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Document


FORM 6-K
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 under
the Securities Exchange Act of 1934


For
the month ended October, 2018

ICON plc
(Registrant's name)


333-08704
(Commission file number)


South County Business Park, Leopardstown, Dublin 18, Ireland
(Address of principal executive offices)


Brendan Brennan, CFO
South County Business Park, Leopardstown, Dublin 18, Ireland
Brendan.Brennan@iconplc.com
+353-1-291-2000
(Name, telephone number, email and/or facsimile number and address of Company contact person)



Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
 
Yes___X___
No______
 
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
 
Yes______
No___X___
 
Indicate by check mark whether the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
 
Yes______
No___X___
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes______
No___X___
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82 N/A





ICON plc
Rider A
This report on Form 6-K is hereby incorporated by reference in the registration statement on Form F-3 (Registration No. 333-133371) of ICON plc and in the prospectus contained therein, and this report on Form 6-K shall be deemed a part of such registration statement from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished by ICON plc under the Securities Act of 1933 or the Securities Exchange Act of 1934.


1



GENERAL
As used herein, “ICON”, the “Company” and “we” refer to ICON plc and its consolidated subsidiaries, unless the context requires otherwise.
Business
ICON public limited company (“ICON”) is a clinical research organization (“CRO”), providing outsourced development services on a global basis to the pharmaceutical, biotechnology and medical device industries. We specialize in the strategic development, management and analysis of programs that support all stages of the clinical development process - from compound selection to Phase I-IV clinical studies.  Our vision is to be the global CRO partner of choice in drug development by delivering best in class information, solutions and performance in clinical and outcomes research.
We believe that we are one of a select group of CROs with the expertise and capability to conduct clinical trials in most major therapeutic areas on a global basis and have the operational flexibility to provide development services on a stand-alone basis or as part of an integrated “full service” solution. At September 30, 2018 we had approximately 13,620 employees, in 93 locations in 37 countries. During the nine months ended September 30, 2018, we derived approximately 35.2%, 54.7% and 10.1% of our revenue in the United States, Europe and Rest of World respectively.
We began operations in 1990 and have expanded our business predominately through organic growth, together with a number of strategic acquisitions to enhance our capabilities and expertise in certain areas of the clinical development process. We are incorporated in Ireland and our principal executive office is located at: South County Business Park, Leopardstown, Dublin 18, Republic of Ireland. The contact telephone number of this office is +353-1-291-2000.
Recent Developments
Changes in Board composition and executive leadership transition
In February 2018, the Board approved the appointment of Mr. Ciaran Murray (Executive Chairman) as non-Executive Chairman of ICON plc with effect from May 12, 2018. Dr, Ronan Lambe retired from the Board at the AGM on July 24, 2018.
Acquisitions
On July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited acquired Mapi Development SAS ('Mapi') and its subsidiaries ("Mapi Group"). Mapi Group has over 40 years of experience supporting life-science companies as a world leading patient-centered research company in commercializing novel treatments through real-world evidence, strategic regulatory services, pharmacovigilance, market access and language services. Mapi Group is the premier provider of health research and commercialization services to life-science companies enabling market authorization, market access and market adoption of novel therapeutics. Total cash outflows on acquisition were $145.8 million. The acquisition of Mapi Group strengthens ICON’s existing commercialization and outcomes research business adding significant commercialization presence, analytics, real world evidence generation and strategic regulatory services.
Share repurchase program
A resolution was passed at the Company’s Annual General Meeting (“AGM”) on July 22, 2016, which authorizes the Directors to purchase (buyback) up to 10% of the outstanding shares in the Company.  On October 3, 2016, the Company commenced the share buyback program of up to $400 million.  At December 31, 2017, a total of 3,018,414 ordinary shares were redeemed by the Company under the buyback program for a total consideration of $243.1 million.  At September 30, 2018 a total of 3,503,557 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $300.1 million.  All ordinary shares that were redeemed under the buyback program were canceled in accordance with the Constitution of the Company and the nominal value of these shares transferred to other undenominated capital as required by Irish Company law.

2



New accounting pronouncements
Recently adopted accounting standards
The new revenue recognition standard (Accounting Standards Update (ASU) No. 2014-09 ‘Revenue from Contracts with Customers’) was released in 2014 and became effective for ICON plc with effect from January 1, 2018.  ICON has elected to adopt the new standard (Accounting Standards Codification (ASC) 606 'Revenue from Contracts with Customers') under the cumulative effect transition method. Under this transition method, the new standard is applied from January 1, 2018 without restatement of comparative period amounts. The cumulative effect of initially applying the new standard is reflected as an adjustment to opening equity at the date of application ($48.1 million). Results for the three months and nine months ended September 2017 are therefore presented under the previous revenue recognition accounting principles, ASC 605 'Revenue recognition'. See 'Note 13-Impact of change in accounting policies' for details of implications of adoption.
ASU 2016-16 'Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory' was issued in October 2016 and requires entities to recognize at the transaction date the income tax consequences of intercompany asset transfers other than inventory. The effective date of the standard for public companies is for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company has adopted the modified retrospective approach, as required by the standard, in determining the cumulative impact in retained earnings at January 1, 2018. The cumulative impact recognized in retained earnings as at January 1, 2018 is nil and the new guidance has no impact on the financial statements as at September 30, 2018.
Recently issued accounting standards
The new leasing standard (ASU No. 2016-02 ‘Leases’) was issued in February 2016 and will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. ASC 842 ‘Leases’ supersedes the current requirements in ASC 840 'Leases' and requires that lessees recognize rights and obligations from virtually all leases (other than leases that meet the definition of a short-term lease) on their balance sheets as right-of-use assets with corresponding lease liabilities. The ASU also provides additional guidance on how to classify leases and how to determine the lease term for accounting purposes. In July 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-11 'Leases (Topic 842): Targeted Improvements', which provides the option to adopt the standard retrospectively for each prior period presented, as initially set out in ASU No. 2016-02, or as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. While ICON is still determining the impact of this ASU on its consolidated financial statements, the most significant change is expected to be the recognition of the right-of-use assets and lease liabilities on the consolidated balance sheet for operating leases related to property.
In August 2018, the FASB issued ASU No. 2018-15 'Internal-Use Software (Subtopic 350-40)' which provides guidance on when to capitalize implementation costs incurred in hosting arrangements which are accounted for as service contracts. ICON is currently evaluating the impact of this ASU on its consolidated financial statements. This ASU will be effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted.



