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PARSONS CORP - Quarter Report: 2022 June (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 June 30, 2022

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 July 27, 2022, the registrant had 103,561,917 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

 

41

Item 4.

Controls and Procedures

 

41

PART II.

OTHER INFORMATION

 

42

Item 1.

Legal Proceedings

 

42

Item 1A.

Risk Factors

 

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

42

Item 3.

Defaults Upon Senior Securities

 

42

Item 4.

Mine Safety Disclosures

 

42

Item 5.

Other Information

 

42

Item 6.

Exhibits

 

42

 

Signatures

 

43

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share information)

(Unaudited)

 

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (including $25,060 and $78,514 Cash of consolidated joint ventures)

 

$

125,982

 

 

$

342,608

 

 

Restricted cash and investments

 

 

890

 

 

 

1,275

 

 

Accounts receivable, net (including $183,768 and $190,643 Accounts receivable of consolidated joint ventures, net)

 

 

733,487

 

 

 

598,311

 

 

Contract assets (including $9,867 and $23,498 Contract assets of consolidated joint ventures)

 

 

603,359

 

 

 

579,216

 

 

Prepaid expenses and other current assets (including $13,357 and $18,783 Prepaid expenses and other current assets of consolidated joint ventures)

 

 

119,908

 

 

 

110,941

 

 

Total current assets

 

 

1,583,626

 

 

 

1,632,351

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net (including $1,504 and $1,721 Property and equipment of consolidated joint ventures, net)

 

 

98,491

 

 

 

104,196

 

 

Right of use assets, operating leases

 

 

167,577

 

 

 

182,672

 

 

Goodwill

 

 

1,671,668

 

 

 

1,412,690

 

 

Investments in and advances to unconsolidated joint ventures

 

 

115,478

 

 

 

110,688

 

 

Intangible assets, net

 

 

285,115

 

 

 

207,821

 

 

Deferred tax assets

 

 

134,591

 

 

 

134,393

 

 

Other noncurrent assets

 

 

53,259

 

 

 

46,129

 

 

Total assets

 

$

4,109,805

 

 

$

3,830,940

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable (including $62,848 and $78,558 Accounts payable of consolidated joint ventures)

 

$

194,696

 

 

$

196,286

 

 

Accrued expenses and other current liabilities (including $82,994 and $82,746 Accrued expenses and other current liabilities of consolidated joint ventures)

 

 

647,040

 

 

 

599,089

 

 

Contract liabilities (including $14,293 and $14,333 Contract liabilities of consolidated joint ventures)

 

 

186,295

 

 

 

171,671

 

 

Short-term lease liabilities, operating leases

 

 

59,814

 

 

 

55,902

 

 

Income taxes payable

 

 

10,941

 

 

 

7,836

 

 

Total current liabilities

 

 

1,098,786

 

 

 

1,030,784

 

 

 

 

 

 

 

 

 

 

 

 

Long-term employee incentives

 

 

16,177

 

 

 

15,997

 

 

Long-term debt

 

 

792,982

 

 

 

591,922

 

 

Long-term lease liabilities, operating leases

 

 

127,487

 

 

 

148,893

 

 

Deferred tax liabilities

 

 

9,587

 

 

 

11,400

 

 

Other long-term liabilities

 

 

100,119

 

 

 

94,832

 

 

Total liabilities

 

 

2,145,138

 

 

 

1,893,828

 

Contingencies (Note 12)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

 

Common stock, $1 par value; authorized 1,000,000,000 shares; 146,178,118 and 146,276,880 shares issued; 38,463,147 and 33,331,494 public shares outstanding; 65,097,822 and 70,328,237 ESOP shares outstanding

 

 

146,174

 

 

 

146,277

 

 

Treasury stock, 42,617,149 shares at cost

 

 

(867,391

)

 

 

(867,391

)

 

Additional paid-in capital

 

 

2,676,063

 

 

 

2,684,979

 

 

Accumulated deficit

 

 

(14,565

)

 

 

(53,529

)

 

Accumulated other comprehensive loss

 

 

(12,100

)

 

 

(9,568

)

 

Total Parsons Corporation shareholders' equity

 

 

1,928,181

 

 

 

1,900,768

 

 

Noncontrolling interests

 

 

36,486

 

 

 

36,344

 

 

Total shareholders' equity

 

 

1,964,667

 

 

 

1,937,112

 

 

Total liabilities and shareholders' equity

 

