HomeMy WebLinkAbout2017 Issued Kimley-Horn Financials - Final with Disclaimer
kimley-horn.com 421 Fayetteville St, Suite 600, Raleigh, NC 27601 919 677 2000
Kimley-Horn Financial Statements
The attached financial statements of Kimley-Horn and Associates, Inc. as of December 31,
2017 and for the year then ended have been reviewed by Cherry Bekaert LLP, and they
have issued an Independent Accountant’s Review Report thereon. The financial statements
have not been audited, as Kimley-Horn is not required to have an audit performed. These
financial statements are provided to you for the sole purpose of evaluating Kimley-Horn’s
financial condition in connection with current and future proposals for services. Any
distribution of this information for any other purpose is prohibited.
Kimley-Horn’s present financial condition is materially the same as that shown in the
attached financial statements.
For any questions regarding financial statements, please contact Lindsey Balltzglier,
Controller, at (919) 678-4141.
KIMLEY‐HORN AND ASSOCIATES, INC.
FINANCIAL STATEMENTS
As of and for the Years Ended December 31, 2017
and 2016
And Independent Accountant’s Review Report
KIMLEY‐HORN AND ASSOCIATES, INC.
TABLE OF CONTENTS
INDEPENDENT ACCOUNTANT’S REVIEW REPORT ............................................................................ 1
FINANCIAL STATEMENTS
Balance Sheets ................................................................................................................................................. 2-3
Statements of Operations .................................................................................................................................... 4
Statements of Changes in Shareholder’s Equity and Other Comprehensive Income (Loss) .............................. 5
Statements of Cash Flows ................................................................................................................................ 6-7
Notes to the Financial Statements .................................................................................................................. 8-17
Independent Accountant’s Review Report
Board of Directors
Kimley-Horn and Associates, Inc.
Raleigh, North Carolina
We have reviewed the accompanying financial statements of Kimley-Horn and Associates, Inc. (the
“Company”), which are comprised of the balance sheets as of December 31, 2017 and 2016, and the related
statements of operations, changes in shareholder’s equity and other comprehensive income (loss), and cash
flows for the years then ended, and the related notes to the financial statements. A review includes primarily
applying analytical procedures to management’s financial data and making inquiries of Company management.
A review is substantially less in scope than an audit, the objective of which is the expression of an opinion
regarding the financial statements as a whole. Accordingly, we do not express such an opinion.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance
with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of the
financial statements that are free from material misstatement, whether due to fraud or error.
Accountant’s Responsibility
Our responsibility is to conduct the review engagement in accordance with Statements on Standards for
Accounting and Review Services promulgated by the Accounting and Review Services Committee of the
American Institute of Certified Public Accountants (“AICPA”). Those standards require us to perform procedures
to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that
should be made to the financial statements for them to be in accordance with accounting principles generally
accepted in the United States of America. We believe that the results of our procedures provide a reasonable
basis for our conclusion.
Accountant’s Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying
financial statements in order for them to be in accordance with accounting principles generally accepted in the
United States of America.
Raleigh, North Carolina
March 13, 2018
KIMLEY‐HORN AND ASSOCIATES, INC.
BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
The accompanying notes to the financial statements are an integral part of these statements. 2
2017 2016
ASSETS
Current Assets:
Cash and cash equivalents 25,159,593$ 36,772,926$
Marketable securities, held to maturity, current 29,598,295 59,442,886
Receivable from affiliates 4,893,137 2,815,088
Accounts receivable – trade, net 182,272,964 161,187,466
Costs and estimated earnings in excess
of billings on uncompleted contracts 19,556,200 16,129,772
Accounts receivable – other 2,104,120 1,461,488
Notes receivable, net, current 117,562 233,635
Deposits, current 223,182 379,197
Prepaid expenses, current 17,865,759 16,940,180
Income taxes receivable 7,605,161 -
Deferred tax assets - 484,828
Total Current Assets 289,395,973 295,847,466
Properties and Equipment:
Vehicles 237,067 258,867
Office furniture and equipment 59,101,871 55,018,490
Buildings and leasehold improvements 30,003,286 25,949,963
89,342,224 81,227,320
Less accumulated depreciation (51,253,450) (49,734,029)
Net depreciable properties and equipment 38,088,774 31,493,291
Land 6,146,776 6,146,776
Total Properties and Equipment, Net 44,235,550 37,640,067
Other Assets:
Marketable securities, held to maturity, noncurrent 39,805,620 -
Notes receivable due after one year, net 571,918 463,862
Deposits, noncurrent 743,332 852,757
Prepaid expenses, noncurrent 1,990,402 4,137,314
Goodwill, net 292,417 268,125
Other 1,635,307 685,761
Total Other Assets 45,038,996 6,407,819
Total Assets 378,670,519$ 339,895,352$
KIMLEY‐HORN AND ASSOCIATES, INC.