3


     ICON plc
CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2018 AND DECEMBER 31, 2017
 
(Unaudited)
 
(Audited)
 
September 30, 2018

 
December 31, 2017

ASSETS
(in thousands)
Current Assets:

 

Cash and cash equivalents
$
426,221

 
$
282,859

Short term investments - available for sale
65,261

 
77,589

Accounts receivable, net
373,264

 
379,501

Unbilled revenue
338,523

 
268,509

Other receivables
38,501

 
33,798

Prepayments and other current assets
42,314

 
34,377

Income taxes receivable
21,457

 
24,385

Total current assets
1,305,541


1,101,018

 
 
 
 
Other Assets:
 
 
 
Property, plant and equipment, net
154,548

 
163,051

Goodwill
760,884

 
769,058

Other non-current assets
15,694

 
15,393

Non-current income taxes receivable
18,977

 
18,396

Non-current deferred tax asset
15,922

 
8,074

Intangible assets
54,162

 
71,628

Total Assets
$
2,325,728

 
$
2,146,618

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
15,306

 
$
18,590

Payments on account
353,636

 
298,992

Other liabilities
216,959

 
233,503

Income taxes payable
16,239

 
14,973

Total current liabilities
602,140

 
566,058

Other Liabilities:
 

 
 

Non-current bank credit lines and loan facilities
349,169

 
348,888

Non-current other liabilities
16,670

 
17,111

Non-current government grants
902

 
966

Non-current income taxes payable
14,773

 
14,879

Non-current deferred tax liability
7,590

 
7,716

Commitments and contingencies

 

Total Liabilities
991,244

 
955,618

Shareholders' Equity:
 
 
 
Ordinary shares, par value 6 euro cents per share; 100,000,000 shares authorized,
 
 
 
54,435,930 shares issued and outstanding at September 30, 2018 and
 
 
 
54,081,601 shares issued and outstanding at December 31, 2017
4,689

 
4,664

Additional paid‑in capital
521,191

 
481,337

Other undenominated capital
947

 
912

Accumulated other comprehensive income
(64,526
)
 
(38,713
)
Retained earnings
872,183

 
742,800

Total Shareholders' Equity
1,334,484

 
1,191,000

Total Liabilities and Shareholders' Equity
$
2,325,728

 
$
2,146,618

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017
(UNAUDITED)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2018

 
September 30, 2017

 
September 30, 2018

 
September 30, 2017

 
(in thousands except share and per share data)
Revenue:
 
 
 
 
 
 
 
 
Revenue
 
$
655,017

 
$
596,169

 
$
1,916,752

 
$
1,766,016

Reimbursable expenses
 

 
(155,846
)
 

 
(462,716
)
 
 
 
 
 
 


 


 
 


 
440,323

 


 
1,303,300

 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 

 
 

 
 
 
 
Direct costs
 


 


 


 


   - Reimbursable expenses
 
179,642

 

 
507,708

 

   - Other direct costs
 
279,554

 
259,672

 
831,306

 
760,175

Selling, general and administrative expense
 
80,819

 
79,433

 
242,670

 
241,655

Depreciation and amortization
 
17,062

 
16,280

 
51,006

 
45,123

Restructuring
 




12,490

 
7,753

 
 
 
 
 
 
 
 
 
Total costs and expenses
 
557,077

 
355,385

 
1,645,180

 
1,054,706

 
 
 
 
 
 
 
 
 
Income from operations
 
97,940

 
84,938

 
271,572

 
248,594

Interest income
 
1,314

 
632

 
3,154

 
1,766

Interest expense
 
(3,201
)
 
(3,177
)
 
(10,298
)
 
(9,535
)
 
 
 
 
 
 
 
 
 
Income before provision for income taxes
 
96,053

 
82,393

 
264,428

 
240,825

Provision for income taxes
 
(11,526
)
 
(8,239
)
 
(29,935
)
 
(30,445
)
 
 
 
 


 
 
 
 
Net income
 
$
84,527

 
$
74,154

 
$
234,493

 
$
210,380

 
 
 
 
 
 
 
 
 
Net income per Ordinary Share:
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.55

 
$
1.37

 
$
4.33

 
$
3.89

 
 
 
 
 
 


 


Diluted
 
$
1.54

 
$
1.35

 
$
4.27

 
$
3.84

 
 
 
 
 
 
 
 
 
Weighted average number of Ordinary Shares outstanding:
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
54,368,656

 
54,109,566

 
54,134,639

 
54,110,022

 
 
 
 
 
 


 


Diluted
 
54,901,404

 
54,756,184

 
54,888,151

 
54,840,112


The accompanying notes are an integral part of these condensed consolidated financial statements.


5


ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017 (UNAUDITED)

 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
234,493

 
$
210,380

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 Loss on disposal of property, plant and equipment
9

 
185

 Depreciation expense
35,432

 
31,748

 Amortization of intangibles
15,574

 
13,375

 Amortization of government grants
(35
)
 
(33
)
 Interest on short term investments
(1,094
)
 
(887
)
 Stock compensation expense
24,974

 
26,961

 Amortization of gain on interest rate hedge
(698
)
 
(696
)
 Amortization of financing costs
671

 
408

 Deferred taxes
(1,448
)
 
1,579

Changes in assets and liabilities:
 

 
 

 Decrease in accounts receivable
4,935

 
90,205

 Increase in unbilled revenue
(73,648
)
 
(47,707
)
 Decrease/(increase) in other receivables
4,919

 
(5,560
)
 Increase in prepayments and other current assets
(8,591
)
 
(2,169
)
 Increase in other non-current assets
(323
)
 
(1,219
)
 Decrease in payments on account
(11,567
)
 
(40,389
)
(Decrease)/increase in other current liabilities
(14,422
)
 
2,449

 Decrease in other non-current liabilities
(589
)
 
(3,682
)
 Increase in income taxes payable
2,215

 
792

(Decrease)/increase in accounts payable
(3,031
)
 
1,444

Net cash provided by operating activities
207,776

 
277,184

Cash flows from investing activities:
 

 
 

 Purchase of property, plant and equipment
(28,387
)
 
(23,690
)
 Purchase of subsidiary undertakings
(1,645
)
 
(144,131
)
 Cash acquired with subsidiary undertaking


18,634

 Purchase of short term investments 
(85,866
)
 
(36,451
)
 Sale of short term investments 
98,857

 
22,728

Net cash used in investing activities
(17,041
)
 
(162,910
)
Cash flows from financing activities:
 

 
 

 Financing costs
(823
)


Proceeds from exercise of equity compensation
14,930

 
7,825

Share issue costs
(13
)
 
(13
)
Repurchase of ordinary shares
(56,960
)
 
(108,106
)
Share repurchase costs
(46
)
 
(86
)
Net cash used in financing activities
(42,912
)
 
(100,380
)
Effect of exchange rate movements on cash
(4,461
)
 
3,370

Net increase in cash and cash equivalents
143,362

 
17,264

Cash and cash equivalents at beginning of period
282,859

 
192,541

Cash and cash equivalents at end of period
$
426,221

 
$
209,805


The accompanying notes are an integral part of these condensed consolidated financial statements.

