PARSONS CORP - Quarter Report: 2019 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-07782
Parsons Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware |
95-3232481 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
5875 Trinity Parkway #300 Centreville, Virginia |
20120 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (703) 988-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, $1 par value |
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PSN |
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New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
|
Smaller reporting company |
☐ |
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 4, 2019, the registrant had 99,262,334 shares of common stock, $1.00 par value per share, outstanding.
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Page |
PART I. |
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1 |
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Item 1. |
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1 |
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1 |
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2 |
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3 |
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4 |
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5 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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31 |
Item 3. |
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46 |
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Item 4. |
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46 |
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PART II. |
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47 |
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Item 1. |
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47 |
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Item 1A. |
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47 |
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Item 2. |
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47 |
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Item 3. |
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47 |
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Item 4. |
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47 |
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Item 5. |
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47 |
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Item 6. |
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48 |
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49 |
i
PARSONS CORPORATION AND SUBSIDIARIES
(in thousands, except share information)
(Unaudited)
|
|
|
December 31, 2018 |
|
|
September 30, 2019 |
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||
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including $73,794 and $55,054 Cash of consolidated joint ventures) |
|
$ |
280,221 |
|
|
$ |
133,870 |
|
|
Restricted cash and investments |
|
|
974 |
|
|
|
12,592 |
|
|
Accounts receivable, net (including $180,325 and $164,460 Accounts receivable of consolidated joint ventures, net) |
|
|
623,286 |
|
|
|
673,674 |
|
|
Contract assets (including $21,270 and $26,542 Contract assets of consolidated joint ventures) |
|
|
515,319 |
|
|
|
583,670 |
|
|
Prepaid expenses and other current assets (including $11,837 and $8,149 Prepaid expenses and other current assets of consolidated joint ventures) |
|
|
69,007 |
|
|
|
70,455 |
|
|
Total current assets |
|
|
1,488,807 |
|
|
|
1,474,261 |
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net (including $2,561 and $3,171 Property and equipment of consolidated joint ventures, net) |
|
|
91,849 |
|
|
|
109,238 |
|
|
Right of use assets, operating leases |
|
|
- |
|
|
|
219,207 |
|
|
Goodwill |
|
|
736,938 |
|
|
|
1,050,077 |
|
|
Investments in and advances to unconsolidated joint ventures |
|
|
63,560 |
|
|
|
66,584 |
|
|
Intangible assets, net |
|
|
179,519 |
|
|
|
281,157 |
|
|
Deferred tax assets |
|
|
5,680 |
|
|
|
111,610 |
|
|
Other noncurrent assets |
|
|
46,225 |
|
|
|
50,510 |
|
|
Total assets |
|
$ |
2,612,578 |
|
|
$ |
3,362,644 |
|
|
|
|
|
|
|
|
|
|
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Liabilities and Shareholders' Equity (Deficit) |
|
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Current liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable (including $87,914 and $90,692 Accounts payable of consolidated joint ventures) |
|
$ |
226,345 |
|
|
$ |
226,563 |
|
|
Accrued expenses and other current liabilities (including $73,209 and $63,880 Accrued expenses and other current liabilities of consolidated joint ventures) |
|
|
559,700 |
|
|
|
639,650 |
|
|
Contract liabilities (including $38,706 and $43,324 Contract liabilities of consolidated joint ventures) |
|
|
208,576 |
|
|
|
231,032 |
|
|
Short-term lease liabilities, operating leases |
|
|
- |
|
|
|
49,074 |
|
|
Income taxes payable |
|
|
11,540 |
|
|
|
9,940 |
|
|
Total current liabilities |
|
|
1,006,161 |
|
|
|
1,156,259 |
|
|
Long-term employee incentives |
|
|
41,913 |
|
|
|
45,749 |
|
|
Deferred gain resulting from sale-leaseback transactions |
|
|
46,004 |
|
|
|
- |
|
|
Long-term debt |
|
|
429,164 |
|
|
|
249,306 |
|
|
Long-term lease liabilities, operating leases |
|
|
- |
|
|
|
188,571 |
|
|
Deferred tax liabilities |
|
|
6,240 |
|
|
|
7,337 |
|
|
Other long-term liabilities |
|
|
127,863 |
|
|
|
120,971 |
|
|
Total liabilities |
|
|
1,657,345 |
|
|
|
1,768,193 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
|
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|
Redeemable common stock held by Employee Stock Ownership Plan (ESOP), $1 par value; 78,172,809 and 78,138,602 shares outstanding, recorded at redemption value |
|
|
1,876,309 |
|
|
|
2,577,011 |
|
Shareholders' equity (deficit): |
|
|
|
|
|
|
|
|
|
|
Common stock, $1 par value; authorized 1,000,000,000 shares; 125,097,684 and 146,393,959 shares issued; 0 and 21,296,275 shares outstanding |
|
|
- |
|
|
|
21,296 |
|
|
Treasury stock, 46,918,140 and 46,959,082 shares at cost |
|
|
(957,025 |
) |
|
|
(957,844 |
) |
|
Additional paid-in capital |
|
|
- |
|
|
|
8,772 |
|
|
Retained earnings (accumulated deficit) |
|
|
12,445 |
|
|
|
(64,896 |
) |
|
Accumulated other comprehensive loss |
|
|
(22,957 |
) |
|
|
(17,982 |
) |
|
Total Parsons Corporation shareholders' equity (deficit) |
|
|
(967,537 |
) |
|
|
(1,010,654 |
) |
|
Noncontrolling interests |
|
|
46,461 |
|
|
|
28,094 |
|
|
Total shareholders' equity (deficit) |
|
|
(921,076 |
) |
|
|
(982,560 |
) |
|
Total liabilities, redeemable common stock and shareholders' equity (deficit) |
|
$ |
2,612,578 |
|
|
$ |
3,362,644 |
|
The accompanying notes are an integral part of these consolidated financial statements.
