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PARSONS CORP - Quarter Report: 2020 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, 2020

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)

 

Name of each exchange on which registered

Common Stock, $1 par value

 

PSN

 

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 October 28, 2020, the registrant had 100,727,119 shares of common stock, $1.00 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

1

Item 1.

Financial Statements (Unaudited)

 

1

 

Consolidated Balance Sheets

 

1

 

Consolidated Statements of Income

 

2

 

Consolidated Statements of Comprehensive Income

 

3

 

Consolidated Statements of Cash Flows

 

4

 

Consolidated Statements of Shareholders’ Equity (Deficit)

 

5

 

Notes to Unaudited Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

43

Item 4.

Controls and Procedures

 

43

PART II.

OTHER INFORMATION

 

44

Item 1.

Legal Proceedings

 

44

Item 1A.

Risk Factors

 

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

Item 3.

Defaults Upon Senior Securities

 

44

Item 4.

Mine Safety Disclosures

 

44

Item 5.

Other Information

 

44

Item 6.

Exhibits

 

45

 

Signatures

 

46

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share information)

(Unaudited)

 

 

 

 

September 30, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (including $50,585 and $51,171 Cash of consolidated joint ventures)

 

$

614,031

 

 

$

182,688

 

 

Restricted cash and investments

 

 

3,726

 

 

 

12,686

 

 

Accounts receivable, net (including $259,691 and $166,355 Accounts receivable of consolidated joint ventures, net)

 

 

775,060

 

 

 

671,492

 

 

Contract assets (including $29,054 and $26,458 Contract assets of consolidated joint ventures)

 

 

610,893

 

 

 

575,089

 

 

Prepaid expenses and other current assets (including $3,974 and $11,182 Prepaid expenses and other current assets of consolidated joint ventures)

 

 

77,909

 

 

 

84,454

 

 

Total current assets

 

 

2,081,619

 

 

 

1,526,409

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net (including $2,649 and $2,945 Property and equipment of consolidated joint ventures, net)

 

 

121,486

 

 

 

122,751

 

 

Right of use assets, operating leases

 

 

212,592

 

 

 

233,415

 

 

Goodwill

 

 

1,046,453

 

 

 

1,047,425

 

 

Investments in and advances to unconsolidated joint ventures

 

 

71,289

 

 

 

68,620

 

 

Intangible assets, net

 

 

194,082

 

 

 

259,858

 

 

Deferred tax assets

 

 

130,904

 

 

 

130,401

 

 

Other noncurrent assets

 

 

60,336

 

 

 

61,489

 

 

Total assets

 

$

3,918,761

 

 

$

3,450,368

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable (including $72,949 and $85,869 Accounts payable of consolidated joint ventures)

 

$

208,307

 

 

$

216,613

 

 

Accrued expenses and other current liabilities (including $141,476 and $74,857 Accrued expenses and other current liabilities of consolidated joint ventures)

 

 

725,867

 

 

 

639,863

 

 

Contract liabilities (including $44,267 and $32,638 Contract liabilities of consolidated joint ventures)

 

 

212,373

 

 

 

230,681

 

 

Short-term lease liabilities, operating leases

 

 

48,661

 

 

 

49,994

 

 

Income taxes payable

 

 

1,342

 

 

 

7,231

 

 

Short-term debt

 

 

50,000

 

 

 

-

 

 

Total current liabilities

 

 

1,246,550

 

 

 

1,144,382

 

 

Long-term employee incentives

 

 

21,535

 

 

 

56,928

 

 

Long-term debt

 

 

537,119

 

 

 

249,353

 

 

Long-term lease liabilities, operating leases

 

 

189,319

 

 

 

203,624

 

 

Deferred tax liabilities

 

 

9,273

 

 

 

9,621

 

 

Other long-term liabilities

 

 

145,494

 

 

 

125,704

 

 

Total liabilities

 

 

2,149,290

 

 

 

1,789,612

 

Contingencies (Note 12)

 

 

 

 

 

 

 

 

Shareholders' equity (deficit):

 

 

 

 

 

 

 

 

 

Common stock, $1 par value; authorized 1,000,000,000 shares; 146,498,582 and 146,440,701 shares issued; 24,637,043 and 21,772,888 public shares outstanding; 76,090,531 and 78,896,806 ESOP shares outstanding

 

 

146,498

 

 

 

146,441

 

 

