or (2) the entity’s mandatory ASC 842 effective date. The
Company has elected to adopt this transition method for implementing ASU 2016-02 and the related practical expedient.
125
In July 2018, the FASB issued ASU 2018-10, which clarifies and corrects errors in ASC 842. The effective date and transition
requirements in ASU 2018-10 are the same as the effective date and transition requirements of ASU 2016-02.
In January 2018, the FASB issued ASU 2018-01, which clarifies that land easements are in the scope of ASU 2016-02, Leases,
and provides transition relief. The effective date and transition requirements in ASU 2018-01 are the same as the effective date
and transition requirements of ASU 2016-02.
In August 2017, the FASB issued ASU 2017-12 'Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities' which changes the recognition and presentation requirements of hedge accounting, including:
• Eliminating the requirement to separately measure and report hedge ineffectiveness; and
•
Presenting all items that affect earnings in the same income statement line item as the hedged item.
The ASU also provides new alternatives for:
• Applying hedge accounting to additional hedging strategies;
• Measuring the hedged item in fair value hedges of interest rate risk;
• Reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing,
hedge documentation and application of the critical terms match method; and
• Reducing the risk of material error correction if a company applies the shortcut method inappropriately.
This ASU is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15,
2018. Early adoption is permitted any time after the issuance of the ASU, including in an interim period. If adopted at other than
the beginning of a fiscal year, cumulative effect adjustments are reflected as of the beginning of the fiscal year. The adoption of
the ASU is not expected to have a significant impact on the financial statements.
In February 2017, the FASB issued ASU 2017-05 'Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets
(Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets'.
In February 2017, the FASB issued ASU 2017-05, which clarifies the guidance in Subtopic 610-20 on accounting for derecognition
of a nonfinancial asset. The ASU also defines in-substance nonfinancial assets and includes guidance on partial sales of non-
financial assets. The adoption of ASU 2017-05 is not expected to have an impact on the financial statements.
In July 2017, the FASB issued ASU 2017-11 'Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception' under which down round features will not
cause certain equity-linked financial instruments to be accounted for as derivatives. A company that presents EPS information
will reflect the effect of a down round feature of free-standing equity-linked financial instruments in EPS only if it is triggered.
The ASU is effective for public business entities, for annual and interim periods in fiscal years beginning after December 15, 2018.
The adoption of the ASU is not expected to have an impact on the financial statements.
In June 2016, the FASB issued ASU 2016-13, 'Measurement of Credit Losses on Financial Instruments', which significantly
changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit
losses expected to occur over their remaining life. The ASU is effective for public business entities that are SEC filers for interim
and annual periods in fiscal years beginning after December 15, 2019. The adoption of ASU 2016-13 is not expected to have a
significant impact on the financial statements.
In July 2018, the FASB issued ASU 2018-09, which clarifies and corrects unintended application of guidance, and makes
improvements to several Codification Topics. The changes are part of an ongoing FASB project to make non-substantive technical
corrections, clarifications, and improvements that are not expected to have a significant effect on accounting practice or create a
significant administrative cost to most entities.
Most of the amendments are effective immediately.
Some of the amendments are effective for:
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.
•
All other entities for annual periods in fiscal years beginning after December 15, 2019, and interim periods in fiscal years
•
beginning after December 15, 2020. Other amendments, which affect recently issued ASUs that are not yet effective, are effective
with the original ASU. The impact of adoption of ASU 2018-19 is not expected to be significant.
In June 2018, the FASB issued ASU 2018-08, which clarifies and improves current guidance about whether a transfer of assets
(or the reduction, settlement, or cancellation of liabilities) is a contribution or an exchange transaction. For transactions in which
an entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for securities that are traded,
126
listed, or quoted on an exchange or an over-the-counter market and serves as a resource recipient, the entity should apply the
amendments in this ASU on contributions received to annual and interim periods in fiscal years beginning after June 15, 2018.
All other entities should apply the amendments for transactions in which the entity serves as the resource recipient to annual
periods in fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2019.