1
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share information)
(Unaudited)
|
|
For the Three Months Ended |
|
|
|
For the Nine Months Ended |
|
||||||||||
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|
September 28, 2018 |
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September 30, 2019 |
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|
September 28, 2018 |
|
|
September 30, 2019 |
|
||||
Revenues |
|
$ |
976,157 |
|
|
$ |
1,023,277 |
|
|
|
$ |
2,631,568 |
|
|
$ |
2,917,424 |
|
Direct costs of contracts |
|
|
783,018 |
|
|
|
798,552 |
|
|
|
|
2,054,201 |
|
|
|
2,297,512 |
|
Equity in earnings of unconsolidated joint ventures |
|
|
12,707 |
|
|
|
7,274 |
|
|
|
|
25,577 |
|
|
|
29,305 |
|
Indirect, general and administrative expenses |
|
|
150,733 |
|
|
|
178,550 |
|
|
|
|
422,028 |
|
|
|
581,428 |
|
Operating income |
|
|
55,113 |
|
|
|
53,449 |
|
|
|
|
180,916 |
|
|
|
67,789 |
|
Interest income |
|
|
351 |
|
|
|
427 |
|
|
|
|
2,358 |
|
|
|
1,129 |
|
Interest expense |
|
|
(5,940 |
) |
|
|
(4,909 |
) |
|
|
|
(14,475 |
) |
|
|
(19,577 |
) |
Other income (expense), net |
|
|
696 |
|
|
|
(3,127 |
) |
|
|
|
355 |
|
|
|
(1,580 |
) |
Gain associated with claim on long-term contract |
|
|
- |
|
|
|
- |
|
|
|
|
74,578 |
|
|
|
- |
|
Total other income (expense) |
|
|
(4,893 |
) |
|
|
(7,609 |
) |
|
|
|
62,816 |
|
|
|
(20,028 |
) |
Income before income tax provision |
|
|
50,220 |
|
|
|
45,840 |
|
|
|
|
243,732 |
|
|
|
47,761 |
|
Income tax benefit (provision) |
|
|
(4,154 |
) |
|
|
15,453 |
|
|
|
|
(18,526 |
) |
|
|
67,063 |
|
Net income including noncontrolling interests |
|
|
46,066 |
|
|
|
61,293 |
|
|
|
|
225,206 |
|
|
|
114,824 |
|
Net income attributable to noncontrolling interests |
|
|
(4,844 |
) |
|
|
(4,481 |
) |
|
|
|
(10,316 |
) |
|
|
(8,012 |
) |
Net income attributable to Parsons Corporation |
|
$ |
41,222 |
|
|
$ |
56,812 |
|
|
|
$ |
214,890 |
|
|
$ |
106,812 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.52 |
|
|
$ |
0.57 |
|
|
|
$ |
2.66 |
|
|
$ |
1.19 |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 28, 2018 |
|
|
September 30, 2019 |
|
|
September 28, 2018 |
|
|
September 30, 2019 |
|
||||
Net income including noncontrolling interests |
|
$ |
46,066 |
|
|
$ |
61,293 |
|
|
$ |
225,206 |
|
|
$ |
114,824 |
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax |
|
|
2,303 |
|
|
|
171 |
|
|
|
(3,079 |
) |
|
|
4,958 |
|
Pension adjustments, net of tax |
|
|
10 |
|
|
|
(9 |
) |
|
|
(27 |
) |
|
|
17 |
|
Comprehensive income including noncontrolling interests, net of tax |
|
|
48,379 |
|
|
|
61,455 |
|
|
|
222,100 |
|
|
|
119,799 |
|
Comprehensive income attributable to noncontrolling interests, net of tax |
|
|
(4,822 |
) |
|
|
(4,481 |
) |
|
|
(10,270 |
) |
|
|
(8,012 |
) |
Comprehensive income attributable to Parsons Corporation, net of tax |
|
$ |
43,557 |
|
|
$ |
56,974 |
|
|
$ |
211,830 |
|
|
$ |
111,787 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
For the Nine Months Ended |
|
|||||
|
|
|
September 28, 2018 |
|
|
September 30, 2019 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income including noncontrolling interests |
|
$ |
225,206 |
|
|
$ |
114,824 |
|
|
Adjustments to reconcile net income to net cash used in operating activities |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
46,656 |
|
|
|
92,692 |
|
|
Amortization of deferred gain |
|
|
(5,440 |
) |
|
|
- |
|
|
Amortization of debt issue costs |
|
|
548 |
|
|
|
802 |
|
|
Gain associated with claim on long-term contract |
|
|
(129,674 |
) |
|
|
- |
|
|
Loss on disposal of property and equipment |
|
|
59 |
|
|
|
1,045 |
|
|
Provision for doubtful accounts |
|
|
9,094 |
|
|
|
(964 |
) |
|
Deferred taxes |
|
|
1,281 |
|
|
|
(105,161 |
) |
|
Foreign currency transaction gains and losses |
|
|
2,007 |
|
|
|
1,689 |
|
|
Equity in earnings of unconsolidated joint ventures |
|
|
(25,577 |
) |
|
|
(29,305 |
) |
|
Return on investments in unconsolidated joint ventures |
|
|
31,728 |
|
|
|
32,848 |
|
|
Stock-based compensation |
|
|
- |
|
|
|
9,224 |
|
|
Contributions of treasury stock |
|
|
34,070 |
|
|
|
36,779 |
|
|
Changes in assets and liabilities, net of acquisitions and newly consolidated joint ventures: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
384,216 |
|
|
|
(31,726 |
) |
|
Contract assets |
|
|
(527,768 |
) |
|
|
(59,161 |
) |
|
Prepaid expenses and current assets |
|
|
(13,028 |
) |
|
|