Treasury stock, 45,771,008 shares at cost

 

 

(934,240

)

 

 

(934,240

)

 

Additional paid-in capital

 

 

2,675,383

 

 

 

2,649,975

 

 

Accumulated deficit

 

 

(142,095

)

 

 

(218,025

)

 

Accumulated other comprehensive loss

 

 

(18,049

)

 

 

(14,261

)

 

Total Parsons Corporation shareholders' equity

 

 

1,727,497

 

 

 

1,629,890

 

 

Noncontrolling interests

 

 

41,974

 

 

 

30,866

 

 

Total shareholders' equity

 

 

1,769,471

 

 

 

1,660,756

 

 

Total liabilities, redeemable common stock and shareholders' equity

 

$

3,918,761

 

 

$

3,450,368

 

 

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

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

Revenue

 

$

1,004,236

 

 

$

1,023,277

 

 

$

2,954,688

 

 

$

2,917,424

 

Direct cost of contracts

 

 

788,769

 

 

 

798,552

 

 

 

2,307,725

 

 

 

2,297,512

 

Equity in earnings of unconsolidated joint ventures

 

 

16,741

 

 

 

7,274

 

 

 

26,624

 

 

 

29,305

 

Indirect, general and administrative expenses

 

 

165,937

 

 

 

178,550

 

 

 

537,351

 

 

 

581,428

 

Operating income

 

 

66,271

 

 

 

53,449

 

 

 

136,236

 

 

 

67,789

 

Interest income

 

 

88

 

 

 

427

 

 

 

512

 

 

 

1,129

 

Interest expense

 

 

(5,475

)

 

 

(4,909

)

 

 

(13,656

)

 

 

(19,577

)

Other income (expense), net

 

 

1,653

 

 

 

(3,127

)

 

 

1,916

 

 

 

(1,580

)

Total other income (expense)

 

 

(3,734

)

 

 

(7,609

)

 

 

(11,228

)

 

 

(20,028

)

Income before income tax expense

 

 

62,537

 

 

 

45,840

 

 

 

125,008

 

 

 

47,761

 

Income tax (expense) benefit

 

 

(16,017

)

 

 

15,453

 

 

 

(32,992

)

 

 

67,063

 

Net income including noncontrolling interests

 

 

46,520

 

 

 

61,293

 

 

 

92,016

 

 

 

114,824

 

Net income attributable to noncontrolling interests

 

 

(5,862

)

 

 

(4,481

)

 

 

(15,086

)

 

 

(8,012

)

Net income attributable to Parsons Corporation

 

$

40,658

 

 

$

56,812

 

 

$

76,930

 

 

$

106,812

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

 

$

0.57

 

 

$

0.76

 

 

$

1.19

 

Diluted

 

$

0.40

 

 

$

0.57

 

 

$

0.76

 

 

$

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 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

Net income including noncontrolling interests

 

$

46,520

 

 

$

61,293

 

 

$

92,016

 

 

$

114,824

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

1,926

 

 

 

171

 

 

 

(3,770

)

 

 

4,958

 

Pension adjustments, net of tax

 

 

20

 

 

 

(9

)

 

 

(18

)

 

 

17

 

Comprehensive income including noncontrolling interests, net of tax

 

 

48,466

 

 

 

61,455

 

 

 

88,228

 

 

 

119,799

 

Comprehensive income attributable to noncontrolling interests, net of tax

 

 

(5,866

)

 

 

(4,481

)

 

 

(15,086

)

 

 

(8,012

)

Comprehensive income attributable to Parsons Corporation,

   net of tax

 

$

42,600

 

 

$

56,974

 

 

$

73,142

 

 

$

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 30, 2020

 

 

September 30, 2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interests

 

$

92,016

 

 

$

114,824

 

 

Adjustments to reconcile net income to net cash used in operating activities

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

95,442

 

 

 

92,692

 

 

Amortization of debt issue costs

 

 

760

 

 

 

802

 

 

Amortization of convertible notes discount

 

 

1,277

 

 

 

-

 

 

Gain on disposal of property and equipment

 

 

(22

)

 

 

1,045

 

 

Provision for doubtful accounts

 

 

54

 

 

 

(964

)

 

Deferred taxes

 

 

(763

)

 

 

(105,161

)

 

Foreign currency transaction gains and losses

 

 

431

 

 

 

1,689

 

 

Equity in earnings of unconsolidated joint ventures

 