$

4,109,805

 

 

$

3,830,940

 

 

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 Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Revenue

 

$

1,008,721

 

 

$

879,356

 

 

$

1,957,790

 

 

$

1,754,053

 

Direct cost of contracts

 

 

781,772

 

 

 

680,328

 

 

 

1,515,672

 

 

 

1,349,410

 

Equity in earnings of unconsolidated joint ventures

 

 

5,613

 

 

 

9,428

 

 

 

11,211

 

 

 

16,958

 

Selling, general and administrative expenses

 

 

199,932

 

 

 

188,238

 

 

 

385,009

 

 

 

375,760

 

Operating income

 

 

32,630

 

 

 

20,218

 

 

 

68,320

 

 

 

45,841

 

Interest income

 

 

171

 

 

 

152

 

 

 

236

 

 

 

250

 

Interest expense

 

 

(4,525

)

 

 

(4,910

)

 

 

(8,463

)

 

 

(9,451

)

Other income (expense), net

 

 

236

 

 

 

405

 

 

 

381

 

 

 

(1,386

)

Total other income (expense)

 

 

(4,118

)

 

 

(4,353

)

 

 

(7,846

)

 

 

(10,587

)

Income before income tax expense

 

 

28,512

 

 

 

15,865

 

 

 

60,474

 

 

 

35,254

 

Income tax expense

 

 

(5,732

)

 

 

(3,838

)

 

 

(13,851

)

 

 

(9,213

)

Net income including noncontrolling interests

 

 

22,780

 

 

 

12,027

 

 

 

46,623

 

 

 

26,041

 

Net income attributable to noncontrolling interests

 

 

(4,485

)

 

 

(5,325

)

 

 

(7,661

)

 

 

(10,300

)

Net income attributable to Parsons Corporation

 

$

18,295

 

 

$

6,702

 

 

$

38,962

 

 

$

15,741

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.18

 

 

$

0.07

 

 

$

0.38

 

 

$

0.15

 

Diluted

 

$

0.17

 

 

$

0.06

 

 

$

0.35

 

 

$

0.15

 

 

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 Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Net income including noncontrolling interests

 

$

22,780

 

 

$

12,027

 

 

$

46,623

 

 

$

26,041

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

(5,383

)

 

 

3,012

 

 

 

(2,509

)

 

 

7,926

 

Pension adjustments, net of tax

 

 

(47

)

 

 

19

 

 

 

(25

)

 

 

38

 

Comprehensive income including noncontrolling interests, net of tax

 

 

17,350

 

 

 

15,058

 

 

 

44,089

 

 

 

34,005

 

Comprehensive income attributable to noncontrolling interests, net of tax

 

 

(4,482

)

 

 

(5,324

)

 

 

(7,659

)

 

 

(10,304

)

Comprehensive income attributable to Parsons Corporation, net of tax

 

$

12,868

 

 

$

9,734

 

 

$

36,430

 

 

$

23,701

 

 

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 Six Months Ended

 

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income including noncontrolling interests

 

$

46,623

 

 

$

26,041

 

 

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

61,090

 

 

 

69,308

 

 

Amortization of debt issue costs

 

 

1,302

 

 

 

1,530

 

 

(Gain) loss on disposal of property and equipment

 

 

(96

)

 

 

297

 

 

Provision for doubtful accounts

 

 

(3

)

 

 

-

 

 

Deferred taxes

 

 

(2,149

)

 

 

(4,217

)

 

Foreign currency transaction gains and losses

 

 

1,461

 

 

 

2,395

 

 

Equity in earnings of unconsolidated joint ventures

 

 

(11,211

)

 

 

(16,958

)

 

Return on investments in unconsolidated joint ventures

 

 

19,434

 

 

 

18,132

 

 

Stock-based compensation

 

 

8,358

 

 

 

11,361

 

 

Contributions of treasury stock

 

 

26,544

 

 

 

26,518

 

 

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

   joint ventures:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(109,681

)

 

 

58,146

 

 

Contract assets

 

 

(17,866

)

 

 

8,360

 

 

Prepaid expenses and other assets

 

 

(3,521

)

 

 

(11,153

)

 

Accounts payable

 

 

(8,079

)

 

 

(34,372

)

 

Accrued expenses and other current liabilities

 

 

(7,314

)

 

 

(97,541

)

 

Contract liabilities

 

 

13,360

 

 

 

(5,957

)

 

Income taxes

 

 