6



ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Shares

 
Amount

 
Additional
Paid-in
Capital

 
Other
Undenominated
Capital

 
Accumulated
Other
Comprehensive
Income

 
Retained
Earnings

 
Total

 
(dollars in thousands, except share data)
Balance at December 31, 2017
54,081,601

 
$
4,664

 
$
481,337

 
$
912

 
$
(38,713
)
 
$
742,800

 
$
1,191,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cumulative effect adjustment from adoption of ASC 606

 

 

 

 

 
(48,104
)
 
(48,104
)
 


 


 


 


 


 


 


Balance at January 1, 2018
54,081,601

 
$
4,664

 
$
481,337

 
$
912

 
$
(38,713
)
 
$
694,696

 
$
1,142,896

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:


 


 


 


 


 


 


Net income

 

 

 

 

 
234,493

 
234,493

Currency translation adjustment

 

 

 

 
(19,069
)
 


 
(19,069
)
Currency impact of long term funding (net of tax)

 

 

 

 
(4,137
)
 

 
(4,137
)
Unrealized capital gain – investments

 

 

 

 
(429
)
 

 
(429
)
Amortization of interest rate hedge

 

 

 

 
(698
)
 

 
(698
)
Fair value of cash flow hedge (net of tax)

 

 

 

 
(1,480
)
 

 
(1,480
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income

 

 

 

 
(25,813
)
 
234,493

 
208,680

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of share options
355,216

 
25

 
14,870

 

 

 

 
14,895

Issue of restricted share units
484,256

 
35

 

 

 

 

 
35

Non-cash stock compensation expense

 

 
24,997

 

 

 

 
24,997

Share issuance costs

 

 
(13
)
 

 

 

 
(13
)
Share repurchase program
(485,143
)
 
(35
)
 

 
35

 

 
(56,960
)
 
(56,960
)
Share repurchase costs

 

 

 

 

 
(46
)
 
(46
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2018
54,435,930

 
$
4,689

 
$
521,191

 
$
947

 
$
(64,526
)
 
$
872,183

 
$
1,334,484


The accompanying notes are an integral part of these condensed consolidated financial statements.


7



ICON plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2018
1. Basis of Presentation
These condensed consolidated financial statements which have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) have not been audited. The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the operating results and financial position for the periods presented. The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures in the condensed consolidated financial statements. Actual results could differ from those estimates.
The condensed consolidated financial statements should be read in conjunction with the accounting policies and notes to the consolidated financial statements included in ICON’s Form 20-F for the year ended December 31, 2017. Operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal period ending December 31, 2018.

2. Significant accounting policies
The Company adopted Accounting Standards Codification (ASC) 606 ‘Revenue from Contracts with Customers’, with a date of initial application of January 1, 2018. The revenue recognition accounting policy applied in preparation of the results for the nine months ended September 30, 2018 therefore reflect application of ASC 606. ICON has elected to adopt the standard using the cumulative effect transition method. Under this transition method, ICON has applied the new standard as at the date of initial application (i.e. January 1, 2018), without restatement of comparative period amounts. The cumulative effect of initially applying the new standard (to revenue, costs and tax) is recorded as an adjustment to the opening balance of equity at the date of initial application. See 'Note 13 - Impact of change in accounting policies' for details. The comparative information has not been adjusted and therefore continues to be reported under ASC 605 ‘Revenue Recognition’.
The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation.
The most significant impact of application of the standard relates to our assessment of performance and percentage of completion in respect of our clinical trial service revenue. Prior to application of ASC 606, the revenue attributable to performance was determined based on both input and output methods of measurement. We have concluded that under the new standard, a clinical trial is a single performance obligation satisfied over time i.e. the full service obligation in respect of a clinical trial (including those services performed by investigators and other parties) is considered a single performance obligation. Promises offered to the customer are not distinct within the context of the contract. We have concluded that ICON is the contract principal in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical research trial. The transaction price is determined by reference to the contract or change order value (total service revenue and pass-through/ reimbursable expenses) adjusted to reflect a realizable contract value. Revenue is recognized as the single performance obligation is satisfied. The progress towards completion for clinical service contracts is measured therefore based on an input measure being total project costs (inclusive of third party costs) at each reporting period.
See 'Note 13 - Impact of change in accounting policies' for details of the impact of application of the provisions of ASC 606 in the nine months ended September 30, 2018 and in respect of the position at September 30, 2018.


8



3. Revenue
Revenue disaggregated by customer profile is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018

September 30, 2017

 
September 30, 2018

September 30, 2017

 
(in thousands)
 
(in thousands)
 
 
 
 

 
Top client
$
92,280

$
73,212

 
$
254,655

$
264,142

Clients 2-5
173,112

95,068

 
502,514

274,074

Clients 6-10
94,631

70,320

 
287,782

184,800

Clients 11-25
106,184

79,377

 
329,833

223,267

Other
188,810

122,347

 
541,968

357,017

 
 
 
 

 
Total
$
655,017

$
440,323

 
$
1,916,752

$
1,303,300


9



                                                                                                                                                                                   
4. Trade accounts receivable, unbilled services and payments on account

Trade accounts receivables and unbilled revenue are as follows:
 
September 30, 2018

 
December 31, 2017

 
(in thousands)
Contract assets:
 
 
 
Billed services (accounts receivable)
$
381,735

 
$
388,431

Unbilled services (unbilled revenue)
338,523

 
268,509

Trade accounts receivable and unbilled revenue
720,258

 
656,940

Allowance for doubtful accounts
(8,471
)
 
(8,930
)
 
 
 
