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HomeMy WebLinkAbout2018 Kimley-Horn Report 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, 2018 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, 2018 and 2017 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, 2018 and 2017, 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 18, 2019 KIMLEY‐HORN AND ASSOCIATES, INC.  BALANCE SHEETS      DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      The accompanying notes to the financial statements are an integral part of these statements. 2 2018 2017 ASSETS Current Assets: Cash and cash equivalents 26,163,550$ 25,159,593$ Marketable securities, held to maturity, current 72,491,809 29,598,295 Receivable from affiliates 1,013,751 4,893,137 Accounts receivable – trade, net 214,954,151 182,272,964 Costs and estimated earnings in excess of billings on uncompleted contracts 16,652,527 19,556,200 Accounts receivable – other 4,291,426 2,104,120 Notes receivable, net, current 165,618 117,562 Deposits, current 114,435 223,182 Prepaid expenses, current 20,506,163 17,865,759 Income taxes receivable 4,376,054 7,605,161 Total Current Assets 360,729,484 289,395,973 Properties and Equipment: Vehicles 216,777 237,067 Office furniture and equipment 64,470,100 59,101,871 Buildings and leasehold improvements 32,933,002 30,003,286 97,619,879 89,342,224 Less accumulated depreciation (56,949,809) (51,253,450) Net depreciable properties and equipment 40,670,070 38,088,774 Land 6,146,776 6,146,776 Total Properties and Equipment, Net 46,816,846 44,235,550 Other Assets: Marketable securities, held to maturity, noncurrent 39,568,052 39,805,620 Notes receivable due after one year, net 585,500 571,918 Deposits, noncurrent 857,592 743,332 Prepaid expenses, noncurrent 284,987 1,990,402 Goodwill, net 259,417 292,417 Other 1,500,756 1,635,307 Total Other Assets 43,056,304 45,038,996 Total Assets 450,602,634$ 378,670,519$ KIMLEY‐HORN AND ASSOCIATES, INC.  BALANCE SHEETS (CONTINUED)      DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      The accompanying notes to the financial statements are an integral part of these statements. 3 2018 2017 LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Accounts payable – trade 47,979,203$ 44,680,816$ Billings in excess of costs and estimated earnings on uncompleted contracts 63,470,221 50,268,024 Accrued salaries and wages 124,518,929 92,898,072 Accrued vacation payable 17,524,312 15,684,372 Accrued retirement plan contributions 59,623,943 53,668,889 Deferred income, current 124,256 124,256 Other current liabilities 79,334 78,646 Total Current Liabilities 313,320,198 257,403,075 Long-Term Liabilities: Tax liability due to affiliates 2,417,551 1,631,594 Deferred tax liabilities, noncurrent 3,387,210 5,041,088 Deferred income, noncurrent 1,149,363 1,273,619 Other long-term liabilities 1,055,251 1,205,702 Total Long-Term Liabilities 8,009,375 9,152,003 Total Liabilities 321,329,573 266,555,078 Shareholder's Equity: Common stock, stated value of $1.00 per share. Authorized 100,000 shares, issued and outstanding 35,771 shares 35,771 35,771 Paid-in capital 8,798,275 8,798,275 Retained earnings 120,641,494 103,585,503 Accumulated other comprehensive loss (202,479) (304,108) Total Shareholder’s Equity 129,273,061 112,115,441 Total Liabilities and Shareholder’s Equity 450,602,634$ 378,670,519$ KIMLEY‐HORN AND ASSOCIATES, INC.  STATEMENTS OF OPERATIONS      YEARS ENDED DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      The accompanying notes to the financial statements are an integral part of these statements. 4 2018 2017 Revenues: Gross revenues 907,344,124$ 806,428,121$ Less direct client expenses 200,750,586 197,189,800 Net Professional Fees 706,593,538 609,238,321 Operating Expenses: Employee compensation 490,546,964 410,802,210 Payroll overhead expense 130,476,589 122,394,509 Travel expenses 11,668,298 10,531,703 Professional expenses 20,095,447 17,607,132 Office supplies and expenses 10,589,335 9,518,919 Property costs 28,423,544 26,027,952 Telephone expense 3,238,949 3,369,318 General liability insurance 4,140,758 3,830,069 Depreciation and amortization 9,440,391 7,947,189 Legal, accounting, and other professional services 4,454,808 3,942,775 Software costs 8,744,695 7,065,752 Interest expense 3,332 4,114 Provision for uncollectible accounts 805,219 574,394 Less operating expenses included in direct client expenses (35,694,768) (31,299,693) Total Operating Expenses 686,933,561 592,316,343 Earnings from operations 19,659,977 16,921,978 Other income, net 3,419,245 1,980,436 Earnings before income taxes 23,079,222 18,902,414 Income tax expense 6,023,231 2,113,762 Net earnings 17,055,991$ 16,788,652$ KIMLEY‐HORN AND ASSOCIATES, INC.  STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY AND OTHER COMPREHENSIVE  INCOME (LOSS)    YEARS ENDED DECEMBER 31, 2018 AND 2017  (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, 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 Comprehensive income: Change in unrecognized costs of post-retirement health benefits, net of taxes - - - - 101,629 101,629 Net earnings - - - 17,055,991 - 17,055,991 Comprehensive income 17,157,620 Balance December 31, 2018 35,771 35,771$ 8,798,275$ 120,641,494$ (202,479)$ 129,273,061$ KIMLEY‐HORN AND ASSOCIATES, INC.  STATEMENTS OF CASH FLOWS      YEARS ENDED DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      The accompanying notes to the financial statements are an integral part of these statements. 6 2018 2017 Cash flows from operating activities: Net earnings 17,055,991$ 16,788,652$ Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,440,391 7,947,189 Deferred income (124,256) (124,256) Deferred income taxes (1,653,878) 1,738,601 (Gain) Loss on disposal of properties and equipment (99,601) 13,632 (Gain) on sales of marketable securities (1,347,654) (816,385) Amortization of bond premium/discount 237,568 155,752 Accrued interest income on marketable securities - (272,180) Provision for uncollectible accounts 630,000 680,000 Allowance, net of recovery, for uncollectible notes receivable 197,000 72,500 Changes in assets and liabilities: Accounts receivable – trade (33,311,187) (21,765,498) Costs and estimated earnings in excess of billings on uncompleted contracts 2,903,673 (3,426,428) Accounts receivable – other (2,187,305) (495,602) Receivable from affiliates 3,879,386 (2,078,049) Prepaid expenses (934,989) 1,221,333 Deposits and other assets 129,038 (684,106) Income taxes receivable 3,229,107 (7,605,161) Tax liability due to affiliates 785,957 701,880 Accounts payable – trade 3,298,387 4,122,352 Billings in excess of costs and estimated earnings on uncompleted contracts 13,202,197 5,718,952 Accounts Payable – affiliate - (26,094) Accrued compensation and expenses 39,415,851 11,136,638 Income taxes payable - (786,378) Other long-term liabilities (48,134) (10,352) Net cash provided by operating activities 54,697,542 12,206,992 Cash flows from investing activities: Purchases of properties and equipment (11,986,742) (14,575,697) Proceeds from disposition of properties and equipment 97,656 50,100 Purchases of marketable securities, held to maturity (358,545,861) (204,161,287) Sales of marketable securities, held to maturity 317,000,000 194,986,042 Issuance of notes receivable (366,500) (261,710) Collections of notes receivable 107,862 197,227 Business combination - (55,000) Net cash used in investing activities (53,693,585) (23,820,325) KIMLEY‐HORN AND ASSOCIATES, INC.  STATEMENTS OF CASH FLOWS (CONTINUED)      YEARS ENDED DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      The accompanying notes to the financial statements are an integral part of these statements. 7 2018 2017 Cash flows from financing activities: Net cash used in financing activities -$ -$ Net change in cash and cash equivalents 1,003,957 (11,613,333) Cash and cash equivalents, beginning of year 25,159,593 36,772,926 Cash and cash equivalents, end of year 26,163,550$ 25,159,593$ Supplemental disclosures of noncash investing and financing activities: Change in amount recognized for post-retirement health benefits 135,325$ (79,252)$ Supplemental cash flow information: Cash paid during the year for interest 3,332$ 4,114$ Cash paid during the year for income taxes, net of refunds received of $86,393 and $93,166, respectively 3,694,899$ 7,941,160$ KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (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 $3,870,000 and $3,240,000 as of December 31, 2018 and 2017, 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 Vehicles 5 years Office furniture and equipment 4 to 7 years Leasehold improvements Shorter of lease term or estimated useful life Buildings 39 years Life in Years Depreciation expense totaled $9,407,391 in 2018 and $7,916,481 in 2017. KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (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, 2018 and 2017, no triggering events occurred requiring impairment testing; therefore, no impairment loss was recorded. Goodwill and related accumulated amortization, respectively, were $330,000 and $70,583 in 2018 and $330,000 and $37,583 in 2017. 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 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, 2018 AND 2017  (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. All of the Company’s investments were able to be valued using Level 1 inputs for 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 - The Company is currently in the process of evaluating the impact of adoption of the following ASUs on the financial statements. 