3,107

 

 

 

(2,402

)

 

Other long-term liabilities

 

 

3,977

 

 

 

(11,025

)

 

Net cash provided by operating activities

 

 

25,336

 

 

 

38,463

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(13,588

)

 

 

(9,171

)

 

Proceeds from sale of property and equipment

 

 

251

 

 

 

384

 

 

Payments for acquisitions, net of cash acquired

 

 

(379,272

)

 

 

256

 

 

Investments in unconsolidated joint ventures

 

 

(11,228

)

 

 

(26,373

)

 

Return of investments in unconsolidated joint ventures

 

 

-

 

 

 

727

 

 

Proceeds from sales of investments in unconsolidated joint ventures

 

 

-

 

 

 

14,335

 

 

Net cash used in investing activities

 

 

(403,837

)

 

 

(19,842

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from borrowings under credit agreement

 

 

347,100

 

 

 

-

 

 

Repayments of borrowings under credit agreement

 

 

(147,100

)

 

 

-

 

 

Payments for debt costs and credit agreement

 

 

-

 

 

 

(1,826

)

 

Payments for acquired warrants

 

 

(11,243

)

 

 

-

 

 

Contributions by noncontrolling interests

 

 

2,827

 

 

 

872

 

 

Distributions to noncontrolling interests

 

 

(10,344

)

 

 

(21,836

)

 

Repurchases of common stock

 

 

(15,548

)

 

 

-

 

 

Taxes paid on vested stock

 

 

(5,963

)

 

 

(2,242

)

 

Proceeds from issuance of common stock

 

 

2,724

 

 

 

2,773

 

 

Net cash provided by (used in) financing activities

 

 

162,453

 

 

 

(22,259

)

 

Effect of exchange rate changes

 

 

(963

)

 

 

1,011

 

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(217,011

)

 

 

(2,627

)

 

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

 

Beginning of year

 

 

343,883

 

 

 

487,215

 

 

End of period

 

$

126,872

 

 

$

484,588

 

 

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 June 30, 2022 and June 30, 2021

(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 March 31, 2022

 

$

146,348

 

 

$

(867,391

)

 

$

2,678,761

 

 

$

(32,858

)

 

$

(6,673

)

 

$

1,918,187

 

 

$

32,438

 

 

$

1,950,625

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,295

 

 

 

-

 

 

 

18,295

 

 

 

4,485

 

 

 

22,780

 

Foreign currency translation loss, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,380

)

 

 

(5,380

)

 

 

(3

)

 

 

(5,383

)

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(47

)

 

 

(47

)

 

 

-

 

 

 

(47

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,601

 

 

 

1,601

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,035

)

 

 

(2,035

)

Issuance of equity securities, net of retirements

 

 

102

 

 

 

-

 

 

 

2,566

 

 

 

(2

)

 

 

-

 

 

 

2,666

 

 

 

-

 

 

 

2,666

 

Repurchases of common stock

 

 

(276

)

 

 

-

 

 

 

(9,724

)

 

 

-

 

 

 

-

 

 

 

(10,000

)

 

 

-

 

 

 

(10,000

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

4,460

 

 

 

-

 

 

 

-

 

 

 

4,460

 

 

 

-

 

 

 

4,460

 

Balance at June 30, 2022

 

$

146,174

 

 

$

(867,391

)

 

$

2,676,063

 

 

$

(14,565

)

 

$

(12,100

)

 

$

1,928,181

 

 

$

36,486

 

 

$

1,964,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

$

146,654

 

 

$

(899,328

)

 

$

2,667,130

 

 

$

(108,720

)

 

$

(8,937

)

 

$

1,796,799

 

 

$

43,643

 

 

$

1,840,442

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,702

 

 

 

-

 

 

 

6,702

 

 

 

5,325

 

 

 

12,027

 

Foreign currency translation gain, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,013

 

 

 

3,013

 

 

 

(1

)

 

 

3,012

 

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19

 

 

 

19

 

 

 

-

 

 

 

19

 

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

865

 

 

 

865

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,847

)

 

 

(12,847

)

Issuance of equity securities, net of retirements

 

 

98

 

 

 

-

 

 

 

2,680

 

 

 

(1

)

 

 

-

 

 

 

2,777

 

 

 

-

 

 

 

2,777

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

4,155

 

 

 

-

 

 

 

-

 

 

 

4,155

 

 

 

-

 

 

 

4,155

 