 

(26,624

)

 

 

(29,305

)

 

Return on investments in unconsolidated joint ventures

 

 

31,189

 

 

 

32,848

 

 

Stock-based compensation

 

 

11,044

 

 

 

9,224

 

 

Contributions of treasury stock

 

 

42,006

 

 

 

36,779

 

 

Changes in assets and liabilities, net of acquisitions and newly consolidated

   joint ventures:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(106,487

)

 

 

(31,726

)

 

Contract assets

 

 

(34,931

)

 

 

(59,161

)

 

Prepaid expenses and current assets

 

 

7,649

 

 

 

2,980

 

 

Accounts payable

 

 

(8,074

)

 

 

(6,946

)

 

Accrued expenses and other current liabilities

 

 

48,901

 

 

 

40,186

 

 

Contract liabilities

 

 

(18,094

)

 

 

20,703

 

 

Income taxes

 

 

(6,761

)

 

 

(3,019

)

 

Other long-term liabilities

 

 

(15,574

)

 

 

13,138

 

 

Net cash provided by operating activities

 

 

113,439

 

 

 

130,628

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(29,178

)

 

 

(44,030

)

 

Proceeds from sale of property and equipment

 

 

1,053

 

 

 

2,824

 

 

Payments for acquisitions, net of cash acquired

 

 

-

 

 

 

(495,690

)

 

Investments in unconsolidated joint ventures

 

 

(7,969

)

 

 

(11,446

)

 

Return of investments in unconsolidated joint ventures

 

 

17

 

 

 

6,632

 

 

Net cash used in investing activities

 

 

(36,077

)

 

 

(541,710

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from borrowings under credit agreement

 

 

212,900

 

 

 

530,000

 

 

Repayments of borrowings under credit agreement

 

 

(212,900

)

 

 

(710,000

)

 

Payments for debt costs and credit agreement

 

 

-

 

 

 

(286

)

 

Proceeds from issuance of convertible notes

 

 

400,000

 

 

 

-

 

 

Payments for purchase of bond hedges

 

 

(54,968

)

 

 

-

 

 

Proceeds from issuance of warrants

 

 

13,808

 

 

 

-

 

 

Transaction costs paid in connection with convertible notes issuance

 

 

(10,307

)

 

 

-

 

 

Contributions by noncontrolling interests

 

 

491

 

 

 

8,999

 

 

Distributions to noncontrolling interests

 

 

(4,469

)

 

 

(35,378

)

 

Purchase of treasury stock

 

 

-

 

 

 

(819

)

 

Taxes paid on vested stock

 

 

(1,149

)

 

 

-

 

 

Proceeds from issuance of common stock

 

 

1,684

 

 

 

536,879

 

 

Dividend paid

 

 

-

 

 

 

(52,093

)

 

Net cash provided by financing activities

 

 

345,090

 

 

 

277,302

 

 

Effect of exchange rate changes

 

 

(69

)

 

 

(953

)

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

422,383

 

 

 

(134,733

)

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

Beginning of year

 

 

195,374

 

 

 

281,195

 

 

End of period

 

$

617,757

 

 

$

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, 2020 and September 30, 2019

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Redeemable

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Parsons

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

(Accumulated

 

 

Comprehensive

 

 

Equity

 

 

Noncontrolling

 

 

 

 

 

 

 

Stock

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit)

 

 

Income (Loss)

 

 

(Deficit)

 

 

Interests

 

 

Total

 

Balance at June 30, 2020

 

$

-

 

 

 

$

146,496

 

 

$

(934,240

)

 

$

2,658,036

 

 

$

(182,753

)

 

$

(19,991

)

 

$

1,667,548

 

 

$

38,704

 

 

$

1,706,252

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40,658

 

 

 

-

 

 

 

40,658

 

 

 

5,862

 

 

 

46,520

 

Foreign currency translation gain, net

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,922

 

 

 

1,922

 

 

 

4

 

 

 

1,926

 

Pension adjustments, net

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20

 

 

 

20

 

 

 

-

 

 

 

20

 

Contributions

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

268

 

 

 

268

 

Distributions

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,864

)

 

 

(2,864

)

Issuance of equity securities, net of retirements

 

 

-

 

 

 

 

2

 

 

 

-

 

 

 

(14

)

 

 

-

 

 

 

-

 

 

 

(12

)

 

 

-

 

 

 