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. In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires all leases with lease terms over 12 months to be capitalized as a right-of-use asset and lease liability on the balance sheet at the date of lease commencement and to be classified as either finance or operating. This standard will be effective for the Company for the calendar year ending December 31, 2020.    KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (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, 2018 and 2017 are as follows: Gross Unrealized Amortized Cost Losses Fair Value Corporate debt securities 112,059,861$ (120,141)$ 111,939,720$ Gross Unrealized Amortized Cost Losses Fair Value Corporate debt securities 69,403,915$ (285,162)$ 69,118,753$ 2018 2017 The following is a summary of maturities of marketable securities, held to maturity as of December 31, 2018: Amortized Cost Fair Value Amounts maturing in: One year or less 72,491,809$ 73,091,104$ After one year through five years 39,568,052 38,848,616 112,059,861$ 111,939,720$ 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, 2018. The gross unrealized losses as of December 31, 2018 and 2017 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 $969,285 and $496,058 of accrued interest receivable related to these marketable securities as of December 31, 2018 and 2017, respectively, which are included in Accounts receivable - other. KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      12 Note 3—Other comprehensive income   The components of other comprehensive income (loss) are summarized below for the years ended December 31: Before‐Tax Tax  After‐Tax Amount Effect Amount Other comprehensive income (loss): Post-retirement health benefits 135,325$ (33,696)$ 101,629$ 2018 Before‐Tax Tax After‐Tax Amount Effect Amount Other comprehensive income (loss): Post-retirement health benefits (79,252)$ 19,734$ (59,518)$ 2017 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, 2018 and 2017, the Company has recorded a liability of $2,750,000 and $1,750,000, 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 2018 and 2017, billed for other management and administrative services. Receivable from affiliates consist of $1,013,751 and $4,893,137 for 2018 and 2017, 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 $2,417,551 and $1,631,594 as of December 31, 2018 and 2017, respectively. KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (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% (3.870% and 2.914% as of December 31, 2018 and 2017, 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 $10,000,000 operating line of credit and expires on May 1, 2020. The Company had no borrowings under the line of credit as of December 31, 2018 and 2017. Note 7—Lease commitments    The Company leases office space under operating lease agreements. As of December 31, 2018, the minimum future rentals payable under the noncancellable portions of operating leases are as follows: Years Ending December 31, 2019 23,882,499$ 2020 23,715,096 2021 21,945,977 2022 19,989,417 2023 16,254,918 Thereafter 57,416,557 163,204,464$ 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 $27,233,563 and $23,887,276 for 2018 and 2017, 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 2018 and 2017 were $56,886 and $56,323, respectively. Accordingly, the gain on sale of $1,863,835 has been deferred and is being recognized over the 15-year lease term. Note 8—Employee retirement plans    The Company has an employee Retirement Savings and Pension Plan, which includes a 401(k) employee deferral and a Company match. The plan also allows for a profit-sharing benefit, which is determined annually by the Board of Directors. The Company has a defined contribution Retirement Annuity Plan whose purpose is to provide a retirement benefit for individuals whose compensation exceeds the salary cap imposed by the Internal Revenue Service when computing retirement benefits. KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      14 Note 8—Employee retirement plans (continued)    Contributions to the employee retirement plans for the years ended December 31, 2018 and 2017 are as follows: 2018 2017 Plan contributions 72,730,241$ 65,379,280$ Less forfeitures (1,599,961) (902,614) Total Contributions 71,130,280$ 64,476,666$ These contributions are included in payroll overhead expense. Note 9—Income taxes    Income tax expense (benefit) for the years ended December 31, 2018 and 2017 are as follows: 2018 2017 Current: Federal 5,361,716$ (84,815)$ State 2,349,088 440,243 7,710,804 355,428 Deferred: Federal (1,287,223) 1,157,842 State (400,350) 600,492 (1,687,573) 1,758,334 6,023,231$ 2,113,762$ The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017. We recorded a tax benefit of $3,856,840 as of December 31, 2017, primarily due to a re-measurement of deferred tax assets and liabilities. KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      