2,980 |
|
|
Accounts payable |
|
|
38,424 |
|
|
|
(6,946 |
) |
|
Accrued expenses and other current liabilities |
|
|
9,558 |
|
|
|
40,186 |
|
|
Billings in excess of costs |
|
|
(151,892 |
) |
|
|
- |
|
|
Contract liabilities |
|
|
168,579 |
|
|
|
20,703 |
|
|
Provision for contract losses |
|
|
(13,992 |
) |
|
|
- |
|
|
Income taxes |
|
|
3,250 |
|
|
|
(3,019 |
) |
|
Other long-term liabilities |
|
|
12,517 |
|
|
|
13,138 |
|
|
Net cash provided by operating activities |
|
|
99,822 |
|
|
|
130,628 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(19,436 |
) |
|
|
(44,030 |
) |
|
Proceeds from sale of property and equipment |
|
|
112 |
|
|
|
2,824 |
|
|
Payments for acquisitions, net of cash acquired |
|
|
(481,163 |
) |
|
|
(495,690 |
) |
|
Investments in unconsolidated joint ventures |
|
|
(4,276 |
) |
|
|
(11,446 |
) |
|
Return of investments in unconsolidated joint ventures |
|
|
1,126 |
|
|
|
6,632 |
|
|
Net cash used in investing activities |
|
|
(503,637 |
) |
|
|
(541,710 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
260,000 |
|
|
|
530,000 |
|
|
Repayments of borrowings |
|
|
(20,000 |
) |
|
|
(710,000 |
) |
|
Payments for debt costs and credit agreement |
|
|
(468 |
) |
|
|
(286 |
) |
|
Contributions by noncontrolling interests |
|
|
13,768 |
|
|
|
8,999 |
|
|
Distributions to noncontrolling interests |
|
|
(6,858 |
) |
|
|
(35,378 |
) |
|
Purchase of treasury stock |
|
|
(73,308 |
) |
|
|
(819 |
) |
|
IPO proceeds, net |
|
|
- |
|
|
|
536,879 |
|
|
Dividend paid |
|
|
- |
|
|
|
(52,093 |
) |
|
Net cash provided by financing activities |
|
|
173,134 |
|
|
|
277,302 |
|
|
Effect of exchange rate changes |
|
|
(1,233 |
) |
|
|
(953 |
) |
|
Net decrease in cash, cash equivalents, and restricted cash |
|
|
(231,914 |
) |
|
|
(134,733 |
) |
|
Cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
Beginning of year |
|
|
446,144 |
|
|
|
281,195 |
|
|
End of period |
|
$ |
214,230 |
|
|
$ |
146,462 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (Deficit)
For the Three Months Ended September 30, 2019 and September 28, 2018
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Earnings |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|||||
|
|
Common |
|
|
|
Common |
|
|
Treasury |
|
|
Paid-in |
|
|
(Accumulated |
|
|
Comprehensive |
|
|
Parsons |
|
|
Noncontrolling |
|
|
|
|
|
||||||||
|
|
Stock |
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Deficit) |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Interests |
|
|
Total |
|
|||||||||
Balance at June 30, 2019 |
|
$ |
2,880,189 |
|
|
|
$ |
21,296 |
|
|
$ |
(957,844 |
) |
|
$ |
- |
|
|
$ |
(424,886 |
) |
|
$ |
(18,144 |
) |
|
$ |
(1,379,578 |
) |
|
$ |
37,352 |
|
|
$ |
(1,342,226 |
) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
56,812 |
|
|
|
- |
|
|
|
56,812 |
|
|
|
4,481 |
|
|
|
61,293 |
|
Foreign currency translation gain, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
171 |
|
|
|
171 |
|
|
|
- |
|
|
|
171 |
|
Pension adjustments, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9 |
) |
|
|
(9 |
) |
|
|
- |
|
|
|
(9 |
) |
Contributions |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
852 |
|
|
|
852 |
|
Distributions |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14,591 |
) |
|
|
(14,591 |
) |
Stock-based compensation |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
9,224 |
|
|
|
- |
|
|
|
- |
|
|
|
9,224 |
|
|
|
- |
|
|
|
9,224 |
|
IPO proceeds, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
(452 |
) |
|
|
- |
|
|
|
- |
|
|
|
(452 |
) |
|
|
- |
|
|
|
(452 |
) |
Accretion of redeemable common stock |
|
|
(303,178 |
) |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
303,178 |
|
|
|
- |
|
|
|
303,178 |
|
|
|
- |
|
|
|
303,178 |
|
Balance at September 30, 2019 |
|
$ |
2,577,011 |
|
|
|
$ |
21,296 |
|
|
$ |
(957,844 |
) |
|
$ |
8,772 |
|
|
$ |
(64,896 |
) |
|
$ |
(17,982 |
) |
|
$ |
(1,010,654 |
) |
|
$ |
28,094 |
|
|
$ |
(982,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 29, 2018 |
|
$ |
1,822,309 |
|
|
|
$ |
- |
|
|
$ |
(909,368 |
) |
|
$ |
- |
|
|
$ |
15,894 |
|
|
$ |
(20,397 |
) |
|
$ |
(913,871 |
) |
|
$ |
43,935 |
|
|
$ |
(869,936 |
) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
41,222 |
|
|
|
- |
|
|
|
41,222 |
|
|
|
4,844 |
|
|
|
46,066 |
|
Foreign currency translation gain, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,294 |
|
|
|
2,294 |
|
|
|
9 |
|
|
|
2,303 |
|
