ICON plc
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Year Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
239,539
|
|
|
$
|
172,468
|
|
|
$
|
102,812
|
|
Currency translation adjustment
|
|
|
(35,105
|
)
|
|
|
(45,038
|
)
|
|
|
10,725
|
|
Currency impact of long-term funding
|
|
|
7,342
|
|
|
|
9,806
|
|
|
|
(1,046
|
)
|
Tax on currency impact of long term funding
|
|
|
(3,574
|
)
|
|
|
(178
|
)
|
|
|
(87
|
)
|
Unrealized capital (loss)/gain – investments
|
|
|
(54
|
)
|
|
|
20
|
|
|
|
(239
|
)
|
Actuarial gain/(loss) on defined benefit pension plan
|
|
|
2,693
|
|
|
|
(4,125
|
)
|
|
|
1,383
|
|
Gain on interest rate hedge
|
|
|
4,617
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
215,458
|
|
|
$
|
132,953
|
|
|
$
|
113,548
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
ICON plc
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Capital
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Redemption
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Reserve
|
|
|
Income
|
|
|
Earnings
|
|
|
Total
|
|
Balance at December 31, 2012
|
|
|
60,287,498
|
|
|
$
|
5,067
|
|
|
$
|
237,217
|
|
|
$
|
100
|
|
|
$
|
(8,776
|
)
|
|
$
|
520,967
|
|
|
$
|
754,575
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
102,812
|
|
|
$
|
102,812
|
|
Currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,725
|
|
|
|
-
|
|
|
|
10,725
|
|
Currency impact of long-term funding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,046
|
)
|
|
|
-
|
|
|
|
(1,046
|
)
|
Tax on currency impact of long-term funding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(87
|
)
|
|
|
-
|
|
|
|
(87
|
)
|
Unrealized capital gain - investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(239
|
)
|
|
|
-
|
|
|
|
(239
|
)
|
Actuarial gain on defined benefit pension plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,383
|
|
|
|
-
|
|
|
|
1,383
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,548
|
|
Exercise of share options
|
|
|
1,249,759
|
|
|
|
101
|
|
|
|
26,888
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,989
|
|
Issue of restricted share units
|
|
|
50,000
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Share based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
13,882
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,882
|
|
Share issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(70
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(70
|
)
|
Excess tax benefit on exercise of options
|
|
|
-
|
|
|
|
-
|
|
|
|
1,651
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,651
|
|
Balance at December 31, 2013
|
|
|
61,587,257
|
|
|
$
|
5,168
|
|
|
$
|
279,572
|
|
|
$
|
100
|
|
|
$
|
1,960
|
|
|
$
|
623,779
|
|
|
$
|
910,579
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
172,468
|
|
|
$
|
172,468
|
|
Currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,038
|
)
|
|
|
-
|
|
|
|
(45,038
|
)
|
Currency impact of long-term funding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,806
|
|
|
|
-
|
|
|
|
9,806
|
|
Tax on currency impact of long- term funding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(178
|
)
|
|
|
-
|
|
|
|
(178
|
)
|
Unrealized capital gain - investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
Actuarial gain on defined benefit pension plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,125
|
)
|
|
|
-
|
|
|
|
(4,125
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,953
|
|
Exercise of share options
|
|
|
926,407
|
|
|
|
74
|
|
|
|
22,182
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,256
|
|
Issue of restricted share units
|
|
|
233,726
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
Share based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
23,078
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,078
|
|
Share issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
Repurchase of ordinary shares
|
|
|
(2,640,610
|
)
|
|
|
(205
|
)
|
|
|
-
|
|
|
|
205
|
|
|
|
-
|
|
|
|
(140,030
|
)
|
|
|
(140,030
|
)
|
Share repurchase costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,032
|
)
|
|
|
(1,032
|
)
|
Excess tax benefit on exercise of equity compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,404
|
|
Balance at December 31, 2014
|
|
|
60,106,780
|
|
|
$
|
5,037
|
|
|
$
|
327,234
|
|
|
$
|
305
|
|
|
$
|
(37,555
|
)
|
|
$
|
655,185
|
|
|
$
|
950,206
|
|
ICON plc
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Capital
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Redemption
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Reserve
|
|
|
Income
|
|
|
Earnings
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
|
60,106,780
|
|
|
$
|
5,037
|
|
|
$
|
327,234
|
|
|
$
|
305
|
|
|
$
|
(37,555
|
)
|
|
$
|
655,185
|
|
|
$
|
950,206
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
239,539
|
|
|
$
|
239,539
|
|
Currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35,105
|
)
|
|
|
-
|
|
|
|
(35,105
|
)
|
Currency impact of long-term funding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,342
|
|
|
|
-
|
|
|
|
7,342
|
|
Tax on currency impact of long-term funding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,574
|
)
|
|
|
-
|
|
|
|
(3,574
|
)
|
Unrealized capital loss - investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(54
|
)
|
|
|
-
|
|
|
|
(54
|
)
|
Actuarial gain on defined benefit pension plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,693
|
|
|
|
-
|
|
|
|
2,693
|
|
Gain on interest rate hedge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,617
|
|
|
|
-
|
|
|
|
4,617
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,458
|
|
Exercise of share options
|
|
|
773,753
|
|
|
|
52
|
|
|
|
20,929
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,981
|
|
Issue of restricted/performance share units
|
|
|
276,860
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
Share based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
33,317
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,317
|
|
Share issue costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
Repurchase of ordinary shares
|
|
|
(6,198,481
|
)
|
|
|
(410
|
)
|
|
|
-
|
|
|
|
410
|
|
|
|
-
|
|
|
|
(457,892
|
)
|
|
|
(457,892
|
)
|
Share repurchase costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(889
|
)
|
|
|
(889
|
)
|
Excess tax benefit on exercise of equity compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
54,958,912
|
|
|
$
|
4,679
|
|
|
$
|
383,395
|
|
|
$
|
715
|
|
|
$
|
(61,636
|
)
|
|
$
|
435,943
|
|
|
$
|
763,096
|
|
The accompanying notes are an integral part of these consolidated financial statements.
ICON plc
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
Year Ended December 31,
|
|
|
Year Ended December 31
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
239,539
|
|
|
$
|
172,468
|
|
|
$
|
102,812
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of property, plant and equipment
|
|
|
55
|
|
|
|
248
|
|
|
|
662
|
|
Depreciation expense
|
|
|
40,210
|
|
|
|
42,200
|
|
|
|
38,975
|
|
Amortization of intangibles
|
|
|
17,467
|
|
|
|
10,342
|
|
|
|
7,539
|
|
Amortization of government grants
|
|
|
53
|
|
|
|
(213
|
)
|
|
|
(349
|
)
|
Amortization of gain on interest rate hedge
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
-
|
|
Stock compensation expense
|
|
|
33,317
|
|
|
|
22,742
|
|
|
|
14,220
|
|
Deferred taxes
|
|
|
3,157
|
|
|
|
(7,900
|
)
|
|
|
(10,583
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(18,671
|
)
|
|
|
(7,032
|
)
|
|
|
(37,538
|
)
|
Increase in unbilled revenue
|
|
|
(29,281
|
)
|
|
|
(13,671
|
)
|
|
|
(4,015
|
)
|
Increase in other receivables
|
|
|
(14,519
|
)
|
|
|
(4,259
|
)
|
|
|
(1,638
|
)
|
Increase in prepayments and other current assets
|
|
|
(8,631
|
)
|
|
|
(3,574
|
)
|
|
|
(898
|
)
|
Increase in other non current assets
|
|
|
(55
|
)
|
|
|
(2,264
|
)
|
|
|
(1,146
|
)
|
Increase/(decrease) in payments on account
|
|
|
34,644
|
|
|
|
(47,548
|
)
|
|
|
76,066
|
|
(Decrease)/increase in other current liabilities
|
|
|
(26,266
|
)
|
|
|
15,111
|
|
|
|
43,291
|
|
Increase in other non current liabilities
|
|
|
6,378
|
|
|
|
1,283
|
|
|
|
899
|
|
Increase/(decrease) in income taxes payable
|
|
|
(949
|
)
|
|
|
3,021
|
|
|
|
(5,013
|
)
|
Increase/(decrease) in accounts payable
|
|
|
3,124
|
|
|
|
(11,006
|
)
|
|
|
(2,057
|
)
|
Net cash provided by operating activities
|
|
|
279,531
|
|
|
|
169,948
|
|
|
|
221,227
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(49,730
|
)
|
|
|
(32,779
|
)
|
|
|
(29,488
|
)
|
Purchase of subsidiary undertakings and acquisition costs
|
|
|
(166,292
|
)
|
|
|
(124,301
|
)
|
|
|
(93,553
|
)
|
Cash acquired with subsidiary undertaking
|
|
|
194
|
|
|
|
3,527
|
|
|
|
1,039
|
|
Sale of short term investments
|
|
|
25,250
|
|
|
|
102,565
|
|
|
|
109,795
|
|
Purchase of short term investments
|
|
|
(14,194
|
)
|
|
|
(61,328
|
)
|
|
|
(172,168
|
)
|
Net cash used in investing activities
|
|
|
(204,772
|
)
|
|
|
(112,316
|
)
|
|
|
(184,375
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Drawdown of credit lines and facilities
|
|
|
851,500
|
|
|
|
-
|
|
|
|
-
|
|
Repayment of credit lines and facilities
|
|
|
(501,500
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from the exercise of equity compensation
|
|
|
20,999
|
|
|
|
22,274
|
|
|
|
26,993
|
|
Share issuance costs
|
|
|
(8
|
)
|
|
|
(20
|
)
|
|
|
(70
|
)
|
Excess tax benefit on exercise of equity compensation
|
|
|
1,905
|
|
|
|
2,404
|
|
|
|
1,651
|
|
Repurchase of ordinary shares
|
|
|
(457,892
|
)
|
|
|
(140,030
|
)
|
|
|
-
|
|
Share repurchase costs
|
|
|
(889
|
)
|
|
|
(1,032
|
)
|
|
|
-
|
|
Receipt of government grant
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
Repayment of government grant
|
|
|
(159
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from interest rate hedge
|
|
|
4,658
|
|
|
|
-
|
|
|
|
-
|
|
Net cash (used in)/provided by financing activities
|
|
|
(81,386
|
)
|
|
|
(116,404
|
)
|
|
|
28,799
|
|
Effect of exchange rate movements on cash
|
|
|
(8,362
|
)
|
|
|
(4,847
|
)
|
|
|
2,821
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(14,989
|
)
|
|
|
(63,619
|
)
|
|
|
68,472
|
|
Cash and cash equivalents at beginning of year
|
|
|
118,900
|
|
|
|
182,519
|
|
|
|
114,047
|
|
Cash and cash equivalents at end of year
|
|
$
|
103,911
|
|
|
$
|
118,900
|
|
|
$
|
182,519
|
|
ICON plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of business
ICON plc and its subsidiaries (“the Company” or “ICON”) is a contract 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, 2015 we had approximately 11,900 employees, in 90 locations in 37 countries. During the year ended December 31, 2015, we derived approximately 41.3%, 48.3% and 10.4% 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 011- 353-1- 291-2000.
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 principle management estimates and judgments used in preparing the financial statements relate to revenue recognition, taxation, goodwill and business combinations.