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
The accompanying notes to the financial statements are an integral part of these statements. 3
2017 2016
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable – trade 44,680,816$ 40,558,464$
Billings in excess of costs and estimated
earnings on uncompleted contracts 50,268,024 44,549,072
Accounts payable – affiliate - 26,094
Accrued salaries and wages 92,898,072 90,893,487
Accrued vacation payable 15,684,372 13,891,434
Income taxes payable - 786,378
Accrued retirement plan contributions 53,668,889 46,329,774
Deferred taxes liabilities, current 2,335,817 -
Deferred income, current 124,256 124,256
Other current liabilities 78,646 73,404
Total Current Liabilities 259,738,892 237,232,363
Long-Term Liabilities:
Tax liability due to affiliates 1,631,594 929,714
Deferred taxes liabilities, noncurrent 2,705,271 3,787,315
Deferred income, noncurrent 1,273,619 1,397,875
Other long-term liabilities 1,205,702 1,161,778
Total Long-Term Liabilities 6,816,186 7,276,682
Total Liabilities 266,555,078 244,509,045
Shareholder's Equity:
Common stock, stated value of $1.00 per share. Authorized
100,000 shares, issued and outstanding 35,771 shares 35,771 35,771
Paid-in capital 8,798,275 8,798,275
Retained earnings 103,585,503 86,796,851
Accumulated other comprehensive loss (304,108) (244,590)
Total Shareholder’s Equity 112,115,441 95,386,307
Total Liabilities and Shareholder’s Equity 378,670,519$ 339,895,352$
KIMLEY‐HORN AND ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
The accompanying notes to the financial statements are an integral part of these statements. 4
2017 2016
Revenues:
Gross revenues 806,428,121$ 720,768,975$
Less direct client expenses 197,189,800 175,628,809
Net Professional Fees 609,238,321 545,140,166
Operating Expenses:
Employee compensation 410,802,210 374,793,706
Payroll overhead expense 122,394,509 101,903,222
Travel expenses 10,531,703 9,571,819
Professional expenses 17,607,132 15,448,975
Office supplies and expenses 9,518,919 9,262,114
Property costs 26,027,952 22,884,698
Telephone expense 3,369,318 3,241,136
General liability insurance 3,830,069 3,701,326
Depreciation and amortization 7,947,189 7,282,020
Legal, accounting, and other professional services 3,942,775 3,815,498
Software costs 7,065,752 5,667,751
Interest expense 4,114 20,612
Provision for uncollectible accounts 574,394 79,413
Less operating expenses included in direct client expenses (31,299,693) (26,864,047)
Total Operating Expenses 592,316,343 530,808,243
Earnings from operations 16,921,978 14,331,923
Other income, net 1,980,436 2,561,966
Earnings before income taxes 18,902,414 16,893,889
Income tax expense 2,113,762 3,953,870
Net earnings 16,788,652$ 12,940,019$
KIMLEY‐HORN AND ASSOCIATES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY AND OTHER COMPREHENSIVE
INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
The accompanying notes to the financial statements are an integral part of these statements. 5
Additional Other Total
Common Stock Paid‐in Retained Comprehensive Shareholder’s
Shares Amount Capital Earnings Income (Loss) Equity
Balance December 31, 2015 35,771 35,771$ 8,798,275$ 73,856,832$ (279,606)$ 82,411,272$
Comprehensive income:
Change in unrecognized costs
of post-retirement health
benefits, net of taxes - - - - 35,016 35,016
Net earnings - - - 12,940,019 - 12,940,019
Comprehensive income 12,975,035
Balance December 31, 2016 35,771 35,771 8,798,275 86,796,851 (244,590) 95,386,307
Comprehensive income (loss):
Change in unrecognized costs
of post-retirement health
benefits, net of taxes - - - - (59,518) (59,518)
Net earnings - - - 16,788,652 - 16,788,652
Comprehensive income 16,729,134
Balance December 31, 2017 35,771 35,771$ 8,798,275$ 103,585,503$ (304,108)$ 112,115,441$