(12

)

Equity component value of convertible note issuance

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

53,552

 

 

 

-

 

 

 

-

 

 

 

53,552

 

 

 

-

 

 

 

53,552

 

Purchase of convertible note hedge

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

(54,611

)

 

 

-

 

 

 

-

 

 

 

(54,611

)

 

 

-

 

 

 

(54,611

)

Sale of common stock warrants

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

13,808

 

 

 

-

 

 

 

-

 

 

 

13,808

 

 

 

-

 

 

 

13,808

 

Stock-based compensation

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

4,612

 

 

 

-

 

 

 

-

 

 

 

4,612

 

 

 

-

 

 

 

4,612

 

Balance at September 30, 2020

 

$

-

 

 

 

$

146,498

 

 

$

(934,240

)

 

$

2,675,383

 

 

$

(142,095

)

 

$

(18,049

)

 

$

1,727,497

 

 

$

41,974

 

 

$

1,769,471

 

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

)

ESOP shares at redemption value

 

 

(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

)

 

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, 2020 and September 30, 2019

(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, 2019

 

$

-

 

 

 

$

146,441

 

 

$

(934,240

)

 

$

2,649,975

 

 

$

(218,025

)

 

$

(14,261

)

 

$

1,629,890

 

 

$

30,866

 

 

$

1,660,756

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

76,930

 

 

 

-

 

 

 

76,930

 

 

 

15,086

 

 

 

92,016

 

Foreign currency translation (loss), net

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,770

)

 

 

(3,770

)

 

 

-

 

 

 

(3,770

)

Pension adjustments, net

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18

)

 

 

(18

)

 

 

-

 

 

 

(18

)

Adoption of ASU 2016-13

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000

)

 

 

 

 

 

 

(1,000

)

 

 

 

 

 

 

(1,000

)

Contributions

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

491

 

 

 

491

 

Distributions

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,469

)

 

 

(4,469

)

Issuance of equity securities, net of retirement

 

 

-

 

 

 

 

57

 

 

 

-

 

 

 

1,615

 

 

 

-

 

 

 

-

 

 

 

1,672

 

 

 

-

 

 

 

1,672

 

Equity component value of convertible note issuance

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

53,552

 

 

 

-

 

 

 

-

 

 

 

53,552

 

 

 

-

 

 

 

53,552

 

Purchase of convertible note hedge

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

(54,611

)

 

 

-

 

 

 

-

 

 

 

(54,611

)

 

 

-

 

 

 

(54,611

)

Sale of common stock warrants

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

13,808

 

 

 

-

 

 

 

-

 

 

 

13,808

 

 

 

-

 

 

 

13,808

 

Stock-based compensation

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

11,044

 

 

 

-

 

 

 

-

 

 

 

11,044

 

 

 

-

 

 

 

11,044

 

Balance at September 30, 2020

 

$

-

 

 

 

$

146,498

 

 

$

(934,240

)

 

$

2,675,383

 

 

$

(142,095

)

 

$

(18,049

)

 

$

1,727,497

 

 

$

41,974

 

 

$

1,769,471

 

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

 

ESOP shares at redemption value

 

 

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

)

 

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”) is a leading provider of technology-driven solutions in the defense, intelligence and critical infrastructure markets. We provide software and hardware products, technical services and integrated solutions to support our customers’ missions. We have developed significant expertise and differentiated capabilities in key areas of cybersecurity, intelligence, missile defense, C5ISR, space, geospatial, and connected communities. By combining our talented team of professionals and advanced technology, we help solve complex technical challenges to enable a safer, smarter and more interconnected world.

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 option on May 14, 2019 to purchase an additional 2,777,775 shares at the net 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’ 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 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.

2.

Basis of Presentation and Principles of Consolidation

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 Annual Report on Form 10-K for the year ended December 31, 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 Parsons Corporation and its subsidiaries and affiliates which it controls.  Interests in joint ventures that are controlled by the Company, or for which the Company is otherwise deemed to be the primary beneficiary, are consolidated.  For joint ventures in which the Company does not have a controlling interest, but exerts a significant influence, the Company applies the equity method of accounting. (see “Note 14 – Investments in and Advances to Joint Ventures" for further discussion).  Intercompany accounts and transactions are eliminated in consolidation.

 

7


 

 

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; 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and “Note 2—Summary of Significant Accounting Polices” in the notes to our consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 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.  

