Annual Statements Open main menu

PARSONS CORP - Quarter Report: 2021 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, 2021

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 27, 2021, the registrant had 102,257,780 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

 

5

 

Notes to Unaudited Consolidated Financial Statements

 

7

Item 2.

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

 

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

42

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

 

45

Item 3.

Defaults Upon Senior Securities

 

45

Item 4.

Mine Safety Disclosures

 

45

Item 5.

Other Information

 

45

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, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (including $51,516 and $75,220 Cash of consolidated joint ventures)

 

$

275,506

 

 

$

483,609

 

 

Restricted cash and investments

 

 

1,197

 

 

 

3,606

 

 

Accounts receivable, net (including $152,471 and $190,643 Accounts receivable of consolidated joint ventures, net)

 

 

627,445

 

 

 

698,578

 

 

Contract assets (including $27,354 and $23,498 Contract assets of consolidated joint ventures)

 

 

569,294

 

 

 

576,568

 

 

Prepaid expenses and other current assets (including $21,764 and $3,045 Prepaid expenses and other current assets of consolidated joint ventures)

 

 

113,129

 

 

 

80,769

 

 

Total current assets

 

 

1,586,571

 

 

 

1,843,130

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net (including $1,499 and $2,629 Property and equipment of consolidated joint ventures, net)

 

 

105,895

 

 

 

121,027

 

 

Right of use assets, operating leases

 

 

188,519

 

 

 

210,398

 

 

Goodwill

 

 

1,411,465

 

 

 

1,261,978

 

 

Investments in and advances to unconsolidated joint ventures

 

 

102,677

 

 

 

68,975

 

 

Intangible assets, net

 

 

235,927

 

 

 

245,958

 

 

Deferred tax assets

 

 

147,260

 

 

 

130,200

 

 

Other noncurrent assets

 

 

45,619

 

 

 

56,038

 

 

Total assets

 

$

3,823,933

 

 

$

3,937,704

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable (including $93,697 and $97,810 Accounts payable of consolidated joint ventures)

 

$

188,761

 

 

$

225,679

 

 

Accrued expenses and other current liabilities (including $81,336 and $68,801 Accrued expenses and other current liabilities of consolidated joint ventures)

 

 

626,171

 

 

 

650,753

 

 

Contract liabilities (including $18,720 and $33,922 Contract liabilities of consolidated joint ventures)

 

 

186,789

 

 

 

201,864

 

 

Short-term lease liabilities, operating leases

 

 

54,466

 

 

 

54,133

 

 

Income taxes payable

 

 

4,472

 

 

 

4,980

 

 

Short-term debt

 

 

-

 

 

 

50,000

 

 

Total current liabilities

 

 

1,060,659

 

 

 

1,187,409

 

 

Long-term employee incentives

 

 

19,486

 

 

 

21,828

 

 

Long-term debt

 

 

591,399

 

 

 

539,998

 

 

Long-term lease liabilities, operating leases

 

 

157,590

 

 

 

182,467

 

 

Deferred tax liabilities

 

 

23,554

 

 

 

12,285

 

 

Other long-term liabilities

 

 

117,369

 

 

 

132,300

 

 

Total liabilities

 

 

1,970,057

 

 

 

2,076,287

 

Contingencies (Note 12)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

 

Common stock, $1 par value; authorized 1,000,000,000 shares; 146,506,406 and 146,609,288 shares issued; 32,538,566 and 25,719,350 public shares outstanding; 69,719,214 and 76,641,312 ESOP shares outstanding

 

 

146,507

 

 

 

146,609

 

 

Treasury stock, 44,248,626 shares at cost

 

 

(899,328

)

 

 

(899,328

)

 

Additional paid-in capital

 

 

2,669,692

 

 

 

2,700,925

 

 

Accumulated deficit

 

 

(82,661

)

 

 

(120,569

)

 

Accumulated other comprehensive loss

 

 

(10,132

)

 

 

(13,865

)

 

Total Parsons Corporation shareholders' equity

 

 

1,824,078

 

 

 

1,813,772

 

 

Noncontrolling interests

 

 

29,798

 

 

 

47,645

 

 

Total shareholders' equity

 

 

1,853,876

 

 

 

1,861,417

 

 

Total liabilities and shareholders' equity

 

$

3,823,933

 

 

$

3,937,704

 

 

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, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Revenue

 