KIMLEY‐HORN AND ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
The accompanying notes to the financial statements are an integral part of these statements. 6
2017 2016
Cash flows from operating activities:
Net earnings 16,788,652$ 12,940,019$
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 7,947,189 7,282,020
Deferred income (124,256) (160,256)
Deferred income taxes 1,738,601 (11,455,956)
(Gain)/Loss on disposal of properties and equipment 13,632 (422,646)
(Gain) on sales of marketable securities (816,385) (626,753)
Amortization of bond premium/discount 155,752 -
Accrued interest income on marketable securities (272,180) -
Provision for uncollectible accounts 680,000 (170,000)
Allowance, net of recovery, for uncollectible notes receivable 72,500 194,740
Changes in assets and liabilities:
Accounts receivable – trade (21,765,498) (11,806,320)
Costs and estimated earnings in excess
of billings on uncompleted contracts (3,426,428) (3,246,046)
Accounts receivable – other (495,602) (183,905)
Receivable from affiliates (2,078,049) (919,945)
Prepaid expenses 1,221,333 (7,494,607)
Deposits and other assets (684,106) (295,625)
Income taxes receivable (7,605,161) 1,569,332
Tax liability due to affiliates 701,880 157,381
Accounts payable – trade 4,122,352 10,951,289
Billings in excess of costs and estimated
earnings on uncompleted contracts 5,718,952 4,474,527
Accounts Payable – affiliate (26,094) -
Accrued compensation and expenses 11,136,638 36,827,393
Income taxes payable (786,378) 786,378
Other long-term liabilities (10,352) (38,388)
Net cash provided by operating activities 12,206,992 38,362,632
Cash flows from investing activities:
Purchases of properties and equipment (14,575,697) (8,723,438)
Proceeds from disposition of properties and equipment 50,100 639,632
Purchases of marketable securities, held to maturity (204,161,287) (133,165,209)
Sales of marketable securities, held to maturity 194,986,042 84,000,000
Issuance of notes receivable (261,710) (324,140)
Collections of notes receivable 197,227 118,324
Business combination (55,000) (275,000)
Net cash used in investing activities (23,820,325) (57,729,831)
KIMLEY‐HORN AND ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
The accompanying notes to the financial statements are an integral part of these statements. 7
2017 2016
Cash flows from financing activities:
Net cash used in financing activities -$ -$
Net change in cash and cash equivalents (11,613,333) (19,367,199)
Cash and cash equivalents, beginning of year 36,772,926 56,140,125
Cash and cash equivalents, end of year 25,159,593$ 36,772,926$
Supplemental disclosures of noncash investing and financing activities:
Change in amount recognized for post-retirement health benefits (79,252)$ 57,309$
Supplemental cash flow information:
Cash paid during the year for interest 4,114$ 29,247$
Cash paid during the year for income taxes, net of refunds
received of $93,166 and $55,820, respectively 7,941,160$ 12,896,828$
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
8
Note 1—Summary of significant accounting policies
Nature of Business - Kimley-Horn and Associates, Inc. (the “Company”) is an indirect wholly-owned subsidiary of
APHC, Inc. The Company provides engineering, planning, and environmental consulting services to public and
private clients.
Revenue Recognition - Fixed fee contracts are accounted for using the percentage-of-completion method.
Contract revenues are recognized in the proportion that contract costs incurred bear to total estimated costs.
Contract costs include direct labor, materials, equipment, subcontracts, and indirect costs allocable to contract
performance.
Cost-plus contract revenues are recognized as contract costs are incurred. Selling, general, and administrative
costs are charged to expense as incurred.