(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, biometric activities, consulting, imaging, contract staffing, informatics and laboratory services. Contracts range in duration from a number of months to several years. 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.
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 and the complexity of the contract and can include geographical site selection and initiation, patient enrolment, 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.
Biometrics revenue is recognized on a fee-for-service method as each unit of data is prepared on the basis of the number of units completed in a period as a percentage of the total number of contracted units. Imaging revenue is recognized on a fee-for-service basis recognizing revenue for each image completed. 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. Informatics revenue is recognized on a fee-for-service basis.
Informatics contracts are treated as multiple element arrangements, with contractual elements comprising licence 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. Licence 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.
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.
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 authorised customer change order.
The difference between the amount of revenue recognized and the amount billed on a particular contract is included in the balance sheet as unbilled revenue or payments on account. Normally, amounts become billable upon the achievement of certain milestones, for example, target patient enrolment rates, clinical testing sites initiated or case report forms completed. Once the milestone target is reached, amounts become billable in accordance with pre-agreed payment schedules included in the contract or on submission of appropriate billing detail. Such cash payments are not representative of revenue earned on the contract as revenues are recognized over the period in which the specified contractual obligations are fulfilled. Amounts included in unbilled revenue are expected to be collected within one year and are included within current assets. Advance billings to customers, for which revenue has not been recognized, are recognized as payments on account within current liabilities.
In the event of contract termination, if the value of work performed and recognized as revenue is greater than aggregate milestone billings at the date of termination, cancellation clauses usually ensure that the Company is paid for all work performed to the termination date.
(d) Reimbursable expenses
Reimbursable expenses comprise investigator payments and certain other costs which are reimbursed by clients under terms specific to each contract and are deducted from gross revenue in arriving at net revenue. Investigator payments are accrued based on patient enrollment over the life of the contract. Investigator payments are made based on predetermined contractual arrangements, which may differ from the accrual of the expense.
(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.
(f) Advertising costs
All costs associated with advertising and promotion are expensed as incurred. The advertising and promotion expense was $4,513,750, $3,563,900 and $5,195,120 for the years ended December 31, 2015, December 31, 2014 and December 31, 2013 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 transactions. 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 credited or charged to the statement of operations for the years ended December 31, 2015, December 31, 2014 and December 31, 2013 were as follows:
|
|
Year ended
December 31,
|
|
|
|
(in thousands)
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Amounts (credited)
|
|
$
|
(3,608
|
)
|
|
$
|
(5,942
|
)
|
|
$
|
(1,233
|
)
|
The financial statements of subsidiaries with other functional currencies are translated at period end rates for the balance sheet and average rates for the statement of operations. Translation gains and losses arising are reported as a movement on accumulated other comprehensive income.
(h) Disclosure about fair value of financial instruments
The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:
Cash, cash equivalents, unbilled revenue, other receivables, short term 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.
(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 this contingent consideration. Any changes to this estimate in subsequent periods 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 the original acquisition accounting.
(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 first step is to compare the carrying amount of the reporting unit’s assets to the fair value of the reporting unit. If the carrying amount exceeds the fair value then a second step is completed which involves the fair value of the reporting unit being allocated to each asset and liability with the excess being implied goodwill. The impairment loss is the amount by which the recorded goodwill exceeds the implied goodwill. No impairment was recognized as a result of the impairment testing carried out for the years ended December 31, 2015, December 31, 2014 and December 31, 2013.
(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) Short term investments - available for sale
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.
(n) Inventory
Inventory is valued at the lower of cost and market value and after provisions for obsolescence. Cost of inventories comprises the purchase price and attributable costs, less trade discounts. At December 31, 2015 the carrying value of inventory, included within prepayments and other current assets on the balance sheet, was $1.8 million (2014: $1.7 million).
(o) 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:
|
|
Years
|
|
Building
|
|
|
40
|
|
Computer equipment and software
|
|
|
2-8
|
|
Office furniture and fixtures
|
|
|
8
|
|
Laboratory equipment
|
|
|
5
|
|
Motor vehicles
|
|
|
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.
(p) Leased assets
Costs in respect of operating leases are charged to the statement of operations on a straight line basis over the lease term.
Assets acquired under capital finance leases are included in the 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 balance sheet and the interest element of the capital lease rental is charged to interest expense.
(q) 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 carryforwards. 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. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount of tax 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.
On November 21, 2015 FASB issued ASU 2015-17 on the balance sheet classification of deferred taxes. The new standard requires that all deferred taxes are presented as noncurrent in a classified statement of financial position. The new guidance is effective for public business entities for annual periods beginning after December 15, 2016 and for nonpublic business entities for annual periods beginning after December 15, 2017. Early adoption is available for all entities for any set of financial statements that had not been released as at November 21, 2015 with an option to apply on either a prospective or a retrospective basis. The Company has elected for early adoption of ASU 2015 – 17 on a prospective basis for all financial statements issued after November 21, 2015. The effect of this is that all deferred tax assets and liabilities are classified as noncurrent assets and liabilities in the December 31, 2015 balance sheet. As ASU 2015-17 is being adopted on a prospective basis there is no impact on prior period financial statements.
(r) 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.
(s) 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.
(t) 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 a subsidiary, a defined benefit plan for certain of its United Kingdom employees. The Company accounts for the costs of this plan using actuarial models required by FASB ASC 715-30 and the plan is presented in accordance with the requirements of FASB ASC 715-60
Defined Benefit Plans – Other Post retirement
.
(u) 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:
|
|
Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Weighted average number of ordinary shares outstanding for basic net income per ordinary share
|
|
|
58,746,935
|
|
|
|
61,496,115
|
|
|
|
60,907,274
|
|
Effect of dilutive share options outstanding
|
|
|
1,543,098
|
|
|
|
1,635,302
|
|
|
|
1,345,977
|
|
Weighted average number of ordinary shares outstanding for diluted net income per ordinary share
|
|
|
60,290,033
|
|
|
|
63,131,417
|
|
|
|
62,253,251
|
|
(v) Share-based compensation
The Company accounts for its share options, restricted share units (“RSU’s”) and performance share units (“PSU’s”) in accordance with the provisions of FASB ASC 718,
Compensation – Stock Compensation.
Share-based compensation expense for equity-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, RSU’s and PSU’s.
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 RSU’s and PSU’s awarded to employees and Directors is calculated based on the market value of the Company’s shares on the date of award of the RSU’s and PSU’s. 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.
(w) 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 an 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 by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount of the asset or fair value less selling costs.
(x) Derivative financial instruments
We enter into transactions in the normal course of business using various financial instruments in order to hedge against exposures 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, 2015, December 31, 2014 or December 31, 2013.
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 criteria for designating a derivative as a hedge include 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 income statement 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.
(y) 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.
On October 5 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 on November 17, 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 will be amortized to the income statement, net against interest payable, over the period of the Senior Notes.
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 income.
(y) Reclassifications
Certain amounts in the consolidated financial statements have been reclassified where necessary to conform to the current year presentation.
3. Short term investments - available for sale
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
At start of year
|
|
$
|
97,100
|
|
|
$
|
138,317
|
|
Additions
|
|
|
14,194
|
|
|
|
61,328
|
|
Disposals
|
|
|
(25,250
|
)
|
|
|
(102,565
|
)
|
Unrealized capital (loss)/gain – investments
|
|
|
(54
|
)
|
|
|
20
|
|
At end of year
|
|
$
|
85,990
|
|
|
$
|
97,100
|
|
The Company classifies its 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, 2015 have an average maturity of 1.35 years compared to 1.7 years at December 31, 2014. 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. The fair value of short term investments are represented by level 1 fair value measurements – quoted prices in active markets for identical assets.
4. Goodwill
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Opening goodwill
|
|
$
|
463,324
|
|
|
$
|
357,523
|
|
Current year acquisitions (note 4 (a) and (b))
|
|
|
133,123
|
|
|
|
121,209
|
|
Prior period acquisition (note 4(c))
|
|
|
4,418
|
|
|
|
-
|
|
Foreign exchange movement
|
|
|
(12,431
|
)
|
|
|
(15,408
|
)
|
Closing goodwill
|
|
$
|
588,434
|
|
|
$
|
463,324
|
|
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 PMG and MediMedia Pharma Solutions during the year-ended December 31, 2015 resulting in recognition of goodwill of $41.0 million and $92.1 million (note 4(a) and note 4 (b)) respectively.
The Company tests goodwill annually for impairment or whenever events occur which may indicate impairment. The results of the Company’s goodwill impairment testing during the year ended December 31, 2015 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 of PMG
On December 4, 2015 the Company acquired PMG for cash consideration of $53.7 million. The Company also made certain payments on behalf of PMG totalling $9.9 million. PMG is an integrated network of 48 clinical research sites in North Carolina, South Carolina, Tennessee and Illinois. 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 healthcare institutions and community physical practices. The acquisition agreement provides for working capital targets to be achieved by PMG within 90 days of acquisition.
The acquisition of PMG has been accounted for as a business combination in accordance with FASB ASC 805
Business Combinations
. The Company has made a provisional assessment of the fair value of assets acquired and liabilities assumed as at that date. The table following summarizes the Company’s provisional estimates of the fair values of the assets acquired and liabilities assumed:
|
|
December 4,
|
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Cash
|
|
$
|
194
|
|
Property, plant and equipment
|
|
|
712
|
|
Goodwill*
|
|
|
41,039
|
|
Intangible asset**
|
|
|
10,259
|
|
Accounts receivable
|
|
|
12,997
|
|
Prepayments and other current assets
|
|
|
1,329
|
|
Accounts payable
|
|
|
(530
|
)
|
Other liabilities
|
|
|
(2,459
|
)
|
Net assets acquired
|
|
|
63,541
|
|
Cash consideration
|
|
|
53,681
|
|
Other liabilities assumed
|
|
|
9,860
|
|
Total cash outflows
|
|
|
63,541
|
|
*Goodwill represents the acquisition of an established workforce with experience in clinical trial consulting and regulatory support for the development of drugs, medical devices and diagnostics, with a specific focus on strategy to increase efficiency and productivity in product development.
**The Company has estimated a separate intangible asset (in respect of customer lists acquired) of $10.3 million. This assessment is under review and will be finalized within 12 months of the date of acquisition.
The proforma effect of the PMG 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, 2015 and December 31, 2014 as follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Net revenue
|
|
$
|
1,601,891
|
|
|
$
|
1,527,685
|
|
Net income
|
|
$
|
243,004
|
|
|
$
|
172,390
|
|
Basic earnings per share
|
|
$
|
4.14
|
|
|
$
|
2.80
|
|
Diluted earnings per share
|
|
$
|
4.03
|
|
|
$
|
2.73
|
|
(b) Acquisitions of MediMedia Pharma Solutions
On February 27, 2015 the Company acquired MediMedia Pharma Solutions for cash consideration of $104.8 million (net of working capital adjustments of $3.9 million). In addition to the cash consideration, certain payments were made on behalf of MediMedia Pharma Solutions on completion totalling $11.3 million. Headquartered in Yardley, Pennsylvania, MediMedia Pharma Solutions includes MediMedia 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 acquisition agreement also provides for certain working capital targets to be achieved by MediMedia Pharma Solutions.