Pension adjustments, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
10 |
|
|
|
- |
|
|
|
10 |
|
Purchase of treasury stock |
|
|
(40,312 |
) |
|
|
|
- |
|
|
|
(40,312 |
) |
|
|
- |
|
|
|
40,312 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contributions |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
115 |
|
|
|
115 |
|
Distributions |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,096 |
) |
|
|
(4,096 |
) |
Balance at September 28, 2018 |
|
$ |
1,781,997 |
|
|
|
$ |
- |
|
|
$ |
(949,680 |
) |
|
$ |
- |
|
|
$ |
97,428 |
|
|
$ |
(18,093 |
) |
|
$ |
(870,345 |
) |
|
$ |
44,807 |
|
|
$ |
(825,538 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
5
PARSONS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity (Deficit)
For the Nine Months Ended September 30, 2019 and September 28, 2018
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Earnings |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|||||
|
|
Common |
|
|
|
Common |
|
|
Treasury |
|
|
Paid-in |
|
|
(Accumulated |
|
|
Comprehensive |
|
|
Parsons |
|
|
Noncontrolling |
|
|
|
|
|
||||||||
|
|
Stock |
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Deficit) |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Interests |
|
|
Total |
|
|||||||||
Balance at December 31, 2018 |
|
$ |
1,876,309 |
|
|
|
$ |
- |
|
|
$ |
(957,025 |
) |
|
$ |
- |
|
|
$ |
12,445 |
|
|
$ |
(22,957 |
) |
|
$ |
(967,537 |
) |
|
$ |
46,461 |
|
|
$ |
(921,076 |
) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
106,812 |
|
|
|
- |
|
|
|
106,812 |
|
|
|
8,012 |
|
|
|
114,824 |
|
Foreign currency translation gain, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,958 |
|
|
|
4,958 |
|
|
|
- |
|
|
|
4,958 |
|
Pension adjustments, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17 |
|
|
|
17 |
|
|
|
- |
|
|
|
17 |
|
ASC 842 transition adjustment |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
52,608 |
|
|
|
- |
|
|
|
52,608 |
|
|
|
- |
|
|
|
52,608 |
|
Purchase of treasury stock |
|
|
(819 |
) |
|
|
|
- |
|
|
|
(819 |
) |
|
|
- |
|
|
|
819 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contributions |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,999 |
|
|
|
8,999 |
|
Distributions |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(35,378 |
) |
|
|
(35,378 |
) |
Dividend paid |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(52,093 |
) |
|
|
- |
|
|
|
(52,093 |
) |
|
|
- |
|
|
|
(52,093 |
) |
Stock-based compensation |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
9,224 |
|
|
|
- |
|
|
|
- |
|
|
|
9,224 |
|
|
|
- |
|
|
|
9,224 |
|
Conversion of S-Corp to C-Corp |
|
|
25,877 |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(25,877 |
) |
|
|
- |
|
|
|
(25,877 |
) |
|
|
- |
|
|
|
(25,877 |
) |
IPO proceeds, net |
|
|
- |
|
|
|
|
21,296 |
|
|
|
- |
|
|
|
515,582 |
|
|
|
- |
|
|
|
- |
|
|
|
536,878 |
|
|
|
- |
|
|
|
536,878 |
|
Accretion of redeemable common stock |
|
|
675,644 |
|
|
|
|
- |
|
|
|
- |
|
|
|
(516,034 |
) |
|
|
(159,610 |
) |
|
|
- |
|
|
|
(675,644 |
) |
|
|
- |
|
|
|
(675,644 |
) |
Balance at September 30, 2019 |
|
$ |
2,577,011 |
|
|
|
$ |
21,296 |
|
|
$ |
(957,844 |
) |
|
$ |
8,772 |
|
|
$ |
(64,896 |
) |
|
$ |
(17,982 |
) |
|
$ |
(1,010,654 |
) |
|
$ |
28,094 |
|
|
$ |
(982,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2017 |
|
$ |
1,855,305 |
|
|
|
$ |
- |
|
|
$ |
(876,372 |
) |
|
$ |
- |
|
|
$ |
(186,035 |
) |
|
$ |
(15,003 |
) |
|
$ |
(1,077,410 |
) |
|
$ |
27,494 |
|
|
$ |
(1,049,916 |
) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
214,890 |
|
|
|
- |
|
|
|
214,890 |
|
|
|
10,316 |
|
|
|
225,206 |
|
Foreign currency translation (loss), net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,063 |
) |
|
|
(3,063 |
) |
|
|
(16 |
) |
|
|
(3,079 |
) |
Pension adjustments, net |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(27 |
) |
|
|
(27 |
) |
|
|
- |
|
|
|
(27 |
) |
Adoption of ASC 606 |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,735 |
) |
|
|
- |
|
|
|
(4,735 |
) |
|
|
103 |
|
|
|
(4,632 |
) |
Purchase of treasury stock |
|
|
(73,308 |
) |
|
|
|
|
|
|
|
(73,308 |
) |
|
|
- |
|
|
|
73,308 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contributions |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,768 |
|
|
|
13,768 |
|
Distributions |
|
|
- |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,858 |
) |
|
|
(6,858 |
) |
Balance at September 28, 2018 |
|
$ |
1,781,997 |