For contracts extending beyond one year, adjustments to cost estimates during the course of the contract are
recorded in the accounting period in which they are estimated. Contract losses are recognized in full when such
losses are estimated. Changes in project performance, project conditions, estimated profitability, and final contract
settlements may result in revisions to costs and are recognized in the period in which revisions are determined.
The asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues
recognized in excess of amounts billed. The liability “Billings in excess of costs and estimated earnings on
uncompleted contracts” represents billings in excess of revenues recognized.
Cash and Cash Equivalents - The Company considers all highly liquid, short-term investments with an original
maturity of three months or less to be cash equivalents.
Marketable Securities - Debt securities are considered to be held to maturity and are reported at amortized cost.
Allowance for Uncollectible Accounts and Notes - An allowance for uncollectible accounts and notes is provided for
using the allowance method, which is based on historical experience and management’s evaluation of outstanding
accounts and notes receivable at the end of each year. The allowance for uncollectible accounts and notes was
$3,240,000 and $2,645,000 as of December 31, 2017 and 2016, respectively.
Properties and Equipment, Net - All properties and equipment are stated at cost. Expenditures for maintenance
and repairs are expensed as incurred. When items are disposed of or replaced, the cost and accumulated
depreciation amounts are removed from the accounts, and any gain or loss is included in other income.
Depreciation - The cost of properties and equipment is depreciated using primarily the straight-line method over
the following useful lives:
Type of Property Life in Years
Vehicles 5 years
Office furniture and equipment 4 to 7 years
Leasehold improvements Shorter of lease term or estimated useful life
Buildings 39 years
Depreciation expense totaled $7,916,481 in 2017 and $7,275,145 in 2016.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
9
Note 1—Summary of significant accounting policies (continued)
Goodwill - During 2017 and 2016, the Company was party to two different business combinations. In conjunction
with these business combinations, the excess of the purchase price over the net assets acquired was allocated
to goodwill. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) No. 2014-02, Accounting for Goodwill, a consensus of the Private Company Council, the Company
amortizes goodwill on a straight-line basis over a 10-year useful life and only evaluates goodwill for impairment
at the entity level when a triggering event occurs. During the years ended December 31, 2017 and 2016, no
triggering events occurred requiring impairment testing; therefore, no impairment loss was recorded. Goodwill
and related accumulated amortization, respectively, were $330,000 and $37,583 in 2017 and $275,000 and
$6,875 in 2016.
Income Taxes - The Company uses the cash method of accounting for income tax purposes. The income (loss)
of the Company is included in the consolidated federal and state income tax returns of APHC, Inc. Where state
income tax laws do not permit the filing of a consolidated income tax return, separate returns are filed. The
Company provides for current income tax expense (benefit) on a separate company basis.
The Company has adopted the provisions of Accounting Standards Codification (“ASC”) Subtopic 740-10,
Income Taxes - Overall. As a result, the Company recognized a liability for uncertain tax positions of $0 and
$437,927 for 2017 and 2016, respectively, for benefits related to research and development tax credits taken
each year.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. For
the years ended December 31, 2017 and 2016, the Company recognized no interest and penalties associated
with uncertain tax positions.
The Company is only subject to U.S. federal, state, and local tax examinations by taxing authorities for three
years from the date of filing.
The Company uses the asset and liability approach to recognize the tax effects of temporary differences
between financial reporting and tax purposes at enacted tax rates expected to be in effect when such amounts
are recovered or settled.
Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions 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 reporting period. Actual results
could differ from those estimates.
Other Comprehensive Income - Comprehensive income includes all nonshareholder changes in equity during a
period and is divided into two broad classifications: net income and other comprehensive income (“OCI”). OCI
includes revenues, expenses, gains, and losses that are excluded from earnings under U.S. generally accepted
accounting principles. For the Company, OCI consists of amounts related to post-retirement health benefits.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
10
Note 1—Summary of significant accounting policies (continued)
Fair Value Measurements - The Company follows ASC Topic 820, Fair Value Measurements and Disclosures,
which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. ASC 820 also establishes a framework for measuring fair value
and expands disclosures about fair value measurements.
ASC Topic 820 establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly.