 
Trade accounts receivable and unbilled revenue, net
$
711,787

 
$
648,010


Unbilled services and payments on account were as follows:
(in thousands, except percentages)
September 30, 2018

 
December 31, 2017

 
$ Change
 
% Change
 
 
 
 
 
 
Unbilled services (unbilled revenue)
$
338,523

 
$
268,509

 
$
70,014

 
26.1
%
Unearned revenue (payments on account)
(353,636
)
 
(298,992
)
 
(54,644
)
 
18.3
%
 
 
 
 
 
 
 
 
Net balance
$
(15,113
)
 
$
(30,483
)
 
$
15,370

 
50.4
%

Unbilled services as at September 30, 2018 increased by $70.0 million as compared to December 31, 2017. Adoption of ASC 606 as at January 1, 2018 resulted in a net reduction in unbilled revenue of $42.0 million and a net increase in payments on account of $25.1 million. Unbilled services/revenue balances arise where invoicing or billing is based on the timing of agreed milestones related to service contracts for clinical research. Payments on account increased by $54.6 million over the same period resulting in an increase of $15.4 million in the net balance of unbilled services and payments on account between December 31, 2017 and September 30, 2018. These fluctuations are primarily due to timing of payments and invoicing related to the Group's clinical trial management contracts.

The bad debt expense recognized on the Group's receivables and unbilled services was de minimis for the three and nine months ended September 30, 2018.

As of September 30, 2018 approximately $5.2 billion of revenue is expected to be recognized in the future in respect of unrealized performance obligations. The Company expects to recognize revenue on approximately 40% of the unrealized performance obligation over the next 12 months, with the remainder recognized thereafter over the duration of the customer contracts.



10



5. Goodwill
 
Nine Months Ended

 
Year Ended

 
September 30, 2018

 
December 31, 2017

 
(in thousands)
Opening balance
$
769,058

 
$
616,088

Current period acquisitions (Note 6)

 
129,222

Prior period acquisitions (Note 6)
1,048

 
1,393

Foreign exchange movement
(9,222
)
 
22,355

 
 
 
 
Closing balance
$
760,884

 
$
769,058


11




6. Business Combinations 
Acquisitions – Mapi Group
On July 27, 2017, a subsidiary of the Company, ICON Clinical Research Limited, acquired Mapi Group. Mapi Group is a leading patient-centered health outcomes research and commercialization company. Cash outflows on acquisition were $145.8 million. The acquisition agreement provided for working capital targets to be achieved. On March 26, 2018, the Company paid $1.6 million in respect of these targets on completion of the working capital review.
The acquisition of Mapi Group has been accounted for as a business combination in accordance with 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 fair values of the assets acquired and liabilities assumed:

July 27,


2017


(in thousands)

Cash
$
19,649

Property, plant and equipment 
4,872

Goodwill*
130,270

Order book
13,012

Customer list
18,392

Accounts receivable
15,874

Unbilled revenue
6,984

Prepayments and other current assets
2,587

Other receivables
1,430

Income taxes receivable 
4,262

Accounts payable
(2,994
)
Payments on account
(31,445
)
Other liabilities
(24,952
)
Non-current other liabilities 
(1,061
)
Non-current deferred tax liability 
(11,104
)

 

Net assets acquired
$
145,776


 

Cash outflows 
$
144,131

Working capital adjustment
$
1,645

Total consideration
$
145,776

 
*Goodwill represents the acquisition of an established workforce with experience in late phase commercialization, analytics, real world evidence generation and strategic regulatory services in clinical trial services for biologics, drugs and devices. Goodwill related to the business acquired is not tax deductible.


12



Acquisitions – ICON Government & Public Health Solutions (formerly Clinical Research Management (ClinicalRM))
On September 15, 2016, a subsidiary of the Company, ICON US Holdings Inc. acquired ICON Government & Public Health Solutions (''GPHS'') which resulted in net cash outflow of $52.4 million (including certain payments made on behalf of GPHS totaling $9.2 million). GPHS is a full-service CRO specializing in preclinical through Phase IV support of clinical research and clinical trial services for biologics, drugs and devices. The organization helps customers progress their products to market faster with a wide array of research, regulatory and sponsor services within the U.S. and around the globe. GPHS provide full service and functional research solutions to a broad range of US government agencies. Their extensive expertise extends across basic and applied research, infectious diseases, vaccines development, testing and the response to bio-threats. They have worked in collaboration with government and commercial customers to respond to the threat of global viral epidemics. Further consideration of up to $12.0 million was payable if certain performance milestones are achieved in respect of periods up to December 31, 2017.  The fair value of the contingent consideration on acquisition and at March 31, 2017 was estimated at $6 million  The evaluation of the performance and forecast performance of GPHS against performance milestones was updated as required at June 30, 2017.  Arising from that evaluation, the fair value of the contingent consideration liability was determined as $Nil, resulting in a net credit of $6 million being recorded within selling, general & administrative expenses in the Statement of Operations.
The acquisition of GPHS has been accounted for as a business combination in accordance with FASB ASC 805 Business Combinations. The table following summarizes the fair values of the assets acquired and liabilities assumed:
 
September 15, 2016

 
(in thousands)

Cash
$
3,168

Property, plant and equipment
939

Goodwill*
35,969

Customer lists
4,012

Order backlog
1,668

Brand
1,409

Accounts receivable
11,431

Unbilled revenue
3,868

Prepayments and other current assets
1,673

Accounts payable
(165
)
Other liabilities
(5,569
)
Non-current other liabilities
(7
)
 
 
Net assets acquired
$
58,396

 
 
Total consideration
$
58,396

 
*Goodwill represents the acquisition of an established workforce with experience in preclinical through Phase IV support of clinical research and clinical trial services for biologics, drugs and devices. Goodwill related to the US portion of the business acquired is tax deductible. In finalizing the goodwill on acquisition of GPHS in the twelve month period from acquisition, fair value adjustments were made which resulted in an increase to unbilled revenue ($1.1 million) and other liabilities ($1.1 million) and in a decrease to accounts receivable ($0.3 million) and accounts payable ($0.5 million). Customer list, order backlog and brand intangible asset values were also finalized.