15 Note 9—Income taxes (continued)    The components of deferred income taxes as of December 31, 2018 and 2017 are as follows: 2018 2017 Deferred tax assets: Net operating loss and other tax carryforwards - state and federal 684$ 644$ Temporary differences for reimbursed expenses 222,782 199,476 Post-retirement health benefits 141,759 175,455 Foreign tax credit - 91,767 Federal research and development tax credit - 1,183,237 State research and development tax credit - 115,136 Goodwill amortization 84,804 - Accrual to cash adjustment 683,059 - Total deferred tax assets 1,133,088 1,765,715 Deferred tax liabilities: Accrual to cash adjustment (1,087) (4,100,888) Depreciation (4,519,211) (2,705,915) Total deferred tax liabilities (4,520,298) (6,806,803) Net deferred tax liabilities (3,387,210)$ (5,041,088)$ No valuation allowance for deferred tax assets was required as of December 31, 2018 and 2017. 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 21% and 35% as of December 31, 2018 and 2017, respectively, and income tax expense (benefit) for the years ended December 31, 2018 and 2017 are as follows: 2018 2017 Expected income tax expense at statutory rate 4,846,637$ 6,615,845$ State income taxes, net of federal benefit 1,631,504 676,567 Research and development tax credit (1,797,947) (1,459,541) Permanent differences 1,363,010 692,107 Change in uncertain tax positions - (437,927) Foreign items (30,748) (119,953) Federal and state rate revaluation - (3,856,840) Other 10,775 3,504 6,023,231$ 2,113,762$ KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      16 Note 9—Income taxes (continued)    As of December 31, 2018, the Company has net operating loss carryforwards for federal and state income tax purposes of $0 and $17,675, respectively, which are available to offset future federal and state taxable income, if any, for the next 15 years. In November 2015, the FASB issued ASU No. 2015-17, Income Taxes, Balance Sheet Classification of Deferred Taxes. This ASU changes the presentation of deferred income taxes and requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheets. The Company has implemented this ASU and will apply it retrospectively for all periods presented. The Company reclassified $2,335,817 of current deferred tax liabilities to noncurrent as of December 31, 2017. Note 10—Other liabilities    The Company has a Post-Retirement Healthcare Plan (the “Plan”). Participation in this Plan is determined by the Board of Directors. The Company has currently designated certain retired individuals and their dependents as participants in the Plan. The Company’s intent is that no new participants will be added to the Plan. The Plan provides supplemental Medicare insurance under terms described in the Plan. The Plan also provides long-term care insurance, vision insurance, and dental insurance. The measurement date for the post-retirement benefit plans is December 31. The components of net periodic post-retirement benefits cost recognized in the statements of operations for 2018 and 2017 consist of the following: 2018 2017 Interest cost 40,349$ 43,360$ Amortization of unrecognized losses 26,939 26,538 Amortization of prior service costs (1,692) (1,692) Net periodic post-retirement benefits cost 65,596$ 68,206$ Benefits paid by the Company totaled $80,034 and $98,292, respectively, in the years ended December 31, 2018 and 2017. Amounts recognized in the balance sheets as of December 31 consist of the following: 2018 2017 Accumulated post-retirement benefit obligation (1,134,585)$ (1,284,348)$ Fair value of plan assets - - Funded status (1,134,585)$ (1,284,348)$ KIMLEY‐HORN AND ASSOCIATES, INC.  NOTES TO THE FINANCIAL STATEMENTS      DECEMBER 31, 2018 AND 2017  (SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT)      17 Note 10—Other liabilities (continued)    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: 2018 2017 Net actuarial losses (361,290)$ (498,307)$ Prior service costs 17,052 18,744 (344,238)$ (479,563)$ 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 $18,991 and ($1,692), respectively. The accumulated post-retirement benefit obligation was determined using a discount rate of 3.90% and 3.24% for 2018 and 2017, respectively. The assumed healthcare cost trend rate for 2018 is 6.50%, 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, 2018 by approximately $100,000. The benefits projected to be paid from the post-retirement benefit plan in each year 2019 - 2023 are approximately $79,000, $81,000, $83,000, $84,000, and $84,000, respectively. The aggregate benefits projected to be paid in the five years from 2024 - 2028 are approximately $416,000. 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 18, 2019, the date these financial statements were available to be issued, and has determined there are no subsequent events that require disclosure.