Level 3: one or more significant inputs or significant value drivers that are unobservable or based on
market assumptions.
The Company uses only Level 1 inputs in its fair value measurements.
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and Cash Equivalents, Accounts Receivable, and Accounts Payable - The carrying amount
approximates fair value because of the short maturity of these instruments.
Notes Receivable and Notes Payable - Since these notes have variable interest rates, the carrying
value approximates the fair value.
New Accounting Pronouncements - In May 2014, the FASB issued ASU No. 2014‐09, Revenue from Contracts
with Customers. Under the new standard, a company will recognize revenue when it delivers promised services
to clients in the amount the company is due in exchange for those services. This standard also includes
expanded disclosure requirements about the nature, amount, timing, and uncertainty of revenue and cash flows
arising from existing contracts with clients. This standard will be effective for the Company for the calendar year
ending December 31, 2019. The Company is currently in the process of evaluating the impact of adoption of this
ASU on the financial statements.
In February 2016, the FASB issued No. ASU 2016‐02, Leases. The standard requires all leases with lease
terms over twelve months to be capitalized as a right‐of‐use asset and lease liability on the balance sheet at the
date of lease commencement. Leases will be classified as either finance or operating, which impacts how
leases are expensed in the income statement. This standard will be effective for the Company for the calendar
year ending December 31, 2020. The Company is currently in the process of evaluating the impact of adoption
of this ASU on the financial statements.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
11
Note 2—Marketable securities, held to maturity
The amortized cost of marketable securities, held to maturity and their approximate fair values as of
December 31, 2017 and 2016 are as follows:
Gross Unrealized
Amortized Cost Losses Fair Value
Corporate debt securities 69,403,915$ (285,162)$ 69,118,753$
Gross Unrealized
Amortized Cost Gains Fair Value
Corporate debt securities 59,442,886$ 323,717$ 59,766,603$
2017
2016
Amortized Cost Fair Value
Amounts maturing in:
One year or less 29,598,295$ 29,762,249$
After one year through five years 39,805,620 39,356,504
69,403,915$ 69,118,753$
Management evaluates marketable securities for other-than-temporary impairment at least on an annual basis,
and more frequently when economic or market concerns warrant such evaluation. No marketable securities
were deemed to be impaired as of December 31, 2017. The gross unrealized losses as of December 31, 2017
and gross unrealized gains as of December 31, 2016 on marketable securities, held to maturity resulted from
changing market interest rates compared to the yields available at the time the underlying securities were
purchased.
The financial statements include $496,058 and $349,028 of accrued interest receivable related to these
marketable securities as of December 31, 2017 and 2016, respectively, which are included in Accounts
receivable - other.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
12
Note 3—Other comprehensive income
The components of other comprehensive income (loss) are summarized below for the years ended
December 31:
Before‐Tax Tax After‐Tax
Amount Effect Amount
Other comprehensive income (loss):
Post-retirement health benefits (79,252)$ 19,734$ (59,518)$
2017
Before‐Tax Tax After‐Tax
Amount Effect Amount
Other comprehensive income (loss):
Post-retirement health benefits 57,309$ (22,293)$ 35,016$
2016
See also Note 10.
Note 4—Litigation and claims
In the normal course of business, the Company is, on occasion, named as a defendant in legal actions. The
Company carries professional liability insurance, subject to certain deductibles and policy limits. While
management does not believe that the resolution of these claims will have a material adverse effect on the
Company’s financial position, results of operations, or cash flows, management acknowledges the uncertainty
surrounding the ultimate resolution of these matters. As of December 31, 2017 and 2016, the Company has
recorded a liability of $1,750,000 and $1,850,000, respectively, for outstanding claims included in Accounts
payable – trade, which represents the best estimate of the probable loss associated with these claims.
Note 5—Related party transactions
The Company provides management and engineering services, administrative support, benefits administration,
data processing, and accounting services to affiliated corporations. Included in net professional fees is $22,500
for 2017 and 2016, billed for other management and administrative services. Receivable from affiliates consists
of $4,893,137 and $2,815,088 for 2017 and 2016, respectively, due from affiliated corporations for engineering
services.