|
|
|
$ |
- |
|
|
$ |
(949,680 |
) |
|
$ |
- |
|
|
$ |
97,428 |
|
|
$ |
(18,093 |
) |
|
$ |
(870,345 |
) |
|
$ |
44,807 |
|
|
$ |
(825,538 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
6
Parsons Corporation and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
1. |
Description of Operations |
Organization
Parsons Corporation, a Delaware corporation, and its subsidiaries (collectively, the “Company”) provide sophisticated design, engineering and technical services, and smart and agile software to the United States federal government and Critical Infrastructure customers worldwide. The Company performs work in various foreign countries through local subsidiaries, joint ventures and foreign offices maintained to carry out specific projects.
Initial Public Offering
On May 8, 2019, the Company consummated its initial public offering (“IPO”) whereby the Company sold 18,518,500 shares of common stock for $27.00 per share. The underwriters exercised their share option on May 14, 2019 to purchase an additional 2,777,775 shares at the share price of $25.515 which was the IPO share price of $27.00 less the underwriting discount of $1.485 per share. The net proceeds of the IPO and the underwriters’ share option were $536.9 million, after deducting underwriting discounts and other fees, and were used to fund an IPO dividend of $52.1 million, repay the outstanding balance of $150.0 million under our Term Loan, and repay outstanding indebtedness under our Revolving Credit Facility.
Stock Dividend
On April 15, 2019, the board of directors of the Company declared a common stock dividend in a ratio of two shares of common stock for every one share of common stock presently held by the Company’s stockholder (the “Stock Dividend”). The record date of this common Stock Dividend, which the Company refers to as the Stock Dividend was May 7, 2019, the day immediately prior to the consummation of the Company’s IPO on May 8, 2019, and the payment date of the Stock Dividend was May 8, 2019. Purchasers of the Company’s common stock in the Company’s public offering were not entitled to receive any portion of the Stock Dividend.
The accompanying unaudited consolidated financial statements and related notes of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and pursuant to the interim period reporting requirements of Form 10-Q. They do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with our consolidated financial statements and the notes thereto included in the Company’s Form S-1/A filed on April 29, 2019.
In the opinion of management, the consolidated financial statements reflect all normal recurring adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year or for future years.
This Quarterly Report on Form 10-Q includes the accounts of our wholly-owned subsidiaries, and joint ventures of which we are the primary beneficiary. The equity method of accounting is applied for the joint ventures in which the Company does not have a controlling interest, but exerts a significant influence (see “Note 15 – Investments in and Advances to Joint Ventures" for further discussion).
In the first quarter of 2019 the Company adopted Accounting Standards Update (‘ASU”) 2016-02, “Leases” (“Topic 842”), using the modified retrospective method. The new guidance was applied to leases that existed or were entered into on or after January 1, 2019. The Company’s results for the reporting period beginning January 1, 2019 have been presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with previous guidance. See “Note 6 – Leases” for further discussion of the adoption and the impact on the Company’s financial statements.
7
The Company's accounting policy is to record dividends and accretion of redeemable stock as a reduction of retained earnings. In the absence of retained earnings, the Company will charge the dividends and/or accretion of redeemable stock to Additional Paid-in Capital until depleted and will then charge the remainder to accumulated deficit. As a result of the change in tax status from "S" Corporation to "C" Corporation in the second quarter of 2019, the Company reclassified historical retained earnings for the "S" Corporation from retained earnings to Additional Paid in Capital as of the date of conversion. Subsequent changes in accumulated deficit are related to increases or decreases in the maximum redemption value of redeemable common stock.