$

956,050

 

 

$

1,004,236

 

 

$

2,710,103

 

 

$

2,954,688

 

Direct cost of contracts

 

 

734,652

 

 

 

788,769

 

 

 

2,084,062

 

 

 

2,307,725

 

Equity in earnings of unconsolidated joint ventures

 

 

9,570

 

 

 

16,741

 

 

 

26,528

 

 

 

26,624

 

Selling, general and administrative expenses

 

 

191,231

 

 

 

165,937

 

 

 

566,991

 

 

 

537,351

 

Operating income

 

 

39,737

 

 

 

66,271

 

 

 

85,578

 

 

 

136,236

 

Interest income

 

 

65

 

 

 

88

 

 

 

315

 

 

 

512

 

Interest expense

 

 

(4,052

)

 

 

(5,475

)

 

 

(13,503

)

 

 

(13,656

)

Other income (expense), net

 

 

184

 

 

 

1,653

 

 

 

(1,202

)

 

 

1,916

 

Total other income (expense)

 

 

(3,803

)

 

 

(3,734

)

 

 

(14,390

)

 

 

(11,228

)

Income before income tax expense

 

 

35,934

 

 

 

62,537

 

 

 

71,188

 

 

 

125,008

 

Income tax expense

 

 

(9,165

)

 

 

(16,017

)

 

 

(18,378

)

 

 

(32,992

)

Net income including noncontrolling interests

 

 

26,769

 

 

 

46,520

 

 

 

52,810

 

 

 

92,016

 

Net income attributable to noncontrolling interests

 

 

(7,411

)

 

 

(5,862

)

 

 

(17,711

)

 

 

(15,086

)

Net income attributable to Parsons Corporation

 

$

19,358

 

 

$

40,658

 

 

$

35,099

 

 

$

76,930

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.19

 

 

$

0.40

 

 

$

0.34

 

 

$

0.76

 

Diluted

 

$

0.18

 

 

$

0.40

 

 

$

0.33

 

 

$

0.76

 

 

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, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Net income including noncontrolling interests

 

$

26,769

 

 

$

46,520

 

 

$

52,810

 

 

$

92,016

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

(4,205

)

 

 

1,926

 

 

 

3,721

 

 

 

(3,770

)

Pension adjustments, net of tax

 

 

(26

)

 

 

20

 

 

 

12

 

 

 

(18

)

Comprehensive income including noncontrolling interests, net of tax

 

 

22,538

 

 

 

48,466

 

 

 

56,543

 

 

 

88,228

 

Comprehensive income attributable to noncontrolling interests, net of tax

 

 

(7,407

)

 

 

(5,866

)

 

 

(17,711

)

 

 

(15,086

)

Comprehensive income attributable to Parsons Corporation, net of tax

 

$

15,131

 

 

$

42,600

 

 

$

38,832

 

 

$

73,142

 

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, 2021

 

 

September 30, 2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interests

 

$

52,810

 

 

$

92,016

 

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

106,540

 

 

 

95,442

 

 

Amortization of debt issue costs

 

 

2,173

 

 

 

760

 

 

Amortization of convertible notes discount

 

 

-

 

 

 

1,277

 

 

Loss (gain) on disposal of property and equipment

 

 

357

 

 

 

(22

)

 

Provision for doubtful accounts

 

 

8

 

 

 

54

 

 

Deferred taxes

 

 

(4,369

)

 

 

(763

)

 

Foreign currency transaction gains and losses

 

 

3,107

 

 

 

431

 

 

Equity in earnings of unconsolidated joint ventures

 

 

(26,528

)

 

 

(26,624

)

 

Return on investments in unconsolidated joint ventures

 

 

20,547

 

 

 

31,189

 

 

Stock-based compensation

 

 

15,544

 

 

 

11,044

 

 

Contributions of treasury stock

 

 

41,312

 

 

 

42,006

 

 

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

   joint ventures:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

70,355

 

 

 

(106,487

)

 

Contract assets

 

 

13,262

 

 

 

(34,931

)

 

Prepaid expenses and other assets

 

 

(19,596

)

 

 

7,649

 

 

Accounts payable

 

 

(39,341

)

 

 

(8,074

)

 

Accrued expenses and other current liabilities

 

 

(86,402

)

 

 

48,901

 

 

Contract liabilities

 

 

(16,294

)

 

 

(18,094

)

 

Income taxes

 

 

(498

)

 

 

(6,761

)

 

Other long-term liabilities

 

 

(17,273

)

 

 

(15,574

)

 

Net cash provided by operating activities

 

 

115,714

 

 

 

113,439

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(12,803

)

 

 

(29,178

)

 

Proceeds from sale of property and equipment

 

 

1,049

 

 

 

1,053

 

 

Payments for acquisitions, net of cash acquired

 

 

(197,672

)

 

 

-

 

 

Investments in unconsolidated joint ventures

 

 

(36,102

)

 

 

(7,969

)

 

Return of investments in unconsolidated joint ventures

 

 

729

 

 

 

17

 

 

Proceeds from sales of investments in unconsolidated joint ventures

 

 

14,335

 

 

 

-

 

 

Net cash used in investing activities

 

 

(230,464

)

 

 

(36,077

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from borrowings under credit agreement

 

 

-

 

 

 

212,900

 

 

Repayments of borrowings under credit agreement

 

 

(50,000

)

 

 

(212,900

)

 

Payments for debt costs and credit agreement

 

 

(1,937

)

 

 

-

 

 

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

 

 

1,688

 

 

 

491

 

 

Distributions to noncontrolling interests

 

 

(37,246

)

 

 

(4,469

)

 

Repurchases of common stock

 

 

(8,701

)

 

 

-

 

 

Taxes paid on vested stock

 

 

(2,242

)

 

 

(1,149

)

 

Proceeds from issuance of common stock

 

 

2,773

 

 

 

1,684

 

 

Net cash (used in) provided by financing activities

 

 

(95,665

)

 

 

345,090

 

 

Effect of exchange rate changes

 

 

(97

)

 

 

(69

)

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(210,512

)

 

 

422,383

 

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

Beginning of year

 

 

487,215

 

 

 

195,374

 

 

End of period

 

$

276,703

 

 

$

617,757

 

 

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

4


 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the Three Months Ended September 30, 2021 and September 30, 2020

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

(Accumulated

 

 

Comprehensive

 

 

Parsons

 

 

Noncontrolling

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit)

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Total

 

Balance at June 30, 2021

 

$

146,752

 

 

$

(899,328

)

 

$

2,673,965

 

 

$

(102,019

)

 

$

(5,905

)

 

$

1,813,465

 

 

$

36,985

 

 

$

1,850,450

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,358

 

 

 

-

 

 

 

19,358

 

 

 

7,411

 

 

 

26,769

 

Foreign currency translation loss, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,201

)

 

 

(4,201

)

 

 

(4

)

 

 

(4,205

)

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26

)

 

 

(26

)

 

 

-

 

 

 

(26

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

816

 

 

 

816

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,410

)

 

 

(15,410

)

Repurchases of common stock

 

 

(245

)

 

 

-

 

 

 

(8,456

)

 

 

-

 

 

 

-

 

 

 

(8,701

)

 

 

-

 

 

 

(8,701

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

4,183

 

 

 

-

 

 

 

-

 

 

 

4,183

 

 

 

-

 

 

 

4,183

 

Balance at September 30, 2021

 

$

146,507

 

 

$

(899,328

)

 

$

2,669,692

 

 

$

(82,661

)

 

$

(10,132

)

 

$

1,824,078

 

 

$

29,798

 

 

$

1,853,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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

 

 

5


 

 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the Nine Months Ended September 30, 2021 and September 30, 2020

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Earnings

 

 

Other

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

(Accumulated

 

 

Comprehensive

 

 

Parsons

 

 

Noncontrolling

 

 

 

 

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Deficit)

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Total

 

Balance at December 31, 2020

 

$

146,609

 

 

$

(899,328

)

 

$

2,700,925

 

 

$

(120,569

)

 

$

(13,865

)

 

$

1,813,772

 

 

$

47,645

 

 

$

1,861,417

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,099

 

 

 

-

 

 

 

35,099

 

 

 

17,711

 

 

 

52,810

 

Foreign currency translation gain, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,721

 

 

 

3,721

 

 

 

-

 

 

 

3,721

 

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12

 

 

 

12

 

 

 

-

 

 

 

12

 

Adoption of ASU 2020-06

 

 

-

 

 

 

-

 

 

 

(40,002

)

 

 

2,782

 

 

 

-

 

 

 

(37,220

)

 

 