The Company pays income taxes on behalf of APHC, Inc. and its wholly-owned subsidiaries, resulting in a tax
receivable or liability based on the Company’s financial results. The tax liability due to affiliates was $1,631,594
and $929,714 as of December 31, 2017 and 2016, respectively.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
13
Note 6—Line of credit
The Company has a line of credit with a financial institution that bears interest at the 30-day London Interbank
Offered Rate (LIBOR) plus 1.35% (2.914% and 2.122% as of December 31, 2017 and 2016, respectively). The
accrued interest is paid monthly and the outstanding principal balance is due upon maturity. In addition, the
Company pays a quarterly fee for the unused portion of the line. The Company’s assets serve as collateral for
this line of credit.
The line of credit is a $10,000,000 operating line of credit and expires on May 1, 2020. The Company had no
borrowings under the line of credit as of December 31, 2017 and 2016.
Note 7—Lease commitments
The Company leases office space under operating lease agreements.
As of December 31, 2017, the minimum future rentals payable under the noncancellable portions of operating
leases were as follows:
Years Ending December 31,
2018 20,420,589$
2019 20,462,524
2020 18,247,476
2021 14,690,151
2022 12,871,483
Thereafter 40,120,967
126,813,190$
Total rent expense under these lease agreements recognized on a straight-line basis over the term of the lease
including any periods of free rent was $23,887,276 and $21,818,174 for 2017 and 2016, respectively.
During 2014, the Company sold a building to an unrelated entity for $8,500,000. Concurrent with the sale, the
Company leased back the building for 15 years at a monthly rate of $54,667 plus annual escalations of 1%. The
monthly rates in 2017 and 2016 were $56,323 and $55,765, respectively. Accordingly, the gain on sale of
$1,863,835 has been deferred and is being recognized over the 15-year lease term.
Note 8—Employee retirement plans
The Company has an employee Retirement Savings and Pension Plan, which includes a 401(k) employee deferral
and a Company match. The plan also allows for a profit-sharing benefit, which is determined annually by the Board
of Directors.
The Company has a defined contribution Retirement Annuity Plan whose purpose is to provide a retirement benefit
for individuals whose compensation exceeds the salary cap imposed by the Internal Revenue Service when
computing retirement benefits.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
14
Note 8—Employee retirement plans (continued)
Contributions to the employee retirement plans for the years ended December 31, 2017 and 2016 were as follows:
2017 2016
Plan contributions 65,379,280$ 53,795,329$
Less forfeitures (902,614) (990,780)
Total Contributions 64,476,666$ 52,804,549$
These contributions are included in payroll overhead expense.
Note 9—Income taxes
Income tax expense (benefit) for the years ended December 31, 2017 and 2016 is as follows:
2017 2016
Current:
Federal (84,815)$ 13,124,326$
State 440,243 2,334,621
355,428 15,458,947
Deferred:
Federal 1,157,842 (10,342,017)
State 600,492 (1,163,060)
1,758,334 (11,505,077)
2,113,762$ 3,953,870$
The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017. We have recorded a tax benefit
of $3,856,840, primarily due to a re-measurement of deferred tax assets and liabilities.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
15
Note 9—Income taxes (continued)
The components of deferred income taxes as of December 31, 2017 and 2016 are as follows:
2017 2016
Deferred tax assets:
Net operating loss and other tax carryforwards -
state and federal 644$ 606$
Temporary differences for reimbursed expenses 199,476 274,206
Post-retirement health benefits 175,455 155,721
Foreign tax credit 91,767 -
Federal research and development tax credit 1,183,237 -
State research and development tax credit 115,136 4,067
Accrual to cash adjustment - 50,834
Total deferred tax assets 1,765,715 485,434
Deferred tax liabilities:
Accrual to cash adjustment (4,100,888) -
Depreciation (2,705,915) (3,787,921)
Total deferred tax liabilities (6,806,803) (3,787,921)
Net deferred tax liabilities (5,041,088)$ (3,302,487)$
No valuation allowance for deferred tax assets was required as of December 31, 2017 and 2016. Management
believes it is more likely than not that the deferred tax assets will be recovered by future taxable income.
