SEC Filing - Parsons

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psn-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-07782

Parsons Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware	95-3232481
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5875 Trinity Parkway #300 Centreville, Virginia	20120
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (703) 988-8500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value

PSN

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Cash Flows	4
	Consolidated Statements of Shareholders’ Equity (Deficit)	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
	Signatures	46

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share information)

(Unaudited)

		September 30, 2020			December 31, 2019
Assets
Current assets:
	Cash and cash equivalents (including $50,585 and $51,171 Cash of consolidated joint ventures)	$	614,031		$	182,688
	Restricted cash and investments		3,726			12,686
	Accounts receivable, net (including $259,691 and $166,355 Accounts receivable of consolidated joint ventures, net)		775,060			671,492
	Contract assets (including $29,054 and $26,458 Contract assets of consolidated joint ventures)		610,893			575,089
	Prepaid expenses and other current assets (including $3,974 and $11,182 Prepaid expenses and other current assets of consolidated joint ventures)		77,909			84,454
	Total current assets		2,081,619			1,526,409

	Property and equipment, net (including $2,649 and $2,945 Property and equipment of consolidated joint ventures, net)		121,486			122,751
	Right of use assets, operating leases		212,592			233,415
	Goodwill		1,046,453			1,047,425
	Investments in and advances to unconsolidated joint ventures		71,289			68,620
	Intangible assets, net		194,082			259,858
	Deferred tax assets		130,904			130,401
	Other noncurrent assets		60,336			61,489
	Total assets	$	3,918,761		$	3,450,368

Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
	Accounts payable (including $72,949 and $85,869 Accounts payable of consolidated joint ventures)	$	208,307		$	216,613
	Accrued expenses and other current liabilities (including $141,476 and $74,857 Accrued expenses and other current liabilities of consolidated joint ventures)		725,867			639,863
	Contract liabilities (including $44,267 and $32,638 Contract liabilities of consolidated joint ventures)		212,373			230,681
	Short-term lease liabilities, operating leases		48,661			49,994
	Income taxes payable		1,342			7,231
	Short-term debt		50,000			-
	Total current liabilities		1,246,550			1,144,382
	Long-term employee incentives		21,535			56,928
	Long-term debt		537,119			249,353
	Long-term lease liabilities, operating leases		189,319			203,624
	Deferred tax liabilities		9,273			9,621
	Other long-term liabilities		145,494			125,704
	Total liabilities		2,149,290			1,789,612
Contingencies (Note 12)
Shareholders' equity (deficit):
	Common stock, $1 par value; authorized 1,000,000,000 shares; 146,498,582 and 146,440,701 shares issued; 24,637,043 and 21,772,888 public shares outstanding; 76,090,531 and 78,896,806 ESOP shares outstanding		146,498			146,441
	Treasury stock, 45,771,008 shares at cost		(934,240	)		(934,240	)
	Additional paid-in capital		2,675,383			2,649,975
	Accumulated deficit		(142,095	)		(218,025	)
	Accumulated other comprehensive loss		(18,049	)		(14,261	)
	Total Parsons Corporation shareholders' equity		1,727,497			1,629,890
	Noncontrolling interests		41,974			30,866
	Total shareholders' equity		1,769,471			1,660,756
	Total liabilities, redeemable common stock and shareholders' equity	$	3,918,761		$	3,450,368

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

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share information)

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Revenue	$	1,004,236		$	1,023,277		$	2,954,688		$	2,917,424
Direct cost of contracts		788,769			798,552			2,307,725			2,297,512
Equity in earnings of unconsolidated joint ventures		16,741			7,274			26,624			29,305
Indirect, general and administrative expenses		165,937			178,550			537,351			581,428
Operating income		66,271			53,449			136,236			67,789
Interest income		88			427			512			1,129
Interest expense		(5,475	)		(4,909	)		(13,656	)		(19,577	)
Other income (expense), net		1,653			(3,127	)		1,916			(1,580	)
Total other income (expense)		(3,734	)		(7,609	)		(11,228	)		(20,028	)
Income before income tax expense		62,537			45,840			125,008			47,761
Income tax (expense) benefit		(16,017	)		15,453			(32,992	)		67,063
Net income including noncontrolling interests		46,520			61,293			92,016			114,824
Net income attributable to noncontrolling interests		(5,862	)		(4,481	)		(15,086	)		(8,012	)
Net income attributable to Parsons Corporation	$	40,658		$	56,812		$	76,930		$	106,812
Earnings per share:
Basic	$	0.40		$	0.57		$	0.76		$	1.19
Diluted	$	0.40		$	0.57		$	0.76		$	1.19