For transactions in which an entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for
securities that are traded, listed, or quoted on an exchange or an over-the-counter market and serves as a resource provider, the
entity should apply the amendments in this ASU on contributions made to annual and interim periods in fiscal years beginning
after December 15, 2018. All other entities should apply the amendments for transactions in which the entity serves as the resource
provider for annual periods in fiscal years beginning after December 15, 2019 and interim periods in fiscal years beginning after
December 15, 2020. Early adoption of the amendments is permitted. The adoption of ASU 2018-08 is not expected to have a
significant impact on the financial statements.
In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income
to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This ASU is effective for all entities for
annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in
any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued
and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance.
The adoption of ASU 2018-02 is not expected to have a significant impact on the financial statements.
In December 2017, the FASB issued ASU 2017-15. The ASU eliminates Topic 995, which includes an exemption to the recognition
of deferred taxes on certain statutory reserve deposits that were, but are no longer, tax deferred. This ASU is effective for all entities
for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities,
including adoption in an interim period. The adoption of ASU 2017-15 is not expected to have a significant impact on the financial
statements.
Impact of other new accounting pronouncements
In January 2017, the FASB issued ASU 2017-04 'Intangibles - Goodwill and Other: Simplifying the test for goodwill impairment'
which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead,
impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. The ASU
is effective for public businesses, that are SEC filers, for annual and interim periods in fiscal years beginning after December 15,
2019. The adoption of ASU 2017-04 is not expected to have a significant impact on the financial statements.
In August 2018, the FASB issued ASU 2018-15, which clarifies that implementation costs incurred by customers in cloud computing
arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use
software guidance.
This ASU is effective for:
•
•
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2019.
Early adoption is permitted. Our evaluation of the impact of adoption of ASU 2018-15 is on-going.
In August 2018, the FASB issued ASU 2018-14, which aims to improve the overall usefulness of disclosures to financial statement
users and reduce unnecessary costs to companies when preparing defined benefit plan disclosures.
This ASU is effective for:
•
•
of ASU 2018-14 is on-going.
Public business entities for financial statements issued for fiscal years ending after December 15, 2020.
Retrospective adoption is required and early adoption is permitted. Our evaluation of the disclosure impact of adoption
In August 2018, the FASB issued ASU 2018-13, which aims to improve the overall usefulness of disclosures to financial statement
users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. This ASU is effective for
all entities for annual and interim periods in fiscal years beginning after December 15, 2019. Retrospective adoption is required
except for the following changes, which are required to be applied prospectively for only the most recent interim or annual period
presented in the initial fiscal year of adoption:
•
•
and
•
Early adoption is permitted. An entity may early adopt any eliminated or modified disclosure requirements and delay adoption of
the additional disclosure requirements until their effective date. In such cases, users should refer to the Codification for disclosure
requirements. Our evaluation of the disclosure impact of adoption of ASU 2018-13 is on-going.
Changes in unrealized gains and losses included in other comprehensive income for Level 3 instruments;
The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements;
The narrative description of measurement uncertainty.
127
In August 2018, the FASB issued ASU 2018-12, which changes how insurance entities recognize, measure, present and disclose
long-duration contracts. This ASU is effective for:
•
•
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2020.
Early adoption is permitted. The adoption of ASU 2018-12 is not expected to impact on the financial statements.
In June 2018, the FASB issued ASU 2018-07, which more closely aligns the accounting for employee and nonemployee share-
based payments.
This ASU is effective for:
•
•
Public business entities for annual and interim periods in fiscal years beginning after December 15, 2018.
The adoption of ASU 2018-07 is not expected to have a significant impact on the financial statements.
24. Related Parties
Subsidiaries of the Company earned revenue of $633,000 (2017: $743,000) from DS Biopharma Limited (formerly Dignity
Sciences Limited) during the year. Dr. John Climax is Chief Executive Officer and both Dr. John Climax and Dr. Ronan Lambe
are Directors and shareholders of DS Biopharma Limited. $338,000 was recorded as due from DS Biopharma Limited at
December 31, 2018. The contract terms were agreed on an arm’s length basis.