A reconciliation of the expected income tax expense (benefit) at the parent’s federal statutory rate of 35% and
income tax expense (benefit) for the years ended December 31, 2017 and 2016 is as follows:
2017 2016
Expected income tax expense at statutory rate 6,615,845$ 5,912,861$
State income taxes, net of federal benefit 676,567 541,276
Research and development tax credit (1,459,541) (1,537,976)
Permanent differences 692,107 (775,805)
Change in uncertain tax positions (437,927) (229,132)
Foreign items (119,953) -
Federal and state rate revaluation (3,856,840) -
Other 3,504 42,646
2,113,762$ 3,953,870$
As of December 31, 2017, the Company has net operating loss carryforwards for federal and state income tax
purposes of $0 and $15,547, respectively, which are available to offset future federal and state taxable income,
if any, for the next 15 years.
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
16
Note 10—Other liabilities
The Company has a Post-Retirement Healthcare Plan (the “Plan”). Participation in this Plan is determined by
the Board of Directors. The Company has currently designated certain retired individuals and their dependents
as participants in the Plan. The Company’s intent is that no new participants will be added to the Plan. The Plan
provides supplemental Medicare insurance under terms described in the Plan. The Plan also provides long-term
care insurance, vision insurance, and dental insurance.
The measurement date for the post-retirement benefit plans is December 31.
The components of net periodic post-retirement benefits cost recognized in the statements of operations for
2017 and 2016 consist of the following:
2017 2016
Interest cost 43,360$ 48,417$
Amortization of unrecognized losses 26,538 28,527
Amortization of prior service costs (1,692) (1,692)
Net periodic post-retirement benefits cost 68,206$ 75,252$
Benefits paid by the Company totaled $98,292 and $91,347, respectively, in the years ending December 31,
2017 and 2016.
Amounts recognized in the consolidated balance sheets as of December 31 consist of the following:
2017 2016
Accumulated post-retirement benefit obligation (1,284,348)$ (1,235,182)$
Fair value of plan assets - -
Funded status (1,284,348)$ (1,235,182)$
Amounts recognized in accumulated other comprehensive income that have not yet been recognized as
components of net periodic post-retirement benefits cost as of December 31 consist of the following:
2017 2016
Net actuarial losses (498,307)$ (420,747)$
Prior service costs 18,744 20,436
(479,563)$ (400,311)$
KIMLEY‐HORN AND ASSOCIATES, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)
17
Note 10—Other liabilities (continued)
The net (gain) loss and prior service costs (credit) that will be amortized from accumulated other comprehensive
income into net periodic post-retirement benefits cost over the next fiscal year are $26,939 and ($1,692),
respectively.
The accumulated post-retirement benefit obligation was determined using a discount rate of 3.24% and 3.65%
for 2017 and 2016, respectively. The assumed healthcare cost trend rate for 2017 is 7.0%, decreasing by 0.1%
in each future year to 5.0% for 2028 and remaining at that level thereafter. Increasing the assumed healthcare
cost trend rates by one percentage point would increase the accumulated post-retirement benefit obligation as
of December 31, 2017 by approximately $124,000.
The benefits projected to be paid from the post-retirement benefit plan in each year 2018 - 2022 are
approximately $79,000, $81,000, $83,000, $85,000, and $86,000, respectively. The aggregate benefits
projected to be paid in the five years from 2023 - 2027 are approximately $432,000. The projected benefits are
based on the same assumptions used to measure the Company’s benefit obligation as of December 31.
Note 11—Concentrations of credit risk
The Company places its cash and cash equivalents on deposit with financial institutions in the United States.
The Federal Deposit Insurance Corporation covers $250,000 for all interest-bearing deposit accounts. During
the year, the Company may have had amounts on deposit in excess of the insured limits. The cash balances
are maintained at financial institutions with high credit quality ratings and the Company believes no significant
risk of loss exists with respect to those balances.
Note 12—Commitments and contingencies
The Company has a Health Insurance Continuation Plan, which allows certain principals to continue their group
health coverage under the Company’s existing group health plan. Participants pay the cost of health insurance
premiums for this coverage.
Note 13—Subsequent events
The Company has evaluated subsequent events through March 13, 2018, the date these financial statements
were available to be issued, and has determined there are no subsequent events that require disclosure.