13



7. Restructuring
Restructuring charges 
A restructuring charge of $12.5 million was recognized during the nine months ended September 30, 2018 under a restructuring plan adopted following a review of operations. The restructuring plan reflected resource rationalization across the business to improve resource utilizations, resulting in a charge of $9.7 million and office consolidation resulting in the recognition of an onerous lease obligation of $2.8 million.
Details of the restructuring charge recognized in the three and nine months ended September 30, 2018 are as follows:

Three Months Ended
 
Nine Months Ended

September 30, 2018

 
September 30, 2017

 
September 30, 2018

 
September 30, 2017


(in thousands)
 
(in thousands)
Restructuring charges
$

 
$

 
$
12,490

 
$
7,753




 


 


 


Total
$

 
$

 
$
12,490

 
$
7,753

Details of the movement in the restructuring charge recognized in the three and nine months ended September 30, 2018 are as follows:

Workforce reductions

 
Onerous Lease

 
Total


(in thousands)
Initial restructuring charge recorded
$
9,684

 
$
2,806

 
$
12,490

Utilization
(3,978
)
 
(538
)
 
$
(4,516
)
Provision at September 30, 2018
$
5,706

 
$
2,268

 
$
7,974

Prior Period Restructuring charges 
A restructuring charge of $7.8 million was recognized during the year ended December 31, 2017 under a restructuring plan adopted following a review of operations.  The restructuring plan reflected resource rationalization across the business to improve resource utilization.

Workforce Reductions

(in thousands)
 
Total provision recognized
$
7,753

Utilized
(4,656
)
Provision at December 31, 2017
$
3,097

Utilized
(1,015
)
Provision at September 30, 2018
$
2,082

A restructuring charge of $8.2 million was recognized during the year ended December 31, 2016 under a restructuring plan adopted following a review by the Company of its operations.  The restructuring plan includes resource rationalizations in certain areas of the business to improve resource utilization, resulting in a charge of $6.2 million and office consolidation resulting in the recognition of an onerous lease obligation of $2.0 million during the twelve months ended December 31, 2016

14



 
Workforce
Reductions

 
Onerous
Lease

 
Total

 
(in thousands)
Total provision recognized
$
6,190

 
$
1,969

 
$
8,159

Utilized
(5,734
)
 
(571
)
 
(6,305
)
Foreign exchange
(63
)
 

 
(63
)
Provision at December 31, 2016
$
393

 
$
1,398

 
$
1,791

Utilized
(393
)
 
(1,081
)
 
(1,474
)
Provision at December 31, 2017
$

 
$
317

 
$
317

Utilized

 
(317
)
 
(317
)
Provision at September 30, 2018
$

 
$

 
$

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.
 
Onerous
Lease

 
Asset
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

Utilized
(1,359
)



(1,359
)
Provision at December 31, 2016
$
641


$


$
641

Utilized
(441
)



(441
)
Provision at December 31, 2017
$
200


$


$
200

Utilized
(200
)



(200
)
Provision at September 30, 2018
$


$


$

At September 30, 2018, $9.4 million is included within other liabilities and $0.7 million within non-current other liabilities.

15



8. Income Taxes
Income taxes recognized during the three and nine months ended September 30, 2018, comprise:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

 
September 30, 2018


September 30, 2017

 
(in thousands)
 
(in thousands)
Provision for income taxes
$
11,526

 
$
8,239

 
$
31,388


$
31,414

Tax impact of restructuring and other items

 

 
(1,453
)

(969
)
Provision for income taxes after restructuring and other items
$
11,526

 
$
8,239

 
$
29,935

 
$
30,445

As at September 30, 2018 the Company maintains a $25.8 million liability (December 31, 2017: $26.1 million) for unrecognized tax benefit, which is comprised of $22.5 million (December 31, 2017: $23.7 million) related to items generating unrecognized tax benefits and $3.3 million (December 31, 2017: $2.4 million) for interest and related penalties to such items. The Company recognizes interest accrued on unrecognized tax benefits as an additional income tax expense.
The Company has analyzed the filing positions in all of the significant federal, state and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. The only periods subject to examination by the major tax jurisdictions where the Company does business are 2013 through 2017 tax years. The Company does not believe that the outcome of any examination will have a material impact on its financial statements.

9. 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:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

 
September 30, 2018


September 30, 2017

Weighted average number of ordinary shares outstanding for basic net income per ordinary share
54,368,656

 
54,109,566

 
54,134,639


54,110,022

Effect of dilutive share options outstanding
532,748

 
646,618

 
753,512


730,090

Weighted average number of ordinary shares outstanding for diluted net income per ordinary share
54,901,404

 
54,756,184

 
54,888,151


54,840,112


16



10. Share-based Awards
Share Options
On July 21, 2008, the Company adopted the Employee Share Option Plan 2008 (the “2008 Employee Plan”) pursuant to which the Compensation and Organization Committee of the Company’s Board of Directors may grant options to any employee, or any Director holding a salaried office or employment with the Company or a Subsidiary for the purchase of ordinary shares. On the same date, the Company also adopted the Consultants Share Option Plan 2008 (the “2008 Consultants Plan”), pursuant to which the Compensation and Organization Committee of the Company’s Board of Directors may grant options to any consultant, adviser or non-executive Director retained by the Company or any Subsidiary for the purchase of ordinary shares. 
On February 14, 2017, both the 2008 Employee Plan and the 2008 Consultants Plan (together the “2008 Option Plans”) were amended and restated in order to increase the number of options that can be issued under the 2008 Consultants Plan from 400,000 to 1.0 million and to extend the date for options to be granted under the 2008 Option Plans.
An aggregate of 6.0 million ordinary shares have been reserved under the 2008 Employee Plan, as reduced by any shares issued or to be issued pursuant to options granted under the 2008 Consultants Plan, under which a limit of 1.0 million shares applies.  Further, the maximum number of ordinary shares with respect to which options may be granted under the 2008 Employee Option Plan, during any calendar year to any employee shall be 400,000 ordinary shares.  There is no individual limit under the 2008 Consultants Plan. No options may be granted under the 2008 Option Plans after February 14, 2027. 
Each option granted under the 2008 Option Plans will be an employee stock option, or NSO, as described in Section 422 or 423 of the Internal Revenue Code. Each grant of an option under the 2008 Options Plans will be evidenced by a Stock Option Agreement between the optionee and the Company. The exercise price will be specified in each Stock Option Agreement, however option prices will not be less than 100% of the fair market value of an ordinary share on the date the option is granted. 
On January 17, 2003, the Company adopted the Share Option Plan 2003 (the “2003 Share Option Plan”) pursuant to which the Compensation and Organization Committee of the Board could grant options to officers and other employees of the Company or its subsidiaries for the purchase of ordinary shares. An aggregate of 6.0 million ordinary shares were reserved under the 2003 Share Option Plan; and, in no event could the number of ordinary shares issued pursuant to options awarded under this plan exceed 10% of the outstanding shares, as defined in the 2003 Share Option Plan, at the time of the grant, unless the Board expressly determined otherwise. Further, the maximum number of ordinary shares with respect to which options could be granted under the 2003 Share Option Plan during any calendar year to any employee was 400,000 ordinary shares. The 2003 Share Option Plan expired on January 17, 2013. No new options may be granted under this plan. 
Share option awards are granted with an exercise price equal to the market price of the Company’s shares at date of grant. Share options typically vest over a period of five years from date of grant and expire eight years from date of grant. Share option awards granted to non-Executive Directors during the nine months ended September 30, 2018 vest one year from the date of grant. The maximum contractual term of options outstanding at September 30, 2018 is eight years
The following table summarizes option activity for the nine months ended September 30, 2018
 