Employee Stock Purchase Plan

During the second quarter of fiscal 2020, initial purchases of the Company’s common Stock were made under the Parsons Employee Stock Purchase Program (“ESPP”).  Under the ESPP, eligible employees who elect to participate are granted the right to purchase shares of the common stock of Parsons at a discount that is limited to 5% of the per-share market value on the day shares are sold to employees.  Purchases of common stock under the ESPP are included in “proceeds from issuance of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows.

3.

New Accounting Pronouncements

In the first quarter of 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments.” The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current practice with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 was issued as a means to reduce the complexity of accounting for income taxes for those entities that fall within the scope of the standard. The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not expect this standard to have a material impact on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company expects to early adopt this standard using the modified retrospective method. The Company is evaluating the impact of the adoption on its consolidated financial statements, and expects it will result in a reduction in non-cash interest expense and a reclassification of the equity portion of the Convertible Senior Notes to liabilities on the consolidated balance sheet.

8


 

4.

Acquisitions   

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 10—Debt and Credit Facilities,” to partially fund the acquisition. In connection with this acquisition, the Company recognized $5.4 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the year ended December 31, 2019, 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.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed based on the 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

 

 

(1,178

)

Deferred tax liabilities

 

 

(1,195

)

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

 

Amortization expense of $5.9 million related to these intangible assets was recorded for the three months ended September 30, 2020 and September 30, 2019, respectively, and $17.8 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The entire value of goodwill of $183.5 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $16 million is deductible for tax purposes.

The amount of revenue generated by OGSystems and included within consolidated revenues is $46.2 million and $33.7 million for the three months September 30, 2020 and September 30, 2019, respectively, and $117.0 million and

9


 

$108.7 million for the nine months ended September 30, 2020 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 (Unaudited)

Supplemental information of unaudited pro forma operating results assuming the OGSystems acquisition had been consummated as of the beginning of fiscal year 2018 (December 30, 2017) (in thousands) is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

Pro forma revenue

 

$

1,004,236

 

 

$

1,023,277

 

 

$

2,954,688

 

 

$

2,919,379

 

Pro forma net income including noncontrolling interests

 

$

47,561

 

 

$

61,293

 

 

$

95,189

 

 

$

118,896

 

 

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 $4.9 million of acquisition-related expenses in “Indirect, general and administrative expense” in the consolidated statements of income for the fiscal year ended December 31, 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, and adds critical intellectual property that complements and expands the Company’s 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 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

 

 

5,727

 

Property and equipment

 

 

1,205

 

Right of use assets, operating leases

 

 

5,228

 

Goodwill

 

 

125,091

 

Intangible assets

 

 

76,200

 

Accounts payable

 

 

(1,567

)

Accrued expenses and other current liabilities

 

 

(4,025

)

Short-term lease liabilities, operating leases

 

 

(545

)

Long-term lease liabilities, operating leases

 

 

(4,683

)

Net assets acquired

 

$

214,143

 

10


 

 

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

 

$

49,800

 

 

12

Developed technologies

 

 

21,800

 

 

3 to 5

In-process research and development

 

 

1,800

 

 

3 to 5

Non-compete agreements

 

 

1,200

 

 

4

Trade name

 

 

800

 

 

2

Backlog

 

 

800

 

 

1

 

Amortization expense of $3.5 million and $1.9 million related to these intangible assets was recorded for the three months ended September 30, 2020 and September 30, 2019, respectively, and $10.6 million and $1.9 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. The entire value of goodwill of $125.1 million was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill in its entirety is deductible for tax purposes.

The amount of revenue generated by QRC and included within consolidated revenues is $12.6 million and $5.6 million for the three months ended September 30, 2020 and September 30, 2019, respectively, and $25.2 million and $5.6 million for the nine months ended September 30, 2020 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 basis, assuming the QRC Technologies acquisition had been consummated as of the beginning of fiscal year 2018 (December 30, 2017) (in thousands) is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

Pro forma revenue

 

$

1,004,236

 

 

$

1,026,831

 

 

$

2,954,688

 

 

$

2,938,973

 

Pro forma net income including noncontrolling interests

 

$

47,618

 

 

$

65,782

 

 

$

95,994

 

 

$

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 30, 2020

 

 

September 30, 2019

 

 

September 30, 2020

 

 

September 30, 2019

 

Fixed-Price

 

$

324,901

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