Balance at June 30, 2021

 

$

146,752

 

 

$

(899,328

)

 

$

2,673,965

 

 

$

(102,019

)

 

$

(5,905

)

 

$

1,813,465

 

 

$

36,985

 

 

$

1,850,450

 

 

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


5


 

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the Six Months Ended June 30, 2022 and June 30, 2021

(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, 2021

 

$

146,277

 

 

$

(867,391

)

 

$

2,684,979

 

 

$

(53,529

)

 

$

(9,568

)

 

$

1,900,768

 

 

$

36,344

 

 

$

1,937,112

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,962

 

 

 

-

 

 

 

38,962

 

 

 

7,661

 

 

 

46,623

 

Foreign currency translation gain, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,507

)

 

 

(2,507

)

 

 

(2

)

 

 

(2,509

)

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(25

)

 

 

(25

)

 

 

-

 

 

 

(25

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,827

 

 

 

2,827

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,344

)

 

 

(10,344

)

Issuance of equity securities, net of retirement

 

 

324

 

 

 

-

 

 

 

(2,153

)

 

 

2

 

 

 

-

 

 

 

(1,827

)

 

 

-

 

 

 

(1,827

)

Repurchases of common stock

 

 

(427

)

 

 

-

 

 

 

(15,121

)

 

 

-

 

 

 

-

 

 

 

(15,548

)

 

 

 

 

 

 

(15,548

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

8,358

 

 

 

-

 

 

 

-

 

 

 

8,358

 

 

 

-

 

 

 

8,358

 

Balance at June 30, 2022

 

$

146,174

 

 

$

(867,391

)

 

$

2,676,063

 

 

$

(14,565

)

 

$

(12,100

)

 

$

1,928,181

 

 

$

36,486

 

 

$

1,964,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,741

 

 

 

-

 

 

 

15,741

 

 

 

10,300

 

 

 

26,041

 

Foreign currency translation (loss), net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,922

 

 

 

7,922

 

 

 

4

 

 

 

7,926

 

Pension adjustments, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38

 

 

 

38

 

 

 

-

 

 

 

38

 

Adoption of ASU 2020-06

 

 

 

 

 

 

 

 

 

 

(40,002

)

 

 

2,782

 

 

 

 

 

 

 

(37,220

)

 

 

 

 

 

 

(37,220

)

Contributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

872

 

 

 

872

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(21,836

)

 

 

(21,836

)

Issuance of equity securities, net of retirement

 

 

143

 

 

 

-

 

 

 

1,681

 

 

 

27

 

 

 

-

 

 

 

1,851

 

 

 

-

 

 

 

1,851

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

11,361

 

 

 

-

 

 

 

-

 

 

 

11,361

 

 

 

-

 

 

 

11,361

 

Balance at June 30, 2021

 

$

146,752

 

 

$

(899,328

)

 

$

2,673,965

 

 

$

(102,019

)

 

$

(5,905

)

 

$

1,813,465

 

 

$

36,985

 

 

$

1,850,450

 

 

 

 

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.          

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, 2021.

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; 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, 2021, 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.  

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.

7

 


 

 

 

3.

New Accounting Pronouncements

In the first quarter of 2022, the Company early adopted ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The new guidance requires that the approach of ASC 606, Revenue from Contracts with Customers, should be used to measure an acquired revenue contract in a business combination. This guidance is to be applied (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The early adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements.

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.  

4.

Acquisitions   

Xator Corporation

On May 31, 2022, the Company acquired a 100% ownership interest in Xator Corporation (“Xator”), a privately-owned company, for $388.3 million in cash. The Company borrowed $300 million under the Credit Agreement, as described in “Note 10 – Debt and Credit Facilities”, to partially fund the acquisition. Xator expands Parsons’ customer base and brings differentiated technical capabilities in critical infrastructure protection, counter-unmanned aircraft systems (cUAS), intelligence and cyber solutions, biometrics, and global threat assessment and operations.