Fiscal Periods
In October 2018, our board of directors approved a change in our annual and quarterly fiscal period ends from the last Friday on or before the calendar year or quarterly month-end to the last day of the calendar year or quarterly month-end. Accordingly, the period end for the first, second, and third quarters of fiscal 2018 and fiscal 2019 are March 30, 2018, June 29, 2018, and September 28, 2018, respectively, and March 31, 2019, June 30, 2019, and September 30, 2019, respectively. The number of days in the three- and nine-month periods ended September 28, 2018 and September 30, 2019 were 91 and 273, respectively, and 92 and 273, respectively.
Use of Estimates
The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. The Company’s most significant estimates and judgments involve revenue recognition with respect to the determination of the costs to complete contracts and transaction price; determination of self-insurance reserves; valuation of the Company’s fair value of common stock (for periods prior to the IPO); useful lives of property and equipment and intangible assets; calculation of allowance for doubtful accounts; valuation of deferred income tax assets and uncertain tax positions, among others. Please see “Note 2 – Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements included in the Company’s Form S-1/A filed April 29, 2019, for a discussion of the significant estimates and assumptions affecting our consolidated financial statements. Estimates of costs to complete contracts are continually evaluated as work progresses and are revised when necessary. When a change in estimate is determined to have an impact on contract profit, the Company records a positive or negative adjustment to the consolidated statement of income.
Inventory
Included in Prepaid expenses and other current assets in the Company’s consolidated balances sheets is inventory. Inventory consists of uninstalled materials received by the Company awaiting installation at our project sites and raw materials, work-in-process, and finished goods related to the manufacture of advance technology equipment. Uninstalled materials inventory and the inventory related to advance technology equipment is carried on the Company’s consolidated balance sheets at the lower of cost (which approximates average cost) or net realizable value.
Redeemable Common Stock
In connection with the Company’s IPO on May 8, 2019, all Employee Stock Ownership Plan (“ESOP”) shares were contingently redeemable for cash during the 180-day lock-up period which ended on November 3, 2019. During the 180-day lock-up period, the Company presented all shares held by the ESOP as temporary equity on the consolidated balance sheets as Redeemable common stock held by Employee Stock Ownership Plan (ESOP) at their redemption value. The consolidated balance sheet, to be presented in the Company’s 2019 Annual Report on Form 10-K, at December 31, 2019 will reflect the reclassification of redeemable common stock held by the ESOP from temporary equity to permanent equity as the lock-up period expires in the fourth quarter. At the conclusion of the lock-up period all shares held by the ESOP will be redeemable by participants in shares of the Company’s common stock once vesting and eligibility requirements have been met.
8
In the first quarter of 2019, the Company adopted Topic 842. See “Note 6 – Leases” for further discussion of the adoption and the impact on the Company’s financial statements.
In the first quarter of 2019, the Company adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” under which the Company did not elect to reclassify the income tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the enactment of comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act. As a result, there was no impact on the Company’s financial position, results of operations or cash flows.
On December 30, 2017, the Company adopted ASC 606, “Revenue from Contracts with Customers,” using the modified retrospective method, which provides for a cumulative effect adjustment to retained earnings beginning in fiscal 2018 for those uncompleted contracts impacted by the adoption of the new standard. The difference between the recognition criteria under ASC 606 and our previous recognition practices under ASC 605-35 was recognized through a cumulative adjustment of $4.7 million that was made to the opening balance of accumulated deficit as of December 30, 2017.
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the test for goodwill impairment by removing the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is effective for interim and annual reporting periods beginning after December 15, 2019 and should be applied prospectively with early adoption permitted. The Company early adopted the new standard as of the beginning of fiscal 2018 and its adoption did not have a material impact on the consolidated financial statements.
4. |
Acquisitions |
Polaris Alpha
On May 31, 2018, the Company acquired a 100% ownership interest in Polaris Alpha, a privately owned, advanced technology-focused provider of innovative mission solutions for complex defense, intelligence, and security customers, as well as other U.S. federal government customers, for $489.1 million paid in cash. The Company borrowed $260 million under the credit agreement, as described in “Note 11 – Debt and Credit Facilities,” to partially fund the acquisition. In connection with this acquisition, the Company recognized $6.2 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the fiscal year ended December 31, 2018, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. Polaris Alpha enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions. Customers of both companies will benefit from existing, complementary technologies and increased scale, enabling end-to-end solutions under the shared vision of rapid prototyping and agile development.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed (in thousands):
|
Amount |
|
||
Cash and cash equivalents |
|
$ |
7,914 |
|
Accounts receivable |
|
|
29,688 |
|
Contract assets |
|
|
35,229 |
|
Prepaid expenses and other current assets |
|
|
9,295 |
|
Property and equipment |
|
|
9,024 |
|
Goodwill |
|
|
243,471 |
|
Intangible assets |
|
|
199,520 |
|
Other noncurrent assets |
|
|
2,203 |
|
Accounts payable |
|
|
(13,942 |
) |
Accrued expenses and other current liabilities |
|
|
(26,419 |
) |
Contract liabilities |
|
|
(3,529 |
) |
Deferred tax liabilities |
|
|
(2,231 |
) |
Other long-term liabilities |
|
|
(1,146 |
) |
Net assets acquired |
|
$ |
489,077 |
|
9
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
Gross Carrying Amount |
|
|
Amortization Period |
||
|
|
|
|
|
|
(in years) |
Developed technology |
|
$ |
84,900 |
|
|
4 |
Customer relationships |
|
|
76,000 |
|
|
8 |
Backlog |
|
|
34,900 |
|
|
2 |
Trade name |
|
|
3,600 |
|
|
1 |
Leases |
|
$ |
120 |
|
|
6 |
Amortization expense of $13.0 million and $13.2 million related to these intangible assets was recorded for the three months ended September 28, 2018 and September 30, 2019, respectively, and $17.3 million and $41.2 million for the nine months ended September 28, 2018 and September 30, 2019, respectively. The entire value of goodwill of $243.5 million was assigned to the Parsons Federal reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $50.1 million is deductible for tax purposes.