Options
Outstanding
Number of Shares 

 
Weighted
Average
Exercise
Price

 
Weighted
Average Grant Date
Fair Value

 
Weighted
Average
Remaining
Contractual
Life
Outstanding at December 31, 2017
1,171,393

 
$
56.02

 
$
17.15

 
 
Granted
167,557

 
$
118.90

 
$
36.84

 
 
Exercised
(355,216
)
 
$
41.93

 
$
13.76

 
 
Forfeited
(7,705
)
 
$
34.78

 
$
11.83

 
 
 
 
 
 
 
 
 
 
Outstanding at September 30, 2018
976,029

 
$
72.11

 
$
21.80

 
5.10
 
 
 
 
 
 
 
 
Exercisable at September 30, 2018
452,066

 
$
53.60

 
$
16.60

 
3.86

17



The Company has outstanding options with fair values ranging from $8.53 to $39.96 per option or a weighted average fair value of $14.57 per option. The Company issues ordinary shares for all options exercised. The total amount of fully vested share options which remained outstanding at September 30, 2018 was 452,066. Fully vested share options at September 30, 2018 have an average remaining contractual term of 3.86 years, an average exercise price of $53.6 and a total intrinsic value of $45.3 million. The total intrinsic value of options exercised during the nine months ended September 30, 2018 was $32.6 million (September 30, 2017: $21.8 million).
The following table summarizes the movement in non-vested share options for the nine months ended September 30, 2018
 
Options
Outstanding
Number of Shares

 
Weighted Average
Exercise Price

 
Weighted Average
Grant Date Fair Value

Non-vested outstanding at December 31, 2017
694,727

 
$
68.06

 
$
20.03

 


 


 


Granted
167,557

 
$
118.90

 
$
36.84

Vested
(335,616
)
 
$
62.28

 
$
18.53

Forfeited
(2,705
)
 
$
56.58

 
$
16.84

 


 


 


Non-vested outstanding at September 30, 2018
523,963

 
$
88.07

 
$
26.38

Fair value of Stock Options Assumptions
The weighted average fair value of options granted during the nine months ended September 30, 2018 and September 30, 2017 was calculated using the Black-Scholes option pricing model.  The weighted average grant date fair values and assumptions used were as follows:
 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

Weighted average grant date fair value
$
36.84

 
$
25.06

Assumptions:
 

 
 

Expected volatility
30
%
 
29
%
Dividend yield
%
 
%
Risk-free interest rate
2.73
%
 
1.93
%
Expected life
5 years

 
5 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. 

18



The Company has awarded RSUs and PSUs to certain key individuals of the Group. The following table summarizes RSU and PSU activity for the nine months ended September 30, 2018:
 
 
PSU
Outstanding
Number of
Shares

 
 
PSU
Weighted
Average Grant Date
Fair Value

 
PSU
Weighted
Average
Remaining
Contractual
Life
 
 
RSU
Outstanding
Number of
Shares

 
 
RSU
Weighted
Average Grant Date
Fair Value

 
RSU
Weighted
Average
Remaining
Contractual
Life
Outstanding at December 31, 2017
511,026

 
$
72.07

 
0.93
 
715,970

 
$
72.65

 
1.28
 
 
 
 
 
 
 
 
 
 
 
 
Granted
71,906

 
$
116.02

 
 
 
159,070

 
$
123.32

 
 
Shares vested
(215,826
)
 
$
68.28

 
 
 
(271,183
)
 
$
67.96

 
 
Forfeited
(116,053
)
 
$
70.89

 
 
 
(57,429
)
 
$
76.90

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at September 30, 2018
251,053

 
$
85.95

 
1.21
 
546,428

 
$
89.28

 
1.46
The fair value of RSUs vested for the nine months ended September 30, 2018 totaled $18.4 million (full year 2017: $16.6 million).
The fair value of PSUs vested for the nine months ended September 30, 2018 totaled $14.7 million (full year 2017: $15.0 million).
The PSUs vest based on service and specified EPS targets over the period 2015 – 2018, 2016 – 2019, 2017 – 2020 and 2018 – 2021. Since 2013, 147,630 PSUs (net of forfeitures) have been granted.  Depending on the amount of EPS from 2015 to 2021, up to an additional 103,423 PSUs may also be granted.
Non-cash stock compensation expense
Non-cash stock compensation expense for the three and nine months ended September 30, 2018 has been allocated as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

 
September 30, 2018

 
September 30, 2017

 
(in thousands)
 
(in thousands)
Direct costs
$
4,708

 
$
4,551

 
$
13,761

 
$
14,855

Selling, general and administrative
3,836

 
3,709

 
11,213

 
12,106

 
 
 
 
 


 


 
$
8,544

 
$
8,260

 
$
24,974

 
$
26,961

Total non-cash stock compensation expense not yet recognized at September 30, 2018 amounted to $51.5 million. The weighted average period over which this is expected to be recognized is 2.1 years.
The amendments required by Accounting Standards Update (‘ASU’) 2016-09 ‘Improvements to Employee Share-Based Payment Accounting’ require the Company to record all tax effects related to share-based payments through the income statement rather than additional paid in capital. The Company applied the updated standard prospectively during the year ended December 31, 2017.