During the year ended December 31, 2017, personal expenses totaling $178,000 were settled by the Company on behalf of Mr.
Ciaran Murray. Payment was received in advance from Mr. Murray in respect of these expenses. The Company transferred
ownership of an asset at fair value ($77,000) to Mr. Ciaran Murray effective November 1, 2017. Payment was received in full in
January 2018.
On July 22, 2016, Mr. Thomas Lynch retired as a Director of the Company, having previously resigned as Chairman of the Company
in March 2016. A charge of €231,750 was recorded during 2018 in respect of consultancy services provided by a company
controlled by Mr. Lynch. $64,000 was recorded as due to Mr. Lynch under the terms of the agreement at December 31, 2018.
25. Subsequent Events
On January 8, 2019 the Company announced a share buyback program of up to 1 million shares to be executed opportunistically
during 2019 depending on cash commitments. All ordinary shares that are redeemed under the buyback program will be cancelled
in accordance with the constitutional documents of the Company and the nominal value of these shares transferred to an
undenoninated capital fund as required under Irish Company law.
On January 25, 2019 a subsidiary of the Company, ICON Laboratory Services Inc. acquired 100% of the equity share capital of
MolecularMD Corp. The initial consideration on acquisition is $42 million.
The Company has evaluated subsequent events from the balance sheet date through March 1, 2019, the date at which the consolidated
financial statements were available to be issued. The Company has determined that there are no items , other than the item described
above, to disclose.
128
26. Impact of change in accounting policies
The Company adopted ASC 606 ‘Revenue from Contracts with Customers’, with a date of initial application of January 1, 2018.
The revenue recognition accounting policy applied in preparation of the results for the twelve months ended December 31, 2018
therefore reflect application of ASC 606. ICON has elected to adopt the standard using the cumulative effect transition method.
Under this transition method, ICON has applied the new standard as at the date of initial application (i.e. January 1, 2018), without
restatement of comparative amounts. The cumulative effect of initially applying the new standard (to revenue, costs and tax) is
recorded as an adjustment to the opening balance of equity at the date of initial application. The comparative information has not
been adjusted and therefore continues to be reported under ASC 605 ‘Revenue Recognition’.
The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance
obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in
the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation.
The most significant impact of application of the standard relates to our assessment of performance and percentage of completion
in respect of our clinical trial service revenue. Prior to application of ASC 606, the revenue attributable to performance was
determined based on both input and output methods of measurement. We have concluded that under the new standard, a clinical
trial service is a single performance obligation satisfied over time i.e. the full service obligation in respect of a clinical trial
(including those services performed by investigators and other parties) is considered a single performance obligation. Promises
offered to the customer are not distinct within the context of the contract. We have concluded that ICON is the contract principal
in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical research
project. The transaction price is determined by reference to the contract or change order value (total service revenue and pass-
through/ reimbursable expenses) adjusted to reflect a realizable contract value. Revenue is recognized as the single performance
obligation is satisfied. The progress towards completion for clinical service contracts is measured based on an input measure being
total project costs (inclusive of third party costs) at each reporting period.
Incremental costs of obtaining a contract were also considered on adoption of ASC 606. Commission costs of $12 million were
recognized as an asset on the Consolidated Balance Sheet in respect of those contracts that exceed one year. Where commission
costs relate to contracts that are less than one year, the practical expedient is applied as the amortization period of the asset which
would arise on deferral would be one year or less.
A deferred tax asset of $6.9 million was recognized in respect of the timing differences arising from cumulative impact of non tax
adjustments recorded on adoption of ASC 606. These are expected to reverse in future periods.
The tables on the pages following summarize the impact of adopting ASC 606 on the consolidated financial statements for the
twelve months ended December 31, 2018.
129
ICON plc
CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents
Available for sale investments
Accounts receivable, net
Unbilled revenue
Other receivables
Prepayments and other current assets
Income taxes receivable
Total current assets
Other Assets:
Property, plant and equipment, net
Goodwill
Other non-current assets
Non-current income taxes receivable
Non-current deferred tax asset
Investments in equity- long term
Intangible assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Payments on account
Other liabilities
Income taxes payable
Total current liabilities
Other Liabilities:
Non-current bank credit lines and loan facilities
Non-current other liabilities
Non-current government grants
Non-current income taxes payable
Non-current deferred tax liability
Commitments and contingencies
Total Liabilities
Shareholders' Equity:
December 31, 2018
As reported
Adjustments
(in thousands)
Balance without
adoption of
Topic 606
$
$
$
395,851 $
59,910
414,791
362,926
40,459
36,801
19,445
1,330,183
158,669
756,260
14,525
20,023
13,577
6,963
54,055
2,354,255 $
13,288 $
274,468
317,143
5,724
610,623
349,264
13,446
877
17,551
8,213
—
999,974
— $
—
—
46,642
(12,580)
—
—
34,062
—
—
—
—
(5,680)
—
—
28,382 $
— $
59,242
(84,342)
1,669
(23,431)
—
—
—
—
—
—
(23,431)
395,851
59,910
414,791
409,568
27,879
36,801
19,445
1,364,245
158,669
756,260
14,525
20,023
7,897
6,963
54,055
2,382,637
13,288
333,710
232,801
7,393
587,192
349,264
13,446
877
17,551
8,213
—
976,543
Ordinary shares, par value 6 euro cents per share; 100,000,000
shares authorized,
53,971,706 shares issued and outstanding at December 31, 2018
and
54,081,601 shares issued and outstanding at December 31,
2017.
Other undenominated capital
Accumulated other comprehensive income
Retained earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
$
130
4,658
529,642
983
(69,328)
888,326
1,354,281
2,354,255 $
—
—
—
—
51,813
51,813
28,382 $
4,658
529,642
983
(69,328)
940,139
1,406,094
2,382,637
ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2018
YTD
December 31,
2018
December 31,
2018
December 31,
2018
As reported
Adjustments
(in thousands except share and per share data)
Balance without
adoption of Topic
606
Revenue:
Revenue
Reimbursable expenses
Costs and expenses:
Direct costs
Selling, general and administrative expense
Depreciation and amortization
Restructuring
Total costs and expenses
Income from operations
Interest income
Interest expense
Income before income tax expense
Income tax expense (Note 13)
$
2,595,777
$
—
4,657
$
(702,812) $
2,600,434
(702,812)
(698,155)
1,897,622
1,818,220
(702,812)
1,115,408
325,794
65,916
12,490
472
—
—
326,266
65,916
12,490
2,222,420
(702,340)
1,520,080
373,357
4,759
(13,502)
364,614
(41,958)
4,185
—
—
4,185
(476)
377,542
4,759
(13,502)
368,799
(42,434)
Net income
$
322,656
$
3,709
$
326,365
131
ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
Shares
Amount
Additional
Paid-in
Capital
Other
Undenominated
Capital
Accumulated
Other
Comprehensive
Income
(dollars in thousands, except share data)
Retained
Earnings
Total
Balance at December 31, 2017
54,081,601
4,664 $
481,337
912 $
(38,713) $ 742,800 $1,191,000
Comprehensive income:
Net income
Impact of change in accounting
policy
Currency translation adjustment
Currency impact of long-term
funding
Unrealized capital loss -
investments
Actuarial gain on defined benefit
pension plan
Amortization of interest rate hedge
Fair value of cash flow hedge
Total comprehensive income
Exercise of share options
Issue of restricted share units /
performance share units
Share based compensation expense
Share issue costs
—
—
—
—
—
—
—
—
—
408,699
489,568
—
—
—
—
—
—
—
—
—
—
—
29
36
—
—
Repurchase of ordinary shares
Share repurchase costs
(1,008,162)
—
(71)
—
—
—
—
—
—
—
—
—
—
16,777
—
31,544
(16)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
71
—
— 322,656
322,656
—
(26,522)
3,709
—
3,709
(26,522)
(4,834)
(155)
2,855
(923)
(1,036)
—
—
—
—
—
—
—
—
—
—
(4,834)
(155)
2,855
(923)
(1,036)
— 295,750
—
—
—
—
16,806
36
31,544
(16)
— (128,960)
(128,960)
—
(66)
(66)
Balance at December 31, 2018
53,971,706
4,658
529,642
983
(69,328)
940,139
1,406,094
There is no impact of adoption of ASC 606 on the CONDENSED CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME. An adjustment to retained earnings as at January
1, 2018 arises on adoption of ASC 606 and this is presented in the primary statement reflecting ASC 606 adoption.