The amount of revenue generated by Polaris Alpha and included within consolidated revenues is $94.8 million and $96.9 million for the three months ended September 28, 2018 and September 30, 2019, respectively, and $124.7 million and $293.0 million for the nine months ended September 28, 2018 and September 30, 2019, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.
Supplemental Pro Forma Information
Supplemental information on an unaudited pro forma operating results assuming the Polaris Alpha acquisition had been consummated as of the beginning of fiscal year 2018 (December 31, 2017) (in thousands) is as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
September 28, 2018 |
|
|
September 28, 2018 |
|
|||
Pro forma revenue |
|
$ |
976,157 |
|
|
$ |
2,784,864 |
|
Pro forma net income including noncontrolling interests |
|
$ |
46,848 |
|
|
$ |
179,071 |
|
The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflects the pro forma impact of additional amortization related to the fair value of acquired intangible assets, pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses and the additional pro forma interest expense related to the borrowings under the credit agreement as of the assumed acquisition date. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been consummated during the periods for which pro forma information is presented.
OGSystems
On January 7, 2019, the Company acquired a 100% ownership interest in OGSystems, a privately owned company, for $292.4 million paid in cash. OGSystems provides geospatial intelligence, big data analytics and threat mitigation for defense and intelligence customers. The Company borrowed $110 million under the credit agreement and $150 million on a short-term loan, as described in “Note 11 – Debt and Credit Facilities,” to partially fund the acquisition. In connection with this acquisition, the Company recognized $0.6 million and $5.5 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 2019, respectively, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. OGSystems enhances the Company’s artificial intelligence and data analytics expertise with new technologies and solutions. Customers of both companies will benefit from existing, complementary technologies and increased scale, enabling end-to-end solutions under the shared vision of rapid prototyping and agile development.
10
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):
|
Amount |
|
||
Cash and cash equivalents |
|
$ |
5,772 |
|
Accounts receivable |
|
|
9,904 |
|
Contract assets |
|
|
9,747 |
|
Prepaid expenses and other current assets |
|
|
4,307 |
|
Property and equipment |
|
|
4,085 |
|
Right of use assets, operating leases |
|
|
8,826 |
|
Goodwill |
|
|
183,540 |
|
Intangible assets |
|
|
92,300 |
|
Other noncurrent assets |
|
|
10 |
|
Accounts payable |
|
|
(5,450 |
) |
Accrued expenses and other current liabilities |
|
|
(7,147 |
) |
Contract liabilities |
|
|
(1,300 |
) |
Short-term lease liabilities, operating leases |
|
|
(805 |
) |
Income tax payable |
|
|
(1,469 |
) |
Deferred tax liabilities |
|
|
(904 |
) |
Long-term lease liabilities, operating leases |
|
|
(8,021 |
) |
Other long-term liabilities |
|
|
(1,015 |
) |
Net assets acquired |
|
$ |
292,380 |
|
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
|
Gross Carrying Amount |
|
|
Amortization Period |
|
|
|
|
|
|
(in years) |
|
Customer relationships |
|
$ |
57,100 |
|
|
5 |
Backlog |
|
|
27,700 |
|
|
3 |
Trade name |
|
|
3,800 |
|
|
2 |
Non-compete agreements |
|
|
2,400 |
|
|
3 |
Developed technologies |
|
$ |
1,300 |
|
|
3 |
The Company is still in the process of finalizing its valuation of developed technology acquired.
Amortization expense of $5.9 million and $17.8 million related to these intangible assets was recorded for the three and nine months ended September 30, 2019, respectively. The entire value of goodwill of $183.5 million was assigned to the Parsons Federal reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $16.0 million is deductible for tax purposes.
The amount of revenue generated by OGSystems since the acquisition and included within consolidated revenues for the three and nine months ended September 30, 2019 is $33.7 million and $108.7 million, respectively. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.