19



11. Share Capital
On October 3, 2016, the Company commenced a previously announced share buyback program of up to $400 million.  The Company can acquire up to 10% of 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.
The buyback program gives a broker authority to acquire the Company’s ordinary shares from time to time on the open market in accordance with agreed terms and limitations. The acquisition of shares pursuant to the buyback program was effected by way of redemption and cancellation of the shares, in accordance with the Constitution of the Company.
During the nine months ended September 30, 2018 485,143 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $57.0 million. At September 30, 2018 a total of 3,503,557 ordinary shares were redeemed by the Company under this buyback program for a total consideration of $300.1 million. All ordinary shares that were redeemed under the buyback program were canceled in accordance with the Constitution of the Company and the nominal value of these shares transferred to an other undenominated capital reserve as required under Irish Company Law.

12. Business Segment Information
The Company determines and presents operating segments based on the information that is internally provided to the chief operating decision maker, together the (‘CODM’) in accordance with FASB ASC 280-10 Disclosures about Segments of an Enterprises and Related Information. The Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, were together considered the Company’s CODM in the period up to and including March 1, 2017.  On March 1, 2017, Mr. Ciaran Murray transitioned from his role as Chief Executive Officer to the role of Executive Chairman of the Board of Directors and Dr. Steve Cutler was appointed as Chief Executive Officer. As of March 1, 2017, the Company determined that the CODM was comprised of the Chief Executive Officer and the Chief Financial Officer.
The Company determines and presents operating segments based on the information that is provided to the CODM.  The Company operates as one single business segment, which is the provision of outsourced development services on a global basis to the pharmaceutical, biotechnology and medical devices industries. There have been no changes to the basis of segmentation or the measurement basis for the segment results in the period.
The Company is a clinical research organization (“CRO”), providing outsourced development services on a global basis to the pharmaceutical, biotechnology and medical device industries. It specializes in the strategic development, management and analysis of programs that support all stages of the clinical development process - from compound selection to Phase I-IV clinical studies.  The Company has the expertise and capability to conduct clinical trials in most major therapeutic areas on a global basis and has the operational flexibility to provide development services on a stand-alone basis or as part of an integrated “full service” solution.  The Company has expanded predominately through internal growth together with a number of strategic acquisitions to enhance its expertise and capabilities in certain areas of the clinical development process.
The Company is generally awarded projects based upon responses to requests for proposals received from companies in the pharmaceutical, biotechnology and medical device industries or work orders executed under our strategic partnership arrangements. Contracts with customers are generally entered into centrally, in most cases with ICON Clinical Research Limited (“ICON Ireland”), the Company’s principal operating subsidiary in Ireland. Revenues, which consist primarily of fees earned under these contracts, are allocated to individual entities within the Group, based on where the work is performed in accordance with the Company’s global transfer pricing model.
ICON Ireland acts as the group entrepreneur under the Company’s global transfer pricing model given its role in the development and management of the group, its ownership of key intellectual property and customer relationships, its key role in the mitigation of risks faced by the group and its responsibility for maintaining the Company’s global network. ICON Ireland enters into the majority of the Company’s customer contracts.
ICON Ireland remunerates other operating entities 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 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.

20



The geographic split of revenue disclosed for each region outside Ireland is the cost plus revenue attributable to these entities. The residual revenues of the Group, once each ICON entity has been paid its respective intercompany service fee, generally fall to be retained by ICON Ireland. As such revenues and income from operations in Ireland are a function of this global transfer pricing model and comprise revenues of the Group 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, Belgium, France, Germany, Italy, Spain, The Netherlands, Sweden, Turkey, Poland, Czech Republic, Latvia, Russia, Ukraine, Hungary, Israel, Romania, Canada, Mexico, Brazil, Colombia, Argentina, Chile, Peru, India, China, South Korea, Japan, Thailand, Taiwan, Singapore, The Philippines, Australia, New Zealand, and South Africa.
The geographical distribution of the Company’s segment measures as at September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and September 30, 2017 is as follows:
a) The distribution of revenue by geographical area was as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

 
September 30, 2018

 
September 30, 2017

 
(in thousands)
 
(in thousands)
Ireland
$
270,709

 
$
231,718

 
$
765,939

 
$
695,382

Rest of Europe
91,292

 
94,622

 
283,024

 
246,101

U.S.
227,279

 
213,202

 
674,150

 
666,222

Rest of World
65,737

 
56,627

 
193,639

 
158,311

 
 
 
 
 


 


Total
$
655,017

 
$
596,169

 
$
1,916,752

 
$
1,766,016

* All sales shown for Ireland are export sales.
** 2017 restated for gross revenue.
b) The distribution of income from operations including restructuring, by geographical area was as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

 
September 30, 2018

 
September 30, 2017

 
(in thousands)
 
(in thousands)
Ireland
$
71,435

 
$
62,152

 
$
190,832

 
$
164,760

Rest of Europe
7,038

 
2,526

 
23,864

 
15,124

U.S.
14,413

 
16,150

 
40,918

 
52,897

Rest of World
5,054

 
4,110

 
15,958

 
15,813

 
 
 
 
 


 


Total
$
97,940

 
$
84,938

 
$
271,572

 
$
248,594

   

21



c) The distribution of income from operations excluding restructuring, by geographical area was as follows:

Three Months Ended
 
Nine Months Ended

September 30, 2018

 
September 30, 2017

 
September 30, 2018

 
September 30, 2017


(in thousands)
 
(in thousands)
Ireland
$
71,435

 
$
62,152

 
$
203,322

 
$
172,513

Rest of Europe
7,038

 
2,526

 
23,864

 
15,124

U.S.
14,413

 
16,150

 
40,918

 
52,897

Rest of World
5,054

 
4,110

 
15,958

 
15,813




 


 


 


Total
$
97,940

 
$
84,938

 
$
284,062

 
$
256,347


d) The distribution of property, plant and equipment, net, by geographical area was as follows: 

September 30, 2018

 
December 31, 2017


(in thousands)
Ireland
$
104,935

 
$
111,329

Rest of Europe
9,657

 
9,026

U.S.
24,384

 
27,797

Rest of World
15,572

 
14,899

 
 
 
 
Total
$
154,548

 
$
163,051

 
 
 
 

e) The distribution of depreciation and amortization by geographical area was as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2018

 
September 30, 2017

 
September 30, 2018

 
September 30, 2017

 
(in thousands)
 