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

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Net income including noncontrolling interests	$	46,520		$	61,293		$	92,016		$	114,824
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax		1,926			171			(3,770	)		4,958
Pension adjustments, net of tax		20			(9	)		(18	)		17
Comprehensive income including noncontrolling interests, net of tax		48,466			61,455			88,228			119,799
Comprehensive income attributable to noncontrolling interests, net of tax		(5,866	)		(4,481	)		(15,086	)		(8,012	)
Comprehensive income attributable to Parsons Corporation, net of tax	$	42,600		$	56,974		$	73,142		$	111,787

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

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

		For the Nine Months Ended
		September 30, 2020			September 30, 2019
Cash flows from operating activities:
	Net income including noncontrolling interests	$	92,016		$	114,824
	Adjustments to reconcile net income to net cash used in operating activities
	Depreciation and amortization		95,442			92,692
	Amortization of debt issue costs		760			802
	Amortization of convertible notes discount		1,277			-
	Gain on disposal of property and equipment		(22	)		1,045
	Provision for doubtful accounts		54			(964	)
	Deferred taxes		(763	)		(105,161	)
	Foreign currency transaction gains and losses		431			1,689
	Equity in earnings of unconsolidated joint ventures		(26,624	)		(29,305	)
	Return on investments in unconsolidated joint ventures		31,189			32,848
	Stock-based compensation		11,044			9,224
	Contributions of treasury stock		42,006			36,779
	Changes in assets and liabilities, net of acquisitions and newly consolidated joint ventures:
	Accounts receivable		(106,487	)		(31,726	)
	Contract assets		(34,931	)		(59,161	)
	Prepaid expenses and current assets		7,649			2,980
	Accounts payable		(8,074	)		(6,946	)
	Accrued expenses and other current liabilities		48,901			40,186
	Contract liabilities		(18,094	)		20,703
	Income taxes		(6,761	)		(3,019	)
	Other long-term liabilities		(15,574	)		13,138
	Net cash provided by operating activities		113,439			130,628
Cash flows from investing activities:
	Capital expenditures		(29,178	)		(44,030	)
	Proceeds from sale of property and equipment		1,053			2,824
	Payments for acquisitions, net of cash acquired		-			(495,690	)
	Investments in unconsolidated joint ventures		(7,969	)		(11,446	)
	Return of investments in unconsolidated joint ventures		17			6,632
	Net cash used in investing activities		(36,077	)		(541,710	)
Cash flows from financing activities:
	Proceeds from borrowings under credit agreement		212,900			530,000
	Repayments of borrowings under credit agreement		(212,900	)		(710,000	)
	Payments for debt costs and credit agreement		-			(286	)
	Proceeds from issuance of convertible notes		400,000			-
	Payments for purchase of bond hedges		(54,968	)		-
	Proceeds from issuance of warrants		13,808			-
	Transaction costs paid in connection with convertible notes issuance		(10,307	)		-
	Contributions by noncontrolling interests		491			8,999
	Distributions to noncontrolling interests		(4,469	)		(35,378	)
	Purchase of treasury stock		-			(819	)
	Taxes paid on vested stock		(1,149	)		-
	Proceeds from issuance of common stock		1,684			536,879
	Dividend paid		-			(52,093	)
	Net cash provided by financing activities		345,090			277,302
	Effect of exchange rate changes		(69	)		(953	)
	Net increase (decrease) in cash, cash equivalents, and restricted cash		422,383			(134,733	)
	Cash, cash equivalents and restricted cash:
	Beginning of year		195,374			281,195
	End of period	$	617,757		$	146,462

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

PARSONS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity (Deficit)

For the Three Months Ended September 30, 2020 and September 30, 2019

(In thousands)

(Unaudited)

										Retained			Accumulated			Total
	Redeemable							Additional		Earnings			Other			Parsons
	Common		Common		Treasury			Paid-in		(Accumulated			Comprehensive			Equity		Noncontrolling
	Stock		Stock		Stock			Capital		Deficit)			Income (Loss)			(Deficit)		Interests		Total
Balance at June 30, 2020	$	-	$	146,496	$	(934,240	)	$	2,658,036	$	(182,753	)	$	(19,991	)	$	1,667,548	$	38,704	$	1,706,252
Comprehensive income
Net income		-		-		-			-		40,658			-			40,658		5,862		46,520
Foreign currency translation gain, net		-		-		-			-		-			1,922			1,922		4		1,926
Pension adjustments, net		-		-		-