11
Supplemental Pro Forma Information
Supplemental information on an unaudited pro forma operating results assuming the OGSystems acquisition had been consummated as of the beginning of fiscal year 2018 (December 31, 2017) (in thousands) is as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 28, 2018 |
|
|
September 30, 2019 |
|
|
September 28, 2018 |
|
|
September 30, 2019 |
|
|||||
Pro forma revenue |
|
$ |
1,007,793 |
|
|
$ |
1,023,277 |
|
|
$ |
2,715,572 |
|
|
$ |
2,919,379 |
|
Pro forma net income including noncontrolling interests |
|
$ |
39,224 |
|
|
$ |
61,293 |
|
|
$ |
196,905 |
|
|
$ |
118,896 |
|
The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflects the pro forma impact of additional amortization related to the fair value of acquired intangible assets, pro forma impact of reflecting acquisition costs, which consisted of legal, advisory and due diligence fees and expenses and the additional pro forma interest expense related to the borrowings under the credit agreement as of the assumed acquisition date. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been consummated during the periods for which pro forma information is presented.
QRC Technologies
On July 31, 2019 the Company acquired a 100% ownership interest in QRC Technologies (“QRC”), a privately owned company, for $214.1 million in cash. QRC provides design and development of open-architecture radio-frequency products. The company borrowed $140.0 million under the Revolving Credit Facility to partially fund the transaction. In connection with this acquisition, the Company recognized $4.7 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the three and nine months ended September 30, 2019 including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. QRC is an agile, disruptive product company that specializes in radio frequency spectrum survey, record and playback; signals intelligence; and electronic warfare missions. QRC complements our existing portfolio, increases our presence in the high-growth markets of spectrum awareness and surveillance, adds critical intellectual property that complements and expands our available capabilities for the Special Operations and Intelligence Communities.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the preliminary purchase price allocation as of the date of acquisition (in thousands):
|
|
Amount |
|
|
Cash and cash equivalents |
|
$ |
5,925 |
|
Accounts receivable |
|
|
5,587 |
|
Prepaid expenses and other current assets |
|
|
5,467 |
|
Property and equipment |
|
|
1,205 |
|
Right of use assets, operating leases |
|
|
5,228 |
|
Goodwill |
|
|
128,387 |
|
Intangible assets |
|
|
72,900 |
|
Accounts payable |
|
|
(1,567 |
) |
Accrued expenses and other current liabilities |
|
|
(3,771 |
) |
Short-term lease liabilities, operating leases |
|
|
(545 |
) |
Long-term lease liabilities, operating leases |
|
|
(4,683 |
) |
Net assets acquired |
|
$ |
214,133 |
|
12
Of the total purchase price, the following values were assigned to intangible assets (in thousands, except for years):
|
|
Gross Carrying Amount |
|
|
Amortization Period |
|
|
|
|
|
|
|
(in years) |
Customer relationships |
|
$ |
47,600 |
|
|
12 |
Backlog |
|
|
700 |
|
|
1 |
Trade name |
|
|
800 |
|
|
2 |
Non-compete agreements |
|
|
1,200 |
|
|
4 |
Developed technologies |
|
$ |
22,600 |
|
|
3-5 |
The Company is still in the process of finalizing its valuation of the net assets acquired.
Amortization expense of $1.9 million related to these intangible assets was recorded for the three and nine months ended September 30, 2019, respectively. The entire value of goodwill of $128.4 million was assigned to the Parsons Federal reporting unit and represents synergies expected to be realized from this business combination. Goodwill in it’s entirety is deductible for tax purposes.
The amount of revenue generated by QRC since the acquisition and included within consolidated revenues for both the three and nine months ended September 30, 2019 is $5.6 million. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of general corporate functions upon acquisition.
Supplemental Pro Forma Information
Supplemental information on an unaudited pro forma operating results assuming the QRC Technologies acquisition had been consummated as of the beginning of fiscal year 2018 (December 31, 2017) (in thousands) is as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 28, 2018 |
|
|
September 30, 2019 |
|
|
September 28, 2018 |
|
|
September 30, 2019 |
|
||||
Pro forma revenue |
|
$ |
987,343 |
|
|
$ |
1,026,831 |
|
|
$ |
2,657,105 |
|
|
$ |
2,938,973 |
|
Pro forma net income including noncontrolling interests |
|
$ |
44,944 |
|
|
$ |
65,782 |
|
|
$ |
212,728 |
|
|
$ |
117,399 |
|
5. |
Contracts with Customers |
Disaggregation of Revenue
The Company’s contracts contain both fixed-price and cost reimbursable components. Contract types are based on the component that represents the majority of the contract. The following table presents revenue disaggregated by contract type (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 28, 2018 |
|
|
September 30, 2019 |
|
|
September 28, 2018 |
|
|
September 30, 2019 |
|
|||||
Fixed-Price |
|
$ |
300,225 |
|
|
$ |
288,316 |
|
|
$ |
833,224 |
|
|
$ |
850,658 |
|
Time-and-Materials |
|
|
254,435 |
|
|
|
285,586 |
|
|
|
732,555 |
|
|
|
810,656 |
|
Cost-Plus |
|
|
421,497 |
|
|
|
449,375 |
|
|
|
1,065,789 |
|
|
|
1,256,110 |
|
Total |
|
$ |
976,157 |
|
|
$ |
1,023,277 |
|
|
$ |
2,631,568 |
|
|
$ |
2,917,424 |
|
See “Note 19 – Segments Information” for the Company’s revenues by business lines.
13
Contract Assets and Contract Liabilities
Contract assets and contract liabilities balances at December 31, 2018 and September 30, 2019 were as follows (in thousands):