132
ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2018
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of property, plant and equipment
Depreciation expense
Amortization of intangibles
Amortization of government grants
Interest on short term investments
Realized (gain)/loss on sale of short term investments
Gain on re-measurement of financial assets
Amortization of gain on interest rate hedge
Amortization of financing costs
Stock compensation expense
Deferred tax expense
Changes in assets and liabilities:
Increase in accounts receivable
Increase in unbilled revenue
Decrease in other receivables
Increase in prepayments and other current assets
Decrease in other non-current assets
Decrease in payments on account
Increase in other current liabilities
Decrease in other non-current liabilities
Decrease in income taxes payable
Decrease in accounts payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of subsidiary undertakings
Sale of available for sale investments
Purchase of available for sale investments
Purchase of investments in equity - long term
Net cash used in investing activities
Cash flows from financing activities:
Financing costs
Proceeds from the exercise of equity compensation
Share issue costs
Repurchase of ordinary shares
Share repurchase costs
Net cash used in financing activities
Effect of exchange rate movements on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
As Reported
Adjustments
Balance without
adoption of Topic 606
(in thousands)
322,656
3,709
326,365
70
50,565
15,351
(47)
(1,329)
(56)
(800)
(923)
812
31,594
1,652
(37,557)
(98,510)
3,107
(3,237)
856
(6,253)
2,009
(1,034)
(5,220)
(5,067)
268,639
(48,397)
(1,645)
99,865
(80,956)
(6,163)
(37,296)
(823)
16,842
(16)
(128,960)
(66)
(113,023)
(5,328)
112,992
282,859
395,851 $
—
—
—
—
—
—
—
—
—
—
5,680
—
—
1,462
12,580
—
—
59,242
(84,342)
—
1,669
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
70
50,565
15,351
(47)
(1,329)
(56)
(800)
(923)
812
31,594
7,332
—
(37,557)
(97,048)
15,687
(3,237)
856
52,989
(82,333)
(1,034)
(3,551)
(5,067)
268,639
—
(48,397)
(1,645)
99,865
(80,956)
(6,163)
(37,296)
(823)
16,842
(16)
(128,960)
(66)
(113,023)
(5,328)
112,992
282,859
395,851
$
133
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.
ICON plc
/s/ Brendan Brennan
Brendan Brennan
Chief Financial Officer
Date March 1, 2019
134
INDEX TO EXHIBITS
Exhibit
Number
Title
3.1
12.1*
12.2*
21.1
23.1*
Description of the Constitution of the Company (incorporated by reference to exhibit 99.2 to the Form
6K (File No. 333-08704) filed on July 25, 2016).
Section 302 certifications.
Section 906 certifications.
List of Subsidiaries (incorporated by reference to Item 4 of Form 20-F filed herewith).
Consent of KPMG, Independent Registered Public Accounting Firm
101.1*
Interactive Data Files (XBRL – Related Documents)
* Filed herewith
135
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Corporate Headquarters
South County Business Park
Leopardstown
Dublin 18, Ireland
Tel: +353 (1) 291 2000
Fax: +353 (1) 291 2700
ICONplc.com
About ICON
ICON plc is a global provider of outsourced drug and device development and commercialisation services to
pharmaceutical, biotechnology, medical device and government and public health organisations. The company
specialises in the strategic development, management and analysis of programs that support clinical development - from
compound selection to Phase I-IV clinical studies. With headquarters in Dublin, Ireland, ICON currently, operates from 90
locations in 37 countries and has approximately 13,680 employees. Further information is available at www.iconplc.com
© 2019 ICON plc. All rights reserved.