The acquisition of MediMedia Pharma Solutions has been accounted for as a business combination in accordance with FASB ASC 805
Business Combinations
. The following table summarizes the Company’s provisional estimates of the fair values of the assets acquired and liabilities assumed:
|
|
February 27,
|
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Property, plant and equipment
|
|
$
|
1,049
|
|
Goodwill*
|
|
|
92,084
|
|
Customer lists
|
|
|
22,752
|
|
Order backlog
|
|
|
2,521
|
|
Accounts receivable
|
|
|
5,240
|
|
Unbilled Revenue
|
|
|
4,324
|
|
Prepayments and other current assets
|
|
|
621
|
|
Accounts payable
|
|
|
(749
|
)
|
Payments on account
|
|
|
(4,186
|
)
|
Deferred tax liability
|
|
|
(2,171
|
)
|
Other liabilities
|
|
|
(5,483
|
)
|
Net assets acquired
|
|
$
|
116,002
|
|
|
|
|
|
Cash consideration
|
|
$
|
108,717
|
|
Other liabilities assumed**
|
|
|
11,283
|
|
Gross cash outflows
|
|
|
120,000
|
|
Working capital adjustment
|
|
|
(3,998
|
)
|
Net cash outflows
|
|
$
|
116,002
|
|
|
|
|
|
|
*
|
Goodwill represents the acquisition of an established workforce with experience in the provision of strategic payer-validated market access solutions while the acquisition of Complete Healthcare Communications comprises an established workforce with significant communication experience working with medical affairs, commercial and brand development teams within the life science industry.
|
**
|
Payments made at acquisition date of $11.3 million were in respect of certain one-time liabilities at the acquisition date which have subsequently been discharged.
|
The proforma effect of the MediMedia Pharma Solutions 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, 2015 and December 31, 2014 as follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Net revenue
|
|
$
|
1,581,816
|
|
|
$
|
1,556,936
|
|
Net income
|
|
$
|
239,361
|
|
|
$
|
179,289
|
|
Basic earnings per share
|
|
$
|
4.07
|
|
|
$
|
2.92
|
|
Diluted earnings per share
|
|
$
|
3.97
|
|
|
$
|
2.84
|
|
(c) Acquisitions of Aptiv Solutions
On May 7, 2014 the Company acquired 100% of the common stock of Aptiv Solutions (“Aptiv”), a global biopharmaceutical and medical device development services company and leader in adaptive clinical trials for cash consideration of $143.5 million, including certain payments to be made on behalf of the company on completion totaling $22.4 million. The acquisition agreement provided for working capital targets to be achieved. On March 25, 2015, the Company received $1.9 million in respect of these targets on completion of the working capital review. Aptiv offers full-service clinical trial consulting and regulatory support for drugs, medical devices and diagnostics with a specific focus on strategies to increase product development efficiency and productivity. It is a market leader in the integrated design and execution of adaptive clinical trials for exploratory and late phase development as well as being an industry leader in medical device and diagnostic development in key medical technology segments.
The acquisition of Aptiv has been accounted for as a business combination in accordance with FASB ASC 805
Business Combinations
. The following table summarizes the fair values of the assets acquired and the liabilities assumed:
|
|
May 7,
|
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Property, plant and equipment
|
|
$
|
6,924
|
|
|
|
|
125,627
|
|
|
|
|
21,400
|
|
Order backlog
|
|
|
7,900
|
|
Cash and cash equivalents
|
|
|
3,484
|
|
Accounts receivable
|
|
|
25,091
|
|
Unbilled revenue
|
|
|
21,154
|
|
Prepayments and other current assets
|
|
|
4,180
|
|
Non-current assets
|
|
|
2,911
|
|
Accounts payable
|
|
|
(9,565
|
)
|
Other liabilities
|
|
|
(29,782
|
)
|
Payments on account
|
|
|
(31,094
|
)
|
Non-current other liabilities
|
|
|
(11,303
|
)
|
Loan notes payable**
|
|
|
(17,790
|
)
|
Net assets acquired
|
|
$
|
119,137
|
|
|
|
|
Cash consideration
|
|
$143,500
|
Working capital adjustment
|
|
(1,964)
|
|
|
141,536
|
Adjustments to cash consideration**
|
|
(22,399)
|
Net purchase consideration
|
|
$119,137
|
|
|
|
*Goodwill represents the acquisition of an established workforce with experience in clinical trial consulting and regulatory support for the development of drugs, medical devices and diagnostics, with a specific focus on strategy to increase efficiency and productivity in product development. Goodwill related to the US portion of the business acquired is tax deductible.
**Adjustments to cash consideration represent certain one-time liabilities (including loan notes) identified at the acquisition date which have subsequently been paid.
The proforma effect of the Aptiv Solutions acquisition if completed on January 1, 2013 would have resulted in net revenue, net income and earnings per share for the fiscal years ended December 31, 2013 and December 31, 2014 as follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Net revenue
|
|
$
|
1,543,820
|
|
|
$
|
1,451,682
|
|
Net income
|
|
$
|
172,508
|
|
|
$
|
101,857
|
|
Basic earnings per share
|
|
$
|
2.81
|
|
|
$
|
1.67
|
|
Diluted earnings per share
|
|
$
|
2.73
|
|
|
$
|
1.64
|
|
(d) Acquisition of Clinical Trial Services Division of Cross Country Healthcare, Inc.
On February 15, 2013 the Company acquired the clinical trial services division of Cross Country Healthcare Inc. for an initial cash consideration of $51.9 million. 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. The division also includes AKOS, a leading US and EU provider of pharmacovigilance and drug safety services. ClinForce and Assent have been combined with ICON’s functional service provision (“FSP”) division, DOCS, creating a leader in global resourcing and FSP, while AKOS has enhanced the services offered by ICON’s medical and safety services team.
The acquisition agreement also provided for certain working capital targets to be achieved by the clinical trial services division of Cross Country Healthcare, Inc on completion. In October 2013 the Company received $0.2 million on completion of this review.
The acquisition of the clinical trial services division of Cross Country Healthcare, Inc has been accounted for as a business combination in accordance with FASB ASC 805
Business Combinations
. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed:
|
|
February 15,
|
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Property, plant and equipment
|
|
$
|
339
|
|
Goodwill*
|
|
|
36,922
|
|
Intangible asset – customer relationships
|
|
|
3,300
|
|
Intangible asset – order backlog
|
|
|
600
|
|
Cash and cash equivalents
|
|
|
1,039
|
|
Accounts receivable
|
|
|
9,200
|
|
Unbilled revenue
|
|
|
2,128
|
|
Prepayments and other current assets
|
|
|
465
|
|
Non-current assets
|
|
|
6
|
|
Other liabilities
|
|
|
(2,285
|
)
|
Non-current other liabilities
|
|
|
(16
|
)
|
Net assets acquired
|
|
$
|
51,698
|
|
|
|
|
|
Cash consideration
|
|
$
|
51,897
|
|
Working capital adjustment
|
|
|
(199
|
)
|
Net purchase consideration
|
|
$
|
51,698
|
|
* Goodwill represents the acquisition of an established workforce with experience in the clinical research industry, thereby allowing the Company to enhance its capabilities in global resourcing and FSP and also medical and safety services. Goodwill related to the US portion of the business acquired is tax deductible.
The proforma effect of the clinical trial services division of Cross Country Healthcare, Inc acquisition if completed on January 1, 2012 would have resulted in net revenue, net income and earnings per share for the fiscal years ended December 31, 2012 and December 31, 2013 as follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
Net revenue
|
|
$
|
1,343,996
|
|
|
$
|
1,182,734
|
|
Net income
|
|
$
|
103,133
|
|
|
$
|
58,944
|
|
Basic earnings per share
|
|
$
|
1.69
|
|
|
$
|
0.98
|
|
Diluted earnings per share
|
|
$
|
1.66
|
|
|
$
|
0.98
|
|
5. Intangible Assets
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Cost
|
|
(in thousands)
|
|
Customer relationships acquired
|
|
$
|
90,541
|
|
|
$
|
36,130
|
|
Technology asset acquired
|
|
|
11,169
|
|
|
|
11,169
|
|
Order backlog
|
|
|
13,592
|
|
|
|
3,171
|
|
Tradenames acquired
|
|
|
1,357
|
|
|
|
1,357
|
|
Volunteer list acquired
|
|
|
1,325
|
|
|
|
1,325
|
|
Non-compete arrangements
|
|
|
489
|
|
|
|
489
|
|
Aptiv intangible asset
|
|
|
-
|
|
|
|
30,037
|
|
Foreign exchange movement
|
|
|
(5,092
|
)
|
|
|
(2,769
|
)
|
Total cost
|
|
|
113,381
|
|
|
|
80,909
|
|
Accumulated amortization
|
|
|
(49,587
|
)
|
|
|
(32,120
|
)
|
Foreign exchange movement
|
|
|
2,333
|
|
|
|
930
|
|
Net book value
|
|
$
|
66,127
|
|
|
$
|
49,719
|
|
On December 4, 2015 the Company acquired PMG, an integrated network of 48 clinical research sites in North Carolina, South Carolina, Tennessee and Illinois. 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 relationships identified of $10.3 million is being amortized over approximately 6 years, the estimated period of benefit. $170,000 has been amortized in the period since the date of acquisition.
On February 27, 2015 the Company acquired MediMedia Pharma Solutions. Headquartered in Yardley, Pennsylvania, MediMedia Pharma Solutions includes MediMedia 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. $4.8 million has been amortized in the period since the date of acquisition.
On May 7, 2014 the Company acquired Aptiv Solutions (“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. $9,484,000 has been amortized in the period since the date of acquisition.
On February 15, 2013 the Company 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. $3,763,000 has been amortized in the period since the date of acquisition.
On February 28, 2012 the Company 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 and 3 years, the estimated period of benefit. $4,720,000 has been amortized in the period since the date of acquisition.
On February 15, 2012 the Company 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 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. $1,136,000 has been amortized in the period since the date of acquisition.
On July 14, 2011 the Company 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 tradename and order backlog identified of $1.4 million and $1.2 million respectively are being amortized over approximately 4.5 and 1.2 years, the estimated period of benefit. $11,103,000 has been amortized in the period since the date of acquisition.
On January 14, 2011 the Company 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 are being amortized over approximately 6.5 and 2 years, the estimated period of benefit. $5,795,000 has been amortized in the period since the date of acquisition.
On November 14, 2008 the Company 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. $5,792,000 has been amortized in the period since the date of acquisition.
On February 11, 2008 the Company acquired Healthcare Discoveries, a US provider of Phase I clinical trial services. The value of certain client relationships identified of $1.6 million is being 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 is being amortized over approximately 6 years, the estimated period of benefit. $2,812,000 has been amortized in the period since the date of acquisition.