-

 

 

 

(37,220

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,688

 

 

 

1,688

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(37,246

)

 

 

(37,246

)

Issuance of equity securities, net of retirement

 

 

143

 

 

 

-

 

 

 

1,681

 

 

 

27

 

 

 

-

 

 

 

1,851

 

 

 

-

 

 

 

1,851

 

Repurchases of common stock

 

 

(245

)

 

 

 

 

 

 

(8,456

)

 

 

 

 

 

 

 

 

 

 

(8,701

)

 

 

 

 

 

 

(8,701

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

15,544

 

 

 

-

 

 

 

-

 

 

 

15,544

 

 

 

-

 

 

 

15,544

 

Balance at September 30, 2021

 

$

146,507

 

 

$

(899,328

)

 

$

2,669,692

 

 

$

(82,661

)

 

$

(10,132

)

 

$

1,824,078

 

 

$

29,798

 

 

$

1,853,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 


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.          

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, 2020.

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.

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, 2020, 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

7


 

“proceeds from issuance of common stock” in cash flows from financing activities in the Consolidated Statements of Cash Flows.

Stock Repurchase Plan

During the third quarter of 2021, the Company’s Board of Directors authorized the Company to acquire a number of shares of Common Stock having an aggregate market value of not greater than $100,000,000 from time to time. Repurchased shares of common stock are retired and included in “Repurchases 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 2021, the Company early adopted Accounting Standards Update (“ASU”) 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) (“ASU 2020-06)”. 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 adopted ASU 2020-06 in the first quarter of 2021 using the modified retrospective method which resulted in a reduction in non-cash interest expense and reclassification of the equity portion of the Convertible Senior Notes to “Long-term debt” on the consolidated balance sheet.

In the first quarter of 2021, the Company adopted 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. 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. The adoption of ASU 2019-12 did not have a material impact on the consolidated financial statements.

In the first quarter of 2020, the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The amendments in ASU 2016-13 replaced 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 consolidated financial statements.

8


 

4.

Acquisitions   

BlackHorse Solutions, Inc.

On July 6, 2021, the Company acquired a 100% ownership interest in BlackHorse Solutions, Inc (“BlackHorse”), a privately-owned company, for $205.0 million in cash. BlackHorse expands Parsons’ capabilities and products in next-generation military, intelligence, and space operations, specifically in cyber electronic warfare and information dominance. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $3.0 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the three months ended September 30, 2021, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition.

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

 

$

15,428

 

Accounts receivable

 

 

3,351

 

Contract assets

 

 

5,979

 

Prepaid expenses and other current assets

 

 

977

 

Property and equipment

 

 

2,278

 

Right of use assets, operating leases

 

 

6,157

 

Goodwill

 

 

142,948

 

Intangible assets

 

 

65,000

 

Accounts payable

 

 

(2,326

)

Accrued expenses and other current liabilities

 

 

(17,197

)

Contract liabilities

 

 

(320

)

Short-term lease liabilities, operating leases

 

 

(1,011

)

Long-term lease liabilities, operating leases

 

 

(5,146

)

Deferred tax liabilities

 

 

(11,091

)

Net assets acquired

 

$

205,027

 

 

 

 

 

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

 

$

40,000

 

 

16

Backlog

 

 

22,000

 

 

3

Trade name

 

 

1,000

 

 

2

Developed technologies

 

 

1,000

 

 

3

Non-compete agreements

 

 

1,000

 

 

3

9


 

 

 

 

 

Amortization expense of $2.6 million related to these intangible assets was recorded for the three months ended September 30, 2021. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $10.6 million is deductible for tax purposes.

The amount of revenue generated by BlackHorse and included within consolidated revenues is $16.7 million for the three months ended September 30, 2021.  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.

The Company is still in the process of finalizing its valuation of the net assets acquired.

Supplemental Pro Forma Information (Unaudited)

Supplemental information of unaudited pro forma operating results assuming the BlackHorse acquisition had been consummated as of the beginning of fiscal year 2020 (in thousands) is as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Pro forma Revenue

 

$

957,498

 

 

$

1,017,325

 

 

$

2,748,559

 

 

$

2,988,153

 

Pro forma Net Income including noncontrolling interests

 

 

31,070

 

 

 

45,195

 

 

$

56,694

 

 

$

82,921

 

Echo Ridge LLC

On July 30, 2021, the Company acquired a 100% ownership interest in Echo Ridge LLC (“Echo Ridge”), a privately-owned company, for $9.0 million in cash. Echo Ridge adds position, navigation, and timing devices; modeling, simulation, test, and measurement tools; and deployable software defined radio products and signal processing services to Parsons’ space portfolio. The acquisition was entirely funded by cash on-hand. In connection with this acquisition, the Company recognized $0.3 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the three months ended September 30, 2021, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. The Company allocated the purchase price to the appropriate classes of tangible assets and liabilities and assigned the excess of $7.2 million to goodwill. The entire value of goodwill 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.

Braxton Science & Technology Group

On November 19, 2020, the Company acquired a 100% ownership interest in Braxton Science & Technology Group (“Braxton”), a privately-owned company, for $309.5 million in cash. Braxton operates at the forefront of satellite operations, ground system automation, flight dynamics, and spacecraft and antenna simulation for the U.S. Department of Defense and Intelligence Community. The acquisition was entirely funded by cash on hand. In connection with this acquisition, the Company recognized $0.6 million of acquisition related “Selling, general and administrative expense” in the consolidated statements of income for the nine months ended September 30, 2021, including legal fees, consulting fees, and other miscellaneous direct expenses associated with the acquisition. Braxton allows Parsons to capitalize on the quickly evolving space missions of its national security space customers and address rapid market growth driven by proliferated low earth orbit constellations, small satellite expansion, and space cyber resiliency.      

10


 

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

 

$

7,006

 

Accounts receivable

 

 

18,163

 

Contract assets

 

 

8,350

 

Prepaid expenses and other current assets

 

 

3,036

 

Property and equipment

 

 

5,114

 

Right of use assets, operating leases

 

 

10,788

 

Goodwill

 

 

212,185

 

Intangible assets

 

 

74,950

 

Accounts payable

 

 

(7,464

)

Accrued expenses and other current liabilities

 

 

(9,845

)

Contract liabilities

 

 

(300

)

Short-term lease liabilities, operating leases

 

 

(1,915

)

Long-term lease liabilities, operating leases

 

 

(8,873

)

Deferred tax liabilities

 

 

(1,694

)

Net assets acquired

 

$

309,501

 

 

 

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

 

$

34,100

 

 

12

Backlog

 

 

38,200

 

 

3

Developed technologies

 

 

2,000

 

 

6

Non-compete agreements

 

 

650

 

 

3

Amortization expense of $4.0 million and $12.1 million related to these intangible assets was recorded for the three and nine months ended September 30, 2021, respectively. The entire value of goodwill was assigned to the Federal Solutions reporting unit and represents synergies expected to be realized from this business combination. Goodwill of $196.3 million is deductible for tax purposes.

The amount of revenue generated by Braxton and included within consolidated revenues is $34.0 million and $94.3 million for the three and nine months ended September 30, 2021, 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 Braxton acquisition had been consummated as of the beginning of fiscal year 2019 (in thousands) is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Pro forma Revenue

 

$

956,050

 

 

$

1,046,002

 

 

$

2,710,103

 

 

$

3,050,708

 

Pro forma Net Income including noncontrolling interests

 

 

27,463

 

 

 

48,072

 

 

$

55,391

 

 

$

93,672

 

 

    

          

11


 

 

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, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Fixed-Price

 

$

246,894

 

 

$

324,901

 

 

$

710,067

 

 

$

944,577

 

Time-and-Materials

 

 

261,566

 

 

 

265,987

 

 

 

754,596

 

 

 

777,807

 

Cost-Plus

 

 

447,590

 

 

 

413,348

 

 

 

1,245,440

 

 

 

1,232,304

 

Total

 

$

956,050

 

 

$

1,004,236

 

 

$

2,710,103

 

 

$

2,954,688

 

 

See “Note 18 – Segments Information” for the Company’s revenues by business lines.

Contract Assets and Contract Liabilities

Contract assets and contract liabilities balances at September 30, 2021 and December 31, 2020 were as follows (in thousands):

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

$ change

 

 

% change

 

Contract assets

 

$

569,294

 

 

$

576,568

 

 

$

(7,274

)

 

 

-1.3

%

Contract liabilities

 

 

186,789

 

 

 

201,864

 

 

 

(15,075

)

 

 

-7.5

%

Net contract assets (liabilities) (1)

 

$

382,505

 

 

$

374,704

 

 

$

7,801

 

 

 

2.1

%

 

(1)

Total contract retentions included in net contract assets (liabilities) were $94.3 million as of September 30, 2021, of which $52.3 million are not expected to be paid in the next 12 months. Total contract retentions included in net contract assets (liabilities) were $93.8 million as of December 31, 2020. Contract assets at September 30, 2021 and December 31, 2020 include $106.0 million and $116.6 million, respectively, related to unapproved change orders, claims, and requests for equitable adjustment. For the three and nine months ended September 30, 2021 and September 30, 2020, there were no material losses recognized related to the collectability of claims, unapproved change orders, and requests for equitable adjustment.

During the three months ended September 30, 2021 and September 30, 2020, the Company recognized revenue of $3.0 million and $9.5 million, respectively, and $95.5 million and $132.2 million during the nine months ended September 30, 2021 and September 30, 2020, respectively, that was included in the corresponding contract liability balances at December 31, 2020 and December 31, 2019, respectively. Certain changes in contract assets and contract liabilities consisted of the following:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Acquired contract assets

 

$

5,979

 

 

$

8,350

 

Acquired contract liabilities

 

 

320

 

 

 

300

 

 

  There was no significant impairment of contract assets recognized during the three and nine months ended September 30, 2021 and September 30, 2020.

 Revisions in estimates, such as changes in estimated claims or incentives, related to performance obligations partially satisfied in previous periods that individually had an impact of $5 million or more on revenue resulted in the following changes in revenue:   

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

September 30, 2021

 

 

September 30, 2020

 

Revenue impact, net

 

$

(6,300

)

 

$

(134

)

 

$

(27,553

)

 

$

8,848

 

 

12


 

 

Accounts Receivable, net

Accounts receivable, net consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):

 

 

 

2021

 

 

2020

 

Billed

 

$

443,024

 

 

$

512,357

 

Unbilled

 

 

188,428

 

 

 

190,222

 

   Total accounts receivable, gross

 

 

631,452

 

 

 

702,579

 

Allowance for doubtful accounts

 

 

(4,007

)

 

 

(4,001

)

   Total accounts receivable, net

 

$

627,445

 

 

$

698,578

 

 

Billed accounts receivable represents amounts billed to clients that have not been collected. Unbilled accounts receivable represents amounts where the Company has a present contractual right to bill but an invoice has not been issued to the customer at the period-end date.

The allowance for doubtful accounts was determined based on consideration of trends in actual and forecasted credit quality of clients, including delinquency and payment history, type of client, such as a government agency or commercial sector client, and general economic conditions and particular industry conditions that may affect a client’s ability to pay. We have not seen and do not expect there to be a risk of non-payment from either our government agency or commercial customers related to COVID-19 impacts; however, we have experienced payment delays due to administrative limitations from both types of customers.

Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations

The Company’s remaining unsatisfied performance obligations (“RUPO”) as of September 30, 2021 represent a measure of the total dollar value of work to be performed on contracts awarded and in-progress. The Company had $6.0 billion in RUPO as of September 30, 2021.

RUPO will increase with awards of new contracts and decrease as the Company performs work and recognizes revenue on existing contracts. Projects are included within RUPO at such time the project is awarded and agreement on contract terms has been reached. The difference between RUPO and backlog relates to unexercised option years that are included within backlog and the value of Indefinite Delivery/Indefinite Quantity (“IDIQ”) contracts included in backlog for which delivery orders have not been issued.

RUPO is comprised of: (a) original transaction price, (b) change orders for which written confirmations from our customers have been received, (c) pending change orders for which the Company expects to receive confirmations in the ordinary course of business, and (d) claim amounts that the Company has made against customers for which it has determined that it has a legal basis under existing contractual arrangements and a significant reversal of revenue is not probable, less revenue recognized to-date.

The Company expects to satisfy its RUPO as of September 30, 2021 over the following periods (in thousands):

 

Period RUPO Will Be Satisfied

 

Within One Year

 

 

Within One to

Two Years

 

 

Thereafter

 

Federal Solutions

 

$

1,418,783

 

 

$

787,273

 

 

$

491,797

 

Critical Infrastructure

 

 

1,452,760

 

 

 

781,669

 

 

 

1,021,928

 

Total

 

$

2,871,543

 

 

$

1,568,942