 (in thousands)
Ireland
$
8,053

 
$
6,985

 
$
23,917

 
$
19,465

Rest of Europe
1,491

 
3,469

 
4,654

 
6,498

U.S.
6,396

 
4,819

 
18,997

 
16,348

Rest of World
1,122

 
1,007

 
3,438

 
2,812

 
 
 
 
 


 


Total
$
17,062

 
$
16,280

 
$
51,006

 
$
45,123








22



f) The distribution of total assets by geographical area was as follows: 
 
September 30, 2018

 
December 31, 2017

 
(in thousands)
Ireland
$
1,020,644

 
$
880,378

Rest of Europe
493,363

 
504,418

U.S.
690,471

 
650,681

Rest of World
121,250

 
111,141

 
 
 
 
Total
$
2,325,728

 
$
2,146,618


23



13.      Impact of change in accounting policies
The Company adopted ASC 606 ‘Revenue from Contracts with Customers’, with a date of initial application of January 1, 2018. The revenue recognition accounting policy applied in preparation of the results for the three and nine months ended September 30, 2018 therefore reflect application of ASC 606. ICON has elected to adopt the standard using the cumulative effect transition method. Under this transition method, ICON has applied the new standard as at the date of initial application (i.e. January 1, 2018), without restatement of comparative amounts. The cumulative effect of initially applying the new standard (to revenue, costs and tax) is recorded as an adjustment to the opening balance of equity at the date of initial application. The comparative information has not been adjusted and therefore continues to be reported under ASC 605 ‘Revenue Recognition’.
The new standard requires application of five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies the performance obligation.
The most significant impact of application of the standard relates to our assessment of performance and percentage of completion in respect of our clinical trial service revenue. Prior to application of ASC 606, the revenue attributable to performance was determined based on both input and output methods of measurement. We have concluded that under the new standard, a clinical trial service is a single performance obligation satisfied over time i.e. the full service obligation in respect of a clinical trial (including those services performed by investigators and other parties) is considered a single performance obligation. Promises offered to the customer are not distinct within the context of the contract. We have concluded that ICON is the contract principal in respect of both direct services and in the use of third parties (principally investigator services) that support the clinical research project. The transaction price is determined by reference to the contract or change order value (total service revenue and pass-through/ reimbursable expenses) adjusted to reflect a realizable contract value. Revenue is recognized as the single performance obligation is satisfied. The progress towards completion for clinical service contracts is measured therefore based on on an input measure being total project costs (inclusive of third party costs) at each reporting period.
The tables on the pages following summarize the impact of adopting ASC 606 on the consolidated financial statements for the three and nine months ended September 30, 2018.



















24



ICON plc
CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2018 (UNAUDITED)
 
September 30, 2018
 
As reported
Adjustments
Balance without adoption of Topic 606
ASSETS
(in thousands)
Current Assets:
 
 
 
Cash and cash equivalents
$
426,221

$

$
426,221

Short term investments - available for sale
65,261


65,261

Accounts receivable, net
373,264


373,264

Unbilled revenue
338,523

45,851

384,374

Other receivables
38,501

(12,455
)
26,046

Prepayments and other current assets
42,314


42,314

Income taxes receivable
21,457


21,457

Total current assets
1,305,541

33,396

1,338,937

 






Other Assets:






Property, plant and equipment, net
154,548


154,548

Goodwill
760,884


760,884

Other non-current assets
15,694


15,694

Non-current income taxes receivable
18,977


18,977

Non-current deferred tax asset
15,922

(5,978
)
9,944

Intangible assets
54,162


54,162

Total Assets
$
2,325,728

$
27,418

$
2,353,146

LIABILITIES AND SHAREHOLDERS’ EQUITY



Current Liabilities:






Accounts payable
$
15,306

$

$
15,306

Payments on account
353,636

(25,100
)
328,536

Other liabilities
216,959


216,959

Income taxes payable
16,239

1,291

17,530

Total current liabilities
602,140

(23,809
)
578,331

Other Liabilities:
 



 

Non-current bank credit lines and loan facilities
349,169


349,169

Non-current other liabilities
16,670


16,670

Non-current government grants
902


902

Non-current income taxes payable
14,773


14,773

Non-current deferred tax liability
7,590


7,590

Commitments and contingencies



Total Liabilities
991,244

(23,809
)
967,435

Shareholders' Equity:






Ordinary shares, par value 6 euro cents per share; 100,000,000 shares authorized,






54,435,930 shares issued and outstanding at September 30, 2018 and






54,081,601 shares issued and outstanding at December 31, 2017
4,689


4,689

Additional paid‑in capital
521,191


521,191

Other undenominated capital
947


947

Accumulated other comprehensive income
(64,526
)

(64,526
)
Retained earnings
872,183

51,227

923,410

Total Shareholders' Equity
1,334,484

51,227

1,385,711

Total Liabilities and Shareholders' Equity
$
2,325,728

$
27,418

$
2,353,146


25




ICON plc
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018
UNAUDITED)
 
Three Months Ended

Nine Months Ended
 
September 30, 2018

September 30, 2018

September 30, 2018

September 30, 2018

September 30, 2018

September 30, 2018
 
As reported
 
Adjustments
 
Balance without adoption of Topic 606
 
As reported
 
Adjustments
 
Balance without adoption of Topic 606
 
(in thousands except share and per share data)
 
(in thousands except share and per share data)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Revenue
$
655,017

 
$
1,022

 
$
656,039

 
$
1,916,752

 
$
3,867

 
$
1,920,619

Reimbursable expenses

 
(179,642
)
 
$
(179,642
)
 

 
(507,708
)
 
$
(507,708
)
 


 


 


 


 


 
 
 


 
(178,620
)
 
476,397

 


 
(503,841
)
 
1,412,911

 


 


 


 


 


 
 
Costs and expenses:
 

 


 
 

 


 


 
 

Direct costs


 


 


 


 


 
 
   - Reimbursable expenses
179,642

 
(179,642
)
 

 
507,708

 
(507,708
)
 

   - Other direct costs
279,554

 

 
279,554

 
831,306

 

 
831,306

Selling, general and administrative expense
80,819

 
125

 
80,944

 
242,670

 
347

 
243,017

Depreciation and amortization
17,062

 

 
17,062

 
51,006

 


 
51,006

Restructuring

 

 

 
12,490

 


 
12,490

 


 


 


 


 


 
 
Total costs and expenses
557,077

 
(179,517
)
 
377,560

 
1,645,180

 
(507,361
)
 
1,137,819