Future intangible asset amortization expense for the years ended December 31, 2016 to December 31, 2020 is as follows:
|
|
Year ended
December 31,
(in thousands)
|
|
2016
|
|
$
|
15,599
|
|
2017
|
|
|
12,451
|
|
2018
|
|
|
11,034
|
|
2019
|
|
|
9,494
|
|
2020
|
|
|
9,215
|
|
|
|
$
|
57,793
|
|
6. Property, Plant and Equipment, net
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Cost
|
|
|
|
|
|
|
Land
|
|
$
|
3,464
|
|
|
$
|
3,464
|
|
Building
|
|
|
80,861
|
|
|
|
88,580
|
|
Computer equipment and software
|
|
|
282,909
|
|
|
|
247,980
|
|
Office furniture and fixtures
|
|
|
65,152
|
|
|
|
64,690
|
|
Laboratory equipment
|
|
|
31,098
|
|
|
|
23,599
|
|
Leasehold improvements
|
|
|
20,647
|
|
|
|
19,516
|
|
Motor vehicles
|
|
|
47
|
|
|
|
47
|
|
|
|
|
484,178
|
|
|
|
447,876
|
|
Less accumulated depreciation and asset write offs
|
|
|
(333,960
|
)
|
|
|
(299,691
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (net)
|
|
$
|
150,218
|
|
|
$
|
148,185
|
|
7. Other Liabilities
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Personnel related liabilities
|
|
$
|
159,339
|
|
|
$
|
167,362
|
|
Facility related liabilities
|
|
|
22,517
|
|
|
|
19,862
|
|
General overhead liabilities
|
|
|
29,257
|
|
|
|
33,422
|
|
Other liabilities
|
|
|
18,607
|
|
|
|
26,631
|
|
Short term government grants (note 11)
|
|
|
43
|
|
|
|
110
|
|
Restructuring and other items (note 14)
|
|
|
2,116
|
|
|
|
3,704
|
|
|
|
$
|
231,879
|
|
|
$
|
251,091
|
|
8. Other Non-Current Liabilities
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Personnel related liabilities (note 9)*
|
|
|
3,187
|
|
|
|
1,059
|
|
Defined benefit pension obligations, net (note 9)
|
|
|
4,002
|
|
|
|
7,466
|
|
Other non-current liabilities
|
|
|
5,035
|
|
|
|
4,654
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,224
|
|
|
$
|
13,179
|
|
*An amount of $764,000 was included within other liabilities in respect of the Company’s Swiss pension plan at December 31, 2014. The total pension liability recorded at December 31, 2014 was $1,823,000.
9. Employee Benefits
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 6% of the participant's annual compensation. Contributions to the plan are recorded, as an expense in the Consolidated Statement of Operations. Contributions for the years ended December 31, 2013, December 31, 2014 and December 31, 2015 were $20,293,000, $22,582,000 and $21,874,000 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 50% of each participant's contributions; each participant can contribute up to 6% of their 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, 2013, December 31, 2014 and December 31, 2015 were $9,816,000, $10,514,000 and $12,802,000 respectively.
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, 2015, December 31, 2014 and December 31, 2013, 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.
Change in benefit obligation
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
(in thousands)
|
|
Benefit obligation at beginning of year
|
|
$
|
32,875
|
|
|
$
|
24,958
|
|
Service cost
|
|
|
78
|
|
|
|
91
|
|
Interest cost
|
|
|
1,140
|
|
|
|
1,235
|
|
Plan participants’ contributions
|
|
|
26
|
|
|
|
44
|
|
Plan curtailments
|
|
|
-
|
|
|
|
359
|
|
Benefits paid
|
|
|
(1,111
|
)
|
|
|
(68
|
)
|
Actuarial (gain)/loss
|
|
|
(3,992
|
)
|
|
|
8,270
|
|
Foreign currency exchange rate changes
|
|
|
(1,647
|
)
|
|
|
(2,014
|
)
|
Benefit obligation at end of year
|
|
$
|
27,369
|
|
|
$
|
32,875
|
|
Change in plan assets
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
(in thousands)
|
|
Fair value of plan assets at beginning of year
|
|
$
|
25,409
|
|
|
$
|
21,422
|
|
Actual return on plan assets
|
|
|
277
|
|
|
|
5,424
|
|
Employer contributions
|
|
|
114
|
|
|
|
155
|
|
Plan participants’ contributions
|
|
|
26
|
|
|
|
44
|
|
Benefits paid
|
|
|
(1,111
|
)
|
|
|
(68
|
)
|
Foreign currency exchange rate changes
|
|
|
(1,348
|
)
|
|
|
(1,568
|
)
|
Fair value of plan assets at end of year
|
|
$
|
23,367
|
|
|
$
|
25,409
|
|
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.
Funded status
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
(in thousands)
|
|
Projected benefit obligation
|
|
$
|
(27,369
|
)
|
|
$
|
(32,875
|
)
|
Fair value of plan assets
|
|
|
23,367
|
|
|
|
25,409
|
|
Funded status
|
|
$
|
(4,002
|
)
|
|
$
|
(7,466
|
)
|
|
|
|
|
|
|
|
|
|
Non-current other liabilities (note 8)
|
|
$
|
(4,002
|
)
|
|
$
|
(7,466
|
)
|
The following amounts were recorded in the consolidated statement of operations as components of the net periodic benefit cost:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
78
|
|
|
$
|
91
|
|
|
$
|
251
|
|
Interest cost
|
|
|
1,140
|
|
|
|
1,235
|
|
|
|
1,005
|
|
Expected return on plan assets
|
|
|
(661
|
)
|
|
|
(1,299
|
)
|
|
|
(983
|
)
|
Amortization of net loss
|
|
|
224
|
|
|
|
20
|
|
|
|
130
|
|
Curtailment loss
|
|
|
-
|
|
|
|
359
|
|
|
|
-
|
|
Net periodic benefit cost
|
|
$
|
781
|
|
|
$
|
406
|
|
|
$
|
403
|
|
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, 2013, December 31, 2014 and December 31, 2015:
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Discount rate
|
|
|
3.6
|
%
|
|
|
4.7
|
%
|
|
|
4.6
|
%
|
Rate of compensation increase
|
|
|
3.6
|
%
|
|
|
4.0
|
%
|
|
|
3.4
|
%
|
Expected rate of return on plan assets
|
|
|
2.7
|
%
|
|
|
6.1
|
%
|
|
|
5.7
|
%
|
Accumulated other comprehensive income
|
|
December 31,
2015
|
December 31,
2014
|
December 31,
2013
|
|
|
|
(in thousands)
|
|
Actuarial (gain)/loss - benefit obligation
|
|
$
|
(3,992
|
)
|
|
$
|
8,270
|
|
|
$
|
680
|
|
Actuarial loss/(gain) – plan assets
|
|
|
384
|
|
|
|
(4,125
|
)
|
|
|
(1,933
|
)
|
Actuarial gain recognized in net periodic benefit cost
|
|
|
(224
|
)
|
|
|
(20
|
)
|
|
|
(130
|
)
|
Total
|
|
$
|
(3,832
|
)
|
|
$
|
4,125
|
|
|
$
|
(1,383
|
)
|
The estimated net gain 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 $nil 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:
|
|
|
December 31,
2015
|
|
|
|
December 31,
2014
|
|
|
|
December 31,
2013
|
|
|
|
|
(in thousands)
|
|
Net actuarial loss
|
|
$
|
2,281
|
|
|
$
|
6,113
|
|
|
$
|
1,988
|
|
Total
|
|
$
|
2,281
|
|
|
$
|
6,113
|
|
|
$
|
1,988
|
|
Benefit Obligation
The following assumptions were used in determining the benefit obligation at December 31, 2015:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4.0
|
%
|
|
|
3.6
|
%
|
Rate of compensation increase
|
|
|
3.7
|
%
|
|
|
3.6
|
%
|
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 30 basis points.
Plan Assets
The assets of the scheme are invested with Legal and General and 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 70% of investments are in government bonds (both fixed interest and index linked) and approximately 30% 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, 2015 of 3.0% 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
|
|
Expected long-term return per annum
|
|
Corporate Bonds
|
|
|
4.0
|
%
|
Gilts
|
|
|
2.6
|
%
|
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.
The underlying asset split of the fund is shown below.
Asset Category
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Corporate Bonds
|
|
|
26
|
%
|
|
|
26
|
%
|
Gilts
|
|
|
74
|
%
|
|
|
74
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Applying the above expected long term rates of return to the asset distribution at December 31, 2015, gives rise to an expected overall rate of return of scheme assets of approximately 3.0% per annum.
Plan Asset Fair Value Measurements
|
|
Quoted Prices in Active Markets for Identical Assets
Level 1
(in thousands)
|
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Cash
|
|
$
|
3
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
Legal and General Active Corporate Bond – Over 10 Year
|
|
|
6,256
|
|
|
|
6,560
|
|
Legal and General Gilt Funds
|
|
|
6,528
|
|
|
|
6,977
|
|
Legal and General Index Linked Gilt Funds
|
|
|
10,580
|
|
|
|
11,856
|
|
|
|
$
|
23,367
|
|
|
$
|
25,409
|
|
Cash Flows
The Company expects to contribute $0.1 million to its pension fund in the year ending December 31, 2016.
The following annual benefit payments, which reflect expected future service as appropriate, are expected to be paid.
|
|
(in thousands)
|
|
|
|
|
|
2016
|
|
|
66
|
|
2017
|
|
|
68
|
|
2018
|
|
|
71
|
|
2019
|
|
|
72
|
|
2020
|
|
|
75
|
|
Years 2021 - 2025
|
|
$
|
376
|
|
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 in respect of 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.
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, 2015 and December 31, 2014 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
.
Change in benefit obligation
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
|
8,884
|
|
Service cost
|
|
|
618
|
|
Interest cost
|
|
|
159
|
|
Actuarial loss
|
|
|
81
|
|
Foreign currency exchange rate changes
|
|
|
(1,205
|
)
|
Benefit obligation at end of year
|
|
|
8,537
|
|
Change in plan assets
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
7,061
|
|
Expected return on plan assets
|
|
|
93
|
|
Actual return on plan assets
|
|
|
(1,075
|
)
|
Scheme contributions
|
|
|
194
|
|
Plan participants’ contributions
|
|
|
216
|
|
Benefits paid
|
|
|
(1,146
|
)
|
Foreign currency exchange rate changes
|
|
|
7
|
|
Fair value of plan assets at end of year
|
|
|
5,350
|
|
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.
Funded status
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Projected benefit obligation
|
|
$
|
8,537
|
|
Fair value of plan assets
|
|
|
(5,350
|
)
|
Funded status
|
|
|
3,187
|
|
|
|
|
|
|
Non-current other liabilities (note 8)
|
|
|
3,187
|
|
|
|
December 31,
2015
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
402
|
|
Interest cost
|
|
|
159
|
|
Expected return on plan assets
|
|
|
(119
|
)
|
Settlement loss
|
|
|
18
|
|
Net periodic benefit cost
|
|
$
|
460
|
|
The following assumptions were used at the commencement of the year in determining the net periodic pension benefit cost for the year ended December 31, 2015:
|
|
December 31,
|
|
|
|
2015
|
|
Discount rate
|
|
|
1.35
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
Expected rate of return on plan assets
|
|
|
1.35
|
%
|
Accumulated other comprehensive income
|
|
December 31,
2015
|
|
Actuarial loss - benefit obligation
|
|
$
|
81
|
|
Actuarial (gain) – plan assets
|
|
|
1,075
|
|
Prior service cost recognized in net periodic benefit cost
|
|
|
(17
|
)
|
Total
|
|
$
|
1,139
|
|
The estimated net gain 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 $nil and $nil respectively.
Benefit Obligation
The following assumptions were used in determining the benefit obligation at December 31, 2015:
|
|
December 31,
|
|
|
|
2015
|
|
Discount rate
|
|
|
0.95
|
%
|
Rate of compensation increase
|
|
|
2.0
|
%
|
The discount rate is determined by reference to Swiss long dated government and corporate bond yields at the balance sheet date.
Plan Assets
The assets of the scheme are invested with Swiss Life and held in a combination of debt securities, equity securities and in real estate. There is no self-investment in employer related assets. The expected long term rates of return on different asset classes are as follows:
Asset Category
|
|
December 31,
2015
|
|
Equity securities
|
|
|
1
|
%
|
Debt securities
|
|
|
75
|
%
|
Real estate
|
|
|
12
|
%
|
Other
|
|
|
12
|
%
|
|
|
|
100
|
%
|
Cash Flows
The Company expects to contribute $0.2 million to its pension fund in the year ending December 31, 2016.
The following annual benefit payments, which reflect expected future service as appropriate, are expected to be paid.
|
|
(in thousands)
|
|
|
|
|
|
2016
|
|
|
166
|
|
2017
|
|
|
169
|
|
2018
|
|
|
171
|
|
2019
|
|
|
182
|
|
2020
|
|
|
182
|
|
Years 2021 - 2025
|
|
$
|
1,205
|
|
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 in respect of 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.
Each option granted under the 2008 Employee Plan or the 2008 Consultants Plan (together 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.
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 400,000 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 July 21, 2018.
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, 2015 is eight years.
The following table summarizes the transactions for the Company’s share option plans for the years ended December 31, 2015, December 31, 2014 and December 31, 2013:
|
|
Options Granted
Under Plans
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Grant Date Fair
Value
|
|
Outstanding at December 31, 2012
|
|
|
4,350,631
|
|
|
|
4,350,631
|
|
|
$
|
23.01
|
|
|
$
|
9.17
|
|
Granted
|
|
|
264,950
|
|
|
|
264,950
|
|
|
$
|
33.09
|
|
|
$
|
12.05
|
|
Exercised
|
|
|
(1,249,759
|
)
|
|
|
(1,249,759
|
)
|
|
$
|
21.60
|
|
|
$
|
8.58
|
|
Cancelled
|
|
|
(392,034
|
)
|
|
|
(392,034
|
)
|
|
$
|
25.27
|
|
|
$
|
10.02
|
|
Outstanding at December 31, 2013
|
|
|
2,973,788
|
|
|
|
2,973,788
|
|
|
$
|
24.20
|
|
|
$
|
9.57
|
|
Granted
|
|
|
366,985
|
|
|
|
366,985
|
|
|
$
|
45.82
|
|
|
$
|
14.09
|
|
Exercised
|
|
|
(926,407
|
)
|
|
|
(926,407
|
)
|
|
$
|
24.02
|
|
|
$
|
9.45
|
|
Cancelled
|
|
|
(186,666
|
)
|
|
|
(186,666
|
)
|
|
$
|
22.17
|
|
|
$
|
9.01
|
|
Outstanding at December 31, 2014
|
|
|
2,227,700
|
|
|
|
2,227,700
|
|
|
$
|
28.00
|
|
|
$
|
10.40
|
|
Granted
|
|
|
259,059
|
|
|
|
259,059
|
|
|
$
|
68.25
|
|
|
$
|
19.75
|
|
Exercised
|
|
|
(773,753
|
)
|
|
|
(773,753
|
)
|
|
$
|
27.13
|
|
|
$
|
10.31
|
|
Cancelled
|
|
|
(86,424
|
)
|
|
|
(86,424
|
)
|
|
$
|
27.32
|
|
|
$
|
10.31
|
|
Outstanding at December 31, 2015
|
|
|
1,626,582
|
|
|
|
1,626,582
|
|
|
$
|
34.87
|
|
|
$
|
11.94
|
|
Vested and exercisable at December 31, 2015
|
|
|
657,729
|
|
|
|
657,729
|
|
|
$
|
24.15
|
|
|
$
|
9.36
|
|
The weighted average remaining contractual life of options outstanding and options exercisable at December 31, 2015, was 4.76 years and 3.39 years respectively (2014: 4.58 years and 3.22 years respectively). 336,993 options are expected to vest during the year ended December 31, 2016 (494,951 options were expected to vest during the year ended December 31, 2015).
The intrinsic value of options exercised during the year ended December 31, 2015 amounted to $34.2 million. The intrinsic value of options outstanding and options exercisable at December 31, 2015 amounted to $69.7 million and $35.2 million respectively. Intrinsic value is calculated based on the market value versus strike price of the Company’s shares at the date of exercise.
Non-vested shares outstanding as at December 31, 2015 are as follows:
|
|
Options
Outstanding
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested outstanding at December 31, 2014
|
|
|
1,203,150
|
|
|
$
|
30.54
|
|
|
$
|
10.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
259,059
|
|
|
|
68.25
|
|
|
|
19.75
|
|
Vested
|
|
|
(379,992
|
)
|
|
|
28.25
|
|
|
|
10.49
|
|
Forfeited
|
|
|
(113,364
|
)
|
|
|
25.21
|
|
|
|
9.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested outstanding at December 31, 2015
|
|
|
968,853
|
|
|
$
|
42.14
|
|
|
$
|
13.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable share options:
The following table summarizes information concerning outstanding and exercisable share options as of December 31, 2015:
Options Outstanding
|
|
|
Options Exercisable
|
|
Range Exercise Price
|
|
|
Number of Shares
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
$
|
15.84
|
|
|
|
50,000
|
|
|
|
1.33
|
|
|
$
|
15.84
|
|
|
|
50,000
|
|
|
$
|
15.84
|
|
$
|
16.80
|
|
|
|
60,000
|
|
|
|
3.83
|
|
|
$
|
16.80
|
|
|
|
30,000
|
|
|
$
|
16.80
|
|
$
|
17.17
|
|
|
|
12,000
|
|
|
|
3.85
|
|
|
$
|
17.17
|
|
|
|
6,000
|
|
|
$
|
17.17
|
|
$
|
18.98
|
|
|
|
600
|
|
|
|
0.87
|
|
|
$
|
18.98
|
|
|
|
600
|
|
|
$
|
18.98
|
|
$
|
20.16
|
|
|
|
400
|
|
|
|
2.88
|
|
|
$
|
20.16
|
|
|
|
400
|
|
|
$
|
20.16
|
|
$
|
20.28
|
|
|
|
255,694
|
|
|
|
3.17
|
|
|
$
|
20.28
|
|
|
|
158,073
|
|
|
$
|
20.28
|
|
$
|
20.59
|
|
|
|
57,200
|
|
|
|
4.14
|
|
|
$
|
20.59
|
|
|
|
4,000
|
|
|
$
|
20.59
|
|
$
|
22.26
|
|
|
|
61,755
|
|
|
|
1.15
|
|
|
$
|
22.26
|
|
|
|
61,755
|
|
|
$
|
22.26
|
|
$
|
22.30
|
|
|
|
250,939
|
|
|
|
4.32
|
|
|
$
|
22.30
|
|
|
|
109,894
|
|
|
$
|
22.30
|
|
$
|
23.66
|
|
|
|
7,890
|
|
|
|
4.58
|
|
|
$
|
23.66
|
|
|
|
4,450
|
|
|
$
|
23.66
|
|
$
|
24.46
|
|
|
|
101,412
|
|
|
|
2.18
|
|
|
$
|
24.46
|
|
|
|
101,412
|
|
|
$
|
24.46
|
|
$
|
26.20
|
|
|
|
1,950
|
|
|
|
2.39
|
|
|
$
|
26.20
|
|
|
|
1,950
|
|
|
$
|
26.20
|
|
$
|
26.71
|
|
|
|
4,450
|
|
|
|
4.86
|
|
|
$
|
26.71
|
|
|
|
2,670
|
|
|
$
|
26.71
|
|
$
|
29.45
|
|
|
|
3,000
|
|
|
|
2.33
|
|
|
$
|
29.45
|
|
|
|
3,000
|
|
|
$
|
29.45
|
|
$
|
32.37
|
|
|
|
179,603
|
|
|
|
5.34
|
|
|
$
|
32.37
|
|
|
|
70,997
|
|
|
$
|
32.37
|
|
$
|
35.33
|
|
|
|
1,350
|
|
|
|
0.16
|
|
|
$
|
35.33
|
|
|
|
1,350
|
|
|
$
|
35.33
|
|
$
|
36.22
|
|
|
|
27,213
|
|
|
|
5.47
|
|
|
$
|
36.22
|
|
|
|
7,908
|
|
|
$
|
36.22
|
|
$
|
37.90
|
|
|
|
7,100
|
|
|
|
5.93
|
|
|
$
|
37.90
|
|
|
|
920
|
|
|
$
|
37.90
|
|
$
|
40.83
|
|
|
|
105,992
|
|
|
|
6.40
|
|
|
$
|
40.83
|
|
|
|
20,468
|
|
|
$
|
40.83
|
|
$
|
47.03
|
|
|
|
71,670
|
|
|
|
6.18
|
|
|
$
|
47.03
|
|
|
|
7,520
|
|
|
$
|
47.03
|
|
$
|
48.67
|
|
|
|
140,881
|
|
|
|
6.21
|
|
|
$
|
48.67
|
|
|
|
13,556
|
|
|
$
|
48.67
|
|
$
|
51.35
|
|
|
|
4,030
|
|
|
|
6.61
|
|
|
$
|
51.35
|
|
|
|
806
|
|
|
$
|
51.35
|
|
$
|
66.47
|
|
|
|
15,969
|
|
|
|
7.39
|
|
|
$
|
66.47
|
|
|
|
-
|
|
|
$
|
66.47
|
|
$
|
66.97
|
|
|
|
3,118
|
|
|
|
7.46
|
|
|
$
|
66.97
|
|
|
|
-
|
|
|
$
|
66.97
|
|
$
|
68.39
|
|
|
|
232,366
|
|
|
|
7.22
|
|
|
$
|
68.39
|
|
|
|
-
|
|
|
$
|
68.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15.84 - $68.39
|
|
|
|
1,626,582
|
|
|
|
4.76
|
|
|
$
|
34.87
|
|
|
|
657,729
|
|
|
$
|
24.15
|
|
Options outstanding include both vested and unvested options as at December 31, 2015. Options exercisable represent options which have vested at December 31, 2015. From the date of grant, substantially all options vest over a five year period at 20% per annum.
Fair value of Stock Options Assumptions
The weighted average fair value of options granted during the years ended December 31, 2015, December 31, 2014 and December 31, 2013 was calculated using the Black-Scholes option pricing model. The weighted average fair values and assumptions were as follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value
|
|
$
|
19.75
|
|
|
$
|
14.09
|
|
|
$
|
12.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
40
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.58
|
%
|
|
|
1.57
|
%
|
|
|
0.76
|
%
|
Expected life
|
|
5.0 years
|
|
|
5.0 years
|
|
|
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 RSU’s and PSU’s to certain key individuals of the Group. The following table summarizes RSU and PSU activity for the year ended December 31, 2015:
|
|
PSU Outstanding
Number of Shares
|
|
|
PSU
Weighted Average
Fair Value
|
|
|
PSU
Weighted Average Remaining Contractual Life
|
|
|
RSU Outstanding
Number of Shares
|
|
|
RSU
Weighted Average
Fair Value
|
|
|
RSU
Weighted Average Remaining Contractual Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
669,171
|
|
|
$
|
39.78
|
|
|
|
1.77
|
|
|
|
1,038,996
|
|
|
$
|
35.19
|
|
|
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
259,110
|
|
|
$
|
68.82
|
|
|
|
|
|
|
|
389,542
|
|
|
$
|
67.02
|
|
|
|
|
|
Shares vested
|
|
|
(7,990
|
)
|
|
|
32.38
|
|
|
|
|
|
|
|
(268,870
|
)
|
|
$
|
26.06
|
|
|
|
|
|
Forfeited
|
|
|
(18,518
|
)
|
|
$
|
46.82
|
|
|
|
|
|
|
|
(92,055
|
)
|
|
$
|
44.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
901,773
|
|
|
$
|
72.55
|
|
|
|
2.49
|
|
|
|
1,067,613
|
|
|
$
|
48.30
|
|
|
|
1.48
|
|
The fair value of RSU’s vested for the year ended December 31, 2015 totaled $7.0 million (2014: $4.9 million).
The fair value of PSU’s vested for the year ended December 31, 2015 totaled $0.3 million. No PSU’s vested during 2014.
The PSU’s vest based on service and specified EPS targets over the periods 2014 – 2016 and 2015 – 2017. Since 2013, 456,922 PSU’s (net of forfeitures and exercises) have been granted. Depending on the actual amount of EPS from 2013 to 2017, up to an additional 444,851 PSU’s may also be granted.
Non-cash stock compensation expense
Income from operations for the year ended December 31, 2015 is stated after charging $33.3 million in respect of non-cash stock compensation expense. Non-cash stock compensation expense for the year ended December 31, 2015 has been allocated as follows:
|
|
Year ended
|
|
|
|
December 31,
2015
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
(in thousands)
|
|
Direct costs
|
|
$
|
18,358
|
|
|
$
|
12,531
|
|
|
$
|
7,835
|
|
Selling, general and administrative
|
|
$
|
14,959
|
|
|
$
|
10,211
|
|
|
$
|
6,385
|
|
Total compensation costs
|
|
$
|
33,317
|
|
|
$
|
22,742
|
|
|
$
|
14,220
|
|
Total non-cash stock compensation expense not yet recognized at December 31, 2015 amounted to $61.9 million. The weighted average period over which this is expected to be recognized is 2.05 years. Total tax benefit recognized in additional paid in capital related to the non-cash compensation expense amounted to $1.9 million for the year ended December 31, 2015 (2014: $2.4 million, 2013: $1.7 million).
The income tax expense for the year ended December 31, 2015 reflects a net income tax benefit of $1.5 million in connection with stock compensation and the cash tax benefit realized in connection with stock options exercised during 2015 was $5.6 million. The income tax expense for the year ended 31 December 2014 reflects a net income tax benefit of $1.5 million in connection with stock compensation and the cash tax benefit realized in connection with stock options exercised during 2014 was $3.9 million.
11. Government Grants
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Received
|
|
$
|
3,539
|
|
|
$
|
3,698
|
|
Less accumulated amortization
|
|
|
(2,657
|
)
|
|
|
(2,710
|
)
|
Foreign exchange translation adjustment
|
|
|
120
|
|
|
|
238
|
|
Total government grants
|
|
|
1,002
|
|
|
|
1,226
|
|
Less current portion
|
|
|
(43
|
)
|
|
|
(110
|
)
|
Non-current government grants
|
|
$
|
959
|
|
|
$
|
1,116
|
|
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.
A net charge of $53,000 was recorded in respect of government grants during the year ended December 31, 2015.
Government grants amortized to the profit and loss account amounted
to $213,000 for the year ended December 31, 2014
. As at December 31, 2015 the Company had $0.7 million in restricted retained earnings, pursuant to the terms of grant agreements.
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, 2015, 773,753 options were exercised by employees at an average exercise price of $27.13 per share for total proceeds of $21.0 million. During the year ended December 31, 2015, 268,870 ordinary shares were issued in respect of certain RSU’s and 7,990 ordinary shares were issued in respect of certain PSUs previously awarded by the Company.
During the year ended December 31, 2014, 926,407 options were exercised by employees at an average exercise price of $24.02 per share for total proceeds of $22.3 million. During the year ended December 31, 2014, 233,726 ordinary shares were issued in respect of certain RSU’s previously awarded by the Company.
During the year ended December 31, 2013, 1,249,759 options were exercised by employees at an average exercise price of $21.60 per share for total proceeds of $27.0 million. During the year ended December 31, 2013, 50,000 ordinary shares were issued in respect of certain RSU’s previously awarded by the Company.
(a) Share Repurchase Program
On May 1, 2015 the Company commenced a buyback program of up to $60 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 882,419 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $57.9 million. All ordinary shares that were redeemed under the buyback program were cancelled in accordance with the Constitution of the Company and the nominal value of these shares transferred to a capital redemption reserve fund as required under Irish Company Law.
On July 31, 2015 the Company commenced a further 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 cancelled in accordance with the Constitution of the Company and the nominal value of these shares transferred to a capital redemption reserve fund as required under Irish Company Law. The share buyback program was completed in December 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.
During the year ended December 31, 2014 2,640,610 ordinary shares were repurchased by the Company for a total consideration of $140.0 million. There were no share repurchases completed during 2013. All ordinary shares repurchased by the Company were cancelled, and the nominal value of these shares transferred to a capital redemption reserve fund as required under Irish Company Law.
On October 27, 2011 the Company announced its intention to commence a share repurchase program of up to $50 million. On November 22, 2011 the Company entered into two separate share repurchase plans of up to $10 million each, covering the periods November 23, 2011 to December 31, 2011 and January 1, 2012 to February 20, 2012 respectively. On February 21, 2012 the Company entered into a further share repurchase plan of up to $20 million, covering the period February 22, 2012 to April 22, 2012. On April 27, 2012 the Company entered into a fourth share repurchase plan of up to $20 million, covering the period April 27, 2012 to July 18, 2012. On July 30, 2012 the Company entered into a fifth share repurchase plan of up to $10 million, covering the period July 30, 2012 to October 26, 2012. On September 19, 2014 the Company announced that it had completed a $40 million redemption of the Company’s ordinary shares and that it had entered into a further program under which the Company can acquire up to an additional $100 million of its outstanding ordinary shares (by way of redemption), in accordance with United States securities laws through open market share acquisitions.
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, 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.
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 provision for income taxes are as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
184,643
|
|
|
$
|
143,889
|
|
|
$
|
80,914
|
|
United States
|
|
|
15,436
|
|
|
|
6,966
|
|
|
|
16,218
|
|
Other
|
|
|
78,771
|
|
|
|
51,861
|
|
|
|
23,733
|
|
Income before provision for income taxes
|
|
$
|
278,850
|
|
|
$
|
202,716
|
|
|
$
|
120,865
|
|
The components of provision for income taxes are as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
|
Ireland
|
|
$
|
21,769
|
|
|
$
|
19,562
|
|
|
$
|
9,158
|
|
United States
|
|
|
684
|
|
|
|
7,891
|
|
|
|
14,492
|
|
Other
|
|
|
13,701
|
|
|
|
10,695
|
|
|
|
4,876
|
|
Total current tax expense
|
|
|
36,154
|
|
|
|
38,148
|
|
|
|
28,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense/(benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Ireland
|
|
|
26
|
|
|
|
(1,178
|
)
|
|
|
1,914
|
|
United States
|
|
|
2,896
|
|
|
|
(3,031
|
)
|
|
|
(9,420
|
)
|
Other
|
|
|
235
|
|
|
|
(3,691
|
)
|
|
|
(2,967
|
)
|
Total deferred tax expense/(benefit)
|
|
|
3,157
|
|
|
|
(7,900
|
)
|
|
|
(10,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
39,311
|
|
|
|
30,248
|
|
|
|
18,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on shareholders equity and other comprehensive income of the tax consequence of :
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefit on stock compensation
|
|
|
(1,905
|
)
|
|
|
(2,404
|
)
|
|
|
(1,651
|
)
|
Currency impact on long term funding
|
|
|
3,574
|
|
|
|
178
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,980
|
|
|
$
|
28,022
|
|
|
$
|
16,489
|
|
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:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Taxes at Irish statutory rate of 12.5% (2014:12.5%; 2013:12.5%)
|
|
$
|
34,856
|
|
|
$
|
25,340
|
|
|
$
|
15,108
|
|
Foreign and other income taxed at higher rates
|
|
|
4,614
|
|
|
|
3,152
|
|
|
|
4,873
|
|
Research & development tax incentives
|
|
|
(695
|
)
|
|
|
(1,810
|
)
|
|
|
(2,598
|
)
|
Movement in valuation allowance
|
|
|
(4,133
|
)
|
|
|
(1,965
|
)
|
|
|
2,389
|
|
Effects of change in tax rates
|
|
|
(16
|
)
|
|
|
543
|
|
|
|
1,553
|
|
Increase/(decrease) in unrecognized tax benefits
|
|
|
5,085
|
|
|
|
2,869
|
|
|
|
(1,409
|
)
|
Effects of permanent items
|
|
|
(463
|
)
|
|
|
2,048
|
|
|
|
(1,790
|
)
|
Other
|
|
|
63
|
|
|
|
71
|
|
|
|
(73
|
)
|
Provision for income taxes
|
|
$
|
39,311
|
|
|
$
|
30,248
|
|
|
$
|
18,053
|
|
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented below:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
2,665
|
|
|
$
|
4,270
|
|
|
$
|
6,501
|
|
Goodwill
|
|
|
21,571
|
|
|
|
18,645
|
|
|
|
14,013
|
|
Other intangible assets
|
|
|
7,369
|
|
|
|
3,657
|
|
|
|
970
|
|
Other
|
|
|
1,293
|
|
|
|
1,947
|
|
|
|
1,111
|
|
Total deferred tax liabilities recognized
|
|
|
32,898
|
|
|
|
28,519
|
|
|
|
22,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss and tax credits carryforwards
|
|
|
22,186
|
|
|
|
30,586
|
|
|
|
29,696
|
|
Property, plant and equipment
|
|
|
4,818
|
|
|
|
4,002
|
|
|
|
2,739
|
|
Accrued expenses and payments on account
|
|
|
29,473
|
|
|
|
37,620
|
|
|
|
30,136
|
|
Stock compensation
|
|
|
12,959
|
|
|
|
8,717
|
|
|
|
6,291
|
|
Deferred compensation expense
|
|
|
2,174
|
|
|
|
1,853
|
|
|
|
1,187
|
|
Other
|
|
|
566
|
|
|
|
1,244
|
|
|
|
92
|
|
Total deferred tax assets
|
|
|
72,176
|
|
|
|
84,022
|
|
|
|
70,141
|
|
Valuation allowance for deferred tax assets
|
|
|
(17,184
|
)
|
|
|
(23,145
|
)
|
|
|
(24,348
|
)
|
Deferred tax assets recognized
|
|
|
54,992
|
|
|
|
60,877
|
|
|
|
45,793
|
|
Overall net deferred tax asset
|
|
$
|
22,094
|
|
|
$
|
32,358
|
|
|
$
|
23,198
|
|
The Company early adopted the provisions of ASU 2015-17 which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent on the basis that it is a more useful presentation of the Company’s position. The prior period amounts were not retrospectively adjusted.
At December 31, 2015 non-U.S subsidiaries had operating loss carryforwards for income tax purposes that may be carried forward indefinitely, available to offset against future taxable income, if any, of approximately $68.6 million (2014: $95.6 million). In addition at December 31, 2015 non-U.S subsidiaries had tax credit carryforwards for income tax purposes that may be carried forward indefinitely, available to offset against future tax liabilities, if any, of $5.9 million (2014: $3.6 million). At December 31, 2015 non-U.S. subsidiaries also had additional operating loss carry forwards of $6.3 million which are due to expire between 2016 and 2022.
At December 31, 2015 U.S. subsidiaries had U.S. federal and state net operating loss (“NOL”) carry forwards of approximately $51.6million and $ 89.8million, respectively. These NOLs are available for offset against future taxable income and expire between 2016 and 2035. Of the $51.6 million U.S. federal NOLs, approximately $ 26.7 million is currently available for offset against future U.S. federal taxable income. Of the $51.6 million U.S. federal NOLs, approximately $ 16.3million would be recorded in additional paid in capital upon utilization. Of the $89.8 million of state NOLs, approximately $ 17.3million would be recorded in additional paid in capital upon utilization. The subsidiary’s ability to use the U.S. federal and state NOL carry forwards is limited on an annual basis due to changes of ownership in 2000, 2010 and 2014, as defined by Section 382 of the Internal Revenue Code of 1986, as amended. Of the U.S. federal NOLs, $29.2 million are limited by Section 382. Of the $29.2 million of losses, the amount available during 2015 totaled $4.2 million. The remaining losses are available as follows: $4.2 million for the years 2016 – 2018, $2.9 million in 2019, $2.0M for the years 2020 – 2023 and $1.2 million in 2024.
The expected expiry dates of these losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
2016-2017
|
|
|
|
565
|
|
|
|
-
|
|
2023-2033
|
|
|
|
34,800
|
|
|
|
63,793
|
|
2035
|
|
|
|
16,252
|
|
|
|
25,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,617
|
|
|
$
|
89,780
|
|
In addition US subsidiaries have alternative minimum tax credit carry forwards of approximately $0.3 million that are available to reduce future U.S. federal regular income taxes, over an indefinite period. They also have general business credit carry forwards of approximately $0.3 million that are available to offset future U.S. federal income taxes.
The valuation allowance at December 31, 2015 was approximately $17.2 million. The valuation allowance for deferred tax assets as of December 31, 2014 and December 31, 2013 was $23.1 million and $24.3 million respectively. The net change in the total valuation allowance was a decrease of $5.9 million during 2015 and a decrease of $1.2 million during 2014. Of the total decrease of $5.9 million in 2015, $4.1 million resulted in a current year income tax benefit with the remaining decrease of $1.8 million recognized in Other Comprehensive Income. Of the total decrease of $1.2 million in 2014, $2.0 million resulted in a current year income tax benefit offset by an increase of $0.8 million recognized in Other Comprehensive Income.
The valuation allowances at December 31, 2015 and December 31, 2014 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. In 2014, in the UK, a change in commercial circumstances led to a change in judgment concerning the need for a valuation allowance on certain limited loss carryforwards; the release of the beginning-of-year valuation allowance resulted in a tax benefit of $3.1 million. During 2015, a UK subsidiary utilized losses for which a full beginning-of-year valuation allowance had been retained resulting in a tax benefit of $3.2 million.
The Company has not recognized a deferred tax liability for the undistributed earnings of foreign subsidiaries that arose in 2015 and prior years as the Company considers these earnings 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:
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Unrecognized tax benefits at start of year
|
|
$
|
23,201
|
|
|
$
|
5,780
|
|
|
$
|
7,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase related to acquired tax positions
|
|
|
778
|
|
|
|
14,552
|
|
|
|
-
|
|
Increase related to prior year tax positions
|
|
|
1,482
|
|
|
|
565
|
|
|
|
-
|
|
Decrease related to prior year tax positions
|
|
|
-
|
|
|
|
(183
|
)
|
|
|
(494
|
)
|
Increase related to current year tax positions
|
|
|
3,063
|
|
|
|
3,709
|
|
|
|
2,269
|
|
Settlements
|
|
|
(315
|
)
|
|
|
(2
|
)
|
|
|
(899
|
)
|
Lapse of statute of limitations
|
|
|
(43
|
)
|
|
|
(1,220
|
)
|
|
|
(2,285
|
)
|
Unrecognized tax benefits at end of year
|
|
$
|
28,166
|
|
|
$
|
23,201
|
|
|
$
|
5,780
|
|
The relevant statute of limitations for unrecognized tax benefits totaling $3.8 million could potentially expire during 2016. $0.8 million of the increase during the year ended 31 December 2015 (2014: $14.5 million) reflects pre-acquisition tax positions taken by companies acquired during 2014.
Included in the balance of total unrecognized tax benefits at December 31, 2015 were potential benefits of $28.2 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, 2014 and December 31, 2013 included potential benefits which, if recognized, would affect the effective rate of income tax from continuing operations of $23.2 million and $5.8 million respectively.
Interest and penalties recognized as a net expense during the year ended December 31, 2015 amounted to $0.9 million (2014: net benefit of $0.2 million, 2013: net benefit of $0.2 million) and are included within the provision for income taxes. Total accrued interest and penalties as of December 31, 2015 and December 31, 2014 were $3.3 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, 2012, December 31, 2013, December 31, 2014 and December 31, 2015. In Ireland, tax periods open to audit include the years ended December 31, 2011, December 31, 2012, December 31, 2013, December 31, 2014 and December 31, 2015. During such audits, local tax authorities may challenge the positions taken by us in tax returns.
14. Restructuring and other items
Restructuring and other items recognized during the year ended December 31, 2015 comprise:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Restructuring charges
|
|
|
-
|
|
|
$
|
8,796
|
|
|
$
|
9,033
|
|
Net charge
|
|
|
-
|
|
|
$
|
8,796
|
|
|
$
|
9,033
|
|
Prior Period Restructuring Charges
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. We expect this to be paid by 2024.
|
|
Onerous
|
|
|
Asset
|
|
|
|
|
|
|
Lease
|
|
|
Impairment
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Total provision recognized
|
|
$
|
3,167
|
|
|
$
|
5,629
|
|
|
$
|
8,796
|
|
Asset write-off
|
|
|
-
|
|
|
|
(5,629
|
)
|
|
|
(5,629
|
)
|
Provision at December 31, 2014
|
|
$
|
3,167
|
|
|
|
-
|
|
|
$
|
3,167
|
|
Utilized
|
|
|
(1,167
|
)
|
|
|
-
|
|
|
|
(1,167
|
)
|
Provision at December 31, 2015
|
|
|
2,000
|
|
|
|
-
|
|
|
|
2,000
|
|
The onerous lease obligation at December 31, 2015 is $2.0 million and is included within other liabilities.
Prior Period Restructuring Charges
Restructuring and other items of $9.0 million were recorded during the year ended December 31, 2013. During 2013 the Company conducted a review of its operations. This review resulted in the adoption of an initial restructuring plan, which included the closure of its Phase I facility in Omaha, Nebraska. This followed the expansion of the Company’s Phase I facility in San Antonio, Texas and the consolidation of the Company’s US Phase I capabilities in this location. The restructuring plan also included resource rationalizations in certain areas of the business to improve resource utilization. A further restructuring plan was also adopted during 2013 which resulted in resource rationalizations in order to improve operating efficiencies and reduce expenses. Details of the movement in this restructuring plan are as follows:
|
|
Workforce
|
|
|
Office
|
|
|
|
|
|
|
Reductions
|
|
|
Consolidations
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Q1 Plan - Initial provision recognized
|
|
$
|
3,903
|
|
|
$
|
509
|
|
|
$
|
4,412
|
|
Q2 Plan - Initial provision recognized
|
|
|
4,228
|
|
|
|
393
|
|
|
|
4,621
|
|
Total provision recognized
|
|
|
8,131
|
|
|
|
902
|
|
|
|
9,033
|
|
Cash payments
|
|
|
(6,544
|
)
|
|
|
(199
|
)
|
|
|
(6,743
|
)
|
Amounts released
|
|
|
(93
|
)
|
|
|
-
|
|
|
|
(93
|
)
|
Foreign exchange movement
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
Provision at December 31, 2013
|
|
$
|
1,491
|
|
|
$
|
703
|
|
|
$
|
2,194
|
|
Cash payments
|
|
|
(1,319
|
)
|
|
|
(337
|
)
|
|
|
(1,656
|
)
|
Amounts released
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign exchange movement
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Provision at December 31, 2014
|
|
$
|
171
|
|
|
$
|
366
|
|
|
$
|
537
|
|
Cash payments
|
|
|
(82
|
)
|
|
|
-
|
|
|
|
(82
|
)
|
Amounts released
|
|
|
-
|
|
|
|
(339
|
)
|
|
|
(339
|
)
|
Provision at December 31, 2015
|
|
$
|
89
|
|
|
$
|
27
|
|
|
$
|
116
|
|
15. Provision for Doubtful Debts
The Company does business with most major international pharmaceutical companies. Provision for doubtful debts at December 31, 2015 comprises:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Opening provision
|
|
$
|
5,458
|
|
|
$
|
3,148
|
|
Amounts used during the year
|
|
|
(161
|
)
|
|
|
(502
|
)
|
Amounts provided during the year
|
|
|
7,572
|
|
|
|
2,874
|
|
Amounts released during the year
|
|
|
(2,244
|
)
|
|
|
(62
|
)
|
Translation
|
|
|
(242
|
)
|
|
|
-
|
|
Closing provision
|
|
$
|
10,383
|
|
|
$
|
5,458
|
|
16. 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 10 years. These leases generally contain renewal options and require the Company to pay all executory costs such as maintenance and insurance. The Company recognized $49.9 million, $54.3 million and $54.9 million in rental expense, including rates, for the years ended December 31, 2015, December 31, 2014 and December 31, 2013 respectively. Future minimum rental commitments for operating leases with non-cancelable terms in excess of one year are as follows:
|
|
Minimum rental payments
|
|
|
|
(in thousands)
|
|
2016
|
|
|
36,921
|
|
2017
|
|
|
26,784
|
|
2018
|
|
|
20,547
|
|
2019
|
|
|
15,502
|
|
2020
|
|
|
11,974
|
|
Thereafter
|
|
|
45,924
|
|
|
|
|
|
|
Total
|
|
$
|
157,652
|
|
17. Business Segment and Geographical Information
The Company is a contract 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 Executive Officer, Chief Financial Officer and Chief Operating Officer, who together are considered the Company’s chief operating decision maker, in accordance with FASB ASC 280-10
Disclosures about Segments of an Enterprises and Related Information
.
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 (“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, generally fall to be 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.
The Company's areas of operation outside of Ireland include the United States, United Kingdom, France, Germany, Italy, Spain, The Netherlands, Sweden, Turkey, Poland, Czech Republic, Latvia, Russia, Ukraine, Hungary, Israel, Romania, Switzerland, Canada, Mexico, Brazil, Colombia, Argentina, Chile, Peru, India, China, South Korea, Japan, Thailand, Taiwan, Singapore, The Philippines, Australia, New Zealand, and South Africa.
Business segment and geographical information as at December 31, 2015 and December 31, 2014 and for the years ended December 31, 2015, December 31, 2014 and December 31, 2013 is as follows:
a) The distribution of net revenue by geographical area was as follows:
|
|
|
Year ended
|
|
|
|
|
December 31,
|
|
|
|
December 31,
2014
|
|
|
|
December 31,
2013
|
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
429,631
|
|
|
$
|
360,376
|
|
|
$
|
272,683
|
|
Rest of Europe
|
|
|
330,487
|
|
|
|
372,634
|
|
|
|
333,543
|
|
U.S.
|
|
|
650,941
|
|
|
|
605,815
|
|
|
|
582,250
|
|
Other
|
|
|
163,919
|
|
|
|
164,491
|
|
|
|
147,582
|
|
Total
|
|
$
|
1,574,978
|
|
|
$
|
1,503,316
|
|
|
$
|
1,336,058
|
|
b) The distribution of income from operations, including restructuring and other items, by geographical area was as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
189,035
|
|
|
$
|
138,185
|
|
|
$
|
81,811
|
|
Rest of Europe
|
|
|
38,166
|
|
|
|
14,481
|
|
|
|
2,831
|
|
U.S.
|
|
|
45,320
|
|
|
|
39,058
|
|
|
|
29,472
|
|
Other
|
|
|
9,015
|
|
|
|
10,626
|
|
|
|
7,053
|
|
Total
|
|
$
|
281,536
|
|
|
$
|
202,350
|
|
|
$
|
121,167
|
|
c) The distribution of income from operations, excluding restructuring and other items, by geographical area was as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
189,035
|
|
|
$
|
138,185
|
|
|
$
|
82,867
|
|
Rest of Europe
|
|
|
38,166
|
|
|
|
23,277
|
|
|
|
6,269
|
|
U.S.
|
|
|
45,320
|
|
|
|
39,058
|
|
|
|
33,564
|
|
Other
|
|
|
9,015
|
|
|
|
10,626
|
|
|
|
7,500
|
|
Total
|
|
$
|
281,536
|
|
|
$
|
211,146
|
|
|
$
|
130,200
|
|
d) The distribution of property, plant and equipment, net, by geographical area was as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
101,736
|
|
|
$
|
95,574
|
|
Rest of Europe
|
|
|
7,334
|
|
|
|
10,419
|
|
U.S.
|
|
|
34,520
|
|
|
|
33,978
|
|
Other
|
|
|
6,628
|
|
|
|
8,214
|
|
Total
|
|
$
|
150,218
|
|
|
$
|
148,185
|
|
e) The distribution of depreciation and amortization by geographical area was as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
22,100
|
|
|
$
|
20,731
|
|
|
$
|
19,826
|
|
Rest of Europe
|
|
|
11,055
|
|
|
|
7,478
|
|
|
|
6,595
|
|
U.S.
|
|
|
20,106
|
|
|
|
20,491
|
|
|
|
16,233
|
|
Other
|
|
|
4,416
|
|
|
|
3,842
|
|
|
|
3,860
|
|
Total
|
|
$
|
57,677
|
|
|
$
|
52,542
|
|
|
$
|
46,514
|
|
f) The distribution of total assets by geographical area was as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
664,754
|
|
|
$
|
495,747
|
|
Rest of Europe
|
|
|
343,733
|
|
|
|
324,086
|
|
U.S.
|
|
|
641,769
|
|
|
|
648,559
|
|
Other
|
|
|
68,647
|
|
|
|
60,458
|
|
Total
|
|
$
|
1,718,903
|
|
|
$
|
1,528,850
|
|
g) The distribution of capital expenditures by geographical area was as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
30,900
|
|
|
$
|
15,117
|
|
|
$
|
3,976
|
|
Rest of Europe
|
|
|
1,916
|
|
|
|
2,278
|
|
|
|
1,887
|
|
U.S.
|
|
|
15,256
|
|
|
|
12,224
|
|
|
|
20,842
|
|
Other
|
|
|
1,658
|
|
|
|
3,160
|
|
|
|
2,783
|
|
Total
|
|
$
|
49,730
|
|
|
$
|
32,779
|
|
|
$
|
29,488
|
|
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.
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Client A
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client B
|
|
|
-
|
*
|
|
|
-
|
*
|
|
|
10
|
%
|
* Net revenue did not exceed 10%.
i) The distribution of interest income by geographical area was as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
102
|
|
|
$
|
284
|
|
|
$
|
355
|
|
Rest of Europe
|
|
|
1,151
|
|
|
|
798
|
|
|
|
501
|
|
U.S.
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
49
|
|
|
|
69
|
|
|
|
130
|
|
Total
|
|
$
|
1,306
|
|
|
$
|
1,151
|
|
|
$
|
986
|
|
j) The distribution of the income tax charge by geographical area was as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
Ireland
|
|
$
|
21,795
|
|
|
$
|
18,384
|
|
|
$
|
11,073
|
|
Rest of Europe
|
|
|
8,007
|
|
|
|
2,855
|
|
|
|
(7
|
)
|
U.S.
|
|
|
3,580
|
|
|
|
4,860
|
|
|
|
5,072
|
|
Other
|
|
|
5,929
|
|
|
|
4,149
|
|
|
|
1,915
|
|
Total
|
|
$
|
39,311
|
|
|
$
|
30,248
|
|
|
$
|
18,053
|
|
18. Supplemental Disclosure of Cash Flow Information
|
|
Year ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash interest on acquisition consideration payable*
|
|
|
-
|
|
|
|
-
|
|
|
$
|
240
|
|
Cash paid for interest
|
|
$
|
2,175
|
|
|
$
|
533
|
|
|
$
|
548
|
|
Cash paid for income taxes
|
|
$
|
14,829
|
|
|
$
|
17,829
|
|
|
$
|
14,103
|
|
* recorded within interest expense
19. Accumulated Other Comprehensive Income
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Currency translation adjustments
|
|
$
|
(57,315
|
)
|
|
$
|
(22,210
|
)
|
Currency impact on long term funding (Net of tax)
|
|
|
(5,484
|
)
|
|
|
(9,252
|
)
|
Actuarial loss on defined benefit pension plan (note 9)
|
|
|
(3,420
|
)
|
|
|
(6,113
|
)
|
Unrealized capital (loss)/gain – investments (note 3)
|
|
|
(34
|
)
|
|
|
20
|
|
Realized gain on interest rate hedge
|
|
|
4,617
|
|
|
|
-
|
|
Total
|
|
$
|
(61,636
|
)
|
|
$
|
(37,555
|
)
|
20. Long-Term Debt – Senior Notes
In December 2015 the Company issued $350 million in the private placement market.
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 will be 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 Agreement.
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.
21. Impact of New Accounting Pronouncements
In January 2015, the FASB
issued ASU 2015-01, which
eliminates the concept of extraordinary items from U.S. GAAP as part of its simplification initiative. The ASU does not affect disclosure guidance for events or transactions that are unusual in nature or infrequent in their occurrence. The ASU is effective for fiscal years and, interim periods within those fiscal years, beginning after December 15, 2015. The ASU allows prospective or retrospective application. Early adoption is permitted if applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU 2015-01 to have a material impact on the financial statements.
In February 2015, the FASB issued ASU 2015-02,
which changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. It also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The new guidance excludes money market funds that are required to comply with Rule 2a-7 of the Investment Company Act of 1940 and similar entities from the U.S. GAAP consolidation requirements. The new consolidation guidance is effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-02 to have a material impact on the financial statements.
In April 2015, the FASB issued ASU 2015-03, which intends to simplify the presentation of debt issuance costs. This ASU is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.
Subsequent to the issuance of ASU 2015-03, the SEC staff made an announcement regarding the presentation of debt issuance costs associated with line-of-credit arrangements, which was codified by the FASB in ASU 2015-15. The SEC staff guidance is effective upon adoption of ASU 2015-03. The Company does not expect the adoption of ASU 2015-03 to have a material impact on the financial statements.
In April 2015, the FASB issued ASU 2015-04, which permits an entity with a fiscal year-end that does not fall on a month-end to measure defined benefit plan obligations and assets as of the month-end that is closest to the entity’s fiscal year-end, and apply that methodology consistently from year to year. The ASU also requires an entity to adjust the measurement of defined benefit plan obligations and assets to reflect contributions or significant events that occur between the month-end date used to measure defined benefit plan obligations and assets and the entity’s fiscal year-end. This ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2015-03 to have a material impact on the financial statements.
In April 2015, the FASB issued ASU 2015-05, which provides explicit guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. This ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-05 to have a material impact on the financial statements.
In April 2015, the FASB issued ASU 2015-06, which requires a master limited partnership (MLP) to allocate earnings (losses) of a transferred business entirely to the general partner when computing earnings per unit (EPU) for periods before the dropdown transaction occurred. The EPU that the limited partners previously reported would not change as a result of the dropdown transaction. The ASU also requires an MLP to disclose the effects of the dropdown transaction on EPU for the periods before and after the dropdown transaction occurred. The Company does not expect the adoption of ASU 2015-06 to have a material impact on the financial statements.
In July 2015, the FASB issued ASU 2015-11, which, for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. This ASU is effective for public business entities in fiscal years beginning after December 15, 2017.
The adoption of ASU 2015-11 is not expected to have a significant impact on the financial statements.
FASB ASU 2015-14 amends the effective dates of ASU 2014-09,
Revenue from Contracts with Customers
. The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
The adoption of ASU 2015-14 is not expected to have a significant impact on the financial statements.
In September 2015, the FASB issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. The ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The adoption of ASU 2015-14 is not expected to have a significant impact on the financial statements.
In November 2015, the FASB issued ASU 2015-17, which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The ASU 2015-17 has been early adopted in the financial statements presented. The impact is described in Note 13 to the financial statements.
In January 2016, the FASB issued ASU 2016-01, 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 is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2017. The adoption of ASU 2016-01 is not expected to have a significant impact on the financial statements.
22. Related Parties
On July 19, 2012, Mr. Peter Gray retired as a Director and employee of the Company. The Company subsequently entered into an agreement with Integritum Limited, a company controlled by Mr. Gray, for the provision of consultancy services for a period of two years from August 1, 2012, at an agreed fee of €265,000 ($350,000) per annum. This arrangement expired in August, 2014.
Subsidiaries of the Company earned revenue of $221,000 from GW Pharmaceuticals plc in the normal course of business. There were backlog awards at December 31, 2015 of $88,000. Tom Lynch, Chairman of the Company is a non-executive Director of GW Pharmaceuticals plc. The contract terms were agreed on an arm’s length basis.
Subsidiaries of the Company earned revenue of $100,000 (2014: $300,000) from Dignity Sciences Limited during the year. Dr. John Climax is a director and both Dr. John Climax and Dr. Ronan Lambe are shareholders of Dignity Sciences Limited. The contract terms were agreed on an arm’s length basis.
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
|
|
|
|
|
Date March 23, 2016
|
/s/ Brendan Brennan
|
|
Brendan Brennan
|
|
Chief Financial Officer
|
INDEX TO EXHIBITS
Exhibit
Number
|
|
Title
|
3.1
|
|
Description of the Memorandum and Articles of Association of the Company (incorporated by reference to exhibit 3.1 to the Form 20F (File No. 333-08704) filed on March 6, 2013).
|
|
|
|
12.1*
|
|
Section 302 certifications.
|
|
|
|
12.2*
|
|
Section 906 certifications.
|
|
|
|
21.1
|
|
List of Subsidiaries (incorporated by reference to Item 4 of Form 20-F filed herewith).
|
|
|
|
23.1*
|
|
Consent of KPMG, Independent Registered Public Accounting Firm
|
101.1*
|
|
Interactive Data Files (XBRL – Related Documents)
|
* Filed herewith
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