8

 


 

 

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

 

$

9,025

 

Accounts receivable

 

 

28,199

 

Contract assets

 

 

8,217

 

Prepaid expenses and other current assets

 

 

3,614

 

Property and equipment

 

 

1,699

 

Right of use assets, operating leases

 

 

3,575

 

Goodwill

 

 

260,760

 

Investments in and advances to unconsolidated joint ventures

 

 

698

 

Intangible assets

 

 

116,100

 

Other noncurrent assets

 

 

9,156

 

Accounts payable

 

 

(6,626

)

Accrued expenses and other current liabilities

 

 

(31,309

)

Contract liabilities

 

 

(2,080

)

Short-term lease liabilities, operating leases

 

 

(1,979

)

Long-term lease liabilities, operating leases

 

 

(1,596

)

Other long-term liabilities

 

 

(9,156

)

Net assets acquired

 

$

388,297

 

 

Of the total purchase price, the following values were preliminarily assigned to intangible assets (in thousands, except for years):

 

 

Gross

Carrying

Amount

 

 

Amortization

Period

 

 

 

 

 

 

(in years)

Customer relationships

 

$

59,200

 

 

14

Backlog

 

 

48,300

 

 

3

Developed technologies

 

 

4,300

 

 

4

Non-compete agreements

 

 

2,200

 

 

3

Other

 

 

2,100

 

 

2

9

 


 

 

 

 

Amortization expense of $1.6 million related to these intangible assets was recorded for the three and six months ended June 30, 2022. 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.

The amount of revenue generated by Xator and included within consolidated revenues is $20.8 million for the three and six months ended June 30, 2022.  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 Xator acquisition had been consummated as of the beginning of fiscal year 2021 (in thousands) is as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Pro forma Revenue

 

$

1,048,894

 

 

$

960,253

 

 

$

2,064,966

 

 

$

1,893,503

 

Pro forma Net Income including noncontrolling interests

 

 

30,199

 

 

 

16,376

 

 

$

56,106

 

 

$

20,071

 

 

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.

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

 

 

937

 

Property and equipment

 

 

2,239

 

Right of use assets, operating leases

 

 

6,157

 

Goodwill

 

 

143,086

 

Intangible assets

 

 

65,000

 

Accounts payable

 

 

(2,326

)

Accrued expenses and other current liabilities

 

 

(17,190

)

Contract liabilities

 

 

(320

)

Short-term lease liabilities, operating leases

 

 

(1,011

)

Long-term lease liabilities, operating leases

 

 

(5,146

)

Deferred tax liabilities

 

 

(10,916

)

Other long-term liabilities

 

 

(235

)

Net assets acquired

 

$

205,033

 

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

 

$

39,000

 

 

16

Backlog

 

 

23,000

 

 

3

Trade name

 

 

1,000

 

 

2

Developed technologies

 

 

1,000

 

 

3

Non-compete agreements

 

 

1,000

 

 

3

 

 

Amortization expense of $3.5 million and $7.1 million related to these intangible assets was recorded for the three and six months ended June 30, 2022, 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 $10.6 million is deductible for tax purposes.

The amount of revenue generated by BlackHorse and included within consolidated revenues is $25.2 million and $43.6 million for the three and six months ended June 30, 2022, 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 BlackHorse acquisition had been consummated as of the beginning of fiscal year 2020 (in thousands) is as follows:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Pro forma Revenue

 

$

1,008,721

 

 

$

899,659

 

 

$

1,957,790

 

 

$

1,791,061

 

Pro forma Net Income including noncontrolling interests

 

 

24,651

 

 

 

12,116

 

 

 

50,533

 

 

$

25,624

 

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. 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. The amount of revenue generated by Echo Ridge and included within consolidated revenues for the three and six months ended June 30, 2022 is $1.6 million and $3.2 million, respectively.

          

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

 

 

Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Fixed-Price

 

$

279,408

 

 

$

233,231

 

 

$

519,982

 

 

$

463,173

 

Time-and-Materials

 

 

271,330

 

 

 

253,365

 

 

 

534,645

 

 

 

493,030

 

Cost-Plus

 

 

457,983

 

 

 

392,760

 

 

 

903,163

 

 

 

797,850

 

Total

 

$

1,008,721

 

 

$

879,356

 

 

$

1,957,790

 

 

$

1,754,053

 

 

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 June 30, 2022 and December 31, 2021 were as follows (in thousands):

 

 

 

June 30, 2022

 

 

December 31, 2021

 

 

$ change

 

 

% change

 

Contract assets

 

$

603,359

 

 

$

579,216

 

 

$

24,143

 

 

 

4.2

%

Contract liabilities

 

 

186,295

 

 

 

171,671

 

 

 

14,624

 

 

 

8.5

%

Net contract assets (liabilities) (1)

 

$

417,064

 

 

$

407,545

 

 

$

9,519

 

 

 

2.3

%

 

(1)

Total contract retentions included in net contract assets (liabilities) were $77.6 million as of June 30, 2022, of which $43.8 million are not expected to be paid in the next 12 months. Total contract retentions included in net contract assets (liabilities) were $91.7 million as of December 31, 2021. Contract assets at June 30, 2022 and December 31, 2021 include $104.9 million and $98.6 million, respectively, related to unapproved change orders, claims, and requests for equitable adjustment. For the three and six months ended June 30, 2022 and June 30, 2021, 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 June 30, 2022 and June 30, 2021, the Company recognized revenue of $18.6 million and $23.5 million, respectively, and $81.7 million and $92.6 million during the sixth months ended June 30, 2022 and June 30, 2021, respectively, that was included in the corresponding contract liability balances at December 31, 2021 and December 31, 2020, respectively. Certain changes in contract assets and contract liabilities consisted of the following:

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Acquired contract assets

 

$

8,217

 

 

$

5,979

 

Acquired contract liabilities

 

 

2,080

 

 

 

320

 

 

  There was no significant impairment of contract assets recognized during the six months ended June 30, 2022 and June 30, 2021.

 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

 

 

Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Revenue impact, net

 

$

-

 

 

$

(20,827

)

 

$

-

 

 

$

(20,827

)

12

 


 

 

 

Accounts Receivable, net

Accounts receivable, net consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):

 

 

 

2022

 

 

2021

 

Billed

 

$

502,704

 

 

$

434,776

 

Unbilled

 

 

234,735

 

 

 

167,490

 

   Total accounts receivable, gross

 

 

737,439

 

 

 

602,266

 

Allowance for doubtful accounts

 

 

(3,952

)

 

 

(3,955

)

   Total accounts receivable, net

 

$

733,487

 

 

$

598,311

 

 

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. 

Transaction Price Allocated to the Remaining Unsatisfied Performance Obligations

The Company’s remaining unsatisfied performance obligations (“RUPO”) as of June 30, 2022 represent a measure of the total dollar value of work to be performed on contracts awarded and in-progress. The Company had $5.8 billion in RUPO as of June 30, 2022.

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 June 30, 2022 over the following periods (in thousands):

 

Period RUPO Will Be Satisfied

 

Within One Year

 

 

Within One to

Two Years

 

 

Thereafter

 

Federal Solutions

 

$

1,565,188

 

 

$

673,129

 

 

$

232,163

 

Critical Infrastructure

 

 

1,586,015

 

 

 

834,960

 

 

 

894,141

 

Total

 

$

3,151,203

 

 

$

1,508,089

 

 

$

1,126,304

 

 

13

 


 

 

 

6.

Leases

  The Company has operating and finance leases for corporate and project office spaces, vehicles, heavy machinery and office equipment. Our leases have remaining lease terms of one year to 8 years, some of which may include options to extend the leases for up to five years, and some of which may include options to terminate the leases after the third year.   

The components of lease costs for the three and six months ended June 30, 2022 and June 30, 2021 are as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

 

June 30, 2021

 

Operating lease cost

 

$

16,574

 

 

$

16,050

 

 

$

32,750

 

 

$

32,377

 

Short-term lease cost

 

 

3,610

 

 

 

2,264

 

 

 

7,090

 

 

 

4,330

 

Amortization of right-of-use assets

 

 

602

 

 

 

543

 

 

 

1,150

 

 

 

1,017

 

Interest on lease liabilities

 

 

22

 

 

 

28

 

 

 

43

 

 

 

57

 

Sublease income

 

 

(968

)

 

 

(793

)

 

 

(2,003

)

 

 

(1,569

)

Total lease cost

 

$

19,840

 

 

$

18,092

 

 

$

39,030

 

 

$

36,212

 

 

Supplemental cash flow information related to leases for the three months ended June 30, 2022 and June 30, 2021 is as follows (in thousands):

 

 

 

Six Months Ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Operating cash flows for operating leases

 

$

34,727

 

 

$

33,035

 

Operating cash flows for finance leases

 

 

43

 

 

 

58

 

Financing cash flows from finance leases

 

 

1,054

 

 

 

1,020

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

10,583

 

 

 

8,328

 

Right-of-use assets obtained in exchange for new finance lease liabilities

 

$

631

 

 

$

831

 

 

Supplemental balance sheet and other information related to leases as of June 30, 2022 and December 31, 2021 are as follows (in thousands):

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Operating Leases: